Annual Report & Accounts 2002
for the year ended 31 December 2002
Financial highlights
for the year ended 31 December 2002
Results
Total operating income
Group profit before taxation
Profit attributable
Profit retained
Per € 0.32 ordinary share
Earnings – basic
Earnings – adjusted (note 22)
Earnings – diluted
Dividend
Dividend cover – times
Net assets
Performance measures
Return on average total assets
Return on average ordinary shareholders’ equity
Balance sheet
Total assets
Shareholders’ funds: equity interests
Loans etc
Deposits etc
Capital ratios
Tier 1 capital
Total capital
2002
€ m
3,930
1,375
1,037
563
119.4c
123.0c
118.2c
49.06c
2.4
494c
2001
Restated(1)
€ m
3,751(2)
1,366(2)
484
41
56.2c
119.4c
55.9c
43.80c
1.3
551c
2000
€ m
3,397(2)
1,274(2)
784
379
91.6c
106.7c
91.0c
38.75c
2.3
566c
1.24%
22.4%
1.23%(2)
(2)
19.4%
1.26%(2)
18.7%(2)
86,049
4,408
58,483
72,190
89,359
4,851
57,445
72,813
80,543
4,944
50,239
65,210
6.9%
10.1%
6.5%
10.1%
6.3%
10.8%
(1)The results for the year ended 31 December 2001 have been restated to reflect the implementation of UITF Abstract 33 -
Obligations in Capital Instruments.
(2)Adjusted to exclude the exceptional foreign exchange dealing losses in 2001 (note 9(b)) and the impact of the deposit interest
retention tax settlement in 2000 (note 6).
Allied Irish Banks, p.l.c.
Group Headquarters &
Registered Office
Bankcentre, Ballsbridge
Dublin 4, Ireland
Telephone +353 1 660 0311
Registered number 24173
1
Forward-Looking Statements
A number of statements we make in this document will not be based on historical fact, but will
be ‘forward-looking’ statements within the meaning of the United States Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from those projected in the
‘forward-looking’ statements. Factors that could cause actual results to differ materially from
those in the ‘forward-looking’ statements include, but are not limited to, global, national,
regional economic conditions, levels of market interest rates, credit or other risks of lending and
investment activities, competitive and regulatory factors and technology change.
Contents
1
4
6
8
Financial highlights
Chairman’s statement
Directors
Group Chief Executive’s review
35
Report of the Directors
37
Corporate Governance Statement
41
Financial contents
42
Accounting policies
47
Consolidated profit and loss account
49
Consolidated balance sheet
50
Balance sheet Allied Irish Banks, p.l.c.
51
Consolidated cash flow statement
52
Statement of total recognised gains and losses
52
Reconciliation of movements in shareholders’ funds
52
Note of historical cost profits and losses
53
Notes to the accounts
128
Statement of Directors’ responsibilities in relation to the Accounts
129
Independent auditors’ report
131
Accounts in sterling, US dollars and Polish zloty
132
Five year financial summary
134
Principal addresses
136
Additional information for Shareholders
140
Financial calendar
141
Index
Chairman’s statement
AIB performed well in 2002 despite the severe setback of the Allfirst fraud. Profit attributable
to ordinary shareholders amounted to €1,037 million, a 4% increase over the 2001 figure when
you exclude the effect of the Allfirst loss.
The Board is recommending a final
dividend of EUR 31.81c per share payable on
25 April 2003 to shareholders on the company's
register of members at the close of business on
28 February 2003.
That dividend together with the interim
dividend of EUR 17.25c amounts to a total
dividend of EUR 49.06c, an increase of 12% on
2001.
Last year's report covered in detail our
response to the Allfirst fraud.The further actions
taken by the Board during the year are outlined
on page 26 of this report.
In September, we announced a strategic
partnership with M&T Bank Corporation, which
reaffirmed our commitment to the US market.
This deal, which is awaiting the approval of the
regulators, is of major significance to AIB. It will
see Allfirst merged into one of the US's most
successful regional banks. AIB will have a 22.5%
shareholding in the enlarged M&T.When the deal
is finalised, AIB will nominate four members to
the M&T Board and Bob Wilmers, M&T's
Chairman, President and CEO, will become a
member of the AIB Board.
In April, we put our audit out to tender, and
in June shareholders approved the appointment of
KPMG as AIB's Auditors.
Frank Bramble retired from the AIB Board
in April 2002 and two executive directors joined
the board in February 2003.These are Colm
Doherty, Managing Director, AIB Capital Markets,
and Aidan McKeon, Managing Director, AIB
Group (UK) p.l.c.
My second three-year term of office ended
on 31 December 2002. Last October, I was asked
by the Board to remain as Chairman until the end
of 2003. I will be succeeded by Dermot Gleeson,
Deputy Chairman. Dermot has also been
appointed the Senior Independent Non-Executive
Director in line with the requirements of the
corporate governance combined code.This code
4
is due to be updated later in the year.This
follows the publication of the Higgs Review,
commissioned by the UK Government from
Derek Higgs, an AIB non-executive director. AIB
will, of course, review its corporate governance
practices in light of these developments.
This is my last Chairman's statement.
I would like to express my deep appreciation
to all my Board colleagues for their support,
dedication, advice and friendship since I became
Chairman. I would also like to thank the
management and staff who worked closely with
me for their advice and guidance.
AIB has strong businesses in four economies -
Ireland, the UK, Poland and the US.Whilst
economic growth will vary over time in these
markets, we have tremendous opportunities
for consistent long-term growth in profit and
dividends, and I have every confidence in
AIB's future.
Lochlann Quinn
Chairman
18 February 2003
5
Directors
Lochlann Quinn
B Comm, FCA
Chairman
Deputy Chairman of Glen
Dimplex and a Director of Glen
Dimplex related companies in
the UK, France, Germany,
Holland and Canada. Chairman
of the National Gallery of
Colm Doherty*
B Comm
Managing Director, AIB Capital
Markets Division. Joined AIB in
1988 as an Associate Director,
AIB International Financial
Services, and became its
managing director in 1991.
Appointed Head of Investment
Ireland. Board Member of the Michael Smurfit Graduate
School of Business at University College Dublin. Joined
the Board in 1995 and appointed Chairman in 1997.
(Age 61)
Banking in 1994, and assumed his present position in
1999. Member of the International Financial Services
Centre Clearing House Group. Co-opted to the Board
on 13 February 2003. (Age 45)
Dermot Gleeson
BA, Ll M
Deputy Chairman and Senior
Independent Non-Executive Director
Director of Independent News
and Media PLC, and the Gate
Theatre. Served as Attorney
General of Ireland and a
member of the Council of
State from 1994 to 1997. Chaired the Review Body
on Higher Remuneration in the Public Sector from
1986 to 1992.Vice Chairman of the Irish Council
for Bioethics. Joined the Board in 2000. (Age 54)
Michael Buckley*
MA, LPh, MSI
Group Chief Executive
Former Managing Director,
AIB Poland Division and of
AIB Capital Markets Division.
Former Managing Director,
NCB Group and public
servant in Irish Government
Padraic M Fallon
BBS, MA, FRSA
Chairman of Euromoney
Institutional Investor PLC and
Director of Daily Mail &
General Trust Plc in Britain.
Joined the Board in 1988.
(Age 56)
Don Godson
BE, MIE, FIEI, C Eng
Director and former Chief
Executive of CRH plc.
Chairman of Project
Management Holdings Ltd.
Board Member of the Michael
Smurfit Graduate School of
Business at University College
and EU. Chairman of the Review Body on Higher
Remuneration in the Public Sector from 1995 to 2001.
Member of the Maynooth University Foundation. Joined
the Board in 1995. (Age 57)
Dublin. Joined the Board in 1997. (Age 63)
Adrian Burke
B Comm, FCA
Audit Committee Chairman
Derek A Higgs
BA, FCA
President of the Institute of
Chartered Accountants in
Ireland and Council Member
of the Institute of European
Affairs. Former Managing
Partner of Arthur Andersen in
Ireland and former Chairman of the Joint Ethics Board
of the Institutes of Chartered Accountants in Ireland,
Scotland, and England and Wales. Joined the Board in
1997. (Age 61)
6
Chairman of Partnerships
UK plc and Business in the
Environment and a Senior
Adviser to UBS Warburg.
Deputy Chairman of The
British Land Company PLC,
Director of Egg plc, Jones Lang
LaSalle Inc. and London Regional Transport. Author of
the UK Government commissioned Review of the Role
and Effectiveness of Non-Executive Directors. Former
Chairman of S.G.Warburg & Co. Ltd. and former Director
of Prudential plc. Joined the Board in 2000. (Age 58)
Gary Kennedy*
BA, FCA
Group Director, Finance &
Enterprise Technology. Joined
AIB and appointed to the
Board in 1997. Member of the
Board of the Industrial
Development Agency and
member of the Galway
University Foundation. Former Vice President
Enterprise Networks Europe and Managing Director,
Northern Telecom (Ireland) Ltd. (Age 44)
John B McGuckian
BSc Econ
Chairman of Ulster Television
plc and a Director of a number
of other companies in Ireland
and the UK. Former Pro-
Chancellor of The Queen's
University, Belfast, and former
Chairman of The International
Carol Moffett
Fellow of the Irish Management
Institute. Former member of
the Board of Co-operation
Ireland and former Director of
the Irish Trade Board. Joined
the Board in 1995. (Age 50)
Jim O’Leary
MA Econ
Lecturer in economics at the
National University of Ireland,
Maynooth. Former Chairman
of the Public Sector
Benchmarking Body. Former
Chief Economist at Davy
Stockbrokers and former
Fund for Ireland and of the Industrial Development
Board for Northern Ireland. Joined the Board in 1977.
(Age 63)
Director of Aer Lingus and the National Statistics Board.
Joined the Board in 2001. (Age 46)
Aidan McKeon*
B Comm, MBS, M Sc (Mgt)
Managing Director, AIB Group
(UK) p.l.c.. Joined AIB in 1965
and worked in Branch
Banking, Human Resources
and Corporate and
Commercial Banking.Was
appointed General Manager
Michael J Sullivan
JD
Served as US Ambassador to
Ireland from January 1999 to
June 2001 and as Governor of
the State of Wyoming between
1987 and 1995. Director of
Sletten Construction Inc. and
of Cimarex Energy Inc., and
Commercial Banking in 1989, General Manager Britain
in 1996, and to his present position in 1999. Member of
the CBI Financial Services Council and of the Executive
Committee of Co-operation Ireland. Co-opted to the
Board on 13 February 2003. (Age 55)
a Trustee of the Catholic Diocese of Wyoming. Has
served as a Director of Wyoming National-West Bank
and on the Board of Advisors of Norwest/Wyoming
Bank. Member of the Bar, State of Wyoming. Joined the
Board in 2001. (Age 63)
* Executive Directors
Board Committees
Audit Committee
Adrian Burke, Chairman
Dermot Gleeson
Derek A Higgs
Michael J Sullivan
Nomination and Remuneration
Committee
Lochlann Quinn, Chairman
Dermot Gleeson
(from 1 November 2002)
Derek A Higgs
John B McGuckian
Jim O’Leary (from 1 June 2002)
Social Affairs Committee
Carol Moffett, Chairman
Padraic M Fallon
Don Godson
7
Group Chief Executive’s review
AIB faced exceptional challenges in 2002. The business environment was the most difficult for
over a decade. We also had to cope with the foreign exchange fraud in Allfirst. The proof of our
resilience and the quality of our franchises is the fact that we continued to grow our business.
We had two key objectives after the discovery
of the fraud at Allfirst.We had to be decisive and
open in managing the crisis - and we had to ensure
momentum was sustained in our core business.
The Allfirst fraud led to a major redesign of our
risk management architecture.We have made great
progress in implementing the recommendations
of both Deloitte Touche Tohmatsu and the First
Manhattan Consulting Group. Key appointments
have been made. Shom Bhattacharya joined us
in December 2002 as Group Chief Risk Officer
and has become a member of the AIB Group
Executive team. In February 2003, Paul Shantz
took up the role of Group Internal Auditor,
taking responsibility for an integrated global
internal audit structure.
During 2002 credit quality management
was a huge priority for all banks.We saw some
deterioration in the grade profile of our corporate
loan books, but our dynamic and conservative
grading process enabled early action on
deteriorating loans.The quality of the rest of our
loan books was very solid. Our overall bad debt
charge was 0.37% of average loans, compared with
0.36% in 2001. Non-performing loans amounted
to 1.8% of total loans compared with 2.0% in 2001.
But what about business momentum? As you
read through the more detailed commentary in
this report, you will see how AIB grew its income
by 6% against a 4% growth in costs in 2002.
Productivity improved across a broad range of
businesses, leading to an overall reduction in our
tangible cost/income ratio from 59% to 57.8%.
Adjusted earnings per share of EUR 123.0c
were up 3% on 2001 (adjusted earnings per share
excludes goodwill amortisation in both years and
the Allfirst fraud losses in 2001). Our return on
equity was 22.4%.
On 26 September 2002 we announced our
partnership with M&T Bank Corporation. It
offers exciting opportunities to AIB in the US.
We will be a strategic investor in one of the
largest, best-performing regional banks in the
world’s leading economy. Allfirst will be merged
into M&T Bank, subject to regulatory approvals,
in the next few months. At this time, Eugene
Sheehy will leave the AIB Group Executive, join
M&T’s top management team and become a
director of that bank. Donal Forde, who
succeeded Eugene as Managing Director of AIB
Bank (RoI), has been a member of the Group
Executive since March 2002.
8
Group Executive Committee
Shom
Bhattacharya
Group Chief
Risk Officer
Gerry Byrne
Managing
Director, AIB
Poland Division
Colm Doherty
Managing
Director, AIB
Capital Markets
Donal Forde
Managing
Director, AIB
Bank (RoI)
Gary Kennedy
Group Director,
Finance &
Enterprise
Technology
Mike Lewis
Head of Group
Strategic Human
Resources
Aidan McKeon
Managing
Director, AIB
Group (UK)
p.l.c.
Eugene Sheehy
Chairman &
CEO, USA
Division
Our priorities for 2003 include continuing to
make improvements in productivity, maintaining
our asset quality and relentlessly pursuing our core
strategy.This strategy involves developing and
delivering a distinctive customer proposition,
wherever we operate.We have built our business
plans consistently around this strategy. Our aim
is to bring to our customers a combination of
best products (using third party suppliers where
appropriate to meet customer needs), best service
(with dependability at its heart), best relationships
(built by knowledgeable and engaging employees)
and, finally, best delivery (with a wide range of
channels available to our customers to access our
services).We believe that this strategy will deliver
superior and sustainable profit growth.
By mid-2003, we will have 1,200 staff in our
Republic of Ireland and Northern Ireland branch
networks devoting 80% of their time exclusively
to customer relationship development.We want
to excel in identifying and meeting the financial
services needs of our customers. In creating value
for them we will create value for AIB.We are also
changing the way we deliver our banking services
to our business customers in Ireland.
In Poland, we are putting the finishing touches
to the creation of a very efficient banking platform.
The Polish economy is showing early signs of
recovery from a particularly slow growth phase,
during which our bank, Bank Zachodni WBK,
outperformed its competitors in a number of key
areas.We aim to continue to grow our Polish
business at a pace which allows us to continue to
manage risk better than our competitors, while
meeting our medium term objective of increasing
the return on equity.
We have developed a very strong business
banking brand in Great Britain. Since 1994, we
have consistently been voted the UK’s best business
bank. In 2003, we will continue our measured
but sustained recruitment of experienced business
bankers into our British business. Our aim is to
double our business development capability there
over the next three years.
AIB Capital Markets division continues to
expand in a number of countries. Corporate
Banking is extending its range as are our advisory
and financial service outsourcing businesses.The
principal goal is building enduring customer
relationships.
AIB is a more focused, more determined and
more integrated bank across all its territories than
it was a year ago.
With our strategy intact, our priorities clear,
our business performing strongly, I remain positive
about AIB’s future prospects.
Michael Buckley
AIB Group Chief Executive
18 February 2003
9
20 years was used.The application
of other accounting policies, for
example, measuring shareholders’
interest in the long-term assurance
fund, impairment, debt securities
and equity shares, retirement benefits
and derivatives, require the use of
estimation techniques that involve
making assumptions about future
market conditions which could
impact on the timing and amounts
recognised in the consolidated profit
and loss account and the consolidated
balance sheet.
Performance review
Implementation of UITF
Abstract 33 – Obligations in
Capital Instruments
(see Accounting policies on page 42)
The Group has implemented UITF
33 in the accounts for the year
ended 31 December 2002 and
comparative periods have been
restated. Implementation of the
UITF results in AIB’s € 500
million of Reserve Capital
Instruments (‘RCIs’) being treated
as subordinated liabilities rather
than shareholders’ funds.The related
interest cost (2002: € 38 million;
2001: € 35 million) is now
included within interest expense
whereas previously the amount was
included in ‘Dividends on non-equity
shares’.This change in accounting
treatment reduces pre-tax profit
with no impact on earnings per
share.
Exchange rates
The exchange rates used in the
preparation of the accounts are set
out in note 62. A significant
proportion of the Group’s earnings
are denominated in currencies
other than the euro. As a result
movements in exchange rates can
impact the reported value of the
foreign currency earnings.The
Group may choose to hedge all or
part of its projected future foreign
earnings thereby fixing a translation
rate for the amount hedged.
Although the US dollar, sterling
and Polish zloty accounting rates
weakened by 5%, 1% and 5%
respectively, the impact on Group
profit before taxation in 2002 was
not material when the outcome
of hedging strategies is taken into
account.
Critical accounting policies
AIB’s financial statements are
prepared under the historical cost
convention as modified by the
revaluation of certain financial
instruments held for dealing
purposes, assets held in the long-
term assurance business and certain
properties.The Accounts comply
with the requirements of Irish
statute and with Irish Generally
Accepted Accounting Principles
(‘Irish GAAP’) as well as general
practices followed by the financial
services industry in Ireland and the
UK. In the preparation of its financial
statements the Group adopts the
accounting policies and estimation
techniques that the Directors believe
are most appropriate in the
circumstances for the purpose
of giving a true and fair view of the
Group’s state of affairs, profit and
cashflows. However, different policies,
estimation techniques and
assumptions in critical areas could
lead to materially different results.
The estimation of potential bad
debt losses is inherently uncertain
and depends upon many factors,
including loan loss trends, portfolio
grade profiles, local and international
economic climate, conditions in
various industries to which AIB
Group is exposed and other external
factors such as legal and regulatory
requirements. For example, should
the expectation of loss within a
portfolio increase, then this may result
in an increase to the required
general loan loss provision level.
In addition, the profile of the
amortisation of goodwill would be
different if a useful economic life
longer or shorter than the existing
AIB policy of a maximum life of
10
Summary profit and loss account
Net interest income
Other finance income
Other income
Total operating income
Staff costs
Other costs
Restructuring and integration costs
in continuing businesses
Depreciation and amortisation
Total operating expenses
Group operating profit before provisions
Provisions for bad and doubtful debts
Other provisions
Total provisions
Year
2002
€ m
2,351
62
1,517
3,930
1,391
707
13
207
2,318
1,612
194
57
251
Year
2001
before
exceptional
€ m
2,258
67
1,426
3,751
1,348
703
38
195
2,284
1,467
179
25
204
Exceptional
Item(1)
€ m
–
–
(789)
(789)
–
–
–
–
–
(789)
–
–
–
Group operating profit - continuing activities
1,361
1,263
(789)
Income from associated undertakings
Profit on disposal of property
Profit on disposal of business
9
5
–
Group profit on ordinary activities before taxation
1,375
Taxation on ordinary activities
306
Group profit on ordinary activities after taxation
1,069
Minority interests and non-equity dividends
32
Group profit attributable to ordinary shareholders
1,037
Basic earnings per share
Adjusted earnings per share(2)
119.4c
123.0c
4
6
93
1,366
331
1,035
38
997
–
–
–
–
(789)
(276)
(513)
–
(513)
–
119.4c
(59.6c)
Year
2001
as
restated
€ m
2,258
67
637
2,962
1,348
703
38
195
2,284
678
179
25
204
474
4
6
93
577
55
522
38
484
56.2c
59.8c
%
Change
excl.
exceptional
4
-7
6
5
3
–
–
6
1
10
9
–
23
8
–
–
–
1
-8
3
-18
4
112
3
Group operating profit before provisions was up 10% to € 1,612 million for the year December 2002.
Group profit attributable to ordinary shareholders amounted to € 1,037 million, up 114% or 4% excluding the
exceptional item in 2001. Adjusted earnings per share(2) at EUR 123.0c per share showed an increase of 3% and basic
earnings per share was up 112% to EUR 119.4c per share.
(1) Exceptional foreign exchange dealing losses (see note 9(b)).
(2) Adjusted earnings per share excludes goodwill amortisation in both years and the exceptional foreign exchange dealing losses
in 2001 (see note 22(b)).
11
Performance review
The following commentary on the
profit and loss account and
balance sheet headings is based
on underlying percentage growth
adjusting for the impact of
currency movements and
acquisitions.
Net interest income
Net interest income at € 2,351
million increased by 7% compared
with 2001 due to strong lending
growth particularly in AIB Bank
Republic of Ireland and AIB Bank
GB & NI. Loans to customers
increased by 12% and customer
accounts increased by 4%.
The net interest margin was
3.00%, a 1 basis point increase
on 2001. A particularly strong
interest rate management
performance by Global Treasury
was offset in margin terms by
changes in product mix, the
margin effect of lower interest
rates on deposits and non-interest
bearing funds and the impact
of loans increasing at a stronger
rate than deposits. All our
principal markets experienced
lower interest rates, the margin
impact of this trend was alleviated
by asset and liability and interest
rate management activities.
Risk weighted assets, loans to customers and customer accounts
(excluding money market funds)
% Change December 2002 v December 2001
AIB Bank Republic of Ireland
AIB Bank GB & NI
USA
Capital Markets
Poland
AIB Group (excluding currency factors)
Risk weighted
assets
% Change
Loans to
customers
% Change
Customer
accounts
% Change
18
23
2
–1
3
10
20
23
–4
1
8
12
7
13
–3(1)
–2
–7(2)
4
(1) Deposits at 31 December 2001 benefited from an exceptionally high level of short-term corporate
deposits. Average core deposits for the year were up 1%.
(2) Combined deposits and mutual funds volumes were down 2%.The decrease mainly reflected
the lower interest rate environment and the impact on the savings market of the introduction of
a withholding tax on deposits, however average deposits were up 1%.
The divisional commentary on pages 19 to 24 contains additional comments on key business
trends in relation to loans to customers and customer accounts.
Average interest earning assets
Half-year
Half-year
Dec 2002 June 2002
€ m
€ m
%
Change
Year
2002
€ m
Year
2001
€ m
%
Change
39,274
38,042
38,424
40,771
77,698
78,813
3
–6
–1
Domestic
38,663
35,417
Foreign
39,588
40,176
Total
78,251
75,593
9
–1
4
Net interest margin
Half-year
Half-year
Dec 2002 June 2002
%
%
Basis
Points
Change
2.69
3.21
2.78
3.33
2.95
3.06
–9
–12
–11
Year
2002
%
2.73
3.27
Year
2001
Basis
Points
% Change
2.59
3.34
+14
–7
Domestic
Foreign
Total
3.00
2.99
+1
12
Other income
Other income increased by 6%
to € 1,517 million in 2002 and
as a percentage of total operating
income was 40.2% compared
with 39.8% in 2001.
Exceptional growth in
banking fees and commissions
resulted from increased volumes
of business and significant loan
growth. Corporate banking fees
were buoyant with a substantial
increase in income from
arrangement fees and collateralised
debt obligations. Retail banking
fees were particularly strong in
Poland with good growth in credit
card revenues in the Republic
of Ireland. In Allfirst, electronic
banking income and deposit
service charges also achieved
strong increases over 2001.
Asset management and
investment banking revenues were
lower due to a decline in asset
values, reduced business volumes
and the general impact of difficult
equity markets.The restructuring
of the AIB joint venture with Bank
of New York impacted the trend
as it is now reported as income
from associated undertakings.
Dealing profits were lower
as a result of a more difficult
trading environment.
Ark Life profit was down 32%
as difficult investment markets
resulted in reduced customer
demand for investment products.
Declines in equity market values
caused a € 32 million reduction
in embedded values, which was
partly offset by a benefit of € 17
million from lowering the discount
Other income
Dividend income
Banking fees and commissions
Asset management fees
Investment banking fees
Year
2002
€ m
14
1,045
158
98
Year
2001
€ m
11
962
185
111
Fees and commissions receivable
Less: fees and commissions payable
1,301
1,258
(138)
(128)
Dealing profits
Contribution of life assurance company
Other
Other operating income
77
57
206
263
92
84
109
193
Total other income
1,517
1,426
Underlying
% Change
excl. exceptional
30
15
–11
–11
4
10
–30
–32
106
43
6
rate used in the embedded value
calculation from 12% to 10%.
Operating profit in Ark Life was
down 4%.
Other operating income
includes securities gains of
US$ 80 million resulting from
a restructuring of the securities
portfolio in Allfirst and a US$ 10
million provision for residual
values in the auto lease portfolio.
Total operating expenses
Operating expenses excluding
restructuring and integration costs
at € 2,305 million were higher
by 4% compared with 2001.
Operating expenses
Staff costs
Other costs
Depreciation and amortisation
Operating expense growth
was lower than expectations with
a 4% increase compared with
a 10% increase in 2001.While
business volumes increased
substantially, tight cost
management and cost saving
initiatives improved productivity.
In AIB Bank Republic of Ireland
normal salary increases were partly
offset by a cost savings programme
in central supports, the cost income
ratio remained at 51%.The
Group continued to invest in our
core businesses, major items being
the opening of new offices and
recruitment of experienced
Year
2002
€ m
Year
2001
€ m
Underlying
% Change
2002 v 2001
1,391
1,348
707
207
703
195
Operating expenses before integration costs
2,305
2,246
Restructuring and integration costs
in continuing businesses
13
38
Total operating expenses
2,318
2,284
4
3
8
4
–
3
13
Performance review
business and corporate bankers in
Great Britain, expansion of
Corporate Banking activities in
New York and the implementation
of a new technology platform in
Poland. Realisation of integration
benefits from the merger of WBK
and Bank Zachodni in Poland
was evident while expansion of
the franchise continued.The
Group’s tangible cost income
ratio, excluding restructuring and
integration costs was 57.8%, down
1.2% compared with 2001, with
notable reductions in Capital
Markets, AIB Bank GB & NI
and Poland.
Restructuring and integration
costs in continuing businesses
related to the Allfirst early
retirement program in 2002 and
Poland integration costs in 2001.
Provisions
Total provisions were € 251 million compared with € 204 million in 2001.
Provisions
Bad and doubtful debts
Contingent liabilities and commitments
Amounts written off fixed asset investments
Total provisions
Year
2002
€ m
194
2
55
251
Year
2001
€ m
179
19
6
204
The provision for bad and doubtful
debts in the year to December
2002 was € 194 million compared
with € 179 million in 2001.
A provision of US$ 38 million
was created in Allfirst in relation
to one specific case and was offset
by an identical release of € 40
million from the additional
unallocated credit provision of
€ 50 million created at Group
level in 2001.This € 50 million
provision was created to provide
an additional provision pool at
Group level against the potential
impact that the international
macroeconomic downturn might
have on asset quality.
Asset quality was strong
in AIB Bank Republic of Ireland
with non-performing loans
remaining at 0.9% of loans at
31 December 2002. Retail and
commercial portfolios benefited
from careful positioning in the
past in relation to risk assessment
and sectoral exposures.While
home mortgage lending was
buoyant, loan quality was very
high and prudent criteria
continued to be applied.The
average loan to value ratio for
new business was 68% in 2002.
In AIB Bank GB & NI, asset
quality further improved with
non-performing loans reducing
to 1.0% of loans, down from 1.3%
in 2001.The bad debt charge
reflected mainly general provisions
with a small net specific charge.
In Allfirst, profit and loss
provisions increased by US$ 49
million reflecting the above
US$ 38 million provision.
Non-performing loans amounted
to US$ 112 million compared
with US$ 77 million at
31 December 2001 reflecting
deterioration in the corporate
book. Provisions as a percentage
of loans in Allfirst increased from
1.4% to 1.5% with coverage for
non-performing loans amounting
to 140%.
2002 was a more difficult
year in the international
corporate market and Capital
Markets experienced higher
provisions and non-performing
loans.The provision charge
amounted to 0.37% of average
loans and reflected a prudent and
cautious approach with an
objective of early provision
recognition.The portfolio remains
well diversified in terms of
industry sector and geographic
concentration.
In Poland, the gross provision
charge declined in 2002 from
1.9% of loans (before the use
in 2001 of general provisions
14
of € 47 million created on the
acquisition of WBK and Bank
Zachodni) to 1.2%. Including the
use of general provisions in 2001,
headline provisions increased
by € 25 million in 2002.
Non-performing loans
as a percentage of total loans
declined to 15% from 18% at
31 December 2001 mainly due
to the write off of older
non-performing loans which had
been fully provided for. Excluding
this factor the underlying ratio
would have shown a small
reduction compared with 2001.
The Group charge for the
year represented 0.37% of average
loans compared with a 0.36%
charge, including the additional
unallocated provision, in 2001.
Group non-performing loans
as a percentage of total loans
amounted to 1.8% or 1.0%
excluding Poland, and total
provision coverage for
non-performing loans was 87%
(123% excluding Poland).We
continued to maintain prudent
provision cover.Total non-specific
provisions amounted to € 427
million and specific provision
cover for non-performing loans
was strong at 44%.
The provision for contingent
liabilities and commitments
in the year to December 2002
was € 2 million compared with
€ 19 million in 2001.The 2001
provision was mainly in relation
to one specific case.
The provision for amounts written
off fixed asset investments in
the year to December 2002 was
€ 55 million compared to € 6
Taxation
Tax charge
Irish corporation tax rate
Effective tax rate - adjusted(1)
Reconciliation of statutory corporation tax rate
Corporation tax rate in Republic of Ireland
Effective tax rate on foreign income
Tax exempted income and income at a reduced rate
Other items
Effective tax rate - adjusted(1)
Year
2002
€ 306m
16.0%
22.3%
%
16.0
7.9
(0.5)
(1.1)
22.3
Year
2001
€ 55m
20.0%
24.2%
%
20.0
6.9
(2.5)
(0.2)
24.2
(1) The adjusted effective tax rate has been presented to eliminate the effect of the exceptional
foreign exchange losses in 2001.
million in 2001.The general
deterioration in equity markets
led to write-downs of € 36
million for a number of equity
investments including € 17
million in the technology sector,
€ 2 million in telecoms and
venture capital write-downs of
€ 12 million in Allfirst.The
provision charge also included
provisions of € 19 million related
to debt security portfolios.
Taxation
The taxation charge was € 306
million, compared with € 55
million (€ 331 million excluding
the exceptional item) in 2001.
The effective tax rate was 22.3%
compared with 24.2% in 2001.
Both 2002 and 2001 benefited
from one-off items. On an
underlying basis the effective tax
rate was 24.1% in 2002 and
25.9% in 2001.This underlying
decrease was primarily due to the
reduction in the standard rate of
Irish corporation tax and changes
in the geographic and business
mix of profits.
The Group’s profits in its
operations outside of Ireland are
taxed at a range of rates up to
47%. Changes in the geographic
mix of profits within the Group
will therefore have an impact on
future effective tax rates. In
Ireland the general corporation
tax rate will be 12.5% in 2003
(16% in 2002). During 2002 the
Irish Government announced the
introduction of a levy on financial
institutions for 2003 and the
following two years.The Group’s
levy payment is estimated at
€ 30 million per annum and will
increase the Group tax charge for
the relevant years.
Return on equity
and return on assets
The return on equity was 22.4%
benefiting from the strong
attributable profit performance
and the impact of the reduced
value of pension assets on the
equity base in line with FRS 17.
The return on assets was 1.24%
and the return on risk weighted
assets, a measure of the efficient
use of capital, was 1.56%.
15
Balance sheet
Total assets amounted to € 86
billion at 31 December 2002
compared to € 89 billion at
31 December 2001.The US
dollar, sterling and Polish zloty
weakened against the euro by
16%, 6% and 13% respectively,
resulting in a decline in the
reported total balance sheet since
31 December 2001. Adjusting
for the impact of currency, total
assets were up 5% since
31 December 2001 while loans
to customers increased by 12%
and customer accounts by 4%.
Risk weighted assets increased
by 1% to € 69 billion, excluding
currency factors there was
an increase of 10%.
Performance review
Statement of total
recognised gains
and losses (‘STRGL’)
When the profit attributable
of € 1,037 million is adjusted for
the currency translation differences
on foreign currency net
investments and the actuarial loss
recognised in the retirement
benefit schemes, the total
recognised losses relating to the
year amounted to € 127 million
compared to a recognised gain
of € 875 million in 2002. A
recognised gain of € 648 million
was included in 2001 relating
to the first time recognition
of FRS 17 in the accounts.
Currency translation differences
amounted to € 341 million
negative compared to € 145
million positive in 2001.The
currency translation difference
relates to the change in value
of the Group’s net investment
in foreign subsidiaries arising from
the weakening of the US dollar,
sterling and Polish zloty against
the euro. As outlined in the
balance sheet discussion below,
the weakening of the currencies
also reduced the euro value of the
assets designated in those
currencies.The objective of the
Group’s capital management
activities is to neutralise the impact
of currency movements on the
capital ratios.The Group’s net
investment is held in the currency
of those subsidiaries to protect
the Group’s capital ratios from
fluctuations in exchange rates.
The actuarial loss in retirement
benefit schemes during 2002
charged to the STRGL, net
of deferred tax, amounted to
€ 823 million.The decline in
world-wide equity markets had
a significant impact on the value
of the Group’s funded retirement
benefit schemes and the actuarial
loss arises mainly as a result of the
difference between the actual
return and the expected return
on the pension scheme assets.
The actuarial loss is determined
by valuations prepared in
accordance with FRS 17 which
requires retirement benefit scheme
assets and liabilities to be recorded
at market values at the balance
sheet date.These valuations are not
indicative of the long-term funding
position of the schemes which are
formally assessed by way of triennial
actuarial valuations.The actuarial
loss recognised also included
€ 123 million from a reduction
in the discount rates together with
€ 18 million from experience
gains and losses on scheme
liabilities.The net pension liability
on funded schemes recognised
within shareholders’ funds was
€ 482 million at December 2002.
This compares to a net pension
asset within shareholders’ funds of
€ 314 million at December 2001.
The decline in value of the
retirement benefit scheme assets
will also impact the profit and loss
account - other finance income,
during 2003. During 2002, the
value of the assets reduced by
€ 733 million, including the effect
of exchange rate and other
movements. As it is not considered
appropriate to significantly adjust
the assumptions on asset returns
to compensate for the decline
in the market value of the assets
in 2002, the reduction in asset
values will have a negative impact
of approximately € 47 million
on other finance income in 2003.
16
Assets under management/
administration and custody
Assets under management in the
Group amounted to € 26 billion
at 31 December 2002 and assets
under administration and custody
amounted to € 276 billion at
31 December 2002.
Commentary on
half–year December 2002
performance
The second half-year profit on
ordinary activities before taxation
amounted to € 672 million
compared with € 703 million
in the first half.The second
half-year was negatively impacted
by the Allfirst restructuring costs
and the reduction in embedded
values in Ark Life. Excluding
these items, profit was up 4% on
a constant currency basis.
Net interest income of
€ 1,154 million was up 1%
on the half-year to June 2002.
The first half benefited from
a very strong performance from
interest rate management
activities in Global Treasury.
Other income increased by 8%
to € 772 million particularly due
to securities gains in Allfirst
which were partly offset by Ark
Life’s performance. Operating
expenses at € 1,173 million were
broadly in line with expectations.
The Group credit provision
charge as a percentage of average
loans was similar to the first half.
Cash flow
As shown in the consolidated
cash flow statement, there was
a net increase in cash of € 362
million during the year ended
31 December 2002. Net cash
outflow from operating activities
was € 121 million. Cash
outflows from financing were
€ 129 million, primarily due to
the redemption of subordinated
liabilities of € 247 million offset
by the issue of subordinated
liabilities of € 100 million. Cash
outflows from taxation were
€ 280 million while cash outflows
in relation to equity dividends
were € 345 million.These
outflows were offset by a cash
inflow from capital expenditure,
primarily due to net cash inflows
from disposals of debt and equity
securities of € 1,516 million.
Acquisition of a strategic
stake in M&T Bank
Corporation. Disposal of
Allfirst Financial Inc.
It was announced on
26 September 2002 that AIB
is entering into a strategic
relationship with M&T Bank
Corporation (‘M&T’) whereby
AIB’s US subsidiary, Allfirst, will
be acquired by M&T. As a result
of the transaction, AIB will
acquire a strategic shareholding
of 26.7 million M&T shares,
representing a stake of
approximately 22.5% in the
enlarged M&T. AIB will also
receive US$ 886m in cash.
The transaction, which is
expected to be completed by the
end of the first quarter of 2003,
is subject to regulatory approvals.
Shareholders of both M&T and
AIB approved the transaction in
December 2002.
The transaction has no impact
on the accounts of AIB for 2002.
The transaction will be accounted
for in accordance with the Urgent
Issue Task Force Abstract No. 31
‘Exchanges of businesses or other
non-monetary assets for an
interest in a subsidiary, joint
venture or an associate’ (‘UITF
31’). Under UITF 31 the
transaction is accounted for as an
exchange of 77.5% of Allfirst for
22.5% of the existing M&T.
Under this approach, the 22.5%
of Allfirst that is owned by AIB,
both directly before the
transaction and indirectly
thereafter, is treated as being
owned throughout the transaction.
The transaction will give rise to
a gain, which will be recognised
on completion.
The 2003 accounts will also
reflect the income and expenses
of Allfirst for the period during
which it remains a 100%
subsidiary of the Group. Following
completion of the transaction, the
Group will account for its
investment in the enlarged M&T
as an associated undertaking.The
Group will include its share
of the profits of the enlarged
M&T in the Group profit and
loss account within the caption
‘Income from associated
undertakings’. AIB will also
account for its 22.5% share of the
costs associated with the merger,
calculated in accordance with
Irish GAAP.
17
lending growth in 2003. AIB is
combining its traditional prudent
and cautious approach to risk
assessment with leveraging our
relationship banking approach
and maximising the benefits of
our customer relationship
management systems. In 2003 we
will have a number of one off and
significant items i.e. the transition
of our Allfirst franchise in the
USA to M&T Bank (subject to
regulatory approvals), the impact
of lower other finance income
from our pension fund assets due
to declines in stock market
valuations, and the imposition
of the Irish Government Bank
Levy. Excluding these items,
underlying adjusted earnings per
share in 2003 is expected to
increase in mid single-digits based
on projected strong growth in
business volumes.
Performance review
Prospective accounting
developments
International accounting standards
The European Commission has
adopted a regulation on the
application of International
Accounting Standards (‘IASs’).
This requires that the Group
accounts of all listed companies
in the EU should, from January
2005, be drawn up on the basis
of adopted International
Accounting Standards.The
‘adoption’ of the International
Accounting Standards Board
(‘IASB’) standards is the
responsibility of the Accounting
Regulatory Committee of the
European Commission. Under
the terms of the EU regulation,
member state governments have
the option to decide whether
adopted IASs should be applied
more widely than in the group
accounts of listed companies.The
Group is currently considering
the implications of the regulation
and expects to prepare its first
financial statements in accordance
with ‘adopted’ International
Accounting Standards for the year
ended 31 December 2005.
During 2002, the IASB
proposed improvements to a
number of its standards, and the
Accounting Standards Board
(‘ASB’) in the UK instituted
a convergence programme
whereby six of these standards
when updated would be
substituted for existing UK/Irish
standards. AIB continues to
monitor progress on the
convergence programme.
Share-based payment
In November 2002, the ASB
issued Financial Reporting
Exposure Draft 31 – Share-based
payment (‘FRED 31’) which
would apply to all entities and all
types of share based payment
transactions including all employee
share option schemes.The
proposed standard would require
entities to recognise an expense
in the profit and loss account in
respect of share based payments
over the period in which the
services are rendered by the
employees.The expense will be
measured by reference to the fair
value of the equity instruments
granted taking into account the
terms and conditions upon which
those equity instruments were
granted.The comment period for
the exposure draft closes in early
March 2003 and the ASB expects
to publish a standard during 2003
which would come into effect on
1 January 2004. AIB is currently
examining the implications of the
FRED, however implementation
of the standard will give rise to
a profit and loss account charge.
Outlook
The economic outlook
internationally is uncertain at
present, investment expenditure
is sluggish and corporate customers
are generally inclined to protect
their balance sheets rather than
expand their operations. However,
AIB’s operations are positioned
to generate strong revenue growth,
particularly in our high growth
core banking franchises and the
Group is planning for double-digit
18
Divisional commentary
On a divisional basis profit
is measured in euro and
consequently includes the impact
of currency movements.
AIB Bank Republic of
Ireland profit was € 590
million, up 5% on the year
to December 2001.
AIB Bank Republic of Ireland
Retail and commercial banking
operations in Republic of Ireland,
Channel Islands, and Isle of Man;
AIB Finance and Leasing; Card
Services; and AIB’s life and pensions
subsidiary Ark Life Assurance
Company.
Banking operations in the
Republic of Ireland produced
a strong performance with
operating profit up 11% in less
buoyant economic conditions.
There was strong growth in
business volumes with loans up
20% since December 2001
including non-home loan lending
up 16% and home loans up 31%.
This reflected our capability to
grow revenues and significantly
increase our market penetration.
Total deposits were up 7% due
to a strong performance in the
second half with growth of 6%
following a 1% increase in the
first half which was affected by
an exceptional position at 31
December 2001 in the run up
to euro conversion. Average
deposits were up 11%. AIB Card
Services reported strong profit
growth benefiting from good
growth in loan volumes and
a lower cost income ratio. AIB
AIB Bank Republic of Ireland
profit and loss account
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses
Operating profit before provisions
Provisions
Operating profit - continuing activities
Profit on disposal of property
Year
2002
€ m
921
40
353
Year
2001
€ m
843
43
359
1,314
1,245
677
637
55
582
8
% Change
2002 v 2001
9
–7
–2
6
6
5
23
4
–
5
641
604
44
560
2
562
Profit on ordinary activities before taxation
590
in the calculation of its embedded
value profit had a favourable
profit impact of € 17 million.
The adoption of a 10% discount
rate more closely aligns Ark Life
policy with industry practice.
Finance and Leasing profit also
increased as a result of lower costs
and strong growth in loan
volumes.
Costs increased by 6% due to
higher business activity levels and
salary increases relating to the
National Programme for
Prosperity and Fairness partly
offset by cost saving initiatives
in central supports, with the cost
income ratio remaining at 51%.
Ark Life profit of € 57 million
for the year to December 2002
was down from € 84 million
in 2001.Total Annual Premium
Equivalent (APE) sales were
€ 179 million compared with
€ 200 million in 2001.The
difficult investment market
resulted in reduced volumes
of business with customers opting
for more risk averse products and
the decline in world equity
markets also had an adverse impact
of € 32 million on embedded
values.The reduction from 12%
to 10% in the discount rate used
19
Divisional commentary
AIB Bank GB & NI
profit and loss account
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses
Operating profit before provisions
Provisions
Operating profit - continuing activities
Profit on disposal of property
Year
2002
€ m
363
(1)
166
528
266
262
22
240
–
Profit on ordinary activities before taxation
240
Year
2001
€ m
336
3
161
500
259
241
19
222
1
223
% Change
2002 v 2001
8
–
3
6
2
9
18
8
–
8
AIB Bank GB & NI
profit was € 240 million,
up 8% on the year to
December 2001.
AIB Bank GB & NI Retail and
commercial banking operations in
Great Britain and Northern Ireland.
Profit in AIB Bank GB & NI
increased by 9% on a constant
currency basis.There was a
particularly strong performance
in Britain as a result of substantially
increased business volumes.
Average loans increased by 15%
with significant growth in retail
and professional sectors. In
Northern Ireland, home loan
activity was buoyant with an
increase of 17% in total home
loans. Average deposits were up
11% as a result of increased
business development activity.
The Division expanded its
business development capability
with the opening of new offices
in Britain and recruitment of
experienced business bankers.
Notwithstanding business
expansion initiatives, costs were
well managed with the cost income
ratio declining from 52% to 50%.
Credit quality remained strong.
An achievement was a reduction
of 12% in non-performing loans
and the bad debt charge was
predominantly general with
a modest net specific charge.
In December, the Forum
of Private Business voted AIB
GB ‘Britain’s Best Business Bank’.
This was the fifth consecutive
time the bank was awarded this
biennial title.
20
USA reported a profit of
€ 308 million, down 13%
on the year to December
2001.
USA includes Allfirst and Allied
Irish America. Allfirst has banking
operations in Maryland, Pennsylvania,
Virginia and Washington DC. Allied
Irish America includes retail and
corporate operations in New York,
Philadelphia, Los Angeles, Chicago,
San Francisco and Atlanta;
Community Counselling Services
(‘CCS’) and Ketchum.
Allfirst – 2002 was a difficult year
for Allfirst in the aftermath of the
foreign exchange trading losses.
In financial terms the results
benefited from securities gains
of US$ 69 million (net of lost
yield) arising from a restructuring
of the portfolio in the fourth
quarter.The purpose of the
restructuring was to reduce
interest rate risk exposure by
replacing longer dated securities
with shorter dated issues.
Provisions and writedowns
were substantially higher, a credit
provision of US$ 38 million for
one specific case, US$ 16 million
writedowns of mutual fund assets
held as a hedge for incentive plan
liabilities and a US$ 10 million
provision for residual values
in the auto lease portfolio.The
customer base was stable and
average core deposits increased
by 1% in 2002.There was little
demand for borrowing by
corporate customers in this
subdued business climate but direct
retail and SME lending increased
by 3%. Employee restructuring
USA profit & loss account
Net interest income
Other finance income
Other income
Total operating income
Operating expenses
Restructuring costs in
continuing businesses
Total operating expenses
Operating profit before provisions
Provisions
Operating profit - continuing activities
(Loss)/profit on disposal of property
Year
2002
€ m
549
(2)
528
1,075
655
13
668
407
98
309
(1)
Profit on ordinary activities before taxation
308
Year
2001
€ m
584
2
446
1,032
638
–
638
394
39
355
–
355
% Change
2002 v 2001
–6
–
18
4
3
–
5
4
154
–13
–
–13
operates across Canada with
principal offices in Toronto,
Montreal, Calgary and Vancouver
was acquired by the Group
in May 2002.
costs of US$ 13 million were
incurred in relation to an early
retirement program at Allfirst.
On 26 September 2002, AIB
announced that it was entering
into a strategic relationship with
M&T Bank Corporation (‘M&T’)
whereby M&T would acquire
AIB’s US subsidiary Allfirst with
AIB obtaining a 22.5% share
in the enlarged M&T and a cash
payment of US$ 886 million.
Allied Irish America – Profit
increased significantly due to
good growth in the not-for-profit
business, an increased revenue
contribution from CCS and the
impact of reduced investment
costs.There was an underlying
increase of 30% in fee income
with strong growth in letter
of credit income and a 17%
increase in risk weighted assets.
Ketchum Canada, Inc.,
a fundraising consultancy that
21
Divisional commentary
Capital Markets profit was
€ 209 million, up 8% on
the year to December 2001.
Capital Markets Global Treasury,
Corporate Banking, Investment
Banking and Asset Management.
The 8% growth in profit reflected
a strong performance in 2002
with Capital Markets activities
operating in very difficult market
conditions.There was good
revenue growth which together
with tight cost management
delivered a 14% increase in
operating profit before provisions.
Corporate Banking achieved very
substantial growth in profitability
in Ireland and in its international
businesses. Average loan volumes
were up 13% with particularly
good performances in IFSC, UK
and USA businesses. Fee income
was buoyant including a substantial
increase in arrangement fees and
fees from Collateralised Debt
Obligation (‘CDO’) funds,
including the launch of the Clare
Island CDO.
Capital Markets profit and loss account
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses
Operating profit before provisions
Provisions
Operating profit - continuing activities
Income from associated undertakings
Year
2002
€ m
271
7
282
560
300
260
60
200
9
Profit on ordinary activities before taxation
209
Year
2001
€ m
210
8
305
523
296
227
38
189
5
194
% Change
2002 v 2001
29
–11
–8
7
1
14
56
6
91
8
Investment Banking revenues
were lower due to a decline
in asset values, reduced business
volumes and the general impact
of difficult equity markets. Despite
difficult market conditions, strong
underlying performances were
achieved by Goodbody, AIB
Corporate Finance and the
AIB/Bank of New York Securities
Services joint venture.
Revenues from Asset
Management declined mainly due
to the impact of lower asset values
on fee income.
A full discussion on provisions
is contained in the provisions
section on page 14.
Income from associated
undertakings increased due to
the restructuring of the AIB joint
venture with the Bank of New
York.The AIB share of profit
from custody and trustee
businesses is included in
associated undertakings in 2002
whereas in 2001 the operating
income and expense was included
in operating profit.
Profit was higher in Global
Operating expenses were well
Treasury due to an increased
contribution from interest rate
management activities which
anticipated and benefited from
low interest rates.Trading revenues
(other income) were lower as a
result of a more difficult trading
environment. Global Treasury
continued to maintain a strong
liquidity position in euro, US
dollar, sterling and Polish zloty
operations.
controlled. Excluding the
restructuring of the AIB joint
venture with Bank of New York
(see comment below on
associated undertakings), costs
were up 3% due to normal cost
inflation and expansion of the
corporate business internationally
partly offset by good cost
management.The cost income
ratio declined significantly by
3% to 54%.
22
Poland profit and loss account
Net interest income
Other finance income
Other income
Total operating income
Operating expenses
Integration costs in continuing businesses
Total operating expenses
Operating profit before provisions
Provisions
Operating profit - continuing activities
(Loss)/profit on disposal of property
Profit on ordinary activities before taxation
Year
2002
€ m
272
–
188
460
351
–
351
109
46
63
(2)
61
Year
2001
€ m
275
–
163
438
358
38
396
42
9
33
3
36
% Change
2002 v 2001
–1
–
15
5
–2
–
–11
160
417
89
–
71
Including the use of general
provisions in 2001 headline
provisions increased from € 9
million to € 46 million.The
gross provision charge declined
in 2002 from 1.9% of loans
(before the use in 2001 of general
provisions of € 47 million
created on the acquisition
of WBK and Bank Zachodni)
to 1.2%.
Poland profit was € 61
million for the year 2002.
Poland Bank Zachodni WBK S.A.
(‘BZWBK’), in which AIB has a
70.5% shareholding, together with its
subsidiaries and associates.
Operating profit before provisions
was up 36% on the 2001 level
of € 80 million, adjusting for
integration costs.
In local currency terms
revenue was up 10% despite slower
economic conditions. Net interest
income increased by 4% due to
growth in business volumes and
a stable net interest margin.
Deposit margins declined in the
substantially lower interest rate
environment while lower funding
costs and wider loan margins
were positive features. Loans
increased by 8%, a level below
historical trends, due to
management adopting a cautious
approach in the more difficult
economic environment. The
savings market was sluggish with
combined deposits and mutual
funds volumes down 2% on
December 2001, however average
deposits were up 1%.The market
was affected by tougher business
conditions and the introduction
of a new withholding tax on
deposits.
Other income was up 21%
including strong growth in card
and current account fees and
branch commissions. Operating
expenses were up 3% reflecting
implementation of a new branch
technology platform offset by
tight cost control and realisation
of integration benefits.
23
Divisional commentary
Group profit and loss account
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses
Operating loss before provisions
Provisions
Operating loss – continuing activities
Income from associated undertakings
Profit on disposal of business
Loss on ordinary activities before taxation
Year
2002
€ m
(25)
18
–
(7)
56
(63)
(30)
(33)
–
–
(33)
Year
2001
€ m
10
11
(8)
13
54
(41)
55
(96)
(1)
93
(4)
Group
Group includes interest income
earned on capital not allocated to
divisions, the funding cost of certain
acquisitions, hedging costs in relation
to the translation of foreign currency
profits, and unallocated costs of
enterprise networks and central
services.
Group reported a loss of € 33
million for the year to December
2002, compared with a loss of
€ 4 million in 2001.The
increased loss arose mainly from
lower capital income due to the
impact on capital arising from the
exceptional foreign exchange
dealing losses in Allfirst in 2001
and lower investment yields.The
2001 loss included € 93 million
profit from the sale of AIB’s
interest in KCH and a € 50
million additional unallocated
credit provision created at Group
level.The 2002 result included
the release of € 40 million
of this € 50 million provision
offset by additional provisions in
relation to unquoted investments.
24
Financial review
CAPITAL MANAGEMENT
It is the Group’s policy to maintain a strong capital base
and to utilise it efficiently in the Group’s development
as a diversified international banking group.
The following table shows AIB Group’s capital
resources at 31 December 2002 and 2001.
Shareholders’ funds – equity
Shareholders’ funds – non-equity
Equity and non-equity
minority interests
Reserve capital instruments
Undated capital notes
Dated capital notes
2002
€ m
4,408
235
274
4,917
496
389
1,287
7,089
2001
€ m
4,851
279
312
5,442
496
426
1,594
7,958
Capital resources reduced by € 869 million during
the year ended 31 December 2002.The decrease arose
primarily as a result of the impact of the weakening
of US dollar, sterling and Polish zloty exchange rates
against the euro as well as the impact of weaker
international equity markets on the Group’s retirement
benefit scheme assets.The value of the US dollar,
sterling, and Polish zloty weakened against the euro
by 16%, 6% and 13% respectively, resulting in a
negative foreign currency translation adjustment of
€ 628 million.The actuarial losses in the Group’s
retirement benefit schemes, which are recognised
directly in shareholders’ funds under FRS 17 -
Retirement benefits, amounted to € 823 million.
Shareholders’ funds benefited from net retentions
of € 608 million and issues of share capital € 115
million.The redemption and maturity of dated capital
notes of € 247 million were offset by the issue of
€ 100 million in subordinated debt due in 2013.
In carrying out the Group’s overall capital resources
policy, a guiding factor is the supervisory requirements
of the Central Bank of Ireland, which applies a
capital/risk assets ratio framework in measuring capital
adequacy.This framework analyses a bank’s capital into
two tiers. It also applies risk weightings to balance sheet
and off-balance sheet exposures, reflecting the credit
and other risks associated with broad categories
of transactions and counterparties, to arrive at a figure
for risk weighted assets. An internationally agreed
minimum total capital (to risk weighted assets) ratio
of 8% and a minimum tier 1 capital (to risk weighted
assets) ratio of 4% are the base standards from which
the Central Bank of Ireland sets individual capital ratios
for credit institutions under its jurisdiction.
The EU Capital Adequacy Directive (CAD)
distinguishes the risks associated with a bank’s trading
book from those in its banking book.Trading book
risks are defined as those risks undertaken in order
to benefit in the short-term from movements in
market prices such as interest rates, foreign exchange
rates and equity prices.The remaining risks, relating
to the normal retail and wholesale banking activities,
are regarded as banking book risks.
Capital base
Tier 1
Shareholders’ funds as defined for
2002
€ m
2001
€ m
regulatory purposes
Other tier 1 capital
Supervisory deductions
Total tier 1 capital
Tier 2
Qualifying loan capital
Other tier 2 capital
Total tier 2 capital
Gross capital
Supervisory deductions
Total capital
Risk weighted assets
Banking book:
On balance sheet
Off-balance sheet
Trading book:
Market risks
Counterparty and
settlement risks
Total risk weighted assets
Capital ratios
Tier 1
Total
4,668
770
(632)
4,806
1,638
884
2,522
7,328
(341)
6,987
4,421
798
(740)
4,479
1,859
900
2,759
7,238
(294)
6,944
53,961
11,521
65,482
54,839
10,854
65,693
3,099
2,897
658
3,757
69,239
6.9%
10.1%
268
3,165
68,858
6.5%
10.1%
25
Financial review
As part of the Group’s capital
management activities, the Group
manages its mix of capital by
currency in order to minimise
the impact of exchange rate
fluctuations on the Group’s key
capital ratios.
The Group’s capital ratios
remained strong with the tier 1
ratio improving to 6.9% and the
total capital ratio at 10.1%.Tier 1
capital increased by € 327 million
to € 4.8 billion reflecting net
retentions of € 563 million, issue
of shares € 115 million, and
lower deduction for own shares
of € 69 million.These were offset
by € 420 million of currency
translation and other movements.
Tier 2 capital decreased by € 237
million since December 2001
reflecting redemptions of
subordinated debt, lower general
provisions for bad and doubtful
debts, and currency factors, partly
offset by the issue of € 100
million in new subordinated debt
and an increase in shareholders’
funds qualifying as tier 2 capital.
Supervisory deductions increased
by € 47 million, primarily
reflecting the increase in the
long-term assurance business
attributable to shareholders. Risk
weighted assets increased
marginally to € 69.2 billion, 10%
excluding currency factors.
The Basel Committee on
Banking Supervision and the
European Union have developed
proposals to significantly revise
the capital adequacy regime in
operation for all ‘internationally
active banks’.These proposals are
designed to bring the capital
adequacy regime more into line
with best practice risk
management in financial
institutions.The regime is based
on three so-called ‘Pillars’. Pillar
One sets the rules for determining
the capital requirements for credit
risk and securitisations and
introduces a new capital
requirement for operational risk.
Pillar Two enhances the
supervisory role of the regulators.
Pillar Three sets out detailed
disclosure requirements designed
to strengthen the role of the
market in bringing discipline
to risk management practices
in banks and other financial
institutions.While these proposals
have yet to be finalised and
adopted, the Group has
participated actively in the
consultative process surrounding
them and has participated in the
Quantitative Impact Studies (QIS)
requested by the Basel Committee
as part of its preparation for their
implementation.
RISK GOVERNANCE
AND OVERSIGHT
Arising from the findings of the
Independent Report submitted
by Promontory Financial Group
and Wachtell, Lipton, Rosen &
Katz, the Board took a number
of actions to strengthen the risk
management and control processes
in operation at the Group.These
include:
• The appointment of Mr John
Heimann, former Comptroller
of the Currency in the US and
Chairman of Merrill Lynch Global
Financial Institutions, as special
advisor to the Board on risk
management organisation across
the Group. Under his direction
Deloitte Touche Tohmatsu (‘D&T’)
was engaged to review the credit
and operational risk management
activities of the Group and advise
on best practice. First Manhattan
Consulting Group (‘FMCG’)
performed the same role with
regard to the Group’s asset and
liability and liquidity management
practices. It had previously been
engaged to review the control
environment in Global Treasury
following the Board’s decision
to centralise the Group’s Treasury
Management activities in Dublin.
The consultants’ recommendations
were adopted by the Board in July
2002. Detailed implementation
plans were developed and
significant progress has been made
in implementing these
recommendations.
• The appointment of Mr Shom
Bhattacharya as Group Chief
Risk Officer (‘CRO’).The CRO
reports to the Group Chief
Executive and the Audit
Committee and is a member of
the Group Executive Committee.
• The establishment of a
Group-wide internal audit
function and the appointment
of a new Head of Group Internal
Audit – Mr Paul Shantz.
• The appointment of Mr Philip
Brennan as General Manager
of Regulatory Compliance &
Business Ethics with an
independent reporting line to the
Audit Committee and the Board.
• Steps to strengthen the linkages
between (a) the Board and the
Boards of the banking subsidiaries,
and (b) the Board’s Committees
and those of the subsidiary Boards.
26
RISK MANAGEMENT
Taking and managing risk for
an appropriate return is central
to creating shareholder value.The
Group’s Risk-adjusted Return
on Capital (‘RAROC’) programme
is at an advanced stage of
implementation – risk-adjusted
pricing models are used in
corporate portfolios and are being
rolled-out to commercial lending
portfolios. It is planned that
risk-based measures will
progressively be incorporated
into the evaluation of business
performance. Day-to-day risk
management in AIB Group centres
on three major risks – credit risk,
operational risk and market risk
(including liquidity).
Credit risk is the exposure to
loss due to counterparty default
on credit obligations. It arises
mainly in the Group’s retail,
commercial, corporate, and
interbank lending portfolios. Credit
risk also arises in derivative
contracts where the default of
a counterparty to the transaction
could expose the Group to loss.
Operational risk, which is
inherent in all business activities,
is the exposure to loss from
inadequate or failed internal
processes, people and systems
or from external events.
Market risk is the exposure
to loss arising from adverse
movements in interest rates, foreign
exchange rates and equity prices.
Liquidity risk is the exposure
to loss from not having sufficient
funds available at an economic
price to meet actual and
contingent customer commitments.
Market and liquidity risks are
an integral part of retail banking
activities. Managing these risks
also provides opportunities for
treasury to add value through
position-taking.
Organisational structure for
managing risk
AIB manages risk through a set
of committees and dedicated risk
officers and functions with
delegated authorities spread
throughout the Group.The
committee structure is outlined
below.The Board of Directors
formally approves the overall
strategy and the direction of the
business on an annual basis.
It regularly monitors the Group’s
financial performance, reviews
risk management activities and
controls and has responsibility
for approving the Group’s risk
appetite.The Group Executive
Committee manages the strategic
business risks of the Group. It sets
the business strategy within which
the risk management function
operates and oversees its
activities. On Mr Heimann’s
recommendation the Group Risk
Management Committee (‘RMC’)
was established to direct and
co-ordinate risk management
activities across the Group.The
Group CRO chairs this
committee.The role of the Group
Asset and Liability Committee
(‘Group ALCO’) was revised
following the establishment of the
RMC.This committee is chaired
by the Group Director, Finance &
Enterprise Technology and has
responsibility for co-ordinating
the Group’s capital management
Group-level risk management structure
Board of Directors
Group Executive Committee
Board Audit
Committee
Group RMC
(credit, market, and
operational risk)
Group ALCO
(market risk)
GCC
(credit risk)
Group ORMCO
(operational risk)
27
Financial review
activities and for funding and
liquidity management.The Group
Credit Committee (‘GCC’) and
the Group Operational Risk
Management Committee (‘Group
ORMCO’) are subcommittees
of the RMC.
The risk management
function in the Group was
reorganised following Mr
Heimann’s recommendations.The
Group CRO has responsibility for
risk management and control
activities across the Group.
Divisional CROs were appointed
to head up the risk management
functions in each of the Divisions.
These report directly to the Group
CRO who shares responsibility
with the Head of each Division
for setting risk management
objectives and ensuring the
availability of adequate risk
management skills and expertise.
Each Division has its own Credit
Committee and Operational Risk
Management Committee, which
report to the equivalent
Group-level committees.The
Group CRO is supported at the
centre by specialist officers with
functional responsibility for credit
and operational risk.The CRO
at Capital Markets Division
carries the functional responsibility
for market risk.This structure
is designed to develop a more
cohesive risk management
organisation that serves the dual
needs of supporting the business
through sharing of expertise
and best practice while at the
same time ensuring that
appropriate controls are in
place at all times.
Two other functions play very
important roles in overseeing the
risk control environment.These
are Group Internal Audit and
Regulatory Compliance &
Business Ethics.
Group internal audit provides
independent assurance to the
Board Audit Committee in the
form of a written opinion on
the adequacy and effectiveness
of the risk management and
control framework in operation
throughout the Group.The risk
management processes for credit
risk, market risk and operational
risk are assessed and tested. In
addition to audit reports, internal
audit provides information on the
overall control environment to
the management of the individual
divisions. A secondary objective
of internal audit is to proactively
influence executive management
to strengthen the risk management
and control framework through
the implementation of best
practices.
In undertaking its
responsibilities, internal audit
adopts a risk-based approach,
which underpins the risk
management processes in place
across the Group. Businesses
undertake self-assessments
of operational risk and the
effectiveness of their controls
in managing these risks.The
information contained in these
self-assessments is subject to
review by internal audit.There
is a programme of ongoing
review of risk identification
standards and risk measurement
methodologies at business unit
level, which includes testing
of the risk mitigators adopted
by management.
Regulatory Compliance &
Business Ethics (‘RC & BE’)
has responsibility for co-ordinating
the compliance functions across
all Divisions and for the
development of Group policy
on ethical matters. Divisional
compliance departments together
with management, develop
policies and procedures to ensure
compliance with applicable law,
regulation and codes of practice
with respect to the conduct
of business.
RC & BE reports
independently to the Audit
Committee on the compliance
framework in operation across the
Group and on management
attention to compliance matters.
Managing credit risk
Credit risk is managed and
controlled throughout the Group
on the basis of established credit
processes and within a framework
of credit policy and delegated
authorities based on skill and
experience. Credit grading and
monitoring systems accommodate
the early identification and
management of deterioration
in loan quality. In addition, the
credit management process
is underpinned by an independent
system of credit review.The credit
grading systems across the Group
continue to be refined to facilitate
risk-based pricing, economic
provisioning, attribution of capital
and performance evaluation.
The Board, in exercising its
role in relation to credit risk,
determines the credit authority
of the GCC, approves certain
high-level credit policies and
reviews credit performance.
28
The GCC considers and
approves credit exposures in excess
of divisional authorities. It
comprises senior divisional and
Group management.The
Committee approves key credit
policies and reviews strategic
portfolio management. It also
reviews trends in credit quality
and determines overall provision
adequacy.
The Group CRO has
functional responsibility for
ensuring that groupwide credit
risk activities are governed by
appropriate and robust policies
and best practices.The Group
CRO also has responsibility
to report independently to the
Group Chief Executive, Audit
Committee and the Board on
credit performance, credit quality
and the adequacy of provisions.
A divisional credit policy
framework and credit review
process supports the credit
management structure in each
division. Each Division invests
significantly in developing the
professional skills of its lenders
and in the continuous
improvement of the credit
assessment, control and monitoring
processes. High priority is given
to having a credit culture that is
resilient through business cycles.
Managing operational risk
The management of operational
risk is a line management
responsibility. It is supported by
small operational risk management
teams at Group and in each of
the Divisions as well as specialist
functions in areas such as money
laundering prevention, business
continuity planning, information
security and insurance.These
operational risk management
teams are responsible for the
development and implementation
of a structured operational risk
management (‘ORM’)
programme, which is being
strengthened on the
recommendations of D&T.
to centralise market risk in Global
Treasury and the establishment
of the RMC.
Asset and liability management
(‘ALM’) units operate in each
of the retail divisions.These have
responsibility for identifying
interest rate and foreign exchange
risks and transferring these to
Global Treasury.
An element of AIB’s structured
Global Treasury is responsible
ORM programme is an
operational risk self-assessment
process.This process requires each
business within the Group to
assess its operational risks and the
effectiveness of the related controls
to address these risks.This raises
awareness of control weaknesses
and allows management to target
specific actions to strengthen the
control processes. It complements
the risk-based audit approach used
by Group Internal Audit in its
role as independent assessor of
management’s control and risk
management processes.
The role of Group ORMCO
is to co-ordinate operational risk
management activities across the
Group through setting policy,
monitoring compliance and
promoting best practice disciplines.
Managing market risk
The principal aims of the Group’s
market risk management activities
are to limit the adverse impact
of interest rate, exchange rate
and equity price movements
on profitability and shareholder
value, and to enhance earnings
within defined risk parameters.
The processes for managing
market risk have changed to take
account of the Board’s decision
for managing these risks. It also
manages the Group’s liquidity and
funding activities.The process
of risk transfer to Global Treasury
and the Group’s funding and
liquidity activities are overseen by
Group ALCO, which is supported
by ALCOs in each Division.
Group ALCO also carries
responsibility for capital and
balance sheet management.
In addition to interest rate and
foreign exchange rate risk, equity
risk arises in Global Treasury from
the management of the Group’s
convertible bond portfolio and
the hedging of stock market
linked investment products
(tracker bonds) sold to customers.
Equity risk also arises in the
Group’s stockbroking business.
These risks are managed by
setting limits on the amount
of the Group’s capital and forecast
earnings that can be put at risk.
These limits are based on the risk
measurement methodologies set
out below.The Board delegates
authority to the Group CRO to
allocate these limits on its behalf
and charges him with ensuring
that the risk measurement
methodologies used to determine
these limits are appropriate for
the risks being taken and that
29
Financial review
appropriate monitoring and control
procedures are in place.
The RMC reviews market risk
strategy, appetite and policies and
promotes best practice for
measurement, monitoring and
control.
Liquidity risk
The objective of liquidity
management is to ensure that, at all
times, the Group holds sufficient
funds to meet its contracted and
contingent commitments to
customers and counterparties, at
an economic price.The Group
achieves this through the
maintenance of a stock of high
quality liquid assets and active
involvement in the interbank
market.The liquid asset stock is
maintained at a level considered
sufficient to meet the withdrawal
of deposits or calls on commitments
in both normal and abnormal trading
conditions. In all cases, net outflows
are monitored on a daily basis and
the required minimum liquidity stock
can be increased if these outflows
exceed predetermined target levels.
The euro, US dollar, sterling and
the Polish zloty represent the most
important currencies to AIB Group
from a liquidity perspective.The
Group has an established retail
deposit base in Ireland, Britain, the
US and Poland to fund asset growth.
Although a significant element
of these deposits is contractually
repayable on demand or at short
notice, the Group’s substantial
customer base and geographic spread
generally ensures that these current
and deposit accounts represent a
stable and predictable source of funds.
The Group also operates a
liquidity contingency plan for critical
situations. For a period following
the announcement of the fraudulent
foreign exchange trading activities
in Allfirst Bank on 6 February 2002,
Group liquidity was managed in
accordance with this plan. Allfirst
Bank became a net seller of federal
funds as a result of actions taken
under the liquidity contingency plan,
which included the sale of
investment securities and receipt
of funding from AIB. Allfirst Bank
initially experienced a small decrease
in core deposits and it was required,
in the interest of maintaining good
customer relations, to purchase
approximately US$ 300 million in
variable rate demand bonds
(‘VRDBs’), which were backed by
a standby letter of credit.These were
later successfully reissued to the
market.
MARKET RISK
MEASUREMENT
Value at Risk (‘VaR’) is an industry
practice for market risk measurement.
It provides an estimate of the
potential loss resulting from market
movements over a given period
of time within a specified probability
of occurrence.
For internal risk measurement
and management purposes, AIB
Group uses a VaR methodology. Risk
is calculated as the probable
maximum loss in fair value that could
arise in one month from a ‘worst
case’ movement in market rates
(interest, foreign exchange, equity, as
applicable) with a 99% degree of
probability.This means that there
is a one in one hundred chance that
potential loss could be greater than
that estimated using historical
observations of weekly price volatility
in interest and foreign exchange
rates and equity prices over the
previous period of three years.VaR
figures are quoted using both one-
month and one-day holding periods.
Recognising that the prices
of similar financial instruments do
not move in exact step with each
other, the total risk for a portfolio
of different instruments is not the
same as the sum of the individual
risks. Having calculated the VaR
on a single instrument, the total VaR
for a portfolio of market positions
is adjusted to reflect the reality that
the ‘worst case’ scenario is unlikely
to occur in all markets
simultaneously. AIB Group uses
an industry-practice formula to take
account of this portfolio
diversification impact within each
risk category. In technical terms,
this approach is termed a variance-
covariance approach.
As with any market risk
measurement methodology, the VaR
system used by AIB has known
limitations.These stem from the need
to make assumptions about the range
of likely changes in future market
rates in order to determine the
probable maximum loss in fair value.
To deal with this, AIB supplements
its VaR measure with other
techniques, including sensitivity
analysis.
Special attention is required for
measuring the market risk of option
portfolios because the relationship
between an option’s value and the
price of the underlying instrument
can be quite complex. Option values
are affected by several variables,
including changes in market volatility.
A statistical simulation methodology,
consistent with the variance-
30
covariance approach, is used to more
accurately measure the market risk
in currency option portfolios.The
currency option VaR figure is
included in the foreign exchange
rate VaR figures.The VaR on
interest rate options is computed by
revaluing these options under the
assumption that the ‘worst case’
movement in interest rates occurs.
This approach relies on certain
assumptions about changes in the
direction and volatility of future
interest rates.The VaR on interest
rate options is included in the
interest rate VaR figures.
Interest rate risk
Global Treasury manages the Group’s
exposure to interest rate risk.The
risk is that changes in interest rates
will have adverse effects on earnings
and on the value of the Group’s assets
and liabilities.This risk is managed
by setting limits on the probable
maximum loss in fair value (VaR)
on the aggregate open interest rate
positions of the Group. Stop-loss
limits are also used to close out loss
making positions.
In managing interest rate risk,
a distinction is made between trading
and non-trading activities.Trading
activities are recorded in the trading
book. Interest rate risk associated
with the Group’s retail and
commercial activities is managed
through the non-trading book.The
reported interest rate VaR figures
represent the average, high, low and
year-end probable maximum loss
in respect of both trading and
non-trading book positions held
in Global Treasury.
The following table illustrates the VaR figures for interest rate risk for the
years ended 31 December 2002 and 2001.
Interest rate risk
1 month holding period:
Average
High
Low
31 December
1 day holding period:
Average
High
Low
31 December
Trading
2001
€ m
2002
€ m
Non-trading
2002
€ m
2001
€ m
6.8
9.3
4.7
6.4
1.5
2.1
1.0
1.4
9.5
12.0
7.3
9.6
2.1
2.7
1.6
2.2
48.7
87.4
23.0
48.5
10.9
19.5
5.1
10.8
73.4
88.8
58.4
69.9
16.4
19.9
13.1
15.6
Trading book
The interest rate trading book
incorporates all securities and interest
rate derivatives that are held for
trading purposes in the Group’s
Global Treasury units.These are
revalued daily at market prices
(marked to market) and any changes
in value are immediately recognised
in income. During 2002, trading
book interest rate risk was
predominantly concentrated in the
euro, sterling and the US dollar
although positions were also taken
in Polish zloty and a number of
other developed country markets.
Non-trading book
The Group’s non-trading book
consists of its retail and corporate
deposit and loan books, as well
as the Group’s Global Treasury
interbank cash books, and the
Group’s investment portfolios.The
interest rate risks in the retail and
corporate deposit and loan books
are transferred to Global Treasury
and managed using interest rate
swaps and other conventional
hedging instruments.
AIB Group’s banking businesses
have a substantial level of interest-
free current accounts, equity and
other interest-free or fixed rate
liabilities and assets. Unless carefully
managed, the net income from these
funds will fluctuate directly with
movements in short-term interest
rates. Group policy is to manage the
earnings volatility arising from the
impact of interest rate movements
on such funds.This is achieved
by maintaining a portfolio of assets
with interest rates fixed for several
years. In designing this strategy,
care is taken to ensure that the
management of the portfolio is not
inflexible, as market circumstances
and evolving customer requirements
can change the desirable investment
life and composition of this portfolio.
Group ALCO reviews the
management of these activities.
31
Financial review
Interest rate sensitivity
The net interest rate sensitivity
of the Group at 31 December
2002 and 2001 is illustrated in
note 53.
Foreign exchange rate risk -
structural
Structural foreign exchange rate
risk arises from the Group’s
non-trading net asset position in
foreign currencies. Structural risk
exposure arises almost entirely
from the Group’s net investments
in its sterling, US dollar and
Polish zloty-based subsidiaries.
The Group prepares its
consolidated financial statements
in euro. Accordingly, the
consolidated balance sheet is
affected by movements in the
exchange rates between these
currencies and the euro.
It is normal Group practice
to match material individual
foreign currency investments
in overseas subsidiaries, associated
undertakings and branches, with
liabilities in the same currency.
However, Polish investments are
recorded in euro. Because of the
Group’s diversified international
operations, the currency profile
of its capital may not necessarily
match that of its assets and risk
weighted assets. Under Board-
approved policy, a sub-committee
of Group ALCO has delegated
responsibility for hedging this
structural mismatch against
adverse exchange rate movements.
The Group does not maintain
material non-trading open
currency positions other than the
structural risk exposure discussed
above.
At 31 December 2002 and
2001, the Group’s structural
foreign exchange position was
as follows:
US dollar
Sterling
Polish zloty
2002
€ m
1,071
1,210
187
2001
€ m
1,096
1,185
209
2,468
2,490
This position indicates that a 10%
movement in the value of the
euro against these currencies at
31 December 2002 would result
in an amount to be taken to
reserves of € 247 million.
The Group may choose to
hedge all or part of its projected
future foreign currency earnings,
thereby fixing a translation rate
for the amount hedged.The
purpose of these hedges is to
minimise the risk of significant
fluctuations in the reported euro
values of the Group’s separate
US dollar, sterling and Polish
zloty earnings. In the year ended
31 December 2002, certain US
dollar, sterling and Polish zloty
profits were hedged during the
year and translated at the
following exchange rates € 1: US
$0.9062; € 1: Stg £0.6273; € 1:
PLN 4.0076.
Foreign exchange rate risk –
trading
Global Treasury manages the
Group’s exposure to foreign
exchange risk arising from
unhedged customer transactions
and discretionary trading.The risk
is that adverse movements in
foreign exchange rates will result
in losses.This risk is managed by
setting limits on the probable
maximum loss in fair value (VaR)
on the aggregate open foreign
exchange position for the Group’s
discretionary portfolio. Stop-loss
limits are also used to close out
loss-making positions.
The following table illustrates
the VaR figures for trading foreign
exchange rate risk for the years
ended 31 December 2002 and
2001.
2002
€ m
2001
€ m
Foreign exchange rate risk-trading
1 month holding period:
Average
High
Low
31 December
0.9
1.9
0.3
0.8
1 day holding period:
Average
High
Low
31 December
0.2
0.4
0.1
0.2
2.1
4.4
0.5
4.4
0.5
1.0
0.1
1.0
Equity risk
Global Treasury manages the
equity risk arising in its
convertible bond portfolio and
from hedging stock market linked
investment products (tracker
bonds) sold to customers.
Goodbody stockbrokers manage
the equity risk arising in its
Principal Trading Account.The
risk is that adverse movements
in share, share index, or share
option prices would result in loss
to the Group.This risk is managed
by setting limits on the probable
maximum loss in fair value (VaR)
on open equity positions. Stop-loss
limits are also used to close out
32
Equity risk
1 month holding period:
Average
High
Low
31 December
1 day holding period:
Average
High
Low
31 December
loss-making positions.The table
above illustrates the VaR figures for
equity risk for the years ended 31
December 2002 and 2001.
OFF-BALANCE SHEET
FINANCIAL INSTRUMENTS
The Group uses off-balance sheet
financial instruments, including
derivatives, to service customer
requirements, to manage market
and credit risk exposures and for
trading purposes.
Credit commitments
Contingent liabilities and
commitments to extend credit are
outlined in note 50.The Group’s
maximum exposure to credit loss
in the event of non-performance
by the other party, where all
counterclaims, collateral or security
prove valueless, is represented by
the contractual amounts of these
contracts.
Derivative instruments
Derivative instruments are
contractual agreements between
parties whose value reflects
movements in some underlying
Trading
2001
€ m
Non-trading
2002
€ m
2001
€ m
13.0
20.0
10.3
12.1
2.9
4.5
2.3
2.7
0.3
0.7
0.1
–
0.1
0.2
–
–
0.5
0.8
0.1
0.1
0.1
0.2
–
–
2002
€ m
10.2
16.5
6.2
9.9
2.3
3.7
1.4
2.2
interest rate, foreign exchange
rate, share price or index level.
The table on page 34 shows the
notional amount and gross
replacement cost for trading and
non-trading interest rate, exchange
rate and equity contracts at 31
December 2002 and 2001.While
notional principal amounts are
used to express the volume of
these transactions, the amounts
subject to credit risk are much
lower.This is because most
derivatives involve payments based
on the net differences between
the rates expressed in the contracts
and other market rates.
The Group uses derivatives
to hedge interest rate, foreign
exchange rate and equity risk.
The Group also makes controlled
use of derivatives for discretionary
trading purposes.
The values of derivative
instruments can rise and fall
as market rates change.Where
they are used to hedge other assets
and liabilities, the changes in value
are generally offset by the value
changes in the hedged items. As
long as the derivative instrument
is effective in offsetting the risk
of the associated asset or liability,
both at the time it is entered into
and throughout the hedge period,
it is accounted for in accordance
with the accounting treatment for
the item or items being hedged.
Swaps, forward rate agreements,
futures and option contracts are
used to hedge specific assets or
groups of similar assets or specific
liabilities or groups of similar
liabilities.Where a transaction
originally entered into for hedging
purposes no longer represents a
hedge, its value is restated at fair
value and any subsequent change
in value is taken to the profit and
loss account immediately.
The following is a brief
description of the derivative
instruments that account for the
major part of the Group’s
derivative activities:
Interest rate swaps are
agreements between two parties
to exchange interest payments
based on variable or fixed interest
rates.They are used to convert
variable rate assets or liabilities
into fixed rate assets or liabilities
or vice versa or to change the
maturity profile of the underlying
assets or liabilities. Currency swaps
are interest rate swaps where one
or both sides of the swap is payable
in a different currency.These allow
Global Treasury to change the
currency profile of an interest rate
risk position.
Forward rate agreements are
individually negotiated contracts
that allow customers to fix the
rates at which they will borrow
or lend in the future.
33
Financial review
Financial futures are
exchange-traded contracts that
allow investors to speculate on the
future direction of interest rates,
stock indices, commodities etc.
They are also an effective and
cheap way to hedge against
movement in certain market rates.
They are used in the Group to
hedge exposures arising from the
sale of forward rate agreements or
guaranteed equity products.They
are also used to manage the interest
rate risk arising in the Group’s
debt securities portfolio.
Options are contracts that give
the purchaser the right, but not
the obligation, to buy or sell an
underlying asset e.g. bond, foreign
currency, or equity index,
at a certain price on or before
an agreed date.These provide
more flexible means of managing
exposure to changes in interest
rates, exchange rates and equity
index levels. Foreign exchange rate
options are used to hedge income
and expenses arising from
non-euro denominated assets and
liabilities and to manage the impact
of exchange rates on the reported
euro value of non-euro earnings.
Foreign exchange rate options
are also used to hedge exposures
arising from customer transactions.
Interest rate caps/floors are
series of options that give the buyer
the ability to fix the maximum
or minimum rate of interest. A
combination of an interest rate cap
and floor is known as an interest
rate collar.These are used to limit
the variability in the rate payable
on future loans and deposits.
Forward foreign exchange
contracts are agreements to buy or
sell a specified quantity of foreign
currency, usually on a specified
Notional
amount
€ m
2002
Gross
replacement
cost
€ m
2001
Gross
replacement
cost
€ m
Notional
amount
€ m
75,558
34,971
1,223
690
46,015
70,136
586
846
110,529
1,913
116,151
1,432
18,468
2,578
21,046
2,037
–
2,037
457
89
546
27
–
27
18,766
7,739
26,505
23
2,870
2,893
217
63
280
1
194
195
Interest rate contracts
Trading
Non-trading
Exchange rate contracts
Trading
Non-trading
Equity contracts
Trading
Non-trading
date, at an agreed exchange rate.
These contracts are used to fix the
exchange rates for future foreign
exchange transactions.They are
also used by the Group to hedge
non-euro income and expenses
and to manage the impact of
exchange rates on the reported
euro value of non-euro earnings.
Measurement and control
of off-balance sheet financial
instruments
The market risk exposure arising
from derivative transactions is
controlled within the risk limits set
for the management of interest rate,
foreign exchange and equity risk.
In addition, the Group sets limits
on the counterparty credit risk it
is prepared to take on derivatives.
Unlike loans or investments,
credit risk on derivatives change
over the life of the derivative
contract with the movement
in the underlying market rate. For
example, in a pay-fixed, receive
floating interest rate swap, the
Group is exposed to credit risk
when variable interest rates rise
above the agreed fixed rate, as
under such circumstances, it is
due to receive payment from the
counterparty.Where variable
interest rates fall below the agreed
fixed rate, the counterparty is
exposed to the credit risk of the
Group.
Credit risk on derivatives
is measured using a simulation
methodology that models the
potential movement in value
of the portfolio over the remaining
period to maturity and assumes
counterparty default in adverse
circumstances for the Group.
Counterparty netting and credit
support agreements are used to
mitigate the credit risk.
The Group uses the same credit
control and risk management
policies in undertaking off-balance
sheet commitments as it does for
on balance sheet lending,
including counterparty credit
approval, limit setting and
monitoring procedures.
34
Report of the Directors
for the year ended 31 December 2002
The Directors of Allied Irish Banks, p.l.c. present their report and the audited accounts for
the year ended 31 December 2002. A Statement of the Directors’ responsibilities in relation
to the Accounts appears on page 128.
Results
The Group profit attributable
to the ordinary shareholders
amounted to € 1,037 million
and was arrived at as shown in
the Consolidated Profit and Loss
Account on pages 47 and 48.
Dividend
An interim dividend of EUR
17.25c per ordinary share,
amounting to € 154 million, was
paid on 27 September 2002. It is
recommended that a final dividend
of EUR 31.81c per ordinary
share, amounting to € 283
million (see Note 20), be paid
on 25 April 2003, making a total
distribution of EUR 49.06c per
ordinary share for the year.The
balance of profit to be transferred
to the Profit and Loss Account
amounts to € 563 million.
Capital
Information concerning
allotments of shares under the
Dividend Reinvestment Plan, the
Approved Employees’ Profit
Sharing Schemes, the Allfirst
Stock Option Plan and the Share
Option Scheme is shown in Note
45 on pages 91 and 92.
At the 2002 Annual General
Meeting, shareholders renewed
authority for the Company, or
any subsidiary, to make market
purchases of up to 50 million
ordinary shares of the Company,
subject to the terms and
conditions set out in the relevant
resolution.
Accounting policies
The principal accounting policies
adopted by the Group, together
with information on changes
therein, are set out on pages 42
to 46.
Review of activities
The Statement by the Chairman
on pages 4 and 5 and the Review
by the Group Chief Executive on
pages 8 and 9 contain a review of
the development of the business
of the Group during the year, of
recent events, and of likely future
developments.
Directors
Mr Frank P Bramble retired as
an Executive Director on 19
April 2002.
Mr Dermot Gleeson was
appointed Deputy Chairman
with effect from 8 October 2002.
Mr Colm Doherty and Mr
Aidan McKeon were appointed
Executive Directors with effect
from 13 February 2003. In
accordance with the Articles
of Association, Mr Doherty and
Mr McKeon retire at the 2003
Annual General Meeting and,
being eligible, offer themselves
for re-appointment.
Mr Adrian Burke, Mr Padraic
M Fallon, Mr Don Godson and
Mr Lochlann Quinn retire by
rotation at the 2003 Annual
General Meeting and, being
eligible, offer themselves for
re-appointment.
The names of the Directors
appear on pages 6 and 7, together
with a short biographical note
on each Director.
Directors’ and Secretary’s
Interests in the Share
Capital
The interests of the Directors and
Secretary in the share capital of
the Company are shown in Note
55 on pages 112 to 114.
Substantial Interests in
the Share Capital
The following substantial interest
in the Ordinary Share Capital had
been notified to the Company at
18 February 2003:
The Capital Group
Companies, Inc.
4.84%
At the same date, subsidiaries
of the Company had aggregate
interests in 3.52% of the Ordinary
Share Capital.With the exception
of 5.6 million shares (0.6%) held
by a subsidiary (see Note 49),
these shares represented non-
beneficial interests. None of the
clients for whom these shares and
the shares of The Capital Group
Companies, Inc. are held had a
beneficial interest in 3% or more
of the Ordinary Share Capital.
An analysis of shareholdings
is shown on page 140.
35
Report of the Directors
and safety issues arising from the
handling and distribution of the
new euro notes and coins, while
later in the year the Company
participated in European Safety
Week, an EU initiative supported
by the Health and Safety
Authority.
Branches Outside the State
The Company has established
branches, within the meaning
of EU Council Directive
89/666/EEC, in Germany, the
United Kingdom and the United
States of America.
Auditors
KPMG, Chartered Accountants,
were appointed Auditors during
the year and have signified their
willingness to continue in office
under Section 160(2) of the
Companies Act, 1963.
Lochlann Quinn
Chairman
Michael Buckley
Group Chief Executive
18 February 2003
for the year ended 31 December 2002
Corporate Governance
The Directors’ Corporate
Governance Statement appears
on pages 37 to 40.
Books of Account
To secure compliance with the
Company’s obligation to keep
proper books of account, the
measures taken by the Directors
are the use of appropriate systems
and procedures, including those
set out in the Internal Control
section of the Corporate
Governance Statement on pages
37 to 40, and the employment
of competent persons.The books
of account are kept at the
Company’s Registered Office,
Bankcentre, Ballsbridge, Dublin 4,
Ireland; at the principal offices
of the Company’s main subsidiary
companies, as shown on pages
77/78 and 134/135; and at the
Company’s other principal
offices, as shown on those pages.
Safety, Health and
Welfare of Employees
It is the Company’s policy to
ensure the safety, health and
welfare of its employees while
at work, and of visitors to its
premises, by maintaining safe
places and systems of work.The
Company is committed to
facilitating this policy by an open,
consultative process with its
employees. Monitoring
procedures ensure the
maintenance of standards and
compliance with legislative
requirements.
During 2002, particular
emphasis was focused at the
beginning of the year on health
36
Corporate Governance Statement
The Board is committed to the
highest standards of corporate
governance.This Statement
explains how the Company has
applied the Principles set out in
‘The Combined Code: Principles of
Good Governance and Code of Best
Practice’ (the ‘Code’), adopted by
the Irish Stock Exchange and the
UK Listing Authority, and reports
on compliance with its Provisions.
Directors
The Board
The importance of the Company
being headed by an effective
Board to lead and control the
Company and the Group is fully
recognised.To that end, there is
a comprehensive range of matters
specifically reserved for decision
by the Board; at a high level this
includes:
– determining the Company’s
strategic objectives and
policies;
– appointing the Chairman and
Group Chief Executive;
– monitoring progress towards
achievement of the
Company’s objectives and
compliance with its policies;
– approving annual operating
and capital budgets, major
acquisitions and disposals, and
risk management policies.
A scheduled Board meeting
is held each month, except
August. Additional meetings are
held as required.The Directors
are provided in advance of each
Board meeting with relevant
documentation and information
to enable them to discharge their
duties. Any additional information
requested by Directors is readily
provided.
The Directors have access
to the advice and services of the
Company Secretary, who is
responsible for ensuring that
Board procedures are followed
and that applicable rules and
regulations are complied with.
There is a procedure in place
to enable Directors to take
independent professional advice,
at the Company’s expense.
At 31 December, 2002,
the Board comprised 10
Non-Executive Directors and
2 Executive Directors. On
13 February 2003 two additional
Executive Directors were
co-opted to the Board (see
‘Report of the Directors’ on page
35), bringing Board strength to
14, comprising 10 Non-Executive
Directors and 4 Executive
Directors. All Directors bring
independent judgement to bear
on issues of strategy, performance,
resources, and standards of
conduct. All Non-Executive
Directors are considered to be
independent of Management and
free from any business or other
relationship that could materially
interfere with the exercise of their
independent judgement.
Nevertheless, in compliance with
a Code provision that there
should be a designated senior
independent Non-Executive
director, other than the
Chairman, to whom concerns
can be conveyed, Mr Dermot
Gleeson, Deputy Chairman, was
so designated by the Board, with
effect from 8 October, 2002.This
designation does not preclude
shareholders from conveying
concerns to any of the other
Non-Executive Directors, as was
previously the position.
The role of the Chairman is
separate from the role of the
Group Chief Executive, with
clearly defined responsibilities
attaching to each.
It is the policy of the Board
that a significant majority of the
Directors (i.e., at least two-thirds)
should be Non-Executive. Non-
Executive Directors are appointed
so as to maintain an appropriate
balance and to ensure a
sufficiently wide and relevant mix
of backgrounds, skills and
experience to provide strong and
effective leadership and control
for the Group.
The names of the Directors,
and their biographical notes,
appear on pages 6 and 7.
Non-Executive Directors
appointed since 1990 are
appointed for an initial period
of six years, which may be
extended for a further period of
three years. Following co-option,
Directors must retire at the next
Annual General Meeting and may
go before the shareholders for
re-election.
Directors are required to
submit themselves for re-election
every three years.
There is an induction process
for new Directors. Its content
varies as between Executive and
Non-Executive Directors; in
respect of the latter, the induction
is designed to familiarise
Non-Executive Directors with
the Group and its operations, and
comprises principally a
37
Corporate Governance Statement
programme of meetings with the
Heads of Divisions and the senior
management of businesses and
support functions, and briefings
on the Company’s strategic and
operational plans. All Directors
on appointment are furnished
with a booklet entitled
‘Responsibilities, Functions and
Operations of the Board and Code
of Conduct for Directors’.
Board Committees
The Board is assisted in the
discharge of its duties by Board
Committees, whose purpose is
to consider, in greater depth than
is practicable at Board Meetings,
matters for which the Board
retains responsibility.The
composition of Board Committees
is reviewed annually by the Board.
A description of these
Committees, each of which
operates under terms of reference
or guidelines approved by the
Board, and their membership,
is given below.The minutes of all
meetings of Board Committees
are circulated to all Directors, for
information, with their Board
papers, and are formally noted
by the Board.This provides an
opportunity for Directors to seek
additional information or to
comment and express views
on issues being addressed at
Committee level.
Audit Committee
Members: Mr Adrian Burke,
Chairman, Mr Dermot Gleeson,
Mr Derek A Higgs and Mr Michael
J Sullivan.
The Audit Committee met on
twelve occasions during 2002.
The Auditors are invited to
attend meetings of the Audit
Committee, along with the
Group Chief Executive, the
Group Director, Finance &
Enterprise Technology, the
Deputy Head of Finance &
Enterprise Technology, the Group
Chief Risk Officer, the General
Manager, Regulatory Compliance
& Business Ethics, and the Group
Internal Auditor.The Audit
Committee reviews the Group’s
annual and interim accounts; the
scope of the audit and the
findings, conclusions and
recommendations of the internal
and external Auditors; reports
on compliance, the nature and
extent of non-audit services
provided by the Auditors; and the
effectiveness of internal controls.
The Committee is responsible for
ensuring the cost-effectiveness
of the audit and for confirming
the independence of the Auditors,
the Group Internal Auditor, and
the General Manager, Regulatory
Compliance & Business Ethics,
each of whom it meets separately
at least once each year, in
confidential session, in the absence
of Management. Each of these
parties has unrestricted access
to the Chairman of the Audit
Committee.
A written report is submitted
annually to the Board showing
the issues considered by the
Committee.
Nomination and
Remuneration Committee
Members: Mr Lochlann Quinn,
Chairman, Mr Dermot Gleeson
(from 1 November 2002), Mr Derek
A Higgs, Mr John B McGuckian,
and Mr Jim O’Leary (from 1 June
2002).
The Nomination and
Remuneration Committee met
on five occasions during 2002.
The Committee is responsible for
recommending candidates to the
Board for appointment as
Directors. Its remit also includes,
inter alia, recommending to the
Board appropriate remuneration
policies, and determining, under
advice to the Board, the specific
remuneration packages of the
Executive Directors.
Social Affairs Committee
Members: Ms Carol Moffett,
Chairman, Mr Padraic M Fallon,
and Mr Don Godson.
The Social Affairs Committee
met on five occasions during
2002. Its role, as defined in
guidelines approved by the Board,
is to assist the Company in
discharging its social
responsibilities.This includes
developing corporate-giving and
sponsorship policies and reviewing
responses to a range of social
responsibility issues.
Directors’ Remuneration
The Report on Directors’
Remuneration and Interests
appears on pages 109 to 114.
Relations with
Shareholders
The Company recognises the
importance of communicating
with its shareholders.To that end,
the Company circulates each year,
along with the statutory Report
and Accounts, a short-form,
38
user-friendly booklet explaining
features of the Company’s
performance in the previous year.
This focuses on how the profit
was utilised; profit and dividend
growth over the previous five
years; the need for strong capital
resources; running costs; risk
management; and other issues. As
a further step in enhancing the
communication process, interim
trading statements are issued to
the Stock Exchanges twice yearly.
The Company also uses its
internet website
(www.aibgroup.com) to
communicate with its
shareholders. The Investor
Relations section of the website
is updated with the Company’s
Stock Exchange releases and
formal presentations to analysts and
investors, as they are made, so that
such documents are available for
review by shareholders.The site
also contains the Company’s most
recent Annual and Interim
Reports, together with the Annual
Report on Form 20-F when filed
with the US Securities and
Exchange Commission. Since
August 2001, shareholders have
been offered the facility of
accessing the Annual Report and
Accounts on AIB’s internet
website, instead of receiving them
by post.
All shareholders are
encouraged to attend the Annual
General Meeting (‘AGM’) and
to participate in the proceedings.
It is practice to give shareholders
an update on the Group’s
performance, and developments
of interest, by way of video
presentation. Separate resolutions
are proposed on each substantially
separate issue.The Chairman of
the Audit Committee is available
to answer questions at the AGM.
The proportion of proxy votes
lodged for and against each
resolution is indicated; this
demonstrates what the voting
position would be if all the votes
cast, including votes cast by
shareholders not in attendance
at the AGM, were taken into
account.
It is usual for all Directors
to attend the AGM and to be
available to meet shareholders,
both before and after the
Meeting. A Shareholders’ Help
Desk facility is available to
shareholders attending.
In accordance with company
law, the Notice of the AGM and
related papers are required to be
sent to shareholders not less than
21 days before the Meeting.The
Code suggests that these papers
should be sent to shareholders ‘at
least 20 working days before the
meeting’. In respect of the 2003
AGM, it is intended that the
Notice and related papers will be
despatched 28 calendar days and
20 working days before the
Meeting.
The Company holds regular
meetings with its principal
institutional shareholders and with
financial analysts and brokers.
These meetings involve the Group
Chief Executive, the Group
Director, Finance & Enterprise
Technology, the Chief Financial
Officer and the Head of Investor
Relations, and are governed by
prescribed procedures to ensure
that price-sensitive information
is not divulged.
Accountability and Audit
Accounts and Directors’
Responsibilities
The Accounts and other
information presented in this
Report and Accounts are
consistent with the Code
Principle requiring the
presentation of ‘a balanced and
understandable assessment of the
Company’s position and
prospects’.The Statement
concerning the responsibilities
of the Directors in relation to the
Accounts appears on page 128.
Going Concern
The Accounts continue to be
prepared on a going concern
basis, as the Directors are satisfied
that the Company and the Group
as a whole have the resources
to continue in business for the
foreseeable future. In forming this
view, the Directors have reviewed
the Group’s budget for 2003.
Internal Control
The Directors acknowledge that
the Board is responsible for the
Group’s system of internal control
and for reviewing its effectiveness.
Guidance (‘Internal Control:
Guidance for Directors on the
Combined Code’) has been issued
by the Irish Stock Exchange and
the London Stock Exchange
to assist Directors in complying
with the Code’s requirements
in respect of internal control.That
Guidance states that systems
of internal control are designed
to manage rather than eliminate
the risk of failure to achieve
business objectives, and can
provide only reasonable and not
absolute assurance against material
misstatement or loss.
39
Corporate Governance Statement
of reports from the Audit
Committee and Management,
they have reviewed the
effectiveness of the Group’s
system of internal control for the
year ended 31 December 2002.
Compliance Statement
The Company was in full
compliance at 31 December 2002
with the Provisions of the Code,
having designated a Senior
Independent Non-Executive
Director in October 2002,
as indicated above.
The Group’s system of internal
- appropriate policies and
control includes:
- a clearly defined management
structure, with defined lines
of authority and accountability;
- a comprehensive annual
budgeting and financial
reporting system, which
incorporates clearly defined
and communicated common
accounting policies and
financial control procedures,
including those relating to
authorisation limits; capital
expenditure and investment
procedures; physical and
computer security; and business
continuity planning; the
accuracy and integrity of the
Group’s financial information
is confirmed through Divisional
and Group level reports to the
Chief Financial Officer;
- the General Manager,
Regulatory Compliance &
Business Ethics reports
independently to the Audit
Committee on the compliance
framework across the Group
and on Management’s attention
to compliance matters;
- the Audit Committee, which
receives reports on various
aspects of control, reviews the
Group’s statutory Accounts and
other published financial
statements and information, and
ensures that no restrictions are
placed on the scope of the
statutory audit or on the
independence of the Internal
Audit function.The Audit
Committee reports to the Board
on these matters, compliance
with relevant laws and
regulations, and related matters;
procedures relating to capital
management, asset and liability
management (including interest
rate risk, exchange rate risk and
liquidity management), credit
risk management, and
operational risk management;
independent testing of the risk
management and control
framework is undertaken by
the Internal Audit function;
- the Group Risk function is
responsible for ensuring that
risks are identified, assessed and
managed throughout the Group;
- regular review by the Board
of overall strategy, business
plans, variances against
operating and capital budgets
and other performance data.
The above-mentioned
Guidance provides that the Board
should summarise the process
it (either directly or, where
applicable, through its committees)
has applied in reviewing the
effectiveness of the system of
internal control.The Group’s
structure and on-going processes
for identifying, evaluating and
managing the significant credit,
market and operational risks faced
by the Group are described in
pages 28 to 34.Those processes
are regularly reviewed by the
Board, and accord with the
above-mentioned Guidance.
The Code provides that the
Directors should, at least annually,
conduct a review of the
effectiveness of the Group’s system
of internal control and should
report to the shareholders that
they have done so.The Directors
confirm that, with the assistance
40
Financial contents
42
47
49
50
51
52
52
52
53
Accounting policies
Consolidated profit and loss account
Consolidated balance sheet
Balance sheet Allied Irish Banks, p.l.c.
Consolidated cash flow statement
Statement of total recognised gains and losses
Reconciliation of movements in shareholders’ funds
Note of historical cost profits and losses
Notes to the accounts
128
Statement of Directors’ responsibilities in relation to the Accounts
129
Independent auditors’ report
131
Accounts in sterling, US dollars and Polish zloty
132
Five year financial summary
41
Accounting policies
Accounting convention
The accounts on pages 47 to 127 have
been prepared under the historical cost
convention, as modified by the
revaluation of certain financial
instruments held for dealing purposes,
assets held in the long-term assurance
business and certain properties.The
accounts comply with the requirements
of Irish statute comprising the Companies
Acts 1963 to 2001 and the European
Communities (Credit Institutions:
Accounts) Regulations, 1992, and with
applicable accounting standards issued by
the Accounting Standards Board,
pronouncements of the Urgent Issues
Task Force, and with the Statements
of Recommended Practice issued by the
British Bankers’ Association and the Irish
Bankers’ Federation.The preparation
of accounts requires management to make
estimates and assumptions that affect the
reported amounts of certain assets,
liabilities, revenues and expenses, and
disclosures of contingent assets and
liabilities. Since management’s judgement
involves making estimates concerning
the likelihood of future events, the actual
results could differ from those estimates.
The effect on the Group’s
consolidated net income and ordinary
shareholders’ equity had US Generally
Accepted Accounting Principles (‘US
GAAP’) been applied in the preparation
of these accounts is set out in note 64.
Change in accounting policy
and presentation of financial
information
(a) Deferred taxation
The Group has adopted Financial
Reporting Standard (‘FRS’) 19 ‘Deferred
Tax’ in the preparation of its accounts for
the year ended 31 December 2002.
Previously it was Group policy to provide
deferred tax where there was a reasonable
probability that the deferred tax asset
or liability would crystallise in the
foreseeable future. Under FRS 19, deferred
tax is recognised on all timing differences.
The change in policy did not have a
material impact on the results for each of
the years ended 31 December 2002, 2001
and 2000. Under FRS 19, deferred tax
4242
assets and liabilities are required to be
disclosed separately on the face of the
balance sheet. Comparative figures have
been restated.
(b) Change in presentation of financial
information
The Group has implemented UITF 33 -
‘Obligations in Capital Instruments’ in
the preparation of its accounts for the
year ended 31 December 2002 and
comparative figures have been restated.
Under UITF 33 the € 500m 7.5%
Step-Up Callable Perpetual Reserve
Capital Instruments (RCIs), which were
issued during 2001, are treated as a
subordinated liability rather than
shareholders’ funds.The related interest
cost is included within interest expense
whereas previously the amount was
included in ‘Dividends on non-equity
shares’.The effect on 2001 is to reduce
net interest income and Group profit
before taxation and exceptional items by
€ 35 million. Dividends on non-equity
shares reduced by € 35 million and the
impact on profit attributable was neutral.
Funded retirement benefit schemes in
surplus are now shown as assets on the
balance sheet while funded retirement
benefit schemes in deficit together with
unfunded schemes are shown on the
balance sheet as liabilities. Previously these
would have been presented as a net figure.
(c) Comparative amounts
Comparative amounts have been
reclassified to accord with the presentation
of information in the accounts for 2002.
Basis of consolidation
The Group accounts include the
accounts of Allied Irish Banks, p.l.c.
(the parent company) and its subsidiary
undertakings made up to the end of
the financial year. Details of principal
subsidiaries are given in note 32.
In order to reflect the different nature
of the shareholders’ and policyholders’
interests in the long-term assurance
business, the value of long-term assurance
business attributable to shareholders
and the long-term assurance assets and
liabilities attributable to policyholders
are classified under separate headings
in the consolidated balance sheet.
Interests in associated
undertakings
An associated undertaking generally
is one in which the Group’s interest
is greater than 20% and less than 50%
and where the Group exercises significant
influence over the entity’s operating and
financial policies. Interests in associated
undertakings are included in the
consolidated balance sheet at the Group’s
share of the book value of the net assets
of the undertakings concerned, less
provisions for any impairment in value.
Goodwill arising on the acquisitions of
associates occuring after 1 January 1998
is included within the carrying amount
of the associate less amortisation to date.
The attributable share of income of
associated undertakings, based on
accounts made up to the end of the
financial year, is included in the
consolidated profit and loss account using
the equity method of accounting.
Income and expense
recognition
Interest income and expense is recognised
on an accruals basis. Fees which, in effect,
increase the yield on transactions are
spread over the lives of the underlying
transactions on a level yield basis. Fees
and commissions received for services
provided are recognised when earned.
Expenses are, in general, charged to profit
and loss account as accrued. However,
in some cases, expenses incurred in the
setting up of transactions are deferred
and are charged to profit and loss account
over the lives of the transactions.
Provisions for bad and
doubtful debts
It is Group policy to make provisions
for bad and doubtful debts to reflect the
losses inherent in the loan portfolio at
the balance sheet date.The charge to
the profit and loss account reflects new
provisions made during the year, plus
write-offs not previously provided for, less
existing provisions no longer required and
recoveries of bad debts already written off.
Specific provisions are made when,
in the judgement of management, the
recovery of the outstanding balance is
in serious doubt.The amount of the
specific provision is intended to cover the
difference between the balance
outstanding on the loan or advance and
the estimated recoverable amount. In
certain portfolios, provisions are applied
to pools of loans on a formula driven
basis depending on levels of delinquency.
When a loan has been subjected to a
specific provision, and the prospects for
recovery do not improve, a point will come
when it may be concluded that there is
no realistic prospect of recovery.When
this point is reached, the amount of the
loan which is considered to be beyond
the prospect of recovery is written off.
General provisions are also made to
cover loans which are impaired at balance
sheet date, and while not specifically
identified, are known from experience
to be present in any portfolio of bank
advances.The Group holds general
provisions at a level deemed appropriate
by management taking into account a
number of factors including:- the credit
grading profiles and movements within
credit grades; historic loan loss rates; local
and international economic climates
and portfolio sector profiles/industry
conditions.The level of general provisions
is reviewed quarterly to ensure that it
remains appropriate.
Loans and advances to banks and
customers are reported in the balance
sheet having deducted the total provisions
for bad and doubtful debts (note 27).
Loans are deemed non-performing
where interest is 90 days overdue and not
taken to profit (i.e. non-accrual) or where
a provision exists in anticipation of a loss.
Interest is not taken to profit when
recovery is doubtful.
Debt securities
Debt securities held as financial fixed
assets are those held on a continuing
use basis by the Group and those held
to hedge positions which are accounted
for on a historic cost basis.These debt
securities are stated in the balance sheet
at cost, adjusted for the amortisation of
any premiums or discounts arising on
acquisition or provisions for impairment.
The amortisation of premiums and
discounts is included in net interest
income. Profits and losses on disposal
of securities held for investment purposes
are recognised immediately in other
operating income. Profits and losses
on disposal of securities held for hedging
purposes are amortised over the lives
of the underlying transactions and
included in net interest income.
Debt securities held for trading
purposes are stated in the balance sheet at
market value. Both realised and unrealised
profits on trading securities are taken
directly to the profit and loss account
and included within dealing profits.
Investment or other securities may
be lent or sold subject to a commitment
to repurchase them. Securities sold
are retained on the balance sheet where
substantially all the risks and rewards
of ownership remain with the Group.
Similarly, securities purchased subject
to a commitment to resell are treated
as collateralised lending transactions
where the Group does not acquire
the risks or rewards of ownership.
Finance leases
Assets leased to customers are classified
as finance leases if the lease agreements
transfer substantially all the risks and
rewards of ownership. Finance lease
receivables are stated in the balance sheet
at the cost of asset, including gross
earnings to date, less rentals earned
to date and provisions for impairment.
In addition rentals received in advance
but not yet amortised to profit and loss
account are included in other liabilities.
Income from finance leasing
transactions is apportioned over the
primary leasing period on an after tax
basis in proportion to the net cash
investment using the investment period
method. Government grants in respect
of these assets are credited to profit and
loss account on the same basis.
Hire purchase and
instalment finance
Amounts receivable under hire purchase
contracts are stated in the balance sheet
at the cost of the asset, including gross
earnings to date less rentals received
to date and provisions for impairment.
Interest and charges on hire purchase
and on instalment credit agreements are
taken to profit and loss account by the
sum of the digits method over the period
of the agreements after deducting the costs
of setting up the transactions.
Securitised assets
Securitised assets are included in the
balance sheet at their gross amount less
non-returnable proceeds received
on securitisation, where the Group has
retained significant rights to benefits
and exposure to risks, but where the
Group’s maximum loss is limited to
a fixed monetary amount.The
contribution from the securitised assets
is included in other operating income.
Operating leases
Rentals are charged to profit and loss
account in equal instalments over the
terms of the leases.
Tangible fixed assets
It is Group policy not to revalue its
tangible fixed assets.The Group adopted
the transitional arrangements of FRS 15
‘Tangible Fixed Assets’ and chose to retain
the book amounts of previously revalued
assets in its accounting records.
Tangible fixed assets are depreciated
on a straight line basis over their
estimated useful economic lives.
No depreciation is provided on
freehold land. Freehold and long
leasehold properties are written off over
their estimated useful lives of 50 years.
Leasehold properties with less than
50 years unexpired are written off by
equal annual instalments over the
remaining terms of the leases.
The estimated useful life for costs
of adaptation of freehold and leasehold
property are 10 years for branch properties
and 15 years for office properties, in all
cases subject to the maximum remaining
life of a lease. Such costs are included
within property in the balance sheet total
of tangible fixed assets.
Computer hardware, operating
software and application software are
4343
Accounting policies (continued)
written off over their estimated useful
lives of 3 to 5 years, while other
equipment and furnishings are written off
over 3 to 10 years.The estimated useful
life of motor vehicles is 5 years.
The Group reviews its depreciation
rates regularly. Expenditure incurred to
date amounting to € 83 million on the
development of computer systems has
been capitalised and included under
equipment.This expenditure is written
off over a maximum period of 5 years
and to date € 24 million has been
charged to the profit and loss account.
Equity shares
Equity shares intended to be held on
a continuing basis are classified as
financial fixed assets and included in the
balance sheet at cost less provision for any
impairment. Profits and losses on disposal
of equity shares held as financial fixed
assets are recognised immediately in the
profit and loss account. Equity shares held
for trading purposes are marked to market
with full recognition in the profit and loss
account of changes in market value.
Impairment
Tangible fixed assets and goodwill are
subject to impairment review in
accordance with FRS 11 ‘Impairment
of Fixed Assets and Goodwill’ if there
is evidence of changes in circumstances
that the carrying amount of the fixed
asset or goodwill may not be recoverable.
For the purpose of conducting impairment
reviews, income generating units are
identified as groups of assets, liabilities
and associated goodwill that generate
income that is largely independent of
other income streams.
The impairment review comprises
a comparison of the carrying amount
of the fixed asset or goodwill with its
recoverable amount, which is the higher
of net realisable value and value in use.
Net realisable value is calculated by
reference to the amount at which the asset
could be disposed of.Value in use is
calculated by discounting the expected
future cash flows obtainable as a result
of the assets continued use, including that
resulting from its ultimate disposal, at
a market based discount rate on a pre-tax
basis. Any loss is recognised in the profit
and loss account in the year in which
impairment occurs through the writing
down of the asset. If the occurrence of
an external event gives rise to the reversal
of an impairment loss, the reversal is
recognised in the profit and loss account,
by increasing the carrying amount of the
fixed asset or goodwill in the period in
which it occurs.
Non-credit risk provisions
Provisions are recognised for present
obligations arising as a consequence
of past events where it is probable that
a transfer of economic benefits will be
necessary to settle the obligation and
it can be reliably estimated.
The Group provided in the year
ended 31 December 1993, on a present
value basis, for the cost of its future
commitments arising under the agreements
reached in relation to the funding of
Icarom plc (under Administration), formerly
The Insurance Corporation of Ireland
plc.The future commitments under the
agreements were each discounted to their
present value by applying an interest rate
derived from the weighted average of the
yield to maturity of Irish Government
securities maturing on the same dates
as the future commitments.The Group’s
policy is not to revise these discount rates
for future changes in interest rates.
The commitments are deducted from
the present value provisions as they mature
and interest at the relevant discount rates
is charged annually to interest expense
and added to the present value provisions.
The present value provisions are included
in other liabilities (note 41).
Where a leasehold property ceases
to be used in the business, provision is
made where the unavoidable cost of the
future obligations relating to the lease are
expected to exceed anticipated income.
The provision is discounted using market
rates to reflect the long term nature
of the cash flows.
Where the Group has a detailed
formal plan for restructuring a business
and has raised valid expectations in the
areas affected by the restructuring, by
starting to implement the plan or
announcing its main features, provision
is made for the anticipated cost of the
restructuring including redundancy costs.
The provision raised is normally utilised
within twelve months.
Contingent liabilities are possible
obligations whose existence will be
confirmed only by uncertain future events
giving rise to present obligations where
the transfer of economic benefit is
uncertain or cannot be reliably measured.
Contingent liabilities are not recognised
but are disclosed unless they are remote.
Credit related instruments
The Group treats credit related
instruments (other than credit derivatives)
as contingent liabilities and these are not
recognised on the balance sheet unless
and until the Group is called upon to
make a payment under the instrument.
Assets arising from payments to a third
party where the Group is awaiting
reimbursement from a customer are shown
on the balance sheet where reimbursement
is considered to be virtually certain. Fees
for providing these instruments are taken
to profit and loss account over the life
of the instrument and reflected in fees
and commissions receivable.
Retirement benefits
AIB Group provides a number of defined
benefit and defined contribution
retirement benefit schemes in various
geographic locations, the majority of
which are funded.
In relation to the defined benefit
schemes, a full actuarial valuation
is undertaken every three years and is
updated to reflect current conditions in
the intervening periods. Scheme assets are
valued at market value. Scheme liabilities
are measured on an actuarial basis, using
the projected unit method and discounted
at the current rate of return on a high
quality corporate bond of equivalent term
and currency to the liability. Schemes in
surplus are shown as assets on the balance
sheet net of the deferred tax impact.
Schemes in deficit together with unfunded
schemes are shown on the balance sheet
as liabilities net of the deferred tax impact.
Actuarial gains and losses are recognised
immediately in the statement of total
recognised gains and losses.
4444
The current service cost and past
service cost of the defined benefit schemes
is charged to operating profit and the
expected return on assets net of the change
in the present value of the scheme
liabilities arising from the passage of time,
is credited to other finance income.
The costs of the Group’s defined
contribution schemes are charged to the
profit and loss account in the period
in which they are incurred.
Deferred taxation
Except as outlined below deferred
taxation is recognised in full in respect
of timing differences that have originated
but not reversed at the balance sheet date.
Deferred tax is not provided on timing
differences arising:- on the revaluation
of property when no commitment has
been made to sell the asset; when a taxable
gain on the sale of an asset is rolled over
into replacement assets; or on the potential
additional tax that may be payable on the
payment of a dividend by a subsidiary
where no commitment has been made
to pay a dividend.
Deferred tax assets are recognised
to the extent that, on the basis of the
available evidence, it is regarded as more
likely than not that there will be suitable
taxable profits from which the future
reversal of the underlying timing
differences can be deducted.The
calculation of the deferred taxation asset
or liability is based on the taxation rates
that are expected to apply in the periods
in which the timing differences are
expected to reverse based on tax rates and
laws that have been enacted or substantively
enacted at the balance sheet date.
Foreign currencies
Assets and liabilities denominated in
foreign currencies and commitments for
the purchase and sale of foreign currencies
are translated at appropriate spot or forward
rates of exchange ruling on the balance
sheet date. Profits and losses arising from
these translations and from trading activities
are included as appropriate, having regard
to the nature of the transactions, in other
operating income or dealing profits.
In the case of net investments in
foreign subsidiaries, associated undertakings
and branches, exchange adjustments arising
from the retranslation of these investments,
net of hedging profits and losses, are
recognised in the statement of total
recognised gains and losses.
Profits and losses arising in foreign
currencies have been translated at average
rates for the year.The adjustment arising
on the retranslation of profits and losses
to balance sheet rates is recognised in
the statement of total recognised gains
and losses.
Capital instruments
Issue expenses of capital instruments
are deducted from the proceeds of issue
and, where appropriate, are amortised to
profit and loss account so that the finance
costs are allocated to accounting periods
at a constant rate based on the carrying
amount of the instruments.The issue
expenses amortised to profit and loss
account are subsequently transferred
to the share premium account.
Intangible assets and goodwill
Goodwill may arise on the acquisition
of subsidiary and associated undertakings.
Purchased goodwill is the excess of cost
over the fair value of the Group’s share
of net assets acquired. In accordance with
FRS 10 ‘Goodwill and Intangible Assets’,
purchased goodwill and intangible assets
arising on acquisition of subsidiary and
associated undertakings, occurring after
1 January 1998, are capitalised as assets
on the balance sheet and amortised to
profit and loss account over their estimated
useful economic lives.The useful economic
life of goodwill is determined at the time
of acquisition, taking into consideration
factors such as the nature of the business
acquired, the market in which it operates
and its position in that market. In all cases
goodwill is subject to a maximum life
of 20 years and is subject to review in
accordance with FRS 11, ‘Impairment
of Fixed Assets and Goodwill’.
Goodwill arising on acquisitions
of subsidiary and associated undertakings
prior to 31 December 1997 has been
written off to the profit and loss account
(note 48) in the year of acquisition.
In accordance with the transitional
arrangements of FRS 10 this goodwill
was not reinstated when FRS 10 was
implemented. At the date of disposal of
subsidiary or associated undertakings, any
unamortised goodwill, or goodwill written
off directly to profit and loss account on
acquisitions prior to 1 January 1998, is
included with the Group’s share of net
assets of the undertaking disposed in the
calculation of the profit or loss on disposal.
Own shares
Shares held within certain Employee Share
Trusts are recognised as assets on the
balance sheet of the Group in accordance
with UITF Abstract 13 ‘Accounting for
ESOP trusts’.
Where shares have been granted
to employees at a discount to market price
the cost of providing these shares
is charged to the profit and loss on a
systematic basis over the period to date
of vesting. In accordance with UITF
Abstract 13, dividend income received
by the schemes is excluded in arriving
at profit before taxation, and dividends
on equity shares is reduced accordingly.
In addition, shares held by the trusts are
excluded from the earnings per share
calculation.
Derivatives
The Group uses derivatives, such as
interest rate swaps, options, forward rate
agreements and financial futures for trading
and non-trading purposes (note 51).The
accounting treatment of these derivative
instruments is dependent on the purpose
for which they are entered into.
The Group maintains trading positions
in a variety of financial instruments
including derivatives.Trading transactions
arise as a result of activity generated by
customers while others represent
proprietary trading with a view to
generating incremental income.Trading
instruments and hedges thereof are
recognised in the accounts at fair value
with the adjustment arising included
in other assets and other liabilities as
appropriate. Assets and liabilities arising are
reported gross in other assets or liabilities
reduced by the effects of qualifying netting
agreements where the Group has the right
4545
the purpose of giving a true and fair view
of the Group’s state of affairs, profit and
cashflows. However, different policies,
estimation techniques and assumptions
in critical areas could lead to materially
different results.
The estimation of potential bad debt
losses is inherently uncertain and depends
upon many factors, including loan loss
trends, portfolio grade profiles, local and
international economic climate, conditions
in various industries to which AIB Group
is exposed and other external factors such
as legal and regulatory requirements. For
example, should the expectation of loss
within a portfolio increase, then this may
result in an increase to the required
general loan loss provision level.
In addition, the profile of the
amortisation of goodwill would be
different if a useful economic life longer
or shorter than the existing AIB policy
of a maximum life of 20 years was used.
The application of other accounting
policies, including measuring the
shareholders’ interest in the Long-term
assurance fund, impairment, debt
securities and equity shares, retirement
benefits and derivatives, require the use
of estimation techniques that involve
making assumptions about future market
conditions which could impact on the
timing and amounts recognised in the
consolidated profit and loss account and
the consolidated balance sheet.
Accounting policies (continued)
to insist on net settlement that would
survive the insolvency of the counterparty.
Gains and losses arising from trading
activities are included in dealing profits
in the profit and loss account using the
mark to market method of accounting.
Interest and dividend income arising
together with the funding costs relating
to trading activities are included in net
interest income.
Non-trading derivative transactions,
comprise transactions held for hedging
purposes as part of the Group’s risk
management strategy, against assets,
liabilities, positions or cash flows,
themselves accounted for on an accruals
basis.The gains and losses on these
instruments (arising from changes in fair
value) are not recognised in the profit
and loss account immediately as they
arise. Derivative transactions entered into
for hedging purposes are recognised in
the accounts on an accruals basis
consistent with the accounting treatment
of the underlying transaction or
transactions being hedged. Upon early
termination of derivative financial
instruments, classified as hedges, any
realised gain or loss is deferred and
amortised to net interest income over the
life of the original hedge as long as the
designated assets or liabilities remain.
A derivative will only be classified
as a hedge where it is designated as a
hedge at its inception and where it is
reasonably expected that the derivative
substantially matches or eliminates the
exposure being hedged.Transactions
designated as hedges are reviewed and
where a transaction originally entered into
for hedging purposes no longer represents
a hedge, its value is restated at fair value
and any change in value is taken to profit
and loss account immediately. Interest rate
swaps, forward rate agreements and option
contracts are generally used to modify
the interest rate characteristics of balance
sheet instruments and are linked to
specific assets or groups of similar assets
or specific liabilities or groups of similar
liabilities. Futures contracts are designated
as hedges when they reduce risk and there
is high correlation between the futures
contracts and the item being hedged, both
at inception and throughout the hedge
period. Amounts paid or received over
the life of a futures contract are deferred
and amortised over the life of the contract.
Long-term assurance business
The value placed on the Group’s
long-term assurance business attributable
to shareholders represents a valuation
of the policies in force together with
the net tangible assets of the business
including any surplus retained in the
long-term business funds which could
be transferred to shareholders.The value
is determined on the advice of a qualified
actuary on an after tax basis and is
included separately in the consolidated
balance sheet.
Movements in the value placed
on the Group’s long-term assurance
business attributable to shareholders,
grossed up for taxation, are included
in other operating income.
Fiduciary and trust activities
Allied Irish Banks, p.l.c. and some
subsidiary undertakings act as trustee and
in other fiduciary capacities that result
in the holding or placing of assets on
behalf of individuals, investment trusts,
pension schemes and unit trusts.These
assets are not consolidated in the accounts
as they are not assets of Allied Irish Banks,
p.l.c. or its subsidiary undertakings. Fees
and commissions earned in respect of
these activities are included in the profit
and loss account.
Critical accounting policies
AIB’s financial statements are prepared
under the historical cost convention as
modified by the revaluation of certain
properties and investments and comply
with Irish statute and with Irish Generally
Accepted Accounting Principles as well
as general practices followed by the
financial services industry in Ireland and
the UK. In the preparation of its financial
statements the Group adopts the
accounting policies and estimation
techniques that the Directors believe are
most appropriate in the circumstances for
4646
Consolidated profit and loss account
for the year ended 31 December 2002
Notes
2002
€ m
2001
Restated(1)
€ m
2000
€ m
Interest receivable:
Interest receivable and similar income arising from
debt securities and other fixed income securities
Other interest receivable and similar income
Less: interest payable
Deposit interest retention tax
Net interest income
Other finance income
Dividend income
Fees and commissions receivable
Less: fees and commissions payable
Dealing profits
Exceptional foreign exchange dealing losses
Other operating income
Other income
Total operating income
Before exceptional items
Exceptional foreign exchange dealing losses
Deposit interest retention tax
Administrative expenses:
Staff and other administrative expenses
Restructuring and integration costs in continuing businesses
Depreciation and amortisation
Total operating expenses
Group operating profit before provisions
Before exceptional items
Exceptional foreign exchange dealing losses
Deposit interest retention tax
Provisions for bad and doubtful debts
Provisions for contingent liabilities and commitments
Amounts written off/(written back) fixed asset investments
Group operating profit – continuing activities
Before exceptional items
Exceptional foreign exchange dealing losses
Deposit interest retention tax
Income from associated undertakings
Profit on disposal of property
Profit on disposal of business
Group profit on ordinary activities before taxation (carried forward)
Before exceptional items
Exceptional foreign exchange dealing losses
Deposit interest retention tax
4
5
6
7
8
9(a)
9(b)
10
9(b)
6
11(a)
11(b)
12
9(b)
6
27
13
9(b)
6
15
9(b)
6
946
3,807
(2,402)
–
2,351
62
14
1,301
(138)
77
–
263
1,517
3,930
3,930
–
–
2,098
13
2,111
207
2,318
1,612
1,612
–
–
194
2
55
1,361
1,361
–
–
9
5
–
1,375
1,375
–
–
1,198
4,148
(3,088)
–
1,140
3,987
(3,105)
(113)
2,258
67
11
1,258
(128)
92
(789)
193
637
2,962
3,751
(789)
–
2,051
38
2,089
195
2,284
678
1,467
(789)
–
179
19
6
474
1,263
(789)
–
4
6
93
577
1,366
(789)
–
1,909
71
6
1,101
(108)
103
–
202
1,304
3,284
3,397
–
(113)
1,826
–
1,826
171
1,997
1,287
1,400
–
(113)
133
2
(1)
1,153
1,266
–
(113)
3
5
–
1,161
1,274
–
(113)
4747
Consolidated profit and loss account (continued)
for the year ended 31 December 2002
Group profit on ordinary activities before taxation (brought forward)
Taxation on ordinary activities
Group profit on ordinary activities after taxation
Equity and non-equity minority interests in subsidiaries
Dividends on non-equity shares
Group profit attributable to the ordinary shareholders
of Allied Irish Banks, p.l.c.
Dividends on equity shares
Transfer to reserves
Profit retained
Earnings per € 0.32 ordinary share – basic
Earnings per € 0.32 ordinary share – adjusted
Earnings per € 0.32 ordinary share – diluted
Notes
17
18
19
20
47
21&48
22(a)
22(b)
22(c)
2002
€ m
1,375
306
1,069
24
8
32
1,037
429
45
474
563
119.4c
123.0c
118.2c
2001
Restated(1)
€ m
577
55
522
23
15
38
484
380
63
443
41
56.2c
119.4c
55.9c
2000
€ m
1,161
319
842
38
20
58
784
335
70
405
379
91.6c
106.7c
91.0c
(1)The figures for 2001 have been restated to reflect the interest cost of the Reserve Capital Instruments as interest expense rather than ‘Dividends on
non-equity shares’ in accordance with UITF 33.
L Quinn, Chairman. M Buckley, Group Chief Executive. G Kennedy, Group Director, Finance & Enterprise Technology.W M Kinsella, Secretary.
The movements in the Group profit and loss account are shown in note 48.
4848
Consolidated balance sheet
31 December 2002
Assets
Cash and balances at central banks
Items in course of collection
Central government bills and other eligible bills
Loans and advances to banks
Loans and advances to customers
Securitised assets
Less: non-returnable proceeds
Debt securities
Equity shares
Interests in associated undertakings
Intangible fixed assets
Tangible fixed assets
Own shares
Other assets
Deferred taxation
Prepayments and accrued income
Pension assets
Long-term assurance business attributable to shareholders
Long-term assurance assets attributable to policyholders
Liabilities
Deposits by banks
Customer accounts
Debt securities in issue
Other liabilities
Accruals and deferred income
Pension liabilities
Provisions for liabilities and charges
Deferred taxation
Subordinated liabilities
Equity and non-equity minority interests in subsidiaries
Share capital
Share premium account
Reserves
Profit and loss account
Shareholders’ funds including non-equity interests
Long-term assurance liabilities to policyholders
Memorandum items
Contingent liabilities:
Acceptances and endorsements
Guarantees and assets pledged as collateral security
Other contingent liabilities
Commitments:
Commitments arising out of sale and option to resell transactions
Other commitments
Notes
2002
€ m
2001
€ m
1,176
1,171
24
4,788
53,447
1,002
(754)
248
18,204
246
31
457
1,178
176
1,153
245
927
–
352
83,823
2,226
86,049
16,137
52,976
3,077
2,591
829
537
60
527
2,172
274
293
1,918
490
1,942
4,643
83,823
2,226
86,049
72
5,292
1,027
6,391
2,062
17,890
19,952
1,175
1,536
49
6,047
51,216
1,099
(917)
182
20,082
332
10
495
1,305
245
1,260
417
2,080
372
304
87,107
2,252
89,359
13,223
54,557
5,033
3,272
2,159
117
71
717
2,516
312
291
1,926
463
2,450
5,130
87,107
2,252
89,359
142
5,245
1,125
6,512
402
18,597
18,999
23
24
25
28
29
30
31
33
34
35
36
14
37
37
38
39
40
41
14
42
36
43
44
45
46
47
48
37
50
50
L Quinn, Chairman. M Buckley, Group Chief Executive. G Kennedy, Group Director, Finance & Enterprise Technology.W M Kinsella, Secretary.
4949
Balance sheet Allied Irish Banks, p.l.c.
31 December 2002
Assets
Cash and balances at central banks
Items in course of collection
Central government bills and other eligible bills
Loans and advances to banks
Loans and advances to customers
Debt securities
Equity shares
Shares in Group undertakings
Tangible fixed assets
Other assets
Deferred taxation
Prepayments and accrued income
Pension assets
Liabilities
Deposits by banks
Customer accounts
Debt securities in issue
Other liabilities
Accruals and deferred income
Pension liabilities
Provisions for liabilities and charges
Deferred taxation
Subordinated liabilities
Share capital
Share premium account
Reserves
Profit and loss account
Shareholders’ funds including non-equity interests
Memorandum items
Contingent liabilities:
Acceptances and endorsements
Guarantees and assets pledged as collateral security
Other contingent liabilities
Commitments:
Other commitments
Notes
2002
€ m
2001
€ m
571
144
4
13,520
28,904
13,371
16
1,327
526
350
40
867
–
455
227
7
11,586
25,496
13,625
18
1,534
562
361
57
1,805
358
59,640
56,091
25,163
26,080
1,935
897
758
258
22
4
1,604
293
1,918
116
592
2,919
21,858
24,335
1,893
800
1,781
14
28
2
1,726
291
1,926
132
1,305
3,654
59,640
56,091
54
3,455
558
4,067
96
3,266
549
3,911
8,624
7,734
23
24
25
29
30
32
34
36
38
39
40
41
42
36
43
45
46
47
48
50
50
L Quinn, Chairman. M Buckley, Group Chief Executive. G Kennedy, Group Director, Finance & Enterprise Technology.W M Kinsella, Secretary.
5050
2001
Restated
€ m
2000
€ m
231
2,433
Consolidated cash flow statement
for the year ended 31 December 2002
Net cash (outflow)/inflow from operating activities
Dividends received from associated undertakings
Returns on investments and servicing of finance
Equity dividends paid
Taxation
Capital expenditure and financial investment
Acquisitions and disposals
Financing
Increase/(decrease) in cash
Reconciliation of Group operating profit to net
cash (outflow)/inflow from operating activities
Group operating profit
Decrease/(increase) in prepayments and accrued income
(Decrease)/increase in accruals and deferred income
Provisions for bad and doubtful debts
Provisions for contingent liabilities and commitments
Amounts written off/(written back) fixed asset investments
Increase in other provisions
Depreciation and amortisation
Amortisation of own shares
Profit on disposal of business
Interest on subordinated liabilities
Interest on reserve capital instruments
Profit on disposal of debt securities and equity shares
Averaged gains on debt securities held for hedging purposes
Profit on disposal of associated undertakings
Amortisation of discounts on debt securities held as financial fixed assets
Increase in long-term assurance business
Notes
54(a)
54(b)
54(c)
54(d)
54(e)
54(f)
2002
€ m
(121)
1
(138)
(345)
(280)
1,379
(5)
(129)
362
2002
€ m
1,361
1,162
(1,191)
194
2
55
16
207
–
–
83
38
(117)
(4)
(1)
(15)
(48)
4
(131)
(334)
(242)
700
(59)
208
377
2001
Restated
€ m
474
(199)
429
179
19
6
19
202
2
93
133
35
(21)
(24)
(1)
(7)
(66)
Net cash inflow from trading activities
1,742
1,273
Net increase in deposits by banks
Net increase in customer accounts
Net increase in loans and advances to customers
Net decrease/(increase) in loans and advances to banks
Decrease in central government bills
Net increase in debt securities and equity shares
held for trading purposes
Net decrease/(increase) in items in course of collection
Net (decrease)/increase in debt securities in issue
Net (decrease)/increase in notes in circulation
(Increase)/decrease in other assets
(Decrease)/increase in other liabilities
Effect of exchange translation and other adjustments
Net cash (outflow)/inflow from operating activities
3,975
2,299
(6,129)
982
18
(1,180)
174
(1,425)
(3)
(28)
(521)
(25)
452
4,647
(4,281)
(1,588)
274
(1,394)
(374)
533
44
460
279
(94)
(1,863)
(1,042)
(121)
231
–
(184)
(228)
(199)
(3,004)
2
164
(1,016)
2000
€ m
1,153
(607)
355
133
2
(1)
11
171
1
–
155
–
(23)
(16)
(5)
(2)
(72)
1,255
3,621
4,854
(5,812)
(1,015)
445
(710)
(160)
(266)
23
(595)
674
119
1,178
2,433
5151
Statement of total recognised gains and losses
Group profit attributable to the ordinary shareholders
Currency translation differences on foreign currency net investments
Actuarial loss recognised in retirement benefit schemes (note 14)
Prior year adjustment (note 14(b))
Total recognised (losses)/gains relating to the year
2002
€ m
1,037
(341)
(823)
–
(127)
Reconciliation of movements in shareholders’ funds
Group profit attributable to the ordinary shareholders
Dividends on equity shares
Other recognised (losses)/gains relating to the year
Actuarial loss recognised in retirement benefit schemes (note 14)
New ordinary share capital subscribed
Ordinary shares issued in lieu of cash dividend
Net (deduction from)/addition to shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds
Shareholders’ funds:
Equity interests
Non-equity interests
2002
€ m
1,037
429
608
(387)
(823)
39
76
(487)
5,130
4,643
4,408
235
4,643
2001
€ m
484
145
(402)
648
875
2001
€ m
484
380
104
160
(402)
37
23
(78)
5,208
5,130
4,851
279
5,130
2000
€ m
784
130
(201)
–
713
2000
€ m
784
335
449
150
(201)
27
78
503
4,705
5,208
4,944
264
5,208
Note of historical cost profits and losses
Reported profits on ordinary activities before taxation would not be materially different if presented on an unmodified
historical cost basis.
5252
Notes to the accounts
1 Acquisition of a strategic stake in M&T Bank Corporation. Disposal of Allfirst Financial Inc.
It was announced on 26 September 2002 that AIB is entering into a strategic relationship with M&T Bank Corporation (‘M&T’)
whereby AIB’s US subsidiary, Allfirst, will be acquired by M&T. As a result of the transaction, AIB will acquire a strategic shareholding
of 26.7 million M&T shares, representing a stake of approximately 22.5% in the enlarged M&T. AIB will also receive US$ 886m in cash.
The transaction, which is expected to be completed by the end of the first quarter of 2003, is subject to regulatory approvals.
Shareholders of both M&T and AIB approved the transaction in December 2002.
The transaction has no impact on the accounts of AIB for 2002.The transaction will be accounted for in accordance with the
Urgent Issue Task Force Abstract No. 31 ‘Exchanges of businesses or other non-monetary assets for an interest in a subsidiary, joint
venture or an associate’ (‘UITF 31’). Under UITF 31 the transaction is accounted for as an exchange of 77.5% of Allfirst for 22.5%
of the existing M&T. Under this approach, the 22.5% of Allfirst that is owned by AIB, both directly before the transaction and
indirectly thereafter, is treated as being owned throughout the transaction.The transaction will give rise to a gain, which will be
recognised on completion.
The 2003 accounts will also reflect the income and expenses of Allfirst for the period during which it remains a 100% subsidiary
of the Group. Following completion of the transaction, the Group will account for its investment in the enlarged M&T as an associated
undertaking.The Group will include its share of the profits of the enlarged M&T in the Group profit and loss account within the
caption ‘Income from associated undertakings’. AIB will also account for its 22.5% share of the costs associated with the merger,
calculated in accordance with Irish GAAP.
2 Turnover
Turnover is not shown as it resulted in the main from the business of banking.
3 Segmental information
Operations by business segments(1)
Net interest income(2)
AIB Bank ROI
AIB Bank GB & NI
USA
Capital Markets
Poland
Group
Deposit interest retention tax
Other finance income
AIB Bank ROI
AIB Bank GB & NI
USA
Capital Markets
Poland
Group
Other income
AIB Bank ROI
AIB Bank GB & NI
USA
Capital Markets
Poland
Group
Exceptional foreign exchange dealing losses
2002
€ m
2001
€ m
921
363
549
271
272
(25)
2,351
–
2,351
40
(1)
(2)
7
–
18
62
353
166
528
282
188
–
1,517
–
1,517
843
336
584
210
275
10
2,258
–
2,258
43
3
2
8
–
11
67
359
161
446
305
163
(8)
1,426
(789)
637
2000
€ m
738
318
537
127
252
50
2,022
(113)
1,909
46
4
4
8
1
8
71
357
151
381
304
153
(42)
1,304
–
1,304
5353
Notes to the accounts
3 Segmental information (continued)
Operations by business segments(1)
Total operating income
AIB Bank ROI
AIB Bank GB & NI
USA
Capital Markets
Poland
Group
Exceptional foreign exchange dealing losses
Deposit interest retention tax
Total operating expenses
AIB Bank ROI
AIB Bank GB & NI
USA
Capital Markets
Poland
Group
Provisions
AIB Bank ROI
AIB Bank GB & NI
USA
Capital Markets
Poland
Group
Group profit on ordinary activities before taxation(2)
AIB Bank ROI
AIB Bank GB & NI
USA
Capital Markets
Poland
Group
Exceptional foreign exchange dealing losses
Deposit interest retention tax
5454
2002
€ m
2001
€ m
2000
€ m
1,314
528
1,075
560
460
(7)
3,930
–
–
3,930
677
266
668
300
351
56
1,245
500
1,032
523
438
13
3,751
(789)
–
2,962
641
259
638
296
396
54
1,141
473
922
439
406
16
3,397
–
(113)
3,284
593
248
554
265
296
41
2,318
2,284
1,997
55
22
98
60
46
(30)
251
590
240
308
209
61
(33)
1,375
–
–
1,375
44
19
39
38
9
55
36
20
38
18
23
(1)
204
134
562
223
355
194
36
(4)
1,366
(789)
–
577
516
205
330
159
88
(24)
1,274
–
(113)
1,161
3 Segmental information (continued)
Operations by business segments(1)
Total loans
AIB Bank ROI
AIB Bank GB & NI
USA
Capital Markets
Poland
Group
Total deposits
AIB Bank ROI
AIB Bank GB & NI
USA
Capital Markets
Poland
Group
Total assets
AIB Bank ROI
AIB Bank GB & NI
USA
Capital Markets
Poland
Group
Total risk weighted assets
AIB Bank ROI
AIB Bank GB & NI
USA
Capital Markets
Poland
Group
Net assets
AIB Bank ROI
AIB Bank GB & NI
USA
Capital Markets
Poland
Group
2002
€ m
2001
€ m
2000
€ m
21,367
8,967
12,286
12,247
3,473
143
58,483
22,522
7,449
12,823
24,250
5,014
132
72,190
27,239
10,161
17,234
25,026
6,261
128
86,049
18,821
8,666
19,234
18,599
3,662
257
69,239
1,198
552
1,225
1,184
233
16
4,408
17,797
7,784
14,586
12,535
4,646
97
57,445
21,016
7,015
17,226
21,472
5,968
116
72,813
23,512
8,993
22,427
26,881
7,340
206
89,359
15,987
7,542
22,403
18,821
4,105
–
68,858
1,126
532
1,578
1,326
289
–
4,851
15,669
7,443
12,995
10,386
3,645
101
50,239
18,609
6,410
15,941
19,271
4,897
82
65,210
21,333
8,507
20,538
23,635
6,129
401
80,543
14,302
6,789
20,318
14,879
3,655
279
60,222
1,174
557
1,668
1,222
300
23
4,944
(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.
5555
Notes to the accounts
3 Segmental information (continued)
Operations by geographical segments(3)
Interest income
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
Other finance income
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
Dividend income
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
Fees and commissions receivable
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
Dealing profits/(losses)
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
Exceptional foreign exchange dealing losses
Other operating income
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
5656
2002
€ m
2001
€ m
2000
€ m
2,020
984
1,002
747
–
4,753
62
(2)
2
–
–
62
4
4
1
5
–
14
446
462
236
155
2
2,089
1,254
1,000
1,001
2
5,346
60
2
5
–
–
67
4
5
–
1
1
11
457
433
225
142
1
1,951
1,359
1,059
756
2
5,127
62
4
5
–
–
71
1
–
–
4
1
6
428
355
207
109
2
1,301
1,258
1,101
63
(11)
24
1
–
77
–
77
79
120
11
53
–
263
62
16
12
2
–
92
(789)
(697)
110
13
30
44
(4)
193
25
2
44
32
–
103
–
103
121
37
20
24
–
202
3 Segmental information (continued)
Operations by geographical segments(3)
Gross income
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
Exceptional foreign exchange dealing losses
Total operating expenses
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
Provisions
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
Group profit on ordinary activities before taxation(2)
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
Exceptional foreign exchange dealing losses
Deposit interest retention tax
Total loans
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
2002
€ m
2001
€ m
2000
€ m
2,674
1,557
1,276
961
2
6,470
–
6,470
924
676
363
351
4
2,782
1,723
1,272
1,190
–
6,967
(789)
6,178
885
653
350
393
3
2,588
1,757
1,335
925
5
6,610
–
6,610
801
569
332
292
3
2,318
2,284
1,997
71
109
25
47
(1)
251
675
330
303
67
–
1,375
–
–
1,375
29,899
12,594
12,516
3,473
1
58,483
132
44
19
9
–
204
527
358
333
55
93
1,366
(789)
–
577
27,224
14,665
10,899
4,646
11
57,445
51
38
23
23
(1)
134
577
301
286
106
4
1,274
–
(113)
1,161
24,027
13,018
9,545
3,645
4
50,239
5757
Notes to the accounts
3 Segmental information (continued)
Operations by geographical segments(3)
Total deposits
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
Total assets
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
Net assets
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
2002
€ m
2001
€ m
2000
€ m
37,944
14,453
14,779
5,014
–
72,190
45,205
17,798
16,774
6,271
1
86,049
1,975
1,243
944
246
–
4,408
33,062
19,078
14,705
5,968
–
72,813
42,148
22,672
17,184
7,343
12
89,359
2,245
1,257
1,029
320
–
4,851
29,055
17,585
13,672
4,897
1
65,210
36,956
21,020
16,191
6,128
248
80,543
2,009
1,700
914
300
21
4,944
(2)The figures for 2001 have been restated to reflect the interest cost of the Reserve Capital Instruments as interest expense rather
than ‘Dividends on non-equity shares’.
(3)The geographical distribution of profit before taxation is based primarily on the location of the office recording the transaction.
Assets by segment
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 net
assets.
4 Other interest receivable and similar income
Interest on loans and advances to banks
Interest on loans and advances to customers
Income from leasing and hire purchase contracts
Income from leasing and hire purchase contracts has been accounted for as follows:
Investment period method
Sum of the digits method
The aggregate rentals receivable from leasing contracts was € 505m (2001: € 501m).
2002
€ m
196
3,423
188
3,807
119
69
188
2001
€ m
255
3,684
209
4,148
134
75
209
2000
€ m
238
3,544
205
3,987
135
70
205
5858
5 Interest payable
Interest on deposits by banks and customer accounts
Interest on debt securities in issue
Interest on subordinated liabilities
Interest on reserve capital instruments
2002
€ m
2,178
103
83
38
2,402
2001
Restated
€ m
2,744
176
133
35
3,088
2000
€ m
2,701
249
155
–
3,105
6 Deposit interest retention tax (‘DIRT’)
On 3 October 2000, AIB announced that it had reached a full and final settlement with the Irish Revenue Commissioners of
€ 114.33m in relation to DIRT, interest and penalties in Ireland for the period April 1986 to April 1999.The settlement included
€ 1.37m paid in prior years. Although AIB believe that it had an agreement with the Revenue Commissioners in 1991 in relation to
DIRT, the Board considered that concluding this settlement was in the best interests of shareholders, customers and staff. As a result an
exceptional charge of € 112.96m was reflected in the accounts for the year ended 31 December 2000.
7 Other finance income
Under FRS 17 ‘Retirement benefits’, the net of the interest cost on liabilities and the expected return on assets is to be recorded
as other finance income adjacent to interest.The interest cost represents the unwinding of the discount on the scheme liabilities.
The expected return on assets is based on long-term expectations at the beginning of the period.
A description of the retirement benefit schemes operated by the Group is provided in note 14.
8 Dividend income
The dividend income relates to income from equity shares.
9 Dealing profits
(a) Dealing profits (before exceptional losses)
Foreign exchange contracts
Profits less losses from securities held for trading purposes
Interest rate contracts
2002
€ m
78
10
(11)
77
2001
€ m
75
2
15
92
2000
€ m
69
42
(8)
103
Dealing profits is a term prescribed by the European Communities (Credit Institutions: Accounts) Regulations, 1992. Dealing profits
reflects trading income and excludes interest payable and receivable arising from these activities. Staff and other administrative expenses
arising from trading activities are not included here but are included under the appropriate heading within administrative expenses
(note 11(a)).
(b) Exceptional foreign exchange dealing losses
AIB accounted for the losses arising from the fraudulent foreign exchange trading activities at Allfirst Bank (‘Fraud Losses’) by way
of an exceptional pre-tax charge of € 789m (of which € 341m related to prior periods) in its accounts for the year ended 31
December 2001.The losses occurred over a number of years as follows:- 2002: US$ 17.2m; 2001: US$ 373.3m; 2000: US$ 211.0m;
1999: US$ 48.2m; 1998: US$ 12.4m; and 1997: US$ 29.1m.
The Group profit attributable to the ordinary shareholders of € 1,037m, for the year ended 31 December 2002, would reduce to
€ 1,019m if the Fraud Losses and associated costs which were charged in 2001 as part of the exceptional item, were taken into account.
Treatment of exceptional foreign exchange dealing losses for US reporting purposes
For US reporting purposes, the Fraud Losses are required to be charged in the years in which they occurred. Accordingly in Note 64
- Supplementary Group financial information for US reporting purposes, the Group profit attributable to stockholders of AIB
is restated to reflect the Fraud Losses and associated costs in the periods in which they occurred.
5959
Notes to the accounts
10 Other operating income
Profit/(loss) on disposal of debt securities held for investment purposes
Profit on disposal of investments in associated undertakings
Profit/(loss) on disposal of equity shares
Contribution of life assurance company (note 37)
Contribution from securitised assets (note 28)
Mortgage origination and servicing income
Miscellaneous operating income
11 Administrative expenses
(a) Staff and other administrative expenses
Staff costs:
Wages and salaries
Social security costs
Retirement benefits service costs (note 14)
Other staff costs
Other administrative expenses
2002
€ m
106
1
11
57
4
7
77
263
2002
€ m
1,097
105
122
67
1,391
707
2,098
2001
€ m
2000
€ m
24
1
(3)
84
5
10
72
(1)
5
24
95
4
3
72
193
202
2001
€ m
1,066
104
106
72
1,348
703
2,051
2000
€ m
934
85
113
60
1,192
634
1,826
(b) Restructuring and integration costs in continuing businesses
Allfirst Financial Inc.
Allfirst introduced an early retirement program in August 2002 for certain qualifying employees which provided additional service
credits for those employees who retired on 1 December 2002.The charge of € 13m in 2002 relates to the cost of the enhanced
benefits that were provided to the employees who retired.This also forms part of the retirement benefit past service cost in note 14.
Bank Zachodni WBK S.A.
On 13 June 2001, Bank Zachodni S.A. (Group interest 83.01%) merged with Wielkopolski Bank Kredytowy S.A. (Group interest
60.14%) through a share for share offering.The enlarged company, now called Bank Zachodni WBK S.A. (Group interest 70.47%),
is listed on the Warsaw stock exchange.The charge of € 38m in 2001 relates to the costs of integration of the two businesses.
12 Depreciation and amortisation
Depreciation of tangible fixed assets:
Property depreciation
Equipment depreciation
Amortisation of goodwill (note 33)
13 Amounts written off/(written back) fixed asset investments
Debt securities
Equity shares
Interests in associated undertakings
6060
2002
€ m
37
138
175
32
207
2002
€ m
19
36
–
55
2001
€ m
37
127
164
31
195
2001
€ m
6
(1)
1
6
2000
€ m
32
113
145
26
171
2000
€ m
(1)
–
–
(1)
14 Retirement benefits
(a) Description of retirement benefit schemes
The Group provides pension benefits for employees in Ireland, the UK, and the US, the majority of which are funded. Certain
post-retirement benefits are also provided for retired employees, primarily healthcare and life insurance benefits in the US.
The Group operates a number of defined benefit schemes.The majority of staff in the Republic of Ireland are members of the
AIB Group Irish Pension Scheme (the Irish scheme) while the majority of staff in the UK are members of the AIB Group UK
Pension Scheme (the UK scheme). Allfirst sponsors a number of defined benefit schemes, the largest of which (the US scheme)
covers substantially all employees of Allfirst and its subsidiaries. Retirement benefits for the defined benefit schemes are calculated
by reference to service and pensionable salary at normal retirement date.
Independent actuarial valuations, for the main Irish and UK schemes, are carried out on a triennial basis.The last such valuation
was carried out on 1 January 2001 using the Projected Unit Method.The schemes are funded and contribution rates of 10.0% and
22.6% have been set for the Irish and UK schemes respectively. As both these schemes are closed to new entrants, under the
Projected Unit Method, the current service cost and the standard contribution rates will increase as members of the schemes
approach retirement. Independent actuarial valuations of the US schemes are carried out annually.The last such valuation was carried
out on 31 December 2002 using the Projected Unit Method.The actuarial valuations are available for inspection only to the
members of the schemes.
The following table summarises the financial assumptions adopted in respect of the main schemes.The assumptions, including
the expected long-term rate of return on assets, have been set upon advice of the Group’s actuary.
Financial assumptions
Irish scheme
Rate of increase in salaries
Rate of increase of pensions in payment
Discount rate
Inflation assumptions
UK scheme
Rate of increase in salaries
Rate of increase of pensions in payment
Discount rate
Inflation assumptions
US scheme
Rate of increase in salaries
Rate of increase of pensions in payment
Discount rate
Inflation assumptions
as at 31 December
2002
%
4.0
2.5
5.60
2.5
4.0
2.5
5.75
2.5
4.5
–
6.51
3.0
2001
%
4.0
2.5
5.75
2.5
4.0
2.5
6.00
2.5
4.5
–
6.94
3.0
2000
%
4.0
2.5
5.75
2.5
4.0
2.5
6.00
2.5
4.0
–
7.47
3.0
The following table sets out on a combined basis for all schemes the fair value of the assets held by the schemes together with the
long term rate of return expected for each class of assets.
Equities
Bonds
Other
Total market value of assets
Actuarial value of liabilities
(Deficit)/surplus in the schemes
Related deferred tax asset/(liability)
Net pension (liability)/asset
as at 31 December 2002
Long term
rate of return
expected
%
9.0
5.2
6.3
8.0
Value
€ m
1,490
333
346
2,169
(2,879)
(710)
173
(537)
as at 31 December 2001
Long term
rate of return
expected
%
Value
€ m
as at 31 December 2000
Long term
rate of return
expected
%
Value
€ m
8.6
5.6
4.9
7.7
2,138
391
373
2,902
(2,645)
257
(2)
255
7.4
5.9
5.1
6.9
2,280
443
407
3,130
(2,403)
727
(102)
625
6161
Notes to the accounts
14 Retirement benefits (continued)
The net pension (liability)/asset is recognised on the balance sheet as follows:-
as at 31 December
Funded pension schemes in surplus
Funded pension schemes in deficit
Unfunded schemes
2002
€ m
–
(482)
(55)
(537)
2001
€ m
372
(58)
(59)
255
Included in the actuarial value of the liabilities is an amount in respect of commitments to pay annual pensions amounting to
€ 105,992 in aggregate to a number of former directors.
The following table sets out the components of the defined benefit cost for each of the three years ended 31 December 2002,
2001 and 2000.
Other finance income
Expected return on pension scheme assets
Interest on pension scheme liabilities
Included within administrative expenses
Current service cost
Past service cost
Cost of providing defined retirement benefits
Analysis of the amount recognised in STRGL
Actual return less expected return on pension scheme assets
Experience gains and losses on scheme liabilities
Changes in demographic and financial assumptions
Actuarial loss recognised under FRS 17
Deferred tax
Recognised in STRGL
Movement in (deficit)/surplus during the year
Surplus in scheme at beginning of year
Movement in year:
Current service cost
Past service cost
Contributions
Other finance income
Actuarial loss recognised under FRS 17
Translation adjustment
(Deficit)/surplus in scheme at end of year
6262
2002
€ m
220
(158)
62
86
22
108
46
2002
€ m
(862)
(18)
(123)
(1,003)
180
(823)
2002
€ m
257
(86)
(22)
50
62
(1,003)
32
(710)
2001
€ m
213
(146)
67
79
5
84
17
2001
€ m
(438)
(32)
(32)
(502)
100
(402)
2001
€ m
727
(79)
(5)
50
67
(502)
(1)
257
2000
€ m
671
–
(46)
625
2000
€ m
203
(132)
71
75
21
96
25
2000
€ m
(158)
(72)
(18)
(248)
47
(201)
2000
€ m
946
(75)
(21)
47
71
(248)
7
727
14 Retirement benefits (continued)
History of experience gains and losses
Difference between expected and actual return on scheme assets:
Amount
Percentage of scheme assets
Experience gains and losses on scheme liabilities:
Amount
Percentage of scheme liabilities
Total amount recognised in STRGL:
Amount
Percentage of scheme liabilities
2002
€ m
(862)
40%
(18)
1%
(1,003)
35%
2001
€ m
(438)
15%
(32)
1%
(502)
19%
2000
€ m
(158)
5%
(72)
3%
(248)
10%
1999
€ m
324
10%
(16)
1%
662
31%
The Group operates a number of defined contribution schemes.The defined benefit schemes in Ireland and the UK were closed
to new members from December 1997. Employees joining after December 1997 join on a defined contribution basis.The standard
contribution rate in Ireland is 10%.The standard contribution rate in the UK is 5% and these members are also accruing benefits
under SERPS (the State Earnings Related Pension Scheme). Allfirst provides a defined contribution plan whereby eligible employees
can contribute, subject to certain limitations, varying percentages of their annual compensation. Allfirst matches 100% of the first
3% and 50% of the next 3% of an employee’s contribution.The total cost in respect of defined contribution schemes for 2002 was
€ 27m (2001: € 22m; 2000: € 17m).
(b) Implementation of FRS 17 ‘Retirement benefits’
The Group adopted FRS 17 in the preparation of its accounts for the year ended 31 December 2001 and comparative figures were
restated.The change in accounting policy arising from the adoption of FRS 17 gave rise to a net credit to shareholders funds of
€ 648m at 1 January 2001.
15 Profit on disposal of business
In August 2001, AIB’s interests in Keppel Capital Holdings Ltd. were sold to Oversea-Chinese Banking Corporation Limited, giving
rise to a profit before taxation on disposal of € 93m (tax charge € nil).
16 Group profit on ordinary activities before taxation
Is stated after:
(i) Income:
(ii) Expenses:
Listed investments
Unlisted investments
Operating lease rentals
Property
Equipment
Auditors’ remuneration (including VAT):
Audit services:
Statutory audit
Audit related services
Non-audit services:
IT consultancy
Taxation services
Other consultancy
2002
€ m
681
279
50
4
2.1
0.4
2.5
–
0.1
0.8
0.9
2001
€ m
778
431
47
4
1.8
0.9
2.7
0.4
0.6
1.2
2.2
2000
€ m
651
495
46
4
1.7
0.8
2.5
4.0
1.0
0.8
5.8
Audit services include fees for the statutory audits of the Group and fees for assignments which are of an audit nature.These fees
include assignments where the auditors provide assurance to third parties.
KPMG were appointed Auditors at the reconvened Annual General Meeting on 26 June 2002.The Auditors’ remuneration
(including VAT) set out above for 2002 relates to KPMG only since date of appointment. In the year ended 31 December 2002, 70%
of the total audit services fees and 84% of the non-audit services fees were paid to overseas offices of the Auditors.
6363
Notes to the accounts
16 Group profit on ordinary activities before taxation (continued)
The Auditors’ remuneration for 2001 and 2000 relates to PricewaterhouseCoopers. During 2002 € 1.2m was paid to
PricewaterhouseCoopers in respect of audit related services. In the year ended 31 December 2001, 73% of the total audit services
fees (2000: 70%) and 64% of the non audit services fees (2000: 56%) were paid to overseas offices of the Auditors. Included in non-
audit services for 2001 are fees for work associated with the merger of Bank Zachodni and Wielkopolski Bank Kredytowy.The level
of non-audit services fees for 2000 is primarily due to fees for a number of significant IT assignments.
The Audit Committee has reviewed the level of non-audit services fees and is satisfied that it has not affected the independence
of the Auditors. It is Group policy to subject all large consultancy assignments to competitive tender.
17 Taxation
Allied Irish Banks, p.l.c. and subsidiaries
Corporation tax in Republic of Ireland
Current tax on income for the period
Adjustments in respect of prior periods
Double taxation relief
Foreign tax
Current tax on income for the period
Adjustments in respect of prior periods
Total current tax
Deferred tax
Origination and reversal of timing differences
Other
Total deferred tax
Associated undertakings
Taxation on ordinary activities
Effective tax rate - adjusted
2002
€ m
2001
€ m
2000
€ m
81
(7)
74
(4)
70
212
(4)
208
278
21
6
27
1
306
22.3%
88
(6)
82
(17)
65
64
(8)
56
121
(66)
–
(66)
–
55
69
(1)
68
(15)
53
146
(5)
141
194
125
–
125
–
319
24.2%(1)
25.8%(1)
(1) The adjusted effective tax rate has been presented to eliminate the effect of the exceptional foreign exchange dealing losses in
2001 (note 9(b)) and the deposit interest retention tax settlement in 2000 (note 6).
Factors affecting current tax charge for period
The current tax charge for the period is lower than the weighted average of the Group’s statutory corporation tax rates across its
geographic locations.The differences are explained below.
Weighted average corporation tax rate
Effects of:
Expenses not deductible for tax purposes
Exempted income, income at reduced rates and tax credits
Capital allowances in excess of depreciation
Other deferred tax timing differences
Exceptional item
Adjustments to tax charge in respect of previous periods
Effective current tax charge
6464
2002
%
23.8
1.5
(1.9)
(1.0)
(1.4)
–
(0.8)
20.2
2001
%
25.0
1.5
(3.9)
(0.2)
(1.4)
(11.1)
(1.0)
8.9
2000
%
28.3
1.7
(3.1)
(0.3)
(9.4)
–
(0.5)
16.7
18 Equity and non-equity minority interests in subsidiaries
The profit attributable to minority interests is analysed as follows:
Equity interest in subsidiaries
Non-equity interest in subsidiaries
19 Dividends on non-equity shares
Non-cumulative preference shares of US $25 each
Dividends paid and accrued*
Amortisation of issue costs
2002
€ m
20
4
24
2002
€ m
8
–
8
*Includes an amount of € 2m which has been accrued (2001: € 2m; 2000: € 4m).
20 Dividends on equity shares
Ordinary shares of € 0.32 each
Interim dividend
Second interim dividend
Final dividend
Employee share trusts(1)
2002
2001
cent per € 0.32 share
2000
2002
€ m
17.25
–
31.81
49.06
15.40
28.40
–
43.80
13.50
–
25.25
38.75
154
–
283
437
(8)
429
2001
€ m
15
8
23
2001
€ m
15
–
15
2001
€ m
136
250
–
386
(6)
380
2000
€ m
28
10
38
2000
€ m
20
–
20
2000
€ m
117
–
221
338
(3)
335
(1)In accordance with FRS 14 ‘Earnings per share’, dividends of € 7.9m (2001: € 5.8m; 2000: € 3.4m) arising on the shares held by
certain employee share trusts (note 35) are excluded in arriving at profit before taxation and deducted from the aggregate of dividends
paid and proposed.
21 Profit retained
The transfer to the profit and loss account is dealt with
in the Group accounts as follows:
Allied Irish Banks, p.l.c.
Subsidiary undertakings
Associated undertakings
2002
€ m
2001
€ m
2000
€ m
76
480
7
563
3
39
(1)
41
202
174
3
379
As permitted by Regulation 5, paragraph 2 of the European Communities (Credit Institutions: Accounts) Regulations, 1992, the
profit and loss account of Allied Irish Banks, p.l.c. has not been presented separately.
6565
Notes to the accounts
22 Earnings per € 0.32 ordinary share
2002
2001
2000
(a) Basic
Group profit attributable to the ordinary shareholders(1)
Weighted average number of shares in issue during the year(1)
Earnings per share
€ 1,037m
868.7m
EUR 119.4c
€ 484m
861.4m
EUR 56.2c
€ 784m
856.1m
EUR 91.6c
(1)In accordance with FRS 14 - ‘Earnings per share’, dividends arising on the shares held by the employee share trusts (note 35) are
excluded in arriving at profit before taxation and deducted from the aggregate of dividends paid and proposed.The shares held by
the trusts are excluded from the calculation of weighted average number of shares in issue.
(b) Adjusted
As reported
Adjustments
Exceptional foreign exchange dealing losses (note 9(b))
Deposit interest retention tax (note 6)
Goodwill amortisation
Earnings per € 0.32 ordinary share
2002
2001
2000
cent per € 0.32 share
119.4
–
–
3.6
56.2
59.6
–
3.6
91.6
–
12.0
3.1
123.0
119.4
106.7
The adjusted earnings per share figure has been presented to eliminate the effect of the goodwill amortisation in all years, the
exceptional foreign exchange dealing losses in 2001 and the deposit interest retention tax settlement in 2000.
(c) Diluted
Weighted average number of shares in issue during the period
Dilutive effect of options outstanding
Diluted
2002
2001
2000
Number of shares (millions)
861.4
5.7
867.1
856.1
5.8
861.9
868.7
8.4
877.1
The weighted average number of ordinary shares reflects the dilutive effect of options outstanding under the employee share trusts
(note 35), the Share option scheme (note 45) and the Allfirst Financial Inc. stock option plan (note 45).
23 Central government bills and other eligible bills
Book
amount
€ m
2002
Market
value
€ m
Book
amount
€ m
2001
Market
value
€ m
Group
Held as financial fixed assets
Treasury bills and similar securities
Held for trading purposes
Treasury bills
Allied Irish Banks, p.l.c.
Held as financial fixed assets
Treasury bills and similar securities
Held for trading purposes
Treasury bills
6666
23
3
23
1
24
3
1
4
45
4
49
4
3
7
45
4
23 Central government bills and other eligible bills (continued)
Analysis of movements in central government bills
and other eligible bills held as financial fixed assets
At 1 January 2002
Exchange translation adjustments
Purchases
Disposals/maturities
Amortisation of discounts
At 31 December 2002
24 Loans and advances to banks
Funds placed with the Central Bank of Ireland
Funds placed with other central banks
Funds placed with other banks
Analysed by remaining maturity:
Repayable on demand
Other loans and advances by remaining maturity:
Over 5 years
5 years or less but over 1 year
1 year or less but over 3 months
3 months or less
General and specific bad and doubtful debt provisions (note 27)
Due from subsidiary undertakings:
Subordinated
Unsubordinated
Concentrations of credit risk by geographical area
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
Group
€ m
Allied Irish
Banks, p.l.c.
€ m
45
(6)
1,020
(1,041)
5
23
4
(1)
11
(11)
–
3
2002
€ m
1,039
53
3,696
4,788
Group
2001
€ m
399
34
5,614
6,047
Allied Irish Banks, p.l.c.
2001
€ m
2002
€ m
988
17
12,515
13,520
344
5
11,237
11,586
1,555
1,477
91
234
160
77
457
2,541
4,790
2
4,788
230
219
722
3,401
6,049
2
6,047
–
32
415
2,111
2,649
–
2,649
122
10,749
10,871
13,520
2002
€ m
2,463
1,459
451
414
1
4,788
8
61
462
2,132
2,897
–
2,897
125
8,564
8,689
11,586
Group
2001
€ m
2,894
1,219
423
1,500
11
6,047
6767
Notes to the accounts
25 Loans and advances to customers
Loans and advances to customers
Amounts receivable under finance leases
Amounts receivable under hire purchase contracts
Money market funds
Analysed by remaining maturity:
Over 5 years
5 years or less but over 1 year
1 year or less but over 3 months
3 months or less
General and specific bad and doubtful debt provisions (note 27)
Due from subsidiary undertakings:
Subordinated
Unsubordinated
Allied Irish Banks, p.l.c.
2001
€ m
2002
€ m
2002
€ m
50,244
2,143
834
226
Group
2001
€ m
47,674
2,447
863
232
28,788
3
–
113
53,447
51,216
28,904
18,099
14,206
7,158
14,844
54,307
860
17,502
17,032
8,247
9,442
52,223
1,007
9,405
7,462
3,324
5,729
25,920
271
53,447
51,216
25,649
83
3,172
3,255
25,311
4
–
181
25,496
8,005
6,026
3,654
4,990
22,675
292
22,383
83
3,030
3,113
Of which repayable on demand or at short notice
12,008
10,889
9,239
8,073
Amounts include:
Due from associated undertakings
–
–
–
–
€ 979m and € 630m (2001: € 958m and € 923m) of loans and advances were pledged as collateral with the Central Bank of Ireland
and The Federal Reserve Bank, respectively.
The cost of assets acquired for letting under finance leases and hire purchase contracts amounted to € 1,367m (2001: € 1,406m).
28,904
25,496
Non-performing loans – Loans accounted for on a non-accrual basis
AIB Bank ROI division
AIB Bank GB & NI division
USA division
Capital Markets division
Poland division
2002
€ m
194
88
107
115
486
990
Group
2001
€ m
162
107
87
34
643
1,033
6868
26 Loans and advances to customers -
concentrations of credit risk
Construction and property
Republic of Ireland
United States of America
United Kingdom
Poland
2002
% of total
loans(1)
8.8
4.8
5.3
0.4
€ m
4,796
2,582
2,860
221
10,459
19.3
2001
% of total
loans(1)
7.8
5.7
4.1
0.4
18.0
€ m
4,062
2,988
2,156
230
9,436
The construction and property portfolio is well diversified across the Group’s principal markets by spread of location and individual
customer. In addition, the Group’s outstandings are dispersed across the segments within the construction and property portfolio to
ensure that the credit risk is widely spread.
Residential mortgages
Republic of Ireland
United States of America
United Kingdom
Poland
2002
% of total
loans(1)
14.2
0.7
4.0
0.6
19.5
€ m
7,725
374
2,151
319
10,569
2001
% of total
loans(1)
11.3
1.1
3.8
0.3
16.5
€ m
5,930
550
1,965
181
8,626
The residential mortgage portfolio contains high quality lendings which are well diversified by borrower and are represented across
the Group’s principal markets.
(1)Total loans relate to loans and advances to customers and are gross of provisions and unearned income and exclude money market
funds.
Loans and advances to customers by geographical area
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
2002
€ m
27,188
11,135
12,064
3,060
–
53,447
Group
2001
€ m
24,147
13,446
10,477
3,146
–
51,216
6969
Notes to the accounts
27 Provisions for bad
and doubtful debts
Specific
€ m
General
€ m
Group
At 1 January
Exchange translation adjustments
Disposed loans
Charge against profit and loss account
Transfer to specific
Amounts written off
Recoveries of amounts written
off in previous years
At 31 December
Amounts include:
Loans and advances to banks (note 24)
Loans and advances to customers (note 25)
Allied Irish Banks, p.l.c.
At 1 January
Exchange translation adjustments
Charge against profit and loss account
Transfer to specific
Amounts written off
Recoveries of amounts written
off in previous years
At 31 December (note 25)
539
(51)
(2)
–
202
(279)
26
435
2
433
435
78
(1)
–
62
(54)
11
96
470
(35)
–
194
(202)
–
–
427
–
427
427
214
(4)
27
(62)
–
–
175
2002
Total
€ m
1,009
(86)
(2)
194
–
(279)
26
862
2
860
862
292
(5)
27
–
(54)
11
271
Specific
€ m
General
€ m
436
32
–
–
159
(113)
25
539
2
537
539
65
–
–
29
(28)
12
78
436
14
–
179
(159)
–
–
470
–
470
470
150
2
91
(29)
–
–
214
2001
Total
€ m
872
46
–
179
–
(113)
25
1,009
2
1,007
1,009
215
2
91
–
(28)
12
292
The provisions for bad and doubtful debts in Allied Irish Banks, p.l.c. at 31 December 2002 and 2001 relate to loans and advances to
customers only.
28 Securitised assets
Securitised assets
Less: non-returnable proceeds
2002
€ m
1,002
(754)
248
2001
€ m
1,099
(917)
182
In July 1999 a subsidiary company entered into an agreement whereby it securitised and sold part of its Asset Backed Securities
portfolio to a third party. Subsequent to the initial securitisaton, additional assets have been transferred to the third party as provided
for under the terms of the agreement. AIB is not obliged, nor does it intend, to support any losses in this portfolio in excess of the
net amount recognised as an asset on the balance sheet.
The contribution from these securitised assets, included in other operating income, is analysed below.
Net interest income
Other income
Total operating income
Total operating expenses
Provisions for bad and doubtful debts
Contribution from securitised assets (note 10)
7070
2002
€ m
2001
€ m
2000
€ m
4
–
4
–
4
–
4
5
–
5
–
5
–
5
5
–
5
1
4
–
4
29 Debt securities
Group
Held as financial fixed assets
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Held for trading purposes
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Group
Held as financial fixed assets
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Held for trading purposes
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
170
31
–
87
288
–
(1)
–
(43)
(44)
4,931
2,503
124
5,888
13,446
833
73
45
3,807
4,758
2002
Market
value
€ m
5,101
2,533
124
5,932
13,690
833
73
45
3,807
4,758
18,204
288
(44)
18,448
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
87
48
1
87
223
(19)
(7)
–
(28)
(54)
5,014
4,012
518
6,755
16,299
511
47
48
3,177
3,783
2001
Market
value
€ m
5,082
4,053
519
6,814
16,468
511
47
48
3,177
3,783
Market value is market price for quoted securities and directors’ estimate for unquoted securities.
20,082
223
(54)
20,251
7171
Notes to the accounts
29 Debt securities (continued)
Allied Irish Banks, p.l.c.
Held as financial fixed assets
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Held for trading purposes
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Allied Irish Banks, p.l.c.
Held as financial fixed assets
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Held for trading purposes
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
111
4
–
82
197
–
–
–
(37)
(37)
3,581
356
124
5,262
9,323
170
73
–
3,805
4,048
2002
Market
value
€ m
3,692
360
124
5,307
9,483
170
73
–
3,805
4,048
13,371
197
(37)
13,531
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
53
–
1
73
127
(19)
–
–
(25)
(44)
3,624
400
518
5,749
10,291
177
1,354
–
1,803
3,334
2001
Market
value
€ m
3,658
400
519
5,797
10,374
177
1,354
–
1,803
3,334
Market value is market price for quoted securities and directors’ estimate for unquoted securities.
13,625
127
(44)
13,708
7272
29 Debt securities (continued)
Analysed by remaining maturity
Due within one year
Due one year and over
Analysed by listing status
Group
Held as financial fixed assets
Listed on a recognised stock exchange
Quoted elsewhere
Unquoted
Held for trading purposes
Listed on a recognised stock exchange
Quoted elsewhere
Unquoted
2002
€ m
3,921
14,283
18,204
Book
amount
€ m
9,867
2,749
830
13,446
4,355
355
48
4,758
18,204
Group
2001
€ m
4,596
15,486
20,082
2002
Market
value
€ m
10,118
2,743
829
13,690
Allied Irish Banks, p.l.c.
2001
€ m
2002
€ m
2,875
10,750
13,625
2001
Market
value
€ m
10,255
4,877
1,336
16,468
2,518
10,853
13,371
Book
amount
€ m
10,133
4,826
1,340
16,299
3,525
170
88
3,783
20,082
Debt securities with a book value of € 1,492m (2001: € 1,033m) were pledged to secure public funds, trust deposits, funds transactions
and other purposes required by law. Debt securities subject to repurchase agreements amounted to € 3,021m (2001: € 2,192m).
Subordinated debt securities included as financial fixed assets amounted to € 5m at 31 December 2002 (2001: € 5m).
There were no unamortised discounts net of premiums on debt securities held as financial fixed assets in 2002 (2001: € 98m).
The cost of debt securities held for trading purposes amounted to € 4,738m (2001: € 3,801m).
Analysed by listing status
Allied Irish Banks, p.l.c.
Held as financial fixed assets
Listed on a recognised stock exchange
Quoted elsewhere
Unquoted
Held for trading purposes
Listed on a recognised stock exchange
Quoted elsewhere
Unquoted
2001
Market
value
€ m
8,914
613
847
10,374
2002
Market
value
€ m
8,660
373
450
9,483
Book
amount
€ m
8,464
409
450
9,323
4,048
–
–
4,048
13,371
Book
amount
€ m
8,819
621
851
10,291
3,294
40
–
3,334
13,625
Debt securities subject to repurchase agreements amounted to € 2,291m (2001: € 1,415m).
The amount of unamortised premiums net of discounts on debt securities held as financial fixed assets was € 41m (2001: € 17m).
The cost of debt securities held for trading purposes was € 4,039m (2000: € 3,347m).
7373
Notes to the accounts
29 Debt securities (continued)
Analysis of movements in debt securities
held as financial fixed assets
Group
At 1 January 2002
Exchange translation adjustments
Purchases
Realisations/maturities
Charge to profit and loss account (note 13)
Amortisation of discounts net of (premiums)
At 31 December 2002
Allied Irish Banks, p.l.c.
At 1 January 2002
Exchange translation adjustments
Purchases
Realisations/maturities
Charge to profit and loss account
Amortisation of (premiums) net of discounts
At 31 December 2002
30 Equity shares
Group
Held as financial fixed assets
Listed on a recognised stock exchange
Unquoted
Held for trading purposes
Listed on a recognised stock exchange
Group
Held as financial fixed assets
Listed on a recognised stock exchange
Unquoted
Held for trading purposes
Listed on a recognised stock exchange
7474
Cost
€ m
Discounts
and
premiums
€ m
Amounts
written
off
€ m
16,251
(1,445)
9,765
(11,171)
–
–
13,400
10,317
(763)
4,246
(4,448)
–
–
9,352
53
(6)
–
1
–
15
63
(20)
1
–
16
–
(13)
(16)
(5)
2
–
5
(19)
–
(17)
(6)
1
–
5
(13)
–
(13)
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
52
136
188
58
246
10
8
18
18
(2)
(1)
(3)
(3)
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
127
156
283
49
332
20
15
35
35
(23)
(12)
(35)
(35)
Book
amount
€ m
16,299
(1,449)
9,765
(11,165)
(19)
15
13,446
10,291
(761)
4,246
(4,427)
(13)
(13)
9,323
2002
Market
value
€ m
60
143
203
58
261
2001
Market
value
€ m
124
159
283
49
332
30 Equity shares (continued)
Allied Irish Banks, p.l.c.
Held as financial fixed assets
Listed on a recognised stock exchange
Unquoted
Held for trading purposes
Listed on a recognised stock exchange
Allied Irish Banks, p.l.c.
Held as financial fixed assets
Listed on a recognised stock exchange
Unquoted
Held for trading purposes
Listed on a recognised stock exchange
Analysis of movements in equity shares held as financial fixed assets
Group
At 1 January 2002
Charge to profit and loss account (note 13)
Exchange translation adjustments
Transfer to associated undertakings (note 31)
Transfer to trading equity securities
Purchases
Disposals
At 31 December 2002
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
–
3
3
13
16
–
–
–
–
–
–
–
–
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
–
3
3
15
18
–
–
–
–
–
–
–
–
2002
Market
value
€ m
–
3
3
13
16
2001
Market
value
€ m
–
3
3
15
18
Cost
€ m
Amounts
written
off
€ m
Book
amount
€ m
300
–
(29)
(10)
(22)
69
(77)
231
(17)
(36)
2
–
–
–
8
(43)
283
(36)
(27)
(10)
(22)
69
(69)
188
The cost of equity shares held for trading purposes amounted to € 78m (2001: € 53m).
7575
Notes to the accounts
31 Interests in associated undertakings
At 1 January
Exchange translation adjustments
Transfer from equity shares (note 30)
Charge to profit and loss account (note 13)
Purchases
Profit retained
At 31 December
2002
€ m
2001
€ m
10
(1)
10
–
5
7
31
8
–
3
(1)
1
(1)
10
2001
€ m
2
1
3
The Group’s interests in associated undertakings are shown after accumulated provisions for write-downs of € 3m (2001: € 3m).
The movements in the provisions are as follows:
At 1 January
Charge to profit and loss account
At 31 December
2002
€ m
3
–
3
The Group’s interests in associated undertakings, all of which are non-credit institutions, are unlisted and are held by subsidiary
undertakings.
The exemption permitted by the European Communities (Credit Institutions: Accounts) Regulations, 1992, has been availed
of and, in accordance with the regulations, Allied Irish Banks, p.l.c. will annex a full listing of associated undertakings to its annual
return to the companies registration office.
7676
32 Shares in Group undertakings
Allied Irish Banks, p.l.c.
At 1 January
Additions
Exchange translation adjustments
At 31 December
At 31 December
Credit institutions
Other
Total – all unquoted
2002
€ m
1,534
10
(217)
1,327
1,123
204
1,327
2001
€ m
1,457
–
77
1,534
1,328
206
1,534
The shares in Group undertakings are included in the accounts on a historical cost basis.
Principal subsidiary undertakings incorporated
in the Republic of Ireland
Nature of business
AIB Capital Markets plc*
AIB Corporate Finance Limited
AIB Finance Limited*
AIB Leasing Limited
AIB Fund Management Limited(a)
AIB Investment Managers Limited(a)
AIB International Financial Services Limited
Ark Life Assurance Company Limited*
Goodbody Holdings Limited
*Group interest is held directly by Allied Irish Banks, p.l.c.
Banking and financial services
Corporate finance
Industrial banking
Leasing
Unit trust management
Investment management
International financial services
Life assurance and pensions business
Stockbroking and corporate finance
(a)The Group’s interests in AIB Fund Management Limited and AIB Investment Managers Limited are held through the Group’s
equity interest of 85.86% in AIB Asset Management Holdings Limited.
The above subsidiary undertakings are incorporated in the Republic of Ireland and are wholly-owned unless otherwise stated.
The issued share capital of each undertaking is denominated in ordinary shares.
7777
Notes to the accounts
32 Shares in Group undertakings (continued)
Principal subsidiary undertakings incorporated
outside the Republic of Ireland
Allfirst Bank
Registered office:
25 South Charles Street, Baltimore, Maryland 21201, USA
(Common stock shares of US $10 each – Group interest 100%)
AIB Group (UK) p.l.c.
trading as First Trust Bank in Northern Ireland
trading as Allied Irish Bank (GB) in Great Britain
Registered office:
4 Queen’s Square, Belfast, BT1 3DJ
Nature of business
Banking and financial services
Banking and financial services
AIB Bank (CI) Limited*
Banking services
Registered office:
AIB House, Grenville Street, St. Helier, Jersey
AIB Bank (Isle of Man) Limited*
Banking services
Registered office:
10 Finch Road, Douglas, Isle of Man
AIB Asset Management Holdings Limited
Funds management
Registered office:
Shackleton House, 4 Battle Bridge Lane, London SE1 2HR
(Ordinary shares of Stg £0.01 each – Group interest 85.86%)
(Cumulative redeemable preference shares of
Stg £0.01 each – Group interest 100%)
Bank Zachodni WBK S.A.
Banking and financial services
Registered office:
Rynek 9/11, 50-950 Wroclaw, Poland
(Ordinary shares of PLN 10 each - Group interest 70.47%)
*Group interest is held directly by Allied Irish Banks, p.l.c.
The above subsidiary undertakings are wholly-owned unless otherwise stated.The registered office of each is located in the principal
country of operation.The issued share capital of each undertaking is denominated in ordinary shares unless otherwise indicated.
In presenting details of the principal subsidiary undertakings the exemption permitted by the European Communities
(Credit Institutions: Accounts) Regulations, 1992, has been availed of and, in accordance with the regulations, Allied Irish Banks, p.l.c.
will annex a full listing of subsidiary undertakings to its annual return to the companies registration office.
7878
33 Intangible fixed assets
Goodwill
Cost at 1 January
Arising on acquisitions during the year
Exchange translation adjustments
At 31 December
Accumulated amortisation at 1 January
Charge for the year (note 12)
Exchange translation adjustments
At 31 December
Net book value
At 31 December
2002
€ m
2001
€ m
560
1
(8)
553
65
32
(1)
96
500
59
1
560
34
31
–
65
457
495
Intangible fixed assets comprise purchased goodwill arising on acquisition of subsidiary and associated undertakings. Prior to
1 January 1998 goodwill arising on acquisition of subsidiary and associated undertakings was taken directly to profit and loss
account reserves.The goodwill arising on acquisitions during 2002 and 2001 is set out in the following table:
Community Counselling Service Co., Inc.
Bank Zachodni WBK S.A.
Other
34 Tangible fixed assets
Group
Cost at 1 January 2002
Additions
Disposals
Exchange translation adjustments
At 31 December 2002
Accumulated depreciation at 1 January 2002
Depreciation charge for the year
Disposals
Exchange translation adjustments
At 31 December 2002
Net book value
At 31 December 2002
At 31 December 2001
2002
€ m
–
–
1
1
2001
€ m
51
4
4
59
Freehold
Long
leasehold
€ m
€ m
Property
Leasehold
under 50
years
€ m
Equipment
Total
€ m
€ m
725
25
(33)
(56)
661
96
22
(5)
(9)
104
557
629
130
2
(1)
(1)
130
9
3
–
–
12
118
121
168
16
(4)
(15)
165
90
12
(2)
(9)
91
74
78
1,349
136
(265)
(95)
1,125
872
138
(259)
(55)
696
429
477
2,372
179
(303)
(167)
2,081
1,067
175
(266)
(73)
903
1,178
1,305
7979
Notes to the accounts
34 Tangible fixed assets (continued)
Allied Irish Banks, p.l.c.
Cost at 1 January 2002
Additions
Disposals
Exchange translation adjustments
At 31 December 2002
Accumulated depreciation at 1 January 2002
Depreciation charge for the year
Disposals
Exchange translation adjustments
At 31 December 2002
Net book value
At 31 December 2002
At 31 December 2001
Freehold
Long
leasehold
€ m
€ m
Property
Leasehold
under 50
years
€ m
Equipment
Total
€ m
€ m
296
10
(23)
–
283
18
8
–
–
26
257
278
119
2
(1)
–
120
8
3
–
–
11
109
111
53
8
(2)
(2)
57
25
5
–
(2)
28
29
28
589
44
(155)
(4)
474
444
54
(153)
(2)
343
131
145
1,057
64
(181)
(6)
934
495
70
(153)
(4)
408
526
562
The net book value of property occupied by the Group for its own activities was € 730m (2001: € 799m).
35 Own shares
Allfirst Financial, Inc. sponsors the Allfirst Stock Option Plans, for the benefit of key employees of Allfirst. Allfirst has lent US$ 178m
(2001: US$ 201m) to a trust to enable it to purchase AIB ordinary shares in the form of American Depositary Shares in the open
market.The shares purchased are used to satisfy options which have been granted to Allfirst employees. Proceeds of option exercises
are used to repay the loan to the trust. Under the terms of the trust, the trustees receive dividends on the shares which are used to
meet the expenses of the trust. Allfirst will provide funds as necessary to cover expenses net of dividend revenue. At 31 December
2002, 15.9 million ordinary shares (2001: 18.1 million) were held by the trust with a cost of € 169m (2001: € 228m) and a market
value of € 204m (2001: € 238m).
In 1999, the Group sponsored a Save As You Earn Share Option Scheme, the AIB Group 1999 Sharesave Scheme for eligible
employees in the UK. In 2001 a similar scheme was set up for employees in the Isle of Man and Channel Islands.The trustees of
the scheme have borrowed funds from Group companies, interest free, to enable them to purchase Allied Irish Banks, p.l.c. ordinary
shares in the open market.These shares are used to satisfy commitments arising under the scheme.The trustees receive dividends
on the shares which are used to meet the expenses of the scheme.The cost of providing these shares is charged to the profit and loss
account on a systematic basis over the period that the employees are expected to benefit. At 31 December 2002, 0.4 million shares
(2001: 1.5 million) were held by the trustees with a book value of € 4m (2001: € 15m) and a market value of € 5m (2001: € 19m).
In 2001, the AIB Group Employee Share Trust was established to satisfy commitments arising under the AIB Group Long-Term
Incentive Plan (LTIP). Funds are provided to the trustees to enable them to purchase Allied Irish Bank p.l.c. ordinary shares in the open
market.The cost of meeting the commitments under the LTIP are charged to the profit and loss account over the period that the
employees are expected to benefit.The trustees have waived their entitlement to dividends.At 31 December 2002, 0.2m shares (2001:
0.2m) were held by the trustees with a book value of € 2.1m (2001: € 1.5m) and a market value of € 2.6m (2001: € 2.6m).
In accordance with the requirements of UITF Abstract 13 the shares held by the above employee share schemes have been
recognised on the balance sheet of the Group and the dividend income received by the schemes of € 7.9m (2001: € 5.8m; 2000:
€ 3.4m) has been excluded in arriving at profit before taxation.
In accordance with FRS 14 - Earnings per Share, the shares held by the Trusts are excluded from the earnings per share
calculation.The accounting treatment is not intended to affect the legal characterisation of the transaction or to change the
situation at law achieved by the parties to it.Thus, the inclusion of the shares on the Group balance sheet does not imply that
they have been purchased by the company as a matter of law.
8080
36 Deferred taxation
Deferred tax assets:
Provision for bad and doubtful debts
Amortised income
Debt securities
Deferred compensation
Timing difference on provisions for future
commitments in relation to the funding of
Icarom plc (under Administration)
Exceptional foreign exchange dealing losses
Other
Total gross deferred tax assets
Deferred tax liabilities:
Assets leased to customers
Assets used in the business
Debt securities
Other
Total gross deferred tax liabilities
Net deferred tax liabilities/(assets)
2002
€ m
(161)
(36)
(12)
(10)
(10)
–
(16)
(245)
443
24
53
7
527
282
Group
2001
€ m
Allied Irish Banks, p.l.c.
2001
€ m
2002
€ m
(183)
(47)
(14)
(12)
(11)
(125)
(25)
(417)
543
23
68
83
717
300
(23)
(4)
–
–
(10)
–
(3)
(40)
1
–
3
–
4
(28)
(3)
–
–
(11)
–
(15)
(57)
1
–
–
1
2
(36)
(55)
For the year ended December 31, 2002, 2001 and 2000 full provision has been made for capital allowances and other timing
differences except as described below.
No provision is made for tax that could be payable on any future remittance of the past earnings of certain subsidiary
undertakings.
No provision is made for tax on capital gains which might arise on the disposal of properties at their balance sheet amounts due
to the expectation that the greater portion of land and buildings will be retained by the Group. Accordingly deferred tax has not
been recognised on the revaluation gains and losses that have arisen on the Group’s property portfolio. If deferred tax had been
recognised it would have amounted to € 28m approximately. Furthermore certain taxable gains in the Republic of Ireland have been
rolled over into replacement assets. In February 2003, the Minister for Finance published the Finance Bill which, if passed, will
change the legislation in the Republic of Ireland in respect of roll over relief. As a result, a disposal of certain properties would give
rise to the crystalisation of a tax liability of € 8m approximately. In view of the substantial number of properties involved and the
likelihood of a material tax liability arising being remote no provision is made in the accounts in respect of a tax liability arising until
a decision is made to sell the properties involved.
Analysis of movements in deferred taxation
At 1 January
Exchange translation and other adjustments
Profit and loss account taxation charge/(credit)
At 31 December
2002
€ m
300
(45)
27
282
Group
2001
€ m
Allied Irish Banks, p.l.c.
2001
€ m
2002
€ m
364
2
(66)
300
(55)
–
19
(36)
(50)
(5)
–
(55)
8181
Notes to the accounts
37 Long-term assurance business
Methodology
The value of the shareholder’s interest in the long-term assurance business (‘the embedded value’) is comprised of the net tangible
assets of Ark Life Assurance Company Limited (‘Ark Life’), including any surplus retained in the long-term business funds, which
could be transferred to shareholders, and the present value of the in-force business.The value of the in-force business is calculated by
projecting future surpluses and other net cash flows attributable to the shareholder arising from business written by the balance sheet
date and discounting the result at a rate which reflects the shareholder’s overall risk premium.
Surpluses arise following annual actuarial valuations of the long-term business funds, which are carried out in accordance with
the statutory requirements designed to ensure and demonstrate the solvency of the funds. Future surpluses will depend on
experience in a number of areas such as investment returns, lapse rates, mortality and administrative expenses. Surpluses can be
projected by making realistic assumptions about future experience, having regard to both actual experience and forecast long-term
economic trends. Other net cash flows principally comprise annual management charges and other fees levied upon the
policyholders by Ark Life.
Changes in the embedded value, which are determined on a post-tax basis, are included in the profit and loss account and
described as contribution from life assurance company. For the purpose of presentation, the change in this value is grossed up at the
underlying rate of corporation tax.
Analysis of income from long-term assurance business
Income from long-term assurance business included in the profit and loss account can be divided into those items comprising the
operating profit of the business and other items.
Included within operating profit are the following items:
New business contribution: this represents the value from new business written during the year after taking into account the cost of
establishing technical provisions and reserves.
Contribution from existing business: this comprises the following elements:
-
-
The expected return arising from the unwinding of the discount rate; and
Experience variances caused by the differences between the actual experience during the year and the expected
experience.
Investment returns: this represents the investment return on both the net tangible assets and the value of the shareholder’s interest in
the long-term business account.
Distribution costs: this represents the actual cost of acquiring new business during the year and includes bonuses paid to sales
consultants and other direct sales costs but does not include any allowance for the cost of referral generation from the branch
network.
Included within other items are:
Change in value of future unit linked fees: this represents the unsmoothed impact of the discounted value of future unit linked fees
at the end of the year as a result of investment returns being different from those assumed at the start of the year.
Changes in economic assumptions: this represents the effect of changes in the economic assumptions referred to below.
Exceptional items: this includes any other items which by virtue of their size or incidence, are considered not to form part of the
ongoing operating profit.
8282
37 Long-term assurance business (continued)
Income from Ark Life’s long-term assurance
business is set out below:
New business contribution
Contribution from existing business
-
-
expected return
experience variances
Investment returns
Distribution costs
Operating profit
Other items:
Change in value of future unit linked fees
Changes in economic assumptions
Exceptional items
Income from long-term assurance business before tax
Attributable tax
Income from long-term assurance business after tax
2002
€ m
60
25
2
2
(20)
69
(32)
17
3
57
9
48
Assumptions
The economic assumptions are based on a long-term view of economic activity and are therefore not adjusted for market
movements which are considered to be short-term.This approach is considered to be the most appropriate given the long-term
nature of the portfolio of products.The principal economic assumptions used are as follows:
Risk adjusted discount rate
Weighted average investment return
Future expense inflation
2002
%
10.0
7.625
3.5
2001
€ m
65
18
3
3
(17)
72
(3)
–
15
84
17
67
2001
%
12.0
9.0
5.0
8383
Notes to the accounts
37 Long-term assurance business (continued)
Balance sheet
The assets and liabilities of Ark Life representing the value of the assurance business together with the policyholders’ funds are:
Investments:
Cash and short-term placings with banks
Debt securities
Equity shares
Property
Embedded value adjustment
Other assets – net
Long-term assurance liabilities to policyholders
Long-term assurance business attributable to shareholders
Represented by:
Shares at cost
Reserves
Profit and loss account
2002
€ m
1,250
223
849
42
2,364
153
61
2001
€ m
1,019
256
1,034
43
2,352
142
62
2,578
(2,226)
2,556
(2,252)
352
19
326
7
352
304
19
281
4
304
Modified statutory solvency basis
Ark Life’s profit before tax on a modified statutory solvency basis was € 44m (2001: € 35m) and its profit after tax was € 37m
(2001: € 28m). Ark Life’s total assets on a modified statutory solvency basis were € 2,482m at 31 December 2002 (31 December
2001: € 2,482m) and its shareholders’ funds at 31 December 2002 were € 199m (31 December 2001: € 162m).The following table
provides a reconciliation of embedded value to the modified statutory solvency basis.
Reconciliation of embedded value to modified statutory solvency basis
Long-term assurance business attributable to the shareholder - embedded value basis
Value of in-force business
Other differences:
Deferred acquisitions costs
Other adjustments
Shareholders’ funds of life operations - modified statutory solvency basis
2002
€ m
352
(251)
89
9
199
2001
€ m
304
(228)
76
10
162
8484
38 Deposits by banks
Federal funds purchased
Securities sold under agreements to repurchase
Other borrowings from banks
Of which:
Domestic offices
Foreign offices
With agreed maturity dates or periods of notice,
by remaining maturity:
Over 5 years
5 years or less but over 1 year
1 year or less but over 3 months
3 months or less but not repayable on demand
Repayable on demand
Due to subsidiary undertakings
Allied Irish Banks, p.l.c.
2001
€ m
2002
€ m
–
2,457
22,706
25,163
–
1,631
20,227
21,858
2002
€ m
491
2,478
13,168
16,137
10,869
5,268
16,137
405
236
3,554
11,357
15,552
585
Group
2001
€ m
546
1,742
10,935
13,223
7,899
5,324
13,223
428
289
2,781
8,871
12,369
854
350
46
3,407
10,909
14,712
58
302
33
2,696
8,456
11,487
264
11,751
10,107
21,858
16,137
13,223
14,770
10,393
25,163
Federal funds generally represent one-day transactions, a large portion of which arise because of Allfirst’s market activity in federal
funds for correspondent banks and other customers.
8585
Notes to the accounts
39 Customer accounts
Current accounts
Demand deposits
Time deposits
Securities sold under agreements to repurchase
Other short-term borrowings
Of which:
Non-interest bearing current accounts
Domestic offices
Foreign offices
Interest bearing deposits, current accounts and
short-term borrowings
Domestic offices
Foreign offices
Analysed by remaining maturity:
Over 5 years
5 years or less but over 1 year
1 year or less but over 3 months
3 months or less but not repayable on demand
Repayable on demand
Due to subsidiary undertakings
Amounts include:
Due to associated undertakings
2002
€ m
16,428
10,333
21,855
48,616
703
3,657
4,360
Group
2001
€ m
16,300
11,165
22,896
50,361
726
3,470
4,196
Allied Irish Banks, p.l.c.
2001
€ m
2002
€ m
8,106
4,484
10,320
22,910
–
3,170
3,170
7,603
4,330
9,321
21,254
–
3,081
3,081
52,976
54,557
26,080
24,335
6,020
5,004
5,857
6,140
19,950
22,002
52,976
232
3,134
2,730
19,434
25,530
27,446
18,074
24,486
54,557
654
2,688
3,150
19,743
26,235
28,322
136
1,553
526
10,568
12,783
12,789
52,976
54,557
25,572
508
110
921
707
10,275
12,013
11,933
23,946
389
26,080
24,335
28
2
1
2
Securities sold under agreements to repurchase are secured by Irish Government stock, US Treasury and US Government agency
securities and mature within three months.
The aggregate market value of all securities sold under agreements to repurchase did not exceed 10% of total assets and the
amount at risk with any individual counterparty or group of related counterparties did not exceed 10% of total stockholders’ equity.
8686
40 Debt securities in issue
Bonds and medium term notes:
European medium term note programme
Allfirst adjustable rate federal home loan bank advances:
due 23 August, 2011
Other debt securities in issue:
Master demand notes of Allfirst
Commercial paper
Commercial certificates of deposit
Analysed by remaining maturity
Bonds and medium term notes:
Over 5 years
5 years or less but over 1 year
1 year or less but over 3 months
3 months or less
Other debt securities in issue:
5 years or less but over 1 year
1 year or less but over 3 months
3 months or less
41 Other liabilities
Notes in circulation
Taxation
Dividend (note 20)
Provision for future commitments in relation to the funding of Icarom(1)
Short positions in securities(2)
Other
2002
€ m
121
191
312
250
224
2,291
2,765
3,077
197
–
–
115
312
8
685
2,072
2,765
3,077
2002
€ m
410
91
283
85
266
1,456
2,591
Group
2001
€ m
Allied Irish Banks, p.l.c.
2001
€ m
2002
€ m
84
227
311
301
133
4,288
4,722
5,033
233
–
72
6
311
89
2,176
2,457
4,722
5,033
Group
2001
€ m
441
–
250
91
205
2,285
3,272
121
–
121
–
–
1,814
1,814
1,935
6
–
–
115
121
8
463
1,343
1,814
1,935
84
–
84
–
–
1,809
1,809
1,893
6
–
72
6
84
15
421
1,373
1,809
1,893
Allied Irish Banks, p.l.c.
2001
€ m
2002
€ m
–
59
283
85
97
373
897
–
65
250
91
31
363
800
(1)The provision represents the present value of the cost of the future commitments arising under the 1992 agreement in relation
to the funding of Icarom. A discount rate of 6.35% was applied in the year ended 31 December 1993, in discounting the cost
of the future commitments arising under this agreement.The undiscounted amount was € 112m (2001: € 123m).The unwinding of
the discount on the provision amounted to € 5.4m (2001: € 5.8m).
(2)Short positions in debt securities and equity securities in 2002 were € 250m and € 16m, respectively.
8787
Notes to the accounts
42 Provisions for liabilities and charges
Group
At 1 January 2002
Exchange translation adjustments
Profit and loss account charge
Provisions utilised
At 31 December 2002
Allied Irish Banks, p.l.c.
At 1 January 2002
Profit and loss account charge
Provisions utilised
At 31 December 2002
Contingent
liabilities
and
commitments
€ m
Other
Total
€ m
€ m
32
(2)
2
(14)
18
22
–
(13)
9
39
(4)
16
(9)
42
6
7
–
13
71
(6)
18
(23)
60
28
7
(13)
22
8888
43 Subordinated liabilities
Allied Irish Banks, p.l.c.
Undated loan capital
Dated loan capital
Reserve capital instruments
Allfirst Financial Inc.
Dated loan capital
Bank Zachodni WBK S.A.
Dated loan capital
Undated loan capital
US $100m Floating Rate Notes, Undated
US $100m Floating Rate Primary Capital Perpetual Notes, Undated
€ 200m Fixed Rate Perpetual Subordinated Notes
Dated loan capital
Allied Irish Banks, p.l.c.
European Medium Term Note Programme:
US $250m Floating Rate Notes due January 2010
€ 45.1m Floating Rate Notes due February 2007
€ 37.6m 7.25% Fixed Rate Notes due October 2007
€ 32.2m 6.7% Fixed Rate Notes due August 2009
Stg £35m 8% Fixed Rate Notes due October 2007
€ 250m Floating Rate Notes due January 2010
€ 100m Floating Rate Notes due August 2010
€ 100m Floating Rate Notes due June 2013
Allfirst Financial Inc.
US $100m 8.375% Fixed Rate Subordinated
Notes due May 2002
US $200m 7.2% Fixed Rate Subordinated
Notes due July 2007
US $100m 6.875% Fixed Rate Subordinated
Notes due June 2009
US $150m Floating Rate Subordinated Capital Income
Securities due January 2027
US $150m Floating Rate Subordinated Capital Income
Securities due February 2027
Bank Zachodni WBK S.A.
PLN 10m Fixed Rate Loan due July 2002
The dated loan capital outstanding is repayable as follows:
In one year or less, or on demand
Between 1 and 2 years
Between 2 and 5 years
In 5 years or more
2002
€ m
389
719
1,108
496
2001
€ m
426
804
1,230
496
568
787
–
3
2,172
2,516
95
95
199
389
238
–
–
32
–
249
100
100
719
–
190
95
141
142
568
–
113
114
199
426
283
45
38
32
57
249
100
–
804
113
226
113
167
168
787
3
1,287
1,594
–
–
190
1,097
1,287
161
–
–
1,433
1,594
The loan capital of the Bank is unsecured and is subordinated in right of payment to the ordinary creditors, including depositors,
of the Bank.
8989
Notes to the accounts
43 Subordinated liabilities (continued)
Reserve capital instruments
In February 2001, Reserve capital instruments (RCIs) of € 500m were issued by Allied Irish Banks, p.l.c. at an issue price of
100.069%.The RCIs are perpetual securities and have no maturity date.The RCIs are redeemable in whole but not in part at
the option of the Bank and with the agreement of the Central Bank of Ireland (i) upon the occurence of certain events, or (ii)
on or after 28 February 2011, an authorised officer having reported to the Trustees within the previous six months that a solvency
condition is met.
The RCIs bear interest at a rate of 7.50% per annum from (and including) 5 February 2001 to (but excluding) 28 February 2011
and thereafter at 3.33% per annum above three month EURIBOR, reset quarterly.
The rights and claims of the RCI holders and the coupon holders are subordinated to the claims of the senior creditors and the
senior subordinated creditors of the issuer. In the event of a winding up of the issuer, the RCI holders will rank pari passu with the
holders of the classes of preference shares (if any) from time to time issued by the issuer and in priority to all other shareholders.
Undated loan capital
The US$ Undated Floating Rate Loan capital notes have no final maturity but may be redeemed at par at the option of the Bank,
with the prior approval of the Central Bank of Ireland. Interest is payable semi-annually on the US$ 100m Undated Floating Rate
Notes and quarterly on the US$ 100m Floating Rate Primary Capital Perpetual Notes.The € 200m Fixed Rate Perpetual
Subordinated Notes, with interest payable annually, have no final maturity but may be redeemed at the option of the Bank, with the
prior approval of the Central Bank of Ireland, on each coupon payment date on or after 3 August 2009.
Dated loan capital
The European Medium Term Note Programme is subordinated in right of payment to the ordinary creditors, including depositors,
of the Bank.The US$ 250m Floating Rate Notes, with interest payable quarterly, may be redeemed, in whole but not in part, on any
interest payment date falling in or after January 2005.The € 45.1m Floating Rate Notes were redeemed in February 2002.The
€ 37.6m Fixed Rate Notes and the Stg £ 35m Fixed Rate Notes were redeemed on 1 October 2002 and 31 October 2002,
respectively.The € 32.2m Fixed Rate Notes, with interest payable annually, may be redeemed, in whole but not in part, on 20
August 2004.The € 250m Floating Rate Notes, with interest payable quarterly, may be redeemed, in whole but not in part, in or
after January 2005.The € 100m Floating Rate Notes, with interest payable quarterly, may be redeemed, in whole but not in part,
on the interest payment date falling in August 2005. In December 2001, € 100m Floating Rate Notes due in June 2013 were issued.
The € 100m Floating Rate Notes, with interest payable quarterly, may be redeemed, in whole but not in part, on the 12 June 2008
and on each interest payment date thereafter. In all cases, redemption prior to maturity is subject to the necessary prior approval of
the Central Bank of Ireland.
The 8.375% Fixed Rate Subordinated Notes were repaid in May 2002.The 7.2% Fixed Rate Subordinated Notes and the
Floating Rate Subordinated Capital Income Securities of Allfirst are subordinated in right of payment to the ordinary creditors of
Allfirst.The 7.2% Fixed Rate Subordinated Notes, with interest payable semi-annually, may not be redeemed prior to maturity and
are not subject to any sinking fund.The 6.875% Fixed Rate Subordinated Notes mature on 1 June 2009, with interest payable
semi-annually and are not redeemable prior to maturity.The US$ 150m Floating Rate Subordinated Capital Income Securities due
January 2027, with interest payable quarterly, are redeemable in whole or in part on or after 15 January 2007, or at any time, in
whole but not in part, upon the occurrence of a special event.The US$ 150m Floating Rate Subordinated Capital Income Securities
due February 2027, with interest payable quarterly, are redeemable in whole or in part on or after 1 February 2007, or at any time,
in whole but not in part, upon the occurrence of a special event. In either case such redemption is subject to the necessary prior
approval of the Federal Reserve and the Central Bank of Ireland.
There is no exchange exposure as the proceeds of these notes are retained in their respective currencies.
44 Equity and non-equity minority interests in subsidiaries
Equity interest in subsidiaries
Non-equity interest in subsidiaries:
Allfirst Financial, Inc.:
Cumulative preferred stock(1)
Floating rate non-cumulative subordinated
capital trust enhanced securities(2)
9090
2002
€ m
181
–
93
93
274
2001
€ m
191
10
111
121
312
44 Equity and non-equity minority interests in subsidiaries (continued)
(1)This preferred stock was redeemed on 15 July 2002.
(2)Allfirst issued 100,000 floating rate non-cumulative subordinated capital trust enhanced securities through a subsidiary on 13 July
1999.The distribution rate on the securities is three month LIBOR plus 1.5% of the stated liquidation amount of US$ 1,000 per
security, reset quarterly.
45 Share capital
Ordinary share capital
Ordinary shares of € 0.32 each
Authorised:
1,160 million shares (2001: 1,160 million)
Issued:
897 million shares (2001: 887 million)
Preference share capital
Non-cumulative preference shares of US$ 25 each
Authorised:
20.0 million shares (2001: 20.0 million)
Issued:
0.25 million shares (2001: 0.25 million)
Non-cumulative preference shares of € 1.27 each
Authorised:
200.0 million shares (2001: 200.0 million)
Issued:
Nil
Non-cumulative preference shares of Stg £ 1 each
Authorised:
200.0 million shares (2001: 200.0 million)
Issued:
Nil
Non-cumulative preference shares of Yen 175 each
Authorised:
200.0 million shares (2001: 200.0 million)
Issued:
Nil
Movements in ordinary share capital
At 1 January
New shares issued during year - see below
At 31 December
2002
€ m
2001
€ m
287
284
6
–
–
–
293
2002
€ m
284
3
287
7
–
–
–
291
2001
€ m
281
3
284
During the year ended 31 December 2002 the issued ordinary share capital was increased from 886,690,015 to 897,446,519 ordinary
shares as follows:
(a) under the dividend reinvestment plan, 4,552,960 shares were allotted to shareholders, at € 12.99 per share, in respect of the second
interim dividend for the year ended 31 December 2001, and 1,293,867 shares were allotted to shareholders, at € 13.12 per share, in
respect of the interim dividend for the year ended 31 December 2002.These allotments were made in lieu of dividends amounting
to € 76.12m;
(b) by the issue of 1,358,433 shares to the trustees of the employees’ profit sharing schemes at € 12.41 per share; the consideration
received for these shares was € 16.86m;
(c) by the issue of 3,156,500 shares to participants in the executive share option scheme at prices of € 3.38, € 4.19, € 5.80, € 6.25,
€ 7.61 and € 11.90 per share; the consideration received for these shares was € 18.6m;
(d) by the issue of 394,744 shares to holders of Dauphin Deposit Corporation (now Allfirst) stock options, which were converted, on
the acquisition of Dauphin, into options to purchase AIB American Depositary Shares. The consideration received for these shares
was € 3.34m.
9191
Notes to the accounts
45 Share capital (continued)
Dividend reinvestment plan
At the 1999 Annual General Meeting, the directors were given authority for a five year period to offer shareholders the right to elect
to receive additional ordinary shares in lieu of cash dividends. The price at which such shares are offered is the average of the middle
market quotations of the Bank’s shares on the Irish Stock Exchange for the five business days commencing on the first date on which
the shares are quoted ‘ex-dividend’.
Employee share schemes
The Company operates employee profit sharing schemes on terms approved by the shareholders. All employees, including executive
directors, of the Company and certain subsidiaries are eligible to participate, subject to minimum service periods.The directors at
their discretion may set aside each year a sum not exceeding 5% of eligible profits of participating companies in the Republic of
Ireland and the UK.
Eligible employees in the Republic of Ireland may elect to receive their profit sharing allocations either in shares or in cash.
Such shares are held by Trustees for a minimum period of two years and are required to be held for a total period of three years
for the employees to obtain the maximum tax benefit. Such employees may also elect to forego an amount of salary, subject to
certain limitations, towards the acquisition of additional shares.The maximum market value of shares that may be appropriated to any
employee in a year may not exceed € 12,700.
In December 2002 the Company launched a Share Ownership Plan in the UK to replace the profit sharing scheme that previously
operated for UK-based employees.The Plan, which was approved by shareholders at the 2002 Annual General Meeting, provides for
the receipt by eligible employees of shares in a number of categories: Partnership Shares, in which employees may invest up to £ 1,500
per annum from salary; Free Shares, involving the award by the Company of shares up to the value of £ 3,000 per annum per
employee; and Dividend Shares, which may be acquired by employees by re-investing dividends of up to £ 1,500 per annum.
Share option scheme
The Company operates a share option scheme on terms approved by the shareholders. Officials may participate in the scheme at
the discretion of the directors. Options are granted at the market price, being the middle market quotation of the Bank’s shares on
the Irish Stock Exchange on the day preceding the date on which the option is granted.The exercise of options granted between
1 January 1996 and 31 December 2000 is conditional on the achievement of earnings per share (‘EPS’) growth of at least 2% per
annum, compound, above the increase in the Consumer Price Index (‘CPI’) over a period of not less than three and not more than
five years from date of grant.The exercise of options granted since 1 January 2001 is conditional on the achievement of EPS growth
of at least 5% per annum, compound, above the increase in the CPI over a period of not less than three and not more than five years
from date of grant. Options may not be transferred or assigned and may be exercised only between the third and seventh anniversaries
of their grant in the case of the options granted up to 31 December 2000, and between the third and tenth anniversaries of their
grant in the case of options granted subsequent to that date. At 31 December 2002, options were held by some 3,555 participants
over 29,518,229 ordinary shares in aggregate (3.3% of the issued ordinary share capital), at prices ranging from € 4.19 to € 15.46
per share; these options may be exercised at various dates up to 4 December, 2012.
Allfirst Financial Inc. stock option plan
Under the terms of the Agreement and Plan of Merger between the Company, First Maryland Bancorp (now ‘Allfirst’) and Dauphin
Deposit Corporation (‘Dauphin’, now ‘Allfirst’), approved by shareholders at the 1997 Annual General Meeting, options to purchase
Dauphin shares which were outstanding immediately prior to the merger were converted, at the holders’ elections, into either cash
or options to purchase a similar number of AIB American Depositary Shares. At 31 December 2002, options so converted were
outstanding over 418,598 ordinary shares.
AIB Long Term Incentive Plan
Under the terms of the AIB Long Term Incentive Plan, approved by shareholders at the 2000 Annual General Meeting, conditional
grants of awards of ordinary shares have been made in respect of 1,305,200 ordinary shares, in aggregate, to 234 employees.These
awards will not vest in the award holders unless (a) the growth in the Company’s EPS, as defined in the Rules of the Plan, in any
three consecutive years within the five years following the grant is not less than the growth in the CPI plus 5% per annum,
compound, over the same three year period; and (b) the growth in the Company’s core EPS, as defined in the Rules of the Plan, over
the three year period during which the criterion at (a) is satisfied, is such as to position the Company in the top 20% of the FTSE
Eurotop Banks Retail Index. Partial vesting, on a reducing scale, will occur if the growth in the Company’s core EPS positions the
Company outside the top 20% of that Index but still within its top 45%, subject to the criterion at (a) being satisfied.Vested shares
must be held until normal retirement date, except that award holders may dispose of shares sufficient to meet the income tax liability
arising on vesting.
9292
45 Share capital (continued)
Limitations on profit sharing and share option schemes
Under the terms of the employees’ profit sharing schemes, the aggregate number of shares that may be purchased/held by the
Trustees in any 10 year period may not exceed 10% of the issued ordinary share capital.The aggregate number of shares issued under
the share option scheme in any ten year period may not exceed 5% of the issued ordinary share capital.The Company complies with
guidelines issued by the Irish Association of Investment Managers in relation to those Schemes.
Preference share capital
In 1998, 250,000 non-cumulative preference shares of US$ 25 each were issued at a price of US$ 995.16 per share raising
US$ 248.8m before expenses.The holders of the non-cumulative preference shares are entitled to a non-cumulative preferential
dividend, payable quarterly in arrears, at a floating rate equal to 3 month dollar LIBOR plus 0.875% on the liquidation preference
amount of US$ 1,000.The preference shares are redeemable at the option of the Bank, and with the agreement of the Central Bank
of Ireland, on or after 15 July 2008 (i) in whole or in part or (ii) prior to that date in certain circumstances in whole, but not in part.
In each case, the preference shares will be redeemed at a price equal to US$ 1,000 per share (consisting of a redemption price of
US$ 995.16 plus a special dividend of US$ 4.84 per share), plus accrued dividends.
46 Share premium account
At 1 January 2002
Premium arising on shares issued under:
Employees’ profit sharing schemes
Executive share option scheme
Allfirst Financial, Inc. stock option plan
Profit and loss account
Exchange translation adjustments
At 31 December 2002
47 Reserves
At 1 January 2002
Capital reserves
Revaluation reserves
Transfer from/(to) profit and loss account:
Non-distributable reserves of Ark Life
Property revaluation reserves
Exchange translation and other adjustments
At 31 December 2002
At 31 December 2002
Capital reserves
Revaluation reserves
Group
€ m
1,926
Allied Irish
Banks, p.l.c.
€ m
1,926
17
17
3
(1)
(44)
17
17
3
(1)
(44)
1,918
1,918
Group
€ m
Restated
Allied Irish
Banks, p.l.c.
€ m
Restated
315
148
463
45
(15)
(3)
490
359
131
490
–
132
132
–
(15)
(1)
116
–
116
116
9393
Notes to the accounts
48 Profit and loss account
At 1 January 2002
Profit retained for the year
Dividend reinvestment plan
Actuarial loss recognised in retirement benefit schemes (note 14)
Share premium account
Transfer from property revaluation reserves
Exchange translation adjustments
At 31 December 2002
At 31 December 2002
Allied Irish Banks, p.l.c. and subsidiaries
Associated undertakings
Group
€ m
Allied Irish
Banks, p.l.c.
€ m
1,305
76
74
(625)
1
15
(254)
592
2,450
563
74
(823)
1
15
(338)
1,942
1,931
11
1,942
The cumulative goodwill arising on acquisitions of subsidiary and associated undertakings which are still part of the Group, and
charged against profit and loss account reserves of the Group, amounted to € 1,507m at 31 December 2002 (2001: € 1,754m).
Included within the profit and loss account reserve for the Group at 31 December 2002 is € 482m (Allied Irish Banks, p.l.c.:
€ 245m) relating to the net pension liability in funded retirement benefit schemes (note 14).
49 Repurchase of ordinary shares
In September 1997, a subsidiary undertaking purchased 5.6 million ordinary shares of € 0.32 each of Allied Irish Banks, p.l.c.
on the open market at a price of € 7.30 per share.The purchase was undertaken at foot of a resolution approved by shareholders
at the Annual General Meeting held on 21 May 1997. In accordance with the Companies Act, 1990 the cost of the purchase of
these shares, € 42m including related expenses of € 0.8m, has been deducted from distributable reserves.The issued ordinary
share capital of Allied Irish Banks, p.l.c. continues to include these shares (nominal value € 1.8m) as they have not been cancelled.
The shares do not rank for dividend as the related dividend entitlements have been waived.The weighted average number of shares
in the earnings per share calculation has been reduced to reflect the purchase of these shares.
9494
50 Memorandum items: contingent liabilities and commitments
In the normal course of business the Group is a party to financial instruments with off-balance sheet risk to meet the financing
needs of customers.
These instruments involve, to varying degrees, elements of credit risk which are not reflected in the consolidated balance
sheet. Credit risk is defined as the possibility of sustaining a loss because the other party to a financial instrument fails to perform
in accordance with the terms of the contract.
The Group’s maximum exposure to credit loss under contingent liabilities and commitments to extend credit, in the event of
non-performance by the other party where all counterclaims, collateral or security prove valueless, is represented by the contractual
amounts of those instruments.
The risk weighted amount is obtained by applying credit conversion factors and counterparty risk weightings in accordance
with the Central Bank of Ireland’s guidelines implementing the EC Own Funds and Solvency Ratio Directives.
The Group uses the same credit control and risk management policies in undertaking off-balance sheet commitments as it does
for on balance sheet lending.
The following tables give, for the Group and Allied Irish Banks, p.l.c., the nominal or contract amounts and the risk weighted
credit equivalent of contingent liabilities and commitments.
Group
Contingent liabilities
Acceptances and endorsements
Guarantees and assets pledged as collateral security:
Guarantees and irrevocable letters of credit
Assets pledged as collateral security
Other contingent liabilities
Commitments
Sale and option to resell transactions
Other commitments:
Documentary credits and short-term trade-related transactions
Forward asset purchases and forward deposits placed
Undrawn note issuance and revolving underwriting facilities
Undrawn formal standby facilities, credit lines and other
commitments to lend:
1 year and over
Less than 1 year (1)
Contract
amount
€ m
2002
Risk
weighted
amount
€ m
Contract
amount
€ m
2001
Risk
weighted
amount
€ m
72
61
5,278
14
5,292
1,027
6,391
4,957
1
4,958
520
5,539
2,062
1,230
314
24
33
9,073
8,446
17,890
19,952
26,343
97
5
10
4,387
–
4,499
5,729
11,268
142
5,222
23
5,245
1,125
6,512
402
235
5
100
8,905
9,352
18,597
18,999
25,511
109
4,852
2
4,854
570
5,533
402
76
2
12
4,308
–
4,398
4,800
10,333
(1)Undrawn loan commitments which are unconditionally cancellable at any time or which have a maturity of less than one year have
a risk weighting of zero.
Concentration of exposure
Republic of Ireland
Unites States of America
United Kingdom
Poland
Contingent liabilities
2002
2001
€ m
€ m
Commitments
2001
€ m
2002
€ m
1,544
4,316
483
48
6,391
1,451
4,504
469
88
6,512
6,556
8,743
3,768
885
6,119
9,022
3,055
803
19,952
18,999
9595
Notes to the accounts
50 Memorandum items: contingent liabilities and commitments (continued)
Allied Irish Banks, p.l.c.
Contingent liabilities
Acceptances and endorsements
Guarantees and irrevocable letters of credit
Other contingent liabilities
Commitments
Other commitments:
Documentary credits and short-term trade-related transactions
Undrawn note issuance and revolving underwriting facilities
Undrawn formal standby facilities, credit lines and other
commitments to lend:
1 year and over
Less than 1 year(1)
Contract
amount
€ m
2002
Risk
weighted
amount
€ m
Contract
amount
€ m
2001
Risk
weighted
amount
€ m
54
3,455
558
4,067
106
13
4,904
3,601
8,624
12,691
54
3,334
279
3,667
21
–
2,394
–
2,415
6,082
96
3,266
549
3,911
68
76
4,245
3,345
7,734
11,645
96
3,151
275
3,522
14
–
2,082
–
2,096
5,618
(1)Undrawn loan commitments which are unconditionally cancellable at any time or which have a maturity of less than one year have
a risk weighting of zero.
There exists a contingent liability to repay in whole or in part grants received on equipment leased to customers if certain events set
out in the agreements occur.
Allied Irish Banks, p.l.c. has given guarantees in respect of the liabilities of certain of its subsidiaries and has also given guarantees
for the satisfaction of the relevant regulatory authorities for the protection of the depositors of certain of its banking subsidiaries in
the various jurisdictions in which such subsidiaries operate.
Except as set out below, AIB Group is not, nor has been, involved in, nor are there, so far as the Company is aware, pending or
threatened by or against AIB Group any legal or arbitration proceedings which may have, or have had during the previous twelve
months, a significant effect on the financial position of AIB Group.
Class actions
On 5 March 2002 and on 24 April 2002, separate class action lawsuits under the Securities Exchange Act, 1934 of the United States
were filed in the United States District Court for the Southern District of New York against AIB, Allfirst and certain serving and past
officers and directors of Allfirst and its subsidiaries, seeking compensatory damages, legal fees and other costs and expenses relating to
alleged misrepresentations in filings of AIB and Allfirst. On 3 May 2002, a motion to consolidate both cases and to appoint a lead
plaintiff was filed with the court. It is not practicable to predict the outcome of the action against AIB and Allfirst and any financial
impact on AIB, but on the basis of current information, the Directors do not believe that the action is likely to have a materially
adverse effect on AIB.
On 13 May 2002, a purported shareholder derivative action was filed in the Circuit Court for Baltimore City, Maryland. An
alleged holder of AIB American Depositary Shares purports to sue certain present and former directors and officers of Allfirst Bank
on behalf of AIB, alleging those persons are liable for the foreign exchange trading losses. No relief is sought in the purported derivative
action against AIB, Allfirst or Allfirst Bank. On 30 December 2002, the Court dismissed the action. On 10 January 2003, the plaintiffs
have filed a motion seeking to have the Court amend or revise the judgement, or to be granted leave to file an amended complaint.
Certain of the individual defendants in these actions have asserted or may possibly assert claims for indemnification against AIB
and/or Allfirst, which, if made against Allfirst following completion of the M&T transaction, might be subject to the indemnification
obligations of AIB as part of the agreement with M&T. In the nature of any such claims, it is not possible to quantify the amount
which might be asserted in any such claim.
9696
51 Derivatives
The Group’s objectives, policies and strategies in managing the risks that arise in connection with the use of financial instruments,
including derivative financial instruments, are set out in the Financial review.
The Group uses derivatives to service customer requirements, to manage the Group’s interest, exchange rate and equity exposures
and for trading purposes. Derivative instruments are contractual agreements whose value is derived from price movements in underlying
assets, interest rates, foreign exchange rates or indices.
These instruments involve, to varying degrees, elements of market risk and credit risk which are not reflected in the consolidated
balance sheet. Market risk is the exposure to potential loss through holding interest rate, exchange rate and equity positions in the
face of absolute and relative price movements, interest rate volatility, movements in exchange rates and shifts in liquidity. Credit risk
is the exposure to loss should the counterparty to a financial instrument fail to perform in accordance with the terms of the contract.
While notional principal amounts are used to express the volume of derivative transactions, the amounts subject to credit risk
are much lower because derivative contracts typically involve payments based on the net differences between specified prices or rates.
Credit risk arises to the extent that the default of a counterparty to the derivative transaction exposes the Group to the need to
replace existing contracts at prices that are less favourable than when the contract was entered into.The potential loss to the Group
is known as the gross replacement cost. For risk management purposes, consideration is taken of the fact that not all counterparties to
derivative positions are expected to default at the point where the Group is most exposed to them.
For derivatives, credit risk is calculated as the positive mark to market value for each contract plus an estimate of the additional
credit risk that may arise over the contract’s remaining life from an adverse movement in the value of the underlying asset or index.
Any breach of credit risk limits on derivative contracts is reported to line management and reviewed by the appropriate credit
authority.The counterparty credit exposure on derivatives is amalgamated with all other exposures to the counterparty to provide
a comprehensive statement of individual counterparty risk.
The following tables present the notional principal amount and the gross replacement cost of interest rate, exchange rate and
equity contracts at 31 December 2002 and 2001.
Interest rate contracts(1)
Notional principal amount
Gross replacement cost
Exchange rate contracts(1)
Notional principal amount
Gross replacement cost
Equity contracts(1)
Notional principal amount
Gross replacement cost
2002
€ m
Group
2001
€ m
Allied Irish Banks, p.l.c.
2001
€ m
2002
€ m
110,529
116,151
105,623
111,135
1,913
1,432
1,756
1,335
€ m
€ m
€ m
€ m
21,046
26,505
16,567
18,988
546
280
540
272
€ m
2,037
27
€ m
2,893
195
€ m
2,037
27
€ m
2,893
195
(1)Interest rate, exchange rate and equity contracts are entered into for both hedging and trading purposes.
The Group uses the same credit control and risk management policies in undertaking all off-balance sheet commitments as it does
for on balance sheet lending including counterparty credit approval, limit setting and monitoring procedures. In addition, in relation
to derivative instruments, the Group’s exposure to market risk is controlled within the risk limits in the Group’s Interest Rate Risk
and Foreign Exchange Risk Policies and is further constrained by the risk parameters incorporated in the Group’s Derivatives Policy
as approved by the Board.
9797
Notes to the accounts
51 Derivatives (continued)
The following table analyses the notional amount and gross replacement cost of interest rate, exchange rate and equity contracts by
maturity.
2002
Notional amount
Gross replacement cost
2001
Notional amount
Gross replacement cost
Residual maturity
< 1 year
€ m
1 < 5 years
€ m
5 years +
€ m
Total
€ m
78,231
990
46,663
1,094
8,718
402
133,612
2,486
72,545
617
63,912
1,045
9,092
245
145,549
1,907
Of the gross replacement cost € 2,208m (2001: € 1,596m) related to financial institutions and € 278m (2001:€ 311m) related to
non-financial institutions.
AIB Group has the following concentration of exposures in respect of notional amount and gross replacement cost of all interest rate,
exchange rate and equity contracts.The concentrations are based primarily on the location of the office recording the transaction.
Republic of Ireland
Unites States of America
United Kingdom
Poland
Trading activities
Notional amount
2001
€ m
2002
€ m
Gross replacement cost
2001
€ m
2002
€ m
63,723
8,470
56,541
4,878
60,029
12,309
66,831
6,380
133,612
145,549
1,315
232
922
17
2,486
964
155
772
16
1,907
AIB Group maintains trading positions in a variety of financial instruments including derivatives.These financial instruments include
interest rate, foreign exchange and equity futures, interest rate swaps, interest rate caps and floors, forward rate agreements, and interest
rate, foreign exchange and equity index options. Most of these positions arise as a result of activity generated by corporate customers
while others represent trading decisions of the Group’s derivative and foreign exchange traders with a view to generating incremental
income.The managers and traders involved in financial derivatives have the technical expertise to trade these products and the active
involvement of the traders in these markets allows the Group to offer competitive pricing to customers.
All trading activity is conducted within risk limits approved by the Board. Systems are in place which measure risks and profitability
associated with derivative trading positions as market movements occur. Independent risk control units monitor these risks.
9898
51 Derivatives (continued)
Nature and terms of trading instruments
The following table presents the notional amounts and fair values of the classes of derivative trading instruments at
31 December 2002 and 2001.
Interest rate contracts:
Interest rate swaps
In a receivable position
In a payable position
Interest rate caps, floors and options
Held
Written
Forward rate agreements
In a favourable position
In an unfavourable position
Financial futures
In a favourable position
In an unfavourable position
Other interest rate derivatives
Exchange rate contracts:
Currency options
Forward FX contracts
Currency swaps
Equity derivatives
Notional
amounts(1)
€ m
2002
Fair
values
€ m
Notional
amounts(1)
€ m
2001
Fair
values
€ m
65,613
34,817
1,199
(1,065)
15
(12)
7
(6)
1
(4)
–
7
55
–
–
5,293
5,092
776
37
2,391
16,375
–
23
4,187
3,805
1,926
27
1,231
17,237
–
2,037
538
(444)
20
(21)
5
(6)
22
(19)
–
(460)
4
–
1
(1)The notional amounts shown for the contracts represent the underlying amounts that the instruments are based upon and do not
represent the amounts exchanged by the parties to the instruments. In addition, these amounts do not measure the Group’s exposure
to credit or market risks.
Details of debt securities held for trading purposes are outlined in note 29 to the financial statements.
The Group’s credit exposure at 31 December 2002 and 2001 from derivatives held for trading purposes is represented by the fair
value of instruments with a positive fair value.The risk that counterparties to derivative contracts might default on their obligations
is monitored on an ongoing basis and the level of credit risk is minimised by dealing with counterparties of good credit standing.
All trading instruments are subject to market risk. As the traded instruments are recognised at market value, these changes directly
affect reported income for the period. Exposure to market risk is managed in accordance with risk limits approved by the Board
through buying or selling instruments or entering into offsetting positions.
The Group undertakes trading activities in interest rate contracts with the Group being a party to interest rate swap, forward,
futures, option, cap and floor contracts.The Group’s largest activity is in interest rate swaps.The two parties to an interest rate swap
agree to exchange, at agreed intervals, payment streams calculated on a specified notional principal amount. Forward rate agreements
are also used by the Group in its trading activities. Forward rate agreements settle in cash at a specified future date based on the
difference between agreed market rates applied to a notional principal amount. Most of these contracts have maturity terms up
to one year.
9999
Notes to the accounts
51 Derivatives (continued)
Dealing profits
The following table summarises the Group’s dealing profits (before the exceptional losses in 2001) by category of instrument.
Foreign exchange contracts
Profits less losses from securities held for trading purposes
Interest rate contracts
Total
Risk management activities
2002
€ m
78
10
(11)
77
2001
€ m
75
2
15
92
2000
€ m
69
42
(8)
103
In addition to meeting customer needs, the Group’s principal objective in holding or issuing derivatives for purposes other than
trading is the management of interest rate and foreign exchange rate and equity risks.
The operations of the Group are exposed to interest rate risk arising from the fact that assets and liabilities mature or reprice
at different times or in differing amounts. Derivatives are used to modify the repricing or maturity characteristics of assets and
liabilities in a cost-efficient manner.This flexibility helps the Group to achieve liquidity and risk management objectives. Similarly,
foreign exchange and equity derivatives can be used to hedge the Group’s exposure to foreign exchange and equity risk,
as required.
Derivative prices fluctuate in value as the underlying interest rate, foreign exchange rate, or equity prices change. If the
derivatives are purchased or sold as hedges of balance sheet items, the appreciation or depreciation of the derivatives, will generally
be offset by the unrealised depreciation or appreciation of the hedged items.This means that separate disclosure of market risk on
derivatives used for hedging purposes is not meaningful.
To achieve its risk management objective, the Group uses a combination of derivative financial instruments, particularly interest
rate swaps, futures and options, as well as other contracts.The tables on the following pages present the notional and fair value
amounts, weighted average maturity and weighted average receive and pay rates for instruments held for risk management purposes
entered into by the Group at 31 December 2002 and 2001.
100100
51 Derivatives (continued)
Interest rate swaps:
Receive fixed
1 year or less
1 - 5 years
5 - 10 years
Pay fixed
1 year or less
1 - 5 years
5 - 10 years
Pay/receive floating
1 year or less
1 - 5 years
5 - 10 years
Forward rate agreements:
Loans
1 year or less
Deposits
1 year or less
1 - 5 years
Interest rate options:
Purchased
1 year or less
1 - 5 years
5 - 10 years
Written
1 year or less
1 - 5 years
Notional amount
2002
2001
€ m
€ m
Weighted
average
maturity
in years
Weighted average rate
Pay
Receive
2002
2001
2002
%
2001
%
2002
%
2001
%
Estimated fair value
2001
€ m
2002
€ m
7,414
4,919
1,861
9,216
18,023
2,574
14,194
29,813
0.42
2.75
7.27
2.12
4,821
5,412
1,603
7,991
15,784
1,823
0.43
2.97
10.01
11,836
25,598
2.89
132
10
15
157
239
239
950
–
950
934
117
25
1,076
405
114
519
–
99
15
114
1,582
1,582
2,807
740
3,547
1,491
818
27
2,336
303
756
1,059
0.76
3.75
8.33
1.67
0.38
0.38
0.40
–
0.40
0.58
2.78
7.12
0.97
0.67
2.11
0.98
0.48
2.25
7.43
2.15
0.58
2.22
9.27
2.21
–
2.00
9.33
2.96
0.44
0.44
0.52
1.33
0.69
0.67
2.02
8.00
1.23
0.66
1.90
1.54
4.10
5.11
6.04
4.78
5.14
6.05
4.70
5.11
2.73
3.95
4.39
4.84
5.53
4.82
5.16
5.78
2.58
3.54
4.75
5.10
1.93
3.68
4.43
–
2.46
4.43
2.28
2.72
2.03
3.26
5.11
–
4.50
5.46
5.11
4.70
3.92
3.92
4.57
4.57
4.25
3.93
3.40
4.19
2.72
4.09
3.02
4.19
3.56
4.45
3.97
4.75
3.52
3.87
95
279
174
548
(81)
(306)
(168)
(555)
–
–
–
–
2
2
(8)
–
(8)
10
1
2
13
(10)
(1)
(11)
205
373
84
662
(134)
(385)
(50)
(569)
–
–
–
–
5
5
(2)
1
(1)
1
23
–
24
(1)
(20)
(21)
101101
Notes to the accounts
51 Derivatives (continued)
Notional amount
2002
2001
€ m
€ m
Weighted
average
maturity
in years
Weighted average rate
Pay
Receive
2002
2001
2002
%
2001
%
2002
%
2001
%
Estimated fair value
2001
€ m
2002
€ m
Financial futures:
1 year or less
1 - 5 years
4,552
970
4,303
994
0.49
1.52
0.58
1.49
2.08
3.31
2.85
5.02
5,522
5,297
0.67
0.74
2.29
3.26
Other interest rate derivatives:
1 year or less
1 - 5 years
5 - 10 years
Equity derivatives:
1 year or less
1 - 5 years
5 - 10 years
109
291
78
478
–
–
–
–
294
380
116
790
849
1,941
80
2,870
0.40
2.22
6.27
2.47
–
–
–
–
0.73
2.53
6.92
2.51
0.50
2.70
5.25
2.12
5.11
4.29
7.48
5.00
5.76
4.54
7.38
5.42
5.35
5.61
(7)
–
(7)
2
(5)
(3)
(6)
–
–
–
–
1
(1)
-
1
12
(10)
3
(1)
(2)
–
(3)
The carrying value of the interest rate derivative financial instruments held for risk management purposes was € 15m (2001: € 94m).
Reconciliation of movements in notional amounts of interest rate
instruments held for risk management purposes
Interest
rate swaps
€ m
FRA
Deposits
€ m
FRA
Loans
€ m
2,187
4,498
(5,095)
(51)
43
1,582
3,574
(4,816)
–
(52)
(49)
50,631
40,361
(34,315)
(1,767)
615
55,525
28,962
(31,720)
(1,243)
(23,411)
(1,926)
2,525
7,849
(6,851)
(50)
74
3,547
2,012
(4,391)
–
(94)
(124)
26,187
950
239
At 31 December 2000
Additions
Maturities/amortisations
Cancellations
Exchange adjustments
At 31 December 2001
Additions
Maturities/amortisations
Cancellations
Transfer to trading derivatives
Exchange adjustments
At 31 December 2002
102102
51 Derivatives (continued)
Non-trading derivative deferred balances
Set out hereunder are deferred balances relating to settled transactions.These balances will be released to the profit and loss account
in the same periods as the income and expense flows from the underlying transactions. At 31 December 2002 the Group had
deferred income of € 35m (2001: € 65m) and deferred expense of € 62m (2001: € 89m) relating to non-trading derivatives.
€ 18m (2001: € 38m) of deferred income and € 41m (2001: € 52m) of deferred expense is expected to be released to the profit
and loss account in 2003. During the year ended 31 December 2002, net deferred expense in relation to previous years of € 13m
was released to the profit and loss account.
2003
€ 000
2004
€ 000
2005
€ 000
2006
€ 000
2007
€ 000
After
2007
€ 000
Total
€ 000
14,586
(9,384)
2,910
(5,384)
4,374
(5,296)
Interest rate swaps
Deferred income
Deferred expense
Forward rate agreements
Deferred income
Deferred expense
Interest rate options
Deferred income
Deferred expense
Financial futures
Deferred income
Deferred expense
4,397
(2,688)
2,910
(5,384)
3,685
(3,339)
7,493
(30,163)
3,263
(2,358)
2,428
(818)
2,356
(672)
1,909
(569)
233
(2,279)
–
–
380
(956)
2,400
(5,474)
–
–
241
(681)
868
(2,173)
–
–
68
(186)
501
(1,643)
–
–
–
(43)
–
–
–
(91)
488
(1,038)
1,080
(1,730)
12,830
(42,221)
(23,089)
(2,745)
(135)
424
747
(2,787)
(27,585)
The above deferred balances have related unrealised gains or losses on transactions which are on balance sheet.The matching
of the income and expense flows from the related transactions will be effected through the deferral process. At 31 December 2002
the Group had deferred expense of € 4m (2001: € 1m) relating to debt securities held for hedging purposes. Deferred expense of
€ 1m (2001: deferred income € 3m) relating to these debt securities is expected to be released to the profit and loss account in
2003. During the year ended 31 December 2002, deferred income in relation to previous years of € 3m was released to the profit
and loss account.
Unrecognised gains and losses on derivatives hedges
Gains and losses on instruments used for hedging are recognised in line with the underlying items which are being hedged.
The unrecognised net loss on instruments used for hedging as at 31 December 2002 was € 22m (2001: net gain of € 25m).
The net gain expected to be recognised in 2003 is € 16m (2001: € 20m) and thereafter a net loss of € 38m (2001: net gain
of € 5m) is expected.
The net gain recognised in 2002 in respect of previous years was € 20m (2001: net gain of € 52m) and the net loss arising
in 2002 which was not recognised in 2002 was € 27m (2001: € 61m).
52 Fair value of financial instruments
The term ‘financial instruments’ includes both financial assets and liabilities and also derivatives.The fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other
than in a forced or liquidation sale.
Fair value is based upon quoted market prices where available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities and adjusted for differences between the quoted instrument and the instrument
being valued. In certain cases, including some lendings to customers, where there are no ready markets, various techniques have
been used to estimate the fair value of the instruments.These estimates are subjective in nature and involve uncertainties and matters
of significant judgement and therefore cannot be determined with precision. Readers of these financial statements are advised to
use caution when using these data to evaluate the Group’s financial position or to make comparisons with other institutions.
103103
Notes to the accounts
52 Fair value of financial instruments (continued)
Fair value information is not provided for certain financial instruments or for items that do not meet the definition of a financial
instrument.These items include short-term debtors and creditors, intangible assets such as the value of the branch network and the
long-term relationships with depositors, premises and equipment and shareholders’ equity.These items are material and accordingly
the fair value information presented does not purport to represent, nor should it be construed to represent, the underlying value of
the Group as a going concern at 31 December 2002.
The following table gives details of the carrying amounts and fair values of financial instruments at 31 December 2002 and 2001.
Assets
Trading financial instruments(1)
Debt securities
Equity shares
Central government and other eligible bills
Non-trading financial instruments
Cash and balances at central banks(1)
Items in course of collection(1)
Central government bills and other eligible bills
Loans and advances to banks(2)
Loans and advances to customers(2)
Securitised assets
Debt securities
Equity shares
Liabilities
Trading financial instruments
Short positions in securities(1)
Non-trading financial instruments
Deposits by banks
Customer accounts
Debt securities in issue
Subordinated liabilities
Shareholders’ funds: non-equity interests
Off-balance sheet assets/(liabilities)
Trading financial instruments(1)
Interest rate contracts
Exchange rate contracts
Equity contracts
Non-trading financial instruments
Interest rate contracts
Exchange rate contracts
Equity contracts
31 December 2002
Fair
value
€ m
Carrying
amount
€ m
31 December 2001
Fair
value
€ m
Carrying
amount
€ m
4,758
58
1
1,176
1,171
23
4,788
53,447
248
13,446
188
4,758
58
1
1,176
1,171
23
4,826
54,075
220
13,690
203
3,783
49
4
1,175
1,536
45
6,047
51,216
182
16,299
283
3,783
49
4
1,175
1,536
45
6,060
51,498
160
16,468
283
266
266
205
205
16,137
52,976
3,077
2,172
235
16,162
53,091
3,106
2,362
227
13,223
54,557
5,033
2,516
279
13,261
54,615
5,041
2,539
267
135
62
–
15
20
–
135
62
–
(24)
37
–
95
(456)
1
94
9
–
95
(456)
1
103
28
(3)
(1)The fair value of these financial instruments is considered equal to the carrying value.These instruments are either carried at market
value or have minimal credit losses.
(2)The carrying values are net of the provisions for bad and doubtful debts and related unearned income.
104104
52 Fair value of financial instruments (continued)
The following methods and assumptions were used in estimating the fair value of financial instruments.
Central government bills and other eligible bills
The fair value of central government bills and other eligible bills is based on quoted market prices.
Loans and advances to banks and loans and advances to customers
The Group provides lending facilities of varying rates and maturities to corporate and personal customers. Several different techniques
are employed, as considered appropriate, in estimating the fair value of loans.Where secondary market prices were available, these were
used.The carrying amount of variable rate loans was considered to be at market value if there was no significant change in the credit
risk of the borrower.The fair value of fixed rate loans was calculated by discounting expected cash flows using discount rates that
reflected the credit and interest rate risk in the portfolio.
The fair value of money market funds and loans and advances to banks was estimated using discounted cash flows applying either
market rates, where practicable, or rates currently offered by other financial institutions for placings with similar characteristics.
Securitised assets
The fair value of securitised assets is based on market prices received from external pricing services.
Debt securities and equity shares
The fair value of listed debt securities and equity shares is based on market prices received from external pricing services or bid
quotations received from external securities dealers.The estimated value of unlisted debt securities and equity shares is based on
the anticipated future cashflows arising from these items.
Deposits by banks, customer accounts and debt securities in issue
The fair value of current accounts and deposit liabilities payable on demand is equal to their book value.The fair value of all other
deposits and other borrowings is estimated using discounted cash flows applying either market rates, where applicable, or interest
rates currently offered by the Group.
Subordinated liabilities
The estimated fair value of subordinated liabilities is based upon quoted market rates.
Commitments pertaining to credit-related instruments
Details of the various credit-related commitments entered into by the Group and other off-balance sheet financial guarantees are
included in note 50. Fees for these instruments may be billed in advance or in arrears on an annual, quarterly or monthly basis.
In addition, the fees charged vary on the basis of instrument type and associated credit risk. As a result it is not considered practicable
to estimate the fair value of these instruments because each customer relationship would have to be separately evaluated.
Derivatives
The Group uses various derivatives, designated as hedges, to manage its exposure to fluctuations in interest and exchange rates.
The fair value of these instruments is estimated using market prices or pricing models consistent with the methods used for valuing
similar instruments used for trading purposes. Derivatives used for trading purposes are marked to market using independent prices
and are included in other assets/other liabilities on the consolidated balance sheet at 31 December 2002 and 2001.
Details of derivatives in place, including fair values, are included in note 51.
Shareholders’ funds: non-equity interests
The fair value of these instruments is based on quoted market prices.
105105
Notes to the accounts
53 Interest rate sensitivity
The net interest rate sensitivity of the Group at 31 December 2002 and 2001 is illustrated in the tables below.The interest sensitivity
gap is split by functional currency.The tables set out details of those assets and liabilities whose values are subject to change as interest
rates change within each repricing time period. Details regarding assets and liabilities which are not sensitive to interest rate
movements and any rate sensitive off-balance sheet contracts are also included.The tables show the sensitivity of the balance sheet at
one point in time and are not necessarily indicative of positions at other dates. In developing the classifications used in the tables it
has been necessary to make certain assumptions and approximations in assigning assets and liabilities to different repricing categories.
The tables do not take into account the effect of interest rate options used by the Group to hedge its exposure. Details of options
are given in note 51.
Assets
Central govt. bills and
other eligible bills
Loans and advances to banks
Loans and advances to customers
Debt securities
Other assets
Total assets
Liabilities
Deposits by banks
Customer accounts
Debt securities in issue
Subordinated liabilities
Other liabilities
Shareholders’ funds
Total liabilities
Off-balance sheet items
affecting interest rate
sensitivity
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
0-3
Months
€ m
3-6
Months
€ m
6-12
Months
€ m
1-5
Years
€ m
5 years +
€ m
Non-interest
bearing
€ m
Trading
€ m
Total
€ m
31 December 2002
23
3,999
41,838
4,485
–
50,345
12,159
36,071
2,269
1,066
95
–
–
300
1,995
781
–
3,076
1,819
1,145
330
95
–
–
–
25
1,587
1,054
–
–
18
5,095
5,284
–
2,666
10,397
1,641
1,868
258
–
–
–
59
2,472
214
223
–
–
–
–
3,180
1,842
–
5,022
167
62
6
788
–
–
–
446
-
–
8,997
9,443
292
11,358
–
–
6,403
4,643
51,660
3,389
3,767
2,968
1,023
22,696
1
–
–
4,758
341
24
4,788
53,695
18,204
9,338
5,100
86,049
–
–
–
–
546
–
546
16,137
52,976
3,077
2,172
7,044
4,643
86,049
2,882
(843)
(1,961)
214
(292)
–
–
–
54,542
2,546
1,806
(4,197)
530
860
3,182
7,215
731
22,696
546
86,049
4,291
(13,253)
4,554
(4,197)
(3,667)
(2,807)
4,408
8,699
(4,554)
–
Euro m Euro m Euro m Euro m Euro m Euro m Euro m
(89)
(89)
342
253
626
879
1,947
1,855
(6,873)
1,803
2,826
4,681
(2,192)
(389)
US $m US $m US $m US $m US $m US $m US $m
(1,761)
446
(120)
2,890
1,328
(3,237)
(1,761)
(1,315)
(1,435)
1,455
2,783
(454)
869
415
Stg m
Stg m
Stg m
Stg m
Stg m
Stg m
Stg m
(993)
(398)
177
2,150
1,039
(3,251)
991
(993)
(1,391)
(1,214)
936
1,975
(1,276)
(285)
PLN m PLN m PLN m PLN m PLN m PLN m PLN m
(1,201)
(197)
40
213
54
225
502
(1,201)
(1,398)
(1,358)
(1,145)
(1,091)
(866)
(364)
106106
53 Interest rate sensitivity (continued)
Assets
Central govt. bills and
other eligible bills
Loans and advances to banks
Loans and advances to customers
Debt securities
Other assets
Total assets
Liabilities
Deposits by banks
Customer accounts
Debt securities in issue
Subordinated liabilities
Other liabilities
Shareholders’ funds
Total liabilities
Off-balance sheet items
affecting interest rate
sensitivity
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
0-3
Months
€ m
3-6
Months
€ m
6-12
Months
€ m
1-5
Years
€ m
5 years +
€ m
Non-interest
bearing
€ m
Trading
€ m
Total
€ m
31 December 2001
16
4,764
35,669
5,126
–
45,575
9,862
36,666
3,813
496
112
–
29
537
2,365
1,469
–
4,400
2,151
1,792
601
113
–
–
–
143
2,034
2,195
–
–
33
6,242
4,400
–
–
–
5,088
3,109
–
–
570
–
–
11,404
4
–
–
3,783
379
49
6,047
51,398
20,082
11,783
4,372
10,675
8,197
11,974
4,166
89,359
713
1,470
298
209
–
–
47
2,302
89
664
–
–
110
582
232
1,034
–
–
340
11,745
–
–
7,791
5,130
–
–
–
–
997
–
997
13,223
54,557
5,033
2,516
8,900
5,130
89,359
50,949
4,657
2,690
3,102
1,958
25,006
2,801
117
(311)
(968)
(1,639)
–
–
–
53,750
4,774
2,379
(8,175)
(374)
1,993
2,134
8,541
319
25,006
997
89,359
7,878
(13,032)
3,169
(8,175)
(8,549)
(6,556)
1,985
9,863
(3,169)
–
Euro m Euro m Euro m Euro m Euro m Euro m Euro m
(1,045)
(598)
724
3,997
2,136
(6,431)
1,835
(1,045)
(1,643)
(919)
3,078
5,214
(1,217)
618
US $m US $m US $m US $m US $m US $m US $m
(1,998)
(179)
317
3,184
2,889
(3,857)
(1,998)
(2,177)
(1,860)
1,324
4,213
356
116
472
Stg m
Stg m
Stg m
Stg m
Stg m
Stg m
Stg m
(2,955)
(196)
139
1,555
2,963
(2,812)
819
(2,955)
(3,151)
(3,012)
(1,457)
1,506
(1,306)
(487)
PLN m PLN m PLN m PLN m PLN m PLN m PLN m
(1,382)
(196)
744
(173)
(86)
(113)
248
(1,382)
(1,578)
(834)
(1,007)
(1,093)
(1,206)
(958)
107107
Notes to the accounts
54 Consolidated cash flow statement
Notes
(a) Returns on investments and servicing of finance
Interest paid on subordinated liabilities
Dividends paid on non-equity shares
Dividends paid to non-equity minority interests in subsidiaries
Net cash outflow from returns on investments and servicing of finance
(b) Taxation
Tax paid, Republic of Ireland
Foreign tax paid
Net cash outflow from taxation
(c) Capital expenditure and financial investment
Net decrease/(increase) in debt securities
Net decrease/(increase) in equity shares
Additions to tangible fixed assets
Disposals of tangible fixed assets
Net cash inflow/(outflow) from capital expenditure
(d) Acquisitions and disposals
Acquisition of Group undertakings
Investments in associated undertakings
Disposals of investments in associated undertakings
Net cash (outflow)/inflow from acquisitions and disposals
(e) Financing
Issue of ordinary share capital
Redemption of subordinated liabilities
Issue of subordinated liabilities
Issue of reserve capital instrument
Redemption of preference shares
Net cash (outflow)/inflow from financing
54(h)
(f ) Analysis of changes in cash
At 1 January
Net cash inflow/(outflow) before the effect of exchange translation adjustments
Effect of exchange translation adjustments
At 31 December
54(g)
2002
€ m
(126)
(8)
(4)
(138)
(85)
(195)
(280)
1,506
10
(179)
42
1,379
(1)
(5)
1
(5)
27
(247)
100
–
(9)
(129)
2,652
362
(283)
2,731
2001
€ m
(108)
(17)
(6)
(131)
(72)
(170)
(242)
904
94
(328)
30
700
(59)
(1)
1
(59)
23
(311)
–
496
–
208
2000
€ m
(150)
(20)
(14)
(184)
(82)
(117)
(199)
(2,763)
(67)
(237)
63
(3,004)
–
(4)
6
2
15
–
149
–
–
164
2,222
377
53
2,652
3,130
(1,016)
108
2,222
108108
54 Consolidated cash flow statement (continued)
(g) Analysis of cash
Cash and balances at central banks
Loans and advances to banks (repayable on demand)
2002
€ m
1,176
1,555
2,731
2001
€ m
1,175
1,477
2,652
Change
in year
€ m
1
78
79
The Group is required to maintain balances with the Central Bank of Ireland which amounted to € 1,039m (2001: € 399m).
The Group is also required by law to maintain reserve balances with the Federal Reserve Bank in the United States of America,
the Bank of England and with the National Bank of Poland. Such reserve balances amounted to € 53m (2001: € 34m).
Share capital(1)
2002
€ m
2001
Restated
€ m
Subordinated
liabilities
2001
Restated
€ m
2002
€ m
Non-equity minority
interests
2001
2002
€ m
€ m
2,217
(45)
27
13
(1)
2,211
2,165
15
23
14
–
2,217
2,516
(199)
(147)
–
2
2,172
2,249
80
185
–
2
2,516
121
(19)
(9)
–
–
93
114
7
–
–
–
121
(h) Analysis of changes in financing
At 1 January
Effect of exchange translation adjustments
Cash inflow/(outflow) from financing
Other movements
Amortisation of issue costs
At 31 December
(1)Includes share capital and share premium.
55 Report on directors’ remuneration and interests
Remuneration policy
The Company’s policy in respect of the remuneration of the executive directors is to provide remuneration packages that attract,
retain, motivate and reward the executives concerned and, by ensuring strong links between performance and reward, encourage them
to enhance the Company’s performance. In considering such packages, cognisance is taken of: the levels of remuneration for
comparable positions, as advised by external consultants; the responsibilities of the individuals concerned; their individual
performances measured against specific and challenging objectives; and overall Group performance.
Nomination and Remuneration Committee
The Nomination and Remuneration Committee comprises only non-executive directors; during 2002 its members were:
Mr. Lochlann Quinn (Chairman), Mr. Dermot Gleeson (from 1 November), Mr. Derek A Higgs, Mr. John B McGuckian and Mr. Jim
O’Leary (from 1 June).The Committee has a wide remit which includes, inter alia, determining, under advice to the Board, the
specific remuneration packages of the executive directors.
109109
Notes to the accounts
55 Report on directors’ remuneration and interests (continued)
Remuneration
Executive directors
Frank P Bramble
Michael Buckley
Gary Kennedy
Non-executive directors
Adrian Burke
Padraic M Fallon
Dermot Gleeson
Don Godson
Derek A Higgs
John B McGuckian
Carol Moffett
Jim O’Leary
Lochlann Quinn
Michael J Sullivan
Former directors
Pensions(6)
Other payments(7)
Total
Fees(1)
Salary
Bonus(2)
€ 000
€ 000
€ 000
Profit
share(3)
€ 000
Taxable
benefits(4)
€ 000
Pension
contributions(5)
€ 000
236
539
296
1,071
–
250
125
375
–
13
10
23
4
52
45
101
9
29
29
67
80
31
88
41
69
83
41
37
216
57
743
666
57
30
753
–
–
–
–
–
–
–
–
–
–
–
2002
Total
€ 000
915
940
535
2,390
80
31
88
41
69
83
41
37
216
57
743
106
487
593
3,726
110110
55 Report on directors’ remuneration and interests (continued)
Remuneration (continued)
Fees(1)
Salary
Bonus(2)
€ 000
€ 000
€ 000
Profit
share(3)
€ 000
Taxable
benefits(4)
€ 000
Pension
contributions(5)
€ 000
29
29
24
29
43
811
502
144
282
380
154
2,119
–
–
–
–
–
–
–
9
9
9
9
21
65
18
37
16
36
157
65
31
45
46
43
75
43
1
207
16
572
619
80
23
42
59
823
–
–
–
–
–
–
–
–
–
–
–
Executive directors
Frank P Bramble
Michael Buckley
Kevin J Kelly
Gary Kennedy
Thomas P Mulcahy
Non-executive directors
Adrian Burke
Padraic M Fallon
Dermot Gleeson
Don Godson
Derek A Higgs
John B McGuckian
Carol Moffett
Jim O’Leary
Lochlann Quinn
Michael J Sullivan
Former directors
Pensions(6)
Other payments(7)
Total
2001
Total
€ 000
1,480
685
218
399
507
3,289
65
31
45
46
43
75
43
1
207
16
572
103
364
467
4,328
(1) Fees comprise a fee paid in respect of service as a director, and additional remuneration paid to any non-executive director who
holds the office of Chairman or Deputy Chairman, serves on the board of a subsidiary company, or performs services outside the
ordinary duties of a director, such as through membership of Board Committees.
(2) The executive directors participate in a discretionary, performance-related, incentive scheme for senior executives under which
bonuses may be earned on the achievement of specific, performance-related objectives, reviewed annually.The bonus may range
from 0% to 60% of annual salary, except that the bonus for Mr. Frank P Bramble, former Chief Executive, USA Division, ranged
from 0% to 160% of annual salary.
(3) Information on the employees’ profit sharing schemes, which are operated on terms approved by the shareholders, is given in
note 45.
(4) Taxable benefits include the use of a company car or the payment of a car allowance, and benefit arising from loans made at
preferential interest rates.Taxable benefits also include any allowances related to the undertaking of international assignments
within the Group.
(5) Pension contributions represent payments to defined benefit pension plans, in accordance with actuarial advice, to provide
post-retirement pensions.The fees of the non-executive directors who joined the Board since 1990 are not pensionable.The
pension benefits earned during the year, and accrued at year-end (or date of retirement, if earlier), are as follows:
111111
Notes to the accounts
55 Report on directors’ remuneration and interests (continued)
Remuneration (continued)
Increase in accrued
benefits during 2002(a)
€ 000
Accrued benefit
at year-end(b)
€ 000
Executive directors
Frank P Bramble
Michael Buckley
Gary Kennedy
Non-executive directors
Padraic M Fallon
John B McGuckian
9
1
10
0.4
0.06
375
285
57
11
17
Transfer values(c)
€ 000
85
15
84
4
0.7
(a)Increases are after adjustment for inflation, and reflect additional pensionable service and earnings.
(b)Figures represent the accumulated total amounts of accrued benefits payable at normal retirement dates, as at 31
December 2002 and as at actual retirement date in respect of Mr. Bramble.
(c)Figures show the transfer values of the increases in accrued benefits during 2002. These transfer values do not represent
sums paid or due, but the amounts that the pension plan would transfer to another pension plan, in relation to the benefits
accrued in 2002, in the event of the member leaving service.
(6) Pensions represent the payment of pensions to former directors or their dependants granted on an ex-gratia basis and fully
provided for in the balance sheet.
(7) Other payments comprise
(a) payments by Allfirst Financial Inc. (‘Allfirst’) of € 169,060 to Mr Frank P Bramble following his retirement from the
Board; these payments comprised (i) salary of € 98,096 for the period from his retirement from the Board on 19 April
2002 up to 31 May 2002, and (ii) pension funding costs of € 70,396 and taxable benefits of € 568 for that period;
(b) remuneration of € 280,474 paid to Mr Jeremiah E Casey under the terms of a post-retirement consultancy contract
approved by shareholders at the 1999 Annual General Meeting (2001: € 296,634), and
(c) payments of € 37,950, in aggregate, to two former directors who served on the boards of subsidiary companies
(2001: € 67,760 to one such director).
Interests in shares
The beneficial interests of the directors and secretary in office at 31 December 2002, and of their spouses and minor children, are
as follows:
Ordinary Shares
Directors:
Michael Buckley
Adrian Burke
Padraic M Fallon
Dermot Gleeson
Don Godson
Derek A Higgs
Gary Kennedy
John B McGuckian
Carol Moffett
Jim O’Leary
Lochlann Quinn
Michael J Sullivan
Secretary:
W M Kinsella
112112
31 December
2002
1 January
2002
177,610
10,642
8,377
12,056
25,099
5,000
26,776
67,557
13,125
–
420,055
700
176,605
10,642
8,148
2,000
25,099
5,000
25,355
66,113
15,675
–
314,588
700
14,674
13,897
55 Report on directors’ remuneration and interests (continued)
Share options
To encourage focus on long-term shareholder value, executive directors are eligible for grants of share options. Options are usually
granted on a phased basis.The exercise of options granted between 1 January 1996 and 31 December 2000 is conditional on the
achievement of earnings per share (‘EPS’) growth of at least 2% per annum, compound, above the increase in the Consumer Price Index
(‘CPI’) over a period of not less than three and not more than five years from date of grant.The exercise of options granted since
1 January 2001 is conditional on the achievement of EPS growth of at least 5% per annum, compound, above the increase in the CPI
over a period of not less than three and not more than five years from date of grant.The percentage of share capital that may be issued
under the share option scheme, and individual grant limits, comply with the requirements of the Irish Association of Investment
Managers.
Details of the executive directors’ share options are given below; additional information in relation to the Share Option Scheme,
in which non-executive directors do not participate, is given in note 45.
31 December
2002
1 January
2002
Since 1 January 2002
Exercised
Granted
Price of
options
exercised
Market
price at
date of
exercise
Weighted average
subscription price of
options outstanding
at 31 December 2002
Directors:
Michael Buckley
Gary Kennedy
Secretary:
W M Kinsella
281,500
155,000
216,500
105,000
65,000
50,000
65,000
60,000
5,000
–
–
–
€
–
–
–
€
–
–
–
€
10.77
9.71
9.26
The options outstanding at 31 December 2002 are exercisable at various dates between 2003 and 2012. Details are shown in the
Register of Directors’ and Secretary’s Interests, which may be inspected by shareholders at the Company’s Registered Office.
Long Term Incentive Plan
Under the terms of the Long Term Incentive Plan approved by shareholders at the 2000 Annual General Meeting, awards
of shares may be granted to key executives and other employees (see note 45). These awards will not vest in the award holders
unless (a) the growth in the Company’s EPS, as defined in the Rules of the Plan, in any three consecutive years within the five
years following the grant is not less than the growth in the CPI plus 5% per annum, compound, over the same three year period;
and (b) the growth in the Company’s core EPS, as defined in the Rules of the Plan, over the three year period during which
the criterion at (a) is satisfied, is such as to position the Company in the top 20% of the FTSE Eurotop Banks Retail Index.
Partial vesting, on a reducing scale, will occur if the growth in the Company’s core EPS positions the Company outside the top
20% of that Index but still within its top 45%, subject to the criterion at (a) being satisfied.Vested shares must be held until
normal retirement date, except that award holders may dispose of shares sufficient to meet the income tax liability arising on vesting.
113113
Notes to the accounts
55 Report on directors’ remuneration and interests (continued)
Long Term Incentive Plan (continued)
The following conditional grants of awards of ordinary shares have been made under the terms of the Plan:
Directors:
Michael Buckley
Gary Kennedy
Secretary:
W M Kinsella
Total as at
31 December 2002
Granted during
2002
Total as at
1 January 2002
38,000
20,000
20,000
10,000
18,000
10,000
4,500
4,500
–
Apart from the interests set out above, the directors and secretary and their spouses and minor children have no interests in the shares
of the Company.
The year-end market price, on the Irish Stock Exchange, of the Company’s ordinary shares was € 12.86 per share; during the
year the price ranged from € 10.92 to € 15.70 per share.
There were no changes in the above interests between 31 December, 2002 and 18 February, 2003.
Service contracts
There are no service contracts in force for any director with the Company or any of its subsidiaries.
56 Transactions with directors
Loans to non-executive directors are made in the ordinary course of business on normal commercial terms, while loans to executive
directors are made on terms applicable to other employees in the Group, in accordance with established policy. At 31 December 2002
the aggregate amount outstanding in loans to persons who at any time during the year were directors was € 42.8m in respect of 6
persons; the amount outstanding in respect of quasi-loans (effectively, credit card facilities), to 6 persons, was € 0.03m (2001:
€ 42.8m in respect of loans to 7 persons and € 0.07m in respect of quasi-loans to 7 persons).
114114
57 Commitments
Capital expenditure
Estimated outstanding commitments for capital expenditure not provided for in the accounts amounted to € 49m (2001: € 69m).
Capital expenditure authorised, but not yet contracted for, amounted to € 90m (2001: € 152m).
Operating lease rentals
The Group had annual commitments under non-cancellable operating leases as set out below.
Operating leases which expire:
Within one year
In the second to fifth year
Over five years
The operating lease rentals in respect of property are subject to rent reviews.
58 Employees
The average full-time equivalent employee numbers by division were as follows:
AIB Bank ROI
AIB Bank GB & NI
USA
Capital Markets
Poland
Group
2002
€ m
3
14
35
52
Property
2001
€ m
Equipment
2001
€ m
2002
€ m
3
18
33
54
–
2
–
2
–
1
–
1
2002
2001
9,935
3,050
5,885
2,492
9,946
735
32,043
9,548
2,909
5,912
2,213
11,100
715
32,397
59 Companies (Amendment) Act, 1983
The Companies (Amendment) Act, 1983, requires that, when the net assets of a company are half or less than half of its called up
share capital, an extraordinary general meeting be convened.The Act further requires an expression of opinion by the auditors as to
whether the financial situation of the company at the balance sheet date is such as would require the convening of such a meeting.
60 Form 20-F
An annual report on Form 20-F will be filed with the Securities and Exchange Commission,Washington D.C. and, when filed,
will be available to shareholders on application to the Company Secretary.
61 Reporting currency
The currency used in these accounts is the euro which is denoted by ‘EUR’ or the symbol €. The euro was introduced on
1 January 1999.The countries participating in the European Single Currency are: Austria, Belgium, Finland, France, Germany,
Greece, Italy, Luxembourg, the Netherlands, Portugal, Spain and Ireland.The national currency units of these participating
currencies co-existed with the euro, as denominations of the new single currency until 31 December 2001. Euro notes and
coin were introduced on 1 January 2002. Ireland joined the European Single Currency at the fixed translation rate of
EUR 1=IR £0.787564. Each euro is made up of one hundred cent, denoted by the symbol ‘c’ in these accounts.
115115
Notes to the accounts
62 Financial and other information
Operating ratios
Operating expenses(1)/operating income
Tangible operating expenses(3)/operating income
Other income(4)/operating income
Net interest margin:
Group
Domestic
Foreign
Rates of exchange
€ /US $
Closing
Average
€ /Stg £
Closing
Average
€ /PLN
Closing
Average
2002
2001
Restated
58.6%
57.8%
40.2%
3.00%
2.73%
3.27%
1.0487
0.9458
0.6505
0.6282
4.0210
3.8473
(2)
(2)
(2)
59.9%
59.0%
39.8%
2.99%
2.59%
3.34%
0.8813
0.8947
0.6085
0.6198
3.4953
3.6573
(1)Excludes restructuring costs of € 13.3m in 2002 and integration costs of € 38.2m in 2001.
(2)Adjusted to exclude the impact of the exceptional foreign exchange dealing losses in 2001. Including the exceptional foreign
exchange dealing losses, operating expenses/operating income was 77.1%, tangible operating expenses/operating income was 74.8%
and other income/operating income was 23.8%.
(3)Excludes amortisation of goodwill of € 31.7m (2001: € 30.9m) and restructuring/integration costs of € 13.3m (2001: € 38.2m).
(4)Other income includes other finance income.
Capital adequacy information
Risk weighted assets
Banking book:
On balance sheet
Off-balance sheet
Trading book:
Market risks
Counterparty and settlement risks
Total risk weighted assets
Capital
Tier 1
Tier 2
Supervisory deductions
Total
116116
2002
€ m
2001
€ m
53,961
11,521
65,482
3,099
658
3,757
54,839
10,854
65,693
2,897
268
3,165
69,239
68,858
4,806
2,522
7,328
341
6,987
4,479
2,759
7,238
294
6,944
62 Financial and other information (continued)
Currency information
Euro
Other
2002
€ m
38,307
47,742
Assets
2001
€ m
35,966
53,393
2002
€ m
38,697
47,352
86,049
89,359
86,049
Liabilities
2001
€ m
35,356
54,003
89,359
63 Average balance sheets and interest rates
The following tables show the average balances and interest rates of interest earning assets and interest bearing liabilities for the
years ended 31 December 2002 and 2001.The calculation of average balances include daily and monthly averages for reporting units.
The average balances used are considered to be representative of the operations of the Group.
Assets
Placings with banks
Domestic offices
Foreign offices
Loans to customers(1)
Domestic offices
Foreign offices
Placings with banks and loans to customers(1)
Domestic offices
Foreign offices
Funds sold
Domestic offices
Foreign offices
Debt securities and government bills
Domestic offices
Foreign offices
Instalment credit and finance lease receivables
Domestic offices
Foreign offices
Total interest earning assets
Domestic offices
Foreign offices
Allowance for loan losses
Non-interest earning assets
Average
balance
€ m
3,388
1,884
23,530
26,369
26,918
28,253
–
744
9,850
9,311
1,895
1,280
38,663
39,588
78,251
(956)
8,962
Year ended 31 December 2002
Average
rate
%
Interest
€ m
103
81
1,360
1,573
1,463
1,654
–
12
401
550
115
73
1,979
2,289
4,268
3.0
4.3
5.8
6.0
5.4
5.9
–
1.6
4.1
5.9
6.1
5.7
5.1
5.8
5.5
Average
balance
€ m
3,441
2,041
21,210
25,026
24,651
27,067
–
93
8,886
11,558
1,880
1,458
35,417
40,176
75,593
(939)
9,560
Year ended 31 December 2001
Average
rate
%
Interest
€ m
138
117
1,390
2,051
1,528
2,168
–
2
432
784
119
90
2,079
3,044
5,123
4.0
5.7
6.6
8.2
6.2
7.9
–
2.7
4.9
6.8
6.3
6.2
5.9
7.6
6.8
Total assets
86,257
4,268
4.9
84,214
5,123
6.1
Percentage of assets applicable to
foreign activities
51.6
53.3
(1)Loans to customers include money market funds. Non-accrual loans and loans classified as problem loans are also included within
this caption.
117117
Notes to the accounts
63 Average balance sheets and interest rates (continued)
Liabilities and stockholders’ equity
Interest bearing deposits and
other short-term borrowings
Domestic offices
Foreign offices
Funds purchased
Domestic offices
Foreign offices
Subordinated liabilities
Domestic offices
Foreign offices
Total interest bearing liabilities
Domestic offices
Foreign offices
Interest-free liabilities
Current accounts
Other liabilities
Minority equity and non-equity interests
Preference share capital
Ordinary stockholders’ equity
Year ended 31 December 2002
Year ended 31 December 2001
Average
balance
€ m
Interest
€ m
Average
rate
%
Average
balance
€ m
Interest
€ m
Average
rate
%
1,044
1,588
–
65
116
52
1,160
1,705
2,865
3.8
4.9
–
3.8
6.1
6.6
4.0
4.9
4.5
31,005
30,326
–
1,489
1,642
682
32,647
32,497
65,144
10,764
5,182
285
253
4,629
837
935
–
24
85
36
922
995
1,917
2.7
3.1
–
1.6
5.2
5.3
2.8
3.1
2.9
27,285
32,519
–
1,694
1,906
788
29,191
35,001
64,192
9,578
4,996
298
253
4,897
Total liabilities and stockholders’ equity
86,257
1,917
2.2
84,214
2,865
3.4
Percentage of liabilities applicable to
foreign activities
50.0
53.7
64 Supplementary Group financial information for US reporting purposes
Exceptional foreign exchange dealing losses
As set out in note 9(b), in accordance with Irish Generally Accepted Accounting Principles (IR GAAP) the total costs arising from
the fraud in Allfirst Treasury have been reflected by way of an exceptional charge of € 789 million (after tax € 513 million) in the
accounts for the year ended December 31, 2001.
Under US reporting requirements, the filing of AIB’s 2001 financial statements by way of Annual Report on Form 20-F
constituted a reissue of the financial statements for prior years.The US Securities and Exchange Commission requires all material
errors in respect of prior years to be accounted for and reported as prior year adjustments, in the years in which they occurred.
Accordingly, in AIB’s Annual Report on Form 20-F for December 2001, the Fraud Losses were charged in the years in which they
occurred and this approach has been reflected in the financial information provided in this note.
118118
64 Supplementary Group financial information for US reporting purposes (continued)
Exceptional foreign exchange dealing losses (continued)
The losses arising from the fraud occurred over a number of years. Reflecting the losses in the periods in which they arose would
have the following impact on reported amounts for 2002 and prior periods.
(Decrease)/increase in income before taxes
(Decrease)/increase in income tax expense
(Decrease)/increase in reported net income
2002
€ m
(28)
(10)
(18)
2001
€ m
378
132
246
2000
€ m
(228)
(80)
(148)
1999
€ m
(45)
(16)
(29)
1998
€ m
(11)
(4)
(7)
1997
€ m
(24)
(8)
(16)
Alternative presentation of consolidated statements of income
As outlined above, under US reporting requirements the losses arising from the fraud would be reflected in the Group figures in the
years in which the losses arose.The following alternative presentation of consolidated statements of income reflects this approach.
Net interest income(2)
Deposit interest retention tax
Net interest income
Other income, including other finance income(3)
Exceptional foreign exchange dealing losses
Total operating income
Total operating expenses
Group operating income before provisions
Provisions
Group operating income
Income from associated undertakings
Income on disposal of property
Income on disposal of business
Income before taxes, preference dividends and
minority interests
Applicable taxes
Equity and non-equity minority interests in subsidiaries
Dividends on non-equity shares
Consolidated net income under alternative presentation
2002
€ m
2,351
–
2,351
1,579
(18)
3,912
2,328
1,584
251
1,333
9
5
–
1,347
296
1,051
24
8
32
1,019
2001
Restated(1)
€ m
2,258
–
2,258
1,493
(417)
3,334
2,278
1,056
204
852
4
6
93
955
187
768
23
15
38
730
2000
€ m
2,022
(113)
1,909
1,375
(228)
3,056
1,997
1,059
134
925
3
5
–
933
239
694
38
20
58
636
(1)The figures for 2001 have been restated to reflect the interest cost of the Reserve Capital Instruments as interest expense rather than
‘Dividends on non-equity shares’ in accordance with UITF 33.
(2)Excluding charge in respect of DIRT in 2000 (note 6).
(3)Excluding exceptional foreign exchange dealing losses in all years (note 9(b)).
119119
Notes to the accounts
64 Supplementary Group financial information for US reporting purposes (continued)
Alternative presentation of consolidated balance sheet
Reflecting the losses in the period in which they arose would have had the following impact on consolidated ordinary stockholders’
equity, consolidated total assets and consolidated total liabilities.The losses had no impact on consolidated ordinary stockholders’
equity, consolidated total assets and consolidated total liabilities for the year ended 31 December 2002.
Consolidated ordinary stockholders’ equity
2001
€ m
2000
€ m
1999
€ m
1998
€ m
1997
€ m
Ordinary stockholders’ equity as in the
consolidated balance sheet
Adjustments:
Cumulative impact of recognition of losses
in year they occurred
Consolidated ordinary stockholders’ equity under
4,851
4,944
4,460
2,829
2,299
20
(210)
(58)
(23)
(17)
alternative presentation
4,871
4,734
4,402
2,806
2,282
Consolidated total assets
Total assets as in the consolidated balance sheet
Adjustments:
Other assets
89,359
80,543
67,959
53,875
48,004
–
(323)
(89)
(36)
(26)
Consolidated total assets under alternative presentation
89,359
80,220
67,870
53,839
47,978
Consolidated total liabilities and
ordinary stockholders’ equity
Total liabilities and ordinary stockholders’
equity as in the consolidated balance sheet
89,359
80,543
67,959
53,875
48,004
Adjustments:
Expense accruals
Other liabilities
Ordinary stockholders’ equity
(11)
(9)
20
–
(113)
(210)
–
(31)
(58)
–
(13)
(23)
–
(9)
(17)
Consolidated total liabilities and ordinary stockholders’
equity under alternative presentation
89,359
80,220
67,870
53,839
47,978
120120
64 Supplementary Group financial information for US reporting purposes (continued)
Alternative presentation of consolidated balance sheet (continued)
The following consolidated balance sheet illustrates this presentation.
Assets
Cash and balances at central banks
Items in course of collection
Central government bills and other eligible bills
Loans and advances to banks
Loans and advances to customers less allowance for loan losses
Securitized assets
Debt securities
Equity shares
Interests in associated undertakings
Intangible assets
Property and equipment
Own shares
Other assets
Deferred taxation
Prepayments and accrued income
Pension assets
Long-term assurance business attributable to stockholders
Long-term assurance assets attributable to policyholders
Total assets
Liabilities and stockholders’ equity
Deposits by banks
Customer accounts
Debt securities in issue
Other liabilities
Accruals and deferred income
Pension liabilities
Provisions for liabilities and charges
Deferred taxation
Subordinated liabilities
Minority equity and non-equity interests in consolidated subsidiaries
Non-equity stockholders interests
Ordinary stockholders’ equity
Long-term assurance liabilities to policyholders
Total liabilities and stockholders’ equity
2001
€ m
1,175
1,536
49
6,047
51,216
182
20,082
332
10
495
1,305
245
1,260
417
2,080
372
304
87,107
2,252
89,359
13,223
54,557
5,033
3,263
2,148
117
71
717
2,516
312
279
4,871
87,107
2,252
89,359
2000
€ m
938
1,116
297
4,193
45,880
166
18,986
412
8
466
1,127
177
1,322
247
1,835
671
238
78,079
2,141
80,220
12,478
48,437
4,295
2,966
1,684
46
43
611
2,249
272
264
4,734
78,079
2,141
80,220
Summary of significant differences between Irish and United States accounting principles
The following is a description of the significant differences between Irish generally accepted accounting principles (IR GAAP)
and those applicable in the United States of America (US GAAP).
Debt securities and equity securities
Under IR GAAP, debt and equity securities held for investment purposes are stated in the balance sheet at amortized cost less
provision for any impairment in value. Securities held for hedging purposes are included in the balance sheet at a valuation, the basis
of which is consistent with that being applied to the underlying transactions.These are classified as financial fixed assets.
In preparing its US GAAP information, the Group has applied SFAS No. 115 ‘Accounting for Certain Investments in Debt and
Equity Securities’.
121121
Notes to the accounts
64 Supplementary Group financial information for US reporting purposes (continued)
Summary of significant differences between Irish and United States accounting principles (continued)
Under US GAAP, debt securities held to maturity are recorded at amortized cost. Because AIB periodically sells and buys long-term
debt securities in response to identified market conditions, including fluctuations in interest rates, debt securities classified as financial fixed
assets in the Group balance sheet in the amount of € 13,446 million at December 31, 2002 would be classified for US GAAP purposes
as ‘available-for-sale’.The purpose of these securities transactions is to minimise the risk associated with the AIB investment portfolio.
At December 31, 2002 the market value of such securities was € 13,690 million.The excess of market value over amortized cost of the
debt securities of € 244 million gave rise to an after tax reconciling item of € 199 million positive in the consolidated ordinary
stockholders’ equity for US GAAP purposes.
Under US GAAP, at December 31, 2001 debt securities in the amount of € 16,299 million would be classified as ‘available-for-sale’.
The Group uses these securities to minimise the risk associated with the AIB investment portfolio. At December 31, 2001 the market
value of such securities was € 16,468 million.The excess of market value over amortized cost of the debt securities of € 169 million,
gave rise to an after tax reconciling item of € 125 million positive in the consolidated ordinary stockholders’ equity for US GAAP
purposes.
Under US GAAP, at December 31, 2000 debt securities in the amount of € 16,645 million would be classified as ‘available-for-sale’.
The Group uses these securities to minimise the risk associated with the AIB investment portfolio. At December 31, 2000 the market
value of such securities was € 16,661 million. At December 31, 2000 the book amount of derivative financial instruments held to hedge
the debt securities within the ‘available-for-sale’ portfolio exceeded the fair value of these instruments by € 63 million.The excess of
market value over amortized cost of the debt securities of € 16 million, offset by the excess of the book amount over fair value of
the derivative financial instruments of € 63 million, gave rise to an after tax reconciling item of € 37 million negative in the
consolidated ordinary stockholders’ equity for US GAAP purposes.
Under US GAAP, at December 31, 2002 equity securities classified as financial fixed assets in the Group balance sheet in the amount
of € 188 million would be classified as ‘available-for-sale’. At December 31, 2002 the market value of these securities was € 203 million.
The excess of book amount of these securities over market value was € 15 million giving rise to an after tax reconciling item of
€ 13 million positive in the consolidated ordinary stockholders’ equity for US GAAP purposes.
Under US GAAP, at December 31, 2001 equity securities classified as financial fixed assets in the Group balance sheet in the amount
of € 283 million would be classified as ‘available-for-sale’. At December 31, 2001 the market value of these securities was € 283 million.
There was no adjustment to the consolidated ordinary stockholders’ equity for US GAAP purposes as the book amount equaled the
market value of these securities.
Under US GAAP, at December 31, 2000 equity securities classified as financial fixed assets in the Group balance sheet in the amount
of € 364 million would be classified as ‘available-for-sale’. At December 31, 2000 the market value of these securities was € 358 million.
The excess of book amount of these securities over market value was € 6 million gave rise to an after tax reconciling item of
€ 4 million negative in the consolidated ordinary stockholders’ equity for US GAAP purposes.
Debt securities held for hedging purposes
Certain debt securities held as financial fixed assets are held to hedge the Group’s sensitivity to movements in market interest rates.
Under IR GAAP, profits and losses on disposal of these debt securities are deferred and amortized to the profit and loss account over
the lives of the underlying transactions.
Under US GAAP, profits and losses on disposal of debt securities are recognised immediately in the profit and loss account.
Internal derivative trades
Under IR GAAP, where underlying Group subsidiaries and business units undertake internal derivative trades with the Group central
treasury to transfer risk from the banking book to the trading book, the Group central treasury is allowed to aggregate and/or offset
trades with similar characteristics for the purposes of establishing an effective hedge position against the underlying risk.
Under IR GAAP, where positions established with external counterparties offset the net risk, hedge accounting is to be applied
to internal derivative trades.The accounting policy for derivatives under IR GAAP is described more fully on pages 45 and 46.
Under US GAAP, contemporaneous offset with external counterparties is required if hedge accounting is to be applied to
internal derivative trades. As a consequence, trades not satisfying this requirement have been accounted for at fair value with gains
or losses being recognized in the consolidated net income statement. From January 1, 2001 the adjustment for internal derivative
trades is included with the Derivatives FAS 133 adjustment.
122122
64 Supplementary Group financial information for US reporting purposes (continued)
Summary of significant differences between Irish and United States accounting principles (continued)
FAS 133 - Derivatives and hedging activities
Under IR GAAP, the Group uses derivatives for both trading and hedging purposes.The accounting treatment for these derivative
instruments is dependent on whether they are entered into for trading or hedging purposes.
Trading instruments are recognized in the accounts at fair value with the adjustment arising included in other assets and other
liabilities, as appropriate, in the consolidated balance sheet. Gains and losses arising from trading activities are included in dealing profits
in the profit and loss account using the mark to market method of accounting.
Derivative transactions entered into for hedging purposes are recognized in the accounts in accordance with the accounting
treatment of the underlying transactions being hedged. Gains and losses arising from hedging activities are amortized to net interest
income over the lives of the underlying transactions.
Under US GAAP, all derivatives are recognized as either assets or liabilities in the statement of financial position and measured at
fair value.The recognition of the changes in the fair value of a derivative depends upon its intended use. Derivatives that do not qualify
for hedging treatment must be adjusted to fair value through earnings. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign
currency denominated forecasted transaction.The accounting for changes in the fair value of a derivative depends on the intended
use of the derivatives and the resulting designations. In adopting Statement of Financial Accounting Standard No. 133,“Accounting for
Derivative Instruments and Hedging Activities” (‘FAS 133’) in its US GAAP reconciliation from January 1, 2001, AIB Group designated
its derivative instruments anew for US reporting purposes on that date.The transition adjustment arising from this action was reflected
in net income and other comprehensive income.
Revaluation of property
Under IR GAAP, property may be carried at either original cost or subsequent valuation less related depreciation, calculated where
applicable on the revalued amount.
Under US GAAP, revaluations are not permitted to be reflected in the financial statements.
Deferred taxation
Under IR GAAP, deferred taxation is recognized in full in respect of timing differences that have originated but not reversed at the
balance sheet date.
Under US GAAP, the liability method is also used but deferred tax assets and liabilities are calculated for all temporary differences.
A valuation allowance is raised against a deferred tax asset where it is more likely than not that some portion of the deferred tax asset
will not be realised.
Goodwill
Under IR GAAP, goodwill arising on acquisition of subsidiary and associated undertakings prior to December 31, 1997 has been
written off to reserves in the year of acquisition and is written back in the year of disposal. Goodwill arising after January 1, 1998
is capitalized and written off over its useful life, up to a maximum of 20 years.
Under US GAAP, with effect from January 1, 2002, due to the introduction of FAS 142 “Goodwill and Other Intangible Assets”,
goodwill is not amortized but retained at its value and reviewed for impairment.
Core deposit intangibles
Under US GAAP, the component of goodwill arising on acquisition of bank subsidiary undertakings which relates to retail
depositors is termed core deposit intangibles. Under IR GAAP, core deposit intangibles arising prior to December 31, 1997 have
been written off to reserves in the year of acquisition, as a component of goodwill. Core deposits arising after January 1, 1998, are
subsumed within goodwill and amortized over its useful life up to a maximum of 20 years.
Under US GAAP, capitalized core deposit intangibles are amortized through income over the estimated average life of the retail
depositor relationship. In AIB’s case a period of 10 years has been used in preparing its US GAAP information.
Long-term assurance policies
Under IR GAAP, the shareholders’ interest in the long-term assurance business represents a valuation of the investment in policies in
force together with the net tangible assets of the business.
Under US GAAP, premiums are recognized as revenue when due from policyholders.The costs of claims are recognized when
insured events occur. For traditional business, the present value of estimated future policy benefits is accrued when premium revenue
is recognized. Acquisition costs are capitalized and charged to expense in proportion to premium revenue recognized. For unit-linked
123123
Notes to the accounts
64 Supplementary Group financial information for US reporting purposes (continued)
Summary of significant differences between Irish and United States accounting principles (continued)
Long-term assurance policies (continued)
business, acquisition costs are amortized over the life of the contracts at a constant rate based on the present value of estimated gross
profits. Initial income in respect of future services is not earned in the period assessed but recognized as income over the same
amortization period and using the same amortization schedule as for acquisition costs.
Dividends payable on ordinary shares
Under IR GAAP, AIB records proposed dividends on ordinary shares, which are declared after period end, in the period to which
they relate.
Under US GAAP, dividends are recorded in the period in which they are declared.
Dividends on non-equity shares
Under IR GAAP, AIB records dividends on non-equity shares in the profit and loss account on an accruals basis. Under US GAAP,
dividends are recorded as a charge against ordinary stockholders’ equity in the period in which they are declared.
Acceptances
Under IR GAAP, the Group presents acceptances as a contingent liability in a footnote to the financial statements. In the US,
acceptances outstanding are presented as a liability, with an equal amount presented as an asset, ‘customers’ acceptance liability’.
Retirement benefits
Under IR GAAP, the expected return on pension assets, net of the interest cost on pension liabilities, is credited to other finance
income while the service cost is charged to other administrative expenses. Actuarial gains and losses are recognized through the
statement of total recognized gains and losses. Scheme assets are valued at fair value and scheme liabilities are measured using the
projected unit method.The net scheme assets and liabilities, reduced by deferred tax amounts are shown on the face of the balance
sheet.
Under US GAAP, certain assumptions primarily in relation to the recognition of actuarial gains and losses and amortization
methods are used that are different when compared with IR GAAP.
Own shares purchased
Under IR GAAP, own shares purchased are recorded at cost and reflected as fixed asset investments in the consolidated balance sheet.
Under US GAAP, own shares purchased are recorded at cost and reflected as a reduction to the consolidated ordinary
stockholders’ equity.
Internal use computer software
Under IR GAAP, certain specific costs incurred in respect of software for internal use can be capitalised and amortized. All other
costs are expensed.
Under US GAAP, the same treatment applies, however there are additional specific costs that are capitalised which would be
expensed under IR GAAP.These costs are being depreciated on a straight line basis over five years.
Transfer and servicing of financial assets
Under IR GAAP, where a transaction involving a previously recognized asset transfers to others (a) all significant rights or other
access to benefits relating to that asset and (b) all significant exposure to the risks inherent in those benefits, the entire asset should
cease to be recognized.
Under US GAAP, an entity de-recognizes financial assets where control has been surrendered and de-recognizes liabilities where
they are extinguished. Control passes where the following criteria have been met: (a) the assets are isolated from the transferor (the
seller) i.e. the assets are beyond the reach of the transferor, even in bankruptcy or other receivership, (b) the transferee (the buyer) has
the right - free of any conditions that constrain it from taking advantage of the right - to pledge or exchange the assets, and (c) the
transferor does not maintain effective control over the transferred assets.
Special purpose vehicles
Under IR GAAP, special purpose vehicles are consolidated as quasi-subsidiaries where risks and rewards from operations are similar
to those which would be obtained for subsidiaries.
Under US GAAP, consolidation of an entity by its sponsor, the party at whose initiative the entity is activated, is required if the
entity’s powers and activities are not strictly limited, and the entity does not have sufficient legal equity in form held by parties other
than the sponsor or its affiliates. Interest earned on the assets held in the special purpose vehicles has been entirely offset by the
interest expense and management fees of the special purpose vehicles.
124124
64 Supplementary Group financial information for US reporting purposes (continued)
Summary of significant differences between Irish and United States accounting principles (continued)
Reconciliation of alternative presentation to US GAAP
The Group financial statements conform with accounting principles generally accepted in Ireland.The following tables provide the
significant adjustments to the alternative presentation of the consolidated net income (Group profit attributable to the stockholders of AIB)
and consolidated ordinary stockholders’ equity, total assets and total liabilities, which would be required if accounting principles
generally accepted in the United States (US GAAP) had been applied instead of those generally accepted in Ireland (IR GAAP).
Consolidated net income
Net income (Group profit attributable to the stockholders of AIB)
as in the consolidated profit and loss account under alternative
presentation (page 119)
Adjustments in respect of:
Depreciation of freehold and long leasehold property
Long-term assurance policies
Goodwill
Premium on core deposit intangibles
Retirement benefits
Dividends on non-equity shares
Securities held for hedging purposes
Derivatives hedging available-for-sale securities
Internal derivative trades
Internal use computer software
Derivatives FAS 133 transition adjustment(1)
Derivatives FAS 133 adjustment
Deferred tax effect of the above adjustments
Year ended December 31
2002
2001
Restated
2000
(millions except per share amounts)
€ 1,019
€ 730
€ 636
2
(27)
4
(5)
(5)
8
(3)
–
–
1
–
(82)
17
5
(48)
(110)
(7)
53
15
(24)
–
–
6
122
(107)
(5)
–
(70)
(78)
(9)
94
20
(25)
(9)
(6)
11
–
–
7
Net income in accordance with US GAAP
Net income applicable to ordinary stockholders of AIB in accordance with US GAAP
Equivalent to
€ 929
€ 921
US $ 966
€ 630
€ 615
€ 571
€ 551
Income per American Depositary Share (ADS*) in accordance with US GAAP
€ 2.12
€ 1.43
€ 1.29
Equivalent to
Year end exchange rate €/US $
US $ 2.22
1.0487
*An American Depositary Share represents two ordinary shares of € 0.32 each.
Comprehensive income
Net income in accordance with US GAAP
Net movement in unrealized holding gains on investment securities
arising during the period
Derivatives FAS 133 transition adjustment(1)
Exchange translation adjustments
Comprehensive income
2002
€ 929
84
–
(480)
Year ended December 31
2001
Restated
(millions)
€ 630
120
41
214
2000
€ 571
110
–
233
€ 533
€ 1,005
€ 914
(1)Cumulative effect of the change in accounting principle for derivatives and hedging activities.
125125
Notes to the accounts
64 Supplementary Group financial information for US reporting purposes (continued)
Consolidated ordinary stockholders’ equity
Ordinary stockholders’ equity as in the consolidated balance sheet
2002
2001
2000
(millions except per share amounts)
under alternative presentation (page 120)
Revaluation of property
Depreciation of freehold and long leasehold property
Goodwill
Core deposit intangibles
Dividends payable on ordinary shares
Dividends on non-equity shares
Long-term assurance policies
Unrealized gains/(losses) not yet recognised on:
Available-for-sale debt securities
Available-for-sale equity securities
Derivatives hedging available-for-sale securities
Securities held for hedging purposes
Internal derivative trades
Derivatives FAS 133 adjustment
Retirement benefits
Internal use computer software
Own shares
Deferred tax effect of the above adjustments
Ordinary stockholders’ equity in accordance with US GAAP
Equivalent to
Ordinary stockholders’ equity per ADS in accordance with US GAAP
Equivalent to
Ordinary stockholders’ equity per ADS in accordance with IR GAAP
Equivalent to
Total assets as in the consolidated balance sheet under alternative
presentation (page 120)
Revaluation of property
Depreciation of freehold and long leasehold property
Goodwill
Core deposit intangibles
Available-for-sale debt securities
Available-for-sale equity securities
Derivatives hedging available-for-sale securities
Internal derivative trades
Derivatives FAS 133 adjustment
Retirement benefits
Internal use computer software
Own shares
Special purpose vehicles
Long-term assurance policies
Long-term assurance assets attributable to policyholders
Securitized assets
Acceptances
Total assets in accordance with US GAAP
Equivalent to
126126
€ 4,408
(201)
(27)
925
12
284
1
(263)
244
15
–
(4)
–
(79)
1,012
18
(176)
(206)
€ 5,963
US $ 6,254
€ 13.37
US $ 14.02
€ 9.88
US $ 10.37
€ 4,871
(204)
(27)
1,070
19
250
1
(236)
169
–
–
(1)
–
5
77
17
(245)
(50)
€ 5,716
€ 4,734
(210)
(27)
1,097
26
221
–
(188)
16
(6)
(63)
26
(10)
–
(476)
11
(177)
76
€ 5,050
€ 12.98
€ 11.56
€ 11.06
€ 10.84
2002
2001
2000
€ 86,049
(201)
(27)
925
12
244
15
–
–
(79)
1,012
18
(176)
1,057
(263)
(2,226)
–
72
€ 86,432
US $ 90,642
(millions)
€ 89,359
(204)
(27)
1,070
19
169
–
–
–
5
77
17
(245)
667
(236)
(2,252)
–
142
€ 88,561
€ 80,220
(210)
(27)
1,097
26
16
(6)
(63)
(10)
–
(476)
11
(177)
–
(188)
(2,141)
(3)
147
€ 78,216
64 Supplementary Group financial information for US reporting purposes (continued)
Consolidated total liabilities and ordinary stockholders’ equity
2002
2001
2000
Total liabilities and ordinary stockholders’ equity as in the consolidated
balance sheet under alternative presentation (page 120)
Ordinary stockholders’ equity
Dividends payable on ordinary shares
Dividends on non-equity shares
Acceptances
Securities held for hedging purposes
Securitized assets
Debt securities in issue re special purpose vehicles
Deferred taxation
Long-term assurance liabilities to policyholders
(millions)
€ 89,359
845
(250)
(1)
142
1
–
667
50
(2,252)
€ 80,220
316
(221)
–
147
(26)
(3)
–
(76)
(2,141)
€ 86,049
1,555
(284)
(1)
72
4
–
1,057
206
(2,226)
Total liabilities and stockholders’ equity in accordance with US GAAP
€ 86,432
€ 88,561
€ 78,216
Equivalent to
US $ 90,642
Statement of changes in ordinary stockholders’ equity
2002
2001
2000
Opening balance
Net income
Dividends payable on ordinary shares
Dividends on non-equity shares
Issue of shares
Unrealized gains on debt securities and equity shares
held as available-for-sale
FAS 133 transition adjustment
Own shares
Exchange translation adjustments
Other movements
Closing balance
65 Approval of accounts
The accounts were approved by the board of directors on 18 February 2003.
€ 5,716
929
(396)
(8)
115
84
–
69
(480)
(66)
€ 5,963
(millions)
€ 5,050
630
(351)
(15)
60
120
41
(68)
214
35
€ 5,716
€ 4,420
571
(302)
(20)
105
110
–
(55)
233
(12)
€ 5,050
127127
Statement of Directors’ responsibilities
in relation to the Accounts
The following statement, which should be read in conjunction with the statement of auditors’ responsibilities set out within their
audit report, is made with a view to distinguishing for shareholders the respective responsibilities of the directors and of the auditors
in relation to the accounts.
The directors are required by the Companies Acts to prepare accounts for each financial year which give a true and fair view
of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss for the financial year.
The directors consider that, in preparing the accounts on pages 42 to 127, which have been prepared on a going concern basis,
the Company and the Group have, following discussions with the auditors, used appropriate accounting policies, consistently applied
and supported by reasonable and prudent judgements and estimates, and that all accounting standards which, following discussions
with the auditors, they consider applicable have been followed (subject to any explanations and any material departures disclosed in
the notes to the accounts).
The directors have responsibility for taking all reasonable steps to secure that the Company causes to be kept proper books
of account, whether in the form of documents or otherwise, that correctly record and explain the transactions of the Company, that
will at any time enable the financial position of the Company to be readily and properly audited, and that will enable the directors
to ensure that the accounts comply with the requirements of the Companies Acts.
The directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the
Company and the Group and to prevent and detect fraud and other irregularities.
The directors, having prepared the accounts, have requested the auditors to take whatever steps and undertake whatever
inspections they consider to be appropriate for the purpose of enabling them to give their audit report.
* Note: KPMG have signalled that they will be raising with us the need for this paragraph, which they believe is not part of the
‘standard’ wording used by other plcs and is, in their view, unique to AIB
128128
Independent auditors’ report
Independent Auditors’ Report to the Members of Allied Irish Banks, p.l.c.
We have audited the financial statements on pages 42 to 127.
This report is made solely to the Company’s members, as a body, in accordance with section 193 of the Companies Act, 1990.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to
them in an auditors’ report and for no other purpose.To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the Annual Report. As described on page 128, this includes responsibility for preparing the
financial statements in accordance with applicable Irish law and accounting standards. Our responsibilities, as independent auditors, are
established in Ireland by statute, the Auditing Practices Board, the Listing Rules of the Irish Stock Exchange, and by our profession’s
ethical guidance.
We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in
accordance with the Companies Acts. As also required by the Acts, we state whether we have obtained all the information and
explanations we require for our audit, whether the Company’s balance sheet is in agreement with the books of account and report
to you our opinion as to whether:
– the Company has kept proper books of account;
– the Report of the Directors is consistent with the financial statements;
– at the balance sheet date a financial situation existed that may require the company to hold an extraordinary general meeting,
on the grounds that the net assets of the Company, as shown in the financial statements, are less than half of its share capital.
We also report to you if, in our opinion, information specified by law regarding directors’ remuneration and transactions is not
disclosed.
We review whether the statement on pages 37 to 40 reflects the Company’s compliance with the seven provisions of the
Combined Code specified for our review by the Listing Rules, and we report if it does not.We are not required to consider whether
the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s
corporate governance procedures or its risk and control procedures.
We read the other information contained in the Annual Report, including the Corporate Governance Statement, and consider
whether it is consistent with the audited financial statements.We consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the financial statements.
Basis of audit opinion
We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an
assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and
of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order
to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement,
whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements.
129129
Independent auditors’ report (continued)
Opinion
In our opinion, the financial statements give a true and fair view of the state of affairs of the Group and the Company as at
31 December 2002 and of the profit of the Group for the year then ended and have been properly prepared in accordance
with the Companies Acts, 1963 to 2001 and all Regulations to be construed as one with those Acts.
We have obtained all the information and explanations we considered necessary for the purposes of our audit. In our opinion,
proper books of account have been kept by the Company and proper returns, adequate for the purposes of our audit, have been
received from branches not visited by us.The balance sheet of the Company is in agreement with the books of account.
In our opinion, the information given in the Report of the Directors on pages 35 to 36 is consistent with the financial statements.
The net assets of the Company, as stated in the balance sheet on page 50, are more than half of the amount of its called up share
capital and, in our opinion, on that basis there did not exist at 31 December 2002 a financial situation which, under Section 40(1)
of the Companies (Amendment) Act, 1983, would require the convening of an extraordinary general meeting of the Company.
Chartered Accountants
Registered Auditors
Dublin
18 February 2003
Notes:
a.The maintenance and integrity of the Allied Irish Banks, p.l.c. website is the responsibility
of the directors; the work carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for any changes that may have
occurred to the financial statements or audit report since they were initially presented on the
website.
b.Legislation in the Republic of Ireland governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
130130
Accounts in sterling, US dollars and Polish zloty
Summary of consolidated profit and loss account
for the year ended 31 December 2002
Group operating profit before provisions
Provisions
Group operating profit
Income from associated undertakings
Profit on disposal of property
Group profit on ordinary activities before taxation
Taxation
Group profit on ordinary activities after taxation
Group profit attributable to the ordinary
shareholders of Allied Irish Banks, p.l.c.
Dividends on equity shares
Earnings per € 0.32 share – basic
Earnings per € 0.32 share – adjusted
Earnings per € 0.32 share – diluted
Summary of consolidated balance sheet
31 December 2002
Assets
Loans and advances to banks
Loans and advances to customers
Debt securities and equity shares
Intangible fixed assets
Tangible fixed assets
Other assets
Long-term assurance assets
attributable to policyholders
Liabilities
Deposits by banks
Customer accounts
Debt securities in issue
Other liabilities
Subordinated liabilities
Equity and non-equity minority interests in subsidiaries
Shareholders’ funds
Long-term assurance liabilities to policyholders
€ m
1,612
251
1,361
9
5
1,375
306
1,069
1,037
429
119.4c
123.0c
118.2c
STG £m
STG £0.6505
= € 1
US $m
US $1.0487
= € 1
PLN m
PLN 4.0210
= € 1
1,048
163
885
6
3
894
199
695
675
279
77.7p
80.0p
76.9p
1,690
263
1,427
10
5
1,442
321
1,121
1,088
450
125.2¢
129.0¢
124.0¢
6,482
1,009
5,473
37
20
5,530
1,232
4,298
4,170
1,726
480.1 PLN
494.6 PLN
475.3 PLN
€ m
Stg £m
US $m
PLN m
4,788
53,447
18,450
457
1,178
5,503
3,115
34,767
12,002
297
766
3,580
5,022
56,050
19,349
479
1,235
5,770
19,254
214,911
74,188
1,836
4,736
22,127
2,226
1,448
2,334
8,950
86,049
55,975
90,239
346,002
16,137
52,976
3,077
4,544
2,172
274
4,643
2,226
10,497
34,461
2,002
2,955
1,413
178
3,021
1,448
16,923
55,556
3,227
4,765
2,278
287
4,869
2,334
64,886
213,018
12,373
18,268
8,734
1,102
18,671
8,950
86,049
55,975
90,239
346,002
131131
Five year financial summary
2002
Summary of consolidated
US $m profit and loss account(1)
2,466 Net interest income before exceptional item
– Deposit interest retention tax
2,466 Net interest income after exceptional item
65 Other finance income
1,590 Other income before exceptional item
–
Exceptional foreign exchange dealing losses
4,121 Total operating income after exceptional items
2,431 Total operating expenses
1,690 Group operating profit before provisions
263
Provisions
1,427 Group operating profit
10
5
–
Income from associated undertakings
Profit on disposal of property
Profit on disposal of business
1,442 Group profit before taxation
321 Taxation on ordinary activities
Impact of phased reduction in
Irish corporation tax rates on
deferred tax balances
–
321
25
8 Dividends on non-equity shares
Equity and non-equity minority interests
2002
€ m
2,351
–
2,351
62
1,517
–
3,930
2,318
1,612
251
1,361
9
5
–
1,375
306
–
306
24
8
2001
Restated
€ m
2,258
–
2,258
67
1,426
(789)
2,962
2,284
678
204
474
4
6
93
577
55
–
55
23
15
Group profit attributable to the ordinary
1,088
shareholders of Allied Irish Banks, p.l.c.
1,037
484
450 Dividends on equity shares
2.4 Dividend cover – times
125.2¢
129.0¢
124.0¢
Earnings per € 0.32 share – basic
Earnings per € 0.32 share – adjusted
Earnings per € 0.32 share – diluted
2002
Summary of consolidated
US $m balance sheet(1)
90,239 Total assets
61,332 Total loans
75,706 Total deposits
1,350 Dated capital notes
408 Undated capital notes
520 Reserve capital instruments
Equity and non-equity minority
interests in subsidiaries
Shareholders’ funds: non-equity interests
Shareholders’ funds: equity interests
287
246
4,623
7,434 Total capital resources
429
2.4
119.4c
123.0c
118.2c
2002
€ m
86,049
58,483
72,190
1,287
389
496
274
235
4,408
7,089
380
1.3
56.2c
119.4c
55.9c
2001
€ m
89,359
57,445
72,813
1,594
426
496
312
279
4,851
7,958
Year ended 31 December
1998
1999
€ m
1,770
–
1,770
71
1,052
–
2,893
1,658
1,235
92
1,143
3
2
15
1,163
333
–
333
28
16
786
288
2.7
92.5c
93.5c
91.6c
€ m
1,609
–
1,609
–
980
–
2,589
1,442
1,147
134
1,013
4
32
–
1,049
315
55
370
29
17
633
239
2.7
74.7c
81.1c
73.7c
2000
€ m
2,022
(113)
1,909
71
1,304
–
3,284
1,997
1,287
134
1,153
3
5
–
1,161
319
–
319
38
20
784
335
2.3
91.6c
106.7c
91.0c
Year ended 31 December
1998
€ m
1999
€ m
2000
€ m
80,543
50,239
65,210
1,836
413
–
272
264
4,944
7,729
67,959
43,127
55,241
1,587
397
–
227
245
4,460
6,916
53,875
35,496
44,840
970
170
–
213
210
2,829
4,392
(1) The financial data in the above tables and the supplementary tables on page 133 reflects the implementation of FRS 17 - Retirement benefits
(‘FRS 17’) in each of the years 1999 to 2002. FRS 17 was implemented in the preparation of the Accounts for 2001 with restatement of 2000
and 1999. It was not practicable to restate the earlier years as the data was not available.
132132
Other financial data
Return on average total assets(1)
Return on average ordinary shareholders’ equity
Dividend payout ratio
Average ordinary shareholders’ equity
as a percentage of average total assets
Allowance for loan losses as a percentage
of total loans to customers at year end
Net interest margin(1)
Tier 1 capital ratio
Total capital ratio
2002
%
1.24
22.4
41.4
5.4
1.6
3.00
6.9
10.1
2001
Restated
%
2000
%
(2)
(2)
0.62
9.9
78.5
5.8
1.9
2.99
6.5
10.1
1.12(3)
16.7(3)
42.7
6.3
1.9
3.02
6.3
10.8
Year ended 31 December
1998
1999
%
1.36
20.9
36.6
6.1
1.9
3.27
6.4
11.3
%
(4)
1.28
25.4(4)
37.9
4.7
1.8
3.33
7.5
11.1
(1)The 2001 amounts have been restated to reflect the implementation of UITF Abstract 33 - Obligations in Capital Instruments.
(2)Excluding the impact of the exceptional foreign exchange dealing losses, the return on average total assets was 1.23% and the return on
average ordinary shareholders’ equity was 19.4%.
(3)Excluding the impact of the deposit interest retention tax settlement, the return on average total assets was 1.26% and the return on
average ordinary shareholders’ equity was 18.7%.
(4)Excluding the impact of the phased reduction in Irish corporation tax rates on deferred tax balances, the return on average total assets
was 1.39% and the return on average ordinary shareholders’ equity was 27.3%.
2001
Restated
€
2000
€
Year ended 31 December
1998
1999
€
€
US $
Supplementary information
for US investors
Per American Depositary Share (ADS):(1)
2.46 Net income per alternative presentation (note 64)(2)
1.04 Dividend(4)
– Tax credit on dividend(5)
10.37 Net assets per alternative presentation (note 64)
Amounts in accordance with US GAAP:
974m Net income(2)
966m Net income attributable to ordinary stockholders
2.22 Net income per ADS
14.02 Net assets per ADS
90,642m Total assets
6,254m Ordinary stockholders’ equity
2002
€
2.35
0.98
–
9.88
1.70
0.88
–
11.06
929m
921m
2.12
13.37
630m
615m
1.43
12.98
86,432m 88,561m
5,963m
5,716m
1.49(3)
0.78
–
10.84
571m(6)
551m(7)
1.29(8)
11.56
78,216m
5,050m
1.78
0.68
–
10.23
663m
647m
1.52
10.27
65,929m
4,420m
1.48
0.56
0.07
6.57
650m
633m
1.49
8.80
53,603m
3,761m
(1)With effect from close of business on 13 May 1999 the number of ordinary shares represented by one American
Depositary Share was amended from six to two. Prior year data has been restated to reflect this change.
(2)The 2001 amounts have been restated to reflect the implementation of UITF Abstract 33 - Obligations in Capital Instruments.
(3)€ 1.73 (US$ 1.61) when adjusted to exclude the impact of the deposit interest retention tax settlement.
(4)The actual dividend payable to US stockholders will depend on the €/US $ exchange rate prevailing.
(5)For dividends payable after 5 April 1999 the tax credit is zero.
(6)€ 674m (US$ 628m) when adjusted to exclude the impact of the deposit interest retention tax settlement.
(7)€ 654m (US$ 609m) when adjusted to exclude the impact of the deposit interest retention tax settlement.
(8)€ 1.53 (US$ 1.42) when adjusted to exclude the impact of the deposit interest retention tax settlement.
Other financial data in accordance
with US GAAP:
Return on average total assets(1)
Return on average ordinary stockholders’ equity
Dividend payout ratio
Average ordinary stockholders’ equity
2002
%
2001
Restated
%
2000
%
Year ended 31 December
1998
1999
%
%
1.11
15.80
46.6
0.79
11.25
61.7
0.83(2)
11.33(2)
60.7
1.15
15.27
44.4
1.25
17.90
37.7
as a percentage of average total assets
6.78
6.61
6.65
7.06
6.68
(1)The 2001 amounts have been restated to reflect the implementation of UITF Abstract 33 - Obligations in Capital Instruments.
(2)Excluding the impact of the deposit interest retention tax settlement, the return on average total assets was 0.97% and the return on
average ordinary shareholders’ equity was 13.30%.
133133
Principal addresses
Ireland & Britain
Group Headquarters
Bankcentre, PO Box 452,
Ballsbridge, Dublin 4, Ireland.
Telephone + 353 1 660 0311
http://www.aibgroup.com
AIB Bank (ROI)
Bankcentre, Ballsbridge, Dublin 4.
Telephone + 353 1 660 0311
Facsimile + 353 1 283 0490
First Trust Bank
First Trust Centre, PO Box 123,
92 Ann Street, Belfast BT1 3AY.
Telephone + 44 28 9032 5599
From ROI 048 9032 5599
Facsimile + 44 28 9032 1754
From ROI 048 9032 1754
ftonline@aib.ie
Allied Irish Bank (GB)
Bankcentre, Belmont Road,
Uxbridge, Middlesex UB8 1SA.
Telephone + 44 1895 272 222
Facsimile + 44 1895 239 774
AIB Finance & Leasing
Sandyford Business Centre,
Blackthorn Road,
Sandyford, Dublin 18.
Telephone + 353 1 660 3011
Facsimile + 353 1 295 9779
aibfinl@aib.ie
Ark Life Assurance
Company Limited
8 Burlington Road, Dublin 4.
Telephone + 353 1 668 1199
Facsimile + 353 1 637 5737
info@arklife.ie
134
Credit Card Centre
Donnybrook House,
Donnybrook, Dublin 4.
Telephone + 353 1 668 5500
Facsimile + 353 1 668 5901
credcard@aib.ie
AIB Capital Markets
AIB International Centre,
IFSC, Dublin 1.
Telephone + 353 1 874 0222
Facsimile + 353 1 679 5933
AIB Global Treasury
AIB International Centre,
IFSC, Dublin 1.
Telephone + 353 1 874 0222
Facsimile + 353 1 679 5933
12 Old Jewry, London EC2R 8DP.
Telephone + 44 207 606 3070
Facsimile + 44 207 606 5698
AIB Asset Management Holdings
Limited/Govett Investments
Management Limited
Shackleton House,
4 Battle Bridge Lane,
London SE1 2HR.
Telephone + 44 207 378 7979
Facsimile + 44 207 638 3468
email@govett.co.uk
AIB Investment
Managers Limited
AIB Investment House,
Percy Place, Dublin 4.
Telephone + 353 1 661 7077
Facsimile + 353 1 661 7038
aibim@iol.ie
AIB International Financial
Services Limited
AIB International Centre, IFSC, Dublin 1.
Telephone + 353 1 874 0777
Facsimile + 353 1 874 3050
Goodbody Stockbrokers
Ballsbridge Park, Ballsbridge, Dublin 4.
Telephone + 353 1 667 0400
Facsimile + 353 1 667 0422
AIB Corporate Banking
Bankcentre, Ballsbridge, Dublin 4.
Telephone + 353 1 660 0311
Facsimile + 353 1 668 2508
corporatebanking@aib.ie
AIB Corporate Finance Limited
85 Pembroke Road,
Ballsbridge, Dublin 4.
Telephone + 353 1 667 0233
Facsimile + 353 1 667 0250
AIB Irish Capital Management
Limited
85 Pembroke Road, Ballsbridge, Dublin 4.
Telephone + 353 1 668 8860
Facsimile + 353 1 668 8831
AIB/BNY Securities Services
(Ireland) Limited
Guild House, Guild Street, IFSC, Dublin 1.
Telephone + 353 1 641 8500
Facsimile + 353 1 829 0833
Corporate Business Britain
St Helen’s, 1 Undershaft,
London EC3A 8AB.
Telephone + 44 207 090 7100
Facsimile + 44 207 090 7101
Principal addresses (continued)
USA
Poland
Rest of the World
Allied Irish Bank
405 Park Avenue, New York,
NY 10022.
Telephone + 1 212 339 8000
Facsimile + 1 212 339 8008
AIB Capital Markets Banking
New York
405 Park Avenue, New York,
NY 10022.
Telephone + 1 212 339 8000
Facsimile + 1 212 339 8008
AIB Global Treasury
405 Park Avenue, New York,
NY 10022.
Telephone + 1 212 339 8000
Facsimile + 1 212 339 8006
Bank Zachodni WBK S.A.
Rynek 9/11, 50-950 Wroclaw.
Telephone + 48 71 370 1000
Facsimile + 48 61 856 4015
Bank Zachodni WBK S.A.
Poznanskie Centrum Finansowe,
Plac Andersa 5, 61-894 Poznan.
Telephone + 48 61 856 4900
Facsimile + 48 61 856 4015
AIB European Investments
(Warsaw) Sp. z o.o.
Krolewska Building, 4th floor,
ul.Marszalkowska 142,
00-061 Warsaw.
Telephone + 48 22 586 8002
Facsimile + 48 22 586 8001
AIB Bank (CI) Limited
AIB House, PO Box 468,
Grenville Street, St Helier,
Jersey JE4 8WT, Channel Islands.
Telephone + 44 1534 883 000
Facsimile + 44 1534 720 711
AIB Frankfurt
Oberlindau 5, D-60323,
Frankfurt am Main, Germany.
Telephone + 49 69 971 4210
Facsimile + 49 69 971 42116
AIB Bank ( Isle of Man) Limited
PO Box 186, 10 Finch Road,
Douglas, Isle of Man IM99 1QE.
Telephone + 44 1624 639639
Facsimile + 44 1624 639636
All numbers are listed with international codes.To dial a location from within the same jurisdiction, drop the country code after the +
sign and place a 0 before the area code.This does not apply to calls to First Trust from Ireland (Republic).
135
Additional information for shareholders
1.
Internet-based Shareholder Services
Ordinary Shareholders with access to the internet may
– check their shareholdings on the Company’s Share Register;
– check recent dividend payment details; and
– download standard forms required to initiate changes in details held by the Registrar,
by accessing AIB’s website at www.aibgroup.com, clicking on the ‘Check your Shareholding’ option, and following the on-screen
instructions.When prompted, the Shareholder Reference Number (shown on the shareholder’s share certificate, dividend
counterfoil and personalised circulars) should be entered. Alternatively, these services may be accessed via the Registrar’s website at
www.computershare.com.
Shareholders may also use AIB’s website to access the Company’s Annual Report & Accounts.
2. Stock Exchange Listings
Allied Irish Banks, p.l.c. is an Irish registered company. Its ordinary shares are traded on the Irish Stock Exchange, the London
Stock Exchange and, in the form of American Depositary Shares (ADS), on the New York Stock Exchange (symbol AIB). Each
ADS represents two ordinary shares and is evidenced by an American Depositary Receipt (ADR).The Company’s
non-cumulative preference shares are listed on the Irish Stock Exchange, and are eligible for trading in the USA, in the form
of American Depositary Shares, in the National Association of Securities Dealers, Inc.’s PORTAL system under rule 144A.
3. Registrar
The Company’s Registrar is:
Computershare Investor Services (Ireland) Ltd., Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18.
Telephone: +353-1-216 3100. Facsimile: +353-1-216 3151.
Website: http:// www.computershare.com e-mail: web.queries@computershare.ie
4. Payment of Dividends direct to a bank account
Ordinary Shareholders resident in Ireland or the UK may have their dividends paid by electronic transfer direct to a designated
bank account, under advice from the Company of full details of the amounts so credited. Shareholders who wish to avail of
this facility should contact the Registrar (see 3 above).
5. Dividend Reinvestment Plan - Ordinary Shareholders
The Company operates a Dividend Reinvestment Plan, under which shareholders are usually offered the right to elect to receive
new shares in lieu of cash in respect of their dividends.
6. American Depositary Shares
American Depositary Shares provide US residents wishing to invest in overseas securities with a share certificate and dividend
payment in a form familiar and convenient to them.
The Company’s ordinary share and non-cumulative preference share ADR programmes are administered by The Bank of New
York - see address on page 140.
7. Dividend Reinvestment Plan - US ADR Holders
AIB’s ordinary share ADR holders who wish to re-invest their dividends may participate in The Bank of New York’s Global Buy
Direct program, details of which may be obtained from The Bank of New York at 1-800-943-9715.
8. Direct Deposit of Dividend Payments - US ADR Holders
Ordinary Share ADR holders may elect to have their dividends deposited direct into a bank account through electronic funds
transfer. Information concerning this service may be obtained from The Bank of New York at 1-888-269-2377.
136136
9. Dividend Withholding Tax (‘DWT’)
Note:The following information, which is given for the general guidance of shareholders, does not purport to be a definitive guide to relevant
taxation provisions. It is based on the law and practice as provided for under Irish tax legislation. Shareholders should take professional advice
if they are in any doubt about their individual tax positions. Further information concerning DWT may be obtained from:
DWT Section, Office of the Revenue Commissioners, Government Offices, Nenagh, Co.Tipperary, Ireland.
Telephone +353-67-33533. Facsimile +353-67-33822. E-mail infodwt@revenue.ie.
General
With certain exceptions, which include dividends received by non-resident shareholders who have furnished valid declaration
forms (see below), dividends paid by Irish resident companies are subject to DWT at the standard rate of income tax, currently
20%. DWT, where applicable, is deducted by the Bank from dividends paid in cash or as new shares issued under the Dividend
Reinvestment Plan (see 5 above).Therefore, Plan participants who are subject to DWT receive shares to the value of the dividend
after deduction of DWT.The following summarises the position in respect of different categories of shareholder:
A. Irish Resident Shareholders
– Individuals
DWT is deducted from dividends paid, whether in the form of cash or as new shares, to individuals resident in the Republic
of Ireland for tax purposes. Individual shareholders are liable to Irish income tax on the amount of the dividend before
deduction of DWT, and the DWT is available either for offset against their income tax liability, or for repayment, where it
exceeds the total income tax liability.
– Shareholders not liable to DWT
The following classes of shareholder who receive the dividend in a beneficial capacity are exempt from DWT, provided the
shareholder furnishes a properly completed declaration, on a standard form (see below), to the Registrar, not less than three
working days prior to the relevant dividend payment record date:
- Companies resident in the Republic of Ireland for tax purposes;
- Qualifying Employee Share Ownership Trusts;
- Exempt Approved Pension Schemes;
- Collective Investment Undertakings;
- Charities exempt from income tax on their income;
- Athletic/amateur sports bodies whose income is exempt from income tax;
- Designated stockbrokers receiving a dividend for the benefit of the holder of a Special Portfolio Investment Account
(‘SPIA’);
- Certain permanently incapacitated persons who are exempt from income tax; trusts established for the benefit of such
persons; and Thalidomide victims exempt from income tax in respect of income arising from the investment of certain
compensation payments.
Copies of the relevant declaration form may be obtained from the Company’s Registrar at the address shown at 3 above, or
from the Revenue Commissioners at the above address.
Once lodged with the Company’s Registrar, the declaration form remains current from its date of issue until 31 December
in the fifth year following the year of issue, or, within such period, until the exempt shareholder notifies the Registrar that
entitlement to exemption is no longer applicable.Where DWT is deducted from dividends paid to a shareholder not liable to
DWT, the shareholder may apply to the Revenue Commissioners, at the address shown above, for a refund of the DWT so
deducted.
– Qualifying Intermediaries (other than American Depositary Banks – see D below)
Dividends received by a shareholder who is a qualifying intermediary on behalf of a shareholder not liable to DWT may be
received without deduction of DWT. A ‘qualifying intermediary’ is a person who receives dividends on behalf of a third
party, is resident for tax purposes in the Republic of Ireland or in a relevant territory*, and:
* A ‘relevant territory’ means a member state of the European Communities, other than the Republic of Ireland, or a country with which the
Republic of Ireland has entered into a double taxation agreement.
137137
Additional information for shareholders (continued)
9. Dividend Withholding Tax (‘DWT’) (continued)
– holds a licence under the Central Bank Act, 1971, or a similar authorisation under the law of a relevant territory,
or is owned by a company which holds such a licence;
– is a member firm of the Irish Stock Exchange or of a recognised stock exchange in a relevant territory; or
– otherwise is, in the opinion of the Irish Revenue Commissioners, a person suitable to be a qualifying intermediary;
and who (a) enters into a qualifying intermediary agreement with the Irish Revenue Commissioners and
(b) is authorised by them as a qualifying intermediary.
Information concerning the conditions to be satisfied by intending qualifying intermediaries may be obtained from the Irish
Revenue Commissioners at the address shown above. A qualifying intermediary should ensure that it receives completed
declarations from underlying shareholders eligible for DWT exemption, so as to be in a position to notify the Company’s
Registrar, in advance of each dividend record payment date, of the extent to which the dividend payable to the qualifying
intermediary is to be paid without deduction of DWT.
A shareholder wishing to ascertain whether an entity is a qualifying intermediary should contact the Irish Revenue Commissioners
at the address shown above.
B. Shareholders not resident for tax purposes in the Republic of Ireland
The following categories of shareholder not resident for tax purposes in the Republic of Ireland may claim exemption from
DWT, as outlined below:
(a) an individual who is neither resident nor ordinarily resident in the Republic of Ireland and who is resident for tax
purposes in a relevant territory (as defined at * above);
(b) an unincorporated entity resident for tax purposes in a relevant territory;
(c) a company resident in a relevant territory and controlled by a non-Irish resident/residents;
(d) a company not resident in the Republic of Ireland and which is controlled by a person or persons resident for tax purposes
in a relevant territory; or
(e) a company not resident in the Republic of Ireland, the principal class of whose shares are traded on a recognised stock
exchange in a relevant territory or on such other stock exchange as may be approved by the Minister for Finance,
including a company which is a 75% subsidiary of such a company;
or
a company not resident in the Republic of Ireland that is wholly-owned by two or more companies, each of whose
principal class of shares is so traded.
To claim exemption, any such shareholder must furnish a valid declaration, on a standard form (available from the Irish
Revenue Commissioners and from the Company’s Registrar), to the Registrar not less than three working days in advance of
the relevant dividend payment record date, and:
– Categories (a) and (b) above: The declaration must be certified by the tax authority of the country in which the shareholder
is resident for tax purposes. Where the shareholder is a trust, the declaration must be accompanied by (i) a certificate
signed by the trustee(s) showing the name and address of each settlor and beneficiary; and (ii) a certificate from the Irish
Revenue Commissioners, certifying that they have noted the information provided by the trustees.
– Categories (c), (d) and (e) above: The company’s auditor must certify the declaration. In addition, in the case of companies
in category (c) above, the declaration must be certified by the tax authority of the country in which the shareholder is
resident for tax purposes.
Dividends received by a shareholder who is a qualifying intermediary on behalf of a qualifying non-resident person may be
received without deduction of DWT – see ‘Qualifying Intermediaries’ under ‘Irish-Resident Shareholders’ at A above.
C. Dividend Statements
Each shareholder, including those receiving shares under the Dividend Reinvestment Plan, receives a statement showing the
shareholder’s name and address, the dividend payment date, the amount of the dividend, and the amount of DWT, if any,
deducted. In accordance with the requirements of legislation, this information is also furnished to the Irish Revenue
Commissioners.
138138
9. Dividend Withholding Tax (‘DWT’) (continued)
D. American Depositary Receipt (‘ADR’) Holders
An ADR holder whose address:
– on the register of ADRs maintained by AIB’s ADR programme administrator, the Bank of New York (‘BONY’), or
– in the records of a further intermediary through which the dividend is paid
is located in the United States of America is exempt from DWT, provided BONY or the intermediary concerned, as the
case may be, satisfies certain conditions. In such circumstances, there is no requirement for the holder to make a declaration
in order to obtain exemption from Irish DWT.
US Withholding Tax
Note:The following information, which is given for the general guidance of ADR holders, does not purport to be a definitive guide to relevant
taxation provisions.While it is believed to be accurate at the time of publication of this Report, ADR holders should take professional advice
if they are in any doubt about their individual tax positions.
Notwithstanding entitlement to exemption from Irish DWT, referred to above, ADR holders should note that, under provisions
introduced by the US Internal Revenue authorities, effective from 1 January, 2001, US-resident holders of ADRs may, in certain
circumstances, be liable to a US witholding tax on dividends received on such ADRs.This would arise, for example, where a US
resident, being the beneficial owner of ADRs issued by an overseas company, fails to provide the depositary bank - or, where
applicable, the Registered Broker - with a Form W-9 (tax certified document), showing, inter alia, the holder’s Social Security
Number or Taxpayer Identification Number. Non-US residents holding ADRs are required to submit a Form W-8BEN to the
depositary bank/Registered Broker, as appropriate, to become tax certified and to avoid US withholding tax.
ADR holders with queries in this regard should contact either (i) The Bank of New York, in the case of holders registered
direct with that institution – see address on page 140; (ii) the holder’s Registered Broker, where applicable; or (iii) the holder’s
financial/taxation adviser.
139139
Additional information for shareholders (continued)
Shareholder Accounts
%
Number
Number
12,911,155
92,503,131
93,067,216
107,508,381
591,456,636
Shares
%
2
10
10
12
66
42
39
14
5
–
100
897,446,519
100
62
38
297,646,738
599,799,781
100
897,446,519
33
67
100
37,238
34,530
12,837
4,265
396
89,266
55,749
33,517
89,266
Shareholding analysis
as at 31 December 2002
Size of shareholding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – over
Total
Geographical division
Republic of Ireland
Overseas
Total
Financial calendar
Annual General Meeting:
Thursday, 24 April 2003
Dividend payment dates – Ordinary Shares:
–
Final Dividend 2002 - 25 April 2003
(Share Certificates posted to Dividend Reinvestment Plan
Participants - 1 May 2003)
–
Interim Dividend 2003 - 26 September 2003
Interim results:
Unaudited interim results for the half-year ending 30 June 2003 will be announced on 30 July 2003.The Interim Report for the
half-year ending 30 June 2003 will be published as a press advertisement shortly thereafter, instead of being posted to shareholders.
It will also be available on the Company’s website - www.aibgroup.com.
Shareholder enquiries should be addressed to:
For holders of Ordinary Shares:
Computershare Investor Services (Ireland) Ltd.
Heron House
Corrig Road
Sandyford Industrial Estate
Dublin 18
Ireland
Telephone +353 1 216 3100
Facsimile +353 1 216 3151
Website (for on-line shareholder enquiries):
www.aibgroup.com – click on ‘Check your
Shareholding’
or
www.computershare.com
For holders of ADRs in the United States:
The Bank of New York
Shareholder Relations
PO Box 11258
Church Street Station
New York, NY 10286-1258
USA
Telephone 1-888-BNY-ADRS
1-888-269-2377
Website: http://www.adrbny.com
or
Allfirst
Shareholder Relations
Telephone 1-800-458-0348
Email: ann.l.kerman@allfirst.com
140140
Index
A
Accounting policies
Accounts
D
42
42
Dealing profits
Debt securities
Accounts in sterling, US dollars, etc.
131
Debt securities in issue
Acquisition of strategic stake
Deferred taxation
in M&T
17 & 53
Deposit interest retention tax
Administrative expenses
Amortisation of goodwill
Amounts written off fixed asset
investments
Approval of accounts
Associated undertakings
60
60
60
127
76
Deposits by banks
Depreciation
Derivatives
Directors
Directors’ interests
Directors’ remuneration
Audit Committee
7 & 38
Dividend income
Auditors
Auditors’ remuneration
Average balance sheets and
interest rates
36
63
117
Dividends
Divisional commentary
E
Earnings per share
Employees
49
Equity shares
B
Balance sheet
C
Capital management
Cash flow statement
Central government bills
Chairman’s statement
Class actions
Commitments
Contingent liabilities
and commitments
Corporate Governance Statement
25
51 & 108
66
4
96
F
Fair value
Financial and other information
115
Financial calendar
Financial highlights
Financial review
Five year financial summary
95
37
71
87
81
59
85
60
33 & 97
6
112
109
59
65
19
66
115
74
103
116
140
1
25
132
115
Credit risk
27 & 69
Form 20-F
Critical accounting policies
Customer accounts
10
86
G
Group Chief Executive’s Review
8
I
59 & 100
Independent auditors’ report
Intangible fixed assets
Integration costs
Interest payable
Interest rate sensitivity
Internal control
L
Liquidity risk
Loans and advances to banks
Loans and advances to customers
Long-term assurance business
129
79
60
59
106
39
30
67
68
82
M
Market risk
Minority interests
27, 29 & 30
65 & 90
O
Operational risk
27 & 29
Other interest receivable
Other finance income
Other liabilities
Other operating income
Outlook
Own shares
58
59
87
60
18
80
141141
Exchange rates
10 & 116
N
Exceptional foreign exchange
Nomination and Remuneration
dealing losses
59 & 118
Committee
7, 38 & 109
Index (continued)
P
Performance review
Principal addresses
Profit and loss account
Profit and loss account reserves
Profit on disposal of business
Profit retained
Prospective accounting
developments
Provisions for bad and
S
Securitised assets
Segmental information
Share capital
Share premium account
Shareholder information
Shares in Group undertakings
10
134
47
94
63
65
70
53
91
93
136
77
Social Affairs Committee
7 & 38
18
Statement of Directors’
Responsibilities
128
16 & 52
89
79
15 & 64
114
53
118
doubtful debts
14 & 70
Statement of total recognised gains
Provisions for liabilities
and losses
and charges
88
Subordinated liabilities
R
T
Reconciliation of movements
Tangible fixed assets
in shareholders’ funds
Report of the Directors
Reporting currency
Repurchase of ordinary shares
Reserves
Restructuring costs
Retirement benefits
Risk Governance
52
35
Taxation
Transactions with directors
115
Turnover
94
93
60
61
26
U
US reporting purposes –
Supplementary Group
financial information
142142
AIB Group
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www.aibgroup.com