AIB 2003 cover 22/3/04 4:44 PM Page 1
AIB Group
Bankcentre
PO BOX 452
Dublin 4
Ireland
Tel. +353 (0) 1 660 0311
www.aibgroup.com
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Allied Irish Banks, p.l.c.
Report &
Accounts
2003
2003
This is the new-style report and
accounts document from AIB. The
Chairman’s statement is on pages 8/9
and the Group Chief Executive’s review
starts on page 12. It includes for the
first time statements on Corporate and
Social Responsibility, on page 16, and
AIB and its people, on page 17. For the
latest information, please visit our
websites listed opposite.
3
4
Contents
7
8
10
12
15
16
17
19
37
48
50
54
59
61
62
63
64
64
65
Financial highlights
Chairman’s statement
AIB Board/Executive Committee
Group Chief Executive’s review
AIB at a glance
Corporate and Social Responsibility
AIB and its people
Performance review
Financial review
Report of the Directors
Corporate Governance
Accounting policies
Consolidated profit and loss account
Consolidated balance sheet
Balance sheet Allied Irish Banks, p.l.c.
Consolidated cash flow statement
Reconciliation of movements in shareholders’ funds
Note of historical cost profits and losses
Notes to the accounts
140
Statement of Directors’ responsibilities in relation to the Accounts
141
Independent auditors’ report
143
Additional financial information
145
Accounts in sterling, US dollars and Polish zloty
146
Five year financial summary
148
Principal addresses
150
Additional information for shareholders
154
Financial calendar
155
Index
5
Forward-Looking Information. This document contains certain forward-
looking statements within the meaning of the United States Private Securities
Litigation Reform Act of 1995 with respect to the financial condition, results of
operations and business of the Group and certain of the plans and objectives
of the Group. In particular, among other statements, certain statements in the
Chairman’s statement, the Group Chief Executive’s review, the Performance
review and the Financial review with regard to management objectives, trends
in results of operations, margins, risk management, competition and the impact
of International Accounting Standards are forward-looking in nature. By their
nature, forward-looking statements involve risk and uncertainty because they
relate to events and depend on circumstances that will occur in the future.
There are a number of factors that could cause actual results and developments
to differ materially from those expressed or implied by these forward-looking
statements. These factors include, but are not limited to, the potential business
risks resulting from changes in economic conditions globally and in the regions
in which the Group conducts its business, changes in fiscal or other policies
adopted by various governments and regulatory authorities, the effects of
competition in the geographic and business areas in which the Group conducts
its operations, the ability to increase market share and control expenses,
the effects of changes in taxation or accounting standards and practices,
acquisitions, future exchange and interest rates and the success of the Group
in managing these events.
AIB cautions that the foregoing list of important factors is not exhaustive.
Investors and others should carefully consider the foregoing factors and other
uncertainties and events when making an investment decision based on any
forward-looking statement. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in this Report may not occur.
6
Financial highlights
for the year ended 31 December 2003
Results
Total operating income
Group profit before taxation
Profit attributable
Profit retained
Per € 0.32 ordinary share
Earnings – basic
Earnings – adjusted (note 21)
Earnings – diluted
Dividend
Dividend cover – times
Net assets
Performance measures
Return on average total assets
Return on average ordinary shareholders’ equity
Return on average ordinary shareholders’ equity - tangible(3)
Balance sheet
Total assets
Shareholders’ funds: equity interests
Loans etc
Deposits etc
Capital ratios
Tier 1 capital
Total capital
2003
€ m
3,176
1,011
677
174
78.8c
109.5c
78.4c
54.00c
1.5
587c
0.90%
14.5%
20.0%
80,960
4,942
53,326
66,195
2002
Restated(1)
€ m
2001
Restated(1)
€ m
3,927
1,372
1,034
560
119.1c
122.7c
117.9c
49.06c
2.4
471c
1.24%
23.7%
27.4%
85,821
4,180
58,483
72,190
3,751(2)
1,366(2)
484
41
56.2c
108.6c
55.9c
43.80c
1.3
514c
1.23%(2)
20.4%(2)
24.7%
89,061
4,554
57,445
72,813
7.1%
10.4%
6.9%
10.1%
6.5%
10.1%
(1) The accounts for the years ended 31 December 2002 and 2001 have been restated to reflect the implementation of UITF
Abstract 37 - Purchases and sales of own shares and UITF Abstract 38 - Accounting for ESOP Trusts (Accounting policies -
page 54).
(2)Adjusted to exclude the exceptional foreign exchange dealing losses in 2001 (note 8(b)).
(3)Tangible shareholders’ equity excludes capitalised goodwill of €1.4 billion at 31 December 2003 (2002: € 0.5 billion;
2001: € 0.5 billion). In addition, profit attributable has been adjusted to exclude goodwill amortisation of € 72.6 million
at 31 December 2003 (2002: €31.7 million; 2001: € 30.9 million) in arriving at return on average ordinary shareholders’
equity - tangible.
Allied Irish Banks, p.l.c.
Group Headquarters &
Registered Office
Bankcentre, Ballsbridge
Dublin 4, Ireland
Telephone +353 1 660 0311
Registered number 24173
7
AIB's total dividend in 2003 represents a rise of 10% on 2002 and reflects the
AIB Board's confidence in the company's future earnings prospects. Over the
past five years, compound growth in AIB's dividend was 14%.
Chairman’s statement
2003 was a year of change for AIB. A series
of major deals were completed and there was
the challenge of operating in an economic
environment where our base currency, the euro,
strengthened against the US dollar, sterling and
Polish zloty. All this led to a negative impact on
some of our headline profit figures.
Dividend
I am pleased to report that the underlying story
was very different with a positive operating
performance across the group.This was the
background to the AIB Board’s decision in
setting the level of this year’s dividend.We are
recommending a final dividend of EUR 35.0c per
share payable on 30 April 2004 to shareholders on
the company’s register of members at the close of
business on 5 March 2004.
This dividend, when taken with the interim
dividend of EUR 19.0c, means AIB’s total
dividend in 2003 is EUR 54.0c.This is a rise of
10% on 2002 and reflects the AIB Board’s
confidence in the company’s future earnings
prospects. Over the past five years, compound
growth in AIB’s dividend was 14%.
launched a significant share buyback programme
which saw the group purchase 60.8 million of its
own shares.
Changes in the board
There were some changes to the AIB Board in
2003. I took over as chairman of AIB Group last
November. I want to record my appreciation of
the contribution made by Lochlann Quinn who
was an outstanding chairman of AIB over the past
six years. He provided exemplary leadership when
the Allfirst fraud occurred in 2002 – a time of real
challenge for the group. Lochlann oversaw the
transformation of AIB’s US interests over the last
two years and set a consistently high standard in
the conduct of board business throughout his
time as chairman.
Earlier in 2003, three new members joined the
AIB Board. In February, Colm Doherty, Managing
Director, AIB Capital Markets and Aidan
McKeon, Managing Director, AIB Group (UK)
p.l.c., were appointed. In April, Robert Wilmers,
Chairman, President and CEO of M&T Bank
Corporation, joined the board after AIB acquired
its strategic stakeholding in M&T.
Share buyback
The Combined Code
The M&T transaction saw AIB receive almost
US $900 million in cash.The AIB Board decided
to return capital to shareholders and not to retain
it. So between April and November 2003 AIB
As you may know, Sir Derek Higgs, a member of
the AIB Board since 2000, was the author of a
report on the role and effectiveness of non-
executive directors for the British Government.
8
Total dividend EUR54.0c
AIB's performance so far in 2004 has been strong - good growth in
business volumes is expected to continue.
Sir Derek’s report informed key changes to the
Combined Code: Principles of Good Governance and
Code of Best Practice which came into effect on 1
January this year. AIB is in the process of adopting
the new code and this has led to changes in the
board committees. John B McGuckian has been
appointed the senior independent non-executive
director. For more information, see the full
corporate governance statement on page 50.
Risk management
During 2003, AIB made considerable progress in
improving its risk management structure.This
process has been led by Shom Bhattacharya
who joined AIB as Group Chief Risk Officer in
December 2002 from JP Morgan Private Bank
in New York. In April, a new risk strategy was
adopted by the board.This set clear objectives for
improvements in risk management practices in all
key risk areas. AIB’s ultimate goal is to achieve an
integrated enterprise-wide risk management
framework which will enable the group to reap
the benefits of our investment in improved
customer information and meet the requirements
of the proposed Basel/EU capital adequacy rules.
Corporate and Social Responsibility
AIB aims to be a good corporate citizen and on
page 16 you will find more details of AIB’s activities
in the area of corporate and social responsibility.
Outlook
The prospects for 2004 are bright.The economies
of America, Poland, the Republic of Ireland and
the UK where AIB operates are all demonstrating
encouraging signs.
In the US, business investment is set to grow
strongly in 2004 with consumer spending
remaining buoyant.The Polish economy is set to
bounce back strongly with industrial output
expanding rapidly, driven by good export
demand. In the Republic of Ireland, GDP is set to
hit around 4% this year, up from around 2% in
2003. Meanwhile, inflation is falling and should
average 2% in 2004. Domestic demand is very
strong in the UK with its manufacturing and
export sectors doing well. GDP could rise to 3%
while inflation should remain below 2%.
AIB’s performance so far in 2004 has been strong
– good growth in business volumes is expected
to continue.
Finally, I want to acknowledge the contribution
of staff and management over the past 12 months.
I know they share with the AIB Board the goal
of increasing shareholder value.
AIB is in good shape - and good heart - to seize
the opportunities of renewed business momentum
across all its markets.
Dermot Gleeson
Chairman
23 February 2004
9
The AIB Board and Executive Committee
Board of Directors
Dermot Gleeson BA, Ll M - Chairman
Barrister, and member of the Adjunct Law Faculty of University College Dublin. Chairman of the Irish Council for
Bioethics. Director of Independent News and Media plc and the Gate Theatre. Former Attorney General of Ireland
and former member of the Council of State. Former Chairman of the Review Body on Higher Remuneration in the
Public Sector. Joined the Board in 2000, and appointed Chairman in 2003. (Age 55)
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 and EU.Was Chairman of the Review Body on Higher
Remuneration in the Public Sector from 1995 to 2001. Director of M&T Bank Corporation, Buffalo, New York State,
and member of the Maynooth University Foundation. Joined the Board in 1995. (Age 58)
Adrian Burke B Comm, FCA - Audit Committee Chairman
Vice Chairperson of the Institute of European Affairs. Former president of the Institute of Chartered Accountants in
Ireland, 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 62)
Colm Doherty* B Comm
Managing Director, AIB Capital Markets plc. Joined AIB International Financial Services in 1988, and became its
managing director in 1991. Appointed Head of Investment Banking in 1994, and assumed his present position in 1999.
Member of the International Financial Services Centre Clearing House Group. Joined the Board in 2003. (Age 45)
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 57)
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 Dublin. Joined the Board in 1997. (Age 64)
Sir Derek Higgs BA, FCA
Chairman of Partnerships UK plc and Business in the Environment, and a Senior Adviser to UBS Investment Bank.
Deputy Chairman of The British Land Company PLC, Director of Egg plc, and Jones Lang LaSalle Inc. Author of the
Higgs "Review of the Role and Effectiveness of Non-Executive Directors", conducted at the request of the UK
Government. Former Chairman of S.G.Warburg & Co. Ltd. and former Director of Prudential plc.
Joined the Board in 2000. (Age 59)
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. Director of M&T
Bank Corporation, Buffalo, New York State, and former Vice President Enterprise Networks Europe and Managing
Director, Northern Telecom (Ireland) Ltd. (Age 45)
John B McGuckian BSc Econ - Senior Independent Non-Executive Director
Chairman of Ulster Television plc, Chairman of AIB Group (UK) p.l.c., 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 Fund for Ireland and of the Industrial Development Board for Northern Ireland. Joined the Board
in 1977 and appointed Senior Independent Non-Executive Director in November 2003. (Age 64)
10
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. Appointed General Manager, 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. Joined the Board in 2003. (Age 56)
Carol Moffett
Former member of the Board of Co-operation Ireland and former Director of the Irish Trade Board. Fellow of the Irish
Management Institute. Joined the Board in 1995. (Age 51)
Jim O’Leary MA MSI
Lecturer in economics at the National University of Ireland, Maynooth. Director of Gresham Hotel Group. Former Chief
Economist at Davy Stockbrokers, and former Director of Aer Lingus and the National Statistics Board.
Joined the Board in 2001. (Age 47)
Michael J Sullivan JD
Served as US Ambassador to Ireland from January 1999 to June 2001 and as Governor of the State of Wyoming, USA,
between 1987 and 1995. Director of Sletten Construction Inc., Cimarex Energy, Inc., First Interstate BancSystem, Inc.,
and a Trustee of the Catholic Diocese of Wyoming. Member of the Bar, State of Wyoming.
Joined the Board in 2001. (Age 64)
Robert G Wilmers
Chairman, President and Chief Executive Officer of M&T Bank Corporation ("M&T"), Buffalo, New York State.
Director of The Business Council of New York State, Inc., the Buffalo Niagara Partnership, and the Andy Warhol
Foundation. Served as Chairman of the New York State Bankers’ Association in 2002, and as a director of the Federal
Reserve Bank of New York from 1993 to 1998. Joined the Board in April 2003, on the acquisition by AIB of a strategic
stake in M&T. (Age 69)
* Executive Directors
Board Committees
Information concerning membership of the Board’s Audit, Nomination & Remuneration, and Social Affairs Committees
is given in the Corporate Governance statement on page 50.
Group Executive Committee
Michael Buckley – Group Chief Executive
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.
11
Our divisional performance in 2003 was strong and our asset quality
was excellent.
Group Chief Executive’s Review
AIB’s results for 2003 make complicated reading.
Our reported basic earnings per share was EUR
78.8 cent compared with EUR 119.1 cent in 2002.
We carried out wide-ranging restructuring
activity which, along with goodwill amortisation,
cost us the equivalent of EUR 39.2 cent in 2003
basic earnings per share. But the restructuring
actions will have a very beneficial effect on the
future of the business.The Irish Government bank
levy cost us the equivalent of a further EUR 3
cent and the weaker dollar, sterling and Polish
zloty the equivalent of a further EUR 5 cent.
There was also the impact of the 2002 decline
in stock market values on the FRS 17 pension
charge.This cost us the equivalent of EUR 5 cent.
AIB RESTRUCTURING ACTIVITIES 2003
- Merger of M&T/Allfirst/share buy-back
- Disposal of Govett business
- Cost reduction programme in Poland
- Early retirement scheme, principally in the
Republic of Ireland
12
Our divisional performance in 2003 was strong
and our asset quality was excellent.
AIB Bank Republic of Ireland division whose
profit went up 14% (excluding early retirement
costs), substantially outperformed the market in
the business and mortgage lending sectors. Ark
Life, our life and pensions subsidiary, is now more
fully integrated into AIB’s extensive branch
network in the Republic and this has delivered a
much improved performance in the second half
of 2003.
Our GB&NI division saw a profit increase of 15%
(excluding early retirement costs), and now has a
cost/income ratio of 49%. Our business in Great
Britain had a very successful year and saw a profit
rise of 21%. Allied Irish Bank (GB) is now a
premium business bank with strong brand
recognition. Meanwhile, First Trust Bank, our
retail franchise in Northern Ireland, outperformed
its market in loan and mortgage growth.
We want to bring to our customers a
distinctive combination of best products,
best service, best relationships and
finally, best delivery.
AIB Capital Markets’ profit contribution was up
12% (excluding early retirement costs and those
connected with the loss on the disposal of the
Govett business).The investment we have made in
making our Corporate Banking business more
international is paying off while Global Treasury
performed well in challenging markets.The sale
of AIB’s New York branch and the relocation of
operational support of US corporate banking and
treasury business to Dublin will bring positive
efficiency benefits.
Profit in Poland was down 17% before
restructuring costs. Big cuts in interest rates
materially hit our deposit income. However, our
management team completed an investment and
restructuring programme in 2003.This will
put us in a good position to capitalise on the
improved business momentum in this economy
which we began to see in the second half of
the year.
In the US, the integration of Allfirst into M&T
Bank was completed. It has achieved all its cost
objectives and customer retention was excellent.
Our strategic shareholding of 22.5% in M&T is
delivering value to AIB shareholders. At the time
of writing the M&T share price is up 25% on the
level it was when we announced the merger in
September 2002. M&T has indicated that it
expects double-digit earnings growth in 2004.
The key to our operating performance in 2003 is
the AIB Way – the distinctive AIB model of doing
things that allows us to deliver a distinctive
customer proposition, wherever we operate.
We want to bring to our customers a distinctive
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 accessing our services).
2003 was the first full year of the implementation
of this strategy.The year saw solid progress in our
independently measured customer satisfaction
ratings across the business.We had a particularly
strong gain from an already high base in
Great Britain.
We will deliver a distinctive value proposition to
our customers only if our people feel good about
working for AIB and have a competitive and
winning mind-set. Just as we relentlessly measure
customer satisfaction levels we also independently
survey staff attitudes across a whole range of areas
13
I believe the changes we completed in 2003, which complicated our reported
results, will begin to deliver real benefits this year.
I believe the changes we completed in 2003,
which complicated our reported results, will
begin to deliver real benefits this year.
The continuing strength of the euro will remain
an adverse factor.Yet, overall, I expect a stronger
earnings performance from AIB in 2004.
Michael Buckley
AIB Group Chief Executive
23 February 2004
such as leadership, teamwork, training and skills,
commitment, loyalty and understanding of goals
and objectives. Our end-2003 survey results
showed that our people rate AIB well above the
norm for global high performing companies. For
details about this survey and our people policies,
see pages 17/18.
I want to record my thanks to AIB’s people for
their hard work and contribution in 2003.
AIB is benefiting from a clear business strategy,
consistently applied across the group.
Our aims for 2004 are to achieve:
- continuing strong volume growth in our
businesses in the Republic, the UK and
the US.
- stronger bottom line performance from our
Poland division against the backdrop of
expected 4.5% growth in that economy.
We also expect that
- our overall revenues will rise faster than
our costs.
- our asset quality will remain solid.
14
AIB at a glance
- AIB’s principal countries of operations are
Ireland, Poland, the UK and the US.These were
chosen as they are economies with strong
potential, are politically stable, have a good
spread of industrial and service sectors and they
have high standards of regulation.
- AIB’s dominant business strategy is to develop
mutually rewarding customer relationships
offering high quality banking advice, services
and products. Relationship banking and
investment management businesses account
for more than 90% of AIB’s activity.
- AIB has five divisions – AIB Bank Republic of
Ireland, AIB Bank Great Britain & Northern
Ireland, Capital Markets, Poland and Finance
& Enterprise Technology.
- AIB Bank ROI division consists of the group’s
retail and commercial activities in the Republic
of Ireland. It also includes Ark Life, AIB's life
and pensions subsidiary, and other specialist
businesses offering credit cards, car finance
& leasing products, home mortgages and
other services.
- AIB Bank GB&NI division provides retail and
commercial banking services in Great Britain,
where it operates under the name Allied Irish
Bank (GB), and Northern Ireland where it
trades as First Trust Bank.
- AIB Capital Markets comprises Investment
Banking, Asset Management, Corporate
Banking and Global Treasury activities of the
group as well as the Allied Irish America
network, which caters for the community and
charity sector in the US.
- AIB also has a 22.5% stake in M&T Bank,
one of the top regional banks in the US. AIB
has representatives on the M&T Board and has
a strong influence in developing the Buffalo-
based bank’s strategy.
- In Poland, AIB owns 70.5% of BZWBK which
has more than 400 outlets mainly in the mid-
west and south-west of the country.
- AIB Bank ROI holds approximately 42% of the
group's assets, Capital Markets 35%, AIB Bank
GB&NI 14%, Poland 7% and Group 2%.
- AIB maintains strong capital ratios, well above
regulatory minimum requirements – Tier 1 is
7.1% and the total capital ratio is 10.4% at 31
December 2003.
- AIB shares are quoted on the Irish, London
and New York stock exchanges.
- Shareholders in North America hold almost
35% of AIB shares while those in the Republic
of Ireland have over 37%, the UK 20% and
those in continental Europe and the rest the
world about 8%. About 67% of AIB’s
shareholders are institutional and 33% are retail.
- The group is committed to a consistent
dividend policy and has a strong record of
dividend growth.
15
Corporate and Social Responsibility
Being a responsible corporate
citizen is very important to AIB.
We support the voluntary
approach to corporate social
responsibility and we will support
best industry practices within AIB
Group.To assist us in this aim we
take an active role in Business in
the Community (BITC) both
in the Republic of Ireland and
Northern Ireland. BITC is a
unique movement of companies
committed to continually
improving their positive
impact on society.
Our customers are the
foundation of our business.We
realise that our customers’
interests must be central to
everything we do.We maintain
the highest standards of
confidentiality in the safeguarding
of information about our
customers, their business and
their accounts and we are
committed to openness and
transparency in communications
with our customers.
We aim to ensure that we act
at all times with integrity
and professionalism, as well as
behaving with prudence and skill.
We have an AIB Code of
Business Ethics, with which all
employees of the group are
expected to comply.
Allied Irish Bank GB has been
recognised by the Forum of
Private Business as being Britain’s
‘Best Business Bank’ over the last
10 years. In 2004, Allied Irish
Bank GB has also been
acknowledged as being in the top
quartile of all UK companies in
terms of customer service, by The
Leadership Factor survey. In the
Republic of Ireland, through our
external customer service
satisfaction surveys, we have seen
a strong upward trend in ratings
over the past two years. BZWBK
in Poland have been acclaimed for
the services and products they
provide to small and medium-
sized enterprises.
We aim to ensure that the
needs of the present are met
without compromising the ability
of future generations to meet
their own needs.This principle of
sustainable development demands
that we accept responsibility for
the direct impact of our own
operations on the environment.
We ensure that we meet our
environmental risk obligations
under laws and regulations in
each of the jurisdictions in which
we operate. In 2003, First Trust
Bank, our subsidiary in Northern
Ireland, was placed in the first
quintile in an environmental
survey conducted by the Arena
Network.This corporate
environmental survey covers 200
leading firms, 26 local authorities,
19 health trusts and 5 education
and library boards.We have also
embarked on waste reduction
and recycling programmes in
key locations.
AIB recognises that our
involvement in our markets
extends beyond pure commercial
activities.We support a wide
variety of groups in our local
communities through our
corporate giving and sponsorship
activities, which encompass the
environment, education, sport
and the arts. Our major initiative
is the AIB Better Ireland
Programme. Following
consultation with AIB staff,
this programme has directed
its resources into key concerns
affecting children in Ireland. Since
the introduction of the scheme in
August 2001, over €5 million has
been awarded to more than 450
projects throughout Ireland. In
June 2003 Amárach Consultants
carried out research with Irish
adults into their views on
corporate giving and charitable
donation programmes. AIB was
rated first in the Republic of
Ireland in terms of association
with such initiatives – 18% ahead
of its nearest rival.
In 2003 BZWBK launched
an affinity card together with
the Polish Humanitarian
Organisation.This charity aims
to provide at least one hot meal,
every day of the school year to
children in need. BZWBK was
able to provide 35,000 meals to
children through their donations
in 2003.
Many AIB staff members are
volunteers in charities and
projects within their
communities.The AIB Staff
Partnership Fund recognises and
rewards their commitment by
matching any funds they raise
or by making a payment to the
organisation to acknowledge the
personal time given by the AIB
staff member. AIB Capital Markets
was a founder member of the
Irish Financial Services Centre
Dublin Inner City Trust
approximately 10 years ago.The
trust is made up of companies
based in the IFSC area with an
objective of generating funds for
the local community. In 2003 a
community creche supported by
the trust was opened.
16
AIB supports education initiatives
such as the AIB Capital Markets-
sponsored Junior Achievement
programme. Staff volunteer their
time and funding is provided to
help young people to value the
role of business and economics
in improving the quality of their
lives. Skoool.ie is an interactive
website supporting secondary
level students in the Republic
of Ireland.This website was
developed and is sustained in
partnership with Intel and the
Irish Times. First Trust Bank
sponsor the Chair of Innovation
at Queen’s University Belfast and
AIB has also contributed to a
number of developments
including a new Chair at the
Children’s Research Centre in
Trinity College.
We want to attract and retain
the best people. As an employer,
AIB is committed to equal
opportunity practices.We operate
a range of family friendly
practices including flexible hours,
career breaks and teleworking in
appropriate circumstances.
AIB and its people
Employee Information – AIB Group
The average full time equivalent employee numbers
Number of countries staff employed
Permanent/Temporary Staff (%)
Male/Female employees (%)
Average age of employees (years)
Average length of service (years)
Voluntary attrition rate
Employee profit sharing share scheme (ROI & UK Divisions)
Staff survey (response rate)
2003
25,567
9
92%(P)/8%(T)
34%(M)/66%(F)
37
11
4.29%
90%
86%
At the heart of AIB’s business
strategy is the creation of a
distinctive customer proposition
that will deliver differentiation in
all our market places and generate
superior financial performance.
This business strategy can be
fulfilled only through our people.
Our goal is to enhance our
commitment culture so people
are engaged and motivated to
work to their full potential to
achieve outstanding results and
deliver superior, distinctive
propositions to our customers.
AIB Group is acknowledged
in the financial services sector as
providing leading edge human
resource management policies
and practices fundamental to
the achievement of business
objectives. In late 2003 we were
proud to be the recipient
of the Supreme award in the
National HR Awards presented
by the Chartered Institute of
Personnel and Development
(RoI) for our Staff Survey.The
judges in particular referred to the
strong action focus of the survey,
the use of the survey findings to
inform business planning and also
to the use of the People Focus
Index (PFI) in assessing the
effectiveness of management.
AIB Staff Survey
We measure the effectiveness of
our people strategy and the
strength of our commitment
culture, through an annual survey
of all staff across the group (with
the exception of the Polish
division).We have been
conducting staff surveys in AIB
since 1989 and the trend data
allows us to measure our progress
over time and against a number
of external benchmarks including
the Global Financial Services
Norm (GFSN) and the Global
High Performance Norm.
AIB has now been identified
by ISR, our independent survey
specialists, as a High Performing
Company within their Global
High Performance Norm Group.
This places AIB, in terms of
employee experience of working
life, alongside such companies as
Shell, Nokia, and AstraZeneca.
The survey incorporates a
People Focus Index which has
been developed by AIB.This is a
17
How does AIB compare externally?
Percentage point diff. vs. ISR
Global Financial Services Norm
Percentage point diff. vs. ISR
Global High Performance Norm
Leadership
Teamwork
Training & Skills
Commitment & Loyalty
Local Management
Reward
People Focus Index
Culture & Climate
Performance Evaluation
Goals & Objectives
Work Organisation & Workload
Customer Focus
15
12
10
10
10
9
8
7
6
6
5
4
-20
-10
0
10
20
6
9
8
1
2
3
4
2
7
7
2
-2
-20
-10
0
10
20
© 2003, ISR
range of questions which assesses
the impact of local management
style and behaviour on staff views
of working life in AIB.This index
has shown strong growth from
70% favourable in 2002 to 75%
favourable in 2003, and compares
well with the current global
financial services norm of 68%.
Our Commitment Culture
The main elements in our
commitment culture:
- We invest in the continuous
development and growth in
our people.
- We have a transparent
meritocracy where job
vacancies within the
organisation at every level are
subject to open competition.
- We communicate the key
elements of reward, which are
designed to incentivise superior
levels of performance.
- We build strong people
management skills and
competencies in our first
line management.
- We encourage all management
to demonstrate strong
leadership in building the
strategic awareness of
their teams.
18
Performance review
Implementation of UITF
Abstract 37 ‘Purchases and
sales of own shares’ and
UITF Abstract 38 ‘Accounting
for Employee Share
Ownership Plan (‘ESOP’)
Trusts‘
(see Accounting policies on page 54)
The Group has implemented UITF
Abstracts 37 and 38 in the
preparation of its accounts for the
year ended 31 December 2003 and
comparative figures have been
restated.
The application of UITF 37, has
reduced profit before taxation for
2002 by € 3.3m and reduced long-
term assurance assets attributable to
policyholders and shareholders’ funds
at 31 December 2002 by € 52m.
The application of UITF 38
reduced consolidated total assets and
consolidated total shareholders’ funds
at 31 December 2002 by € 176m.
Translation of foreign
locations’ profit
Approximately 50% of the Group’s
earnings are denominated in
currencies other than the euro.
Movements in exchange rates can
therefore have an impact on earnings
growth. In 2003, the US dollar,
sterling and Polish zloty average
accounting rates weakened relative to
the euro by 17%, 9% and 13%
respectively.The negative impact on
earnings was partly offset by hedging
profits of € 28 million, however the
net effect of currency translation had
a 4% negative impact on the adjusted
earnings per share growth rate in
2003.
The average effective rates,
including the impact of currency
hedging activities, were as follows:
€ 1 : US$ 1.01 (2002 : US$ 0.90);
€ 1 : Stg£ 0.67 (2002 : Stg£ 0.63);
€ 1 : PLN 4.28 (2002 : PLN 4.13).
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 climates, 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.
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.
Some of the Group’s financial
instruments, including derivatives and
debt securities held for trading
purposes, are carried at fair value.
Financial instruments entered into as
trading transactions, together with
any associated hedging thereof, are
measured at fair value and the
resultant profits and losses are
included in dealing profits. Financial
instruments are either priced with
reference to a quoted market price
for that instrument or by using a
valuation model.The use of different
models or other assumptions could
result in changes in financial results.
The Group provides a number of
defined benefit and defined
contribution retirement benefit
schemes in various geographic
locations, the majority of which are
funded. In calculating the scheme
liabilities, the directors have chosen a
number of assumptions within an
acceptable range.The impact on the
profit and loss account or balance
sheet could be materially different if
an alternative set of assumptions were
used.
The application of other
accounting policies, for example,
measuring shareholders’ interest
in the long-term assurance fund,
impairment, and equity shares 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.
19
Performance review
Divisional information
The business of AIB Group is
operated through four major
operating divisions as described
below:
AIB Bank ROI division
AIB Bank ROI division encompasses
the Group’s retail and commercial
banking operations in Ireland,
Channel Islands and Isle of Man;
AIB Finance & Leasing; Card
Services and AIB’s life and pensions
subsidiary, Ark Life Assurance
Company Limited. AIB Bank ROI
provides banking services through a
distribution network of some 289
locations (200 branches and 89
outlets) and in excess of 550 ATM’s.
AIB has an agency agreement with
An Post, the national post office
network, which enables AIB
customers to carry out basic
transactions at over 1,000 post
office locations nationwide. A debit
card ‘Laser’ is operated jointly with
other financial institutions in Ireland.
In addition, the division offers
24 hour telephone and internet
banking for the routine transactions
of personal customers through
which they can pay bills, transfer
money between accounts, search for
cheques and view and order
statements. 24 hour telephone and
internet banking is also suitable for
sole trader business customers. For
other business customers, an internet
based banking service called
iBusiness Banking is available. It
offers secure internet banking and a
comprehensive cash management
solution, including domestic and
cross-border payment functionality.
Branch banking services are
provided across the range of customer
segments, including individuals,
small and medium sized commercial
customers, farmers and the corporate
sector.Through the branch network,
the division provides a variety of
savings and investment products, loans
and overdrafts, home loans, home
improvement loans, foreign exchange
facilities, a full range of money
transmission services and issues
Visa® and Mastercard® credit cards.
AIB Finance & Leasing is AIB’s
asset financing arm in Ireland. It
markets its services through the AIB
branch network and through
intermediaries with whom it has
established relationships, such as
motor dealers, equipment suppliers,
brokers and other professionals,
including solicitors, accountants and
estate agents. It also lends directly to
customers. Its lending services
include vehicle, equipment and fleet
leasing, retail and investment property
loans, vehicle and equipment hire
purchase, insurance premium
financing and personal loans.
AIB’s life assurance subsidiary,
Ark Life Assurance Company
Limited, provides a wide range of
financial planning services including
life assurance, savings and investment
instruments, pensions and
inheritance tax planning. In Ireland,
home and travel insurance products
are sold in the branch network
through alliances with partners in
the insurance industry.
AIB Bank GB & NI division
AIB GB & NI division operates
through 34 branches and outlets
throughout Britain, under the name
Allied Irish Bank (GB) and as First
Trust Bank in Northern Ireland
where the bank maintains 60
branches.There are head offices in
both London and Belfast. Both
operations provide a full range of
banking services including current
accounts, overdraft and loan facilities,
mortgages, deposits and investment
services, and specialist corporate
banking services.
Allied Irish Bank (GB)
concentrates on the business,
professional and not for profit markets
and has successfully grown its
operations through a relationship
banking approach. It focuses
particularly on providing specialist
banking services to small to medium
sized enterprises and to high net
worth personal customers.
First Trust Bank provides banking
services across the range of customer
segments, including individuals,
small and medium sized commercial
customers and the corporate sector,
with strong growth evident in
personal home mortgages and also
in business lending. Steady growth
has been experienced in its
telephone and internet based
services. All regulated investment
business is carried out through First
Trust Independent Financial
Advisers Limited, AIB Group (UK)
p.l.c.’s subsidiary company for
independent financial advice.
Capital Markets division
AIB Capital Markets division
manages the Investment Banking,
Asset Management, Corporate
Banking and Global Treasury
services of the Group (with the
exception of the international
Banking Services in BZWBK).
These services are delivered
through the following main business
units: Global Treasury, Investment
Banking, AIB Asset Management
Holdings, AIB Corporate Banking
and Allied Irish America (‘AIA’).
20
Global Treasury through its
treasury operations manages, on a
global basis, the liquidity and funding
requirements and the interest and
exchange rate exposure of the Group.
In addition, it undertakes proprietary
trading activities, and provides a wide
range of treasury and risk management
services to the corporate, commercial
and retail customers of the Group.
International Banking activities include
import and export financial services.
Investment Banking provides a
comprehensive range of services
including corporate finance through
AIB Corporate Finance Limited,
corporate finance and stockbroking
through Goodbody Stockbrokers,
structuring cross-border financing
transactions and providing sophisticated
back-office services through AIB
International Financial Services
Limited, and custodial, trustee and
fund administration services through
joint ventures with The Bank of New
York. Investment Banking services
also include providing alternative
asset management activities (i.e. hedge
funds), venture capital funds and
property fund activities (principally in
Poland).
Asset Management is provided
through AIB Investment Managers
Limited (‘AIBIM’) in the Republic
of Ireland.The company manages
assets principally for institutional and
retail clients. On 4 November 2003,
AIB announced a restructuring of its
UK and Singapore asset management
activities.The majority of the
management contracts of Govett
Investments Limited were sold to
Gartmore Investment Management
p.l.c. (note 14).The operations of
Govett Investment Management
Limited in the UK and AIB Govett
(Asia) Limited in Singapore are being
closed down.
AIB Corporate Banking provides
a fully integrated, relationship-based
banking service to top-tier companies,
both domestic and international,
financial institutions and Irish
commercial state companies. AIB
Corporate Banking has a dedicated
unit focusing on developing and
arranging acquisition and project
finance principally in Ireland, UK
and continental Europe, and has
established Mezzanine Finance funds
and CDO funds.While AIB Corporate
Banking operates primarily in Ireland,
it also has teams based in the UK and
USA and continental Europe.
At the end of 2002, the Capital
Markets division took management
responsibility for the AIA business
following the sale of Allfirst. This
business was reorganised during the
year, the retail banking business was
sold and the corporate banking
business transferred to AIB Corporate
Banking.The not for profit business
remains as the core business for AIA,
operating principally from New York,
with offices in a number of other
principal US cities.The operations
also include associated fund raising
businesses based in the US and in
Canada.
AIB Capital Markets is
headquartered at Dublin's International
Financial Services Centre. It also
operates from a number of other
Dublin locations, and operates AIB’s
treasury operations in London, New
York and Poland, a corporate banking
office in Frankfurt, and offices
managed by AIB International
Financial Services Limited in Budapest,
Zurich and Luxembourg.
Poland division
Poland division comprises
BZWBK in which AIB has a 70.5%
shareholding, together with its
subsidiaries and associates. AIB
completed the merger of its Polish
operations in 2001, forming
BZWBK, Poland’s fifth largest bank
BZWBK’s registered office is
located in Wroclaw in south-western
Poland. Key support functions are
also located in corporate centers in
Poznan and Warsaw. At the end of
2003, BZWBK operated through
400 branches. BZWBK offers
comprehensive services to retail and
corporate customers.These services
include leasing, mortgages, asset
management, investment fund,
foreign trade settlement products.The
bank operates mainly in the more
prosperous western part of the
country but also has a significant
presence in major urban areas of
Poland such as Warsaw, Krakow,
Gdansk and Lodz. During 2003, the
bank strengthened its position in the
Warsaw market where it now has
over 30 outlets.
Corporate Business Centers are
being established providing direct and
comprehensive relationship-based
services to corporate and commercial
clients, with credit exposures in
excess of PLN 4 million. It is the aim
of these Centers to provide a top
quality customer service proposition,
and at the same time ensure the
highest standards of credit
underwriting. It is expected that this
relationship approach will provide
real benefits both for the customer
and the Bank.
21
Performance review
Summary Profit and Loss Account
Year ended 31 December 2003
Year ended 31 December 2002
Continuing Discontinued(1)
activities
€ m
activities
€ m
Net interest income
Other finance income
Other income
Total operating income
Staff and other administrative expenses
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
Group operating profit
Share of operating profits of associated
undertakings
Share of restructuring and integration costs in
associated undertaking
Amortisation of goodwill on acquisition of
associated undertaking
Profit/(loss) on disposal of property
(Loss)/profit on disposal of businesses
Group profit on ordinary activities before taxation
Taxation on ordinary activities
Group profit on ordinary activities after taxation
Minority interests and non-equity dividends
Group profit attributable to ordinary shareholders
1,840
14
1,124
2,978
1,597
72
170
1,839
1,139
142
25
167
972
143
(20)
(42)
32
(142)
943
299
644
15
629
94
(2)
106
198
112
–
9
121
77
10
–
10
67
–
–
–
–
1
68
19
49
1
48
Total
€ m
1,934
12
1,230
3,176
1,709
72
179
1,960
1,216
152
25
177
Continuing
activities
€ m
Discontinued(1)
activities
€ m
1,830
63
1,055
2,948
1,582
–
165
1,747
1,201
110
45
155
521
(1)
459
979
516
13
42
571
408
84
12
96
Restated(2)
Total
€ m
2,351
62
1,514
3,927
2,098
13
207
2,318
1,609
194
57
251
1,039
1,046
312
1,358
143
(20)
(42)
32
(141)
9
–
–
6
–
1,011
1,061
318
693
16
677
232
829
28
801
–
–
–
(1)
–
311
74
237
4
233
9
–
–
5
–
1,372
306
1,066
32
1,034
(1)The discontinued activities in 2003 relate to the income and expense of Allfirst Financial Inc. from 1 January 2003 to 31 March 2003.
The discontinued activities for the year ended 31 December 2002 relate to Allfirst Financial Inc. for the 12 months. (note 2).
(2) The figures for the year ended 31 December have been restated to reflect the implementation of UITF Abstract 37 – Purchases and sales
of own shares.
22
Net interest income
Net interest income increased by 6%
to € 1,840 million due to
particularly strong lending growth in
AIB Bank Republic of Ireland and
AIB Bank GB & NI. Loans to
customers increased by 21% and
customer accounts increased by 11%
on a constant currency basis (details of
loan and deposit growth by division are
contained on page 26).
The net interest margin
amounted to 2.70%, a 21 basis point
decrease on the year to December
2002.The principal reasons for the
margin attrition include the balance
sheet funding effect of assets growing
at a faster pace than liabilities,
changes in product mix, and lower
interest rates. Lower interest rates in
Ireland and Poland have reduced
margins on deposits and non-interest
bearing funds.The impact of lower
investment yields has reduced the
return on the investment of capital
and deposit funds.
The following commentary on profit and loss account headings covers
continuing activities, which exclude Allfirst, and is based on underlying
percentage growth adjusting for the impact of exchange rate movements on the
translation of foreign locations’ profit and excludes restructuring and integration
costs, early retirement costs, the reduction in other finance income (FRS 17) and
the transfer of Ark Life’s sales force to AIB’s payroll (resulted in higher payroll
costs which were previously recorded as a deduction in other income as part of
Ark Life profit). A comment on discontinued activities is included in the
divisional commentary on page 36. Discontinued activities refer to Allfirst,
which was merged with M&T Bank on 1 April 2003 (see note 2 in the notes
to the accounts).
Total income
Total income at € 2,978 million was up 6.5%.
Total operating income
Net interest income
Other finance income
Other income
Total operating income
Year
2003
€ m
1,840
14
1,124
2,978
Year
2002
€ m
1,830
63
1,055
2,948
Underlying
% Change
2003 v 2002
6
–
8
6.5
A comment on net interest income and other income follows.
Average interest earning assets
- continuing activities
Domestic
Foreign
Continuing activities
Year
2003
€ m
44,679
23,591
68,270
Year
2002
€ m
%
Change(1)
2003 v 2002
38,663
24,119
62,782
16
-2
9
(1) This particular analysis is not adjusted for the impact of exchange rate movements.The
2% reduction in foreign assets was impacted by the weakening of the US dollar, sterling
and Polish zloty relative to the euro, by 17%, 9% and 13% respectively. Excluding
currency movements, foreign assets were higher.
Net interest margin
- continuing activities(2)
Domestic
Foreign
Continuing activities
Year
2003
%
2.54
2.98
2.70
Year
2002
%
2.73
3.20
2.91
Basis
Points
Change
-19
-22
-21
(2) The net interest margin for total AIB Group is included in note 61 to the accounts.
23
Performance review
Other income
Other income increased by 8% to
€ 1,124 million in 2003.
Banking fees and commissions,
which account for over 70% of
other income, increased by 15%
following a similar increase in
2002.The strong growth resulted
from increased volumes of
business and a substantially higher
level of arrangement fees due to
strong lending growth. In Poland,
growth in branch fees and
commissions, and credit card
income, was strong.
Investment banking revenues
were lower due to subdued
merger and acquisition activity
and reduced cross-border
structuring transactions. In Asset
Management, a significant event
was the sale of the Govett
business, being the majority of the
management contracts of Govett
to Gartmore Investment
Management p.l.c. in November
2003.
The increase in dealing profits
was mainly driven by a strong
performance from bond
management activities.
The 6% increase in Ark Life
profit reflects good growth in
income from protection products
and a significant increase of 40%
in sales in the second half
compared with the second half of
2002 [see comment under AIB Bank
Republic of Ireland on page 31 for
further information].
Profit from hedging of foreign
earnings was € 24 million in 2003
(total Group was € 28 million
with € 4 million attributed to
discontinued activities) compared
to a loss of € 6 million in 2002
Other income
Dividend income
Banking fees and commissions
Asset management and investment
banking fees
Fees and commissions receivable
Less: fees and commissions payable
Dealing profits
Contribution of life assurance company
Other
Other operating income
Hedging profits/(losses)
Year
2003
€ m
15
830
128
958
(117)
103
60
81
141
24
Year
2002
€ m
11
773
151
924
(108)
86
57
91
148
(6)
Total other income
1,124
1,055
Underlying
% Change
2003 v 2002
56
15
-13
10
14
23
6
-2
1
–
8
Operating expenses
Staff costs
Other costs
Depreciation and amortisation
Operating expenses before restructuring/
early retirement costs
Early retirement costs
Restructuring costs in continuing businesses
Year
2003
€ m
Year
2002
€ m
Underlying
% Change
2003 v 2002
1,082
1,046
515
170
536
165
1,767
1,747
62
10
–
–
8
1
9
6
Total operating expenses
1,839
1,747
(total Group was a profit of
€ 5 million with a profit of
€ 11 million attributed to
discontinued activities) [see
comment on translation of foreign
locations’ profit on page 19 for further
details].
The other income as a
percentage of total income ratio
for continuing activities increased
from 37.9% to 38.2%.
Total operating expenses
Operating expenses, excluding
restructuring and early retirement
costs and the Ark Life sales force
reorganisation, increased by 6%
compared with 2002.The 6%
increase includes some costs
relating to the development of
new integrated groupwide
reporting and information
systems, investment in building
top class risk and governance
infrastructure and practices, and
there were additional costs
relating to the USA.The growth
also includes the first full year of
depreciation of € 19 million (1%
in continuing activities cost
growth terms) relating to our
new branch technology platform
in Poland.
Operating expenses increased
24
by 5% in our operating divisions
reflecting strong business activity
levels. In addition, a provision of
€ 62 million was made in
relation to an early retirement
offer to a limited number of staff
in Ireland and Britain. In Poland,
there was a restructuring charge
of € 10 million, covering the
closure of branches and the
writedown in value of properties
and branch equipment.
The tangible cost income
ratio for continuing activities
remained at 58%.
Provisions
Total provisions were € 167 million compared with € 155 million in
2002.
Provisions
Bad and doubtful debts
Contingent liabilities and commitments
Amounts written off fixed asset investments
Total provisions
Year
2003
€ m
142
9
16
167
Year
2002
€ m
110
2
43
155
The provision for bad and
doubtful debts in the year to
December 2003 was € 142
million compared with € 110
million in 2002.The year to
December 2002 figure included
the release of € 40 million of the
€ 50 million additional
unallocated credit provision
created in 2001.The release offset
a US$ 38 million provision
created in Allfirst (now a
discontinued activity) in relation
to one specific case in 2002.
Strong asset quality in AIB
Bank Republic of Ireland was
reflected in a lower provision
charge of 0.24% of average loans
compared with 0.26% in 2002
and a reduction in non-
performing loans as a percentage
of loans to 0.8%, down from
0.9% at 31 December 2002.The
quality of both the retail and
commercial portfolios has been
maintained with no specific
sectoral deterioration. Home
mortgage lending continued to
be buoyant without
compromising credit quality.
Non-performing loans in AIB
Bank GB & NI, as a percentage
of loans, reduced to 0.8% of loans
and provision cover increased
to 148%.The bad debt provision
charge as a percentage of average
loans also reduced to 0.21%.
In Capital Markets,
non-performing loans as a
percentage of total loans reduced
to 0.8% at 31 December 2003
from 1.1% in 2002.The portfolio
remains well diversified in terms of
industry sector and geographic
concentration and we maintained
our prudent underwriting stance.
The provision charge at 0.4%(1)
of average loans was marginally
higher than 2002.
In Poland, the provision
charge reduced to 1.0% of loans
from 1.2% at 31 December 2002.
The downward trend in non-
performing loans continued, with
non-performing loans as a
percentage of total loans declining
to 11% from 15% at 31 December
2002.
The underlying charge for the
year represented 0.33%(1) of average
loans compared with a 0.37%
charge in 2002 (before the release
of the unallocated credit
provision). Group non-performing
loans as a percentage of total loans
reduced significantly to 1.4% (0.8%
excluding Poland) from 2.0% in
2002.Total provision coverage for
25
Performance review
non-performing loans continues to
be healthy at 94% (131% excluding
Poland), with the total non-specific
provision element increasing to
€ 316 million.
(1) Includes the relevant charge relating to the
credit element of contingent liabilities and
commitments and the allocation of general
provisions to cover amounts written off fixed
asset investments.
The provision for contingent
liabilities and commitments was
€ 9 million compared with
€ 2 million in 2002 and included
a credit related provision of
€ 8 million in Capital Markets.
The provision for amounts written
off fixed asset investments declined
to € 16 million from € 43 million
in 2002. In 2002, the general
deterioration in equity markets led
to a number of equity investment
write-downs mainly in the
technology and telecom sectors.
Risk weighted assets, loans to customers and customer accounts (excluding
money market funds and currency factors)
% change December 2003
v December 2002
Risk weighted
assets
% change
Loans to
customers
% change
Customer
accounts
% change
AIB Bank Republic of Ireland
AIB Bank GB & NI
Capital Markets
Poland
AIB Group
28
26
18(1)
4
23
28
25
4
4(2)
21
9
15
18
–
11
(1) The increase in risk weighted assets includes higher treasury assets and growth in
off-balance sheet credit facilities in Corporate Banking and Allied Irish America.
(2) The increase was 6% on an underlying basis excluding the impact of the central
writedown of non-performing loans that were fully provided for.
The divisional commentary on pages 31 to 35 contains additional comments on key
business trends in relation to loans to customers and customer accounts.
Balance sheet
Total assets amounted to € 81 billion
at 31 December 2003 compared to
€ 70 billion (page 144) at 31
December 2002.The US dollar,
sterling and the Polish zloty
weakened against the euro by 17%,
8% and 14% respectively resulting
in a decline in the reported total
balance sheet since 31 December
2002. Adjusting for the impact of
currency, total assets were up 21%
since 31 December 2002 while
loans to customers increased by 21%
and customer accounts by 11%.
Risk weighted assets excluding
currency factors increased by 23%
to € 63 billion.
Assets under management
/administration and custody
Assets under management in the
Group amounted to € 12 billion
and assets under administration and
custody amounted to € 165
billion at 31 December 2003.
Commentary on half-year
December 2003
performance
Business volumes continued to
gain momentum with Group loans
increasing by 24% and deposits
increasing by 14% on an annualised
basis since 30 June 2003. Other
income growth was good with a
substantially higher level of
arrangement fees due to strong
lending growth. Operating expenses
increased by approximately 5% in
the second half-year.
Asset quality further improved
with non-performing loans as a
percentage of total loans declining
from 1.7% at 30 June 2003 to 1.4%
at December 2003.
A provision of € 62 million
was made in the second half in
relation to an early retirement offer
to a limited number of staff in
Ireland and Britain. In Poland there
was a restructuring charge of € 10
million in the second half-year
26
covering the closure of branches
and the writedown in value of
properties and branch equipment.
The impact of the disposal of
Govett was recorded in this
period. Also included was a
restructuring charge of
€ 4 million relating to AIB’s
share of the charge taken by
M&T following its acquisition of
Allfirst.This charge was in
addition to the € 16 million
accounted for in the first half-year.
Taxation
The taxation charge was
€ 318 million, compared with
€ 306 million in 2002.The
effective tax rate was 31.4%
compared with 22.3% in 2002.
The effective tax rate in 2003 was
impacted by the Allfirst/M&T
transaction, the Irish Government
bank levy, the implementation of
the early retirement programme
and the writeback of goodwill on
the disposal of Govett. The
underlying rate for the year was
21.2% in 2003 after adjusting for
these items.The underlying
effective tax rate is influenced by
the geographic mix of profits
which are taxed at the rates
applicable in the foreign
jurisdictions.
Return on equity
and return on assets
The tangible return on equity
was 20%, having absorbed the loss
on disposal of Govett and
restructuring and early retirement
costs.The basic return on equity
was 14.5% and the return on
assets was 0.9%.
Outlook
A favourable outlook for 2004
is supported by a good start to
the year where we continue
to see strong demand for lending
facilities. Our confidence about
the future is underpinned by
continued strong asset quality
and further improving efficiency
levels. Reflecting this very strong
business performance, double-digit
profit growth in 2004 is targeted
in our operating divisions. Due to
the expected substantial increase
in Poland profit, the related
minority interest charge is
expected to be higher and it is
also anticipated that the strong
growth in British, Polish and US
profits will result in a higher
effective tax rate.
The Group has hedged over
70% of its projected 2004 foreign
earnings with over 90% of US
dollar translation exposure
hedged. Allowing for this hedged
position and recognising the
€ 28 million benefit of 2003
hedging strategies and the impact
of current rates on the unhedged
portion, the negative financial
impact is expected to be 3% in
adjusted earnings per share
growth terms.
In Group terms, excluding the
above noted currency impact,
adjusted earnings per share, after
the 2003 impact of the early
retirement programme and the
M&T/Poland restructuring costs,
is expected to increase by a high
single-digit percentage in 2004
with a higher earnings trend in
the second half compared to the
first half-year.
Statement of total
recognised gains
and losses (‘STRGL’)
The total recognised gains
relating to the year amounted
to € 667 million compared to
a recognised loss of € 130 million
in 2002. Profit attributable for the
year ended 31 December 2003
was € 1,034 million in 2002. The
unrealised element of the gain
recognised on the disposal of
Allfirst of € 489 million has been
reflected in the STRGL, in
accordance with UITF 31 -
‘Exchange of businesses or other
non-monetary assets for an
interest in a subsidiary, joint
venture or an associate’. Currency
translation differences amounted
to € 457 million negative
compared to € 341 million
negative in 2002.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 on page
26, 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
27
Performance review
benefit schemes during 2003
charged to the STRGL, net of
deferred tax of € 17 million,
amounted to € 50 million
compared to an actuarial loss of
€ 823 million in 2002. The
actuarial loss is determined by
valuations prepared in accordance
with FRS 17 which requires
retirement benefit plan assets and
liabilities to be recorded at market
values at the balance sheet date.
These valuations are not an
indication of the long-term
funding position of the plans which
are formally assessed by way of
triennial actuarial valuations.The
actuarial loss included € 257
million from a reduction in
discount rates offset by a € 97
million experience gain on
liabilities as well as a € 93 million
experience gain on the pension
scheme assets. The net pension
liability on funded schemes
recognised within shareholders’
funds was € 485 million at 31
December 2003 compared with
a net pension liability of € 482
million at 31 December 2002.
Cash flow
As reflected in the consolidated
cash flow statement, there was a
net decrease in cash of € 1,351
million during the year ended
31 December 2003. Net cash
inflow from operating activities
was € 1,631 million, which arose
primarily as a result of a net cash
inflow from trading activities of
€ 1,331 million.The disposal of
Allfirst Financial Inc. resulted in
a cash outflow from acquisitions
and disposals of € 1,049 million.
Cash outflows from financing were
€ 173 million.The repurchase
of ordinary shares generated a
cash outflow of € 812 million
and this was partly offset by the
issue of subordinated liabilities
of € 603 million. Cash outflows
from taxation were € 273 million
while cash outflows in relation to
equity dividends were € 378
million. Cash outflows as a result
of capital expenditure and financial
investment were €1,049 million,
due to net cash outflows from
disposals of debt and equity
securities of €1,049 million.
International accounting
standards
The European Commission has
adopted a regulation on the
application of International
Accounting Standards (‘IASs’) and
International Financial Reporting
Standards (‘IFRSs’).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
IASs and IFRSs. 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/IFRSs should be applied
more widely than in the group
accounts of listed companies.
During 2003, the IASB issued
a number of improvements to
existing standards and it amended
IAS 32 and IAS 39 which deal
with the accounting for, and
disclosure of, financial instruments.
In the first quarter of 2004 new
standards on share based payments
(issued on 19 February 2004),
business combinations and
insurance contracts are expected.
In addition, the limited amendment
to IAS 39, ‘Financial instruments:
Recognition and Measurement’,
dealing with macro hedging, is
expected to be finalised.
AIB will be required to
prepare its financial statements
under ‘adopted’ IASs/IFRSs from
1 January 2005. The standards
will change the manner in which
the financial effects of transactions
are reported and the format of
that reporting. The effect on AIB
cannot be fully predicted at this
point in time due to the nature of
the standards themselves and the
number of uncertainties that
remain.
The principal uncertainties
are that a number of key standards
have not yet been finalised,
principally those relating to ‘macro
hedge’ accounting and life
assurance. In addition, there is
uncertainty as to whether the
European Union will adopt IAS
32 and IAS 39.The Irish
Financial Services Regulatory
Authority (’IFSRA’) has not
finalised its approach to IAS and
has not indicated whether the
new accounting treatments under
IASs/IFRSs will be adopted in
the calculation of regulatory
capital.
28
Given the level of uncertainty
as set out above, the effect of
IASs/IFRSs on the Group cannot
be fully quantified at this stage.
However, the key differences
between the policies adopted by
AIB in the preparation of its
accounts, and those required by
IAS, are set out below.
A group-wide programme is
underway to ensure full
compliance with IAS in 2005.
The significant deliverables
include the necessary adjustments
to the Group accounting policies,
addressing any business impacts
arising, and making the necessary
changes to the Group’s
accounting and reporting
systems. Progress is monitored
monthly by a Group level
steering committee and progress
to date is considered to be
satisfactory.
Hedge accounting
AIB’s accounting policy for
derivatives is set out on pages 57
and 58. Derivatives held for
hedging purposes are accounted
for on the same basis as the
underlying assets and liabilities.
Derivatives held as part of the
Group’s risk management strategy
are accounted for on an accruals
basis.
The use of hedge accounting
is more restricted under IAS 39
than at present under Irish GAAP.
IAS 39 requires derivatives to be
recognised at fair value, with
changes in the valuation of certain
derivatives impacting the profit
and loss account, potentially
resulting in significant earnings
volatility. Other derivatives
representing hedges of forecasted
transactions will be marked to
market to equity.
As set out in the Financial
Review, AIB’s non-trading book
generates interest rate risk which
is managed using interest rate
swaps and other instruments.
Application of the hedge
accounting rules of IAS 39 will
be difficult as products tend to
reprice or mature on a
behavioural rather than on a
contractual basis. As a result, the
extent to which the business
objectives can be met through
the use of derivatives will depend
on the final form of the hedging
rules which are due to be issued
in March 2004.
The IAS implementation
programme is considering
alternative compliant hedging
strategies including the extension
of the natural offsets between
assets and liabilities. Application
of IAS 39 hedge accounting
rules, including compliance with
the stringent effectiveness tests,
will require systems development.
Application of IAS 39 to AIB’s
current hedging policy could
have a significant impact on equity
and earnings.The extent to which
AIB can achieve its economic
hedging objectives for its market
risk exposures through the actions
outlined above, will reduce the
degree of equity and earnings
impact and the volatility arising
from IAS 39.
Effective interest rate
AIB amortises fees which increase
the yield on transactions over the
lives of the underlying transactions.
Under IAS 39, origination
fees and related costs are required
to be taken into account in the
calculation of the effective interest
rate and amortised over the
expected rather than the
contractual life.
Application of the IAS
approach to recognising fee
income and origination costs is
not anticipated to have a significant
effect on earnings in AIB while
there will be some reclassification
from other income to net interest
income.
Provisions for bad and doubtful
debts
AIB’s accounting policy for
provisions for bad and doubtful
debts is set out in pages 54 and 55.
Under IAS 39, the concept of
general and specific provisions no
longer arises. Under the standard,
provision can only be made for
losses that have already been
incurred at balance sheet date.
Impairment is based on objective
evidence and the impairment
amount is the difference between
the ‘present value of future cash
flows’ and the book value of the
asset. IAS permits the calculation
to be completed for portfolios of
loans when the loans are not
individually significant.
The profit and loss account
charge for credit provisioning
under IAS is expected to be
more volatile as provisions will
reflect the economic climate at
the reporting date.
29
Goodwill
AIB’s accounting policy in
respect of goodwill is set out in
the accounting policies on page
57. AIB currently amortises
goodwill arising on acquisitions
after 31 December 1997 over a
maximum life of 20 years.
The IASB standard on business
combinations is expected to
require that goodwill should not
be amortised but should be tested
annually for impairment.
The above discussion relates only
to the major differences in
accounting policies between those
currently applied by the Group
and those required under IAS.
Accordingly, it should not be
considered to be a comprehensive
discussion of all differences that
may arise when AIB first
implements IASs/IFRSs.
Performance review
from new business in the year in
which the business is written,
particularly as the discounted
value of future profits will no
longer be recognised but replaced
by the deferred acquisition costs.
There will be an offset in terms
of earnings from the in-force
book on which the discounted
value of future profits will not
have been recognised in prior
periods.
Share based payments
The grant of options under the
Group’s share option schemes
does not give rise to a profit and
loss account charge under Irish
GAAP.
The IASB standard on Share
based payments will require an
expense to be recognised in respect
of share based payment
transactions.The issuance of
options or shares to employees
with, say, a three-year vesting
period is considered to relate to
services over the vesting period.
Therefore, the fair value of the
share-based payment, determined
at the grant date, will be expensed
over the vesting period.
The standard applies to all
equity-settled share based payments
granted after 7 November 2002
that are not yet vested at the
effective date of IAS.
Long-term assurance business
AIB’s accounting policy for its
long term assurance business is set
out on page 58. AIB accounts for
the embedded values of its life
businesses on the balance sheet,
thus recognising the discounted
value of future profits.
The IAS standards for life
assurance have not been finalised.
An interim standard is due to be
released in late March 2004 with
a more comprehensive standard
on life assurance to be published
at a later date. It is currently
anticipated that any contracts that
are largely investment in nature
(i.e., do not contain significant
insurance risk) will be accounted
for as financial instruments under
IAS 39.The split between
insurance and investment products
will depend on the final form of
the IAS insurance standards.
It is expected that the
discounted value of future profits
will no longer be recognised under
IAS in respect of the investment
contracts. However, certain
acquisition costs will be deferrable
under IAS.The deferred acquisition
costs under IAS are likely to be
significantly lower in value than
the current discounted value of
future profits.
Application of IAS insurance
standards to AIB’s accounts is
therefore likely to generate an
overall reduction in equity on
initial adoption, as the discounted
value of future profits on
investment products recognised
on writing of new business will
be reversed out, to be recognised
in future periods. IAS 39
accounting for investment
products is likely to reduce profits
30
Divisional commentary
On a divisional basis profit is measured in euro and consequently includes the impact of currency movements.The
underlying percentage change is reported in the divisional profit and loss accounts adjusting for the impact of
exchange rate movements on the translation of foreign locations’ profit.The profit segments by division have been
restated to reflect the following: (a) the movement of Allied Irish America from USA division to Capital Markets
division, (b) the centralisation of the management of our Treasury operations in Poland to Capital Markets
division, (c) the implementation of UITF 37 ‘Purchases and sales of own shares’, Capital Markets other income
reduced by € 3 million in 2002, and (d) a change in the allocation of pension costs across business segments.
AIB Bank Republic of Ireland profit and loss account
Year
2003
as reported
€ m
Early
retirement
costs
€ m
Year 2003
before early
retirement
costs
€ m
Year
2002 Underlying
€ m % change(1)
Net interest income
Other income
Total operating income
Operating expenses
Early retirement costs
Total operating expenses
Operating profit before provisions
Provisions
Operating profit
Profit on disposal of property
Profit on ordinary activities before taxation
1,016
389
1,405
719
40
759
646
62
584
13
597
–
–
–
–
(40)
(40)
40
–
40
–
40
1,016
389
1,405
719
–
719
686
62
624
13
637
921
353
1,274
667
–
667
607
55
552
8
560
11
7
10
6
–
6
13
13
13
71
14
(1) Excludes currency movements and the impact of the transfer of the Ark Life sales force to AIB’s payroll.
AIB Bank Republic of
Ireland profit was up 14%
excluding early retirement
costs.
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 enjoyed another
good year of growth with profit
increasing by 15%. Particularly
strong lending growth and good
deposit growth coupled with higher
productivity and good underlying
cost containment were the key
drivers of this strong performance.
Loans increased by 28% since
December 2002, including home
mortgages up 34% and other loans
up 25%. Customer deposits increased
by 9% with particularly strong
growth in the second half-year,
up 6% since June 2003. Operating
expenses were up 6% excluding
the transfer of the Ark Life sales
force to AIB’s payroll.This increase
reflects costs associated with higher
business activity levels and normal
salary increases.The cost income
ratio decreased from 52% to 51%.
Each of the business units in
Ireland produced positive results
in their respective markets. AIB
Card Services profit growth was
particularly good reflecting higher
loan volumes and good cost
management resulting in a
reduction in the cost income ratio
to below 50%. Profit also increased
in AIB Finance and Leasing as
a result of strong growth in loan
volumes and higher fees and
commissions.
Ark Life profit was up 6%
to € 60 million.This performance
reflects strong growth in income
from protection products and a
much improved performance in
the second half-year with overall
sales volumes ahead by 40%
compared with the second half of
2002. Profit in 2002 benefited
from the closing of the Government
sponsored Special Savings Incentive
Accounts (‘SSIAs’) campaign and
a reduced discount rate used in
the calculation of embedded values,
but these benefits were largely
offset by a reduction in embedded
values as a result of the decline
in world equity markets.
31
Divisional commentary
AIB Bank GB & NI profit and loss account
Net interest income
Other income
Total operating income
Operating expenses
Early retirement costs
Total operating expenses
Operating profit before provisions
Provisions
Operating profit
Profit on disposal of property
Profit on ordinary activities before taxation
Year
2003
as reported
€ m
Early
retirement
costs
€ m
Year 2003
before early
retirement
costs
€ m
Year
2002
Underlying
€ m % change
364
165
529
260
15
275
254
19
235
2
237
–
–
–
–
(15)
(15)
15
–
15
–
15
364
165
529
260
–
260
269
19
250
2
252
363
166
529
266
–
266
263
22
241
–
241
10
9
10
8
–
8
12
-3
14
–
15
Ireland, reported a 10% profit
increase to € 127 million. Loans
and deposits were up 21% and
13% respectively with strong
growth in home mortgages
reflecting continuing increases in
market share. Other income was
up reflecting good growth in
foreign exchange commissions.
Focus on key markets was
intensified, an example being our
opening of a dedicated private
banking branch, the first of its
kind in Northern Ireland.
AIB Bank GB & NI profit
was up 15% excluding
early retirement costs.
AIB Bank GB & NI Retail and
commercial banking operations in
Great Britain and Northern Ireland.
AIB Bank GB & NI had a very
strong business performance in
2003 with profit increasing by
15% excluding early retirement
costs. Loans and deposits increased
by 25% and 15% respectively.
Other income was up 9% as
a consequence of a substantially
higher level of arrangement fees
due to strong lending growth.
Productivity continued to improve
with the cost income ratio
reducing from 50% to 49%
notwithstanding investment in
business expansion initiatives.
Credit quality remained strong
with a reduction in the bad debt
charge and non-performing loans
reducing to 0.8% of total loans,
evidence of a prudent and
selective approach to new business
development.
AIB Bank GB, primarily a
focused business bank providing
relationship banking with a strong
customer service ethos, had very
strong profit growth of 21% to
€ 125 million. Loans increased
by 28% with significant growth
in chosen markets including
professional, higher education and
not-for-profit sectors. Deposits
were up 18%, in the professional
sector the increase was over 40%
reflecting the acquisition of new
business, particularly in the legal
and accounting segments. Future
business development capacity
continues to be enhanced with
seven business development offices
opened in 2003.Within our chosen
niches, we are increasingly viewed
by customers as offering a superior
alternative to our competitors,
based on our ability to deliver
better value and service.
First Trust Bank, a full retail
banking operation in Northern
32
Capital Markets profit and loss account
Net interest income
Other income
Total operating income
Operating expenses
Early retirement costs
Total operating expenses
Operating profit before provisions
Provisions
Operating profit
Share of operating profits of associated undertakings
(Loss)/profit on disposal of businesses
Profit on ordinary activities before taxation
Loss on
disposal of
Govett/early
retirement
costs
€ m
Year 2003
before loss on
disposal of
Govett/early
retirement
costs
€ m
Year
2003
as reported
€ m
Year
2002
Underlying
€ m % change
312
362
674
387
3
390
284
46
238
10
(146)
102
–
–
–
–
(3)
(3)
3
–
3
–
153
156
312
362
674
387
–
387
287
46
241
10
7
258
313
381
694
402
–
402
292
63
229
10
–
239
4
1
2
2
–
2
2
-23
9
–
–
12
Capital Markets profit was
up 12% excluding the sale
of Govett and early
retirement costs.
Capital Markets Global Treasury,
Corporate Banking, Investment
Banking, Asset Management and
Allied Irish America (‘AIA’).
Underlying profit before taxation
increased by 12% reflecting a
strong performance in
challenging market conditions.
Corporate Banking performed
strongly with profits up 15% on
the previous year.There was a
particularly good operating profit
performance from its international
businesses where loan growth was
strong, notably in acquisition and
structured finance and in Great
Britain and New York. Good
growth in fee income was
achieved, particularly in
arrangement and underwriting
fees. A third Collateralised Debt
Obligation (‘CDO’), ‘Galway
Bay’, was successfully launched
during the year. AIB is now a
leading CDO fund manager in
Europe with loans under
management of € 1.2 billion.
Notwithstanding very modest
market risk positions, Global
Treasury had a good performance
and increased its profit
contribution. Interest rate trading
and bond management activities
achieved substantially increased
contributions.
Profit in Investment Banking
was lower where revenues were
impacted by subdued merger and
acquisition activity and reduced
cross-border structuring
transactions.
In Asset Management, a
significant event was the sale of
the Govett business, being the
majority of the management
contracts of Govett, to Gartmore
Investment Management p.l.c. in
November 2003.The net loss on
disposal was primarily related
to the write-off of goodwill on
disposal.
Allied Irish America profit was
higher, reflecting a good trading
performance despite lower revenue
from charitable fund raising
activities.The support
infrastructure was rationalised
which will lead to future cost
savings.The New York retail
business was sold for a net profit
of € 7 million after termination
costs.
Provisions decreased due to
a lower bad debt charge and
a reduced level of equity
write-downs compared to 2002.
33
Divisional commentary
Poland profit and loss account
Net interest income
Other income
Total operating income
Operating expenses
Restructuring and integration costs
Total operating expenses
Operating profit before provisions
Provisions
Operating profit
Share of operating loss of associated undertakings
Loss on disposal of property
Profit on disposal of business
Profit on ordinary activities before taxation
Year
2003
as reported
€ m
Restructuring
costs
€ m
Year 2003
before
restructuring
costs
€ m
Year
2002
Underlying
€ m % change(1)
175
173
348
298
10
308
40
31
9
(3)
–
4
10
–
–
–
–
(10)
(10)
10
–
10
–
–
–
10
175
173
348
298
–
298
50
31
19
(3)
–
4
20
263
166
429
341
–
341
88
46
42
(1)
(2)
–
39
-24
20
-7
-1
–
-1
-22
-23
-22
–
–
–
-17
(1) Percentage growth excludes restructuring costs and currency movements. As goodwill is a euro denominated asset, goodwill amortisation is
excluded when calculating trends on a constant currency basis.
Poland profit was € 20
million before restructuring
costs, down 17%.
Poland Bank Zachodni WBK
(‘BZWBK’), in which AIB has a
70.5% shareholding, together with its
subsidiaries and associates.
BZWBK Wholesale Treasury and
share of Investment Banking
subsidiaries results are reported in
Capital Markets division.
In local currency terms profit was
down 17% excluding restructuring
costs. Net interest income was
down 24% mainly due to the
impact of lower interest rates on
deposit margins. Customer demand
for lending products increased in
the second half-year with
performing loans up 10% since
31 December 2002.Volume
increases in home mortgage and
commercial leasing portfolios
were particularly good.
Other income growth was
particularly strong at 20%
reflecting good growth in credit,
current account and card fees.
Operating expenses decreased
by 1% reflecting the impact of
cost base restructuring. Staff
numbers were reduced by
approximately 1,700 during
2003 and full year benefits can be
expected in 2004. Other costs,
excluding depreciation and
restructuring costs, reduced by
12% reflecting tight operational
cost management.The overall
reduction in costs was achieved
notwithstanding the
commencement of full year
depreciation of the new
technology platform which
amounted to € 19 million in
2003.
Since the merger of WBK
and Bank Zachodni in 2001,
restructuring of the cost base has
reduced staff numbers by over
3,000 to approximately 7,800 in
December 2003.
The provision charge was
down 23% and as a percentage
of average loans declined from
1.2% to 1.0%. Non-performing
loans as a percentage of total
loans declined to 11% from 15%
at 31 December 2002.
The building of our Polish
franchise is fundamentally
complete, and we are well
positioned to take advantage of
the emerging growth trends that
are now evident in the Polish
economy.
The profit on disposal of
business relates to the sale of
Polsoft, a software development
subsidiary.
34
Group profit and loss account
Net interest income
Other finance income
Other income
Total operating income
Operating expenses
Early retirement costs
Total operating expenses
Operating loss before provisions
Provisions
Operating loss
Share of operating profits of associated undertaking - M&T
Share of restructuring and integration costs in
associated undertaking - M&T
Amortisation of goodwill on acquisition of
associated undertaking - M&T
Profit on disposal of property
Profit on disposal of business
Profit/(loss) on ordinary activities before taxation
Year
2003
as reported
€ m
Early
retirement
costs
€ m
Year 2003
before early
retirement
costs
€ m
(20)
12
38
30
99
4
103
(73)
8
(81)
136
(20)
(42)
17
1
11
–
–
–
–
–
(4)
(4)
4
–
4
–
–
–
–
–
4
(20)
12
38
30
99
–
99
(69)
8
(77)
136
(20)
(42)
17
1
15
Year
2002
€ m
(25)
64
–
39
71
–
71
(32)
(30)
(2)
–
–
–
–
–
(2)
amounted to € 136 million,
before restructuring costs and
goodwill amortisation, for the
9 months from 1 April to 31
December 2003. Allfirst and
M&T have been successfully
integrated with significant cost
savings anticipated going forward.
This merged franchise is
performing well, with AIB having
an influential role at Board and
management levels.
Group
Group includes interest income
earned on capital not allocated to
divisions, the funding cost of certain
acquisitions, hedging in relation to the
translation of foreign locations’ profit,
unallocated costs of enterprise
technology and central services, the
impact of FRS 17 and the
contribution from AIB’s share of
approximately 22.5% in M&T
Bank Corporation (‘M&T’).
Excluding early retirement costs,
Group reported a profit of € 15
million for the year to December
2003, compared with a loss of
€ 2 million for the year to
December 2002.
lower other finance income from
our pension fund assets due to
declines in stock market valuations
in 2002. Other income included
€ 28 million hedging profits in
relation to foreign currency
translation exposure.
Operating expenses were
higher reflecting additional
investments in information systems
and risk and governance
infrastructure and there were
additional costs relating to the
USA. The 2002 result included
the release of € 40 million of the
€ 50 million additional unallocated
credit provision created in 2001.
In the current period, there was
a profit of € 17 million from the
sale of AIB’s IFSC property.
Under FRS 17, there was
AIB’s share of M&T profit
35
Divisional commentary
Allfirst profit and loss account
Net interest income
Other income
Total operating income
Operating expenses
Restructuring and integration costs
Total operating expenses
Operating profit before provisions
Provisions
Operating profit
Loss on disposal of property
Profit on ordinary activities before taxation
3 months to
31 March 2003
€ m
87
103
190
125
–
125
65
11
54
–
54
Year
2002
€ m
516
446
962
558
13
571
391
95
296
(1)
295
Discontinued activities profit was
€ 68 million.This includes the
Allfirst profit of € 54 million,
hedging profits of € 4 million
and some capital and pension
adjustments attributed to
discontinued activities that are
reported in Group.
Allfirst profit was € 54
million for the period
from 1 January to 31
March 2003.
Allfirst – The profit and loss
account includes Allfirst for the
full year in 2002 and only the
period from 1 January to 31 March
in 2003. Net interest income for
the quarter to 31 March 2003
reduced due to lower yields on
investment securities following
a restructuring of the portfolio
in the fourth quarter of 2002,
partly offset by securities gains
of US$ 26 million reflected in
other income.
36
Financial review
CAPITAL MANAGEMENT
It is the Group’s policy to maintain
a strong capital base and to utilise
it efficiently in it’s development as
a diversified international banking
group. 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 table opposite shows AIB
Group’s capital resources at 31
December 2003 and 2002.
Capital resources increased by
€ 565 million during the year
ended 31 December 2003.
The increase arose primarily
within shareholders’ funds equity
which benefited from the Allfirst
disposal and net retentions.This
was partly offset by the share
buyback programme, pension
scheme actuarial losses and
exchange rate movements.The
disposal of Allfirst had a positive
effect on shareholders’ funds equity
of € 1.5 billion reflecting the
goodwill written back of € 1.0
billion and the realised gain
recognised of € 0.5 billion.
The share buyback programme
undertaken during the year,
reduced shareholders funds by
€ 0.8 billion and this was partly
offset by the issue of shares for
staff incentive and dividend
reinvestment schemes of € 170
million.The actuarial losses in the
Group’s retirement benefit plans,
which are recognised directly in
stockholders’ equity under FRS
17 - Retirement benefits,
amounted to € 50 million.The
value of the US dollar, sterling,
Shareholders’ funds equity
Shareholders’ funds non-equity
Equity and non-equity minority interests
Reserve capital instruments
Undated capital notes
Dated capital notes
Total capital resources
and Polish zloty weakened against
the euro by 17%, 8% and 14%
respectively, resulting in a negative
foreign currency translation
adjustment of € 607 million.
Shareholders’ funds benefited from
net retentions of € 225 million.
There was a net decrease in
capital notes reflecting the disposal
of Allfirst and a negative foreign
currency translation adjustment
offset by the issue of € 100 million
and Stg £350 million in
subordinated debt.
Capital ratios
In carrying out the Group’s
overall capital resources policy, a
guiding factor is the supervisory
requirements of the Irish
Financial Services Regulatory
Authority (‘IFSRA’), which applies
a capital/risk assets ratio
framework in measuring capital
adequacy.This framework analyses
a bank’s capital into three tiers.
Tier 1 capital, comprises mainly
shareholders’ funds, minority equity
interests in subsidiaries and Reserve
capital instruments. It is the
highest tier and can be used to
meet trading and banking activity
requirements.Tier 2 includes
perpetual, medium-term and
long-term subordinated debt,
general provisions for bad and
2003
€ m
4,942
196
158
497
357
1,276
7,426
2002
Restated
€ m
4,180
235
274
496
389
1,287
6,861
doubtful debts and fixed asset
revaluation reserves.Tier 2 capital
can be used to support both trading
and banking activities.Tier 3
capital comprises short-term
subordinated debt with a
minimum original maturity of
two years.The use of tier 3 capital
is restricted to trading activities
only and it is not eligible to
support counterparty or settlement
risk.The aggregate of tiers 2 and
3 capital included in the risk asset
ratio calculation may not exceed
tier 1 capital. AIB does not
currently use tier 3 capital in its
capital calculation.The capital
adequacy framework 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 IFSRA sets individual
capital ratios for credit institutions
under its jurisdiction.
The EU Capital Adequacy
Directive (CAD) distinguishes the
risks associated with a bank’s
37
Financial review
2003
€ m
290
4,280
158
196
497
(970)
4,451
490
316
278
1,355
2,439
6,890
(389)
6,501
48,831
8,602
57,433
4,566
616
5,182
62,615
7.1%
10.4%
Capital base
Tier 1
Paid up ordinary share capital
Eligible reserves
Equity minority interests in subsidiaries
Non-cumulative preference shares
Reserve capital instruments
Less: supervisory deductions
Total tier 1 capital
Tier 2
Fixed asset revaluation reserves
General provisions
Subordinated perpetual loan capital
Subordinated term loan 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
by € 48 million, primarily
reflecting the increase in long-term
assurance business attributable to
shareholders.
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.
The table opposite shows the
components and calculation of
the Group’s tier 1 and total capital
ratios at December 31, 2003 and
2002.
The Group was strongly
capitalised at 31 December 2003
with the tier 1 ratio improving
to 7.1% and the total capital ratio
at 10.4%. Risk weighted assets
reduced by € 6.6 billion to
€ 62.6 billion, primarily as a
result of the deconsolidation of
Allfirst.
Tier 1 capital decreased by
€ 355 million to € 4.5 billion.
Negative currency translation
movements was the primary
reason for the decrease.The
positive impact of net retentions
and the writeback of goodwill on
disposals was neutralised to a large
extent by the share buyback
programme and increased
supervisory deductions.
Tier 2 capital decreased by
€ 83 million since December 2002
reflecting the impact of the disposal
of Allfirst on subordinated debt and
general provision for bad and
doubtful debts and currency
factors, partly offset by the issue
of € 100 million and Stg £ 350
million in subordinated debt.
Supervisory deductions increased
2002
€ m
287
4,064
181
235
496
(457)
4,806
457
427
294
1,344
2,522
7,328
(341)
6,987
53,961
11,521
65,482
3,099
658
3,757
69,239
6.9%
10.1%
38
RISK MANAGEMENT
Risk-taking is inherent in
providing financial services and
AIB assumes a variety of risks in
its ordinary business activities.
These include, credit risk, market
risk, liquidity risk and operational
risk.The role of Risk Management
is to ensure that AIB continues
to take risk in a controlled way
in order to enhance shareholder
value. AIB’s risk management
policies are designed to identify
and analyse these risks, to set
appropriate risk limits and to
monitor these risks and limits
continually. AIB continually
modifies and enhances its risk
management practices to reflect
changes in markets, products and
evolving best practice.
Primary responsibility for risk
management lies with line
management.Within AIB, line
management is supported by
a risk management function that
sets standards, policies, limits and
measurement methods and
provides independent oversight
with a direct reporting line to the
Group Chief Executive (‘CEO’)
and the Audit Committee of the
Board. 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
(‘GEC’), comprising the Group
CEO, Group Director, Finance &
Enterprise Technology, Group
Chief Risk Officer (‘CRO’),
Group Director of HR and the
four Divisional Managing
Directors, manages the strategic
business risks of the Group. It sets
the business strategy within which
the risk management function
operates and oversees its activities.
The Group Risk Management
Committee (‘RMC’) is chaired by
the Group CRO and has
Governance responsibility for
identifying, analysing and
monitoring exposure, adopting
best practice standards and
directing risk management
activities across the Group. It is
supported by the Group Credit
Committee (‘GCC’), the Group
Operational Risk Management
Committee (‘ORMCO’) and the
Group Market Risk Committee
(‘MRC’).The Group Asset and
Liability Management Committee
(‘Group ALCO’) is chaired by the
Group Director, Finance and
Enterprise Technology and has
responsibility for the Group’s
capital, funding and liquidity
management activities.
The Group CRO heads AIB’s
risk management function.This
function is responsible for:
– Policies, instructions and
guidelines
– Identification of risk
– Risk analysis
– Risk measurement
– Monitoring and control, and
– Reporting
Each of the four operating
divisions have dedicated risk
management functions, with
Divisional CRO’s reporting
directly to the Group CRO. In
addition, the Group Chief Credit
Officer (‘CCO’) and the Group
Head of Operational Risk
Management have functional
responsibility for these risks at the
centre and these also report
directly to the Group CRO. Each
Division has dedicated credit risk
management and operational risk
management functions headed by
the Divisional CCO and Head of
Operational Risk, respectively.
The Divisional CCO chairs the
credit committee in each Division.
Each Division has an ORMCO
that reports into the Group
ORMCO.The CRO for Capital
Markets Division has functional
responsibility for market risk.
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, effectiveness and
sustainability of the governance,
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 governance, risk
management and control
framework through the sharing of
best practices.
39
Financial review
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.
Credit risk
Credit risk is the risk that a
customer or counterparty will be
unwilling or unable to meet a
commitment that it has entered
into and that the pledged
collateral does not cover AIB’s
claims.The credit risks in AIB
arise primarily from lending
activities but also from guarantees,
derivatives and securities.
Furthermore, credit risk includes
country risk and settlement risk.
The credit risk in derivatives
contracts is the risk that AIB’s
counterparty in the contract
defaults prior to maturity at a
time when AIB has a claim on
the counterparty under the
contract. AIB would then have to
replace the contract at the current
market rate, which may result in a
loss.
Country risk is the risk that
circumstances can arise in which
customers and other counterparties
within a given country may be
unable, unwilling or precluded
from fulfilling their obligations
to AIB due to deterioration in
economic or political
circumstances.
Settlement risk is the risk of
loss arising in situations where
AIB has given irrevocable
instructions for a transfer of a
principal amount or security in
exchange for receiving a payment
or security from a counterparty,
which defaults before the
transaction is completed.
Credit management and
control
Credit risk is managed and
controlled throughout AIB 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 Board determines the
credit authority for the GCC and
approves the Group’s key credit
policies. It also approves divisional
credit authorities and reviews
credit performance on a regular
basis.The GCC considers and
approves, within the parameters
of the Group Large Exposure
Policy, credit exposures which are
in excess of divisional credit
authorities. It comprises senior
divisional and Group-based
management.This committee
reviews and recommends key
credit policies to the Board and
reviews trends in credit quality
and determines overall provision
adequacy.
The Group CCO sets
Groupwide standards for best
practice including credit grading
and scoring methodologies and
exposure measurement. Divisional
management approve divisional
credit policy/best practice with
the involvement of the risk
management function.
Customer and facility grading
is a core component of the credit
risk management process as it
captures a variety of quantitative
and qualitative factors indicating
a customer’s capability to meet its
obligations to AIB. Divisional
authority and large exposure policy
limits are tiered by reference to
customer and facility grade.
40
Credit risk on derivatives
Derivatives are used by AIB to
meet customer needs as well as
for proprietary trading purposes
and to reduce interest rate and
currency risk in regular banking
activities. Derivatives affect both
credit and market risk exposures.
The credit exposure is treated
in the same way as other types of
credit exposure and is included
in customer limits.
The total credit exposure
consists partly of current exposure
and partly of potential future
exposure.The potential future
exposure is an estimation, which
reflects possible changes in market
values during the remaining
lifetime of the individual contract.
AIB uses a simulation tool to
estimate possible changes in future
market values and computes the
credit exposure to a very high
level of statistical significance.
Country risk
Country risk is managed by
setting appropriate maximum risk
limits to reflect each country’s
overall credit worthiness.
Independent credit information
from international sources,
supported by visits to the relevant
countries is used to determine
the appropriate risk limits. Risks
and limits are monitored on an
ongoing basis.
Settlement risk
The settlement risk on individual
counterparties is measured as the
full value of the transactions on
the day of settlement. It is
controlled through settlement risk
limits. Each counterparty is
assessed in the credit process and
clearing agents, correspondent
banks and custodians are selected
with a view to minimising
settlement risk.
Measurement methods
In recent years, AIB has taken
significant steps to improve its
framework for quantifying credit
risk. Driven initially by the
introduction of Risk Adjusted
Return on Capital (‘RAROC’) as
a tool to improve credit decision-
making and performance
management, work is continuing
to refine measurement methods
to enhance shareholder value and
meet the standards of the New
Basel Accord (‘Basel II’).
Rating and scoring
Internal rating and credit scoring
models lie at the heart of credit
management in AIB.They are
used to differentiate between
credits on the basis of the
likelihood of default. AIB’s core
grading system combines an
evaluation and measurement of
the business and financial risk
factors affecting a borrower with
a method for capturing the risk
characteristics of different types of
credit facilities.
Quantifying credit risk
AIB’s RAROC framework
centres around the quantification
of economic capital, i.e. AIB’s
estimate of the amount of capital
required to protect against the risks
inherent in the business.The most
important inputs when quantifying
credit risk are the probability
of default (‘PD’), the loss given
default (‘LGD’) and the exposure
at default (‘EAD’).The rating
grades produced by the rating
models are translated into a PD,
which is a key parameter when
measuring risk. LGD is measured
taking into account the security
held by AIB. EAD for many
products is equal to the
outstanding exposure, but for
some products, such as credit lines
and derivative contracts, the EAD
may be higher than the
outstanding exposure.
AIB uses RAROC to ensure
that investment and lending
activities earn an adequate return
for the risk taken.The methods
used to estimate economic capital
and allocate it to the business
continue to be upgraded in line
with emerging best practice.
Market risk
Market risk is the exposure to
loss arising from adverse
movements in interest rates,
foreign exchange rates and equity
prices. It arises in trading
activities as well as in the natural
course of transacting business, for
example in the provision of fixed
rate loans or equity linked tracker
bonds to customers.
Risk management and control
The principal aims of AIB’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 limits. Market risk
management for AIB is
41
Financial review
centralised in Capital Markets
Division. Interest rate, foreign
exchange rate and equity risks
incurred in retail and corporate
banking activities are transferred
into Global Treasury where they
are managed.The basic principle
is that these risks are eliminated
by matching the market risk
characteristics of assets, liabilities
and off-balance sheet items.
Global Treasury has the discretion
to run a small mismatch, subject
to strict limits and is also responsible
for AIB’s investment and liquidity
management activities.
Market risks are managed by
setting limits on the amount of
the Group’s capital that can be
put at risk.These limits are based
on risk measurement
methodologies described below.
The Board delegates authority
to the Group CRO to allocate
these limits on its behalf.The
limits for Global Treasury are set
in accordance with its business
strategy and are reviewed
frequently.The Managing Director
of Global Treasury allocates these
limits to the various dealing desks
who supplement these with more
detailed limits and other risk
reducing features such as stop-loss
rules.Within Global Treasury,
there is a dedicated risk
management team charged with
the responsibility to ensure that
the risk measurement
methodologies used are appropriate
for the risks being taken and that
appropriate monitoring and control
procedures are in place.The Market
Risk Committee (‘MRC’)
reviews market risk strategy. It
approves policies and promotes
best practice for measurement,
monitoring and control.
Measurement methods
There is no single risk measure
that captures all aspects of market
risk. AIB uses several risk measures
including Value at Risk (‘VaR’)
models, sensitivity measures and
stress testing.
VaR
The aim of VaR is to estimate the
probable maximum loss in fair
value that could arise in one month
from a ’worst case’ movement in
market rates.This is computed
using statistical analysis of market
rate movements setting a
confidence level at 99%.This
means that there is a one in one
hundred chance that the potential
loss could be greater than that
estimated from the data used.VaR
figures are quoted using one-day
and one-month holding periods.
AIB’s market risk exposure is
spread across a range of
instruments, currencies and
maturities.The VaR for a portfolio
of market risk positions will not
be the sum of the VaRs for each
financial instrument included in
the portfolio.The VaR for a
portfolio is lower because it is
unlikely that the ’worst case’
scenario occurs in all instruments,
currencies and maturities
simultaneously.
Sensitivity measures
The limitations of VaR techniques
are well known to banks.They
stem from the need to make
assumptions about the spread of
likely future price and rate
movements. AIB supplements its
VaR methodology with sensitivity
measures. Dealers in Global
Treasury know how much the
value of their positions could
change for a given change in rates
and/or prices.This sensitivity is
monitored at desk and
management level and reported
on by the Global Treasury risk
management unit.These measures
can also be used to decide on
hedging activities. Decisions can
be taken to close out positions
when the level of sensitivity
combined with the likelihood
of a rate or price change exposes
AIB to too high a loss in value.
Stress testing
AIB’s VaR and sensitivity measures
provide estimates of probable
maximum loss in normal market
conditions. Stress tests are used to
supplement these measures by
estimating possible losses that may
occur under extreme market
conditions.These measures feed
into the estimate of economic
capital for market risk.
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 AIB’s assets and liabilities.
This risk is managed by setting
limits on the earnings at risk and
the value at risk (VaR) from the
open interest rate risk 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
42
The following table illustrates the VaR figures for interest rate risk for the
years ended 31 December 2003 and 2002.
Interest rate risk
1 month holding period:
Average
High
Low
31 December
1 day holding period:
Average
High
Low
31 December
Trading
2002
€ m
Non-trading
2003
€ m
2002
€ m
6.8
9.3
4.7
6.4
1.5
2.1
1.0
1.4
25.9
49.6
12.8
18.9
5.8
11.1
2.9
4.2
48.7
87.4
23.0
48.5
10.9
19.5
5.1
10.8
2003
€ m
9.3
11.6
6.4
8.1
2.1
2.6
1.4
1.8
the trading book. Interest rate risk
associated with AIB’s retail,
corporate and commercial
activities is managed through the
non-trading book.The reported
interest rate VaR figures above
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.
Trading book
The interest rate trading book
includes all securities and interest
rate derivatives that are held for
trading purposes in Global
Treasury.These are revalued daily
at market prices (marked to
market) and any changes in value
are immediately recognised in
income. During 2003, trading
book interest rate risk was
predominantly concentrated in the
euro, sterling and the US dollar.
Non-trading book
AIB’s non-trading book consists
of its retail and corporate deposit
books, Global Treasury’s cash
books and the Group’s investment
portfolios. AIB’s retail businesses
have a substantial level of 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 short-term interest
rates. AIB manages this volatility
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 conditions and customer
requirements can bring about a
need to alter the portfolio. Group
ALCO sets the framework and
reviews the management of these
activities.
AIB’s net interest rate
sensitivity as at 31 December
2003 is illustrated in note 52.
Foreign exchange rate risk
AIB is exposed to foreign
exchange rate risk through it’s
international operations and
through Global Treasury activities
in foreign currencies.
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.
43
Financial review
The Group does not maintain
material non-trading open
currency positions other than the
structural risk exposure discussed
above.
At 31 December 2003 and
2002, the Group’s structural
foreign exchange position was as
follows:
US dollar
Sterling
Polish zloty
2003
€ m
1,499
1,008
129
2002
€ m
902
1,206
187
2,636
2,295
This position indicates that a 10%
movement in the value of the
euro against these currencies at
31 December 2003 would result
in an amount to be taken to
reserves of € 264 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. A discussion on the
impact of hedging profits is
included in ‘translation of foreign
locations’ profit’ on page 19 of
this report.
Foreign exchange rate risk -
trading
Global Treasury manages AIB’s
exposure to foreign exchange rate
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 earnings at
risk and the value at risk (‘VaR’)
from the open foreign exchange
rate positions of the Group. Stop
loss limits are also used to close
out loss making positions.The
following table sets out the VaR
figures for trading foreign
exchange rate risk for the years
ended 31 December 2003 and
2002.
2003
€ m
2002
€ m
Foreign exchange rate risk-trading
1 month holding period:
Average
High
Low
31 December
0.6
0.9
0.3
0.5
1 day holding period:
Average
High
Low
31 December
0.1
0.2
0.1
0.1
0.9
1.9
0.3
0.8
0.2
0.4
0.1
0.2
Equity risk
Global Treasury manages the
equity risk arising on its
convertible bond portfolio and
from stock market linked
investment products (tracker
bonds) sold to customers.
Goodbody stockbrokers manage
the equity risk in its Principal
Trading Account.The risk is that
adverse movements in share, share
index or equity option prices will
result in losses for the Group.This
risk is managed by setting limits
on the earnings at risk and the
value at risk (‘VaR’) from the
open equity positions of the
Group. Stop loss limits are also
used to close out loss making
positions.The table on the
following page sets out the VaR
figures for equity risk for the
years ended 31 December 2003
and 2002.
Off-balance sheet financial
instruments
AIB uses off-balance sheet
financial instruments, including
derivatives, to service customer
requirements, to manage the
Group’s market risk exposures
and for trading purposes.
Credit commitments
Contingent liabilities and
commitments to extend credit are
outlined in note 49.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.
44
Equity risk
1 month holding period:
Average
High
Low
31 December
1 day holding period:
Average
High
Low
31 December
Derivative instruments
Derivative instruments are
contractual agreements between
parties whose value reflects
movements in an underlying
interest rate, foreign exchange
rate, equity price or index.The
table below shows the notional
amount and gross replacement
cost for trading and non-trading
interest rate, exchange rate and
equity contracts at 31 December
2003 and 2002.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 is exposed to
interest rate risk when assets and
liabilities mature or reprice at
different times or in differing
amounts. Interest rate derivatives
are used to manage interest rate
Trading
2002
€ m
Non-trading
2003
€ m
2002
€ m
10.2
16.5
6.2
9.9
2.3
3.7
1.4
2.2
–
–
–
–
–
–
–
–
0.3
0.7
0.1
–
0.1
0.2
–
–
2003
€ m
14.5
19.3
11.6
18.1
3.2
4.3
2.6
4.1
risk in a cost-efficient manner.
Similarly, foreign exchange and
equity derivatives are used to
manage the Group’s exposure to
foreign exchange and equity risk,
as required.
The values of derivative
instruments can rise and fall as
market rates change.Where they
are used to hedge on-balance
sheet assets or liabilities, the
changes in value are generally
offset by the value changes in the
hedged items.
Derivative transactions entered
into for hedging purposes are
accounted for in accordance with
the accounting treatment for the
item or items being hedged.
Futures contracts are designated
as hedges when they reduce risk
and there is a high correlation
between the futures contract and
the item being hedged, both at
inception and throughout the
hedge period. Swaps, forward rate
agreements and option contracts
are generally used to manage the
interest rate risk of balance sheet
items and are linked to 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
Notional
amount
€ m
72,736
27,045
99,781
14,753
812
15,565
2,445
–
2,445
2003
Gross
replacement
cost
€ m
2002
Gross
replacement
cost
€ m
Notional
amount
€ m
736
294
75,558
34,971
1,030
110,529
1,223
690
1,913
464
37
501
73
–
73
18,468
2,578
21,046
2,037
–
2,037
457
89
546
27
–
27
Interest rate contracts
Trading
Non-trading
Exchange rate contracts
Trading
Non-trading
Equity contracts
Trading
Non-trading
45
Financial review
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 fixed and floating
rate interest by means of periodic
payments based upon notional
principal amounts and interest
rates defined in the contract.
The Group uses interest rate
swaps to manage the impact on
income and shareholder value of
interest rate changes on variable
and fixed rate assets. In addition,
swaps are used to hedge the
Group’s funding costs.
Currency swaps are interest
rate swaps where one or both of
the legs of the swap is payable in
a different currency.They are
used by both customers and
Global treasury to convert fixed
rate assets or liabilities to floating
rate or vice versa, or to change
the maturity or currency profile
of underlying assets and liabilities,
as required.
Forward rate agreements are
individually negotiated contracts
under which an interest rate is
agreed for a notional principal
amount covering a specified
period in the future. At the
settlement date, if interest rates for
the future period are higher than
the agreed rate, the seller pays the
buyer the difference between the
contract rate and the rate
prevailing. If interest rates are
lower, the buyer pays the seller.
These contracts are used by
customers to fix the rates for
future short-term borrowing or
deposits.
Financial futures are exchange
traded contracts to buy or sell a
standardised amount of the
underlying item at an agreed
price on a set date. Interest rate
futures contracts are available in
all of the major currencies.
Foreign currency and equity
index futures are also available.
Financial futures are used to
hedge the Group’s exposures
arising from the sale of forward
rate agreements or guaranteed
equity products.They are also
used to manage the interest rate
risks 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.
Forward foreign exchange
contracts are agreements to buy or
sell a specified quantity of foreign
currency, usually on a specified
date, at an agreed exchange rate.
These contracts are used by
customers 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.
Credit derivatives are
contracts, the value of which are
determined by the credit
worthiness of some underlying
borrower or borrowers.They are
used in the industry to increase
(take a position in) or decrease
(hedge) an exposure to credit
risk. AIB currently makes little
use of credit derivatives.
Operational risk
Within AIB, operational risk is
defined as the exposure to loss
from inadequate or failed internal
processes, people and systems or
from external events. It is the risk
of direct or indirect loss, or
damaged reputation, due to
deficiencies or errors in the
Group’s internal operations which
may be attributable to employees,
the organisation, control routines,
processes or technology, or due
to external events and relations.
Operational risks are inherent in
all activities within the
organisation, in outsourced
activities and in all interaction
46
with external parties.
Solid internal control and
quality management, consisting of
a risk management framework,
leadership and skilled personnel,
is the key to successful
operational risk management.
Each business area is primarily
responsible for managing its own
operational risks. Risk
management develops and
maintains the framework for
identifying, monitoring and
controlling operational risks and
supports the business in
implementing the framework and
raising awareness of operational
risks.
An element of AIB’s
operational risk management
framework is ongoing monitoring
through self-assessment of control
deficiencies and weaknesses, the
tracking of incidents and loss
events and the use of a structured
lessons learned process to ensure
that, once identified, control
deficiencies are communicated
and remedied across the Group.
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.
47
Report of the Directors
for the year ended 31 December 2003
The Directors of Allied Irish Banks, p.l.c. present their report and the audited accounts for
the year ended 31 December 2003. A Statement of the Directors’ responsibilities in
relation to the Accounts appears on page 140.
Results
The Group profit attributable to
the ordinary shareholders
amounted to € 677m and was
arrived at as shown in the
Consolidated Profit and Loss
Account on pages 59 and 60.
Dividend
An interim dividend of EUR
19.0c per ordinary share,
amounting to € 161m, was paid
on 26 September 2003. It is
recommended that a final
dividend of EUR 35.0c per
ordinary share, amounting to
€ 296m (see Note 19), be paid on
30 April 2004, making a total
distribution of EUR 54.0c per
ordinary share for the year. The
balance of profit to be transferred
to the Profit and Loss Account
amounts to € 174m.
Capital
Information concerning shares
issued under the Dividend
Reinvestment Plan, the
Employees’ Profit Sharing
Schemes, the Allfirst Stock
Option Plan and the Share
Option Scheme is shown in
Notes 43 and 47.
At the 2003 Annual General
Meeting, shareholders granted
authority for the Company, or
any subsidiary, to make market
purchases of up to 89 million
ordinary shares of the Company,
subject to the terms and
conditions set out in the relevant
resolution. As at 31 December,
2003, some 55,534,156 shares so
purchased were held as Treasury
Shares; information in this regard
is given in Note 47.
Accounting policies
The principal accounting policies
adopted by the Group, together
with information on changes
therein, are set out on pages 54 to
58.
Review of activities
The Statement by the Chairman
on pages 8 and 9 and the Review
by the Group Chief Executive on
pages 12 to 14 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 Robert G Wilmers,
Chairman, President and Chief
Executive Officer of M&T Bank
Corporation (‘M&T’), was
appointed a Non-Executive
Director on 1 April 2003, as the
designee of M&T, pursuant to the
Agreement and Plan of
Reorganisation between the
Company, Allfirst Financial Inc.
and M&T, under which Allfirst
was merged with M&T, in which
the Company acquired a strategic
stake.
Mr Lochlann Quinn retired as
Chairman and a Non-Executive
Director on 14 October 2003.
Mr Michael Buckley, Mr
Dermot Gleeson, Sir Derek
Higgs, Mr Gary Kennedy and
Mr John B McGuckian retire by
rotation at the 2004 Annual
General Meeting and, being
eligible, offer themselves for
re-appointment.
Mr Padraic M Fallon retires at
the Meeting in compliance with
the Combined Code on
Corporate Governance (having
served in excess of nine years)
and, being eligible, offers himself
for re-appointment.
The names of the Directors
appear on pages 10 and 11,
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
54.
Substantial Interests in
the Share Capital
The following substantial interest
in the Ordinary Share Capital had
been notified to the Company at
17 February 2004:
Bank of Ireland Asset
Management Limited
3.69%
None of the clients on whose
behalf these shares are held had a
beneficial interest in 3% or more
of the Ordinary Share Capital.
An analysis of shareholdings is
shown on page 154.
48
hazard identification and risk
assessment. Regional Safety Co-
ordinators were appointed in each
region, with a view to co-
ordinating and supporting the
activities of safety officials at
branch level.
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
The Auditors, KPMG, have
signified their willingness to
continue in office in accordance
with Section 160(2) of the
Companies Act, 1963.
Dermot Gleeson
Chairman
Michael Buckley
Group Chief Executive
23 February 2004
Corporate Governance
The Directors’ Corporate
Governance statement appears on
pages 50 to 53.
Books of Account
The measures taken by the
Directors to secure compliance
with the Company’s obligation to
keep proper books of account are
the use of appropriate systems
and procedures, including those
set out in the Internal Control
section of the Corporate
Governance statement on page
53, 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
90/91 and 148/149; 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 2003, the Group’s
safety statement was revised and
re-issued to all offices in Ireland,
with specific focus on local
49
Corporate Governance
Corporate governance is
concerned with how companies
are managed and controlled.The
Board is committed to the
highest standards in that regard.
This statement explains how the
Company has applied the
Principles set out in the
Combined Code on Corporate
Governance(1) (‘the 1998 Code’),
and reports on compliance with
its Provisions.
A new Corporate Governance
Code was published in July 2003.
This replaces the 1998 Code, and
applies to AIB with effect from
1 January 2004.The Board has
considered the new Code and has
made changes to AIB's corporate
governance practices, with a view
to continuing to pursue
recognised high standards in this
area.These changes are being
implemented and will be
commented on in the 2004
Annual Report and Accounts.
The Board
The importance of having an
effective Board to lead and
control the Company and the
Group is reflected in 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
the Group Chief Executive;
– monitoring progress towards
achievement of the
Company’s objectives, and
compliance with its policies;
and
– approving annual operating
and capital budgets, major
acquisitions and disposals, and
risk management policies.
A scheduled Board meeting is
held each month, except August,
and additional meetings are held
as required. Thirteen Board
meetings were held during 2003.
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 role of the Chairman,
which is non-executive, 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 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.
At 31 December 2003, the
Board comprised 10 Non-
Executive Directors and 4
Executive Directors.The names
of the Directors, and their
biographical notes, appear on
pages 10 and 11. All Directors are
required to bring independent
judgement to bear on their duties
as Directors.The majority of the
Non-Executive Directors, i.e.,
Ms. Carol Moffett, Sir Derek
Higgs and Messrs. Burke, Fallon,
Gleeson, Godson, McGuckian,
O’Leary, and Sullivan, are
considered to be independent of
Management and free from any
business or other relationship
with the Company or the Group
that could materially interfere
with the exercise of their
independent judgement.
Mr. Dermot Gleeson, then
Deputy Chairman, was the
designated senior independent
non-executive director until his
appointment as Chairman with
effect from 14 October 2003. He
was succeeded as the senior
independent non-executive
director by Mr. John B.
McGuckian on 5 November
2003. The senior independent
non-executive director is available
to shareholders if they have
concerns which contact through
the normal channels of Chairman
or Group Chief Executive have
failed to resolve, or for which
such contact is inappropriate.
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 the Directors to take
independent professional advice,
at the Company’s expense.
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 initial
appointment, Directors must
retire at the next Annual General
Meeting (‘AGM’) and go before
the shareholders for re-
appointment. Subsequently,
(1)‘The Combined Code: Principles of Good Governance and Code of Best Practice’, adopted in 1998 by the Irish Stock Exchange and
the UK Listing Authority.
50
Directors must submit themselves
for re-appointment at intervals of
not more than three years;
however, Directors who have
served more than nine years are
subject to annual re-election by
shareholders.The Directors going
forward for re-appointment at the
2004 AGM under the three-year
rule are Sir Derek Higgs and
Messrs. Buckley, Gleeson,
Kennedy and McGuckian, while
Mr. Fallon is going forward for
re-appointment under the one-
year rule.
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 the provision of
relevant reading material, including
details of the Company’s strategic
and operational plans, and a
programme of meetings with the
Heads of Divisions and the senior
management of businesses and
support functions. 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
would be practicable at Board
meetings, matters for which the
Board retains responsibility.The
composition of such Committees
is usually 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 during
2003, 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 on issues being
addressed at Committee level.
Audit Committee
Members: Mr. Adrian Burke,
Chairman, Mr. Dermot Gleeson
(until 14 October 2003), Sir Derek
Higgs, Mr. Jim O'Leary (from 5
November 2003) and Mr. Michael J
Sullivan
The Audit Committee met on
nine occasions during 2003. The
Committee reviews the Group’s
annual and interim accounts; the
scope of the audit; 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.
The Auditors are invited to
attend meetings of the
Committee, as are the Group
Director, Finance & Enterprise
Technology, the Chief Financial
Officer, the Group Chief Risk
Officer, the General Manager,
Regulatory Compliance &
Business Ethics, and the Group
Internal Auditor.
The Terms of Reference of
the Audit Committee are
currently being updated to reflect
legal and regulatory changes, and,
when approved by the Board, will
be available on AIB’s internet
website (www.aibgroup.com).
Nomination and
Remuneration Committee
Members: Mr. Lochlann Quinn,
Chairman until 14 October 2003,
Mr. Dermot Gleeson, Chairman from
15 October 2003, Sir Derek Higgs,
Mr. John B McGuckian, and Mr. Jim
O’Leary.
The Nomination and
Remuneration Committee met
on four occasions during 2003.
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.
In January 2004, the
Committee was divided into two
committees, namely, a
Nomination and Corporate
Governance Committee, and a
Remuneration Committee.
Terms of Reference for each of
these Committees are being
51
Corporate Governance
prepared and, when approved by
the Board, will be available on
AIB’s website.The members of
the Nomination and Corporate
Governance Committee are Mr.
Dermot Gleeson (Chairman), Mr.
Michael Buckley, Mr. Don
Godson, Mr. John B. McGuckian
and Mr. Michael J Sullivan. The
members of the Remuneration
Committee are Mr. Dermot
Gleeson (Chairman), Mr. Don
Godson, Sir Derek Higgs, Mr.
John B. McGuckian, and Mr. Jim
O’Leary.
Social Affairs Committee
Members: Ms. Carol Moffett,
Chairman, Mr. Padraic M. Fallon,
and Mr. Don Godson.
The Social Affairs Committee
met twice in 2003. Its role 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 122 to 127.
Relations with
Shareholders
The Company recognises the
importance of communication
with shareholders. The Company
circulates each year, along with
the statutory Annual Report and
Accounts, a short, user-friendly
booklet explaining features of the
Company’s performance in the
previous year. This also focuses
on strategy, performance over the
previous five years, and
interaction with customers and
the wider community. It also
comments on the membership of
the Board, and other issues.
The Company uses its website
to communicate with share-
holders.The presentations to fund
managers and analysts of Annual
and Interim Financial Results (in
February and July, respectively)
are broadcast live on the internet,
and may be accessed on
www.aibgroup.com/webcast.
The Non-Executive Directors
may attend those presentations to
hear the views expressed. The
times of the broadcasts are
advertised in advance on the
website. The Investor Relations
section of the website is updated
with the Company’s Stock
Exchange releases, including the
interim trading statements issued
in June and December, and
formal presentations to analysts
and investors, 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. Shareholders have
the facility of accessing the
Annual Report and Accounts on
AIB’s website, instead of receiving
the document by post. The
content of the website is being
significantly upgraded and will
shortly contain additional
information about the Company,
its governance, its business and
other relevant matters.
All shareholders are invited to
attend the 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 separate
issue. The Chairman of the Audit
Committee is available to answer
questions about the Committee’s
activities. The proportion of
proxy votes lodged for and
against each resolution is
indicated; this demonstrates what
the voting position would be if all
votes cast, including votes cast by
shareholders not in attendance at
the Meeting, were taken into
account.
It is usual for all Directors to
attend the AGM and to be
available to meet shareholders
before and after the Meeting. A
Shareholders’ Help Desk facility is
available to shareholders
attending.
The Notice and related papers
for the 2004 AGM will be sent to
shareholders 30 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, Heads of
Divisions, the Chief Financial
Officer, and the Head of Group
Investor Relations, and are
governed by prescribed
procedures to ensure that price-
sensitive information is not
divulged.
Accounts and Directors’
Responsibilities
The Accounts and other
information presented in this
Report and Accounts are
52
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 140.
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 2004.
Internal Control
The Directors acknowledge that
they are 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 1998 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.
The Group’s system of
internal 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 Group Risk Management
function is responsible for
ensuring that risks are
identified, assessed and
managed throughout the
Group;
– 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 and Regulatory
Compliance functions.The
Committee reports to the
Board on these matters, and
on compliance with relevant
laws and regulations, and
related issues;
– appropriate policies and
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;
– regular review by the Board
of overall strategy, business
plans, variances against
operating and capital budgets
and other performance data.
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 40
to 47.Those processes are
regularly reviewed by the Board,
and accord with the above-
mentioned Guidance.
The Directors confirm that,
with the assistance 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 2003.
Compliance Statement
As noted above, there was no
designated senior independent
non-executive director for a
three-week period; otherwise, the
Company was in full compliance
with the Provisions of the 1998
Code throughout 2003.
53
Accounting policies
Accounting convention
The accounts on pages 59 to 139 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 (‘UITF’), 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 63.
Change in accounting policy
and presentation of financial
information
(a) Own Shares
The Group implemented UITF Abstract
37 ‘Purchases and sales of own shares’
in the preparation of its accounts for the
year ended 31 December 2003 and
comparative figures have been restated.
Under UITF 37, no gain or loss is
recognised in the consolidated profit and
loss account, or statement of total
recognised gains and losses, as a result
of transactions by the parent company or
its subsidiary companies in its own shares.
In addition, the cost of shares acquired
by a parent company or its subsidiary
companies is deducted in arriving at
consolidated shareholders’ funds. The
54
application of UITF 37, has reduced profit
before taxation for 2002 by € 3.3m
(2001: nil) and reduced long-term
assurance assets attributable to
policyholders and shareholders’ funds at
31 December 2002 by € 52m (2001:
€ 52m).
The Group implemented UITF
Abstract 38 ‘Accounting for Employee
Share Ownership Plan (‘ESOP’) Trusts’
in the preparation of its accounts for the
year ended 31 December 2003 and
comparative figures have been restated.
UITF 38 supersedes UITF 13 ‘Accounting
for ESOP Trusts’ and requires that until
such time as the company’s own shares
held by an ESOP trust vest
unconditionally in the employees, the
consideration paid for the shares should
be deducted in arriving at shareholders’
funds. The application of UITF 38
reduced consolidated total assets and
consolidated total shareholders’ funds at
31 December 2002 by € 176m (2001:
€ 245m).
(b) Changes in presentation of financial
information
The profit segments by division have been
restated to reflect the following: (a) the
movement of Allied Irish America from
USA division to Capital Markets division;
(b) the centralisation of the management
of our Treasury operations in Poland to
Capital Markets division; and (c) a change
in the allocation of pension costs across
business segments.
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 31.
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 net assets of the undertakings
concerned, less provisions for any
impairment in value. Goodwill arising
on the acquisitions of associates occurring
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 charged to profit and loss
account as incurred.
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 26).
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 installment
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 installment 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 installments 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 installments 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
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.
55
Accounting policies (continued)
The Group reviews its depreciation
rates regularly. Expenditure incurred
to date amounting to € 62m 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 € 26m 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 39).
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 retirement benefit
and 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.
The current service cost and past
service cost of the defined benefit schemes
is charged to operating profit and the
56
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 46) 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 in Allied Irish Banks, p.l.c. held
by the parent company or its subsidiary
companies, including those held within
the long-term assurance assets attributable
to policyholders, are deducted in arriving
at consolidated shareholders’ funds. Profits
or losses on transactions in AIB shares are
excluded from the Group profit and loss
account.
Shares held by Employee Share Trusts
are deducted in arriving at shareholders’
funds where the shares have not vested
unconditionally in the employees.
Where shares are 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. Dividend
income received by the schemes is excluded
in arriving at profit before taxation, and
dividends on equity shares is reduced
accordingly.
Shares held by the trusts and by
Group companies 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 50).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.
57
Accounting policies (continued)
the life of a futures contract are deferred
and amortised over the life of the contract.
Assets and liabilities arising from
derivative transactions are reported gross
in other assets or liabilities reduced by
the effects of qualifying netting agreements
where the Group has the right to insist
on net settlement that would survive the
insolvency of the counterparty.
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.
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
58
Consolidated profit and loss account
for the year ended 31 December 2003
Year 31 December 2003
Continuing Discontinued(1)
activities
€ m
activities
€ m
Notes
Total
€ m
2002
Restated(2)
€ m
2001
€ 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
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
Administrative expenses
Staff and other administrative expenses
4
5
6
7
8(a)
8(b)
9
8(b)
10(a)
Restructuring and integration costs in continuing businesses 10(b)
Depreciation and amortisation
Total operating expenses
Group operating profit before provisions
Before exceptional items
Exceptional foreign exchange dealing losses
Provisions for bad and doubtful debts
Provisions for contingent liabilities and commitments
Amounts written off fixed asset investments
Group operating profit - continuing activities
Before exceptional items
Exceptional foreign exchange dealing losses
Share of operating profits of associated undertakings
Share of restructuring and integration costs
in associated undertaking
11
8(b)
26
12
8(b)
Amortisation of goodwill on acquisition of associated undertaking
Profit on disposal of property
(Loss)/profit on disposal of businesses
Group profit on ordinary activities
before taxation (carried forward)
Before exceptional items
14&2
Exceptional foreign exchange dealing losses
8(b)
700
2,773
(1,633)
1,840
14
15
958
(117)
127
–
141
1,124
2,978
2,978
–
1,597
72
1,669
170
1,839
1,139
1,139
–
142
9
16
972
972
–
143
(20)
(42)
32
(142)
943
943
–
12
125
(43)
94
(2)
1
80
(8)
8
–
25
106
198
198
–
112
–
112
9
121
77
77
–
10
–
–
67
67
–
–
–
–
–
1
68
68
–
712
2,898
946
3,807
1,198
4,148
(1,676)
(2,402)
(3,088)
1,934
2,351
2,258
12
16
1,038
(125)
135
–
166
1,230
3,176
3,176
–
1,709
72
1,781
179
1,960
1,216
1,216
–
152
9
16
1,039
1,039
–
143
(20)
(42)
32
(141)
1,011
1,011
–
62
14
1,301
(138)
74
–
263
1,514
3,927
3,927
–
2,098
13
2,111
207
2,318
1,609
1,609
–
194
2
55
1,358
1,358
–
9
–
–
5
–
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
1,372
1,372
–
577
1,366
(789)
59
Consolidated profit and loss account (continued)
for the year ended 31 December 2003
Year 31 December 2003
Continuing Discontinued(1)
activities
€ m
activities
€ m
Notes
943
299
644
10
5
15
629
68
19
49
1
–
1
48
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
16
17
18
19
45
Profit retained
Earnings per € 0.32 ordinary share – basic
Earnings per € 0.32 ordinary share – adjusted
Earnings per € 0.32 ordinary share – diluted
20&46
21(a)
21(b)
21(c)
Total
€ m
1,011
318
693
11
5
16
677
452
51
503
174
2002
Restated(2)
€ m
1,372
306
1,066
24
8
32
1,034
429
45
474
560
2001
€ m
577
55
522
23
15
38
484
380
63
443
41
78.8c
119.1c
56.2c
109.5c
122.7c
108.6c
78.4c
117.9c
55.9c
(1)This relates to the income and expense of Allfirst Financial Inc. from 1 January 2003 to 31 March 2003 (note 2).
(2)The amounts for the year ended 31 December 2002 have been restated to reflect the implementation of UITF Abstract 37 - Purchases and sales of
own shares. The impact on the results for the year ended 31 December 2001 was not material (Accounting policies - page 54).
D Gleeson, 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 46.
60
Consolidated balance sheet
31 December 2003
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
Other assets
Deferred taxation
Prepayments and accrued income
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
22
23
24
27
28
29
30
32
33
34
35
35
36
37
38
39
13
40
34
41
42
43
44
45
46
35
49
49
2003
€ m
838
339
45
2,633
50,490
719
(516)
203
18,127
180
1,361
420
792
1,507
174
636
405
78,150
2,810
80,960
18,094
44,612
3,489
3,144
595
502
87
142
2,130
158
295
1,885
951
2,007
5,138
78,091
2,869
80,960
12
4,157
722
4,891
–
13,932
13,932
D Gleeson, Chairman. M Buckley, Group Chief Executive. G Kennedy, Group Director, Finance & Enterprise Technology.W M Kinsella, Secretary.
2002
Restated
€ m
1,176
1,171
24
4,788
53,447
1,002
(754)
248
18,204
246
31
457
1,178
1,153
245
927
352
83,647
2,174
85,821
16,137
52,976
3,077
2,591
829
537
60
527
2,172
274
293
1,918
490
1,714
4,415
83,595
2,226
85,821
72
5,292
1,027
6,391
2,062
17,890
19,952
61
Balance sheet Allied Irish Banks, p.l.c.
31 December 2003
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
Interests in associated undertakings
Shares in Group undertakings
Tangible fixed assets
Other assets
Deferred taxation
Prepayments and accrued income
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
2003
€ m
508
151
45
14,982
34,314
15,378
26
891
230
470
993
72
785
2002
Restated
€ m
571
144
4
13,520
28,904
13,371
16
–
1,327
526
347
40
867
68,845
59,637
28,831
29,117
3,218
1,676
737
280
58
10
2,130
295
1,885
101
507
2,788
25,163
26,080
1,935
897
758
258
22
4
1,604
293
1,918
116
589
2,916
68,845
59,637
2
3,680
565
4,247
54
3,455
558
4,067
9,893
8,624
Notes
22
23
24
28
29
31
33
34
36
37
38
39
40
34
41
43
44
45
46
49
49
D Gleeson, Chairman. M Buckley, Group Chief Executive. G Kennedy, Group Director, Finance & Enterprise Technology.W M Kinsella, Secretary.
62
Consolidated cash flow statement
for the year ended 31 December 2003
Net cash inflow/(outflow) 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
(Decrease)/increase in cash
Reconciliation of Group operating profit to net
cash inflow/(outflow) 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 fixed asset investments
Increase in other provisions
Depreciation and amortisation
Amortisation of own shares
(Loss)/profit on disposal of businesses
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 premiums net of (discounts)
on debt securities held as financial fixed assets
Increase in long-term assurance business
Notes
53(a)
53(b)
53(c)
53(d)
53(e)
53(f)
2003
€ m
1,631
33
(93)
(378)
(273)
(1,049)
(1,049)
(173)
(1,351)
2003
€ m
1,039
106
(95)
152
9
16
57
174
–
(141)
47
38
(40)
(1)
–
23
(53)
2002
Restated
€ m
2001
Restated
€ m
(121)
1
(138)
(345)
(280)
1,379
(5)
(129)
362
231
4
(131)
(334)
(242)
700
(59)
208
377
2002
Restated
€ m
2001
Restated
€ m
1,358
1,162
(1,191)
194
2
55
16
207
–
–
83
38
(117)
(4)
(1)
(15)
(48)
474
(199)
429
179
19
6
19
202
2
93
133
35
(21)
(24)
(1)
(7)
(66)
Net cash inflow from trading activities
1,331
1,739
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
(Increase)/decrease in central government bills
Net increase in debt securities and equity shares
held for trading purposes
Net (increase)/decrease in items in course of collection
Net increase/(decrease) in debt securities in issue
Net increase/(decrease) in notes in circulation
(Increase)/decrease in other assets
Increase/(decrease) in other liabilities
Effect of exchange translation and other adjustments
4,207
5,729
(10,043)
591
(41)
(1,216)
(161)
1,082
41
(920)
701
330
3,975
2,299
(6,129)
982
18
(1,180)
174
(1,425)
(3)
(28)
(521)
(22)
452
4,647
(4,281)
(1,588)
274
(1,394)
(374)
533
44
460
283
(98)
300
(1,860)
(1,042)
Net cash inflow/(outflow) from operating activities
1,631
(121)
231
63
Statement of total recognised gains and losses
Group profit attributable to the ordinary shareholders
Gain recognised on disposal of Allfirst (note 2)
Currency translation differences on foreign currency net investments
Actuarial loss recognised in retirement benefit schemes (note 13)
Actuarial gain recognised in associated undertaking
Prior year adjustment (note 13(b))
Total recognised gains/(losses) relating to the year
2003
€ m
677
489
(457)
(50)
8
–
667
Reconciliation of movements in shareholders’ funds
Group profit attributable to the ordinary shareholders
Dividends on equity shares
Gain recognised on disposal of Allfirst (note 2)
Goodwill written back on disposals
Actuarial loss recognised in retirement benefit schemes
Actuarial gain recognised in associated undertaking
Other recognised (losses)/gains relating to the year
Ordinary share buyback
Ordinary shares issued in lieu of cash dividend
Other ordinary share capital issued
Net movement in own shares (note 48)
Net addition to/(deduction from) shareholders’ funds
Opening shareholders’ funds
Prior year adjustment (note 48)
Closing shareholders’ funds
Shareholders’ funds:
Equity interests
Non-equity interests
2003
€ m
677
452
225
489
1,043
(50)
8
(491)
(812)
108
62
141
723
4,415
–
5,138
4,942
196
5,138
2002
Restated
€ m
1,034
–
(341)
(823)
–
–
(130)
2002
Restated
€ m
1,034
429
605
–
–
(823)
–
(352)
–
76
39
37
(418)
4,833
–
4,415
4,180
235
4,415
2001
€ m
484
–
145
(402)
–
648
875
2001
Restated
€ m
484
380
104
–
–
(402)
–
152
–
23
37
(64)
(150)
5,208
(225)
4,833
4,554
279
4,833
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.
64
Notes to the accounts
1 Turnover
Turnover is not shown as it resulted in the main from the business of banking.
2 Acquisition of a strategic stake in M&T Bank Corporation. Disposal of Allfirst Financial Inc.
On 26 September 2002, AIB announced its agreement with M&T Bank Corporation (‘M&T’) whereby AIB’s US subsidiary, Allfirst,
would be acquired by M&T and AIB would receive 26.7 million M&T shares, representing a stake of approximately 22.5% in the
enlarged M&T, together with US$ 886.1m in cash.The agreement allowed for the cash consideration to be reduced by the amount
of a pre-close dividend from Allfirst to AIB.The transaction closed on 1 April 2003 and prior to closing a dividend of US$ 865.0m
was declared and paid by Allfirst Financial Inc. Consequently, the cash consideration payable by M&T reduced to US$ 21.1m.
The transaction is 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 M&T pre-merger. 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 total recognised gains arising from the transaction amounted to € 449m (after tax) and are reflected in the accounts as follows:-
Gain recognised on the disposal of Allfirst
Recognised in the profit and loss account
Recognised in the statement of total recognised gains and losses
€ m
(40)
489
449
The transaction gave rise to a profit before tax of € 1m (loss of € 40m after tax). In accordance with the requirements of UITF
31, the unrealised element of the gain, of € 489m, has been recognised in the statement of total recognised gains and losses.
The financial statements for the year ended 31 December 2003 reflect the income and expenses of Allfirst for the period to
31 March 2003.These have been reported as discontinued activities in the profit and loss account. From 1 April 2003, the Group
accounted for its investment in the enlarged M&T as an associated undertaking.The Group’s 22.5% share of the income before
restructuring costs and taxes of the enlarged M&T is reflected in the Group consolidated profit and loss account within the caption
‘Share of operating profits of associated undertakings’.The Group’s share of the taxation charge for the enlarged M&T is included
in the Group’s taxation charge.The Group’s share of restructuring and integration costs within the enlarged M&T amounted to
€ 20m (€ 16m after taxation).
Accounting for the acquisition of the 22.5% interest in M&T
The Group’s share of the assets and liabilities of M&T as at 1 April 2003 have been recorded at fair value in accordance with the
accounting policies of the Group. The fair value of the consideration given represents the value of the 77.5% of Allfirst that is
deemed to be transferred to M&T.The acquisition of the 22.5% interest in M&T comprised:
Loans and advances to customers
Investment securities
Tangible fixed assets
Deferred taxation
Other assets
Core deposit and other intangibles
Non interest bearing deposits
Interest bearing liabilities
Other liabilities
Net assets
Group’s share of net assets - 22.5%
Goodwill arising on the acquisition of M&T
Fair value of consideration given
Book value
€ m
Revaluation
€ m
Adjustments
Other
€ m
Fair value
€ m
23,670
3,807
213
40
1,852
99
(3,582)
(23,694)
(390)
2,015
447
1
–
(56)
–
–
–
(305)
(488)
(401)
–
–
–
90
(128)
(99)
–
–
(73)
(210)
24,117
3,808
213
74
1,724
–
(3,582)
(23,999)
(951)
1,404
316
1,181
1,497
65
Notes to the accounts
The fair value adjustments made on the acquisition of the 22.5% interest in M&T arise as follows: -
Revaluation adjustments
Loans and advances to customers and investment securities were increased by € 447m and € 1m respectively to reflect their fair value.
Interest bearing liabilities were increased by € 305m to reflect their fair value. The reduction in the deferred tax asset relates to the
deferred tax impact of the above adjustments. Other liabilities have been increased to reflect the dilutive impact of the M&T
employee stock options outstanding on AIB’s 22.5% interest in M&T.
Other adjustments
Core deposit and other intangibles were eliminated to reflect their treatment under Irish GAAP. Other assets were reduced by € 61m
and other liabilities by € 8m to bring the accounting policies for originated mortgage servicing rights and mortgage commitments
into line with AIB’s accounting policy. Application of the Group Accounting policy on pensions and post retirement benefits gave
rise to a reduction in other assets of € 67m and an increase in other liabilities of € 78m. The residual adjustment to other liabilities
reflected the accrual of expenses incurred by M&T in the acquisition of Allfirst.The increase in the deferred tax asset reflects the
deferred tax impact of the above adjustments.
The acquisition has been accounted for in accordance with UITF 31. Acquisition accounting has been adopted in respect of the
transaction and the fair value adjustments have been presented on a provisional basis.The figures have been translated at an exchange
rate of € 1=US$ 1.0891, the exchange rate prevailing at 1 April 2003. Goodwill arising has been capitalised on the balance sheet
within the caption ‘Interests in associated undertakings’, and is being written off over 20 years.
The Group’s share of profits of the enlarged M&T is set out in Note 30. It is not practicable to determine the Group’s share of
the post acquisition results of the 22.5% of M&T pre-merger acquired as part of the transaction. The profit after tax of M&T from 1
January 2003 to 31 March 2003 was US$ 116.5m on a US GAAP basis (Year ended 31 December 2002: US$ 456.8m).
Year 31 December 2003
AIB Bank AIB Bank
Capital
ROI GB & NI Markets
€ m
€ m
€ m
Poland
Group
Allfirst
€ m
€ m
€ m
3 Segmental information
Operations by business segments(1)
Net interest income
Other income (incl. other finance income)
Total operating income
Total operating expenses(2)
Provisions
Group operating profit/(loss)
Share of operating profits/(losses) of
associated undertakings
Share of restructuring and integration costs
of associated undertaking
Amortisation of goodwill on acquisition
of associated undertaking
Profit on disposal of property
(Loss)/profit on disposals of businesses
Group profit on ordinary activities
before taxation
Balance sheet
Total loans
Total deposits
Total assets
Total risk weighted assets
Net assets(3)
66
Total
€ m
1,934
1,242
3,176
1,960
177
1,039
143
(20)
(42)
32
(141)
87
103
190
125
11
54
–
–
–
–
–
1,016
389
1,405
759
62
584
–
–
–
13
–
364
165
529
275
19
235
–
–
–
2
–
312
362
674
390
46
238
10
–
–
–
(146)
175
173
348
308
31
9
(20)
50
30
103
8
(81)
(3)
136
–
–
–
4
(20)
(42)
17
1
11
597
237
102
10
27,428
24,572
34,101
24,119
1,904
10,353
7,881
11,643
10,055
794
12,404
29,318
28,365
24,506
1,934
2,939
4,222
5,301
3,259
257
202
202
1,550
676
53
54
1,011
–
–
–
–
–
53,326
66,195
80,960
62,615
4,942
3 Segmental information (continued)
Year 31 December 2002
Restated(4)(5)
AIB Bank
ROI
€ m
AIB Bank
GB & NI
€ m
Capital
Markets
€ m
Poland
Group
Allfirst
€ m
€ m
€ m
Operations by business segments(1)
Net interest income
Other income (incl. other finance income)
Total operating income
Total operating expenses(2)
Provisions
921
353
1,274
667
55
Group operating profit/(loss)
552
Share of operating profits/(losses) of associated undertakings –
8
Profit/(loss) on disposal of property
Group profit/(loss) on ordinary activities
363
166
529
266
22
241
–
–
313
381
694
402
63
229
10
–
560
241
239
263
166
429
341
46
42
(1)
(2)
39
before taxation
Balance sheet
Total loans
Total deposits
Total assets
Total risk weighted assets
Net assets(3)
21,367
22,522
27,186
18,821
1,136
8,967
7,449
10,158
8,666
523
13,371
24,482
26,618
22,833
1,378
3,473
5,014
6,261
3,549
215
AIB Bank
AIB Bank
ROI GB & NI
€ m
€ m
Capital
Markets
€ m
Poland
Group
Allfirst
€ m
€ m
€ m
Operations by business segments(1)
Net interest income
Other income (incl. other finance income)
Total operating income before exceptional item
Total operating expenses(2)
Provisions
843
359
1,202
624
44
Group operating profit/(loss) before
exceptional item
534
Share of operating profits/(losses) of associated undertakings –
2
Profit on disposal of property
–
Profit on disposal of business
Group profit on ordinary activities
before taxation and exceptional item
Exceptional foreign exchange dealing losses
536
–
336
161
497
254
19
224
–
1
–
225
–
258
365
623
370
43
210
6
–
–
216
–
Group profit/(loss) on ordinary activities
before taxation
536
225
216
261
154
415
388
9
18
(1)
3
–
20
–
20
Balance sheet(5)
Total loans
Total deposits
Total assets
Total risk weighted assets
Net assets(3)
17,797
21,016
23,459
15,987
1,057
7,784
7,015
8,980
7,542
499
13,894
21,770
28,685
23,136
1,530
4,646
5,968
7,340
3,992
264
10
59
69
81
55
(67)
(1)
–
93
25
–
25
97
116
204
–
–
(25)
64
39
71
(30)
(2)
–
–
(2)
143
132
126
257
16
295
1,372
11,162
12,591
15,472
15,113
912
58,483
72,190
85,821
69,239
4,180
Year 31 December 2001
Restated(4)
Total
€ m
2,351
1,576
3,927
2,318
251
1,358
9
5
Total
€ m
2,258
1,493
3,751
2,284
204
1,263
4
6
93
516
446
962
571
95
296
–
(1)
550
395
945
567
34
344
–
–
–
344
(789)
1,366
(789)
(445)
577
13,227
16,928
20,393
18,201
1,204
57,445
72,813
89,061
68,858
4,554
67
Notes to the accounts
Republic of
Ireland
3 Segmental information (continued)
Operations by geographical segments (6)
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses(2)
Provisions
Group operating profit/(loss)
Share of operating profits of associated undertakings
Share of restructuring and integration costs
of associated undertakings
Share of goodwill amortisation on acquisition
of associated undertakings
Profit on disposal of property
Profit/(loss) on disposals of businesses
Group profit/(loss) on ordinary activities
€ m
1,155
20
562
1,737
1,056
68
613
7
–
–
30
1
Year 31 December 2003
United
States of
America
€ m
United
Kingdom
Poland
Rest of
the world
€ m
€ m
€ m
121
(2)
217
336
210
20
106
136
(20)
(42)
–
7
465
(6)
261
720
369
58
293
–
–
–
2
(153)
193
–
188
381
322
31
28
–
–
–
–
4
–
–
2
2
3
–
(1)
–
–
–
–
–
Total
€ m
1,934
12
1,230
3,176
1,960
177
1,039
143
(20)
(42)
32
(141)
before taxation
651
187
142
32
(1)
1,011
Balance sheet
Total loans
Total deposits
Total assets
Net assets(3)
34,940
46,876
54,667
2,979
1,094
1,083
2,101
369
14,337
14,014
18,880
1,316
Operations by geographical segments (6)
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses(2)
Provisions
Republic of
Ireland
€ m
1,050
62
538
1,650
924
71
Group operating profit
655
Share of operating profits of associated undertakings 9
8
Profit/(loss) on disposal of property
Group profit on ordinary activities
before taxation
Balance sheet
Total loans
Total deposits
Total assets
Net assets(3)
68
672
29,899
37,944
45,151
1,873
United
States of
America
€ m
United
Kingdom
€ m
563
(2)
555
1,116
676
109
331
–
(1)
330
12,594
14,453
17,629
1,179
455
2
234
691
363
25
303
–
–
303
12,516
14,779
16,769
895
2,939
4,222
5,295
278
Poland
€ m
283
–
184
467
351
47
69
–
(2)
67
3,473
5,014
6,271
233
16
–
17
–
53,326
66,195
80,960
4,942
Year 31 December 2002
Restated(5)
Rest of
the world
€ m
–
–
3
3
4
(1)
–
–
–
–
1
–
1
–
Total
€ m
2,351
62
1,514
3,927
2,318
251
1,358
9
5
1,372
58,483
72,190
85,821
4,180
United
States of
America
€ m
United
Kingdom
€ m
Republic of
Ireland
€ m
889
60
590
1,539
885
132
627
2
426
1,055
653
44
522
358
4
2
(1)
527
–
527
–
–
–
358
(789)
(431)
3 Segmental information (continued)
Operations by geographical segments (6)
Net interest income
Other finance income
Other income before exceptional item
Total operating income before
exceptional item
Total operating expenses(2)
Provisions
Group operating profit/(loss)
before exceptional item
Share of operating profits of
associated undertakings
Profit on disposal of property
(Loss)/profit on disposal of business
Group profit on ordinary activities before
taxation before exceptional item
Exceptional foreign exchange dealing losses
Group profit/(loss) on ordinary activities
before taxation
Balance sheet(5)
Total loans
Total deposits
Total assets
Net assets(3)
Poland
€ m
289
–
165
454
393
9
52
–
3
–
55
–
55
450
5
246
701
350
19
332
–
1
–
333
–
333
Year 31 December 2001
Rest of
the world
€ m
3
–
(1)
2
3
–
Total
€ m
2,258
67
1,426
3,751
2,284
204
(1)
1,263
–
–
94
93
–
93
11
–
12
–
4
6
93
1,366
(789)
577
57,445
72,813
89,061
4,554
27,224
33,062
42,095
1,909
14,665
19,078
22,444
1,503
10,899
14,705
17,168
870
4,646
5,968
7,342
272
(1)The business segment information is based on management accounts information. Income on capital is allocated to the divisions
on the basis of the capital required to support the level of risk weighted assets. Interest income earned on capital not allocated to
divisions is reported in Group.
(2)Includes restructuring and integration costs in continuing businesses (note 10(b)).
(3)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)The December 2002 and 2001 amounts have been restated to reflect the divisional restructure as discussed in the Accounting
policies on page 54.
(5)The figures for 2002 and 2001 have been restated to reflect the implementation of UITF Abstract 37 - Purchases and sales of own
shares and UITF Abstract 38 - Accounting for ESOP Trusts (note 48).
(6)The geographical distribution of profit before taxation is based primarily on the location of the office recording the transaction.
69
Notes to the accounts
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 € 500m (2002: € 505m).
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
2003
€ m
113
2,622
163
2,898
99
64
163
2003
€ m
1,490
101
47
38
1,676
2002
€ m
196
3,423
188
3,807
119
69
188
2002
€ m
2,178
103
83
38
2,402
2001
€ m
255
3,684
209
4,148
134
75
209
2001
€ m
2,744
176
133
35
3,088
6 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 13.
7 Dividend income
The dividend income relates to income from equity shares.
8 Dealing profits
(a) Dealing profits (before exceptional losses)
Foreign exchange contracts
Profits less losses from securities held for trading purposes
Interest rate contracts
Equity index contracts
2003
€ m
92
23
16
4
135
2002
Restated
€ m
78
7
(11)
–
74
2001
€ m
75
2
15
–
92
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 10(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.
70
8 Dealing profits (continued)
(b) Exceptional foreign exchange dealing losses (continued)
The Group profit attributable to the ordinary shareholders of € 1,034m, for the year ended 31 December 2002, would reduce to
€ 1,016m 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 63 -
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.
9 Other operating income
Profit 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 35)
Contribution from securitised assets (note 27)
Mortgage origination and servicing income
Miscellaneous operating income
10 Administrative expenses
(a) Staff and other administrative expenses
Staff costs:
Wages and salaries
Social security costs
Retirement benefits service costs (note 13)
Other staff costs
Other administrative expenses
(b) Restructuring and integration costs in continuing businesses
Restructuring costs
Integration costs
2003
€ m
37
–
3
60
1
2
63
166
2003
€ m
905
88
111
53
1,157
552
1,709
2003
€ m
72(1)
–
72
2002
€ m
106
1
11
57
4
7
77
263
2002
€ m
1,097
105
122
67
1,391
707
2,098
2002
€ m
2001
€ m
24
1
(3)
84
5
10
72
193
2001
€ m
1,066
104
106
72
1,348
703
2,051
2001
€ m
13(2)
–
13
–
38(3)
38
(1) During 2003, BZWBK undertook a branch network restructuring process under which it is proposed to close 38 branches across
Poland. A provision of € 10m was recorded in 2003 in respect of this process.
AIB Group introduced an Early Retirement Package in 2003. This is a voluntary programme and is available to certain staff over
the age of 50 working in Ireland and Northern Ireland with staff located in the UK who have repatriation rights to Ireland also
included. A provision of € 62m has been made in the 2003 accounts to cater for the terms and conditions of the package. € 41m
of this amount forms part of the retirement benefit past service cost in note 13.
(2) 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 13.
(3) The charge of € 38m in 2001 relates to the costs of integration of Bank Zachodni S.A. (Group interest 83.01%) with Wielkopolski
Bank Kredytowy S.A. (Group interest 60.14%) through a share for share offering.
71
Notes to the accounts
11 Depreciation and amortisation
Depreciation of tangible fixed assets:
Property depreciation
Equipment depreciation
Amortisation of goodwill on acquisition of subsidiaries (note 32)
12 Amounts written off/(written back) fixed asset investments
Debt securities
Equity shares
Interests in associated undertakings
13 Retirement benefits
2003
€ m
30
118
148
31
179
2003
€ m
13
3
–
16
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
(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.
The Group operates a number of defined benefit schemes the most significant being the AIB Group Irish Pension Scheme (the
Irish scheme) and the AIB Group UK Pension Scheme (the UK scheme).The majority of staff in the Republic of Ireland are
members of the the Irish scheme while the majority of staff in the UK are members of the the UK scheme. 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 30 June 2003 using the Projected Unit Method.The schemes are funded and contribution rates of 26.0% and
44.6% have been set for the Irish and UK schemes respectively with effect from 1 January, 2004. 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. 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
Other schemes
Rate of increase in salaries
Rate of increase of pensions in payment
Discount rate
Inflation assumptions
72
as at 31 December
2003
%
4.0
2.5
5.25
2.5
4.0
2.5
5.25
2.5
2002
%
4.0
2.5
5.60
2.5
4.0
2.5
5.75
2.5
2001
%
4.0
2.5
5.75
2.5
4.0
2.5
6.00
2.5
4.0 - 4.25
0.0 - 2.5
5.25 - 6.02
2.5 - 3.0
4.0 - 4.5
0.0 - 2.5
5.60 - 6.51
2.5 - 3.0
4.0 - 4.5
0.0 - 2.5
5.75 - 6.94
2.5 - 3.0
13 Retirement benefits (continued)
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
Property
Cash
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 2003
Long term
rate of return
expected
%
8.2
5.0
7.5
3.0
7.6
Value
€ m
1,670
265
255
82
2,272
(2,902)
(630)
128
(502)
The net pension (liability)/asset is recognised on the balance sheet as follows:-
Funded pension schemes in surplus
Funded pension schemes in deficit
Unfunded schemes
as at 31 December 2002
Long term
rate of return
expected
%
Value
€ m
as at 31 December 2001
Long term
rate of return
expected
%
Value
€ m
9.0
5.2
7.5
3.0
8.0
1,490
333
262
84
2,169
(2,879)
(710)
173
(537)
8.6
5.6
5.8
2.8
7.7
2,138
391
286
87
2,902
(2,645)
257
(2)
255
as at 31 December
2003
€ m
–
(485)
(17)
(502)
2002
€ m
–
(482)
(55)
(537)
Included in the actuarial value of the liabilities is an amount in respect of commitments to pay annual pensions amounting to
€ 111,897 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 2003,
2002 and 2001.
Other finance income
Expected return on pension scheme assets
Interest on pension scheme liabilities
Included within administrative expenses
Current service cost
Past service cost (inc. Early Retirement Programmes - Note 10(b))
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
2003
€ m
161
(149)
12
81
50
131
119
2003
€ m
93
97
(257)
(67)
17
(50)
2002
€ m
220
(158)
62
86
22
108
46
2002
€ m
(862)
(18)
(123)
(1,003)
180
(823)
2001
€ m
372
(58)
(59)
255
2001
€ m
213
(146)
67
79
5
84
17
2001
€ m
(438)
(32)
(32)
(502)
100
(402)
73
Notes to the accounts
13 Retirement benefits (continued)
Movement in (deficit)/surplus during the year
Surplus in schemes at beginning of year
Movement in year:
Current service cost
Past service cost
Contributions
Other finance income
Actuarial loss recognised under FRS 17
Disposal of subsidiary company
Translation adjustment
(Deficit)/surplus in schemes at end of year
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
2003
€ m
93
4%
97
3%
(67)
2%
2002
€ m
(862)
40%
(18)
1%
(1,003)
35%
2003
€ m
(710)
(81)
(50)
84
12
(67)
158
24
(630)
2001
€ m
(438)
15%
(32)
1%
(502)
19%
2002
€ m
257
(86)
(22)
50
62
(1,003)
–
32
(710)
2000
€ m
(158)
5%
(72)
3%
(248)
10%
2001
€ m
727
(79)
(5)
50
67
(502)
–
(1)
257
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 8%.The standard contribution rate in the UK is 5% and these members are also accruing benefits
under SERPS (the State Earnings Related Pension Scheme). The total cost in respect of defined contribution schemes for 2003 was
€ 21m (2002: € 27m; 2001: € 22m).
(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.
14 (Loss)/profit on disposal of businesses
2003
The loss on disposal of businesses from continuing activities of € 142m relates to the loss on disposal of Govett of € 153m, offset by
the profit on disposal of the AIB New York retail branch of € 7m (tax charge € 3m) and the profit on disposal of Polsoft of € 4m
(tax charge € 1m).
On 4 November 2003, AIB announced that it had reached an agreement with Gartmore Investment Management p.l.c.
(Gartmore) to sell the majority of the Govett business, being the majority of the management contracts of Govett, its UK based asset
management business.The remaining UK and Singapore operations of Govett will be wound down following completion of the sale.
Certain management contracts were excluded from the sale and will be managed by AIB’s Irish based asset management company,
AIB Investment Managers (AIB IM).The operations of AIB IM were otherwise unaffected by this transaction.
Total consideration for the business is estimated to be € 17m and is payable in cash. The consideration is made up of an initial
payment of € 6m plus a series of payments based on the level of fees earned by Gartmore on the Govett management contracts over
the following three years.The initial payment of € 6m is reflected in the financial statements for the year ended 31 December 2003.
74
14 (Loss)/profit on disposal of businesses (continued)
The transaction gave rise to a loss on disposal of € 153m in profit and loss account in the financial statements for the year ended
31 December 2003.The loss on disposal was made up of the € 6m consideration less goodwill previously written off of € 139m and
one off closure costs of € 20m.The goodwill of € 139m was previously written off to reserves on the purchase of Govett, in 1995.
The after tax loss is € 152m.The financial statements for the year ended 31 December 2003 also reflect the income and expenses for
Govett for the period as part of continuing activities, which amounted to a loss before tax of € 12m.
2001
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).
15 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):
Statutory audit
Further assurance services
Other services:
Taxation services
IT consultancy
Other consultancy
2003
€ m
609
119
41
1
1.8
0.3
0.2
–
0.3
0.5
2002
€ m
691
269
50
4
2.1
0.4
0.1
–
0.8
0.9
2001
€ m
778
431
47
4
1.8
0.9
0.6
0.4
1.2
2.2
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 2003 and 2002 relates to KPMG since date of appointment. In the year ended 31 December 2003,
61% (2002: 70%) of the total audit services fees and 65% (2002: 84%) of the non-audit services fees were paid to overseas offices of
the Auditors.
The Auditors’ remuneration for 2001 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 Group has adopted a policy on the provision of non-audit services to the bank and its subsidiary companies.This policy
includes the prohibition on the provision of certain services and the pre-approval by the Audit Committee of the engagement of the
Auditor for non-audit work.
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.
75
Notes to the accounts
16 Taxation
Allied Irish Banks, p.l.c. and subsidiaries
Corporation tax in Republic of Ireland
Current tax on income for the period(1)
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
Effective tax rate - adjusted(2)
2003
€ m
2002
€ m
2001
€ m
173
4
177
(49)
128
210
–
210
338
(54)
(5)
(59)
39
318
31.4%
24.0%
81
(7)
74
(4)
70
212
(4)
208
278
21
6
27
1
306
22.3%
22.3%
88
(6)
82
(17)
65
64
(8)
56
121
(66)
–
(66)
–
55
9.5%
24.2%
(1)The December 2003 figure includes a charge of € 29.5m in relation to the Irish Government bank levy.
(2)The adjusted effective tax rate has been presented to eliminate the disposal of Govett and the withholding tax on the Allfirst
dividend in 2003 and the effect of the exceptional foreign exchange dealing losses in 2001 (note 8(b)).
Factors affecting current tax charge for period
The current tax charge for 2003 is higher (2002 and 2001: 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
Goodwill amortisation
Exempted income, income at reduced rates and tax credits
Net effect of differing tax rates overseas
Capital allowances in excess of depreciation
Other deferred tax timing differences
Tax on associated undertakings
Bank levy in Republic of Ireland
Goodwill on disposals of businesses
Withholding tax on Allfirst dividend
Exceptional item
Adjustments to tax charge in respect of previous periods
2003
%
19.1
1.3
2.3
(0.1)
1.9
–
3.8
(3.9)
2.9
3.6
3.9
–
(1.4)
2002
%
23.8
0.8
0.7
(1.9)
0.7
(1.0)
(2.0)
(0.1)
–
–
–
–
(0.8)
Effective current tax charge
33.4
20.2
76
2001
%
25.0
0.9
0.6
(3.9)
0.8
(0.2)
(2.2)
–
–
–
–
(11.1)
(1.0)
8.9
17 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
2003
€ m
2002
€ m
2001
€ m
10
1
11
20
4
24
15
8
23
18 Dividends on non-equity shares
The dividends paid on the Non-cumulative preference shares of US$ 25 each amounted to € 5m (2002: € 8m; 2001: € 15m).
Included in this figure is an amount of € 1m which has been accrued (2002: € 2m; 2001: € 2m) and amortised issue costs of € 0.5m
(2002: € 0.4m; 2001: € 0.4m).
19 Dividends on equity shares
Ordinary shares of € 0.32 each
Interim dividend
Second interim dividend
Final dividend
Employee share trusts(1)
2003
2002
cent per € 0.32 share
2001
2003
€ m
2002
€ m
2001
€ m
19.0
–
35.0
54.0
17.25
–
31.81
49.06
15.40
28.40
–
43.80
161
–
296
457
(5)
452
154
–
283
437
(8)
429
136
250
–
386
(6)
380
(1)In accordance with FRS 14 ‘Earnings per share’, dividends of € 4.8m (2002: € 7.9m; 2001: € 5.8m) arising on the shares held by
certain employee share trusts (note 48) are excluded in arriving at profit before taxation and deducted from the aggregate of dividends
paid and proposed.
20 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
2003
€ m
834
(669)
9
174
2002
Restated
€ m
76
477
7
560
2001
€ m
3
39
(1)
41
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.
77
Notes to the accounts
21 Earnings per € 0.32 ordinary share
(a) Basic
Group profit attributable to the ordinary shareholders(1)
Weighted average number of shares in issue during the year(1)
Earnings per share
2003
2002
Restated
2001
€ 677m € 1,034m
868.7m
EUR 119.1c
859.6m
EUR 78.8c
€ 484m
861.4m
EUR 56.2c
(1)In accordance with FRS 14 - ‘Earnings per share’, dividends arising on the shares held by the employee share trusts (note 48) 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
Goodwill amortisation
Impact of Govett disposal on profit and loss account
Impact of Allfirst disposal on profit and loss account
Impact of disposal of interests in Keppel Capital Holdings Ltd.
Exceptional foreign exchange dealing losses (note 8(b))
Earnings per € 0.32 ordinary share
2003
2001
2002
Restated
Restated
cent per € 0.32 share
78.8
8.4
17.6
4.7
–
–
119.1
56.2
3.6
–
–
–
–
3.6
–
–
(10.8)
59.6
109.5
122.7
108.6
The adjusted earnings per share figure has been presented to eliminate the effect of the goodwill amortisation in all years, the impact
of the Govett and Allfirst disposals in 2003 and the impact of the disposal of the Group’s interests in Keppel Capital Holdings Ltd.
and exceptional foreign exchange dealing losses in 2001.
(c) Diluted
Weighted average number of shares in issue during the period
Dilutive effect of options outstanding
Diluted
2003
2002
2001
Number of shares (millions)
868.7
8.4
877.1
861.4
5.7
867.1
859.6
4.7
864.3
The weighted average number of ordinary shares reflects the dilutive effect of options outstanding under the employee share trusts
(note 48), the Share option scheme (note 43) and the Allfirst Financial Inc. stock option plan up to the date of disposal of Allfirst
(note 43).
22 Central government bills and other eligible bills
Book
amount
€ m
2003
Market
value
€ m
Book
amount
€ m
2002
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
78
–
45
45
–
45
45
23
3
–
–
23
1
24
3
1
4
22 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 2003
Exchange translation adjustments
Purchases
Disposals/maturities
Disposal of subsidiary undertaking
Amortisation of discounts
At 31 December 2003
23 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 26)
Due from subsidiary undertakings:
Subordinated
Unsubordinated
Amounts include:
Due from associated undertakings
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
23
(1)
983
(991)
(16)
2
–
3
–
6
(9)
–
–
–
2003
€ m
863
17
1,753
2,633
Group
2002
€ m
1,039
53
3,696
4,788
Allied Irish Banks, p.l.c.
2002
€ m
2003
€ m
818
5
14,159
14,982
988
17
12,515
13,520
204
1,555
154
91
134
88
107
2,102
2,635
2
2,633
160
77
457
2,541
4,790
2
4,788
–
73
87
1,948
2,262
–
2,262
115
12,605
12,720
14,982
–
32
415
2,111
2,649
–
2,649
122
10,749
10,871
13,520
1
–
–
–
2003
€ m
2,282
48
239
63
1
2,633
Group
2002
€ m
2,463
1,459
451
414
1
4,788
79
Notes to the accounts
24 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 26)
Due from subsidiary undertakings:
Subordinated
Unsubordinated
Allied Irish Banks, p.l.c.
2002
€ m
2003
€ m
2003
€ m
47,828
1,636
873
153
Group
2002
€ m
50,244
2,143
834
226
34,198
3
–
113
50,490
53,447
34,314
20,699
12,841
7,677
9,935
51,152
662
18,099
14,206
7,158
14,844
54,307
860
12,365
8,122
4,866
6,042
31,395
287
50,490
53,447
31,108
83
3,123
3,206
28,788
3
–
113
28,904
9,405
7,462
3,324
5,729
25,920
271
25,649
83
3,172
3,255
Of which repayable on demand or at short notice
13,064
12,008
11,427
9,239
At 31 December 2003, € 1,200m of loans and advances were pledged as collateral with the Irish Financial Services Regulatory
Authority (‘IFSRA’). At 31 December 2002, € 979m and € 630m of loans and advances were pledged as collateral with the IFSRA
and The Federal Reserve Bank, respectively.
The cost of assets acquired for letting under finance leases and hire purchase contracts amounted to € 1,234m (2002: € 1,367m).
34,314
28,904
Loans accounted for on a non-accrual basis (including loans where interest
is accrued but provisions have been made against it)
AIB Bank ROI division
AIB Bank GB & NI division
Capital Markets division
Poland division
USA division
2003
€ m
209
84
82
332
–
707
Group
2002
€ m
194
88
115
486
107
990
80
25 Loans and advances to customers -
concentrations of credit risk
Construction and property
Republic of Ireland
United States of America
United Kingdom
Poland
2003
% of total
loans(1)
13.2
0.2
7.8
0.5
21.7
€ m
6,716
93
4,009
270
11,088
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
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
2003
% of total
loans(1)
20.0
–
4.9
0.8
25.7
€ m
10,271
–
2,499
388
13,158
2002
% of total
loans(1)
14.2
0.7
4.0
0.6
19.5
€ m
7,725
374
2,151
319
10,569
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
2003
€ m
32,459
1,047
14,097
2,887
50,490
Group
2002
€ m
27,188
11,135
12,064
3,060
53,447
81
Notes to the accounts
26 Provisions for bad
and doubtful debts
Specific
€ m
General
€ m
Group
At 1 January
Exchange translation adjustments
Disposal of subsidiary undertaking
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 23)
Loans and advances to customers (note 24)
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 24)
435
(33)
(24)
–
–
134
(182)
18
348
2
346
348
96
(1)
–
148
(148)
13
108
427
(18)
(111)
–
152
(134)
–
–
316
–
316
316
175
(2)
154
(148)
–
–
179
2003
Total
€ m
862
(51)
(135)
–
152
–
(182)
18
664
2
662
664
271
(3)
154
–
(148)
13
287
Specific
€ m
General
€ m
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
The provisions for bad and doubtful debts in Allied Irish Banks, p.l.c. at 31 December 2003 and 2002 relate to loans and advances to
customers only.
27 Securitised assets
Securitised assets
Less: non-returnable proceeds
2003
€ m
719
(516)
203
2002
€ m
1,002
(754)
248
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 providers of the finance have agreed that they will seek no further
recourse to the Company above the non-returnable proceeds.
The contribution from these securitised assets, included in other operating income, is analysed below.
Net interest income
Provisions for bad and doubtful debts
Contribution from securitised assets (note 9)
82
2003
€ m
3
2
1
2002
€ m
4
–
4
2001
€ m
5
–
5
28 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
109
7
–
94
210
–
–
(1)
(29)
(30)
5,237
562
589
6,057
12,445
630
85
–
4,967
5,682
2003
Market
value
€ m
5,346
569
588
6,122
12,625
630
85
–
4,967
5,682
18,127
210
(30)
18,307
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
Market value is market price for quoted securities and directors’ estimate for unquoted securities.
18,204
288
(44)
18,448
83
Notes to the accounts
28 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
81
7
–
92
180
–
–
(1)
(24)
(25)
3,627
409
504
5,480
10,020
310
86
–
4,962
5,358
2003
Market
value
€ m
3,708
416
503
5,548
10,175
310
86
–
4,962
5,358
15,378
180
(25)
15,533
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
Market value is market price for quoted securities and directors’ estimate for unquoted securities.
13,371
197
(37)
13,531
84
28 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
2003
€ m
2,783
15,344
18,127
Book
amount
€ m
11,054
306
1,085
12,445
5,595
87
–
5,682
18,127
Group
2002
€ m
3,921
14,283
18,204
2003
Market
value
€ m
11,235
305
1,085
12,625
Allied Irish Banks, p.l.c.
2002
€ m
2003
€ m
2,518
10,853
13,371
2002
Market
value
€ m
10,491
2,370
829
13,690
2,064
13,314
15,378
Book
amount
€ m
10,276
2,340
830
13,446
4,355
355
48
4,758
18,204
There were no debt securities pledged to secure public funds, trust deposits, funds transactions and other purchases required by law in
2003 (2002: Book value of € 1,492m). Debt securities subject to repurchase agreements amounted to € 5,860m (2002: € 3,021m).
Subordinated debt securities included as financial fixed assets amounted to € 5m at 31 December 2003 (2002: € 5m).
The unamortised discounts net of premiums on debt securities held as financial fixed assets amounted to € 19m at 31 December 2003
(2002: Nil )
The cost of debt securities held for trading purposes amounted to € 5,655m (2002: € 4,738m).
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
2002
Market
value
€ m
9,033
–
450
9,483
2003
Market
value
€ m
9,388
–
787
10,175
Book
amount
€ m
9,233
–
787
10,020
5,358
–
–
5,358
15,378
Book
amount
€ m
8,873
–
450
9,323
4,048
–
–
4,048
13,371
Debt securities subject to repurchase agreements amounted to € 5,824m (2002: € 2,291m).
The amount of unamortised premiums net of discounts on debt securities held as financial fixed assets was € 71m (2002: € 41m).
The cost of debt securities held for trading purposes was € 5,344m (2002: € 4,039m).
85
Notes to the accounts
28 Debt securities (continued)
Analysis of movements in debt securities
held as financial fixed assets
Group
At 1 January 2003
Exchange translation adjustments
Disposal of subsidiary undertaking
Purchases
Realisations/maturities
Charge to profit and loss account (note 12)
Amortisation of (premiums) net of discounts
Transfer to trading book
At 31 December 2003
Allied Irish Banks, p.l.c.
At 1 January 2003
Exchange translation adjustments
Purchases
Realisations/maturities
Charge to profit and loss account
Amortisation of (premiums) net of discounts
At 31 December 2003
29 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
86
Cost
€ m
Discounts
and
premiums
€ m
Amounts
written
off
€ m
Book
amount
€ m
13,400
(950)
(1,080)
9,434
(8,338)
–
–
(36)
12,430
9,352
(676)
7,160
(5,761)
–
–
10,075
63
(8)
–
–
1
–
(23)
1
34
(16)
–
–
10
–
(36)
(42)
(17)
2
–
–
10
(13)
–
(1)
(19)
(13)
2
–
10
(12)
–
(13)
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
6
110
116
64
180
11
5
16
16
(1)
(1)
(2)
(2)
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
52
136
188
58
246
10
8
18
18
(2)
(1)
(3)
(3)
13,446
(956)
(1,080)
9,434
(8,327)
(13)
(23)
(36)
12,445
9,323
(674)
7,160
(5,741)
(12)
(36)
10,020
2003
Market
value
€ m
16
114
130
64
194
2002
Market
value
€ m
60
143
203
58
261
29 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 2003
Charge to profit and loss account (note 12)
Exchange translation adjustments
Disposal of subsidiary undertaking
Purchases
Disposals
At 31 December 2003
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
–
2
2
24
26
–
–
–
–
–
–
–
–
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
–
3
3
13
16
–
–
–
–
–
–
–
–
2003
Market
value
€ m
–
2
2
24
26
2002
Market
value
€ m
–
3
3
13
16
Cost
€ m
Amounts
written
off
€ m
Book
amount
€ m
231
–
(11)
(40)
26
(48)
158
(43)
(3)
1
(1)
–
4
(42)
188
(3)
(10)
(41)
26
(44)
116
The cost of equity shares held for trading purposes amounted to € 65m (2002: € 78m).
87
Notes to the accounts
30 Interests in associated undertakings
Share of net assets
At 1 January
Exchange translation adjustments
Transfer from subsidiary undertakings
Transfer from equity shares
Purchases
Profit retained
At 31 December
2003
€ m
31
(219)
59
–
1,481
9
1,361
The Group’s interests in associated undertakings are shown after accumulated provisions for write-downs of € 3m (2002: € 3m).
There were no movements in the provisions during 2003 or 2002.
Included in the Group’s share of net assets of associates is goodwill as follows:
2002
€ m
10
(1)
–
10
5
7
31
2002
€ m
–
–
–
–
–
–
–
2003
€ m
1,181
(162)
1,019
42
(4)
38
981
Nature of business
Banking and financial services
Goodwill
Additions during year
Exchange translation adjustments
At 31 December
Accumulated amortisation
Charge for year
Exchange translation adjustments
At 31 December
Net book value
At 31 December
Principal associated undertakings
M&T Bank Corporation
Registered office:
One M&T Plaza, Buffalo, New York 14203, USA
(Common stock shares of US $0.50 par value each – Group interest 22.2%(1))
(1)Group interest is held directly by Allied Irish Banks, p.l.c. The agreement with M&T provides for the maintenance of AIB’s interest in M&T at
22.5% through share repurchase programmes effected by M&T and through rights provided to AIB which allow it to subscribe for additional shares
in M&T at fair market value.
88
30 Interests in associated undertakings (continued)
The summary consolidated profit and loss of M&T Bank Corporation for the nine months ended 31 December 2003 and summary
balance sheet as at 31 December 2003 under Irish GAAP are as follows:
9 Months
31 December
2003
US $m Summary of consolidated profit and loss account
1,177 Net interest income
639 Other income
1,816 Total operating income
1,015 Operating expenses excluding restructuring costs
103 Restructuring costs
1,118 Total operating expenses
698 Group operating profit before provisions
98
Provisions
600 Group profit before taxation
199 Taxation
401 Group profit after taxation
9 Months
31 December
2003
€ m
1,020
553
1,573
879
89
968
605
85
520
172
348
31 December
2003
US $m Summary of consolidated balance sheet
31 December
2003
€ m
37,618
7,255
399
Loans etc
Investment securities
Fixed assets
1,641 Other assets
46,913 Total assets
33,188 Deposits etc
10,178 Other borrowings
1,537 Other liabilities
2,010
Shareholders’ funds
46,913 Total liabilities
The contribution of the enlarged M&T from the date of acquisition to 31 December 2003 is as follows:
9 Months
31 December
2003
US $m Contribution of M&T
Share of operating profits
157
(23) Share of restructuring and integration costs
(48) Amortisation of goodwill
86 Contribution to Group profit before taxation
(44) Taxation
42 Contribution to Group profit after taxation
29,785
5,744
316
1,299
37,144
26,277
8,058
1,217
1,592
37,144
9 Months
31 December
2003
€ m
136
(20)
(42)
74
(38)
36
With the exception of M&T, the Group’s interests in associated undertakings are non-credit institutions, are unlisted and are held by
subsidiary undertakings.
In accordance with the European Communities (Credit Institutions: Accounts) Regulations, 1992, Allied Irish Banks, p.l.c. will
annex a full listing of associated undertakings to its annual return to the companies registration office.
89
Notes to the accounts
31 Shares in Group undertakings
Allied Irish Banks, p.l.c.
At 1 January
Additions
Disposal of subsidiary undertaking
Transfer to associated undertakings
Exchange translation adjustments
At 31 December
At 31 December
Credit institutions
Other
Total – all unquoted
2003
€ m
2002
€ m
1,327
2
(10)
(1,032)
(57)
230
42
188
230
1,534
10
–
–
(217)
1,327
1,123
204
1,327
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.
(a)The Group’s interest is 85.86%.
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
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.
90
31 Shares in Group undertakings (continued)
Principal subsidiary undertakings incorporated
outside the Republic of Ireland
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
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
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.
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.
32 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 11)
Exchange translation adjustments
At 31 December
Net book value
At 31 December
2003
€ m
553
–
(8)
545
96
31
(2)
125
420
2002
€ m
560
1
(8)
553
65
32
(1)
96
457
Intangible fixed assets comprise purchased goodwill arising on acquisition of subsidiary undertakings. Prior to 1 January 1998
goodwill arising on acquisition of subsidiary and associated undertakings was taken directly to profit and loss account reserves.
91
Notes to the accounts
33 Tangible fixed assets
Group
Cost at 1 January 2003
Disposals of Group Undertakings
Additions
Disposals
Exchange translation adjustments
At 31 December 2003
Accumulated depreciation at 1 January 2003
Disposals of Group Undertakings
Depreciation charge for the year
Impairment
Disposals
Exchange translation adjustments
At 31 December 2003
Net book value
At 31 December 2003
At 31 December 2002
Allied Irish Banks, p.l.c.
Cost at 1 January 2003
Additions
Disposals
Exchange translation adjustments
At 31 December 2003
Accumulated depreciation at 1 January 2003
Depreciation charge for the year
Disposals
Exchange translation adjustments
At 31 December 2003
Net book value
At 31 December 2003
At 31 December 2002
Property
Equipment
Total
Freehold
Long
leasehold
€ m
€ m
Leasehold
under 50
years
€ m
€ m
€ m
661
(110)
11
(14)
(42)
506
104
(28)
24
(3)
(3)
(9)
85
421
557
130
–
5
(60)
2
77
12
–
2
–
(5)
1
10
67
118
165
(53)
5
(10)
(5)
102
91
(27)
11
–
(5)
(4)
66
36
74
1,125
(237)
97
(129)
(51)
805
696
(134)
120
(2)
(114)
(29)
537
268
429
2,081
(400)
118
(213)
(96)
1,490
903
(189)
157
(5)
(127)
(41)
698
792
1,178
Freehold
Long
leasehold
€ m
€ m
Property
Leasehold
under 50
years
€ m
Equipment
Total
€ m
€ m
283
7
(3)
–
287
26
8
–
–
34
253
257
120
3
(57)
–
66
11
2
(5)
–
8
58
109
57
3
(2)
(2)
56
28
5
(2)
(1)
30
26
29
474
62
(60)
(3)
473
343
52
(53)
(2)
340
133
131
934
75
(122)
(5)
882
408
67
(60)
(3)
412
470
526
The net book value of property occupied by the Group for its own activities was € 480m (2002: € 730m).
92
34 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)
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 (assets)/liabilities
2003
€ m
(87)
(23)
(2)
–
(9)
(53)
(174)
64
5
22
51
142
(32)
Group
2002
€ m
Allied Irish Banks, p.l.c.
2002
€ m
2003
€ m
(161)
(36)
(12)
(10)
(10)
(16)
(245)
443
24
53
7
527
282
(24)
(5)
(1)
–
(9)
(33)
(72)
1
2
–
7
10
(62)
(23)
(4)
–
–
(10)
(3)
(40)
1
–
3
–
4
(36)
For each of the years ended 31 December, 2003 and 2002 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 € 23m 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. No provision is made in respect of certain taxable gains in the Republic of Ireland
which have been rolled over into replacement assets. Finance Act 2003 changed the legislation in respect of roll over relief in the
Republic of Ireland. However, where taxable gains had been rolled over prior to the amendments introduced in Finance Act 2003
the rolled over gains can continue to be rolled over again on disposal of the replacement assets.Therefore a tax liability is unlikely to
crystallise.
Analysis of movements in deferred taxation
At 1 January
Disposal of subsidiary undertaking
Exchange translation and other adjustments
Profit and loss account taxation (credit)/charge (note 16)
At 31 December
2003
€ m
282
(280)
25
(59)
(32)
Group
2002
€ m
Allied Irish Banks, p.l.c.
2002
€ m
2003
€ m
300
–
(45)
27
282
(36)
–
–
(26)
(62)
(55)
–
–
19
(36)
93
Notes to the accounts
35 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.
94
35 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
2003
€ m
39
24
(1)
4
(15)
51
3
–
6
60
8
52
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
2003
%
10.0
7.625
3.5
2002
%
10.0
7.625
3.5
95
Notes to the accounts
35 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
2003
€ m
1,546
239
1,179
45
3,009
167
98
2002
€ m
1,250
223
849
42
2,364
153
61
3,274
(2,869)
2,578
(2,226)
405
19
376
10
405
352
19
326
7
352
Presentation in the Group balance sheet
Under UITF 37, holdings of shares in Allied Irish Banks, p.l.c., (by the parent or subsidiary companies), for any reason, are deducted
in arriving at shareholders’ funds. At 31 December 2003, shares in AIB with a value of € 59m (2002: € 52m; 2001: € 52m) were held
within the long-term business funds to meet the liabilities to policyholders.
Long-term assurance assets attributable to policyholders are presented in the Group balance sheet net of the carrying value of the
shares in AIB held within the fund. Group shareholders’ funds have been reduced by a similar amount.
Modified statutory solvency basis
Ark Life’s profit before tax on a modified statutory solvency basis was € 44m (2002: € 44m) and its profit after tax was € 39m
(2002: € 37m). Ark Life’s total assets on a modified statutory solvency basis were € 3,181m at 31 December 2003 (2002: € 2,482m)
and its shareholders’ funds at 31 December 2003 were € 237m (2002: € 199m).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
2003
€ m
405
(267)
99
–
237
2002
€ m
352
(251)
89
9
199
96
36 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
Amounts include:
Due to associated undertakings
Allied Irish Banks, p.l.c.
2002
€ m
2003
€ m
–
6,093
22,738
28,831
–
2,457
22,706
25,163
2003
€ m
–
6,093
12,001
18,094
16,040
2,054
18,094
348
91
2,509
14,838
17,786
308
Group
2002
€ m
491
2,478
13,168
16,137
10,869
5,268
16,137
405
236
3,554
11,357
15,552
585
310
77
2,504
14,596
17,487
293
350
46
3,407
10,909
14,712
58
14,770
10,393
25,163
18,094
16,137
17,780
11,051
28,831
3
–
–
–
Federal funds generally represent one-day transactions, a large portion of which arose because of Allfirst’s market activity in federal
funds for correspondent banks and other customers.
97
Notes to the accounts
37 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
2003
€ m
14,657
6,788
19,539
40,984
–
3,628
3,628
Group
2002
€ m
16,428
10,333
21,855
48,616
703
3,657
4,360
Allied Irish Banks, p.l.c.
2002
€ m
2003
€ m
9,270
5,004
11,246
25,520
–
3,597
3,597
8,106
4,484
10,320
22,910
–
3,170
3,170
44,612
52,976
29,117
26,080
5,712
1,714
6,020
5,004
23,548
13,638
44,612
339
2,355
1,980
20,505
25,179
19,433
19,950
22,002
52,976
232
3,134
2,730
19,434
25,530
27,446
294
1,954
1,049
12,820
16,117
12,689
44,612
52,976
28,806
311
136
1,553
526
10,568
12,783
12,789
25,572
508
29,117
26,080
23
28
4
1
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.
98
38 Debt securities in issue
Bonds and medium term notes:
European medium term note programme
Medium term notes
Allfirst adjustable rate federal home loan bank advances:
due 23 August, 2011
Other debt securities in issue:
Commercial paper
Commercial certificates of deposit
Master demand notes of Allfirst
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
39 Other liabilities
Notes in circulation
Taxation
Dividend (note 19)
Provision for future commitments in relation to the funding of Icarom(1)
Short positions in securities(2)
Other
2003
€ m
1,255
168
–
1,423
261
1,805
–
2,066
3,489
–
1,423
–
–
1,423
–
456
1,610
2,066
3,489
2003
€ m
420
169
296
79
149
2,031
3,144
Group
2002
€ m
Allied Irish Banks, p.l.c.
2002
€ m
2003
€ m
121
–
191
312
224
2,291
250
2,765
3,077
197
–
–
115
312
8
685
2,072
2,765
3,077
Group
2002
€ m
410
91
283
85
266
1,456
2,591
1,255
–
–
1,255
158
1,805
–
1,963
3,218
–
1,255
–
–
1,255
–
456
1,507
1,963
3,218
121
–
–
121
–
1,814
–
1,814
1,935
6
–
–
115
121
8
463
1,343
1,814
1,935
Allied Irish Banks, p.l.c.
2002
€ m
2003
€ m
–
109
296
79
35
1,157
1,676
–
59
283
85
97
373
897
(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 € 101m (2002: € 112m).The unwinding of
the discount on the provision amounted to € 5.1m (2002: € 5.4m).
(2)Short positions in debt securities and equity securities in 2003 were € 147m and € 2m, respectively (2002: € 250m and
€ 16m, respectively).
99
Notes to the accounts
40 Provisions for liabilities and charges
Group
At 1 January 2003
Exchange translation adjustments
Profit and loss account charge
Provisions utilised
Disposal of subsidiary undertaking
At 31 December 2003
Allied Irish Banks, p.l.c.
At 1 January 2003
Exchange translation adjustments
Profit and loss account charge
Provisions utilised
At 31 December 2003
Contingent
liabilities
and
commitments
€ m
Other
Total
€ m
€ m
18
(1)
9
(10)
(5)
11
9
–
10
(10)
9
42
(3)
57
(15)
(5)
76
13
(1)
40
(3)
49
60
(4)
66
(25)
(10)
87
22
(1)
50
(13)
58
100
41 Subordinated liabilities
Allied Irish Banks, p.l.c.
Undated loan capital
Dated loan capital
Reserve capital instruments
Allfirst Financial Inc.
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
€ 32.2m 6.7% Fixed Rate Notes due August 2009
€ 250m Floating Rate Notes due January 2010
€ 100m Floating Rate Notes due August 2010
€ 200m Floating Rate Notes due June 2013
Stg £350m Fixed Rate Notes due November 2030
Allfirst Financial Inc.
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 $150m Floating Rate Subordinated Capital Income
Securities due February 2027
The dated loan capital outstanding is repayable as follows:
In one year or less, or on demand
Between 1 and 2 years
Between 2 and 5 years
In 5 years or more
2003
€ m
357
1,276
1,633
497
2002
€ m
389
719
1,108
496
–
568
2,130
2,172
79
79
199
357
198
32
250
100
200
496
1,276
–
–
–
–
–
95
95
199
389
238
32
249
100
100
–
719
190
95
141
142
568
1,276
1,287
–
–
–
1,276
1,276
–
–
190
1,097
1,287
The loan capital of the Bank is unsecured and is subordinated in right of payment to the ordinary creditors, including depositors,
of the Bank.
101
Notes to the accounts
41 Subordinated liabilities (continued)
Reserve capital instruments
In February 2001, Reserve capital instruments (RCIs) of € 500m were issued by Allied Irish Banks, p.l.c. at an issue price of
100.069%.The RCIs are perpetual securities and have no maturity date.The RCIs are redeemable in whole but not in part at
the option of the Bank and with the agreement of the Irish Financial Services Regulatory Authority (‘IFSRA’) (i) upon the
occurrence of certain events, or (ii) on or after 28 February 2011, an authorised officer having reported to the Trustees within the
previous six months that a solvency condition is met.
The RCIs bear interest at a rate of 7.50% per annum from (and including) 5 February 2001 to (but excluding) 28 February 2011
and thereafter at 3.33% per annum above three month EURIBOR, reset quarterly.
The rights and claims of the RCI holders and the coupon holders are subordinated to the claims of the senior creditors and the
senior subordinated creditors of the issuer. In the event of a winding up of the issuer, the RCI holders will rank pari passu with the
holders of the classes of preference shares (if any) from time to time issued by the issuer and in priority to all other shareholders.
Undated loan capital
The US$ 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 IFSRA. 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
IFSRA, 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 € 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 June 2003, an additional € 100m
Floating Rate Notes due in June 2013 were issued.The € 200m 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 November 2003,
Stg £350m Fixed Rate Notes due in November 2030 were issued.The Stg £350m Fixed Rate Notes, with interest payable annually
in arrears on 26 November in each year, may be redeemed, in whole but not in part, on the 26 November 2025 and on each interest
payment date thereafter. In all cases, redemption prior to maturity is subject to the necessary prior approval of the IFSRA.
There is no exchange exposure as the proceeds of these notes are retained in their respective currencies.
42 Equity and non-equity minority interests in subsidiaries
Equity interest in subsidiaries
Non-equity interest in subsidiaries:
Allfirst Financial, Inc.:
Floating rate non-cumulative subordinated
capital trust enhanced securities(1)
2003
€ m
158
–
158
2002
€ m
181
93
274
(1)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. On 1 April 2003, Allfirst was acquired by M&T Bank Corporation and AIB received a stake of approximately
22.5% in the enlarged M&T (note 2).
102
43 Share capital
Ordinary share capital
Ordinary shares of € 0.32 each
Authorised:
1,160 million shares (2002: 1,160 million)
Issued:
908 million shares (2002: 897 million)
Preference share capital
Non-cumulative preference shares of US$ 25 each
Authorised:
20.0 million shares (2002: 20.0 million)
Issued:
0.25 million shares (2002: 0.25 million)
Non-cumulative preference shares of € 1.27 each
Authorised:
200.0 million shares (2002: 200.0 million)
Issued:
Nil
Non-cumulative preference shares of Stg £ 1 each
Authorised:
200.0 million shares (2002: 200.0 million)
Issued:
Nil
Non-cumulative preference shares of Yen 175 each
Authorised:
200.0 million shares (2002: 200.0 million)
Issued:
Nil
Movements in ordinary share capital
At 1 January
New shares issued during year - see below
At 31 December
2003
€ m
2002
€ m
290
287
5
–
–
–
6
–
–
–
295
293
287
3
290
284
3
287
During the year ended 31 December 2003, the number of ordinary shares was increased from 897,446,519 to 907,621,316 as follows:
(a) under the dividend reinvestment plan, 5,693,140 shares were allotted to shareholders, at €11.80 per share, in respect of the final
dividend for the year ended 31 December 2002, and 3,299,657 shares were allotted to shareholders, at €12.27 per share, in respect
of the interim dividend for the year ended 31 December, 2003.These allotments were made in lieu of dividends amounting to
€107.7m;
(b) by the issue of 946,000 shares to participants in the Company’s share option scheme at prices of € 4.19, € 5.80, € 6.25, € 7.61,
€ 10.02 and € 11.90 per share; the consideration received for these shares was € 5.5m;
(c) by the issue of 236,000 shares to holders of Dauphin Deposit Corporation Inc. (‘Dauphin’, subsequently renamed ‘Allfirst Financial
Inc.’) 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 € 1.7m.
103
43 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’.
Share option scheme
The Company operates share option schemes 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.
In addition to the issue of shares referred to at (b) above, 3,092,500 ordinary shares, previously bought back by the Company
under the authority granted by shareholders at the 2003 Annual General Meeting and held as Treasury Shares, were issued during
2003 to participants in the share option scheme, at prices of € 5.80, € 10.02 and € 11.90 per share.The consideration received for
these shares was € 29.3m.
At 31 December 2003, options were held by some 3,782 participants over 28,553,079 ordinary shares in aggregate (3.15% of
the issued ordinary shares, and 3.35% net of 55,534,156 Treasury Shares held at that date), at prices ranging from € 5.80 to
€ 15.46 per share; these options may be exercised at various dates up to 23 April 2013.
Allfirst Financial Inc. stock option plan
Under the terms of the Agreement and Plan of Merger between the Company, First Maryland Bancorp (subsequently renamed
‘Allfirst’) and Dauphin Deposit Corporation (‘Dauphin’, subsequently renamed ‘Allfirst’), approved by shareholders at the 1997
Annual General Meeting, options to purchase Dauphin shares which were outstanding immediately prior to the merger of Allfirst
and Dauphin were converted, at the holders’ elections, into either cash or options to purchase a similar number of AIB American
Depositary Shares (‘converted options’). On 1 April 2003, the merger of Allfirst Financial Inc. (‘Allfirst’) with M&T Bank
Corporation (‘M&T’) was completed, pursuant to the Agreement and Plan of Reorganisation dated 26 September 2002 by and
among the Company, Allfirst and M&T. Under the terms of that Agreement, converted options outstanding immediately prior to
that merger (over some 321,598 ordinary shares) remain in force.
In addition to the issue of shares referred to at (c) above, 46,000 ordinary shares held as Treasury Shares were issued during 2003
to participants in the Allfirst Financial Inc. stock option plan. The consideration received for these shares was € 0.1m.
At 31 December 2003, converted options were outstanding over 136,598 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 vest in full in the award-holders only if (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.
104
Notes to the accounts
43 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 shares.The aggregate number of shares issued under the
share option schemes in any 10-year period may not exceed 5% of the issued ordinary shares.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 Irish Financial
Services Regulatory Authority, 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.
44 Share premium account
At 1 January 2003
Premium arising on shares issued under:
Executive share option scheme
Allfirst Financial, Inc. stock option plan
Profit and loss account
Exchange translation adjustments
At 31 December 2003
45 Reserves
At 1 January 2003
Capital reserves
Revaluation reserves
Transfer from/(to) profit and loss account:
Unrealised gain on disposal of subsidiary undertaking
Non-distributable reserves of Ark Life
Property revaluation reserves
Exchange translation and other adjustments
At 31 December 2003
At 31 December 2003
Capital reserves
Revaluation reserves
Group
€ m
1,918
Allied Irish
Banks, p.l.c.
€ m
1,918
5
2
(1)
(39)
5
2
(1)
(39)
1,885
1,885
Group
€ m
Allied Irish
Banks, p.l.c.
€ m
359
131
490
489
51
(16)
(63)
951
838
113
951
–
116
116
–
–
(14)
(1)
101
–
101
101
105
Notes to the accounts
46 Profit and loss account
At 1 January 2003 as previously reported
Prior year adjustment
At January 1 2003 restated
Profit retained for the year
Writeback of goodwill on disposal of businesses
Disposal of subsidiary undertakings
Dividend reinvestment plan
Actuarial loss recognised in
retirement benefit schemes (note 13)
Actuarial gain recognised in associated undertaking
Ordinary share bought back/purchased
Ordinary shares issued/sold
Share premium account
Transfer from property revaluation reserves
Exchange translation adjustments
At 31 December 2003
At 31 December 2003
Allied Irish Banks, p.l.c. and subsidiaries
Associated undertakings
Revenue
Share
Reserves Repurchases
Own
Shares
Group
Allied Irish
Total
€ m
Banks, p.l.c.
€ m
1,984
–
1,984
174
1,043
–
105
(50)
8
–
–
1
16
(395)
2,886
(42)
–
(42)
–
–
–
–
–
–
(812)
55
–
–
–
(799)
592
(3)
589
834
–
(17)
105
(14)
–
(812)
56
1
14
(249)
507
–
(228)
(228)
–
–
123
–
–
–
(8)
26
–
–
7
1,942
(228)
1,714
174
1,043
123
105
(50)
8
(820)
81
1
16
(388)
(80)
2,007
1,893
114
2,007
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 € 364m at 31 December 2003 (2002: € 1,507m).
Included within the profit and loss account reserve for the Group at 31 December 2003 is € 485m (Allied Irish Banks, p.l.c.:
€ 274m) relating to the net pension liability in funded retirement benefit schemes (note 13).
47 Treasury shares
At the 2003 Annual General Meeting, shareholders granted authority for the Company, or any subsidiary, to make market purchases
of up to 89 million ordinary shares of the Company, subject to the terms and conditions set out in the relevant resolution. During
the year, some 60,798,412 such shares were purchased, and applied as follows:
Treasury shares held, 1 January
Shares purchased
Shares re-issued under:
AIB Share Option Schemes (note 43)
Allfirst Financial Stock Option Plan (note 43)
AIB Approved Employee Profit Sharing Schemes (see below)
Treasury shares held, 31 December
2003
–
60,798,412
5,264,256
55,534,156
3,092,500
46,000
2,125,756
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.
106
47 Repurchase of shares (continued)
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.
During 2003, the Company re-issued from its pool of Treasury Shares 2,125,756 ordinary shares to the Trustees of the employees’
profit sharing schemes, at € 11.98 per share.The consideration received for these shares was € 25.5m.
Purchase of ordinary shares
In September 1997, a subsidiary undertaking purchased 5.6 million ordinary shares of € 0.32 each of the Company 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 the
Company continues to include these shares (nominal value € 1.8m).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
exclude these shares.
48 Own shares
The Group sponsors Sharesave schemes for eligible employees in the UK, the Isle of Man and Channel Islands.The trustees of
the schemes 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 schemes.The trustees receive dividends
on the shares which are used to meet the expenses. 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 2003, 0.3 million shares (2002: 0.3
million) were held by the trustees with a book value of € 3m (2002: € 4m) and a market value of € 4m (2002: € 5m).
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 2003, 0.2m shares (2002:
0.2m) were held by the trustees with a book value of € 2.1m (2002: € 2.1m) and a market value of € 2.5m (2002: € 2.6m).
Prior to its disposal to M&T Bank corporation (note 2) Allfirst Financial, Inc. sponsored the Allfirst Stock Option Plans, for the
benefit of key employees of Allfirst. At 31 December 2002 Allfirst had lent US$ 178m 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. A similar scheme operated
for certain eligible employees of our US operations. At 31 December 2003, 1.4 million ordinary shares were held by the trust with a
cost of € 15m and a market value of € 22m.
Certain subsidiary companies hold shares in AIB for customer facilitation and in the normal course of business. At 31 December
2003, 4.7 million shares with a book and market value of € 60m (2002: € 52m) were held by subsidiary companies.
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 as a deduction against shareholders’ funds on the Group balance sheet
does not imply that they have been purchased by the company as a matter of law.
Prior year adjustment
The Group has implemented UITF Abstract 37 ‘Purchases and sales of own shares’ and UITF Abstract 38 ‘Accounting for Employee
Share Ownership Plan trusts in its preparation of the accounts for the year ended 31 December 2003.The change in accounting
policy arising from the adoption of UITF 37 and 38 has resulted in a prior year adjustment and comparative figures have been
restated accordingly.The prior year adjustment to shareholders funds’ at 1 January 2001 was € 225m.
107
Notes to the accounts
49 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
2003
Risk
weighted
amount
€ m
Contract
amount
€ m
2002
Risk
weighted
amount
€ m
12
12
4,157
–
4,157
722
4,891
–
126
–
76
8,023
5,707
13,932
13,932
18,823
4,053
–
4,053
368
4,433
–
31
–
29
3,967
–
4,027
4,027
8,460
72
5,278
14
5,292
1,027
6,391
61
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
(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
108
Contingent liabilities
2003
2002
€ m
€ m
Commitments
2002
€ m
2003
€ m
1,685
2,549
632
25
4,891
1,544
4,316
483
48
6,391
7,552
1,173
4,393
814
6,556
8,743
3,768
885
13,932
19,952
49 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
2003
Risk
weighted
amount
€ m
Contract
amount
€ m
2002
Risk
weighted
amount
€ m
2
3,680
565
4,247
96
18
5,982
3,797
9,893
14,140
2
3,582
283
3,867
19
–
2,954
–
2,973
6,840
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
(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.
The Financial Services Authority in the UK (‘FSA’) is carrying out a review of the split capital trusts sector. Govett Investment
Management Ltd (‘Govett’) managed four split capital trusts and one highly leveraged investment fund. AIB is co-operating fully with
the FSA in its investigation.The FSA review is ongoing, and consequently the Directors are not in a position to forecast the outcome
of the investigations, and any resultant regulatory actions. Accordingly the Directors do not consider it appropriate to make any
provision in the financial statements.
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 action and purported shareholder derivative action
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. The defendants have not yet been called upon to respond to the complaint but, when so called
upon, AIB intends to vigorously defend the action. 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. A
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 filed a
motion seeking to have the Court amend or revise the judgment, or to be granted leave to file an amended complaint.
109
Notes to the accounts
49 Memorandum items: contingent liabilities and commitments (continued)
Class action and purported shareholder derivative action (continued)
This was dismissed on 3 March 2003.The plaintiffs filed a second such motion on 17 March 2003.The court dismissed this on 4
April 2003. On 20 June, 2003, the plaintiffs’ petition to bypass the Maryland Court of Special Appeals and appeal directly to the
Maryland Court of Appeals was denied by the Court of Appeals. The plaintiffs’ appeal to the Maryland Court of Special Appeals was
argued on 12 January, 2004 and a decision on this appeal remains pending.
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.
50 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.
Credit risk in derivatives contracts is the risk that the Group’s counterparty in the contract defaults prior to maturity at a time
when the Group has a claim on the counterparty under the contract. The Group would then have to replace the contract at the
current market rate, which may result in a loss.
110
50 Derivatives (continued)
The following tables present the notional principal amount and the gross replacement cost of interest rate, exchange rate and
equity contracts at 31 December 2003 and 2002.
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
2003
€ m
Group
2002
€ m
Allied Irish Banks, p.l.c.
2002
€ m
2003
€ m
99,781
110,529
97,201
105,623
1,030
1,913
1,015
1,756
€ m
€ m
€ m
€ m
15,565
21,046
13,349
16,567
501
€ m
546
€ m
496
€ m
540
€ m
2,445
2,037
2,445
2,037
73
27
73
27
(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.
The following table analyses the notional amount and gross replacement cost of interest rate, exchange rate and equity contracts
by maturity.
2003
Notional amount
Gross replacement cost
2002
Notional amount
Gross replacement cost
Residual maturity
< 1 year
€ m
1 < 5 years
€ m
5 years +
€ m
Total
€ m
64,991
694
78,231
990
41,287
655
46,663
1,094
11,513
255
117,791
1,604
8,718
402
133,612
2,486
Of the gross replacement cost € 1,416m (2002: € 2,208m) related to financial institutions and € 188m (2002: € 278m) 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
Notional amount
2002
€ m
2003
€ m
Gross replacement cost
2002
€ m
2003
€ m
86,861
3,400
23,394
4,136
63,723
8,470
56,541
4,878
117,791
133,612
1,164
66
365
9
1,604
1,315
232
922
17
2,486
111
Notes to the accounts
50 Derivatives (continued)
Trading activities
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.
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 2003 and 2002.
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
Equity derivatives
Notional
amounts(1)
€ m
2003
Fair
values
€ m
Notional
amounts(1)
€ m
58,742
65,613
733
(627)
9
(9)
3
(5)
–
(2)
–
4
52
38
4,187
3,805
1,926
27
1,231
17,237
2,037
2,650
6,920
4,424
–
1,246
13,507
2,445
2002
Fair
values
€ m
1,199
(1,065)
15
(12)
7
(6)
1
(4)
–
7
55
–
(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 28 to the financial statements.
The Group’s credit exposure at 31 December 2003 and 2002 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.
112
50 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
Equity index contracts
Total
Risk management activities
2003
€ m
92
23
16
4
135
2002
Restated
€ m
78
7
(11)
–
74
2001
€ m
75
2
15
–
92
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 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 2003 and 2002.
113
Notes to the accounts
50 Derivatives (continued)
Notional amount
2003
2002
€ m
€ m
Weighted
average
maturity
in years
Weighted average rate
Pay
Receive
2003
2002
2003
%
2002
%
2003
%
2002
%
Estimated fair value
2002
€ m
2003
€ m
Interest rate swaps:
Receive fixed
1 year or less
1 - 5 years
Over 5 years
Pay fixed
1 year or less
1 - 5 years
Over 5 years
Pay/receive floating
1 year or less
1 - 5 years
Over 5 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
Over 5 years
Written
1 year or less
1 - 5 years
13,276
3,255
1,984
7,414
4,919
1,861
0.43
2.66
10.90
18,515
14,194
1.95
2,156
3,603
1,547
4,821
5,412
1,603
7,306
11,836
–
10
15
25
–
–
–
–
–
–
–
–
–
–
–
–
132
10
15
157
239
239
950
–
950
934
117
25
1,076
405
114
519
0.46
2.55
9.88
3.49
–
2.75
7.33
5.50
–
–
–
–
–
–
–
–
–
–
–
–
0.42
2.75
7.27
2.12
0.43
2.97
10.01
2.72
4.49
5.82
4.10
5.11
6.04
3.36
4.70
2.15
2.73
3.77
4.19
5.03
4.39
4.84
5.53
2.89
2.46
2.58
4.24
4.75
54
112
108
274
(41)
(169)
(102)
(312)
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
–
3.68
4.43
1.93
3.68
4.43
4.13
2.28
4.21
2.03
–
–
–
5.11
–
5.11
3.92
3.92
4.25
3.93
3.40
4.19
2.72
4.09
3.02
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
95
279
174
548
(81)
(306)
(168)
(555)
–
–
–
–
2
2
(8)
–
(8)
10
1
2
13
(10)
(1)
(11)
114
50 Derivatives (continued)
Notional amount
2003
2002
€ m
€ m
Weighted
average
maturity
in years
Weighted average rate
Pay
Receive
2003
2002
2003
%
2002
%
2003
%
2002
%
Estimated fair value
2002
€ m
2003
€ m
Financial futures:
1 year or less
1 - 5 years
944
83
4,552
970
0.58
1.72
0.49
1.52
3.00
–
2.08
3.31
2.83
3.44
3.84
4.67
1,027
5,522
0.67
0.67
2.76
2.29
2.88
3.99
Other interest rate derivatives:
1 year or less
1 - 5 years
Over 5 years
68
79
25
172
109
291
78
478
0.20
3.14
6.17
2.42
0.40
2.22
6.27
2.47
3.30
5.42
3.37
4.28
5.11
4.29
7.48
5.00
2.80
6.94
–
4.34
5.72
4.69
7.27
5.35
–
–
–
(3)
(3)
2
(4)
(7)
–
(7)
2
(5)
(3)
(6)
The carrying value of the interest rate derivative financial instruments held for risk management purposes was € 2m (2002: € 15m).
Reconciliation of movements in notional amounts of interest rate
instruments held for risk management purposes
Interest
rate swaps
€ m
FRA
Deposits
€ m
At 31 December 2001
Additions
Maturities/amortisations
Cancellations
Transfer to trading derivatives
Exchange adjustments
At 31 December 2002
Additions
Maturities/amortisations
Cancellations
Transfer to trading derivatives
Exchange adjustments
At 31 December 2003
55,525
28,962
(31,720)
(1,243)
(23,411)
(1,926)
26,187
34,894
(29,826)
(4,050)
(395)
(964)
25,846
3,547
2,012
(4,391)
–
(94)
(124)
950
–
(910)
–
–
(40)
–
FRA
Loans
€ m
1,582
3,574
(4,816)
–
(52)
(49)
239
–
(192)
–
(43)
(4)
–
115
Notes to the accounts
50 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 2003 the Group had
deferred income of € 8m (2002: € 35m) and deferred expense of € 20m (2002: € 62m) relating to non-trading derivatives.
€ 3m (2002: € 18m) of deferred income and € 10m (2002: € 41m) of deferred expense is expected to be released to the profit
and loss account in 2004. During the year ended 31 December 2003, net deferred expense in relation to previous years of € 23m
was released to the profit and loss account.
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
Currency options
Deferred income
Deferred expense
2004
€ 000
2005
€ 000
2006
€ 000
2007
€ 000
2008
€ 000
1,335
(193)
542
(546)
–
(293)
1,292
(8,546)
–
(129)
727
(301)
–
–
–
(173)
565
(2,622)
–
–
725
(149)
–
–
–
(129)
502
(2,297)
–
–
611
(202)
–
–
–
(40)
136
(124)
–
–
–
(40)
488
(1,597)
488
(1,220)
–
–
–
–
After
2008
€ 000
–
(122)
–
–
–
(44)
543
(909)
–
–
Total
€ 000
3,534
(1,091)
542
(546)
–
(719)
3,878
(17,191)
–
(129)
(6,538)
(1,804)
(1,348)
(740)
(760)
(532)
(11,722)
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 2003
the Group had net deferred expense of € 3m (2002: € 4m) relating to debt securities held for hedging purposes. Deferred expense
of € 4m (2002: deferred expense € 1m) relating to these debt securities is expected to be released to the profit and loss account in
2004. During the year ended 31 December 2003, deferred expense in relation to previous years of € 1m 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 2003 was € 44m (2002: € 22m).
The net gain expected to be recognised in 2004 is € 12m (2002: € 16m) and thereafter a net loss of € 56m
(2002: net loss of € 38m) is expected.
The net gain recognised in 2003 in respect of previous years was € 16m (2002: € 20m) and the net loss arising in 2003 which
was not recognised in 2003 was € 5m (2002: € 27m).
51 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 instruments 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 the data to evaluate the Group’s financial position or to make comparisons with other institutions.
116
51 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 2003.
The following table gives details of the carrying amounts and fair values of financial instruments at 31 December 2003 and 2002.
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
31 December 2003
Fair
value
€ m
Carrying
amount
€ m
31 December 2002
Fair
value
€ m
Carrying
amount
€ m
5,682
64
45
838
339
–
2,633
50,490
203
12,445
116
5,682
64
45
838
339
–
2,654
50,625
188
12,625
130
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
149
149
266
266
18,094
44,612
3,489
2,130
196
18,132
44,616
3,487
2,218
213
16,137
52,976
3,077
2,172
235
16,162
53,091
3,106
2,362
227
102
56
38
2
3
102
56
38
(42)
3
135
62
–
15
20
135
62
–
(24)
37
(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.
117
Notes to the accounts
51 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 49. 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 2003 and 2002.
Details of derivatives in place, including fair values, are included in note 50.
Shareholders’ funds: non-equity interests
The fair value of these instruments is based on quoted market prices.
118
52 Interest rate sensitivity
The net interest rate sensitivity of the Group at 31 December 2003 and 2002 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 50.
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 2003
–
2,039
43,135
3,451
–
48,625
15,178
32,415
2,860
827
–
–
–
26
1,697
979
–
2,702
1,323
879
13
79
–
–
–
11
1,753
927
–
2,691
1,171
889
442
–
–
–
–
33
2,806
5,167
–
8,006
80
1,745
174
32
–
–
–
–
1,302
1,921
–
3,223
185
382
–
1,192
–
–
–
524
–
–
9,040
9,564
157
8,302
–
–
7,017
5,138
51,280
2,294
2,502
2,031
1,759
20,614
45
–
–
5,682
422
45
2,633
50,693
18,127
9,462
6,149
80,960
–
–
–
–
480
–
480
18,094
44,612
3,489
2,130
7,497
5,138
80,960
4,758
(1,179)
(3,297)
189
(471)
–
–
–
56,038
1,115
(795)
2,220
1,288
20,614
480
80,960
(7,413)
1,587
3,486
5,786
1,935
(11,050)
5,669
(7,413)
(5,826)
(2,340)
3,446
5,381
(5,669)
–
Euro m Euro m Euro m Euro m Euro m Euro m Euro m
(3,387)
1,525
2,618
3,040
536
(6,987)
2,914
–
–
(3,387)
(1,862)
756
3,796
4,332
(2,655)
259
US $m US $m US $m US $m US $m US $m US $m
(1,066)
(121)
18
58
461
(503)
546
(1,066)
(1,187)
(1,169)
(1,111)
(650)
(1,153)
(607)
Stg m
Stg m
Stg m
Stg m
Stg m
Stg m
Stg m
(2,151)
(73)
715
2,043
879
(2,796)
1,292
(2,151)
(2,224)
(1,509)
534
1,413
(1,383)
(91)
PLN m PLN m PLN m PLN m PLN m PLN m PLN m
(173)
137
(173)
(36)
104
68
478
546
57
(776)
85
603
(173)
(88)
119
Notes to the accounts
52 Interest rate sensitivity (continued)
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
Restated
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
–
–
6,631
4,415
51,660
3,389
3,767
2,968
1,023
22,696
1
–
–
4,758
113
24
4,788
53,695
18,204
9,110
4,872
85,821
–
–
–
–
318
–
318
16,137
52,976
3,077
2,172
7,044
4,415
85,821
2,882
(843)
(1,961)
214
(292)
–
–
–
54,542
2,546
1,806
(4,197)
530
860
3,182
7,215
731
22,696
318
85,821
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
1,947
1,855
(6,873)
1,803
879
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)
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
120
53 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 (increase)/decrease in debt securities
Net decrease in equity shares
Additions to tangible fixed assets
Disposals of tangible fixed assets
Net cash (outflow)/inflow from capital expenditure
(d) Acquisitions and disposals
Acquisition of Group undertakings
Investments in associated undertakings
Disposals of investments in subsidiary undertakings
Net cash outflow from acquisitions and disposals
(e) Financing
Issue of ordinary share capital
Share buyback
Redemption of subordinated liabilities
Issue of subordinated liabilities
Issue of reserve capital instrument
Redemption of preference shares
Net cash outflow from financing
53(h)
(f ) Analysis of changes in cash
At 1 January
Net cash (outflow)/inflow before the effect of exchange translation adjustments
Effect of exchange translation adjustments
2003
€ m
(84)
(5)
(4)
(93)
(128)
(145)
(273)
(1,070)
21
(118)
118
(1,049)
–
–
(1,049)
(1,049)
36
(812)
–
603
–
–
(173)
2,731
(1,351)
(338)
At 31 December
53(g)
1,042
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
2,222
377
53
2,652
121
Notes to the accounts
53 Consolidated cash flow statement (continued)
(g) Analysis of cash
Cash and balances at central banks
Loans and advances to banks (repayable on demand)
2003
€ m
838
204
1,042
2002
€ m
1,176
1,555
2,731
Change
in year
€ m
(338)
(1,351)
(1,689)
The Group is required to maintain balances with the Irish Financial Services Regulatory Authority which amounted to € 863m
(2002: € 1,039m).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 € 17m (2002:
€ 53m).
(h) Analysis of changes in financing(2)
At 1 January
Effect of exchange translation adjustments
Cash inflow/(outflow) from financing
Disposal of subsidiary
Other movements
Amortisation of issue costs
At 31 December
Share capital(1)
2002
€ m
2,217
(45)
27
–
13
(1)
2,211
2003
€ m
2,211
(40)
7
–
3
(1)
2,180
Subordinated
liabilities
2002
€ m
2003
€ m
Non-equity minority
interests
2002
€ m
2003
€ m
2,172
(87)
603
(547)
(12)
1
2,130
2,516
(199)
(147)
–
–
2
2,172
93
(3)
–
(90)
–
–
–
121
(19)
(9)
–
–
–
93
(1)Includes share capital and share premium.
(2)Excludes an amount of € 783m (net of € 29m received for Treasury shares reissued) in respect of the repurchase of 60.8 million
ordinary shares.
54 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, align individual
and company success. In considering such packages, cognisance is taken of: the levels of remuneration for comparable positions, as
advised by external consultants; the responsibilities and complexity of the roles 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 2003 its members were: Mr
Lochlann Quinn (Chairman, until his retirement from the Board on 14 October, 2003), Mr Dermot Gleeson (member of the
Committee for the entire year, and Committee Chairman from 15 October, 2003), Sir Derek Higgs, Mr John B McGuckian and Mr
Jim O’Leary.The Committee has a wide remit (see page 51) which includes, inter alia, determining, under advice to the Board, the
specific remuneration packages of the executive directors.
122
54 Report on directors’ remuneration and interests (continued)
Fees(1)
Salary
Bonus(2)
€ 000
€ 000
€ 000
Profit
share(3)
€ 000
Taxable
benefits(4)
€ 000
Pension
contributions(5)
€ 000
Remuneration
Executive directors
Michael Buckley
Colm Doherty
Gary Kennedy
Aidan McKeon
Non-executive directors
Adrian Burke
Padraic M Fallon
Dermot Gleeson
Don Godson
Sir Derek Higgs
John B McGuckian
Carol Moffett
Jim O’Leary
Lochlann Quinn
Michael J Sullivan
Robert G. Wilmers(1)
Former directors
Pensions(6)
Other payments(7)
Total
33
30
33
30
660
343
381
271
570
185
275
141
126
1,655
1,171
13
11
13
4
41
54
37
45
33
169
121
36
217
45
63
89
41
51
180
64
907
2003
Total
€ 000
1,399
640
785
540
69
34
38
61
202
3,364
–
10
–
–
–
10
–
–
–
–
20
121
46
217
45
63
99
41
51
180
64
927
762
249
1,011
5,302
123
Notes to the accounts
54 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
236
539
296
1,071
–
250
125
375
–
13
10
23
4
52
45
101
666
57
30
753
–
–
–
–
–
–
–
–
–
–
–
9
29
29
67
80
31
88
41
69
83
41
37
216
57
743
Executive directors
Frank P Bramble
Michael Buckley
Gary Kennedy
Non-executive directors
Adrian Burke
Padraic M Fallon
Dermot Gleeson
Don Godson
Sir Derek Higgs
John B McGuckian
Carol Moffett
Jim O’Leary
Lochlann Quinn
Michael J Sullivan
Former directors
Pensions(6)
Other payments(7)
Total
2002
Total
€ 000
915
940
535
2,390
80
31
88
41
69
83
41
37
216
57
743
106
487
593
3,726
(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, Deputy Chairman, or Chairman of the Audit Committee; or who 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. A fee of € 25,861 was paid in the year ended 31 December 2003 to M&T Bank Corporation (‘M&T’), in respect of
Mr. Robert G.Wilmers’s directorship of the Company as the designee of M&T, pursuant to the Agreement and Plan of
Reorganisation, dated 26 September 2002, by and among the Company, Allfirst Financial Inc. and M&T, as approved by
shareholders at the Extraordinary General Meeting held on 18 December 2002.
(2) The executive directors participate in a discretionary, performance-related, incentive scheme under which bonuses may be
earned on the achievement of specific, performance-related objectives, reviewed annually.The bonus may range from 0% to 100%
of annual salary. The bonuses paid in 2003 include special bonuses of € 250,000 and € 125,000 paid to Mr Michael Buckley and
Mr Gary Kennedy, respectively, in recognition of the roles they played in AIB’s acquisition of a strategic stake in M&T Bank
Corporation.
(3) Information on the employees’ profit sharing schemes, which are operated on terms approved by the shareholders, is given in note
47.
(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.
(5) Pension contributions represent payments to defined benefit pension plans, in accordance with actuarial advice, to provide post-
retirement pensions from normal retirement date. In 2002, an additional amount was provided to augment the funding of Mr
Frank P Bramble’s pension, in connection with his early retirement.The fees of the non-executive directors who joined the Board
since 1990 are not pensionable.
124
54 Report on directors’ remuneration and interests (continued)
Remuneration (continued)
The pension benefits earned during the year, and accrued at year-end, are as follows:
Increase in accrued
benefits during 2003(a)
€ 000
Accrued benefit
at year-end(b)
€ 000
Executive directors
Michael Buckley
Colm Doherty
Gary Kennedy
Aidan McKeon
Non-executive directors
Padraic M Fallon
John B McGuckian
106
26
24
40
2
2
401
139
83
192
14
20
Transfer values(c)
€ 000
1,721
249
234
795
20
33
(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 2003.
(c) Figures show the transfer values of the increases in accrued benefits during 2003. 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 2003, 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, together with an amount of € 650,000 to amortise a deficit on the Non-Executive
Directors’ Pension Scheme, in accordance with actuarial advice.
(7) Other payments comprise remuneration of € 220,342 paid to Mr Jeremiah E Casey under the terms of a post-retirement
consultancy contract approved by shareholders at the 1999 Annual General Meeting (2002: € 280,474), and payment of
€ 28,981 to a former director who served on the board of a subsidiary company (2002: € 37,950 to two such directors).
Other payments in 2002 also included an amount of € 169,060, in respect of salary, pension funding costs, and related
payments made to Mr Frank Bramble in the period from 19 April 2002, when he stepped down as a Director of the
Company, to 31 May 2002, when he retired from executive responsibilities with the Group.
Interests in shares
The beneficial interests of the directors and the secretary in office at 31 December 2003, and of their spouses and minor children, are as
follows:
31 December
2003
1 January
2003*
Ordinary Shares
Directors:
Michael Buckley
Adrian Burke
Colm Doherty
Padraic M Fallon
Dermot Gleeson
Don Godson
Sir Derek Higgs
Gary Kennedy
John B McGuckian
Aidan McKeon
Carol Moffett
Jim O’Leary
Michael J Sullivan
Robert G Wilmers
Secretary:
W M Kinsella
* or later date of appointment
238,672
10,677
24,872
8,664
12,250
25,099
5,061
48,913
69,737
7,298
13,125
4,000
1,700
50,619
177,610
10,642
3,108
8,377
12,056
25,099
5,000
26,776
67,557
6,830
13,125
–
700
–
38,833
14,674
125
Notes to the accounts
54 Report on directors’ remuneration and interests (continued)
Share options
Details of the executive directors’ and the secretary’s share options are given below. Information on the Share Option Schemes is given
in note 43.The options outstanding at 31 December, 2003 are exercisable at various dates between 2004 and 2013. Details are shown in
the Register of Directors’ and Secretary’s Interests, which may be inspected by shareholders at the Company’s Registered Office.
31 December
2003
1 January
2003*
Since 1 January 2003*
Exercised
Granted
336,500
230,000
185,000
130,000
281,500
250,000
155,000
70,000
115,000
–
50,000
60,000
60,000
20,000
20,000
–
Price of
options
exercised
Market
price at
date of
exercise
Weighted average
subscription price of
options outstanding
at 31 December 2003
€
5.80
4.19
6.25
–
€
11.68
11.55
12.08
–
€
12.52
11.26
11.05
11.98
45,500
65,000
5,500
25,000
5.80
12.45
11.65
Directors:
Michael Buckley
Colm Doherty
Gary Kennedy
Aidan McKeon
Secretary:
W M Kinsella
* or later date of appointment
Long Term Incentive Plan
Under the terms of the Long Term Incentive Plan approved by shareholders at the 2000 Annual General Meeting, awards of
ordinary shares may be granted to key executives and other employees. Further information on the Long Term Incentive Plan is
given in note 43.
The following conditional grants of awards of ordinary shares have been made to the executive directors and the secretary under
Total as at
31 December 2003
Granted during
2003
Total as at
1 January 2003*
38,000
35,000
20,000
14,000
4,500
–
–
–
–
–
38,000
35,000
20,000
14,000
4,500
the terms of the Plan:
Directors:
Michael Buckley
Colm Doherty
Gary Kennedy
Aidan McKeon
Secretary:
W M Kinsella
* or later date of appointment
126
54 Report on directors’ remuneration and interests (continued)
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 closing price, on the Irish Stock Exchange, of the Company’s ordinary shares on 31 December 2003 was € 12.70 per share;
during the year the price ranged from € 11.50 to € 14.38 per share.
There were no changes in the above interests between 31 December, 2003 and 23 February, 2004, save for the receipt by Mr Aidan
McKeon of 27 shares under the Company’s UK Share Ownership Plan (see note 47).
Service contracts
There are no service contracts in force for any director with the Company or any of its subsidiaries.
55 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 2003
the aggregate amount outstanding in loans to persons who at any time during the year were directors was € 45.8m in respect of 9
persons; the amount outstanding in respect of quasi-loans (effectively, credit card facilities), also to 9 persons, was € 0.05m (2002:
€ 42.8m in respect of loans to 6 persons and € 0.03 million in respect of quasi-loans to 6 persons).
On 2 February 2004, AIB Capital Markets plc, a wholly-owned subsidiary, extended the terms of an indemnity previously given
to certain former directors, officers and employees of Govett Investment Management Ltd. (‘Govett’) to Mr Michael Buckley, Group
Chief Executive and Mr Colm Doherty, Managing Director, AIB Capital Markets plc; Mr Buckley is a former director of a split
capital trust managed by Govett, and Mr Doherty is a former director of Govett.The aggregate liability of AIB Capital Markets plc
under the aforementioned indemnity is € 10m.
The purpose of the indemnity is to protect the indemnified parties (or any of them) against any civil liability, loss and defence
costs which they (or any of them) may suffer by reason of any claim made against them relating to certain split capital or highly
leveraged trusts previously managed by Govett and which previously would have been covered by insurance.
Prior to July 2003, the Bank’s professional indemnity and directors’ and officers’ liability insurance provided cover in respect of
the eventualities mentioned in the previous paragraph. However, on renewal of that insurance on 1 July 2003, and in line with a
general change introduced by the insurance industry, exclusions were imposed that removed that cover. By virtue of the terms of the
above-mentioned indemnity, the indemnified parties now stand in the position they would have been in if those exclusions had not
been imposed, except that the aggregate limit of liability under the indemnity is € 10m, rather than the higher amount previously
provided by the insurance.
127
Notes to the accounts
56 Commitments
Capital expenditure
Estimated outstanding commitments for capital expenditure not provided for in the accounts amounted to € 73m (2002: € 49m).
Capital expenditure authorised, but not yet contracted for, amounted to € 51m (2002: € 90m).
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.
57 Employees
The average full-time equivalent employee numbers by division were as follows:
AIB Bank ROI
AIB Bank GB & NI
Capital Markets
Poland
Group
Allfirst
2003
€ m
1
7
29
37
Property
2002
€ m
Equipment
2002
€ m
2003
€ m
3
14
35
52
–
1
–
1
–
2
–
2
2003(1)
2002
9,153
2,822
2,972
8,675
671
1,274
9,253
2,800
2,878
9,946
689
5,367
25,567
30,933
(1) The 2003 employee numbers reflect Allfirst up until 31 March 2003 and the movement of Allied Irish America from USA to Capital
Markets division.
58 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.
59 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.
60 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. 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.
128
61 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
2003
2002
59.4%
58.5%
39.1%
2.72%
2.54%
3.00%
1.2630
1.1346
0.7048
0.6901
4.7019
4.4157
58.7%(2)
57.9%(2)
40.1%(2)
3.00%
2.73%
3.27%
1.0487
0.9458
0.6505
0.6282
4.0210
3.8473
(1)Excludes restructuring costs of € 72.4m and € 13.3m, in 2003 and 2002, respectively.
(2)The figures for 2002 have been restated to reflect the implementation of UITF Abstract 37 - Purchases and sales of own shares.
(3)Excludes amortisation of goodwill of € 30.8m (2002: € 31.7m) and restructuring/integration costs of € 72.4m (2002: € 13.3m).
(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
2003
€ m
2002
€ m
48,831
8,602
57,433
4,566
616
5,182
53,961
11,521
65,482
3,099
658
3,757
62,615
69,239
4,451
2,439
6,890
389
6,501
4,806
2,522
7,328
341
6,987
129
Notes to the accounts
61 Financial and other information (continued)
Currency information
Euro
Other
2003
€ m
46,770
34,190
Assets
2002
Restated
€ m
38,252
47,569
2003
€ m
46,534
34,426
80,960
85,821
80,960
Liabilities
2002
Restated
€ m
38,643
47,178
85,821
62 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 2003 and 2002.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
installment 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
3,138
770
28,361
18,642
31,499
19,412
–
288
11,278
6,006
1,902
826
44,679
26,532
71,211
(741)
6,766
Year ended 31 December 2003
Average
rate
%
Interest
€ m
85
27
1,352
1,012
1,437
1,039
–
4
397
315
108
55
1,942
1,413
3,355
2.7
3.5
4.8
5.4
4.6
5.4
–
1.3
3.5
5.3
5.7
6.7
4.3
5.3
4.7
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
Total assets
77,236
3,355
4.3
86,257
4,268
4.9
Percentage of assets applicable to
foreign activities
37.9
51.6
(1)Loans to customers include money market funds. Non-accrual loans and loans classified as problem loans are also included within
this caption.
130
62 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 2003
Year ended 31 December 2002
Average
balance
€ m
Interest
€ m
Average
rate
%
Average
balance
€ m
Interest
€ m
Average
rate
%
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
36,836
21,230
–
264
1,682
132
38,518
21,626
60,144
7,798
4,219
191
215
4,669
727
606
–
3
78
7
805
616
1,421
2.0
2.9
–
1.2
4.7
5.2
2.1
2.8
2.4
31,005
30,326
–
1,489
1,642
682
32,647
32,497
65,144
10,764
5,444
285
253
4,367
Total liabilities and stockholders’ equity
77,236
1,421
1.8
86,257
1,917
2.2
Percentage of liabilities applicable to
foreign activities
35.6
50.0
63 Supplementary Group financial information for US reporting purposes
Exceptional foreign exchange dealing losses
As set out in note 8(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.
131
Notes to the accounts
63 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)
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.
Consolidated net income as in the consolidated statements of income
Adjustments:
Exceptional foreign exchange dealing losses
Administration expenses
Applicable taxes
Consolidated net income under alternative presentation
2002
Restated(1)
€ m
1,034
(18)
(10)
10
1,016
2001
€ m
484
372
6
(132)
730
(1)The figures for 2002 and 2001 have been restated to reflect the implementation of UITF Abstract 37 - Purchases and sales of own
shares and UITF Abstract 38 - Accounting for ESOP Trusts (note 48).
132
63 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
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
alternative presentation
Consolidated total assets
Total assets as in the consolidated balance sheet
Adjustments:
Other assets
2001
Restated
€ m
2000
Restated
€ m
1999
Restated
€ m
1998
Restated
€ m
4,554
4,719
4,291
2,829
20
(210)
(58)
(23)
4,574
4,509
4,233
2,806
89,061
80,318
67,790
53,875
–
(323)
(89)
(36)
Consolidated total assets under alternative presentation
89,061
79,995
67,701
53,839
Consolidated total liabilities and
ordinary stockholders’ equity
Total liabilities and ordinary stockholders’
equity as in the consolidated balance sheet
89,061
80,318
67,790
53,875
Adjustments:
Expense accruals
Other liabilities
Ordinary stockholders’ equity
(11)
(9)
20
–
(113)
(210)
–
(31)
(58)
–
(13)
(23)
Consolidated total liabilities and ordinary stockholders’
equity under alternative presentation
89,061
79,995
67,701
53,839
133
Notes to the accounts
63 Supplementary Group financial information for US reporting purposes (continued)
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 transaction. The purpose of these securities transactions is to
minimise the risk associated with the AIB investment portfolio. 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’.
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 € 12,445 million at December 31, 2003 would be classified for US GAAP purposes
as ‘available-for-sale’. At December 31, 2003 the market value of such securities was € 12,625 million.The excess of market value over
amortized cost of the debt securities of € 180 million gave rise to an after tax reconciling item of € 158 million positive in the
consolidated ordinary stockholders’ equity for US GAAP purposes.
Under US GAAP, at December 31, 2002 debt securities in the amount of € 13,446 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, 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 negative in the consolidated ordinary stockholders’ equity for US GAAP
purposes.
Under US GAAP, at December 31, 2003 equity securities classified as financial fixed assets in the Group balance sheet in the amount
of € 116 million would be classified as ‘available-for-sale’. At December 31, 2003 the market value of these securities was € 130 million.
The excess of book amount of these securities over market value was € 14 million giving rise to an after tax reconciling item of
€ 12 million positive 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.
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 57 and 58.
134
63 Supplementary Group financial information for US reporting purposes (continued)
Summary of significant differences between Irish and United States accounting principles (continued)
Internal derivative trades (continued)
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.
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. Under US GAAP, derivative trades entered into by the Group are adjusted to fair
value through earnings.
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.
135
Notes to the accounts
63 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
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. Holdings of shares in Allied Irish Banks, p.l.c., previously recorded within
long-term assurance assets/liabilities attributable to policyholders, are now deducted in arriving at shareholders’ funds.
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
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
amortisation period and using the same amortisation schedule as for acquisition costs. Holdings of shares in Allied Irish Banks, p.l.c.,
are netted off against ordinary stockholders equity.
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 amortisation
methods are used that are different when compared with IR GAAP.
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.
Special purpose vehicles/variable interest entities
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. In addition, linked presentation is adopted where assets have been securitised and
the Group’s exposure is limited to the net amount recognised as an asset in the balance sheet (see note 27).
Under US GAAP, variable interest entities (‘VIEs’) are consolidated by their primary beneficiary. A company is deemed to be a
primary beneficiary where it is subject to a majority of the risk of loss from the VIE’s activities or entitled to receive a majority of
the VIE’s residuals returns or both.
Accounting for Investment in M&T Bank
Under IR GAAP, the Group’s share of the assets and liabilities of M&T as at 1 April 2003 have been recorded at fair value in
accordance with the accounting policies of the Group. In addition, the Group’s share of the profits of M&T reflect the IR GAAP
accounting rules applied by the Group.
Under US GAAP, certain accounting policies used in relation to both the investment in M&T and the Group’s share of profits of
M&T are different when compared to IR GAAP.
136
63 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 132)
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
Internal use computer software
Derivatives FAS 133 transition adjustment(1)
Derivatives FAS 133 adjustment
Gain recognised on the disposal of businesses
Share of income of associated undertakings
Deferred tax effect of the above adjustments
Year ended December 31
2003
2002
Restated
2001
(millions except per share amounts)
€ 677
€ 1,016
€ 730
2
(13)
30
(1)
7
5
1
(1)
–
11
832
33
(60)
2
(27)
4
(5)
(5)
8
(3)
1
–
(82)
–
–
17
5
(48)
(110)
(7)
53
15
(24)
6
122
(107)
–
–
(5)
Net income in accordance with US GAAP
€ 1,523
€ 926
€ 630
Net income applicable to ordinary stockholders of AIB in accordance with US GAAP
€ 1,518
€ 918
€ 615
Equivalent to
US $ 1,917
Income per American Depositary Share (ADS*) in accordance with US GAAP
€ 3.53
€ 2.11
€ 1.43
Equivalent to
Year end exchange rate €/US $
US $ 4.46
1.2630
*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
Year ended December 31
2003
€ 1,523
(41)
–
(501)
2002
Restated
(millions)
€ 926
84
–
(480)
2001
€ 630
120
41
214
€ 981
€ 530
€ 1,005
(1)Cumulative effect of the change in accounting principle for derivatives and hedging activities.
137
Notes to the accounts
63 Supplementary Group financial information for US reporting purposes (continued)
Consolidated ordinary stockholders’ equity
2003
2002
Restated
2001
Restated
(millions except per share amounts)
Ordinary stockholders’ equity as in the consolidated balance sheet
under alternative presentation (page 133)
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
Securities held for hedging purposes
Derivatives FAS 133 adjustment
Retirement benefits
Internal use computer software
Other recognised gains/(losses) in associated undertaking
Share of income of associated undertaking
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 133)
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 FAS 133 adjustment
Retirement benefits
Internal use computer software
Special purpose vehicles/variable interest entities
Long-term assurance policies
Long-term assurance assets attributable to policyholders
Investment in associated undertaking
Acceptances
Total assets in accordance with US GAAP
Equivalent to
€ 4,942
(168)
(27)
223
–
296
1
(276)
180
14
(3)
(16)
899
18
2
33
(146)
€ 5,972
US $ 7,543
€ 13.90
US $ 17.55
€ 11.50
US $ 14.52
2003
€ 80,960
(168)
(27)
223
–
180
14
(16)
899
18
519
(276)
(2,810)
38
11
€ 79,565
US $ 100,491
€ 4,180
(201)
(27)
925
12
284
1
(263)
244
15
(4)
(79)
1,012
18
–
–
(206)
€ 5,911
€ 4,574
(204)
(27)
1,070
19
250
1
(236)
169
–
(1)
5
77
17
–
–
(50)
€ 5,664
€ 13.61
€ 13.15
€ 9.62
€ 10.62
2002
Restated
(millions)
€ 85,821
(201)
(27)
925
12
244
15
(79)
1,012
18
1,057
(263)
(2,174)
–
72
€ 86,432
2001
Restated
€ 89,061
(204)
(27)
1,070
19
169
–
5
77
17
667
(236)
(2,200)
–
142
€ 88,560
138
63 Supplementary Group financial information for US reporting purposes (continued)
Consolidated total liabilities and ordinary stockholders’ equity
Total liabilities and ordinary stockholders’ equity as in the consolidated
balance sheet under alternative presentation (page 133)
Ordinary stockholders’ equity
Dividends payable on ordinary shares
Dividends on non-equity shares
Acceptances
Securities held for hedging purposes
Debt securities in issue re special purpose vehicles/variable
interest entities
Deferred taxation
Own shares
Long-term assurance liabilities to policyholders
2003
€ 80,960
1,030
(296)
(1)
11
3
519
149
59
(2,869)
2002
Restated
(millions)
€ 85,821
1,731
(284)
(1)
72
4
1,057
206
52
(2,226)
2001
Restated
€ 89,061
1,090
(250)
(1)
142
1
667
50
52
(2,252)
Total liabilities and stockholders’ equity in accordance with US GAAP
€ 79,565
€ 86,432
€ 88,560
Equivalent to
US $ 100,491
Statement of changes in ordinary stockholders’ equity
Opening balance
Net income
Dividends payable on ordinary shares
Dividends on non-equity shares
Ordinary shares bought back
Issue of shares
Unrealized gains on debt securities and equity shares
held as available-for-sale
FAS 133 transition adjustment
Goodwill written back
Exchange translation adjustments
Other movements
Closing balance
64 Approval of accounts
The accounts were approved by the board of directors on 23 February 2004.
2003
€ 5,911
1,523
(440)
(5)
(812)
188
(42)
–
217
(501)
(67)
€ 5,972
2002
Restated
(millions)
€ 5,664
926
(396)
(8)
–
115
84
–
–
(480)
6
€ 5,911
2001
Restated
€ 5,002
630
(351)
(15)
–
60
120
41
–
214
(37)
€ 5,664
139
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 54 to 139, 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.
140
Independent auditors’ report
Independent Auditors’ Report to the Members of Allied Irish Banks, p.l.c.
We have audited the financial statements on pages 54 to 139.
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 140, 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 or the Listing Rules regarding directors’ remuneration and
transactions is not disclosed.
We review whether the statement on pages 50 to 53 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.
141
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 2003 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 48 to 49 is consistent with the financial statements.
The net assets of the Company, as stated in the balance sheet on page 62, 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 2003 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
23 February 2004
142
Additional financial information
The following consolidated profit and loss account for the year ended 31 December 2002, as well as the consolidated balance sheet
for 31 December 2002 on page 144, have been presented to facilitate comparisons to the financial statements presented in this report.
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
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses
Group operating profit before provisions
Provisions for bad and doubtful debts
Provisions for contingent liabilities and commitments
Amounts written off fixed asset investments
Group operating profit
Share of operating profits of associated undertakings
Profit on disposal of property
Group profit on ordinary activities
before taxation
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
Year ended 31 December 2002
Restated
Continuing Discontinued
activities
€ m
activities
€ m
Total
€ m
783
3,164
(2,117)
163
643
946
3,807
(285)
(2,402)
1,830
63
1,055
2,948
1,747
1,201
110
2
43
1,046
9
6
1,061
232
521
(1)
459
979
571
408
84
–
12
312
–
(1)
311
74
2,351
62
1,514
3,927
2,318
1,609
194
2
55
1,358
9
5
1,372
306
829
237
1,066
20
8
28
4
–
4
24
8
32
801
233
1,034
429
45
474
560
143
Additional financial information (continued)
Year ended 31 December 2002
Restated
Continuing Discontinued
activities
€ m
activities
€ m
996
330
11
3,364
43,708
1,002
(754)
248
180
841
13
1,424
9,739
–
–
–
Total
€ m
1,176
1,171
24
4,788
53,447
1,002
(754)
248
16,046
2,158
18,204
161
31
457
954
679
95
791
352
68,223
2,174
70,397
14,883
41,894
2,159
2,458
725
443
49
116
1,605
181
85
–
–
224
474
150
136
–
15,424
–
15,424
1,254
11,082
918
133
104
94
11
411
567
93
64,513
14,667
246
31
457
1,178
1,153
245
927
352
83,647
2,174
85,821
16,137
52,976
3,077
2,591
829
537
60
527
2,172
274
79,180
4,415
83,595
2,226
85,821
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 – net
Less: non-returnable proceeds
Debt securities
Equity shares
Interests in associated undertakings
Intangible fixed assets
Tangible fixed assets
Other assets
Deferred taxation
Prepayments and accrued income
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
Total liabilities
Shareholders’ funds including non-equity interests
Long-term assurance liabilities to policyholders
144
Accounts in sterling, US dollars and Polish zloty
Summary of consolidated profit and loss account
for the year ended 31 December 2003
€ m
STG £m
STG £ 0.7048
= € 1
US $m
US $ 1.263
= € 1
PLN m
PLN 4.7019
= € 1
Group operating profit before provisions
Provisions
Group operating profit
Income from associated undertakings
Profit on disposal of property
Loss on disposal of businesses
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 2003
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
1,216
177
1,039
81
32
(141)
1,011
318
693
677
452
78.8c
109.5c
78.4c
857
125
732
57
22
(99)
712
224
488
477
319
55.5p
77.2p
55.2p
1,536
224
1,312
103
40
(178)
1,277
402
875
855
572
5,717
833
4,884
382
150
(662)
4,754
1,495
3,259
3,184
2,128
99.5¢
138.3¢
99.0¢
370.5 PLN
514.9 PLN
368.4 PLN
€ m
Stg £m
US $m
PLN m
2,633
50,490
18,307
420
792
5,508
1,856
35,585
12,903
296
558
3,882
3,326
63,769
23,122
530
1,000
6,957
12,380
237,400
86,077
1,974
3,724
25,898
2,810
1,981
3,549
13,214
80,960
57,061
102,253
380,667
18,094
44,612
3,489
4,470
2,130
158
5,138
2,869
12,753
31,443
2,459
3,151
1,501
111
3,621
2,022
22,852
56,345
4,407
5,645
2,690
200
6,490
3,624
85,076
209,761
16,406
21,017
10,015
743
24,159
13,490
80,960
57,061
102,253
380,667
145
Five year financial summary
2003
Summary of consolidated
US $m profit and loss account
2,443 Net interest income before exceptional items
– Deposit interest retention tax
2,443 Net interest income after exceptional items
15 Other finance income
1,554 Other income before exceptional item(1)
–
Exceptional foreign exchange dealing losses
4,012 Total operating income after exceptional items
2,476 Total operating expenses
1,536 Group operating profit before provisions
224
Provisions
1,312 Group operating profit
181
Share of operating profits of associated undertakings
Share of restructuring & integration costs in
(25)
associated undertaking
Amortisation of goodwill on acquisition of
(53)
40
(178)
associated undertaking
Profit on disposal of property
(Loss)/profit on disposal of businesses
1,277 Group profit before taxation
402 Taxation on ordinary activities
14
6 Dividends on non-equity shares
Equity and non-equity minority interests
Group profit attributable to the ordinary
2003
€ m
1,934
–
1,934
12
1,230
–
3,176
1,960
1,216
177
1,039
143
(20)
(42)
32
(141)
1,011
318
11
5
2002(1)
€ m
2,351
–
2,351
62
1,514
–
3,927
2,318
1,609
251
1,358
9
–
–
5
–
1,372
306
24
8
855
shareholders of Allied Irish Banks, p.l.c.
677
1,034
572 Dividends on equity shares
1.5 Dividend cover – times
99.5¢
138.3¢
99.0¢
Earnings per € 0.32 share – basic
Earnings per € 0.32 share – adjusted
Earnings per € 0.32 share – diluted
2003
Summary of consolidated
US $m balance sheet
102,253 Total assets(1)
67,352 Total loans
83,604 Total deposits
1,612 Dated capital notes
451 Undated capital notes
627 Reserve capital instruments
Equity and non-equity minority
interests in subsidiaries
Shareholders’ funds: non-equity interests
Shareholders’ funds: equity interests(1)
200
247
6,242
9,379 Total capital resources
452
1.5
78.8c
109.5c
78.4c
2003
€ m
80,960
53,326
66,195
1,277
357
496
158
196
4,942
7,426
429
2.4
119.1c
122.7c
117.9c
2002
€ m
85,821
58,483
72,190
1,287
389
496
274
235
4,180
6,861
Year ended 31 December
1999
€ m
2000
€ m
2,022
(113)
1,909
71
1,304
–
3,284
1,997
1,287
134
1,153
3
–
–
5
–
1,161
319
38
20
784
335
2.3
91.6c
106.7c
91.0c
1,770
–
1,770
71
1,052
–
2,893
1,658
1,235
92
1,143
3
–
–
2
15
1,163
333
28
16
786
288
2.7
92.5c
93.5c
91.6c
2001
€ m
2,258
–
2,258
67
1,426
(789)
2,962
2,284
678
204
474
4
–
–
6
93
577
55
23
15
484
380
1.3
56.2c
108.6c
55.9c
Year ended 31 December
1999
€ m
2000
€ m
2001
€ m
89,061
57,445
72,813
1,594
426
496
312
279
4,554
7,661
80,318
50,239
65,210
1,836
413
–
272
264
4,719
7,504
67,790
43,127
55,241
1,587
397
–
227
245
4,291
6,747
(1) The figures for 2002 in the consolidated profit and loss account and the figures for 2002, 2001, 2000 and 1999 in the consolidated
balance sheet have been restated to reflect the implementation of UITF Abstract 37 - Purchases and sales of own shares and UITF
Abstract 38 - Accounting for ESOP Trusts (Accounting policies - page 54).
146
Other financial data
Return on average total assets
Return on average ordinary shareholders’ equity(3)
Dividend payout ratio
Average ordinary shareholders’ equity
as a percentage of average total assets(3)
Allowance for loan losses as a percentage
of total loans to customers at year end
Net interest margin
Tier 1 capital ratio
Total capital ratio
2003
%
0.90
14.5
66.8
6.0
1.3
2.72
7.1
10.4
2002
%
1.24
23.7
41.5(3)
5.1
1.6
3.00
6.9
10.1
Year ended 31 December
1999
%
2000
%
1.12(2)
17.4(2)
42.7
6.1
1.9
3.02
6.3
10.8
1.36
20.9
36.6
5.9
1.9
3.27
6.4
11.3
2001
%
0.62(1)
10.4(1)
78.5
5.8
1.9
2.99
6.5
10.1
(1)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 20.4%.
(2)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 19.5%.
(3)Restated to reflect the implementation of UITF Abstract 37 - Purchases and sales of own shares and UITF Abstract 38 - Accounting for ESOP
Trusts (Accounting policies - page 54).
US $
Supplementary information
for US investors
Per American Depositary Share (ADS):(1)
1.99 Net income per alternative presentation (note 63)
1.33 Dividend(3)
14.52 Net assets per alternative presentation (note 63)(7)
Amounts in accordance with US GAAP:
1,924m Net income
1,917m Net income attributable to ordinary stockholders
4.46 Net income per ADS
17.55 Net assets per ADS(7)
100,491m Total assets(7)
7,543m Ordinary stockholders’ equity(7)
2003
€
2002
€
Year ended 31 December
1999
€
2000
€
2001
€
1.58
1.05
11.50
1,523m
1,518m
3.53
13.90
2.34(7)
0.98
9.62
926m(7)
918m(7)
2.11(7)
1.70
0.88
10.62
1.49(2)
0.78
10.53
1.78
0.68
9.96
630m
615m
1.43
13.15
88,560m
5,664m
571m(4)
551m(5)
1.29(6)
11.69
78,216m
5,002m
663m
647m
1.52
10.29
65,929m
4,374m
13.61
79,565m 86,432m
5,972m
5,911m
(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)€ 1.73 (US$ 1.61) when adjusted to exclude the impact of the deposit interest retention tax settlement.
(3)The actual dividend payable to US stockholders will depend on the €/US $ exchange rate prevailing.
(4)€ 674m (US$ 628m) when adjusted to exclude the impact of the deposit interest retention tax settlement.
(5)€ 654m (US$ 609m) when adjusted to exclude the impact of the deposit interest retention tax settlement.
(6)€ 1.53 (US$ 1.42) when adjusted to exclude the impact of the deposit interest retention tax settlement.
(7)Restated to reflect the implementation of UITF Abstract 37 - Purchases and sales of own shares and UITF Abstract 38 - Accounting for
ESOP Trusts (Accounting policies - page 54).
Other financial data in accordance
with US GAAP:
Return on average total assets
Return on average ordinary stockholders’ equity(2)
Dividend payout ratio
Average ordinary stockholders’ equity
2003
%
2002
%
Year ended 31 December
1999
%
2000
%
2001
%
2.00
25.10
29.8
1.10(2)
15.88
46.6
0.79
10.82
61.7
0.83(1)
11.32(1)
60.7
1.15
15.05
44.4
as a percentage of average total assets(2)
7.87
6.69
6.84
6.64
7.15
(1)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 13.29%.
(2)Restated to reflect the implementation of UITF Abstract 37 - Purchases and sales of own shares and UITF Abstract 38 - Accounting for
ESOP Trusts (Accounting policies - page 54).
147
Principal addresses
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 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 7180
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 9043 8338
From ROI 048 9043 8338
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
148
USA
Poland
Rest of the World
Allied Irish Banks, plc
405 Park Avenue, New York,
NY 10022.
Telephone + 1 212 339 8000
Facsimile + 1 212 339 8007/8
AIB Corporate Banking
North America
4th floor,
405 Park Avenue, New York,
NY 10022.
Telephone + 1 212 339 8080
Facsimile + 1 212 339 8325
AIB Treasury Services
405 Park Avenue, New York,
NY 10022.
Telephone + 1 212 339 8080
Facsimile + 1 212 339 8006
Bank Zachodni WBK S.A.
Rynek 9/11, 50-950 Wroclaw.
Telephone + 48 71 370 1000
Facsimile + 48 71 370 2478
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 883 112
AIB Corporate Banking
Germany
Reuterweg 49, 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).
149
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. These services may also 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 (ADSs), 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: 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 direct to a designated bank account,
under advice 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
The Company operates a Dividend Reinvestment Plan, under which ordinary shareholders may be offered new shares in
lieu of cash 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 154.
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.
150
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 certain 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 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 or
ordinarily 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;
- Qualifying fund managers receiving a dividend for the benefit of an approved retirement fund or an approved
minimum retirement fund;
- Qualifying savings managers receiving a dividend for the benefit of a special savings incentive account.
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.
151
Additional information for shareholders (continued)
9. Dividend Withholding Tax (‘DWT’) (continued)
– Qualifying Intermediaries (other than American Depositary Banks – see D below) (continued)
–
–
–
holds a licence under the Central Bank Act, 1971, or a similar authorisation under the law of a relevant territory, or is
wholly 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 or other person (not being a company) 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 body of persons, such as a charity or superannuation fund, which is resident for tax purposes in a relevant
territory;
(c) a company which is resident in a relevant territory and is not under the control (direct or indirect) of Irish resident(s);
(d) a company which is under the control (direct or indirect) of a person or persons resident for tax purposes in a relevant
territory and which is not under the control (direct or indirect) of Irish resident(s); or
(e) a company, 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.
152
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.
D. American Depositary Receipt (‘ADR’) Holders
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
An ADR holder who is beneficially entitled to the dividend and whose address:
-
-
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 finalising this Report for publication, 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 withholding 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 the applicable Form W8 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 154; (ii) the holder’s Registered Broker, where applicable; or (iii) the
holder’s financial/taxation adviser.
153
Additional information for shareholders (continued)
Shareholding analysis
as at 31 December 2003
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
Shareholder Accounts
%
Number
Number
13,882,367
59,010,391
40,460,115
119,212,311
619,521,976
Shares*
%
1
7
5
14
73
45
41
7
6
1
100
852,087,160
100
68
32
318,853,858
533,233,302
100
852,087,160
37
63
100
39,330
36,344
6,198
5,543
548
87,963
60,168
27,795
87,963
* Excludes 55,534,156 shares held as Treasury Shares – see note 47 on page 106.
Financial calendar
Annual General Meeting:
Thursday, 29 April 2004, commencing at 11.00 a.m.
Dividend payment dates - Ordinary Shares:
–
Final Dividend 2003 – 30 April 2004
(Share Certificates posted to Dividend Reinvestment Plan
Participants – 6 May 2004)
–
Interim Dividend 2004 – 27 September 2004
Interim results:
Unaudited interim results for the half-year ending 30 June 2004 will be announced on 27 July 2004. The Interim Report for the half-year
ending 30 June 2004 will be published as a press advertisement in early-August 2004, and 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
154
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: www.adrbny.com
or
Allied Irish Banks
Shareholder Relations
PO Box 609
Harrisburg, PA 17108-0609, USA
Telephone 1-800-458-0348
Email: ann.l.kerman@aibny.com
141
91
71
70
119
53
28
79
80
94
Index
A
Accounting policies
Accounts
D
54
54
Dealing profits
Debt securities
Accounts in sterling, US dollars, etc.
145
Debt securities in issue
Acquisition of strategic stake
in M&T
Administrative expenses
Deferred taxation
Deposits by banks
Depreciation
65
71
I
70 & 113
Independent auditors’ report
83
99
93
97
72
Intangible fixed assets
Integration costs
Interest payable
Interest rate sensitivity
Internal control
Additional financial information
143
Derivatives
45 & 110
International accounting standards
AIB and its people
Amortisation of goodwill
Amounts written off fixed asset
investments
Approval of accounts
Associated undertakings
Audit Committee
Auditors
Auditors’ remuneration
17
72
72
139
88
51
49
75
Directors
Directors’ interests
Directors’ remuneration
Dividend income
Dividends
Divisional commentary
E
Average balance sheets and
Earnings per share
interest rates
130
Employees
Equity shares
Exchange rates
L
Loans and advances to banks
Loans and advances to customers
Long-term assurance business
M
Market risk
Minority interests
41
77 & 102
10
125
122
70
77
31
78
128
86
19 & 129
N
B
Balance sheet
Exceptional foreign exchange
Nomination and Remuneration
61
dealing losses
70 & 131
Committee
51 & 122
C
F
Capital management
37
Fair value
Cash flow statement
28 & 63 & 121
Financial and other information
Central government bills
Chairman’s statement
Class actions
Commitments
Contingent liabilities
and commitments
Corporate and social responsibility
Corporate Governance
78
8
109
128
108
16
50
Financial calendar
Financial highlights
Financial review
Five year financial summary
Form 20-F
G
O
Operational risk
Other interest receivable
Other finance income
Other liabilities
Other operating income
Outlook
Own shares
116
129
154
1
37
146
128
Credit risk
40 & 81
Group Chief Executive’s Review
12
Critical accounting policies
Customer accounts
19
98
46
70
70
99
71
27
107
155
Index (continued)
P
Performance review
Principal addresses
Profit and loss account
Profit and loss account reserves
(Loss)/profit on disposal of businesses
Profit retained
Provisions for bad and
19
148
59
106
74
77
S
Securitised assets
Segmental information
Share capital
Share premium account
Shareholder information
Shares in Group undertakings
Social Affairs Committee
doubtful debts
25 & 82
Statement of Directors’
Provisions for liabilities
Responsibilities
and charges
100
Statement of total recognised gains
82
66
103
105
150
90
52
140
R
Reconciliation of movements
in shareholders’ funds
Report of the Directors
Reporting currency
Repurchase of shares
Reserves
Restructuring costs
Retirement benefits
Risk management
64
48
128
106
105
71
72
39
and losses
Subordinated liabilities
27 & 64
101
T
Tangible fixed assets
Taxation
Transactions with directors
Turnover
92
27 & 76
127
65
U
US reporting purposes –
Supplementary Group
financial information
131
156