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ANNEX TO PRE-ADMISSION ANNOUNCEMENT ESM SCHEDULE 1

PART A: INFORMATION REQUIRED PURSUANT TO THE SUPPLEMENT TO SCHEDULE 1, PARAGRAPH (K) (INFORMATION EQUIVALENT TO THAT REQUIRED FOR AN ADMISSION DOCUMENT WHICH IS NOT CURRENTLY PUBLIC)

A1 OVERVIEW OF BUSINESS PERFORMANCE AND OPERATING AND FINANCIAL REVIEW

This section should be read in conjunction with the 2010 Half-Yearly Financial Report and the 2009 Annual Financial Report.

All tables and figures within this Operating and Financial Review have been sourced or derived from the 2010 Half-Yearly Financial Report or the 2009 Annual Financial Report, or from AIB's unaudited accounting books and management records (unless otherwise expressly stated).

1. Review of AIB's financial condition and operating results for thesix months ended 30 June 2010 and 2009

1.1. Introduction

On 30 March 2010, following publication of the original PCAR, the Group announced that its investments in BZWBK and M&T, as well as its UK business, were for sale. Subsequently, BACB was also included in the investments to be disposed of. In line with AIB's accounting policies, these businesses were classified as "discontinued operations" at 30 June 2010 and are presented as discontinued operations in the financial information in AIB's 2010 Half-Yearly Financial Report.

The income statement commentary in this review of AIB's financial condition and operating results for the six months ended 30 June 2010 is on a continuing operations basis, which is a different basis to that presented in the 2009 Annual Financial Report, and reflects the Group's continuing operations as at 30 June 2010 (the last reporting period end date to which AIB is required to have prepared and published financial information). The review of AIB's financial condition and operating results for the six months ended 30 June 2010 and 2009 on pages 3-32 of the 2010 Half-Yearly Financial Report is presented on a total AIB Group basis, including discontinued operations.

The Group's continuing operations at 30 June 2010 constituted the businesses AIB expected would continue to operate following the planned disposals. As at 30 June 2010 those businesses were: AIB Bank RoI, Capital Markets and AmCredit, which was historically reported within Central & Eastern Europe (AmCredit is reported in the Group division in this paragraph 1 and is likely to be part of the Group division going forward). In addition, the results of the Group's continuing operations do not include the results of BZWBK wholesale treasury and certain BZWBK investment banking subsidiaries which were historically reported in Capital Markets. The commentary on the consolidated statement of financial position is on a total AIB Group basis as AIB is not permitted, under IFRS, to retrospectively re-present the consolidated statement of financial position. Therefore, paragraphs 1.12 ("Statement of financial position"), 1.13 ("Capital") and 1.18 ("Funding"), which are extracted or derived from the consolidated statement of financial position are presented on a total AIB Group basis.

AIB's discontinued operations as at 30 June 2010 were those businesses that it then expected to sell within twelve months of the date of classification as a discontinued operation, being AIB's UK business (reported under the heading AIB Group (UK) p.l.c.), BZWBK, BACB and M&T. At that date, there could be no assurance as to whether and, if so, when such transactions would actually complete.

AIB has entered into a conditional agreement to sell its interests in BZWBK, which represents substantially all of its Polish business. This transaction is subject to receipt of required regulatory approvals and a range of other closing conditions. AIB has since completed the sale of its M&T Shareholding.

On 19 November 2010, AIB announced that, in light of continuing challenging market conditions, the Board has decided to halt the current sale process of its UK business and undertake a strategic review of this business in the context of reviewing AIB's overall business. Therefore, AIB no longer expects the disposal of its UK business to complete within twelve months of the date of its classification as a discontinued operation and the UK business is not expected to be classified as a discontinued operation in the Group's results for the year ending 31 December 2010.

As noted above, the income statement commentary in this review of AIB's financial condition and operations reflects the Group's continuing operations as at 30 June 2010, and, therefore, the UK business, being classified as a discontinued operation at such date, is not part of the continuing operations. As this no longer reflects the Group following the announcement on 19 November 2010, and in order to aid understanding of the Group going forward, please note the income statement commentary on AIB's UK business (reported under the heading AIB Group (UK) p.l.c.) provided in paragraph 1.11 below.

1.2. Overview on results

The six months ended 30 June 2010 was a very difficult period for AIB and its customers. A significant level of credit losses was experienced in the period in addition to the loss on transfer of the first tranche of loans to NAMA.

Operating profit before provisions was €624 million excluding the loss on transfer of loans to NAMA, or a loss of €332 million including the loss on transfer of loans to NAMA, compared to an operating profit before provisions of €1.4 billion in the comparative period to 30 June 2009. The profit for the six months included a gain of €372 million from the capital exchange offering completed in March 2010. Provisions for impairment of loans and receivables were €2.1 billion and included €1.2 billion related to loans that were identified for potential transfer to NAMA. On a continuing operations basis, the Group reported a loss after taxation of €2,034 million in the six months ended 30 June 2010, compared with a loss after taxation of €610 million in the six months ended 30 June 2009.

Higher funding costs remained an issue. These higher funding costs reflected the increased cost of customer deposits, higher wholesale funding costs and the cost of the ELG Scheme, which in total contributed to a reduction in net interest income.

Total operating income was €385 million compared to €2,175 million in the six months ended 30 June 2009, a decrease of €1,790 million or 82 per cent. Excluding the loss on transfer of the first tranche of assets to NAMA of €956 million in 2010 and capital exchange gains of €372 million in 2010 and €623 million in 2009, total income was €969 million in the six months ended 30 June 2010 compared with €1,552 million in the six months ended 30 June 2009, a reduction of €583 million. Further excluding the impact of interest rate hedge volatility (a net decrease of €66 million between the six months ended 30 June 2009 and the six months ended 30 June 2010), total income decreased by €517 million. Net interest income was €851 million compared to €1,290 million in the six months ended 30 June 2009, a decrease of €439 million or 34 per cent. On a continuing operations basis, excluding the cost of the ELG Scheme, and further adjusted to exclude NAMA loans and income, the net interest margin for the six months ended 30 June 2010 was 1.55 per cent. Operating expenses were €717 million in the six months ended 30 June 2010 compared with €746 million in the six months ended 30 June 2009, a reduction of €29 million or 4 per cent. Active management of the cost base resulted in a 4 per cent. reduction in operating expenses compared with the six months ended 30 June 2009.

Customer deposits as a percentage of funding was 53 per cent. of balance sheet requirements compared to 51 per cent. at 31 December 2009. The loan-to-deposit ratio at 30 June 2010 was 127 per cent., or 143 per cent. including loans held for sale to NAMA, compared to 146 per cent., at 31 December 2009.

At 30 June 2010, AIB's Equity Tier 1 Capital Ratio (Core Tier 1 Capital Ratio excluding the €3.5 billion of Core Tier 1 Capital from the Government) was 3.8 per cent., Core Tier 1 Capital Ratio was 6.9 per cent. and Total Capital Ratio was 9.0 per cent.

1.3. Commentary on results

AIB provides supplemental information of its results on a non-GAAP basis to enable the reader to understand the impact of the underlying performance on earnings per share. In this regard, the Group presents an adjusted earnings per share, to adjust for material items of a non-recurring or one-off nature which impact the performance of the organisation in the period under assessment. They are set out below as follows:

Gain on redemption of capital instruments

The capital exchange in March 2010 generated a gain of €372 million; equivalent to EUR 34.5c earnings per share. In the six months ended 30 June 2009, the capital exchange offering generated a gain of €1,161 million (€623 million in the income statement and €538 million as a movement in equity), equivalent to EUR 121.8c earnings per share.

Interest rate hedge volatility

Under IFRS, the reporting of hedges in place for interest rate volatility (hedging ineffectiveness and derivative volatility) can result in the recording of a net gain/loss in the income statement.

In the six months ended 30 June 2010, this resulted in a decrease in profit before taxation of €68 million (€59 million loss after taxation of which €45 million was in continuing operations and €14 million was in discontinued operations) equivalent to EUR 4.2c in earnings per share for continuing operations and EUR 1.3c in earnings per share for discontinued operations. In the six months ended 30 June 2009, this resulted in a decrease in profit before taxation of €12 million (€13 million loss after taxation of which €12 million profit after taxation was in continuing operations and €25 million loss after taxation in discontinued operations) equivalent to EUR 1.4c in earnings per share for continuing operations and EUR 2.9c in earnings per share for discontinued operations.

Strategic property disposals

In 2005, AIB began a programme of sale and leaseback transactions on a number of branches and its headquarter location in Ireland.

As part of this programme, during the six months ended 30 June 2010, income of €36 million (€27 million after taxation for continuing operations and €1 million after taxation for discontinued operations) was recorded which related to profit on disposal of property. These strategic property disposals contributed EUR 2.6c to earnings per share.

During the six months ended 30 June 2009, income of €10 million (€8 million after taxation) was recorded in continuing operations of which profit on disposal of property amounted to €9 million (€7 million after taxation) and construction contract income amounted to €1 million (€1 million after taxation). In total, strategic property disposals contributed EUR 0.9c to earnings per share.

For more information on adjusted earnings per share see note 15(a) of the 2010 Half-Yearly Financial Report.

1.4. Summary Income Statement

The following income statement and supporting commentary is prepared on a continuing operations basis.

____________

Notes: 

(1)  Loss on disposal of financial instruments held for sale to NAMA.

(2) Depreciation of property, plant and equipment.

(3) Impairment and amortisation of intangible assets.

1.5. Net interest income

Net interest income was €851 million in the six months ended 30 June 2010 compared with €1,290 million in the six months ended 30 June 2009, a decrease of €439 million or 34 per cent. Net interest income for the six months ended 30 June 2010 included a charge associated with the ELG Scheme amounting to €93 million excluding which net interest income reduced by €346 million or 27 per cent. (the aggregate charge for the CIFS Scheme as a blanket guarantee and the ELG Scheme was €130 million (ELG Scheme €93 million and CIFS Scheme €37 million) compared to €49 million for the six months ended 30 June 2009. The CIFS Scheme charge is reflected in other income amounting to €37 million and €49 million for the six months ended 30 June 2010 and 30 June 2009 respectively). The ELG Scheme was introduced in December 2009 and subsequently approved by the European Commission and did not impact 2009 net interest income. The net interest income decrease, excluding the cost of the ELG Scheme, mainly reflected the significantly increased cost of customer deposits in a highly competitive marketplace, which resulted in lower deposit income, higher wholesale funding costs, a lower return on invested capital and a lower treasury margin, partly offset by higher loan margins.

On a continuing operations basis, excluding the cost of the ELG Scheme, and further adjusted to exclude NAMA loans and income, the net interest margin for the six months ended 30 June 2010 was 1.55 per cent. On the same basis, average interest earning assets for the six months ended 30 June 2010 were approximately €109 billion and annualised net interest income was approximately €1.69 billion. The component parts of the annualised net interest income of approximately €1.69 billion were estimated by management to comprise net loan income of c. €1.56 billion, net deposit cost of c. €120 million, funding costs of c. €310 million and treasury/other income of c. €560 million.

1.6. Other income

____________

Note: 

(1) Trading income includes foreign exchange contracts, debt securities and interest rate contracts, credit derivative contracts, equity securities and index contracts. See note 6 of the 2010 Half-Yearly Financial Report for more information.

Other income was a negative €466 million in the six months ended 30 June 2010, which included a loss of €956 million on the transfer of the first tranche of assets to NAMA and a €372 million gain on redemption of subordinated liabilities from the capital exchange offering completed in March 2010. Excluding these items other income was €118 million, compared with €262 million in the six months ended 30 June 2009 (excluding the €623 million gain on redemption of subordinated liabilities from the capital exchange offering completed in June 2009), a decrease of €144 million or 55 per cent. This decrease included the negative impact of interest rate hedge volatility between the six months ended 30 June 2010 and 2009 of €66 million. Excluding this factor, other income was down €78 million or 31 per cent. compared with the six months ended 30 June 2009.

This reflected weaker economic conditions, challenging trading markets in which AIB operated, lower business volumes and lower revenues from investment banking activities. The decline of these other income elements was partly offset by profits on disposal of available for sale debt securities.

Banking fees and commissions decreased by six per cent. reflecting lower business volumes and activity.

Investment banking and asset management fees were down 20 per cent. in the six months ended 30 June 2010 mainly reflecting lower brokerage income in Ireland.

Fee and commission expense included the cost of the CIFS Scheme (€37 million in the six months ended 30 June 2010, €49 million in the six months ended 30 June 2009). The cost of the ELG Scheme of €93 million was included in net interest income.

Trading income was a negative €96 million in the six months ended 30 June 2010. Trading income excludes interest payable and receivable arising from hedging and the funding of trading activities, which are included in net interest income. In the six months ended 30 June 2010 there was a charge of €8 million to trading income related to the structured securities portfolio, a €21 million cross currency swap cost of borrowing in US dollars and converting to Euro and a negative fair value of €16 million related to NAMA held-for-sale derivatives. There was an offsetting credit in net interest income relating to the lower US dollar borrowing cost.

Other operating income in the six months ended 30 June 2010 was €62 million compared with €12 million in the six months ended 30 June 2009. Profit from the disposal of available for sale debt securities of €57 million and profit on disposal of available for sale equity shares of €11 million was recorded in the six months ended 30 June 2010.

1.7. Operating expenses

____________

Notes:

(1) Depreciation of property, plant and equipment.

(2) Impairment and amortisation of intangible assets.

Total operating expenses were €717 million in the six months ended 30 June 2010, a decrease of €29 million or 4 per cent. when compared to €746 million in the six months ended 30 June 2009. For the six months ended 30 June 2010, total operating expenses included external set-up costs of €14 million related to NAMA excluding which costs decreased by €43 million or 6 per cent. This decrease reflected active cost management in a period of slower economic conditions and reduced business activity.

Personnel expenses in the six months ended 30 June 2010 were €443 million, a reduction of €39 million or 8 per cent. compared with €482 million in the six months ended 30 June 2009. This included lower pension costs and a reduction in staff numbers of approximately 700.

General and administrative expenses of €216 million in the six months ended 30 June 2010 were €11 million or 5 per cent. higher than €205 million in the six months ended 30 June 2009. The increase related to NAMA costs and were partly offset by cost saving initiatives and ongoing management of all discretionary spend.

Depreciation and amortisation of €58 million in the six months ended 30 June 2010 was broadly in line with the six months ended 30 June 2009 (€59 million).

The cost/income ratio (calculated as total operating income as a percentage of total operating expenses) for the six months ended 30 June 2010, excluding the loss on the transfer of the first tranche of assets to NAMA (€956 million) and the 2010 gain on the capital exchange offering (€372 million) in the period was 74.0 per cent., or 53.4 per cent. including the gain on the capital exchange offering, compared to 48.1 per cent. for the six months ended 30 June 2009 (excluding the gain on the capital exchange offering). Weaker total income contributed to an increase in the cost/income ratio. The lower level of income was due to a number of factors including the cost of the Government Guarantee Schemes, higher wholesale funding costs and the cost of customer deposits.

1.8. Asset quality

Unless otherwise stated, customer loans in the following commentary refers to loans and receivables to customers for continuing operations including loans held for sale to NAMA.

The continuing operations criticised loans and receivables amounted to €32.5 billion as at 30 June 2010 comprising €14.2 billion related to loans and receivables held for sale to NAMA and €18.3 billion for loans and receivables to customers.

The following tables show criticised loans held for sale to NAMA, non NAMA and the total loan book. Criticised loans include watch, vulnerable and impaired loans and are defined as follows:

Watch: credit exhibiting weakness but with the expectation that existing debt can be fully repaid from normal cashflow;

Vulnerable: credit where repayment is in jeopardy from normal cashflow and may be dependent on other sources; and

Impaired: a loan is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the assets (a "loss event") and that loss event (or events) has an impact such that the present value of future cashflows is less than the current carrying value of the financial asset or group of assets, i.e. requires a provision to be raised through the income statement.

As at 30 June 2010 there were €16.9 billion in loans which were held for sale to NAMA, of which 84.6 per cent. were criticised. This was a reduction of €6.3 billion since 31 December 2009 and was largely accounted for by the fact that €3.3 billion of gross loans, mostly in AIB Bank RoI, were transferred to NAMA in April 2010 of which €2.6 billion were criticised. The criticised loans held for sale to NAMA of €14.2 billion relate primarily to loans in the land and development sector (approximately 75 per cent.) with the remainder related largely to the property investment, distribution (which includes hotels, license trade and motor trade) and other services sectors.

The Group's criticised loans and receivables to customers (non NAMA) amounted to €18.3 billion at 30 June 2010 compared with €15.4 billion at 31 December 2009.

AIB Bank RoI's non NAMA criticised loans increased by €2.7 billion as at 30 June 2010, from €14.2 billion as at 31 December 2009, largely in the vulnerable and impaired categories, with the main sectors impacted being the property investment, retail/wholesale, other services and personal sectors. Property sector cases accounted for 40 per cent. of total divisional criticised loans compared with 42 per cent. at 31 December 2009. The level of arrears in residential mortgages, which impacted the level of criticised loans, increased to 3.21 per cent. for 90+ days past due, up from 2.07 per cent. at 31 December 2009. Arrears on the buy-to-let portion of the book were 5.92 per cent. up from 3.28 per cent. in December 2009 compared with 2.12 per cent. and 1.58 per cent. respectively for owner occupier mortgages.

Capital Markets's criticised loans increased marginally by €0.1 billion.

The following tables show impaired loan balances by division and as a percentage of gross customer loans.

Group impaired loans as a percentage of gross loans increased to 17.5 per cent., up from 15.1 per cent. as at 31 December 2009.

Impaired loans held for sale to NAMA amounted to €10.6 billion as at 30 June 2010 or 62.6 per cent. of NAMA loans.

The vast majority of these impaired NAMA loans related to property sector loans with the remainder related mainly to loans in the distribution, other services and personal sectors.

Non NAMA impaired loans increased to €6.6 billion or 8.2 per cent. of advances up from €5.1 billion or 6.3 per cent. as at 31 December 2009.

AIB Bank RoI accounted for €1.4 billion of the overall increase with increases particularly in the property, distribution, manufacturing, residential mortgage and personal sectors.

Impaired loans in Capital Markets increased by €0.1 billion since December 2009 mainly in the distribution, transport and other services sectors, with a decrease in the manufacturing sector.

Impaired loans in AmCredit reduced by €6 million since December 2009 to €36 million and reflected a slowdown in the pace of deterioration in the book.

1.8.1 Provisions

Total provisions charged to the income statement were €2,095 million, marginally down from €2,142 million in the six months ended 30 June 2009.

The economic conditions in the markets in which the Group operates continued to be challenging, in particular in Ireland where unemployment continued to rise, creating increased difficulties for some of the Group's borrowers.

The provision charge for loans and receivables was €2,092 million or 4.22 per cent. of average loans compared with €2,120 million or 4.08 per cent. in June 2009. The charge consisted of all specific provisions of €2,092 million (4.22 per cent. of average loans) versus specific provisions of €1,969 million (3.79 per cent. of average loans and IBNR of €151 million or 0.29 per cent.) in June 2009.

The following table sets out the impairment charge as a percentage of average loans by division.

The provision charge for loans and receivables included €1,220 million of provisions related to loans held for sale to NAMA (portfolio size €17 billion), all of which were specific provisions.

The provision charge for NAMA related loans in AIB Bank RoI was €1,220 million or 13.65 per cent. of advances, of which 94 per cent. related to property sector loans, with the remainder spread over a number of sectors, most notably, the distribution and personal sectors.

The provision charge for loans and receivables to customers (non NAMA) was €872 million or 2.2 per cent. of average advances comprised of a specific charge only.

In AIB Bank RoI, the net non NAMA provision charge was €742 million or 2.55 per cent. of average advances and was all specific provision. Forty-three per cent. of the charge related to the property sector with a further 27 per cent. related to other commercial, which included agriculture, distribution, manufacturing and other services. The provision charge in the finance and leasing book (excluding mortgages) was €63 million or 5.5 per cent. of average advances, which included large provisions for a small number of cases and was down from €91 million or 6.9 per cent. for the same period in the previous year.

Residential mortgages amounted to €27.1 billion as at 30 June 2010 split 65 per cent. owner occupier, 28 per cent. buy-to-let with staff and other accounting for the remaining 7 per cent. The provision charge was €83 million or 0.61 per cent. of average residential mortgages compared to €37 million or 0.29 per cent. of average advances in the same period in the previous year.

In Capital Markets the provision charge was €128 million or 1.13 per cent. of average non NAMA advances compared with €201 million or 1.54 per cent. for the six months ended 30 June 2009. The charge was spread across all sectors with the largest being €32 million for the other services sector, with charges of €21 million each for the property and financial sectors.

In AmCredit the provision charge was €2 million reflecting a slowdown in deterioration and an increase in activity in the residential mortgage market.

1.9. Associated undertakings

Income from associated undertakings in the six months ended 30 June 2010 was €27 million compared with a loss of €7 million in the comparative period. Associated undertakings included the investment in ALH, the joint venture with Aviva Life & Pensions Ireland Limited. An uplift in AIB's share of profits from ALH was driven by a stabilisation in business volumes and favourable bond/investment market movements.

1.10. Income tax (income)/expense

The taxation credit on a total AIB Group basis for the six months ended 30 June 2010 was €329 million (of which €323 million credit related to deferred taxation), compared with a taxation credit of €97 million in the six months ended 30 June 2009 (of which €125 million credit related to deferred taxation). The taxation credits excluded taxation on share of results of associated undertakings. Associated undertakings is reported net of taxation in the Group (loss)/profit before taxation. The charge/credit was influenced by the geographic mix of profits and losses, which were taxed at the rates applicable in the jurisdictions where the Group operates.

1.11. Discontinued operations

On 30 March 2010, AIB Group announced that its investments in BZWBK and M&T, as well as its UK business (reported under the heading AIB Group (UK) p.l.c.), were for sale. Subsequently, its interests in BACB were also included in the investments to be disposed of. These businesses were classified as discontinued operations, the results of which are shown in the table below. See note 14 of the 2010 Half-Yearly Financial Report for further details on AIB's discontinued operations and note 18 of the 2010 Half-Yearly Financial Report for certain asset-quality information related to AIB's discontinued operations.

These discontinued operations were previously reported in the divisional commentary and are included in the business segments as follows; for more information see note 1 of the 2010 Half-Yearly Financial Report:

AIB Group (UK) p.l.c. - identified as AIB Bank UK in the commentary regarding the consolidated statement of financial position;

BZWBK - largely included in Central & Eastern Europe with BZWBK wholesale treasury and Capital Markets's share of certain Investment Banking subsidiaries' results included in Capital Markets;

BACB - included in associated undertakings net of taxation in Central & Eastern Europe; and

M&T - included in associated undertakings net of taxation in the Group division.

____________

Note: 

(1) Relates to impairment of intangible assets.

Discontinued operations recorded a profit of €303 million in the six months ended 30 June 2010 compared to a loss of €176 million in the six months ended 30 June 2009. Discontinued operations was impacted by investment reviews carried out in the first half of both 2010 and 2009. The six months ended 30 June 2010 included a writeback of €213 million related to the M&T investment and a €28 million charge with regard to BACB. The six months ended 30 June 2009 included impairment charges of €200 million and €45 million relating to M&T and BACB respectively.

• AIB Group (UK) p.l.c.

Historically, the UK business was reported as the division "AIB Bank UK", however, the commentary in this paragraph 1.11 relates to AIB Group (UK) p.l.c., the income statement of which is presented in note 14 of the 2010 Half-Yearly Financial Report. The differences between the division "AIB Bank UK" and AIB Group (UK) p.l.c. are (1) the attribution of certain central costs to the division that would not be attributable to the discontinued operation, (2) group capital income allocation methodology for a continuing operation versus a discontinued operation, (3) treatment of the UK defined benefit pension scheme, where the divisional cost is not reported as a cost of the discontinued operation and (4) macro cashflow hedging impacts being borne by the discontinued operation (otherwise borne by the Group division). Therefore, AIB Group (UK) p.l.c. is not a full representation of the UK business.

If, as currently expected, AIB's UK business is not classified as a discontinued operation in the Group's results for the year ending 31 December 2010, then the UK business as a division will be reinstated and integrated with the remainder of the continuing group. The UK business would again be referred to as "AIB Bank UK" in the divisional commentary of the annual financial report for the year ending 31 December 2010.

The information below has been extracted from the 2010 Half-Yearly Financial Report.

____________

Notes:

(1) Included within interest expense is a charge of €24 million in respect of the ELG Scheme for the six months ended 30 June 2010.

(2) Included within net fee and commission income is a charge of €9 million for the six months ended 30 June 2010 and €9 million for the six months ended 30 June 2009, in respect of the CIFS Scheme.

(3) Relates to impairment of intangible assets

(4) The loss from discontinued operations of €40 million for the six months ended 30 June 2010 and €38 million for the six months ended 30 June 2009 is attributable to the owners of the parent.

AIB Group (UK) p.l.c. reported a loss before taxation from discontinued operations of €49 million in the six months ended 30 June 2010 compared to a loss of €46 million for the same period last year. This included a NAMA loss of €7 million and €33 million in relation to the cost of the Government Guarantee Schemes (€24 million in respect of the ELG Scheme and €9 million in respect of the CIFS Scheme).

AIB Group (UK) p.l.c. reported an operating profit before provisions and the loss on NAMA of €124 million compared with €141 million for the same period last year, a reduction of 12 per cent., reflecting continued challenges in the economic environment, combined with increased competition for customer deposits and rising funding costs. Impairment charges at €168 million remained high, however, the charge for the second quarter of 2010 displayed significant moderation on the trend over the last four quarters.

The reduction in operating profit was primarily driven by a 28 per cent. reduction in net interest income, which included the cost of the ELG Scheme, excluding which the underlying reduction was 18 per cent. This underlying reduction reflected intense competition for customer deposits, as well as increased funding costs, with the consequent impact on deposit margins. Customer deposits on a sterling basis increased by 3 per cent. from 31 December 2009 and were in line with 30 June 2009, despite a highly competitive environment for taking customer deposits. The increase in deposits since 31 December 2009 was driven by the business in Great Britain with deposits in Northern Ireland broadly in line. This increase in deposits partly contributed to the moderation in the loan-to-deposit ratio to 153 per cent. (from 169 per cent. as at 31 December 2009 and 175 per cent. as at 30 June 2009). The downside pressure on deposit margins was partly offset by a significant improvement in lending margins, although this was partially countered by a 6 per cent. reduction in loan volumes on a sterling basis since 31 December 2009 (9 per cent. since 30 June 2009).

Costs fell by 11 per cent. on the same period last year, reflecting a combination of reduced staff costs, continued focus on discretionary costs and the reduced costs associated with the FSCS in the current year.

As a result of the factors mentioned above, operating profit before provisions was €117 million in the six months ended 30 June 2010, down from €141 million in the same period last year.

Loan impairment charges for the six months ended 30 June 2010 remained high at €168 million, reflecting the impact from the economic downturn on customers. However, the provision for loan impairment was 11 per cent. lower than the same period last year, with the quarterly charge in the second quarter of 2010 the lowest for several quarters. Likewise, the rate of increase in non performing loans was moderated compared to 2009, particularly in the business located in Great Britain.

• BZWBK

BZWBK profit was €174 million in the six months ended 30 June 2010 compared to €101 million in the six months ended 30 June 2009. Profit growth was driven by growth in net interest income and a reduction in provisions. Income growth was achieved primarily through higher loan margins and some easing in competitive pricing of deposits which resulted in operating profit before provisions increasing from €168 million in the six months ended 30 June 2009 to €228 million in the six months ended 30 June 2010.

Provisions decreased to €54 million in the six months ended 30 June 2010 from €66 million in the six months ended 30 June 2009 reflecting the lower default experience in business and corporate banking while higher levels were incurred in the personal and SME portfolios.

• M&T

M&T's contribution was €237 million in the six months ended 30 June 2010 compared to a loss of €181 million in the six months ended 30 June 2009. The income after taxation for M&T is included for the three month period ended 31 March 2010 compared with the six month period ended 30 June 2009 (M&T was designated as a discontinued operation as a result of the announcement on 30 March 2010 that AIB's stake in M&T was to be held for sale). An impairment review of AIB's investment in M&T resulted in the writeback of €213 million through the income statement in the six months ended 30 June 2010 compared to an impairment charge of €200 million in the six months ended 30 June 2009. Excluding the writeback in 2010 and the impairment in 2009, M&T's contribution for the quarter to March 2010 of US$31 million (€24 million) was up 25 per cent. relative to the contribution in the six months ended 30 June 2009 of US$25 million (€19 million).

• BACB

BACB recorded a loss of €26 million in the six months ended 30 June 2010 compared to a loss of €39 million in the six months ended 30 June 2009. An impairment review of AIB's associate holding in BACB resulted in a €28 million impairment charge in the six months ended 30 June 2010. The six months ended 30 June 2009 included an impairment charge of €45 million for BACB.

1.12. Statement of financial position

The commentary on the consolidated statement of financial position is on a total AIB Group basis (including discontinued operations) as it is not permitted, under IFRS, to retrospectively re-present the consolidated statement of financial position.

AIB Group's Risk Weighted Assets were 67 per cent. of total assets as at 30 June 2010 (69 per cent. as at 31 December 2009).

The statement of financial position identifies loans eligible for sale to NAMA and disposal groups loans held for sale (discontinued operations) separately from other customer loans. For the purposes of aiding understanding of balance sheet dynamics and trends, loan balances eligible for sale to NAMA and loans in discontinued operations are included in their respective division in the table below.

Continued weak demand for credit and the transfer of €3.3 billion of gross loans to NAMA in the period resulted in lower gross loans to customers, down 2 per cent., or €2.7 billion since 31 December 2009 or in line when loans transferred to NAMA are excluded from the opening balance.

The increase in loans excluding NAMA, from €106 billion as at 31 December 2009 to €110 billion at 30 June 2010 mainly reflected €3 billion of UK loans that were classified as held for sale to NAMA as at 31 December 2009 and were designated as disposal groups held for sale as at 30 June 2010.

In Capital Markets, concerns in relation to sovereign ratings resulted in a decrease in deposits mainly from NBFIs and international corporates.

1.13. Capital

The Group's Core Tier 1 Capital Ratio was 6.9 per cent., the Tier 1 Capital Ratio was 6.0 per cent. and the Total Capital Ratio was 9.0 per cent. at 30 June 2010.

____________

Note: 

(1) Equity Tier 1 Capital excludes the €3.5 billion of Core Tier 1 Capital from the Government.

The Group's capital ratios weakened in the six months ended 30 June 2010 primarily due to the additional €2.3 billion of provisions (€2.1 billion continuing, €0.2 billion discontinued) created in the six months ended 30 June 2010 and the €963 million loss (€956 million continuing, €7 million discontinued) on transfer of the first tranche of assets to NAMA, partly offset by operating profit before provisions in the six months ended 30 June 2010.

Risk Weighted Assets decreased by 6 per cent. reflecting the transfer of €3.3 billion of assets to NAMA and continued deterioration from performing to non performing grades in the property model.

Core Tier 1 Capital was €7.8 billion as at 30 June 2010 compared with €9.5 billion at 31 December 2009 reflected the loss for the period of €1.7 billion.

Tier 1 Capital was €6.7 billion as at 30 June 2010 compared with €8.7 billion as at 31 December 2009 reflecting the loss for the period of €1.7 billion and an increase in the Tier 1 element of the expected loss deduction (€0.3 billion).

Total Capital decreased to €10.1 billion from €12.3 billion as at 31 December 2009 reflecting the aforementioned loss in the period and the increase in the expected loss deduction (€0.5 billion).

1.14. Capital exchange offering

In March 2010, AIB completed the exchange of lower Tier 2 Capital Instruments for equivalent lower Tier 2 Capital qualifying security. See note 7 of the 2010 Half-Yearly Financial Report for further details of the exchange. These transactions resulted in a gain of €372 million, which increased Core Tier 1 Capital with no material effect on Total Capital. In June 2009, the capital exchange offering resulted in a gain of €1,072 million after taxation (€623 million (€580 million after taxation) in the income statement and €538 million (€492 million after taxation) as a movement in equity) on redemption of subordinated liabilities and other capital instruments.

1.15. NAMA

On 6 April 2010, the first tranche of financial instruments (mainly loans and receivables) transferred to NAMA. Of the consideration received, 95 per cent. comprised Government Guaranteed Floating Rate Notes, with the remaining 5 per cent. comprising Floating Rate Perpetual Subordinated Bonds. The consideration received is recorded at fair value within the balance sheet caption "financial investments available for sale". A €963 million loss (€956 million continuing and €7 million discontinued) arose on disposal, due to NAMA acquiring these instruments at a discount to their carrying value. The loss on disposal was recorded within other income.

1.16. Structured securities portfolio (held by AIB Corporate Banking)

The structured securities portfolio consisted of US sub-prime mortgages, CDOs/CLOs and other structured securities. The following summarises the size of each portfolio and the charge taken in the income statement in the six months ended 30 June 2010, year ended 31 December 2009 and six months ended 30 June 2009.

The total charge in the six months ended 30 June 2010 for the structured securities portfolio was €33 million compared to €71 million in the six months ended 30 June 2009. The fair value charge to other income was €8 million (€42 million in the six months ended 30 June 2009). There was an impairment provision of €19 million (€15 million in the six months ended 30 June 2009) against the sub-prime assets, €5 million related to a number of under performing assets in other structured securities (€14 million in the six months ended 30 June 2009) and €1 million on CDOs/CLOs.

1.17. AIB originated CDOs

In addition to the above asset portfolios, AIB provides asset management services to third parties regarding CDOs and CBOs.

There have been five vehicles set up since 2001, four of which invest in European sub investment grade leveraged finance assets (CDOs) and one in US high yield bonds (CBOs). A CDO/CBO allows third party investors to make debt and/or equity investments in a vehicle containing a portfolio of leveraged corporate loans and bonds with certain common features. The Group's investment in these vehicles and maximum exposure totalled €27.3 million as at 30 June 2010 (€27.5 million as at 31 December 2009). AIB does not have control over these vehicles nor does it bear the significant risks and rewards that are inherent in the assets. There is no recourse to the Group by third parties in relation to these vehicles. Accordingly, these vehicles are not consolidated in the Group's financial statements and the Group's interests are included within equity shares.

1.18. Funding

In order to aid understanding of balance sheet trends the commentary on the consolidated statement of financial position is on a total AIB Group basis (including discontinued operations) as it is not permitted, under IFRS, to retrospectively re-present the consolidated statement of financial position. The gathering and retention of customer resources remained a key focus of the Group in 2010. As at 30 June 2010 customer resources continued to represent the largest component of the Group's funding at 53 per cent. of total funding, up from 51 per cent. as at 31 December 2009. Customer resources in AIB Bank RoI and Central & Eastern Europe were relatively unchanged over the half-year in a period of difficult market conditions. A reduction in deposits occurred in Capital Markets with an increase in the AIB Bank UK. Overall, in the first half of 2010 customer resources decreased by €1 billion or 1 per cent.

Net customer loans, including loans held for sale to NAMA, decreased by €4 billion or 3 per cent. in the six months ended 30 June 2010. This decrease was due to a combination of deleveraging and the transfer of the first tranche of loans to NAMA. When combined with customer resources this resulted in a Group loan-to-deposit ratio of 143 per cent. down from 146 per cent. at 31 December 2009. The movement of the loan-to-deposit ratio excluding NAMA loans (127 per cent. as at 30 June 2010 compared with 123 per cent. as at 31 December 2009) reflected the reclassification of AIB Bank UK loans previously held for sale to NAMA back to loans and receivables to customers. The reclassification reflects the inclusion of these assets as part of the proposed disposal of AIB's UK business.

Funding market conditions in the six months ended 30 June 2010 were mixed with reasonable liquidity in the markets in the first quarter. The weakness in the markets in the second quarter was principally attributable to the sovereign crisis and contagion risk. AIB Group continued to access funding across its suite of liquidity programmes in 2010, however it experienced elevated pricing and shorter duration in the second quarter. Notwithstanding a one notch credit downgrade by S&P in January 2010, the Group successfully raised €6 billion of unsecured term funding under the ELG Scheme through a series of public and private placements in the first half of the year. Issuances had an average life of over three years and the majority were executed in the first quarter. At 30 June 2010, maturities of greater than one year represented 46 per cent. of wholesale funding (excluding repos and inclusive of subordinated debt), up from 30 per cent. at 31 December 2009. The Group's senior debt funding increased by 3 per cent. as a percentage of total funding between 31 December 2009 and 30 June 2010.

As at 30 June 2010, the Group held €49 billion in Qualifying Liquid Assets and Contingent Funding (including pledged assets) of which approximately €25 billion was pledged. The Group continues to explore and develop contingent collateral and funding facilities to support its funding requirements. Additional NAMA Bonds to be received as consideration for loans transferred to NAMA will further assist in supporting the Group's liquidity position. The Group's liquidity levels continue to represent a surplus over regulatory requirements. While the Group continues to rely on the ELG Scheme, it is working to exit the scheme in a prudent timescale.

____________

Note: 

(1) Includes total shareholders' equity, subordinated liabilities and other capital instruments.

(2) Non-funding liabilities including derivative financial instruments, other liabilities, retirement benefits and accruals and other deferred income.

1.19. Divisional commentary

The following divisional commentary on results is prepared on a continuing operations basis. Commentary on discontinued operations as at 30 June 2010 is contained in paragraph 1.11 above.

AIB Bank RoI

Retail and Business Banking operations in Ireland, the Channel Islands and the Isle of Man; AIB Finance and Leasing; AIB Card Services; the AIB Wealth Management unit and share of ALH.

The six months ended 30 June 2010 were very challenging for Retail Banking in Ireland. Ongoing economic difficulties in Ireland and high unemployment levels, combined with stressed financial markets provided the backdrop to the half-year financial out-turn for AIB Bank RoI.

AIB Bank RoI reported a loss before taxation of €2.7 billion for the six months ended 30 June 2010, driven by provisions for impairment of loans and receivables of €2.0 billion and a loss of €0.9 billion on the transfer of the first tranche of loans to NAMA.

In the six months ended 30 June 2009 the loss was €1.5 billion with provisions for loans and receivables of €1.9 billion.

Operating loss before provisions was €742 million (excluding the loss on transfer of assets to NAMA, the operating profit was €170 million down 57 per cent. versus the comparative period). Total operating loss was €302 million (when the loss of €912 million on transfer of assets to NAMA was excluded, total operating income was €610 million down 30 per cent.). Total operating expenses of €440 million was lower by 7 per cent. compared to the comparative period in 2009.

The main focus during the half-year continued to be on credit management and working closely with customers to steer a path through this particularly difficult phase of the economic cycle. Consumer sentiment in Ireland remained subdued for much of the period with ongoing concerns around job security. AIB is fully committed to supporting customers who are facing financial difficulty and provides a range of supports both for SME and mortgage customers. AIB continues to actively support Irish economic recovery through providing credit facilities to meet the investment and working capital requirements of viable businesses, particularly in the SME sector. In addition, AIB has maintained a strong emphasis on the mortgage market through supporting property purchases, particularly for first-time buyers and home movers.

There was continued progress during the first half-year in re-defining the division's operating mode to reflect the new economic reality and to capitalise on the strength and depth of the AIB distribution channel options available to customers. There was also significant focus on delivering operational efficiencies and lower costs in AIB Bank RoI as Ireland and AIB emerge from this very difficult period.

The 30 per cent. decline in total operating income for AIB Bank RoI, which excludes the loss on transfer of assets to NAMA in the six months ended 30 June 2010, reflected the high cost of sourcing retail and wholesale funding in domestic and international markets, the cost of the Government Guarantee Schemes and subdued customer demand for banking products and services.

Net interest income of €463 million was 34 per cent. lower than June 2009 with net interest margin reducing due to the higher cost of deposits and longer-term wholesale funding, combined with the cost of the ELG Scheme, partially offset by some widening of loan margins. Retail deposits pricing remained intensely competitive throughout the half-year with unsustainable rates of interest persisting. AIB Bank RoI re-priced its lending products, including mortgages, to reflect the higher cost of funding and will continue to keep pricing under review to ensure it maintains a more sustainable long-term economic proposition.

Other income of €147 million, excluding the loss on transfer of assets to NAMA amounting to €912 million, was 8 per cent. lower than the comparative period which reflected reduced levels of customer transaction activity with a consequent adverse impact on fees and other income.

Total customer account balances at June 2010 of €40 billion were at similar levels to December 2009, with lower credit current account balances offset by growth in customer deposits. Gross loans, excluding assets held for sale to NAMA, were 1 per cent. lower than December 2009, reflecting weak demand and some de-leveraging by customers. AIB continued to provide strong support to the residential mortgage market and accounted for 38 per cent. of all mortgage property transactions in the first quarter of 2010. Demand for consumer credit remained low as consumers continued to take a cautious approach to additional debt and in many cases reduced personal debts levels. Demand for business credit, particularly for investment purposes, also remained subdued during the half-year.

Total operating expenses showed a reduction of 7 per cent. reflecting strong cost management. Personnel expenses were 9 per cent. lower on the back of reduced staff numbers (approximately 450 fewer than June 2009) and staff-related costs. General and administrative expenses were down 3 per cent. reflecting very tight management of all discretionary spend areas.

The provision charge for impairment of loans and receivables for the six months ended 30 June 2010 was €2.0 billion and represented a charge of 5.16 per cent. of average customer loans. Of the €2.0 billion total charge, €1.2 billion was associated with loans that are expected to transfer to NAMA in due course. The impairment charge for the six months ended 30 June 2009 was €1.9 billion, which was 4.95 per cent. of average loans.

Share of associated undertakings of €27 million mainly represents AIB's share of ALH with the improved financial out-turn for the six months ended 30 June 2010 primarily due to a stabilisation in business volumes and favourable bond/investment market movements.

Capital Markets

AIB Corporate Banking, Global Treasury and Investment Banking.

Capital Markets profit before taxation of €102 million declined by €122 million or 54 per cent. For the six months ended 30 June 2010 operating profit before provisions of €231 million declined by €216 million or 48 per cent. (€172 million or 38 per cent., excluding the loss on transfer of loans to NAMA). Total operating income was principally impacted by lower cash management income in Wholesale Treasury, higher deposit funding costs and higher costs associated with the Government Guarantee Schemes. While lower average loan volumes also contributed to the reduction in income, higher loan margins and significantly lower mark-to-market write downs than experienced in the six months ended 30 June 2009 combined to offset the negative impacts on operating income.

Total operating expenses fell by €13 million or 7 per cent. which reflected the continued focus on cost realignment across all business units. Personnel expenses fell by €15 million or 11 per cent., principally driven by lower staff numbers and salary related costs, lower variable compensation and lower pension funding costs. General and administrative expenses of €50 million for the six months ended 30 June 2010 were broadly in line with levels for the six months ended 30 June 2009 (€49 million), notwithstanding additional costs associated with the introduction of a new customer loan platform. Notwithstanding the decline in total costs, the cost/income ratio increased from 30 per cent. to 39 per cent. (excluding NAMA loss) due to the impact of reduced income in the period.

Total provisions of €129 million decreased by 42 per cent., which reflected a general easing of credit stresses following on from exceptionally high levels in 2009.

____________

Note: 

(1) Investment Banking mainly comprises Goodbody Stockbrokers (which AIB announced on 20 September 2010 it would sell to Fexco for approximately €24 million) AIB Investment Managers Limited, Corporate Finance and AIB International Financial Services.

AIB Corporate Banking continued to be significantly impacted by provisions for loan impairments, notwithstanding a reduction in the level of credit provisions from €201 million in June 2009 to €128 million in the six months ended 30 June 2010. This represented a lower impairment charge of 1.14 per cent. of average loans, compared to 1.52 per cent. in June 2009. AIB Corporate Banking incurred a €44 million loss on the transfer of the first tranche of loans to NAMA, mainly in relation to interest rate swap break costs on transfer. Operating profit before provisions fell by 35 per cent. (excluding NAMA loss of €44 million and currency factors of €3 million) on the comparative period, principally impacted by higher funding costs associated with raising customer deposits and higher Government Guarantee Schemes costs. Lower average loan volumes further contributed to the fall in income, due to a combination of increased customer repayments and ongoing management efforts to de-risk the loan portfolio. Offsetting these negative impacts were increased average loan margins, as assets continued to re-price into the second half of 2009, and higher mark-to-market write downs in 2009 which did not recur in 2010. Loan volumes increased by 2 per cent. in the six months ended 30 June 2010 while customer deposits impacted by ongoing concerns relating to sovereign ratings decreased by 3 per cent. Customer deposits were up 23 per cent. compared to June 2009, reflecting the strength and depth of the franchise across markets. The core business continued to perform well across all jurisdictions and overall asset quality remained strong as management continued its focus on constantly monitoring the portfolio and engaging with customers as the Group emerged from a period of unprecedented economic stress.

Global Treasury reported a profit of €152 million in the six months ended 30 June 2010. While profit was down on the comparative period, overall performance should be viewed in the context of an exceptional six months ended 30 June 2009. Profit before taxation decreased by 29 per cent. or €62 million as income returned to more normal levels. While Wholesale Treasury was significantly impacted by lower income from cash management activities, income from strategic interest rate positioning was ahead of 2009 and bond portfolio income remained close to 2009 high levels. Higher funding costs, lower bond income on matured assets and lower amortised income contributed to the fall in income, though this was partially offset by increased income from asset realisations. Customer Treasury profits were up on the comparative period due to increased foreign exchange income in the Irish and UK markets as turnover and margins increased. Provisions for impairments of financial assets available for sale were also down on 2009. Concerns in relation to sovereign ratings led to a year-to-date reduction in Treasury deposits, mainly from NBFIs and international corporates.

Investment Banking loss before taxation of €7 million for the six months ended 30 June 2010 declined relative to the profit of €5 million for the six months ended 30 June 2009.

Investment Banking performance was negatively impacted by lower corporate finance income, lower wealth management income and lower trading income. A number of high value corporate finance transactions executed in early 2009 were not replicated in the six months ended 30 June 2010 while trading income was impacted by the return of more volatile equity markets over the preceding months arising from uncertainty surrounding sovereign debt. Each of the investment banking units continued to realign its cost structures against a challenging background of lower asset values and revenue generation from investment banking products. Total costs decreased, arising from lower staff numbers and ongoing cost control.

Group division

The Group division includes interest rate hedge volatility (hedge ineffectiveness and derivative volatility), unallocated costs of central services and AmCredit.

The Group division reported a €213 million profit before taxation for the six months ended 30 June 2010 compared with €592 million for the six months ended 30 June 2009. The result for the six months ended 30 June 2010 included a gain of €372 million on the capital exchange offering completed in March 2010, excluding which the loss was €159 million. The comparative period ended 30 June 2009 included a capital exchange gain of €623 million, excluding which the loss before taxation for the six months ended 30 June 2009 was €31 million. The commentary which follows was prepared excluding these gains.

The trends in net interest income and other income in the Group division were impacted by the reclassification of income between headings in relation to interest rate hedging. Consequently, it is more meaningful to analyse the trend in total operating income. Total operating income decreased from €51 million in the six months ended 30 June 2009 to a loss of €91 million in the six months ended 30 June 2010. This decrease included an increase in the negative impact of interest rate hedge volatility (hedge ineffectiveness and derivative volatility), a decrease of €52 million in the six months ended 30 June 2010 compared with an increase of €14 million in the six months ended 30 June 2009. Total operating income also included hedging losses in relation to foreign currency translation hedging (€2 million loss for the six months ended 30 June 2010 compared to €6 million profit for the six months ended 30 June 2009).

Total operating expenses increased from €86 million in the six months ended 30 June 2009 to €102 million in the six months ended 30 June 2010. Personnel expenses increased from €40 million to €42 million, mainly reflecting the cost of AIB resources to address NAMA transition requirements partially offset by lower pension costs following the retirement benefits amendment in 2009. General and administrative expenses increased from €18 million in the six months ended 30 June 2009 to €33 million in the six months ended 30 June 2010 which reflected professional fees (primarily legal and valuation) incurred in relation to NAMA transfers. Depreciation and amortisation expenses were in line with the six months ended 30 June 2009.

Profit on disposal of property of €36 million in the six months ended 30 June 2010 included profit on sale of 20 branches as part of the sale and leaseback programme.

2. Profile and trends of the non NAMA loan portfolio of the Group's continuing operations

This paragraph 2 sets out information with regard to the loans and receivables to customers for the Group's continuing operations as at 30 June 2010 and 31 December 2009.

Paragraphs 2.1-2.5 reflect the Group's continuing operations as at 30 June 2010 (the last reporting period end date to which AIB is required to have prepared and published financial information), which constituted the businesses AIB expected would continue to operate following the planned disposals. As at 30 June 2010, those businesses were: AIB Bank RoI, Capital Markets and AmCredit, which was historically reported, and is reported in this paragraph 2, within Central & Eastern Europe (AmCredit is likely to be a part of the Group division going forward).

As noted above, the Group's continuing operations as at 30 June 2010 did not include the UK business and, therefore, the commentary in paragraphs 2.1-2.5 do not cover the UK business. As this no longer reflects the Group following the announcement on 19 November 2010 of the Board's decision to halt the current sale process of the UK business and undertake a strategic review of the UK business in the context of reviewing AIB's overall business, and to aid understanding of the Group going forward, information regarding AIB Group (UK) p.l.c.'s loan portfolio as at 30 June 2010 and 31 December 2009 is included in paragraph 2.6 below.

On 30 September 2010, the Minister for Finance announced changes to the NAMA Programme. As a result of this announcement, AIB expected that approximately €4.4 billion of AIB loans previously designated as NAMA Assets will no longer be transferred to NAMA, of which €3.2 billion is attributable to AIB Bank RoI and Capital Markets and reported as held for sale to NAMA as at 30 June 2010, and the remainder is attributable to AIB's UK business.

Because this paragraph 2 discusses information regarding the loans and receivables to customers for the Group's continuing operations as at 30 June 2010, excluding loans held for sale to NAMA at such date, it does not reflect the approximately €3.2 billion of AIB loans that will no longer be transferred to NAMA. However, AIB expected, based on 30 September announcement, such loans would be included in the loan book for the Group's continuing operations going forward.

Furthermore, the position outlined above does not take into account the proposal included in the announcement by the Government on 28 November 2010 that AIB's remaining land and development loans will be eligible for inclusion in the NAMA Programme.

2.1 Gross loans

The following table is an analysis of loans and receivables to customers by sector set out by geographic location and by division as at 30 June 2010. The geographic information in this table has been extracted from note 22 of the 2010 Half-Yearly Financial Report while the divisional information has been extracted from the Company's management records.

____________

Note: 

(1) The geographic location attributable to the loan is that of the location of the AIB office recording the transaction.

The following table is an analysis of loans and receivables to customers by sector set out by geographic location and by division as at 31 December 2009. This information has been extracted from the Company's management records.