Irish Bank Resolution Corporation Limited

Annual Report & Accounts 2011

Caring for the environment

At Irish Bank Resolution Corporation Limited we take a responsible approach to environmental issues and have worked with our print partner to minimise the environmental impact of our Annual Report & Accounts 2011 publication. The paper selected for this report comes from certied well managed forests, accredited by the PEFC to a standard known as Chain of Custody. These certied forests are managed to ensure long term timber supplies while protecting the environment and the lives of the forest dependent people. The Annual Report is a CarbonNeutral publication. This was achieved by selecting a print partner who is already a CarbonNeutral company and by offsetting the unavoidable emissions associated with the production of this Annual Report. Irish Bank Resolution Corporation Limited is pleased to be able to add both the CarbonNeutral and the PEFC logos as evidence of achieving these standards.

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Contents
Economic backdrop Chairmans statement Group Chief Executives review Business review Board of Directors Corporate Responsibility Principal risks and uncertainties Report of the Directors Statement of Directors responsibilities Corporate governance statement Independent Auditors report Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Bank statement of financial position Consolidated statement of changes in equity Bank statement of changes in equity Statement of cash flows Notes to the financial statements Supplementary information (unaudited) Acronyms and abbreviations 2 3 5 8 15 16 18 23 24 25 30 32 33 34 35 36 38 40 42 169 176

Economic backdrop
Commercial property markets Property prices in developed markets remain below their 2006/07 peaks. Commercial property prices in Ireland continue to fall with some signs of stabilisation, the UK market was flat in 2011, while the US has shown tentative recovery. (Indices rebased to 100) Sovereign yields Fear around the stability of the eurozone and the eurosystem contributed to the increased spread of Irish Government bonds over their German equivalents in the first half of 2011. Spreads narrowed in the second half of the year due to improved international sentiment as Ireland continued to deliver on its EU/IMF Programme commitments.

160 140 120 100 80 60

Property price index

Yield 13.00 12.00 11.00 10.00 9.00 8.00 7.00 6.00

40 Dec 04

Dec 05

Dec 06

Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

5.00 Dec 10

Mar 11

Jun 11
Ireland Vs Germany 9 yr

Sep 11

Dec 11

Ireland IPD All Property

UK IPD All Property

US IPD All Property

Irish residential property market Irish residential property market prices fell heavily again in 2011 bringing the cumulative fall from peak to 50%.

Stock markets Both the ISEQ and FTSE Eurofirst posted losses in the second half of 2011 before recovering slightly into year-end. (Indices rebased to 1000)
Index 1,100 1,050

Irish residential property 140 120 100 80 60 Dec 04

1,000 950 900 850 800

Dec 05

Dec 06

Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

750 Dec 10

Mar 11
ISEQ

Jun 11

Sep 11
FTSE E300

Dec 11

Irish House Price Index National All Residential Properties

Trade surplus Irelands trade surplus continued to improve in 2011. Net exports remain the primary driver of GDP growth.

Currency markets The euro was relatively stable against the US dollar and sterling in the period.
Currency 1.5 1.4

Irish trade surplus

4,600

3,750

1.3 1.2

2,900

1.1 1 0.9

2,050

1,200 Dec 04

Dec 05

Dec 06

Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

0.8 Dec 10

Mar 11
EUR/USD

Jun 11

Sep 11
EUR/GBP

Dec 11

Ireland trade surplus m

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Chairmans statement
Overview
This is the first Annual Report and Accounts for Irish Bank Resolution Corporation Limited, trading as IBRC. The members of the Board of Directors and senior management of IBRC remain committed to operating to the mandate given by the Banks Shareholder, which is to run the Bank in the public interest and in a manner that minimises the cost to the State and, by extension, the taxpayer. The twelve months to 31 December 2011 was an eventful period for the Bank. A number of large scale restructuring developments took place during this time, including the transfer of the majority of the Banks deposits to AIB, the merger with Irish Nationwide Building Society (INBS) and the subsequent organisation redesign and renaming of this newly combined entity. In addition, the Bank achieved further significant reductions in its balance sheet through the sale of the majority of its US loan portfolio, together with ongoing loan repayments and redemptions in Ireland and the United Kingdom. 2011 also saw a progressive scaling down of the Banks operations with the closure of a number of offices and further reductions in staffing levels through the launch of a second voluntary redundancy scheme. In financial terms, despite recording an operating profit of 620m and a favourable adjustment of 776m to the cumulative loss on transfer to NAMA, the Bank reports a loss for the year of 885m. Total assets at 31 December 2011 amounted to 55.5bn, a decrease of 17.4bn or 24% on a constant currency basis. These reductions demonstrate the Banks commitment to deleveraging its balance sheet in line with the objectives agreed in the Banks restructuring plan and to minimising further losses for the taxpayer. Total capital support provided by the Minister for Finance remains at 29.3bn, resulting in a Total capital ratio at 31 December 2011 of 16.3% and a Core Tier 1 ratio of 15.1%. Further details in respect of the Banks financial and nonfinancial performance for the year are provided in the Group Chief Executives review and in the Business review.

Changes to the Board of Directors

Two new Directors were appointed to the Board of the Bank in 2011. Oliver Ellingham was appointed on 14 October 2011. Mr. Ellingham has a broad range of international financial experience and a particular knowledge of the UK marketplace and regulatory environment. Roger McGreal was appointed on 15 November 2011. Mr McGreal has considerable expertise in banking, credit and risk management. Both Mr. Ellingham and Mr. McGreal are strong additions to our Board.

Legacy matters, disclosures and exceptional expenses

The Bank continues to co-operate fully with ongoing investigations by the various Authorities. In this regard it has continued to disclose its activities and financial position in a fully transparent manner, as required by legislation and market regulation, in the public interest. Underlying staff costs fell by 8% in the year to 31 December 2011 compared with the prior period. Average headcount declined by 11%. Other administrative costs of 108m are in line with the previous year as significant professional fees continue to be incurred in relation to loan book asset recovery and other matters. The Bank incurred total exceptional costs of 82m during the year. These primarily relate to professional fees associated with the Banks restructuring, significant non-recurring transactions and costs related to certain legacy matters. In addition, the Bank continues to be engaged in a number of significant ongoing legal proceedings, each of which is being vigorously pursued, albeit at considerable cost and with the risk of further cost to the Bank and therefore to the Irish taxpayer.

IBRC as a new organisation

On 29 June 2011 the European Commission (EC) approved the joint restructuring and work-out plan for the Bank and INBS (the Restructuring Plan) which had been submitted to the EC by the Irish Government on 31 January 2011. This paved the way for a newly combined entity, the primary focus of which is the orderly work-out of the loan book over a planned period of up to 10 years. Following the merger on 1 July 2011, a number of organisation changes were approved by the Board, and implemented in the latter half of 2011, to position the Bank to deliver its objectives. These changes included a new Group Executive Committee, new or confirmed roles for staff across the organisation and a regrettable but inevitable requirement for a reduction in staffing numbers. As part of the restructuring process, the Bank changed its name to Irish Bank Resolution Corporation Limited (IBRC) in October 2011. The Board believes that this is an important development for the Bank as the management and staff move on from the past and deal with the updated mandate of the new entity.

Future of IBRC
The Board and management of IBRC are working to generate options for the efficient work-out of the loan books in accordance with the Banks approved mandate. This includes examining accelerated disposal where this makes economic sense. Following the timely and successful sale of the majority of the Banks US loan portfolios, the Bank will now continue with further detailed analysis of the remaining loan books in Ireland and the UK. This analysis will further inform the Board and management team on the timing of the next phases of deleveraging. The final cost of resolving the former institutions of Anglo Irish Bank and INBS will depend crucially on the evolution of the property markets in Ireland and the UK together with the availability of counterparty liquidity to enable further disposals by way of recoveries, repayments and sales. It will also depend on the outcome of negotiations on the promissory notes between the Government and the EU. The estimated timeframe for the resolution of the institution is currently nine years as detailed in the Banks approved Restructuring Plan.

Chairmans statement continued

Conclusion
The Bank has made significant and welcome progress throughout 2011. The integration of INBS is well advanced and a fit for purpose organisation is now in place for the next phases of the Banks wind-down. With the prevailing uncertainty in European debt markets looking likely to continue for much of 2012, IBRC will no doubt be presented with further challenges as it delivers on its objectives in the coming year. The management and staff of the Bank will have the full support and confidence of the Board in meeting these challenges. On behalf of the Board, I sincerely thank the management and staff of the Bank for their continued professionalism and hard work which contributed to the progress achieved in 2011. In addition, I thank the Minister for Finance and the staff of the Department of Finance and the Central Bank of Ireland for working closely with the Bank throughout the year.

Alan Dukes Chairman 28 March 2012

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Group Chief Executives review

The twelve months to 31 December 2011 saw a period of significant change and welcome progress for the organisation. Following the focus on stabilising and de-risking Anglo Irish Bank in 2010, and the development of a restructuring plan for its future, a number of major initiatives were successfully concluded throughout 2011. Disposal of the Banks Wealth Management business The above mentioned Direction Order also contained a requirement for the Bank to formulate a detailed plan for the disposal of its Wealth Management business. The Bank complied with this requirement and submitted a detailed plan to the National Treasury Management Agency (NTMA). In compliance with requirements issued by the Minister for Finance under Section 50 of CISA on 7 April 2011 (the Ministerial Requirements) the Bank commenced a process to evaluate all of the alternatives available for the disposal of this business. On 30 January 2012 the Bank announced that the Board had approved a strategy and direction put forward by management to wind down its Wealth Management business in an orderly fashion. This process is currently underway and may include a co-sourcing arrangement.

Key restructuring events

European Commission approval of the Banks restructuring plan A joint restructuring and work-out plan for the Bank and Irish Nationwide Building Society (INBS) (the Restructuring Plan) was submitted to the European Commission (EC) on 31 January 2011. This Restructuring Plan provided for the merger of the Bank and INBS following the transfer of the majority of the deposit books and NAMA senior bonds of both entities to other Irish financial institutions. Those transfers took place on 24 February 2011 and the EC, under EU State aid rules, approved the Restructuring Plan on 29 June 2011. This approval cleared the way for the planned merger to proceed with the subsequent work-out of the combined entity over a period of up to ten years. A number of commitments were also made to the EC as part of the Restructuring Plan in relation to the State aid provided to the Bank. A Monitoring Trustee was approved by the EC on 8 December 2011 to report on the Group's adherence to these Restructuring Plan commitments. Transfer of the Banks deposits to Allied Irish Banks, p.l.c. and AIB Group (UK) p.l.c. Following a Direction Order made by the Irish High Court on 8 February 2011 under the Credit Institutions (Stabilisation) Act 2010 (CISA) and pursuant to a Transfer Order made by the High Court under CISA on 24 February 2011, the Bank transferred the vast majority of its Irish and UK customer deposits to Allied Irish Banks, p.l.c. (AIB) and AIB Group (UK) p.l.c. (AIB UK), together with its NAMA senior bonds and its Isle of Man subsidiary. This was a significant and complex project for the Bank to manage in a short timeframe. It had the effect of reducing the balance sheet of the Bank by approximately 11bn and over 200 staff transferred to AIB and AIB UK as part of this process. Merger with INBS and subsequent name change On 1 July 2011, pursuant to the Restructuring Plan, all of the assets and liabilities (with the exception of certain limited excluded liabilities) of INBS transferred to the Bank. This was under a further transfer order made by the Irish High Court under Section 34 of CISA (the INBS Transfer Order). Upon successful completion of the merger with INBS, the Bank was renamed on 14 October 2011 as Irish Bank Resolution Corporation Limited, and now trades as IBRC. With effect from the same date, the names of the Banks two key Irish regulated subsidiaries were also changed, with Anglo Irish Mortgage Bank becoming IBRC Mortgage Bank and Anglo Irish Assurance Company Limited becoming IBRC Assurance Company Limited. This name change is significant as we move on from the past. As the infamous names of Anglo Irish Bank and Irish Nationwide Building Society have now been consigned to history, the Board, management and staff of IBRC are now actively working with focus and determination to deal with the significant problems created for the State by both of these former institutions. Material progress has been made in this regard as IBRC continues to take all necessary actions to achieve the mandated objectives of the new entity.

Developments in the organisation

IBRC as an asset recovery organisation Since the completion of the merger, the former Anglo Irish Bank and INBS have now been reshaped into a fully integrated, fit for purpose, asset recovery organisation trading as IBRC. The Banks Group Executive Committee has been charged to lead the key asset recovery and support functions through the next phases of work-out. In addition, a detailed top down process of organisation redesign to the level of individual roles across the Bank has also been completed. The Banks former Lending Division has been reshaped and substantially restructured into an asset recovery platform incorporating front office Recovery Management, Specialised Asset Management and Market Solutions teams. These teams lead the development and execution of recovery strategies for the overall loan portfolio in order to promote timely and focused asset resolution. They work proactively with both distressed and performing customers in all of the Banks locations to manage loans with the aims of minimising losses to the taxpayer and winding down the portfolios of the Bank. The Bank has and will continue to support viable businesses and restructure distressed loans to strengthen and improve asset quality and achieve optimum recovery values. Recovery values are optimised through an array of structured repayments, restructuring and corporate finance techniques. Reduction in loan books across all geographies The primary focus of IBRC continues to be the deleveraging of its lending portfolio while maximising the return for the taxpayer. Total gross customer loan balances declined in 2011 by 10.8bn or 29% (excluding INBS additions) and amounted to 29.1bn at 31 December 2011. This material reduction in the loan book has been primarily driven by disposals and repayments in the US of 7.0bn and in the UK of 1.9bn. The Bank successfully disposed of the majority of its US loan book during 2011. This process which was begun in late 2010 involved individual loan sales early in 2011 combined with a bulk sale of loans which was completed in a number of tranches during the final quarter of the year. This bulk loan sale was the largest transaction in the US commercial real estate market in 2011 which, following a competitive bidding process, saw three successful counterparties purchasing 5.8bn of gross assets. Reductions in the UK loan book were also successfully executed through a combination of working with borrowing clients to achieve orderly repayments and a portfolio sale of the Banks Scottish loan book.

Group Chief Executives review continued

The Bank is now engaged in further detailed analysis of the remaining loan books in Ireland and the UK and this analysis will further inform the Board and management team on the timing and possible composition of future deleveraging. While there have been indications of stabilisation in some sectors, the disposal of the remaining Irish and UK portfolios at acceptable prices remains challenging. Further downsizing of the Banks infrastructure Pursuant to the Direction Order and the Ministerial Requirements, the Banks branches in Austria and Jersey were closed in June 2011 and its branch in Germany closed in August 2011. In addition, and as a result of the disposal of the majority of the US loan book, the Banks representative office in New York closed in January 2012. The Bank has also put the properties of the former INBS branch network on the market for sale. Close to 13% of roles in the Bank became redundant as a result of the redesign of the organisation and those affected have left or are in the process of leaving under an agreed voluntary redundancy scheme or are being redeployed across the Bank. A significant number of additional staff will also depart this year through natural attrition, maturing contracts and potentially through outsourcing. Notwithstanding the fact that headcount numbers will reduce further in time as we work through the phases of the Restructuring Plan, IBRC will continue to need all of the key skills and experience of its remaining employees to deliver upon its approved plan. The retention of a relevant, committed and qualified workforce is central to the ongoing success of the Banks wind-down activities. Mortgages Separately, as part of the merger with INBS, the Bank acquired a residential mortgage book which, albeit small in relative size compared to the market, demonstrates a growing mortgage arrears problem. Resolving this problem, given the current economic context, is extremely challenging and will take time. The Bank remains fully committed however to ensuring that it engages with customers experiencing genuine financial difficulty to develop a range of appropriate solutions which ultimately assist borrowers to meet their obligations and repay their outstanding debt.

drivers of the increase in specific provisions across all sectors of the loan book. The overall macro environment in the UK remains weak and government spending cuts are starting to have an impact across most sectors of the economy. Prices and yields for prime commercial real estate properties in prime locations have stabilised, while a small number of areas have reported price increases. The markets for secondary and tertiary properties however have weakened significantly, particularly over the second half of 2011, with decreasing rents and an increase in vacancy rates resulting in a fall in asset values. In addition, stress in the financial markets has resulted in a material decrease in funding availability for real estate transactions which has had a knock on impact on liquidity and prices. Operating performance Despite recording an operating profit of 620m and a favourable adjustment of 776m to the cumulative loss on transfer to NAMA, the Bank reports a loss for the year of 885m. This loss arises primarily due to net impairment charges of 1,644m, a loss of 214m on the transfer of the majority of the Banks Irish and UK deposit books, certain NAMA bonds and the Banks investment in its deposit-taking Isle of Man subsidiary to AIB and its UK subsidiary, AIB UK, and a loss of 426m on other disposals. Total operating income for the year of 940m includes net interest income of 944m. The overall net interest income figure has increased by 202m in 2011 compared with 2010 and is primarily a function of interest earned on performing customer loan balances and government promissory notes, net of associated funding costs. Following the transfer of deposits to AIB in February 2011, total funding costs of 1,525m largely relate to facilities provided by the Central Bank of Ireland. Balance sheet performance Total assets at 31 December 2011 amounted to 55.5bn, representing a decrease of 17.4bn or 24% on a constant currency basis. These reductions demonstrate the Banks commitment to deleverage the balance sheet in line with the objective of minimising losses for the taxpayer. The principal items driving this reduction were the transfer of NAMA senior bonds to AIB pursuant to the AIB Transfer Order, the sale of the majority of the US loan book, ongoing recoveries in Ireland and the UK and the receipt from the Minister for Finance, the Banks sole shareholder, of the first scheduled annual payment on the promissory note. The Government promissory notes represent 54% of the Banks total assets as at 31 December 2011. The transfer of the majority of the Banks customer deposits pursuant to the AIB Transfer Order increased the Banks reliance on central bank and monetary authority support mechanisms for funding. This represented 87% of total funding (42.2bn) at 31 December 2011 (2010: 70%, 45.0bn), with 40.1bn borrowed under special funding facilities (2010: 28.1bn). Gross customer lending at 31 December 2011 totals 29.1bn. Impaired loans amount to 17.8bn, with cumulative impairment provisions of 10.4bn. A specific lending impairment charge of 2.1bn was incurred during the year which was partially offset by a release of 0.6bn of the collective impairment provision.

Financial performance
The results for the year ended 31 December 2011, which include amounts relating to INBS from 1 July 2011, reflect the continued challenging economic environment in all of the Banks markets. Economic backdrop Ireland continues to be the worst affected of the Banks markets, accounting for the majority of the overall specific impairment charge. Consumer and business sentiment along with spending have been negatively impacted by the weak global backdrop and the ongoing fiscal austerity measures. Conditions within both the commercial and residential Irish property markets remain very difficult. High unemployment and a continued decline in disposable income have impacted credit quality particularly across the residential mortgage portfolio. Property prices have declined further during 2011 and transactional volumes remain low. The stressed economic conditions and the decline in prices have been the primary

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Group Chief Executives review continued

Costs Staff costs have fallen by 18% in the year to 31 December 2011 compared with the prior period. This includes the effect of a 13m pension credit representing a once off past service gain arising from approved amendments to the Banks two defined benefit pension schemes. Adjusting for this, staff costs fell by 8% driven by an 11% reduction in average employees (2011: 1,186; 2010: 1,332). This is primarily due to 210 staff transferring out of the Bank under the AIB Transfer Order and reduced US staffing following the loan book sales. This was partially offset by the gain of 212 additional staff under the INBS Transfer Order. The Group headcount at 31 December 2011 is 1,219 which includes 183 people working directly in the Bank's NAMA unit. Other administrative costs of 108m are in line with the previous year as significant loan book asset quality related professional fees continue to be incurred, principally in relation to ongoing asset recovery matters. Exceptional costs of 82m were incurred during the year and primarily relate to professional fees associated with the Banks restructuring, significant non-recurring transactions and costs related to certain legacy and legal matters. Capital The Bank did not require any additional capital injections during the year. As at 31 December 2011 the Group reported total capital support provided by the Shareholder at 29.3bn, resulting in a Total Capital ratio at 31 December 2011 of 16.3% and a Core Tier 1 ratio of 15.1%.

Future strategy
The Irish Authorities have agreed a plan with the EC to dispose of the assets of the Bank in an orderly fashion, minimise capital losses and distribute the residual net assets to the Shareholder on completion of the wind-down. The residual net asset position on completion of the winddown will be driven by actual recovery rates achieved for assets which in turn depend on factors such as the performance of the domestic and global economies and the performance of property and other asset markets, as well as prevailing interest rates in the Euro area over the duration of the plan. Given the complexities and timescales involved in deleveraging and the risks inherent in the deleveraging process, the final residual net asset position is subject to material uncertainty. I would like to join the Chairman in expressing a sincere thank you to our management, staff and other stakeholders for all their support and consistent hard work throughout the year.

A.M.R. (Mike) Aynsley Group Chief Executive 28 March 2012

Business review
This business review covers the year to 31 December 2011 and includes commentary on key areas of financial and operating performance of the Group during that period. On 24 February 2011 the majority of the Banks Irish and UK deposit books, certain National Asset Management Agency (NAMA) bonds and the Banks shares in its deposit-taking Isle of Man subsidiary were transferred to Allied Irish Banks, p.l.c. (AIB) and its UK subsidiary AIB Group (UK) p.l.c. (AIB UK) pursuant to a transfer order made by the Irish High Court under Section 34 of the Credit Institutions (Stabilisation) Act 2010 (CISA) (the AIB Transfer Order). On 29 June 2011 the European Commission (EC) approved, under EU State aid rules, the joint restructuring and work-out plan for the Bank and Irish Nationwide Building Society (INBS) (the Restructuring Plan) which had been submitted by the Irish Government to the EC on 31 January 2011. Pursuant to the Restructuring Plan, the Bank and INBS were to be combined and then resolved over a period of up to ten years. On 1 July 2011 all of the assets and liabilities (with the exception of certain limited excluded liabilities) of INBS transferred to the Bank by way of a further transfer order made by the Irish High Court under Section 34 of CISA (the INBS Transfer Order) and on that date the Bank announced its intention to change its name to Irish Bank Resolution Corporation Limited (IBRC). This change became effective on 14 October 2011. IBRC is a Government-owned banking entity which, in accordance with the commitments made by the State to the EC, will not be active in new lending or deposit markets. A Monitoring Trustee was approved by the EC on 8 December 2011 to report on the Group's adherence to these Restructuring Plan commitments. The strategic objective of the Bank is to work out its assets in an orderly process over a period of up to ten years, securing the best outcome for the taxpayer. IBRC will continue to operate as a regulated entity, bound by the Capital Requirements Directive and therefore subject to an 8% minimum capital requirement. the Banks Irish and UK deposit books, certain NAMA bonds and the Banks shares in its deposit-taking Isle of Man subsidiary to AIB and AIB UK, and a loss of 426m on other disposals. These losses were offset to an extent by an operating profit of 620m and a favourable adjustment of 776m to the cumulative loss on transfer to NAMA. Interest income on the promissory notes of 1,447m is a key contributor to operating profit in the year. The transfer of the majority of the Banks customer deposits pursuant to the AIB Transfer Order increased the Banks reliance on central bank and monetary authority support mechanisms for funding. This represented 87% of total funding (42.2bn) at 31 December 2011 (2010: 70%, 45.0bn), with 40.1bn borrowed under special funding facilities (2010: 28.1bn). Total assets at 31 December 2011 amounted to 55.5bn, a decrease of 17.4bn or 24% on a constant currency basis. These reductions demonstrate the Banks commitment to deleverage the balance sheet in line with the objective of minimising losses for the taxpayer. The principal drivers of this reduction were the transfer of NAMA senior bonds to AIB pursuant to the AIB Transfer Order, the sale of the majority of the US loan book, the ongoing deleveraging of the loan portfolio and receipt from the Minister for Finance, the Banks sole shareholder, of the first scheduled annual payment on the promissory note. The Government promissory notes represent 54% of the Banks total assets as at 31 December 2011. Gross customer lending at 31 December 2011 totals 29.1bn1. Impaired loans amount to 17.8bn, with cumulative impairment provisions of 10.4bn. During the year, the Bank recognised a specific lending impairment charge of 2.1bn, driven primarily by the continued significant decline in prices in both residential and commercial markets in Ireland and the UK, offset by a release of 0.6bn of the collective impairment provision. Total capital support provided by the Minister for Finance remains at 29.3bn. The Total capital ratio at 31 December 2011 is 16.3% with a Core Tier 1 ratio of 15.1%.

Financial performance
The results for the year ended 31 December 2011 include amounts relating to INBS from 1 July 2011. Further information relating to the INBS integration is contained in notes 1 and 2. The Bank reports a loss before taxation for the year of 873m. This loss arises primarily due to net impairment charges of 1,644m, a loss of 214m on the transfer of the majority of

Customer lending and asset quality

The Banks primary focus remains the orderly work-out of the loan book and the achievement of maximum recovery in the interest of the Bank, the Shareholder and the Irish taxpayer. The Bank is required to report to the Department of Finance on a monthly basis on the progress in respect of these objectives.

Total lending Analysis of customer lending1 Held for sale 2011 m Ireland UK US Total Provisions for impairment Customer lending net of impairment Provisions as a % of loan balances 102 277 379 (103) 276 27% 2010 m 862 618 723 2,203 (565) 1,638 26% Loans and advances to customers 2011 m 19,157 8,977 618 28,752 (10,339) 18,413 36% 2010 m 16,198 10,849 7,643 34,690 (9,577) 25,113 28%

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Business review continued

Gross loan balances of 2.9bn along with cumulative provisions of 1.0bn transferred to the Bank on 1 July 2011 under the INBS Transfer Order. These balances included residential mortgages of 1.9bn with cumulative provisions of 0.4bn. Gross customer lending balances, which declined during the year by 10.8bn or 29% (excluding INBS additions), total 29.1bn1 at 31 December 2011, of which 28.8bn or 99% relate to loans and advances to customers while the remaining 1% are classified as held for sale. Held for sale loan balances comprise those remaining US loans of 0.3bn for which a sales process is being actively pursued and 0.1bn of gross loans which at 31 December 2011 were expected to transfer to NAMA. There remains 0.6bn of US loans classified as loans and advances to customers which could not be sold due to transfer restrictions and which are likely to be held until repayment, refinancing or an unrestricted ability to sell is achieved. At 31 December 2011 the Banks Ireland division accounts for 66% of total lending with the UK and US divisions accounting for 31% and 3% respectively.

The reduction in the loan book has been primarily driven by disposals and repayments in the US (7.0bn) and the UK (1.9bn) as the Bank continues to focus on deleveraging its lending portfolio. The UK and Irish markets remain stressed and deleveraging of the portfolio at acceptable prices remains challenging. During 2011 the Bank successfully completed the deleveraging of the majority of its US loan book. This process involved individual loan sales earlier in the year combined with the bulk sale of US loans which was completed in a number of tranches during the final quarter of the year. The bulk loan sale was the largest transaction in the US commercial real estate market in 2011, with the three counterparties purchasing 5.8bn of gross assets following a competitive bidding process. The gross assets, for which the Bank received 4.4bn of proceeds, had a carrying value of 4.8bn and included loans and swaps together with a number of foreclosed real estate assets. The overall loss on disposal totalled 406m. The disposal resulted in a significant reduction in the Groups risk weighted assets and was broadly neutral from a regulatory capital perspective.

Lending asset quality Grading analysis1 Loans and advances to customers m Good quality Satisfactory quality Lower quality but not past due or impaired Total neither past due or impaired Past due but not impaired Impaired loans 4,397 240 3,610 8,247 3,023 17,482 28,752 Provisions for impairment Total (10,339) 18,413 Held for sale m 7 65 72 31 276 379 (103) 276 2011 2010

Total m 4,404 305 3,610 8,319 3,054 17,758 29,131 (10,442) 18,689

% 15% 1% 12% 28% 11% 61% 100%

Total m 7,627 1,035 4,778 13,440 5,910 17,543 36,893 (10,142) 26,751

% 20% 3% 13% 36% 16% 48% 100%

Uncertainty within the markets continues to adversely affect the Banks loan book across all sectors and locations. Whilst there had been some improvement in the UK and US, the continuing weakness of the Irish economy and weaker trends in some parts of the UK in the second half of 2011 has seen an increase in the proportion of the overall loan book that is deemed at risk by management. This includes those loans that are considered to be impaired, past due but not impaired and lower quality. At 31 December 2011, 84% of loans are classified as at risk (2010: 77%). Impaired loans at 31 December 2011 total 17.8bn (2010: 17.5bn), and represent 61% of the total loan book versus 48% at 31 December 2010. Ireland continues to be the worst performing region with 65% of the portfolio impaired and specific provisions totalling 41% of gross loans. In the UK and US 55% and 25% respectively of the portfolios are impaired. The amount of loans classified as past due but not impaired declined to 3.1bn at 31 December 2011 from 5.9bn at 31 December 2010. The decrease primarily reflects the downward migration of loan balances to impaired status.

Ireland accounts for 2.2bn (71%) of the total past due but not impaired amount, the UK 0.9bn (28%) and the US 24m (1%). The level of loans past due and outstanding for more than 90 days, which represents the highest risk element of past due, has decreased from 3.2bn at 31 December 2010 to 2.2bn, but as a proportion of the overall past due figure has increased to 71% at 31 December 2011 (2010: 55%). A full aged analysis is included within note 50 to the financial statements. Lower quality but not past due or impaired loans at 31 December 2011 totalled 3.6bn or 12% of gross lending assets. Although currently not past due or impaired, these represent loans which management deem to have a higher risk of deterioration. Lending assets deemed to be good quality by management total 4.4bn at 31 December 2011, representing 15% of total gross lending assets.

Business review continued

Asset quality across the portfolio continues to be adversely impacted by the continued deterioration in economic and market conditions. The Banks Recovery Management Ireland (RMI) team proactively works with distressed customers and continues to manage the loan book with the aim of minimising losses to the taxpayer. Negative events, including deteriorating trading performance, likely breach of covenant, challenging macroeconomic conditions or missed payments, will alert RMI that the customer may not have the ability to service its debt. In order to improve the customers overall financial position forbearance approaches such as covenant reliefs or amendments thereof, variations in margin rates or loan rescheduling may be used. In some cases, where deemed appropriate, the Bank restructures distressed loans so as to strengthen and improve asset quality. Restructures, which may include an exchange of debt for equity or equity-like benefits, are only considered where the business model is deemed viable. In some cases the Bank will enforce its rights on its

security interest or will consider insolvency of the borrower in order to ensure that the assets of the business are appropriately distributed. At all times, the Bank will consider the net present value of alternative recovery strategies in order to maximise the amount recoverable on a particular loan. Forbearance on the residential mortgage portfolio is granted by the Bank in order to temporarily alleviate the financial difficulties of the borrower. This involves granting various contract revisions not normally available such as reduced repayments, payment moratoriums and the roll up of arrears. Loans are identified for forbearance primarily as a result of contact from the customer or payment arrears and it is only granted following an assessment of the customers sustainable ability to pay. Further details in relation to forbearance on residential mortgages are included in the supplementary information on pages 169 to 173.

Divisional lending balances by sector1 2011 Business Commercial m Ireland UK US Total 10,725 8,378 594 19,697 Residential m 884 537 297 1,718 Banking m 3,105 35 3,140 Residential Mortgages m 1,873 1,873 Other m 2,672 27 4 2,703 Total m 19,259 8,977 895 29,131

Commercial lending represents 68% of the Banks total loan portfolio and consists of investment and development property lending across all sectors. 15.9bn (81%) of commercial lending relates to the retail, office and leisure sectors. The business banking sector accounts for 3.1bn, or 11%, of the loan portfolio. The Bank is looking primarily to business earnings to service these debt obligations. Residential lending of 1.7bn comprises residential development lending of 0.5bn and residential investment lending of 1.2bn and incorporates large value development and investment transactions. The residential mortgage portfolio, which was acquired under the INBS Transfer Order, represents 6% of the gross loan book and incorporates owner occupier mortgages of 1.5bn and buy to let mortgages of 0.4bn. Other loans acquired from INBS are apportioned as follows at 31 December 2011: Commercial 397m, Residential 120m and Other 81m.

Loans and advances to customers by regulatory group size1 The top 20 customer groups, excluding loans classified as held for sale as at 31 December 2011, represent 9.6bn or 33% (2010: 9.1bn or 26%) of the Group's total loans and advances to customers before provisions for impairment. Total specific impairment provisions on these customer groups amount to 3.2bn. A regulatory customer group typically consists of a number of connected entities and the balances represent multiple individual loans secured by diverse portfolios of assets and multiple contracted cash flows. At 31 December 2011 undrawn committed facilities totalled 0.2bn (2010: 0.6bn). The significant reduction in 2011 is due to the expiration of facilities and the deleveraging of the loan book. Advances during the year were restricted to previously committed facilities or were approved to protect asset quality and aimed at reducing the overall risk to, or maximising recovery for, the Bank. In line with commitments given by the Bank in connection with the approved Restructuring Plan, the Bank is restricted in any new lending to new customers.

10

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Business review continued

Lending impairment charge for the year Income statement - lending impairment 2011 m Specific charge - loans and advances to customers Specific charge - held for sale Total specific lending impairment Collective (release)/charge Total lending impairment 2010 m

Of the residential mortgage charge 46m is attributable to the owner occupier portfolio with the balance of 16m relating to the buy to let portfolio. At 31 December 2011 balance sheet specific and collective provisions in respect of the owner occupier portfolio totalled 326m (23% on 1.4bn of gross loan balances) and on the buy to let portfolio totalled 170m (39% on 0.4bn of gross loan balances). Ireland continues to be the worst affected market, accounting for 73% of the overall specific impairment charge. Consumer and business sentiment along with spending have been negatively impacted by the weak global backdrop, eurozone concerns and the ongoing fiscal austerity measures. Conditions within both the commercial and residential property markets remain very difficult. High unemployment and a continued decline in disposable income have impacted credit quality, particularly across the residential mortgage portfolio. Property prices have continued to decline during 2011 and transactional volumes remain low. The stressed economic conditions and the continued decline in values have been the primary drivers of the increase in specific provisions across all sectors of the loan book. In the UK the overall macro environment remains weak and government spending cuts are starting to have an impact across most sectors of the economy. Within the commercial real estate market prices and yields for prime properties in excellent locations have stabilised and in a small number of areas have increased. However for secondary and tertiary properties market conditions have weakened significantly, particularly over the second half of 2011, with decreasing rents and an increase in vacancy rates resulting in a fall in asset values. In addition, deleveraging by UK and European banks has meant that there has been a material decrease in funding availability for real estate transactions, which has had a knock on impact on liquidity and prices. These items have been the significant contributing factors to the specific impairment charge of 574m in the period. Due to the reduction in the total loan book in 2010 and 2011 through loan sales and considerable NAMA transfers, along with decreases in interest rates, customer interest income for the year ended 31 December 2011 has reduced to 0.9bn, a decline of 45% compared to the year ended 31 December 2010 (1.6bn). As advised in the 2010 Annual Report and Accounts, the Bank is undertaking an internal review of historical interest rate settings as applied to certain customer loan accounts for the period prior to January 2005, to determine whether interest rates applied were consistent with the terms of the associated customer loan documentation. An additional provision of 12m was charged in the year to cover the amount of any liability to customers who may have been adversely affected, taking the total provision to 54m at 31 December 2011.

2,107 34 2,141 (597) 1,544

4,956 2,683 7,639 21 7,660

The specific lending impairment charge of 2.1bn for the year to 31 December 2011 represents 6% of average loan balances. Of the total specific charge 2,107m relates to loans and advances to customers with 34m relating to loans classified as held for sale. The loans and advances charge includes impairment related to US loans prior to their designation as held for sale at 30 June 2011. Impairment is calculated in accordance with IFRS and reflects losses incurred in the period based on conditions existing at 31 December 2011. Losses expected as a result of future events, no matter how likely, are not recognised under IFRS. In line with the Banks credit risk management process, the specific charge was determined following a detailed assessment by Group Risk. This process also included consideration of the new impairment provisioning guidelines issued by the Central Bank of Ireland in December 2011. The collective impairment provision reflects an allowance for loan losses existing in the performing loan book where there is currently no specific evidence of impairment on individual loans. The provision has been calculated based on historical loss experience supplemented by observable market evidence and managements judgement relating to market conditions at 31 December 2011. In 2011 there has been a release of 597m in the collective impairment provision resulting in a remaining balance sheet provision of 773m, or 7% of the total performing loan book, at 31 December 2011. This release is principally attributable to the significant decrease in the performing loan book, on which the Incurred But Not Reported provision is assessed. At 31 December 2011 the performing portfolio totalled 11.4bn compared to 19.4bn at 31 December 2010. Income statement - specific lending impairment 2011 m Ireland UK US Total 1,557 574 10 2,141 2010 m 5,813 737 1,089 7,639

NAMA
The overall reduction in the cumulative loss on disposal of assets to NAMA for the year ended 31 December 2011 totalled 0.8bn. This primarily results from settled valuation adjustments relating to the completion of full due diligence by NAMA on assets previously transferred. In the current year, NAMA has completed full due diligence on 14.8bn of previously transferred IBRC assets. At 31 December 2011, work was ongoing by NAMA to complete full due diligence on the remaining 7.8bn of loans, 7.5bn of which transferred to NAMA in 2010 and 0.3bn which transferred in October 2011. This due diligence work was substantially completed in March 2012 and resulted in the

On a sector basis, 1.4bn (66%) of the specific charge of 2.1bn relates to investment property assets. The remaining charge is attributable to business banking (0.2bn), personal lending (0.2bn), development loan assets (0.2bn) and residential mortgages (0.1bn).

11

Business review continued

Bank owing NAMA approximately 24m in respect of valuation adjustments. This amount was accrued in full during the year ended 31 December 2011. The final overall loss on disposal will only be determined when full due diligence and final settlement has been completed by NAMA on all the assets transferred. During the year the Bank transferred 0.6bn of loans to NAMA at an average discount of 68%. As at 31 December 2011, the remaining eligible loans expected to transfer to NAMA amount to 0.1bn. NAMA has complete discretion as to which assets will be acquired. NAMA bonds As part of the AIB Transfer Order, on 24 February 2011, the Banks entire NAMA senior bond holding of 12.2bn nominal transferred to AIB at a price of 98.5%. Subsequently, following completion of due diligence by NAMA on certain loans which transferred in bulk during November and December 2010 the Bank received new senior and subordinated bonds which increase the original consideration paid by NAMA for these assets. As a result, at 31 December 2011 the Banks nominal holding of NAMA senior bonds, which accounted for 95% of the improved consideration, totalled 950m. This figure includes 33m nominal of senior bonds received by the Bank under the INBS Transfer Order on 1 July 2011. The NAMA senior bonds had a maturity date of 1 March 2012. In February 2012, NAMA informed the Bank of its intention to physically settle the senior bonds held on 1 March 2012 by issuing new senior bonds with a maturity of 1 March 2013. The Banks commercial preference was to receive cash in exchange for its holdings of senior bonds on 1 March 2012. However, bearing in mind the preferences expressed by both NAMA and the Department of Finance and overall public interest considerations, the Bank agreed to accept physical settlement. In October 2011 the Central Bank of Ireland advised the Bank not to increase its usage of sale and repurchase facilities provided under open market operations with the ECB. As a result, at 31 December 2011 there were no senior bonds used in sale and repurchase agreements under open market operations with central banks (2010: 12.3bn). At 31 December 2011 senior bonds with a nominal value of 750m had been pledged under a Special Master Repurchase Agreement with the Central Bank of Ireland. NAMA subordinated bonds of 49m nominal were received during 2011, representing 5% of the improved consideration received for assets transferred to NAMA. On acquisition, these bonds were recognised within available-for-sale assets at an initial fair value of 10m, representing an average valuation of 21%. The difference of 39m is included in the gain/(loss) on disposal of assets to NAMA. Under the INBS Transfer Order, NAMA subordinated bonds with a nominal value of 154m and a carrying value of 47m transferred to the Bank. The Banks nominal holding of NAMA subordinated bonds at 31 December 2011 totals 843m, with a carrying value of 124m.

31 December 2011 totalled 42.2bn, representing 87% of total funding (2010: 45.0bn, 70% respectively). The Bank expects its funding requirements to decrease as the overall deleveraging process continues in accordance with the terms of the approved Restructuring Plan. In accordance with the INBS Transfer Order, borrowings from the Central Bank of Ireland under special funding facilities totalling 6.0bn and debt securities with a nominal value of 0.6bn transferred to the Bank on 1 July 2011. Due to the short term and concentrated nature of its funding base the Bank is not in full compliance with most of its regulatory requirements. The Banks credit ratings were downgraded to sub-investment grade in late 2010 by Standard & Poors and Moodys, and by Fitch in February 2011. The Group became a participant institution in the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 (the ELG Scheme) on 28 January 2010 and certain qualifying deposits and securities issued by the Group from this date onwards are covered by the ELG Scheme. A cost of 77m (2010: 128m) is included within interest expense for the year relating to the Banks participation. The EC has approved the extension of the ELG Scheme for certain eligible liabilities to 30 June 2012. Customer funding Customer funding decreased by 10.5bn to 0.6bn in the period, primarily as a result of the transfer of 8.3bn of customer deposits to AIB and AIB UK under the AIB Transfer Order. Remaining deposits are primarily related to lending or NAMA facilities. Central bank funding Borrowings from the Central Bank of Ireland under special funding facilities increased to 40.1bn (2010: 28.1bn). The facilities utilised were a Special Master Repurchase Agreement (SMRA), a Master Loan Repurchase Agreement (MLRA) and a Facility Deed from the Central Bank of Ireland. The majority of the funds were advanced under the SMRA, involving the sale and repurchase of the promissory notes and the NAMA senior bonds. Collateral assigned under the MLRA is derived from the Bank's customer lending assets. The interest rate on these facilities is set by the Central Bank of Ireland and advised at each rollover and is currently linked to the ECB marginal lending facility rate. Borrowings under open market operations decreased to 2.1bn (2010: 16.9bn). This decline is mainly due to the transfer of 12.2bn of NAMA senior bonds to AIB pursuant to the AIB Transfer Order. The total amount of loan assets assigned as collateral under rated securitisation programmes and secured central bank borrowings at 31 December 2011 was 8.7bn (2010: 13.5bn). This fall is mainly due to certain programmes no longer qualifying as eligible collateral under open market operations. Debt securities in issue

Financial markets
Funding overview The Banks funding profile is primarily reliant on deposits from central banks and monetary authorities, which at

Debt securities in issue decreased by 1.5bn to 5.4bn largely due to the maturity of 2.2bn of medium term notes, of which 1.9bn were unguaranteed but represented contractual commitments for the Bank. The decrease is partially offset by 0.6bn of medium term notes issued by INBS which transferred to the Bank on 1 July 2011 under the INBS Transfer

12

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Business review continued

Order. Medium term notes scheduled to mature during 2012 total 4.3bn of which 2.5bn is unguaranteed. The Bank continues to honour contractual repayment commitments on debt securities. Loans and advances to banks Placements with banks decreased by 1.2bn during the year. The total balance of 2.3bn at 31 December 2011 includes 2.0bn of cash collateral placed with interbank counterparties in relation to net derivative liability positions and 0.2bn of primarily short term placements with banks. Available-for-sale financial assets The Bank holds a portfolio of securities that are classified as available-for-sale (AFS). This portfolio comprises sovereign bonds, debt issued by financial institutions and NAMA subordinated bonds. During 2011, and in line with its overall strategic objective, the Bank has sought to deleverage non core holdings of AFS assets. AFS assets total 1.3bn at 31 December 2011, a decrease of 0.9bn from 31 December 2010. During the year 0.5bn of AFS securities matured and the Bank disposed of a further 0.6bn with a loss on disposal of 2m reported in other operating income/(expense). In addition the Bank acquired 0.2bn of bonds under the INBS Transfer Order. Senior bank bonds account for 64% of holdings, euro denominated sovereign 26% and other bonds, including NAMA subordinated bonds 10%. Of the total bank bonds included within the portfolio 0.5bn, or 36%, relate to bonds issued by Irish banks of which 0.4bn are covered under the ELG Scheme. Sovereign holdings include Irish sovereign bonds with a carrying value of 0.3bn. All bonds are reviewed for impairment on an individual basis, with impairment charges reflected in the income statement. There has been no impairment of AFS securities during the year. Promissory notes The Minister for Finance, as the Banks sole shareholder, has provided the Bank with a promissory note to the value of 25.3bn comprising four tranches. The promissory note pays 10% of the initial principal amount of each tranche annually. On 31 March 2011 the Bank received the first instalment of 2.53bn resulting in the promissory note having a revised principal amount of 23.6bn from that date. In addition, the Minister for Finance had provided a promissory note to INBS to the value of 5.3bn comprising two tranches. The terms of these tranches were the same as tranches one and four of the Bank's promissory note. Following receipt by INBS of the first instalment payment on 31 March 2011, the revised principal amount was 4.9bn. On 1 July 2011 the principal and accrued interest as of that date transferred to the Bank under the INBS Transfer Order. The promissory notes have resulted in the Group having significant interest rate risk as they are fixed rate instruments. The Bank has hedged a total of 4.3bn of the nominal amount using amortising interest rate swaps. A further 5.7bn of economic hedges exist in the form of the Groups capital and fixed rate debt issuance. However significant fixed interest rate exposure remains with limited capacity to hedge further amounts with market counterparties.

The promissory notes are currently pledged as collateral for funding under the SMRA with the Central Bank of Ireland.

Capital
The regulatory capital resources of the Group include 29.3bn of capital contributed by the Irish Government. These contributions restored the levels of Core Tier 1 regulatory capital following significant losses incurred. As at 31 December 2011 the Groups Tier 1 capital ratio is 15.1% and the Total capital ratio is 16.3%. On 1 July 2011, the assets and liabilities of INBS, with the exception of certain limited excluded liabilities, were transferred to the Bank at carrying value, after adjusting for existing differences in accounting policies and bases of valuation. On the date of transfer no cash consideration was paid and settlement was made for the net assets through an increase in the Groups shareholders funds, increasing Core Tier 1 capital by 0.7bn. Regulatory capital ratios have improved since 31 December 2010 due to a reduction in risk weighted assets (RWA) during the year of 11.6bn or 32%. This reduction is primarily related to lending assets where the disposal of US loans in the final quarter of the year had a significant impact on total RWA. Targeted client asset disposals, repayments across loan portfolios, NAMA transfers and additional specific impairment charges further reduced RWA during the year. The merger with INBS on 1 July 2011 offset some of these reductions as risk weighted assets increased by 1.9bn on transfer. Due primarily to the promissory notes issued by the Minister for Finance, the Bank has 35bn of exposure to the Irish Government at 31 December 2011. Irish Government exposure is risk weighted at 0% in line with the requirements of the Capital Requirements Directive and guidance from the Central Bank of Ireland. The Group adopts the Basel II Standardised Approach in calculating its minimum capital requirements.

Restructuring
Pursuant to a direction order made by the Irish High Court under Section 9 of CISA on 8 February 2011 the Bank was directed to (a) reduce its net lending in line with forecasts derived from the Restructuring Plan, (b) formulate a detailed steps plan for the rationalisation and, where appropriate, closure of the Banks UK offices and its branches in Dusseldorf, Vienna and Jersey and submit it to the NTMA (as the nominee for the Minister for Finance) by 31 March 2011, (c) formulate a detailed steps plan for the disposal of the Banks Wealth Management business and submit it to the NTMA by 31 March 2011, (d) formulate in conjunction with INBS a detailed steps plan for the Banks acquisition of/merger with INBS and submit it to the NTMA by 31 March 2011 and (e) transfer the remaining eligible loan assets (as defined in the National Asset Management Agency Act 2009) to NAMA by the later of 31 December 2011 or the completion of any ongoing litigation delaying transfer of those loans. On 31 March 2011, the Bank submitted the three steps plans referred to at (b), (c) and (d) above to the NTMA. On 7 April 2011 the Minister for Finance issued certain requirements to the Bank under Section 50 of CISA pursuant to which the Bank was obliged to implement in all material respects, with the approval of the NTMA, the high level steps plans appended thereto in relation to (i) the rationalisation and, where appropriate, closure of the Banks UK offices and its branches in Dusseldorf, Vienna and Jersey, (ii) the disposal

13

Business review continued

of the Banks Wealth Management business and (iii) the Banks acquisition of/merger with INBS. The Bank was also required to prepare, in conjunction with INBS and the NTMA, a high level restructuring and work-out steps plan, based on the Restructuring Plan (the High Level Steps Plan) and, subject to the approval of the NTMA, implement that High Level Steps Plan, subject to any variations directed by the EC. The Bank is proceeding with the implementation of the High Level Steps Plan, following its approval by the NTMA on 20 June 2011, and is required to report to the Department of Finance on a monthly basis on the progress against the forecasts agreed in the High Level Steps Plan. A number of commitments were also made to the EC as part of the Restructuring Plan in relation to the State aid provided to the Bank. A Monitoring Trustee was approved by the EC on 8 December 2011 to report on a quarterly basis for a period of three years on the Group's adherence to these Restructuring Plan commitments. The Banks branches in Vienna and Jersey closed in June 2011 and the Dusseldorf branch closed in August 2011. The assets and liabilities of INBS (subject to certain limited excluded liabilities) transferred to the Bank under the INBS Transfer Order on 1 July 2011. As a result of the disposal of the majority of the US loan book, the Banks representative office in New York closed in January 2012 and the Bank now retains a small team in Boston to work through the residual asset cases and operational wind-down of the US office. On 30 January 2012, following a comprehensive process to evaluate all of the available alternatives for the future direction of its Wealth Management business, the Bank announced its decision to commence an orderly wind-down of the business. This process is currently underway and may include a cosourcing arrangement.

offset by the acquisition of 212 additional staff under the INBS Transfer Order. The Group headcount at 31 December 2011 is 1,219 which includes 183 people working directly in the Bank's NAMA unit. In late 2011 the Bank launched a voluntary redundancy programme with a target reduction of 130 roles. This process will be implemented during 2012. Other administrative costs of 108m are in line with the previous year as significant professional fees continue to be incurred, principally in relation to ongoing asset recovery matters. Exceptional costs of 82m incurred during the year primarily relate to professional fees associated with Bank restructuring work, significant non-recurring transactions and costs related to certain legacy matters. The principal non-recurring transactions include NAMA and a significant debt recovery case.

Taxation
No Irish tax will be payable on the Groups Irish business activities due to the availability of losses in the Bank which are offset against taxable profits within the Group. However a current period foreign tax charge of 6m arises. A deferred tax charge of 6m has been recognised in respect of the release of deferred tax assets. The Groups current tax liability at 31 December 2011 includes a payable of 23m acquired under the INBS Transfer Order on 1 July 2011. The Group is currently in discussions with the US Internal Revenue Service with respect to potential US tax exposures relating to the Groups US filing obligations.

Costs
Operating expenses 2011 m Staff costs Other administrative expenses Depreciation and amortisation Recurring operating expenses Exceptional costs Total operating expenses 107 108 23 238 82 320 2010 m 130 108 26 264 89 353

Risks and uncertainties

The Group is subject to a variety of risks and uncertainties in the course of its business activities. The principal risks and uncertainties facing the Bank at present are those related to general economic conditions, Government policy and restructuring risk, ratings downgrades, eurozone risk, liquidity and funding risk, NAMA participation, credit risk, operational risk, events of default risk, regulatory compliance risk, market risk, valuation risk, the Fitness and Probity regime, and litigation and legal compliance risk. In addition continued concerns within the banking industry regarding counterparty and country risk could adversely impact on the Bank. More detail is contained in the Principal risks and uncertainties statement on pages 18 to 22.

Total recurring operating expenses for the year to 31 December 2011 are 238m and exceptional costs are 82m. Staff costs have fallen by 18% compared with the prior year. This includes the impact of a 13m credit representing a once off past service gain arising from approved amendments to the Banks two defined benefit pension schemes. Adjusting for this, staff costs fell by 8%, driven by an 11% decrease in average staff numbers from 1,332 during 2010 to 1,186 during the current year. This is primarily due to the transfer out of the Bank of 210 staff under the AIB Transfer Order and reduced US staffing following the loan book sales, partially

Subsequent events and future developments

The key events that have occurred since the end of the year are reviewed in note 57 to the financial statements. The Group Chief Executives review and the Chairmans statement review the outlook and future of the Group.

Gross of impairment provisions and including lending associated with the Groups assurance company

14

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Board of Directors
Alan Dukes (66), was appointed as Non-executive Chairman on 14 June 2010 having initially joined the Board in December 2008. He is a Director and Public Affairs Consultant of Wilson Hartnell Public Relations Limited. He has served at various times as Minister for Agriculture, Finance, Justice, and Transport, Energy and Communications. He is a former Leader of Fine Gael. He was Director General of the Institute of European Affairs from 2003 to 2007. Chairman of the Board of Directors Member of the Nomination and Governance Committee Member of the Remuneration Committee A.M.R. (Mike) Aynsley (54), was appointed Chief Executive Officer and joined the Board in September 2009. He has held a number of senior executive positions over a career spanning more than 30 years including that of Chief Risk Officer New Zealand for ANZ Bank and its subsidiary, the National Bank of New Zealand. Prior to that he was a Global Partner, Banking and Financial Services with Deloitte Consulting and General Manager Global Markets, Global Wholesale Financial Services for National Australia Bank. He holds a Master of Business Administration degree from Macquarie University. Group Chief Executive Member of the Nomination and Governance Committee Member of the Risk and Compliance Committee

Dr. Noel Cawley (67), was appointed to the Board on 24 May 2010. He is Chairman of Teagasc (the Agricultural and Food Development Authority). He is a Director of An Bord Bia and One51 plc. He was previously Chief Executive of the Irish Dairy Board and Chairman of the Irish Horse Board. Independent Non-executive Director Chairman of the Remuneration Committee Member of the Audit Committee Member of the Nomination and Governance Committee Member of the Risk and Compliance Committee

Aidan Eames (53), was appointed to the Board on 24 May 2010. He is a commercial lawyer and Managing Partner of Eames Solicitors, Dublin. He is a Director of Bord Gis ireann and is Chairman of their Risk Committee. He is also a member of the Department of Foreign Affairs Independent Audit Committee. He has served as Chairman and Board Member of a number of private and state enterprises and acts as advisor to leading commercial and technology companies. Independent Non-executive Director Chairman of the Nomination and Governance Committee Member of the Audit Committee Member of the Remuneration Committee Member of the Risk and Compliance Committee

Oliver Ellingham (55), was appointed to the Board on 14 October 2011. He is a chartered accountant and a former Head of Corporate Finance (Europe) at BNP Paribas and a senior executive within BNP Paribas UK. He currently holds Non-executive Directorships in a number of companies including Vislink plc and the Naafi Pension Fund and he is Chairman and owner of Woking Storage Solutions. He previously also held senior management roles within Charterhouse Bank (now part of the HSBC Group) and Robert Fleming (now part of the J P Morgan Group). Independent Non-executive Director Member of the Audit Committee

Gary Kennedy (54), was appointed to the Board on 24 May 2010. He is a Director of Elan Corporation plc, Greencore Group plc and Friends First General Insurance Company Limited. He is also a Director of a number of private companies. Previously, he was Group Director, Finance and Enterprise Technology at Allied Irish Banks, p.l.c. and was a member of its main Board. Prior to that he was group vicepresident at Nortel Networks Europe after starting his management career at Deloitte & Touche. He served on the Board of the Industrial Development Authority of Ireland for ten years and also on the board of Calyx Group plc. Independent Non-executive Director Chairman of the Audit Committee Member of the Nomination and Governance Committee Member of the Remuneration Committee Member of the Risk and Compliance Committee

Maurice Keane (70), who joined the Board on 21 January 2009, is a former Group Chief Executive and member of the Court of Directors of Bank of Ireland. He is a Director of Axis Capital Holdings Limited. He was also previously Chairman of BUPA Ireland Limited and Bristol & West plc. Independent Non-executive Director Chairman of the Risk and Compliance Committee Member of the Audit Committee Member of the Nomination and Governance Committee Member of the Remuneration Committee

Roger McGreal (59), joined the Board on 15 November 2011. He is a former Executive Director of Woodchester Investments plc where his responsibilities included banking, credit and risk. Previously, he held senior management roles in the Corporate Banking division of Bank of Ireland and the Investment Bank of Ireland where he was Associate Director of Corporate Lending. He was appointed as a Non-executive Director of Irish Nationwide Building Society in September 2009. He holds Non-executive Directorships in various private companies and he is also on the Board of a number of companies established in the International Financial Services Centre in Dublin. Independent Non-executive Director Member of the Risk and Compliance Committee

15

Corporate Responsibility
Introduction
At IBRC we recognise our corporate obligations and responsibilities and are committed to fulfilling them. The management and staff of the Bank believe that a commitment to supporting the development of the wider community is an important part of our corporate responsibility. The Bank continually invests in the development and training of our staff, as well as maintaining quality relationships with our stakeholders. We also take a responsible approach to environmental issues and are proactive in seeking innovative ways in which to become more efficient.

Community
We believe that a commitment to supporting the development of the wider community is an important part of our responsibility as a corporate citizen. The Banks Corporate Social Responsibility agenda has however significantly reduced since nationalisation. We have retained a limited number of community based pillar activities to ensure that the Bank does its part in encouraging social inclusiveness and supporting the young and disadvantaged. Much of the work done in this context is rooted in the generosity and commitment of our staff who give their time and effort to support a wide range of worthwhile causes. Warrenmount School, Dublin In Ireland, IBRC is committed to supporting our mentoring programme for secondary level students of Warrenmount School, located in the Liberties district of Dublin, during the academic year 2011/2012. We started this programme in 2000 and since then it has received widespread commitment from staff who, with the Banks support, offer their time to help students realise their full potential. To date, over 130 members of staff have been involved with the Warrenmount initiative. The mentoring scheme enables pupils to develop important personal and professional skills which will benefit their future lives and careers. Dublin City University & University of Limerick The Bank comprises a well-educated staff, many of whom have been fortunate enough to avail of a third level education. Supporting those less fortunate to attain a third level education is the rationale behind our Access Scholarship Programmes for disadvantaged students in Dublin City University and University of Limerick. In close co-operation with the universities, these programmes are structured to ensure the participating students are supported throughout the duration of their chosen degree course. Giving programmes The Bank has a history of supporting a number of charities. A number of Irish based employees participate in a Give As You Earn scheme in support of Children Direct, a partnership of five Irish childrens charities: Temple Street Childrens Hospital, the ISPCC, Enable Ireland, Focus Ireland and ActionAid Ireland. Under this initiative, which has been in place since 2004, monthly donations made by staff are matched by the Bank.

Environment
As a corporate citizen, IBRC recognises its responsibility to the environment and aims to operate in a way which minimises its carbon footprint. We take a responsible approach to environmental issues and are proactive in seeking innovative ways in which to become more efficient. The Bank has an Energy Statement which recognises the importance of practising energy efficiency to minimise costs and impact on the environment. Carbon footprint We monitor our carbon footprint as an organisation and have initiated measurement of the Banks impact on the environment. We obtain carbon tracking reports from a number of our suppliers. It is our preference to source and deal with environmentally focused and aware suppliers and we have incorporated this preference into our tendering processes. We continue to track three elements of the Banks impact on the environment, measuring electrical, gas and water consumption in the majority of our offices. Energy consumption The Banks main energy supplier is a company which is committed to sourcing most of its energy supplies from renewable sources. In Ireland, the Bank participated in the Electricity Winter Demand Reduction Scheme from December 2011 to March 2012. Available information to date confirms that we achieved our committed reduction in electrical consumption. It is Bank policy to recycle paper, cardboard, glass and computer consumables where possible. All electronic and electrical equipment is disposed of in a safe and environmentally responsible way as stipulated in the EU Waste Electrical and Electronic Equipment Directive. In addition, the use of video, web meetings and teleconferencing facilities across all offices is reducing our business travel and therefore minimising our carbon footprint. It is important to the Bank to continue to increase the environmental awareness of the Groups staff. In 2011, we continued to increase our waste recycling rates through improved waste segregation methods and awareness amongst staff in our Dublin offices. These are now being formally measured and reported on by our service providers on a monthly basis. We will continue to focus our attention in 2012 on further reducing resource consumption and maintaining responsible methods of waste disposal.

16

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Corporate Responsibility continued

Workplace
We are a business in wind-down with a highly important job to do before full resolution of the Bank in 2020. Between now and then, our collective objective is to achieve the very best return for the Irish taxpayer. To do this, we need a high calibre, specialist and focused workforce with the necessary expertise and experience capable of achieving the best result possible. The Bank therefore continues to invest in the training, development and well-being of our staff. We aim to develop our staff by furthering their technical and specialist competencies. This ensures that our employees receive the appropriate training to help them undertake their roles. We assist employees in furthering their education. This includes funding to cover approved course fees and study leave in advance of exams. Employee well-being is of continual importance to us. We run an Employee Well-Being scheme, which is available to staff in Ireland and is operated in conjunction with an independent consultancy firm. This service offers confidential support to staff. Similar programmes exist for UK staff (Employee Assistance Programme) and US staff (Ability Assist).

The staff, management team and Board aspire to uphold a set of core values and principles by which to operate in the best interests of all our stakeholders - the Minister for Finance, customers, suppliers, regulatory bodies and the community. Health and safety In line with health and safety legislation, the Bank is committed to achieving the highest standards of safety, health and welfare for its employees, contractors and visitors in the workplace. As required by Section 20 of the Safety, Health and Welfare at Work Act 2005, the Bank has prepared a written Safety Statement outlining our policies on occupational health and safety matters and defining the necessary management structure for the implementation of these policies. This Safety Statement is reviewed annually, or as required by changes in legislation and/or work practices in the Bank.

17

Principal risks and uncertainties

The Group is subject to a variety of risks and uncertainties in the normal course of its business activities. The Transparency (Directive 2004/109/EC) Regulations 2007 require a description of the principal risks and uncertainties facing the Group. The Board of Directors and senior management have ultimate responsibility for the governance of all risk taking activity and have established a framework to manage risk throughout the Group. Details of the risk management policies and processes that the Group adopts are contained in note 50 to the financial statements. The business risks and uncertainties below are those risks which the Directors currently believe to be the material and principal risks to the Group. The precise nature of all the risks and uncertainties that the Group faces cannot be predicted and many of these risks are outside of the Groups control. The principal risks and uncertainties outlined below should be read in conjunction with the Chairmans statement and the Group Chief Executives review.

Government policy and restructuring risk

As the Banks only shareholder, and under legislative powers relevant to the Bank, the Minister for Finance is in a position to exert significant influence over the Group. The Bank is also wholly reliant on the support of the Irish Government. Government policy in respect of both the Bank and the wider financial services sector has a major impact on the Group. Changes to government policies or the amendment of existing policies could adversely impact the financial condition and prospects of the Group. For instance, if new governmental policies were to require the Bank to resolve its position over a shorter than expected time frame, projected asset recovery values could be negatively impacted. Also, due to the substantial package of assistance for Ireland agreed between the Government, International Monetary Fund (IMF) and the European Union (EU) in November 2010, which included agreements to reorganise and restructure the Irish banking sector, the IMF and the EU retain significant influence on the future of the Bank. The Bank also remains subject to risks which could result from any further measures agreed between the Government, the IMF and the EU. The Credit Institutions (Stabilisation) Act 2010 (CISA), enacted on 21 December 2010 following agreement of the assistance package, gives broad powers to the Minister for Finance to facilitate the reorganisation and restructuring of the banking system in Ireland. In this context, the Irish Government submitted a joint restructuring plan and work-out plan in respect of the Bank and Irish Nationwide Building Society (INBS) to the European Commission (EC) on 31 January 2011 (Restructuring Plan). The Restructuring Plan had been prepared in conjunction with the Department of Finance and the National Treasury Management Agency (NTMA). A direction order (the Direction Order) was made by the Irish High Court under Section 9 of CISA on 8 February 2011 under which the Bank was directed to (a) reduce its net lending in line with forecasts derived from the Restructuring Plan, (b) formulate a detailed steps plan for the rationalisation and, where appropriate, closure of the Banks UK offices and its branches in Dusseldorf, Vienna and Jersey and submit it to the NTMA by 31 March 2011, (c) formulate a detailed steps plan for the disposal of the Banks Wealth Management business and submit it to the NTMA by 31 March 2011, (d) formulate in conjunction with INBS a detailed steps plan for the Banks acquisition of/merger with INBS and submit it to the NTMA by 31 March 2011, (e) transfer the remaining eligible loan assets (as defined in the National Asset Management Agency Act 2009 (the NAMA Act)) to the National Asset Management Agency (NAMA) by the later of 31 December 2011 or the completion of any ongoing litigation delaying transfer of those loans and (f) take certain steps in connection with an auction process to be operated by the NTMA in connection with the transfer of certain of the Banks deposits and assets. On 24 February 2011, the Irish High Court made a transfer order under Section 34 of CISA pursuant to which the majority of the Banks Irish and UK deposit books, certain NAMA bonds and the Banks shares in its wholly-owned deposit-taking Isle of Man subsidiary were transferred to Allied Irish Banks, p.l.c. (AIB) and AIB Group (UK) p.l.c. (AIB UK) (the AIB Transfer Order). On 31 March 2011, the Bank submitted the three steps plans referred to at (b), (c) and (d) above to the NTMA. On 7 April 2011 the Minister for Finance issued certain requirements (Ministerial Requirements) to the Bank under Section 50 of CISA pursuant to which the Bank was obliged to implement in all material respects, with the approval of the NTMA, the high level steps plans appended thereto in relation

General economic conditions

The Groups results are influenced by macroeconomic and other business conditions in the Groups three historical markets: Ireland, the UK and, to a lesser extent, the US. Some sectors in Ireland have sustained their contribution to export-led growth but, overall, economic conditions in Ireland remain challenging and consequently the results of the Group have been adversely affected. Ireland continues to experience subdued consumer confidence, high unemployment, and weaker domestic commercial activity. In the short term, austerity measures introduced in consecutive budgets continue to define domestic business sentiment and inhibit personal disposable income and spending. Such measures, which form part of the overall adjustment programme for Ireland, have improved the countrys competitiveness. Further deterioration in property prices could further adversely affect the Groups financial condition and results of its operations. The Groups financial performance may also be affected by future recovery rates on assets and the historical assumptions underlying asset recovery may no longer be accurate given the general economic situation. While there has been some improvement in the UK and US, conditions remain uncertain surrounding the sustainability of both the global and relevant regional economic recoveries, particularly if fiscal and monetary supports are withdrawn. In the UK, the modest economic recovery is still exposed to changes in UK Government policy initiatives designed to foster growth, which in turn could impact negatively on the broader demand for goods and services. As a result, unemployment could increase and residential and commercial property would again suffer decreases in value.

18

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Principal risks and uncertainties continued

to (i) the rationalisation and, where appropriate, closure of the Banks UK offices and its branches in Dusseldorf, Vienna and Jersey, (ii) the disposal of the Banks Wealth Management business and (iii) the Banks acquisition of/merger with INBS. The Bank was also required to prepare, in conjunction with INBS and the NTMA, a high level restructuring and work-out steps plan, based on the Restructuring Plan (the High Level Steps Plan) and, subject to the approval of the NTMA, implement that High Level Steps Plan, subject to any variations directed by the EC. The Bank is proceeding to implement the High Level Steps Plan, following approval by the NTMA on 20 June 2011. The Restructuring Plan, which was approved by the EC on 29 June 2011, provides for the amalgamation of the Bank with INBS and sets out in detail how the loan books of the combined entity will be resolved over a period of up to ten years. To ensure that the assets are managed in a way consistent with the resolution of the combined entity, certain commitments are now binding upon the Bank, including a commitment that it cannot enter into new activities. A Monitoring Trustee was approved by the EC on 8 December 2011 to report on a quarterly basis for a period of three years on the Groups adherence to these Restructuring Plan commitments. The Bank has prepared an operating plan which is intended to form the basis for the implementation of the Restructuring Plan and the High Level Steps Plan. The operating plan focuses on accelerated deleveraging of the Bank, and includes the accelerated disposal of its US loan portfolio and the disposal or wind-down of its Wealth Management division in accordance with the Restructuring Plan, the Direction Order, the Ministerial Requirements and the High Level Steps Plan. The initiatives are subject to operational challenges and market dependencies in respect of timing and optimal pricing, which will increase the execution risk of the operating plan. Note 57, Events after the reporting period, confirms that on 30 January 2012 the Bank announced that the Board had approved a strategy and direction put forward by management to wind down its Wealth Management business in an orderly fashion. This process is currently underway and may include a co-sourcing arrangement. Any final agreement reached between the parties will have operational risks associated with the process.

Eurozone risk
During 2011, the economic, monetary and political uncertainty in a number of eurozone members increased. The cost and availability of funding available to European banks, including the Group, may be affected by any further escalation of the sovereign crisis, and could also materially adversely affect the Groups financial condition and results of operations due to the impact on economic conditions in the eurozone and the European Union in general.

Liquidity and funding risk

Liquidity and funding risk is the risk that the Group does not have sufficient financial resources available at all times to meet its contractual and contingent cash flow obligations or can only secure these resources at excessive cost. This risk is inherent in all banking operations and can be affected by a range of institution-specific and market-wide events. The Groups liquidity may be adversely affected by a number of factors, including significant unforeseen changes in interest rates, ratings downgrades, higher than anticipated losses on loans and disruptions in the financial markets generally. In response to major market instability and illiquidity, governments and central banks around the world have intervened in order to inject liquidity and capital into financial markets and, in some cases, to prevent the failure of systemically important financial institutions. These various initiatives to stabilise financial markets are subject to revocation or change, which could have an adverse effect on the availability of funding to the Group. In common with many other banks, the Groups access to traditional sources of liquidity remains constrained. The Bank has experienced greater reliance on Government and monetary authority support mechanisms due to the AIB Transfer Order and the maturity of debt securities. The Banks continued reliance on support from central banks includes access to special funding facilities, a key factor in ensuring successful implementation of the operating plan as well as adapting to potential regulatory developments. The funding support from central banks and monetary authorities amounted to 42.2bn at 31 December 2011, representing 87% of total funding, and included 40.1bn borrowed under special liquidity facilities. This support increased from December 2010 (70% of total funding) following the transfer of certain Irish and UK deposits and NAMA bonds to AIB and AIB UK under the AIB Transfer Order. Should monetary authorities materially change their eligibility criteria or limit the Banks access to such special funding facilities without providing an alternative funding source, this would adversely affect the Groups financial condition and prospects. Additionally, credit rating downgrades may impact on the eligibility of assets currently pledged as collateral for central bank open market sale and repurchase agreements.

Ratings downgrades Bank and Sovereign

During 2011, the Banks long-term Standard & Poors (S&P) counterparty credit rating was downgraded by three notches to CCC and remains below investment grade. Similar action was taken by Moodys during the period (rating cut from Ba3 to Caa2) and by Fitch (rating cut from BBB- to BB-). In taking these rating actions, credit rating agencies cited concerns about the Irish Governments publically indicated preference to impose losses on the Group's senior unsecured and unguaranteed debt holders. Also during the period the Irish Sovereigns senior debt suffered further credit rating downgrades. S&P lowered their rating from A to BBB+, Moodys adjusted their rating from Baa1 to Ba1, and Fitch reduced their rating from BBB+ (Stable) to BBB+ (Negative).

19

Principal risks and uncertainties continued

NAMA
The Bank continues to be designated as a participating institution in NAMA. The NAMA Act provides for the acquisition by NAMA from participating institutions of eligible bank assets, which may include performing and nonperforming loans made for the purpose, in whole or in part, of purchasing, exploiting or developing development land and loans associated with these loans. As NAMA reserves the right to adjust the consideration paid for assets previously transferred when the due diligence is completed, the final adjustment to transfer values will only be determined when full due diligence in respect of the assets has been completed. These adjustments have the potential to be either positive or negative, depending on the assessment of the underlying loans. At 31 December 2011 the Bank had 0.1bn of loans remaining to transfer to NAMA. Not all of the remaining assets may ultimately transfer to NAMA. The Group may also be required to indemnify NAMA in respect of various matters, including NAMAs potential liability arising from any error, omission, or misstatement on the part of the Group in information provided to NAMA. In addition, the EC may assess the compatibility and price of the transferred assets and could invoke a claw-back mechanism in the case of excess payments. The NAMA Act provides that up to 5% of the debt securities that will be issued to a participating institution may be subordinated. If NAMA ultimately makes a loss, the Group may not recover the full value of those subordinated bonds.

As a result of the integration of the INBS business into the Group pursuant to the Restructuring Plan, the Direction Order, the Ministerial Requirements and the High Level Steps Plan, the Bank now also has exposure to residential mortgages, which have a higher reliance on sustained employment levels to ensure continued servicing of existing debt. Residential mortgages totalling 1.9bn transferred to the Bank by way of the INBS Transfer Order. The Irish property market remains severely impacted by a lack of confidence and liquidity which has led to further reductions in property collateral values. This, together with an extremely difficult operating environment in the Groups key markets, particularly in Ireland, and the erosion of clients net worth has resulted in a substantial deterioration in the asset quality of the Banks loan book. The Groups financial performance will be affected by future recovery rates on loan assets. Any further deterioration in property prices, any failure of prices to recover to their long term averages or any delay in realising collateral secured on these loan assets will further adversely affect the Groups financial condition and results of operations. Following the approval of the Restructuring Plan by the EC, the Group is also exposed to additional recovery risk given that counterparties are aware that the plan provides for an orderly work-out of its loan book over a period of years as well as being dependent on efficient execution of debt restructurings where required. As a result, amounts recoverable may be reduced.

Operational risk Credit risk

Credit risk is the risk that the Group will suffer a financial loss from a counterpartys failure to pay interest, repay capital or meet a commitment, and the collateral pledged as security is insufficient to cover the payments due. It arises primarily from the Groups lending activities to customers, interbank lending, investment in available-for-sale debt securities and derivative transactions. Adverse changes in the credit quality of the Groups borrowers, counterparties and their guarantors, and adverse changes arising from the general deterioration in global economic conditions, have reduced the recoverability of the Groups loan assets and have continued to increase the quantum of impaired loans and impairment charges during the period. The Group has exposures to a range of customers in different geographies, including exposures to investors in, and developers of, commercial and residential property. At 31 December 2011, 67% of the Groups loans and advances to customers (excluding loans held for sale to NAMA and impairment provisions) were in Ireland, 31% were in the UK and 2% in the US. Irish property prices continued to show significant declines throughout the last year and developers of commercial and residential property are facing particularly challenging market conditions, including substantially lower prices and volumes. In addition, the Groups exposure to credit risk is exacerbated when the collateral it holds cannot be realised or is liquidated at prices that are not sufficient to recover the full amount of the loan, which is most likely to occur during periods of illiquidity and depressed asset valuations, such as those currently being experienced. Operational risk is the risk of loss arising from inadequate controls and procedures, unauthorised activities, outsourcing, human error, systems failure and business continuity. Operational risk is inherent in every business organisation and covers a wide spectrum of issues. The Groups management of its exposure to operational risk is governed by a policy prepared by Group Risk and approved by the Risk and Compliance Committee. The Groups exposure to operational risk is elevated due to the transitional support arrangements in place following the making of the AIB Transfer Order, which resulted in the immediate transfer of the majority of the Banks Irish and UK deposit books and certain NAMA bonds to AIB and AIB UK, as well as the integration process resulting from the INBS Transfer Order, which effected the transfer of the INBS business into the Bank and orderly work-out of the combined entitys loan book over ten years. There is also the added risk of a weakened control environment while the Group implements the operational plan to give effect to the approved Restructuring Plan and High level Steps Plan. The lack of career prospects and incentives in the medium term may lead to loss of experienced staff and indifference among remaining staff, with an increased associated risk of material error. Separately, the current economic climate increases the risk of the occurrence of fraud.

20

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Principal risks and uncertainties continued

Events of default risk

The Group's debt securities programmes and subordinated capital instruments contain contractual covenants and terms for events of default which, if breached or triggered, could result in an actual or potential default that might result in the debt concerned becoming payable immediately, or other adverse consequences occurring. CISA includes important provisions that are designed to prevent rights in respect of a potential event of default, or an event of default becoming exercisable because of the making of orders or issuing of certain requirements under CISA or anything done on foot of such an order or requirements, including implementation of the High Level Steps Plan. CISA provides that orders or requirements made under CISA may take effect as a reorganisation measure under the Credit Institutions Reorganisation and Winding Up Directive (CIWUD) and any law giving effect to it. The relevant protective provisions of CISA apply in relation to the Direction Order, the AIB Transfer Order, the Ministerial Requirements and the INBS Transfer Order. Each such order and requirement was declared to be a reorganisation measure for the purposes of CIWUD. Accordingly, CISA and laws giving effect to CIWUD confer important protections to the Bank with respect to the laws of EU member states against certain default risks in respect of the matters and timelines contained in the relevant orders and requirements. With regard to litigation in the US in connection with alleged breaches of covenant in the documentation governing certain subordinated loan notes governed by New York Law, see the disclosure concerning legal claims referred to in note 48 to the financial statements.

Taxation risk
Taxation risk is the compliance risk associated with changes in tax law or in the interpretation of tax law. It also includes the risk of changes in tax rates and the risk of failure to comply with procedures required by tax authorities. Failure to manage tax risk effectively could lead to additional tax charges. It could also lead to financial penalties for failure to comply with required tax procedures or other aspects of tax law. The Group is subject to the application and interpretation of tax laws in all countries in which it operates. In relation to any tax risk, if the costs associated with the resolution of the matter are greater than anticipated, it could negatively impact the financial position of the Group. In accordance with applicable accounting rules, the Group has also recognised deferred tax assets on losses available to relieve profits to the extent that it is probable that such losses will be utilised. The assets are quantified on the basis of current tax legislation and are subject to change in respect of the tax rate or the rules for computing taxable profits and allowable losses. In the event that there are no taxable profits to be relieved or changes to tax legislation arise, there may be a reduction in the recoverable amount of the deferred tax assets currently recognised in the financial statements.

Market risk
Market risk is the risk of a potential adverse change in the Groups income or financial position arising from movements in interest rates, exchange rates or other market prices. Changes in interest rates and spreads may affect the interest rate margin realised between income on lending assets and borrowing costs. While the Group has implemented risk management methods to mitigate and control these and other market risks to which it is exposed, it is difficult to accurately predict changes in economic or market conditions and to anticipate the effects that such changes could have on the Group. Borrowings from central banks and a large proportion of the Groups other funding balances are denominated in euro while some of the Groups lending assets are denominated in sterling and US dollars. As a consequence, the Group has made extensive use of foreign currency derivatives to manage the currency profile of its balance sheet during the period. Continued access to market participants is required to enable the Group to continue with this risk management strategy. The promissory notes, which are fixed rate instruments, have resulted in the Group having significant interest rate risk exposure. The Bank has hedged a total of 4.3bn of the nominal amount using interest rate swaps. A further 5.7bn of economic hedges exist in the form of the Groups capital and fixed rate debt issuance. However, significant fixed rate exposure remains, with limited capacity to hedge further amounts with market counterparties. In current market circumstances it is envisaged that the Bank will have to continue to rely on support mechanisms provided by monetary and governmental authorities.

Regulatory compliance risk

Regulatory compliance risk primarily arises from a failure or inability to comply fully with the laws, regulations, standards or codes applicable specifically to regulated entities in the financial services industry. The Bank continues to operate as a regulated entity and, as such, is therefore subject to certain minimum prudential and other regulatory requirements. At 31 December 2011, the Bank is not in full compliance with all Irish regulatory requirements. While the Bank ensures that the relevant Authorities are kept fully informed in this regard, noncompliance may result in the Group being subject to regulatory sanctions, material financial loss and/or loss of reputation. Capital risk is the risk that the Group has insufficient capital resources to meet its minimum regulatory capital requirements. Losses incurred by the Bank during the past two years have placed significant stress on the Bank's regulatory capital resources and resulted in the Minister for Finance, as the Banks sole shareholder, providing 29.3bn of capital. The Groups Total capital ratio at 31 December 2011 is 16.3%. Further losses, as well as any increased capital requirements, could again lead to regulatory capital concerns in the future. The Group has also yet to update its Internal Capital Adequacy Assessment Process (ICAAP). Accordingly the Group has yet to determine the appropriate level of capital requirements under Pillar 2. Changes in government policy, legislation or regulatory interpretation applying to the financial services industry may adversely affect the Groups capital requirements and, consequently, reported results and financing requirements. These changes include possible amendments to government and regulatory policies and solvency and capital requirements.

21

Principal risks and uncertainties continued

Valuation risk
To establish the fair value of financial instruments, the Group relies on quoted market prices or, where the market for a financial instrument is not sufficiently active, internal valuation models that utilise observable market data. In certain circumstances, observable market data for individual financial instruments or classes of financial instruments may not be available. The absence of quoted prices in active markets increases reliance on valuation techniques and requires the Group to make assumptions, judgements and estimates to establish fair value. In common with other financial institutions, these internal valuation models are complex, and the assumptions, judgements and estimates the Group is required to make often relate to matters that are inherently uncertain. These judgements and estimates are updated to reflect changing facts, trends and market conditions and any resulting change in the fair values of the financial instruments could have an adverse effect on the Groups earnings and financial position.

Litigation and legal compliance risk

The Groups business is subject to the risk of litigation by counterparties, customers, employees, pre-nationalisation shareholders or other third parties through private actions, class actions, regulatory actions, criminal proceedings or other litigation or actions. The outcome of any such litigation, proceedings or actions is difficult to assess or quantify. The cost of defending such litigation, proceedings or actions may be significant. As a result, such litigation, proceedings or actions may adversely affect the Groups business, financial condition, results, operations or reputation. In the period since December 2008, various regulatory bodies in Ireland have initiated investigations (including in some cases, criminal investigations) into certain aspects of the Banks business, including certain loan and other transactions involving former Directors and certain third parties. These investigations are ongoing and it is not possible at this stage to give any indication as to whether these investigations will result in civil, administrative or criminal proceedings against the Bank or any of its current or former Directors or officers. Due to the complexity of the restructuring of the Bank, including integration of the former INBS into the Group, there is a potential for unforeseen legal risks to arise.

Fitness and probity regime

The Central Bank of Ireland published its Regulations and Standards of Fitness and Probity, issued under Part 3 of the Central Bank Reform Act 2010 (the 2010 Act), on 1 September 2011.These statutory standards came into effect on 1 December 2011. The 2010 Act provides for a fitness and probity regime for the review of individuals performing controlled functions and pre-approval controlled functions, including directors and chief executive officers, in regulated financial service providers other than credit unions. Where the review causes the Head of Financial Regulation of the Central Bank of Ireland to form the opinion that there is reason to suspect the persons fitness and probity to perform the relevant function, an investigation may be conducted which may result in a prohibition notice being issued preventing the person from carrying out the function. The Group could suffer reputational damage or adverse financial performance if any issues were to arise under the fitness and probity regime.

22

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Report of the Directors

The Directors present their report and the audited financial statements for the year ended 31 December 2011. Results The Group loss attributable to the owner of the parent amounted to 884m (2010: 17,651m) as set out in the Consolidated income statement on page 32. Review of activities Following the approval by the European Commission of the joint restructuring and work-out plan for the Bank and Irish Nationwide Building Society (INBS) on 29 June 2011, the Banks single activity has become the orderly resolution of the Group over a period of up to ten years, securing the best possible outcome for the taxpayer. On 1 July 2011 the assets and liabilities of INBS (with the exception of certain limited excluded liabilities) were transferred to the Bank under a transfer order made by the Irish High Court. The Chairmans statement, the Group Chief Executives review and the Business review on pages 3 to 14 report on developments during the year, recent events and likely future developments. The financial statements for the year ended 31 December 2011 are set out in detail on pages 32 to 168. Dividends No dividends were paid during the year. It is not proposed to pay a dividend in respect of the year ended 31 December 2011. Capital The capital resources of the Group include 29.3bn of capital contributed by the Minister for Finance. In addition, prior to the merger with the Bank, the Minister had contributed 5.4bn of capital to INBS. The transfer of the assets and liabilities of INBS on 1 July 2011 resulted in an increase in the Groups shareholders funds, increasing Core Tier 1 capital by 0.7bn. Details of changes in capital during the year are included in notes 42 to 47 to the financial statements. Accounting policies The principal accounting policies, together with the basis of preparation of the financial statements, are set out in note 1 to the financial statements. Directors and Secretary The names of the Banks Directors, together with a short biographical note on each, appear on page 15. Oliver Ellingham and Roger McGreal were appointed to the Board on 14 October 2011 and 15 November 2011 respectively. On 13 January 2012 Dr. Max Barrett resigned as Group Secretary and was replaced by Philip Brady who was appointed on the same date. The interests of the Directors and Secretary who held office at 31 December 2011 in the share capital of the Bank are shown in the Remuneration Committee's report on behalf of the Board, set out in note 53 to the financial statements. Details of the total remuneration of the Directors in office during 2011 and 2010 are also shown in the Remuneration Committees report. Credit Institutions (Stabilisation) Act 2010 In the performance of their functions the Directors have a duty to have regard to the matters set out in section 4(f) of the Credit Institutions (Stabilisation) Act 2010. This duty is owed by the Directors to the Minister for Finance on behalf of the State and takes priority over any other duties of the Directors to the extent of any inconsistency. Substantial shareholdings On 21 January 2009, under the terms of the Anglo Irish Bank Corporation Act, 2009, all of the Banks ordinary and preference share capital was transferred to the Minister for Finance. As at the date of this Report, all of the Banks issued share capital is held by the Minister. Foreign branches The Bank has an established branch, within the meaning of EU Council Directive 89/666/EEC, in the United Kingdom. During the year branches in Germany and Jersey were closed and deregistered. The Banks branch in Austria was also closed during 2011 and is currently in the final stages of de-registration. Corporate governance The Directors' Corporate governance statement appears on pages 25 to 29. Principal risks and uncertainties Information concerning the principal risks and uncertainties facing the Bank and the Group is set out in the Principal risks and uncertainties section on pages 18 to 22. The Groups financial risk management objectives and policies and its use of financial instruments are discussed in notes 21 and 50 to the financial statements. Books of account The Directors are responsible for ensuring that proper books of account, as outlined in Section 202 of the Companies Act, 1990, are kept by the Bank. To ensure compliance with these requirements the Directors have appointed professionally qualified accounting personnel with appropriate expertise and have provided adequate resources to the Finance function. The books of account of the Bank are maintained at the Bank's registered office at Stephen Court, 18/21 St. Stephen's Green, Dublin 2. Auditor The Auditor, Deloitte & Touche, Chartered Accountants, has expressed willingness to continue in office in accordance with Section 160(2) of the Companies Act, 1963.

Directors: Alan Dukes (Chairman), A.M.R. (Mike) Aynsley (Group Chief Executive), Gary Kennedy (Non-executive Director). Secretary: Philip Brady. 28 March 2012

23

Statement of Directors' responsibilities

The following statement, which should be read in conjunction with the Auditors report on pages 30 and 31, is made with a view to distinguishing for the Shareholder the respective responsibilities of the Directors and of the Auditor in relation to the financial statements. Irish company law requires the Directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Bank and of the Group as at the end of the financial period and of the profit or loss of the Group for that period. With regard to the financial statements on pages 32 to 168, the Directors have determined that it is appropriate that they continue to be prepared on a going concern basis and consider that in their preparation: suitable accounting policies have been selected and applied consistently; judgements and estimates that are reasonable and prudent have been made; and the financial statements comply with applicable International Financial Reporting Standards (IFRS). of the principal risks and uncertainties faced by the Bank and the Group. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Bank's website. Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors confirm that, to the best of their knowledge, they have complied with these requirements in preparing the financial statements, including preparation of these financial statements in accordance with IFRS, as adopted by the European Union, to give a true and fair view of the state of affairs of the Bank and of the Group as at 31 December 2011 and of the loss of the Group for the year then ended. They also confirm that the management reports contained in the Annual Report and Accounts include a fair review of the development and performance of the business and the position of the Bank and the Group, together with a description of the principal risks and uncertainties that they face. The Directors, having prepared the financial statements, have requested the Auditor to take whatever steps and undertake whatever inspections are considered to be appropriate for the purpose of enabling the issuance of the Auditors report.

The Directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the Bank and which enable them to ensure that the financial statements are prepared in accordance with IFRS, as adopted by the European Union, and comply with the Companies Acts, 1963 to 2009 and Article 4 of the IAS Regulation. They also have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Bank and of the Group, and to prevent and detect fraud and other irregularities. The Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland require the Directors to include a management report containing a fair review of the business as well as a description

Directors: Alan Dukes (Chairman), A.M.R. (Mike) Aynsley (Group Chief Executive), Gary Kennedy (Non-executive Director). Secretary: Philip Brady.

24

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Corporate governance statement

The Board of Directors (the Board) is accountable to the Shareholder for the overall performance of the Group. In doing so, it is responsible for: The effective, prudent and ethical oversight of the Bank; Setting the business strategy for the Bank, following consultation with the Shareholder; and Ensuring that risk and compliance are properly managed in the Bank. Executive. Further to the priorities referred to in last years statement, the Board enhanced its existing capability and skills through the appointment of two further independent Nonexecutive Directors during the year. The Non-executive Directors are independent of management, with varied backgrounds, skills and experience. There have been a total of 35 board meetings during the financial year, 10 of which were scheduled. The significant number of unscheduled meetings were convened primarily to consider a variety of strategic restructuring matters which arose during the year, including the transfer of the Banks deposit book to AIB, the amalgamation of the Bank with Irish Nationwide Building Society pursuant to an Irish High Court transfer order of 1 July 2011 and the disposal of the Banks US loan portfolio. All Directors are expected to attend each board meeting and the attendance at board and committee meetings during 2011 is set out on page 29. Directors are provided with relevant papers in advance of each meeting. All Directors are invited to attend meetings of the Boards principal sub-committees even where they are not members of the particular committee and are provided with the relevant papers in respect of those committee meetings. If any Director is unable to attend a meeting, he will still receive the supporting papers and will have the opportunity to discuss any matters he wishes to raise with the Chairman to ensure his views are given due consideration. During the financial year, many of the unscheduled meetings were arranged at short notice and it was not always possible for all Directors to attend. The attendance rate at board and committee meetings for 2011 was 97%. The Board keeps a formal schedule of matters specifically reserved for its decision. These are matters which are significant to the Bank because of their strategic, financial or reputational implications and include agreement of strategic objectives, annual plans and performance targets, monitoring and control of operations, review of the performance of Board Committees and approval of specific senior appointments. The schedule of matters reserved for the Board is reviewed and approved by the Board on an annual basis, the latest review having taken place in February 2012. In addition, a formal Board Charter is in place which governs the operation of the Board as well as outlining the responsibilities of the Board and the Directors. The Chairman, Group Chief Executive and Company Secretary are always available for the Directors to discuss any issues concerning Board meetings or other matters. Maurice Keane has been appointed as the Senior Independent Director. The Bank has insurance in place to cover the Directors and Officers in respect of legal actions which may be brought against them in the course of their duties. In addition, the Bank has offered a third party indemnity to individuals who act as officers of Bank subsidiaries or other related entities in relation to certain losses and liabilities which they may incur in connection with their duties, powers or office. Roles of Chairman and Group Chief Executive Alan Dukes was appointed as Non-executive Chairman of the Bank in 2010 and in accordance with the provisions of the Code, the Board renewed this appointment during 2011. The roles of Chairman and Group Chief Executive are distinct, separate and have been agreed by the Board and are documented within the Board Charter.

The Central Bank of Irelands Corporate Governance Code for Credit Institutions and Insurance Undertakings (the Code) came into effect as and from 1 January 2011 and is the primary corporate governance code to which the Bank is now subject. The Code sets out a model of best practice principles for the governance of financial institutions and the Board supports and endorses the provisions of the Code, which it has implemented. The Bank is not classified as a major institution for the purposes of this code. The full text and provisions of the Code is available at www.centralbank.ie. The Board believes that the application of the principles in the Code also assist the Group to comply with the ethical and other considerations implicit in the 2009 Code of Practice for the Governance of State Bodies, as published by the Department of Finance and also as regards adherence to the principles espoused in the UK Corporate Governance Code. The Bank is in compliance with the corporate governance and other obligations imposed by the Ethics in Public Office Act, 1995 and the Standards in Public Office Act, 2001. The Board is also cognisant of its collective responsibilities and those of its individual members under the Credit Institutions (Stabilisation) Act 2010. This corporate governance statement describes how the Bank applied the principles of the Code throughout the year ended 31 December 2011. The Directors believe that the Group has complied throughout the year with the provisions and principles as detailed in the Code. Relationship with the Shareholder In addition to the provisions of the Anglo Irish Bank Corporation Act, 2009, a Relationship Framework between the Minister and the Bank was formally approved by the Board in June 2009. This provides the framework under which the relationship between the Minister and the Bank is governed. Under the Relationship Framework, certain key matters are reserved to the Minister, and in respect of which the Board may only engage on the instructions of, or with the prior consent of, the Minister. There has been regular two way communication between the Shareholder and the Board during the year on a wide range of issues, in particular in respect of a number of key matters regarding the strategic objective to wind down the Bank in an orderly fashion within the ongoing overall restructuring of the Irish financial system, with the Directors being kept informed of the Shareholders views through regular reports to the Board by the Chairman and the Group Chief Executive and through meetings with the Board, Chairman, and the Group Chief Executive. Board of Directors and Membership The Board of Directors recognises its continuing responsibility for the leadership, direction and control of the Bank and the Group and its accountability to the Shareholder for financial performance. As at 31 December 2011, the Board comprised the Chairman, six Non-executive Directors and the Group Chief

25

Corporate governance statement continued

The Chairman's main responsibility is to lead and manage the Board, encourage critical discussions, challenge mind-sets and additionally, promote effective communication within the Board. In addition, he is responsible for promoting best practice corporate governance and effective communication with the Shareholder. The Chairman allocates a substantial amount of time to the Group and his role has priority over any other commitments. The Board has delegated day to day responsibility for the Bank's operations, compliance and performance to the Group Chief Executive to ensure that the strategic direction agreed by the Board is followed. The Group Chief Executive in turn delegates the implementation of operational decisions to the Banks executive management team. A formal charter governing the operation of the Banks Group Executive Committee which details their duties and responsibilities has also been adopted. Under the direction and management of the Group Chief Executive, the Group Executive Committee is responsible for the management of the groups human, financial and physical resources having responsibility for: Formulating and executing plans for the achievement of the Banks objectives and strategy as are prescribed by the Board from time to time; Providing such assurance to the Board and Board Committees as the Board in the discharge of its responsibilities may seek regarding compliance by the Bank with all relevant laws and regulations, managing the risks associated with the business activities of the Bank and financing the Bank; and Acting in accordance with the interests of the Bank and the business connected with it, taking into consideration the interests of all the stakeholders of the Bank.

A copy of the standard terms and conditions of appointment of Non-executive Directors can be inspected during normal business hours by contacting the Company Secretary. Re-election and re-appointment Following an amendment to the Articles of Association by shareholder resolution, the requirement to retire by rotation has been dispensed with. Directors are appointed initially for three years and, subject to satisfactory performance, may be re-appointed for additional terms. Alan Dukes and Maurice Keane having duly reached the end of their initial three-year terms as Non-executive Directors in December 2011 and January 2012 respectively, were reappointed by the Board for further three-year periods as Nonexecutive Directors as and from those dates. Induction On joining the Board, new Directors receive an induction presentation, which explains their responsibilities as a Director and provides an overview of the Group and its business. Each Director is provided with an information pack which provides details of the disclosures that each is obliged to make to the Bank in order to comply with applicable laws, regulations and best practice corporate governance standards. The programme also includes briefing sessions with senior management from each of the main business units. Performance review A formal performance evaluation of the Board, its Committees, individual Directors and the Chairman is completed annually. The 2011 evaluations took the form of detailed questionnaires, which were completed by each Director, complemented by individual interviews as considered appropriate. The Board reviewed the results of the evaluations with a number of action points agreed to progress improvements in 2012. All Directors were considered to have discharged their respective duties and responsibilities effectively and have committed an appropriate amount of time to fulfil their duties as a Board member. The annual performance evaluation of the Chairman was led by the Senior Independent Director, in private consultation with each of the Directors and the results were shared with the Chairman and the Board as a whole. The Directors can avail of the advice and services of the Company Secretary. The Directors and Committees of the Board can also seek independent professional advice if required, at the Bank's expense. Board Committees In accordance with the provisions of the Code, the Board has established four principal sub-committees operating under their own specific terms of reference. These terms of reference, setting out the roles and responsibilities of each Committee, are available on request through the Company Secretary. In addition to the four principal sub-committees the Board has also constituted a number of other sub-committees which are charged with responsibility for other matters under the Boards remit. 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. A description of each of the principal sub-committees is given below.

Independence of the Board The Board has carried out its annual evaluation of the independence of each of its Non-executive Directors, taking into account the relevant provisions of the Code, namely whether the Director has the ability to exercise sound judgement and decision making independent of the views of management, political interests or inappropriate outside interests, with a number of specific criteria to be considered in making such an assessment. The Board is satisfied that each of the current Non-executive Directors fulfilled the independence provisions of the Code. Appointments to the Board The Board appoints new Directors on the recommendation of the Nomination and Governance Committee. Following nationalisation, the Minister has additional powers to appoint Directors of the Bank under the Anglo Irish Bank Corporation Act, 2009. Oliver Ellingham and Roger McGreal were appointed to the Board on 14 October 2011 and 15 November 2011 respectively. These appointments were made having conducted appropriate appointment processes, including the use of external search consultants where necessary, and following consultation with the Minister for Finance. Roger McGreal was a Director of Irish Nationwide Building Society prior to its amalgamation with the Bank on 1 July 2011. Mr. Ellingham and Mr. McGreal were considered to meet the relevant independence criteria on appointment.

26

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Corporate governance statement continued

Remuneration Committee Members at 31 December 2011: Dr. Noel Cawley (Chairman), Alan Dukes, Aidan Eames, Maurice Keane and Gary Kennedy The Remuneration Committee is responsible for: Ensuring that the overall reward philosophy and remuneration governance framework of the Bank and its companies (the Group) are consistent with the achievement of the Groups strategic objectives, having regard also to promoting effective risk management within the Group; Considering and making recommendations to the Board in respect of remuneration policy for the Chairman, Directors, Group Chief Executive, Company Secretary, senior management and other individuals whose remuneration may exceed defined minimum thresholds across the Group; and Ensuring that remuneration policies and practices are operated in accordance with any applicable legal and regulatory requirements (including any requirements which the Central Bank of Ireland may issue).

The Committee is responsible for making recommendations to the Board regarding the appointment and removal of the External Auditor. The Group Internal Auditor and External Auditor have unrestricted access to the Committee. The Committee meets privately with both the External Auditor and the Group Internal Auditor at least once a year without management present. There is a process in place for the Audit Committee to review the nature and extent of all non-audit services provided by the External Auditor and, if appropriate, to approve such services and the related fees, with a formal non-audit services policy having been adopted. The Audit Committee, on behalf of the Board, reviews annually the Groups speak-up policy which covers all staff and is in accordance with best practice for whistle-blowing arrangements. The policy encourages staff to raise concerns in a confidential manner, detailing the senior contacts within the group to whom such concerns may be addressed, including the Chairman of the Audit Committee and the Chairman of the Board. Confidential advice is available from Public Concern at Work, an independent, not-for-profit organisation, through a free phone number. At the invitation of the Committee, there are a number of additional standing attendees at each meeting including the Group Chief Executive, Chief Financial Officer, Chief Risk Officer, the Head of Group Internal Audit and the External Auditor to aid the Committees collective discussion on matters under its remit. The Board has determined that Gary Kennedy, as a result of his accountancy background and career experience, has recent and relevant financial experience as recommended by the Code. The Board is further of the view that the collective skills and financial experience of the Committee members enable them to discharge their responsibilities as a group. Risk and Compliance Committee Members at 31 December 2011: Maurice Keane (Chairman), Mike Aynsley, Dr. Noel Cawley, Aidan Eames and Gary Kennedy. Mike Aynsley was appointed as a member of the Committee with effect from 25 January 2011. Roger McGreal has also been appointed as a member of the Committee with effect from 1 February 2012. The Risk and Compliance Committee is responsible for: Review and oversight of the risk and compliance profile of the Group within the context of the Board-determined risk appetite; Making recommendations to the Board concerning the Groups risk appetite, along with all material policies relating to the Groups risk profile and in respect of any particular risk or compliance management practices of concern to the Committee; Oversight of, and advice to the Board on, current and prospective risk exposures of the Group and future risk strategy; Monitoring risk elements of proposed strategic transactions involving acquisitions or disposals and accordingly advising the Board to ensure thorough due diligence is undertaken for such transactions and their impact on the risk profile assessed;

The Committee's report on behalf of the Board on Directors' remuneration and interests is set out in note 53 to the financial statements. Audit Committee Members at 31 December 2011: Gary Kennedy (Chairman), Dr. Noel Cawley, Aidan Eames and Maurice Keane. Oliver Ellingham has been appointed as a member of the Committee with effect from 1 February 2012. The Audit Committee is responsible for: Reviewing the appropriateness and completeness of the system of internal control, reviewing the manner and framework in which management ensures and monitors the adequacy of the nature, extent and effectiveness of internal control systems, including accounting control systems and thereby maintains an effective overall system of internal control (in overseeing these matters, the Committee has regard to the activities of the Risk and Compliance Committee); Monitoring the integrity of the financial statements, including compliance with applicable legislative, regulatory and accounting standards; Monitoring the activities of Group Internal Audit, receiving regular reports regarding their activities and recommendations; Overseeing all matters relating to the relationship between the Group and the External Auditor; and Reviewing financial information which, to the knowledge of the Committee, shall be communicated to the public.

Within this remit, the Audit Committee reviews the Group's annual and interim financial statements, considers the significant financial reporting issues and judgements which they contain and makes recommendations to the Board concerning their approval and content.

27

Corporate governance statement continued

Commissioning and reviewing reports on key risk issues; Review and oversight of managements plans for mitigation of the material risks faced by the various business units of the Group; and Oversight of the implementation and review of risk management and internal compliance and control systems throughout the Group.

The Group's system of internal control includes: An organisation structure with clearly defined authority limits and reporting mechanisms to senior levels of management and to the Board; Divisional managers who, in conjunction with the Group Risk and the Group Compliance functions, have responsibility for ensuring that risks are identified, assessed and managed throughout the Group. The Group Risk function together with the Group Asset and Liability Committee provides support to the Audit Committee and the Risk and Compliance Committee; An independent Group Finance function, under the leadership of the Chief Financial Officer, which has responsibility for managing the process in respect of the preparation of group accounts, having regard to applicable regulatory, legislative and financial accounting requirements; An annual budgeting and monthly financial reporting system for all Group business units which enables progress against plans to be monitored, trends to be evaluated and variances to be acted upon; A set of policies and guidelines relating to credit risk management, asset and liability management (including interest, currency, and liquidity and funding risk), compliance, operational risk management, capital expenditure, computer security and business continuity planning; and A Code of Conduct setting out the standards expected of all Directors, officers and employees of the Group.

The Group Risk function provides a risk report to each meeting of the Committee which addresses the material risk types to which the Group has exposure including credit, liquidity and market risk. The Group Compliance function also provides a report to the Committees meetings which addresses all material compliance matters. In addition, the Group Legal function provides a regular review on all material litigation matters involving the Bank. The Committee also receives updates from various Heads of Business functions on a regular basis to enhance its understanding of the risks facing those different business units and the actions being taken to manage those risks. At the invitation of the Committee, there are a number of additional standing attendees at each meeting including the Chief Financial Officer, Chief Risk Officer and the Head of Group Internal Audit.

Nomination and Governance Committee Members at 31 December 2011: Aidan Eames (Chairman), Mike Aynsley, Dr. Noel Cawley, Alan Dukes, Maurice Keane and Gary Kennedy. The Nomination and Governance Committee is responsible for: Leading the process for appointments and renewals to the Board and Board sub-committees and reviewing senior management succession plans, making recommendations to the Board, as appropriate; Overseeing the process for appointments and renewals of the Boards of subsidiary entities, including regulated subsidiaries; and Monitoring developments in corporate governance, assessing the implications for the Bank, overseeing adherence by the Bank and its group of companies to applicable governance requirements and advising the Board accordingly.

Procedures for monitoring the effectiveness of internal controls include internal audit reports which are considered by the Audit Committee with an overview report provided by the Head of Internal Audit to meetings of the Committee, reporting by Group Risk and Group Compliance to the Risk and Compliance Committee meetings, and an annual assessment by the Board of the effectiveness of internal controls. The Head of Group Internal Audit reports directly to the Chairman of the Audit Committee and administratively to the Group Chief Executive. The system of internal control is reviewed by Group Internal Audit. Emphasis is focused on areas of greatest risk as identified by risk analysis. The internal control systems are subject to regulatory supervision by the Central Bank of Ireland and overseas regulators. The Board confirms that there is a framework in place (which is described in note 50) for identifying, evaluating and managing the significant risks faced by the Group including compliance with relevant law and regulation. This framework is regularly reviewed and is in accordance with the Financial Reporting Council Revised Guidance on Internal Control (the Turnbull guidance).

Internal control The Directors acknowledge their overall responsibility for the Group's system of internal control and for reviewing its effectiveness, including having an appropriate process in place for the preparation of Group Accounts. The Board has delegated to the Group Executive Committee the planning and implementation of the system of internal control within an appropriate established framework which applies across the Group. The system is designed to manage rather than eliminate the risk of failure to achieve the Group's business objectives and provides reasonable but not absolute assurance against material financial misstatement or loss. Such losses could arise due to the nature of the Group's business in undertaking a wide range of financial services that inherently involve varying degrees of risk.

28

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Corporate governance statement continued

The Directors confirm that they have reviewed the effectiveness of the Group's system of internal controls for the year ended 31 December 2011 and for the period up to and including the date of approval of the financial statements. The review undertaken covers all aspects of control including financial, operational and compliance controls and risk management. Any weaknesses identified from this review will be addressed by the Directors. Going concern The Directors confirm that they are satisfied that the Bank and the Group have adequate resources to continue to operate for the foreseeable future and are financially sound, as described in note 1.2. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Annual General Meeting Following the nationalisation of the Bank and the transfer of all shares to the Minister the provisions of the UK Corporate Governance Code relating to shareholder relations and conduct at the Annual General Meeting are no longer applicable. The Group uses its internet site (www.ibrc.ie) to provide the full text of each annual and interim report for the five years previous to the year of this report. The website also provides detailed financial data, Bank information, information on credit ratings and other press releases.

Attendance at scheduled and unscheduled meetings during the year ended 31 December 2011. Nomination and Governance A* 11 11 11 11 11 11 B* 11 11 11 11 11 8 -

Name Alan Dukes Mike Aynsley (1) Maurice Keane Dr. Noel Cawley Aidan Eames Gary Kennedy Oliver Ellingham (2) Roger McGreal (3)

Board Scheduled A* 10 10 10 10 10 10 2 1 B* 10 10 10 10 10 10 2 1

Board Unscheduled A* 25 25 25 25 25 25 1 B* 25 25 23 25 24 21 1 A* 10 10 10 10 -

Audit B* 10 10 10 10 -

Remuneration A* 5 5 5 5 5 B* 5 5 5 5 3 -

Risk and Compliance A* 11 11 11 11 11 B* 11 11 11 11 11 -

* Column A indicates the number of meetings held during the period the Director was a member of the Board or Committee and was eligible to attend. Column B indicates the number of meetings attended. (1) (2) (3) Mike Aynsley was appointed as a member of the Risk and Compliance Committee on 25 January 2011. Oliver Ellingham was appointed as a Non-executive Director on 14 October 2011. Roger McGreal was appointed as a Non-executive Director on 15 November 2011.

29

Independent Auditors report to the Shareholder of Irish Bank Resolution Corporation Limited
We have audited the financial statements of Irish Bank Resolution Corporation Limited ('the Bank') and its subsidiaries (together 'the Group') for the year ended 31 December 2011 which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated and the Bank statements of financial position, the Consolidated and the Bank statements of changes in equity, the Consolidated and the Bank statements of cash flows, and the related notes 1 to 58. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the Bank's Shareholder, in accordance with Section 193 of the Companies Act, 1990. Our audit work has been undertaken so that we might state to the Bank's Shareholder those matters we are required to state to the Shareholder 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 Bank and the Bank's Shareholder, for our audit work, for this report, or for the opinions we have formed. We also report to you if, in our opinion, any information specified by law regarding Directors' remuneration and Directors' transactions is not disclosed and, where practicable, include such information in our report. We are required by law to report to you our opinion as to whether the description in the Corporate governance statement of the main features of the internal control and risk management systems in relation to the process for preparing the Group and Bank financial statements is consistent with the Group financial statements. We review whether the statement regarding the system of internal financial control required by the Code of Practice for the Governance of State Bodies (the Code of Practice) made in the Corporate governance statement reflects the Groups and Banks compliance with paragraph 13.1 (iii) of the Code of Practice and is consistent with the information of which we are aware from our audit work on the financial statements and we report if it does not. We are not required to consider whether the Boards statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Groups and Banks corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatement or material inconsistencies with the financial statements. The other information comprises only the Economic backdrop, the Chairman's statement, the Group Chief Executive's review, the Business review, the Board of Directors, the Corporate Responsibility, the Principal risks and uncertainties, the Report of the Directors, the Corporate governance statement, and the Supplementary information. Our responsibilities do not extend to other information.

Respective responsibilities of Directors and Auditor The Directors are responsible for preparing the financial statements, including the preparation of the Group financial statements and the Bank financial statements, in accordance with applicable law and International Financial Reporting Standards ('IFRS') as adopted by the European Union. Our responsibility, as Independent Auditor, is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the Group financial statements and the Bank financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union, and are properly prepared in accordance with Irish statute comprising the Companies Acts, 1963 to 2009, the European Communities (Credit Institutions: Accounts) Regulations, 1992 as amended by the European Communities (International Financial Reporting Standards and Miscellaneous Amendments) Regulations, 2005, and Article 4 of the IAS Regulation. We also report to you whether in our opinion: proper books of account have been kept by the Bank; whether, at the end of the reporting period, there exists a financial situation requiring the convening of an extraordinary general meeting of the Bank; and whether the information given in the Annual Report is consistent with the financial statements. In addition, we state whether we have obtained all information and explanations necessary for the purposes of our audit and whether the Bank's statement of financial position is in agreement with the books of account.

Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) 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 Bank's and 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 evaluated the overall adequacy of the presentation of information in the financial statements.

30

Opinion In our opinion: the Group financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union, of the state of the affairs of the Group as at 31 December 2011 and of its loss for the year then ended; the Group financial statements have been properly prepared in accordance with the Companies Acts, 1963 to 2009, the European Communities (Credit Institutions: Accounts) Regulations, 1992 as amended by the European Communities (International Financial Reporting Standards and Miscellaneous Amendments) Regulations, 2005, and Article 4 of the IAS Regulation; the Bank's financial statements give a true and fair view, in accordance with IFRS, as adopted by the European Union as applied in accordance with the provisions of the Companies Acts, 1963 to 2009, of the state of the Bank's affairs as at 31 December 2011; and the Bank's financial statements have been properly prepared in accordance with the Companies Acts, 1963 to 2009, and the European Communities (Credit Institutions: Accounts) Regulations, 1992.

We have obtained all the information and explanations we considered necessary for the purpose of our audit. In our opinion proper books of account have been kept by the Bank. The Bank's statement of financial position is in agreement with the books of account. In our opinion the information given in the Report of the Directors is consistent with the financial statements and the description given in the Corporate governance statement of the main features of the internal control and risk management systems in relation to the process for preparing the Group and Bank financial statements is consistent with the Group financial statements. The net assets of the Bank, as stated in the Bank's statement of financial position, are more than half the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 31 December 2011 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 Bank.

Gerard Fitzpatrick For and on behalf of Deloitte & Touche Chartered Accountants and Registered Auditors Dublin 28 March 2012

31

Consolidated income statement

For the year ended 31 December 2011
Note Interest and similar income Interest expense and similar charges Net interest income Fee and commission income Fee and commission expense Net trading expense Financial assets designated at fair value Gain on liability management exercise Other operating income/(expense) Other (expense)/income Total operating income Administrative expenses Depreciation Amortisation of intangible assets - software Total operating expenses Operating profit before disposals and provisions Loss on transfer of assets and liabilities Gain/(loss) on disposal of assets to NAMA Loss on deleveraging of other financial assets Provisions for impairment and other provisions Operating loss Share of results of associates and joint ventures Loss before taxation Taxation Loss for the year Attributable to: Owner of the parent Non-controlling interests 18 (884) (1) (885) (17,651) (17,651) 17 29 13 14 15 16 31 10 4 5 5 6 7 8 9 2011 m 2,469 (1,525) 944 64 (5) (74) 2 9 (4) 940 (297) (13) (10) (320) 620 (214) 776 (426) (1,644) (888) 15 (873) (12) (885) 2010 m 2,304 (1,562) 742 47 (58) (41) (23) 1,589 (104) 1,410 2,152 (327) (16) (10) (353) 1,799 (11,547) (7,767) (17,515) (104) (17,619) (32) (17,651)

Directors: Alan Dukes (Chairman), A.M.R. (Mike) Aynsley (Group Chief Executive), Gary Kennedy (Non-executive Director). Secretary: Philip Brady.

32

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Consolidated statement of comprehensive income

For the year ended 31 December 2011
Note Loss for the year Other comprehensive income Net actuarial losses in retirement benefit schemes, after tax Net change in cash flow hedging reserve, after tax Net change in available-for-sale reserve, after tax Foreign exchange translation Other comprehensive income for the year, after tax Total comprehensive income for the year Attributable to: Owners of the parent Non-controlling interests (934) (1) (935) (17,635) (17,635) 11 45 45 45 47 (6) (26) (39) 21 (50) (935) (7) (53) 17 59 16 (17,635) 2011 m (885) 2010 m (17,651)

33

Consolidated statement of financial position

As at 31 December 2011
Note Assets Cash and balances with central banks Financial assets at fair value through profit or loss - held on own account - held in respect of liabilities to customers under investment contracts Derivative financial instruments Loans and advances to banks Assets classified as held for sale Available-for-sale financial assets Promissory notes Government debt securities at amortised cost Loans and advances to customers Interests in joint ventures Interests in associates Intangible assets - software Investment property - held on own account - held in respect of liabilities to customers under investment contracts Property, plant and equipment Current taxation Retirement benefit assets Deferred taxation Other assets Prepayments and accrued income Total assets Liabilities Deposits from banks Customer accounts Derivative financial instruments Debt securities in issue Liabilities to customers under investment contracts Current taxation Other liabilities Accruals and deferred income Deferred taxation Subordinated liabilities and other capital instruments Total liabilities Share capital Share premium Capital reserve Other reserves Retained earnings Shareholders' funds Non-controlling interests Total equity Total equity and liabilities 2011 m 2010 m

19 20 20 21 22 23 24 25 26 27 29 29 31 32 33 34 11 35 36

100 12 194 1,096 2,306 392 1,332 29,934 947 17,689 57 99 10 88 1,130 18 21 8 42 31 35 55,541

181 13 237 1,936 3,525 1,640 2,219 25,704 10,623 24,364 42 16 217 1,193 19 91 1 46 87 29 72,183

37 38 21 39 40 41 35 42

42,591 597 2,249 5,371 283 66 543 85 1 517 52,303 4,123 1,156 26,011 (246) (27,806) 3,238 3,238 55,541

46,566 11,092 2,460 6,912 351 48 575 135 509 68,648 4,123 1,156 25,300 (129) (26,916) 3,534 1 3,535 72,183

43 44 45

46

Directors: Alan Dukes (Chairman), A.M.R. (Mike) Aynsley (Group Chief Executive), Gary Kennedy (Non-executive Director). Secretary: Philip Brady.

34

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Bank statement of financial position

As at 31 December 2011
Note Assets Cash and balances with central banks Financial assets at fair value through profit or loss - held on own account Derivative financial instruments Loans and advances to banks Assets classified as held for sale Available-for-sale financial assets Promissory notes Government debt securities at amortised cost Loans and advances to customers Investments in Group undertakings Intangible assets - software Property, plant and equipment Current taxation Retirement benefit assets Other assets Prepayments and accrued income Total assets Liabilities Deposits from banks Customer accounts Derivative financial instruments Debt securities in issue Current taxation Other liabilities Accruals and deferred income Deferred taxation Subordinated liabilities and other capital instruments Total liabilities Share capital Share premium Capital reserve Other reserves Retained earnings Total equity Total equity and liabilities 44 43 35 42 41 37 38 21 39 46,182 3,603 2,189 5,371 55 390 82 1 517 58,390 4,123 1,156 25,979 (252) (27,922) 3,084 61,474 49,555 13,456 3,003 6,912 30 532 126 503 74,117 4,123 1,156 25,300 (111) (27,048) 3,420 77,537 11 36 20 21 22 23 24 25 26 27 30 31 34 5 1,380 7,390 297 1,276 29,934 947 15,974 4,045 10 12 56 8 11 29 61,474 5 2,177 5,989 1,349 2,168 25,704 10,623 24,916 4,186 16 7 125 1 68 22 77,537 19 100 181 2011 m 2010 m

Directors: Alan Dukes (Chairman), A.M.R. (Mike) Aynsley (Group Chief Executive), Gary Kennedy (Non-executive Director). Secretary: Philip Brady.

35

36
Attributable to owner of the parent Other reserves Share premium m Cash flow hedging m Availablefor-sale m Retained earnings m NonCapital distributable Exchange reserve capital translation m m m Noncontrolling Total interests m m Total equity m 1,156 25,300 1 3 57 (190) (26,916) 3,534 1 3,535

Share capital m

2011

Balance at 31 December 2010

4,123

Total comprehensive income (884) (884) (1) (885)

For the year ended 31 December 2011

Loss for the year

Other comprehensive income (net of tax): 21 (26) 21 (39) (39) (26) (6) (890) (6) (26) (39) 21 (934) (1) (6) (26) (39) 21 (935)

Net actuarial losses in retirement benefit schemes

Net change in cash flow hedging reserve

Net change in available-for-sale reserve

Foreign exchange translation

Transactions with owners 711 711 (73) (73) 638 638 638 638

Arising under the INBS Transfer Order

Consolidated statement of changes in equity

Balance at 31 December 2011 1,156 26,011 1

4,123

24

31

(302)

(27,806)

3,238

3,238

Attributable to owner of the parent Other reserves Share premium m Cash flow hedging m Availablefor-sale m Retained earnings m NonCapital distributable Exchange reserve capital translation m m m Noncontrolling Total interests m m Total equity m

Share capital m

2010 1,156 8,300 1 (56) 110 (207) (9,258) 4,169 1 4,170

Balance at 31 December 2009

4,123

Total comprehensive income (17,651) (17,651) (17,651)

Loss for the year

Other comprehensive income (net of tax): 59 (53) 59 17 17 (53) (7) (17,658) (7) (53) 17 59 (17,635) (7) (53) 17 59 (17,635)

Net actuarial losses in retirement benefit schemes

Net change in cash flow hedging reserve

Net change in available-for-sale reserve

Foreign exchange translation

Transactions with owners 17,000 17,000 17,000 17,000 17,000 17,000

Capital contribution

Balance at 31 December 2010 1,156 25,300 1

4,123

57

(190)

(26,916)

3,534

3,535

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

37

38
Other reserves Share capital m Exchange translation m Cash flow hedging m Availablefor-sale m Retained earnings m Share premium m NonCapital distributable reserve capital m m Total equity m 4,123 1,156 25,300 1 23 57 (192) (27,048) 3,420 (868) (868)

2011

Balance at 31 December 2010

Total comprehensive income

Loss for the year

For the year ended 31 December 2011

Other comprehensive income (net of tax): (2) (2) (26) (26) (40) (40) (6) (874) (6) (26) (40) (2) (942)

Net actuarial losses in retirement benefit schemes

Net change in cash flow hedging reserve

Net change in available-for-sale reserve

Foreign exchange translation

Transactions with owners 679 679 (73) (73) 606 606

Bank statement of changes in equity

Arising under the INBS Transfer Order

Balance at 31 December 2011 4,123 1,156 25,979

21

31

(305)

(27,922)

3,084

Other reserves Share capital m Exchange translation m Cash flow hedging m Availablefor-sale m Retained earnings m Share premium m NonCapital distributable reserve capital m m Total equity m

2010 4,123 1,156 8,300 1 9 110 (228) (9,707) 3,764

Balance at 31 December 2009

Total comprehensive income (17,336) (17,336)

Loss for the year

Other comprehensive income (net of tax): 14 14 (53) (53) 36 36 (7) (17,343) (7) (53) 36 14 (17,346)

Net actuarial losses in retirement benefit schemes

Net change in cash flow hedging reserve

Net change in available-for-sale reserve

Foreign exchange translation

Transactions with owners 17,000 17,000 2 2 17,000 2 17,002

Capital contribution

Other movements

Balance at 31 December 2010 4,123 1,156 25,300

23

57

(192)

(27,048)

3,420

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

39

Statement of cash flows

For the year ended 31 December 2011
The Group Note Cash flows from operating activities Loss before taxation Provisions for impairment Loss on transfer of assets and liabilities (Gain)/loss on disposal of assets to NAMA Loss on deleveraging of other financial assets Gain on liability management exercise Interest earned on promissory notes Interest earned on Government debt securities at amortised cost Interest earned on available-for-sale financial assets Other non-cash items 49 (873) 1,644 214 (776) 426 (1,447) (92) (45) (44) (993) Changes in operating assets and liabilities Net (decrease)/increase in deposits from banks Net decrease in customer accounts Net decrease in debt securities in issue Receipt of promissory note instalment payment Net decrease in loans and advances to customers and assets classified as held for sale Net (increase)/decrease in loans and advances to banks Net decrease/(increase) in assets held in respect of liabilities to customers under investment contracts Net decrease in investment contract liabilities Net decrease in financial assets at fair value through profit or loss held on own account Net movement in derivative financial instruments Net decrease/(increase) in other assets Net (decrease)/increase in other liabilities Exchange movements Net cash flows from operating activities before taxation Tax refunded/(paid) Net cash flows from operating activities Cash flows from investing activities (note a) Cash flows from financing activities (note b) Net (decrease)/increase in cash and cash equivalents Opening cash and cash equivalents Cash and cash equivalents received under the INBS Transfer Order Effect of exchange rate changes on cash and cash equivalents Closing cash and cash equivalents 49 (11,007) (2,154) (2,142) 2,530 2,729 (442) 106 (68) 3 339 68 (101) 16 (11,116) 58 (11,058) 9,773 (3) (1,288) 1,569 128 14 423 13,595 (16,122) (8,522) 1,385 746 (43) (32) 105 309 (66) 179 (48) (9,185) (2) (9,187) 5,985 (48) (3,250) 4,779 40 1,569 (9,414) (3,030) (2,142) 2,530 5,224 1,450 2 (307) 70 (252) (17) (6,944) 59 (6,885) 9,608 (3) 2,720 943 27 17 3,707 10,419 (15,440) (8,517) 2,071 4,547 87 (142) (67) 176 (82) (7,824) (7,824) 5,061 (41) (2,804) 3,714 33 943 (17,619) 7,767 11,547 (1,589) (433) (146) (104) (94) (671) (863) 1,685 174 (793) 350 (1,447) (92) (44) (28) (1,058) (17,340) 7,760 10,888 (1,325) (433) (146) (104) (176) (876) 2011 m 2010 m The Bank 2011 m 2010 m

40

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

The Group 2011 m (a) Cash flows from investing activities Purchases of available-for-sale financial assets Sales and maturities of available-for-sale financial assets Interest received on available-for-sale financial assets net of associated hedges Interest received on Government debt securities at amortised cost Proceeds on transfer of assets and liabilities Proceeds on disposals of other financial assets Purchases of property, plant and equipment Additions to intangible assets - software Investments in joint venture interests Investments in associates Distributions received from joint venture interests Purchases of investment property held on own account Proceeds on disposals of investment property held on own account Net decrease in investments in Group undertakings Net cash flows from investing activities (b) Cash flows from financing activities Repurchase of subordinated liabilities and other capital instruments Coupons paid on subordinated liabilities and other capital instruments Net cash flows from financing activities (3) (3) (23) (25) (48) (12) 1,103 46 56 3,719 4,965 (2) (4) (2) (99) 3 9,773 (756) 6,571 169 14 (1) (5) (3) 2 (13) 7 5,985 2010 m

The Bank 2011 m 1,096 45 56 3,719 4,832 (1) (4) (135) 9,608 2010 m (752) 6,571 169 14 (5) (936) 5,061

(3) (3)

(16) (25) (41)

41

Notes to the financial statements

Index to the notes to the financial statements
Note 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 General information and accounting policies Business combination Segmental reporting Net interest income Fee and commission income and expense Net trading expense Financial assets designated at fair value Gain on liability management exercise Other operating income/(expense) Administrative expenses Retirement benefits Auditor's remuneration Loss on transfer of assets and liabilities Gain/(loss) on disposal of assets to NAMA Loss on deleveraging of other financial assets Provisions for impairment and other provisions Taxation Loss attributable to owner of the parent Cash and balances with central banks Financial assets at fair value through profit or loss Derivative financial instruments Loans and advances to banks Assets classified as held for sale Available-for-sale financial assets Promissory notes Government debt securities at amortised cost Loans and advances to customers Leasing Interests in joint ventures and associates Investments in Group undertakings Intangible assets - software Investment property - held on own account Investment property - held in respect of liabilities to customers under investment contracts Property, plant and equipment Deferred taxation Other assets Deposits from banks Customer accounts Debt securities in issue Liabilities to customers under investment contracts Other liabilities Subordinated liabilities and other capital instruments Share capital Capital reserve Other reserves Non-controlling interests Income tax effects relating to comprehensive income Contingent liabilities, commitments and other contingencies Statement of cash flows Risk management Financial instruments Capital resources Report on Directors' remuneration and interests Related party transactions Parent Bank information on credit risk Asset management activities Events after the reporting period Approval of financial statements Page 43 57 58 59 60 60 60 61 61 62 63 67 67 68 68 69 70 70 70 71 72 74 75 76 78 79 80 81 82 84 86 86 87 88 90 90 91 92 93 94 95 96 97 98 98 99 100 100 102 103 133 146 148 151 156 168 168 168

42

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

1. General information and accounting policies

The principal accounting policies that the Group applied in preparing its financial statements for the year ended 31 December 2011 are set out below. 1.1 General information Anglo Irish Bank Corporation Limited (the Bank) was renamed as Irish Bank Resolution Corporation Limited on 14 October 2011. The Bank and its subsidiaries (collectively, 'the Group') is a limited liability company incorporated and domiciled in Ireland (registered number: 22045). Its registered office is at Stephen Court, 18/21 St. Stephen's Green, Dublin 2, Ireland. Under the terms of the Anglo Irish Bank Corporation Act, 2009 which became law on 21 January 2009, the Bank was taken into public ownership. Until then, the Bank had a primary listing on the Irish Stock Exchange. The Bank is a participating institution in the National Asset Management Agency (NAMA) and is subject to NAMAs statutory powers. On 8 February 2011 the Bank received a direction order from the High Court (the Direction Order), granted under the Credit Institutions (Stabilisation) Act 2010 (CISA), which, in accordance with the provisions of the EU/IMF Programme of Financial Support for Ireland (the EU/IMF Programme), confers important protections from business cessation default risk. On 24 February 2011, under powers granted by CISA and following on from the Direction Order, the Minister for Finance, in consultation with the Governor of the Central Bank of Ireland, announced the immediate transfer of the majority of the Banks Irish and UK deposits and 12.2bn nominal of NAMA senior bonds from the Bank (i) to Allied Irish Banks, p.l.c. (AIB) in the case of the Irish deposits and NAMA senior bonds, and (ii) to its UK subsidiary, AIB Group (UK) p.l.c. (AIB UK), in the case of the UK deposits. The Bank's shares in its Isle of Man subsidiary, Anglo Irish Bank Corporation (International) PLC, were also transferred to AIB at the same time at approximately net asset value. The transfer order (the AIB Transfer Order) was made by the Irish High Court and facilitates the Ministers plan to restructure the Bank. On 29 June 2011 the European Commission (EC) approved the joint restructuring and work-out plan for the Group and Irish Nationwide Building Society (INBS) (the Restructuring Plan). The approved Restructuring Plan, which was prepared in conjunction with the National Treasury Management Agency ('NTMA') and the Department of Finance, provides for the resolution and work-out of the Groups loan book over a period of up to ten years. One of the main aims of the Restructuring Plan is to gradually reduce the Groups liquidity and funding requirements over time by deleveraging the Group on a phased basis while at the same time minimising capital losses. The Restructuring Plan also contains details of key assumptions and dependencies, including the Groups continued reliance on central bank or similar funding. Following the ECs approval of the Restructuring Plan, the Groups single activity has become an orderly resolution over a period of up to ten years, securing the best possible outcome for the taxpayer. On 1 July 2011, under powers granted by CISA, and following EC approval of the Restructuring Plan, the Minister for Finance, in consultation with the Governor of the Central Bank of Ireland, announced the immediate transfer of the assets and liabilities (with the exception of certain limited excluded liabilities) of INBS to the Bank. The transfer took place by way of a transfer order made by the Irish High Court in respect of INBS under Section 34 of CISA (the INBS Transfer Order). 1.2 Basis of preparation Both the consolidated and parent Bank's financial statements comply with International Financial Reporting Standards ('IFRS') as adopted by the European Union ('EU') and applicable at 31 December 2011. The financial statements also comply with the requirements of relevant Irish legislation including the Companies Acts, 1963 to 2009, the Asset Covered Securities Acts, 2001 and 2007 and the European Communities (Credit Institutions: Accounts) Regulations, 1992 as amended by the European Communities (International Financial Reporting Standards and Miscellaneous Amendments) Regulations, 2005. The financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain assets and liabilities to the extent required or permitted under accounting standards as set out in the relevant accounting policies. They are presented in euro, rounded to the nearest million. Under the framework of the EU/IMF Programme, which was agreed in December 2010, Ireland committed to a fundamental downsizing and reorganisation of the Irish banking sector. In the context of this strategy the Restructuring Plan was submitted to, and subsequently approved by, the EC for the orderly work-out of the Group. The plan requires the Group to work out its exposures over a period of up to ten years and assumes that the Group will continue to have access to sufficient liquidity and funding facilities from a combination of the ECB and the Central Bank of Ireland. Under the terms of the plan the Group and the Bank must also continue to meet regulatory capital requirements during the expected resolution period. The plan seeks to minimise capital losses arising from the working out of the Group. On 8 December 2011 a Monitoring Trustee was approved by the EC to report on a quarterly basis for a period of three years on the Groups adherence to the commitments in the plan. The Group is committed to the implementation of the approved plan over the work-out period and has made significant progress against plan targets during 2011. This progress was achieved against a background of a challenging Irish and international economic outlook resulting largely from continuing uncertainty in relation to euro area sovereign debt considerations. Under the terms of the plan the Group is committed to maintaining a minimum Tier 1 regulatory capital ratio of 8%. At 31 December 2011 the ratio stood at 15.1%. From the inception of the plan the Group has been dependent on secured funding from the ECB and exceptional liquidity assistance from the Central Bank of Ireland. This continued liquidity and funding support from monetary authorities has been essential in order for the Group to carry on the orderly work-out of exposures over time.

43

Notes to the financial statements continued

1. General information and accounting policies continued

1.2 Basis of preparation continued Although the orderly resolution of the Group is a key element of the reorganisation of the banking sector, this is only one of many commitments agreed by Ireland in December 2010 under the EU/IMF Programme. As recently as February 2012 the Irish Government has reiterated that it remains firmly committed to the EU/IMF Programme. This commitment is demonstrated by the continued strong implementation of its objectives, and as a result all planned loan disbursements have been successfully drawn down. Also, significantly for the Shareholder, Irish sovereign bond yields have tightened appreciably since July 2011. In making the going concern assessment for the foreseeable future the Directors considered a range of factors and in particular the Groups ability to continue to avail of special and secured funding facilities from the Central Bank of Ireland, and to a limited extent, from the ECB, the Shareholders ongoing support for the Restructuring Plan, the impact of the EU/IMF Programme, political factors and the impact of general economic conditions and fiscal realignment measures on lending asset quality. Taking into account the factors set out above the Directors assessment is primarily dependent on the following key expectations: a) b) that the Group will continue to have access to sufficient liquidity and funding facilities from the Central Bank of Ireland and to a limited extent, from the ECB, and if required, an alternative appropriate source; and that the Bank will continue to function as a licensed bank and that the Shareholder will continue to provide capital support if required in order for the Group to continue to meet its regulatory capital requirements.

On the basis of the above, the Directors have determined, following an assessment that it is reasonable to conclude that the Group will continue in operational existence for the foreseeable future and therefore that it is appropriate to prepare the financial statements on a going concern basis. Should the key expectations on which the Directors have based their decision to prepare the financial statements on a going concern basis prove to be mistaken it may lead to a requirement to make significant adjustments to the carrying value of certain assets and to make provisions for the additional costs of an orderly work-out of the Group over a much shorter period than is currently envisaged. The reported results of the Group are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of its financial statements. Irish company law and IFRS require the Directors, in preparing the Group's financial statements, to select suitable accounting policies, apply them consistently and make judgements and estimates that are reasonable and prudent. A description of the significant accounting estimates and judgements is set out in note 1.36 on pages 54 to 55. 1.3 Adoption of new accounting standards The following standards and amendments to standards, which apply to the Group, have been adopted during the year: Amendment to IAS 34 - Interim Financial Reporting The amendment to IAS 34 provides guidance to illustrate how to apply disclosure principles in IAS 34 and adds disclosure requirements around the circumstances likely to affect fair values of financial instruments and their classification, transfers of financial instruments between different levels of the fair value hierarchy, changes in classification of financial assets and changes in contingent liabilities and assets. Amendment to IAS 24 - Related Party Disclosures The main changes to IAS 24 include a partial exemption from the disclosure requirements for transactions between a governmentcontrolled reporting entity and that government or other entities controlled by that government, and amendments to the definition of a related party. A number of other amendments and interpretations to IFRS have been published that first apply from 1 January 2011. These have not resulted in any material changes to the Group's accounting policies. 1.4 Business combination As the Bank and INBS were both controlled by the same shareholder, the Minister for Finance, on 1 July 2011, the transfer of assets and liabilities from INBS into the Bank constituted a business combination involving entities under common control. Such transactions are excluded from the scope of IFRS 3 - Business Combinations. In accordance with IFRS, the Bank has applied the guidance as set out in FRS 6 - Acquisitions and Mergers, as issued by the Accounting Standards Board. Where a transaction meets the definition of a group reconstruction or achieves a similar result, predecessor accounting is applied. The assets and liabilities of the transferred business are measured in the acquiring entity upon initial recognition at the amounts recorded in the consolidated financial statements of the acquired entity, as measured under IFRS, after harmonisation adjustments to give effect to the business combination. The additional amount recognised in shareholders funds on 1 July 2011 represents the harmonised value of the net assets of INBS on the transfer date. The Bank has incorporated the results of the acquired business only from the date on which the business combination occurred and has not restated prior year comparatives. 1.5 Basis of consolidation The consolidated financial statements include the financial statements of Irish Bank Resolution Corporation Limited and all of its subsidiary undertakings (including special purpose entities) prepared to the end of the financial year. An entity is a subsidiary where the Group has the power, directly or indirectly, to control the financial and operating policies of the entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered in assessing whether the Group controls the entity.

44

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Subsidiaries are consolidated from the date on which control is transferred to the Group until the date that control ceases. The purchase method of accounting is used by the Group to account for the acquisition of subsidiary undertakings. Intercompany balances and any unrealised gains and losses, or income and expenses, arising on transactions between Group entities are eliminated on consolidation. Non-controlling interests represent the portion of profit or loss and net assets not owned, directly or indirectly, by the Bank and are presented in the consolidated income statement and statement of financial position separately to amounts attributable to owners of the parent. The accounting policies have been consistently applied by Group entities. 1.6 Interest income and expense recognition Interest income and expense is recognised in profit or loss for all interest-bearing financial instruments held on own account using the effective interest rate method. The effective interest rate method is a method of calculating the amortised cost of a financial asset or liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts the expected future cash payments and receipts throughout the expected life of the financial instrument, or when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. The calculation includes all fees, transaction costs and other premiums and discounts that are an integral part of the effective interest rate on the transaction. Once an impairment loss has been made on an individual asset, interest income is recognised on the unimpaired portion of that asset using the rate of interest at which its estimated future cash flows were discounted in measuring impairment. 1.7 Fee and commission income Fees and commissions which are not an integral part of the effective interest rate are generally recognised on an accruals basis over the period in which the service has been provided. Asset management, advisory and service fees are recognised based on the applicable service contracts, usually on a time-apportioned basis. The same principle is applied to the recognition of income from wealth management, financial planning, trustee and custody services that are continuously provided over an extended period of time. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan once drawn. Commitment fees in relation to facilities where drawdown is not probable are recognised over the term of the commitment. Fees arising from negotiating, or participating in the negotiation of, a transaction for a third party, such as the acquisition of property assets, are recognised upon completion of the underlying transaction. Loan syndication fees are recognised as revenue when the syndication has been completed and the Group has retained either no part of the loan for itself or retained a part of the loan at the same effective interest rate as the other participants. 1.8 Exceptional costs Material items of expenditure and charges relating to the restructuring of the Group, investigations into legacy issues and other significant non-recurring transactions are classified separately within administrative expenses as exceptional costs. 1.9 Fair value of financial instruments The Group recognises trading securities, other financial assets and liabilities designated at fair value through profit or loss, derivatives and available-for-sale financial assets at fair value in the statement of financial position. The fair values of financial assets quoted in active markets are based on current bid prices. For unquoted financial assets or where the market for a financial asset is not active, the Group establishes fair value by using valuation techniques. These include the use of prices obtained from independent third party pricing service providers, recent arm's length transactions, reference to other similar instruments, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. Private equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured using valuation techniques are measured at cost. The best evidence of the fair value of a financial instrument at initial recognition is the transaction price unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique which primarily uses observable market inputs. When such evidence exists, the initial valuation of the instrument may result in the Group recognising a profit on initial recognition. In the absence of such evidence, the instrument is initially valued at the transaction price. Where non-observable market data is used in valuations, any resulting difference between the transaction price and the valuation is deferred. The deferred day one profit or loss is either amortised over the life of the transaction, deferred until the instruments fair value can be determined using market observable inputs, or realised through settlement, depending on the nature of the instrument and availability of market observable inputs. An analysis of the fair values of financial instruments and further details on their measurement is provided in note 51.

45

Notes to the financial statements continued

1. General information and accounting policies continued

1.10 Financial assets Financial assets are classified into the following categories: financial assets at fair value through profit or loss; loans and receivables; heldto-maturity investments; and available-for-sale financial assets. Management determines the classification of financial assets at initial recognition. Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. A financial asset may be designated at fair value through profit or loss in the following circumstances: a) b) c) it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising gains and losses arising on them on different bases; or a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or a financial instrument contains one or more embedded derivatives that significantly modify the cash flows arising from the instrument and would otherwise need to be accounted for separately.

The principal categories of financial assets designated at fair value through profit or loss are (a) policyholders assets underpinning investment contracts issued by the Group's assurance company - fair value designation significantly reduces the measurement inconsistency that would arise if these assets were classified as available-for-sale; and (b) certain investment securities containing embedded derivatives that are not closely related to the host contracts. Interest on financial assets at fair value through profit or loss held on own account is included in net interest income. Other gains and losses arising from changes in fair value are included directly in the income statement within financial assets designated at fair value. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and which are not classified as available-for-sale. They arise when the Group provides money to a customer with no intention of trading the receivable. Loans and receivables are initially recognised at fair value including direct and incremental transaction costs, and are subsequently carried on an amortised cost basis. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group's management has the positive intention and ability to hold to maturity. Were the Group to sell other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and reclassified as available-for-sale financial assets. Available-for-sale financial assets Available-for-sale financial assets are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates, asset prices or other factors. Purchases of financial assets at fair value through profit or loss, held-to-maturity investments and available-for-sale financial assets are recognised on a trade date basis, being the date on which the Group commits to purchase the asset. Loans and receivables are recognised when funds are advanced to the borrowers. Financial assets are initially recognised at fair value plus directly attributable transaction costs, with the exception of financial assets carried at fair value through profit or loss whose transaction costs are taken directly to the income statement. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all the risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are subsequently carried at amortised cost using the effective interest rate method. Gains and losses arising from changes in the fair value of financial assets at fair value through profit or loss held on own account are included within fair value movements in the income statement in the period in which they arise. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in other comprehensive income and accumulated under a separate component of shareholders' equity until the financial assets are derecognised or impaired, at which time the cumulative gain or loss previously recognised in other comprehensive income is transferred to the income statement. Interest on both financial assets at fair value through profit or loss held on own account and available-for-sale financial assets is reported in interest and similar income. Interest is calculated using the effective interest rate method and is recognised in profit or loss. Dividends on available-for-sale equity instruments are recognised in profit or loss when the Group's right to receive payment is established. The Bank accounts for investments in subsidiary undertakings at cost less provisions for impairment. 1.11 Financial liabilities Financial liabilities other than those at fair value through profit or loss are initially recognised at fair value, being their issue proceeds net of transaction costs incurred. Transaction costs on liabilities at fair value are expensed to the income statement. All liabilities, other than those designated at fair value through profit or loss, are subsequently carried at amortised cost. For financial liabilities measured at amortised cost any difference between initial fair value and redemption value is recognised in profit and loss using the effective interest rate method.

46

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

A liability upon initial recognition may be designated at fair value through profit or loss when: a) b) c) it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; or a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or a financial instrument contains one or more embedded derivatives that significantly modify the cash flows arising from the instrument and would otherwise need to be accounted for separately.

The principal categories of financial liabilities designated at fair value through profit or loss are (a) investment contracts issued by the Group's assurance company: fair value designation significantly reduces the measurement inconsistency that would arise if these liabilities were measured at amortised cost, and (b) structured liabilities issued by the Group: designation significantly reduces the measurement inconsistency between these liabilities and the related derivatives carried at fair value. Net gains and losses on financial liabilities designated at fair value through profit or loss are recognised in net trading expense. Gains and losses arising from changes in the fair value of derivatives that are managed in conjunction with financial liabilities designated at fair value through profit or loss are included in net trading expense. The classification of instruments as a financial liability or an equity instrument is dependent upon the substance of the contractual arrangement. Instruments which carry a contractual obligation to deliver cash or another financial asset to another entity are classified as financial liabilities. Preference shares and other subordinated capital instruments issued are classified as financial liabilities if coupon payments are not discretionary. Distributions on these instruments are recognised in profit or loss as interest expense using the effective interest rate method. 1.12 Financial guarantees A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because the guaranteed party fails to meet a contractual obligation or to make payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities and to other parties in connection with the performance of customers under obligations related to contracts, advance payments made by other parties, tenders, retentions and the payment of import duties and taxes. Financial guarantees are initially recognised in the financial statements at fair value on the date that the guarantee was given. Subsequent to initial recognition, the Group's liabilities under such guarantees are measured at the higher of the initial measurement, less amortisation calculated to recognise in the income statement the fee income earned over the period, and the best estimate of the expenditure required to settle any financial obligation arising as a result of the guarantees at the end of the reporting period. Where the parent Bank enters into financial guarantee contracts to guarantee the indebtedness of other Group companies, the parent Bank considers these contracts to be insurance arrangements and accounts for them as such. The parent Bank treats these guarantee contracts as contingent liabilities until such time as it becomes probable that it will be required to make a payment under these guarantees. 1.13 Impairment of financial assets It is Group policy to make provisions for impairment of financial assets to reflect the losses inherent in those assets at the end of the reporting period. The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a portfolio of financial assets is impaired. A financial asset or a portfolio of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the asset and that loss event (or events) has had an impact such that the estimated present value of future cash flows is less than the current carrying value of the financial asset, or portfolio of financial assets, and can be reliably measured. Objective evidence that a financial asset, or a portfolio of financial assets, is potentially impaired includes observable data that comes to the attention of the Group about the following loss events: a) b) c) d) e) f) significant financial difficulty of the issuer or obligor; a breach of contract, such as a default or delinquency in interest or principal payments; the granting to the borrower of a concession, for economic or legal reasons relating to the borrower's financial difficulty, that the Group would not otherwise consider; it becoming probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for that financial asset because of financial difficulties; or observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified within the individual financial assets in the portfolio, including: adverse changes in the payment status of borrowers in the portfolio; or national or local economic conditions that correlate with defaults on the assets in the portfolio.

47

Notes to the financial statements continued

1. General information and accounting policies continued

1.13 Impairment of financial assets continued Specific examples of loss events or impairment triggers for commercial lending include loan covenant breaches, material decreases in the value of the underlying collateral securing the loan facility or the financial difficulty of the borrower. In respect of the residential mortgage portfolio, all loans that are more than 60 days past due or where a borrower has been granted a forbearance measure are considered at risk and included in the pool of loans that are assessed for specific impairment. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes that asset in a group of financial assets with similar credit risk characteristics and includes these performing assets under the collective incurred but not reported ('IBNR') assessment. An IBNR impairment provision represents an interim step pending the identification of impairment losses on an individual asset in a group of financial assets. As soon as information is available that specifically identifies losses on individually impaired assets in a group, those assets are removed from the group. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included under the collective assessment of impairment. In the calculation of the IBNR impairment provision on the residential mortgage portfolio the Bank specifically considers the additional credit risk in respect of performing loans where forbearance has been granted or is being considered. For loans and receivables and held-to-maturity investments, the amount of impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. The amount of the loss is recognised using an allowance account and is included in the income statement. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure, less costs for obtaining and selling the collateral, whether or not foreclosure is probable. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in profit or loss. When a borrower fails to make a contractually due payment of interest or principal but the Group believes that impairment is not appropriate on the basis of the level of security/collateral available and/or the stage of collections of amounts owed to the Group, a loan is classified as past due but not impaired. In this instance the entire exposure is reported as past due but not impaired, rather than just the amount in arrears. Renegotiated loans are those loans and receivables outstanding at the end of the reporting period whose terms have been renegotiated during the financial period, resulting in an upgrade from impaired to performing status. This is based on subsequent good performance and/or an improvement in the profile of the borrower. When a loan is deemed to be uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for impairment in the income statement. In the case of equity instruments classified as available-for-sale financial assets, a significant or prolonged decline in the fair value of the instrument below its cost is considered in determining whether impairment exists. Where such evidence exists, the cumulative net loss that has been previously recognised in other comprehensive income is reclassified to profit or loss. Impairment losses recognised in profit or loss on equity shares are not reversed through the income statement. All increases in the fair value of equity shares after impairment are recognised in other comprehensive income and accumulated in equity. In the case of debt instruments classified as available-for-sale financial assets, impairment is assessed based on the same criteria as for all other financial assets. Impairment charges are made where there is objective evidence to suggest that the recovery value of the debt instrument will be permanently lower than its amortised cost. A significant or prolonged decline in the fair value of such an instrument below its amortised cost is considered in determining whether an impairment loss has been incurred. Other factors for asset backed securities include evidence of deterioration in the quantum or quality of the collateral pools underlying the investments and the nonpayment or deferral of interest. Reversals of impairments of debt securities are recognised in profit or loss if the increase in fair value can be objectively related to an event occurring after the impairment loss was recognised. 1.14 Derivative financial instruments and hedge accounting Derivatives Derivative instruments, including swaps, futures, forward foreign exchange contracts, forward rate agreements and options, are used for balance sheet risk management purposes. Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. Fair values are obtained from quoted market prices in active markets and where these are not available from valuation techniques including discounted cash flow and option pricing models. Fair values are adjusted for counterparty credit risk. All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Derivatives are classified as held for trading unless they are designated and effective as hedging instruments.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Hedge accounting The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated and effective as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either fair value hedges (where the Group hedges changes in the fair value of recognised assets or liabilities or firm commitments), cash flow hedges (where the Group hedges the exposure to variability of cash flows attributable to recognised assets or liabilities or highly probable forecasted transactions) or hedges of a net investment in a foreign currency operation. The Group documents, at the inception of each hedging transaction, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Fair value hedge accounting Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge accounting, the fair value hedging adjustment cumulatively made to the carrying amount of the hedged item is, for items carried at amortised cost, amortised to profit or loss over the period to maturity of the previously designated hedge relationship using the effective interest rate method. For available-for-sale financial assets the fair value hedging adjustment remains in equity until the hedged item affects profit or loss. If the hedged item is sold or repaid, the unamortised fair value adjustment is recognised immediately in profit or loss. Cash flow hedge accounting The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are initially recognised directly in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts accumulated in equity are recycled to the income statement in the same periods as the hedged items affect profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, hedge accounting is discontinued. Any cumulative gain or loss existing in equity at that time remains in equity and is recognised in profit or loss when the forecast transaction arises. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. Interest income and expense on economic hedges that no longer meet the criteria for hedge accounting are recognised in net interest income. Hedges of net investments Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised directly in equity; the gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Gains and losses accumulated in equity are included in the income statement on the disposal or partial disposal of the foreign operation. Hedges of net investments may include non-derivative liabilities. Derivatives that do not qualify for hedge accounting Certain derivative instruments entered into as economic hedges may not qualify for hedge accounting. These derivatives are classified as held for trading. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in profit or loss. Embedded derivatives Certain financial instruments contain both a derivative and a non-derivative component. In such cases, the derivative component is termed an embedded derivative. When the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss, the embedded derivative is treated as a separate derivative. Embedded derivatives separated from the host contract are measured at fair value with changes in fair value recognised in net trading income. 1.15 Collateral and netting Collateral The Group obtains collateral in respect of customer liabilities where this is considered appropriate. The collateral normally takes the form of a lien over the customers assets and gives the Group a claim on these assets for both existing and future liabilities. The collateral is, in general, not recorded in the Groups statement of financial position. The Group also pays and receives collateral in the form of cash or securities in respect of other credit instruments, such as stock borrowing or derivative contracts, in order to reduce credit risk. Collateral received in the form of securities is not recorded in the statement of financial position. Collateral paid or received in the form of cash is recognised in the statement of financial position with a corresponding asset or liability. These items are typically assigned to loans and advances to banks and deposits from banks accordingly. Any interest receivable or payable arising is recorded as interest expense or interest income respectively. Netting The Group enters into master netting agreements with counterparties whenever possible and, when appropriate, obtains collateral. Master netting agreements provide that, if an event of default occurs, all outstanding transactions with the counterparty will fall due and all amounts outstanding will be settled on a net basis. Financial assets and liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

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1. General information and accounting policies continued

1.16 Investment contracts Contracts issued by the life assurance business are unit-linked and do not contain any significant insurance risk. These contracts are all classified as investment contracts. Financial assets and investment property held in respect of linked liabilities to customers and related liabilities to customers under investment contracts are stated at fair value and are separately disclosed in the Group statement of financial position or in the notes thereto. Premiums received and claims paid are accounted for directly in the Group statement of financial position as adjustments to the investment contract liability. Investment income and changes in fair value arising from the investment contract assets and the corresponding movement in investment contract liabilities are included on a net basis in other operating income. Revenue on investment management services provided to holders of investment contracts is recognised as the services are performed. 1.17 Derecognition A financial asset is derecognised when it has been transferred and the transfer qualifies for derecognition. A transfer requires that the Group either transfers the contractual rights to receive the asset's cash flows or retains the right to the asset's cash flows but assumes a contractual obligation to pay those cash flows to a third party. After a transfer, the Group assesses the extent to which it has retained the risks and rewards of ownership of the transferred asset. If substantially all the risks and rewards have been retained, the asset remains in the statement of financial position. If substantially all the risks and rewards have been transferred, the asset is derecognised. If substantially all the risks and rewards have been neither retained nor transferred, the Group assesses whether or not it has retained control of the asset. If it has not retained control, the asset is derecognised. Where the Group has retained control of the asset, it continues to recognise the asset to the extent of its continuing involvement. A financial liability is removed from the statement of financial position when the obligation is discharged, cancelled or expires. 1.18 Property, plant and equipment Property, plant and equipment is held for use in the business and is stated at cost less accumulated depreciation and provisions for impairment, if any. Additions and subsequent expenditure are capitalised only to the extent that they enhance the future economic benefits expected to be derived from the asset. Property, plant and equipment are depreciated on a straight-line basis to their residual values over their estimated useful economic lives as follows: Freehold buildings Fixtures and fittings Motor vehicles Computer equipment 2% per annum 12.5% to 25% per annum 20% per annum 25% per annum

Leasehold improvements are depreciated on a straight-line basis over the shorter of twenty years or the period of the lease or the period to the first break clause date in the lease. Freehold land is not depreciated. The useful lives and residual values of property, plant and equipment are reviewed and adjusted, if appropriate, at the end of each reporting period. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, an asset's carrying amount is written down immediately to its estimated recoverable amount which is the higher of its fair value less costs to sell or its value in use. Gains and losses arising on the disposal of property, plant and equipment are included in the income statement. 1.19 Trading properties Trading properties are held for resale and are stated at the lower of cost and net realisable value. 1.20 Development property Development property is valued at the lower of cost and net realisable value. Profits or losses on disposal are recognised on completion of the sale of the relevant property and are presented in the income statement. The carrying amount of the property sold is recognised as an expense in the year in which the related revenue is recognised. Any write-downs in net realisable value of properties are recognised as an expense in the year in which the loss occurs. 1.21 Intangible assets Computer software Computer software is stated at cost less accumulated amortisation and provisions for impairment, if any. The identifiable and directly associated external and internal costs of acquiring and developing software are capitalised where the software is controlled by the Group and where it is probable that future economic benefits that exceed its cost will flow from its use over more than one year. Costs associated with maintaining software are recognised as an expense when incurred. Capitalised computer software is amortised on a straight-line basis over its expected useful life which is normally four years.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

1.22 Investment property Investment property comprises freehold and leasehold properties that are held to earn rentals or for capital appreciation or both. This may include real estate collateral repossessed by the Bank in foreclosure proceedings. Investment property - held on own account Investment property held on own account is included in the statement of financial position at cost less accumulated depreciation and provisions for impairment losses, if any. Freehold buildings are depreciated on a straight-line basis over fifty years. Fixtures and fittings are depreciated on a straight-line basis to their residual values over their estimated useful economic lives. Leasehold investment properties are depreciated on a straight-line basis over the remaining term of the lease up to a maximum of fifty years. Rental income and the net amount of other operating income and expenses is recognised within other operating income/(expense) in the income statement. Investment property - held in respect of liabilities to customers under investment contracts Investment property held in respect of liabilities to customers under investment contracts is included in the statement of financial position at fair value. Fair values are based on valuations by independent registered valuers using, where relevant, accepted Royal Institution of Chartered Surveyors guidelines or equivalent local guidelines appropriate to the location of the property. Fair values are reviewed and agreed by management. 1.23 Employee benefits Pension obligations The Group operates various pension schemes including both defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of pension benefit to be provided, usually as a function of one or more factors such as age, years of service and basic pay. The Groups defined benefit plans have been closed to new members since January 1994. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a fund and has no legal or constructive obligations to pay any further contributions. The asset or liability recognised in the statement of financial position in respect of each defined benefit pension plan is the fair value of plan assets less the present value of the defined benefit obligation at the end of the reporting period. Current bid prices are used to measure the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. Plans in surplus are shown as assets and plans in deficit, together with unfunded plans, are shown as liabilities. The recognised asset, where applicable, is limited to the present value of any future refunds due from or reductions in future contributions payable to plans that are in surplus. The cost of providing defined benefit plans to employees comprising the current service cost, past service cost, the expected return on plan assets and the change in the present value of plan liabilities arising from the passage of time is charged to the income statement within employee expenses. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited directly to reserves through the statement of comprehensive income. For defined contribution plans, once the contributions have been paid the Group has no further obligation. The contributions are recognised as an employee benefit expense when they are due. Termination Payments Termination payments are recognised as an expense when the Group is demonstrably committed to a formal plan to terminate employment before the normal retirement date. A provision is made for the anticipated cost of restructuring, including redundancy costs, when an obligation exists. An obligation exists when the Group has a detailed formal plan for restructuring and has raised valid expectations in those affected by the restructuring by starting to implement the plan or has announced its main features. 1.24 Assets classified as held for sale Loans which are due to be transferred from the Group to NAMA or are expected to be sold to third parties are classified as held for sale. These assets meet the definition of a disposal group under IFRS 5 as their carrying amount is expected to be recovered principally through a sale transaction and the sale is highly probable within one year. These loans continue to be carried at amortised cost less provisions for impairment. Derivatives associated with loans classified as held for sale continue to be carried at fair value. See note 23. Other assets are classified as held for sale if they are primarily acquired for the purpose of selling in the near term, or are expected to be sold to third parties, and where a sale is highly probable and is expected to occur within one year. These assets are stated at the lower of their carrying amount and fair value less costs to sell. Gains and losses arising from changes in fair value are recognised in profit or loss. Assets classified as held for sale are derecognised when substantially all of the risks and rewards associated with them have transferred to NAMA or to a third party. On the derecognition date, a gain or loss is recognised, measured as the difference between the fair value of the consideration received and the carrying value of the assets transferred or sold, less transaction costs, and in the case of transfers to NAMA, less any provision for the ongoing cost of servicing the assets on behalf of NAMA. The consideration received is measured at fair value at initial recognition.

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Notes to the financial statements continued

1. General information and accounting policies continued

1.25 Foreign currency translation Functional and presentation currency The consolidated financial statements are presented in euro, which is the Bank's functional and presentation currency. Each entity in the Group determines its own functional currency which is the currency of the primary economic environment in which the entity operates. Items included in the financial statements of each entity are measured using that functional currency. Transactions and balances Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the end of the reporting period. Foreign exchange gains and losses resulting from the settlement of such transactions and from the retranslation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss except when deferred in equity as qualifying cash flow hedges or qualifying net investment hedges. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Foreign operations The results and financial position of all Group entities that have a non-euro functional currency are translated into euro as follows: a) b) c) assets and liabilities and goodwill arising on acquisition of foreign operations are translated at the closing rate at the end of the reporting period; income and expenses are translated into euro at the average rates of exchange during the period where these are a reasonable approximation of the exchange rates at the dates of these transactions; and all resulting exchange differences are recognised in other comprehensive income and accumulated as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities and of funding designated as hedges of such investments are included as a separate component of equity. When a foreign entity is sold, the cumulative exchange differences deferred as a separate component of equity are recognised in profit or loss as part of the gain or loss on disposal. 1.26 Provisions and contingent liabilities Provisions are recognised in respect of present legal or constructive obligations arising from past events where it is probable that outflows of resources will be required to settle the obligations and they can be reliably estimated. Contingent liabilities are possible obligations whose existence depends on the outcome of uncertain future events or those present obligations where the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not recognised in the financial statements but are disclosed unless they are remote. 1.27 Taxation (current and deferred) Current tax is the expected tax payable (shown as a liability) or the expected tax receivable (shown as an asset) on the taxable income for the period adjusted for changes to previous years and is calculated based on the applicable tax law in each jurisdiction in which the Group operates. Deferred tax is provided using the liability method on temporary differences arising between the tax bases of assets and liabilities for taxation purposes and their carrying amounts in the financial statements. Current and deferred taxes are determined using tax rates based on legislation enacted or substantively enacted at the end of the reporting period and expected to apply when the related tax asset is realised or the related tax liability is settled. Deferred tax assets are recognised where it is probable that future taxable profits will be available against which temporary differences will be utilised. Deferred tax is provided on temporary differences arising from investments in subsidiaries and joint ventures, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the difference will not reverse in the foreseeable future. Deferred tax is not provided on goodwill. Current and deferred taxes are recognised in profit or loss in the period in which the profits or losses arise except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the taxes are also recognised in other comprehensive income or directly in equity. Deferred and current tax assets and liabilities are only offset when they arise in the same reporting group for tax purposes and where there is both the legal right and intention to settle on a net basis or to realise the asset and settle the liability simultaneously. 1.28 Leases Group as lessor Leasing and instalment credit agreements with customers are classified as finance leases if the agreements transfer substantially all the risks and rewards of ownership of an asset, with or without ultimate legal title. An asset classified as a finance lease is recorded within loans and advances to customers as a receivable based on the present value of the lease payments, discounted at the rate of interest implicit in the lease, less any provisions for bad and doubtful rentals. The difference between the total payments receivable under the lease and the present value of the receivable is recognised as unearned finance income, which is allocated to accounting periods under the pre-tax net investment method to reflect a constant periodic rate of return.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Assets leased to customers are classified as operating leases if the lease agreements do not transfer substantially all the risks and rewards of ownership. Where leased assets are included within investment property held on own account in the Group's statement of financial position, depreciation is provided on the depreciable amount of these assets on a systematic basis over their estimated useful lives. Rental income from investment property held on own account and related lease incentives granted are recognised on a straight-line basis over the non-cancellable term of the lease. Investment contract accounting applies where leased assets are included within investment property held in respect of linked liabilities to customers. Group as lessee Operating lease rentals payable and related lease incentives receivable are recognised in profit or loss on a straight-line basis over the non-cancellable term of the lease. 1.29 Interests in joint ventures and associates Joint ventures are contractual arrangements whereby two or more parties undertake an economic activity that is subject to joint control. An associate is an entity in which the Group has significant influence, but not control, holding between 20% and 50% of the voting rights. The determination of significant influence includes a consideration of the Groups ability to participate in the financial and operating policies of the entity. The Group's interests in joint ventures and associates are primarily recognised using the equity method of accounting and are initially recognised at cost, with the exception of interests in joint ventures or associates held under investment contracts which are designated at fair value through profit or loss. Under the equity method, the Group's share of the post-acquisition profits or losses after taxation of joint ventures and associates is recognised in profit or loss and its share of post-acquisition movements in reserves is recognised in reserves. The Group does not recognise any share of post-acquisition profits if a contractual obligation to pay such profits to another entity arises. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Where the Groups share of losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture the Group does not recognise further losses unless it has incurred obligations or made payments on behalf of the associate or joint venture. In certain cases where the Group obtains an interest in an entity as a result of a debt restructuring or a reorganisation, the Group may designate its interest as a financial asset at fair value through profit or loss. Unrealised gains on transactions between the Group and its associates or joint ventures are eliminated to the extent of the Groups interest in the associate or joint venture. Unrealised losses are also eliminated to the extent of the Groups interest in the associate or joint venture unless they provide evidence of impairment of the Groups interest in the associate or joint venture. The calculation of the share of the results of joint ventures and associates is adjusted where necessary to ensure consistency with the Group's accounting policies. 1.30 Venture capital and other investments Venture capital equity interests held on own account are carried at fair value with gains and losses taken to net trading income as they arise. All other equity shares and similar instruments held on own account are classified as available-for-sale. They are held in the statement of financial position at fair value with unrealised gains or losses being recognised in other comprehensive income and accumulated in equity except for impairment losses, which are recognised immediately through profit or loss. Income on these equity instruments is credited to other operating income. 1.31 Sale and repurchase agreements Debt securities sold subject to a commitment to repurchase them are retained in the statement of financial position when substantially all the risks and rewards of ownership remain with the Group. The liability to the counterparty is included separately in the statement of financial position in deposits from banks or customer accounts as appropriate. When securities are purchased subject to a commitment to resell, but the Group does not acquire the risks and rewards of ownership, the transaction is treated as a collateralised loan and recorded within loans and advances to banks or customers as appropriate. The securities are not included in the statement of financial position. The difference between the sale and repurchase price is treated as interest and is accrued over the life of the agreement using the effective interest rate method. Securities lent to counterparties are retained in the financial statements. Securities borrowed are not recognised in the financial statements. 1.32 Share capital On 21 January 2009, under the terms of the Anglo Irish Bank Corporation Act, 2009, all of the Bank's ordinary and preference share capital was transferred to the Minister for Finance. 1.33 Segmental reporting The Restructuring Plan approved by the EC on 29 June 2011 provides for the orderly resolution of the Group following its amalgamation with INBS over a period of up to ten years. In conjunction with EC approval, several commitments have been given by the Group, including commitments not to develop any new activities and to only carry out activities consistent with managing the work-out of the remaining loan book.

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Notes to the financial statements continued

1. General information and accounting policies continued

1.33 Segmental reporting continued Since nationalisation in January 2009 the management and structure of the Group have changed considerably. New managements primary business focus is the implementation of the work-out process consistent with the Irish Governments stated deleveraging objectives, the Restructuring Plan and the orders and requirements issued in respect of both the Bank and INBS under CISA. The Groups single business activity has become the orderly resolution of the Group, in a manner consistent with the Restructuring Plan and requirements and orders made in respect of the Bank under Section 50 of CISA consistent with that Restructuring Plan, over the allotted time frame of up to ten years. As a result, performance is assessed on a total Group basis as a single continuing business activity. Statutory financial information is therefore presented as one operating segment and actions taken to achieve the Groups strategic objective, including the sale or transfer of assets and liabilities, are regarded as arising from a continuing activity. The Group discloses certain geographical information as required by IFRS 8 Operating Segments. Geographical segments are distinguishable parts of the Group that provide products or services within a particular economic environment that is subject to risks and rewards that are different to those operating in other economic environments. The geographical segments are based primarily on the location of the office recording the transaction. 1.34 Cash and cash equivalents For the purposes of the statement of cash flows, cash comprises cash on hand and demand deposits. Cash equivalents are highly liquid investments convertible into cash with an insignificant risk of changes in value and with initial maturities of less than three months. 1.35 Fiduciary and trust activities The Group acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, unit trusts, investment trusts and pension schemes. These assets are not consolidated in the accounts as the Group does not have beneficial ownership. Fees and commissions earned in respect of these activities are included in the income statement. 1.36 Significant accounting estimates and judgements The reported results of the Group are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of its financial statements. Irish company law and IFRS require the Directors, in preparing the Group's financial statements, to select suitable accounting policies, apply them consistently and make judgements and estimates that are reasonable and prudent. The judgements and estimates involved in the Group's accounting policies that are considered by the Board to be the most important to the portrayal of the Group's financial condition and that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. The use of estimates, assumptions or models that differ from those adopted by the Group could affect its reported results. Loan impairment The estimation of potential loan losses is inherently uncertain and dependent upon many factors. On an ongoing basis potential issues are identified as a result of individual loans being regularly monitored. The Group also performs a combination of reviews incorporating a semi-annual review of its UK and US loan portfolios together with a series of rolling monthly and quarterly reviews of the Irish loan portfolio. As part of this process all larger value loan balances (greater than 5m) are reviewed at least semi-annually. Within the residential mortgage portfolio overall credit quality is managed by the Credit and Collections Forum. The Arrears Support Unit manages individual cases of customers who are experiencing difficulties with their scheduled mortgage repayments. This loan monitoring and review process determines whether there is any objective evidence of incurred impairment. Impairment under IFRS is only recognised in respect of incurred losses. Future potential losses cannot be provided for. If there is objective evidence that a loan is currently impaired, a provision is recognised equating to the amount by which the carrying value of the loan exceeds the present value of its expected future cash flows. Provisions are calculated on an individual basis with reference to expected future cash flows including those arising from the realisation of collateral. The determination of these provisions requires the exercise of considerable subjective judgement by management involving matters such as future economic conditions, trading performance of client businesses and the valuation of the underlying collateral held. Provision calculations are highly sensitive to the underlying assumptions made in relation to the amount and timing of future cash flows, including the sale of assets held as collateral. This is particularly the case for residential mortgages where a model is used to calculate specific impairment provisions. The key variables used in this model for determining the necessary provision are the forecasted repayment capacity of the borrowers and estimated realisable collateral values. The majority of the Groups collateral consists of property assets. The values of these assets have declined significantly as a result of the economic downturn. In the current market, where there is limited transactional activity, there may be a wide range of valuation estimates. Changes in estimated realisable collateral values and the timing of their realisation could have a material effect on the amount of impairment provisions reflected in the income statement and the closing provisions in the statement of financial position. The Group has evaluated the impact on its specific impairment charge, for both loans and advances to customers and loans classified as held for sale, of applying a lower estimate of the realisable value of collateral and of a change in the timing of the realisation of these assets. The Bank estimates that a decrease of 10% in realisable collateral values on currently impaired loans would have increased the impairment charge for the period by approximately 0.73bn, of which 40m relates to residential mortgages. Similarly, an extension of one year in the timing of the realisation of these assets would have increased the impairment charge by less than 0.1bn, of which 22m relates to residential mortgages. These estimates are based on impaired loans at 31 December 2011. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly. An additional incurred but not reported ('IBNR') collective provision is required to cover losses inherent in the loan book where there is objective evidence to suggest that it contains impaired loans, but the individual impaired loans cannot yet be identified. This provision takes account of observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of loans with similar credit risk characteristics, although the decrease cannot yet be identified within the individual loans in the group.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

This provision is calculated by applying incurred loss factors to groups of loans sharing common risk characteristics. Loss factors are determined by historical loan loss experience as adjusted for current observable market data. Adjustments reflect the impact of current conditions that did not affect the years on which the historical loss experience is based and remove the effects of conditions in the historical period that do not exist currently. The provision amount is also adjusted to reflect the appropriate loss emergence period. The loss emergence period represents the time it takes following a specific loss event on an individual loan for that loan to be identified as impaired. The loss emergence period applied in the period was six months (2010: six months). The future credit quality of loan portfolios against which an IBNR collective provision is applied is subject to uncertainties that could cause actual credit losses to differ materially from reported loan impairment provisions. These uncertainties include factors such as local and international economic conditions, borrower specific factors, industry trends, interest rates, unemployment levels and other external factors. For loan impairment details, see note 27. Assets classified as held for sale Assets that the Bank believes will be transferred to NAMA are classified as held for sale in the statement of financial position. The Bank has no control over the quantity of eligible assets that NAMA will acquire or over the valuation NAMA will place on those assets. At 31 December 2011 NAMA had not confirmed to the Bank the final consideration it will pay in respect of assets transferred. Held for sale assets also include part of the Banks US loan book and certain other US assets expected to be sold to third parties. Loan and derivative assets continue to be measured on the same basis as prior to their reclassification as held for sale. Other non-financial assets classified as held for sale are stated at the lower of their carrying amount and fair value less costs to sell. Assets will continue to be carried in the statement of financial position until they legally transfer. The amount of consideration received will be measured at fair value and any difference between the carrying value of the asset on the date of disposal and the consideration received less costs to sell will be recognised in the income statement. Carrying amount of investment property Investment properties held at cost are reviewed regularly to determine their recoverable values and to assess impairment, if any. Where a value in use calculation is performed as part of this review, management estimates the future cash flows expected to be derived from the asset. Expectations of future cash flows, and any variations in their amount or timing, are subject to management judgement. In some cases, recoverable amount is based on management estimates. Fair value Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm's length transaction. Fair values are determined by reference to observable market prices where these are available and are reliable. Where representative market prices are not available or are unreliable, fair values are determined by using valuation techniques which refer to observable market data. These include prices obtained from independent third party pricing service providers, comparisons with similar financial instruments for which market observable prices exist, discounted cash flow analyses, option pricing models and other valuation techniques commonly used by market participants. Where non-observable market data is used in valuations, any resulting difference between the transaction price and the valuation is deferred on initial recognition. The deferred day one profit or loss is either amortised over the life of the transaction, deferred until the instruments fair value can be determined using market observable inputs or realised through settlement, depending on the nature of the instrument and availability of market observable inputs. The accuracy of fair value calculations could be affected by unexpected market movements when compared to actual outcomes. Due to the increasing significance of credit related factors, determining the fair value of corporate interest rate derivative financial assets requires considerable judgement. In the absence of unadjusted quoted market prices, valuation techniques take into consideration the credit quality of the underlying loans when determining fair value. The most significant area of judgement is in relation to certain financial assets and liabilities classified as level 3 under the fair value hierarchy (note 51). As with all financial assets, NAMA senior bonds are measured at fair value at initial recognition. These bonds do not trade in an active market. Fair value at initial recognition has been estimated by using a valuation technique which takes into consideration the Government guarantee, collateral and other support, and the yield on Irish Government bonds of similar maturity. The bonds, which are valued as short term instruments with a maturity date of 1 March 2012, are subsequently measured at amortised cost. Taxation The taxation charge recognises amounts due to tax authorities in the various jurisdictions in which the Group operates. It includes estimates based on a judgement regarding the application of tax law and practice and the availability of future profits in order to determine the quantification of current liabilities. In arriving at such estimates, management assesses the relative merits and risks of tax treatments assumed, taking into account statutory, judicial and regulatory guidance and, where appropriate, external advice. However the final tax outcome may only be determined after the completion of tax audits or the expiration of statutes of limitations. In addition, changes in tax laws, judicial interpretation of tax laws, or policies and practices of tax authorities could cause the amount of taxes ultimately paid to differ from the amount provided. Retirement benefits The Group operates defined benefit pension schemes. The Groups two schemes have been closed to new members since January 1994. In determining the actual pension cost, the values of the assets and liabilities of the schemes are calculated. The assets of the schemes are valued at fair value. The liabilities of the schemes 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 liabilities. This involves modelling the future growth of scheme liabilities and requires management to make assumptions as to price inflation, dividend growth, salary and pensions increases, return on investments and employee mortality. There are acceptable ranges in which these estimates can reasonably fall. The impact on the Consolidated income statement and the Consolidated statement of financial position could be different if an alternative set of assumptions was used. An analysis of the sensitivity of the liabilities of the schemes to changes in the key assumptions is set out in note 11.

55

Notes to the financial statements continued

1. General information and accounting policies continued

1.37 Prospective accounting changes Details of amendments to standards and interpretations adopted during the period are set out in note 1.3. The Group has not applied the following new standards, revised standards and amendments to standards that have been approved by the International Accounting Standards Board and which would be applicable to the Group with an effective date after the date of these financial statements. The following will be applied in 2013: IFRS 10 - Consolidated Financial Statements; IFRS 11 - Joint Arrangements; IFRS 12 - Disclosure of Interests in Other Entities; IFRS 13 - Fair Value Measurement; IAS 27 - Separate Financial Statements (revised); IAS 28 - Investments in Associates and Joint Ventures (revised); Amendment to IAS 19 - Employee Benefits; and Amendment to IFRS 7 - Financial Instruments: Disclosures. The following will be applied in 2014: Amendment to IAS 32 - Financial Instruments: Presentation. The following will be applied in 2015: IFRS 9 - Financial Instruments. These will be adopted in future years and, with the exception of IFRS 9, are not expected to have a material impact on the Bank's results or financial statements. In December 2011 the International Accounting Standards Board decided to defer the effective date of IFRS 9 to accounting periods beginning on or after 1 January 2015. The original effective date was for periods beginning on or after 1 January 2013. The Group has not yet fully assessed the potential impact of this standard. It is the first phase of a project to replace IAS 39 - Financial Instruments: Recognition and Measurement. Its aim is to reduce the complexity of accounting for financial assets and liabilities and in so doing to aid investors and other users understanding of financial information.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

2.

Business combination
On 1 July 2011, under the INBS Transfer Order (note 1.1), the assets and liabilities of INBS, with the exception of certain limited excluded liabilities, were transferred to the Bank at carrying value, after harmonisation adjustments to give effect to the business combination. The basis for the accounting treatment applied is described in note 1.4. On the date of transfer the Group's net assets increased by 638m. This was reflected through an increase in the Group's capital reserve of 711m (note 44) and a charge of 73m to the available-for-sale reserve (note 45). No cash consideration was paid. Net cash and cash equivalents of 128m transferred to the Group and are reported separately in the statement of cash flows. The consolidated statement of financial position of INBS on 1 July 2011, restated to reflect the Bank's accounting policies and measurement bases, is as follows: 1 July 2011 m Assets Cash and balances with central banks Financial assets at fair value through profit or loss - held on own account Derivative financial instruments Loans and advances to banks Assets classified as held for sale Available-for-sale financial assets Promissory note Government debt securities at amortised cost Loans and advances to customers Investment property - held on own account Property, plant and equipment Other assets Total assets Liabilities Deposits from banks Customer accounts Debt securities in issue Current taxation Deferred taxation Other liabilities Total liabilities Net assets 6,041 7 601 22 1 43 6,715 638 8 2 32 120 77 239 5,014 32 1,806 2 8 13 7,353

Under the INBS Transfer Order all of the assets and liabilities of INBS, with certain exceptions, transferred to the Bank. The liabilities and obligations of INBS to its members in respect of the Special Investment Shares in it held by the Minister for Finance together with any balances remaining on the general reserve and capital contribution accounts on its balance sheet did not transfer. In addition, a condition of the transfer was that the INBS entity would not be wound up so that any actions, claims, entitlements or proceedings that relate to any period prior to the transfer which the Central Bank of Ireland or any governmental, regulatory or prosecuting authority in any jurisdiction may be entitled to take, make or claim against INBS and/or any current or former director, officer or employee could be made. On 13 July 2011 the Minister transferred his entire legal and beneficial interest in the Special Investment Shares to the Bank in return for the receipt of a nominal payment. From this date the INBS shell is treated as a subsidiary of the Bank. In addition to the transfer of the assets and liabilities, all employees of INBS transferred to the Bank on 1 July 2011.

57

Notes to the financial statements continued

3.

Segmental reporting
As set out in note 1.33, performance is now assessed on a total Group basis as a single continuing business activity. Statutory financial information is therefore presented as one operating segment and actions taken to achieve the Banks strategic objective of an orderly resolution over a period of up to ten years, including the sale or transfer of assets and liabilities, are regarded as arising from a continuing activity. In the context of an orderly resolution of the Bank, management considers that a single operating segment, which demonstrates similar economic characteristics, provides relevant information to facilitate an evaluation of the nature and financial effects of the orderly wind-down and the impact of the economic operating environment. The following tables provide a geographical split of the Group's revenue from external customers and non-current assets. The geographical segments are based primarily on the location of the office recording the transaction. Geographical segments Republic of Ireland m Revenue from external customers Non-current assets 2,048 1,230 UK & IOM m 256 16 2011 USA m 166 Rest of the World m Group m 2,470 1,246

2010 Republic of Ireland m Revenue from external customers Non-current assets 2,728 1,299 UK & IOM m 794 20 USA m 248 126 Rest of the World m 2 Group m 3,772 1,445

Revenue includes interest and similar income, fee and commission income, net trading expense, the net change in value of financial assets designated at fair value, gains on liability management exercises and other operating income/(expense). Revenues from transactions with the Government and entities under the control of the Government amounted to 10% or more of the Group's revenues and included interest on the promissory notes of 1,447m (2010: 433m) and interest on Government debt securities at amortised cost of 92m (2010: 146m). Further details of transactions with the Government and Governmentrelated entities are included in note 54. Non-current assets includes intangible assets, investment property and property, plant and equipment and excludes financial instruments, deferred taxation assets and retirement benefit assets.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

4.

Net interest income

Interest and similar income Interest on loans and advances to banks Interest on loans and advances to customers (including loans classified as held for sale) Interest on available-for-sale financial assets Interest on promissory notes Interest on Government debt securities at amortised cost Finance leasing and hire purchase income

2011 m 22 861 45 1,447 92 2 2,469

2010 m 49 1,567 104 433 146 2 2,301 3 2,304

Interest on financial assets at fair value through profit or loss held on own account

2,469

Interest expense and similar charges Interest on deposits from banks Interest on customer accounts Interest on debt securities in issue Net interest on subordinated liabilities and other capital instruments (1,264) (71) (195) 5 (1,525) Net interest income 944 (646) (631) (260) (25) (1,562) 742

Group net interest income has increased by 202m or 27% versus the prior year. The principal components of net interest income in 2011 are income earned on the promissory notes and customer lending balances and interest expense incurred on Central Bank of Ireland special funding facilities. Interest income on customer lending includes margin interest and arrangement fees amortised over the expected lives of the related loans. Interest on loans and advances to customers includes interest income on held for sale loans which, at 31 December 2011, represent 1% (2010: 6%) of total customer loan balances. Included within net interest income is 203m (2010: 413m) in respect of impaired customer loan balances. Specific impairment on individual loans is calculated based on the difference between the current loan balance and the discounted value of estimated future cash flows on the loan. The impact of the unwinding of this discount, as the time to the realisation of the estimated future cash flows shortens, is recognised as interest income in accordance with IFRS. Interest and similar income includes net foreign exchange losses of 9m (2010: 59m). Interest on deposits from banks includes 1,201m (2010: 435m) in respect of amounts borrowed under a Special Master Repurchase Agreement, a Master Loan Repurchase Agreement and a Facility Deed agreement from the Central Bank of Ireland (note 37). The interest rates on these facilities are set by the Central Bank of Ireland and advised at each rollover, and are currently linked to the European Central Bank marginal lending facility rate. Net interest on subordinated liabilities and other capital instruments for the year includes a combined interest accrual release of 6m on the Stg200m Step-up Callable Perpetual Capital Securities and the Stg250m Tier One Non-Innovative Capital Securities as income during the year when the call right on these securities was exercised by a Group subsidiary with no accrued interest being paid. Included within interest expense for the year is 77m (2010: 128m) relating to the cost of the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 (the 'ELG Scheme'), in which the Bank became a participating institution on 28 January 2010. The cost of this scheme is classified as interest expense as it is directly attributable and incremental to the issuance of specific financial liabilities. The EC has approved the extension of the ELG Scheme for certain eligible liabilities to 30 June 2012.

59

Notes to the financial statements continued

5.

Fee and commission income and expense

Fee and commission income Administration fees Corporate treasury Asset management and related fees Financial guarantee fees Other fees

2011 m 31 14 9 6 4 64

2010 m 7 18 11 8 3 47 (58)

Fee and commission expense

(5)

Fees which are an integral part of the effective interest rate of a financial instrument are included in net interest income. Administration fees include 28m (2010: 7m) due from NAMA in relation to the servicing of loans acquired from the Bank and 3m (2010: nil) in respect of the provision of deposit administration and infrastructure support services. There has been minimal corporate treasury activity during the year. 11m (2010: 6m) relates to the realisation of income, primarily through settlement or maturity, arising from corporate derivative transactions. Asset management and related fees are earned for the ongoing management of investments on behalf of clients. The continuing decline in these fees reflects a decrease in the value of assets under management combined with no new client investment activity. Fee and commission expense in the prior year included 54m in respect of the Credit Institutions (Financial Support) Scheme 2008. This scheme expired on 29 September 2010.

6.

Net trading expense

Interest rate contracts Foreign exchange contracts Credit contracts Hedge ineffectiveness

2011 m (166) 92 (74)

2010 m (29) (13) 1 (41)

Interest rate contracts include a credit valuation adjustment ('CVA') charge of 147m (2010: 27m) relating to corporate swaps, reflecting the deterioration in corporate counterparty credit quality (note 21). Foreign exchange contracts include positive fair value movements of 117m (2010: negative fair value movements of 2m) on forward foreign exchange contracts and cross currency swaps entered into to manage the Bank's sterling and US dollar funding requirements. Foreign exchange contracts also include a reported net loss of 25m (2010: net gain of 18m) largely as a result of the impact of the Group's capital management hedging strategies.

7.

Financial assets designated at fair value

Net change in value of financial assets designated at fair value through profit or loss held on own account

2011 m

2010 m

(23)

The charge in the prior year primarily relates to negative fair value movements on equity shares resulting from challenging business conditions facing the entities in which the shares are held.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

8.

Gain on liability management exercise

Gain on repurchases/restructurings under the Group's liability management exercise ('LME')

2011 m

2010 m

1,589

During the prior year the Group repurchased or restructured certain subordinated liabilities as part of its ongoing capital management activities. 270m nominal of Tier 1, 45m of Upper Tier 2 and 1,575m of Lower Tier 2 securities were repurchased, exchanged or restructured (note 42). The net LME gain of 1,589m resulted from consideration and fees paid of 309m extinguishing securities with a carrying value of 1,898m. The gain included costs and fees incurred as part of the liability management exercise.

9.

Other operating income/(expense)

(Decrease)/increase in value of assets designated at fair value held in respect of liabilities to customers under investment contracts Decrease/(increase) in value of liabilities designated at fair value held in respect of liabilities to customers under investment contracts Net losses on disposal of available-for-sale financial assets Rental income Other

2011 m (3) 3 (2) 7 4 9

2010 m 46 (46) (110) 10 (4) (104)

During the year a decrease in the value of Irish property investments held in respect of liabilities to customers under investment contracts has been largely offset by positive foreign exchange and fair value movements on UK property investments. The increase in the prior year was primarily attributable to increases in UK property values. The Group recognised losses of 2m (2010: 165m) on the disposal of asset backed securities and investments in bank subordinated debt during the year. The prior year losses were partially offset by gains of 55m on the sale of 1.5bn of government bonds. Other includes the net amount of operating income and expenses relating to the Groups investment properties. Included in the net amount are payroll and related expenses of 13m (2010: 10m) in respect of 275 (2010: 275) staff who are directly employed in the running of a US hotel, which is classified as a held for sale investment property (note 23), and which is independently managed by an international hotel management group.

61

Notes to the financial statements continued

10. Administrative expenses

Staff costs: Wages and salaries Retirement benefits cost - defined contribution plans Retirement benefits (credit)/cost - defined benefit plans (note 11) Social welfare costs Other staff costs Other administrative costs Exceptional costs

2011 m 90 12 (12) 9 8 107 108 82 297

2010 m 97 12 1 10 10 130 108 89 327

The decrease in wages and salaries and related social welfare costs reflects a fall in average staff numbers from 1,332 during the prior year to 1,186 during the current year primarily due to the transfer of staff to AIB, and its UK subsidiary, AIB UK, under the AIB Transfer Order, and the transfer of the Bank's Isle of Man subsidiary to AIB at the same time, but partially offset by the transfer of staff to the Bank under the INBS Transfer Order on 1 July 2011. Other administrative costs are in line with the prior year as significant professional fees continue to be incurred, principally in relation to ongoing asset recovery matters. Exceptional costs of 82m incurred during the year primarily relate to professional fees associated with Bank restructuring work, significant non-recurring transactions and costs related to certain legacy matters. The principal non-recurring transactions include NAMA and a significant debt recovery case. The average number of persons employed during the year, analysed by location, was as follows: 2011 number Republic of Ireland United Kingdom and Isle of Man United States of America Rest of the World 895 231 52 8 1,186 2010 number 842 405 69 16 1,332

The average number of persons employed does not include individuals directly employed in the running of a US hotel which is independently managed by an international hotel management group (note 9).

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

11. Retirement benefits

The Bank operates two defined benefit non-contributory pension schemes in Ireland. The assets of these schemes are held in separate trustee-administered funds. These schemes have been closed to new members since January 1994. From January 1994 to 30 June 2011 new employees located in Ireland joined a funded scheme on a defined contribution basis. There are also funded defined contribution pension plans covering eligible Group employees in other locations. On 1 July 2011, the Bank became the principal employer of the defined contribution and defined benefit pension schemes operated by INBS. New eligible employees located in Ireland after 1 July 2011 may join the funded former-INBS defined contribution scheme. On 12 October 2010 INBS delivered a notice to the trustee of the Irish Nationwide Building Society No 1 Retirement Benefit Scheme (the former INBS defined benefit scheme) for the purpose of notifying the trustee of a termination of employer contributions. This notice became effective one month later on 12 November 2010. The trustee of the scheme is disputing this termination. The Bank is taking advice on its obligations and will be seeking the views of the Shareholder in deciding its response to any claim from the trustee. As INBS had no obligation to pay further contributions to the scheme from 30 June 2011, no contribution liability transferred to the Bank under the INBS Transfer Order or under the Deed of Substitution of Principal Employer executed to give effect to the transfer order. However, the scheme will remain in existence until the trustees formally resolve to wind it up. Neither the Group nor the Bank operates a post-employment medical benefit scheme. Details of defined benefit schemes Retirement benefits under the Banks Irish defined benefit plans are calculated by reference to pensionable service and pensionable salary at normal retirement date, or date of leaving service, if earlier. The pension charge in the income statement relating to the two defined benefit pension schemes is based on the advice of an independent actuary. An actuarial valuation for the purposes of IAS 19 has been prepared as at 31 December 2011 by an independent actuary using the projected unit method. Using this method the current service cost is expected to increase as the members of closed schemes approach retirement. During the year, following an application by the trustees, the Pensions Board approved amendments to the Bank's two Irish defined benefit schemes. These amendments, which are effective from 1 December 2011, remove the entitlement to guaranteed post retirement pension increases for all members, including existing pensioners. In future, post retirement pension increases will only be provided at the discretion of the trustees and the Bank. The resulting reduction in the defined benefit obligation of 13m has been recognised in the income statement as a negative past service cost. With effect from 1 September 2011 the Bank's Irish defined benefit schemes became contributory. The principal assumptions used, which are based on the advice of an independent actuary, are set out in the table below: Financial assumptions 2011 % p.a. 5.00 0.00 1.00 to 3.00 2.00 2010 % p.a. 5.50 3.00 2.00 to 3.00 2.00

Discount rate for liabilities of the schemes Rate of increase in salaries Rate of increase in pensions Inflation rate

Mortality assumptions The key mortality assumptions used in estimating the actuarial value of the schemes' liabilities are: 2011 Longevity at age 60 for current pensioners (years) Males Females Longevity at age 60 for future pensioners (years) Males Females 30.6 31.7 30.6 31.7 27.9 29.5 27.9 29.5 2010

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Notes to the financial statements continued

11. Retirement benefits continued

Sensitivity analysis Sensitivity analysis for each of the principal assumptions used to measure the schemes' liabilities at 31 December 2011 is as follows: Impact on scheme liabilities Change in assumption Discount rate Rate of increase in salaries Inflation rate Life expectancy Decrease 0.5% Increase 0.5% Increase 0.5% Increase by 1 year increase by % 8.8% 0.5% 1.9% 1.9% increase by m 7 1 1

Assets The expected long term rate of return on assets of 3.0% (2010: 5.0%) at the year end is estimated based on the current level of expected returns on least risk investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class is then weighted based on the actual allocation to develop the long-term rate of return on assets assumption for the portfolio. The rate for the current year of 3.0% includes an adjustment of 0.6% to reflect the impact of the levy introduced by the Government on pension scheme assets for the four years from 2011 to 2014. The unexpected loss on assets arising during 2011 from the application of the 0.6% levy is treated as an actuarial loss and is recognised in the statement of comprehensive income. The market value of assets in the schemes and the expected long term rates of return were: % of scheme assets 2011 % 23 72 3 1 1 Market value of assets 2011 m 19 60 2 1 1 83 (75) 8 % of scheme assets 2010 % 34 53 3 1 9 Market value of assets 2010 m 32 50 3 1 8 94 (93) 1

Expected return 2011 % Equities Bonds Property Hedge funds Cash Total market value of schemes' assets Actuarial value of liabilities of funded schemes Retirement benefit assets 5.75 2.85 4.75 5.75 2.00

Expected return 2010 % 7.2 4.0 6.2 6.2 2.0

At 31 December 2011 the pension schemes held no ordinary shares in the parent Bank (2010: none).

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Components of pension expense The following table sets out the components of the defined benefit cost: Group and Bank 2011 m Included in administrative expenses: Current service cost Past service cost Expected return on assets of pension schemes Interest on liabilities of pension schemes Settlement gain Cost of providing defined retirement benefits (note 10) The actual return on assets during the year ended 31 December 2011 was 2m (2010: 4m). Amount recognised in statement of comprehensive income The Group 2011 m Change in assumptions underlying the present value of schemes' liabilities Experience gains on liabilities of the pension schemes Actual return less expected return on assets of the pension schemes Actuarial losses recognised under IAS 19 Deferred tax on actuarial losses Actuarial losses after tax Cumulative amount of after tax actuarial losses recognised since 1 October 2004 in statement of comprehensive income to end of year Employer contributions to funded schemes The expected employer contributions for defined benefit schemes for the year ending 31 December 2012 are 1m. The following tables provide information in respect of the assets and obligations of the Group's funded defined benefit pension schemes. Reconciliation of the fair value of schemes' assets during the year 2011 m Fair value of schemes' assets at beginning of year Expected return Contributions paid by employer Benefit payments Actuarial loss during year Fair value of schemes' assets at end of year 94 5 1 (14) (3) 83 2010 m 98 5 2 (10) (1) 94 2010 m The Bank 2011 m 2010 m 1 (13) (5) 5 (12) 1 (5) 6 (1) 1 2010 m

(3) (3) (6) (6)

(10) 4 (1) (7) (7)

(3) (3) (6) (6)

(10) 4 (1) (7) (7)

(24)

(18)

(25)

(19)

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Notes to the financial statements continued

11. Retirement benefits continued

Reconciliation of defined benefit obligations during the year 2011 m Defined benefit obligation at beginning of year Current service cost Past service cost Interest cost Benefit payments Settlement gain Actuarial loss during year Defined benefit obligation at end of year 93 1 (13) 5 (14) 3 75 2010 m 91 1 6 (10) (1) 6 93

History of experience gains and losses in funded and unfunded schemes 2011 m Difference between actual and expected return on assets: Amount Percentage of schemes' assets at year end 2010 m 2009 m 2008 m 2007 m

(3) 4%

(1) 1%

(6) 6%

(25) 23%

(1) 1%

Experience gains/(losses) on liabilities: Amount Percentage of schemes' liabilities at year end Total gross amount recognised in statement of comprehensive income 0% 4 4% 4 4% 2 2% (4) 4%

(6)

(7)

(21)

14

Defined benefit pension schemes 2011 m Scheme assets Funded defined benefit obligation Surplus within funded schemes 83 (75) 8 2010 m 94 (93) 1 2009 m 98 (91) 7 2008 m 108 (102) 6 2007 m 123 (97) 26

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

12. Auditor's remuneration

Fees payable to Deloitte & Touche in Ireland: Audit of Group and Bank financial statements Other assurance services Tax advisory services Other non-audit services

2011 m 0.7 0.3 0.1 1.1

2010 m 0.6 0.3 0.1 0.2 1.2

Fees payable to other Deloitte & Touche firms outside of Ireland: Audit of Group and Bank financial statements Other assurance services Other non-audit services 0.2 0.1 0.1 0.4 Total All amounts are stated exclusive of VAT. The Audit Committee has reviewed the level of fees and is satisfied that it has not affected the independence of the auditor. Auditor's remuneration is included within administrative expenses. 1.5 0.3 0.1 0.4 1.6

13. Loss on transfer of assets and liabilities

Net consideration received Net carrying value of assets and liabilities transferred Total loss on transfer

2011 m 3,719 (3,933) (214)

2010 m -

On 24 February 2011, under powers granted by CISA, the Minister for Finance, in consultation with the Governor of the Central Bank of Ireland, announced the immediate transfer by way of the AIB Transfer Order (note 1.1) of the majority of the Bank's Irish and UK deposits and 12.2bn nominal of NAMA senior bonds at a price of 98.5% from the Bank (i) to AIB in the case of the Irish deposits and NAMA senior bonds, and (ii) to its UK subsidiary, AIB UK in the case of the UK deposits. The Bank's shares in its Isle of Man subsidiary, Anglo Irish Bank Corporation (International) PLC, were also transferred to AIB at the same time at approximately net asset value. In return for transferring its Irish and UK deposits the Bank was required to pay the AIB Group 1.6bn in excess of book value. The AIB Transfer Order followed on from the Direction Order, which directed the Bank to begin an auction process, operated by the NTMA, to transfer deposits and certain assets held by the Bank to a third-party financial institution or institutions. A Transfer Support Agreement (TSA) was concluded between the Bank, AIB and AIB UK at the time of the AIB Transfer Order. Under the terms of the TSA, the Bank provided AIB and AIB UK with an indemnity, subject to certain exclusions from liability, in respect of certain direct liabilities which could arise in connection with the deposits, assets or entity which transferred (note 48). The TSA also defined the services to be provided by the Bank to AIB and AIB UK, and by AIB and AIB UK to the Bank, until the migration of the transferred deposits and staff from the Bank's systems and premises is complete. The services are wideranging and include business, infrastructure and administrative support. The service levels applicable to the relevant services are designed to ensure that the transferred assets and liabilities will be maintained to the same level of service as they had been maintained by the Bank, or its third party service providers, in the twelve months prior to the date of transfer. As the terms of the TSA were, by necessity due to the short time-frame between the identification of the transferee and the time of the AIB Transfer Order, quite high-level, the TSA provided for a more detailed transitional services agreement to be entered into between the parties post-Transfer Order. The TSA was signed on 1 July 2011.

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Notes to the financial statements continued

14. Gain/(loss) on disposal of assets to NAMA

Fair value of consideration received Carrying value of assets transferred to NAMA Other transfer adjustments and provision for servicing liability Gain/(loss) on disposal of assets to NAMA

2011 m 914 (106) 808 (32) 776

2010 m 10,728 (21,924) (11,196) (351) (11,547)

During the year the Bank has recognised a net reduction of 776m in the overall reported loss on disposal of assets to NAMA. This results primarily from settled valuation adjustments relating to the completion of full due diligence by NAMA on assets previously transferred. 296m of the net reduction relates to INBS assets and has been recognised during the six months ended 31 December 2011. Since December 2010 NAMA has completed full due diligence on 14.8bn of loans, of which 4.8bn relate to the former INBS. At 31 December 2011 NAMA had yet to complete due diligence on 7.8bn of loans. This due diligence work was substantially completed in March 2012 and resulted in the Bank owing NAMA approximately 24m in respect of valuation adjustments. This amount was accrued in full during the year ended 31 December 2011. During 2011 the Bank received nominal consideration of 971m, 95% in the form of NAMA senior bonds (note 26) and 5% in the form of NAMA subordinated bonds (note 24), representing the net amount owing to the Bank following the completion of due diligence on 14.8bn of loans, the settlement of certain valuation adjustments and repayments to NAMA of consideration previously received in respect of a small number of ineligible loan assets that were transferred back to the Bank. The final overall loss on disposal will only be determined when full due diligence has been completed by NAMA on all assets transferred. Further information in relation to the loss on disposal of assets to NAMA is provided in the Business review.

15. Loss on deleveraging of other financial assets

Consideration received Carrying value of assets sold Total loss on disposal

2011 m 4,965 (5,391) (426)

2010 m -

During the year the Bank sold the majority of its US assets. Loans with a gross value of 6,060m (before provisions for impairment of 1,219m), together with related derivatives with a fair value on date of disposal of 195m and investment property classified as held for sale with a carrying value of 47m were sold, realising a loss of 343m. Total external professional fees incurred on the US bulk sale transaction amounted to approximately 30bps of the gross assets sold. The US loan book was principally classified as loans and advances to customers at 31 December 2010. In addition, the Bank sold certain UK and Irish loans with a gross value of 414m (before provisions for impairment of 113m), and related derivatives with a fair value on date of disposal of 7m. The loss on disposal includes costs directly associated with the sales transactions.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

16. Provisions for impairment and other provisions

Lending impairment Loans and advances to customer - specific (note 27) Loans and advances to customers - collective (note 27) Loans classified as held for sale - specific (note 23)

2011 m 2,107 (597) 34 1,544

2010 m 4,956 21 2,683 7,660

Other Investment property classified as held for sale (note 23) Debt securities - available-for-sale ('AFS') financial assets (note 24) Investment property - held on own account (note 32) Property, plant and equipment (note 34) Financial guarantee contracts and other provisions 17 3 4 76 100 Total provisions 1,644 11 61 35 107 7,767

The total specific lending impairment charge for the year of 2,141m (2010: 7,639m) reflects the continuing difficult operating environment across all of the Banks core markets during the year. Ireland, where property market conditions continue to be stressed, represents 1,557m (2010: 5,813m) of the total charge. The remainder comprises 574m (2010: 737m) in respect of the UK and 10m (2010: 1,089m) in respect of the US. Of the specific charge, 62m relates to impairment recognised since 1 July 2011 on the residential mortgage portfolio acquired under the INBS Transfer Order. The collective provision is applied to portfolios of customer loans for which there is no evidence of specific impairment. It has been calculated with reference to historical loss experience supplemented by observable market evidence and management's judgement regarding current market conditions. The provision amount is also adjusted to reflect the appropriate loss emergence period. The loss emergence period represents the time it takes following a specific loss event on an individual loan for that loan to be identified as impaired. This is determined by taking account of current credit risk management practices together with historical loss experience. The loss emergence period applied for the current year is six months (2010: six months). The release of collective provisions of 597m in the current year is primarily due to a decrease of 41% in the performing loan portfolio, including loans classified as held for sale, and the recognition of specific provisions on smaller relationships not previously individually assessed for impairment. Additional information in relation to the lending impairment charge for the year is provided in the Business review. Total impairment on investment property of 20m (2010: 61m) reflects continued weakening economic conditions in the markets where the assets are located. Financial guarantee contracts and other provisions in the current year includes an additional charge of 12m (2010: 45m) relating to an internal review of historical interest rate setting procedures as applied to certain loan accounts (note 41).

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Notes to the financial statements continued

17. Taxation
Current taxation Foreign tax - current year Foreign tax - prior year Deferred taxation Current year - temporary differences (note 35) Taxation charge for year

2011 m 6 6 6 12

2010 m 30 30 2 32

The reconciliation of taxation on losses at the standard Irish corporation tax rate to the Group's actual tax charge is analysed as follows: 2011 m Loss before taxation at 12.5% Effects of: Deferred tax asset not recognised on losses available for carry forward Foreign earnings subject to different tax rates Income not subject to tax Unrealised losses on investments Adjustment in respect of prior years Deferred taxation Other Taxation charge for year 114 6 (5) 6 12 2,144 45 6 30 2 7 32 (109) 2010 m (2,202)

No Irish corporation tax charge arises in the year due to the availability of tax losses in the current year. However a foreign taxation charge of 6m (2010: 30m) is incurred. A deferred tax charge of 6m (2010: 2m) has been recognised in respect of the release of deferred tax assets.

18. Loss attributable to owner of the parent

In accordance with section 148(8) of the Companies Act, 1963 and section 7(1A) of the Companies (Amendment) Act, 1986, the Bank is availing of the exemption from presenting its individual income statement to the annual general meeting and from filing it with the Registrar of Companies. The Banks loss for the financial year determined in accordance with IFRS as adopted by the European Union is 868m (2010: 17,336m).

19. Cash and balances with central banks

The Group 2011 m 100 2010 m 181

The Bank 2011 m 100 2010 m 181

Cash and balances with central banks

These amounts include only those balances with central banks which may be withdrawn without notice. Cash and balances with central banks primarily relate to the Banks minimum reserve requirement held with the Central Bank of Ireland. Irish credit institutions must maintain a minimum reserve requirement over a specified maintenance period. Balances can be withdrawn as long as the requirement is met on average over this maintenance period. As a result, year end balances do not necessarily indicate the level of this minimum requirement.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

20. Financial assets at fair value through profit or loss

Held on own account Equity shares - unlisted

The Group 2011 m 12 2010 m 13

The Bank 2011 m 5 2010 m 5

All of the above financial assets are designated at fair value through profit or loss. The Group considers unlisted equity shares to be non-current assets. The Banks interest in the Arnotts Group, which arose from a debt restructuring in 2010, is classified, upon initial recognition, at fair value through profit or loss. In late 2011, following creditor approval for a debt restructuring proposal, the Bank obtained a minority equity interest in what was previously the manufacturing business of the Quinn Group. The Bank's interest is classified, upon initial recognition, at fair value through profit or loss. At 31 December 2011 the value of the Banks economic interest in this enterprise is not material. The Group 2011 m Held in respect of liabilities to customers under investment contracts (note 40) Investments in property structures Equity shares Debt securities 104 85 5 194 Of which listed Of which unlisted 80 114 194 125 103 9 237 107 130 237 2010 m

All financial assets at fair value through profit or loss held in respect of liabilities to customers under investment contracts are designated at fair value through profit or loss.

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Notes to the financial statements continued

21. Derivative financial instruments

With the exception of designated hedging derivatives, as defined by IAS 39, derivatives are treated as held for trading. The held for trading classification comprises corporate sales derivatives, economic hedges which do not meet the strict qualifying criteria for hedge accounting and derivatives managed in conjunction with financial instruments designated at fair value. The Bank enters into new derivative transactions for the purposes of balance sheet risk management. The notional amount of a derivative contract does not necessarily represent the Group's real exposure to credit risk, which is limited to the current replacement cost of contracts with a positive fair value to the Group should the counterparty default. To reduce credit risk on interbank derivatives the Group uses a variety of credit enhancement techniques such as master netting agreements and collateral support agreements ('CSAs'), where cash security is provided against the exposure. Derivatives are carried at fair value and shown in the statement of financial position as separate totals of assets and liabilities. Details of the objectives, policies and strategies arising from the Group's use of financial instruments, including derivative financial instruments, are presented in note 50. The following tables present the notional and fair value amounts of derivative financial instruments, analysed by product and category. The Group 2011 Contract notional amount m Derivatives held for trading Interest rate contracts Foreign exchange contracts Equity index options - held and written Total trading derivatives Derivatives held for hedging Fair value hedges Cash flow hedges Total hedging derivatives Derivatives held in respect of liabilities to customers under investment contracts (note 40) Total derivative financial instruments 5,251 5,251 47 47 (300) (300) 7,120 1,887 9,007 82 10 92 (60) (60) 41,125 11,019 161 52,305 991 46 12 1,049 (1,568) (310) (11) (1,889) 103,930 15,016 234 119,180 1,665 168 11 1,844 (2,211) (98) (7) (2,316) Fair values Assets Liabilities m m Contract notional amount m 2010 Fair values Assets Liabilities m m

711 58,267

1,096

(60) (2,249)

1,075 129,262

1,936

(84) (2,460)

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

The Bank 2011 Contract notional amount m Derivatives held for trading Interest rate contracts Foreign exchange contracts Equity index options - held and written Total trading derivatives Derivatives held for hedging Fair value hedges Cash flow hedges Total hedging derivatives Total derivative financial instruments 5,251 5,251 64,079 47 47 1,380 (300) (300) (2,189) 7,120 1,887 9,007 147,331 82 10 92 2,177 (60) (60) (3,003) 46,068 12,599 161 58,828 1,113 208 12 1,333 (1,568) (310) (11) (1,889) 114,370 23,720 234 138,324 1,793 281 11 2,085 (2,340) (596) (7) (2,943) Fair values Assets Liabilities m m Contract notional amount m 2010 Fair values Assets Liabilities m m

Derivatives are carried in the statement of financial position at fair value. The decrease in the Groups derivative assets and derivative liabilities during the year is primarily attributable to the impact on foreign exchange contracts of the depreciation of the euro against both sterling and the US dollar and the impact on fair value hedges of a decrease in euro interest rates. Maturities and the Banks deleveraging initiatives have also contributed to the decrease. Interest rate contracts include interest rate swaps that customers have entered into with the Bank to manage their exposure to changes in interest rates. The fair value of these derivative assets includes a credit valuation adjustment ('CVA') to reflect the impact of customer credit quality (note 6). The CVA measures the potential cost of replacing the existing derivative should the customer default. Including the CVA, the fair value of customer derivatives included within interest rate contracts is 435m (2010: 1,156m). The Bank manages the interest rate risk arising on customer derivatives with offsetting interbank derivatives. The significant decrease in the notional amount of interest rate contracts is due to maturities and ongoing deleveraging initiatives. Foreign exchange contracts comprise cross currency swaps and forward foreign exchange contracts transacted to manage currency mismatches that may arise. In March and April 2011 the Bank entered into two cross currency swaps with the NTMA on market terms. The principal amounts of the swaps are 2.3bn / $3.2bn and 0.6bn / 0.6bn respectively and these amounts were exchanged between the parties. The swaps have an amortising profile and contractual maturity of 2021. The interest rates on the swaps are market-based plus an agreed spread over the respective currency interbank benchmark rate. The decrease in the overall notional amount of foreign exchange contracts during the year is attributable to a decrease in the US dollar funding requirement following the sale of the majority of the Bank's US loan portfolio (note 15). If needed, the Bank has the ability to exchange US dollar amounts for sterling amounts with interbank counterparties. The majority of the Banks derivative transactions with interbank counterparties are covered by CSAs, with cash collateral exchanged on a daily basis (notes 22 and 37). This significantly reduces the credit risk on interbank derivatives. Were the Bank to net outstanding derivative contracts with counterparties covered under CSAs, this would lead to a reduction in derivative assets and derivative liabilities of 0.6bn (2010: 1.8bn). Hedging activities The Group uses derivatives for hedging purposes to mitigate the market risk exposures arising from its banking and other activities. For accounting purposes the Group uses derivatives which may qualify as fair value hedges or cash flow hedges. Fair value hedges The Group uses interest rate swaps and cross-currency interest rate swaps to hedge the interest rate risk and foreign exchange risk resulting from potential changes in the fair value of certain fixed rate assets and liabilities. Hedged assets include the promissory note and fixed rate investment securities held. Hedged liabilities include fixed rate debt securities in issue. The Group recognised a net gain of 234m (2010: 53m) in net trading expense in respect of fair value movements on hedging instruments designated as fair value hedges. The corresponding net loss attributable to the hedged risk on the hedged items also recognised in net trading expense was 234m (2010: 53m).

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Notes to the financial statements continued

21. Derivative financial instruments continued

Cash flow hedges In previous years the Group used interest rate swaps and forward rate agreements to hedge its exposure to variability in future cash flows on variable rate non-trading assets and liabilities. Gains and losses were initially recognised directly in equity, in the cash flow hedging reserve (note 45), and subsequently recognised in profit or loss when the forecast cash flows affected the income statement. The Group no longer hedges cash flows on operating assets and liabilities. At 31 December 2010 cash flows of 6m, excluding any hedge adjustments that might be applied, were forecast to be received within one year. In the year to 31 December 2011 the Group transferred income of 26m (2010: 85m) from the cash flow hedging reserve to net interest income (note 45). There are no forecast transactions for which hedge accounting had previously been used, but that are now no longer expected to occur. Total hedge ineffectiveness on cash flow hedges charged to net trading expense amounted to 0.1m (2010: 0.2m).

22. Loans and advances to banks

The Group 2011 m 2010 m 3,038 487 3,525

The Bank 2011 m 7,390 7,390 2010 m 5,502 487 5,989

Placements with banks Securities purchased with agreements to resell

2,306 2,306

Amounts include: Due from Group undertakings A credit ratings profile of loans and advances to banks is as follows: The Group 2011 m AAA / AA A BBB+ / BBB / BBBSub investment grade Unrated - due from Group undertakings Total held on own account Policyholders' assets (note 40) 434 1,472 171 224 2,301 5 2,306 2010 m 300 2,815 397 3,512 13 3,525 The Bank 2011 m 430 1,466 169 1,849 3,476 7,390 7,390 2010 m 266 2,280 2,155 1,288 5,989 5,989 5,278 3,089

The ratings above are counterparty ratings and do not reflect the existence of government guarantees, where applicable, or, in the case of the prior year, the credit risk mitigation provided by collateral received under reverse repurchase agreements. Loans and advances to banks include short term placements of 0.2bn (2010: 0.4bn) with entities covered under the ELG Scheme. In the current year these placements are rated as sub investment grade. At 31 December 2010 0.1bn of these placements were secured and included within securities purchased with agreements to resell. Sub investment grade for the Bank includes 1.8bn of bonds issued by IBRC Mortgage Bank. Placements with banks include 2.0bn (2010: 1.8bn) of cash collateral placed with derivative counterparties in relation to net derivative liability positions and 12m (2010: 45m) held with central banks which cannot be withdrawn on demand. 0.1bn (2010: nil) of the cash collateral is placed with the NTMA. At 31 December 2010 the fair value of securities accepted under reverse repurchase agreements, which could be sold or repledged, was 0.5bn. The fair value of such collateral sold or repledged was 0.2bn.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

23. Assets classified as held for sale

NAMA assets Loans classified as held for sale to NAMA Less: provisions for impairment Derivative financial instruments

The Group 2011 m 88 (78) 10 10 2010 m 1,113 (148) 965 17 982

The Bank 2011 m 102 (78) 24 24 2010 m 1,055 (148) 907 17 924

Other loans Other loans classified as held for sale Less: provisions for impairment 277 (25) 252 Other assets Investment property Property, plant and equipment 109 21 130 Total assets classified as held for sale Amounts include: Due from Group undertakings 14 15 392 1,640 21 21 297 1,349 1,075 (417) 658 277 (25) 252 796 (371) 425

Assets classified as held for sale comprise those remaining loans which are expected to transfer to NAMA together with certain US loans identified for sale to third parties. In total, 262m (2010: 1,623m) of customer loans, which are net of associated provisions of 103m (2010: 565m), are anticipated to be transferred to NAMA or sold to third parties. NAMA has complete discretion as to which assets will be acquired. The Bank acquired loans classified as held for sale with a carrying value of 56m on 1 July 2011 under the INBS Transfer Order (note 2). These loans were subsequently transferred to NAMA. The derivative financial instruments balance at 31 December 2010 of 17m represented the fair value of interest rate contracts linked to NAMA eligible assets as at that date. The total notional amount of these contracts was 537m and the transactions consisted primarily of interest rate swap agreements. There were no derivative financial instruments linked to NAMA eligible assets at 31 December 2011. The Bank's loans classified as held for sale include 14m (2010: 15m) lent to fund assets held by the Group's assurance business in respect of liabilities to customers under investment contracts (note 40). During the year investment property assets with a net book value of 160m were reclassified as held for sale (note 32). These assets, which consist primarily of properties that were originally acquired by the Groups Private Banking and Lending businesses but were not allocated to policyholders under investment contracts or sold to private clients, are now anticipated to be sold to third parties. Properties with a carrying value of 47m were sold during the year (note 15). Property, plant and equipment classified as held for sale represents the branch network of the former INBS which was acquired by the Bank on 1 July 2011 under the INBS Transfer Order (note 2). It is currently being actively marketed for sale. Loans classified as held for sale are measured on the same basis as prior to their reclassification. These loans continue to be carried at amortised cost less provisions for impairment. Associated derivatives continue to be measured at fair value through profit or loss. Investment property and property, plant and equipment classified as held for sale are stated at the lower of their carrying amount and fair value less costs to sell.

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Notes to the financial statements continued

23. Assets classified as held for sale continued

Specific provisions for impairment on loans classified as held for sale The Group 2011 m At beginning of year Acquired under the INBS Transfer Order Charge against profits - specific (note 16) Write-offs Unwind of discount Exchange movements Net transfers from/(to) loans and advances to customers (note 27) Net release on disposal of assets to NAMA (note 14) Release on loan asset sales (note 15) At end of year Impaired loans classified as held for sale 565 336 34 (56) (16) 21 938 (387) (1,332) 103 276 2010 m 10,120 2,683 (19) (245) 69 (185) (11,858) 565 979 The Bank 2011 m 519 336 23 (56) (16) 22 932 (375) (1,282) 103 276 2010 m 9,134 2,627 (17) (210) 64 (97) (10,982) 519 905

An analysis of lending assets by internal credit quality category, geographical location and industry sector concentration is provided for the Group in note 50 and for the Bank in note 55.

24. Available-for-sale financial assets

The Group 2011 m 2010 m 397 1,648 2,045 2 5 167 174 2,219

The Bank 2011 m 303 849 1,152 124 124 1,276 2010 m 351 1,648 1,999 2 167 169 2,168

Listed Government bonds Financial institutions Unlisted Financial institutions Asset backed securities NAMA subordinated bonds 5 124 129 Total The movement in available-for-sale ('AFS') financial assets is summarised below: At beginning of year Additions Disposals (sales and maturities) Fair value movements Decrease in interest accruals Exchange and other movements At end of year 2,219 261 (1,105) (43) (4) 4 1,332 7,890 993 (6,571) (107) (70) 84 2,219 2,168 249 (1,098) (44) (4) 5 1,276 7,857 989 (6,571) (121) (70) 84 2,168 1,332 354 849 1,203

The AFS portfolio decreased by 0.9bn during the year, primarily driven by disposals and maturities which include 0.8bn of financial institution bonds and 0.3bn of sovereign bonds. Additions in the current year primarily comprise sovereign bonds with a carrying value of 0.2bn and NAMA subordinated bonds with a nominal value of 154m and a carrying value of 47m acquired under the INBS Transfer Order. In addition, the Bank received subordinated bonds from NAMA with a nominal value of 49m and an initial fair value of 10m.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

The AFS portfolio principally comprises sovereign investments, debt issued by financial institutions and NAMA subordinated bonds. AFS bonds are marked to market using independent prices obtained from external pricing sources. NAMA subordinated bonds are valued using standard discounted cash flow techniques. The Bank does not use models to value other AFS securities and does not adjust any external prices obtained. The NAMA subordinated bonds will be redeemed in full at par without undeclared interest subject to the financial performance of NAMA in totality. NAMA may call the bonds on any interest payment date. On each interest payment date commencing on 1 March 2011, and annually thereafter, NAMA may declare the interest payable if it deems it appropriate to do so if it is achieving its objectives. Interest not declared in any year will not accumulate. No interest was declared by NAMA on 1 March 2011. At 31 December 2011 the Bank held NAMA subordinated bonds with a total nominal value of 843m (2010: 645m). The Group's exposure to government and senior bank bonds issued by eurozone countries is detailed in note 50. The amount removed from equity and recognised as a loss in profit or loss in respect of the disposal of AFS financial assets amounted to 2m (2010: 110m) for the Group (note 9). In 2010 11m was recycled from the AFS reserve and recognised as an impairment charge in the income statement (note 16). The carrying value of AFS financial assets classified as impaired is nil (2010: less than 1m). There are no items in the AFS category that are past due but not impaired. At 31 December 2011 AFS financial assets of 1,046m (2010: 1,757m) were used in sale and repurchase agreements with third parties for periods not exceeding six months for both the Group and the Bank. The external ratings profile of the Group's AFS financial assets is as follows: The Group 2011 Financial Institutions m 43 214 496 96 849 Asset Backed Securities m 5 5 The Group 2010 Financial Institutions m 418 683 549 1,650 Asset Backed Securities m 5 5 NAMA Subordinated Bonds m 167 167 NAMA Subordinated Bonds m 124 124

Sovereign m AAA / AA A BBB+ / BBB / BBBSub investment grade Unrated 51 303 354

Total m 94 214 799 96 129 1,332

Sovereign m AAA / AA A BBB+ / BBB / BBBSub investment grade Unrated 119 278 397

Total m 537 683 827 172 2,219

Sub investment grade holdings consist primarily of debt issued by Irish financial institutions, of which 15m is covered by the ELG Scheme. The majority of these holdings are due to mature during 2012.

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Notes to the financial statements continued

25. Promissory notes

The Group 2011 m 2010 m 25,704

The Bank 2011 m 29,934 2010 m 25,704

Promissory notes

29,934

The Minister for Finance has provided the Bank with a promissory note to the value of 25.3bn comprising four tranches. Each tranche pays a market based fixed rate of interest which is set on the date of issue and is appropriate to the maturity date of the tranche. The promissory note pays 10% of the initial principal amount of each tranche annually. The Bank received the first instalment payment of 2.53bn on 31 March 2011. This pay down resulted in the promissory note having a revised principal amount of 23.6bn from 31 March 2011. In addition, the Minister for Finance had provided a promissory note to INBS to the value of 5.3bn comprising two tranches. The terms of these tranches were the same as tranches one and four of the Bank's promissory note. Following receipt by INBS of the first instalment payment on 31 March 2011, the revised principal amount was 4.9bn. On 1 July 2011 the principal and accrued interest as of that date transferred to the Bank under the INBS Transfer Order. In December 2010, at the request of the Minister for Finance, a change was made to the legal terms of the promissory notes allowing for an interest holiday in 2011 and 2012, with a higher notional interest rate thereafter. This interest holiday does not impact the accounting for the promissory notes as the cash flows and effective interest rate of the notes were unchanged. Hence the Bank will continue to accrue interest income on the notes in 2011 and 2012. The fixed cash flows of the instruments create an interest rate risk for the Group. As at 31 December 2011, the Bank had hedged a total of 4.3bn of the nominal amount using interest rate swaps. A further 5.7bn of economic hedges exist in the form of the Groups capital and fixed rate debt issuance. The promissory notes are currently pledged as collateral for funding under a Special Master Repurchase Agreement with the Central Bank of Ireland. The notes, which are classified as loans and receivables, are initially recognised at fair value and subsequently carried at amortised cost. IFRS defines loans and receivables as financial assets with fixed or determinable payments that are not quoted in an active market.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

26. Government debt securities at amortised cost

NAMA Government Guaranteed Floating Rate Notes

The Group 2011 m 947 2010 m 10,623

The Bank 2011 m 947 2010 m 10,623

95% of the overall consideration received for assets that transferred to NAMA was in the form of Government Guaranteed Floating Rate Notes ('senior bonds'). The senior bonds are classified as loans and receivables, and are initially recognised at fair value. At 31 December 2010 the Bank held senior bonds with a total nominal value of 12,275m. These bonds accrued interest at 6 month Euribor, receivable semi annually on 1 March and 1 September, and had a maturity date of March 2011 but were extendible annually at maturity at the option of NAMA. In early February 2011, following valuation adjustments on loans transferred to NAMA in 2010, the Bank transferred 91m nominal of senior bonds back to NAMA. On 24 February 2011, pursuant to the AIB Transfer Order and CISA, the Bank's remaining holding of senior bonds of 12,184m was transferred to AIB (note 13). The carrying value of these notes on the date of transfer was 10,568m. Subsequently, following completion of due diligence by NAMA on certain loans which transferred in bulk during November and December 2010 the Bank has received new senior and subordinated bonds which increase the original consideration paid by NAMA for these assets. The new government guaranteed senior bonds accrue interest at 6 month Euribor, receivable semi annually on 1 March and 1 September. The maturity date of these new senior bonds is 1 March 2012 however NAMA may, with the agreement of the Bank, settle the senior bonds by issuing new senior bonds with the same terms and conditions and a maturity date of up to 364 days. There are certain key differences between the terms and conditions of the senior bonds that were held at 31 December 2010 and those held at 31 December 2011. A new amended Offering Circular of 22 June 2011 does not include an issuer extension option and the holder now has the right to reject physical settlement of the senior bonds on maturity. As a result of the removal of the issuer extension option the Bank has valued the senior bonds, on receipt, as a short term instrument with a maturity date of 1 March 2012. At 31 December 2011 the Banks nominal holding of senior bonds totalled 950m. This figure includes 33m nominal of senior bonds received by the Bank under the INBS Transfer Order on 1 July 2011. In October 2011 the Central Bank of Ireland advised the Bank not to increase its usage of sale and repurchase facilities provided under open market operations with the ECB. As a result, at 31 December 2011 there were no senior bonds used in sale and repurchase agreements under open market operations with central banks (2010: 12,275m). At 31 December 2011 senior bonds with a nominal value of 750m had been pledged under a Special Master Repurchase Agreement (SMRA) with the Central Bank of Ireland. In February 2012 NAMA informed the Bank of its intention to physically settle the current senior bonds on 1 March 2012 by issuing new senior bonds with a maturity of 1 March 2013. The Banks commercial preference was to receive cash in exchange for its holdings of senior bonds on 1 March 2012. However, bearing in mind the preferences expressed by both NAMA and the Department of Finance and overall public interest considerations, the Bank agreed to accept physical settlement.

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Notes to the financial statements continued

27. Loans and advances to customers

The Group 2011 m 2010 m

The Bank 2011 m 2010 m

Amounts receivable under finance leases and hire purchase contracts (note 28) Other loans and advances to customers Provisions for impairment

41 27,987 28,028 (10,339) 17,689

49 33,892 33,941 (9,577) 24,364

40 26,208 26,248 (10,274) 15,974

48 34,357 34,405 (9,489) 24,916

Amounts include: Due from Group undertakings 2,294 4,346

On 1 July 2011 the Bank acquired loans and advances to customers with a carrying value of 1,806m under the INBS Transfer Order (note 2). The Group's loans and advances to customers at 31 December 2011 of 17,689m (2010: 24,364m) exclude loans classified as held for sale of 262m (2010: 1,623m). The Bank's loans and advances to customers at 31 December 2011 of 15,974m (2010: 24,916m) exclude loans classified as held for sale of 276m (2010: 1,332m). The Bank's loans and advances to customers include 724m (2010: 749m) lent to fund assets held by the Group's assurance business in respect of liabilities to customers under investment contracts (note 40). The Group's loans and advances to customers include loans to equity-accounted joint venture interests of 1,044m (2010: 1,056m), loans of 37m (2010: 126m) to joint venture interests held in respect of liabilities to customers under investment contracts, and loans to joint ventures and associates that are measured at fair value through profit or loss of 265m (2010: 216m). Provisions for impairment on loans and advances to customers The Group 2011 m 9,577 667 2,107 (597) (351) 6 (187) 55 (938) 10,339 9,566 773 10,339 17,482 2010 m 4,846 4,956 21 (363) 1 (168) 99 185 9,577 8,341 1,236 9,577 16,564 The Bank 2011 m 9,489 667 2,036 (573) (347) 6 (167) 95 (932) 10,274 9,535 739 10,274 16,189 2010 m 4,753 5,030 61 (363) (154) 65 97 9,489 8,310 1,179 9,489 15,213

At beginning of period Acquired under the INBS Transfer Order Charge against profits - specific (note 16) Charge against profits - collective (note 16) Write-offs Recoveries Unwind of discount Exchange movements Net transfers from/(to) assets classified as held for sale (note 23) At end of period Specific Collective Total Impaired loans (excludes loans classified as held for sale)

The collective provision of 773m (2010: 1,236m) has been calculated based on total performing customer loan balances, including those classified as held for sale. The release of collective provisions of 597m in the current year is primarily due to a decrease of 41% in the performing loan portfolio, including loans classified as held for sale, and the recognition of specific provisions on smaller relationships not previously individually assessed for impairment.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Owing to a marked deterioration in the financial position of some borrowers, in order for the Bank to maximise the recovery of impaired loan balances it may in certain specific circumstances agree to a restructuring of loan arrangements so as to improve overall asset quality. The level of provision write-offs in the current and prior years is primarily as a result of the active management of impaired loans, which may also include the sale of collateral and/or certain loan assets to third parties. Loans assigned as collateral Loans, including those classified as held for sale, of 6,115m (2010: 9,384m) have been assigned as collateral under the Bank's various covered securities programmes. Included in the current year balance are loans assigned as collateral under a securitisation programme acquired under the INBS Transfer Order on 1 July 2011. The Bank's UK covered bond programme was unwound in June 2011. In addition, loans with a carrying value of 2,550m (2010: 4,110m) have been assigned as collateral under a Master Loan Repurchase Agreement with the Central Bank of Ireland (note 37). All of the loans remain in the Group's statement of financial position as substantially all of the risks and rewards relating to them are retained. An analysis of lending assets by internal credit quality category, geographical location and industry sector concentration is provided for the Group in note 50 and for the Bank in note 55.

28. Leasing
Loans and advances to customers include amounts receivable under finance leases and hire purchase contracts analysed by remaining maturity as follows: The Group 2011 m Gross receivables: Three months or less One year or less but over three months Five years or less but over one year Over five years Unearned future income Net receivables (note 27) Present value of minimum lease payments receivable: Three months or less One year or less but over three months Five years or less but over one year Over five years Present value of minimum payments receivable 26 7 8 41 25 11 13 49 25 7 8 40 25 10 13 48 26 8 9 43 (2) 41 26 11 15 52 (3) 49 25 8 9 42 (2) 40 25 11 15 51 (3) 48 2010 m The Bank 2011 m 2010 m

Provision for uncollectible minimum lease payments receivable *

31

35

30

34

* Included in provisions for impairment on loans and advances to customers (note 27). There are no unguaranteed residual values accruing to the benefit of the Bank or the Group (2010: nil). The cost of assets acquired by the Group during the year for letting under finance leases and hire purchase contracts amounted to 1m (2010: 2m).

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Notes to the financial statements continued

29. Interests in joint ventures and associates

Joint ventures The Group 2011 m Unlisted At beginning of year Investment in joint ventures Share of results Distributions Exchange movements At end of year 42 2 15 (3) 1 57 142 3 (104) (2) 3 42 2010 m The Bank 2011 m 2010 m

Joint ventures

The Group 2011 m 2010 m 17 657 (14) (618) 42 35 (139) (104)

The Bank 2011 m 2010 m 47 (47) Group's interest in equity 49%

Group's share of: Current assets Non-current assets Current liabilities Non-current liabilities Interests in joint ventures Income Expenses (including impairment) Taxation Share of results of joint ventures 15 642 (13) (587) 57 39 (24) 15

Significant joint venture entities and registered offices Aggmore Europe 1 S.A. 11-13 boulevard de la Foire, L-1528 Luxembourg Finsbury Dials Sarl 62 avenue Victor Hugo, L-1750 Luxembourg Heywood Park Limited * Jubilee Buildings, Victoria Street, Douglas, Isle of Man IM1 2SH Merchant Anglo (Amazon Park) Limited Partnership 145 St. Vincent Street, Glasgow G2 5JF, Scotland Taurus Euro Retail Holdings Sarl 12 rue Guillaume J Kroll, L-1882 Luxembourg The Second Anglo Irish UK Property Fund SLP 50 Lothian Road, Festival Square, Edinburgh EH3 9WJ, Scotland West Port Sarl * 46A avenue J.F. Kennedy, L-1855 Luxembourg

Principal activity Property investment

Property investment

33%

Property investment

95%

Property investment

49%

Property investment

20%

Property investment

19%

Property investment

90%

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* The Group's interest in the equity of these entities is greater than 50%. However, the substance and legal form of these ventures is such that they are jointly controlled entities as the approval of all joint venture parties is required for all strategic financial and operating decisions. Associates The Group 2011 m Interests in associates - unlisted 99 2010 m The Bank 2011 m 2010 m -

Following regulatory approval in late 2011 the Group agreed a joint venture with Liberty Mutual Group (Liberty) to acquire the Republic of Ireland general insurance business of Quinn Insurance Limited (Under Administration) (QIL). Libertys controlling interest in this arrangement exceeds 50%, while the Bank's minority interest is classified as an associate as it retains some influence in the joint venture. The purchase of the Banks interest was funded with 99m in new preference shares (note 41), the repayment of which is directly linked to the performance of this joint venture. At 31 December 2011 the Bank also has a minority interest in the manufacturing businesses of the Quinn Group. This interest is classified as a financial asset at fair value through profit or loss (note 20). The Group's share of the assets of its associates is 99m (2010: nil). The Group had neither capital commitments nor contingent liabilities, whether incurred jointly or otherwise, in relation to its joint ventures or associates at 31 December 2011 or 31 December 2010. In accordance with the European Communities (Credit Institutions: Accounts) Regulations, 1992, the Group will annex a full listing of its joint ventures and associates to its annual return to the Companies Registration Office in Ireland.

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Notes to the financial statements continued

30. Investments in Group undertakings

The Bank 2011 m 2010 m 4,186

Investments in subsidiary undertakings at cost less provisions for impairment

4,045

The decrease in investments in subsidiary undertakings during the year is primarily driven by the transfer of the Bank's Isle of Man subsidiary, Anglo Irish Bank (International) PLC, to AIB under the AIB Transfer Order (note 1). This is partially offset by the Bank's irrevocable waiver of certain loans due to it by IBRC Property Investors Limited and IBRC Property Lending Limited, and additional investments in IBRC Real Estate Holdings, Inc., to facilitate its holding and disposal of US property assets following loan foreclosures/restructuring. Significant subsidiary undertakings and registered offices Armoin Residential Securities Limited 5 Harbourmaster Place, IFSC, Dublin 1, Ireland IBRC Asset Finance plc 10 Old Jewry, London EC2R 8DN, England IBRC Assurance Company Limited Heritage House, 23 St. Stephen's Green, Dublin 2, Ireland IBRC Mortgage Bank Stephen Court, 18/21 St. Stephen's Green, Dublin 2, Ireland IBRC International Financial Services Limited Stephen Court, 18/21 St. Stephen's Green, Dublin 2, Ireland IBRC Property Lending Limited 10 Old Jewry, London EC2R 8DN, England IBRC Real Estate Holdings, Inc. 265 Franklin Street, 19th Floor, Boston, MA 02110, USA Buyway Group Limited Stephen Court, 18/21 St. Stephen's Green, Dublin 2, Ireland CDB (U.K.) Limited 10 Old Jewry, London EC2R 8DN, England Mainland Investments GP, Inc. Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808, USA The Anglo Aggmore Limited Partnership 10 Old Jewry, London EC2R 8DN, England Tutelana Limited Stephen Court, 18/21 St. Stephen's Green, Dublin 2, Ireland The Group owns all of the issued ordinary share capital of all subsidiary undertakings listed unless otherwise stated. All of the Group undertakings are included in the consolidated financial statements. A Group subsidiary is the general partner of the Anglo Aggmore Limited Partnership and holds 75% of the equity and loan capital contributed to it. The loan capital contributors earn a return of 10% per annum on their loan capital and thereafter the Group is entitled to 50% of the remaining profits. The Anglo Aggmore Limited Partnership has availed of the exemption under paragraph 7 of the UK Partnerships (Accounts) Regulations, 2008 from the requirements to comply with paragraphs 4 to 6 of those regulations. Investment holding Property investment Property investment Investment holding Investment holding Investment holding Finance Finance Issuance of mortgage covered securities Life assurance and pensions Finance Principal activity Secured debt issuance

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The Group's interest in Armoin Residential Securities Limited is, in substance, no different than if it was a wholly owned subsidiary undertaking. There are no other entities which might be considered to be subsidiaries under SIC 12 which have not been consolidated. Each subsidiary undertaking operates principally in the country in which it is registered. In accordance with the European Communities (Credit Institutions: Accounts) Regulations, 1992, a complete listing of Group undertakings will be annexed to the annual return to the Companies Registration Office in Ireland. During the year, as part of its deleveraging activities, the Bank has begun the process of liquidating a number of Group entities which are no longer required. IBRC Mortgage Bank ('IBRCMB') IBRCMB is a wholly owned subsidiary of Irish Bank Resolution Corporation Limited and is regulated by the Central Bank of Ireland. Its principal activity, as a licensed bank, is the issuance of commercial mortgage asset covered securities, in accordance with the Asset Covered Securities Acts, 2001 and 2007. On 15 January 2009 Irish Bank Resolution Corporation Limited transferred a portfolio of commercial mortgage loans of 6bn to IBRCMB, and on 21 January 2009 IBRCMB launched a 10bn Mortgage Covered Securities Programme. At 31 December 2011 the total amount of principal outstanding in respect of mortgage covered securities issued was 1.8bn (2010: 1.8bn), all of which is held by the Bank. At the same date the total principal outstanding in the cover assets pool including mortgage loans and cash was 6.3bn (2010: 4.0bn) Events affecting IBRCMB subsequent to 31 December 2011 are disclosed in note 57. Guarantees provided to subsidiaries by Irish Bank Resolution Corporation Limited Each of the companies listed below, and consolidated into these accounts, has availed of the exemption from filing its individual accounts as set out in Section 17 of the Companies (Amendment) Act, 1986 ('the 1986 Act'). In accordance with the 1986 Act, Irish Bank Resolution Corporation Limited has irrevocably guaranteed the liabilities of Aragone Limited, Buyway Group Limited, IBRC ESOP Limited, IBRC Capital Partners Limited, IBRC International Financial Services Limited, Modify 5 Limited, Tincorra Investments Limited and Tutelana Limited.

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31. Intangible assets - software

The Group Computer software m

The Bank Computer software m 70 5 75 4 79

Cost At 1 January 2010 Additions At 31 December 2010 Additions Disposals At 31 December 2011 Accumulated amortisation At 1 January 2010 Charge for the year At 31 December 2010 Charge for the year Disposals At 31 December 2011 Carrying amount At 31 December 2011 At 31 December 2010 10 16 10 16 51 10 61 10 (2) 69 49 10 59 10 69 72 5 77 4 (2) 79

32. Investment property - held on own account

The Group 2011 m 2010 m 376 13 (7) 21 403

Cost At beginning of year Additions Disposals Transfers to assets classified as held for sale Exchange movement At end of year Accumulated depreciation At beginning of year Charge for the year Impairment Transfers to assets classified as held for sale Exchange movement At end of year Carrying amount At end of year At beginning of year 88 217 217 267 186 6 3 (122) (8) 65 109 10 61 6 186 403 49 (282) (17) 153

Investment property held on own account at 31 December 2011 includes office and retail properties previously acquired by the Group which were not subsequently allocated to policyholders under investment contracts or sold to private clients.

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Additions in the current year include investment property assets of 2m acquired under the INBS Transfer Order on 1 July 2011. These assets were reclassified as held for sale on 31 December 2011. Impairment on investment property in 2010 reflected weakening economic conditions in the markets where the assets are located and a consequent reduction in the recoverable amounts of the assets, based on the estimated future cash flows to be derived from these assets. The fair value of investment property held on own account at 31 December 2011 is 98m (2010: 216m). Fair values are primarily based on valuations provided by independent third party valuers during the year which have been reviewed and agreed by management.

33. Investment property - held in respect of liabilities to customers under investment contracts

The Group 2011 m 2010 m 1,143 50 1,193

Fair value At beginning of year Additions Disposals Fair value, exchange and other movements At end of year (note 40) 1,193 (90) 27 1,130

Investment property held in respect of liabilities to customers under investment contracts is included in the statement of financial position at fair value. Fair values are based on valuations provided by independent third party valuers using, where relevant, accepted Royal Institution of Chartered Surveyors guidelines or equivalent local guidelines appropriate to the location of the property. Fair values are reviewed and agreed by management.

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Notes to the financial statements continued

34. Property, plant and equipment

The Group Cost At 1 January 2010 Additions At 31 December 2010 Disposal of Group undertaking Additions At 31 December 2011 Accumulated depreciation At 1 January 2010 Charge for the year At 31 December 2010 Disposal of Group undertaking Charge for the year Impairment At 31 December 2011 Carrying amount At 31 December 2011 At 31 December 2010 7 8 14 3 5 18 19 16 1 17 2 4 23 46 5 51 (1) 5 55 62 6 68 (1) 7 4 78 7 7 30 1 31 31 56 56 (1) 3 58 86 1 87 (1) 10 96 Freehold properties m Leasehold properties and improvements m Computer and other equipment m Total m

Additions in the current year include freehold premises of 7m and computer and other equipment of 1m acquired under the INBS Transfer Order on 1 July 2011. The Group occupies properties with a net book value of 11m at 31 December 2011 (2010: 12m) in the course of carrying out its own activities.

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The Bank Cost At 1 January 2010 At 31 December 2010 Additions At 31 December 2011 Accumulated depreciation At 1 January 2010 Charge for the year At 31 December 2010 Charge for the year At 31 December 2011 Carrying amount At 31 December 2011 At 31 December 2010

Freehold properties m 7 7

Leasehold improvements m 16 16 16

Computer and other equipment m 52 52 2 54

Total m 68 68 9 77

13 13 13

43 5 48 4 52

56 5 61 4 65

7 -

3 3

2 4

12 7

Additions in the current year include freehold premises of 7m and computer and other equipment of 1m acquired under the INBS Transfer Order on 1 July 2011.

The Group has minimum future rental payments under non-cancellable operating leases as follows: 2011 Property m Within one year One to five years Over five years 10 22 41 73 Equipment m 3 1 4 2010 Property m 9 30 51 90 Equipment m 3 1 1 5

Total future minimum sublease payments expected to be received under non-cancellable subleases at 31 December 2011 were 2m (2010: 1m). The Group loss before taxation is arrived at after charging operating lease rentals of 12m (2010: 15m). Sublease income recognised for the year was 2m (2010: 1m). As at 31 December 2011 the Group and the Bank had contractual commitments of nil (2010: 1m) for the acquisition of property, plant and equipment.

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Notes to the financial statements continued

35. Deferred taxation

The Group 2011 m 2010 m 46 (2) 2 46

The Bank 2011 m (1) (1) 2010 m -

Analysis of movement in deferred taxation: Opening net asset Acquired under INBS Transfer Order Income statement charge for year (note 17) Exchange movements Closing net asset Analysis of deferred taxation asset: Losses available for offset against future profits Analysis of deferred taxation liability: Temporary timing differences Represented in the statement of financial position as follows: Deferred taxation asset Deferred taxation liability 42 (1) 41 46 46 (1) (1) (1) (1) 42 46 46 (1) (6) 2 41

At 31 December 2011 deferred tax assets of 4,616m (2010: 4,376m) and 4,595m (2010: 4,318m) have not been recognised in respect of unused losses for the Group and the Bank respectively.

36. Other assets

The Group 2011 m 2010 m 78 9 87

The Bank 2011 m 5 6 11 2010 m 68 68

Trade and other receivables Trading properties Development property

18 7 6 31

On 1 July 2011 the Bank acquired development property of 6m under the INBS Transfer Order. The carrying value represents cumulative costs incurred to 31 December 2011 under a contract to develop property less any write-downs to net realisable value. The development is fully complete.

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37. Deposits from banks

The Group 2011 m 2010 m 54 45,023 545 944 46,566

The Bank 2011 m 3,952 42,228 2 46,182 3,896 2010 m 3,342 45,023 545 645 49,555 3,289

Deposits repayable on demand Sale and repurchase agreements - central banks Sale and repurchase agreements - banks Other deposits by banks with agreed maturity dates Amounts include: Due to Group undertakings

56 42,228 307 42,591

Sale and repurchase agreements with central banks include a combined 40.1bn (2010: 28.1bn) borrowed under a Special Master Repurchase Agreement ('SMRA'), a Master Loan Repurchase Agreement ('MLRA'), and a Facility Deed agreement ('FD') from the Central Bank of Ireland. Overall reliance on these facilities has increased during the year due to the necessity to replace 8.3bn of customer deposit funding that transferred to AIB on 24 February 2011 under the AIB Transfer Order (note 13). In addition, on 1 July 2011 the Bank acquired 6.0bn of central bank borrowing under the INBS Transfer Order. Sale and repurchase agreements with central banks also include 2.1bn (2010: 16.9bn) borrowed under open market operations from central banks. The decrease in funding under these facilities is primarily due to the transfer of 12.2bn of NAMA senior bonds to AIB on 24 February 2011 under the AIB Transfer Order. Furthermore certain of the Bank's securitisation programmes no longer qualify as eligible collateral under open market operations. The SMRA is secured on the promissory notes and the NAMA senior bonds. The MLRA is secured on unencumbered qualifying loan assets. The FD is an unsecured loan facility guaranteed by the Minister for Finance, who separately benefits from a counter indemnity from the Bank should the guarantee be called upon. Certain of the Bank's assets have been pledged as collateral under open market operations with monetary authorities at the year end through the Group's covered securities programmes (note 27). Deposits from banks include 13m (2010: 29m) of cash collateral received from counterparties to offset credit risk arising from derivative contracts. Other deposits by banks with agreed maturity dates in the Group include 305m (2010: 299m) of funding provided to policyholders by external banks in respect of liabilities to customers under investment contracts (note 40).

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38. Customer accounts

The Group 2011 m 2010 m 3,771 7,321 11,092

The Bank 2011 m 2,925 678 3,603 3,006 2010 m 6,832 6,624 13,456 4,048

Repayable on demand Other deposits by customers with agreed maturity dates Amounts include: Due to Group undertakings Customer type Retail deposits Non-retail deposits

13 584 597

40 557 597

6,120 4,972 11,092

40 3,563 3,603

4,847 8,609 13,456

On 24 February 2011, under the AIB Transfer Order, the majority of the Irish and UK customer accounts, including those held in the Bank's Isle of Man subsidiary, were transferred by the Bank to AIB and AIB UK (note 13). Certain customer accounts were retained, including those linked to customer loans, structured deposit-linked products and those accounts denominated in minor currencies. In total 8.3bn (Ireland and UK: 6.9bn; Isle of Man: 1.4bn) of customer accounts were transferred. Deposits introduced through the Bank's branches in Vienna, Dusseldorf and Jersey remained unaffected by the AIB Transfer Order and as such did not transfer at the time. However, in accordance with the February Direction Order and the requirements imposed on the Bank by the Minister for Finance on 7 April 2011 pursuant to Section 50 of CISA, all deposits introduced through these branches have been repaid to customers. The Banks branches in Jersey and Vienna were both closed in June 2011 and the Dusseldorf branch was closed in August 2011. The Bank no longer collects new customer deposits. Customer accounts include balances of 18m (2010: 31m) in respect of deposits which were designated at fair value upon initial recognition. The Group's customer accounts include 3m (2010: 6m) received from equity-accounted joint venture interests. The Bank's customer accounts include 94m (2010: 92m) of deposits held in respect of liabilities to customers under investment contracts (note 40). The deposits eliminate on consolidation in the Group customer accounts balances.

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39. Debt securities in issue

The Group 2011 m 2010 m 6,899 13 6,912

The Bank 2011 m 5,371 5,371 2010 m 6,899 13 6,912

Medium term note programme Commercial paper

5,371 5,371

Guaranteed Unguaranteed

2,726 2,645 5,371

3,047 3,865 6,912

2,726 2,645 5,371

3,047 3,865 6,912

Debt securities in issue have decreased by 1.5bn in the current year largely due to the maturity of 2.2bn of medium term notes, of which 1.9bn were unguaranteed. The decrease is partially offset by 0.6bn of medium term notes issued by INBS which transferred to the Bank on 1 July 2011 under the INBS Transfer Order. The EC has approved the extension of the ELG Scheme for certain eligible liabilities to 30 June 2012. Fees payable under this scheme are set out in note 4. Government guaranteed notes with a principal value of 1.8bn are due to mature during 2012. The remaining Government guaranteed notes, which have a principal value of 0.9bn, are not scheduled to mature until 2015. Unguaranteed medium term notes due to mature during 2012 total 2.5bn, including 1.2bn which matured in January 2012. Short term programmes matured in full at the end of May 2011.

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Notes to the financial statements continued

40. Liabilities to customers under investment contracts

The Group 2011 m 2010 m 1,193 237 13 1,443 (764) (299) (84) (37) 92 351

Assets held in respect of liabilities to customers under investment contracts: Investment property Financial assets at fair value through profit or loss Loans and advances to banks Total Less: Funding provided by parent Bank Funding provided by external banks Derivative financial instruments Net asset value attributable to external unitholders Add: Funds on deposit with parent Bank Liabilities to customers under investment contracts at fair value

1,130 194 5 1,329 (738) (305) (60) (37) 94 283

Under the terms of the investment contracts issued by the Group's assurance business legal title to the underlying investments is held by the Group, but the inherent risks and rewards in the investments are borne by customers through unit-linked life assurance policies. In the normal course of business the Group's financial interest in such investments is restricted to fees earned for contract set up and investment management. Underlying investments related to certain investment contracts are held through unit trusts or other legal entities which are not necessarily wholly-owned subsidiaries of the Group. The inherent risks and rewards borne by external third parties are treated as either amounts attributable to external unitholders or non-controlling interests as appropriate. In accordance with IFRS, obligations under investment contracts are carried at fair value in the statement of financial position and are classified as liabilities to customers under investment contracts. The above table sets out where the relevant assets and liabilities in respect of the life assurance business investment contracts are included in the Group statement of financial position. On consolidation, Group loans and advances to customers and Group loans classified as held for sale are shown net of funding of 724m (2010: 749m) and 14m (2010: 15m) respectively provided by the parent Bank to fund assets held by the life assurance business in respect of liabilities to customers under investment contracts. Total funding provided by the parent Bank amounts to 935m (2010: 954m). 738m represents the current market value of assets, net of related derivative liabilities, to which the parent Bank holds recourse. In prior periods the market value of assets to which the Bank held recourse exceeded the amount of funding that it had provided in relation to those assets. The Group has assessed these lending facilities for impairment, with any resulting charge included within provisions for impairment on loans and advances to customers. Derivative financial instruments are entered into by the Group's assurance company in order to hedge the interest rate exposure on funding provided to geared policyholder funds. The decrease in liabilities to customers under investment contracts in the current year results primarily from net withdrawals by policyholders from unit-linked investment funds during the year.

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41. Other liabilities

The Group 2011 m 2010 m 64 138 37 201 135 575

The Bank 2011 m 70 132 20 168 390 2010 m 61 138 199 134 532

Obligations under financial guarantees Payable to NAMA Amounts attributable to external unitholders linked to investment contracts (note 40) Preference shares Sundry liabilities Provisions for liabilities and charges

71 132 37 99 27 177 543

The amount payable to NAMA at 31 December 2011 of 132m relates to value-to-transfer adjustments (representing the movement in loan balances from the NAMA cut off date to the actual loan transfer date) and expected net valuation adjustments in relation to assets previously transferred to NAMA. Following regulatory approval in late 2011 the Group agreed a joint venture with Liberty Mutual Group (Liberty) to acquire the Republic of Ireland general insurance business of Quinn Insurance Limited (Under Administration) (QIL) (note 29). In December 2011 the Bank funded its interest by issuing 99m in new preference shares. Repayment of these preference shares is directly linked to the performance of the joint venture. The decrease in sundry liabilities primarily relates to the redemption of covered bonds in issue of 171m which occurred on 30 December 2010 but which did not settle until 5 January 2011. The Bank has undertaken a review of interest rates applied to loan accounts to identify any differences between the interest rates applied and the variable market quoted rates. The review has been extended during the year to cover the period from 1 January 1990 to 31 January 2005 (previously 1 January 1996 to 31 January 2005), and the Bank has increased the amount provided in relation to this matter from 45m at 31 December 2010 to 54m at 31 December 2011. This provision is included in provisions for liabilities and charges. Provisions for liabilities and charges also includes provisions related to onerous contracts, restructuring and legacy matters.

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42. Subordinated liabilities and other capital instruments

The Group 2011 m Dated Loan Capital US$165m Subordinated Notes Series A 2015 (a) US$35m Subordinated Notes Series B 2017 (b) Undated Loan Capital Stg300m Non-Cumulative Preference Shares (c) Stg200m Step-up Callable Perpetual Capital Securities (d) Stg250m Tier One Non-Innovative Capital Securities (d) Other subordinated liabilities (e) 361 517 351 3 3 509 361 517 351 503 128 28 124 28 128 28 124 28 2010 m The Bank 2011 m 2010 m

All subordinated liabilities and other capital instruments issued by the Group are unsecured and subordinated in the right of repayment to the ordinary creditors, including depositors of the Bank. The prior approval of the Central Bank of Ireland is required to redeem these issues prior to their final maturity date. The carrying value of subordinated liabilities and other capital instruments includes the impact of fair value hedge adjustments. During the prior year the Group repurchased or restructured certain subordinated liabilities as part of a liability management exercise. 270m nominal of Tier 1, 45m of Upper Tier 2 and 1,575m of Lower Tier 2 securities were repurchased, exchanged or restructured, resulting in a net gain of 1,589m (note 8). (a) The US$165m Subordinated Notes Series A 2015 bear interest at 4.71% per annum to 28 September 2010 and thereafter reset at three month LIBOR plus 0.92% per annum. See note 48 for details of legal claims. The US$35m Subordinated Notes Series B 2017 bear interest at 4.80% per annum to 28 September 2012 and thereafter reset at three month LIBOR plus 0.93% per annum. See note 48 for details of legal claims. On 21 January 2009, under the terms of the Anglo Irish Bank Corporation Act, 2009, ownership of the 300,000 NonCumulative Preference Shares in issue was transferred to the Minister for Finance. The holder of the shares is entitled to a non-cumulative preference dividend of 6.25% per annum based on a principal amount of Stg1,000 per share payable annually in arrears on 15 June in each year to 15 June 2015. Thereafter dividends are due to be paid quarterly in arrears on 15 March, 15 June, 15 September and 15 December in each year based on a principal amount of Stg1,000 per share and on the three month LIBOR rate plus 1.66% per annum. No preference dividends can be paid if the issuer is not in compliance with applicable regulatory capital requirements. In May 2009 the Bank received correspondence from the Minister stating that dividend payments on these preference shares, including the dividend otherwise payable on 15 June 2009, would be waived until such time as the Minister informs the Bank that dividend payments are to resume. Interest on the Stg200m Step-up Callable Perpetual Capital Securities and the Stg250m Tier One Non-Innovative Capital Securities of 6m which was accrued to 31 December 2010 was released to the income statement as a gain in March 2011 when the call right on these securities was exercised by the Bank with no accrued interest being paid. Other subordinated liabilities includes 100,000 A Preference Shares issued by IBRC Asset Finance plc. The Group is precluded from declaring and paying any distribution on these shares.

(b)

(c)

(d)

(e)

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43. Share capital

Ordinary share capital Group and Bank 2011 m Authorised 26,200,000,000 ordinary shares of 0.16 each Allotted, called up and fully paid 25,769,150,409 ordinary shares of 0.16 each 4,123 4,123 4,192 4,192 2010 m

On 21 January 2009, under the terms of the Anglo Irish Bank Corporation Act, 2009, all of the Bank's ordinary share capital was transferred to the Minister for Finance. There has been no movement in the Bank's share capital during the year. Preference share capital The Bank has authorisation from the Shareholder to issue preference share capital as follows: Group and Bank 2011 m 50,000,000 non-cumulative preference shares of 1 each 50,000,000 non-cumulative preference shares of 1 each 50,000,000 non-cumulative preference shares of $1 each 50 60 39 2010 m 50 58 37

On 15 June 2005 300,000 non-cumulative preference shares of 1 each were issued at a price of 997.99 per share. Under IAS 32, these are classified as subordinated liabilities and other capital instruments (note 42). On 21 January 2009, under the terms of the Anglo Irish Bank Corporation Act, 2009, the 300,000 non-cumulative preference shares of 1 each were transferred to the Minister for Finance. The authorisation to issue preference shares expires on 21 January 2014. Any allotment of shares is subject to the prior written approval of the Shareholder.

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44. Capital reserve

The Group 2011 m 2010 m 25,300 25,300

The Bank 2011 m 25,300 679 25,979 2010 m 25,300 25,300

Capital reserve Additional capital arising on business combination

25,300 711 26,011

On 22 December 2009 the Banks sole Shareholder, the Minister for Finance, wrote to the Bank outlining his commitment, subject to EU State aid approval, to ensure that the Bank had sufficient capital to continue to meet regulatory capital requirements at 31 December 2009. On 23 December 2009 the Board accepted the binding commitment of the Minister. The Bank recognised a receivable from the Minister on 31 December 2009 on the basis that it was virtually certain to occur, and a corresponding credit to the capital reserve. On 31 March 2010, the Bank received an initial promissory note to the value of 8.3bn from the Minister. The promissory note provided for the issuance of adjustment instruments which could amend the original principal amount of the note. On 28 May and 23 August 2010, the Minister issued adjustment instruments increasing the principal amount of the 31 March promissory note to 18.88bn, resulting in corresponding credits to the capital reserve. A revised promissory note was issued by the Minister in December 2010 in exchange for the initial promissory note and the two adjustment instruments. This revised promissory note included an additional 6.42bn principal amount, settling an amount due from the Shareholder at 30 November 2010. This resulted in a corresponding credit of 6.42bn to the capital reserve, increasing it from 18.88bn to 25.3bn at 31 December 2010. The additional capital of 0.7bn arises from the transfer of assets and liabilities from INBS on 1 July 2011 under the INBS Transfer Order (note 2). The total capital reserve qualifies as eligible regulatory Core Tier 1 capital.

45. Other reserves

Non-distributable capital reserve This is a non-distributable capital reserve of 1m (2010: 1m). Exchange translation reserve The exchange translation reserve has two components. It includes the cumulative foreign exchange differences arising from translating the income statements of foreign operations at average exchange rates and the translation of the statements of financial position of foreign operations using exchange rates ruling at the period end. It also includes the cumulative foreign exchange differences arising from the translation of the Group's investment in foreign operations, net of exchange differences arising on funding designated as hedges of these investments. The Group 2011 m Movement in exchange translation reserve At beginning of year Exchange differences on translation of foreign operations Net loss on hedges of net investments in foreign operations At end of year 3 48 (27) 24 (56) 88 (29) 3 2010 m

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Cash flow hedging reserve The cash flow hedging reserve represents the effective portion of the cumulative net change in the fair value of derivatives designated as cash flow hedges. It is stated net of deferred taxation. The Group 2011 m Movement in cash flow hedging reserve At beginning of year Net changes in fair value Transfers to income statement At end of year 57 (26) 31 110 32 (85) 57 2010 m

Available-for-sale reserve The available-for-sale reserve represents the unrealised net gains and losses in the fair value of available-for-sale financial assets as adjusted for any impairment losses recognised in the income statement. Changes in fair value include movements on associated fair value hedges. The reserve is stated net of deferred taxation. The Group 2011 m Movement in available-for-sale reserve At beginning of year Acquired under the INBS Transfer Order Net changes in fair value Impairment recognised in income statement Transfers to income statement Foreign exchange and other movements At end of year (190) (73) (42) 2 1 (302) (207) (113) 11 110 9 (190) 2010 m

The available-for-sale reserve consists of unrealised losses on bank securities of 105m (2010: 107m), on NAMA subordinated bonds of 162m (2010: 70m), on sovereign securities of 35m (2010: 12m), and on asset backed securities of nil (2010: 1m).

46. Non-controlling interests

The Group 2011 m 2010 m 1

Equity interests in subsidiary undertakings

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47. Income tax effects relating to comprehensive income

Before tax amount m Net actuarial losses in retirement benefit schemes Net change in cash flow hedging reserve Net change in available-for-sale reserve Foreign exchange translation (6) (26) (39) 21 (50)

The Group 2011 Tax benefit/ (expense) m Net of tax amount m (6) (26) (39) 21 (50)

The Group 2010 Before tax amount m Net actuarial losses in retirement benefit schemes Net change in cash flow hedging reserve Net change in available-for-sale reserve Foreign exchange translation (7) (53) 17 59 16 Tax benefit/ (expense) m Net of tax amount m (7) (53) 17 59 16

48. Contingent liabilities, commitments and other contingencies

Contingent liabilities Guarantees and irrevocable letters of credit Performance bonds and other transaction related contingencies Commitments Credit lines and other commitments to lend

The Group 2011 m 162 19 181 237 2010 m 175 48 223 552

The Bank 2011 m 157 17 174 237 2010 m 266 38 304 551

Regulatory reviews and enquiries In the period since December 2008, various authorities and regulatory bodies in Ireland (including the Central Bank of Ireland, the Office of the Director of Corporate Enforcement, the Chartered Accountants Regulatory Board, the Irish Auditing & Accounting Supervisory Authority, the Garda Bureau of Fraud Investigation and the Irish Stock Exchange) have initiated investigations (including criminal investigations in some cases) into certain aspects of the Banks business including certain loan and other transactions involving former Directors and certain third parties. These investigations are ongoing and it is not possible at this stage to give an indication as to whether and to what extent they will result in civil, administrative and/or criminal proceedings against the Bank, any subsidiary or any of its current or former Directors or Officers. In addition, certain correspondence has been received by the Bank and by certain former Directors of the Bank alleging an entitlement to compensation in respect of alleged wrongdoing by the Bank and/or by such former Directors. Arguments have been advanced in certain civil litigation proceedings in respect of some of the core matters which are the subject of the investigations, but to date there has been no adverse judicial determination on these matters.

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Legal claims In the normal course of the Banks business and operations, litigation arises from time to time. The Bank has a policy of active management and rigorous defence of legal claims and there are procedures in place to ensure the oversight of claims by the Risk and Compliance Committee. At 31 December 2011 the Bank is engaged in a number of ongoing legal proceedings. Other than the regulatory reviews and enquiries referred to above, the only significant additional proceedings, which are ongoing, are as follows: (i) In proceedings brought in the Commercial Court in Dublin, a number of investors in the Anglo Irish New York Hotel Fund have sought the return of their investment together with interest and costs. The Bank raised a full defence in response to these claims. The hearing of the litigation took place in February and March 2011 and on 27 July 2011 the High Court in Dublin ruled in favour of the Bank against the claims made by the investors. The litigation has now been appealed by the investors to the Supreme Court. On 2 June 2011 the arbitrator in the related New York arbitration brought by the Bank against the General Partner of the Fund, held for the Bank in ordering the removal of the General Partner of the Fund, and the arbitrator ruled against the General Partner in relation to its counterclaim. On 14 February 2011 the Bank received notice that holders of certain subordinated loan notes, having an aggregate par value of $200,000,000, filed a claim for relief seeking a restraining order and injunction against the Bank in the United States. The proceedings relate to alleged breaches of certain covenants contained in the documentation governing the loan notes in question. The Bank raised a full defence in response to the claim. On 28 November 2011 the United States District Court (Southern District of New York) dismissed the claim made by Fir Tree. The litigation has now been appealed by Fir Tree to the United States Court of Appeals for the Second Circuit. No additional information in respect of the dispute is being provided, as to do so could prejudice the position of the Group in relation to the proceedings. On 15 April 2011 Assenagon Asset Management SA issued English High Court proceedings against the Bank in connection with the purchase of subordinated bonds in the Bank due 2017 which were included in the liability management exercise carried out by the Bank in November 2010. The Bank has raised a full defence to the proceedings and a hearing is scheduled to take place in June 2012. No additional information in respect of the dispute is being provided, as to do so could prejudice the position of the Group in relation to the proceedings. On 16 May 2011, the wife and children of Sean Quinn issued Irish High Court proceedings against the Bank and a share receiver appointed by the Bank, in which declarations have been sought seeking, amongst other things, to set aside various loan agreements and security documents entered into by certain members of the Quinn family with the Bank. The proceedings, which were admitted to the Commercial List of the High Court on 30 May 2011, also include an unspecified claim for damages. The Bank intends to vigorously defend the proceedings. No additional information in respect of the dispute is being provided, as to do so could prejudice the position of the Group in relation to the proceedings.

(ii)

(iii)

(iv)

Guarantees 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 risks which are not reflected in the statement of financial position. Guarantee contracts expose the Bank to the possibility of sustaining a loss if the other party to the financial instrument fails to perform in accordance with the terms of the contract. Even though these obligations may not be recognised in the statement of financial position, they do contain risk and are therefore part of the overall risk of the Group (see note 50). In addition to the above, the Bank has given guarantees in respect of certain subsidiaries. Indemnity The TSA entered into between the Bank, AIB and AIB UK at the time of the AIB Transfer Order pursuant to which certain of the Banks deposits and assets, and the shares held by the Bank in its Isle of Man deposit taking subsidiary, Anglo Irish Bank Corporation (International) PLC (later renamed as AIB International Savings Limited) were transferred to AIB and AIB UK, contained an indemnity from the Bank in favour of AIB and AIB UK. Under that indemnity, subject to certain exclusions and to certain time-frames within which claims can be made, AIB and AIB UK may claim indemnity against the Bank for certain direct liabilities arising in connection with that part of the Banks business that transferred to them. Following the AIB Transfer Order, the AIB Group notified the Bank of a number of matters in respect of which it expects to seek indemnity under the terms of the TSA. The Bank is working with the AIB Group to establish whether those matters are within the scope of the indemnity, whether any of the limitations on, or exclusions from, liability set out in the TSA are relevant and, to the extent that they are not, what steps the AIB Group must take (such as reasonable steps to mitigate any such liability, and using reasonable endeavours to recover amounts due in respect of certain exposures) as a precursor to a successful indemnity claim. Discussions are ongoing with the AIB Group and, to date, the Bank has not made any admission of liability. In certain cases, it is not yet possible to ascertain the quantum of the direct loss that the AIB Group expects to incur in relation to particular matters or if the Bank is liable under the TSA indemnity. The AIB Group has put the Bank on notice of possible claims totalling approximately 80m, but it is not yet possible to confirm whether this is an accurate figure, or whether the Bank is, in fact, liable in respect of each of the amounts comprising that total.

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Notes to the financial statements continued

48. Contingent liabilities, commitments and other contingencies continued

NAMA The Group may be required to indemnify NAMA in respect of various matters, including NAMAs potential liability arising from any error, omission or misstatement on the part of the Group in the information provided to NAMA. Any claim by NAMA in respect of those indemnities, depending on its nature, scale and factual context, could have a material adverse effect on the Group.

49. Statement of cash flows

Other non-cash items Loans and advances written-off net of recoveries Depreciation and amortisation Net interest on subordinated liabilities and other capital instruments Net increase in prepayments and accrued income Net (decrease)/increase in accruals and deferred income Share of results of associates and joint ventures Net losses on disposal of available-for-sale financial assets

The Group 2011 m 6 23 (5) (6) (49) (15) 2 (44) 2010 m (381) 26 25 (11) 33 104 110 (94)

The Bank 2011 m 6 14 1 (7) (44) 2 (28) 2010 m (380) 15 20 (9) 33 145 (176)

Cash and cash equivalents Cash and balances with central banks Loans and advances to banks (with a maturity of less than three months) At end of year

2011 m 100 323 423

2010 m 181 1,388 1,569

2011 m 100 3,607 3,707

2010 m 181 762 943

Loans and advances to banks (with a maturity of less than three months) excludes cash collateral placed with derivative counterparties in relation to net derivative liability positions (note 22).

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50. Risk management

Since the Bank was taken into State ownership in 2009, the new management team has focussed on the stabilisation and derisking of the Bank, while maximising the recovery of outstanding loans. As set out in the Restructuring Plan, the Bank's primary strategic objective is the working out of its assets in an orderly process over time, while minimising the loss to the Irish taxpayer. A Monitoring Trustee was approved by the EC on 8 December 2011 to report on a quarterly basis for a period of three years on the Group's adherence to the commitments included in the Restructuring Plan. In this regard, the balance sheet continues to be reduced. Total assets at 31 December 2011 amount to 55.5bn, which represents a decrease of 17.4bn or 24% on a constant currency basis from the position at 31 December 2010. This sizeable reduction in total assets demonstrates the Banks commitment to deleverage the balance sheet in line with the objective of an orderly resolution over a period of up to ten years. The reduction in the Banks total exposures also means a reduction in total borrowing requirements. Overall, the deleveraging process leads to a reduction in risk exposures. However, the complex resolution process must be carefully managed and controlled in order to minimise the cost to the Bank and the Shareholder. The reduction in total exposures in the year primarily results from the transfer of NAMA senior bonds to AIB pursuant to the AIB Transfer Order and the ongoing deleveraging of the Groups loan portfolios, including the sale of US assets with a carrying value of 5.1bn. Against this, 7.4bn of assets and 6.7bn of liabilities were transferred to the Bank on 1 July 2011 under the INBS Transfer Order. At 31 December 2011 net customer lending of 18.0bn and the Government promissory notes of 29.9bn, which pay a fixed rate of interest, represent 86% of total assets. The Bank is not active in new lending or deposit markets and continues to operate independently as a regulated entity with its own Board, governance functions and group management team. The objective of this model is to minimise the risk of further losses and to concentrate expertise in managing the work-out of loans over a period of years. The merged entity is bound by the Capital Requirements Directive and thus is subject to a minimum 8% regulatory capital requirement. Following the INBS Transfer Order, the Bank has integrated the INBS business into the Groups combined risk management framework. The transferred INBS loan portfolio consisted of commercial and residential books comprising total gross loans of 1.0bn and 1.9bn respectively. Monitoring of the INBS commercial book has been incorporated into the Banks existing credit committee and loan review processes, whereas the residential book is managed and monitored separately. Management oversight and monitoring of the residential mortgage portfolio is the responsibility of the Credit and Collections Forum (CCF), which is chaired by the Group Chief Risk Officer ('CRO'). The Group is subject to a variety of risks and uncertainties as set out on pages 18 to 22. The principal risks and uncertainties identified by the Group include general macro-economic conditions, as well as specific risks. The material risks identified and managed by the Group in its day-to-day business are credit risk, liquidity and funding risk, market risk, operational risk, reputational risk, legal risk, conduct risk, governance risk and compliance and regulatory risk. In order to effectively minimise the impact of these risks, the Board of Directors ('the Board') has established a risk management framework covering accountability, measurement, reporting and management of risk throughout the Group. In accordance with the direction of the Shareholder, a key objective over the coming years is to reduce the risk profile of the business. Management recognises the importance of the support functions of Group Risk, Group Compliance and Operational Risk, and Group Finance within the Bank in assisting with this process. This note describes the risk management and control framework in place in the Bank and sets out the key risks which could impact the Banks future results and financial position. The risks discussed below should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties as there may be risks and uncertainties of which the Bank is not aware or which the Bank does not currently consider significant but which may become significant in the future. Risk oversight and corporate governance Introduction The Bank is cognisant of industry best practice in respect of risk management and internal controls, which at a minimum requires that: Banks should have an effective internal controls system and a risk management function (including a Chief Risk Officer or equivalent) with sufficient authority, stature, independence, resources and access to the Board; Risks should be identified and monitored on an ongoing firm-wide and individual entity basis, and the sophistication of the Bank's risk management and internal control infrastructures should keep pace with any changes to the Bank's risk profile (including its growth) and to the external risk landscape; Effective risk management requires robust internal communication within the Bank about risk, both across the organisation and through reporting to the Board and senior management; and The Board and senior management should effectively utilise the work conducted by the internal audit function, external auditor, and internal control functions.

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Notes to the financial statements continued

50. Risk management continued

Risk oversight and corporate governance continued The Banks approach is further influenced by the principles of the Financial Reporting Council, including their guidelines for good corporate governance, publications which focus on risk identification and reporting, and also by the standards and guidelines set out by the European Banking Authority. The Central Bank of Ireland introduced a Corporate Governance Code for Credit Institutions and Insurance Undertakings which applied from 1 January 2011. This governance code, amongst other matters, sets out the requirements for Irish credit institutions to prepare documented risk appetite statements and establish risk committees with responsibility for oversight and advice to the Board on current risk exposures of the entity and future risk strategy. A description of the Bank's corporate governance structure is set out in the Corporate governance statement on pages 25 to 29. The Banks approach to corporate governance and risk management is to ensure that there is independent checking of key decisions by management. The Bank has an established risk oversight framework to deliver on this approach. The key elements of this framework are detailed below.

Board of Directors

Audit Committee

Group Chief Executive

Risk and Compliance Committee

Group Chief Risk Officer

Group ALCO

Credit Committees

Group Risk

Group Compliance and Operational Risk

Risk and Compliance Committee The Risk and Compliance Committee's role is to oversee risk management and compliance within the Group. It reviews, on behalf of the Board, the key risks and compliance issues inherent in the business and the system of internal control necessary to manage them and presents its findings to the Board. This involves oversight of management's responsibility to assess and manage the Group's risk profile and key risk exposures covering credit, liquidity and funding, market, operational, and compliance and regulatory risks. The key responsibilities of the Committee include: Review and oversight of the risk and compliance profile of the Group within the context of the Board determined risk appetite; Making recommendations to the Board concerning the Groups risk appetite and particular risk or compliance management practices of concern to the Committee; Review and oversight of managements plans for mitigation of the material risks faced by the various business units of the Group; and Oversight of the implementation and review of risk management and internal compliance and control systems throughout the Group. The Bank's current risk appetite statement was approved by the Board on 30 November 2011. The Committee also monitors progress of the Bank's internal NAMA unit which has management responsibility in respect of NAMA asset transfers and loan management for such assets, subject to the over-riding authority of NAMA itself. The Board delegates its monitoring and control responsibilities to the Credit Committees for credit risk (including banking and counterparty credit risk) and to the Group Asset and Liability Committee ('ALCO') for market risk, and liquidity and funding risk. These Committees comprise of senior management from throughout the Group. Separate Credit Committees exist to manage credit risk in the commercial and residential mortgage portfolios of the Bank, and are supported by a dedicated Group Risk function which is headed by the CRO. All key areas of the Group contribute to and are represented on the ALCO, which is supported by Group Balance Sheet Management ('GBSM').

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The CRO reports directly to the Group Chief Executive, and also has independent access to the Risk and Compliance Committee. GBSM is responsible for the management of balance sheet risks, with particular emphasis on the Bank's current and projected liquidity, interest rate and foreign exchange risks. Balance sheet risk exposures and related issues, together with mitigation strategies, are reported to the ALCO and the Risk and Compliance Committees. GBSM is also responsible for ensuring the execution of approved strategies through the Financial Markets team. Audit Committee The Audit Committees role in the Risk Management Framework includes ensuring Group compliance with regulatory, prudential and financial reporting responsibilities. It also reports to the Board on the effectiveness of both financial and nonfinancial control processes operating throughout the Group. The Committee is supported by Group Finance and Group Internal Audit, which are central control functions independent of the business units. Group Internal Audit provides independent, objective assurance as to whether the Groups Risk Management and Control Framework is appropriate and functioning effectively. Group Risk Group Risk is responsible for developing and embedding risk policy, measurement and frameworks to ensure that risk is identified, managed and controlled across the Bank. The management of risk is a fundamental activity performed throughout the Bank, and the adequacy and effectiveness of risk management processes are important elements in achieving a successful work-out of the Banks business activities. These processes remain subject to continuous review and enhancement. Management of risk is the responsibility of staff at all levels. However, primary responsibility for managing risk and for ensuring adequate controls are in place lies with the Group Risk function. The Group Risk function is responsible for: Supporting senior management and the Board in setting the Groups risk appetite and policies; Supporting management in business decision making through independent and objective challenge to business unit management of risk and exposures in line with agreed risk appetites; Developing and communicating risk management policies, procedures, appetites and accountabilities; and Analysing, monitoring and reporting risk management information across all risk types and geographies to present an aggregated view of the Groups risk appetite to the senior management team and the Risk and Compliance Committee. During the year the Group Risk function initiated general improvements as part of an ongoing process review. Teams were reorganised, resulting in a more robust control environment. Some examples include: Formation of a Credit Underwriting Group through the merger of credit risk teams; Formation of a Risk Operating Group through centralisation of a number of teams in order to support management with the policies and processes required to execute the strategy of the Bank; Centralisation of model development into a single area of expertise; and Formation of a Quality Assurance function (initiated in 2010) which provides an objective and independent assessment of the quality of loan portfolios and the effectiveness of the credit risk management processes. Risk appetite and strategy Risk appetite can be defined as the total exposure to risk the Bank is willing to accept in pursuit of its strategic objectives. This is outlined in detail in the Bank's Risk Appetite Statement. The Bank has adopted a highly risk-averse attitude to new risk taking, consistent with its obligations to the authorities to discharge the Restructuring Plan approved on 29 June 2011 in a manner that minimises the cost to the Irish State arising from the Banks activities. The overall current risk exposure is in line with the Banks risk bearing appetite, as measured by its capacity to absorb further loss, and assuming that there is no significant deterioration in core UK and Ireland markets. Nonetheless, reduction in risk exposure will remain a priority throughout the resolution process of the Bank. Scenarios and stress testing The Group uses stress testing as an important instrument in the measurement, monitoring, management and mitigation of its individual risks as these arise. However, arising from the ongoing financial crisis and in light of significant new guidance from regulatory bodies, the Bank revised its Group-wide Stress Testing Framework in 2010. This revised framework addresses all regulatory requirements and takes cognisance of regulatory guidance and best practice where identified. The Group-wide Stress Testing Framework addresses the risks to which the Bank is exposed arising from its day-to-day operations and general business activities across the Group. Therefore, it applies to all of the Bank's business operations across all geographies and captures both on-balance sheet and off-balance sheet exposures and trading and hedging positions of the Bank.

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Notes to the financial statements continued

50. Risk management continued

Risk oversight and corporate governance continued Scenarios and stress testing continued This Group-wide stress testing analysis is referred to as cross-divisional analysis of stress testing. The purpose of this analysis is to ensure that the stress testing programme captures inter-relationships and inter-dependencies between exposures, which may only become apparent and/or more pronounced under Group-wide stressed scenarios. The Group's stress testing programme also addresses the risks that arise within a specific risk category (e.g. credit risk or market risk), with this referred to as intra-divisional risk analysis. These risks, which are associated with the normal operation of banking business, are addressed through their own separate policies and are addressed under each risk category in this note. The Group utilises a variety of modelling approaches to its stress testing programme. These mainly include the Scenario Approach and the Sensitivity Analysis Approach. Each of the modelling approaches used by the Group has its own merits and demerits; hence, the adequacy of the approaches is reviewed by the Group on a regular basis. The practical aspects of the design, implementation and reporting of the output of the stress testing programme are the responsibility of the Bank's senior management. Key risk exposures The following risks have been identified and assessed as the material risks for the Bank. These risks are subject to independent oversight and analysis by Group Risk: Credit risk; Liquidity and funding risk; Market risk; Operational risk; Reputational risk; Legal risk; Conduct risk; Governance risk; and Compliance and regulatory risk. Credit risk Definition Credit risk is defined as the risk that the Group will suffer a financial loss from a counterpartys failure to pay interest, repay capital or meet a commitment and the collateral pledged as security is insufficient to cover the payments due. The Group's credit risk arises primarily from its lending activities to customers (commercial borrowings and residential mortgages) but also from interbank lending, investment in available-for-sale debt securities and derivative transactions. Credit risk includes the following types of risk: Country risk is the risk of losses arising from economic difficulties or political unrest in a country, including the risk of losses resulting from nationalisation, expropriation and debt restructuring. Settlement risk is the risk of loss when payments are settled e.g. payments for foreign currency transactions and the purchase or sale of debt securities. Objective Credit risk continues to be the Banks dominant risk exposure due to the challenging operating environment. The loan portfolio is the most significant source of credit risk within the Bank. Due to the changed focus of the Banks activities, it no longer engages in any new business which could increase the current credit risk profile, and is required to manage the existing loan book in accordance with the provisions of the approved Restructuring Plan. In order to continue to reduce the amount at risk, the Bank will continue with its programmes of loan collections, restructuring and sales. Gross loans have reduced by 29% (excluding INBS additions) in the year and amounted to 29.1bn at 31 December 2011. Policy The Group's policy on credit risk is set out in a detailed Group Credit Policy (the 'Credit Policy') which is approved by the Board following recommendation by the Risk and Compliance Committee. It has been framed in the context of the Bank's present position in terms of ownership, State guarantees and short/medium term strategy. It is also consistent with the Bank's Risk Appetite statement. The Credit Policy forms the core of the Banks credit risk ethos and represents a comprehensive guide to policies and underwriting criteria which govern the way in which the Bank conducts its credit business with a focus on recovery management.

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The Credit Policy also: Sets out the process surrounding credit approval; Outlines the manner in which credit risk is managed; and Sets out the context for the Bank's business and how the Bank strives to reduce risk. Strategies and processes - Commercial lending Consistency of approach to credit risk across the Group in relation to commercial lending is ensured through the implementation of the Credit Policy and presence of key personnel at all Credit Committee meetings. The Credit Committee is the most senior forum for approving credit exposures and consensus is required before authorising a credit exposure, with each individual credit application approved by a valid quorum composed of business and risk management officers. With regard to the Banks transaction approval and review processes, the Credit Risk team, in conjunction with the Quality Assurance team, within Group Risk oversees the Credit Committee meetings and periodic loan reviews. Furthermore, to monitor the ongoing quality of the loan book, the Credit Risk team undertakes frequent asset quality reviews on significant exposures. The independent credit teams within Group Risk monitor any treasury counterparty exposures which have materially deteriorated in credit quality since approval. Such exposures are reported to the Credit Committee on a regular basis, where an action plan for each case is agreed. This may involve cancelling limits or actively managing down or selling an exposure. To support commercial customers that encounter financial difficulties the Bank has a dedicated unit, Recovery Management Ireland (RMI), which is responsible for the ongoing assessment and management of certain impaired exposures principally Irish impaired loans. The RMI is target driven, with the expressed objective of maximising loan recovery. The unit maintains its focus through a systematic loan management process that formulates work plans to achieve timely resolution, and its senior management team is actively involved in all stages of the process to ensure that the agreed plans for resolution are achieved within agreed timeframes. A number of potential strategies exist through which the Group can maximise recovery of commercial exposures that are experiencing financial stress or are impaired. The Group would consider any of these relief options, or a combination thereof, after a thorough review of the underlying business performance of the relevant borrower. These strategies include temporary covenant relief or amendment of covenants in exchange for revised contractual terms, variation in margin accompanied by renegotiated facility exit fees, or loan rescheduling to facilitate customer liquidity or refinancing restraints. In addition, lending terms could also be renegotiated to result in a partial or total exchange of debt for equity, or other benefit sharing arrangements. This may occur in circumstances where a viable business exists and projected cash flows from operational activities have been assessed to be sufficient to service the revised facility, supported in some cases by the introduction of additional capital into the business, or an increase in the collateral provided by the customer. This option is only utilised when maintaining the customers business as a going concern with a manageable level of debt would realise more value for the Group than disposal of the underlying assets. In all cases, the Group considers the net present value of alternative recovery strategies in order to maximise the amount recoverable on a loan. Strategies and processes - Residential lending Since the transfer of the residential mortgage portfolio from INBS into the Bank, oversight and monitoring have been undertaken by the CCF. The Banks aim in relation to this portfolio is to manage the underlying exposures through their remaining lifetimes, while assisting customers who experience financial difficulties with measures to ensure the most appropriate outcome for both the Bank and the customer. The Banks Collections and Recoveries Unit ('CRU') for residential mortgages aims to provide a responsive and effective operation for the end to end arrears management process. This encompasses an early communication with those borrowers identified as experiencing difficulty with their normal payment terms, obtaining their commitment to maintain payment obligations and re-establishing a regular payment history. The management of arrears includes several activities ranging from, but not limited to, establishing repayment plans (including appropriate forbearance), voluntary sale or surrender of the mortgaged property, taking possession and selling mortgaged properties, and ultimately, the closure of customers accounts, following an agreed settlement arrangement for any deficit on the mortgage. All requests for alternative repayment arrangements by borrowers are assessed in accordance with the Banks Recovery Management Policy. Separate procedures are in place for owner occupier and buy to let borrowers. The CRU Underwriting Unit considers all applications, with those meeting qualifying criteria sanctioned by an approved panel acting under a delegated authority, and those falling outside qualifying criteria but which are accepted for individual underwriting sanctioned by Credit Committee. The Recovery Management Policy is subject to annual review.

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Notes to the financial statements continued

50. Risk management continued

Credit risk continued Strategies and processes - Residential lending continued Support for those residential mortgage borrowers who are experiencing financial difficulties with their scheduled residential mortgage repayments are managed within the Arrears Support Unit, which is part of CRU. Forbearance options for these customers are considered on a case-by-case basis and are consistent with industry guidance and practice. These options include arrears capitalisation, interest only concession, less than interest only concession, greater than interest only concession, a payment holiday, term extension for lending secured on property, or a hybrid of these measures. In the normal course of business, a payment holiday is not offered as an option. All account management and forbearance options across the secured residential mortgage portfolio are fully recognised within the Banks impairment assessment process. Residential mortgages restructured onto a short term forbearance arrangement are treated as impaired where the present value of future cash flows are less than the outstanding loan balance. Monitoring of the arrears profile within the portfolio is overseen by the CCF. At all times the Bank complies with the Central Bank of Irelands statutory codes of conduct for mortgage lenders when dealing with mortgage arrears. Reporting and measurement systems Credit risk relating to the commercial loan book is identified and assessed using a combination of top-down and bottom-up risk assessment processes on a portfolio-wide basis. Top-down processes focus on broad risk types and common risk drivers, rather than specific individual risk events, and adopt a forward-looking view of perceived threats. Bottom-up risk assessment is performed on a loan-by-loan basis, focusing on risk events that have been identified through specific qualitative or quantitative measurement tools. In line with the Credit Policy, the Credit Risk team is taking steps to reduce concentration risk related to single counterparties and/or groups of closely related counterparties. The top exposures are reported on a monthly basis to senior management and the Risk and Compliance Committee. The performance of individual facilities is closely monitored by Credit Risk on an ongoing basis, which maintains a list of lower quality cases. These cases, while considered lower quality, are not impaired but require increased management attention to prevent any further deterioration in asset quality. Credit Risk also maintains a list of satisfactory cases for exposures that continue to represent satisfactory quality loans but which are subject to closer monitoring. Credit risk relating to the residential mortgage book is identified and assessed using a combination of published economic indicators and individual case assessment processes on a portfolio-wide basis. Behavioural scoring models are not deployed. Ongoing monitoring of the residential mortgage portfolio is undertaken by Group Risk, with monthly reporting to the CCF and the Risk and Compliance Committee. Specific provisions in both the commercial and residential mortgage loan books are created where one or more loss events or impairment triggers have been recognised and as a result a shortfall is expected between the Groups exposure and the estimated recoverable amount. The recoverable amount is calculated by discounting the value of expected future cash flows by the exposures original effective interest rate. An additional incurred but not reported ('IBNR') collective provision is created to cover losses inherent in both the commercial and residential mortgage loan books. This provision takes account of observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of loans with similar credit risk characteristics, although the decrease cannot yet be identified within the individual loans in the group. This provision is calculated by applying incurred loss factors to groups of loans sharing common risk characteristics. Loss factors are determined by historical loan loss experience as adjusted for current observable market data. Adjustments reflect the impact of current conditions that did not affect the years on which the historical loss experience is based and remove the effects of conditions in the historical period that do not exist currently. The provision amount is also adjusted to reflect the appropriate loss emergence period. The loss emergence period represents the time it takes following a specific loss event on an individual loan for that loan to be identified as impaired. The loss emergence period applied in the period was six months (2010: six months). Renegotiated loans are those facilities that, during the financial period, have had their terms renegotiated resulting in an upgrade from impaired to performing status. This upgrade can be based on, among other things, subsequent good performance or an improvement in the credit profile of the borrower. Renegotiated loans and advances were 120m as at 31 December 2011 (2010: 28m).

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Where a facility has been moved to the impaired list and subsequently there is objective evidence of such improvement in the fundamentals of the loan facility that it is the view of the lending team that it should return to unimpaired status, then this recommendation must be made to Credit Risk accompanied by a detailed assessment of the rationale for its designation as unimpaired. A facility can only be restored to unimpaired status when the contractual amount of both the principal and interest can be fully collected in accordance with the terms of the facility agreement. The Groups decision to restore a facilitys unimpaired status is supported by objective evidence consisting of an up to date documented credit evaluation of the borrowers financial position and other factors affecting the prospects for repayment. The Bank works with its borrowers on a case by case basis and any agreed restructuring of borrowers' obligations are designed to ensure the best outcome for the Shareholder. Loans are only written off, either partially or in full, when there is no realistic prospect of further recovery. For secured loans, write off generally occurs after the final receipt of all proceeds from the realisation of security and guarantees. A write-off will often be prompted by a specific event, such as the inception of insolvency proceedings, which makes it possible to determine that some or all of the debt is beyond recovery although this may involve some element of subjective judgement. Any restructuring of debt, including the write-off of facilities, is subject to an established governance process. The Group uses external ratings and market information, supplemented by internal analysis, to assess the risks associated with treasury assets. Impairment is monitored continually and recognised when there is objective evidence that a specific financial asset is impaired. A range of factors are used in recognition of impairment, which can vary depending on the nature of the underlying assets or collateral but will typically include a significant or prolonged decline in the fair value of the security, the level of over-collateralisation, and adverse credit ratings action. Counterparty credit exposure arising from derivative transactions is calculated based on replacement cost methodology involving the current contract value (marked to market) and an estimate of the maximum cost of rewriting the contract within certain confidence levels. Risk mitigation The Bank employs a range of techniques and strategies to mitigate credit risk including obtaining collateral, applying netting and set-off. Collateral The acceptance of both financial and non-financial collateral is central to the risk mitigation and underwriting policies of the Group. The nature of the collateral held will reflect the transaction being underwritten. Loans and advances to customers are collateralised principally by charges over real estate assets, business assets and liens on cash deposits, and are supplemented by personal guarantees. In the case of clients with more than one transaction, the Bank seeks to cross-collateralise security to strengthen repayment cover. Over the course of 2011 the Bank has undertaken a comprehensive review of all principal collateral. Due to the continued dislocation in property markets and the lack of transactional activity over the period, it is impracticable for the Bank to obtain reliable market values for individual collateral held against some past due or impaired financial assets as at 31 December 2011. However, the significant declines since the market peak in the value of Irish commercial property, as reflected in certain market indices, would appear to be a fair indicator of the scale of the decline in collateral values. Ireland, which represents the majority of impaired and past due loan balances, experienced the most significant drop in valuations compared with price declines in the UK and US markets. In the UK the overall macro environment remains weak and government spending cuts are starting to have an impact across most sectors of the economy. Within the commercial real estate market, prices for prime properties in excellent locations have stabilised. However, secondary and tertiary property market conditions weakened significantly, particularly over the second half of 2011, with rents decreasing and an increase in vacancy rates, which has resulted in a fall in asset values. It continues to be difficult to obtain fully reliable fair value estimates given the illiquid and depressed nature of certain market segments. During the year the Group repossessed collateral, consisting of land and property, equities and cash, of 40m on balances of 91m (2010: 52m on balances of 350m). It is the Groups policy to dispose of repossessed assets in an orderly fashion. The proceeds are used to reduce or repay the outstanding balance. The Group does not use repossessed assets for business purposes. The Banks main source of collateral and means of mitigating credit risk inherent in its residential mortgage portfolio is to hold security, principally a first legal charge, over the underlying residential property. Historically, mortgage lending activities were supported by a valuation using an independent firm of valuers, which is subsequently indexed as required based on published market statistics. All residential property must be insured to cover property risks. The Group has executed Collateral Support Agreements ('CSAs') with its principal interbank derivatives counterparties. Under the terms of a CSA, if the aggregate market value of a set of derivative contracts between two parties exceeds an agreed threshold amount, the party which would be exposed to loss in the event of default receives a deposit of cash equal to the excess aggregate value over the threshold. Under certain CSAs, the Group has posted initial amounts, the effect of which for the counterparty is over collateralising its exposure. The Group has additional credit risk on the initial amounts and could suffer financial loss in the event of a counterparty default.

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Notes to the financial statements continued

50. Risk management continued

Credit risk continued Netting arrangements The Group has entered into master netting agreements with counterparties with which it undertakes a significant amount of transactions, primarily in the interbank markets for derivative instruments. As these transactions usually settle on a gross basis, the ability to settle on a net basis in the event of a default substantially reduces the overall credit risk. Netting of debtor and creditor balances will be undertaken in accordance with relevant regulatory and internal policies. Settlement risk Settlement risk on many transactions, particularly those involving securities, is substantially mitigated when effected via assured payment systems or on a delivery-versus-payment basis. Each counterparty's credit profile is assessed and clearing agents, correspondent banks and custodians are selected with a view to minimising settlement risk. The most significant portion of the Groups settlement risk exposure arises from foreign exchange transactions. Daily settlement limits are established for each counterparty to cover the aggregate of all settlement risk arising from foreign exchange transactions on a single day. For the majority of the Group's interbank counterparties, settlement risk is reduced through the use of Continuous Linked Settlement ('CLS'). CLS is a real-time, global settlement system which minimises settlement risk and is operated by CLS Bank, which is supervised and regulated by the US Federal Reserve. Maximum exposure to credit risk The following table presents the Group's maximum exposure to credit risk before collateral or other credit enhancements. Included below are contingent liabilities and commitments to lend, which are not recognised in the consolidated statement of financial position. The Group 2011 m Exposures in the consolidated statement of financial position Cash and balances with central banks Financial assets at fair value through profit or loss - held on own account * Derivative financial instruments Loans and advances to banks Assets classified as held for sale Available-for-sale financial assets * Promissory notes Government debt securities at amortised cost Loans and advances to customers Exposures not recognised in the consolidated statement of financial position Contingent liabilities Commitments to lend Maximum exposure to credit risk * Excludes equity shares Where financial instruments are recorded at fair value, the amounts shown above represent the credit risk exposure as at year end but not the maximum risk exposure that could arise as a result of changes in fair value. In addition to the above, other assets at 31 December 2010 includes financial assets of 67m which settled in early January 2011. Loans and advances to customers and assets classified as held for sale include 724m (2010: 749m) and 14m (2010: 15m) respectively lent to fund assets held by the Group's assurance business in respect of liabilities to customers under investment contracts (note 40) as the Group is exposed to credit risk in respect of this lending. Assets classified as held for sale exclude investment property of 109m (2010: nil) and property, plant and equipment of 21m (2010: nil). 181 237 54,817 223 552 71,718 100 1,096 2,301 276 1,332 29,934 947 18,413 181 1,936 3,512 1,655 2,219 25,704 10,623 25,113 2010 m

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Loans and advances to banks exclude 5m (2010: 13m) advanced on behalf of policyholders under investment contracts (note 40) as the Group is not exposed to credit risk in respect of these advances. Contingent liabilities include 162m (2010: 175m) in respect of financial guarantees and irrevocable letters of credit. Large exposures The top 20 customer groups (as reported to the Central Bank of Ireland), excluding loans classified as held for sale, represent 9.6bn or 33% (2010: 9.1bn or 26%) of the Group's total loans and advances to customers before provisions for impairment. Total specific impairment provisions on these customer groups amount to 3.2bn (2010: 3.1bn). Of the top 20 customer groups, one group accounts for 10% (2010: 8%) of total loans and advances to customers. At 31 December 2011 the Group held Irish Government notes and bonds with a total carrying value of 30.2bn (2010: 26.0bn). In addition, at 31 December 2011 the Group held NAMA senior bonds with a carrying value of 0.9bn (2010: 10.6bn) which are guaranteed by the Irish Government. At 31 December 2011 Ireland's Standard & Poor's credit rating was BBB+. Exposures to eurozone countries Fiscal imbalances in some eurozone countries resulted in credit rating downgrades and raised market concerns about sovereign risk in these countries during 2011. Credit spreads for the affected sovereign and bank credit markets remained volatile during the year. The table below summaries the Groups exposure to available-for-sale financial assets issued by governments of selected eurozone countries and banks domiciled in those countries. It reflects the close management of the Group's sovereign debt during the year, in line with the continuing wind-down of the treasury assets portfolio. 2011 NAMA Financial Subordinated Institutions Bonds m m 25 101 35 485 36 7 16 48 753 124 124

Sovereign m Belgium Finland France Germany Ireland Italy Netherlands Portugal Spain Total 5 16 20 303 10 354

Total m 25 5 117 55 912 36 17 16 48 1,231

2010 NAMA Financial Subordinated Institutions Bonds m m 55 132 273 514 44 78 21 101 1,218 167 167

Sovereign m Belgium France Germany Ireland Italy Netherlands Portugal Spain Total 16 92 278 11 397

Total m 55 148 365 959 44 89 21 101 1,782

Group Risk monitors country risk exposures, taking into consideration independent credit information from well established international sources.

111

Notes to the financial statements continued

50. Risk management continued

Credit risk continued Lending asset quality Credit risk arises primarily on loans and advances to customers and loans classified as held for sale. At 31 December 2011 loans and advances to customers were 28,028m (2010: 33,941m) before provisions for impairment of 10,339m (2010: 9,577m) and loans classified as held for sale were 365m (2010: 2,188m) before provisions for impairment of 103m (2010: 565m). The Group monitors lending asset quality, including on loans classified as held for sale, on an ongoing basis using the rating categories outlined below. These ratings provide a common and consistent framework for aggregating and comparing exposures across all the commercial and residential mortgage lending portfolios. Good quality Good quality ratings apply to exposures that are performing as expected and are of sound financial standing. These exposures are considered low to moderate risk. Satisfactory quality This rating applies to exposures that continue to perform satisfactorily, but are subject to closer monitoring. Lower quality but not past due or impaired This rating applies to exposures that require increased management attention to prevent any deterioration in asset quality. No evidence of specific impairment exists. Past due but not impaired These are loans and receivables where contractual interest or principal payments are one day or more past due. As at the end of the reporting period there is no objective evidence of impairment due to the level of collateral and/or personal recourse available to the Group. Impaired loans Loans are classified as impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the loan. The loan is impaired if that loss event (or events) has had an impact such that the estimated present value of future cash flows is less than the current carrying value and can be reliably measured.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Loans and advances to customers Asset quality - profile of loans and advances to customers The Group 2011 Commercial m Good quality Satisfactory quality Lower quality but not past due or impaired Total neither past due or impaired Past due but not impaired Impaired loans Provisions for impairment Less: Lending to policyholders in respect of investment contracts (note 40) Total Provisions for impairment on loans and advances to customers Commercial m At beginning of year Acquired under the INBS Transfer Order Charge against profits Write-offs Recoveries Unwind of discount Exchange movements Net transfers (to)/from assets classified as held for sale and sectoral reclassification At end of year Specific Collective Total 5,702 164 1,125 (169) 1 (142) 21 Residential m 692 50 100 (23) (12) (16) The Group 2011 Business Banking m 1,865 169 (159) 5 (14) 28 Residential Mortgages m 421 80 (9) Other Lending m 1,318 32 36 (10) 22 Total m 9,577 667 1,510 (351) 6 (187) 55 (724) 17,689 2,751 7 2,968 5,726 1,916 11,869 19,511 (5,960) 13,551 Residential m 186 8 50 244 382 899 1,525 (647) 878 Business Banking m 344 72 385 801 165 2,174 3,140 (1,872) 1,268 Residential Mortgages m 637 150 38 825 245 803 1,873 (496) 1,377 Other Lending m 479 3 169 651 315 1,737 2,703 (1,364) 1,339 Total m 4,397 240 3,610 8,247 3,023 17,482 28,752 (10,339) 18,413

(742) 5,960 5,532 428 5,960

(144) 647 608 39 647

(22) 1,872 1,777 95 1,872

4 496 361 135 496

(34) 1,364 1,288 76 1,364

(938) 10,339 9,566 773 10,339

The charge against profits includes collective provisions for impairment analysed on a portfolio basis. Residential lending comprises residential development and residential investment, and incorporates large value development and investment transactions. Residential mortgages consists of the portfolio of residential loans transferred to the Bank on 1 July 2011 under the INBS Transfer Order and incorporates owner occupier and buy to let mortgages. Other lending includes 18m of loans advanced for the purchase of the borrower's principal private residence.

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Notes to the financial statements continued

50. Risk management continued

Credit risk continued Asset quality - profile of loans and advances to customers continued

The Group 2010 Commercial m Good quality Satisfactory quality Lower quality but not past due or impaired Total neither past due or impaired Past due but not impaired Impaired loans Provisions for impairment Less: Lending to policyholders in respect of investment contracts (note 40) Total (749) 24,364 6,183 911 3,850 10,944 3,363 11,145 25,452 (5,702) 19,750 Residential m 447 35 365 847 384 1,515 2,746 (692) 2,054 Business Banking m 445 79 73 597 417 2,438 3,452 (1,865) 1,587 Other Lending m 292 10 40 342 1,232 1,466 3,040 (1,318) 1,722 Total m 7,367 1,035 4,328 12,730 5,396 16,564 34,690 (9,577) 25,113

Provisions for impairment on loans and advances to customers Commercial m At beginning of year Charge against profits Write-offs Recoveries Unwind of discount Exchange movements Net transfers from/(to) assets classified as held for sale and sectoral reclassification At end of year Specific Collective Total 2,862 2,634 (156) 1 (119) 33 Residential m 315 309 (10) (18) (26)

The Group 2010 Business Banking m 743 1,647 (193) (24) 28 Other Lending m 926 387 (4) (7) 64 Total m 4,846 4,977 (363) 1 (168) 99

447 5,702 4,979 723 5,702

122 692 623 69 692

(336) 1,865 1,694 171 1,865

(48) 1,318 1,045 273 1,318

185 9,577 8,341 1,236 9,577

The charge against profits includes collective provisions for impairment analysed on a portfolio basis.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Aged analysis of loans and advances to customers past due but not impaired The following tables present an analysis of loans and advances to customers where contractual interest or principal payments are past due but impairment is not appropriate as the level of collateral and the present value of estimated future cash flows available to the Group is sufficient. The Group 2011 Commercial m Past due 1 to 30 days Past due 31 to 60 days Past due 61 to 90 days Past due 91 days and over Total 424 23 66 1,403 1,916 Residential m 18 36 1 327 382 Business Banking m 74 36 55 165 Residential Mortgages m 49 25 75 96 245 Other Lending m 33 11 2 269 315 Total m 598 95 180 2,150 3,023

The Group 2010 Commercial m Past due 1 to 30 days Past due 31 to 60 days Past due 61 to 90 days Past due 91 days and over Total 1,162 502 329 1,370 3,363 Residential m 129 4 18 233 384 Business Banking m 287 1 4 125 417 Other Lending m 57 7 26 1,142 1,232 Total m 1,635 514 377 2,870 5,396

The ageing of past due balances has continued to deteriorate during the period. Key contributing factors include the continued difficult macroeconomic environment and a tightening of the Bank's credit policy in relation to facilities at renewal date, particularly on those facilities where interest was being capitalised on customer loan balances.

115

Notes to the financial statements continued

50. Risk management continued

Credit risk continued Gross loans and advances to customers by geographical location and industry sector 2011 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Residential owner occupier Residential buy to let Personal Fund investment Unzoned land Total loans and advances to customers 3,239 3,047 708 242 2,305 187 895 493 391 3,105 1,440 433 2,290 351 31 19,157 United Kingdom m 2,126 1,279 795 485 3,345 226 122 415 122 35 23 1 3 8,977 USA m 239 184 87 104 4 618 Total m 5,604 4,510 1,590 727 5,650 413 1,017 1,012 513 3,140 1,440 433 2,317 352 34 28,752

% 19% 16% 6% 3% 20% 1% 3% 3% 2% 11% 5% 2% 8% 1% 0% 100%

2010 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Personal Fund investment Unzoned land Total loans and advances to customers 2,260 2,554 654 259 2,166 311 919 447 380 3,394 2,433 390 31 16,198 United Kingdom m 2,425 1,978 1,116 575 3,502 257 168 474 160 51 137 3 3 10,849 USA m 1,491 2,192 469 548 1,080 480 48 1,166 119 7 43 7,643 Total m 6,176 6,724 2,239 1,382 6,748 1,048 1,135 2,087 659 3,452 2,613 393 34 34,690

% 18% 19% 7% 4% 19% 3% 3% 6% 2% 10% 8% 1% 0% 100%

Geographical location is based on the location of the office recording the transaction. The relative exposure to the UK leisure sector increased during the year as the loan book continues to decrease. This concentration risk is subject to ongoing focus and a number of initiatives on specific cases are ongoing, which should result in a reduction in overall exposure in 2012. Total loans and advances to customers are stated gross of provisions and include 724m (2010: 749m) lent to fund assets held by the Group's assurance business in respect of liabilities to customers under investment contracts (note 40).

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Specific provisions against loans and advances to customers by geographical location and industry sector 2011 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Residential owner occupier Residential buy to let Personal Fund investment Unzoned land Total specific provisions on loans and advances to customers 966 647 254 123 1,044 175 718 185 309 1,767 206 155 1,157 96 24 7,826 United Kingdom m 389 276 122 101 553 142 4 24 88 10 5 1 2 1,717 USA m 18 2 3 23 Total m 1,373 923 376 224 1,597 317 722 211 397 1,777 206 155 1,165 97 26 9,566

% 14% 10% 4% 2% 17% 3% 8% 2% 4% 19% 2% 2% 12% 1% 0% 100%

2010 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Personal Fund investment Unzoned land Total specific provisions on loans and advances to customers 504 433 146 89 899 210 683 115 232 1,693 914 87 20 6,025 United Kingdom m 258 166 94 86 308 122 2 19 102 1 3 1 2 1,164 USA m 100 262 97 60 359 100 1 136 19 18 1,152 Total m 862 861 337 235 1,566 432 686 270 353 1,694 935 88 22 8,341

% 11% 11% 4% 3% 19% 5% 8% 3% 4% 20% 11% 1% 0% 100%

Geographical location is based on the location of the office recording the transaction.

117

Notes to the financial statements continued

50. Risk management continued

Credit risk continued Loans classified as held for sale Asset quality - profile of loans classified as held for sale The Group 2011 Commercial m Good quality Satisfactory quality Lower quality but not past due or impaired Total neither past due or impaired Past due but not impaired Impaired loans Provisions for impairment Less: Lending to policyholders in respect of investment contracts (note 40) Total (14) 262 7 65 72 31 83 186 (83) 103 Residential m 193 193 (20) 173 Business Banking m Residential Mortgages m Other Lending m Total m 7 65 72 31 276 379 (103) 276

Provisions for impairment on loans classified as held for sale Commercial m At beginning of year Acquired under the INBS Transfer Order Charge against profits Write-offs Unwind of discount Exchange movements Net transfers from/(to) loans and advances to customers and sectoral reclassification Net release on disposal of assets to NAMA (note 14) Release on loan asset sales (note 15) At end of year Specific Total 392 73 9 (49) (9) 18 Residential m 127 163 18 (7) (6) 4

The Group 2011 Business Banking m 4 Residential Mortgages m 4 Other Lending m 46 96 3 (1) (1) Total m 565 336 34 (56) (16) 21

742 (80) (1,013) 83 83 83

144 (174) (249) 20 20 20

22 (4) (22) -

(4) -

34 (129) (48) -

938 (387) (1,332) 103 103 103

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

The Group 2010 Commercial m Good quality Satisfactory quality Lower quality but not past due or impaired Total neither past due or impaired Past due but not impaired Impaired loans Provisions for impairment Less: Lending to policyholders in respect of investment contracts (note 40) Total (15) 1,623 186 392 578 434 688 1,700 (392) 1,308 Residential m 72 58 130 43 237 410 (127) 283 Business Banking m 3 3 3 Other Lending m 2 2 34 54 90 (46) 44 Total m 260 450 710 514 979 2,203 (565) 1,638

Provisions for impairment on loans classified as held for sale Commercial m At beginning of year Charge against profits Write-offs Unwind of discount Exchange movements Net transfers (to)/from loans and advances to customers and sectoral reclassification Released on disposal of assets to NAMA (note 14) At end of year Specific Total 5,841 1,664 (8) (150) 30 Residential m 2,814 665 (11) (75) 21

The Group 2010 Business Banking m 180 11 (2) 9 Other Lending m 1,285 343 (18) 9 Total m 10,120 2,683 (19) (245) 69

(130) (6,855) 392 392 392

(95) (3,192) 127 127 127

(22) (176) -

62 (1,635) 46 46 46

(185) (11,858) 565 565 565

119

Notes to the financial statements continued

50. Risk management continued

Credit risk continued Aged analysis of loans classified as held for sale past due but not impaired The following tables present an analysis of loans classified as held for sale where contractual interest or principal payments are past due but impairment is not appropriate as the level of collateral and the present value of estimated future cash flows available to the Group is sufficient. The Group 2011 Commercial m Past due 1 to 30 days Past due 31 to 60 days Past due 61 to 90 days Past due 91 days and over Total 31 31 Residential m Business Banking m Residential Mortgages m Other Lending m Total m 31 31

The Group 2010 Commercial m Past due 1 to 30 days Past due 31 to 60 days Past due 61 to 90 days Past due 91 days and over Total 10 18 88 318 434 Residential m 20 23 43 Business Banking m 3 3 Other Lending m 34 34 Total m 33 18 88 375 514

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Gross loans classified as held for sale by geographical location and industry sector 2011 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Residential owner occupier Residential buy to let Personal Fund investment Unzoned land Total loans classified as held for sale 11 11 2 72 6 102 United Kingdom m USA m 65 5 14 169 24 277 Total m 11 76 7 14 72 6 169 24 379

% 3% 20% 2% 4% 19% 2% 0% 44% 6% 0% 0% 0% 0% 0% 0% 100%

2010 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Personal Fund investment Unzoned land Total loans classified as held for sale 345 127 33 148 13 19 46 39 3 78 11 862 United Kingdom m 287 59 61 34 107 26 43 1 618 USA m 26 80 8 44 309 169 87 723 Total m 658 186 174 42 192 429 19 241 169 3 79 11 2,203

% 30% 8% 8% 2% 9% 19% 1% 11% 8% 0% 4% 0% 0% 100%

Geographical location is based on the location of the office recording the transaction. Total loans classified as held for sale are stated gross of provisions and include 14m (2010: 15m) lent to fund assets held by the Group's assurance business in respect of liabilities to customers under investment contracts (note 40).

121

Notes to the financial statements continued

50. Risk management continued

Credit risk continued Specific provisions against loans classified as held for sale by geographical location and industry sector 2011 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Residential owner occupier Residential buy to let Personal Fund investment Unzoned land Total specific provisions on loans classified as held for sale 72 6 78 United Kingdom m USA m 5 20 25 Total m 5 72 6 20 103

% 0% 0% 5% 0% 70% 6% 0% 19% 0% 0% 0% 0% 0% 0% 0% 100%

2010 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Personal Fund investment Unzoned land Total specific provisions on loans classified as held for sale 75 11 23 46 155 United Kingdom m 12 9 16 24 61 USA m 15 58 6 28 138 47 57 349 Total m 27 9 74 6 103 173 47 80 46 565

% 5% 2% 13% 1% 18% 31% 0% 8% 14% 0% 8% 0% 0% 100%

Geographical location is based on the location of the office recording the transaction.

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Parent Bank credit risk Additional information on the parent Bank's credit risk is contained in note 55. Liquidity and funding risk Definition Liquidity and funding risk is the risk that the Group does not have sufficient financial resources available at all times to meet its contractual and contingent cash flow obligations or can only secure these resources at excessive cost. Objective The current objective for the management of liquidity and funding risk is to continue to meet cash flow obligations as they fall due and minimise the funding required from the Bank's stakeholders. The future funding and liquidity strategy and balance sheet structure will be largely reliant on the Bank's stakeholders and the relevant authorities. On 24 February 2011, under the AIB Transfer Order, the majority of the Irish and UK customer accounts, including those held in the Bank's Isle of Man subsidiary, and 12.2bn nominal of NAMA senior bonds were transferred by the Bank to AIB and AIB UK (note 13). Certain customer accounts were retained, including those linked to customer loans, structured deposit-linked products and those accounts denominated in minor currencies. In total 8.3bn (Ireland and UK: 6.9bn; Isle of Man: 1.4bn) of customer accounts were transferred. At 31 December 2011 the remaining customer deposits of 0.6bn represent only 1% of total funding and are subject to the commitments that the State made to the EC in relation to the State aid provided to the Group. A Monitoring Trustee was approved by the EC on 8 December 2011 to report on a quarterly basis for a period of three years on the Group's adherence to these Restructuring Plan commitments. The Group currently borrows from central banks through both open market operations with monetary authorities and through special funding facilities with the Central Bank of Ireland (note 37). The Group has total borrowings from central banks at 31 December 2011 of 42.2bn (2010: 45.0bn), including 40.1bn (2010: 28.1bn) borrowed through special funding facilities provided by the Central Bank of Ireland. Structural foreign exchange risk principally arises from the funding shortfall between the Group's sterling and US dollar lending activities and the Group's funding in those currencies. The US loan sale reduced the US dollar funding requirement, although there remains a requirement to fund sterling loans through foreign exchange markets. The long term foreign exchange swap agreements executed with the NTMA have led to a significant improvement in the Group's foreign exchange funding. These transactions provide US dollar and sterling funding in exchange for euros and reduce the requirement to source foreign currency in the interbank or wholesale foreign exchange markets. In November 2010 the Minister for Finance put in place a guarantee for the Bank which covered amounts payable in relation to derivative and certain other interbank transactions. In accordance with the terms of this guarantee, the Bank may only enter into derivative transactions for balance sheet management purposes. There is no fee payable for this guarantee. In the context of liquidity and funding risk the Bank actively monitors compliance with the contractual covenants contained in the Groups debt securities programmes and subordinated capital instruments. Significantly, CISA includes important provisions that are designed to prevent a potential event of default becoming applicable because of an order or requirement made under CISA or anything done on foot of such an order or requirement. Liquidity and funding risk is monitored centrally by ALCO, whose responsibilities in relation to liquidity include, but are not limited to: Providing the Board and relevant Board Committees with regular liquidity updates; Setting liquidity risk strategy for the Group; Setting liquidity risk appetite for the Group; Approving and maintaining Group funding and liquidity policy; Approving and maintaining the Group contingency funding plan; Maintaining internal and external liquidity risk limits; and Liquidity stress testing and scenario analysis.

123

Notes to the financial statements continued

50. Risk management continued

Liquidity and funding risk continued Policies The Group Liquidity Policy details the Banks risk policy relating to all funding and liquidity matters. The policy document articulates the Risk Appetite as set and approved by the Board and how ALCO manages this within the agreed parameters. The policy document formally describes the liquidity governance structure and control framework to monitor and control liquidity risk within the Group. The Group Liquidity Policy is monitored by Group Risk but owned by ALCO which has delegated responsibility for liquidity management from the Board. Strategies and processes ALCO is responsible for structural liquidity risk management and provides regular formal updates to the Risk and Compliance Committee and the Board. Operational liquidity risk is short term liquidity risk, ranging from intra-day to one month. Execution of the Group's short term operational liquidity strategy and cash flow management on a daily and real time intra-day basis is the responsibility of the Financial Markets team, operating within policy set by ALCO. Structural liquidity risk is managed under the guidelines set out in the Group Liquidity Policy. GBSM and Group Risk provide updates to ALCO on the structural liquidity and funding position both on a current and forward looking basis. The structural liquidity risk has been materially altered by the deposit transfer transaction in February 2011 and the US dollar/euro foreign exchange swap agreements. The deposit transfer has significantly reduced the amount of customer deposit liabilities and reduced the amount of NAMA bonds on the Bank's balance sheet. This has led to an increase in the nominal amount of, and the future reliance on, liquidity assistance from the Central Bank of Ireland. The INBS merger on 1 July 2011 increased this liquidity assistance by 6bn. Reporting and measurement systems Liquidity risk is measured using the cash flow mismatch approach where cash inflows and outflows are analysed to produce a net cash flow position over set time periods. Cash outflows are assumed to be paid at the earliest time period and cash inflows to be received at the latest potential time period. Separate liquidity cash flow limits are in place for the management of liquidity in non-euro currencies ensuring foreign currency cash flow exposure is managed within approved risk tolerance limits. Contractual undiscounted cash flows The following tables present the cash flows payable by the Group under financial liabilities, and under contingent liabilities and commitments which are not recognised in the statement of financial position, by remaining contractual maturities at the end of the reporting period. The amounts disclosed in the tables for financial liabilities are contractual undiscounted cash flows and therefore differ from the carrying amounts of these liabilities in the consolidated statement of financial position.

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Contractual undiscounted cash flows 2011

The Group

Demand m

Between Between one and nine days eight days and one month m m

Between one and three months m

Between three months and one year m

Between one and five years m

Over five years m

Total m

Deposits from banks Customer accounts Derivative financial instruments (1) Debt securities in issue Other liabilities (2) Subordinated liabilities and other capital instruments 1,701 13 52 1,766 19 1,785 40,691 1,689 249 3,436 2,102 40,594 131 (37) 3 40,691 453 20 1,216 1,689 22 146 47 1 1 217 3 29 46 128 3,131 10 3 3,318 107 11 18 587 1,117 6 140 1,868 56 178

Contingent liabilities (3) Commitments to lend (3)

10 348 13 101 387 859 15 874

42,295 693 1,192 5,527 170 531 50,408 181 237 50,826

Total financial liabilities, contingent liabilities and commitments

2010

Demand m 1,695 3,771 50 5,516 77 5,593 45,200 2,868 43,743 1,433 (3) 1 45,174 26 285 1,758 10 808 2,861 1 6

Between one and eight days m 504 1,370 74 34 1 1 1,984 99 41 2,124

Between nine days and one month m

Between one and three months m

Between three months and one year m 55 2,537 2 1,420 8 3 4,025 59 140 4,224

Between one and five years m 387 248 4,946 5 145 5,731 37 255 6,023

Over five years m 20 (38) 18 384 384 1 33 418

Total m 46,282 11,276 293 7,227 64 533 65,675 223 552 66,450

Deposits from banks Customer accounts Derivative financial instruments (1) Debt securities in issue Other liabilities (2) Subordinated liabilities and other capital instruments

Contingent liabilities (3) Commitments to lend (3) Total financial liabilities, contingent liabilities and commitments

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

(1) Derivative cash outflows are stated net of related inflows. (2) Includes obligations under financial guarantees and preference shares only. (3) The Group does not expect all contingent liabilities or commitments to be drawn.

125

Notes to the financial statements continued

50. Risk management continued

Liquidity and funding risk continued The Group evaluates its longer term liquidity mismatch or structural liquidity risk on a regular basis. The management of structural liquidity risk is important in identifying future funding requirements. Risk mitigation It is accepted that the current liquidity and funding risk position is significantly outside the risk appetite parameters. The Bank will continue to manage and monitor this risk, whilst acknowledging that opportunities to reduce it are limited due to the current position of the Bank. Holding a portfolio of highly liquid assets has always formed part of the Group's liquidity management policy, assisting the Group in receiving and placing cash in the repo market during periods of market volatility. Given the stressed funding and liquidity position of the Bank virtually all of the liquid asset portfolio is currently under repurchase agreements as outlined in note 24. Regulatory liquidity The Central Bank of Ireland introduced regulatory liquidity requirements in 2007, replacing the liquid stock approach with a more advanced cash flow mismatch approach. Irish banks are required to report coverage in the 0 to 8 day and 9 to 30 day periods against which regulatory limits are set with conservative assumptions for certain cash flow types. In addition, the Central Bank of Ireland sets qualitative requirements regarded as best practice for liquidity risk management. Due to the Bank's reliance on central bank funding, it is not in full compliance with a number of regulatory liquidity requirements. Market risk Definition Market risk is the risk of a potential adverse change in the Groups income or financial position arising from movements in interest rates, exchange rates or other market prices. Objective The Group aims to have effective systems and methodologies for the identification and measurement of market risks in its balance sheet. These risks are then managed within strict limits and in the context of a conservative risk appetite level that is consistent with the support provided to the Group by the Irish Government. Policies The Group's exposure to market risk is governed by policies approved by the Risk and Compliance Committee, and overseen by ALCO. All risk limits are approved by ALCO and the Risk and Compliance Committee. Strategies and processes The Groups Restructuring Plan provides for market risk to be minimised in the context of the winding down of the loan book and the derivatives book. Market risk is managed centrally by the Financial Markets team and GBSM. Market risk throughout the Group is measured and monitored by Group Risk, operating independently of the business units. Risk mitigation The Group has limited ability to engage in risk reducing transactions in the market and therefore aims to manage the winddown process in a manner that keeps market risk within approved limits. Trading book risk Definition The trading book consists of positions arising from legacy client transactions in a range of financial instruments as well as related interbank hedging transactions. It includes interest rate swaps, currency swaps, interest rate futures, forward rate agreements and options. There are no unhedged exposures in equities or commodities. Objective The Financial Markets team was well advanced at 31 December 2011 in winding down legacy positions in the trading book in accordance with the Groups Restructuring Plan. This process will continue in 2012. Management of existing balance sheet risk positions takes place within a detailed framework of approved limits. The general aim in the reduction of the portfolio is to retain corporate derivatives until the swap matures or until the associated loan is sold/repays and to retain only sufficient interbank deals to hedge the market risks arising from these retained corporate exposures.

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Policies The Bank's Group Treasury Policy prescribes valuation models and risk measurement methodologies that ensure close monitoring and clear reporting of all trading book risks. The primary trading book market risk measure is a Value at Risk ('VaR') model that is based on a historical simulation methodology. It is implemented using a 99% confidence level, a 1 day holding period and two years of historic data. The standard risk factors capture the risks in interest rates, exchange rates, option sensitivities and interest basis. The methodology takes into account inter-relationships between different market variables, for instance between interest rates and foreign exchange rates, and captures the risks associated with option positions in interest rate and foreign exchange instruments. Although an important and industry standard measure of risk, VaR has its limitations as a result of its use of historical data, frequency of calculation and holding periods. Additionally, the use of confidence intervals does not give any information about potential losses when the confidence level is exceeded. For these reasons, the Group also uses a variety of other methodologies in measuring market risk. These include, but are not limited to, stress testing and sensitivity analysis. Reporting and measurement systems Group Risk provides daily reporting of trading book risk positions against all approved VaR, Present Value of a Basis Point ('PVBP'), option sensitivity and stop-loss limits. It provides monthly reporting to ALCO on trading book activity with analysis of all significant risk positions, including stress testing of positions against a range of extreme market scenarios. There is also monthly reporting to the Risk and Compliance Committee on compliance with risk limits. Risk mitigation The Group Treasury Policy outlines a rigorous control environment that includes prescribing a specific range of approved products. It also provides for a structure for the management of legacy trading book risk positions through a detailed set of limits that covers all of the risk sensitivities associated with the approved products. The wind-down of the trading book involves identifying offsetting risk positions that can be closed out at the same time to avoid any increase in market risk positioning. The table below summarises the VaR levels of the Groups trading book for the period using a 99% confidence level. 1 Day Time Horizon 2011 m At end of year Average Minimum Maximum 0.3 0.3 0.2 0.5 2010 m 0.5 0.4 0.1 1.0 10 Day Time Horizon 2011 m 1.0 1.0 0.5 1.7 2010 m 1.7 1.2 0.4 3.0

The average and maximum VaR figures for the year ended 31 December 2011 were lower than for the previous period. Risk positions were reduced during the year as the wind-down of the trading book was implemented. Banking book risk - interest rate risk Definition Interest rate risk is the risk of a potential adverse change in the Group's income or financial position arising from movements in interest rates. It arises from the structure of the balance sheet and from the execution of customer and interbank business. Banking book positions are those acquired with the intention of holding them to maturity in the normal course of business. Interest rate risk in the banking book arises from a combination of lending, funding and non-trading treasury activities. The Financial Markets team manages the market risk associated with all of these activities on a consolidated basis. The Group's financial assets and liabilities have interest rates that are reset at different times or under different bases. There is a potential impact on earnings and value that could occur when liabilities cannot be repriced as quickly as assets in a falling interest rate environment or when assets cannot be repriced as quickly as liabilities in an environment of rising rates. At 31 December 2011, the Group held Irish Government promissory notes with a total principal value of 28.5bn. As the promissory notes are fixed rate instruments which create significant interest rate risk exposure, which in turn leads to potential earnings volatility, the Bank has hedged a portion of the exposure. The Bank has hedged a total of 4.3bn of the notes using amortising interest rate swaps, and a further 5.7bn of economic hedges exist in the form of the Groups capital and fixed rate debt issuance. However, significant fixed rate exposure remains, with limited capacity to hedge further amounts with market counterparties. Further details on the promissory notes are set out in note 25.

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50. Risk management continued

Market risk continued Banking book risk - interest rate risk continued Definition continued As a result of the unhedged fixed interest rate exposure on the promissory notes, a +/- 1% parallel shift in interest rates over a twelve month period would impact net interest income and profit before tax by -/+ 176m. Objective The Group recognises that the effective management of interest rate risk is essential to the maintenance of stable earnings. It aims to manage interest rate risk in its balance sheet to optimise net interest income within an acceptable loss tolerance level. Policies The Group Treasury Policy provides for consolidated reporting and centralised management of all banking book risk positions within the Group. The Group's exposure to interest rate risk is governed by policies approved by ALCO and the Risk and Compliance Committee. All risk limits are approved by ALCO and the Risk and Compliance Committee. Strategies and processes The Financial Markets team has responsibility for the management of interest rate risk under limits approved by ALCO. ALCO reviews the Group's interest rate risk position and strategy on a monthly basis and provides analysis and reporting to the Risk and Compliance Committee and the Board. Group Finance provides ongoing reporting on all interest rate risk positions with monthly reporting to ALCO and the Risk and Compliance Committee. Reporting and measurement systems Banking book interest rate risk is measured by establishing the repricing characteristics of each non-trading asset, liability and derivative instrument. The risk is managed by the Financial Markets team through basis point sensitivity and nominal position limits. Risk measurement using basis point sensitivity is supplemented with regular stress tests assessing the impact of extreme market moves on risk positions. The stress tests include measurement of the sensitivity of positions to extreme yield curve movements. There are also scenario tests based on observed historical occurrences of market volatility, for example the bond market crisis of 1998 or the credit market dislocation that began in 2007, as well as on a range of hypothetical combinations of market stresses. Group Finance provides daily reporting of banking book risk positions against approved risk sensitivity and nominal position limits. It provides monthly reporting to ALCO and the Risk and Compliance Committee on banking book activity with analysis of all significant risk positions, including the results of stress testing. Risk mitigation Risk mitigation for banking book risks consists of matching asset and liability risk positions and the use of derivatives to manage duration and interest rate sensitivity within the approved limit structure, to the maximum extent practicable. The following table shows the sensitivity of the Groups banking book, including non-trading book derivatives but excluding the Irish Government promissory note holdings and related hedging instruments, to an assumed 100 basis point ('bp') parallel shift in interest rates in terms of the impact on net interest income and profit/(loss) before taxation over a twelve month period: Euro* m At 31 December 2011 +100bp parallel move -100bp parallel move At 31 December 2010 +100bp parallel move -100bp parallel move (7) 7 (38) 38 Sterling m 4 (4) US Dollar m (3) 3 7 (7)

* This excludes the Bank's holding of Irish Government promissory notes and related hedging instruments.

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This interest rate risk sensitivity measure assumes that for each of the currencies listed, interest rates for all maturities move at the same time and by the same amount. It does not incorporate the impact of management actions that, in the event of an adverse rate movement, could reduce the impact on net interest income. In practice, interest rate risk is actively managed and the impact of yield curve movements on interest income will be different from that calculated by this measure. The exposure of equity reserves to interest rates arises from two main sources. Included in the Group's available-for-sale portfolio are fixed rate securities. A one basis point change in market interest rates would result in a change in the value of this portfolio of 0.1m (2010: 0.2m). These unrealised movements are recognised in the available-for-sale reserve, a component of other reserves. In the past the Group has also designated interest rate swaps as cash flow hedges in various relationships (note 21). There are no such swaps in place at 31 December 2011. Banking book risk - foreign exchange risk Market risk in the banking book arises from exposure to changes in exchange rates. Structural foreign exchange risk principally arises from the funding shortfall between the Group's sterling and US dollar lending activities and the Group's funding in those currencies. It is Group policy to mitigate this risk using forward foreign exchange hedging. Structural foreign exchange risk also arises from the Groups net investments in its sterling and US dollar based foreign operations. It is Group policy to mitigate this structural foreign exchange risk by hedging material foreign currency investments in operations, whose functional currency is not euro, using funding in the same currency. Structural foreign exchange exposures, net of hedging instruments, decreased during the year to 0.7bn (2010: 1.2bn) primarily as a result of the reduction in the net investment exposure in the Group and due to net investment hedging decisions taken in accordance with the Group's capital ratio hedging strategy for foreign exchange movements. The foreign currency denominated funding used to hedge the net investments in the Groups foreign operations has a carrying amount of 0.9bn (2010: 1.0bn). No ineffectiveness was recognised in the income statement in respect of hedges of net investments in foreign operations (2010: nil). The Group has an earnings hedging programme that mitigates the impact of exchange rate movements as a result of foreign currency earnings or losses incurred during the period. This is implemented on a monthly basis and the Bank does not run transactional foreign exchange risk. A sizeable portion of the Group's total risk weighted assets, used to determine the regulatory capital position, are denominated in non-euro currencies, primarily in sterling and US dollars. As a result, the Group's regulatory capital ratios are sensitive to foreign exchange movements. Accordingly ALCO has approved an appropriate hedging policy designed to mitigate the potential impact of future foreign exchange movements on the Group's regulatory capital ratios. In accordance with the approved policy, management monitor this exposure on an ongoing basis and when required enter into foreign currency transactions which ensure that currency positions which account for more than 1% of total risk weighted assets are appropriately hedged. Derivatives Definition A derivative is a financial instrument which defines certain financial rights and obligations that are contractually linked to interest rates, exchange rates or other market prices. Derivatives are an efficient means of managing market risk. Objective The Bank seeks to use derivatives to hedge risk positions efficiently where required and to ensure that the risks associated with derivatives are identified and reported within the trading book and banking book reporting frameworks as appropriate. Policies The Group's derivatives activities are governed by policies approved by the Risk and Compliance Committee. These policies relate to the management of the various types of risks associated with derivatives, including market risk, liquidity risk, credit risk and operational risk. It is Group policy to place clear boundaries on the nature and extent of its participation in derivatives markets and to apply industry regulatory standards to all aspects of its derivatives activities. Strategies and processes Derivative positions fall within the structure of approved limits for the trading book and banking book as appropriate and are used for the management of balance sheet risks and the hedging of positions arising from customer business. Where cross currency swaps and foreign exchange forwards are used to fund sterling and US dollar loan portfolios, the interest rate risks are managed within approved banking book limits for those currencies.

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50. Risk management continued

Market risk continued Derivatives continued Reporting and measurement systems The Group designates certain derivatives as either fair value hedges (where the Group hedges the changes in fair value of recognised assets or liabilities or firm commitments) or cash flow hedges (where the Group hedges the exposure to variability of cash flows attributable to recognised assets or liabilities or highly probable forecast transactions). With the exception of designated hedging derivatives, as defined by IAS 39, derivatives are treated as held for trading. The held for trading classification comprises the Group's legacy trading book, economic hedges which do not meet the strict qualifying criteria for hedge accounting and derivatives managed in conjunction with financial instruments designated at fair value. The Group has been instructed to wind down its operations in an orderly manner over a period of up to ten years. The overriding objective internally is to make the Financial Markets team's operation and portfolio(s) smaller and more simple; thereby minimising operational risk. Further details in respect of derivatives are disclosed in note 21. The Group's accounting policy for derivatives is set out in note 1. Operational risk Definition Operational risk is the risk of loss arising from inadequate controls and procedures, unauthorised activities, outsourcing, human error, systems failure and business continuity. Operational risk also includes legal risk, which is the risk of loss due to litigation arising from errors, omissions and acts by the Bank in the conduct of business. Operational risk is inherent in every business unit throughout the Group and covers a wide spectrum of issues. Objective The Group Compliance and Operational Risk unit aims to provide the framework and tools to identify, assess, monitor and report on operational risks within each of the business units and support functions of the Group to minimise losses and reduce errors in line with the Group's Risk Appetite Statement. Policies The Group's management of its exposure to operational risk is governed by a policy approved by the Risk and Compliance Committee. The policy specifies that the Group operates such measures of risk identification, assessment, monitoring and management as are necessary to ensure that operational risk management is consistent with the strategic goals of the Group. It is designed to safeguard the Group's assets while allowing sufficient operational freedom to conduct the Group's business. The policy document also sets out the responsibilities of senior management, the requirement for reporting of operational risk incidents and the role of Group Internal Audit in providing independent assurance. Strategies and processes The business units and support functions assess their operational risk profile on a quarterly basis. The output of these assessments is consolidated and presented to the Risk and Compliance Committee. The process serves to ensure that key operational risks are proactively identified, evaluated, monitored and reported, and that appropriate action is taken. In addition, the Risk and Compliance Committee receives monthly information on significant operational risk incidents. Reporting and measurement The Bank uses the Standardised Approach as defined by the Capital Requirements Directive for the calculation of its capital requirements for operational risk. This approach requires the activities of the Bank to be assigned to one or more of the eight generic categories identified under the Directive, with a beta factor being applied to the three-year average gross income in each business line. Only four business lines are applicable to the Group (Commercial Banking, Trading and Sales, Asset Management and Retail Banking). Risk mitigation The operational risk management process consists of the setting of strategic objectives, the identification of risks and the implementation of action plans to mitigate the risks identified. Recognising that operational risk cannot be entirely eliminated, the Group implements risk mitigation controls including fraud prevention, contingency planning, information security and incident management. Where appropriate this strategy is further supported by risk transfer mechanisms such as insurance.

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Reputational risk Reputational risk is the risk of an adverse perception of the Group on the part of any stakeholder arising from an event or transaction of, or related to, the Group. The rebranding of the corporate identity to IBRC on 17 October 2011 has reinforced the distinction between the current and former leadership teams. The Bank carries reputational risk in relation to its current activities. These relate to the effectiveness and efficiency with which it is meeting its objectives, including compliance with its legal and regulatory obligations during a sustained period of restructuring and reorganisation. The Bank is vigilant in rebuilding confidence and trust with all its stakeholders. Directors and employees are made aware of the role they have in rebuilding the Banks reputation, and of their responsibilities and duties from a customer service, regulatory and ethical perspective. In addition, independent control functions including Group Compliance, Company Secretarial, Group Finance, Group Risk and Group Internal Audit are resourced with appropriately experienced and qualified teams. Legal risk The Bank has an independent Legal Department reporting directly to the Group Chief Executive. The Bank is continuing to develop this department to ensure that best practice in corporate governance and strict legal compliance is rigorously adhered to and for the purpose of mitigating legal risk and legal costs at all levels and across all divisions of the Banks business and operations in support of an orderly wind-down of the Banks business and operations and achievement of maximum recovery in the interests of the Bank, the Shareholder, and the taxpayer. In addition to the ongoing legal risk mitigation in assisting on strategic Bank initiatives and dealing with legal queries of a varied nature across the Bank on a day to day basis, it is sought to increasingly develop the resource capacity of the legal function to (i) ensure legal input to internal processes and procedures both at a strategic and practical level on a proactive and consistent basis; (ii) ensure an awareness and translation of relevant legislation into the Banks business; and (iii) promote education and training on relevant legal matters in conjunction with both the Banks internal and external legal advisers. Legal risk arises generally from the potential for loss resulting from adverse claims (whether or not resulting in litigation), unenforceable or defective documents resulting in a transaction not having the intended legal effect, deficient corporate governance and internal procedures, change of law, particularly, the risk of misinterpretation and a lack of awareness of applicable legislation, all of which can disrupt or otherwise negatively affect the operations, condition or financial or reputational standing of the Group. The legal risk of adverse claims is currently monitored through a Group-wide litigation register maintained by the Legal Department with the oversight of the Risk and Compliance Committee. This facilitates the assessment of potential losses, which could arise from adverse claims, and identification of trends and recurrence with a view to preventing same by addressing weaknesses giving rise to such claims. Frequent engagement with the relevant business divisions and external legal advisors acting on potentially contentious Bank matters further assists in earlier awareness at Group level of potential adverse claims and identification of matters requiring concentrated and specific strategic input and management time and resources. Separately, the Legal Department plays a central role in the management of legal matters relating to certain legacy issues which previously arose in the Bank and the co-operative progression of the investigations initiated by relevant authorities in the period since December 2008. Conduct risk Conduct risk is the risk posed to customers from the Banks direct interaction with them, and the risk of inadequate internal reporting of non-performing or poorly performing loans to management committees and boards and external disclosures of credit risk exposure and impairment provisions. The scope of the Banks work in relation to customers is now to ensure adherence to a high standard of customer care during the loan resolution phase whilst maintaining strong internal reporting and timely accurate external reporting of exposures and provisions. The Bank is focussed on ensuring the fair treatment of the customer stakeholder group through adherence to regulatory, legal and good business practice. In relation to the risk of inadequate internal and external reporting to other stakeholders, the Banks focus is on ensuring adherence to robust policies and controls for the early detection, reporting, monitoring and loss risk assessment of forbearance and customer impairment, strong management of non-performing loans, and transparent provisioning policies.

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Notes to the financial statements continued

50. Risk management continued

Governance risk Governance risk is the risk of weaknesses in the procedures, processes and attitudes through which the Bank is directed and controlled. The characteristics of good governance include: Having a strong Board, supported by a management team with executive responsibility focussed on assessing, managing and mitigating risk; A solid internal control environment with clearly defined roles and responsibilities assigned; High levels of transparency and disclosure; and Clearly defined and protected shareholders rights. The Board has approved the Banks Risk Management framework through the approval of a clearly defined Risk Appetite Statement along with all material policies relating to the Groups risk profile. The Board is further responsible for the review of risk management processes in place within the Bank which ensures that Board policies and decisions on risk are properly implemented. The Bank recognises that a strong internal control environment is essential to mitigate against risks of incomplete, inaccurate or late reporting of risks leading to incomplete reporting of risk to the Board. The focus throughout the Bank is on early detection and reporting of potential risk issues. There is also a high level of disclosure regarding risks both internally across business units and management and with relevant external stakeholders in line with the Banks policy of greater levels of transparency and disclosure. This is in tandem with prescribed financial disclosures and full adherence to accounting standards. There is also a relationship framework in place between the Minister (as shareholder) and the Bank which provides the basis upon which the relationship is governed, setting out both the objectives of the Minister and the obligations of the Board. Compliance and regulatory risk Definition Compliance and regulatory risk is defined as the risk of regulatory sanctions, material financial loss, or loss of reputation as a result of failure to comply with laws, regulations, rules, related standards, and codes of conduct arising from the Bank's activities as a regulated entity. Objective Management and Group Compliance and Operational Risk are responsible for the overall management of compliance and regulatory risk for the Group in regard to all relevant regulations and good practice guidelines in each of the jurisdictions in which the Bank operates. This includes ensuring that Group personnel are aware of, and take steps to comply with, Group policies and procedures. As a support function, Group Compliance and Operational Risk works closely with Group Finance, Group Risk, Group Company Secretarial and Group Internal Audit. Policies Group Compliance and Operational Risk provides advice and guidance to staff through policies, procedures, codes of conduct and guidelines. This includes policies on anti-money laundering and data protection as well as guidance on matters such as consumer protection. Strategies and processes Group Compliance and Operational Risk is charged with defining and identifying regulatory and compliance risks and developing a programme for the Group that includes the implementation and review of specific policies and procedures, and the monitoring and education of Group staff on regulatory and compliance matters. This programme is risk-based and the Head of Group Compliance and Operational Risk is responsible for ensuring appropriate coverage and co-ordination with other Group functions. The function interacts with relevant external supervisory bodies. The Group engages in discussions with relevant external supervisory bodies in all jurisdictions in which it operates on an ongoing basis.

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Reporting and measurement The Head of Group Compliance and Operational Risk reports to the CRO, with oversight by the Risk and Compliance Committee. Group Compliance and Operational Risk prepares reports for each Risk and Compliance Committee meeting. The report incorporates metrics in relation to compliance such as volumes and trends in complaints and information on the extent of contact with regulatory authorities. Risk mitigation Non-compliance with regulatory requirements may result in actions by regulators, including sanctions. Such events in turn could have an adverse impact on the Groups results, its business and reputation. In order to minimise risk of non-compliance, the function has adopted specific mitigant policies in relation to such matters as anti-money laundering and data protection.

51. Financial instruments

The Group uses financial instruments, including derivatives, in the normal course of its business. Interest income is principally derived from the Groups promissory note holdings and from its loan book. The Group sources funding from central banks through both open market operations and other special funding facilities. In prior years the Group has also raised funds via the capital markets by issuing debt securities and capital instruments. These liabilities are at both fixed and variable interest rates and at various maturities from short to long term. The accounting policies in note 1 describe how different categories of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the Group's financial assets and liabilities by measurement basis and by statement of financial position presentation.

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134
2011 At fair value through profit or loss At fair value through equity Held for trading m Availablefor-sale * m 1,332 1,332 1,049 1,049 12 47 47 194 194 12 Designated upon initial recognition m Fair value hedge derivatives m Policyholders' funds designated upon initial recognition m Cash flow hedge derivatives m 100 2,306 262 29,934 947 17,689 51,238 Loans and receivables / held at amortised cost * m Total m 100 12 194 1,096 2,306 262 1,332 29,934 947 17,689 53,872 1,889 1,889 18 18 300 300 60 283 343 42,591 579 5,371 170 517 49,228 42,591 597 2,249 5,371 283 170 517 51,778

51. Financial instruments continued

Measurement basis of financial instruments

Notes to the financial statements continued

The Group

Assets Cash and balances with central banks Financial assets at fair value through profit or loss - held on own account - held in respect of liabilities to customers under investment contracts Derivative financial instruments Loans and advances to banks Assets classified as held for sale** Available-for-sale financial assets Promissory notes Government debt securities at amortised cost Loans and advances to customers Total financial assets

Liabilities Deposits from banks Customer accounts Derivative financial instruments Debt securities in issue Liabilities to customers under investment contracts Other liabilities*** Subordinated liabilities and other capital instruments Total financial liabilities

* Where relevant, carrying values include fair value hedge adjustments. ** Excludes investment property and property, plant and equipment classified as held for sale. *** Includes obligations under financial guarantees and preference shares only.

2010 At fair value through profit or loss At fair value through equity

The Group

Held for trading m 1,844 17 1,861 13 82 82 237 237 2,219 2,219 13 10 10

Designated upon initial recognition m Availablefor-sale * m

Fair value hedge derivatives m

Policyholders' funds designated upon initial recognition m Cash flow hedge derivatives m 181 3,525 1,623 25,704 10,623 24,364 66,020

Loans and receivables / held at amortised cost * m

Total m 181 13 237 1,936 3,525 1,640 2,219 25,704 10,623 24,364 70,442

Assets Cash and balances with central banks Financial assets at fair value through profit or loss - held on own account - held in respect of liabilities to customers under investment contracts Derivative financial instruments Loans and advances to banks Assets classified as held for sale Available-for-sale financial assets Promissory note Government debt securities at amortised cost Loans and advances to customers Total financial assets

Liabilities Deposits from banks Customer accounts Derivative financial instruments Debt securities in issue Liabilities to customers under investment contracts Other liabilities** Subordinated liabilities and other capital instruments Total financial liabilities 2,316 2,316 31 31 60 60

84 351 435

46,566 11,061 6,912 64 509 65,112

46,566 11,092 2,460 6,912 351 64 509 67,954

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

* Where relevant, carrying values include fair value hedge adjustments. ** Includes obligations under financial guarantees only.

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Notes to the financial statements continued

51. Financial instruments continued

Net trading expense includes a charge of 1m (2010: gain of 4m) in respect of changes in the value of financial liabilities designated at fair value through profit or loss. The charge/gain is largely offset by corresponding positive/negative changes in the value of matching derivative instruments. The portion of the change in value that is attributable to changes in credit risk is not material. Fair value of financial assets and financial liabilities The following table represents the carrying amount and the fair value of the Group's financial assets and financial liabilities at the year end. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm's length transaction. The concept of fair value assumes realisation of financial instruments by way of a sale. However, in many cases, particularly in respect of loans and advances to customers, the Group intends to realise assets through collection over time. Readers of these financial statements are therefore advised to use caution when using this data to evaluate the Group's financial position. The Group 2011 Carrying amount m Financial assets Cash and balances with central banks Financial assets at fair value through profit or loss - held on own account - held in respect of liabilities to customers under investment contracts Derivative financial instruments Loans and advances to banks Assets classified as held for sale* Available-for-sale financial assets Promissory notes Government debt securities at amortised cost Loans and advances to customers Financial liabilities Deposits from banks Customer accounts Derivative financial instruments Debt securities in issue Liabilities to customers under investment contracts Other liabilities** Subordinated liabilities and other capital instruments 42,591 597 2,249 5,371 283 170 517 42,600 597 2,249 4,836 283 170 93 46,566 11,092 2,460 6,912 351 64 509 46,579 11,092 2,460 5,554 351 64 41 12 194 1,096 2,306 262 1,332 29,934 947 17,689 12 194 1,096 2,316 218 1,332 26,940 947 13,934 13 237 1,936 3,525 1,640 2,219 25,704 10,623 24,364 13 237 1,936 3,532 1,304 2,219 21,905 9,287 18,328 100 100 181 181 Fair value m 2010 Carrying amount m Fair value m

* Excludes investment property and property, plant and equipment classified as held for sale. ** Includes obligations under financial guarantees and preference shares only. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm's length transaction. The Group has estimated fair value wherever possible using quoted prices from active markets. The fair value of liquid financial assets has been determined using bid prices, while offer prices have been used to determine the fair value of financial liabilities. For illiquid financial assets and liabilities, including loans and advances to customers, there are, by definition, no active markets. Accordingly, fair value has been estimated using appropriate valuation techniques. The methods used to determine the fair value of items not carried at fair value are as follows:

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Cash and balances with central banks The fair value of cash and balances with central banks is their carrying amount as these balances may be withdrawn without notice. Loans and advances to banks The fair value of overnight placements is their carrying amount. The fair value of other loans and advances to banks is calculated by discounting expected cash flows using current market rates for placements with similar credit profiles and remaining maturities. In many cases, the carrying value is a close representation of fair value due to short term maturity profiles. Assets classified as held for sale Financial assets classified as held for sale at 31 December 2011 consist of certain US loans scheduled to be sold to third parties and those remaining loans which have been identified for transfer to NAMA. These loans are carried at amortised cost less provisions for impairment. The fair value of the US loan assets has been estimated based on brokers opinions of value. The Bank has no control over the valuation of assets transferring to NAMA. However, the Bank expects the remaining assets to transfer at a value close to their carrying value of 10m, which has been used as the basis for estimating their fair value. Promissory notes The fair value of the promissory notes is determined by the use of a valuation technique, based on a discounted cash flow methodology, which references observable market data. The fair value is calculated by discounting expected cash flows by reference to current observable market yields for comparable Irish government bonds. Government debt securities at amortised cost The fair value of NAMA senior bonds is determined by the use of a valuation technique, based on a discounted cash flow methodology, which references observable market data. This valuation technique is used due to the absence of observable market prices for these securities. The valuation approach adopted takes into consideration the coupon attaching to the notes and the yield on comparable Irish sovereign bonds. The valuation of NAMA senior bonds requires estimation and judgement and as a result it is possible that an alternative valuation approach could give rise to a range of values. Loans and advances to customers The estimation of the fair value of loans and advances is inherently uncertain, dependent upon many unobservable factors and requires the exercise of considerable subjective judgement by management. Market conditions at 31 December 2011, particularly the lack of liquidity in the Irish commercial property market and the increased significance of counterparty credit considerations, have contributed to the uncertainty when estimating the fair values of loans and advances. The estimated fair value of loans and advances to customers carried at amortised cost at 31 December 2011 is calculated based on a valuation technique which involves the discounting of estimated future cash flows on the loans at a rate that reflects current credit spreads and other factors that market participants would consider in valuing such assets. Readers are advised that, in line with the approved Restructuring Plan, the Group intends to deleverage its loan portfolio on a phased basis over a period of up to ten years whilst securing the best possible outcome for the Shareholder. The estimated fair values provided would be subject to change depending on the exact circumstances of any particular sale scenario. Deposits from banks and customer accounts The fair value of deposit liabilities repayable on demand is their carrying amount. The fair value of other deposits liabilities is calculated by discounting expected cash flows using current market rates for deposits with similar remaining maturities. In many cases, the carrying amount is a close representation of fair value due to the short term nature of such deposits. Debt securities in issue The fair value of medium term debt securities in issue is their quoted market value at period end, where available. Where quoted market values are unavailable, the fair value is determined taking into consideration the market value of similar quoted securities. Other liabilities The fair value of other liabilities is deemed to approximate carrying value. Subordinated liabilities and other capital instruments The fair values of subordinated liabilities and other capital instruments are their indicative market levels.

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51. Financial instruments continued

Fair value hierarchy The following tables detail the valuation methods used for the Group's and the Bank's financial assets and liabilities carried at fair value as at 31 December 2011, other than financial assets and liabilities at fair value through profit or loss held in respect of liabilities to customers under investment contracts. The classification of the instruments below is based on the lowest level input that is significant to the measurement of fair value for the instrument. The three levels of the IAS fair value hierarchy are: Level 1 values are determined by reference to unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 values are determined using inputs other than quoted prices described for level 1 but which are observable for the asset or liability either directly or indirectly. Level 3 values incorporate significant inputs for the asset or liability that are not based on observable market data (unobservable inputs). The Group 2011 Level 1 m Financial assets Financial assets at fair value through profit or loss - held on own account Available-for-sale financial assets Derivative financial instruments 976 976 Financial liabilities Derivative financial instruments Other financial liabilities 2,238 2,238 11 18 29 2,249 18 2,267 227 648 875 12 129 448 589 12 1,332 1,096 2,440 Level 2 m Level 3 m Total m

The Group 2010 Level 1 m Financial assets Financial assets at fair value through profit or loss - held on own account Available-for-sale financial assets Derivative financial instruments Derivative financial instruments held for sale to NAMA 1,480 1,480 Financial liabilities Derivative financial instruments Other financial liabilities 2,453 2,453 7 31 38 2,460 31 2,491 572 1,325 4 1,901 13 167 611 13 804 13 2,219 1,936 17 4,185 Level 2 m Level 3 m Total m

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The Bank 2011 Level 1 m Financial assets Financial assets at fair value through profit or loss - held on own account Available-for-sale financial assets Derivative financial instruments 925 925 Financial liabilities Derivative financial instruments Other financial liabilities 2,178 2,178 11 18 29 2,189 18 2,207 227 879 1,106 5 124 501 630 5 1,276 1,380 2,661 Level 2 m Level 3 m Total m

The Bank 2010 Level 1 m Financial assets Financial assets at fair value through profit or loss - held on own account Available-for-sale financial assets Derivative financial instruments Derivative financial instruments held for sale to NAMA 1,434 1,434 Financial liabilities Derivative financial instruments Other financial liabilities 2,996 2,996 7 31 38 3,003 31 3,034 567 1,566 4 2,137 5 167 611 13 796 5 2,168 2,177 17 4,367 Level 2 m Level 3 m Total m

The reduction in available-for-sale financial assets during the year is primarily attributable to disposals and maturities of debt securities. Senior bonds issued by financial institutions with a fair value of 115m were transferred from level 1 to level 2 during the year due to the lack of an active market for these securities. Transfers of derivative financial assets from level 2 to level 3 of 165m occurred as a result of an increase in the credit valuation adjustment recorded on corporate clients during the year. The overall decline in level 3 derivative financial assets is due to maturities, redemptions and disposals. Financial assets at fair value through profit or loss - held on own account The Group and Bank's remaining portfolio of financial assets at fair value through profit or loss held on own account consists primarily of unlisted equity shares. Fair values are determined using valuation techniques which refer to observable and nonobservable market data. Available-for-sale financial assets The Group and Bank's portfolio of available-for-sale financial assets consists of debt securities and NAMA subordinated bonds only. The fair values of debt securities are primarily sourced from independent third party pricing service providers and prices received from dealer/brokers. NAMA subordinated bonds, which are valued using standard discounted cash flow techniques, are included in level 3. The Bank does not use models to value other AFS securities and does not adjust any external prices obtained. Derivative financial instruments Derivative financial instruments derive their value from the price of underlying variables such as interest rates, foreign exchange rates, credit spreads or equity or other indices. Fair values are typically estimated using industry standard valuation techniques incorporating inputs that are derived from observable market data. The fair value of derivative transactions with corporate clients includes a credit valuation adjustment which incorporates a significant, but unobservable, counterparty credit input. These derivatives are classified as level 3.

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Notes to the financial statements continued

51. Financial instruments continued

Derivative financial instruments continued On the initial recognition of derivative financial instruments, any difference between the transaction price and the value derived from a valuation technique incorporating information other than observable market data is deferred. During the year 11m (2010: 9m) of income was recognised in the income statement. The majority of the 2011 income was recognised following the settlement or maturity of the underlying transactions. There was no deferral of fair value amounts during the year (2010: 1m). At 31 December 2011 total net unrealised gains amounted to 3m (2010: 16m). Other financial liabilities Customer accounts include certain structured deposits that have embedded derivative features, typically options. Certain inputs to the valuation technique are not based on observable market data but can generally be estimated from historical data or other sources.

Movements in level 3 assets Financial assets at fair value through profit or loss - own account m At 1 January 2011 Acquired under the INBS Transfer Order Total gains or losses - in profit or loss - in other comprehensive income Additions Redemptions, maturities and disposals Transfers into level 3 At 31 December 2011 2 (5) 12 (98) 10 (2) 5 129 13 2

The Group 2011 Availablefor-sale financial assets m 167 47 Derivative financial instruments held for sale m 13 (2) (11) -

Derivative financial instruments m 611 143 (471) 165 448

Total m 804 49 143 (98) 10 (489) 170 589

The Group 2010 Financial assets at fair value through profit or loss - own account m At 1 January 2010 Total gains or losses - in profit or loss - in other comprehensive income Additions Redemptions, maturities and disposals Transfers into level 3 At 31 December 2010 (23) 2 (14) 13 6 (21) 237 (213) 167 174 (316) 365 611 149 (378) 11 13 306 (21) 239 (921) 376 804 48 Availablefor-sale financial assets m 158 Derivative financial instruments held for sale m 231

Derivative financial instruments m 388

Total m 825

Redemptions, maturities and disposals of derivative financial assets include interest settlements and derivatives that transferred as part of the US loan book sale process during the year.

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Movements in level 3 assets Financial assets at fair value through profit or loss - own account m At 1 January 2011 Acquired under the INBS Transfer Order Total gains or losses - in profit or loss - in other comprehensive income Additions Redemptions, maturities and disposals Transfers into level 3 At 31 December 2011 2 (4) 5 (98) 10 (2) 124 5 2

The Bank 2011 Availablefor-sale financial assets m 167 47 Derivative financial instruments held for sale m 13 (2) (11) -

Derivative financial instruments m 611 162 (490) 218 501

Total m 796 49 162 (98) 10 (507) 218 630

The Bank 2010 Financial assets at fair value through profit or loss - own account m At 1 January 2010 Total gains or losses - in profit or loss - in other comprehensive income Additions Redemptions, maturities and disposals Transfers into level 3 At 31 December 2010 (4) 2 5 6 (21) 237 (213) 167 174 (316) 365 611 149 (378) 11 13 325 (21) 239 (907) 376 796 7 Availablefor-sale financial assets m 158 Derivative financial instruments held for sale m 231

Derivative financial instruments m 388

Total m 784

Redemptions, maturities and disposals of derivative financial assets include interest settlements and derivatives that transferred as part of the US loan book sale process during the year.

141

Notes to the financial statements continued

51. Financial instruments continued

Movements in level 3 liabilities Derivative financial instruments m At 1 January 2011 Total gains or losses - in profit or loss Additions Redemptions and maturities At 31 December 2011 2 2 11 1 (14) 18 3 2 (14) 29 7 The Group 2011 Other financial liabilities m 31

Total m 38

The Group 2010 Derivative financial instruments m At 1 January 2010 Total gains or losses - in profit or loss Redemptions and maturities At 31 December 2010 (4) 7 4 31 4 (4) 38 11 Other financial liabilities m 27

Total m 38

The Bank 2011 Derivative financial instruments m At 1 January 2011 Total gains or losses - in profit or loss Additions Redemptions and maturities At 31 December 2011 2 2 11 1 (14) 18 3 2 (14) 29 7 Other financial liabilities m 31

Total m 38

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Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

The Bank 2010 Derivative financial instruments m At 1 January 2010 Total gains or losses - in profit or loss Redemptions and maturities At 31 December 2010 (4) 7 4 31 4 (4) 38 11 Other financial liabilities m 27

Total m 38

Analysis of total level 3 gains/(losses) included in profit or loss

2011 The Group m 227 2 (89) (98) 42 The Bank m 246 2 (89) (98) 61

2010 The Group m 319 (23) 6 (21) 281 The Bank m 319 (4) 6 (21) 300

Net trading expense Financial assets designated at fair value Loss on deleveraging of other financial assets Provisions for impairment Net change in available-for-sale reserve

Analysis of level 3 gains/(losses) included in profit or loss relating to financial assets and financial liabilities held at year end

2011 The Group m 193 (98) 95 The Bank m 211 (98) 113

2010 The Group m 71 (70) 1 The Bank m 90 (70) 20

Net trading expense Net change in available-for-sale reserve

Maturity profile of financial instruments The following tables analyse the Group's financial assets, financial liabilities and derivative financial instruments into relevant maturity groupings based on the remaining period to the contractual maturity date as at the end of the reporting period. As liquidity risk is managed on a Group basis, a similar maturity profile for the Bank would not provide meaningful information and therefore has not been presented. As the information presented in the following tables is prepared on the basis of contractual maturity it should not be taken as an indication of the Group's liquidity risk, which is described in note 50. Assets and related liabilities held in respect of liabilities to customers under investment contracts are separately disclosed as the underlying liquidity risk is borne by the policyholders and has no direct impact on the results of the Group. Equity interests that are not held for the purpose of managing liquidity risk are not included.

143

144
2011 Current Non-current Demand m 100 2,231 39 4,984 7,354 48 37 221 2,655 947 580 4,488 106 66 182 3,996 4,350 571 21 171 553 6,414 6,145 13,875 371 12 376 20,865 2,708 24,332 Not more than three months m 194 5 (14) (724) (539) Over three months but not more than one year m Over five years m Policyholders' funds m Over one year but not more than five years m Total m 100 194 1,096 2,306 262 1,332 29,934 947 17,689 53,860 1,701 13 52 1,766 40,585 606 234 1,257 1 42,683 46 124 3,065 10 3,245 17 877 1,034 6 128 2,062 9 954 15 101 389 1,468 305 (94) 60 283 554 42,591 597 2,249 5,371 283 170 517 51,778

51. Financial instruments continued

Maturity profile of financial instruments

Notes to the financial statements continued

The Group

Financial assets Cash and balances with central banks Financial assets at fair value through profit or loss - held in respect of liabilities to customers under investment contracts Derivative financial instruments Loans and advances to banks Assets classified as held for sale* Available-for-sale financial assets Promissory notes Government debt securities at amortised cost Loans and advances to customers Total financial assets

Financial liabilities Deposits from banks Customer accounts Derivative financial instruments Debt securities in issue Liabilities to customers under investment contracts Other liabilities** Subordinated liabilities and other capital instruments*** Total financial liabilities

* Excludes investment property and property, plant and equipment classified as held for sale. ** Includes obligations under financial guarantees and preference shares only. *** Undated subordinated liabilities and other capital instruments have been included in amounts maturing over five years.

2010 Current Non-current

The Group

Demand m 181 1,967 781 6,622 9,551 192 1,479 16 169 2,187 973 5,016 255 131 695 2,755 3,836 1,064 20 578 1,167 5,174 11,549 19,552 425 46 149 188 18,343 10,623 3,214 32,988 -

Not more than three months m 237 13 (15) (749) (514)

Over three months but not more than one year m Over five years m Policyholders' funds m

Over one year but not more than five years m

Total m 181 237 1,936 3,525 1,640 2,219 25,704 10,623 24,364 70,429

Financial assets

Cash and balances with central banks Financial assets at fair value through profit or loss - held in respect of liabilities to customers under investment contracts Derivative financial instruments Loans and advances to banks Assets classified as held for sale Available-for-sale financial assets Promissory note Government debt securities at amortised cost Loans and advances to customers Total financial assets

Financial liabilities 1,695 3,771 50 5,516 44,517 4,553 102 827 1 50,000 55 2,491 284 1,291 8 4,129 354 1,413 4,777 5 124 6,673 15 577 17 385 994 299 (92) 84 351 642 46,566 11,092 2,460 6,912 351 64 509 67,954

Deposits from banks Customer accounts Derivative financial instruments Debt securities in issue Liabilities to customers under investment contracts Other liabilities* Subordinated liabilities and other capital instruments** Total financial liabilities

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

* Includes obligations under financial guarantees only. ** Undated subordinated liabilities and other capital instruments have been included in amounts maturing over five years.

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Notes to the financial statements continued

52. Capital resources

The Bank's regulatory capital resources at 31 December 2011 consist of both Tier 1 and Tier 2 capital. Tier 1 capital includes equity (comprising ordinary share capital, share premium, the capital reserve and other eligible reserves), deductions for intangible assets and prudential adjustments. Prudential adjustments include the reversal of movements on available-for-sale and cash flow hedging reserves. Tier 2 capital includes subordinated debt and collective impairment provisions. Specific prudential limits apply to the amount of subordinated debt and collective provisions eligible as regulatory capital. Total capital is further reduced by supervisory deductions. Regulatory capital resources include 29.3bn contributed by the Minister for Finance as the Group's sole shareholder. These capital contributions have restored the levels of Core Tier 1 regulatory capital following significant losses incurred. As at 31 December 2011 the Group reported a Tier 1 capital ratio of 15.1% and a Total capital ratio of 16.3%. On 1 July 2011, the assets and liabilities of INBS, with the exception of certain limited excluded liabilities, were transferred to the Bank at carrying value, after harmonisation adjustments to give effect to the business combination (notes 1.4 and 2). On the date of transfer no cash consideration was paid and settlement was made for the net assets through an increase in the Groups shareholders funds, increasing Core Tier 1 capital by 0.7bn. The regulatory capital ratios have increased since 31 December 2010 due to a reduction in risk weighted assets during the year of 11.6bn or 32%. This reduction is primarily related to lending assets where the disposal of US loans in the final quarter of the year had a significant impact on total risk weighted assets. Targeted client asset disposals, repayments across loan portfolios, NAMA transfers and additional specific impairment charges further reduced risk weighted assets during the year. The merger with INBS on 1 July 2011 offset some of these reductions as risk weighted assets increased by 1.9bn on transfer. The level of risk weighted assets reflects the Groups Pillar 1 capital requirements. Following the merger with INBS and subsequent deleveraging of the balance sheet, the Group has yet to update its Internal Capital Adequacy Assessment Process (ICAAP). Accordingly the Group has yet to determine the appropriate level of capital requirements under Pillar 2. Irish Government exposure, including the promissory notes (note 25), is risk weighted at 0% in line with the requirements of the Capital Requirements Directive ('CRD') and guidance from the Central Bank of Ireland.

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Regulatory capital

The Group 2011 m 2010 m

Tier 1 capital Equity Prudential filters and regulatory adjustments Non-cumulative preference shares Total Tier 1 capital Tier 2 capital Collective provisions Subordinated term debt Total Tier 2 capital Tier 1 and Tier 2 capital Capital deductions Total capital Risk weighted assets Tier 1 capital ratio Total capital ratio (a) (d) (c) 313 104 417 4,210 (111) 4,099 25,076 15.1% 16.3% 458 125 583 4,575 (12) 4,563 36,668 10.9% 12.4% (a) (b) 3,238 198 357 3,793 3,535 111 346 3,992

The level of Core Tier 1 capital is impacted by the loss incurred during the year to 31 December 2011, offset to an extent by the impact of the integration of INBS on 1 July 2011. Prudential filters and regulatory adjustments primarily include the reversal of movements on available-for-sale and cash flow hedging reserves and the deduction of intangible assets. The maximum amount of collective provisions eligible as Tier 2 capital is limited to 1.25% of risk weighted assets. Accordingly, the amount of eligible collective provisions at 31 December 2011 has reduced in line with the reduction in risk weighted assets. The increase in capital deductions relates to the Group's interest in Liberty Mutual Ireland Investment Holdings Limited. Interests in insurance holding companies are required to be deducted from regulatory capital under the CRD.

(b)

(c)

(d)

147

Notes to the financial statements continued

53. Report on Directors' remuneration and interests

This report on Directors' remuneration and interests has been prepared by the Remuneration Committee on behalf of the Board of Directors (the 'Board'). In keeping with best practice and where relevant, in accordance with accounting standards, the Bank has provided information comparable to that provided by listed companies. Remuneration Committee All members of the Remuneration Committee are Non-executive Directors. Its current members are Dr. Noel Cawley (Chairman), Alan Dukes, Aidan Eames, Maurice Keane and Gary Kennedy. This committee is responsible for ensuring that the overall reward philosophy and remuneration governance framework of the Bank and its companies are consistent with the achievement of the Groups strategic objectives, having regard also to promoting effective risk management within the Group. It is also responsible for considering and making recommendations to the Board in respect of remuneration policy for the Chairman, Directors, Group Chief Executive, Company Secretary, senior management and other individuals whose remuneration may exceed defined minimum thresholds across the Group. In addition, it is responsible for ensuring that remuneration policies and practices are operated in accordance with any applicable legal and regulatory requirements (including any requirements which the Central Bank of Ireland may issue). Remuneration policy The Group's remuneration policy, which has been framed in accordance with the Combined Code on Corporate Governance, is to reward its Group Chief Executive competitively having regard to comparable companies and the need to ensure that he is properly rewarded and motivated to perform in the best interests of the Shareholder. This policy is in accordance with the recommendations of the Covered Institutions Remuneration Oversight Committee ('CIROC'). The remuneration package consists primarily of a base salary with additional benefits including monthly contributions to a defined contribution pension scheme, a car allowance, a rent allowance, agreed travel expenses and agreed relocation related expenses. Remuneration for the Non-executive Directors is in accordance with the fee levels as agreed with the Minister for Finance in consultation with the Bank. Neither the Chairman or the Group Chief Executive participate in decisions relating to their own remuneration; this is a matter for the Remuneration Committee in consultation with the Shareholder. In accordance with a request from the Minister for Finance, following a recommendation from CIROC, the base salary of the Group Chief Executive is capped at 500,000. Annual performance bonuses The Bank does not operate a performance-related bonus scheme for executives hence no annual performance bonus has been paid or awarded to the Group Chief Executive during the years ended 31 December 2011 or 31 December 2010. Share options There are no rights outstanding under any share option plans. Loans to Directors At 31 December 2011 there are no loans to Directors, see note 54. Directors' interests in contracts The Bank and its subsidiary undertakings did not have any material contracts or arrangements during the year in which a Director of the Bank was materially interested, other than in the Bank's normal business. Details of related party transactions are included in note 54. Service contracts In order to secure the services of the Group Chief Executive and in the context of the circumstances surrounding the Bank, the Group Chief Executive's contract includes an initial guarantee of employment for two years from September 2009. Thereafter a notice period of twelve months applies. Other than the Group Chief Executive, there are no provisions for pre-determined compensation on termination in existence for any Director. Pensions The Group Chief Executive is entitled to monthly contributions to a defined contribution scheme. All pension benefits are determined solely in relation to basic salary. Fees paid to Non-executive Directors are not pensionable. Under the defined contribution pension scheme, a set percentage of salary is paid into the scheme each year and is invested for the benefit of the member. At retirement, the accumulated value of the investments made is available to purchase retirement benefits for the member. Under this scheme, once the contributions have been paid the Group has no further obligation.

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Directors' and Secretary's interests At 31 December 2011 the Directors and Secretary in office, and their spouses and minor children, had no beneficial interests in the shares of the Bank. Directors' remuneration - 2011 Salary & benefits * '000 Executive Director A.M.R. (Mike) Aynsley Non-executive Directors Alan Dukes (1) Dr. Noel Cawley (2) Aidan Eames (3) Oliver Ellingham (4) Maurice Keane (5) Gary Kennedy (6) Roger McGreal (7) Total * 538 150 86 86 16 99 99 23 559 125 150 86 86 16 99 99 23 1,222 203 150 86 86 16 99 99 23 1,425 538 125 663 203 866 Total annual Pension ^ remuneration '000 '000 Temporary allowances # '000

Fees ** '000

Total '000

Comprises a base salary of 500,000 and other taxable benefits including an annual car allowance.

** Fees to Non-executive Directors comprise a basic fee for Board membership and additional fees paid to the Chairmen of each of the principal Board Committees. ^ Comprises employer contributions to pension funds. # Comprises the gross value, before deduction of tax, of temporary relocation assistance which includes rent, travel and other agreed expenses received during the year.

(1) The Chairman has decided to take an annual fee of 150,000, which is 100,000 lower than the agreed contractual fee of 250,000, effective as and from his date of appointment as Chairman. (2) Comprises a basic fee of 73,600 and an additional fee of 12,880 as Chairman of the Remuneration Committee. (3) Comprises a basic fee of 73,600 and an additional fee of 12,880 as Chairman of the Nomination and Governance Committee. (4) Co-opted on 14 October 2011. (5) Comprises a basic fee of 73,600 and an additional fee of 25,760 as Chairman of the Risk and Compliance Committee. (6) Comprises a basic fee of 73,600 and an additional fee of 25,760 as Chairman of the Audit Committee. (7) Co-opted on 15 November 2011. Includes 13,512 in respect of his services as a Non-executive Director of INBS from 1 July 2011 to 14 November 2011. Fees paid to Roger McGreal as a Non-executive Director of INBS from 1 January 2011 to 30 June 2011 are not included in the table above. Board member expenses During 2011 the following amounts were reimbursed to, or paid on behalf of, Board members: 3k for travel and subsistence expenses and 1k for telephone and other expenses. These expenses relate to services as Board members only and do not include expenses incurred by the Executive Director in the day to day management of the business.

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Notes to the financial statements continued

53. Report on Directors' remuneration and interests continued

Directors' remuneration - 2010 Salary & benefits * '000 Executive Director A.M.R. (Mike) Aynsley Non-executive Directors Alan Dukes (1) Dr. Noel Cawley (2) Aidan Eames (2) Maurice Keane Gary Kennedy (2) Donal O'Connor (3) Total * 547 127 52 52 112 59 114 516 133 127 52 52 112 59 114 1,196 294 127 52 52 112 59 114 1,490 547 133 680 294 974 Total annual remuneration '000 Temporary allowances # '000

Fees ** '000

Pension ^ '000

Total '000

Comprises a base salary of 500,000 and other taxable benefits including an annual car allowance.

** Fees to Non-executive Directors comprise a basic annual fee of 73,600 and additional fees paid to the Chairmen of each of the principal Board Committees. The Chairmen of the Audit Committee and the Risk and Compliance Committee receive an annual fee of 25,760. The Chairmen of the Nomination and Governance Committee and the Remuneration Committee receive an annual fee of 12,880. During 2010, due to the limited number of Directors on the Board for a period of time, certain Directors were required to act as Chairmen of more than one committee for part of the year. Details of appointments to the Board Committees in 2010 are described in the Corporate governance statement in the 2010 Annual Report and Accounts. ^ Comprises employer contributions to pension funds. Includes 8,000 in respect of 2009 entitlements which were paid during 2010. Comprises the gross value, before deduction of tax, of temporary relocation assistance which includes rent, travel and other agreed expenses received during the year.

(1) Appointed as Chairman on 14 June 2010. The Chairman has decided to take an annual fee of 150,000, which is 100,000 lower than the agreed contractual fee of 250,000, effective as and from his date of appointment as Chairman. (2) Co-opted on 24 May 2010. (3) Resigned as Chairman and as a Director on 14 June 2010. The annual fee for the role of Chairman was 250,000 and this was paid on a pro rata basis up to the date of his resignation.

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54. Related party transactions

Irish Government Parties are considered to be related if one party has the ability to control, or exercise significant influence over, another party's financial or operational decision making, or when both parties are under common control. During the period ended 31 December 2009 the Group was taken into State ownership and, as a result, the Irish Government is considered a related party. CISA, enacted on 21 December 2010, provides the legislative basis for the reorganisation and restructuring of the banking system agreed in the joint EU/IMF Programme of Financial Support for Ireland. It will facilitate the planned restructuring of the Bank as set out in the programme agreement and consistent with EU State aid requirements. The Irish Government and the Troika (IMF, EC and European Central Bank) may therefore exert significant influence which could impact the Group's future results and financial condition. The Government, under the ELG Scheme, has provided guarantees in respect of certain liabilities of the Group. Fees payable under the ELG Scheme are set out in note 4. On 8 February 2011 a Direction Order was made by the Irish High Court directing the Bank to begin a process, managed by the NTMA, to transfer certain deposits and assets held by the Bank. Subsequently on 24 February 2011 the AIB Transfer Order was made by the Irish High Court, under which, in return for transferring its Irish and UK deposits, the Bank was required to pay AIB and AIB UK 1.6bn in excess of book value. In addition the Bank's shareholding in its Isle of Man deposit taking subsidiary was transferred to AIB at approximately net asset value. The total net loss on disposal before tax arising from the transaction in 2011, including the transfer of NAMA senior bonds, is 0.2bn. From 24 February 2011 the legal effect of the AIB Transfer Order is that the vast majority of customer deposit accounts held with the Bank's Irish branches are now held with AIB and in the case of the UK are now held with its subsidiary, AIB UK. Under the terms of the AIB Transfer Order, certain employees of the Bank associated with the deposit business automatically transferred to AIB and AIB UK. The Bank is providing certain administrative and operational services to AIB and AIB UK following the deposit transfer pursuant to the TSA and has earned fee income of 3m during the year in respect of these services. In March and April 2011 the Bank entered into two cross currency swaps with the NTMA on market terms. The principal amounts of the swaps are 2.3bn / $3.2bn and 0.6bn / 0.6bn respectively and these amounts were exchanged between the parties. The swaps have an amortising profile and contractual maturity of 2021. The interest rates on the swaps are marketbased plus an agreed spread over the respective currency interbank benchmark rate. The swaps assist the Bank in meeting its foreign currency funding requirements. Placements with banks (note 22) include a cash collateral placement of 143m (2010: nil) with the NTMA relating to these transactions. On 7 April 2011 the Minister for Finance issued to the Bank certain requirements under Section 50 of CISA pursuant to which the Bank was obliged to implement in all material respects, with the approval of the NTMA, the high level steps plans appended thereto in relation to (i) the rationalisation and, where appropriate, closure of the Banks UK offices and its branches in Dusseldorf, Vienna and Jersey, (ii) the disposal of the Banks Wealth Management business and (iii) the Banks acquisition of/merger with INBS. The Bank was also required to prepare, in conjunction with INBS and the NTMA, a high level restructuring and work-out steps plan, based on the Restructuring Plan (the High Level Steps Plan) and, subject to the approval of the NTMA, implement that High Level Steps Plan, subject to any variations directed by the EC. The Bank is proceeding to implement the High Level Steps Plan, following its approval by the NTMA on 20 June 2011. On 29 June 2011 the EC approved, under EU State aid rules, the joint restructuring and work-out plan for the Bank and INBS which had been submitted by the Irish Government to the EC on 31 January 2011. Pursuant to the restructuring plan, the Bank and INBS were to be combined and then resolved over a period of up to ten years. On 1 July 2011 all of the assets and liabilities (with the exception of certain limited excluded liabilities) of INBS transferred to the Bank by way of a further transfer order made, by the Irish High Court, under Section 34 of CISA (the INBS Transfer Order) and on that date the Bank announced its intention to change its name to Irish Bank Resolution Corporation Limited (IBRC). During the year the Bank has recognised a net reduction of 776m in the overall reported loss on disposal of assets to NAMA (note 14). This results primarily from settled valuation adjustments relating to the completion of full due diligence by NAMA on assets previously transferred during November and December 2010. 296m of the net reduction relates to INBS assets and has been recognised during the six months ended 31 December 2011. At 31 December 2011 the Bank held promissory notes issued by the Minister for Finance with a carrying value of 29.9bn (2010: 25.7bn) (note 25). The promissory notes pay 10% of the initial principal amount annually. The Bank received the first instalment payment of 2.53bn on 31 March 2011.

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Notes to the financial statements continued

54. Related party transactions continued

Irish Government continued Placings with, and deposits from, the Central Bank of Ireland are detailed in notes 19, 22 and 37. In addition, in the normal course of business and on arm's length terms, the Group has entered into transactions with Government-related entities, which include financial institutions in which the State has significant influence. The principal banking transactions include taking deposits, investing in Government bonds and debt securities in issue, entering into derivative contracts and providing loans. At 31 December 2011 normal banking transactions outstanding between the Group and such entities amounted to: deposits of 43m (2010: 540m), Government bonds of 303m (2010: 278m), debt securities issued by financial institutions in which the State has significant influence of 485m (2010: 383m), net derivative liabilities of 18m (2010: 24m) and loans and advances to banks of 224m (2010: 365m). The volume and diversity of other non-banking transactions are not considered significant. Furthermore, while the Irish Government or Government-related entities may in the normal course of their business hold debt securities, subordinated liabilities and other liabilities issued by the Group, it is not practical to ascertain and disclose these amounts. In the ordinary course of business the Group purchases certain utility and other services from entities controlled by the Irish Government. Pension funds The Group provides normal investment fund management and banking services to pension funds operated by the Group for the benefit of its employees. These services are provided on similar terms to third party transactions and are not material to the Group. Subsidiary undertakings Irish Bank Resolution Corporation Limited (the 'Bank') is the ultimate parent of the Group. Banking transactions are entered into by the Bank with its subsidiaries in the normal course of business. Balances between the Bank and its subsidiaries are detailed in notes 21, 22, 23, 27, 37, 38 and 40. Details of significant subsidiary undertakings are shown in note 30. During the year ended 31 December 2011, the Bank waived certain loans due to it from the following subsidiary undertakings: Aragone Limited, IBRC Assurance Company Limited, IBRC Property Investors Limited, Tincorra Investments Limited and IBRC Property Lending Limited. As a result of the loan waivers the Bank has increased its investments in certain of these subsidiaries. Joint ventures and associates The Group provides certain banking and financial services to its joint ventures and associates. Details of the Group's loans and advances to equity-accounted joint venture interests, joint venture interests held in respect of liabilities to customers under investment contracts and joint ventures and associates that are measured at fair value through profit or loss are disclosed in note 27. Details of deposits from joint ventures and associates are shown in note 37. Details of significant equity-accounted joint ventures and associates are shown in note 29. In August 2010 the EC granted approval for the Bank and Ulster Bank to assume control of Arnotts Holdings Limited as agreed with shareholders in a loan restructuring agreement in February 2010. The value of the Banks interest in Arnotts is included in financial assets at fair value through profit or loss. In late 2011 the Bank obtained a minority equity stake in what was previously the manufacturing business of the Quinn Group. The Bank's interest is classified, upon initial recognition, at fair value through profit or loss. At 31 December 2011 the value of the Banks economic interest in this enterprise is not material. In 2011 the Group agreed a joint venture with Liberty Mutual Group to acquire the Republic of Ireland general insurance business of Quinn Insurance Limited (Under Administration). The value of the Bank's interest is included in interests in associates and the details are disclosed in note 29.

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Key management personnel Key management personnel comprise persons who, at any time during the year ended 31 December 2011, were members of the Board of Directors (the 'Board') and any other persons having authority and responsibility for planning, directing and controlling the activities of the Bank. Changes to the Board since 31 December 2010 On 14 October 2011 and 15 November 2011 respectively Oliver Ellingham and Roger McGreal were appointed to the Board. On 13 January 2012 Dr. Max Barrett resigned as Group Secretary and was replaced by Philip Brady. Remuneration for the Non-executive Directors is in accordance with the fee levels as agreed with the Minister for Finance in consultation with the Bank. Key management compensation The following disclosures are made in accordance with the provisions of IAS 24 'Related Party Disclosures'. These disclosures cover the Board of Directors (Executive and Non-executive) and other key management personnel. The amounts presented below include the figures separately reported in the Report on Directors' remuneration and interests in note 53. 2011 m Salaries and short term employee benefits (1) Directors' fees (2) Post employment benefits (3) Termination benefits (4) 6 1 1 8 2010* m 5 1 1 1 8

(1) At 31 December 2011 key management personnel comprise the ten individuals who are members of the Banks Group Executive Committee, which includes the Executive Director. The amounts presented above include salaries and short term employee benefits for seventeen persons (2010: fourteen), who were considered key management personnel at some point during the year, two of whom had left the Bank by 31 December 2011. In addition, to ensure compliance with tax rules, the Bank also engages professional advisors to assist in the preparation of Irish and foreign tax returns for certain key management personnel who were hired from abroad. (2) Further details in respect of Directors' fees are presented separately in the Report on Directors' remuneration and interests in note 53. (3) Comprises employer contributions to pension funds. (4) In the prior year termination benefits were paid to two former members of key management who left the Bank in 2010.

* In 2010 a deferred bonus of 0.1m, which had previously been awarded and expensed in respect of the financial year to 30 September 2006 and which represented a contractual obligation, was paid to one key manager in the prior year.

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Notes to the financial statements continued

54. Related party transactions continued

Loans to key management personnel Loan balance movements during the year and the aggregate amounts outstanding at year end to persons who, at any time during the year, were key management personnel were: 2011 Other key Directors management * m m At beginning of year (1) Loan advances during the year (2) Loan repayments during the year Other movements (3) At end of year (4) Provisions for impairment At end of year after provisions for impairment Number of persons (5) * Excludes Executive Directors None of the current Directors has, or has had at any time during the year, any loans from the Bank. No other transactions, arrangements or agreements of the type referred to in section 31 of the Companies Act, 1990 (as amended) existed at any time during the year in respect of any current Director of the Bank. (1) The reduction in Directors' loans in 2010 of 46m represents the opening loan balances, after provisions for impairments, in respect of nine former Executive and Non-executive Directors who either resigned from the Board or the Bank in the fifteen month period ended 31 December 2009. A full analysis of the closing balance at 31 December 2009 is presented in note 55 to the 2009 Annual Report and Accounts. The reduction in loans to other key management in 2010 of 10m primarily represents the opening loan balances, after provisions for impairment, in respect of three former key managers who were no longer employed by the Bank at 31 December 2010. (2) No new loans and advances to key managers were provided in the year to 31 December 2011. (3) Following changes to the composition of key management personnel which arose during the year, the number of key managers with borrowings from the Bank has changed. (4) At 31 December 2011 loans and advances include 1m (2010: 1m) in respect of three (2010: two) individuals who were considered key management personnel at some point during the year. In addition to the amounts included in the table above, one current key manager has also provided joint and several guarantees in respect of loans involving two corporate entities. The joint and several guarantees in respect of the two corporate exposures have been provided in conjunction with individual co-guarantors. The loan balances outstanding on these corporate loans at 31 December 2011 total 0.1m. There are no provisions in respect of any failure or anticipated failure by key managers to repay any of these facilities. (5) This includes key management personnel who held balances at any time during the year. 1 1 1 3 2010 Directors m 46 (46) Other key management * m 11 (10) 1 1 2

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Deposits and investments by key management personnel Deposit balance movements during the year and the aggregate amounts outstanding at year end from persons who, at any time during the year, were key management personnel were: 2011 Other key Directors management * m m At beginning of year Deposits received during the year Deposits withdrawn during the year Other movements (1) At end of year Number of persons (2) * Excludes Executive Directors (1) Other movements include changes to the composition of the Board and other key management personnel. One Nonexecutive Director had deposits with the Bank at the end of 2010 totalling 213k. One former member of key management, who left the Bank during 2010, had deposits totalling 107k at the end of 2010. Deposits by key management personnel were at commercial interest rates. Along with the vast majority of customer deposits these accounts were transferred to AIB on 24 February 2011 as part of the wider AIB Transfer Order. Consequently the bank had no deposit balances with Directors or other key management as at 31 December 2011. (2) This includes key management personnel who held balances at any time during the year. The Group's Private Bank offered a range of products to its clients, some of which key management personnel had invested into. Fees earned by the Group on their share of these investments are charged at commercial rates and the amounts are de minimis for 2010 and 2011. At 31 December 2011 two persons (2010: three) who were key management personnel during the year held investments valued at 23k (2010: 132k). Investments held by Directors remaining in office at 31 December 2011 totalled nil (2010: nil). Loans to connected persons During the year there was no transaction, arrangement or agreement of the type referred to in section 31 of the Companies Act, 1990 (as amended) between the Bank and any person who was connected with a Director of the Bank during the year which was (a) not entered into by the Bank in the ordinary course of its business, or (b) its value was greater, or its terms more favourable, in respect of the person for whom it is made, than that or those which (i) the Bank ordinarily offers, or (ii) it is reasonable to expect the Bank to have offered, to or in respect of a person of the same financial standing but unconnected with the Bank. Other related party transactions No other related party transactions, arrangements or agreements of the type referred to in section 31 of the Companies Act, 1990 (as amended) existed at any time during the year in respect of any current Director of the Bank. 1 2010 Directors m 8 (8) 1 Other key management * m 1 (1) 1

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55. Parent Bank information on credit risk

Market, liquidity and funding, and operational risks are managed on a Group basis. A description of these risks, along with relevant financial information, is set out in note 50. Equivalent information in respect of the Bank would not be meaningful and therefore has not been provided. While credit risk is managed on a consistent basis throughout the Group, asset quality information is relevant for both the Group and the Bank. As a result, the following tables have been presented. The information contained in this note in respect of loans and advances to customers and loans classified as held for sale relates only to third party exposures arising within the parent Bank. There is no net exposure in the Bank that is not in the Group. Maximum exposure to credit risk The following table presents the Bank's maximum exposure to credit risk before collateral or other credit enhancements. Included below are contingent liabilities and commitments to lend, which are not recognised in the statement of financial position, which the Bank does not expect to be fully drawn. The Bank 2011 m Exposures in the statement of financial position Cash and balances with central banks Financial assets at fair value through profit or loss - held on own account * Derivative financial instruments Loans and advances to banks Assets classified as held for sale Available-for-sale financial assets * Promissory notes Government debt securities at amortised cost Loans and advances to customers Exposures not recognised in the statement of financial position Contingent liabilities Commitments to lend Maximum exposure to credit risk * Excludes equity shares 174 237 50,875 304 551 67,291 100 1,380 2,112 311 1,276 29,934 947 14,404 181 2,177 2,900 1,364 2,168 25,704 10,623 21,319 2010 m

Where financial instruments are recorded at fair value, the amounts shown above represent the credit risk exposure as at year end but not the maximum risk exposure that could arise as a result of changes in values. Loans and advances to customers and assets classified as held for sale include 724m (2010: 749m) and 14m (2010: 15m) respectively lent to fund assets held by the Group's assurance business in respect of liabilities to customers under investment contracts. Contingent liabilities includes 157m (2010: 266m) in respect of financial guarantees and irrevocable letters of credit.

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Additional information for loans and advances to customers Asset quality - profile of loans and advances to customers The Bank 2011 Commercial m Good quality Satisfactory quality Lower quality but not past due or impaired Total neither past due or impaired Past due but not impaired Impaired loans Provisions for impairment Total Less: Lending to policyholders in respect of investment contracts (note 40) Total (724) 13,680 1,532 7 2,152 3,691 1,063 10,664 15,418 (5,544) 9,874 Residential m 128 8 35 171 195 815 1,181 (571) 610 Business Banking m 314 72 385 771 133 2,172 3,076 (1,872) 1,204 Residential Mortgages m 637 150 38 825 245 803 1,873 (496) 1,377 Other Lending m 480 3 170 653 314 1,735 2,702 (1,363) 1,339 Total m 3,091 240 2,780 6,111 1,950 16,189 24,250 (9,846) 14,404

Provisions for impairment on loans and advances to customers

The Bank 2011 Residential m 596 50 96 (7) (11) (18) Business Banking m 1,865 169 (159) 5 (14) 28 Residential Mortgages m 421 80 (9) Other Lending m 1,318 32 35 (10) 22 Total m 9,039 667 1,473 (325) 6 (167) 85

Commercial m At beginning of year Acquired under the INBS Transfer Order Charge against profits Write-offs Recoveries Unwind of discount Exchange movements Net transfers (to)/from assets classified as held for sale and sectoral reclassification At end of year Specific Collective Total 5,260 164 1,093 (159) 1 (123) 53

(745) 5,544 5,147 397 5,544

(135) 571 534 37 571

(22) 1,872 1,777 95 1,872

4 496 361 135 496

(34) 1,363 1,288 75 1,363

(932) 9,846 9,107 739 9,846

The charge against profits includes collective provisions for impairment analysed on a portfolio basis. Residential lending comprises residential development and residential investment, and incorporates large value development and investment transactions. Residential mortgages consists of the portfolio of residential loans transferred to the Bank on 1 July 2011 under the INBS Transfer Order and incorporates owner occupier and buy to let mortgages. Other lending includes 18m of loans advanced for the purchase of the borrower's principal private residence.

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55. Parent Bank information on credit risk continued

The Bank 2010 Commercial m Good quality Satisfactory quality Lower quality but not past due or impaired Total neither past due or impaired Past due but not impaired Impaired loans Provisions for impairment Less: Lending to policyholders in respect of investment contracts (note 40) Total Provisions for impairment on loans and advances to customers (749) 20,570 4,706 895 3,515 9,116 2,483 9,924 21,523 (5,260) 16,263 Residential m 351 21 362 734 363 1,401 2,498 (596) 1,902 Business Banking m 428 79 73 580 386 2,436 3,402 (1,865) 1,537 Other Lending m 219 40 259 1,224 1,452 2,935 (1,318) 1,617 Total m 5,704 995 3,990 10,689 4,456 15,213 30,358 (9,039) 21,319

The Bank 2010 Commercial m Residential m 296 279 (10) (17) (13) Business Banking m 734 1,682 (193) (24) 4 Other Lending m 922 414 (4) (7) 37 Total m 4,558 4,838 (363) (154) 63

At beginning of year Charge against profits Write-offs Unwind of discount Exchange movements Net transfers from/(to) assets classified as held for sale and sectoral reclassification At end of year Specific Collective Total

2,606 2,463 (156) (106) 35

418 5,260 4,588 672 5,260

61 596 533 63 596

(338) 1,865 1,694 171 1,865

(44) 1,318 1,045 273 1,318

97 9,039 7,860 1,179 9,039

The charge against profits includes collective provisions for impairment analysed on a portfolio basis.

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Aged analysis of financial assets past due but not impaired The following tables present an analysis of financial assets, other than those carried at fair value, and excluding loans classified as held for sale, where contractual interest or principal payments are past due but impairment is not appropriate as the level of collateral and the present value of estimated future cash flows available to the Bank is sufficient. The Bank 2011 Commercial m Past due 1 to 30 days Past due 31 to 60 days Past due 61 to 90 days Past due 91 days and over Total 101 13 21 928 1,063 Residential m 9 36 1 149 195 Business Banking m 74 4 55 133 Residential Mortgages m 49 25 75 96 245 Other Lending m 33 11 2 268 314 Total m 266 85 103 1,496 1,950

The Bank 2010 Commercial m Past due 1 to 30 days Past due 31 to 60 days Past due 61 to 90 days Past due 91 days and over Total 855 391 180 1,057 2,483 Residential m 123 3 18 219 363 Business Banking m 287 1 4 94 386 Other Lending m 57 6 26 1,135 1,224 Total m 1,322 401 228 2,505 4,456

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Notes to the financial statements continued

55. Parent Bank information on credit risk continued

Gross loans and advances to customers by geographical location and industry sector 2011 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Residential owner occupier Residential buy to let Personal Fund Investment Unzoned land Total loans and advances to customers 2,962 2,257 693 237 2,291 187 878 492 391 3,042 1,440 433 2,288 351 31 17,973 United Kingdom m 839 871 692 406 2,528 51 16 160 34 34 24 1 3 5,659 USA m 239 184 87 104 4 618 Total m 4,040 3,312 1,472 643 4,819 238 894 756 425 3,076 1,440 433 2,316 352 34 24,250

% 17% 14% 6% 2% 20% 1% 4% 3% 2% 13% 6% 2% 9% 1% 0% 100%

2010 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Personal Fund Investment Unzoned land Total loans and advances to customers 1,765 1,722 595 251 2,139 271 897 447 380 3,359 2,433 390 31 14,680 United Kingdom m 874 1,652 1,027 475 3,329 94 124 351 35 36 32 3 3 8,035 USA m 1,491 2,192 469 548 1,080 480 48 1,166 119 7 43 7,643 Total m 4,130 5,566 2,091 1,274 6,548 845 1,069 1,964 534 3,402 2,508 393 34 30,358

% 14% 18% 7% 4% 22% 3% 4% 6% 2% 11% 8% 1% 0% 100%

Geographical location is based on the location of the office recording the transaction. Total loans and advances to customers are stated gross of provisions and include 724m (2010: 749m) lent to fund assets held by the Group's assurance business in respect of liabilities to customers under investment contracts.

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Specific provisions against loans and advances to customers by geographical location and industry sector 2011 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Residential owner occupier Residential buy to let Personal Fund Investment Unzoned land Total specific provisions on loans and advances to customers 966 647 254 123 1,044 175 718 185 309 1,767 206 155 1,157 96 24 7,826 United Kingdom m 219 220 116 92 528 24 3 15 23 10 5 1 2 1,258 USA m 18 2 3 23 Total m 1,203 867 370 215 1,572 199 721 202 332 1,777 206 155 1,165 97 26 9,107

% 13% 10% 4% 2% 17% 2% 8% 2% 4% 20% 2% 2% 13% 1% 0% 100%

2010 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Personal Fund Investment Unzoned land Total specific provisions on loans and advances to customers 504 433 146 89 899 166 683 115 232 1,693 914 87 20 5,981 United Kingdom m 103 117 90 78 281 19 1 11 20 1 3 1 2 727 USA m 100 262 97 60 359 100 1 136 19 18 1,152 Total m 707 812 333 227 1,539 285 685 262 271 1,694 935 88 22 7,860

% 9% 10% 4% 3% 20% 4% 9% 3% 3% 22% 12% 1% 0% 100%

Geographical location is based on the location of the office recording the transaction.

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Notes to the financial statements continued

55. Parent Bank information on credit risk continued

Additional information for loans classified as held for sale Asset quality - profile of loans classified as held for sale The Bank 2011 Commercial m Good quality Satisfactory quality Lower quality but not past due or impaired Total neither past due or impaired Past due but not impaired Impaired loans Provisions for impairment Less: Lending to policyholders in respect of investment contracts (note 40) Total (14) 262 7 65 72 31 83 186 (83) 103 Residential m 193 193 (20) 173 Business Banking m Residential Mortgages m Other Lending m Total m 7 65 72 31 276 379 (103) 276

Provisions for impairment on loans classified as held for sale

The Bank 2011 Residential m 127 163 17 (7) (6) 4 Business Banking m 4 Residential Mortgages m 4 Other Lending m 46 96 3 (1) (1) Total m 519 336 23 (56) (16) 22

Commercial m At beginning of year Acquired under the INBS Transfer Order Charge against profits Write-offs Unwind of discount Exchange movements Net transfers from/(to) loans and advances to customers and sectoral reclassification Net release on disposal of assets to NAMA (note 14) Release on loan asset sales (note 15) At end of year Specific Total 346 73 (1) (49) (9) 19

745 (73) (968) 83 83 83

135 (169) (244) 20 20 20

22 (4) (22) -

(4) -

34 (129) (48) -

932 (375) (1,282) 103 103 103

Residential lending comprises residential development and residential investment, and incorporates large value development and investment transactions. Residential mortgages incorporates owner occupier mortgages and buy to let mortgages.

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The Bank 2010 Commercial m Good quality Satisfactory quality Lower quality but not past due or impaired Total neither past due or impaired Past due but not impaired Impaired loans Provisions for impairment Less: Lending to policyholders in respect of investment contracts (note 40) Total (15) 1,317 166 321 487 351 616 1,454 (346) 1,108 Residential m 13 46 59 10 235 304 (127) 177 Business Banking m 3 3 3 Other Lending m 2 2 34 54 90 (46) 44 Total m 181 367 548 398 905 1,851 (519) 1,332

Provisions for impairment on loans classified as held for sale Commercial m At beginning of year Charge against profits Write-offs Unwind of discount Exchange movements Net transfers (to)/from loans and advances to customers and sectoral reclassification Released on disposal of assets to NAMA (note 14) At end of year Specific Total 5,192 1,630 (6) (131) 31 Residential m 2,477 643 (11) (59) 15

The Bank 2010 Business Banking m 180 11 (2) 9 Other Lending m 1,285 343 (18) 9 Total m 9,134 2,627 (17) (210) 64

(72) (6,298) 346 346 346

(65) (2,873) 127 127 127

(22) (176) -

62 (1,635) 46 46 46

(97) (10,982) 519 519 519

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Notes to the financial statements continued

55. Parent Bank information on credit risk continued

Aged analysis of loans classified as held for sale past due but not impaired The following table presents an analysis of loans classified as held for sale where contractual interest or principal payments are past due but impairment is not appropriate as the level of collateral and the present value of estimated future cash flows available to the Bank is sufficient.

The Bank 2011 Commercial m Past due 1 to 30 days Past due 31 to 60 days Past due 61 to 90 days Past due 91 days and over Total 31 31 Residential m Business Banking m Residential Mortgages m Other Lending m Total m 31 31

The Bank 2010 Commercial m Past due 1 to 30 days Past due 31 to 60 days Past due 61 to 90 days Past due 91 days and over Total 8 15 21 307 351 Residential m 1 9 10 Business Banking m 3 3 Other Lending m 34 34 Total m 12 15 21 350 398

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Gross loans classified as held for sale by geographical location and industry sector 2011 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Residential owner occupier Residential buy to let Personal Fund Investment Unzoned land Total loans classified as held for sale 11 11 2 72 6 102 United Kingdom m USA m 65 5 14 169 24 277 Total m 11 76 7 14 72 6 169 24 379

% 3% 20% 2% 4% 19% 2% 0% 44% 6% 0% 0% 0% 0% 0% 0% 100%

2010 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Personal Fund investment Unzoned land Total loans classified as held for sale 283 127 31 148 13 19 46 38 3 78 11 797 United Kingdom m 268 45 30 27 1 23 1 395 USA m 21 80 8 44 309 110 87 659 Total m 572 172 141 35 192 323 19 179 125 3 79 11 1,851

% 31% 9% 8% 2% 10% 17% 1% 10% 7% 0% 4% 0% 1% 100%

Geographical location is based on the location of the office recording the transaction. Total loans classified as held for sale are stated gross of provisions and include 14m (2010: 15m) lent to fund assets held by the Group's assurance business in respect of liabilities to customers under investment contracts.

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Notes to the financial statements continued

55. Parent Bank information on credit risk continued

Specific provisions against loans classified as held for sale by geographical location and industry sector 2011 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Residential owner occupier Residential buy to let Personal Fund Investment Unzoned land Total specific provisions on loans classified as held for sale 72 6 78 United Kingdom m USA m 5 20 25 Total m 5 72 6 20 103

% 0% 0% 5% 0% 70% 6% 0% 19% 0% 0% 0% 0% 0% 0% 0% 100%

2010 Ireland m Retail Office Mixed use Industrial Leisure Commercial development Other property investment Residential investment Residential development Business banking Personal Fund investment Unzoned land Total specific provisions on loans classified as held for sale 75 11 23 46 155 United Kingdom m 9 6 15 USA m 15 58 6 28 138 47 57 349 Total m 15 9 64 6 103 149 47 80 46 519

% 3% 2% 12% 1% 20% 29% 0% 9% 15% 0% 9% 0% 0% 100%

Geographical location is based on the location of the office recording the transaction.

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Available-for-sale financial assets The external ratings profile of the Bank's available-for-sale financial assets, excluding equity shares, is as follows:

The Bank 2011 Financial Institutions m 43 214 496 96 849 Asset NAMA Backed Subordinated Securities Bonds m m 124 124

Sovereign m AAA / AA A BBB+ / BBB / BBBSub investment grade Unrated 303 303

Total m 43 214 799 96 124 1,276

The Bank 2010 Financial Institutions m 418 684 548 1,650 Asset Backed Securities m NAMA Subordinated Bonds m 167 167

Sovereign m AAA / AA A BBB+ / BBB / BBBSub investment grade Unrated 72 279 351

Total m 490 684 827 167 2,168

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Notes to the financial statements continued

56. Asset management activities

In the past the Group provided custody, investment management and advisory services to third parties which involved the Group making allocation, purchase and sale decisions in relation to a wide range of assets. Those assets that are held in a fiduciary capacity are not included in these financial statements. At the end of the reporting period the Group still holds the following assets under management: 2011 m Equities and investment properties Managed cash and other assets 129 21 150 2010 m 179 28 207

57. Events after the reporting period

Wealth Management business On 30 January 2012 the Bank announced that the Board had approved a strategy and direction put forward by management to wind down its Wealth Management business in an orderly fashion. This process is currently underway and may include a cosourcing arrangement. Any final arrangement reached between the parties will be subject to the approval of the Boards of the Bank and IBRC Assurance Company Limited and the consent of the Central Bank of Ireland with final ratification by the Minister for Finance. The Wealth Management business will continue to operate as normal during this period. IBRC Mortgage Bank ('IBRCMB') Subsequent to 31 December 2011 IBRCMB, a wholly owned subsidiary of the Bank, redeemed the remaining 1.8bn of its commercial mortgage asset covered securities in issue, all of which were held by the Bank. These redemptions were completed following consultation with the Central Bank of Ireland and in accordance with the requirements of the independent CoverAssets Monitor. In addition, the beneficial interests in the portfolio of commercial mortgage loans acquired by IBRCMB were transferred back to the Bank, significantly reducing the level of assets in IBRCMB. All derivative hedging contracts entered into between IBRCMB and the Bank have been terminated. Promissory notes Following an outline request, made on behalf of the Minister for Finance, the Bank is in discussions with the Department of Finance and the NTMA regarding a settlement proposal to utilise the funds due from the next instalment under the promissory notes on 2 April 2012 to acquire an Irish Government bond with an equivalent value. In the context of the ongoing financial support provided by the State to the Group, the Directors statutory public interest obligations and on the basis that the settlement proposal takes account of commercial market based considerations including valuation, liquidity and funding factors, the Board has agreed in principle to the outline request from the Minister. The settlement proposal relates to the 3.06bn instalment due on 2 April 2012 only and does not impact on the remaining annual instalments under the promissory notes. Detailed discussions on the technical aspects of the proposal continue.

58. Approval of financial statements

The Group financial statements were authorised for issue by the Board of Directors on 28 March 2012.

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Supplementary information (unaudited)

Additional residential mortgage information
The following unaudited supplementary information provides more granular detail in relation to the asset quality profile of the Bank's residential mortgage portfolio. The information provided is consistent with the Central Bank of Ireland Impairment Provisioning and Disclosure Guidelines issued on 20 December 2011. The residential mortgage portfolio, which totals 1.9bn and represents 7% of the Bank's total loans and advances to customers, was transferred to the Bank under the INBS Transfer Order on 1 July 2011. The portfolio is divided between owner occupier and buy to let mortgages, with approximately 77% being owner occupier and the remainder buy to let. The loans are almost exclusively secured on properties located in the Republic of Ireland, with the exception of balances totalling 6m secured on properties in the UK. Variable rate loans total 1.3bn, of which less than 0.1% are tracker mortgages linked to the ECB base rate. The balance of the portfolio comprises fixed rate loans. 260m of the fixed rate loan portfolio reverted to a higher standard variable rate at the end of February 2012. The information shown reflects balances as at 31 December 2011. Information in respect of charges to the income statement and collateral disposals cover the period for the six months ended 31 December 2011. Asset quality - profile of residential mortgages The table below details the overall asset quality of the portfolio at 31 December 2011. The Bank monitors the asset quality of the residential mortgage portfolio on an ongoing basis. An explanation of each asset quality category is contained in note 50. 31 December 2011 Owner Occupier m Good quality Satisfactory quality Lower quality but not past due or impaired Total neither past due or impaired Past due but not impaired Impaired loans Total gross loans Specific provisions for impairment Collective provisions for impairment Total loans net of provisions Total provision % Specific coverage ratio * * The specific coverage ratio measures specific provisions as a percentage of impaired loans. 577 136 35 748 215 477 1,440 (206) (120) 1,114 23% 43% Buy to Let m 60 14 3 77 30 326 433 (155) (15) 263 39% 48% Total m 637 150 38 825 245 803 1,873 (361) (135) 1,377 26% 45%

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Additional residential mortgage information (continued)

Aged analysis of residential mortgages past due but not impaired Owner Occupier m Past due 1 to 30 days Past due 31 to 60 days Past due 61 to 90 days Past due 91 days to 180 days Past due 181 days to 360 days Past due 361 days and over Total 45 23 65 25 27 30 215 31 December 2011 Buy to Let m 4 2 10 3 4 7 30 Total m 49 25 75 28 31 37 245

All loans which are more than 60 days past due are considered to be at risk and are included in the pool of loans that are assessed for specific impairment. In cases where a provision is necessary the loan is considered impaired and is reported in the impaired loan balances. Further information on the Bank's overall approach to the management of credit risk relating to its mortgage portfolio can be found in note 50 to the financial statements.

Loan origination profile of residential mortgages before provisions for impairment

31 December 2011 Residential mortgages m Number Impaired residential mortgages Number m 50 19 48 63 83 116 198 332 639 701 860 752 107 11 4 3,983 2 1 4 8 10 18 30 52 113 138 213 195 17 1 1 803

1996 and before 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total

2,182 716 823 908 692 744 1,181 1,553 2,286 2,233 2,370 1,909 486 91 173 35 18,382

38 18 30 43 40 54 102 154 283 288 404 335 45 5 27 7 1,873

The above table summarises the total number of loan accounts and balances by year of origination. In certain scenarios more than one loan can be secured on an individual property. This would normally arise where a customer availed of an equity release loan after the initial mortgage origination. Where a customer facility has been classified as impaired, both the original mortgage and the subsequent equity release loan, if one exists, are classified as impaired. All loans are shown in the year in which they were originally drawn down. The total number of individual properties within the portfolio is approximately 13,615 (owner occupier 11,429, buy to let 2,186).

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Loan to value ('LTV') information on residential mortgages The Banks primary security for its residential mortgage lending portfolio is the underlying property, and therefore LTV is an important factor when assessing credit risk. However, it is not the only factor used when determining the overall credit quality of a facility. The repayment history and the current and future capability of the borrower to repay the debt are equally important considerations. The highest risk loans are those that are past due and have a high LTV.

Actual LTVs across total mortgage portfolio Owner Occupier m Less than 50% 50% to 70% 71% to 80% 81% to 90% 91% to 100% 101% to 120% 121% to 150% Greater than 150% Total Average LTV 255 155 87 99 111 213 252 268 1,440 108%

31 December 2011 Buy to Let m 46 20 15 15 26 41 72 198 433 152% Total m 301 175 102 114 137 254 324 466 1,873 119% Total % 16% 9% 6% 6% 7% 14% 17% 25% 100%

Average LTV has been estimated based on indexing the most recently available property valuations against a combination of the PTSB/ESRI and CSO house price indices. At 31 December 2011 the CSO house price index estimated a peak to trough fall of 43% outside Dublin (peak September 2007) and 55% in the Dublin region (peak February 2007).

Actual LTVs across performing mortgage portfolio Owner Occupier m Less than 50% 50% to 70% 71% to 80% 81% to 90% 91% to 100% 101% to 120% 121% to 150% Greater than 150% Total Average LTV 242 149 68 70 77 140 138 79 963 85%

31 December 2011 Buy to Let m 33 18 8 6 9 10 10 13 107 97% Total m 275 167 76 76 86 150 148 92 1,070 87% Total % 26% 16% 7% 7% 8% 14% 14% 8% 100%

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Additional residential mortgage information (continued)

Forbearance arrangements Support for mortgage customers who are experiencing financial difficulties with their scheduled residential mortgage repayments is provided by the Banks Arrears Support Unit. Forbearance options for customers are considered on a case-by-case basis, and are consistent with industry guidance and practice. Forbearance measures include arrears capitalisation, interest only concession, less than interest only concession, greater than interest only concession and, subject to any constraints under the commitments, term extension for lending secured on property. In the normal course of business, a payment holiday is not offered as an option. Forbearance measures are employed in order to assist customers who are experiencing temporary repayment difficulties with the objective of bringing the mortgage back onto sustainable terms within a reasonable timeframe. These management policies and practices typically provide the customer with terms and conditions that are in line with their current capacity to service the loan. Loans where forbearance has been granted or is being considered are taken into account within the Banks impairment assessment process. At all times the Bank complies with the Central Bank of Irelands statutory codes of conduct for mortgage lenders when dealing with mortgage arrears. The information provided and the format of this information reflect the detailed requirements of the Central Bank of Ireland and are consistent with quarterly reporting submitted to the Central Bank of Ireland by the Bank.

Owner occupier mortgages All loans Number Interest only ('IO') Payment reduced (less than IO) Payment reduced (greater than IO) Payment moratorium Arrears capitalisation Term extension Hybrid Total 283 221 307 93 1,565 366 849 3,684

31 December 2011 Loans > 90 days in arrears and/or impaired Number m 186 193 173 64 904 253 577 2,350 29 33 19 12 130 21 96 340

m 37 36 29 14 180 24 114 434

Buy to let mortgages All loans Number Interest only ('IO') Payment reduced (less than IO) Payment reduced (greater than IO) Payment moratorium Arrears capitalisation Term extension Hybrid Total 145 33 10 13 261 72 82 616

31 December 2011 Loans > 90 days in arrears and/or impaired Number m 115 31 6 10 204 54 77 497 24 11 1 2 49 13 18 118

m 27 11 2 2 53 15 20 130

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Provisions for impairment - residential mortgages

6 months ended 31 December 2011 m 46 16 18 80

Specific - Owner occupier - Buy to let Collective Total

The total impairment charge of 80m represents 5% of the Bank's total lending impairment charge for the year and reflects the overall credit quality of the portfolio and the continuing difficult conditions in the Irish residential property market. Of the specific residential mortgage impairment charge, 28m relates to mortgages where forbearance has been granted. Repossessed collateral Repossession of collateral is only considered by the Bank after all other avenues of resolution have been exhausted. The below table shows the number of repossessed properties and associated loan balances on the Bank's balance sheet at year end. The loan balances associated with those repossessed properties which have not been sold are stated at the current market value of security held. Residential repossessions 31 December 2011 Number of Repossessions Gross Balance Outstanding m 18 26 44

Owner occupier Buy to let Total

51 81 132

During the six months since the INBS Transfer Order on 1 July 2011, 33 properties have been repossessed. Following repossession of a property, the Bank implements its process for managing properties in possession which involves: - Appointing an auctioneer/agent to sell the asset; - Having the building adequately insured; - Obtaining a Building Energy Rating certificate; - Obtaining at least two quotes for all properties that require maintenance; and - Reviewing all repossessed properties on a monthly basis. In November 2011, following a competitive tender process, the Bank appointed a sole sales agent with a nationwide presence to manage the sales process for properties in possession. Properties are disposed of as soon as practicable after repossession and the proceeds are used to reduce indebtedness. During the period from 1 July 2011 to 31 December 2011, 28 properties were disposed of, details of which are set out in the table below. 31 December 2011 Number of disposals Residential mortgages Owner occupier Buy to let Total 15 13 28 4.1 5.2 9.3 1.6 1.5 3.1 0.1 0.1 0.2 (2.6) (3.8) (6.4) Gross balance outstanding at repossession m Gross sales proceeds m Costs to sell m Loss on sale m

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Supplementary information (unaudited) continued

Consolidated income statement

For the year ended 31 December 2011 $m Interest and similar income Interest expense and similar charges Net interest income Fee and commission income Fee and commission expense Net trading expense Financial assets designated at fair value Gain on liability management exercise Other operating income/(expense) Other (expense)/income Total operating income Administrative expenses Depreciation Amortisation of intangible assets - software Total operating expenses Operating profit before disposals and provisions Loss on transfer of assets and liabilities Gain/(loss) on disposal of assets to NAMA Loss on deleveraging of other financial assets Provisions for impairment and other provisions Operating loss Share of results of associates and joint ventures Loss before taxation Taxation Loss for the year Attributable to: Owner of the parent Non-controlling interests (1,144) (1) (1,145) (739) (1) (740) 3,195 (1,973) 1,222 83 (6) (96) 3 11 (5) 1,217 (384) (17) (13) (414) 803 (277) 1,004 (551) (2,127) (1,148) 19 (1,129) (16) (1,145) m 2,062 (1,274) 788 53 (4) (62) 2 8 (3) 785 (248) (11) (8) (267) 518 (179) 648 (356) (1,373) (742) 12 (730) (10) (740)

Exchange rates used at 31 December 2011 1 = $1.2939 / 0.8353

174

Irish Bank Resolution Corporation Limited Annual Report & Accounts 2011

Consolidated statement of financial position

As at 31 December 2011 $m Assets Cash and balances with central banks Financial assets at fair value through profit or loss - held on own account - held in respect of liabilities to customers under investment contracts Derivative financial instruments Loans and advances to banks Assets classified as held for sale Available-for-sale financial assets Promissory notes Government debt securities at amortised cost Loans and advances to customers Interests in joint ventures Interests in associates Intangible assets - software Investment property - held on own account - held in respect of liabilities to customers under investment contracts Property, plant and equipment Current taxation Retirement benefit assets Deferred taxation Other assets Prepayments and accrued income Total assets Liabilities Deposits from banks Customer accounts Derivative financial instruments Debt securities in issue Liabilities to customers under investment contracts Current taxation Other liabilities Accruals and deferred income Deferred taxation Subordinated liabilities and other capital instruments Total liabilities Share capital Share premium Capital reserve Other reserves Retained earnings Shareholders' funds Non-controlling interests Total equity Total equity and liabilities 55,108 772 2,910 6,950 366 85 703 110 1 669 67,674 5,335 1,496 33,656 (319) (35,978) 4,190 4,190 71,864 35,576 499 1,879 4,486 236 55 454 71 1 432 43,689 3,444 966 21,727 (206) (23,226) 2,705 2,705 46,394 114 1,462 23 27 10 55 40 45 71,864 16 251 1,418 2,984 507 1,723 38,732 1,225 22,888 74 128 13 10 162 915 1,926 327 1,113 25,004 791 14,776 48 83 8 74 944 15 17 7 35 26 29 46,394 129 84 m

Exchange rates used at 31 December 2011 1 = $1.2939 / 0.8353

175

Acronyms and abbreviations

AFS AIB AIB Transfer Order Available-for-sale Allied Irish Banks, p.l.c. Transfer order made by the Irish High Court under section 34 of CISA on 24 February 2011 AIB Group (UK) p.l.c. Group Asset and Liability Committee 2006 Basel Capital Accord Basis point Credit and Collections Forum Credit Institutions (Financial Support) Scheme 2008 Covered Institutions Remuneration Oversight Committee Credit Institutions (Stabilisation) Act 2010 Credit Institutions Reorganisation and Winding Up Directive Continuous Linked Settlement Capital Requirements Directive Group Credit Policy Group Chief Risk Officer Collections and Recoveries Unit Collateral support agreements Credit valuation adjustment Direction order made by the Irish High Court under section 9 of CISA on 8 February 2011 European Commission European Central Bank Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 European Union RMI RWA S&P Senior bonds SLP SMRA the 1986 Act the 2010 Act the Bank the Board the Code NTMA PVBP Restructuring Plan INBS Irish Nationwide Building Society INBS Transfer Order Transfer order made by the Irish High Court under section 34 of CISA on 1 July 2011 IO LIBOR LME LTV Ministerial requirements MLRA NAMA NAMA Act Interest only London interbank offered rate Liability management exercise Loan-to-value Requirements issued by the Minister for Finance under section 50 of CISA on 7 April 2010 Master Loan Repurchase Agreement National Asset Management Agency National Asset Management Agency Act 2009 National Treasury Management Agency Present Value of a Basis Point Restructuring plan for IBRC, including the integration of INBS / High Level Steps Plan Recovery Management Ireland Risk weighted assets Standard and Poor's rating agency Government Guaranteed Floating Rate Notes Scottish Limited Partnership Special Master Repurchase Agreement Companies (Amendment) Act, 1986 Central Bank Reform Act 2010 Irish Bank Resolution Corporation Limited The Board of Directors of the Bank Central Bank of Ireland's Corporate Governance Code for Credit Institutions and Insurance Undertakings

AIB UK ALCO Basel II bp CCF CIFS Scheme CIROC CISA CIWUD CLS CRD Credit Policy CRO CRU CSAs CVA Direction Order

EC ECB ELG Scheme EU

EU/IMF Programme EU/IMF Programme of Financial Support for Ireland Euribor FD GBSM High Level Steps Plan IAS IBNR IBRC IBRCMB ICAAP IFRS IMF Euro interbank offered rate Facility Deed agreement Group Balance Sheet Management High level restructuring and work-out steps plan, based on the Restructuring Plan International Accounting Standards Incurred but not reported Irish Bank Resolution Corporation Limited and its subsidiaries IBRC Mortgage Bank Internal Capital Adequacy Assessment Process International Financial Reporting Standards International Monetary Fund

the Code of Practice 2009 Code of Practice for the Governance of State Bodies the Directors the Group Tier 1 Tier 2 TSA Turnbull guidance UK US VaR VAT The Board of Directors of the Bank Irish Bank Resolution Corporation Limited and its subsidiaries Primary capital Secondary capital Transfer Support Agreement concluded between IBRC, AIB and AIB UK Financial Reporting Council Revised Guidance on Internal Control United Kingdom United States of America Value at Risk Value Added Tax

176

Irish Bank Resolution Corporation Limited Locations

Dublin Registered Ofce Stephen Court 18/21 St Stephens Green Dublin 2 Tel: +353 (0)1 616 2000 Fax: +353 (0)1 616 2323 www.ibrc.ie Connaught House 1 Burlington Road Dublin 4 Tel: +353 (0)1 631 0000 Fax: +353 (0)1 631 0098 2 Grand Parade Dublin 6 Tel: +353 (0)1 609 6000 Fax: +353 (0)1 609 6599 Cork 11 Anglesea Street Cork Tel: +353 (0)21 453 7300 Fax: +353 (0)21 453 7399 Galway Forster Street Galway Tel: +353 (0)91 536 900 Fax: +353 (0)91 536 931 Limerick 98 Henry Street Limerick Tel: +353 (0)61 461 800 Fax: +353 (0)61 461 899 Waterford Maritana Gate Canada Street Waterford Tel: +353 (0)51 849 300 Fax: +353 (0)51 849 399 London 10 Old Jewry London EC2R 8DN Tel: +44 (0)20 7710 7000 Fax: +44 (0)20 7710 7050 Belfast 14/18 Great Victoria Street Belfast BT2 7BA Tel: +44 (0)28 9033 3100 Fax: +44 (0)28 9026 9090 Centrepoint 24 Ormeau Avenue Belfast BT2 8HS Tel: +44 (0)28 9055 0093 Fax: +44 (0)28 9055 0094 Manchester 1 Marsden Street Manchester M2 1HW Tel: +44 (0)16 1214 3020 Fax: +44 (0)16 1214 3030 Boston (Representative Ofce) 265 Franklin Street Boston MA 02110 Tel: +1 617 720 2577 Fax: +1 617 720 6099

Forward looking statements This report contains certain forward looking statements with respect to the nancial condition, results of operations and businesses of Irish Bank Resolution Corporation Limited. These statements involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements. The statements are based on current expected market and economic conditions, the existing regulatory environment and interpretations of IFRS applicable to past, current and future periods. Nothing in this report should be construed as a prot forecast.

Cover design: Designbank

www.ibrc.ie

Irish Bank Resolution Corporation Limited (trading as IBRC) is regulated by the Central Bank of Ireland. In the UK, Irish Bank Resolution Corporation Limited is authorised by the Central Bank of Ireland and subject to limited regulation by the Financial Services Authority. Details about the extent of our regulation by the Financial Services Authority are available from us on request.