BACKING OUR CUSTOMERS HALF-YEARLY FINANCIAL REPORT For the six months ended 30 June 2021 AIB Group plc ENSURING A GREENER TOMORROW BY BACKING THOSE BUILDING IT TODAY. AIB is a financial services group. Our main business activities are retail, business and corporate banking, as well as mobile payments and card acquiring. We are committed to supporting the transition to the low-carbon economy and backing sustainable communities. Merchant Services Beekeeper and AIB employee Kevin Power attending to his bees on the roof of our head office in Molesworth St, Dublin. Half-Yearly Financial Report For the six months ended 30 June 2021 01 02 OVERVIEW BUSINESS REVIEW 2 Business performance 16 Operating and financial review 4 Chief Executive’s review 31 Capital 11 Our strategy 12 Highlights 03 04 RISK MANAGEMENT FINANCIAL STATEMENTS 36 Update on risk management and governance 84 Condensed consolidated interim financial statements 37 Credit risk 91 Notes to the condensed consolidated interim 78 Funding and liquidity risk financial statements 82 Interest rate benchmark reform 131 Statement of Directors’ Responsibilities 132 Independent review report to AIB Group plc 133 Forward looking statements This Half-Yearly Financial Report contains forward looking statements with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives. See page 133. 2 Business Performance AIB Group plc Half-Yearly Financial Report 2021 BUSINESS PERFORMANCE H1 2021 RESULTS FINANCIAL PERFORMANCE NET INTEREST INCOME NET CREDIT IMPAIRMENT PROFIT/(LOSS) WRITEBACK/(CHARGE) BEFORE TAX €881m €103m €291m H1 2021 €881m H1 2021 €103m H1 2021 €291m H1 2020 €967m H1 2020 €(1,216)m H1 2020 €(909)m Lower lending volumes and Conservative, forward looking Return to profitability with net low interest rate environment and comprehensive provisioning credit impairment writeback impacting income approach maintained Operating profit1 of €373m, Down 9% due to reduced loan Writeback reflecting a more favourable in line with H1 2020, and volumes, the low interest rate economic environment with improved impairment writeback of €103m environment and lower investment credit quality and updated macro partly offset by exceptional items securities income partially offset by economic assumptions partially offset of €191m a decrease in funding costs by management judgements NEW LENDING NET LOANS NON-PERFORMING EXPOSURES2 €4.5bn €56.6bn €3.8bn H1 2021 €4.5bn 30 Jun 2021 €56.6bn 30 Jun 2021 €3.8bn H1 2020 €4.4bn 31 Dec 2020 €57.0bn 31 Dec 2020 €4.3bn New lending up 3% Net loans broadly stable at €56.6bn 6.5% of gross loans Increase in property and renewable Net loans down €0.9bn (excluding Non-performing exposures energy lending, some recovery in FX impact) with redemptions (NPEs) decreased by €0.5bn syndicated lending partly offset exceeding new lending and to €3.8bn driven by disposal by subdued credit demand from reflecting the disposal of of non-performing loan portfolios consumer and those business non-performing loan portfolios sectors most impacted by COVID-19 restrictions 1. Operating profit before impairment losses and exceptional items. 2. Non-performing exposures (NPEs) refers to non-performing loans (NPLs) and excludes €160m of off-balance sheet commitments. AIB Group plc Half-Yearly Financial Report 2021 Business Performance 3 1 2 3 4 MEDIUM-TERM FINANCIAL TARGETS3 (END 2023) In December 2020, we communicated a set of medium-term targets to 2023. Against the backdrop of an improved economic outlook, the opportunity for further loan book and fee income growth together with progress on our strategy, including our inorganic activity, we have revised these targets. ABSOLUTE RETURN ON CET1 RATIO COST BASE4 TANGIBLE EQUITY (FULLY LOADED) Cost of running the business, A measure of how well capital is A measure of our ability to withstand excluding exceptional costs deployed to generate earnings growth financial stress and remain solvent TARGET TARGET TARGET <€1.475bn >9% >13.5% Focussed cost discipline; controlling Deliver sustainable returns; Appropriate capital target of CET1 costs annually at <€1.475bn by 2023 RoTE >9% by 2023 >13.5% needed to run the business OUTCOME OUTCOME OUTCOME H1 2021 €739m 30 Jun 2021 6.7%5 30 Jun 2021 16.4% H1 2020 €747m 31 Dec 2020 -11.2% 31 Dec 2020 15.6% Costs down 1% to €739m Improved RoTE on return to profitability Strong capital position with CET1 16.4% NON-FINANCIAL PERFORMANCE GREEN FINANCE OUTCOMES Amount of new lending H1 2021 €913m per year for sustainability €913m 6 purposes H1 2020 €479m OUTCOMES DIGITALLY ACTIVE CUSTOMERS 30 Jun 2021 1.78 million Number of active users 1.78 million 31 Dec 2020 on digital channels 1.72 million CUSTOMER SATISFACTION OUTCOMES Transaction Net Promoter Score7 H1 2021 47 Measured after customer 47 H1 2020 51 transactions for key touch points OUTCOMES DIVERSITY Women as % of H1 2021 41.6% management 41.6% H1 2020 41% 3. Revised medium term targets. 4. Before bank levies, regulatory fees and exceptional items. For exceptional items see pages 20 and 29. 5. Based on CET1 target of 14%. Using the revised CET1 target of 13.5% the RoTE is 7.0%. 6. Excludes UK Green Mortgage lending, which was launched during H1 2020. 7. Transactional Net Promoter Score (NPS) is an aggregation of 20 customer journeys across Homes, Personal, SME, Digital, Retail, Direct and Day-to-Day Banking. 4 Chief Executive’s Review AIB Group plc Half-Yearly Financial Report 2021 CHIEF EXECUTIVE’S REVIEW WE ARE EXECUTING OUR STRATEGY AT PACE AS DEMONSTRATED BY THE SOLID PROGRESS MADE IN THE FIRST SIX MONTHS OF THE YEAR AIB Group plc Half-Yearly Financial Report 2021 Chief Executive’s Review 5 1 2 UNITED BY 3 PURPOSE, 4 DRIVEN BY AMBITION With strong fundamentals, AIB Group has returned to profitability in 2021 and progressed our strategy to achieve long-term growth objectives. INTRODUCTION continue to support Ireland's economic recovery as Ireland is finally emerging from the global pandemic we emerge from the COVID-19 pandemic. Further with the rapid roll out of highly effective vaccines details on the initiatives that have already been allowing for the gradual lifting of restrictions imposed delivered across each of our strategic pillars can be to control the spread of COVID-19. This paves the found on page 11. way for a robust recovery in economic activity. Against this backdrop, I am pleased to report a return In December 2020, we communicated a revised to profitability for the Group for the first half of 2021 set of medium-term targets to the market. On with the fundamentals of our business remaining the back of significant progress made in the strong, underpinned by our solid balance sheet and delivery of our strategic plan since then, including robust capital base. our corporate development related activity, the opportunity for further loan book and fee income We are proud to be Ireland’s leading digital bank and growth and an improved economic outlook, it is continue to hold a No.1 position across a number of now timely to revise these targets again to ensure product areas including current accounts, personal that we continue to deliver in the interests of all of loans and credit cards. In addition, we continue to our stakeholders. As such, in 2023 we commit to lead the sustainability agenda in financial services delivering a CET1 ratio of greater than 13.5%, in Ireland by both enabling action and making a cost base of less than €1.475bn and a Return meaningful progress in this space. on Tangible Equity (RoTE) of greater than 9%. We are executing our strategy at pace as demonstrated by the solid progress made in the first six months of the year. We have entered into a FINANCIAL PERFORMANCE binding agreement with Natwest Holdings Limited Reflecting the improving economic environment, and Ulster Bank Ireland DAC for the acquisition of we delivered a strong performance in the first half c.€4.2bn of performing Ulster Bank corporate and of this year achieving a profit before tax of €291m. commercial loans. We announced our intention to This includes €373m operating profit before acquire Goodbody, a leading provider of wealth exceptional items and bank levies. management, corporate finance and capital markets services and we have also reached agreement Our total income of €1,183m is in line with the first half to form a joint venture with Great-West LifeCo’s of 2020. We have seen a reduction in our net interest subsidiary Canada Life, all of which remain subject income to €881m which represents a 9% decrease to regulatory approval. Combined, these moves will compared to the half-year to June 2020. This reduction ensure that AIB is the market-leading, full service was principally due to lower loan volumes, the low financial services provider in Ireland. As well as interest rate environment, lower investment securities reinforcing our long-term growth objectives, these income and the cost of excess liquidity partially offset by initiatives will also provide benefits for customers, a decrease in interest expense. Other income increased employees and shareholders and enable us to by 37% to €302m when compared to the same period 6 Chief Executive’s Review AIB Group plc Half-Yearly Financial Report 2021 last year, mainly due to positive valuation movements In the UK, new lending was broadly stable with and some recovery in net fees and commission income. increased new mortgage lending partially offset by a reduction in commercial lending as we exit the Our total operating expenses were €739m, cost GB SME market. management remains a priority and ongoing focus for the Group. Our newly revised medium-term We continue to support our customers as we target reflects the impact of the progress made in collectively tackle the challenges of climate change.