BACKING OUR CUSTOMERS ANNUAL FINANCIAL REPORT for the financial year ended 31 December 2020 AIBAIB Group Group plc plc ENSURING A GREENER TOMORROW BY BACKING THOSE BUILDING IT TODAY. During 2020, AIB Group supported our customers through an unprecedented global health pandemic. With our relentless customer focus, our leading digital technology and our commitment to sustainability, we remain well placed to continue to support our customers, adapting to their changing needs, while delivering long-term sustainable success for our business. Merchant Services ON OUR COVER Owen Power and John Carty, Directors of Enerpower, at their solar farm in Kinsale, Co Cork. Annual Financial Report for the financial year ended 31 December 2020 01 02 03 ANNUAL BUSINESS RISK REVIEW REVIEW MANAGEMENT 2 Financial Highlights 60 Operating and Financial Review 80 Framework 4 AIB at a Glance 75 Capital 87 Individual Risk Types 8 Deputy Chair’s Statement 10 Chief Executive’s Review 18 Customer Focus 20 Overview of the Irish Economy 22 Our Strategy 36 Sustainability in AIB 38 AIB in Our Communities 40 Our Non-Financial Statement 44 Governance in AIB 48 Risk Summary 54 Board of Directors 56 Executive Committee 58 The Value we Create 04 05 06 GOVERNANCE FINANCIAL GENERAL AND OVERSIGHT STATEMENTS INFORMATION 172 Group Directors’ Report 214 Statement of Directors’ Responsibilities 361 Shareholder Information 175 Schedule to the Group 215 Independent Auditor’s Report 362 Forward Looking Statements Directors’ Report 227 Consolidated Financial Statements 363 Glossary of Terms 178 Corporate Governance Report 233 Notes to the Consolidated 369 Principal Addresses 188 Report of the Board Audit Committee Financial Statements 370 Index 193 Report of the Board Risk Committee 352 AIB Group plc Company 196 Report of the Nomination & Financial Statements Corporate Governance Committee 355 Notes to AIB Group plc 199 Report of the Remuneration Committee Company Financial Statements 201 Corporate Governance Remuneration Statement 208 Viability Statement 209 Internal Controls 211 Other Governance Information 212 Supervision and Regulation This Annual 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 362. 2 Business Performance Annual Review AIB Group plc Annual Financial Report 2020 BUSINESS PERFORMANCE 2020 RESULTS FINANCIAL PERFORMANCE NET INTEREST INCOME NET CREDIT (LOSS)/PROFIT IMPAIRMENT CHARGE BEFORE TAX €1,872m €1,460m (€931m) 2020 €1,872m 2020 €1,460m 2020 (€931m) 2019 €2,076m 2019 €16m 2019 €499m Low interest rate environment Conservative, forward looking and Impacted by impairment charge and lower lending volumes comprehensive provisioning approach Operating profit1 of €729m, with total impacting income Impairment charge reflects operating income down 12% due to Down 10% due to the low interest deterioration in economic outlook, interest rates and decline in economic rate environment, lower investment credit downgrades particularly in activity, offset by impairment charge securities income and reduced loan sectors impacted by COVID-19 and of €1,460m and exceptional items of volumes partially offset by a decrease post model adjustments (for expected €215m in funding costs COVID-19 impacts and legacy non- performing mortgage exposures) NEW LENDING NET LOANS NON-PERFORMING EXPOSURES2 €9.2bn €57.0bn €4.3bn 2020 €9.2bn 2020 €57.0bn 2020 €4.3bn 2019 €12.3bn 2019 €60.9bn 2019 €3.3bn Impacted by COVID-19 restrictions Gross loans down 4% to €59.5bn 7.3% of gross loans and lower international lending due to lower economic activity Non-performing exposures (NPEs) Total new lending down 25% reflects Net loans down €3.1bn (excluding increased by €1.0bn to €4.3bn lower syndicated, UK, property and FX impact) with redemptions driven by higher property and mortgage lending, which was exceeding new lending and increase business NPEs down 21% in provision stock MEDIUM-TERM FINANCIAL TARGETS3 (END 2023) 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 <€1.35bn >8% >14% Focussed cost discipline; controlling Deliver sustainable returns; Appropriate capital target of CET1 >14% costs annually at €1.35bn by 2023 ROTE >8% by 2023 needed to run the business OUTCOME OUTCOME OUTCOME 2020 €1,527m 2020 (11.2)% 2020 15.6% 2019 €1,504m 2019 4.5% 2019 17.3% Costs increased 1.5% to €1,527m Negative ROTE due to loss in the year Strong capital position with CET1 15.6% 1. Operating profit before impairment losses and exceptional items. 2. Non-performing exposures (NPEs) refers to non-performing loans (NPLs) and excludes €163m of off-balance sheet commitments. For further information see pages 114 and 140. 3. Excludes potential inorganic opportunities. 4. Before bank levies, regulatory fees and exceptional items. For exceptional items see pages 64 and 73. AIB Group plc Annual Financial Report 2020 Annual Review Business Performance 3 1 2 3 4 5 NON-FINANCIAL PERFORMANCE 6 OUTCOMES GREEN 2020 FINANCE €1.5bn Amount of new bn lending per year for €1.5 2019 sustainability purposes €1.2bn OUTCOMES REDUCTION 2020 IN EMISSIONS5 24% % reduction in Scope 1 & 2 emissions 24% year-on-year 2019 6% OUTCOMES DIGITALLY 2020 ACTIVE CUSTOMERS 1.72 million Number of 1.72 million active users on 2019 digital channels €1.63 million OUTCOMES CUSTOMER SATISFACTION 2020 Transaction Net 49 Promoter Score Measured after 49 2019 customer transactions for key touch points6 48 OUTCOMES 2020 DIVERSITY 41% Women as % of management 41% 2019 41.5% 5. Our CO2e emissions are reported one year in arrears: emissions reported in 2020 were generated in 2019. We are reporting on Scope 1 & 2 emissions. These emissions are independently verified by EcoAct. 6. Transactional Net Promoter Score (NPS) is an aggregation of 20 Homes, Personal, SME, Digital, Retail, Direct and Day-to-Day Banking journeys. 4 AIB at a Glance Annual Review AIB Group plc Annual Financial Report 2020 AIB AT A GLANCE A FINANCIAL SERVICES GROUP AIB Group is a financial services group. Our main business activities are retail, business and corporate banking, mobile payments and card acquiring. These services are provided through well-recognised brands, including AIB, EBS, Haven and Payzone as well as AIB Merchant Services, which is a joint venture with Fiserv. The Group operates predominantly in Ireland and the United Kingdom with the exception of AIB Merchant Services, which serves a global customer base. We are committed to supporting the transition to a low-carbon economy and backing sustainable communities. Our shares are quoted on the Irish and London stock exchanges and we are a member of the FTSE4Good index. Our core segments are: Retail Banking; Corporate, Institutional and Business Banking (CIB), and; AIB UK. We also operate wholesale treasury activities along with control and support functions. AIB is our principal brand across all geographies. AIB provides a range of services to retail, business and corporate customers, with market-leading positions across key segments. EBS is a challenger brand Haven is a trading name. within the AIB Group. It offers It is our mortgage broker channel mortgage, personal banking, that was established by EBS savings and investment products in December 2007 to focus on and services, helping families mortgage distribution through buy their own homes and save the intermediary market. for many of life’s milestones. AIB Merchant Services is an Payzone is a subsidiary of AIB associate company within the AIB Group. It is the largest provider Group and a joint venture with of specialised payment services Fiserv. With global card processing in Ireland, providing cashless capabilities, it is one of Europe’s solutions with significant reach, largest e-commerce card payment expertise and ambition. acquiring firms. AIB Group plc Annual Financial Report 2020 Annual Review AIB at a Glance 5 1 2 RETAIL BANKING 3 4 Retail Banking’s core business lines include: 5 mortgages, consumer lending, SME lending, asset- 60% 6 backed lending, wealth management, daily banking, OF NET LOANS deposits and savings; and general insurance, as well as our Financial Solutions Group (FSG). 2.5m 296 1.56m CUSTOMERS LOCATIONS DIGITAL CUSTOMERS Leading retail banking franchise Largest physical distribution No. 1 digital bank in Ireland, in Ireland with over 2.5 million network in Ireland, with 296 AIB with over 1.56 million active digital personal and SME customers. and EBS locations with a further customers and 1.39 million active c. 949 locations through the mobile customers. An Post network, 114 of which are AIB-designated An Post offices. €4.4bn €34.0bn €539m LENDING NET LOANS OPERATING CONTRIBUTION1 CORPORATE, INSTITUTIONAL & BUSINESS % BANKING (CIB) OF26 NET LOANS CIB serves AIB’s large and medium-sized business customers. A holistic product offering combined with deep sector expertise allows us to develop long-term relationships and facilitates strategic engagement with our customers. To provide geographic and sector diversification, CIB selectively participates in European and US syndicated loans and bonds. RELATIONSHIP CUSTOMER-FOCUSED SECTOR DRIVEN MODEL SOLUTIONS SPECIALIST TEAMS Trusted strategic long-term partner Complementing