IBRC annual report for 2011 - Irish Bank Resolution Corporation ...

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011

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ContentsIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Economic backdrop 2Chairman’s statement 3Group Chief Executive’s review 5Business review 8Board of Directors 15Corporate Responsibility 16Principal risks and uncertainties 18Report of the Directors 23Statement of Directors’ responsibilities 24Corporate governance statement 25Independent Auditor’s report 30Consolidated income statement 32Consolidated statement of comprehensive income 33Consolidated statement of financial position 34Bank statement of financial position 35Consolidated statement of changes in equity 36Bank statement of changes in equity 38Statement of cash flows 40Notes to the financial statements 42Supplementary information (unaudited) 169Acronyms and abbreviations 1761

Economic backdropCommercial property marketsProperty prices in developed markets remain below their2006/07 peaks. Commercial property prices in Irelandcontinue to fall with some signs of stabilisation, the UKmarket was flat in 2011, while the US has shown tentativerecovery. (Indices rebased to 100)Sovereign yieldsFear around the stability of the eurozone and theeurosystem contributed to the increased spread of IrishGovernment bonds over their German equivalents in thefirst half of 2011. Spreads narrowed in the second half ofthe year due to improved international sentiment as Irelandcontinued to deliver on its EU/IMF Programmecommitments.160Property price index140120100806040Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11Ireland IPD All Property UK IPD All Property US IPD All PropertyYield13.0012.0011.0010.009.008.007.006.005.00Dec 10 Mar 11 Jun 11 Sep 11 Dec 11Ireland Vs Germany 9 yrIrish residential property marketIrish residential property market prices fell heavily again in2011 bringing the cumulative fall from peak to 50%.Stock marketsBoth the ISEQ and FTSE Eurofirst posted losses in the secondhalf of 2011 before recovering slightly into year-end.(Indices rebased to 1000)Irish residential property1401201008060Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11Index1,1001,0501,000950900850800750Dec 10 Mar 11 Jun 11 Sep 11 Dec 11Irish House Price Index National All Residential PropertiesISEQFTSE E300Trade surplusIreland’s trade surplus continued to improve in 2011. Netexports remain the primary driver of GDP growth.Currency marketsThe euro was relatively stable against the US dollar andsterling in the period.Irish trade surplus4,6003,7502,9002,0501,200Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11Ireland trade surplus €mCurrency1.51.41.31.21.110.90.8Dec 10 Mar 11 Jun 11 Sep 11 Dec 11EUR/USDEUR/GBP2

Chairman’s statementIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011OverviewThis is the first Annual Report and Accounts for Irish BankResolution Corporation Limited, trading as IBRC. The membersof the Board of Directors and senior management of IBRCremain committed to operating to the mandate given by theBank’s Shareholder, which is to run the Bank in the publicinterest and in a manner that minimises the cost to the Stateand, by extension, the taxpayer.The twelve months to 31 December 2011 was an eventfulperiod for the Bank. A number of large scale restructuringdevelopments took place during this time, including thetransfer of the majority of the Bank’s deposits to AIB, themerger with Irish Nationwide Building Society (‘INBS’) and thesubsequent organisation redesign and renaming of this newlycombined entity. In addition, the Bank achieved furthersignificant reductions in its balance sheet through the sale ofthe majority of its US loan portfolio, together with ongoingloan repayments and redemptions in Ireland and the UnitedKingdom. 2011 also saw a progressive scaling down of theBank’s operations with the closure of a number of offices andfurther reductions in staffing levels through the launch of asecond voluntary redundancy scheme.In financial terms, despite recording an operating profit of€620m and a favourable adjustment of €776m to thecumulative loss on transfer to NAMA, the Bank reports a lossfor the year of €885m. Total assets at 31 December 2011amounted to €55.5bn, a decrease of €17.4bn or 24% on aconstant currency basis. These reductions demonstrate theBank’s commitment to deleveraging its balance sheet in linewith the objectives agreed in the Bank’s restructuring plan andto minimising further losses for the taxpayer.Total capital support provided by the Minister for Financeremains at €29.3bn, resulting in a Total capital ratio at31 December 2011 of 16.3% and a Core Tier 1 ratio of 15.1%.Further details in respect of the Bank’s financial and nonfinancialperformance for the year are provided in the GroupChief Executive’s review and in the Business review.IBRC as a new organisationOn 29 June 2011 the European Commission (‘EC’) approvedthe joint restructuring and work-out plan for the Bank andINBS (the ‘Restructuring Plan’) which had been submitted tothe EC by the Irish Government on 31 January 2011. Thispaved the way for a newly combined entity, the primary focusof which is the orderly work-out of the loan book over aplanned period of up to 10 years.Following the merger on 1 July 2011, a number oforganisation changes were approved by the Board, andimplemented in the latter half of 2011, to position the Bank todeliver its objectives. These changes included a new GroupExecutive Committee, new or confirmed roles for staff acrossthe organisation and a regrettable but inevitable requirementfor a reduction in staffing numbers.As part of the restructuring process, the Bank changed itsname to Irish Bank Resolution Corporation Limited (‘IBRC’) inOctober 2011. The Board believes that this is an importantdevelopment for the Bank as the management and staff moveon from the past and deal with the updated mandate of thenew entity.Changes to the Board of DirectorsTwo new Directors were appointed to the Board of the Bank in2011.Oliver Ellingham was appointed on 14 October 2011. Mr.Ellingham has a broad range of international financialexperience and a particular knowledge of the UK marketplaceand regulatory environment.Roger McGreal was appointed on 15 November 2011. MrMcGreal has considerable expertise in banking, credit and riskmanagement.Both Mr. Ellingham and Mr. McGreal are strong additions toour Board.Legacy matters, disclosures andexceptional expensesThe Bank continues to co-operate fully with ongoinginvestigations by the various Authorities. In this regard it hascontinued to disclose its activities and financial position in afully transparent manner, as required by legislation and marketregulation, in the public interest.Underlying staff costs fell by 8% in the year to31 December 2011 compared with the prior period. Averageheadcount declined by 11%. Other administrative costs of€108m are in line with the previous year as significantprofessional fees continue to be incurred in relation to loanbook asset recovery and other matters.The Bank incurred total exceptional costs of €82m during theyear. These primarily relate to professional fees associated withthe Bank’s restructuring, significant non-recurring transactionsand costs related to certain legacy matters. In addition, theBank continues to be engaged in a number of significantongoing legal proceedings, each of which is being vigorouslypursued, albeit at considerable cost and with the risk of furthercost to the Bank and therefore to the Irish taxpayer.Future of IBRCThe Board and management of IBRC are working to generateoptions for the efficient work-out of the loan books inaccordance with the Bank’s approved mandate. This includesexamining accelerated disposal where this makes economicsense. Following the timely and successful sale of the majorityof the Bank’s US loan portfolios, the Bank will now continuewith further detailed analysis of the remaining loan books inIreland and the UK. This analysis will further inform the Boardand management team on the timing of the next phases ofdeleveraging.The final cost of resolving the former institutions of Anglo IrishBank and INBS will depend crucially on the evolution of theproperty markets in Ireland and the UK together with theavailability of counterparty liquidity to enable further disposalsby way of recoveries, repayments and sales. It will also dependon the outcome of negotiations on the promissory notesbetween the Government and the EU. The estimatedtimeframe for the resolution of the institution is currently nineyears as detailed in the Bank’s approved Restructuring Plan.3

Chairman’s statement continuedConclusionThe Bank has made significant and welcome progressthroughout 2011. The integration of INBS is well advanced anda fit for purpose organisation is now in place for the nextphases of the Bank’s wind-down. With the prevailinguncertainty in European debt markets looking likely tocontinue for much of 2012, IBRC will no doubt be presentedwith further challenges as it delivers on its objectives in thecoming year. The management and staff of the Bank will havethe full support and confidence of the Board in meeting thesechallenges.On behalf of the Board, I sincerely thank the management andstaff of the Bank for their continued professionalism and hardwork which contributed to the progress achieved in 2011. Inaddition, I thank the Minister for Finance and the staff of theDepartment of Finance and the Central Bank of Ireland forworking closely with the Bank throughout the year.Alan DukesChairman28 March 20124

Group Chief Executive’s reviewIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The twelve months to 31 December 2011 saw a period ofsignificant change and welcome progress for the organisation.Following the focus on stabilising and de-risking Anglo IrishBank in 2010, and the development of a restructuring plan forits future, a number of major initiatives were successfullyconcluded throughout 2011.Key restructuring eventsEuropean Commission approval of the Bank’srestructuring planA joint restructuring and work-out plan for the Bank and IrishNationwide Building Society (‘INBS’) (the ‘Restructuring Plan’)was submitted to the European Commission (‘EC’) on31 January 2011. This Restructuring Plan provided for themerger of the Bank and INBS following the transfer of themajority of the deposit books and NAMA senior bonds of bothentities to other Irish financial institutions. Those transfers tookplace on 24 February 2011 and the EC, under EU State aidrules, approved the Restructuring Plan on 29 June 2011. Thisapproval cleared the way for the planned merger to proceedwith the subsequent work-out of the combined entity over aperiod of up to ten years. A number of commitments were alsomade to the EC as part of the Restructuring Plan in relation tothe State aid provided to the Bank. A Monitoring Trustee wasapproved by the EC on 8 December 2011 to report on theGroup's adherence to these Restructuring Plan commitments.Transfer of the Bank’s 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 on8 February 2011 under the Credit Institutions (Stabilisation) Act2010 (‘CISA’) and pursuant to a Transfer Order made by theHigh Court under CISA on 24 February 2011, the Banktransferred the vast majority of its Irish and UK customerdeposits to Allied Irish Banks, p.l.c. (‘AIB’) and AIB Group (UK)p.l.c. (‘AIB UK’), together with its NAMA senior bonds and itsIsle of Man subsidiary. This was a significant and complexproject for the Bank to manage in a short timeframe. It had theeffect of reducing the balance sheet of the Bank byapproximately €11bn and over 200 staff transferred to AIB andAIB UK as part of this process.Merger with INBS and subsequent name changeOn 1 July 2011, pursuant to the Restructuring Plan, all of theassets and liabilities (with the exception of certain limitedexcluded liabilities) of INBS transferred to the Bank. This wasunder a further transfer order made by the Irish High Courtunder Section 34 of CISA (the ‘INBS Transfer Order’).Upon successful completion of the merger with INBS, the Bankwas renamed on 14 October 2011 as Irish Bank ResolutionCorporation Limited, and now trades as IBRC. With effect fromthe same date, the names of the Bank’s two key Irish regulatedsubsidiaries were also changed, with Anglo Irish MortgageBank becoming IBRC Mortgage Bank and Anglo IrishAssurance Company Limited becoming IBRC AssuranceCompany Limited.This name change is significant as we move on from the past.As the infamous names of Anglo Irish Bank and IrishNationwide Building Society have now been consigned tohistory, the Board, management and staff of IBRC are nowactively working with focus and determination to deal with thesignificant problems created for the State by both of theseformer institutions. Material progress has been made in thisregard as IBRC continues to take all necessary actions toachieve the mandated objectives of the new entity.Disposal of the Bank’s Wealth Management businessThe above mentioned Direction Order also contained arequirement for the Bank to formulate a detailed plan for thedisposal of its Wealth Management business. The Bankcomplied with this requirement and submitted a detailed planto the National Treasury Management Agency (‘NTMA’). Incompliance with requirements issued by the Minister forFinance under Section 50 of CISA on 7 April 2011 (the‘Ministerial Requirements’) the Bank commenced a process toevaluate all of the alternatives available for the disposal of thisbusiness.On 30 January 2012 the Bank announced that the Board hadapproved a strategy and direction put forward by managementto wind down its Wealth Management business in an orderlyfashion. This process is currently underway and may include aco-sourcing arrangement.Developments in the organisationIBRC as an asset recovery organisationSince the completion of the merger, the former Anglo IrishBank and INBS have now been reshaped into a fully integrated,fit for purpose, asset recovery organisation trading as IBRC.The Bank’s Group Executive Committee has been charged tolead the key asset recovery and support functions through thenext phases of work-out. In addition, a detailed top downprocess of organisation redesign to the level of individual rolesacross the Bank has also been completed.The Bank’s former Lending Division has been reshaped andsubstantially restructured into an asset recovery platformincorporating front office Recovery Management, SpecialisedAsset Management and Market Solutions teams. These teamslead the development and execution of recovery strategies forthe overall loan portfolio in order to promote timely andfocused asset resolution. They work proactively with bothdistressed and performing customers in all of the Bank’slocations to manage loans with the aims of minimising lossesto the taxpayer and winding down the portfolios of the Bank.The Bank has and will continue to support viable businessesand restructure distressed loans to strengthen and improveasset quality and achieve optimum recovery values. Recoveryvalues are optimised through an array of structuredrepayments, restructuring and corporate finance techniques.Reduction in loan books across all geographiesThe primary focus of IBRC continues to be the deleveraging ofits lending portfolio while maximising the return for thetaxpayer. Total gross customer loan balances declined in 2011by €10.8bn or 29% (excluding INBS additions) and amountedto €29.1bn at 31 December 2011. This material reduction inthe loan book has been primarily driven by disposals andrepayments in the US of €7.0bn and in the UK of €1.9bn.The Bank successfully disposed of the majority of its US loanbook during 2011. This process which was begun in late 2010involved individual loan sales early in 2011 combined with abulk sale of loans which was completed in a number oftranches during the final quarter of the year. This bulk loan salewas the largest transaction in the US commercial real estatemarket in 2011 which, following a competitive biddingprocess, saw three successful counterparties purchasing€5.8bn of gross assets. Reductions in the UK loan book werealso successfully executed through a combination of workingwith borrowing clients to achieve orderly repayments and aportfolio sale of the Bank’s Scottish loan book.5

Group Chief Executive’s review continuedThe Bank is now engaged in further detailed analysis of theremaining loan books in Ireland and the UK and this analysiswill further inform the Board and management team on thetiming and possible composition of future deleveraging. Whilethere have been indications of stabilisation in some sectors, thedisposal of the remaining Irish and UK portfolios at acceptableprices remains challenging.Further downsizing of the Bank’s infrastructurePursuant to the Direction Order and the MinisterialRequirements, the Bank’s branches in Austria and Jersey wereclosed in June 2011 and its branch in Germany closed inAugust 2011. In addition, and as a result of the disposal of themajority of the US loan book, the Bank’s representative officein New York closed in January 2012. The Bank has also put theproperties of the former INBS branch network on the marketfor sale.Close to 13% of roles in the Bank became redundant as aresult of the redesign of the organisation and those affectedhave left or are in the process of leaving under an agreedvoluntary redundancy scheme or are being redeployed acrossthe Bank. A significant number of additional staff will alsodepart this year through natural attrition, maturing contractsand potentially through outsourcing. Notwithstanding the factthat headcount numbers will reduce further in time as wework through the phases of the Restructuring Plan, IBRC willcontinue to need all of the key skills and experience of itsremaining employees to deliver upon its approved plan. Theretention of a relevant, committed and qualified workforce iscentral to the ongoing success of the Bank’s wind-downactivities.MortgagesSeparately, as part of the merger with INBS, the Bank acquireda residential mortgage book which, albeit small in relative sizecompared to the market, demonstrates a growing mortgagearrears problem. Resolving this problem, given the currenteconomic context, is extremely challenging and will take time.The Bank remains fully committed however to ensuring that itengages with customers experiencing genuine financialdifficulty to develop a range of appropriate solutions whichultimately assist borrowers to meet their obligations and repaytheir outstanding debt.Financial performanceThe results for the year ended 31 December 2011, whichinclude amounts relating to INBS from 1 July 2011, reflect thecontinued challenging economic environment in all of theBank’s markets.Economic backdropIreland continues to be the worst affected of the Bank’smarkets, accounting for the majority of the overall specificimpairment charge. Consumer and business sentiment alongwith spending have been negatively impacted by the weakglobal backdrop and the ongoing fiscal austerity measures.Conditions within both the commercial and residential Irishproperty markets remain very difficult. High unemploymentand a continued decline in disposable income have impactedcredit quality particularly across the residential mortgageportfolio. Property prices have declined further during 2011and transactional volumes remain low. The stressed economicconditions and the decline in prices have been the primarydrivers of the increase in specific provisions across all sectors ofthe loan book.The overall macro environment in the UK remains weak andgovernment spending cuts are starting to have an impactacross most sectors of the economy. Prices and yields for primecommercial real estate properties in prime locations havestabilised, while a small number of areas have reported priceincreases. The markets for secondary and tertiary propertieshowever have weakened significantly, particularly over thesecond half of 2011, with decreasing rents and an increase invacancy rates resulting in a fall in asset values. In addition,stress in the financial markets has resulted in a materialdecrease in funding availability for real estate transactionswhich has had a knock on impact on liquidity and prices.Operating performanceDespite recording an operating profit of €620m and afavourable adjustment of €776m to the cumulative loss ontransfer 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 ofthe Bank’s Irish and UK deposit books, certain NAMA bondsand the Bank’s investment in its deposit-taking Isle of Mansubsidiary 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 netinterest income of €944m. The overall net interest incomefigure has increased by €202m in 2011 compared with 2010and is primarily a function of interest earned on performingcustomer loan balances and government promissory notes, netof associated funding costs. Following the transfer of depositsto AIB in February 2011, total funding costs of €1,525m largelyrelate to facilities provided by the Central Bank of Ireland.Balance sheet performanceTotal assets at 31 December 2011 amounted to €55.5bn,representing a decrease of €17.4bn or 24% on a constantcurrency basis. These reductions demonstrate the Bank’scommitment to deleverage the balance sheet in line with theobjective of minimising losses for the taxpayer. The principalitems driving this reduction were the transfer of NAMA seniorbonds to AIB pursuant to the AIB Transfer Order, the sale ofthe majority of the US loan book, ongoing recoveries in Irelandand the UK and the receipt from the Minister for Finance, theBank’s sole shareholder, of the first scheduled annual paymenton the promissory note. The Government promissory notesrepresent 54% of the Bank’s total assets as at31 December 2011.The transfer of the majority of the Bank’s customer depositspursuant to the AIB Transfer Order increased the Bank’sreliance on central bank and monetary authority supportmechanisms for funding. This represented 87% of totalfunding (€42.2bn) at 31 December 2011 (2010: 70%,€45.0bn), with €40.1bn borrowed under special fundingfacilities (2010: €28.1bn).Gross customer lending at 31 December 2011 totals €29.1bn.Impaired loans amount to €17.8bn, with cumulativeimpairment provisions of €10.4bn. A specific lendingimpairment charge of €2.1bn was incurred during the yearwhich was partially offset by a release of €0.6bn of thecollective impairment provision.6

Group Chief Executive’s review continuedIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011CostsStaff costs have fallen by 18% in the year to31 December 2011 compared with the prior period. Thisincludes the effect of a €13m pension credit representing aonce off past service gain arising from approved amendmentsto the Bank’s two defined benefit pension schemes. Adjustingfor this, staff costs fell by 8% driven by an 11% reduction inaverage employees (2011: 1,186; 2010: 1,332). This isprimarily due to 210 staff transferring out of the Bank underthe AIB Transfer Order and reduced US staffing following theloan book sales. This was partially offset by the gain of 212additional staff under the INBS Transfer Order.The Group headcount at 31 December 2011 is 1,219 whichincludes 183 people working directly in the Bank's NAMA unit.Other administrative costs of €108m are in line with theprevious year as significant loan book asset quality relatedprofessional fees continue to be incurred, principally in relationto ongoing asset recovery matters.Exceptional costs of €82m were incurred during the year andprimarily relate to professional fees associated with the Bank’srestructuring, significant non-recurring transactions and costsrelated to certain legacy and legal matters.CapitalFuture strategyThe Irish Authorities have agreed a plan with the EC to disposeof the assets of the Bank in an orderly fashion, minimise capitallosses and distribute the residual net assets to the Shareholderon completion of the wind-down.The residual net asset position on completion of the winddownwill be driven by actual recovery rates achieved forassets which in turn depend on factors such as theperformance of the domestic and global economies and theperformance of property and other asset markets, as well asprevailing interest rates in the Euro area over the duration ofthe plan. Given the complexities and timescales involved indeleveraging and the risks inherent in the deleveragingprocess, the final residual net asset position is subject tomaterial uncertainty.I would like to join the Chairman in expressing a sincere thankyou to our management, staff and other stakeholders for alltheir support and consistent hard work throughout the year.A.M.R. (Mike) AynsleyGroup Chief Executive28 March 2012The Bank did not require any additional capital injectionsduring the year. As at 31 December 2011 the Group reportedtotal capital support provided by the Shareholder at €29.3bn,resulting in a Total Capital ratio at 31 December 2011 of16.3% and a Core Tier 1 ratio of 15.1%.7

Business reviewThis business review covers the year to 31 December 2011 andincludes commentary on key areas of financial and operatingperformance of the Group during that period.On 24 February 2011 the majority of the Bank’s Irish and UKdeposit books, certain National Asset Management Agency(‘NAMA’) bonds and the Bank’s shares in its deposit-taking Isleof 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 Courtunder Section 34 of the Credit Institutions (Stabilisation) Act2010 (‘CISA’) (the ‘AIB Transfer Order’).On 29 June 2011 the European Commission (‘EC’) approved,under EU State aid rules, the joint restructuring and work-outplan for the Bank and Irish Nationwide Building Society (‘INBS’)(the ‘Restructuring Plan’) which had been submitted by theIrish Government to the EC on 31 January 2011. Pursuant tothe Restructuring Plan, the Bank and INBS were to becombined and then resolved over a period of up to ten years.On 1 July 2011 all of the assets and liabilities (with theexception of certain limited excluded liabilities) of INBStransferred to the Bank by way of a further transfer ordermade by the Irish High Court under Section 34 of CISA (the‘INBS Transfer Order’) and on that date the Bank announced itsintention to change its name to Irish Bank ResolutionCorporation Limited (‘IBRC’). This change became effective on14 October 2011.IBRC is a Government-owned banking entity which, inaccordance with the commitments made by the State to theEC, will not be active in new lending or deposit markets. AMonitoring Trustee was approved by the EC on8 December 2011 to report on the Group's adherence to theseRestructuring Plan commitments. The strategic objective of theBank is to work out its assets in an orderly process over aperiod of up to ten years, securing the best outcome for thetaxpayer. IBRC will continue to operate as a regulated entity,bound by the Capital Requirements Directive and thereforesubject to an 8% minimum capital requirement.Financial performanceThe results for the year ended 31 December 2011 includeamounts relating to INBS from 1 July 2011. Further informationrelating 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 ofthe Bank’s Irish and UK deposit books, certain NAMA bondsand the Bank’s shares in its deposit-taking Isle of Mansubsidiary to AIB and AIB UK, and a loss of €426m on otherdisposals. These losses were offset to an extent by anoperating profit of €620m and a favourable adjustment of€776m to the cumulative loss on transfer to NAMA. Interestincome on the promissory notes of €1,447m is a keycontributor to operating profit in the year.The transfer of the majority of the Bank’s customer depositspursuant to the AIB Transfer Order increased the Bank’sreliance on central bank and monetary authority supportmechanisms for funding. This represented 87% of totalfunding (€42.2bn) at 31 December 2011 (2010: 70%,€45.0bn), with €40.1bn borrowed under special fundingfacilities (2010: €28.1bn).Total assets at 31 December 2011 amounted to €55.5bn, adecrease of €17.4bn or 24% on a constant currency basis.These reductions demonstrate the Bank’s commitment todeleverage the balance sheet in line with the objective ofminimising losses for the taxpayer. The principal drivers of thisreduction were the transfer of NAMA senior bonds to AIBpursuant to the AIB Transfer Order, the sale of the majority ofthe US loan book, the ongoing deleveraging of the loanportfolio and receipt from the Minister for Finance, the Bank’ssole shareholder, of the first scheduled annual payment on thepromissory note. The Government promissory notes represent54% of the Bank’s total assets as at 31 December 2011.Gross customer lending at 31 December 2011 totals €29.1bn 1 .Impaired loans amount to €17.8bn, with cumulativeimpairment provisions of €10.4bn. During the year, the Bankrecognised a specific lending impairment charge of €2.1bn,driven primarily by the continued significant decline in prices inboth residential and commercial markets in Ireland and the UK,offset by a release of €0.6bn of the collective impairmentprovision.Total capital support provided by the Minister for Financeremains at €29.3bn. The Total capital ratio at31 December 2011 is 16.3% with a Core Tier 1 ratio of 15.1%.Customer lending and asset qualityThe Bank’s primary focus remains the orderly work-out of theloan book and the achievement of maximum recovery in theinterest of the Bank, the Shareholder and the Irish taxpayer.The Bank is required to report to the Department of Finance ona monthly basis on the progress in respect of these objectives.Total lendingAnalysis of customer lending 1Held for saleLoans and advancesto customers2011 2010 2011 2010€m €m €m €mIreland 102 862 19,157 16,198UK - 618 8,977 10,849US 277 723 618 7,643Total 379 2,203 28,752 34,690Provisions for impairment (103) (565) (10,339) (9,577)Customer lending net of impairment 276 1,638 18,413 25,113Provisions as a % of loan balances 27% 26% 36% 28%8

Business review continuedIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Gross loan balances of €2.9bn along with cumulativeprovisions of €1.0bn transferred to the Bank on 1 July 2011under the INBS Transfer Order. These balances includedresidential mortgages of €1.9bn with cumulative provisions of€0.4bn.Gross customer lending balances, which declined during theyear by €10.8bn or 29% (excluding INBS additions), total€29.1bn 1 at 31 December 2011, of which €28.8bn or 99%relate to loans and advances to customers while the remaining1% are classified as held for sale. Held for sale loan balancescomprise those remaining US loans of €0.3bn for which a salesprocess is being actively pursued and €0.1bn of gross loanswhich at 31 December 2011 were expected to transfer toNAMA. There remains €0.6bn of US loans classified as loansand advances to customers which could not be sold due totransfer restrictions and which are likely to be held untilrepayment, refinancing or an unrestricted ability to sell isachieved. At 31 December 2011 the Bank’s Ireland divisionaccounts for 66% of total lending with the UK and US divisionsaccounting for 31% and 3% respectively.The reduction in the loan book has been primarily driven bydisposals and repayments in the US (€7.0bn) and the UK(€1.9bn) as the Bank continues to focus on deleveraging itslending portfolio. The UK and Irish markets remain stressedand deleveraging of the portfolio at acceptable prices remainschallenging.During 2011 the Bank successfully completed the deleveragingof the majority of its US loan book. This process involvedindividual loan sales earlier in the year combined with the bulksale of US loans which was completed in a number of tranchesduring the final quarter of the year. The bulk loan sale was thelargest transaction in the US commercial real estate market in2011, with the three counterparties purchasing €5.8bn ofgross assets following a competitive bidding process.The gross assets, for which the Bank received €4.4bn ofproceeds, had a carrying value of €4.8bn and included loansand swaps together with a number of foreclosed real estateassets. The overall loss on disposal totalled €406m. Thedisposal resulted in a significant reduction in the Group’s riskweighted assets and was broadly neutral from a regulatorycapital perspective.Lending asset qualityGrading analysis 1 2011 2010Loans and Heldadvances to forcustomers sale Total Total€m €m €m % €m %Good quality 4,397 7 4,404 15% 7,627 20%Satisfactory quality 240 65 305 1% 1,035 3%Lower quality but not past due or impaired 3,610 - 3,610 12% 4,778 13%Total neither past due or impaired 8,247 72 8,319 28% 13,440 36%Past due but not impaired 3,023 31 3,054 11% 5,910 16%Impaired loans 17,482 276 17,758 61% 17,543 48%28,752 379 29,131 100% 36,893 100%Provisions for impairment (10,339) (103) (10,442) (10,142)Total 18,413 276 18,689 26,751Uncertainty within the markets continues to adversely affectthe Bank’s loan book across all sectors and locations. Whilstthere had been some improvement in the UK and US, thecontinuing weakness of the Irish economy and weaker trendsin some parts of the UK in the second half of 2011 has seen anincrease in the proportion of the overall loan book that isdeemed ‘at risk’ by management. This includes those loansthat are considered to be impaired, past due but not impairedand lower quality. At 31 December 2011, 84% of loans areclassified as ‘at risk’ (2010: 77%).Impaired loans at 31 December 2011 total €17.8bn(2010: €17.5bn), and represent 61% of the total loan bookversus 48% at 31 December 2010. Ireland continues to be theworst performing region with 65% of the portfolio impairedand specific provisions totalling 41% of gross loans. In the UKand US 55% and 25% respectively of the portfolios areimpaired.The amount of loans classified as past due but not impaireddeclined to €3.1bn at 31 December 2011 from €5.9bn at31 December 2010. The decrease primarily reflects thedownward migration of loan balances to impaired status.Ireland accounts for €2.2bn (71%) of the total past due butnot impaired amount, the UK €0.9bn (28%) and the US €24m(1%).The level of loans past due and outstanding for more than 90days, 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 increasedto 71% at 31 December 2011 (2010: 55%). A full agedanalysis is included within note 50 to the financial statements.Lower quality but not past due or impaired loans at31 December 2011 totalled €3.6bn or 12% of gross lendingassets. Although currently not past due or impaired, theserepresent loans which management deem to have a higher riskof deterioration.Lending assets deemed to be good quality by managementtotal €4.4bn at 31 December 2011, representing 15% of totalgross lending assets.9

Business review continuedAsset quality across the portfolio continues to be adverselyimpacted by the continued deterioration in economic andmarket conditions. The Bank’s Recovery Management Ireland(‘RMI’) team proactively works with distressed customers andcontinues to manage the loan book with the aim of minimisinglosses to the taxpayer. Negative events, including deterioratingtrading performance, likely breach of covenant, challengingmacroeconomic conditions or missed payments, will alert RMIthat the customer may not have the ability to service its debt.In order to improve the customer’s overall financial positionforbearance approaches such as covenant reliefs oramendments thereof, variations in margin rates or loanrescheduling may be used. In some cases, where deemedappropriate, the Bank restructures distressed loans so as tostrengthen and improve asset quality. Restructures, which mayinclude an exchange of debt for equity or equity-like benefits,are only considered where the business model is deemedviable. In some cases the Bank will enforce its rights on itssecurity interest or will consider insolvency of the borrower inorder to ensure that the assets of the business areappropriately distributed. At all times, the Bank will considerthe net present value of alternative recovery strategies in orderto maximise the amount recoverable on a particular loan.Forbearance on the residential mortgage portfolio is grantedby the Bank in order to temporarily alleviate the financialdifficulties of the borrower. This involves granting variouscontract revisions not normally available such as reducedrepayments, payment moratoriums and the roll up of arrears.Loans are identified for forbearance primarily as a result ofcontact from the customer or payment arrears and it is onlygranted following an assessment of the customer’s sustainableability to pay. Further details in relation to forbearance onresidential mortgages are included in the supplementaryinformation on pages 169 to 173.Divisional lending balances by sector 12011Business ResidentialCommercial Residential Banking Mortgages Other Total€m €m €m €m €m €mIreland 10,725 884 3,105 1,873 2,672 19,259UK 8,378 537 35 - 27 8,977US 594 297 - - 4 895Total 19,697 1,718 3,140 1,873 2,703 29,131Commercial lending represents 68% of the Bank’s total loanportfolio and consists of investment and development propertylending across all sectors. €15.9bn (81%) of commerciallending relates to the retail, office and leisure sectors. Thebusiness banking sector accounts for €3.1bn, or 11%, of theloan portfolio. The Bank is looking primarily to businessearnings to service these debt obligations. Residential lendingof €1.7bn comprises residential development lending of€0.5bn and residential investment lending of €1.2bn andincorporates large value development and investmenttransactions. The residential mortgage portfolio, which wasacquired under the INBS Transfer Order, represents 6% of thegross loan book and incorporates owner occupier mortgagesof €1.5bn and buy to let mortgages of €0.4bn.Other loans acquired from INBS are apportioned as follows at31 December 2011: Commercial €397m, Residential €120mand Other €81m.Loans and advances to customers by regulatory groupsize 1The top 20 customer groups, excluding loans classified as heldfor sale as at 31 December 2011, represent €9.6bn or 33%(2010: €9.1bn or 26%) of the Group's total loans andadvances to customers before provisions for impairment. Totalspecific impairment provisions on these customer groupsamount to €3.2bn. A regulatory customer group typicallyconsists of a number of connected entities and the balancesrepresent multiple individual loans secured by diverse portfoliosof assets and multiple contracted cash flows.At 31 December 2011 undrawn committed facilities totalled€0.2bn (2010: €0.6bn). The significant reduction in 2011 isdue to the expiration of facilities and the deleveraging of theloan book. Advances during the year were restricted topreviously committed facilities or were approved to protectasset quality and aimed at reducing the overall risk to, ormaximising recovery for, the Bank. In line with commitmentsgiven by the Bank in connection with the approvedRestructuring Plan, the Bank is restricted in any new lending tonew customers.10

Business review continuedIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Lending impairment – charge for the yearIncome statement - lending impairment2011 2010€m €mSpecific charge - loansand advances to customers 2,107 4,956Specific charge - held for sale 34 2,683Total specific lendingimpairment 2,141 7,639Collective (release)/charge (597) 21Total lending impairment 1,544 7,660The specific lending impairment charge of €2.1bn for the yearto 31 December 2011 represents 6% of average loan balances.Of the total specific charge €2,107m relates to loans andadvances to customers with €34m relating to loans classifiedas held for sale. The loans and advances charge includesimpairment related to US loans prior to their designation asheld for sale at 30 June 2011.Impairment is calculated in accordance with IFRS and reflectslosses incurred in the period based on conditions existing at31 December 2011. Losses expected as a result of futureevents, no matter how likely, are not recognised under IFRS. Inline with the Bank’s credit risk management process, thespecific charge was determined following a detailedassessment by Group Risk. This process also includedconsideration of the new impairment provisioning guidelinesissued by the Central Bank of Ireland in December 2011.The collective impairment provision reflects an allowance forloan losses existing in the performing loan book where there iscurrently no specific evidence of impairment on individualloans. The provision has been calculated based on historicalloss experience supplemented by observable market evidenceand management’s judgement relating to market conditions at31 December 2011. In 2011 there has been a release of€597m in the collective impairment provision resulting in aremaining balance sheet provision of €773m, or 7% of thetotal performing loan book, at 31 December 2011. This releaseis principally attributable to the significant decrease in theperforming loan book, on which the Incurred But NotReported provision is assessed. At 31 December 2011 theperforming portfolio totalled €11.4bn compared to €19.4bn at31 December 2010.Income statement - specific lending impairment2011 2010€m €mIreland 1,557 5,813UK 574 737US 10 1,089Total 2,141 7,639On a sector basis, €1.4bn (66%) of the specific charge of€2.1bn relates to investment property assets. The remainingcharge is attributable to business banking (€0.2bn), personallending (€0.2bn), development loan assets (€0.2bn) andresidential mortgages (€0.1bn).Of the residential mortgage charge €46m is attributable to theowner occupier portfolio with the balance of €16m relating tothe buy to let portfolio. At 31 December 2011 balance sheetspecific and collective provisions in respect of the owneroccupier portfolio totalled €326m (23% on €1.4bn of grossloan 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, accountingfor 73% of the overall specific impairment charge. Consumerand business sentiment along with spending have beennegatively impacted by the weak global backdrop, eurozoneconcerns and the ongoing fiscal austerity measures. Conditionswithin both the commercial and residential property marketsremain very difficult. High unemployment and a continueddecline in disposable income have impacted credit quality,particularly across the residential mortgage portfolio. Propertyprices have continued to decline during 2011 and transactionalvolumes remain low. The stressed economic conditions and thecontinued decline in values have been the primary drivers ofthe increase in specific provisions across all sectors of the loanbook.In the UK the overall macro environment remains weak andgovernment spending cuts are starting to have an impactacross most sectors of the economy. Within the commercialreal estate market prices and yields for prime properties inexcellent locations have stabilised and in a small number ofareas have increased. However for secondary and tertiaryproperties market conditions have weakened significantly,particularly over the second half of 2011, with decreasing rentsand an increase in vacancy rates resulting in a fall in assetvalues. In addition, deleveraging by UK and European bankshas meant that there has been a material decrease in fundingavailability for real estate transactions, which has had a knockon impact on liquidity and prices. These items have been thesignificant contributing factors to the specific impairmentcharge of €574m in the period.Due to the reduction in the total loan book in 2010 and 2011through loan sales and considerable NAMA transfers, alongwith decreases in interest rates, customer interest income forthe year ended 31 December 2011 has reduced to €0.9bn, adecline of 45% compared to the year ended31 December 2010 (€1.6bn).As advised in the 2010 Annual Report and Accounts, the Bankis undertaking an internal review of historical interest ratesettings as applied to certain customer loan accounts for theperiod prior to January 2005, to determine whether interestrates applied were consistent with the terms of the associatedcustomer loan documentation. An additional provision of€12m was charged in the year to cover the amount of anyliability to customers who may have been adversely affected,taking the total provision to €54m at 31 December 2011.NAMAThe overall reduction in the cumulative loss on disposal ofassets to NAMA for the year ended 31 December 2011 totalled€0.8bn. This primarily results from settled valuationadjustments relating to the completion of full due diligence byNAMA on assets previously transferred.In the current year, NAMA has completed full due diligence on€14.8bn of previously transferred IBRC assets. At31 December 2011, work was ongoing by NAMA to completefull due diligence on the remaining €7.8bn of loans, €7.5bn ofwhich transferred to NAMA in 2010 and €0.3bn whichtransferred in October 2011. This due diligence work wassubstantially completed in March 2012 and resulted in the11

Business review continuedBank owing NAMA approximately €24m in respect of valuationadjustments. This amount was accrued in full during the yearended 31 December 2011. The final overall loss on disposalwill only be determined when full due diligence and finalsettlement has been completed by NAMA on all the assetstransferred.During the year the Bank transferred €0.6bn of loans to NAMAat an average discount of 68%. As at 31 December 2011, theremaining eligible loans expected to transfer to NAMA amountto €0.1bn. NAMA has complete discretion as to which assetswill be acquired.NAMA bondsAs part of the AIB Transfer Order, on 24 February 2011, theBank’s entire NAMA senior bond holding of €12.2bn nominaltransferred to AIB at a price of 98.5%.Subsequently, following completion of due diligence by NAMAon certain loans which transferred in bulk during Novemberand December 2010 the Bank received new senior andsubordinated bonds which increase the original considerationpaid by NAMA for these assets. As a result, at31 December 2011 the Bank’s nominal holding of NAMAsenior bonds, which accounted for 95% of the improvedconsideration, totalled €950m. This figure includes €33mnominal of senior bonds received by the Bank under the INBSTransfer Order on 1 July 2011. The NAMA senior bonds had amaturity date of 1 March 2012.In February 2012, NAMA informed the Bank of its intention tophysically settle the senior bonds held on 1 March 2012 byissuing new senior bonds with a maturity of 1 March 2013.The Bank’s commercial preference was to receive cash inexchange for its holdings of senior bonds on 1 March 2012.However, bearing in mind the preferences expressed by bothNAMA and the Department of Finance and overall publicinterest considerations, the Bank agreed to accept physicalsettlement.In October 2011 the Central Bank of Ireland advised the Banknot to increase its usage of sale and repurchase facilitiesprovided under open market operations with the ECB. As aresult, at 31 December 2011 there were no senior bonds usedin sale and repurchase agreements under open marketoperations with central banks (2010: €12.3bn). At31 December 2011 senior bonds with a nominal value of€750m had been pledged under a Special Master RepurchaseAgreement with the Central Bank of Ireland.NAMA subordinated bonds of €49m nominal were receivedduring 2011, representing 5% of the improved considerationreceived for assets transferred to NAMA. On acquisition, thesebonds were recognised within available-for-sale assets at aninitial fair value of €10m, representing an average valuation of21%. The difference of €39m is included in the gain/(loss) ondisposal of assets to NAMA.Under the INBS Transfer Order, NAMA subordinated bondswith a nominal value of €154m and a carrying value of €47mtransferred to the Bank. The Bank’s nominal holding of NAMAsubordinated bonds at 31 December 2011 totals €843m, witha carrying value of €124m.Financial marketsFunding overviewThe Bank’s funding profile is primarily reliant on deposits fromcentral banks and monetary authorities, which at31 December 2011 totalled €42.2bn, representing 87% oftotal funding (2010: €45.0bn, 70% respectively). The Bankexpects its funding requirements to decrease as the overalldeleveraging process continues in accordance with the termsof the approved Restructuring Plan.In accordance with the INBS Transfer Order, borrowings fromthe Central Bank of Ireland under special funding facilitiestotalling €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 fundingbase the Bank is not in full compliance with most of itsregulatory requirements.The Bank’s credit ratings were downgraded to sub-investmentgrade in late 2010 by Standard & Poor’s and Moody’s, and byFitch in February 2011.The Group became a participant institution in the CreditInstitutions (Eligible Liabilities Guarantee) Scheme 2009 (the‘ELG Scheme’) on 28 January 2010 and certain qualifyingdeposits and securities issued by the Group from this dateonwards are covered by the ELG Scheme. A cost of €77m(2010: €128m) is included within interest expense for the yearrelating to the Bank’s participation. The EC has approved theextension of the ELG Scheme for certain eligible liabilities to30 June 2012.Customer fundingCustomer funding decreased by €10.5bn to €0.6bn in theperiod, primarily as a result of the transfer of €8.3bn ofcustomer deposits to AIB and AIB UK under the AIB TransferOrder. Remaining deposits are primarily related to lending orNAMA facilities.Central bank fundingBorrowings from the Central Bank of Ireland under specialfunding facilities increased to €40.1bn (2010: €28.1bn). Thefacilities utilised were a Special Master Repurchase Agreement(‘SMRA’), a Master Loan Repurchase Agreement (‘MLRA’) anda Facility Deed from the Central Bank of Ireland. The majorityof the funds were advanced under the SMRA, involving thesale and repurchase of the promissory notes and the NAMAsenior bonds. Collateral assigned under the MLRA is derivedfrom the Bank's customer lending assets. The interest rate onthese facilities is set by the Central Bank of Ireland and advisedat each rollover and is currently linked to the ECB marginallending facility rate.Borrowings under open market operations decreased to€2.1bn (2010: €16.9bn). This decline is mainly due to thetransfer of €12.2bn of NAMA senior bonds to AIB pursuant tothe AIB Transfer Order.The total amount of loan assets assigned as collateral underrated securitisation programmes and secured central bankborrowings at 31 December 2011 was €8.7bn (2010:€13.5bn). This fall is mainly due to certain programmes nolonger qualifying as eligible collateral under open marketoperations.Debt securities in issueDebt securities in issue decreased by €1.5bn to €5.4bn largelydue to the maturity of €2.2bn of medium term notes, of which€1.9bn were unguaranteed but represented contractualcommitments for the Bank. The decrease is partially offset by€0.6bn of medium term notes issued by INBS whichtransferred to the Bank on 1 July 2011 under the INBS Transfer12

Business review continuedIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Order. Medium term notes scheduled to mature during 2012total €4.3bn of which €2.5bn is unguaranteed. The Bankcontinues to honour contractual repayment commitments ondebt securities.Loans and advances to banksPlacements 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 counterpartiesin relation to net derivative liability positions and €0.2bn ofprimarily short term placements with banks.Available-for-sale financial assetsThe Bank holds a portfolio of securities that are classified asavailable-for-sale (‘AFS’). This portfolio comprises sovereignbonds, debt issued by financial institutions and NAMAsubordinated bonds.During 2011, and in line with its overall strategic objective, theBank has sought to deleverage non core holdings of AFSassets.AFS assets total €1.3bn at 31 December 2011, a decrease of€0.9bn from 31 December 2010. During the year €0.5bn ofAFS securities matured and the Bank disposed of a further€0.6bn with a loss on disposal of €2m reported in otheroperating income/(expense). In addition the Bank acquired€0.2bn of bonds under the INBS Transfer Order.Senior bank bonds account for 64% of holdings, eurodenominated sovereign 26% and other bonds, includingNAMA subordinated bonds 10%. Of the total bank bondsincluded within the portfolio €0.5bn, or 36%, relate to bondsissued by Irish banks of which €0.4bn are covered under theELG Scheme. Sovereign holdings include Irish sovereign bondswith 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 theyear.Promissory notesThe Minister for Finance, as the Bank’s sole shareholder, hasprovided the Bank with a promissory note to the value of€25.3bn comprising four tranches. The promissory note pays10% 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 revisedprincipal amount of €23.6bn from that date.In addition, the Minister for Finance had provided a promissorynote to INBS to the value of €5.3bn comprising two tranches.The terms of these tranches were the same as tranches oneand four of the Bank's promissory note. Following receipt byINBS of the first instalment payment on 31 March 2011, therevised principal amount was €4.9bn. On 1 July 2011 theprincipal and accrued interest as of that date transferred to theBank under the INBS Transfer Order.The promissory notes have resulted in the Group havingsignificant interest rate risk as they are fixed rate instruments.The Bank has hedged a total of €4.3bn of the nominal amountusing amortising interest rate swaps. A further €5.7bn ofeconomic hedges exist in the form of the Group’s capital andfixed rate debt issuance. However significant fixed interest rateexposure remains with limited capacity to hedge furtheramounts with market counterparties.The promissory notes are currently pledged as collateral forfunding under the SMRA with the Central Bank of Ireland.CapitalThe regulatory capital resources of the Group include €29.3bnof capital contributed by the Irish Government. Thesecontributions restored the levels of Core Tier 1 regulatorycapital following significant losses incurred. As at31 December 2011 the Group’s 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 theexception of certain limited excluded liabilities, weretransferred to the Bank at carrying value, after adjusting forexisting differences in accounting policies and bases ofvaluation. On the date of transfer no cash consideration waspaid and settlement was made for the net assets through anincrease in the Group’s shareholders’ funds, increasing CoreTier 1 capital by €0.7bn.Regulatory capital ratios have improved since31 December 2010 due to a reduction in risk weighted assets(‘RWA’) during the year of €11.6bn or 32%. This reduction isprimarily related to lending assets where the disposal of USloans in the final quarter of the year had a significant impacton total RWA. Targeted client asset disposals, repaymentsacross loan portfolios, NAMA transfers and additional specificimpairment charges further reduced RWA during the year. Themerger with INBS on 1 July 2011 offset some of thesereductions as risk weighted assets increased by €1.9bn ontransfer.Due primarily to the promissory notes issued by the Ministerfor Finance, the Bank has €35bn of exposure to the IrishGovernment at 31 December 2011. Irish Government exposureis risk weighted at 0% in line with the requirements of theCapital Requirements Directive and guidance from the CentralBank of Ireland. The Group adopts the Basel II StandardisedApproach in calculating its minimum capital requirements.RestructuringPursuant to a direction order made by the Irish High Courtunder Section 9 of CISA on 8 February 2011 the Bank wasdirected to (a) reduce its net lending in line with forecastsderived from the Restructuring Plan, (b) formulate a detailedsteps plan for the rationalisation and, where appropriate,closure of the Bank’s UK offices and its branches in Dusseldorf,Vienna and Jersey and submit it to the NTMA (as the nomineefor the Minister for Finance) by 31 March 2011, (c) formulate adetailed steps plan for the disposal of the Bank’s WealthManagement business and submit it to the NTMA by31 March 2011, (d) formulate in conjunction with INBS adetailed steps plan for the Bank’s acquisition of/merger withINBS and submit it to the NTMA by 31 March 2011 and (e)transfer the remaining eligible loan assets (as defined in theNational Asset Management Agency Act 2009) to NAMA bythe later of 31 December 2011 or the completion of any ongoinglitigation delaying transfer of those loans. On31 March 2011, the Bank submitted the three steps plansreferred to at (b), (c) and (d) above to the NTMA.On 7 April 2011 the Minister for Finance issued certainrequirements to the Bank under Section 50 of CISA pursuant towhich the Bank was obliged to implement in all materialrespects, with the approval of the NTMA, the high level stepsplans appended thereto in relation to (i) the rationalisationand, where appropriate, closure of the Bank’s UK offices andits branches in Dusseldorf, Vienna and Jersey, (ii) the disposal13

Business review continuedof the Bank’s Wealth Management business and (iii) the Bank’sacquisition of/merger with INBS. The Bank was also required toprepare, in conjunction with INBS and the NTMA, a high levelrestructuring and work-out steps plan, based on theRestructuring Plan (the ‘High Level Steps Plan’) and, subject tothe approval of the NTMA, implement that High Level StepsPlan, subject to any variations directed by the EC. The Bank isproceeding with the implementation of the High Level StepsPlan, following its approval by the NTMA on 20 June 2011,and is required to report to the Department of Finance on amonthly basis on the progress against the forecasts agreed inthe High Level Steps Plan. A number of commitments werealso made to the EC as part of the Restructuring Plan inrelation to the State aid provided to the Bank. A MonitoringTrustee was approved by the EC on 8 December 2011 toreport on a quarterly basis for a period of three years on theGroup's adherence to these Restructuring Plan commitments.The Bank’s branches in Vienna and Jersey closed in June 2011and the Dusseldorf branch closed in August 2011. The assetsand liabilities of INBS (subject to certain limited excludedliabilities) transferred to the Bank under the INBS TransferOrder on 1 July 2011.As a result of the disposal of the majority of the US loan book,the Bank’s representative office in New York closed in January2012 and the Bank now retains a small team in Boston to workthrough the residual asset cases and operational wind-down ofthe US office.On 30 January 2012, following a comprehensive process toevaluate all of the available alternatives for the future directionof its Wealth Management business, the Bank announced itsdecision to commence an orderly wind-down of the business.This process is currently underway and may include a cosourcingarrangement.offset by the acquisition of 212 additional staff under the INBSTransfer Order. The Group headcount at 31 December 2011 is1,219 which includes 183 people working directly in theBank's NAMA unit. In late 2011 the Bank launched a voluntaryredundancy programme with a target reduction of 130 roles.This process will be implemented during 2012.Other administrative costs of €108m are in line with theprevious year as significant professional fees continue to beincurred, principally in relation to ongoing asset recoverymatters.Exceptional costs of €82m incurred during the year primarilyrelate to professional fees associated with Bank restructuringwork, significant non-recurring transactions and costs relatedto certain legacy matters. The principal non-recurringtransactions include NAMA and a significant debt recoverycase.TaxationNo Irish tax will be payable on the Group’s Irish businessactivities due to the availability of losses in the Bank which areoffset against taxable profits within the Group. However acurrent period foreign tax charge of €6m arises. A deferred taxcharge of €6m has been recognised in respect of the release ofdeferred tax assets.The Group’s current tax liability at 31 December 2011 includesa payable of €23m acquired under the INBS Transfer Order on1 July 2011.The Group is currently in discussions with the US InternalRevenue Service with respect to potential US tax exposuresrelating to the Group’s US filing obligations.CostsOperating expenses2011 2010€m €mStaff costs 107 130Other administrative expenses 108 108Depreciation and amortisation 23 26Recurring operating expenses 238 264Exceptional costs 82 89Total operating expenses 320 353Total recurring operating expenses for the year to31 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 onceoff past service gain arising from approved amendments to theBank’s two defined benefit pension schemes. Adjusting forthis, staff costs fell by 8%, driven by an 11% decrease inaverage staff numbers from 1,332 during 2010 to 1,186during the current year. This is primarily due to the transfer outof the Bank of 210 staff under the AIB Transfer Order andreduced US staffing following the loan book sales, partiallyRisks and uncertaintiesThe Group is subject to a variety of risks and uncertainties inthe course of its business activities. The principal risks anduncertainties facing the Bank at present are those related togeneral economic conditions, Government policy andrestructuring risk, ratings downgrades, eurozone risk, liquidityand funding risk, NAMA participation, credit risk, operationalrisk, events of default risk, regulatory compliance risk, marketrisk, valuation risk, the Fitness and Probity regime, andlitigation and legal compliance risk. In addition continuedconcerns within the banking industry regarding counterpartyand country risk could adversely impact on the Bank. Moredetail is contained in the Principal risks and uncertaintiesstatement on pages 18 to 22.Subsequent events and futuredevelopmentsThe key events that have occurred since the end of the yearare reviewed in note 57 to the financial statements. The GroupChief Executive’s review and the Chairman’s statement reviewthe outlook and future of the Group.1Gross of impairment provisions and including lendingassociated with the Group’s assurance company14

Board of DirectorsIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Alan Dukes (66), was appointed as Non-executive Chairmanon 14 June 2010 having initially joined the Board in December2008. He is a Director and Public Affairs Consultant of WilsonHartnell Public Relations Limited. He has served at varioustimes as Minister for Agriculture, Finance, Justice, andTransport, Energy and Communications. He is a former Leaderof Fine Gael. He was Director General of the Institute ofEuropean Affairs from 2003 to 2007.Chairman of the Board of DirectorsMember of the Nomination and Governance CommitteeMember of the Remuneration CommitteeA.M.R. (Mike) Aynsley (54), was appointed Chief ExecutiveOfficer and joined the Board in September 2009. He has held anumber of senior executive positions over a career spanningmore than 30 years including that of Chief Risk Officer – NewZealand for ANZ Bank and its subsidiary, the National Bank ofNew Zealand. Prior to that he was a Global Partner, Bankingand Financial Services with Deloitte Consulting and GeneralManager – Global Markets, Global Wholesale Financial Servicesfor National Australia Bank. He holds a Master of BusinessAdministration degree from Macquarie University.Group Chief ExecutiveMember of the Nomination and Governance CommitteeMember of the Risk and Compliance CommitteeDr. Noel Cawley (67), was appointed to the Board on24 May 2010. He is Chairman of Teagasc (the Agricultural andFood Development Authority). He is a Director of An Bord Biaand One51 plc. He was previously Chief Executive of the IrishDairy Board and Chairman of the Irish Horse Board.Independent Non-executive DirectorChairman of the Remuneration CommitteeMember of the Audit CommitteeMember of the Nomination and Governance CommitteeMember of the Risk and Compliance CommitteeAidan Eames (53), was appointed to the Board on24 May 2010. He is a commercial lawyer and ManagingPartner of Eames Solicitors, Dublin. He is a Director of BordGáis Éireann and is Chairman of their Risk Committee. He isalso a member of the Department of Foreign AffairsIndependent Audit Committee. He has served as Chairman andBoard Member of a number of private and state enterprisesand acts as advisor to leading commercial and technologycompanies.Independent Non-executive DirectorChairman of the Nomination and Governance CommitteeMember of the Audit CommitteeMember of the Remuneration CommitteeMember of the Risk and Compliance CommitteeOliver Ellingham (55), was appointed to the Board on14 October 2011. He is a chartered accountant and a formerHead of Corporate Finance (Europe) at BNP Paribas and asenior executive within BNP Paribas UK. He currently holdsNon-executive Directorships in a number of companiesincluding Vislink plc and the Naafi Pension Fund and he isChairman and owner of Woking Storage Solutions. Hepreviously also held senior management roles withinCharterhouse Bank (now part of the HSBC Group) and RobertFleming (now part of the J P Morgan Group).Independent Non-executive DirectorMember of the Audit CommitteeGary Kennedy (54), was appointed to the Board on24 May 2010. He is a Director of Elan Corporation plc,Greencore Group plc and Friends First General InsuranceCompany Limited. He is also a Director of a number of privatecompanies. Previously, he was Group Director, Finance andEnterprise Technology at Allied Irish Banks, p.l.c. and was amember of its main Board. Prior to that he was group vicepresidentat Nortel Networks Europe after starting hismanagement career at Deloitte & Touche. He served on theBoard of the Industrial Development Authority of Ireland forten years and also on the board of Calyx Group plc.Independent Non-executive DirectorChairman of the Audit CommitteeMember of the Nomination and Governance CommitteeMember of the Remuneration CommitteeMember of the Risk and Compliance CommitteeMaurice Keane (70), who joined the Board on21 January 2009, is a former Group Chief Executive andmember of the Court of Directors of Bank of Ireland. He is aDirector of Axis Capital Holdings Limited. He was alsopreviously Chairman of BUPA Ireland Limited and Bristol &West plc.Independent Non-executive DirectorChairman of the Risk and Compliance CommitteeMember of the Audit CommitteeMember of the Nomination and Governance CommitteeMember of the Remuneration CommitteeRoger McGreal (59), joined the Board on 15 November 2011.He is a former Executive Director of Woodchester Investmentsplc where his responsibilities included banking, credit and risk.Previously, he held senior management roles in the CorporateBanking division of Bank of Ireland and the Investment Bank ofIreland where he was Associate Director of Corporate Lending.He was appointed as a Non-executive Director of IrishNationwide Building Society in September 2009. He holdsNon-executive Directorships in various private companies andhe is also on the Board of a number of companies establishedin the International Financial Services Centre in Dublin.Independent Non-executive DirectorMember of the Risk and Compliance Committee15

Corporate ResponsibilityIntroductionAt IBRC we recognise our corporate obligations andresponsibilities and are committed to fulfilling them.The management and staff of the Bank believe that acommitment to supporting the development of the widercommunity is an important part of our corporate responsibility.The Bank continually invests in the development and trainingof our staff, as well as maintaining quality relationships withour stakeholders. We also take a responsible approach toenvironmental issues and are proactive in seeking innovativeways in which to become more efficient.EnvironmentAs a corporate citizen, IBRC recognises its responsibility to theenvironment and aims to operate in a way which minimises itscarbon footprint. We take a responsible approach toenvironmental issues and are proactive in seeking innovativeways in which to become more efficient. The Bank has anEnergy Statement which recognises the importance ofpractising energy efficiency to minimise costs and impact onthe environment.Carbon footprintWe monitor our carbon footprint as an organisation and haveinitiated measurement of the Bank’s impact on theenvironment. We obtain carbon tracking reports from anumber of our suppliers. It is our preference to source and dealwith environmentally focused and aware suppliers and wehave incorporated this preference into our tenderingprocesses.We continue to track three elements of the Bank’s impact onthe environment, measuring electrical, gas and waterconsumption in the majority of our offices.Energy consumptionThe Bank’s main energy supplier is a company which iscommitted to sourcing most of its energy supplies fromrenewable sources. In Ireland, the Bank participated in theElectricity Winter Demand Reduction Scheme from December2011 to March 2012. Available information to date confirmsthat we achieved our committed reduction in electricalconsumption.It is Bank policy to recycle paper, cardboard, glass andcomputer consumables where possible. All electronic andelectrical equipment is disposed of in a safe andenvironmentally responsible way as stipulated in the EU WasteElectrical and Electronic Equipment Directive. In addition, theuse of video, web meetings and teleconferencing facilitiesacross all offices is reducing our business travel and thereforeminimising our carbon footprint.CommunityWe believe that a commitment to supporting the developmentof the wider community is an important part of ourresponsibility as a corporate citizen.The Bank’s Corporate Social Responsibility agenda hashowever significantly reduced since nationalisation. We haveretained a limited number of community based pillar activitiesto ensure that the Bank does its part in encouraging socialinclusiveness and supporting the young and disadvantaged.Much of the work done in this context is rooted in thegenerosity and commitment of our staff who give their timeand effort to support a wide range of worthwhile causes.Warrenmount School, DublinIn Ireland, IBRC is committed to supporting our mentoringprogramme for secondary level students of WarrenmountSchool, located in the Liberties district of Dublin, during theacademic year 2011/2012. We started this programme in 2000and since then it has received widespread commitment fromstaff who, with the Bank’s support, offer their time to helpstudents realise their full potential. To date, over 130 membersof staff have been involved with the Warrenmount initiative.The mentoring scheme enables pupils to develop importantpersonal and professional skills which will benefit their futurelives and careers.Dublin City University & University of LimerickThe Bank comprises a well-educated staff, many of whom havebeen fortunate enough to avail of a third level education.Supporting those less fortunate to attain a third level educationis the rationale behind our Access Scholarship Programmes fordisadvantaged students in Dublin City University and Universityof Limerick. In close co-operation with the universities, theseprogrammes are structured to ensure the participatingstudents are supported throughout the duration of theirchosen degree course.Giving programmesThe Bank has a history of supporting a number of charities. Anumber of Irish based employees participate in a ‘Give As YouEarn’ scheme in support of Children Direct, a partnership offive Irish children’s charities: Temple Street Children’s 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.It is important to the Bank to continue to increase theenvironmental awareness of the Group’s staff. In 2011, wecontinued to increase our waste recycling rates throughimproved waste segregation methods and awareness amongststaff in our Dublin offices. These are now being formallymeasured and reported on by our service providers on amonthly basis. We will continue to focus our attention in 2012on further reducing resource consumption and maintainingresponsible methods of waste disposal.16

Corporate Responsibility continuedIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011WorkplaceWe are a business in wind-down with a highly important job todo before full resolution of the Bank in 2020. Between nowand then, our collective objective is to achieve the very bestreturn for the Irish taxpayer. To do this, we need a high calibre,specialist and focused workforce with the necessary expertiseand 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 developour staff by furthering their technical and specialistcompetencies. This ensures that our employees receive theappropriate training to help them undertake their roles. Weassist employees in furthering their education. This includesfunding to cover approved course fees and study leave inadvance of exams.Employee well-being is of continual importance to us. We runan Employee Well-Being scheme, which is available to staff inIreland and is operated in conjunction with an independentconsultancy firm. This service offers confidential support tostaff. Similar programmes exist for UK staff (EmployeeAssistance Programme) and US staff (Ability Assist).The staff, management team and Board aspire to uphold a setof core values and principles by which to operate in the bestinterests of all our stakeholders - the Minister for Finance,customers, suppliers, regulatory bodies and the community.Health and safetyIn line with health and safety legislation, the Bank is committedto achieving the highest standards of safety, health andwelfare for its employees, contractors and visitors in theworkplace.As required by Section 20 of the Safety, Health and Welfare atWork Act 2005, the Bank has prepared a written SafetyStatement outlining our policies on occupational health andsafety matters and defining the necessary managementstructure for the implementation of these policies. This SafetyStatement is reviewed annually, or as required by changes inlegislation and/or work practices in the Bank.17

Principal risks and uncertaintiesThe Group is subject to a variety of risks and uncertainties inthe normal course of its business activities. The Transparency(Directive 2004/109/EC) Regulations 2007 require a descriptionof the principal risks and uncertainties facing the Group.The Board of Directors and senior management have ultimateresponsibility for the governance of all risk taking activity andhave established a framework to manage risk throughout theGroup. Details of the risk management policies and processesthat the Group adopts are contained in note 50 to the financialstatements.The business risks and uncertainties below are those riskswhich the Directors currently believe to be the material andprincipal risks to the Group. The precise nature of all the risksand uncertainties that the Group faces cannot be predictedand many of these risks are outside of the Group’s control. Theprincipal risks and uncertainties outlined below should be readin conjunction with the Chairman’s statement and the GroupChief Executive’s review.General economic conditionsThe Group’s results are influenced by macroeconomic andother business conditions in the Group’s three historicalmarkets: Ireland, the UK and, to a lesser extent, the US.Some sectors in Ireland have sustained their contribution toexport-led growth but, overall, economic conditions in Irelandremain challenging and consequently the results of the Grouphave been adversely affected. Ireland continues to experiencesubdued consumer confidence, high unemployment, andweaker domestic commercial activity. In the short term,austerity measures introduced in consecutive budgets continueto define domestic business sentiment and inhibit personaldisposable income and spending. Such measures, which formpart of the overall adjustment programme for Ireland, haveimproved the country’s competitiveness.Further deterioration in property prices could further adverselyaffect the Group’s financial condition and results of itsoperations. The Group’s financial performance may also beaffected by future recovery rates on assets and the historicalassumptions underlying asset recovery may no longer beaccurate given the general economic situation.While there has been some improvement in the UK and US,conditions remain uncertain surrounding the sustainability ofboth the global and relevant regional economic recoveries,particularly if fiscal and monetary supports are withdrawn. Inthe UK, the modest economic recovery is still exposed tochanges in UK Government policy initiatives designed to fostergrowth, which in turn could impact negatively on the broaderdemand for goods and services. As a result, unemploymentcould increase and residential and commercial property wouldagain suffer decreases in value.Government policy and restructuring riskAs the Bank’s only shareholder, and under legislative powersrelevant to the Bank, the Minister for Finance is in a position toexert significant influence over the Group. The Bank is alsowholly reliant on the support of the Irish Government.Government policy in respect of both the Bank and the widerfinancial services sector has a major impact on the Group.Changes to government policies or the amendment of existingpolicies could adversely impact the financial condition andprospects of the Group.For instance, if new governmental policies were to require theBank to resolve its position over a shorter than expected timeframe, projected asset recovery values could be negativelyimpacted.Also, due to the substantial package of assistance for Irelandagreed between the Government, International Monetary Fund(‘IMF’) and the European Union (‘EU’) in November 2010,which included agreements to reorganise and restructure theIrish banking sector, the IMF and the EU retain significantinfluence on the future of the Bank. The Bank also remainssubject to risks which could result from any further measuresagreed between the Government, the IMF and the EU.The Credit Institutions (Stabilisation) Act 2010 (‘CISA’), enactedon 21 December 2010 following agreement of the assistancepackage, gives broad powers to the Minister for Finance tofacilitate the reorganisation and restructuring of the bankingsystem in Ireland. In this context, the Irish Governmentsubmitted a joint restructuring plan and work-out plan inrespect of the Bank and Irish Nationwide Building Society(‘INBS’) to the European Commission (‘EC’) on 31 January 2011(‘Restructuring Plan’). The Restructuring Plan had beenprepared in conjunction with the Department of Finance andthe National Treasury Management Agency (‘NTMA’).A direction order (the ‘Direction Order’) was made by the IrishHigh Court under Section 9 of CISA on 8 February 2011 underwhich the Bank was directed to (a) reduce its net lending inline with forecasts derived from the Restructuring Plan, (b)formulate a detailed steps plan for the rationalisation and,where appropriate, closure of the Bank’s UK offices and itsbranches in Dusseldorf, Vienna and Jersey and submit it to theNTMA by 31 March 2011, (c) formulate a detailed steps planfor the disposal of the Bank’s Wealth Management businessand submit it to the NTMA by 31 March 2011, (d) formulate inconjunction with INBS a detailed steps plan for the Bank’sacquisition of/merger with INBS and submit it to the NTMA by31 March 2011, (e) transfer the remaining eligible loan assets(as defined in the National Asset Management Agency Act2009 (the ‘NAMA Act’)) to the National Asset ManagementAgency (‘NAMA’) by the later of 31 December 2011 or thecompletion of any ongoing litigation delaying transfer of thoseloans and (f) take certain steps in connection with an auctionprocess to be operated by the NTMA in connection with thetransfer of certain of the Bank’s deposits and assets.On 24 February 2011, the Irish High Court made a transferorder under Section 34 of CISA pursuant to which the majorityof the Bank’s Irish and UK deposit books, certain NAMA bondsand the Bank’s shares in its wholly-owned deposit-taking Isleof Man subsidiary were transferred to Allied Irish Banks, p.l.c.(‘AIB’) and AIB Group (UK) p.l.c. (‘AIB UK’) (the ‘AIB TransferOrder’). On 31 March 2011, the Bank submitted the threesteps plans referred to at (b), (c) and (d) above to the NTMA.On 7 April 2011 the Minister for Finance issued certainrequirements (‘Ministerial Requirements’) to the Bank underSection 50 of CISA pursuant to which the Bank was obliged toimplement in all material respects, with the approval of theNTMA, the high level steps plans appended thereto in relation18

Principal risks and uncertainties continuedIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011to (i) the rationalisation and, where appropriate, closure of theBank’s UK offices and its branches in Dusseldorf, Vienna andJersey, (ii) the disposal of the Bank’s Wealth Managementbusiness and (iii) the Bank’s acquisition of/merger with INBS.The Bank was also required to prepare, in conjunction withINBS and the NTMA, a high level restructuring and work-outsteps plan, based on the Restructuring Plan (the ‘High LevelSteps Plan’) and, subject to the approval of the NTMA,implement that High Level Steps Plan, subject to any variationsdirected by the EC. The Bank is proceeding to implement theHigh Level Steps Plan, following approval by the NTMA on20 June 2011.The Restructuring Plan, which was approved by the EC on29 June 2011, provides for the amalgamation of the Bank withINBS and sets out in detail how the loan books of thecombined entity will be resolved over a period of up to tenyears. To ensure that the assets are managed in a wayconsistent with the resolution of the combined entity, certaincommitments are now binding upon the Bank, including acommitment that it cannot enter into new activities. AMonitoring Trustee was approved by the EC on 8 December2011 to report on a quarterly basis for a period of three yearson the Group’s adherence to these Restructuring Plancommitments.The Bank has prepared an operating plan which is intended toform the basis for the implementation of the RestructuringPlan and the High Level Steps Plan. The operating plan focuseson accelerated deleveraging of the Bank, and includes theaccelerated disposal of its US loan portfolio and the disposal orwind-down of its Wealth Management division in accordancewith the Restructuring Plan, the Direction Order, the MinisterialRequirements and the High Level Steps Plan. The initiatives aresubject to operational challenges and market dependencies inrespect of timing and optimal pricing, which will increase theexecution risk of the operating plan.Note 57, Events after the reporting period, confirms that on30 January 2012 the Bank announced that the Board hadapproved a strategy and direction put forward by managementto wind down its Wealth Management business in an orderlyfashion. This process is currently underway and may include aco-sourcing arrangement. Any final agreement reachedbetween the parties will have operational risks associated withthe process.Ratings downgrades – Bank and SovereignDuring 2011, the Bank’s long-term Standard & Poor’s (‘S&P’)counterparty credit rating was downgraded by three notchesto CCC and remains below investment grade. Similar actionwas taken by Moody’s during the period (rating cut from Ba3to Caa2) and by Fitch (rating cut from BBB- to BB-). In takingthese rating actions, credit rating agencies cited concernsabout the Irish Government’s publically indicated preference toimpose losses on the Group's senior unsecured andunguaranteed debt holders.Eurozone riskDuring 2011, the economic, monetary and political uncertaintyin a number of eurozone members increased. The cost andavailability of funding available to European banks, includingthe Group, may be affected by any further escalation of thesovereign crisis, and could also materially adversely affect theGroup’s financial condition and results of operations due tothe impact on economic conditions in the eurozone and theEuropean Union in general.Liquidity and funding riskLiquidity and funding risk is the risk that the Group does nothave sufficient financial resources available at all times to meetits contractual and contingent cash flow obligations or canonly secure these resources at excessive cost. This risk isinherent in all banking operations and can be affected by arange of institution-specific and market-wide events. TheGroup’s liquidity may be adversely affected by a number offactors, including significant unforeseen changes in interestrates, ratings downgrades, higher than anticipated losses onloans and disruptions in the financial markets generally.In response to major market instability and illiquidity,governments and central banks around the world haveintervened in order to inject liquidity and capital into financialmarkets and, in some cases, to prevent the failure ofsystemically important financial institutions. These variousinitiatives to stabilise financial markets are subject torevocation or change, which could have an adverse effect onthe availability of funding to the Group.In common with many other banks, the Group’s access totraditional sources of liquidity remains constrained. The Bankhas experienced greater reliance on Government and monetaryauthority support mechanisms due to the AIB Transfer Orderand the maturity of debt securities. The Bank’s continuedreliance on support from central banks includes access tospecial funding facilities, a key factor in ensuring successfulimplementation of the operating plan as well as adapting topotential regulatory developments. The funding support fromcentral banks and monetary authorities amounted to €42.2bnat 31 December 2011, representing 87% of total funding, andincluded €40.1bn borrowed under special liquidity facilities.This support increased from December 2010 (70% of totalfunding) following the transfer of certain Irish and UK depositsand NAMA bonds to AIB and AIB UK under the AIB TransferOrder.Should monetary authorities materially change their eligibilitycriteria or limit the Bank’s access to such special fundingfacilities without providing an alternative funding source, thiswould adversely affect the Group’s financial condition andprospects. Additionally, credit rating downgrades may impacton the eligibility of assets currently pledged as collateral forcentral bank open market sale and repurchase agreements.Also during the period the Irish Sovereign’s senior debtsuffered further credit rating downgrades. S&P lowered theirrating from A to BBB+, Moody’s adjusted their rating fromBaa1 to Ba1, and Fitch reduced their rating from BBB+ (Stable)to BBB+ (Negative).19

Principal risks and uncertainties continuedNAMAThe Bank continues to be designated as a participatinginstitution in NAMA. The NAMA Act provides for theacquisition by NAMA from participating institutions of eligiblebank assets, which may include performing and nonperformingloans made for the purpose, in whole or in part, ofpurchasing, exploiting or developing development land andloans associated with these loans.As NAMA reserves the right to adjust the consideration paidfor assets previously transferred when the due diligence iscompleted, the final adjustment to transfer values will only bedetermined when full due diligence in respect of the assets hasbeen completed. These adjustments have the potential to beeither positive or negative, depending on the assessment ofthe underlying loans.At 31 December 2011 the Bank had €0.1bn of loans remainingto transfer to NAMA. Not all of the remaining assets mayultimately transfer to NAMA. The Group may also be requiredto indemnify NAMA in respect of various matters, includingNAMA’s potential liability arising from any error, omission, ormisstatement on the part of the Group in information providedto NAMA. In addition, the EC may assess the compatibility andprice of the transferred assets and could invoke a claw-backmechanism in the case of excess payments.The NAMA Act provides that up to 5% of the debt securitiesthat will be issued to a participating institution may besubordinated. If NAMA ultimately makes a loss, the Group maynot recover the full value of those subordinated bonds.Credit riskCredit risk is the risk that the Group will suffer a financial lossfrom a counterparty’s failure to pay interest, repay capital ormeet a commitment, and the collateral pledged as security isinsufficient to cover the payments due. It arises primarily fromthe Group’s lending activities to customers, interbank lending,investment in available-for-sale debt securities and derivativetransactions.Adverse changes in the credit quality of the Group’sborrowers, counterparties and their guarantors, and adversechanges arising from the general deterioration in globaleconomic conditions, have reduced the recoverability of theGroup’s loan assets and have continued to increase thequantum of impaired loans and impairment charges during theperiod.The Group has exposures to a range of customers in differentgeographies, including exposures to investors in, anddevelopers of, commercial and residential property. At31 December 2011, 67% of the Group’s loans and advances tocustomers (excluding loans held for sale to NAMA andimpairment provisions) were in Ireland, 31% were in the UKand 2% in the US.Irish property prices continued to show significant declinesthroughout the last year and developers of commercial andresidential property are facing particularly challenging marketconditions, including substantially lower prices and volumes. Inaddition, the Group’s exposure to credit risk is exacerbatedwhen the collateral it holds cannot be realised or is liquidatedat prices that are not sufficient to recover the full amount ofthe loan, which is most likely to occur during periods ofilliquidity and depressed asset valuations, such as thosecurrently being experienced.As a result of the integration of the INBS business into theGroup pursuant to the Restructuring Plan, the Direction Order,the Ministerial Requirements and the High Level Steps Plan, theBank now also has exposure to residential mortgages, whichhave a higher reliance on sustained employment levels toensure continued servicing of existing debt. Residentialmortgages totalling €1.9bn transferred to the Bank by way ofthe INBS Transfer Order.The Irish property market remains severely impacted by a lackof confidence and liquidity which has led to further reductionsin property collateral values. This, together with an extremelydifficult operating environment in the Group’s key markets,particularly in Ireland, and the erosion of clients’ net worth hasresulted in a substantial deterioration in the asset quality of theBank’s loan book.The Group’s financial performance will be affected by futurerecovery rates on loan assets. Any further deterioration inproperty prices, any failure of prices to recover to their longterm averages or any delay in realising collateral secured onthese loan assets will further adversely affect the Group’sfinancial condition and results of operations.Following the approval of the Restructuring Plan by the EC, theGroup is also exposed to additional recovery risk given thatcounterparties are aware that the plan provides for an orderlywork-out of its loan book over a period of years as well asbeing dependent on efficient execution of debt restructuringswhere required. As a result, amounts recoverable may bereduced.Operational riskOperational risk is the risk of loss arising from inadequatecontrols and procedures, unauthorised activities, outsourcing,human error, systems failure and business continuity.Operational risk is inherent in every business organisation andcovers a wide spectrum of issues. The Group’s management ofits exposure to operational risk is governed by a policyprepared by Group Risk and approved by the Risk andCompliance Committee.The Group’s exposure to operational risk is elevated due to thetransitional support arrangements in place following themaking of the AIB Transfer Order, which resulted in theimmediate transfer of the majority of the Bank’s Irish and UKdeposit books and certain NAMA bonds to AIB and AIB UK, aswell as the integration process resulting from the INBS TransferOrder, which effected the transfer of the INBS business intothe Bank and orderly work-out of the combined entity’s loanbook over ten years. There is also the added risk of aweakened control environment while the Group implementsthe operational plan to give effect to the approvedRestructuring Plan and High level Steps Plan. The lack of careerprospects and incentives in the medium term may lead to lossof experienced staff and indifference among remaining staff,with an increased associated risk of material error. Separately,the current economic climate increases the risk of theoccurrence of fraud.20

Principal risks and uncertainties continuedIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Events of default riskThe Group's debt securities programmes and subordinatedcapital instruments contain contractual covenants and termsfor events of default which, if breached or triggered, couldresult in an actual or potential default that might result in thedebt concerned becoming payable immediately, or otheradverse consequences occurring.CISA includes important provisions that are designed toprevent rights in respect of a potential event of default, or anevent of default becoming exercisable because of the makingof orders or issuing of certain requirements under CISA oranything done on foot of such an order or requirements,including implementation of the High Level Steps Plan. CISAprovides that orders or requirements made under CISA maytake effect as a reorganisation measure under the CreditInstitutions Reorganisation and Winding Up Directive(‘CIWUD’) and any law giving effect to it. The relevantprotective provisions of CISA apply in relation to the DirectionOrder, the AIB Transfer Order, the Ministerial Requirementsand the INBS Transfer Order. Each such order and requirementwas declared to be a reorganisation measure for the purposesof CIWUD. Accordingly, CISA and laws giving effect to CIWUDconfer important protections to the Bank with respect to thelaws of EU member states against certain default risks inrespect of the matters and timelines contained in the relevantorders and requirements.With regard to litigation in the US in connection with allegedbreaches of covenant in the documentation governing certainsubordinated loan notes governed by New York Law, see thedisclosure concerning legal claims referred to in note 48 to thefinancial statements.Regulatory compliance riskRegulatory compliance risk primarily arises from a failure orinability to comply fully with the laws, regulations, standards orcodes applicable specifically to regulated entities in thefinancial services industry. The Bank continues to operate as aregulated entity and, as such, is therefore subject to certainminimum prudential and other regulatory requirements. At31 December 2011, the Bank is not in full compliance with allIrish regulatory requirements. While the Bank ensures that therelevant Authorities are kept fully informed in this regard, noncompliancemay result in the Group being subject to regulatorysanctions, material financial loss and/or loss of reputation.Capital risk is the risk that the Group has insufficient capitalresources to meet its minimum regulatory capital requirements.Losses incurred by the Bank during the past two years haveplaced significant stress on the Bank's regulatory capitalresources and resulted in the Minister for Finance, as theBank’s sole shareholder, providing €29.3bn of capital. TheGroup’s 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 AdequacyAssessment Process (‘ICAAP’). Accordingly the Group has yetto determine the appropriate level of capital requirementsunder Pillar 2.Taxation riskTaxation risk is the compliance risk associated with changes intax law or in the interpretation of tax law. It also includes therisk of changes in tax rates and the risk of failure to complywith procedures required by tax authorities. Failure to managetax risk effectively could lead to additional tax charges. It couldalso lead to financial penalties for failure to comply withrequired tax procedures or other aspects of tax law. The Groupis subject to the application and interpretation of tax laws in allcountries in which it operates. In relation to any tax risk, if thecosts associated with the resolution of the matter are greaterthan anticipated, it could negatively impact the financialposition of the Group.In accordance with applicable accounting rules, the Group hasalso recognised deferred tax assets on losses available torelieve profits to the extent that it is probable that such losseswill be utilised. The assets are quantified on the basis ofcurrent tax legislation and are subject to change in respect ofthe tax rate or the rules for computing taxable profits andallowable losses. In the event that there are no taxable profitsto be relieved or changes to tax legislation arise, there may bea reduction in the recoverable amount of the deferred taxassets currently recognised in the financial statements.Market riskMarket risk is the risk of a potential adverse change in theGroup’s income or financial position arising from movementsin interest rates, exchange rates or other market prices.Changes in interest rates and spreads may affect the interestrate margin realised between income on lending assets andborrowing costs.While the Group has implemented risk management methodsto mitigate and control these and other market risks to whichit is exposed, it is difficult to accurately predict changes ineconomic or market conditions and to anticipate the effectsthat such changes could have on the Group.Borrowings from central banks and a large proportion of theGroup’s other funding balances are denominated in euro whilesome of the Group’s lending assets are denominated in sterlingand US dollars. As a consequence, the Group has madeextensive use of foreign currency derivatives to manage thecurrency profile of its balance sheet during the period.Continued access to market participants is required to enablethe Group to continue with this risk management strategy.The promissory notes, which are fixed rate instruments, haveresulted in the Group having significant interest rate riskexposure. The Bank has hedged a total of €4.3bn of thenominal amount using interest rate swaps. A further €5.7bn ofeconomic hedges exist in the form of the Group’s capital andfixed rate debt issuance. However, significant fixed rateexposure remains, with limited capacity to hedge furtheramounts with market counterparties.In current market circumstances it is envisaged that the Bankwill have to continue to rely on support mechanisms providedby monetary and governmental authorities.Changes in government policy, legislation or regulatoryinterpretation applying to the financial services industry mayadversely affect the Group’s capital requirements and,consequently, reported results and financing requirements.These changes include possible amendments to governmentand regulatory policies and solvency and capital requirements.21

Principal risks and uncertainties continuedValuation riskTo establish the fair value of financial instruments, the Grouprelies on quoted market prices or, where the market for afinancial instrument is not sufficiently active, internal valuationmodels that utilise observable market data. In certaincircumstances, observable market data for individual financialinstruments or classes of financial instruments may not beavailable. The absence of quoted prices in active marketsincreases reliance on valuation techniques and requires theGroup to make assumptions, judgements and estimates toestablish fair value. In common with other financialinstitutions, these internal valuation models are complex, andthe assumptions, judgements and estimates the Group isrequired to make often relate to matters that are inherentlyuncertain. These judgements and estimates are updated toreflect changing facts, trends and market conditions and anyresulting change in the fair values of the financial instrumentscould have an adverse effect on the Group’s earnings andfinancial position.Fitness and probity regimeThe Central Bank of Ireland published its Regulations andStandards of Fitness and Probity, issued under Part 3 of theCentral Bank Reform Act 2010 (‘the 2010 Act’), on1 September 2011.These statutory standards came into effecton 1 December 2011.Litigation and legal compliance riskThe Group’s business is subject to the risk of litigation bycounterparties, customers, employees, pre-nationalisationshareholders or other third parties through private actions,class actions, regulatory actions, criminal proceedings or otherlitigation or actions. The outcome of any such litigation,proceedings or actions is difficult to assess or quantify. Thecost of defending such litigation, proceedings or actions maybe significant. As a result, such litigation, proceedings oractions may adversely affect the Group’s business, financialcondition, results, operations or reputation.In the period since December 2008, various regulatory bodiesin Ireland have initiated investigations (including in some cases,criminal investigations) into certain aspects of the Bank’sbusiness, including certain loan and other transactionsinvolving former Directors and certain third parties. Theseinvestigations are ongoing and it is not possible at this stage togive any indication as to whether these investigations willresult in civil, administrative or criminal proceedings against theBank 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, thereis a potential for unforeseen legal risks to arise.The 2010 Act provides for a fitness and probity regime for thereview of individuals performing ‘controlled functions’ and‘pre-approval controlled functions’, including directors andchief executive officers, in regulated financial service providersother than credit unions. Where the review causes the Head ofFinancial Regulation of the Central Bank of Ireland to form theopinion that there is reason to suspect the person’s fitness andprobity to perform the relevant function, an investigation maybe conducted which may result in a prohibition notice beingissued preventing the person from carrying out the function.The Group could suffer reputational damage or adversefinancial performance if any issues were to arise under thefitness and probity regime.22

Report of the DirectorsIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The Directors present their report and the audited financialstatements for the year ended 31 December 2011.ResultsThe Group loss attributable to the owner of the parent amountedto €884m (2010: €17,651m) as set out in the Consolidatedincome statement on page 32.Review of activitiesFollowing the approval by the European Commission of the jointrestructuring and work-out plan for the Bank and IrishNationwide Building Society (‘INBS’) on 29 June 2011, the Bank’ssingle activity has become the orderly resolution of the Groupover a period of up to ten years, securing the best possibleoutcome for the taxpayer.On 1 July 2011 the assets and liabilities of INBS (with theexception of certain limited excluded liabilities) were transferredto the Bank under a transfer order made by the Irish High Court.The Chairman’s statement, the Group Chief Executive’s reviewand the Business review on pages 3 to 14 report ondevelopments during the year, recent events and likely futuredevelopments. The financial statements for the year ended31 December 2011 are set out in detail on pages 32 to 168.DividendsNo dividends were paid during the year. It is not proposed to paya dividend in respect of the year ended 31 December 2011.CapitalThe capital resources of the Group include €29.3bn of capitalcontributed by the Minister for Finance. In addition, prior to themerger with the Bank, the Minister had contributed €5.4bn ofcapital to INBS.The transfer of the assets and liabilities of INBS on 1 July 2011resulted in an increase in the Group’s shareholders’ funds,increasing Core Tier 1 capital by €0.7bn.Details of changes in capital during the year are included in notes42 to 47 to the financial statements.Accounting policiesThe principal accounting policies, together with the basis ofpreparation of the financial statements, are set out in note 1 tothe financial statements.Directors and SecretaryThe names of the Bank’s Directors, together with a shortbiographical note on each, appear on page 15.Oliver Ellingham and Roger McGreal were appointed to the Boardon 14 October 2011 and 15 November 2011 respectively.On 13 January 2012 Dr. Max Barrett resigned as Group Secretaryand was replaced by Philip Brady who was appointed on thesame date.The interests of the Directors and Secretary who held office at31 December 2011 in the share capital of the Bank are shown inthe Remuneration Committee's report on behalf of the Board, setout in note 53 to the financial statements. Details of the totalremuneration of the Directors in office during 2011 and 2010 arealso shown in the Remuneration Committee’s report.Credit Institutions (Stabilisation) Act 2010In the performance of their functions the Directors have a dutyto have regard to the matters set out in section 4(f) of theCredit Institutions (Stabilisation) Act 2010. This duty is owed bythe Directors to the Minister for Finance on behalf of the Stateand takes priority over any other duties of the Directors to theextent of any inconsistency.Substantial shareholdingsOn 21 January 2009, under the terms of the Anglo Irish BankCorporation Act, 2009, all of the Bank’s ordinary andpreference share capital was transferred to the Minister forFinance. As at the date of this Report, all of the Bank’s issuedshare capital is held by the Minister.Foreign branchesThe Bank has an established branch, within the meaning of EUCouncil Directive 89/666/EEC, in the United Kingdom. Duringthe year branches in Germany and Jersey were closed and deregistered.The Bank’s branch in Austria was also closed during2011 and is currently in the final stages of de-registration.Corporate governanceThe Directors' Corporate governance statement appears onpages 25 to 29.Principal risks and uncertaintiesInformation concerning the principal risks and uncertaintiesfacing the Bank and the Group is set out in the Principal risksand uncertainties section on pages 18 to 22. The Group’sfinancial risk management objectives and policies and its use offinancial instruments are discussed in notes 21 and 50 to thefinancial statements.Books of accountThe Directors are responsible for ensuring that proper books ofaccount, as outlined in Section 202 of the Companies Act,1990, are kept by the Bank. To ensure compliance with theserequirements the Directors have appointed professionallyqualified accounting personnel with appropriate expertise andhave provided adequate resources to the Finance function. Thebooks of account of the Bank are maintained at the Bank'sregistered office at Stephen Court, 18/21 St. Stephen's Green,Dublin 2.AuditorThe Auditor, Deloitte & Touche, Chartered Accountants, hasexpressed willingness to continue in office in accordance withSection 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 201223

Statement of Directors' responsibilitiesThe following statement, which should be read in conjunctionwith the Auditor’s report on pages 30 and 31, is made with aview to distinguishing for the Shareholder the respectiveresponsibilities of the Directors and of the Auditor in relation tothe financial statements.Irish company law requires the Directors to prepare financialstatements for each financial period which give a true and fairview of the state of affairs of the Bank and of the Group as atthe end of the financial period and of the profit or loss of theGroup for that period. With regard to the financial statementson pages 32 to 168, the Directors have determined that it isappropriate that they continue to be prepared on a goingconcern basis and consider that in their preparation:• suitable accounting policies have been selected andapplied consistently;• judgements and estimates that are reasonable andprudent have been made; and• the financial statements comply with applicableInternational Financial Reporting Standards (‘IFRS’).The Directors are responsible for keeping proper books ofaccount which disclose with reasonable accuracy at any timethe financial position of the Bank and which enable them toensure that the financial statements are prepared inaccordance with IFRS, as adopted by the European Union, andcomply with the Companies Acts, 1963 to 2009 and Article 4of the IAS Regulation. They also have general responsibility fortaking such steps as are reasonably open to them to safeguardthe assets of the Bank and of the Group, and to prevent anddetect fraud and other irregularities.The Transparency (Directive 2004/109/EC) Regulations 2007and the Transparency Rules of the Central Bank of Irelandrequire the Directors to include a management reportcontaining a fair review of the business as well as a descriptionof the principal risks and uncertainties faced by the Bank andthe Group.The Directors are responsible for the maintenance and integrityof the corporate and financial information included on theBank's website. Legislation in the Republic of Ireland governingthe preparation and dissemination of financial statements maydiffer from legislation in other jurisdictions.The Directors confirm that, to the best of their knowledge,they have complied with these requirements in preparing thefinancial statements, including preparation of these financialstatements in accordance with IFRS, as adopted by theEuropean Union, to give a true and fair view of the state ofaffairs of the Bank and of the Group as at 31 December 2011and of the loss of the Group for the year then ended. They alsoconfirm that the management reports contained in the AnnualReport and Accounts include a fair review of the developmentand performance of the business and the position of the Bankand the Group, together with a description of the principalrisks and uncertainties that they face.The Directors, having prepared the financial statements, haverequested the Auditor to take whatever steps and undertakewhatever inspections are considered to be appropriate for thepurpose of enabling the issuance of the Auditor’s report.Directors:Alan Dukes (Chairman),A.M.R. (Mike) Aynsley (Group Chief Executive),Gary Kennedy (Non-executive Director).Secretary:Philip Brady.24

Corporate governance statementIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The Board of Directors (the ‘Board’) is accountable to theShareholder for the overall performance of the Group. In doingso, it is responsible for:• The effective, prudent and ethical oversight of theBank;• Setting the business strategy for the Bank, followingconsultation with the Shareholder; and• Ensuring that risk and compliance are properlymanaged in the Bank.The Central Bank of Ireland’s Corporate Governance Code forCredit Institutions and Insurance Undertakings (the ‘Code’)came into effect as and from 1 January 2011 and is theprimary corporate governance code to which the Bank is nowsubject. The Code sets out a model of best practice principlesfor the governance of financial institutions and the Boardsupports and endorses the provisions of the Code, which it hasimplemented. The Bank is not classified as a major institutionfor the purposes of this code. The full text and provisions ofthe Code is available at www.centralbank.ie.The Board believes that the application of the principles in theCode also assist the Group to comply with the ethical andother considerations implicit in the 2009 Code of Practice forthe Governance of State Bodies, as published by theDepartment of Finance and also as regards adherence to theprinciples espoused in the UK Corporate Governance Code.The Bank is in compliance with the corporate governance andother obligations imposed by the Ethics in Public Office Act,1995 and the Standards in Public Office Act, 2001. The Boardis also cognisant of its collective responsibilities and those of itsindividual members under the Credit Institutions (Stabilisation)Act 2010.This corporate governance statement describes how the Bankapplied the principles of the Code throughout the year ended31 December 2011. The Directors believe that the Group hascomplied throughout the year with the provisions andprinciples as detailed in the Code.Relationship with the ShareholderIn addition to the provisions of the Anglo Irish BankCorporation Act, 2009, a Relationship Framework between theMinister and the Bank was formally approved by the Board inJune 2009. This provides the framework under which therelationship between the Minister and the Bank is governed.Under the Relationship Framework, certain key matters arereserved to the Minister, and in respect of which the Boardmay only engage on the instructions of, or with the priorconsent of, the Minister.There has been regular two way communication between theShareholder and the Board during the year on a wide range ofissues, in particular in respect of a number of key mattersregarding the strategic objective to wind down the Bank in anorderly fashion within the ongoing overall restructuring of theIrish financial system, with the Directors being kept informedof the Shareholder’s views through regular reports to theBoard by the Chairman and the Group Chief Executive andthrough meetings with the Board, Chairman, and the GroupChief Executive.Board of Directors and MembershipThe Board of Directors recognises its continuing responsibilityfor the leadership, direction and control of the Bank and theGroup and its accountability to the Shareholder for financialperformance. As at 31 December 2011, the Board comprisedthe Chairman, six Non-executive Directors and the Group ChiefExecutive. Further to the priorities referred to in last year’sstatement, the Board enhanced its existing capability and skillsthrough the appointment of two further independent NonexecutiveDirectors 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 thefinancial year, 10 of which were scheduled. The significantnumber of unscheduled meetings were convened primarily toconsider a variety of strategic restructuring matters whicharose during the year, including the transfer of the Bank’sdeposit book to AIB, the amalgamation of the Bank with IrishNationwide Building Society pursuant to an Irish High Courttransfer order of 1 July 2011 and the disposal of the Bank’s USloan portfolio.All Directors are expected to attend each board meeting andthe attendance at board and committee meetings during 2011is set out on page 29. Directors are provided with relevantpapers in advance of each meeting. All Directors are invited toattend meetings of the Board’s principal sub-committees evenwhere they are not members of the particular committee andare provided with the relevant papers in respect of thosecommittee meetings.If any Director is unable to attend a meeting, he will stillreceive the supporting papers and will have the opportunity todiscuss any matters he wishes to raise with the Chairman toensure his views are given due consideration. During thefinancial year, many of the unscheduled meetings werearranged at short notice and it was not always possible for allDirectors to attend. The attendance rate at board andcommittee meetings for 2011 was 97%.The Board keeps a formal schedule of matters specificallyreserved for its decision. These are matters which aresignificant to the Bank because of their strategic, financial orreputational implications and include agreement of strategicobjectives, annual plans and performance targets, monitoringand control of operations, review of the performance of BoardCommittees and approval of specific senior appointments. Theschedule of matters reserved for the Board is reviewed andapproved by the Board on an annual basis, the latest reviewhaving taken place in February 2012. In addition, a formalBoard Charter is in place which governs the operation of theBoard as well as outlining the responsibilities of the Board andthe Directors. The Chairman, Group Chief Executive andCompany Secretary are always available for the Directors todiscuss any issues concerning Board meetings or other matters.Maurice Keane has been appointed as the Senior IndependentDirector.The Bank has insurance in place to cover the Directors andOfficers in respect of legal actions which may be broughtagainst them in the course of their duties. In addition, the Bankhas offered a third party indemnity to individuals who act asofficers of Bank subsidiaries or other related entities in relationto certain losses and liabilities which they may incur inconnection with their duties, powers or office.Roles of Chairman and Group Chief ExecutiveAlan Dukes was appointed as Non-executive Chairman of theBank in 2010 and in accordance with the provisions of theCode, 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 aredocumented within the Board Charter.25

Corporate governance statement continuedThe Chairman's main responsibility is to lead and manage theBoard, encourage critical discussions, challenge mind-sets andadditionally, promote effective communication within theBoard. In addition, he is responsible for promoting bestpractice corporate governance and effective communicationwith the Shareholder. The Chairman allocates a substantialamount of time to the Group and his role has priority over anyother commitments.The Board has delegated day to day responsibility for theBank's operations, compliance and performance to the GroupChief Executive to ensure that the strategic direction agreed bythe Board is followed. The Group Chief Executive in turndelegates the implementation of operational decisions to theBank’s executive management team. A formal chartergoverning the operation of the Bank’s Group ExecutiveCommittee which details their duties and responsibilities hasalso been adopted.Under the direction and management of the Group ChiefExecutive, the Group Executive Committee is responsible forthe management of the group’s human, financial and physicalresources having responsibility for:• Formulating and executing plans for theachievement of the Bank’s objectives and strategyas are prescribed by the Board from time to time;• Providing such assurance to the Board and BoardCommittees as the Board in the discharge of itsresponsibilities may seek regarding compliance bythe Bank with all relevant laws and regulations,managing the risks associated with the businessactivities of the Bank and financing the Bank; and• Acting in accordance with the interests of the Bankand the business connected with it, taking intoconsideration the interests of all the stakeholders ofthe Bank.Independence of the BoardThe Board has carried out its annual evaluation of theindependence of each of its Non-executive Directors, takinginto account the relevant provisions of the Code, namelywhether the Director has the ability to exercise soundjudgement and decision making independent of the views ofmanagement, political interests or inappropriate outsideinterests, with a number of specific criteria to be considered inmaking such an assessment. The Board is satisfied that each ofthe current Non-executive Directors fulfilled the independenceprovisions of the Code.Appointments to the BoardThe Board appoints new Directors on the recommendation ofthe Nomination and Governance Committee.Following nationalisation, the Minister has additional powersto appoint Directors of the Bank under the Anglo Irish BankCorporation Act, 2009.Oliver Ellingham and Roger McGreal were appointed to theBoard on 14 October 2011 and 15 November 2011respectively. These appointments were made havingconducted appropriate appointment processes, including theuse of external search consultants where necessary, andfollowing consultation with the Minister for Finance. RogerMcGreal was a Director of Irish Nationwide Building Societyprior to its amalgamation with the Bank on 1 July 2011. Mr.Ellingham and Mr. McGreal were considered to meet therelevant independence criteria on appointment.A copy of the standard terms and conditions of appointmentof Non-executive Directors can be inspected during normalbusiness hours by contacting the Company Secretary.Re-election and re-appointmentFollowing an amendment to the Articles of Association byshareholder resolution, the requirement to retire by rotationhas been dispensed with. Directors are appointed initially forthree years and, subject to satisfactory performance, may bere-appointed for additional terms.Alan Dukes and Maurice Keane having duly reached the end oftheir initial three-year terms as Non-executive Directors inDecember 2011 and January 2012 respectively, were reappointedby the Board for further three-year periods as NonexecutiveDirectors as and from those dates.InductionOn joining the Board, new Directors receive an inductionpresentation, which explains their responsibilities as a Directorand provides an overview of the Group and its business. EachDirector is provided with an information pack which providesdetails of the disclosures that each is obliged to make to theBank in order to comply with applicable laws, regulations andbest practice corporate governance standards. The programmealso includes briefing sessions with senior management fromeach of the main business units.Performance reviewA 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 byindividual interviews as considered appropriate. The Boardreviewed the results of the evaluations with a number of actionpoints agreed to progress improvements in 2012. All Directorswere considered to have discharged their respective duties andresponsibilities effectively and have committed an appropriateamount of time to fulfil their duties as a Board member.The annual performance evaluation of the Chairman was ledby the Senior Independent Director, in private consultationwith each of the Directors and the results were shared with theChairman and the Board as a whole.The Directors can avail of the advice and services of theCompany Secretary. The Directors and Committees of theBoard can also seek independent professional advice ifrequired, at the Bank's expense.Board CommitteesIn accordance with the provisions of the Code, the Board hasestablished four principal sub-committees operating undertheir 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. Inaddition to the four principal sub-committees the Board hasalso constituted a number of other sub-committees which arecharged with responsibility for other matters under the Board’sremit.The minutes of all meetings of Board Committees arecirculated to all Directors for information with their boardpapers and are formally noted by the Board.A description of each of the principal sub-committees is givenbelow.26

Corporate governance statement continuedIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Remuneration CommitteeMembers at 31 December 2011:Dr. Noel Cawley (Chairman), Alan Dukes, Aidan Eames,Maurice Keane and Gary KennedyThe Remuneration Committee is responsible for:• Ensuring that the overall reward philosophy andremuneration governance framework of the Bankand its companies (the ‘Group’) are consistent withthe achievement of the Group’s strategic objectives,having regard also to promoting effective riskmanagement within the Group;• Considering and making recommendations to theBoard in respect of remuneration policy for theChairman, Directors, Group Chief Executive,Company Secretary, senior management and otherindividuals whose remuneration may exceed definedminimum thresholds across the Group; and• Ensuring that remuneration policies and practicesare operated in accordance with any applicablelegal and regulatory requirements (including anyrequirements which the Central Bank of Ireland mayissue).The Committee's report on behalf of the Board on Directors'remuneration and interests is set out in note 53 to the financialstatements.Audit CommitteeMembers at 31 December 2011:Gary Kennedy (Chairman), Dr. Noel Cawley, Aidan Eamesand Maurice Keane.Oliver Ellingham has been appointed as a member of theCommittee with effect from 1 February 2012.The Audit Committee is responsible for:• Reviewing the appropriateness and completeness ofthe system of internal control, reviewing the mannerand framework in which management ensures andmonitors the adequacy of the nature, extent andeffectiveness of internal control systems, includingaccounting control systems and thereby maintainsan effective overall system of internal control (inoverseeing these matters, the Committee has regardto the activities of the Risk and ComplianceCommittee);• 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 activitiesand recommendations;• Overseeing all matters relating to the relationshipbetween the Group and the External Auditor; and• Reviewing financial information which, to theknowledge of the Committee, shall becommunicated to the public.Within this remit, the Audit Committee reviews the Group'sannual and interim financial statements, considers thesignificant financial reporting issues and judgements whichthey contain and makes recommendations to the Boardconcerning their approval and content.The Committee is responsible for making recommendations tothe Board regarding the appointment and removal of theExternal Auditor.The Group Internal Auditor and External Auditor haveunrestricted access to the Committee. The Committee meetsprivately with both the External Auditor and the Group InternalAuditor at least once a year without management present.There is a process in place for the Audit Committee to reviewthe nature and extent of all non-audit services provided by theExternal Auditor and, if appropriate, to approve such servicesand the related fees, with a formal non-audit services policyhaving been adopted.The Audit Committee, on behalf of the Board, reviews annuallythe Group’s speak-up policy which covers all staff and is inaccordance with best practice for whistle-blowingarrangements. The policy encourages staff to raise concerns ina confidential manner, detailing the senior contacts within thegroup to whom such concerns may be addressed, includingthe Chairman of the Audit Committee and the Chairman of theBoard. Confidential advice is available from Public Concern atWork, an independent, not-for-profit organisation, through afree phone number.At the invitation of the Committee, there are a number ofadditional standing attendees at each meeting including theGroup Chief Executive, Chief Financial Officer, Chief RiskOfficer, the Head of Group Internal Audit and the ExternalAuditor to aid the Committee’s collective discussion on mattersunder its remit.The Board has determined that Gary Kennedy, as a result of hisaccountancy background and career experience, has ‘recentand relevant financial experience’ as recommended by theCode. The Board is further of the view that the collective skillsand financial experience of the Committee members enablethem to discharge their responsibilities as a group.Risk and Compliance CommitteeMembers 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 Committeewith effect from 25 January 2011. Roger McGreal has alsobeen appointed as a member of the Committee with effectfrom 1 February 2012.The Risk and Compliance Committee is responsible for:• Review and oversight of the risk and complianceprofile of the Group within the context of theBoard-determined risk appetite;• Making recommendations to the Board concerningthe Group’s risk appetite, along with all materialpolicies relating to the Group’s risk profile and inrespect of any particular risk or compliancemanagement practices of concern to theCommittee;• Oversight of, and advice to the Board on, currentand prospective risk exposures of the Group andfuture risk strategy;• Monitoring risk elements of proposed strategictransactions involving acquisitions or disposals andaccordingly advising the Board to ensure thoroughdue diligence is undertaken for such transactionsand their impact on the risk profile assessed;27

Corporate governance statement continued• Commissioning and reviewing reports on key riskissues;• Review and oversight of management’s plans formitigation of the material risks faced by the variousbusiness units of the Group; and• Oversight of the implementation and review of riskmanagement and internal compliance and controlsystems throughout the Group.The Group Risk function provides a risk report to each meetingof the Committee which addresses the material risk types towhich the Group has exposure including credit, liquidity andmarket risk. The Group Compliance function also provides areport to the Committee’s meetings which addresses allmaterial compliance matters. In addition, the Group Legalfunction provides a regular review on all material litigationmatters involving the Bank. The Committee also receivesupdates from various Heads of Business functions on a regularbasis to enhance its understanding of the risks facing thosedifferent business units and the actions being taken to managethose risks.At the invitation of the Committee, there are a number ofadditional standing attendees at each meeting including theChief Financial Officer, Chief Risk Officer and the Head ofGroup Internal Audit.Nomination and Governance CommitteeMembers 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 renewalsto the Board and Board sub-committees andreviewing senior management succession plans,making recommendations to the Board, asappropriate;• Overseeing the process for appointments andrenewals of the Boards of subsidiary entities,including regulated subsidiaries; and• Monitoring developments in corporate governance,assessing the implications for the Bank, overseeingadherence by the Bank and its group of companiesto applicable governance requirements and advisingthe Board accordingly.Internal controlThe Directors acknowledge their overall responsibility for theGroup's system of internal control and for reviewing itseffectiveness, including having an appropriate process in placefor the preparation of Group Accounts. The Board hasdelegated to the Group Executive Committee the planning andimplementation of the system of internal control within anappropriate established framework which applies across theGroup. The system is designed to manage rather thaneliminate the risk of failure to achieve the Group's businessobjectives and provides reasonable but not absolute assuranceagainst material financial misstatement or loss. Such lossescould arise due to the nature of the Group's business inundertaking a wide range of financial services that inherentlyinvolve varying degrees of risk.The Group's system of internal control includes:• An organisation structure with clearly definedauthority limits and reporting mechanisms to seniorlevels of management and to the Board;• Divisional managers who, in conjunction with theGroup Risk and the Group Compliance functions,have responsibility for ensuring that risks areidentified, assessed and managed throughout theGroup. The Group Risk function together with theGroup Asset and Liability Committee providessupport to the Audit Committee and the Risk andCompliance Committee;• An independent Group Finance function, under theleadership of the Chief Financial Officer, which hasresponsibility for managing the process in respect ofthe preparation of group accounts, having regard toapplicable regulatory, legislative and financialaccounting requirements;• An annual budgeting and monthly financialreporting system for all Group business units whichenables progress against plans to be monitored,trends to be evaluated and variances to be actedupon;• A set of policies and guidelines relating to credit riskmanagement, asset and liability management(including interest, currency, and liquidity andfunding risk), compliance, operational riskmanagement, capital expenditure, computersecurity and business continuity planning; and• A Code of Conduct setting out the standardsexpected of all Directors, officers and employees ofthe Group.Procedures for monitoring the effectiveness of internal controlsinclude internal audit reports which are considered by theAudit Committee with an overview report provided by theHead of Internal Audit to meetings of the Committee,reporting by Group Risk and Group Compliance to the Risk andCompliance Committee meetings, and an annual assessmentby the Board of the effectiveness of internal controls.The Head of Group Internal Audit reports directly to theChairman of the Audit Committee and administratively to theGroup Chief Executive. The system of internal control isreviewed by Group Internal Audit. Emphasis is focused onareas of greatest risk as identified by risk analysis. The internalcontrol systems are subject to regulatory supervision by theCentral Bank of Ireland and overseas regulators.The Board confirms that there is a framework in place (which isdescribed in note 50) for identifying, evaluating and managingthe significant risks faced by the Group including compliancewith relevant law and regulation. This framework is regularlyreviewed and is in accordance with the Financial ReportingCouncil Revised Guidance on Internal Control (’the Turnbullguidance’).28

Corporate governance statement continuedIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The Directors confirm that they have reviewed theeffectiveness of the Group's system of internal controls for theyear ended 31 December 2011 and for the period up to andincluding the date of approval of the financial statements. Thereview undertaken covers all aspects of control includingfinancial, operational and compliance controls and riskmanagement. Any weaknesses identified from this review willbe addressed by the Directors.Going concernThe Directors confirm that they are satisfied that the Bank andthe Group have adequate resources to continue to operate forthe foreseeable future and are financially sound, as describedin note 1.2. For this reason, they continue to adopt the goingconcern basis in preparing the financial statements.Annual General MeetingFollowing the nationalisation of the Bank and the transfer of allshares to the Minister the provisions of the UK CorporateGovernance Code relating to shareholder relations andconduct at the Annual General Meeting are no longerapplicable.The Group uses its internet site (www.ibrc.ie) to provide thefull text of each annual and interim report for the five yearsprevious to the year of this report. The website also providesdetailed financial data, Bank information, information on creditratings and other press releases.Attendance at scheduled and unscheduled meetings during the year ended 31 December 2011.NameAlan DukesMike Aynsley (1)Maurice KeaneDr. Noel CawleyAidan EamesGary KennedyOliver Ellingham (2)Roger McGreal (3)Board -ScheduledBoard -Unscheduled Audit RemunerationRisk andComplianceNominationandGovernanceA* B* A* B* A* B* A* B* A* B* A* B*10 10 25 25 - - 5 5 - - 11 1110 10 25 25 - - - - 11 11 11 1110 10 25 23 10 10 5 5 11 11 11 1110 10 25 25 10 10 5 5 11 11 11 1110 10 25 24 10 10 5 5 11 11 11 1110 10 25 21 10 10 5 3 11 11 11 82 2 1 1 - - - - - - - -1 1 - - - - - - - - - -* Column A indicates the number of meetings held during the period the Director was a member of the Board or Committee and waseligible to attend. Column B indicates the number of meetings attended.(1) Mike Aynsley was appointed as a member of the Risk and Compliance Committee on 25 January 2011.(2) Oliver Ellingham was appointed as a Non-executive Director on 14 October 2011.(3) Roger McGreal was appointed as a Non-executive Director on 15 November 2011.29

Independent Auditor’s report to the Shareholder ofIrish Bank Resolution Corporation LimitedWe have audited the financial statements of Irish BankResolution Corporation Limited ('the Bank') and its subsidiaries(together 'the Group') for the year ended 31 December 2011which comprise the Consolidated income statement, theConsolidated statement of comprehensive income, theConsolidated and the Bank statements of financial position,the Consolidated and the Bank statements of changes inequity, the Consolidated and the Bank statements of cashflows, and the related notes 1 to 58. These financialstatements have been prepared under the accounting policiesset out therein.This report is made solely to the Bank's Shareholder, inaccordance with Section 193 of the Companies Act, 1990. Ouraudit work has been undertaken so that we might state to theBank's Shareholder those matters we are required to state tothe Shareholder in an Auditor’s report and for no otherpurpose. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the Bankand the Bank's Shareholder, for our audit work, for this report,or for the opinions we have formed.Respective responsibilities of Directors and AuditorThe Directors are responsible for preparing the financialstatements, including the preparation of the Group financialstatements and the Bank financial statements, in accordancewith applicable law and International Financial ReportingStandards ('IFRS') as adopted by the European Union.Our responsibility, as Independent Auditor, is to audit thefinancial statements in accordance with relevant legal andregulatory requirements and International Standards onAuditing (UK and Ireland).We report to you our opinion as to whether the Groupfinancial statements and the Bank financial statements give atrue and fair view, in accordance with IFRS as adopted by theEuropean Union, and are properly prepared in accordance withIrish 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 MiscellaneousAmendments) Regulations, 2005, and Article 4 of the IASRegulation.We also report to you whether in our opinion: proper books ofaccount have been kept by the Bank; whether, at the end ofthe reporting period, there exists a financial situation requiringthe convening of an extraordinary general meeting of theBank; and whether the information given in the Annual Reportis consistent with the financial statements. In addition, westate whether we have obtained all information andexplanations necessary for the purposes of our audit andwhether the Bank's statement of financial position is inagreement with the books of account.We also report to you if, in our opinion, any informationspecified by law regarding Directors' remuneration andDirectors' 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 towhether the description in the Corporate governance statementof the main features of the internal control and riskmanagement systems in relation to the process for preparingthe Group and Bank financial statements is consistent with theGroup financial statements. We review whether the statementregarding the system of internal financial control required bythe Code of Practice for the Governance of State Bodies (‘theCode of Practice’) made in the Corporate governance statementreflects the Group’s and Bank’s compliance with paragraph13.1 (iii) of the Code of Practice and is consistent with theinformation of which we are aware from our audit work on thefinancial statements and we report if it does not. We are notrequired to consider whether the Board’s statements oninternal control cover all risks and controls, or form an opinionon the effectiveness of the Group’s and Bank’s corporategovernance procedures or its risk and control procedures.We read the other information contained in the Annual Reportand consider the implications for our report if we becomeaware of any apparent misstatement or materialinconsistencies with the financial statements. The otherinformation comprises only the Economic backdrop, theChairman's statement, the Group Chief Executive's review, theBusiness review, the Board of Directors, the CorporateResponsibility, the Principal risks and uncertainties, the Reportof the Directors, the Corporate governance statement, and theSupplementary information. Our responsibilities do not extendto other information.Basis of audit opinionWe conducted our audit in accordance with InternationalStandards on Auditing (UK and Ireland) issued by the AuditingPractices Board. An audit includes examination, on a test basis,of evidence relevant to the amounts and disclosures in thefinancial statements. It also includes an assessment of thesignificant estimates and judgements made by the Directors inthe preparation of the financial statements and of whether theaccounting policies are appropriate to the Bank's and theGroup's circumstances, consistently applied and adequatelydisclosed.We planned and performed our audit so as to obtain all theinformation and explanations which we considered necessaryin order to provide us with sufficient evidence to givereasonable assurance that the financial statements are freefrom material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we evaluated theoverall adequacy of the presentation of information in thefinancial statements.30

OpinionIn our opinion:• the Group financial statements give a true and fair view,in accordance with IFRS as adopted by the EuropeanUnion, of the state of the affairs of the Group as at31 December 2011 and of its loss for the year thenended;• the Group financial statements have been properlyprepared in accordance with the Companies Acts, 1963to 2009, the European Communities (Credit Institutions:Accounts) Regulations, 1992 as amended by theEuropean Communities (International Financial ReportingStandards 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 EuropeanUnion as applied in accordance with the provisions of theCompanies Acts, 1963 to 2009, of the state of the Bank'saffairs as at 31 December 2011; and• the Bank's financial statements have been properlyprepared in accordance with the Companies Acts, 1963to 2009, and the European Communities (CreditInstitutions: Accounts) Regulations, 1992.We have obtained all the information and explanations weconsidered necessary for the purpose of our audit. In ouropinion proper books of account have been kept by the Bank.The Bank's statement of financial position is in agreement withthe books of account.In our opinion the information given in the Report of theDirectors is consistent with the financial statements and thedescription given in the Corporate governance statement ofthe main features of the internal control and risk managementsystems in relation to the process for preparing the Group andBank financial statements is consistent with the Group financialstatements.The net assets of the Bank, as stated in the Bank's statementof financial position, are more than half the amount of itscalled-up share capital and, in our opinion, on that basis theredid 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 generalmeeting of the Bank.Gerard FitzpatrickFor and on behalf of Deloitte & ToucheChartered Accountants and Registered AuditorsDublin28 March 201231

Consolidated income statementFor the year ended 31 December 20112011 2010Note €m €mInterest and similar income 2,469 2,304Interest expense and similar charges (1,525) (1,562)Net interest income 4 944 742Fee and commission income 5 64 47Fee and commission expense 5 (5) (58)Net trading expense 6 (74) (41)Financial assets designated at fair value 7 2 (23)Gain on liability management exercise 8 - 1,589Other operating income/(expense) 9 9 (104)Other (expense)/income (4) 1,410Total operating income 940 2,152Administrative expenses 10 (297) (327)Depreciation (13) (16)Amortisation of intangible assets - software 31 (10) (10)Total operating expenses (320) (353)Operating profit before disposals and provisions 620 1,799Loss on transfer of assets and liabilities 13 (214) -Gain/(loss) on disposal of assets to NAMA 14 776 (11,547)Loss on deleveraging of other financial assets 15 (426) -Provisions for impairment and other provisions 16 (1,644) (7,767)Operating loss (888) (17,515)Share of results of associates and joint ventures 29 15 (104)Loss before taxation (873) (17,619)Taxation 17 (12) (32)Loss for the year (885) (17,651)Attributable to:Owner of the parent 18 (884) (17,651)Non-controlling interests (1) -(885) (17,651)Directors: Alan Dukes (Chairman), A.M.R. (Mike) Aynsley (Group Chief Executive), Gary Kennedy (Non-executive Director).Secretary: Philip Brady.32

Consolidated statement of comprehensive incomeFor the year ended 31 December 2011Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 20112011 2010Note €m €mLoss for the year (885) (17,651)Other comprehensive incomeNet actuarial losses in retirement benefit schemes, after tax 11 (6) (7)Net change in cash flow hedging reserve, after tax 45 (26) (53)Net change in available-for-sale reserve, after tax 45 (39) 17Foreign exchange translation 45 21 59Other comprehensive income for the year, after tax 47 (50) 16Total comprehensive income for the year (935) (17,635)Attributable to:Owners of the parent (934) (17,635)Non-controlling interests (1) -(935) (17,635)33

Consolidated statement of financial positionAs at 31 December 20112011 2010Note €m €mAssetsCash and balances with central banks 19 100 181Financial assets at fair value through profit or loss- held on own account 20 12 13- held in respect of liabilities to customers under investment contracts 20 194 237Derivative financial instruments 21 1,096 1,936Loans and advances to banks 22 2,306 3,525Assets classified as held for sale 23 392 1,640Available-for-sale financial assets 24 1,332 2,219Promissory notes 25 29,934 25,704Government debt securities at amortised cost 26 947 10,623Loans and advances to customers 27 17,689 24,364Interests in joint ventures 29 57 42Interests in associates 29 99 -Intangible assets - software 31 10 16Investment property- held on own account 32 88 217- held in respect of liabilities to customers under investment contracts 33 1,130 1,193Property, plant and equipment 34 18 19Current taxation 21 91Retirement benefit assets 11 8 1Deferred taxation 35 42 46Other assets 36 31 87Prepayments and accrued income 35 29Total assets 55,541 72,183LiabilitiesDeposits from banks 37 42,591 46,566Customer accounts 38 597 11,092Derivative financial instruments 21 2,249 2,460Debt securities in issue 39 5,371 6,912Liabilities to customers under investment contracts 40 283 351Current taxation 66 48Other liabilities 41 543 575Accruals and deferred income 85 135Deferred taxation 35 1 -Subordinated liabilities and other capital instruments 42 517 509Total liabilities 52,303 68,648Share capital 43 4,123 4,123Share premium 1,156 1,156Capital reserve 44 26,011 25,300Other reserves 45 (246) (129)Retained earnings (27,806) (26,916)Shareholders' funds 3,238 3,534Non-controlling interests 46 - 1Total equity 3,238 3,535Total equity and liabilities 55,541 72,183Directors: Alan Dukes (Chairman), A.M.R. (Mike) Aynsley (Group Chief Executive), Gary Kennedy (Non-executive Director).Secretary: Philip Brady.34

Bank statement of financial positionAs at 31 December 2011Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Assets2011 2010Note €m €mCash and balances with central banks 19 100 181Financial assets at fair value through profit or loss- held on own account 20 5 5Derivative financial instruments 21 1,380 2,177Loans and advances to banks 22 7,390 5,989Assets classified as held for sale 23 297 1,349Available-for-sale financial assets 24 1,276 2,168Promissory notes 25 29,934 25,704Government debt securities at amortised cost 26 947 10,623Loans and advances to customers 27 15,974 24,916Investments in Group undertakings 30 4,045 4,186Intangible assets - software 31 10 16Property, plant and equipment 34 12 7Current taxation 56 125Retirement benefit assets 11 8 1Other assets 36 11 68Prepayments and accrued income 29 22Total assets 61,474 77,537LiabilitiesDeposits from banks 37 46,182 49,555Customer accounts 38 3,603 13,456Derivative financial instruments 21 2,189 3,003Debt securities in issue 39 5,371 6,912Current taxation 55 30Other liabilities 41 390 532Accruals and deferred income 82 126Deferred taxation 35 1 -Subordinated liabilities and other capital instruments 42 517 503Total liabilities 58,390 74,117Share capital 43 4,123 4,123Share premium 1,156 1,156Capital reserve 44 25,979 25,300Other reserves (252) (111)Retained earnings (27,922) (27,048)Total equity 3,084 3,420Total equity and liabilities 61,474 77,537Directors: Alan Dukes (Chairman), A.M.R. (Mike) Aynsley (Group Chief Executive), Gary Kennedy (Non-executive Director).Secretary: Philip Brady.35

Consolidated statement of changes in equityFor the year ended 31 December 2011Attributable to owner of the parentOther reservesNon- Non-Share Share Capital distributable Exchange Cash flow Available- Retained controlling Totalcapital premium reserve capital translation hedging for-sale earnings Total interests equity€m €m €m €m €m €m €m €m €m €m €m2011Balance at 31 December 2010 4,123 1,156 25,300 1 3 57 (190) (26,916) 3,534 1 3,535Total comprehensive incomeLoss for the year - - - - - - - (884) (884) (1) (885)Other comprehensive income (net of tax):Net actuarial losses in retirementbenefit schemes - - - - - - - (6) (6) - (6)Net change in cash flow hedging reserve - - - - - (26) - - (26) - (26)Net change in available-for-sale reserve - - - - - - (39) - (39) - (39)Foreign exchange translation - - - - 21 - - - 21 - 21- - - - 21 (26) (39) (890) (934) (1) (935)Transactions with ownersArising under the INBS Transfer Order - - 711 - - - (73) - 638 - 638- - 711 - - - (73) - 638 - 638Balance at 31 December 2011 4,123 1,156 26,011 1 24 31 (302) (27,806) 3,238 - 3,23836

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Attributable to owner of the parentOther reservesNon- Non-Share Share Capital distributable Exchange Cash flow Available- Retained controlling Totalcapital premium reserve capital translation hedging for-sale earnings Total interests equity€m €m €m €m €m €m €m €m €m €m €m2010Balance at 31 December 2009 4,123 1,156 8,300 1 (56) 110 (207) (9,258) 4,169 1 4,170Total comprehensive incomeLoss for the year - - - - - - - (17,651) (17,651) - (17,651)Other comprehensive income (net of tax):Net actuarial losses in retirementbenefit schemes - - - - - - - (7) (7) - (7)Net change in cash flow hedging reserve - - - - - (53) - - (53) - (53)Net change in available-for-sale reserve - - - - - - 17 - 17 - 17Foreign exchange translation - - - - 59 - - - 59 - 59- - - - 59 (53) 17 (17,658) (17,635) - (17,635)Transactions with ownersCapital contribution - - 17,000 - - - - - 17,000 - 17,000- - 17,000 - - - - - 17,000 - 17,000Balance at 31 December 2010 4,123 1,156 25,300 1 3 57 (190) (26,916) 3,534 1 3,53537

Bank statement of changes in equityFor the year ended 31 December 2011Other reservesNon-Share Share Capital distributable Exchange Cash flow Available- Retained Totalcapital premium reserve capital translation hedging for-sale earnings equity€m €m €m €m €m €m €m €m €m2011Balance at 31 December 2010 4,123 1,156 25,300 1 23 57 (192) (27,048) 3,420Total comprehensive incomeLoss for the year - - - - - - - (868) (868)Other comprehensive income (net of tax):Net actuarial losses in retirementbenefit schemes - - - - - - - (6) (6)Net change in cash flow hedging reserve - - - - - (26) - - (26)Net change in available-for-sale reserve - - - - - - (40) - (40)Foreign exchange translation - - - - (2) - - - (2)- - - - (2) (26) (40) (874) (942)Transactions with ownersArising under the INBS Transfer Order - - 679 - - - (73) - 606- - 679 - - - (73) - 606Balance at 31 December 2011 4,123 1,156 25,979 1 21 31 (305) (27,922) 3,08438

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Other reservesNon-Share Share Capital distributable Exchange Cash flow Available- Retained Totalcapital premium reserve capital translation hedging for-sale earnings equity€m €m €m €m €m €m €m €m €m2010Balance at 31 December 2009 4,123 1,156 8,300 1 9 110 (228) (9,707) 3,764Total comprehensive incomeLoss for the year - - - - - - - (17,336) (17,336)Other comprehensive income (net of tax):Net actuarial losses in retirementbenefit schemes - - - - - - - (7) (7)Net change in cash flow hedging reserve - - - - - (53) - - (53)Net change in available-for-sale reserve - - - - - - 36 - 36Foreign exchange translation - - - - 14 - - - 14- - - - 14 (53) 36 (17,343) (17,346)Transactions with ownersCapital contribution - - 17,000 - - - - - 17,000Other movements - - - - - - - 2 2- - 17,000 - - - - 2 17,002Balance at 31 December 2010 4,123 1,156 25,300 1 23 57 (192) (27,048) 3,42039

Statement of cash flowsFor the year ended 31 December 2011Cash flows from operating activitiesThe GroupThe Bank2011 2010 2011 2010Note €m €m €m €mLoss before taxation (873) (17,619) (863) (17,340)Provisions for impairment 1,644 7,767 1,685 7,760Loss on transfer of assets and liabilities 214 - 174 -(Gain)/loss on disposal of assets to NAMA (776) 11,547 (793) 10,888Loss on deleveraging of other financial assets 426 - 350 -Gain on liability management exercise - (1,589) - (1,325)Interest earned on promissory notes (1,447) (433) (1,447) (433)Interest earned on Government debt securities atamortised cost (92) (146) (92) (146)Interest earned on available-for-sale financial assets (45) (104) (44) (104)Other non-cash items 49 (44) (94) (28) (176)(993) (671) (1,058) (876)Changes in operating assets and liabilitiesNet (decrease)/increase in deposits from banks (11,007) 13,595 (9,414) 10,419Net decrease in customer accounts (2,154) (16,122) (3,030) (15,440)Net decrease in debt securities in issue (2,142) (8,522) (2,142) (8,517)Receipt of promissory note instalment payment 2,530 - 2,530 -Net decrease in loans and advances to customers andassets classified as held for sale 2,729 1,385 5,224 2,071Net (increase)/decrease in loans and advances to banks (442) 746 1,450 4,547Net decrease/(increase) in assets held in respect ofliabilities to customers under investment contracts 106 (43) - -Net decrease in investment contract liabilities (68) (32) - -Net decrease in financial assets at fair value throughprofit or loss held on own account 3 105 2 87Net movement in derivative financial instruments 339 309 (307) (142)Net decrease/(increase) in other assets 68 (66) 70 (67)Net (decrease)/increase in other liabilities (101) 179 (252) 176Exchange movements 16 (48) (17) (82)Net cash flows from operating activitiesbefore taxation(11,116) (9,185) (6,944) (7,824)Tax refunded/(paid) 58 (2) 59 -Net cash flows from operating activities (11,058) (9,187) (6,885) (7,824)Cash flows from investing activities (note a) 9,773 5,985 9,608 5,061Cash flows from financing activities (note b) (3) (48) (3) (41)Net (decrease)/increase in cash and cash equivalents(1,288) (3,250) 2,720 (2,804)Opening cash and cash equivalents 1,569 4,779 943 3,714Cash and cash equivalents received under theINBS Transfer Order 128 - 27 -Effect of exchange rate changes on cash andcash equivalents14 40 17 33Closing cash and cash equivalents 49 423 1,569 3,707 94340

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The GroupThe Bank2011 2010 2011 2010€m €m €m €m(a) Cash flows from investing activitiesPurchases of available-for-sale financial assets (12) (756) - (752)Sales and maturities of available-for-sale financial assets 1,103 6,571 1,096 6,571Interest received on available-for-sale financial assets net ofassociated hedges46 169 45 169Interest received on Government debt securities atamortised cost56 14 56 14Proceeds on transfer of assets and liabilities 3,719 - 3,719 -Proceeds on disposals of other financial assets 4,965 - 4,832 -Purchases of property, plant and equipment (2) (1) (1) -Additions to intangible assets - software (4) (5) (4) (5)Investments in joint venture interests (2) (3) - -Investments in associates (99) - - -Distributions received from joint venture interests 3 2 - -Purchases of investment property held on own account - (13) - -Proceeds on disposals of investment property held on ownaccount- 7 - -Net decrease in investments in Group undertakings- - (135) (936)Net cash flows from investing activities 9,773 5,985 9,608 5,061(b) Cash flows from financing activitiesRepurchase of subordinated liabilities and other capitalinstruments - (23) - (16)Coupons paid on subordinated liabilities and other capitalinstruments (3) (25) (3) (25)Net cash flows from financing activities (3) (48) (3) (41)41

Notes to the financial statementsIndex to the notes to the financial statementsNote1 General information and accounting policies 432 Business combination 573 Segmental reporting 584 Net interest income 595 Fee and commission income and expense 606 Net trading expense 607 Financial assets designated at fair value 608 Gain on liability management exercise 619 Other operating income/(expense) 6110 Administrative expenses 6211 Retirement benefits 6312 Auditor's remuneration 6713 Loss on transfer of assets and liabilities 6714 Gain/(loss) on disposal of assets to NAMA 6815 Loss on deleveraging of other financial assets 6816 Provisions for impairment and other provisions 6917 Taxation 7018 Loss attributable to owner of the parent 7019 Cash and balances with central banks 7020 Financial assets at fair value through profit or loss 7121 Derivative financial instruments 7222 Loans and advances to banks 7423 Assets classified as held for sale 7524 Available-for-sale financial assets 7625 Promissory notes 7826 Government debt securities at amortised cost 7927 Loans and advances to customers 8028 Leasing 8129 Interests in joint ventures and associates 8230 Investments in Group undertakings 8431 Intangible assets - software 8632 Investment property - held on own account 8633 Investment property - held in respect of liabilities to customers under investment contracts 8734 Property, plant and equipment 8835 Deferred taxation 9036 Other assets 9037 Deposits from banks 9138 Customer accounts 9239 Debt securities in issue 9340 Liabilities to customers under investment contracts 9441 Other liabilities 9542 Subordinated liabilities and other capital instruments 9643 Share capital 9744 Capital reserve 9845 Other reserves 9846 Non-controlling interests 9947 Income tax effects relating to comprehensive income 10048 Contingent liabilities, commitments and other contingencies 10049 Statement of cash flows 10250 Risk management 10351 Financial instruments 13352 Capital resources 14653 Report on Directors' remuneration and interests 14854 Related party transactions 15155 Parent Bank information on credit risk 15656 Asset management activities 16857 Events after the reporting period 16858 Approval of financial statements 168Page42

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 20111. General information and accounting policiesThe principal accounting policies that the Group applied in preparing its financial statements for the year ended 31 December 2011 areset out below.1.1 General informationAnglo 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 (registerednumber: 22045). Its registered office is at Stephen Court, 18/21 St. Stephen's Green, Dublin 2, Ireland. Under the terms of the Anglo IrishBank Corporation Act, 2009 which became law on 21 January 2009, the Bank was taken into public ownership. Until then, the Bank hada primary listing on the Irish Stock Exchange.The Bank is a participating institution in the National Asset Management Agency (‘NAMA’) and is subject to NAMA’s 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, inconsultation with the Governor of the Central Bank of Ireland, announced the immediate transfer of the majority of the Bank’s Irish andUK 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 Irishdeposits 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'sshares in its Isle of Man subsidiary, Anglo Irish Bank Corporation (International) PLC, were also transferred to AIB at the same time atapproximately net asset value. The transfer order (the ‘AIB Transfer Order’) was made by the Irish High Court and facilitates the Minister’splan 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 NationwideBuilding Society (‘INBS’) (the ‘Restructuring Plan’). The approved Restructuring Plan, which was prepared in conjunction with the NationalTreasury Management Agency ('NTMA') and the Department of Finance, provides for the resolution and work-out of the Group’s loanbook over a period of up to ten years. One of the main aims of the Restructuring Plan is to gradually reduce the Group’s liquidity andfunding requirements over time by deleveraging the Group on a phased basis while at the same time minimising capital losses. TheRestructuring Plan also contains details of key assumptions and dependencies, including the Group’s continued reliance on central bankor similar funding. Following the EC’s approval of the Restructuring Plan, the Group’s single activity has become an orderly resolutionover 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, inconsultation with the Governor of the Central Bank of Ireland, announced the immediate transfer of the assets and liabilities (with theexception of certain limited excluded liabilities) of INBS to the Bank. The transfer took place by way of a transfer order made by the IrishHigh Court in respect of INBS under Section 34 of CISA (the ‘INBS Transfer Order’).1.2 Basis of preparationBoth the consolidated and parent Bank's financial statements comply with International Financial Reporting Standards ('IFRS') as adoptedby the European Union ('EU') and applicable at 31 December 2011. The financial statements also comply with the requirements ofrelevant Irish legislation including the Companies Acts, 1963 to 2009, the Asset Covered Securities Acts, 2001 and 2007 and theEuropean Communities (Credit Institutions: Accounts) Regulations, 1992 as amended by the European Communities (InternationalFinancial 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 andliabilities to the extent required or permitted under accounting standards as set out in the relevant accounting policies. They arepresented 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 downsizingand reorganisation of the Irish banking sector. In the context of this strategy the Restructuring Plan was submitted to, and subsequentlyapproved 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 toten years and assumes that the Group will continue to have access to sufficient liquidity and funding facilities from a combination of theECB and the Central Bank of Ireland. Under the terms of the plan the Group and the Bank must also continue to meet regulatory capitalrequirements 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 theGroup’s 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 againstplan targets during 2011. This progress was achieved against a background of a challenging Irish and international economic outlookresulting largely from continuing uncertainty in relation to euro area sovereign debt considerations. Under the terms of the plan theGroup 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 fromthe Central Bank of Ireland. This continued liquidity and funding support from monetary authorities has been essential in order for theGroup to carry on the orderly work-out of exposures over time.43

Notes to the financial statements continued1. General information and accounting policies continued1.2 Basis of preparation continuedAlthough the orderly resolution of the Group is a key element of the reorganisation of the banking sector, this is only one of manycommitments agreed by Ireland in December 2010 under the EU/IMF Programme. As recently as February 2012 the Irish Government hasreiterated that it remains firmly committed to the EU/IMF Programme. This commitment is demonstrated by the continued strongimplementation of its objectives, and as a result all planned loan disbursements have been successfully drawn down. Also, significantlyfor 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 theGroup’s ability to continue to avail of special and secured funding facilities from the Central Bank of Ireland, and to a limited extent, fromthe ECB, the Shareholder’s ongoing support for the Restructuring Plan, the impact of the EU/IMF Programme, political factors and theimpact 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) that the Group will continue to have access to sufficient liquidity and funding facilities from the Central Bank of Ireland and toa limited extent, from the ECB, and if required, an alternative appropriate source; andb) that the Bank will continue to function as a licensed bank and that the Shareholder will continue to provide capital support ifrequired 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 willcontinue in operational existence for the foreseeable future and therefore that it is appropriate to prepare the financial statements on agoing concern basis.Should the key expectations on which the Directors have based their decision to prepare the financial statements on a going concernbasis prove to be mistaken it may lead to a requirement to make significant adjustments to the carrying value of certain assets and tomake 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 itsfinancial statements. Irish company law and IFRS require the Directors, in preparing the Group's financial statements, to select suitableaccounting policies, apply them consistently and make judgements and estimates that are reasonable and prudent. A description of thesignificant accounting estimates and judgements is set out in note 1.36 on pages 54 to 55.1.3 Adoption of new accounting standardsThe following standards and amendments to standards, which apply to the Group, have been adopted during the year:Amendment to IAS 34 - Interim Financial ReportingThe amendment to IAS 34 provides guidance to illustrate how to apply disclosure principles in IAS 34 and adds disclosure requirementsaround the circumstances likely to affect fair values of financial instruments and their classification, transfers of financial instrumentsbetween different levels of the fair value hierarchy, changes in classification of financial assets and changes in contingent liabilities andassets.Amendment to IAS 24 - Related Party DisclosuresThe main changes to IAS 24 include a partial exemption from the disclosure requirements for transactions between a governmentcontrolledreporting entity and that government or other entities controlled by that government, and amendments to the definition of arelated party.A number of other amendments and interpretations to IFRS have been published that first apply from 1 January 2011. These have notresulted in any material changes to the Group's accounting policies.1.4 Business combinationAs the Bank and INBS were both controlled by the same shareholder, the Minister for Finance, on 1 July 2011, the transfer of assets andliabilities from INBS into the Bank constituted a business combination involving entities under common control. Such transactions areexcluded 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 AccountingStandards Board. Where a transaction meets the definition of a group reconstruction or achieves a similar result, predecessor accountingis applied. The assets and liabilities of the transferred business are measured in the acquiring entity upon initial recognition at theamounts recorded in the consolidated financial statements of the acquired entity, as measured under IFRS, after harmonisationadjustments to give effect to the business combination. The additional amount recognised in shareholders’ funds on 1 July 2011represents the harmonised value of the net assets of INBS on the transfer date. The Bank has incorporated the results of the acquiredbusiness only from the date on which the business combination occurred and has not restated prior year comparatives.1.5 Basis of consolidationThe consolidated financial statements include the financial statements of Irish Bank Resolution Corporation Limited and all of itssubsidiary undertakings (including special purpose entities) prepared to the end of the financial year. An entity is a subsidiary where theGroup has the power, directly or indirectly, to control the financial and operating policies of the entity so as to obtain benefits from itsactivities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered in assessingwhether the Group controls the entity.44

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Subsidiaries are consolidated from the date on which control is transferred to the Group until the date that control ceases. The purchasemethod of accounting is used by the Group to account for the acquisition of subsidiary undertakings. Intercompany balances and anyunrealised 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 arepresented in the consolidated income statement and statement of financial position separately to amounts attributable to owners of theparent.The accounting policies have been consistently applied by Group entities.1.6 Interest income and expense recognitionInterest income and expense is recognised in profit or loss for all interest-bearing financial instruments held on own account using theeffective 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 theinterest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts the expectedfuture cash payments and receipts throughout the expected life of the financial instrument, or when appropriate, a shorter period, to thenet 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 interestrate on the transaction.Once an impairment loss has been made on an individual asset, interest income is recognised on the unimpaired portion of that assetusing the rate of interest at which its estimated future cash flows were discounted in measuring impairment.1.7 Fee and commission incomeFees and commissions which are not an integral part of the effective interest rate are generally recognised on an accruals basis over theperiod 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-apportionedbasis. The same principle is applied to the recognition of income from wealth management, financial planning, trustee and custodyservices 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 anadjustment to the effective interest rate on the loan once drawn. Commitment fees in relation to facilities where drawdown is notprobable 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 propertyassets, are recognised upon completion of the underlying transaction. Loan syndication fees are recognised as revenue when thesyndication 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 sameeffective interest rate as the other participants.1.8 Exceptional costsMaterial items of expenditure and charges relating to the restructuring of the Group, investigations into legacy issues and othersignificant non-recurring transactions are classified separately within administrative expenses as exceptional costs.1.9 Fair value of financial instrumentsThe Group recognises trading securities, other financial assets and liabilities designated at fair value through profit or loss, derivatives andavailable-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 themarket for a financial asset is not active, the Group establishes fair value by using valuation techniques. These include the use of pricesobtained 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. Privateequity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured usingvaluation 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 thatinstrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. withoutmodification or repackaging) or based on a valuation technique which primarily uses observable market inputs. When such evidenceexists, the initial valuation of the instrument may result in the Group recognising a profit on initial recognition. In the absence of suchevidence, 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 isdeferred. The deferred day one profit or loss is either amortised over the life of the transaction, deferred until the instrument’s fair valuecan be determined using market observable inputs, or realised through settlement, depending on the nature of the instrument andavailability 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 continued1. General information and accounting policies continued1.10 Financial assetsFinancial assets are classified into the following categories: financial assets at fair value through profit or loss; loans and receivables; heldto-maturityinvestments; and available-for-sale financial assets. Management determines the classification of financial assets at initialrecognition.Financial assets at fair value through profit or lossThis category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss atinception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if sodesignated by management.A financial asset may be designated at fair value through profit or loss in the following circumstances:a) it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuringassets or liabilities or recognising gains and losses arising on them on different bases; orb) a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, inaccordance with a documented risk management or investment strategy; orc) a financial instrument contains one or more embedded derivatives that significantly modify the cash flows arising from theinstrument 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 underpinninginvestment contracts issued by the Group's assurance company - fair value designation significantly reduces the measurementinconsistency that would arise if these assets were classified as available-for-sale; and (b) certain investment securities containingembedded 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 andlosses arising from changes in fair value are included directly in the income statement within financial assets designated at fair value.Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active marketand which are not classified as available-for-sale. They arise when the Group provides money to a customer with no intention of tradingthe receivable. Loans and receivables are initially recognised at fair value including direct and incremental transaction costs, and aresubsequently carried on an amortised cost basis.Held-to-maturity investmentsHeld-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that theGroup's management has the positive intention and ability to hold to maturity. Were the Group to sell other than an insignificantamount of held-to-maturity assets, the entire category would be tainted and reclassified as available-for-sale financial assets.Available-for-sale financial assetsAvailable-for-sale financial assets are those intended to be held for an indefinite period of time, which may be sold in response to needsfor 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 arerecognised on a trade date basis, being the date on which the Group commits to purchase the asset. Loans and receivables arerecognised when funds are advanced to the borrowers. Financial assets are initially recognised at fair value plus directly attributabletransaction costs, with the exception of financial assets carried at fair value through profit or loss whose transaction costs are takendirectly to the income statement. Financial assets are derecognised when the rights to receive cash flows from the financial assets haveexpired 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 andreceivables 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 areincluded within fair value movements in the income statement in the period in which they arise. Gains and losses arising from changes inthe fair value of available-for-sale financial assets are recognised in other comprehensive income and accumulated under a separatecomponent of shareholders' equity until the financial assets are derecognised or impaired, at which time the cumulative gain or losspreviously recognised in other comprehensive income is transferred to the income statement. Interest on both financial assets at fairvalue 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 equityinstruments 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 liabilitiesFinancial liabilities other than those at fair value through profit or loss are initially recognised at fair value, being their issue proceeds netof transaction costs incurred. Transaction costs on liabilities at fair value are expensed to the income statement. All liabilities, other thanthose designated at fair value through profit or loss, are subsequently carried at amortised cost. For financial liabilities measured atamortised cost any difference between initial fair value and redemption value is recognised in profit and loss using the effective interestrate method.46

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011A liability upon initial recognition may be designated at fair value through profit or loss when:a) it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuringassets or liabilities or recognising the gains and losses on them on different bases; orb) a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, inaccordance with a documented risk management or investment strategy; orc) a financial instrument contains one or more embedded derivatives that significantly modify the cash flows arising from theinstrument 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 theGroup's assurance company: fair value designation significantly reduces the measurement inconsistency that would arise if theseliabilities were measured at amortised cost, and (b) structured liabilities issued by the Group: designation significantly reduces themeasurement 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 andlosses arising from changes in the fair value of derivatives that are managed in conjunction with financial liabilities designated at fairvalue 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 contractualarrangement. Instruments which carry a contractual obligation to deliver cash or another financial asset to another entity are classified asfinancial liabilities.Preference shares and other subordinated capital instruments issued are classified as financial liabilities if coupon payments are notdiscretionary. Distributions on these instruments are recognised in profit or loss as interest expense using the effective interest ratemethod.1.12 Financial guaranteesA financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss itincurs because the guaranteed party fails to meet a contractual obligation or to make payment when due in accordance with the originalor 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 andother 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 theexpenditure 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 parentBank considers these contracts to be insurance arrangements and accounts for them as such. The parent Bank treats these guaranteecontracts as contingent liabilities until such time as it becomes probable that it will be required to make a payment under theseguarantees.1.13 Impairment of financial assetsIt is Group policy to make provisions for impairment of financial assets to reflect the losses inherent in those assets at the end of thereporting period.The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a portfolio offinancial assets is impaired. A financial asset or a portfolio of financial assets is impaired and impairment losses are incurred if, and onlyif, there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the assetand that loss event (or events) has had an impact such that the estimated present value of future cash flows is less than the currentcarrying 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 tothe attention of the Group about the following loss events:a) significant financial difficulty of the issuer or obligor;b) a breach of contract, such as a default or delinquency in interest or principal payments;c) the granting to the borrower of a concession, for economic or legal reasons relating to the borrower's financial difficulty, thatthe Group would not otherwise consider;d) it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;e) the disappearance of an active market for that financial asset because of financial difficulties; orf) observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financialassets since the initial recognition of those assets, although the decrease cannot yet be identified within the individualfinancial 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 continued1. General information and accounting policies continued1.13 Impairment of financial assets continuedSpecific examples of loss events or impairment triggers for commercial lending include loan covenant breaches, material decreases in thevalue of the underlying collateral securing the loan facility or the financial difficulty of the borrower. In respect of the residentialmortgage portfolio, all loans that are more than 60 days past due or where a borrower has been granted a forbearance measure areconsidered 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 evidenceof impairment exists for an individually assessed financial asset, whether significant or not, it includes that asset in a group of financialassets 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 individualasset in a group of financial assets. As soon as information is available that specifically identifies losses on individually impaired assets in agroup, those assets are removed from the group. Assets that are individually assessed for impairment and for which an impairment lossis, or continues to be, recognised are not included under the collective assessment of impairment. In the calculation of the IBNRimpairment provision on the residential mortgage portfolio the Bank specifically considers the additional credit risk in respect ofperforming 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 theasset's carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate. If aloan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the currenteffective interest rate determined under the contract. The amount of the loss is recognised using an allowance account and is included inthe income statement.The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that mayresult 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 eventoccurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowanceaccount. 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 notappropriate on the basis of the level of security/collateral available and/or the stage of collections of amounts owed to the Group, a loanis classified as past due but not impaired. In this instance the entire exposure is reported as past due but not impaired, rather than justthe amount in arrears.Renegotiated loans are those loans and receivables outstanding at the end of the reporting period whose terms have been renegotiatedduring the financial period, resulting in an upgrade from impaired to performing status. This is based on subsequent good performanceand/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 offafter all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries ofamounts 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 theinstrument below its cost is considered in determining whether impairment exists. Where such evidence exists, the cumulative net lossthat has been previously recognised in other comprehensive income is reclassified to profit or loss. Impairment losses recognised in profitor loss on equity shares are not reversed through the income statement. All increases in the fair value of equity shares after impairmentare 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 allother financial assets. Impairment charges are made where there is objective evidence to suggest that the recovery value of the debtinstrument will be permanently lower than its amortised cost. A significant or prolonged decline in the fair value of such an instrumentbelow its amortised cost is considered in determining whether an impairment loss has been incurred. Other factors for asset backedsecurities include evidence of deterioration in the quantum or quality of the collateral pools underlying the investments and the nonpaymentor deferral of interest. Reversals of impairments of debt securities are recognised in profit or loss if the increase in fair value canbe objectively related to an event occurring after the impairment loss was recognised.1.14 Derivative financial instruments and hedge accountingDerivativesDerivative instruments, including swaps, futures, forward foreign exchange contracts, forward rate agreements and options, are used forbalance sheet risk management purposes.Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequentlyremeasured at their fair value. Fair values are obtained from quoted market prices in active markets and where these are not availablefrom 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 areclassified as held for trading unless they are designated and effective as hedging instruments.48

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Hedge accountingThe method of recognising the resulting fair value gain or loss depends on whether the derivative is designated and effective as ahedging 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 theGroup hedges the exposure to variability of cash flows attributable to recognised assets or liabilities or highly probable forecastedtransactions) 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 itsassessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions arehighly effective in offsetting changes in fair values or cash flows of hedged items.Fair value hedge accountingChanges 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 carryingamount of the hedged item is, for items carried at amortised cost, amortised to profit or loss over the period to maturity of thepreviously designated hedge relationship using the effective interest rate method. For available-for-sale financial assets the fair valuehedging adjustment remains in equity until the hedged item affects profit or loss. If the hedged item is sold or repaid, the unamortisedfair value adjustment is recognised immediately in profit or loss.Cash flow hedge accountingThe effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are initiallyrecognised directly in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amountsaccumulated 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 isdiscontinued. Any cumulative gain or loss existing in equity at that time remains in equity and is recognised in profit or loss when theforecast transaction arises. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported inequity is immediately transferred to the income statement. Interest income and expense on economic hedges that no longer meet thecriteria for hedge accounting are recognised in net interest income.Hedges of net investmentsHedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedginginstrument relating to the effective portion of the hedge is recognised directly in equity; the gain or loss relating to the ineffective portionis recognised immediately in profit or loss. Gains and losses accumulated in equity are included in the income statement on the disposalor partial disposal of the foreign operation. Hedges of net investments may include non-derivative liabilities.Derivatives that do not qualify for hedge accountingCertain derivative instruments entered into as economic hedges may not qualify for hedge accounting. These derivatives are classified asheld for trading. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognisedimmediately in profit or loss.Embedded derivativesCertain financial instruments contain both a derivative and a non-derivative component. In such cases, the derivative component istermed an embedded derivative. When the economic characteristics and risks of embedded derivatives are not closely related to those ofthe host contract and the host contract is not carried at fair value through profit or loss, the embedded derivative is treated as a separatederivative. Embedded derivatives separated from the host contract are measured at fair value with changes in fair value recognised in nettrading income.1.15 Collateral and nettingCollateralThe Group obtains collateral in respect of customer liabilities where this is considered appropriate. The collateral normally takes the formof a lien over the customer’s assets and gives the Group a claim on these assets for both existing and future liabilities. The collateral is, ingeneral, not recorded in the Group’s 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 stockborrowing or derivative contracts, in order to reduce credit risk. Collateral received in the form of securities is not recorded in thestatement of financial position. Collateral paid or received in the form of cash is recognised in the statement of financial position with acorresponding 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.NettingThe 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 andall 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 acurrently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assetand settle the liability simultaneously.49

Notes to the financial statements continued1. General information and accounting policies continued1.16 Investment contractsContracts issued by the life assurance business are unit-linked and do not contain any significant insurance risk. These contracts are allclassified as investment contracts.Financial assets and investment property held in respect of linked liabilities to customers and related liabilities to customers underinvestment contracts are stated at fair value and are separately disclosed in the Group statement of financial position or in the notesthereto.Premiums received and claims paid are accounted for directly in the Group statement of financial position as adjustments to theinvestment contract liability. Investment income and changes in fair value arising from the investment contract assets and thecorresponding movement in investment contract liabilities are included on a net basis in other operating income. Revenue on investmentmanagement services provided to holders of investment contracts is recognised as the services are performed.1.17 DerecognitionA financial asset is derecognised when it has been transferred and the transfer qualifies for derecognition. A transfer requires that theGroup either transfers the contractual rights to receive the asset's cash flows or retains the right to the asset's cash flows but assumes acontractual 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. Ifsubstantially all the risks and rewards have been retained, the asset remains in the statement of financial position. If substantially all therisks 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 retainedcontrol of the asset. If it has not retained control, the asset is derecognised. Where the Group has retained control of the asset, itcontinues 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 equipmentProperty, plant and equipment is held for use in the business and is stated at cost less accumulated depreciation and provisions forimpairment, if any. Additions and subsequent expenditure are capitalised only to the extent that they enhance the future economicbenefits expected to be derived from the asset. Property, plant and equipment are depreciated on a straight-line basis to their residualvalues over their estimated useful economic lives as follows:Freehold buildingsFixtures and fittingsMotor vehiclesComputer equipment2% per annum12.5% to 25% per annum20% per annum25% per annumLeasehold improvements are depreciated on a straight-line basis over the shorter of twenty years or the period of the lease or the periodto 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 eachreporting period. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate thatthe carrying amount may not be recoverable. If impaired, an asset's carrying amount is written down immediately to its estimatedrecoverable 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 ofproperty, plant and equipment are included in the income statement.1.19 Trading propertiesTrading properties are held for resale and are stated at the lower of cost and net realisable value.1.20 Development propertyDevelopment property is valued at the lower of cost and net realisable value. Profits or losses on disposal are recognised on completionof the sale of the relevant property and are presented in the income statement. The carrying amount of the property sold is recognisedas an expense in the year in which the related revenue is recognised. Any write-downs in net realisable value of properties are recognisedas an expense in the year in which the loss occurs.1.21 Intangible assetsComputer softwareComputer software is stated at cost less accumulated amortisation and provisions for impairment, if any. The identifiable and directlyassociated external and internal costs of acquiring and developing software are capitalised where the software is controlled by the Groupand where it is probable that future economic benefits that exceed its cost will flow from its use over more than one year. Costsassociated with maintaining software are recognised as an expense when incurred. Capitalised computer software is amortised on astraight-line basis over its expected useful life which is normally four years.50

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 20111.22 Investment propertyInvestment property comprises freehold and leasehold properties that are held to earn rentals or for capital appreciation or both. Thismay include real estate collateral repossessed by the Bank in foreclosure proceedings.Investment property - held on own accountInvestment property held on own account is included in the statement of financial position at cost less accumulated depreciation andprovisions for impairment losses, if any. Freehold buildings are depreciated on a straight-line basis over fifty years. Fixtures and fittingsare depreciated on a straight-line basis to their residual values over their estimated useful economic lives. Leasehold investmentproperties are depreciated on a straight-line basis over the remaining term of the lease up to a maximum of fifty years. Rental incomeand the net amount of other operating income and expenses is recognised within other operating income/(expense) in the incomestatement.Investment property - held in respect of liabilities to customers under investment contractsInvestment property held in respect of liabilities to customers under investment contracts is included in the statement of financialposition at fair value. Fair values are based on valuations by independent registered valuers using, where relevant, accepted RoyalInstitution of Chartered Surveyors guidelines or equivalent local guidelines appropriate to the location of the property. Fair values arereviewed and agreed by management.1.23 Employee benefitsPension obligationsThe Group operates various pension schemes including both defined benefit and defined contribution plans. A defined benefit plan is apension plan that defines an amount of pension benefit to be provided, usually as a function of one or more factors such as age, years ofservice and basic pay. The Group’s defined benefit plans have been closed to new members since January 1994. A defined contributionplan is a pension plan under which the Group pays fixed contributions into a fund and has no legal or constructive obligations to pay anyfurther contributions.The asset or liability recognised in the statement of financial position in respect of each defined benefit pension plan is the fair value ofplan assets less the present value of the defined benefit obligation at the end of the reporting period. Current bid prices are used tomeasure the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projectedunit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows usinginterest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that haveterms 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 anyfuture 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 onplan assets and the change in the present value of plan liabilities arising from the passage of time is charged to the income statementwithin employee expenses. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions arecharged 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 arerecognised as an employee benefit expense when they are due.Termination PaymentsTermination payments are recognised as an expense when the Group is demonstrably committed to a formal plan to terminateemployment 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 validexpectations 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 saleLoans 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 principallythrough a sale transaction and the sale is highly probable within one year. These loans continue to be carried at amortised cost lessprovisions 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 besold 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 oftheir 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 transferredto NAMA or to a third party. On the derecognition date, a gain or loss is recognised, measured as the difference between the fair valueof the consideration received and the carrying value of the assets transferred or sold, less transaction costs, and in the case of transfersto NAMA, less any provision for the ongoing cost of servicing the assets on behalf of NAMA. The consideration received is measured atfair value at initial recognition.51

Notes to the financial statements continued1. General information and accounting policies continued1.25 Foreign currency translationFunctional and presentation currencyThe consolidated financial statements are presented in euro, which is the Bank's functional and presentation currency. Each entity in theGroup 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 balancesTransactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetaryassets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the end of thereporting period. Foreign exchange gains and losses resulting from the settlement of such transactions and from the retranslation atperiod end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss exceptwhen 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 thedates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange ratesat the date when the fair value was determined.Foreign operationsThe results and financial position of all Group entities that have a non-euro functional currency are translated into euro as follows:a) assets and liabilities and goodwill arising on acquisition of foreign operations are translated at the closing rate at the end ofthe reporting period;b) income and expenses are translated into euro at the average rates of exchange during the period where these are areasonable approximation of the exchange rates at the dates of these transactions; andc) all resulting exchange differences are recognised in other comprehensive income and accumulated as a separate componentof equity.On consolidation, exchange differences arising from the translation of the net investment in foreign entities and of funding designated ashedges of such investments are included as a separate component of equity. When a foreign entity is sold, the cumulative exchangedifferences 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 liabilitiesProvisions are recognised in respect of present legal or constructive obligations arising from past events where it is probable thatoutflows 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 presentobligations where the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not recognised in thefinancial 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 forthe period adjusted for changes to previous years and is calculated based on the applicable tax law in each jurisdiction in which theGroup operates. Deferred tax is provided using the liability method on temporary differences arising between the tax bases of assets andliabilities for taxation purposes and their carrying amounts in the financial statements. Current and deferred taxes are determined usingtax rates based on legislation enacted or substantively enacted at the end of the reporting period and expected to apply when therelated 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 differenceswill be utilised. Deferred tax is provided on temporary differences arising from investments in subsidiaries and joint ventures, exceptwhere the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the difference will notreverse 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 theyrelate to items recognised in other comprehensive income or directly in equity, in which case the taxes are also recognised in othercomprehensive 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 wherethere 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 LeasesGroup as lessorLeasing and instalment credit agreements with customers are classified as finance leases if the agreements transfer substantially all therisks and rewards of ownership of an asset, with or without ultimate legal title. An asset classified as a finance lease is recorded withinloans and advances to customers as a receivable based on the present value of the lease payments, discounted at the rate of interestimplicit in the lease, less any provisions for bad and doubtful rentals. The difference between the total payments receivable under thelease and the present value of the receivable is recognised as unearned finance income, which is allocated to accounting periods underthe pre-tax net investment method to reflect a constant periodic rate of return.52

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Assets leased to customers are classified as operating leases if the lease agreements do not transfer substantially all the risks and rewardsof ownership. Where leased assets are included within investment property held on own account in the Group's statement of financialposition, 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 basisover the non-cancellable term of the lease. Investment contract accounting applies where leased assets are included within investmentproperty held in respect of linked liabilities to customers.Group as lesseeOperating lease rentals payable and related lease incentives receivable are recognised in profit or loss on a straight-line basis over thenon-cancellable term of the lease.1.29 Interests in joint ventures and associatesJoint 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 votingrights. The determination of significant influence includes a consideration of the Group’s ability to participate in the financial andoperating policies of the entity.The Group's interests in joint ventures and associates are primarily recognised using the equity method of accounting and are initiallyrecognised at cost, with the exception of interests in joint ventures or associates held under investment contracts which are designatedat fair value through profit or loss. Under the equity method, the Group's share of the post-acquisition profits or losses after taxation ofjoint ventures and associates is recognised in profit or loss and its share of post-acquisition movements in reserves is recognised inreserves. The Group does not recognise any share of post-acquisition profits if a contractual obligation to pay such profits to anotherentity arises. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.Where the Group’s share of losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture theGroup 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 maydesignate 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 Group’sinterest in the associate or joint venture. Unrealised losses are also eliminated to the extent of the Group’s interest in the associate orjoint venture unless they provide evidence of impairment of the Group’s 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 theGroup's accounting policies.1.30 Venture capital and other investmentsVenture capital equity interests held on own account are carried at fair value with gains and losses taken to net trading income as theyarise.All other equity shares and similar instruments held on own account are classified as available-for-sale. They are held in the statement offinancial position at fair value with unrealised gains or losses being recognised in other comprehensive income and accumulated in equityexcept for impairment losses, which are recognised immediately through profit or loss. Income on these equity instruments is credited toother operating income.1.31 Sale and repurchase agreementsDebt securities sold subject to a commitment to repurchase them are retained in the statement of financial position when substantially allthe risks and rewards of ownership remain with the Group. The liability to the counterparty is included separately in the statement offinancial 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. Thesecurities 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 theeffective interest rate method.Securities lent to counterparties are retained in the financial statements. Securities borrowed are not recognised in the financialstatements.1.32 Share capitalOn 21 January 2009, under the terms of the Anglo Irish Bank Corporation Act, 2009, all of the Bank's ordinary and preference sharecapital was transferred to the Minister for Finance.1.33 Segmental reportingThe Restructuring Plan approved by the EC on 29 June 2011 provides for the orderly resolution of the Group following its amalgamationwith 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 theremaining loan book.53

Notes to the financial statements continued1. General information and accounting policies continued1.33 Segmental reporting continuedSince nationalisation in January 2009 the management and structure of the Group have changed considerably. New management’sprimary business focus is the implementation of the work-out process consistent with the Irish Government’s stated deleveragingobjectives, the Restructuring Plan and the orders and requirements issued in respect of both the Bank and INBS under CISA. The Group’ssingle business activity has become the orderly resolution of the Group, in a manner consistent with the Restructuring Plan andrequirements and orders made in respect of the Bank under Section 50 of CISA consistent with that Restructuring Plan, over the allottedtime 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 Group’s strategicobjective, 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 aredistinguishable parts of the Group that provide products or services within a particular economic environment that is subject to risks andrewards that are different to those operating in other economic environments. The geographical segments are based primarily on thelocation of the office recording the transaction.1.34 Cash and cash equivalentsFor the purposes of the statement of cash flows, cash comprises cash on hand and demand deposits. Cash equivalents are highly liquidinvestments 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 activitiesThe Group acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, unittrusts, investment trusts and pension schemes. These assets are not consolidated in the accounts as the Group does not have beneficialownership. Fees and commissions earned in respect of these activities are included in the income statement.1.36 Significant accounting estimates and judgementsThe reported results of the Group are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of itsfinancial statements. Irish company law and IFRS require the Directors, in preparing the Group's financial statements, to select suitableaccounting 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 tothe portrayal of the Group's financial condition and that have a significant risk of causing a material adjustment to the carrying amountsof assets and liabilities within the next financial year are discussed below. The use of estimates, assumptions or models that differ fromthose adopted by the Group could affect its reported results.Loan impairmentThe estimation of potential loan losses is inherently uncertain and dependent upon many factors. On an ongoing basis potential issuesare identified as a result of individual loans being regularly monitored. The Group also performs a combination of reviews incorporating asemi-annual review of its UK and US loan portfolios together with a series of rolling monthly and quarterly reviews of the Irish loanportfolio. As part of this process all larger value loan balances (greater than €5m) are reviewed at least semi-annually. Within theresidential mortgage portfolio overall credit quality is managed by the Credit and Collections Forum. The Arrears Support Unit managesindividual cases of customers who are experiencing difficulties with their scheduled mortgage repayments. This loan monitoring andreview process determines whether there is any objective evidence of incurred impairment. Impairment under IFRS is only recognised inrespect of incurred losses. Future potential losses cannot be provided for. If there is objective evidence that a loan is currently impaired, aprovision is recognised equating to the amount by which the carrying value of the loan exceeds the present value of its expected futurecash flows. Provisions are calculated on an individual basis with reference to expected future cash flows including those arising from therealisation of collateral.The determination of these provisions requires the exercise of considerable subjective judgement by management involving matters suchas future economic conditions, trading performance of client businesses and the valuation of the underlying collateral held. Provisioncalculations are highly sensitive to the underlying assumptions made in relation to the amount and timing of future cash flows, includingthe sale of assets held as collateral. This is particularly the case for residential mortgages where a model is used to calculate specificimpairment provisions. The key variables used in this model for determining the necessary provision are the forecasted repaymentcapacity of the borrowers and estimated realisable collateral values. The majority of the Group’s collateral consists of property assets. Thevalues of these assets have declined significantly as a result of the economic downturn. In the current market, where there is limitedtransactional activity, there may be a wide range of valuation estimates. Changes in estimated realisable collateral values and the timingof their realisation could have a material effect on the amount of impairment provisions reflected in the income statement and theclosing 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 asheld for sale, of applying a lower estimate of the realisable value of collateral and of a change in the timing of the realisation of theseassets. The Bank estimates that a decrease of 10% in realisable collateral values on currently impaired loans would have increased theimpairment charge for the period by approximately €0.73bn, of which €40m relates to residential mortgages. Similarly, an extension ofone year in the timing of the realisation of these assets would have increased the impairment charge by less than €0.1bn, of which €22mrelates to residential mortgages. These estimates are based on impaired loans at 31 December 2011. The methodology and assumptionsused 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 isobjective evidence to suggest that it contains impaired loans, but the individual impaired loans cannot yet be identified. This provisiontakes account of observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of loanswith similar credit risk characteristics, although the decrease cannot yet be identified within the individual loans in the group.54

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011This provision is calculated by applying incurred loss factors to groups of loans sharing common risk characteristics. Loss factors aredetermined by historical loan loss experience as adjusted for current observable market data. Adjustments reflect the impact of currentconditions that did not affect the years on which the historical loss experience is based and remove the effects of conditions in thehistorical period that do not exist currently. The provision amount is also adjusted to reflect the appropriate loss emergence period. Theloss emergence period represents the time it takes following a specific loss event on an individual loan for that loan to be identified asimpaired. 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 couldcause actual credit losses to differ materially from reported loan impairment provisions. These uncertainties include factors such as localand international economic conditions, borrower specific factors, industry trends, interest rates, unemployment levels and other externalfactors. For loan impairment details, see note 27.Assets classified as held for saleAssets that the Bank believes will be transferred to NAMA are classified as held for sale in the statement of financial position. The Bankhas no control over the quantity of eligible assets that NAMA will acquire or over the valuation NAMA will place on those assets. At31 December 2011 NAMA had not confirmed to the Bank the final consideration it will pay in respect of assets transferred. Held for saleassets also include part of the Bank’s US loan book and certain other US assets expected to be sold to third parties. Loan and derivativeassets continue to be measured on the same basis as prior to their reclassification as held for sale. Other non-financial assets classified asheld 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 receivedwill be measured at fair value and any difference between the carrying value of the asset on the date of disposal and the considerationreceived less costs to sell will be recognised in the income statement.Carrying amount of investment propertyInvestment properties held at cost are reviewed regularly to determine their recoverable values and to assess impairment, if any. Where avalue in use calculation is performed as part of this review, management estimates the future cash flows expected to be derived from theasset. Expectations of future cash flows, and any variations in their amount or timing, are subject to management judgement. In somecases, recoverable amount is based on management estimates.Fair valueFair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in anarm'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 whichrefer to observable market data. These include prices obtained from independent third party pricing service providers, comparisons withsimilar financial instruments for which market observable prices exist, discounted cash flow analyses, option pricing models and othervaluation techniques commonly used by market participants. Where non-observable market data is used in valuations, any resultingdifference between the transaction price and the valuation is deferred on initial recognition. The deferred day one profit or loss is eitheramortised over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable inputs orrealised through settlement, depending on the nature of the instrument and availability of market observable inputs. The accuracy of fairvalue calculations could be affected by unexpected market movements when compared to actual outcomes. Due to the increasingsignificance of credit related factors, determining the fair value of corporate interest rate derivative financial assets requires considerablejudgement. In the absence of unadjusted quoted market prices, valuation techniques take into consideration the credit quality of theunderlying loans when determining fair value. The most significant area of judgement is in relation to certain financial assets andliabilities 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 activemarket. Fair value at initial recognition has been estimated by using a valuation technique which takes into consideration theGovernment guarantee, collateral and other support, and the yield on Irish Government bonds of similar maturity. The bonds, which arevalued as short term instruments with a maturity date of 1 March 2012, are subsequently measured at amortised cost.TaxationThe taxation charge recognises amounts due to tax authorities in the various jurisdictions in which the Group operates. It includesestimates based on a judgement regarding the application of tax law and practice and the availability of future profits in order todetermine the quantification of current liabilities. In arriving at such estimates, management assesses the relative merits and risks of taxtreatments assumed, taking into account statutory, judicial and regulatory guidance and, where appropriate, external advice. Howeverthe 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 taxesultimately paid to differ from the amount provided.Retirement benefitsThe Group operates defined benefit pension schemes. The Group’s 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 schemesare valued at fair value. The liabilities of the schemes are measured on an actuarial basis, using the projected unit method anddiscounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liabilities. This involvesmodelling 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 canreasonably fall. The impact on the Consolidated income statement and the Consolidated statement of financial position could bedifferent if an alternative set of assumptions was used. An analysis of the sensitivity of the liabilities of the schemes to changes in the keyassumptions is set out in note 11.55

Notes to the financial statements continued1. General information and accounting policies continued1.37 Prospective accounting changesDetails of amendments to standards and interpretations adopted during the period are set out in note 1.3. The Group has not appliedthe following new standards, revised standards and amendments to standards that have been approved by the International AccountingStandards 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 resultsor financial statements.In December 2011 the International Accounting Standards Board decided to defer the effective date of IFRS 9 to accounting periodsbeginning on or after 1 January 2015. The original effective date was for periods beginning on or after 1 January 2013. The Group hasnot 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 aidinvestors’ and other users’ understanding of financial information.56

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 20112. Business combinationOn 1 July 2011, under the INBS Transfer Order (note 1.1), the assets and liabilities of INBS, with the exception of certain limitedexcluded liabilities, were transferred to the Bank at carrying value, after harmonisation adjustments to give effect to thebusiness combination. The basis for the accounting treatment applied is described in note 1.4. On the date of transfer theGroup's net assets increased by €638m. This was reflected through an increase in the Group's capital reserve of €711m (note44) and a charge of €73m to the available-for-sale reserve (note 45). No cash consideration was paid. Net cash and cashequivalents 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 andmeasurement bases, is as follows:Assets1 July 2011€mCash and balances with central banks 8Financial assets at fair value through profit or loss - held on own account 2Derivative financial instruments 32Loans and advances to banks 120Assets classified as held for sale 77Available-for-sale financial assets 239Promissory note 5,014Government debt securities at amortised cost 32Loans and advances to customers 1,806Investment property - held on own account 2Property, plant and equipment 8Other assets 13Total assets 7,353LiabilitiesDeposits from banks 6,041Customer accounts 7Debt securities in issue 601Current taxation 22Deferred taxation 1Other liabilities 43Total liabilities 6,715Net assets 638Under the INBS Transfer Order all of the assets and liabilities of INBS, with certain exceptions, transferred to the Bank. Theliabilities and obligations of INBS to its members in respect of the Special Investment Shares in it held by the Minister forFinance together with any balances remaining on the general reserve and capital contribution accounts on its balance sheet didnot 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 anygovernmental, regulatory or prosecuting authority in any jurisdiction may be entitled to take, make or claim against INBS and/orany 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 inreturn 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 continued3. Segmental reportingAs set out in note 1.33, performance is now assessed on a total Group basis as a single continuing business activity. Statutoryfinancial information is therefore presented as one operating segment and actions taken to achieve the Bank’s strategicobjective of an orderly resolution over a period of up to ten years, including the sale or transfer of assets and liabilities, areregarded as arising from a continuing activity. In the context of an orderly resolution of the Bank, management considers that asingle operating segment, which demonstrates similar economic characteristics, provides relevant information to facilitate anevaluation of the nature and financial effects of the orderly wind-down and the impact of the economic operatingenvironment.The following tables provide a geographical split of the Group's revenue from external customers and non-current assets. Thegeographical segments are based primarily on the location of the office recording the transaction.Geographical segments2011Republic UK Rest of theof Ireland & IOM USA World Group€m €m €m €m €mRevenue from external customers 2,048 256 166 - 2,470Non-current assets 1,230 16 - - 1,2462010Republic UK Rest of theof Ireland & IOM USA World Group€m €m €m €m €mRevenue from external customers 2,728 794 248 2 3,772Non-current assets 1,299 20 126 - 1,445Revenue includes interest and similar income, fee and commission income, net trading expense, the net change in value offinancial 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 moreof the Group's revenues and included interest on the promissory notes of €1,447m (2010: €433m) and interest on Governmentdebt securities at amortised cost of €92m (2010: €146m). Further details of transactions with the Government and Governmentrelatedentities are included in note 54.Non-current assets includes intangible assets, investment property and property, plant and equipment and excludes financialinstruments, deferred taxation assets and retirement benefit assets.58

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 20114. Net interest income 2011 2010€m €mInterest and similar incomeInterest on loans and advances to banks 22 49Interest on loans and advances to customers (including loansclassified as held for sale) 861 1,567Interest on available-for-sale financial assets 45 104Interest on promissory notes 1,447 433Interest on Government debt securities at amortised cost 92 146Finance leasing and hire purchase income 2 22,469 2,301Interest on financial assets at fair value through profit or lossheld on own account - 32,469 2,304Interest expense and similar chargesInterest on deposits from banks (1,264) (646)Interest on customer accounts (71) (631)Interest on debt securities in issue (195) (260)Net interest on subordinated liabilities and other capital instruments 5 (25)(1,525) (1,562)Net interest income 944 742Group net interest income has increased by €202m or 27% versus the prior year. The principal components of net interestincome in 2011 are income earned on the promissory notes and customer lending balances and interest expense incurred onCentral Bank of Ireland special funding facilities.Interest income on customer lending includes margin interest and arrangement fees amortised over the expected lives of therelated loans. Interest on loans and advances to customers includes interest income on held for sale loans which, at31 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. Specificimpairment on individual loans is calculated based on the difference between the current loan balance and the discountedvalue of estimated future cash flows on the loan. The impact of the unwinding of this discount, as the time to the realisation ofthe 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 MasterRepurchase 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 arecurrently 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 Stg£200m Step-up Callable Perpetual Capital Securities and the Stg£250m Tier One Non-Innovative CapitalSecurities as income during the year when the call right on these securities was exercised by a Group subsidiary with noaccrued interest being paid.Included within interest expense for the year is €77m (2010: €128m) relating to the cost of the Credit Institutions (EligibleLiabilities Guarantee) Scheme 2009 (the 'ELG Scheme'), in which the Bank became a participating institution on28 January 2010. The cost of this scheme is classified as interest expense as it is directly attributable and incremental to theissuance of specific financial liabilities. The EC has approved the extension of the ELG Scheme for certain eligible liabilities to30 June 2012.59

Notes to the financial statements continued5. Fee and commission income and expense 2011 2010€m €mFee and commission incomeAdministration fees 31 7Corporate treasury 14 18Asset management and related fees 9 11Financial guarantee fees 6 8Other fees 4 364 47Fee and commission expense (5) (58)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. Thecontinuing decline in these fees reflects a decrease in the value of assets under management combined with no new clientinvestment activity.Fee and commission expense in the prior year included €54m in respect of the Credit Institutions (Financial Support) Scheme2008. This scheme expired on 29 September 2010.6. Net trading expense 2011 2010€m €mInterest rate contracts (166) (29)Foreign exchange contracts 92 (13)Credit contracts - 1Hedge ineffectiveness - -(74) (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) onforward foreign exchange contracts and cross currency swaps entered into to manage the Bank's sterling and US dollar fundingrequirements. Foreign exchange contracts also include a reported net loss of €25m (2010: net gain of €18m) largely as a resultof the impact of the Group's capital management hedging strategies.7. Financial assets designated at fair value 2011 2010€m €mNet change in value of financial assets designated at fair valuethrough profit or loss held on own account 2 (23)The charge in the prior year primarily relates to negative fair value movements on equity shares resulting from challengingbusiness conditions facing the entities in which the shares are held.60

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 20118. Gain on liability management exercise 2011 2010€m €mGain on repurchases/restructurings under the Group's liabilitymanagement exercise ('LME') - 1,589During the prior year the Group repurchased or restructured certain subordinated liabilities as part of its ongoing capitalmanagement activities. €270m nominal of Tier 1, €45m of Upper Tier 2 and €1,575m of Lower Tier 2 securities wererepurchased, 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 valueof €1,898m. The gain included costs and fees incurred as part of the liability management exercise.9. Other operating income/(expense) 2011 2010€m €m(Decrease)/increase in value of assets designated at fair value held in respect ofliabilities to customers under investment contracts (3) 46Decrease/(increase) in value of liabilities designated at fair value held in respect ofliabilities to customers under investment contracts 3 (46)Net losses on disposal of available-for-sale financial assets (2) (110)Rental income 7 10Other 4 (4)9 (104)During the year a decrease in the value of Irish property investments held in respect of liabilities to customers under investmentcontracts has been largely offset by positive foreign exchange and fair value movements on UK property investments. Theincrease 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 banksubordinated debt during the year. The prior year losses were partially offset by gains of €55m on the sale of €1.5bn ofgovernment bonds.Other includes the net amount of operating income and expenses relating to the Group’s investment properties. Included in thenet amount are payroll and related expenses of €13m (2010: €10m) in respect of 275 (2010: 275) staff who are directlyemployed in the running of a US hotel, which is classified as a held for sale investment property (note 23), and which isindependently managed by an international hotel management group.61

Notes to the financial statements continued10. Administrative expenses 2011 2010€m €mStaff costs:Wages and salaries 90 97Retirement benefits cost - defined contribution plans 12 12Retirement benefits (credit)/cost - defined benefit plans (note 11) (12) 1Social welfare costs 9 10Other staff costs 8 10107 130Other administrative costs 108 108Exceptional costs 82 89297 327The decrease in wages and salaries and related social welfare costs reflects a fall in average staff numbers from 1,332 duringthe prior year to 1,186 during the current year primarily due to the transfer of staff to AIB, and its UK subsidiary, AIB UK, underthe AIB Transfer Order, and the transfer of the Bank's Isle of Man subsidiary to AIB at the same time, but partially offset by thetransfer 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 inrelation to ongoing asset recovery matters.Exceptional costs of €82m incurred during the year primarily relate to professional fees associated with Bank restructuringwork, significant non-recurring transactions and costs related to certain legacy matters. The principal non-recurring transactionsinclude NAMA and a significant debt recovery case.The average number of persons employed during the year, analysed by location, was as follows:2011 2010number numberRepublic of Ireland 895 842United Kingdom and Isle of Man 231 405United States of America 52 69Rest of the World 8 161,186 1,332The average number of persons employed does not include individuals directly employed in the running of a US hotel which isindependently managed by an international hotel management group (note 9).62

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 201111. Retirement benefitsThe Bank operates two defined benefit non-contributory pension schemes in Ireland. The assets of these schemes are held inseparate trustee-administered funds. These schemes have been closed to new members since January 1994. From January 1994to 30 June 2011 new employees located in Ireland joined a funded scheme on a defined contribution basis. There are alsofunded 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 schemesoperated by INBS. New eligible employees located in Ireland after 1 July 2011 may join the funded former-INBS definedcontribution scheme.On 12 October 2010 INBS delivered a notice to the trustee of the Irish Nationwide Building Society No 1 Retirement BenefitScheme (the former INBS defined benefit scheme) for the purpose of notifying the trustee of a termination of employercontributions. This notice became effective one month later on 12 November 2010. The trustee of the scheme is disputing thistermination. The Bank is taking advice on its obligations and will be seeking the views of the Shareholder in deciding itsresponse to any claim from the trustee. As INBS had no obligation to pay further contributions to the scheme from 30 June2011, no contribution liability transferred to the Bank under the INBS Transfer Order or under the Deed of Substitution ofPrincipal Employer executed to give effect to the transfer order. However, the scheme will remain in existence until the trusteesformally resolve to wind it up.Neither the Group nor the Bank operates a post-employment medical benefit scheme.Details of defined benefit schemesRetirement benefits under the Bank’s Irish defined benefit plans are calculated by reference to pensionable service andpensionable salary at normal retirement date, or date of leaving service, if earlier. The pension charge in the income statementrelating to the two defined benefit pension schemes is based on the advice of an independent actuary. An actuarial valuationfor the purposes of IAS 19 has been prepared as at 31 December 2011 by an independent actuary using the projected unitmethod. Using this method the current service cost is expected to increase as the members of closed schemes approachretirement.During the year, following an application by the trustees, the Pensions Board approved amendments to the Bank's two Irishdefined benefit schemes. These amendments, which are effective from 1 December 2011, remove the entitlement toguaranteed post retirement pension increases for all members, including existing pensioners. In future, post retirement pensionincreases will only be provided at the discretion of the trustees and the Bank. The resulting reduction in the defined benefitobligation 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 2010% p.a. % p.a.Discount rate for liabilities of the schemes 5.00 5.50Rate of increase in salaries 0.00 3.00Rate of increase in pensions 1.00 to 3.00 2.00 to 3.00Inflation rate 2.00 2.00Mortality assumptionsThe key mortality assumptions used in estimating the actuarial value of the schemes' liabilities are:2011 2010Longevity at age 60 for current pensioners (years)Males 27.9 27.9Females 29.5 29.5Longevity at age 60 for future pensioners (years)Males 30.6 30.6Females 31.7 31.763

Notes to the financial statements continued11. Retirement benefits continuedSensitivity analysisSensitivity analysis for each of the principal assumptions used to measure the schemes' liabilities at 31 December 2011 is asfollows:Impact on scheme liabilitiesincrease by increase byChange in assumption % €mDiscount rate Decrease 0.5% 8.8% 7Rate of increase in salaries Increase 0.5% 0.5% -Inflation rate Increase 0.5% 1.9% 1Life expectancy Increase by 1 year 1.9% 1AssetsThe 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 ofexpected returns on least risk investments (primarily government bonds), the historical level of the risk premium associated withthe other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. Theexpected return for each asset class is then weighted based on the actual allocation to develop the long-term rate of return onassets assumption for the portfolio. The rate for the current year of 3.0% includes an adjustment of 0.6% to reflect the impactof the levy introduced by the Government on pension scheme assets for the four years from 2011 to 2014. The unexpected losson assets arising during 2011 from the application of the 0.6% levy is treated as an actuarial loss and is recognised in thestatement of comprehensive income.The market value of assets in the schemes and the expected long term rates of return were:% of Market % of MarketExpected scheme value Expected scheme valuereturn assets of assets return assets of assets2011 2011 2011 2010 2010 2010% % €m % % €mEquities 5.75 23 19 7.2 34 32Bonds 2.85 72 60 4.0 53 50Property 4.75 3 2 6.2 3 3Hedge funds 5.75 1 1 6.2 1 1Cash 2.00 1 1 2.0 9 8Total market value of schemes' assets83 94Actuarial value of liabilities of funded schemes (75) (93)Retirement benefit assets 8 1At 31 December 2011 the pension schemes held no ordinary shares in the parent Bank (2010: none).64

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Components of pension expenseThe following table sets out the components of the defined benefit cost:Included in administrative expenses:Group and Bank2011 2010€m €mCurrent service cost 1 1Past service cost (13) -Expected return on assets of pension schemes (5) (5)Interest on liabilities of pension schemes 5 6Settlement gain - (1)Cost of providing defined retirement benefits (note 10) (12) 1The actual return on assets during the year ended 31 December 2011 was €2m (2010: €4m).Amount recognised in statement of comprehensive incomeThe GroupThe Bank2011 2010 2011 2010€m €m €m €mChange in assumptions underlying the present valueof schemes' liabilitiesExperience gains on liabilities of the pension schemesActual return less expected return on assets of thepension schemesActuarial losses recognised under IAS 19Deferred tax on actuarial lossesActuarial losses after tax(3) (10) (3) (10)- 4 - 4(3) (1) (3) (1)(6) (7) (6) (7)- - - -(6) (7) (6) (7)Cumulative amount of after tax actuarial lossesrecognised since 1 October 2004 in statementof comprehensive income to end of year(24) (18) (25) (19)Employer contributions to funded schemesThe 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 pensionschemes.Reconciliation of the fair value of schemes' assets during the year2011 2010€m €mFair value of schemes' assets at beginning of year 94 98Expected return 5 5Contributions paid by employer 1 2Benefit payments (14) (10)Actuarial loss during year (3) (1)Fair value of schemes' assets at end of year 83 9465

Notes to the financial statements continued11. Retirement benefits continuedReconciliation of defined benefit obligations during the year2011 2010€m €mDefined benefit obligation at beginning of year 93 91Current service cost 1 1Past service cost (13) -Interest cost 5 6Benefit payments (14) (10)Settlement gain - (1)Actuarial loss during year 3 6Defined benefit obligation at end of year 75 93History of experience gains and lossesin funded and unfunded schemes2011 2010 2009 2008 2007€m €m €m €m €mDifference between actual andexpected return on assets:Amount (3) (1) (6) (25) (1)Percentage of schemes' assets atyear end 4% 1% 6% 23% 1%Experience gains/(losses) on liabilities:Amount - 4 4 2 (4)Percentage of schemes' liabilities atyear end 0% 4% 4% 2% 4%Total gross amount recognised instatement of comprehensive income(6) (7) 2 (21) 14Defined benefit pension schemes2011 2010 2009 2008 2007€m €m €m €m €mScheme assets 83 94 98 108 123Funded defined benefit obligation (75) (93) (91) (102) (97)Surplus within funded schemes 8 1 7 6 2666

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 201112. Auditor's remuneration 2011 2010€m €mFees payable to Deloitte & Touche in Ireland:Audit of Group and Bank financial statements 0.7 0.6Other assurance services 0.3 0.3Tax advisory services - 0.1Other non-audit services 0.1 0.21.1 1.2Fees payable to other Deloitte & Touche firms outside of Ireland:Audit of Group and Bank financial statements 0.2 0.3Other assurance services 0.1 0.1Other non-audit services 0.1 -0.4 0.4Total 1.5 1.6All 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.13. Loss on transfer of assets and liabilities 2011 2010€m €mNet consideration received 3,719 -Net carrying value of assets and liabilities transferred (3,933) -Total loss on transfer (214) -On 24 February 2011, under powers granted by CISA, the Minister for Finance, in consultation with the Governor of the CentralBank of Ireland, announced the immediate transfer by way of the AIB Transfer Order (note 1.1) of the majority of the Bank'sIrish 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 ofthe Irish deposits and NAMA senior bonds, and (ii) to its UK subsidiary, AIB UK in the case of the UK deposits. The Bank's sharesin its Isle of Man subsidiary, Anglo Irish Bank Corporation (International) PLC, were also transferred to AIB at the same time atapproximately 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, operatedby 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, inrespect 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 themigration of the transferred deposits and staff from the Bank's systems and premises is complete. The services are widerangingand include business, infrastructure and administrative support. The service levels applicable to the relevant services aredesigned to ensure that the transferred assets and liabilities will be maintained to the same level of service as they had beenmaintained by the Bank, or its third party service providers, in the twelve months prior to the date of transfer. As the terms ofthe TSA were, by necessity due to the short time-frame between the identification of the transferee and the time of the AIBTransfer Order, quite high-level, the TSA provided for a more detailed transitional services agreement to be entered intobetween the parties post-Transfer Order. The TSA was signed on 1 July 2011.67

Notes to the financial statements continued14. Gain/(loss) on disposal of assets to NAMA 2011 2010€m €mFair value of consideration received 914 10,728Carrying value of assets transferred to NAMA (106) (21,924)808 (11,196)Other transfer adjustments and provision for servicing liability (32) (351)Gain/(loss) on disposal of assets to NAMA 776 (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 assetspreviously transferred. €296m of the net reduction relates to INBS assets and has been recognised during the six months ended31 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 substantiallycompleted in March 2012 and resulted in the Bank owing NAMA approximately €24m in respect of valuation adjustments. Thisamount 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% inthe form of NAMA subordinated bonds (note 24), representing the net amount owing to the Bank following the completion ofdue diligence on €14.8bn of loans, the settlement of certain valuation adjustments and repayments to NAMA of considerationpreviously 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 assetstransferred.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 2011 2010€m €mConsideration received 4,965 -Carrying value of assets sold (5,391) -Total loss on disposal (426) -During the year the Bank sold the majority of its US assets. Loans with a gross value of €6,060m (before provisions forimpairment of €1,219m), together with related derivatives with a fair value on date of disposal of €195m and investmentproperty classified as held for sale with a carrying value of €47m were sold, realising a loss of €343m. Total externalprofessional fees incurred on the US bulk sale transaction amounted to approximately 30bps of the gross assets sold. The USloan 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.68

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 201116. Provisions for impairment and other provisions 2011 2010€m €mLending impairmentLoans and advances to customer - specific (note 27) 2,107 4,956Loans and advances to customers - collective (note 27) (597) 21Loans classified as held for sale - specific (note 23) 34 2,6831,544 7,660OtherInvestment property classified as held for sale (note 23) 17 -Debt securities - available-for-sale ('AFS') financial assets (note 24) - 11Investment property - held on own account (note 32) 3 61Property, plant and equipment (note 34) 4 -Financial guarantee contracts and other provisions76 35100 107Total provisions 1,644 7,767The total specific lending impairment charge for the year of €2,141m (2010: €7,639m) reflects the continuing difficultoperating environment across all of the Bank’s core markets during the year. Ireland, where property market conditionscontinue 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 acquiredunder the INBS Transfer Order.The collective provision is applied to portfolios of customer loans for which there is no evidence of specific impairment. It hasbeen calculated with reference to historical loss experience supplemented by observable market evidence and management'sjudgement regarding current market conditions. The provision amount is also adjusted to reflect the appropriate lossemergence period. The loss emergence period represents the time it takes following a specific loss event on an individual loanfor that loan to be identified as impaired. This is determined by taking account of current credit risk management practicestogether with historical loss experience. The loss emergence period applied for the current year is six months (2010: sixmonths). The release of collective provisions of €597m in the current year is primarily due to a decrease of 41% in theperforming loan portfolio, including loans classified as held for sale, and the recognition of specific provisions on smallerrelationships 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 themarkets 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).69

Notes to the financial statements continued17. Taxation 2011 2010€m €mCurrent taxationForeign tax - current year 6 -Foreign tax - prior year - 30Deferred taxation6 30Current year - temporary differences (note 35) 6 2Taxation charge for year 12 32The reconciliation of taxation on losses at the standard Irish corporation tax rate to the Group's actual tax charge is analysed asfollows:2011 2010€m €mLoss before taxation at 12.5% (109) (2,202)Effects of:Deferred tax asset not recognised on losses available for carry forward 114 2,144Foreign earnings subject to different tax rates 6 45Income not subject to tax (5) -Unrealised losses on investments - 6Adjustment in respect of prior years - 30Deferred taxation 6 2Other - 7Taxation charge for year 12 32No Irish corporation tax charge arises in the year due to the availability of tax losses in the current year. However a foreigntaxation 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 parentIn 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 fromfiling it with the Registrar of Companies. The Bank’s loss for the financial year determined in accordance with IFRS as adoptedby the European Union is €868m (2010: €17,336m).19. Cash and balances with centralThe GroupThe Bankbanks 2011 2010 2011 2010€m €m €m €mCash and balances with central banks 100 181 100 181These amounts include only those balances with central banks which may be withdrawn without notice.Cash and balances with central banks primarily relate to the Bank’s minimum reserve requirement held with the Central Bank ofIreland. Irish credit institutions must maintain a minimum reserve requirement over a specified maintenance period. Balancescan be withdrawn as long as the requirement is met on average over this maintenance period. As a result, year end balances donot necessarily indicate the level of this minimum requirement.70

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 201120. Financial assets at fair valueThe GroupThe Bankthrough profit or loss 2011 2010 2011 2010€m €m €m €mHeld on own accountEquity shares - unlisted 12 13 5 5All of the above financial assets are designated at fair value through profit or loss. The Group considers unlisted equity shares tobe non-current assets.The Bank’s interest in the Arnotts Group, which arose from a debt restructuring in 2010, is classified, upon initial recognition, atfair value through profit or loss.In late 2011, following creditor approval for a debt restructuring proposal, the Bank obtained a minority equity interest in whatwas previously the manufacturing business of the Quinn Group. The Bank's interest is classified, upon initial recognition, at fairvalue through profit or loss. At 31 December 2011 the value of the Bank’s economic interest in this enterprise is not material.The Group2011 2010€m €mHeld in respect of liabilities to customers underinvestment contracts (note 40)Investments in property structures 104 125Equity shares 85 103Debt securities 5 9194 237Of which listed 80 107Of which unlisted 114 130194 237All financial assets at fair value through profit or loss held in respect of liabilities to customers under investment contracts aredesignated at fair value through profit or loss.71

Notes to the financial statements continued21. Derivative financial instrumentsWith the exception of designated hedging derivatives, as defined by IAS 39, derivatives are treated as held for trading. The heldfor trading classification comprises corporate sales derivatives, economic hedges which do not meet the strict qualifying criteriafor hedge accounting and derivatives managed in conjunction with financial instruments designated at fair value. The Bankenters 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 islimited to the current replacement cost of contracts with a positive fair value to the Group should the counterparty default. Toreduce credit risk on interbank derivatives the Group uses a variety of credit enhancement techniques such as master nettingagreements and collateral support agreements ('CSAs'), where cash security is provided against the exposure. Derivatives arecarried 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 derivativefinancial instruments, are presented in note 50.The following tables present the notional and fair value amounts of derivative financial instruments, analysed by product andcategory.Derivatives held for trading2011The GroupContractContractnotional Fair values notional Fair valuesamount Assets Liabilities amount Assets Liabilities€m €m €m €m €m €mInterest rate contracts 41,125 991 (1,568) 103,930 1,665 (2,211)Foreign exchange contracts 11,019 46 (310) 15,016 168 (98)Equity index options - held and written 161 12 (11) 234 11 (7)Total trading derivatives 52,305 1,049 (1,889) 119,180 1,844 (2,316)2010Derivatives held for hedgingFair value hedges 5,251 47 (300) 7,120 82 (60)Cash flow hedges - - - 1,887 10 -Total hedging derivatives 5,251 47 (300) 9,007 92 (60)Derivatives held in respect of liabilities tocustomers under investment contracts(note 40) 711 - (60) 1,075 - (84)Total derivative financial instruments 58,267 1,096 (2,249) 129,262 1,936 (2,460)72

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Derivatives held for tradingThe Bank2011 2010ContractContractnotional Fair values notional Fair valuesamount Assets Liabilities amount Assets Liabilities€m €m €m €m €m €mInterest rate contracts 46,068 1,113 (1,568) 114,370 1,793 (2,340)Foreign exchange contracts 12,599 208 (310) 23,720 281 (596)Equity index options - held and written 161 12 (11) 234 11 (7)Total trading derivatives 58,828 1,333 (1,889) 138,324 2,085 (2,943)Derivatives held for hedgingFair value hedges 5,251 47 (300) 7,120 82 (60)Cash flow hedges - - - 1,887 10 -Total hedging derivatives 5,251 47 (300) 9,007 92 (60)Total derivative financial instruments 64,079 1,380 (2,189) 147,331 2,177 (3,003)Derivatives are carried in the statement of financial position at fair value. The decrease in the Group’s derivative assets andderivative liabilities during the year is primarily attributable to the impact on foreign exchange contracts of the depreciation ofthe 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 Bank’s 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 tochanges in interest rates. The fair value of these derivative assets includes a credit valuation adjustment ('CVA') to reflect theimpact of customer credit quality (note 6). The CVA measures the potential cost of replacing the existing derivative should thecustomer 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 deleveraginginitiatives.Foreign exchange contracts comprise cross currency swaps and forward foreign exchange contracts transacted to managecurrency mismatches that may arise. In March and April 2011 the Bank entered into two cross currency swaps with the NTMAon market terms. The principal amounts of the swaps are €2.3bn / $3.2bn and €0.6bn / £0.6bn respectively and these amountswere exchanged between the parties. The swaps have an amortising profile and contractual maturity of 2021. The interest rateson the swaps are market-based plus an agreed spread over the respective currency interbank benchmark rate. The decrease inthe overall notional amount of foreign exchange contracts during the year is attributable to a decrease in the US dollar fundingrequirement following the sale of the majority of the Bank's US loan portfolio (note 15). If needed, the Bank has the ability toexchange US dollar amounts for sterling amounts with interbank counterparties.The majority of the Bank’s derivative transactions with interbank counterparties are covered by CSAs, with cash collateralexchanged on a daily basis (notes 22 and 37). This significantly reduces the credit risk on interbank derivatives. Were the Bankto net outstanding derivative contracts with counterparties covered under CSAs, this would lead to a reduction in derivativeassets and derivative liabilities of €0.6bn (2010: €1.8bn).Hedging activitiesThe Group uses derivatives for hedging purposes to mitigate the market risk exposures arising from its banking and otheractivities. For accounting purposes the Group uses derivatives which may qualify as fair value hedges or cash flow hedges.Fair value hedgesThe Group uses interest rate swaps and cross-currency interest rate swaps to hedge the interest rate risk and foreign exchangerisk resulting from potential changes in the fair value of certain fixed rate assets and liabilities. Hedged assets include thepromissory 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 hedginginstruments designated as fair value hedges. The corresponding net loss attributable to the hedged risk on the hedged itemsalso recognised in net trading expense was €234m (2010: €53m).73

Notes to the financial statements continued21. Derivative financial instruments continuedCash flow hedgesIn previous years the Group used interest rate swaps and forward rate agreements to hedge its exposure to variability in futurecash flows on variable rate non-trading assets and liabilities. Gains and losses were initially recognised directly in equity, in thecash flow hedging reserve (note 45), and subsequently recognised in profit or loss when the forecast cash flows affected theincome statement. The Group no longer hedges cash flows on operating assets and liabilities. At 31 December 2010 cash flowsof €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 tonet interest income (note 45). There are no forecast transactions for which hedge accounting had previously been used, butthat 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 banksThe GroupThe Bank2011 2010 2011 2010€m €m €m €mPlacements with banks 2,306 3,038 7,390 5,502Securities purchased with agreements to resell - 487 - 4872,306 3,525 7,390 5,989Amounts include:Due from Group undertakings 5,278 3,089A credit ratings profile of loans and advances to banks is as follows:The GroupThe Bank2011 2010 2011 2010€m €m €m €mAAA / AA 434 300 430 266A 1,472 2,815 1,466 2,280BBB+ / BBB / BBB- 171 397 169 2,155Sub investment grade 224 - 1,849 -Unrated - due from Group undertakings - - 3,476 1,288Total held on own account 2,301 3,512 7,390 5,989Policyholders' assets (note 40) 5 13 - -2,306 3,525 7,390 5,989The ratings above are counterparty ratings and do not reflect the existence of government guarantees, where applicable, or, inthe 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 ELGScheme. In the current year these placements are rated as sub investment grade. At 31 December 2010 €0.1bn of theseplacements were secured and included within securities purchased with agreements to resell. Sub investment grade for theBank 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 netderivative 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 orrepledged, was €0.5bn. The fair value of such collateral sold or repledged was €0.2bn.74

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 201123. Assets classified as held for saleNAMA assetsThe GroupThe Bank2011 2010 2011 2010€m €m €m €mLoans classified as held for sale to NAMA 88 1,113 102 1,055Less: provisions for impairment (78) (148) (78) (148)10 965 24 907Derivative financial instruments - 17 - 1710 982 24 924Other loansOther loans classified as held for saleLess: provisions for impairment277 1,075 277 796(25) (417) (25) (371)252 658 252 425Other assetsInvestment property 109 - - -Property, plant and equipment 21 - 21 -130 - 21 -Total assets classified as held for sale392 1,640 297 1,349Amounts include:Due from Group undertakings 14 15Assets classified as held for sale comprise those remaining loans which are expected to transfer to NAMA together with certainUS loans identified for sale to third parties. In total, €262m (2010: €1,623m) of customer loans, which are net of associatedprovisions of €103m (2010: €565m), are anticipated to be transferred to NAMA or sold to third parties. NAMA has completediscretion 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 contractslinked to NAMA eligible assets as at that date. The total notional amount of these contracts was €537m and the transactionsconsisted primarily of interest rate swap agreements. There were no derivative financial instruments linked to NAMA eligibleassets 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 assurancebusiness 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). Theseassets, which consist primarily of properties that were originally acquired by the Group’s Private Banking and Lendingbusinesses but were not allocated to policyholders under investment contracts or sold to private clients, are now anticipated tobe 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 acquiredby 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 becarried at amortised cost less provisions for impairment. Associated derivatives continue to be measured at fair value throughprofit or loss. Investment property and property, plant and equipment classified as held for sale are stated at the lower of theircarrying amount and fair value less costs to sell.75

Notes to the financial statements continued23. Assets classified as held for sale continuedSpecific provisions for impairment onloans classified as held for saleThe Group2011 2010The Bank2011 2010€m €m €m €mAt beginning of yearAcquired under the INBS Transfer OrderCharge against profits - specific (note 16)Write-offsUnwind of discountExchange movementsNet transfers from/(to) loans and advancesto customers (note 27)Net release on disposal of assets to NAMA (note 14)Release on loan asset sales (note 15)At end of year565 10,120 519 9,134336 - 336 -34 2,683 23 2,627(56) (19) (56) (17)(16) (245) (16) (210)21 69 22 64938 (185) 932 (97)(387) (11,858) (375) (10,982)(1,332) - (1,282) -103 565 103 519Impaired loans classified as held for sale276 979 276 905An analysis of lending assets by internal credit quality category, geographical location and industry sector concentration isprovided for the Group in note 50 and for the Bank in note 55.24. Available-for-sale financial assetsListedGovernment bondsFinancial institutionsUnlistedFinancial institutionsAsset backed securitiesNAMA subordinated bondsThe GroupThe Bank2011 2010 2011 2010€m €m €m €m354 397 303 351849 1,648 849 1,6481,203 2,045 1,152 1,999- 2 - 25 5 - -124 167 124 167129 174 124 169Total 1,332 2,219 1,276 2,168The movement in available-for-sale ('AFS') financialassets is summarised below:At beginning of yearAdditionsDisposals (sales and maturities)Fair value movementsDecrease in interest accrualsExchange and other movementsAt end of year2,219 7,890 2,168 7,857261 993 249 989(1,105) (6,571) (1,098) (6,571)(43) (107) (44) (121)(4) (70) (4) (70)4 84 5 841,332 2,219 1,276 2,168The AFS portfolio decreased by €0.9bn during the year, primarily driven by disposals and maturities which include €0.8bn offinancial institution bonds and €0.3bn of sovereign bonds. Additions in the current year primarily comprise sovereign bondswith a carrying value of €0.2bn and NAMA subordinated bonds with a nominal value of €154m and a carrying value of €47macquired under the INBS Transfer Order. In addition, the Bank received subordinated bonds from NAMA with a nominal valueof €49m and an initial fair value of €10m.76

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The AFS portfolio principally comprises sovereign investments, debt issued by financial institutions and NAMA subordinatedbonds. AFS bonds are marked to market using independent prices obtained from external pricing sources. NAMA subordinatedbonds are valued using standard discounted cash flow techniques. The Bank does not use models to value other AFS securitiesand 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 performanceof NAMA in totality. NAMA may call the bonds on any interest payment date. On each interest payment date commencing on1 March 2011, and annually thereafter, NAMA may declare the interest payable if it deems it appropriate to do so if it isachieving its objectives. Interest not declared in any year will not accumulate. No interest was declared by NAMA on1 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 assetsamounted 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 AFScategory 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 withthird 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 Group2011Asset NAMAFinancial Backed SubordinatedSovereign Institutions Securities Bonds Total€m €m €m €m €mAAA / AA 51 43 - - 94A - 214 - - 214BBB+ / BBB / BBB- 303 496 - - 799Sub investment grade - 96 - - 96Unrated - - 5 124 129354 849 5 124 1,332The Group2010AssetNAMAFinancial Backed SubordinatedSovereign Institutions Securities Bonds Total€m €m €m €m €mAAA / AA 119 418 - - 537A - 683 - - 683BBB+ / BBB / BBB- 278 549 - - 827Sub investment grade - - - - -Unrated - - 5 167 172397 1,650 5 167 2,219Sub investment grade holdings consist primarily of debt issued by Irish financial institutions, of which €15m is covered by theELG Scheme. The majority of these holdings are due to mature during 2012.77

Notes to the financial statements continued25. Promissory notesThe GroupThe Bank2011 2010 2011 2010€m €m €m €mPromissory notes 29,934 25,704 29,934 25,704The Minister for Finance has provided the Bank with a promissory note to the value of €25.3bn comprising four tranches. Eachtranche pays a market based fixed rate of interest which is set on the date of issue and is appropriate to the maturity date ofthe tranche. The promissory note pays 10% of the initial principal amount of each tranche annually. The Bank received the firstinstalment payment of €2.53bn on 31 March 2011. This pay down resulted in the promissory note having a revised principalamount 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 INBSof the first instalment payment on 31 March 2011, the revised principal amount was €4.9bn. On 1 July 2011 the principal andaccrued 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 notesallowing for an ‘interest holiday’ in 2011 and 2012, with a higher notional interest rate thereafter. This interest holiday doesnot 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 hadhedged a total of €4.3bn of the nominal amount using interest rate swaps. A further €5.7bn of economic hedges exist in theform of the Group’s capital and fixed rate debt issuance.The promissory notes are currently pledged as collateral for funding under a Special Master Repurchase Agreement with theCentral Bank of Ireland.The notes, which are classified as loans and receivables, are initially recognised at fair value and subsequently carried atamortised cost. IFRS defines loans and receivables as ‘financial assets with fixed or determinable payments that are not quotedin an active market’.78

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 201126. Government debt securities atThe GroupThe Bankamortised cost 2011 2010 2011 2010€m €m €m €mNAMA Government Guaranteed Floating Rate Notes947 10,623 947 10,62395% of the overall consideration received for assets that transferred to NAMA was in the form of Government GuaranteedFloating Rate Notes ('senior bonds'). The senior bonds are classified as loans and receivables, and are initially recognised at fairvalue.At 31 December 2010 the Bank held senior bonds with a total nominal value of €12,275m. These bonds accrued interest at 6month Euribor, receivable semi annually on 1 March and 1 September, and had a maturity date of March 2011 but wereextendible 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 €91mnominal of senior bonds back to NAMA. On 24 February 2011, pursuant to the AIB Transfer Order and CISA, the Bank'sremaining holding of senior bonds of €12,184m was transferred to AIB (note 13). The carrying value of these notes on the dateof transfer was €10,568m.Subsequently, following completion of due diligence by NAMA on certain loans which transferred in bulk during November andDecember 2010 the Bank has received new senior and subordinated bonds which increase the original consideration paid byNAMA for these assets. The new government guaranteed senior bonds accrue interest at 6 month Euribor, receivable semiannually 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 amaturity date of up to 364 days. There are certain key differences between the terms and conditions of the senior bonds thatwere held at 31 December 2010 and those held at 31 December 2011. A new amended Offering Circular of 22 June 2011 doesnot include an issuer extension option and the holder now has the right to reject physical settlement of the senior bonds onmaturity. As a result of the removal of the issuer extension option the Bank has valued the senior bonds, on receipt, as a shortterm instrument with a maturity date of 1 March 2012.At 31 December 2011 the Bank’s nominal holding of senior bonds totalled €950m. This figure includes €33m nominal of seniorbonds received by the Bank under the INBS Transfer Order on 1 July 2011. In October 2011 the Central Bank of Ireland advisedthe Bank not to increase its usage of sale and repurchase facilities provided under open market operations with the ECB. As aresult, at 31 December 2011 there were no senior bonds used in sale and repurchase agreements under open marketoperations with central banks (2010: €12,275m). At 31 December 2011 senior bonds with a nominal value of €750m had beenpledged 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 byissuing new senior bonds with a maturity of 1 March 2013. The Bank’s commercial preference was to receive cash in exchangefor its holdings of senior bonds on 1 March 2012. However, bearing in mind the preferences expressed by both NAMA and theDepartment of Finance and overall public interest considerations, the Bank agreed to accept physical settlement.79

Notes to the financial statements continued27. Loans and advances to customersAmounts receivable under finance leases andhire purchase contracts (note 28)Other loans and advances to customersProvisions for impairmentThe GroupThe Bank2011 2010 2011 2010€m €m €m €m41 49 40 4827,987 33,892 26,208 34,35728,028 33,941 26,248 34,405(10,339) (9,577) (10,274) (9,489)17,689 24,364 15,974 24,916Amounts include:Due from Group undertakings 2,294 4,346On 1 July 2011 the Bank acquired loans and advances to customers with a carrying value of €1,806m under the INBS TransferOrder (note 2).The Group's loans and advances to customers at 31 December 2011 of €17,689m (2010: €24,364m) exclude loans classified asheld 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 asheld 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 assurancebusiness 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 underinvestment 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 onloans and advances to customersThe Group2011 2010The Bank2011 2010€m €m €m €mAt beginning of periodAcquired under the INBS Transfer OrderCharge against profits - specific (note 16)Charge against profits - collective (note 16)Write-offsRecoveriesUnwind of discountExchange movementsNet transfers from/(to) assets classified asheld for sale (note 23)At end of period9,577 4,846 9,489 4,753667 - 667 -2,107 4,956 2,036 5,030(597) 21 (573) 61(351) (363) (347) (363)6 1 6 -(187) (168) (167) (154)55 99 95 65(938) 185 (932) 9710,339 9,577 10,274 9,489SpecificCollectiveTotal9,566 8,341 9,535 8,310773 1,236 739 1,17910,339 9,577 10,274 9,489Impaired loans (excludes loans classified as held for sale)17,482 16,564 16,189 15,213The 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 adecrease of 41% in the performing loan portfolio, including loans classified as held for sale, and the recognition of specificprovisions on smaller relationships not previously individually assessed for impairment.80

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Owing to a marked deterioration in the financial position of some borrowers, in order for the Bank to maximise the recovery ofimpaired loan balances it may in certain specific circumstances agree to a restructuring of loan arrangements so as to improveoverall asset quality. The level of provision write-offs in the current and prior years is primarily as a result of the activemanagement of impaired loans, which may also include the sale of collateral and/or certain loan assets to third parties.Loans assigned as collateralLoans, including those classified as held for sale, of €6,115m (2010: €9,384m) have been assigned as collateral under theBank's various covered securities programmes. Included in the current year balance are loans assigned as collateral under asecuritisation programme acquired under the INBS Transfer Order on 1 July 2011. The Bank's UK covered bond programme wasunwound in June 2011. In addition, loans with a carrying value of €2,550m (2010: €4,110m) have been assigned as collateralunder a Master Loan Repurchase Agreement with the Central Bank of Ireland (note 37). All of the loans remain in the Group'sstatement 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 isprovided for the Group in note 50 and for the Bank in note 55.28. LeasingLoans and advances to customers include amounts receivable under finance leases and hire purchase contracts analysed byremaining maturity as follows:The GroupThe Bank2011 2010 2011 2010€m €m €m €mGross receivables:Three months or less 26 26 25 25One year or less but over three months 8 11 8 11Five years or less but over one year 9 15 9 15Over five years - - - -43 52 42 51Unearned future income (2) (3) (2) (3)Net receivables (note 27) 41 49 40 48Present value of minimum lease paymentsreceivable:Three months or less 26 25 25 25One year or less but over three months 7 11 7 10Five years or less but over one year 8 13 8 13Over five years - - - -Present value of minimum payments receivable 41 49 40 48Provision for uncollectible minimumlease 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 amountedto €1m (2010: €2m).81

Notes to the financial statements continued29.Interests in joint ventures and associatesJoint venturesUnlistedThe GroupThe Bank2011 2010 2011 2010€m €m €m €mAt beginning of year 42 142 - -Investment in joint ventures 2 3 - -Share of results 15 (104) - -Distributions (3) (2) - -Exchange movements 1 3 - -At end of year 57 42 - -Joint venturesGroup's share of:The GroupThe Bank2011 2010 2011 2010€m €m €m €mCurrent assets 15 17 - -Non-current assets 642 657 - 47Current liabilities (13) (14) - -Non-current liabilities (587) (618) - (47)Interests in joint ventures 57 42 - -Income 39 35 - -Expenses (including impairment) (24) (139) - -Taxation - - - -Share of results of joint ventures 15 (104) - -Group'sinterestSignificant joint venture entities and registered offices Principal activity in equityAggmore Europe 1 S.A.11-13 boulevard de la Foire, L-1528 LuxembourgProperty investment 49%Finsbury Dials Sarl62 avenue Victor Hugo, L-1750 LuxembourgProperty investment 33%Heywood Park Limited *Jubilee Buildings, Victoria Street, Douglas, Isle of Man IM1 2SHProperty investment 95%Merchant Anglo (Amazon Park) Limited Partnership Property investment 49%145 St. Vincent Street, Glasgow G2 5JF, ScotlandTaurus Euro Retail Holdings Sarl12 rue Guillaume J Kroll, L-1882 LuxembourgProperty investment 20%The Second Anglo Irish UK Property Fund SLP50 Lothian Road, Festival Square, Edinburgh EH3 9WJ, ScotlandProperty investment 19%West Port Sarl *46A avenue J.F. Kennedy, L-1855 LuxembourgProperty investment 90%82

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011* The Group's interest in the equity of these entities is greater than 50%. However, the substance and legal form of theseventures is such that they are jointly controlled entities as the approval of all joint venture parties is required for all strategicfinancial and operating decisions.AssociatesThe GroupThe Bank2011 2010 2011 2010€m €m €m €mInterests in associates - unlisted 99 - - -Following regulatory approval in late 2011 the Group agreed a joint venture with Liberty Mutual Group (‘Liberty’) to acquire theRepublic of Ireland general insurance business of Quinn Insurance Limited (Under Administration) (‘QIL’). Liberty’s controllinginterest in this arrangement exceeds 50%, while the Bank's minority interest is classified as an associate as it retains someinfluence in the joint venture. The purchase of the Bank’s 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 isclassified 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 itsjoint 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 fulllisting of its joint ventures and associates to its annual return to the Companies Registration Office in Ireland.83

Notes to the financial statements continued30. Investments in Group undertakingsThe Bank2011 2010€m €mInvestments in subsidiary undertakings at cost less provisions for impairment4,045 4,186The decrease in investments in subsidiary undertakings during the year is primarily driven by the transfer of the Bank's Isle ofMan subsidiary, Anglo Irish Bank (International) PLC, to AIB under the AIB Transfer Order (note 1). This is partially offset by theBank's irrevocable waiver of certain loans due to it by IBRC Property Investors Limited and IBRC Property Lending Limited, andadditional investments in IBRC Real Estate Holdings, Inc., to facilitate its holding and disposal of US property assets followingloan foreclosures/restructuring.Significant subsidiary undertakings and registered officesArmoin Residential Securities Limited5 Harbourmaster Place, IFSC, Dublin 1, IrelandIBRC Asset Finance plc10 Old Jewry, London EC2R 8DN, EnglandIBRC Assurance Company LimitedHeritage House, 23 St. Stephen's Green, Dublin 2, IrelandIBRC Mortgage BankStephen Court, 18/21 St. Stephen's Green, Dublin 2, IrelandIBRC International Financial Services LimitedStephen Court, 18/21 St. Stephen's Green, Dublin 2, IrelandIBRC Property Lending Limited10 Old Jewry, London EC2R 8DN, EnglandIBRC Real Estate Holdings, Inc.265 Franklin Street, 19th Floor, Boston, MA 02110, USABuyway Group LimitedStephen Court, 18/21 St. Stephen's Green, Dublin 2, IrelandCDB (U.K.) Limited10 Old Jewry, London EC2R 8DN, EnglandMainland Investments GP, Inc.Corporation Service Company, 2711 Centerville Road, Suite 400,Wilmington, DE 19808, USAThe Anglo Aggmore Limited Partnership10 Old Jewry, London EC2R 8DN, EnglandTutelana LimitedStephen Court, 18/21 St. Stephen's Green, Dublin 2, IrelandPrincipal activitySecured debt issuanceFinanceLife assurance and pensionsIssuance of mortgage covered securitiesFinanceFinanceInvestment holdingInvestment holdingInvestment holdingProperty investmentProperty investmentInvestment holdingThe Group owns all of the issued ordinary share capital of all subsidiary undertakings listed unless otherwise stated. All of theGroup undertakings are included in the consolidated financial statements. A Group subsidiary is the general partner of theAnglo Aggmore Limited Partnership and holds 75% of the equity and loan capital contributed to it. The loan capitalcontributors earn a return of 10% per annum on their loan capital and thereafter the Group is entitled to 50% of the remainingprofits. 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.84

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The Group's interest in Armoin Residential Securities Limited is, in substance, no different than if it was a wholly ownedsubsidiary undertaking. There are no other entities which might be considered to be subsidiaries under SIC 12 which have notbeen consolidated.Each subsidiary undertaking operates principally in the country in which it is registered. In accordance with the EuropeanCommunities (Credit Institutions: Accounts) Regulations, 1992, a complete listing of Group undertakings will be annexed to theannual 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 entitieswhich 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 ofIreland. Its principal activity, as a licensed bank, is the issuance of commercial mortgage asset covered securities, in accordancewith 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 toIBRCMB, and on 21 January 2009 IBRCMB launched a €10bn Mortgage Covered Securities Programme. At 31 December 2011the total amount of principal outstanding in respect of mortgage covered securities issued was €1.8bn (2010: €1.8bn), all ofwhich is held by the Bank. At the same date the total principal outstanding in the cover assets pool including mortgage loansand 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 LimitedEach of the companies listed below, and consolidated into these accounts, has availed of the exemption from filing itsindividual accounts as set out in Section 17 of the Companies (Amendment) Act, 1986 ('the 1986 Act'). In accordance with the1986 Act, Irish Bank Resolution Corporation Limited has irrevocably guaranteed the liabilities of Aragone Limited, BuywayGroup Limited, IBRC ESOP Limited, IBRC Capital Partners Limited, IBRC International Financial Services Limited, Modify 5Limited, Tincorra Investments Limited and Tutelana Limited.85

Notes to the financial statements continued31. Intangible assets - software The Group The BankComputer Computersoftware software€m €mCostAt 1 January 2010 72 70Additions 5 5At 31 December 2010 77 75Additions 4 4Disposals (2) -At 31 December 2011 79 79Accumulated amortisationAt 1 January 2010 51 49Charge for the year 10 10At 31 December 2010 61 59Charge for the year 10 10Disposals (2) -At 31 December 2011 69 69Carrying amountAt 31 December 2011 10 10At 31 December 2010 16 1632. Investment property - held on own accountCostThe Group2011 2010€m €mAt beginning of year 403 376Additions 49 13Disposals - (7)Transfers to assets classified as held for sale (282) -Exchange movement (17) 21At end of year 153 403Accumulated depreciationAt beginning of year 186 109Charge for the year 6 10Impairment 3 61Transfers to assets classified as held for sale (122) -Exchange movement (8) 6At end of year 65 186Carrying amountAt end of year 88 217At beginning of year 217 267Investment property held on own account at 31 December 2011 includes office and retail properties previously acquired by theGroup which were not subsequently allocated to policyholders under investment contracts or sold to private clients.86

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Additions 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 arelocated and a consequent reduction in the recoverable amounts of the assets, based on the estimated future cash flows to bederived from these assets.The fair value of investment property held on own account at 31 December 2011 is €98m (2010: €216m). Fair values areprimarily based on valuations provided by independent third party valuers during the year which have been reviewed andagreed by management.33.Investment property - held in respect of liabilitiesto customers under investment contractsFair valueThe Group2011 2010€m €mAt beginning of year 1,193 1,143Additions - -Disposals (90) -Fair value, exchange and other movements 27 50At end of year (note 40) 1,130 1,193Investment property held in respect of liabilities to customers under investment contracts is included in the statement offinancial position at fair value. Fair values are based on valuations provided by independent third party valuers using, whererelevant, accepted Royal Institution of Chartered Surveyors guidelines or equivalent local guidelines appropriate to the locationof the property. Fair values are reviewed and agreed by management.87

Notes to the financial statements continued34. Property, plant and equipmentLeasehold ComputerFreehold properties and and otherThe Group properties improvements equipment Total€m €m €m €mCostAt 1 January 2010 - 30 56 86Additions - 1 - 1At 31 December 2010 - 31 56 87Disposal of Group undertaking - - (1) (1)Additions 7 - 3 10At 31 December 2011 7 31 58 96Accumulated depreciationAt 1 January 2010 - 16 46 62Charge for the year - 1 5 6At 31 December 2010 - 17 51 68Disposal of Group undertaking - - (1) (1)Charge for the year - 2 5 7Impairment - 4 - 4At 31 December 2011 - 23 55 78Carrying amountAt 31 December 2011 7 8 3 18At 31 December 2010 - 14 5 19Additions in the current year include freehold premises of €7m and computer and other equipment of €1m acquired under theINBS 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 outits own activities.88

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011ComputerFreehold Leasehold and otherThe Bank properties improvements equipment Total€m €m €m €mCostAt 1 January 2010 - 16 52 68At 31 December 2010 - 16 52 68Additions 7 - 2 9At 31 December 2011 7 16 54 77Accumulated depreciationAt 1 January 2010 - 13 43 56Charge for the year - - 5 5At 31 December 2010 - 13 48 61Charge for the year - - 4 4At 31 December 2011 - 13 52 65Carrying amountAt 31 December 2011 7 3 2 12At 31 December 2010 - 3 4 7Additions in the current year include freehold premises of €7m and computer and other equipment of €1m acquired under theINBS Transfer Order on 1 July 2011.The Group has minimum future rental payments under non-cancellable operating leases as follows:20112010Property Equipment Property Equipment€m €m €m €mWithin one year 10 3 9 3One to five years 22 - 30 1Over five years 41 1 51 173 4 90 5Total 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 incomerecognised 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 ofproperty, plant and equipment.89

Notes to the financial statements continued35. Deferred taxationThe GroupThe Bank2011 2010 2011 2010€m €m €m €mAnalysis of movement in deferred taxation:Opening net asset 46 46 - -Acquired under INBS Transfer Order (1) - (1) -Income statement charge for year (note 17) (6) (2) - -Exchange movements 2 2 - -Closing net asset 41 46 (1) -Analysis of deferred taxation asset:Losses available for offset against future profits 42 46 - -Analysis of deferred taxation liability:Temporary timing differences (1) - (1) -Represented in the statement of financialposition as follows:Deferred taxation asset 42 46 - -Deferred taxation liability (1) - (1) -41 46 (1) -At 31 December 2011 deferred tax assets of €4,616m (2010: €4,376m) and €4,595m (2010: €4,318m) have not beenrecognised in respect of unused losses for the Group and the Bank respectively.36. Other assetsThe GroupThe Bank2011 2010 2011 2010€m €m €m €mTrade and other receivables 18 78 5 68Trading properties 7 9 - -Development property 6 - 6 -31 87 11 68On 1 July 2011 the Bank acquired development property of €6m under the INBS Transfer Order. The carrying value representscumulative costs incurred to 31 December 2011 under a contract to develop property less any write-downs to net realisablevalue. The development is fully complete.90

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 201137. Deposits from banksThe GroupThe Bank2011 2010 2011 2010€m €m €m €mDeposits repayable on demand 56 54 3,952 3,342Sale and repurchase agreements - central banks 42,228 45,023 42,228 45,023Sale and repurchase agreements - banks - 545 - 545Other deposits by banks with agreed maturity dates 307 944 2 64542,591 46,566 46,182 49,555Amounts include:Due to Group undertakings 3,896 3,289Sale and repurchase agreements with central banks include a combined €40.1bn (2010: €28.1bn) borrowed under a SpecialMaster 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 toreplace €8.3bn of customer deposit funding that transferred to AIB on 24 February 2011 under the AIB Transfer Order (note13). 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 marketoperations from central banks. The decrease in funding under these facilities is primarily due to the transfer of €12.2bn ofNAMA senior bonds to AIB on 24 February 2011 under the AIB Transfer Order. Furthermore certain of the Bank's securitisationprogrammes 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 qualifyingloan assets. The FD is an unsecured loan facility guaranteed by the Minister for Finance, who separately benefits from a counterindemnity 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 theyear 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 arisingfrom derivative contracts.Other deposits by banks with agreed maturity dates in the Group include €305m (2010: €299m) of funding provided topolicyholders by external banks in respect of liabilities to customers under investment contracts (note 40).91

Notes to the financial statements continued38. Customer accountsThe GroupThe Bank2011 2010 2011 2010€m €m €m €mRepayable on demand 13 3,771 2,925 6,832Other deposits by customers with agreedmaturity dates 584 7,321 678 6,624597 11,092 3,603 13,456Amounts include:Due to Group undertakings 3,006 4,048Customer typeRetail deposits 40 6,120 40 4,847Non-retail deposits 557 4,972 3,563 8,609597 11,092 3,603 13,456On 24 February 2011, under the AIB Transfer Order, the majority of the Irish and UK customer accounts, including those held inthe Bank's Isle of Man subsidiary, were transferred by the Bank to AIB and AIB UK (note 13). Certain customer accounts wereretained, including those linked to customer loans, structured deposit-linked products and those accounts denominated inminor 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 TransferOrder and as such did not transfer at the time. However, in accordance with the February Direction Order and the requirementsimposed on the Bank by the Minister for Finance on 7 April 2011 pursuant to Section 50 of CISA, all deposits introducedthrough these branches have been repaid to customers. The Bank’s branches in Jersey and Vienna were both closed in June2011 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 uponinitial 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 underinvestment contracts (note 40). The deposits eliminate on consolidation in the Group customer accounts balances.92

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 201139. Debt securities in issueThe GroupThe Bank2011 2010 2011 2010€m €m €m €mMedium term note programme 5,371 6,899 5,371 6,899Commercial paper - 13 - 135,371 6,912 5,371 6,912Guaranteed 2,726 3,047 2,726 3,047Unguaranteed 2,645 3,865 2,645 3,8655,371 6,912 5,371 6,912Debt securities in issue have decreased by €1.5bn in the current year largely due to the maturity of €2.2bn of medium termnotes, of which €1.9bn were unguaranteed. The decrease is partially offset by €0.6bn of medium term notes issued by INBSwhich 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 thisscheme are set out in note 4.Government guaranteed notes with a principal value of €1.8bn are due to mature during 2012. The remaining Governmentguaranteed notes, which have a principal value of €0.9bn, are not scheduled to mature until 2015. Unguaranteed medium termnotes 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 2011.93

Notes to the financial statements continued40. Liabilities to customers under investment contractsThe Group2011 2010€m €mAssets held in respect of liabilities to customers under investment contracts:Investment property 1,130 1,193Financial assets at fair value through profit or loss 194 237Loans and advances to banks 5 13Total 1,329 1,443Less:Funding provided by parent Bank (738) (764)Funding provided by external banks (305) (299)Derivative financial instruments (60) (84)Net asset value attributable to external unitholdersAdd:(37) (37)Funds on deposit with parent Bank 94 92Liabilities to customers under investment contracts at fair value283 351Under the terms of the investment contracts issued by the Group's assurance business legal title to the underlying investmentsis held by the Group, but the inherent risks and rewards in the investments are borne by customers through unit-linked lifeassurance policies. In the normal course of business the Group's financial interest in such investments is restricted to feesearned 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 notnecessarily wholly-owned subsidiaries of the Group. The inherent risks and rewards borne by external third parties are treatedas 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 positionand are classified as liabilities to customers under investment contracts. The above table sets out where the relevant assets andliabilities in respect of the life assurance business investment contracts are included in the Group statement of financialposition. On consolidation, Group loans and advances to customers and Group loans classified as held for sale are shown netof funding of €724m (2010: €749m) and €14m (2010: €15m) respectively provided by the parent Bank to fund assets held bythe 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 ofassets, net of related derivative liabilities, to which the parent Bank holds recourse. In prior periods the market value of assetsto which the Bank held recourse exceeded the amount of funding that it had provided in relation to those assets. The Grouphas assessed these lending facilities for impairment, with any resulting charge included within provisions for impairment onloans and advances to customers.Derivative financial instruments are entered into by the Group's assurance company in order to hedge the interest rateexposure on funding provided to geared policyholder funds. The decrease in liabilities to customers under investment contractsin the current year results primarily from net withdrawals by policyholders from unit-linked investment funds during the year.94

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 201141. Other liabilitiesThe GroupThe Bank2011 2010 2011 2010€m €m €m €mObligations under financial guarantees 71 64 70 61Payable to NAMA 132 138 132 138Amounts attributable to external unitholderslinked to investment contracts (note 40) 37 37 - -Preference shares 99 - - -Sundry liabilities 27 201 20 199Provisions for liabilities and charges 177 135 168 134543 575 390 532The amount payable to NAMA at 31 December 2011 of €132m relates to value-to-transfer adjustments (representing themovement in loan balances from the NAMA cut off date to the actual loan transfer date) and expected net valuationadjustments 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 theRepublic of Ireland general insurance business of Quinn Insurance Limited (Under Administration) (‘QIL’) (note 29). InDecember 2011 the Bank funded its interest by issuing €99m in new preference shares. Repayment of these preference sharesis 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 on30 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 interestrates applied and the variable market quoted rates. The review has been extended during the year to cover the period from1 January 1990 to 31 January 2005 (previously 1 January 1996 to 31 January 2005), and the Bank has increased the amountprovided in relation to this matter from €45m at 31 December 2010 to €54m at 31 December 2011. This provision is includedin provisions for liabilities and charges.Provisions for liabilities and charges also includes provisions related to onerous contracts, restructuring and legacy matters.95

Notes to the financial statements continued42. Subordinated liabilities and other capital instrumentsDated Loan CapitalUS$165m Subordinated Notes Series A 2015 (a)US$35m Subordinated Notes Series B 2017 (b)The GroupThe Bank2011 2010 2011 2010€m €m €m €m128 124 128 12428 28 28 28Undated Loan CapitalStg£300m Non-Cumulative Preference Shares (c)Stg£200m Step-up Callable Perpetual Capital Securities (d)Stg£250m Tier One Non-Innovative Capital Securities (d)Other subordinated liabilities (e)361 351 361 351- 3 - -- 3 - -- - - -517 509 517 503All subordinated liabilities and other capital instruments issued by the Group are unsecured and subordinated in the right ofrepayment to the ordinary creditors, including depositors of the Bank. The prior approval of the Central Bank of Ireland isrequired 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 managementexercise. €270m nominal of Tier 1, €45m of Upper Tier 2 and €1,575m of Lower Tier 2 securities were repurchased, exchangedor restructured, resulting in a net gain of €1,589m (note 8).(a)(b)(c)(d)(e)The US$165m Subordinated Notes Series A 2015 bear interest at 4.71% per annum to 28 September 2010 andthereafter 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 thereafterreset 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 Non-Cumulative Preference Shares in issue was transferred to the Minister for Finance. The holder of the shares is entitled to anon-cumulative preference dividend of 6.25% per annum based on a principal amount of Stg£1,000 per share payableannually in arrears on 15 June in each year to 15 June 2015. Thereafter dividends are due to be paid quarterly in arrearson 15 March, 15 June, 15 September and 15 December in each year based on a principal amount of Stg£1,000 per shareand on the three month LIBOR rate plus 1.66% per annum. No preference dividends can be paid if the issuer is not incompliance with applicable regulatory capital requirements. In May 2009 the Bank received correspondence from theMinister stating that dividend payments on these preference shares, including the dividend otherwise payable on15 June 2009, would be waived until such time as the Minister informs the Bank that dividend payments are to resume.Interest on the Stg£200m Step-up Callable Perpetual Capital Securities and the Stg£250m Tier One Non-InnovativeCapital Securities of €6m which was accrued to 31 December 2010 was released to the income statement as a gain inMarch 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 isprecluded from declaring and paying any distribution on these shares.96

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 201143. Share capitalOrdinary share capitalAuthorised26,200,000,000 ordinary shares of €0.16 eachGroup and Bank2011 2010€m €m4,192 4,192Allotted, called up and fully paid25,769,150,409 ordinary shares of €0.16 each4,123 4,123On 21 January 2009, under the terms of the Anglo Irish Bank Corporation Act, 2009, all of the Bank's ordinary share capitalwas transferred to the Minister for Finance. There has been no movement in the Bank's share capital during the year.Preference share capitalThe Bank has authorisation from the Shareholder to issue preference share capital as follows:Group and Bank2011 2010€m €m50,000,000 non-cumulative preference shares of €1 each 50 5050,000,000 non-cumulative preference shares of £1 each50,000,000 non-cumulative preference shares of $1 each60 5839 37On 15 June 2005 300,000 non-cumulative preference shares of £1 each were issued at a price of £997.99 per share. Under IAS32, 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 preferenceshares 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 writtenapproval of the Shareholder.97

Notes to the financial statements continued44. Capital reserveThe GroupThe Bank2011 2010 2011 2010€m €m €m €mCapital reserve 25,300 25,300 25,300 25,300Additional capital arising on business combination 711 - 679 -26,011 25,300 25,979 25,300On 22 December 2009 the Bank’s 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 capitalrequirements at 31 December 2009. On 23 December 2009 the Board accepted the binding commitment of the Minister. TheBank recognised a receivable from the Minister on 31 December 2009 on the basis that it was virtually certain to occur, and acorresponding 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 ofthe note. On 28 May and 23 August 2010, the Minister issued adjustment instruments increasing the principal amount of the31 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 twoadjustment instruments. This revised promissory note included an additional €6.42bn principal amount, settling an amount duefrom 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 INBSTransfer Order (note 2).The total capital reserve qualifies as eligible regulatory Core Tier 1 capital.45. Other reservesNon-distributable capital reserveThis is a non-distributable capital reserve of €1m (2010: €1m).Exchange translation reserveThe exchange translation reserve has two components. It includes the cumulative foreign exchange differences arising fromtranslating the income statements of foreign operations at average exchange rates and the translation of the statements offinancial position of foreign operations using exchange rates ruling at the period end. It also includes the cumulative foreignexchange differences arising from the translation of the Group's investment in foreign operations, net of exchange differencesarising on funding designated as hedges of these investments.Movement in exchange translation reserveAt beginning of yearExchange differences on translation of foreign operationsNet loss on hedges of net investments in foreign operationsAt end of yearThe Group2011 2010€m €m3 (56)48 88(27) (29)24 398

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Cash flow hedging reserveThe cash flow hedging reserve represents the effective portion of the cumulative net change in the fair value of derivativesdesignated as cash flow hedges. It is stated net of deferred taxation.Movement in cash flow hedging reserveAt beginning of yearNet changes in fair valueTransfers to income statementAt end of yearThe Group2011 2010€m €m57 110- 32(26) (85)31 57Available-for-sale reserveThe available-for-sale reserve represents the unrealised net gains and losses in the fair value of available-for-sale financial assetsas adjusted for any impairment losses recognised in the income statement. Changes in fair value include movements onassociated fair value hedges. The reserve is stated net of deferred taxation.Movement in available-for-sale reserveAt beginning of yearThe Group2011 2010€m €m(190) (207)Acquired under the INBS Transfer Order (73) -Net changes in fair valueImpairment recognised in income statementTransfers to income statementForeign exchange and other movementsAt end of year(42) (113)- 112 1101 9(302) (190)The available-for-sale reserve consists of unrealised losses on bank securities of €105m (2010: €107m), on NAMA subordinatedbonds of €162m (2010: €70m), on sovereign securities of €35m (2010: €12m), and on asset backed securities of €nil(2010: €1m).46. Non-controlling interestsThe Group2011 2010€m €mEquity interests in subsidiary undertakings - 199

Notes to the financial statements continued47. Income tax effects relating tocomprehensive incomeThe Group2011Before Tax Net oftax benefit/ taxamount (expense) amount€m €m €mNet actuarial losses in retirement benefit schemes (6) - (6)Net change in cash flow hedging reserve (26) - (26)Net change in available-for-sale reserve (39) - (39)Foreign exchange translation 21 - 21(50) - (50)The Group2010Before Tax Net oftax benefit/ taxamount (expense) amount€m €m €mNet actuarial losses in retirement benefit schemes (7) - (7)Net change in cash flow hedging reserve (53) - (53)Net change in available-for-sale reserve 17 - 17Foreign exchange translation 59 - 5916 - 1648.Contingent liabilities, commitmentsand other contingenciesContingent liabilitiesGuarantees and irrevocable letters of creditPerformance bonds and other transactionrelated contingenciesCommitmentsCredit lines and other commitments to lendThe GroupThe Bank2011 2010 2011 2010€m €m €m €m162 175 157 26619 48 17 38181 223 174 304237 552 237 551Regulatory reviews and enquiriesIn 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 initiatedinvestigations (including criminal investigations in some cases) into certain aspects of the Bank’s business including certain loanand other transactions involving former Directors and certain third parties. These investigations are ongoing and it is notpossible at this stage to give an indication as to whether and to what extent they will result in civil, administrative and/orcriminal proceedings against the Bank, any subsidiary or any of its current or former Directors or Officers. In addition, certaincorrespondence has been received by the Bank and by certain former Directors of the Bank alleging an entitlement tocompensation in respect of alleged wrongdoing by the Bank and/or by such former Directors. Arguments have been advancedin certain civil litigation proceedings in respect of some of the core matters which are the subject of the investigations, but todate there has been no adverse judicial determination on these matters.100

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Legal claimsIn the normal course of the Bank’s business and operations, litigation arises from time to time. The Bank has a policy of activemanagement and rigorous defence of legal claims and there are procedures in place to ensure the oversight of claims by theRisk 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 areongoing, are as follows:(i)In proceedings brought in the Commercial Court in Dublin, a number of investors in the Anglo Irish New York Hotel Fundhave sought the return of their investment together with interest and costs. The Bank raised a full defence in response tothese claims. The hearing of the litigation took place in February and March 2011 and on 27 July 2011 the High Court inDublin ruled in favour of the Bank against the claims made by the investors. The litigation has now been appealed by theinvestors to the Supreme Court. On 2 June 2011 the arbitrator in the related New York arbitration brought by the Bankagainst the General Partner of the Fund, held for the Bank in ordering the removal of the General Partner of the Fund, andthe arbitrator ruled against the General Partner in relation to its counterclaim.(ii)On 14 February 2011 the Bank received notice that holders of certain subordinated loan notes, having an aggregate parvalue of $200,000,000, filed a claim for relief seeking a restraining order and injunction against the Bank in the UnitedStates. The proceedings relate to alleged breaches of certain covenants contained in the documentation governing theloan notes in question. The Bank raised a full defence in response to the claim. On 28 November 2011 the United StatesDistrict Court (Southern District of New York) dismissed the claim made by Fir Tree. The litigation has now been appealedby Fir Tree to the United States Court of Appeals for the Second Circuit. No additional information in respect of thedispute is being provided, as to do so could prejudice the position of the Group in relation to the proceedings.(iii)On 15 April 2011 Assenagon Asset Management SA issued English High Court proceedings against the Bank in connectionwith the purchase of subordinated bonds in the Bank due 2017 which were included in the liability management exercisecarried out by the Bank in November 2010. The Bank has raised a full defence to the proceedings and a hearing isscheduled to take place in June 2012. No additional information in respect of the dispute is being provided, as to do socould prejudice the position of the Group in relation to the proceedings.(iv)On 16 May 2011, the wife and children of Sean Quinn issued Irish High Court proceedings against the Bank and a sharereceiver appointed by the Bank, in which declarations have been sought seeking, amongst other things, to set asidevarious loan agreements and security documents entered into by certain members of the Quinn family with the Bank. Theproceedings, which were admitted to the Commercial List of the High Court on 30 May 2011, also include an unspecifiedclaim for damages. The Bank intends to vigorously defend the proceedings. No additional information in respect of thedispute is being provided, as to do so could prejudice the position of the Group in relation to the proceedings.GuaranteesIn the normal course of business, the Group is a party to financial instruments with off balance sheet risk to meet the financingneeds of customers. These instruments involve, to varying degrees, elements of risks which are not reflected in the statement offinancial position. Guarantee contracts expose the Bank to the possibility of sustaining a loss if the other party to the financialinstrument fails to perform in accordance with the terms of the contract. Even though these obligations may not be recognisedin 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.IndemnityThe TSA entered into between the Bank, AIB and AIB UK at the time of the AIB Transfer Order pursuant to which certain of theBank’s deposits and assets, and the shares held by the Bank in its Isle of Man deposit taking subsidiary, Anglo Irish BankCorporation (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 tocertain time-frames within which claims can be made, AIB and AIB UK may claim indemnity against the Bank for certain directliabilities arising in connection with that part of the Bank’s 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 seekindemnity under the terms of the TSA. The Bank is working with the AIB Group to establish whether those matters are withinthe 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, andusing reasonable endeavours to recover amounts due in respect of certain exposures) as a precursor to a successful indemnityclaim. Discussions are ongoing with the AIB Group and, to date, the Bank has not made any admission of liability. In certaincases, it is not yet possible to ascertain the quantum of the direct loss that the AIB Group expects to incur in relation toparticular matters or if the Bank is liable under the TSA indemnity. The AIB Group has put the Bank on notice of possible claimstotalling approximately €80m, but it is not yet possible to confirm whether this is an accurate figure, or whether the Bank is, infact, liable in respect of each of the amounts comprising that total.101

Notes to the financial statements continued48. Contingent liabilities, commitments and other contingencies continuedNAMAThe Group may be required to indemnify NAMA in respect of various matters, including NAMA’s potential liability arising fromany error, omission or misstatement on the part of the Group in the information provided to NAMA. Any claim by NAMA inrespect of those indemnities, depending on its nature, scale and factual context, could have a material adverse effect on theGroup.49. Statement of cash flowsThe GroupThe Bank2011 2010 2011 2010Other non-cash items €m €m €m €mLoans and advances written-off net of recoveries 6 (381) 6 (380)Depreciation and amortisation 23 26 14 15Net interest on subordinated liabilities and othercapital instruments (5) 25 1 20Net increase in prepayments and accrued income (6) (11) (7) (9)Net (decrease)/increase in accruals and deferredincome (49) 33 (44) 33Share of results of associates and joint ventures (15) 104 - -Net losses on disposal of available-for-salefinancial assets 2 110 2 145(44) (94) (28) (176)2011 2010 2011 2010Cash and cash equivalents €m €m €m €mCash and balances with central banks 100 181 100 181Loans and advances to banks (with a maturityof less than three months) 323 1,388 3,607 762At end of year 423 1,569 3,707 943Loans and advances to banks (with a maturity of less than three months) excludes cash collateral placed with derivativecounterparties in relation to net derivative liability positions (note 22).102

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 201150. Risk managementSince the Bank was taken into State ownership in 2009, the new management team has focussed on the stabilisation and deriskingof the Bank, while maximising the recovery of outstanding loans. As set out in the Restructuring Plan, the Bank's primarystrategic objective is the working out of its assets in an orderly process over time, while minimising the loss to the Irishtaxpayer. A Monitoring Trustee was approved by the EC on 8 December 2011 to report on a quarterly basis for a period ofthree years on the Group's adherence to the commitments included in the Restructuring Plan. In this regard, the balance sheetcontinues to be reduced. Total assets at 31 December 2011 amount to €55.5bn, which represents a decrease of €17.4bn or24% on a constant currency basis from the position at 31 December 2010. This sizeable reduction in total assets demonstratesthe Bank’s commitment to deleverage the balance sheet in line with the objective of an orderly resolution over a period of upto ten years. The reduction in the Bank’s 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 becarefully managed and controlled in order to minimise the cost to the Bank and the Shareholder. The reduction in totalexposures in the year primarily results from the transfer of NAMA senior bonds to AIB pursuant to the AIB Transfer Order andthe ongoing deleveraging of the Group’s 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 TransferOrder. At 31 December 2011 net customer lending of €18.0bn and the Government promissory notes of €29.9bn, which pay afixed 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 itsown Board, governance functions and group management team. The objective of this model is to minimise the risk of furtherlosses and to concentrate expertise in managing the work-out of loans over a period of years. The merged entity is bound bythe 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 Group’s combined risk managementframework. 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 Bank’s existing creditcommittee and loan review processes, whereas the residential book is managed and monitored separately. Managementoversight 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 specificrisks. 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. Inorder to effectively minimise the impact of these risks, the Board of Directors ('the Board') has established a risk managementframework covering accountability, measurement, reporting and management of risk throughout the Group. In accordancewith 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, andGroup 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 couldimpact the Bank’s future results and financial position. The risks discussed below should not be regarded as a complete andcomprehensive statement of all potential risks and uncertainties as there may be risks and uncertainties of which the Bank isnot aware or which the Bank does not currently consider significant but which may become significant in the future.Risk oversight and corporate governanceIntroductionThe Bank is cognisant of industry best practice in respect of risk management and internal controls, which at a minimumrequires that:▪ Banks should have an effective internal controls system and a risk management function (including a Chief Risk Officer orequivalent) 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 theBank'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 theorganisation 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.103

Notes to the financial statements continued50. Risk management continuedRisk oversight and corporate governance continuedThe Bank’s approach is further influenced by the principles of the Financial Reporting Council, including their guidelines forgood corporate governance, publications which focus on risk identification and reporting, and also by the standards andguidelines set out by the European Banking Authority.The Central Bank of Ireland introduced a Corporate Governance Code for Credit Institutions and Insurance Undertakings whichapplied from 1 January 2011. This governance code, amongst other matters, sets out the requirements for Irish creditinstitutions to prepare documented risk appetite statements and establish risk committees with responsibility for oversight andadvice 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 pages25 to 29.The Bank’s approach to corporate governance and risk management is to ensure that there is independent checking of keydecisions by management. The Bank has an established risk oversight framework to deliver on this approach. The key elementsof this framework are detailed below.Board of DirectorsAuditCommitteeGroup ChiefExecutiveRisk and ComplianceCommitteeGroup ChiefRisk OfficerGroupALCOCreditCommitteesGroup RiskGroup Compliance andOperational RiskRisk and Compliance CommitteeThe Risk and Compliance Committee's role is to oversee risk management and compliance within the Group. It reviews, onbehalf of the Board, the key risks and compliance issues inherent in the business and the system of internal control necessary tomanage them and presents its findings to the Board. This involves oversight of management's responsibility to assess andmanage the Group's risk profile and key risk exposures covering credit, liquidity and funding, market, operational, andcompliance 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 riskappetite;▪ Making recommendations to the Board concerning the Group’s risk appetite and particular risk or compliance managementpractices of concern to the Committee;▪ Review and oversight of management’s plans for mitigation of the material risks faced by the various business units of theGroup; and▪ Oversight of the implementation and review of risk management and internal compliance and control systems throughoutthe Group.The Bank's current risk appetite statement was approved by the Board on 30 November 2011. The Committee also monitorsprogress of the Bank's internal NAMA unit which has management responsibility in respect of NAMA asset transfers and loanmanagement 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 andcounterparty 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 managecredit risk in the commercial and residential mortgage portfolios of the Bank, and are supported by a dedicated Group Riskfunction which is headed by the CRO. All key areas of the Group contribute to and are represented on the ALCO, which issupported by Group Balance Sheet Management ('GBSM').104

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The CRO reports directly to the Group Chief Executive, and also has independent access to the Risk and ComplianceCommittee.GBSM is responsible for the management of balance sheet risks, with particular emphasis on the Bank's current and projectedliquidity, interest rate and foreign exchange risks. Balance sheet risk exposures and related issues, together with mitigationstrategies, are reported to the ALCO and the Risk and Compliance Committees. GBSM is also responsible for ensuring theexecution of approved strategies through the Financial Markets team.Audit CommitteeThe Audit Committee’s 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 nonfinancialcontrol processes operating throughout the Group. The Committee is supported by Group Finance and Group InternalAudit, which are central control functions independent of the business units. Group Internal Audit provides independent,objective assurance as to whether the Group’s Risk Management and Control Framework is appropriate and functioningeffectively.Group RiskGroup Risk is responsible for developing and embedding risk policy, measurement and frameworks to ensure that risk isidentified, managed and controlled across the Bank. The management of risk is a fundamental activity performed throughoutthe Bank, and the adequacy and effectiveness of risk management processes are important elements in achieving a successfulwork-out of the Bank’s 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 ensuringadequate 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 Group’s risk appetite and policies;▪ Supporting management in business decision making through independent and objective challenge to business unitmanagement 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 topresent an aggregated view of the Group’s risk appetite to the senior management team and the Risk and ComplianceCommittee.During the year the Group Risk function initiated general improvements as part of an ongoing process review. Teams werereorganised, 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 withthe 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 ofthe quality of loan portfolios and the effectiveness of the credit risk management processes.Risk appetite and strategyRisk appetite can be defined as the total exposure to risk the Bank is willing to accept in pursuit of its strategic objectives. Thisis outlined in detail in the Bank's Risk Appetite Statement. The Bank has adopted a highly risk-averse attitude to new risktaking, consistent with its obligations to the authorities to discharge the Restructuring Plan approved on 29 June 2011 in amanner that minimises the cost to the Irish State arising from the Bank’s activities. The overall current risk exposure is in linewith the Bank’s risk bearing appetite, as measured by its capacity to absorb further loss, and assuming that there is nosignificant deterioration in core UK and Ireland markets. Nonetheless, reduction in risk exposure will remain a prioritythroughout the resolution process of the Bank.Scenarios and stress testingThe Group uses stress testing as an important instrument in the measurement, monitoring, management and mitigation of itsindividual risks as these arise.However, arising from the ongoing financial crisis and in light of significant new guidance from regulatory bodies, the Bankrevised its Group-wide Stress Testing Framework in 2010. This revised framework addresses all regulatory requirements andtakes 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-dayoperations and general business activities across the Group. Therefore, it applies to all of the Bank's business operations acrossall geographies and captures both on-balance sheet and off-balance sheet exposures and trading and hedging positions of theBank.105

Notes to the financial statements continued50. Risk management continuedRisk oversight and corporate governance continuedScenarios and stress testing continuedThis Group-wide stress testing analysis is referred to as cross-divisional analysis of stress testing. The purpose of this analysis isto ensure that the stress testing programme captures inter-relationships and inter-dependencies between exposures, whichmay 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 marketrisk), with this referred to as intra-divisional risk analysis. These risks, which are associated with the normal operation ofbanking 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 ScenarioApproach and the Sensitivity Analysis Approach. Each of the modelling approaches used by the Group has its own merits anddemerits; 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 theresponsibility of the Bank's senior management.Key risk exposuresThe following risks have been identified and assessed as the material risks for the Bank. These risks are subject to independentoversight 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 riskDefinitionCredit risk is defined as the risk that the Group will suffer a financial loss from a counterparty’s failure to pay interest, repaycapital or meet a commitment and the collateral pledged as security is insufficient to cover the payments due. The Group'scredit risk arises primarily from its lending activities to customers (commercial borrowings and residential mortgages) but alsofrom interbank lending, investment in available-for-sale debt securities and derivative transactions. Credit risk includes thefollowing types of risk:▪ Country risk is the risk of losses arising from economic difficulties or political unrest in a country, including the risk of lossesresulting 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 thepurchase or sale of debt securities.ObjectiveCredit risk continues to be the Bank’s dominant risk exposure due to the challenging operating environment. The loan portfoliois the most significant source of credit risk within the Bank. Due to the changed focus of the Bank’s activities, it no longerengages in any new business which could increase the current credit risk profile, and is required to manage the existing loanbook 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.PolicyThe Group's policy on credit risk is set out in a detailed Group Credit Policy (the 'Credit Policy') which is approved by the Boardfollowing recommendation by the Risk and Compliance Committee. It has been framed in the context of the Bank's presentposition in terms of ownership, State guarantees and short/medium term strategy. It is also consistent with the Bank's RiskAppetite statement. The Credit Policy forms the core of the Bank’s credit risk ethos and represents a comprehensive guide topolicies and underwriting criteria which govern the way in which the Bank conducts its credit business with a focus on recoverymanagement.106

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The 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 lendingConsistency of approach to credit risk across the Group in relation to commercial lending is ensured through theimplementation of the Credit Policy and presence of key personnel at all Credit Committee meetings. The Credit Committee isthe most senior forum for approving credit exposures and consensus is required before authorising a credit exposure, with eachindividual credit application approved by a valid quorum composed of business and risk management officers.With regard to the Bank’s transaction approval and review processes, the Credit Risk team, in conjunction with the QualityAssurance team, within Group Risk oversees the Credit Committee meetings and periodic loan reviews. Furthermore, tomonitor the ongoing quality of the loan book, the Credit Risk team undertakes frequent asset quality reviews on significantexposures.The independent credit teams within Group Risk monitor any treasury counterparty exposures which have materiallydeteriorated in credit quality since approval. Such exposures are reported to the Credit Committee on a regular basis, where anaction 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 ManagementIreland (‘RMI’), which is responsible for the ongoing assessment and management of certain impaired exposures – principallyIrish impaired loans. The RMI is target driven, with the expressed objective of maximising loan recovery. The unit maintains itsfocus through a systematic loan management process that formulates work plans to achieve timely resolution, and its seniormanagement team is actively involved in all stages of the process to ensure that the agreed plans for resolution are achievedwithin agreed timeframes.A number of potential strategies exist through which the Group can maximise recovery of commercial exposures that areexperiencing 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 temporarycovenant relief or amendment of covenants in exchange for revised contractual terms, variation in margin accompanied byrenegotiated 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 benefitsharing arrangements. This may occur in circumstances where a viable business exists and projected cash flows fromoperational activities have been assessed to be sufficient to service the revised facility, supported in some cases by theintroduction of additional capital into the business, or an increase in the collateral provided by the customer. This option is onlyutilised when maintaining the customer’s business as a going concern with a manageable level of debt would realise morevalue 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 amountrecoverable on a loan.Strategies and processes - Residential lendingSince the transfer of the residential mortgage portfolio from INBS into the Bank, oversight and monitoring have beenundertaken by the CCF. The Bank’s aim in relation to this portfolio is to manage the underlying exposures through theirremaining lifetimes, while assisting customers who experience financial difficulties with measures to ensure the mostappropriate outcome for both the Bank and the customer.The Bank’s Collections and Recoveries Unit ('CRU') for residential mortgages aims to provide a responsive and effectiveoperation for the end to end arrears management process. This encompasses an early communication with those borrowersidentified as experiencing difficulty with their normal payment terms, obtaining their commitment to maintain paymentobligations 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 themortgaged 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 Bank’s RecoveryManagement Policy. Separate procedures are in place for owner occupier and buy to let borrowers. The CRU Underwriting Unitconsiders all applications, with those meeting qualifying criteria sanctioned by an approved panel acting under a delegatedauthority, and those falling outside qualifying criteria but which are accepted for individual underwriting sanctioned by CreditCommittee. The Recovery Management Policy is subject to annual review.107

Notes to the financial statements continued50. Risk management continuedCredit risk continuedStrategies and processes - Residential lending continuedSupport for those residential mortgage borrowers who are experiencing financial difficulties with their scheduled residentialmortgage repayments are managed within the Arrears Support Unit, which is part of CRU. Forbearance options for thesecustomers are considered on a case-by-case basis and are consistent with industry guidance and practice. These options includearrears capitalisation, interest only concession, less than interest only concession, greater than interest only concession, apayment holiday, term extension for lending secured on property, or a hybrid of these measures. In the normal course ofbusiness, a payment holiday is not offered as an option. All account management and forbearance options across the securedresidential mortgage portfolio are fully recognised within the Bank’s impairment assessment process.Residential mortgages restructured onto a short term forbearance arrangement are treated as impaired where the presentvalue of future cash flows are less than the outstanding loan balance. Monitoring of the arrears profile within the portfolio isoverseen by the CCF. At all times the Bank complies with the Central Bank of Ireland’s statutory codes of conduct for mortgagelenders when dealing with mortgage arrears.Reporting and measurement systemsCredit risk relating to the commercial loan book is identified and assessed using a combination of top-down and bottom-up riskassessment processes on a portfolio-wide basis. Top-down processes focus on broad risk types and common risk drivers, ratherthan specific individual risk events, and adopt a forward-looking view of perceived threats. Bottom-up risk assessment isperformed on a loan-by-loan basis, focusing on risk events that have been identified through specific qualitative or quantitativemeasurement tools. In line with the Credit Policy, the Credit Risk team is taking steps to reduce concentration risk related tosingle counterparties and/or groups of closely related counterparties. The top exposures are reported on a monthly basis tosenior 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 lowerquality cases. These cases, while considered lower quality, are not impaired but require increased management attention toprevent any further deterioration in asset quality. Credit Risk also maintains a list of satisfactory cases for exposures thatcontinue 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 economicindicators and individual case assessment processes on a portfolio-wide basis. Behavioural scoring models are not deployed. Ongoingmonitoring of the residential mortgage portfolio is undertaken by Group Risk, with monthly reporting to the CCF and theRisk and Compliance Committee.Specific provisions in both the commercial and residential mortgage loan books are created where one or more loss events orimpairment triggers have been recognised and as a result a shortfall is expected between the Group’s exposure and theestimated recoverable amount. The recoverable amount is calculated by discounting the value of expected future cash flows bythe exposure’s original effective interest rate.An additional incurred but not reported ('IBNR') collective provision is created to cover losses inherent in both the commercialand residential mortgage loan books. This provision takes account of observable data indicating that there is a measurabledecrease in the estimated future cash flows from a group of loans with similar credit risk characteristics, although the decreasecannot 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 factorsare determined by historical loan loss experience as adjusted for current observable market data. Adjustments reflect theimpact of current conditions that did not affect the years on which the historical loss experience is based and remove theeffects of conditions in the historical period that do not exist currently. The provision amount is also adjusted to reflect theappropriate loss emergence period. The loss emergence period represents the time it takes following a specific loss event on anindividual 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 anupgrade from impaired to performing status. This upgrade can be based on, among other things, subsequent goodperformance or an improvement in the credit profile of the borrower. Renegotiated loans and advances were €120m as at31 December 2011 (2010: €28m).108

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Where a facility has been moved to the impaired list and subsequently there is objective evidence of such improvement in thefundamentals of the loan facility that it is the view of the lending team that it should return to unimpaired status, then thisrecommendation must be made to Credit Risk accompanied by a detailed assessment of the rationale for its designation asunimpaired. A facility can only be restored to unimpaired status when the contractual amount of both the principal and interestcan be fully collected in accordance with the terms of the facility agreement. The Group’s decision to restore a facility’sunimpaired status is supported by objective evidence consisting of an up to date documented credit evaluation of theborrower’s 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 designedto ensure the best outcome for the Shareholder. Loans are only written off, either partially or in full, when there is no realisticprospect of further recovery. For secured loans, write off generally occurs after the final receipt of all proceeds from therealisation of security and guarantees. A write-off will often be prompted by a specific event, such as the inception ofinsolvency proceedings, which makes it possible to determine that some or all of the debt is beyond recovery although this mayinvolve some element of subjective judgement. Any restructuring of debt, including the write-off of facilities, is subject to anestablished governance process.The Group uses external ratings and market information, supplemented by internal analysis, to assess the risks associated withtreasury assets. Impairment is monitored continually and recognised when there is objective evidence that a specific financialasset is impaired. A range of factors are used in recognition of impairment, which can vary depending on the nature of theunderlying assets or collateral but will typically include a significant or prolonged decline in the fair value of the security, thelevel of over-collateralisation, and adverse credit ratings action.Counterparty credit exposure arising from derivative transactions is calculated based on replacement cost methodologyinvolving the current contract value (marked to market) and an estimate of the maximum cost of rewriting the contract withincertain confidence levels.Risk mitigationThe Bank employs a range of techniques and strategies to mitigate credit risk including obtaining collateral, applying nettingand set-off.CollateralThe acceptance of both financial and non-financial collateral is central to the risk mitigation and underwriting policies of theGroup. The nature of the collateral held will reflect the transaction being underwritten. Loans and advances to customers arecollateralised principally by charges over real estate assets, business assets and liens on cash deposits, and are supplemented bypersonal guarantees. In the case of clients with more than one transaction, the Bank seeks to cross-collateralise security tostrengthen repayment cover. Over the course of 2011 the Bank has undertaken a comprehensive review of all principalcollateral.Due to the continued dislocation in property markets and the lack of transactional activity over the period, it is impracticablefor the Bank to obtain reliable market values for individual collateral held against some past due or impaired financial assets asat 31 December 2011. However, the significant declines since the market peak in the value of Irish commercial property, asreflected 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 valuationscompared 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 acrossmost sectors of the economy. Within the commercial real estate market, prices for prime properties in excellent locations havestabilised. However, secondary and tertiary property market conditions weakened significantly, particularly over the second halfof 2011, with rents decreasing and an increase in vacancy rates, which has resulted in a fall in asset values. It continues to bedifficult 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 Group’s policy to dispose of repossessed assets in an orderly fashion. Theproceeds are used to reduce or repay the outstanding balance. The Group does not use repossessed assets for businesspurposes.The Bank’s main source of collateral and means of mitigating credit risk inherent in its residential mortgage portfolio is to holdsecurity, principally a first legal charge, over the underlying residential property. Historically, mortgage lending activities weresupported by a valuation using an independent firm of valuers, which is subsequently indexed as required based on publishedmarket 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. Underthe terms of a CSA, if the aggregate market value of a set of derivative contracts between two parties exceeds an agreedthreshold amount, the party which would be exposed to loss in the event of default receives a deposit of cash equal to theexcess aggregate value over the threshold. Under certain CSAs, the Group has posted initial amounts, the effect of which forthe counterparty is over collateralising its exposure. The Group has additional credit risk on the initial amounts and could sufferfinancial loss in the event of a counterparty default.109

Notes to the financial statements continued50. Risk management continuedCredit risk continuedNetting arrangementsThe Group has entered into master netting agreements with counterparties with which it undertakes a significant amount oftransactions, 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 andcreditor balances will be undertaken in accordance with relevant regulatory and internal policies.Settlement riskSettlement risk on many transactions, particularly those involving securities, is substantially mitigated when effected via assuredpayment 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 theGroup’s settlement risk exposure arises from foreign exchange transactions. Daily settlement limits are established for eachcounterparty 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 LinkedSettlement ('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 riskThe 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 offinancial position.Exposures in the consolidated statement of financial positionCash and balances with central banks2011 2010€m €m100 181Financial assets at fair value through profit or loss - held on own account * - -Derivative financial instrumentsLoans and advances to banksAssets classified as held for saleAvailable-for-sale financial assets *Promissory notesGovernment debt securities at amortised costLoans and advances to customersThe Group1,096 1,9362,301 3,512276 1,6551,332 2,21929,934 25,704947 10,62318,413 25,113Exposures not recognised in the consolidated statement of financial positionContingent liabilitiesCommitments to lend181 223237 552Maximum exposure to credit risk54,817 71,718* Excludes equity sharesWhere financial instruments are recorded at fair value, the amounts shown above represent the credit risk exposure as at yearend 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 earlyJanuary 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 investmentcontracts (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).110

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Loans and advances to banks exclude €5m (2010: €13m) advanced on behalf of policyholders under investment contracts (note40) 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 exposuresThe 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 customergroups, 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 countriesFiscal imbalances in some eurozone countries resulted in credit rating downgrades and raised market concerns about sovereignrisk in these countries during 2011. Credit spreads for the affected sovereign and bank credit markets remained volatile duringthe year. The table below summaries the Group’s exposure to available-for-sale financial assets issued by governments ofselected eurozone countries and banks domiciled in those countries. It reflects the close management of the Group's sovereigndebt during the year, in line with the continuing wind-down of the treasury assets portfolio.2011NAMAFinancial SubordinatedSovereign Institutions Bonds Total€m €m €m €mBelgium - 25 - 25Finland 5 - - 5France 16 101 - 117Germany 20 35 - 55Ireland 303 485 124 912Italy - 36 - 36Netherlands 10 7 - 17Portugal - 16 - 16Spain - 48 - 48Total354 753 124 1,2312010NAMAFinancial SubordinatedSovereign Institutions Bonds Total€m €m €m €mBelgium - 55 - 55France 16 132 - 148Germany 92 273 - 365Ireland 278 514 167 959Italy - 44 - 44Netherlands 11 78 - 89Portugal - 21 - 21Spain - 101 - 101Total397 1,218 167 1,782Group Risk monitors country risk exposures, taking into consideration independent credit information from well establishedinternational sources.111

Notes to the financial statements continued50. Risk management continuedCredit risk continuedLending asset qualityCredit risk arises primarily on loans and advances to customers and loans classified as held for sale. At 31 December 2011 loansand 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 ratingcategories outlined below. These ratings provide a common and consistent framework for aggregating and comparingexposures across all the commercial and residential mortgage lending portfolios.Good qualityGood quality ratings apply to exposures that are performing as expected and are of sound financial standing. These exposuresare considered low to moderate risk.Satisfactory qualityThis rating applies to exposures that continue to perform satisfactorily, but are subject to closer monitoring.Lower quality but not past due or impairedThis rating applies to exposures that require increased management attention to prevent any deterioration in asset quality. Noevidence of specific impairment exists.Past due but not impairedThese are loans and receivables where contractual interest or principal payments are one day or more past due. As at the endof the reporting period there is no objective evidence of impairment due to the level of collateral and/or personal recourseavailable to the Group.Impaired loansLoans are classified as impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment asa 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 valueand can be reliably measured.112

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Loans and advances to customersAsset quality - profile of loans and advances to customersThe Group2011Business Residential OtherCommercial Residential Banking Mortgages Lending Total€m €m €m €m €m €mGood qualitySatisfactory qualityLower quality but not past dueor impairedTotal neither past dueor impairedPast due but not impairedImpaired loansProvisions for impairmentLess:Lending to policyholders in respectof investment contracts (note 40)Total2,751 186 344 637 479 4,3977 8 72 150 3 2402,968 50 385 38 169 3,6105,726 244 801 825 651 8,2471,916 382 165 245 315 3,02311,869 899 2,174 803 1,737 17,48219,511 1,525 3,140 1,873 2,703 28,752(5,960) (647) (1,872) (496) (1,364) (10,339)13,551 878 1,268 1,377 1,339 18,413(724)17,689Provisions for impairment on loansThe Groupand advances to customers2011Business Residential OtherCommercial Residential Banking Mortgages Lending Total€m €m €m €m €m €mAt beginning of year 5,702 692 1,865 - 1,318 9,577Acquired under the INBSTransfer Order 164 50 - 421 32 667Charge against profits 1,125 100 169 80 36 1,510Write-offs (169) (23) (159) - - (351)Recoveries 1 - 5 - - 6Unwind of discount (142) (12) (14) (9) (10) (187)Exchange movements 21 (16) 28 - 22 55Net transfers (to)/from assetsclassified as held for sale andsectoral reclassification (742) (144) (22) 4 (34) (938)At end of year 5,960 647 1,872 496 1,364 10,339Specific 5,532 608 1,777 361 1,288 9,566Collective 428 39 95 135 76 773Total 5,960 647 1,872 496 1,364 10,339The 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 developmentand investment transactions. Residential mortgages consists of the portfolio of residential loans transferred to the Bank on1 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.113

Notes to the financial statements continued50. Risk management continuedCredit risk continuedAsset quality - profile of loans and advances to customers continuedThe Group2010Business OtherCommercial Residential Banking Lending Total€m €m €m €m €mGood qualitySatisfactory qualityLower quality but not past dueor impairedTotal neither past dueor impairedPast due but not impairedImpaired loansProvisions for impairmentLess:Lending to policyholders in respect ofinvestment contracts (note 40)Total6,183 447 445 292 7,367911 35 79 10 1,0353,850 365 73 40 4,32810,944 847 597 342 12,7303,363 384 417 1,232 5,39611,145 1,515 2,438 1,466 16,56425,452 2,746 3,452 3,040 34,690(5,702) (692) (1,865) (1,318) (9,577)19,750 2,054 1,587 1,722 25,113(749)24,364Provisions for impairment on loansand advances to customersThe Group2010Business OtherCommercial Residential Banking Lending Total€m €m €m €m €mAt beginning of year 2,862 315 743 926 4,846Charge against profits 2,634 309 1,647 387 4,977Write-offs (156) (10) (193) (4) (363)Recoveries 1 - - - 1Unwind of discount (119) (18) (24) (7) (168)Exchange movements 33 (26) 28 64 99Net transfers from/(to) assetsclassified as held for sale andsectoral reclassification 447 122 (336) (48) 185At end of year 5,702 692 1,865 1,318 9,577Specific 4,979 623 1,694 1,045 8,341Collective 723 69 171 273 1,236Total 5,702 692 1,865 1,318 9,577The charge against profits includes collective provisions for impairment analysed on a portfolio basis.114

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Aged analysis of loans and advances to customers past due but not impairedThe following tables present an analysis of loans and advances to customers where contractual interest or principal paymentsare past due but impairment is not appropriate as the level of collateral and the present value of estimated future cash flowsavailable to the Group is sufficient.Past due 1 to 30 daysThe Group2011Business Residential OtherCommercial Residential Banking Mortgages Lending Total€m €m €m €m €m €m424 18 74 49 33 598Past due 31 to 60 days23 36 - 25 11 95Past due 61 to 90 days66 1 36 75 2 180Past due 91 days and over1,403 327 55 96 269 2,150Total 1,916 382 165 245 315 3,023The Group2010Business OtherCommercial Residential Banking Lending Total€m €m €m €m €mPast due 1 to 30 days1,162 129 287 57 1,635Past due 31 to 60 days502 4 1 7 514Past due 61 to 90 days329 18 4 26 377Past due 91 days and over1,370 233 125 1,142 2,870Total 3,363 384 417 1,232 5,396The ageing of past due balances has continued to deteriorate during the period. Key contributing factors include the continueddifficult 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 continued50. Risk management continuedCredit risk continuedGross loans and advances to customers by geographical location and industry sector2011UnitedIreland Kingdom USA Total€m €m €m €m %Retail 3,239 2,126 239 5,604 19%Office 3,047 1,279 184 4,510 16%Mixed use 708 795 87 1,590 6%Industrial 242 485 - 727 3%Leisure 2,305 3,345 - 5,650 20%Commercial development 187 226 - 413 1%Other property investment 895 122 - 1,017 3%Residential investment 493 415 104 1,012 3%Residential development 391 122 - 513 2%Business banking 3,105 35 - 3,140 11%Residential owner occupier 1,440 - - 1,440 5%Residential buy to let 433 - - 433 2%Personal 2,290 23 4 2,317 8%Fund investment 351 1 - 352 1%Unzoned land 31 3 - 34 0%Total loans and advancesto customers19,157 8,977 618 28,752 100%2010UnitedIreland Kingdom USA Total€m €m €m €m %Retail 2,260 2,425 1,491 6,176 18%Office 2,554 1,978 2,192 6,724 19%Mixed use 654 1,116 469 2,239 7%Industrial 259 575 548 1,382 4%Leisure 2,166 3,502 1,080 6,748 19%Commercial development 311 257 480 1,048 3%Other property investment 919 168 48 1,135 3%Residential investment 447 474 1,166 2,087 6%Residential development 380 160 119 659 2%Business banking 3,394 51 7 3,452 10%Personal 2,433 137 43 2,613 8%Fund investment 390 3 - 393 1%Unzoned land 31 3 - 34 0%Total loans and advancesto customers16,198 10,849 7,643 34,690 100%Geographical location is based on the location of the office recording the transaction. The relative exposure to the UK leisuresector increased during the year as the loan book continues to decrease. This concentration risk is subject to ongoing focus anda 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 assetsheld by the Group's assurance business in respect of liabilities to customers under investment contracts (note 40).116

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Specific provisions against loans and advances to customers by geographical location and industry sector2011UnitedIreland Kingdom USA Total€m €m €m €m %Retail 966 389 18 1,373 14%Office 647 276 - 923 10%Mixed use 254 122 - 376 4%Industrial 123 101 - 224 2%Leisure 1,044 553 - 1,597 17%Commercial development 175 142 - 317 3%Other property investment 718 4 - 722 8%Residential investment 185 24 2 211 2%Residential development 309 88 - 397 4%Business banking 1,767 10 - 1,777 19%Residential owner occupier 206 - - 206 2%Residential buy to let 155 - - 155 2%Personal 1,157 5 3 1,165 12%Fund investment 96 1 - 97 1%Unzoned land 24 2 - 26 0%Total specific provisions on loansand advances to customers7,826 1,717 23 9,566 100%2010UnitedIreland Kingdom USA Total€m €m €m €m %Retail 504 258 100 862 11%Office 433 166 262 861 11%Mixed use 146 94 97 337 4%Industrial 89 86 60 235 3%Leisure 899 308 359 1,566 19%Commercial development 210 122 100 432 5%Other property investment 683 2 1 686 8%Residential investment 115 19 136 270 3%Residential development 232 102 19 353 4%Business banking 1,693 1 - 1,694 20%Personal 914 3 18 935 11%Fund investment 87 1 - 88 1%Unzoned land 20 2 - 22 0%Total specific provisions on loansand advances to customers6,025 1,164 1,152 8,341 100%Geographical location is based on the location of the office recording the transaction.117

Notes to the financial statements continued50. Risk management continuedCredit risk continuedLoans classified as held for saleAsset quality - profile of loans classified as held for saleThe Group2011Business Residential OtherCommercial Residential Banking Mortgages Lending Total€m €m €m €m €m €mGood qualitySatisfactory qualityLower quality but not past dueor impairedTotal neither past dueor impairedPast due but not impairedImpaired loansProvisions for impairmentLess:Lending to policyholders in respectof investment contracts (note 40)Total7 - - - - 765 - - - - 65- - - - - -72 - - - - 7231 - - - - 3183 193 - - - 276186 193 - - - 379(83) (20) - - - (103)103 173 - - - 276(14)262Provisions for impairment on loans The Groupclassified as held for sale2011Business Residential OtherCommercial Residential Banking Mortgages Lending Total€m €m €m €m €m €mAt beginning of year 392 127 - - 46 565Acquired under the INBSTransfer Order 73 163 - 4 96 336Charge against profits 9 18 4 - 3 34Write-offs (49) (7) - - - (56)Unwind of discount (9) (6) - - (1) (16)Exchange movements 18 4 - - (1) 21Net transfers from/(to) loans andadvances to customers andsectoral reclassification742 144 22 (4) 34 938Net release on disposal of assetsto NAMA (note 14) (80) (174) (4) - (129) (387)Release on loan asset sales(note 15) (1,013) (249) (22) - (48) (1,332)At end of year 83 20 - - - 103Specific 83 20 - - - 103Total 83 20 - - - 103118

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The Group2010Business OtherCommercial Residential Banking Lending Total€m €m €m €m €mGood qualitySatisfactory qualityLower quality but not past dueor impairedTotal neither past dueor impairedPast due but not impairedImpaired loansProvisions for impairmentLess:Lending to policyholders in respectof investment contracts (note 40)Total186 72 - 2 260- - - - -392 58 - - 450578 130 - 2 710434 43 3 34 514688 237 - 54 9791,700 410 3 90 2,203(392) (127) - (46) (565)1,308 283 3 44 1,638(15)1,623Provisions for impairment on loansclassified as held for saleThe Group2010Business OtherCommercial Residential Banking Lending Total€m €m €m €m €mAt beginning of year 5,841 2,814 180 1,285 10,120Charge against profits 1,664 665 11 343 2,683Write-offs (8) (11) - - (19)Unwind of discount (150) (75) (2) (18) (245)Exchange movements 30 21 9 9 69Net transfers (to)/from loans andadvances to customers andsectoral reclassification(130) (95) (22) 62 (185)Released on disposal of assetsto NAMA (note 14) (6,855) (3,192) (176) (1,635) (11,858)At end of year 392 127 - 46 565Specific 392 127 - 46 565Total 392 127 - 46 565119

Notes to the financial statements continued50. Risk management continuedCredit risk continuedAged analysis of loans classified as held for sale past due but not impairedThe following tables present an analysis of loans classified as held for sale where contractual interest or principal payments arepast due but impairment is not appropriate as the level of collateral and the present value of estimated future cash flowsavailable to the Group is sufficient.Past due 1 to 30 daysPast due 31 to 60 daysPast due 61 to 90 daysPast due 91 days and overThe Group2011Business Residential OtherCommercial Residential Banking Mortgages Lending Total€m €m €m €m €m €m- - - - - -- - - - - -- - - - - -31 - - - - 31Total 31 - - - - 31Past due 1 to 30 daysPast due 31 to 60 daysPast due 61 to 90 daysPast due 91 days and overThe Group2010Business OtherCommercial Residential Banking Lending Total€m €m €m €m €m10 20 3 - 3318 - - - 1888 - - - 88318 23 - 34 375Total 434 43 3 34 514120

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Gross loans classified as held for sale by geographical location and industry sector2011UnitedIreland Kingdom USA Total€m €m €m €m %Retail 11 - - 11 3%Office 11 - 65 76 20%Mixed use 2 - 5 7 2%Industrial - - 14 14 4%Leisure 72 - - 72 19%Commercial development 6 - - 6 2%Other property investment - - - - 0%Residential investment - - 169 169 44%Residential development - - 24 24 6%Business banking - - - - 0%Residential owner occupier - - - - 0%Residential buy to let - - - - 0%Personal - - - - 0%Fund investment - - - - 0%Unzoned land - - - - 0%Total loans classified as heldfor sale102 - 277 379 100%2010UnitedIreland Kingdom USA Total€m €m €m €m %Retail 345 287 26 658 30%Office 127 59 - 186 8%Mixed use 33 61 80 174 8%Industrial - 34 8 42 2%Leisure 148 - 44 192 9%Commercial development 13 107 309 429 19%Other property investment 19 - - 19 1%Residential investment 46 26 169 241 11%Residential development 39 43 87 169 8%Business banking 3 - - 3 0%Personal 78 1 - 79 4%Fund investment - - - - 0%Unzoned land 11 - - 11 0%Total loans classified as heldfor sale862 618 723 2,203 100%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 bythe Group's assurance business in respect of liabilities to customers under investment contracts (note 40).121

Notes to the financial statements continued50. Risk management continuedCredit risk continuedSpecific provisions against loans classified as held for sale by geographical location and industry sector2011UnitedIreland Kingdom USA Total€m €m €m €m %Retail - - - - 0%Office - - - - 0%Mixed use - - 5 5 5%Industrial - - - - 0%Leisure 72 - - 72 70%Commercial development 6 - - 6 6%Other property investment - - - - 0%Residential investment - - 20 20 19%Residential development - - - - 0%Business banking - - - - 0%Residential owner occupier - - - - 0%Residential buy to let - - - - 0%Personal - - - - 0%Fund investment - - - - 0%Unzoned land - - - - 0%Total specific provisions on loansclassified as held for sale78 - 25 103 100%2010UnitedIreland Kingdom USA Total€m €m €m €m %Retail - 12 15 27 5%Office - 9 - 9 2%Mixed use - 16 58 74 13%Industrial - - 6 6 1%Leisure 75 - 28 103 18%Commercial development 11 24 138 173 31%Other property investment - - - - 0%Residential investment - - 47 47 8%Residential development 23 - 57 80 14%Business banking - - - - 0%Personal 46 - - 46 8%Fund investment - - - - 0%Unzoned land - - - - 0%Total specific provisions on loansclassified as held for sale155 61 349 565 100%Geographical location is based on the location of the office recording the transaction.122

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Parent Bank credit riskAdditional information on the parent Bank's credit risk is contained in note 55.Liquidity and funding riskDefinitionLiquidity and funding risk is the risk that the Group does not have sufficient financial resources available at all times to meet itscontractual and contingent cash flow obligations or can only secure these resources at excessive cost.ObjectiveThe current objective for the management of liquidity and funding risk is to continue to meet cash flow obligations as they falldue and minimise the funding required from the Bank's stakeholders. The future funding and liquidity strategy and balancesheet 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 inthe 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-linkedproducts and those accounts denominated in minor currencies. In total €8.3bn (Ireland and UK: €6.9bn; Isle of Man: €1.4bn) ofcustomer accounts were transferred. At 31 December 2011 the remaining customer deposits of €0.6bn represent only 1% oftotal funding and are subject to the commitments that the State made to the EC in relation to the State aid provided to theGroup. A Monitoring Trustee was approved by the EC on 8 December 2011 to report on a quarterly basis for a period of threeyears 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 throughspecial funding facilities with the Central Bank of Ireland (note 37). The Group has total borrowings from central banks at31 December 2011 of €42.2bn (2010: €45.0bn), including €40.1bn (2010: €28.1bn) borrowed through special funding facilitiesprovided by the Central Bank of Ireland.Structural foreign exchange risk principally arises from the funding shortfall between the Group's sterling and US dollar lendingactivities 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 loansthrough foreign exchange markets. The long term foreign exchange swap agreements executed with the NTMA have led to asignificant improvement in the Group's foreign exchange funding. These transactions provide US dollar and sterling funding inexchange for euros and reduce the requirement to source foreign currency in the interbank or wholesale foreign exchangemarkets.In November 2010 the Minister for Finance put in place a guarantee for the Bank which covered amounts payable in relation toderivative and certain other interbank transactions. In accordance with the terms of this guarantee, the Bank may only enterinto 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 inthe Group’s debt securities programmes and subordinated capital instruments. Significantly, CISA includes important provisionsthat are designed to prevent a potential event of default becoming applicable because of an order or requirement made underCISA 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 notlimited 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 continued50. Risk management continuedLiquidity and funding risk continuedPoliciesThe Group Liquidity Policy details the Bank’s risk policy relating to all funding and liquidity matters. The policy documentarticulates 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 controlliquidity risk within the Group.The Group Liquidity Policy is monitored by Group Risk but owned by ALCO which has delegated responsibility for liquiditymanagement from the Board.Strategies and processesALCO is responsible for structural liquidity risk management and provides regular formal updates to the Risk and ComplianceCommittee and the Board.Operational liquidity risk is short term liquidity risk, ranging from intra-day to one month. Execution of the Group's short termoperational liquidity strategy and cash flow management on a daily and real time intra-day basis is the responsibility of theFinancial 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 provideupdates 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 USdollar/euro foreign exchange swap agreements. The deposit transfer has significantly reduced the amount of customer depositliabilities and reduced the amount of NAMA bonds on the Bank's balance sheet. This has led to an increase in the nominalamount of, and the future reliance on, liquidity assistance from the Central Bank of Ireland. The INBS merger on 1 July 2011increased this liquidity assistance by €6bn.Reporting and measurement systemsLiquidity risk is measured using the cash flow mismatch approach where cash inflows and outflows are analysed to produce anet cash flow position over set time periods. Cash outflows are assumed to be paid at the earliest time period and cash inflowsto 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 currencycash flow exposure is managed within approved risk tolerance limits.Contractual undiscounted cash flowsThe following tables present the cash flows payable by the Group under financial liabilities, and under contingent liabilities andcommitments which are not recognised in the statement of financial position, by remaining contractual maturities at the end ofthe reporting period. The amounts disclosed in the tables for financial liabilities are contractual undiscounted cash flows andtherefore differ from the carrying amounts of these liabilities in the consolidated statement of financial position.124

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Contractual undiscounted cash flowsThe Group2011Between Between Between Between Between Overone and nine days one and three months one and fiveDemand eight days and one month three months and one year five years years Total€m €m €m €m €m €m €m €mDeposits from banks 1,701 40,594 - - - - - 42,295Customer accounts 13 131 453 22 46 18 10 693Derivative financial instruments (1) - (37) 20 146 128 587 348 1,192Debt securities in issue - 3 1,216 47 3,131 1,117 13 5,527Other liabilities (2) 52 - - 1 10 6 101 170Subordinated liabilities and other capital instruments - - - 1 3 140 387 5311,766 40,691 1,689 217 3,318 1,868 859 50,408Contingent liabilities (3) - - - 3 107 56 15 181Commitments to lend (3) 19 - - 29 11 178 - 237Total financial liabilities, contingent liabilitiesand commitments 1,785 40,691 1,689 249 3,436 2,102 874 50,8262010Between Between Between Between Between Overone and nine days one and three months one and fiveDemand eight days and one month three months and one year five years years Total€m €m €m €m €m €m €m €mDeposits from banks 1,695 43,743 285 504 55 - - 46,282Customer accounts 3,771 1,433 1,758 1,370 2,537 387 20 11,276Derivative financial instruments (1) - (3) 10 74 2 248 (38) 293Debt securities in issue - 1 808 34 1,420 4,946 18 7,227Other liabilities (2) 50 - - 1 8 5 - 64Subordinated liabilities and other capital instruments - - - 1 3 145 384 5335,516 45,174 2,861 1,984 4,025 5,731 384 65,675Contingent liabilities (3) - 26 1 99 59 37 1 223Commitments to lend (3) 77 - 6 41 140 255 33 552Total financial liabilities, contingent liabilitiesand commitments 5,593 45,200 2,868 2,124 4,224 6,023 418 66,450(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 continued50. Risk management continuedLiquidity and funding risk continuedThe Group evaluates its longer term liquidity mismatch or structural liquidity risk on a regular basis. The management ofstructural liquidity risk is important in identifying future funding requirements.Risk mitigationIt is accepted that the current liquidity and funding risk position is significantly outside the risk appetite parameters. The Bankwill continue to manage and monitor this risk, whilst acknowledging that opportunities to reduce it are limited due to thecurrent position of the Bank.Holding a portfolio of highly liquid assets has always formed part of the Group's liquidity management policy, assisting theGroup in receiving and placing cash in the repo market during periods of market volatility. Given the stressed funding andliquidity position of the Bank virtually all of the liquid asset portfolio is currently under repurchase agreements as outlined innote 24.Regulatory liquidityThe Central Bank of Ireland introduced regulatory liquidity requirements in 2007, replacing the liquid stock approach with amore advanced cash flow mismatch approach. Irish banks are required to report coverage in the 0 to 8 day and 9 to 30 dayperiods against which regulatory limits are set with conservative assumptions for certain cash flow types. In addition, theCentral 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 liquidityrequirements.Market riskDefinitionMarket risk is the risk of a potential adverse change in the Group’s income or financial position arising from movements ininterest rates, exchange rates or other market prices.ObjectiveThe Group aims to have effective systems and methodologies for the identification and measurement of market risks in itsbalance sheet. These risks are then managed within strict limits and in the context of a conservative risk appetite level that isconsistent with the support provided to the Group by the Irish Government.PoliciesThe Group's exposure to market risk is governed by policies approved by the Risk and Compliance Committee, and overseen byALCO. All risk limits are approved by ALCO and the Risk and Compliance Committee.Strategies and processesThe Group’s Restructuring Plan provides for market risk to be minimised in the context of the winding down of the loan bookand the derivatives book. Market risk is managed centrally by the Financial Markets team and GBSM. Market risk throughoutthe Group is measured and monitored by Group Risk, operating independently of the business units.Risk mitigationThe Group has limited ability to engage in risk reducing transactions in the market and therefore aims to manage the winddownprocess in a manner that keeps market risk within approved limits.Trading book riskDefinitionThe trading book consists of positions arising from legacy client transactions in a range of financial instruments as well asrelated interbank hedging transactions. It includes interest rate swaps, currency swaps, interest rate futures, forward rateagreements and options. There are no unhedged exposures in equities or commodities.ObjectiveThe Financial Markets team was well advanced at 31 December 2011 in winding down legacy positions in the trading book inaccordance with the Group’s Restructuring Plan. This process will continue in 2012. Management of existing balance sheet riskpositions takes place within a detailed framework of approved limits. The general aim in the reduction of the portfolio is toretain corporate derivatives until the swap matures or until the associated loan is sold/repays and to retain only sufficientinterbank deals to hedge the market risks arising from these retained corporate exposures.126

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011PoliciesThe Bank's Group Treasury Policy prescribes valuation models and risk measurement methodologies that ensure closemonitoring 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 simulationmethodology. It is implemented using a 99% confidence level, a 1 day holding period and two years of historic data. Thestandard risk factors capture the risks in interest rates, exchange rates, option sensitivities and interest basis. The methodologytakes into account inter-relationships between different market variables, for instance between interest rates and foreignexchange 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 aboutpotential losses when the confidence level is exceeded. For these reasons, the Group also uses a variety of other methodologiesin measuring market risk. These include, but are not limited to, stress testing and sensitivity analysis.Reporting and measurement systemsGroup 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 ofall significant risk positions, including stress testing of positions against a range of extreme market scenarios. There is alsomonthly reporting to the Risk and Compliance Committee on compliance with risk limits.Risk mitigationThe Group Treasury Policy outlines a rigorous control environment that includes prescribing a specific range of approvedproducts. It also provides for a structure for the management of legacy trading book risk positions through a detailed set oflimits that covers all of the risk sensitivities associated with the approved products. The wind-down of the trading book involvesidentifying 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 Group’s trading book for the period using a 99% confidence level.1 Day TimeHorizon10 Day TimeHorizon2011 2010 2011 2010€m €m €m €mAt end of year 0.3 0.5 1.0 1.7Average 0.3 0.4 1.0 1.2Minimum 0.2 0.1 0.5 0.4Maximum 0.5 1.0 1.7 3.0The average and maximum VaR figures for the year ended 31 December 2011 were lower than for the previous period. Riskpositions were reduced during the year as the wind-down of the trading book was implemented.Banking book risk - interest rate riskDefinitionInterest rate risk is the risk of a potential adverse change in the Group's income or financial position arising from movements ininterest 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. TheFinancial 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 apotential impact on earnings and value that could occur when liabilities cannot be repriced as quickly as assets in a fallinginterest 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 thepromissory notes are fixed rate instruments which create significant interest rate risk exposure, which in turn leads to potentialearnings volatility, the Bank has hedged a portion of the exposure. The Bank has hedged a total of €4.3bn of the notes usingamortising interest rate swaps, and a further €5.7bn of economic hedges exist in the form of the Group’s capital and fixed ratedebt issuance. However, significant fixed rate exposure remains, with limited capacity to hedge further amounts with marketcounterparties. Further details on the promissory notes are set out in note 25.127

Notes to the financial statements continued50. Risk management continuedMarket risk continuedBanking book risk - interest rate risk continuedDefinition continuedAs a result of the unhedged fixed interest rate exposure on the promissory notes, a +/- 1% parallel shift in interest rates over atwelve month period would impact net interest income and profit before tax by -/+ €176m.ObjectiveThe Group recognises that the effective management of interest rate risk is essential to the maintenance of stable earnings. Itaims to manage interest rate risk in its balance sheet to optimise net interest income within an acceptable loss tolerance level.PoliciesThe Group Treasury Policy provides for consolidated reporting and centralised management of all banking book risk positionswithin the Group. The Group's exposure to interest rate risk is governed by policies approved by ALCO and the Risk andCompliance Committee. All risk limits are approved by ALCO and the Risk and Compliance Committee.Strategies and processesThe Financial Markets team has responsibility for the management of interest rate risk under limits approved by ALCO. ALCOreviews the Group's interest rate risk position and strategy on a monthly basis and provides analysis and reporting to the Riskand Compliance Committee and the Board. Group Finance provides ongoing reporting on all interest rate risk positions withmonthly reporting to ALCO and the Risk and Compliance Committee.Reporting and measurement systemsBanking book interest rate risk is measured by establishing the repricing characteristics of each non-trading asset, liability andderivative instrument. The risk is managed by the Financial Markets team through basis point sensitivity and nominal positionlimits.Risk measurement using basis point sensitivity is supplemented with regular stress tests assessing the impact of extreme marketmoves 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 crisisof 1998 or the credit market dislocation that began in 2007, as well as on a range of hypothetical combinations of marketstresses.Group Finance provides daily reporting of banking book risk positions against approved risk sensitivity and nominal positionlimits. It provides monthly reporting to ALCO and the Risk and Compliance Committee on banking book activity with analysis ofall significant risk positions, including the results of stress testing.Risk mitigationRisk mitigation for banking book risks consists of matching asset and liability risk positions and the use of derivatives to manageduration and interest rate sensitivity within the approved limit structure, to the maximum extent practicable.The following table shows the sensitivity of the Group’s banking book, including non-trading book derivatives but excluding theIrish Government promissory note holdings and related hedging instruments, to an assumed 100 basis point ('bp') parallel shiftin interest rates in terms of the impact on net interest income and profit/(loss) before taxation over a twelve month period:Euro* Sterling US Dollar€m €m €mAt 31 December 2011 +100bp parallel move (7) - (3)-100bp parallel move 7 - 3At 31 December 2010 +100bp parallel move (38) 4 7-100bp parallel move 38 (4) (7)* This excludes the Bank's holding of Irish Government promissory notes and related hedging instruments.128

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011This interest rate risk sensitivity measure assumes that for each of the currencies listed, interest rates for all maturities move atthe same time and by the same amount. It does not incorporate the impact of management actions that, in the event of anadverse rate movement, could reduce the impact on net interest income. In practice, interest rate risk is actively managed andthe 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-saleportfolio are fixed rate securities. A one basis point change in market interest rates would result in a change in the value of thisportfolio of €0.1m (2010: €0.2m). These unrealised movements are recognised in the available-for-sale reserve, a component ofother reserves. In the past the Group has also designated interest rate swaps as cash flow hedges in various relationships (note21). There are no such swaps in place at 31 December 2011.Banking book risk - foreign exchange riskMarket risk in the banking book arises from exposure to changes in exchange rates. Structural foreign exchange risk principallyarises from the funding shortfall between the Group's sterling and US dollar lending activities and the Group's funding in thosecurrencies. It is Group policy to mitigate this risk using forward foreign exchange hedging.Structural foreign exchange risk also arises from the Group’s net investments in its sterling and US dollar based foreignoperations. It is Group policy to mitigate this structural foreign exchange risk by hedging material foreign currency investmentsin operations, whose functional currency is not euro, using funding in the same currency. Structural foreign exchangeexposures, net of hedging instruments, decreased during the year to €0.7bn (2010: €1.2bn) primarily as a result of thereduction in the net investment exposure in the Group and due to net investment hedging decisions taken in accordance withthe Group's capital ratio hedging strategy for foreign exchange movements. The foreign currency denominated funding used tohedge the net investments in the Group’s foreign operations has a carrying amount of €0.9bn (2010: €1.0bn). Noineffectiveness 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 foreigncurrency earnings or losses incurred during the period. This is implemented on a monthly basis and the Bank does not runtransactional foreign exchange risk.A sizeable portion of the Group's total risk weighted assets, used to determine the regulatory capital position, are denominatedin non-euro currencies, primarily in sterling and US dollars. As a result, the Group's regulatory capital ratios are sensitive toforeign exchange movements. Accordingly ALCO has approved an appropriate hedging policy designed to mitigate thepotential impact of future foreign exchange movements on the Group's regulatory capital ratios. In accordance with theapproved policy, management monitor this exposure on an ongoing basis and when required enter into foreign currencytransactions which ensure that currency positions which account for more than 1% of total risk weighted assets areappropriately hedged.DerivativesDefinitionA derivative is a financial instrument which defines certain financial rights and obligations that are contractually linked tointerest rates, exchange rates or other market prices. Derivatives are an efficient means of managing market risk.ObjectiveThe Bank seeks to use derivatives to hedge risk positions efficiently where required and to ensure that the risks associated withderivatives are identified and reported within the trading book and banking book reporting frameworks as appropriate.PoliciesThe Group's derivatives activities are governed by policies approved by the Risk and Compliance Committee. These policiesrelate to the management of the various types of risks associated with derivatives, including market risk, liquidity risk, credit riskand operational risk. It is Group policy to place clear boundaries on the nature and extent of its participation in derivativesmarkets and to apply industry regulatory standards to all aspects of its derivatives activities.Strategies and processesDerivative positions fall within the structure of approved limits for the trading book and banking book as appropriate and areused for the management of balance sheet risks and the hedging of positions arising from customer business. Where crosscurrency swaps and foreign exchange forwards are used to fund sterling and US dollar loan portfolios, the interest rate risks aremanaged within approved banking book limits for those currencies.129

Notes to the financial statements continued50. Risk management continuedMarket risk continuedDerivatives continuedReporting and measurement systemsThe Group designates certain derivatives as either fair value hedges (where the Group hedges the changes in fair value ofrecognised assets or liabilities or firm commitments) or cash flow hedges (where the Group hedges the exposure to variabilityof cash flows attributable to recognised assets or liabilities or highly probable forecast transactions). With the exception ofdesignated hedging derivatives, as defined by IAS 39, derivatives are treated as held for trading. The held for tradingclassification comprises the Group's legacy trading book, economic hedges which do not meet the strict qualifying criteria forhedge 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. Theoverriding 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 innote 1.Operational riskDefinitionOperational risk is the risk of loss arising from inadequate controls and procedures, unauthorised activities, outsourcing, humanerror, systems failure and business continuity. Operational risk also includes legal risk, which is the risk of loss due to litigationarising from errors, omissions and acts by the Bank in the conduct of business. Operational risk is inherent in every business unitthroughout the Group and covers a wide spectrum of issues.ObjectiveThe Group Compliance and Operational Risk unit aims to provide the framework and tools to identify, assess, monitor andreport on operational risks within each of the business units and support functions of the Group to minimise losses and reduceerrors in line with the Group's Risk Appetite Statement.PoliciesThe Group's management of its exposure to operational risk is governed by a policy approved by the Risk and ComplianceCommittee. The policy specifies that the Group operates such measures of risk identification, assessment, monitoring andmanagement as are necessary to ensure that operational risk management is consistent with the strategic goals of the Group. Itis designed to safeguard the Group's assets while allowing sufficient operational freedom to conduct the Group's business. Thepolicy document also sets out the responsibilities of senior management, the requirement for reporting of operational riskincidents and the role of Group Internal Audit in providing independent assurance.Strategies and processesThe business units and support functions assess their operational risk profile on a quarterly basis. The output of theseassessments is consolidated and presented to the Risk and Compliance Committee. The process serves to ensure that keyoperational risks are proactively identified, evaluated, monitored and reported, and that appropriate action is taken. Inaddition, the Risk and Compliance Committee receives monthly information on significant operational risk incidents.Reporting and measurementThe Bank uses the Standardised Approach as defined by the Capital Requirements Directive for the calculation of its capitalrequirements for operational risk. This approach requires the activities of the Bank to be assigned to one or more of the eightgeneric categories identified under the Directive, with a beta factor being applied to the three-year average gross income ineach business line. Only four business lines are applicable to the Group (Commercial Banking, Trading and Sales, AssetManagement and Retail Banking).Risk mitigationThe operational risk management process consists of the setting of strategic objectives, the identification of risks and theimplementation 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 andincident management. Where appropriate this strategy is further supported by risk transfer mechanisms such as insurance.130

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Reputational riskReputational risk is the risk of an adverse perception of the Group on the part of any stakeholder arising from an event ortransaction of, or related to, the Group. The rebranding of the corporate identity to IBRC on 17 October 2011 has reinforcedthe distinction between the current and former leadership teams. The Bank carries reputational risk in relation to its currentactivities. These relate to the effectiveness and efficiency with which it is meeting its objectives, including compliance with itslegal and regulatory obligations during a sustained period of restructuring and reorganisation. The Bank is vigilant in rebuildingconfidence and trust with all its stakeholders.Directors and employees are made aware of the role they have in rebuilding the Bank’s reputation, and of their responsibilitiesand duties from a customer service, regulatory and ethical perspective. In addition, independent control functions includingGroup Compliance, Company Secretarial, Group Finance, Group Risk and Group Internal Audit are resourced with appropriatelyexperienced and qualified teams.Legal riskThe Bank has an independent Legal Department reporting directly to the Group Chief Executive. The Bank is continuing todevelop this department to ensure that best practice in corporate governance and strict legal compliance is rigorously adheredto and for the purpose of mitigating legal risk and legal costs at all levels and across all divisions of the Bank’s business andoperations in support of an orderly wind-down of the Bank’s business and operations and achievement of maximum recoveryin 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 avaried nature across the Bank on a day to day basis, it is sought to increasingly develop the resource capacity of the legalfunction to (i) ensure legal input to internal processes and procedures both at a strategic and practical level on a proactive andconsistent basis; (ii) ensure an awareness and translation of relevant legislation into the Bank’s business; and (iii) promoteeducation and training on relevant legal matters in conjunction with both the Bank’s 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 corporategovernance and internal procedures, change of law, particularly, the risk of misinterpretation and a lack of awareness ofapplicable legislation, all of which can disrupt or otherwise negatively affect the operations, condition or financial orreputational standing of the Group.The legal risk of adverse claims is currently monitored through a Group-wide litigation register maintained by the LegalDepartment with the oversight of the Risk and Compliance Committee. This facilitates the assessment of potential losses, whichcould arise from adverse claims, and identification of trends and recurrence with a view to preventing same by addressingweaknesses giving rise to such claims. Frequent engagement with the relevant business divisions and external legal advisorsacting on potentially contentious Bank matters further assists in earlier awareness at Group level of potential adverse claimsand 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 whichpreviously arose in the Bank and the co-operative progression of the investigations initiated by relevant authorities in the periodsince December 2008.Conduct riskConduct risk is the risk posed to customers from the Bank’s direct interaction with them, and the risk of inadequate internalreporting of non-performing or poorly performing loans to management committees and boards and external disclosures ofcredit risk exposure and impairment provisions.The scope of the Bank’s work in relation to customers is now to ensure adherence to a high standard of customer care duringthe loan resolution phase whilst maintaining strong internal reporting and timely accurate external reporting of exposures andprovisions. The Bank is focussed on ensuring the fair treatment of the customer stakeholder group through adherence toregulatory, legal and good business practice.In relation to the risk of inadequate internal and external reporting to other stakeholders, the Bank’s focus is on ensuringadherence to robust policies and controls for the early detection, reporting, monitoring and loss risk assessment of forbearanceand customer impairment, strong management of non-performing loans, and transparent provisioning policies.131

Notes to the financial statements continued50. Risk management continuedGovernance riskGovernance risk is the risk of weaknesses in the procedures, processes and attitudes through which the Bank is directed andcontrolled. The characteristics of good governance include:▪ Having a strong Board, supported by a management team with executive responsibility focussed on assessing, managingand 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 Bank’s Risk Management framework through the approval of a clearly defined Risk AppetiteStatement along with all material policies relating to the Group’s risk profile. The Board is further responsible for the review ofrisk management processes in place within the Bank which ensures that Board policies and decisions on risk are properlyimplemented. The Bank recognises that a strong internal control environment is essential to mitigate against risks ofincomplete, inaccurate or late reporting of risks leading to incomplete reporting of risk to the Board. The focus throughout theBank 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 relevantexternal stakeholders in line with the Bank’s policy of greater levels of transparency and disclosure. This is in tandem withprescribed financial disclosures and full adherence to accounting standards. There is also a relationship framework in placebetween the Minister (as shareholder) and the Bank which provides the basis upon which the relationship is governed, settingout both the objectives of the Minister and the obligations of the Board.Compliance and regulatory riskDefinitionCompliance and regulatory risk is defined as the risk of regulatory sanctions, material financial loss, or loss of reputation as aresult of failure to comply with laws, regulations, rules, related standards, and codes of conduct arising from the Bank'sactivities as a regulated entity.ObjectiveManagement and Group Compliance and Operational Risk are responsible for the overall management of compliance andregulatory risk for the Group in regard to all relevant regulations and good practice guidelines in each of the jurisdictions inwhich the Bank operates. This includes ensuring that Group personnel are aware of, and take steps to comply with, Grouppolicies and procedures.As a support function, Group Compliance and Operational Risk works closely with Group Finance, Group Risk, Group CompanySecretarial and Group Internal Audit.PoliciesGroup Compliance and Operational Risk provides advice and guidance to staff through policies, procedures, codes of conductand guidelines. This includes policies on anti-money laundering and data protection as well as guidance on matters such asconsumer protection.Strategies and processesGroup Compliance and Operational Risk is charged with defining and identifying regulatory and compliance risks anddeveloping a programme for the Group that includes the implementation and review of specific policies and procedures, andthe monitoring and education of Group staff on regulatory and compliance matters. This programme is risk-based and theHead of Group Compliance and Operational Risk is responsible for ensuring appropriate coverage and co-ordination with otherGroup functions. The function interacts with relevant external supervisory bodies. The Group engages in discussions withrelevant external supervisory bodies in all jurisdictions in which it operates on an ongoing basis.132

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Reporting and measurementThe Head of Group Compliance and Operational Risk reports to the CRO, with oversight by the Risk and ComplianceCommittee.Group Compliance and Operational Risk prepares reports for each Risk and Compliance Committee meeting. The reportincorporates metrics in relation to compliance such as volumes and trends in complaints and information on the extent ofcontact with regulatory authorities.Risk mitigationNon-compliance with regulatory requirements may result in actions by regulators, including sanctions. Such events in turncould have an adverse impact on the Group’s 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 asanti-money laundering and data protection.51. Financial instrumentsThe Group uses financial instruments, including derivatives, in the normal course of its business. Interest income is principallyderived from the Group’s promissory note holdings and from its loan book. The Group sources funding from central banksthrough both open market operations and other special funding facilities. In prior years the Group has also raised funds via thecapital markets by issuing debt securities and capital instruments. These liabilities are at both fixed and variable interest ratesand 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 incomeand expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of theGroup's financial assets and liabilities by measurement basis and by statement of financial position presentation.133

Notes to the financial statements continued51. Financial instruments continuedMeasurement basis of financial instrumentsThe GroupAt fair valuethrough profit or lossAt fair valuethrough equityPolicyholders' Loans andfunds receivables /Designated Fair value designated Cash flow held atHeld for upon initial hedge upon initial Available- hedge amortisedtrading recognition derivatives recognition for-sale * derivatives cost * Total€m €m €m €m €m €m €m €mAssetsCash and balances with central banks - - - - - - 100 100Financial assets at fair value through profit or loss- held on own account - 12 - - - - - 12- held in respect of liabilities to customers underinvestment contracts - - - 194 - - - 194Derivative financial instruments 1,049 - 47 - - - - 1,096Loans and advances to banks - - - - - - 2,306 2,306Assets classified as held for sale** - - - - - - 262 262Available-for-sale financial assets - - - - 1,332 - - 1,332Promissory notes - - - - - - 29,934 29,934Government debt securities at amortised cost - - - - - - 947 947Loans and advances to customers - - - - - - 17,689 17,689Total financial assets 1,049 12 47 194 1,332 - 51,238 53,8722011LiabilitiesDeposits from banks - - - - - - 42,591 42,591Customer accounts - 18 - - - - 579 597Derivative financial instruments 1,889 - 300 60 - - - 2,249Debt securities in issue - - - - - - 5,371 5,371Liabilities to customers under investment contracts - - - 283 - - - 283Other liabilities*** - - - - - - 170 170Subordinated liabilities and other capital instruments - - - - - - 517 517Total financial liabilities 1,889 18 300 343 - - 49,228 51,778* 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.134

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The GroupAt fair valuethrough profit or lossAt fair valuethrough equityPolicyholders' Loans andfunds receivables /Designated Fair value designated Cash flow held atHeld for upon initial hedge upon initial Available- hedge amortisedtrading recognition derivatives recognition for-sale * derivatives cost * Total€m €m €m €m €m €m €m €mAssetsCash and balances with central banks - - - - - - 181 181Financial assets at fair value through profit or loss- held on own account - 13 - - - - - 13- held in respect of liabilities to customers underinvestment contracts - - - 237 - - - 237Derivative financial instruments 1,844 - 82 - - 10 - 1,936Loans and advances to banks - - - - - - 3,525 3,525Assets classified as held for sale 17 - - - - - 1,623 1,640Available-for-sale financial assets - - - - 2,219 - - 2,219Promissory note - - - - - - 25,704 25,704Government debt securities at amortised cost - - - - - - 10,623 10,623Loans and advances to customers - - - - - - 24,364 24,364Total financial assets 1,861 13 82 237 2,219 10 66,020 70,4422010LiabilitiesDeposits from banks - - - - - - 46,566 46,566Customer accounts - 31 - - - - 11,061 11,092Derivative financial instruments 2,316 - 60 84 - - - 2,460Debt securities in issue - - - - - - 6,912 6,912Liabilities to customers under investment contracts - - - 351 - - - 351Other liabilities** - - - - - - 64 64Subordinated liabilities and other capital instruments - - - - - - 509 509Total financial liabilities 2,316 31 60 435 - - 65,112 67,954* Where relevant, carrying values include fair value hedge adjustments.** Includes obligations under financial guarantees only.135

Notes to the financial statements continued51. Financial instruments continuedNet trading expense includes a charge of €1m (2010: gain of €4m) in respect of changes in the value of financial liabilitiesdesignated at fair value through profit or loss. The charge/gain is largely offset by corresponding positive/negative changes inthe value of matching derivative instruments. The portion of the change in value that is attributable to changes in credit risk isnot material.Fair value of financial assets and financial liabilitiesThe following table represents the carrying amount and the fair value of the Group's financial assets and financial liabilities atthe year end. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeableand 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 inrespect of loans and advances to customers, the Group intends to realise assets through collection over time. Readers of thesefinancial statements are therefore advised to use caution when using this data to evaluate the Group's financial position.The Group2011 2010Carrying Fair Carrying Fairamount value amount value€m €m €m €mFinancial assetsCash and balances with central banks 100 100 181 181Financial assets at fair value through profit or loss- held on own account 12 12 13 13- held in respect of liabilities to customers underinvestment contracts194 194 237 237Derivative financial instruments 1,096 1,096 1,936 1,936Loans and advances to banks 2,306 2,316 3,525 3,532Assets classified as held for sale* 262 218 1,640 1,304Available-for-sale financial assets 1,332 1,332 2,219 2,219Promissory notes 29,934 26,940 25,704 21,905Government debt securities at amortised cost947 947 10,623 9,287Loans and advances to customers 17,689 13,934 24,364 18,328Financial liabilitiesDeposits from banks 42,591 42,600 46,566 46,579Customer accounts 597 597 11,092 11,092Derivative financial instruments 2,249 2,249 2,460 2,460Debt securities in issue 5,371 4,836 6,912 5,554Liabilities to customers under investment contracts 283 283 351 351Other liabilities** 170 170 64 64Subordinated liabilities and other capital instruments 517 93 509 41* 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 willingparties in an arm's length transaction. The Group has estimated fair value wherever possible using quoted prices from activemarkets. The fair value of liquid financial assets has been determined using bid prices, while offer prices have been used todetermine 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 fairvalue of items not carried at fair value are as follows:136

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Cash and balances with central banksThe fair value of cash and balances with central banks is their carrying amount as these balances may be withdrawn withoutnotice.Loans and advances to banksThe fair value of overnight placements is their carrying amount. The fair value of other loans and advances to banks iscalculated by discounting expected cash flows using current market rates for placements with similar credit profiles andremaining maturities. In many cases, the carrying value is a close representation of fair value due to short term maturityprofiles.Assets classified as held for saleFinancial assets classified as held for sale at 31 December 2011 consist of certain US loans scheduled to be sold to third partiesand those remaining loans which have been identified for transfer to NAMA. These loans are carried at amortised cost lessprovisions for impairment. The fair value of the US loan assets has been estimated based on brokers’ opinions of value. TheBank has no control over the valuation of assets transferring to NAMA. However, the Bank expects the remaining assets totransfer at a value close to their carrying value of €10m, which has been used as the basis for estimating their fair value.Promissory notesThe fair value of the promissory notes is determined by the use of a valuation technique, based on a discounted cash flowmethodology, which references observable market data. The fair value is calculated by discounting expected cash flows byreference to current observable market yields for comparable Irish government bonds.Government debt securities at amortised costThe fair value of NAMA senior bonds is determined by the use of a valuation technique, based on a discounted cash flowmethodology, which references observable market data. This valuation technique is used due to the absence of observablemarket prices for these securities. The valuation approach adopted takes into consideration the coupon attaching to the notesand the yield on comparable Irish sovereign bonds. The valuation of NAMA senior bonds requires estimation and judgementand as a result it is possible that an alternative valuation approach could give rise to a range of values.Loans and advances to customersThe estimation of the fair value of loans and advances is inherently uncertain, dependent upon many unobservable factors andrequires 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 creditconsiderations, have contributed to the uncertainty when estimating the fair values of loans and advances. The estimated fairvalue of loans and advances to customers carried at amortised cost at 31 December 2011 is calculated based on a valuationtechnique which involves the discounting of estimated future cash flows on the loans at a rate that reflects current creditspreads and other factors that market participants would consider in valuing such assets. Readers are advised that, in line withthe approved Restructuring Plan, the Group intends to deleverage its loan portfolio on a phased basis over a period of up to tenyears whilst securing the best possible outcome for the Shareholder. The estimated fair values provided would be subject tochange depending on the exact circumstances of any particular sale scenario.Deposits from banks and customer accountsThe fair value of deposit liabilities repayable on demand is their carrying amount. The fair value of other deposits liabilities iscalculated by discounting expected cash flows using current market rates for deposits with similar remaining maturities. Inmany cases, the carrying amount is a close representation of fair value due to the short term nature of such deposits.Debt securities in issueThe fair value of medium term debt securities in issue is their quoted market value at period end, where available. Wherequoted market values are unavailable, the fair value is determined taking into consideration the market value of similar quotedsecurities.Other liabilitiesThe fair value of other liabilities is deemed to approximate carrying value.Subordinated liabilities and other capital instrumentsThe fair values of subordinated liabilities and other capital instruments are their indicative market levels.137

Notes to the financial statements continued51. Financial instruments continuedFair value hierarchyThe following tables detail the valuation methods used for the Group's and the Bank's financial assets and liabilities carried atfair value as at 31 December 2011, other than financial assets and liabilities at fair value through profit or loss held in respect ofliabilities 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 valuefor 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 assetor liability either directly or indirectly.Level 3 values incorporate significant inputs for the asset or liability that are not based on observable market data (unobservableinputs).Financial assetsFinancial assets at fair value through profit or loss- held on own accountThe Group2011Level 1 Level 2 Level 3 Total€m €m €m €m- - 12 12Available-for-sale financial assets 976 227 129 1,332Derivative financial instruments - 648 448 1,096976 875 589 2,440Financial liabilitiesDerivative financial instruments - 2,238 11 2,249Other financial liabilities - - 18 18- 2,238 29 2,267The Group2010Level 1 Level 2 Level 3 Total€m €m €m €mFinancial assetsFinancial assets at fair value through profit or loss- held on own account- - 13 13Available-for-sale financial assets 1,480 572 167 2,219Derivative financial instruments - 1,325 611 1,936Derivative financial instruments held for sale to NAMA- 4 13 171,480 1,901 804 4,185Financial liabilitiesDerivative financial instruments - 2,453 7 2,460Other financial liabilities - - 31 31- 2,453 38 2,491138

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Financial assetsFinancial assets at fair value through profit or loss- held on own accountThe Bank2011Level 1 Level 2 Level 3 Total€m €m €m €m- - 5 5Available-for-sale financial assets 925 227 124 1,276Derivative financial instruments - 879 501 1,380925 1,106 630 2,661Financial liabilitiesDerivative financial instruments - 2,178 11 2,189Other financial liabilities - - 18 18- 2,178 29 2,207Financial assetsThe Bank2010Level 1 Level 2 Level 3 Total€m €m €m €mFinancial assets at fair value through profit or loss- held on own account- - 5 5Available-for-sale financial assets 1,434 567 167 2,168Derivative financial instruments - 1,566 611 2,177Derivative financial instruments held for sale to NAMA- 4 13 171,434 2,137 796 4,367Financial liabilitiesDerivative financial instruments - 2,996 7 3,003Other financial liabilities - - 31 31- 2,996 38 3,034The reduction in available-for-sale financial assets during the year is primarily attributable to disposals and maturities of debtsecurities. Senior bonds issued by financial institutions with a fair value of €115m were transferred from level 1 to level 2 duringthe 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. Theoverall 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 accountThe Group and Bank's remaining portfolio of financial assets at fair value through profit or loss held on own account consistsprimarily of unlisted equity shares. Fair values are determined using valuation techniques which refer to observable and nonobservablemarket data.Available-for-sale financial assetsThe Group and Bank's portfolio of available-for-sale financial assets consists of debt securities and NAMA subordinated bondsonly. The fair values of debt securities are primarily sourced from independent third party pricing service providers and pricesreceived 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 pricesobtained.Derivative financial instrumentsDerivative financial instruments derive their value from the price of underlying variables such as interest rates, foreign exchangerates, credit spreads or equity or other indices. Fair values are typically estimated using industry standard valuation techniquesincorporating inputs that are derived from observable market data. The fair value of derivative transactions with corporateclients includes a credit valuation adjustment which incorporates a significant, but unobservable, counterparty credit input.These derivatives are classified as level 3.139

Notes to the financial statements continued51. Financial instruments continuedDerivative financial instruments continuedOn the initial recognition of derivative financial instruments, any difference between the transaction price and the value derivedfrom 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 followingthe 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 liabilitiesCustomer accounts include certain structured deposits that have embedded derivative features, typically options. Certain inputsto the valuation technique are not based on observable market data but can generally be estimated from historical data orother sources.Movements in level 3 assetsThe Group2011Financialassets at fair Available- Derivativevalue through for-sale Derivative financialprofit or loss financial financial instruments- own account assets instruments held for sale Total€m €m €m €m €mAt 1 January 2011 13 167 611 13 804Acquired under the INBS Transfer Order 2 47 - - 49Total gains or losses- in profit or loss 2 - 143 (2) 143- in other comprehensive income - (98) - - (98)Additions - 10 - - 10Redemptions, maturities and disposals (5) (2) (471) (11) (489)Transfers into level 3 - 5 165 - 170At 31 December 2011 12 129 448 - 589The Group2010Financialassets at fair Available- Derivativevalue through for-sale Derivative financialprofit or loss financial financial instruments- own account assets instruments held for sale Total€m €m €m €m €mAt 1 January 2010 48 158 388 231 825Total gains or losses- in profit or loss (23) 6 174 149 306- in other comprehensive income - (21) - - (21)Additions 2 237 - - 239Redemptions, maturities and disposals (14) (213) (316) (378) (921)Transfers into level 3 - - 365 11 376At 31 December 2010 13 167 611 13 804Redemptions, maturities and disposals of derivative financial assets include interest settlements and derivatives that transferredas part of the US loan book sale process during the year.140

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Movements in level 3 assetsThe Bank2011Financialassets at fair Available- Derivativevalue through for-sale Derivative financialprofit or loss financial financial instruments- own account assets instruments held for sale Total€m €m €m €m €mAt 1 January 2011 5 167 611 13 796Acquired under the INBS Transfer Order 2 47 - - 49Total gains or losses- in profit or loss 2 - 162 (2) 162- in other comprehensive income - (98) - - (98)Additions - 10 - - 10Redemptions, maturities and disposals (4) (2) (490) (11) (507)Transfers into level 3 - - 218 - 218At 31 December 2011 5 124 501 - 630The Bank2010Financialassets at fair Available- Derivativevalue through for-sale Derivative financialprofit or loss financial financial instruments- own account assets instruments held for sale Total€m €m €m €m €mAt 1 January 2010 7 158 388 231 784Total gains or losses- in profit or loss (4) 6 174 149 325- in other comprehensive income - (21) - - (21)Additions 2 237 - - 239Redemptions, maturities and disposals - (213) (316) (378) (907)Transfers into level 3 - - 365 11 376At 31 December 2010 5 167 611 13 796Redemptions, maturities and disposals of derivative financial assets include interest settlements and derivatives that transferredas part of the US loan book sale process during the year.141

Notes to the financial statements continued51. Financial instruments continuedMovements in level 3 liabilitiesThe Group2011Derivative Otherfinancial financialinstruments liabilities Total€m €m €mAt 1 January 2011 7 31 38Total gains or losses- in profit or loss 2 1 3Additions 2 - 2Redemptions and maturities - (14) (14)At 31 December 2011 11 18 29The Group2010Derivative Otherfinancial financialinstruments liabilities Total€m €m €mAt 1 January 2010 11 27 38Total gains or losses- in profit or loss - 4 4Redemptions and maturities (4) - (4)At 31 December 2010 7 31 38The Bank2011Derivative Otherfinancial financialinstruments liabilities Total€m €m €mAt 1 January 2011 7 31 38Total gains or losses- in profit or loss 2 1 3Additions 2 - 2Redemptions and maturities - (14) (14)At 31 December 2011 11 18 29142

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The Bank2010Derivative Otherfinancial financialinstruments liabilities Total€m €m €mAt 1 January 2010 11 27 38Total gains or losses- in profit or loss - 4 4Redemptions and maturities (4) - (4)At 31 December 2010 7 31 38Analysis of total level 3 gains/(losses) includedin profit or loss2011The Group The Bank2010The Group The Bank€m €m €m €mNet trading expense 227 246 319 319Financial assets designated at fair value 2 2 (23) (4)Loss on deleveraging of other financial assets (89) (89) - -Provisions for impairment - - 6 6Net change in available-for-sale reserve (98) (98) (21) (21)42 61 281 300Analysis of level 3 gains/(losses) included in profitor loss relating to financial assets and financialliabilities held at year end2011The Group The Bank2010The Group The Bank€m €m €m €mNet trading expense 193 211 71 90Net change in available-for-sale reserve (98) (98) (70) (70)95 113 1 20Maturity profile of financial instrumentsThe following tables analyse the Group's financial assets, financial liabilities and derivative financial instruments into relevantmaturity groupings based on the remaining period to the contractual maturity date as at the end of the reporting period. Asliquidity risk is managed on a Group basis, a similar maturity profile for the Bank would not provide meaningful information andtherefore 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 asan 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 theunderlying 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

Notes to the financial statements continued51. Financial instruments continuedMaturity profile of financial instrumentsThe GroupFinancial assets2011Current Non-currentOver three Over onemonths but year butNot more not more not more Over Policythanthree than one than five five holders'Demand months year years years funds Total€m €m €m €m €m €m €mCash and balances with central banks 100 - - - - - 100Financial assets at fair value through profit or loss- held in respect of liabilities to customers under investment contracts - - - - - 194 194Derivative financial instruments - 48 106 571 371 - 1,096Loans and advances to banks 2,231 37 - 21 12 5 2,306Assets classified as held for sale* 39 - 66 171 - (14) 262Available-for-sale financial assets - 221 182 553 376 - 1,332Promissory notes - 2,655 - 6,414 20,865 - 29,934Government debt securities at amortised cost - 947 - - - - 947Loans and advances to customers 4,984 580 3,996 6,145 2,708 (724) 17,689Total financial assets 7,354 4,488 4,350 13,875 24,332 (539) 53,860Financial liabilitiesDeposits from banks 1,701 40,585 - - - 305 42,591Customer accounts 13 606 46 17 9 (94) 597Derivative financial instruments - 234 124 877 954 60 2,249Debt securities in issue - 1,257 3,065 1,034 15 - 5,371Liabilities to customers under investment contracts - - - - - 283 283Other liabilities** 52 1 10 6 101 - 170Subordinated liabilities and other capital instruments*** - - - 128 389 - 517Total financial liabilities 1,766 42,683 3,245 2,062 1,468 554 51,778* 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.144

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The GroupFinancial assets2010Current Non-currentOver three Over onemonths but year butNot more not more not more Over Policythanthree than one than five five holders'Demand months year years years funds Total€m €m €m €m €m €m €mCash and balances with central banks 181 - - - - - 181Financial assets at fair value through profit or loss- held in respect of liabilities to customers under investment contracts - - - - - 237 237Derivative financial instruments - 192 255 1,064 425 - 1,936Loans and advances to banks 1,967 1,479 - 20 46 13 3,525Assets classified as held for sale 781 16 131 578 149 (15) 1,640Available-for-sale financial assets - 169 695 1,167 188 - 2,219Promissory note - 2,187 - 5,174 18,343 - 25,704Government debt securities at amortised cost - - - - 10,623 - 10,623Loans and advances to customers 6,622 973 2,755 11,549 3,214 (749) 24,364Total financial assets 9,551 5,016 3,836 19,552 32,988 (514) 70,429Financial liabilitiesDeposits from banks 1,695 44,517 55 - - 299 46,566Customer accounts 3,771 4,553 2,491 354 15 (92) 11,092Derivative financial instruments - 102 284 1,413 577 84 2,460Debt securities in issue - 827 1,291 4,777 17 - 6,912Liabilities to customers under investment contracts - - - - - 351 351Other liabilities* 50 1 8 5 - - 64Subordinated liabilities and other capital instruments** - - - 124 385 - 509Total financial liabilities 5,516 50,000 4,129 6,673 994 642 67,954* Includes obligations under financial guarantees only.** Undated subordinated liabilities and other capital instruments have been included in amounts maturing over five years.145

Notes to the financial statements continued52. Capital resourcesThe Bank's regulatory capital resources at 31 December 2011 consist of both Tier 1 and Tier 2 capital. Tier 1 capital includesequity (comprising ordinary share capital, share premium, the capital reserve and other eligible reserves), deductions forintangible assets and prudential adjustments. Prudential adjustments include the reversal of movements on available-for-saleand cash flow hedging reserves. Tier 2 capital includes subordinated debt and collective impairment provisions. Specificprudential limits apply to the amount of subordinated debt and collective provisions eligible as regulatory capital. Total capitalis further reduced by supervisory deductions.Regulatory capital resources include €29.3bn contributed by the Minister for Finance as the Group's sole shareholder. Thesecapital contributions have restored the levels of Core Tier 1 regulatory capital following significant losses incurred. As at31 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 tothe Bank at carrying value, after harmonisation adjustments to give effect to the business combination (notes 1.4 and 2). Onthe date of transfer no cash consideration was paid and settlement was made for the net assets through an increase in theGroup’s 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 yearof €11.6bn or 32%. This reduction is primarily related to lending assets where the disposal of US loans in the final quarter ofthe year had a significant impact on total risk weighted assets. Targeted client asset disposals, repayments across loanportfolios, 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 Group’s Pillar 1 capital requirements. Following the merger with INBS andsubsequent 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 ofthe Capital Requirements Directive ('CRD') and guidance from the Central Bank of Ireland.146

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Regulatory capitalThe Group2011 2010€m €mTier 1 capitalEquity (a) 3,238 3,535Prudential filters and regulatory adjustments (b) 198 111Non-cumulative preference shares 357 346Total Tier 1 capital 3,793 3,992Tier 2 capitalCollective provisions (c) 313 458Subordinated term debt 104 125Total Tier 2 capital 417 583Tier 1 and Tier 2 capital 4,210 4,575Capital deductions (d) (111) (12)Total capital 4,099 4,563Risk weighted assets 25,076 36,668Tier 1 capital ratio 15.1% 10.9%Total capital ratio 16.3% 12.4%(a)(b)(c)(d)The level of Core Tier 1 capital is impacted by the loss incurred during the year to 31 December 2011, offset to anextent 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 cashflow 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 inrisk 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.147

Notes to the financial statements continued53. Report on Directors' remuneration and interestsThis report on Directors' remuneration and interests has been prepared by the Remuneration Committee on behalf of the Boardof Directors (the 'Board'). In keeping with best practice and where relevant, in accordance with accounting standards, the Bankhas provided information comparable to that provided by listed companies.Remuneration CommitteeAll 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 theoverall reward philosophy and remuneration governance framework of the Bank and its companies are consistent with theachievement of the Group’s 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 theChairman, Directors, Group Chief Executive, Company Secretary, senior management and other individuals whoseremuneration may exceed defined minimum thresholds across the Group. In addition, it is responsible for ensuring thatremuneration 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 policyThe Group's remuneration policy, which has been framed in accordance with the Combined Code on Corporate Governance, isto reward its Group Chief Executive competitively having regard to comparable companies and the need to ensure that he isproperly rewarded and motivated to perform in the best interests of the Shareholder. This policy is in accordance with therecommendations of the Covered Institutions Remuneration Oversight Committee ('CIROC'). The remuneration packageconsists primarily of a base salary with additional benefits including monthly contributions to a defined contribution pensionscheme, 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 inconsultation with the Bank. Neither the Chairman or the Group Chief Executive participate in decisions relating to their ownremuneration; 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 theGroup Chief Executive is capped at €500,000.Annual performance bonusesThe Bank does not operate a performance-related bonus scheme for executives hence no annual performance bonus has beenpaid or awarded to the Group Chief Executive during the years ended 31 December 2011 or 31 December 2010.Share optionsThere are no rights outstanding under any share option plans.Loans to DirectorsAt 31 December 2011 there are no loans to Directors, see note 54.Directors' interests in contractsThe Bank and its subsidiary undertakings did not have any material contracts or arrangements during the year in which aDirector of the Bank was materially interested, other than in the Bank's normal business. Details of related party transactionsare included in note 54.Service contractsIn order to secure the services of the Group Chief Executive and in the context of the circumstances surrounding the Bank, theGroup Chief Executive's contract includes an initial guarantee of employment for two years from September 2009. Thereafter anotice period of twelve months applies.Other than the Group Chief Executive, there are no provisions for pre-determined compensation on termination in existence forany Director.PensionsThe Group Chief Executive is entitled to monthly contributions to a defined contribution scheme. All pension benefits aredetermined 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 forthe benefit of the member. At retirement, the accumulated value of the investments made is available to purchase retirementbenefits for the member. Under this scheme, once the contributions have been paid the Group has no further obligation.148

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Directors' and Secretary's interestsAt 31 December 2011 the Directors and Secretary in office, and their spouses and minor children, had no beneficial interests inthe shares of the Bank.Directors' remuneration - 2011Executive DirectorTotalSalary annual Temporary& benefits * Fees ** Pension ^ remuneration allowances # Total€'000 €'000 €'000 €'000 €'000 €'000A.M.R. (Mike) Aynsley 538 - 125 663 203 866Non-executive DirectorsAlan Dukes (1) - 150 - 150 - 150Dr. Noel Cawley (2) - 86 - 86 - 86Aidan Eames (3) - 86 - 86 - 86Oliver Ellingham (4) - 16 - 16 - 16Maurice Keane (5) - 99 - 99 - 99Gary Kennedy (6) - 99 - 99 - 99Roger McGreal (7) - 23 - 23 - 23Total 538 559 125 1,222 203 1,425* 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 ofeach 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 andother 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 feeof €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 GovernanceCommittee.(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 from1 July 2011 to 14 November 2011. Fees paid to Roger McGreal as a Non-executive Director of INBS from 1 January 2011to 30 June 2011 are not included in the table above.Board member expensesDuring 2011 the following amounts were reimbursed to, or paid on behalf of, Board members: €3k for travel and subsistenceexpenses and €1k for telephone and other expenses. These expenses relate to services as Board members only and do notinclude expenses incurred by the Executive Director in the day to day management of the business.149

Notes to the financial statements continued53. Report on Directors' remuneration and interests continuedDirectors' remuneration - 2010TotalSalary annual Temporary& benefits * Fees ** Pension ^ remuneration allowances # Total€'000 €'000 €'000 €'000 €'000 €'000Executive DirectorA.M.R. (Mike) Aynsley 547 - 133 680 294 974Non-executive DirectorsAlan Dukes (1) - 127 - 127 - 127Dr. Noel Cawley (2) - 52 - 52 - 52Aidan Eames (2) - 52 - 52 - 52Maurice Keane - 112 - 112 - 112Gary Kennedy (2) - 59 - 59 - 59Donal O'Connor (3) - 114 - 114 - 114Total 547 516 133 1,196 294 1,490* 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 ofeach of the principal Board Committees. The Chairmen of the Audit Committee and the Risk and Compliance Committeereceive an annual fee of €25,760. The Chairmen of the Nomination and Governance Committee and the RemunerationCommittee receive an annual fee of €12,880. During 2010, due to the limited number of Directors on the Board for aperiod 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 the2010 Annual Report and Accounts.^Comprises employer contributions to pension funds. Includes €8,000 in respect of 2009 entitlements which were paidduring 2010.# Comprises the gross value, before deduction of tax, of temporary relocation assistance which includes rent, travel andother 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 andthis was paid on a pro rata basis up to the date of his resignation.150

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 201154. Related party transactionsIrish GovernmentParties are considered to be related if one party has the ability to control, or exercise significant influence over, another party'sfinancial or operational decision making, or when both parties are under common control. During the period ended31 December 2009 the Group was taken into State ownership and, as a result, the Irish Government is considered a relatedparty. CISA, enacted on 21 December 2010, provides the legislative basis for the reorganisation and restructuring of thebanking system agreed in the joint EU/IMF Programme of Financial Support for Ireland. It will facilitate the plannedrestructuring of the Bank as set out in the programme agreement and consistent with EU State aid requirements. The IrishGovernment and the Troika (IMF, EC and European Central Bank) may therefore exert significant influence which could impactthe 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 payableunder 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 theNTMA, to transfer certain deposits and assets held by the Bank. Subsequently on 24 February 2011 the AIB Transfer Order wasmade by the Irish High Court, under which, in return for transferring its Irish and UK deposits, the Bank was required to pay AIBand AIB UK €1.6bn in excess of book value. In addition the Bank's shareholding in its Isle of Man deposit taking subsidiary wastransferred to AIB at approximately net asset value. The total net loss on disposal before tax arising from the transaction in2011, 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 heldwith 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. Underthe terms of the AIB Transfer Order, certain employees of the Bank associated with the deposit business automaticallytransferred to AIB and AIB UK. The Bank is providing certain administrative and operational services to AIB and AIB UKfollowing the deposit transfer pursuant to the TSA and has earned fee income of €3m during the year in respect of theseservices.In March and April 2011 the Bank entered into two cross currency swaps with the NTMA on market terms. The principalamounts of the swaps are €2.3bn / $3.2bn and €0.6bn / £0.6bn respectively and these amounts were exchanged between theparties. The swaps have an amortising profile and contractual maturity of 2021. The interest rates on the swaps are marketbasedplus an agreed spread over the respective currency interbank benchmark rate. The swaps assist the Bank in meeting itsforeign 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 whichthe Bank was obliged to implement in all material respects, with the approval of the NTMA, the high level steps plansappended thereto in relation to (i) the rationalisation and, where appropriate, closure of the Bank’s UK offices and its branchesin Dusseldorf, Vienna and Jersey, (ii) the disposal of the Bank’s Wealth Management business and (iii) the Bank’s acquisitionof/merger with INBS. The Bank was also required to prepare, in conjunction with INBS and the NTMA, a high level restructuringand work-out steps plan, based on the Restructuring Plan (the ‘High Level Steps Plan’) and, subject to the approval of theNTMA, implement that High Level Steps Plan, subject to any variations directed by the EC. The Bank is proceeding to implementthe 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 INBSwhich had been submitted by the Irish Government to the EC on 31 January 2011. Pursuant to the restructuring plan, the Bankand 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 ordermade, by the Irish High Court, under Section 34 of CISA (the ‘INBS Transfer Order’) and on that date the Bank announced itsintention 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 onassets previously transferred during November and December 2010. €296m of the net reduction relates to INBS assets and hasbeen 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 firstinstalment payment of €2.53bn on 31 March 2011.151

Notes to the financial statements continued54. Related party transactions continuedIrish Government continuedPlacings with, and deposits from, the Central Bank of Ireland are detailed in notes 19, 22 and 37. In addition, in the normalcourse of business and on arm's length terms, the Group has entered into transactions with Government-related entities, whichinclude financial institutions in which the State has significant influence. The principal banking transactions include takingdeposits, investing in Government bonds and debt securities in issue, entering into derivative contracts and providing loans. At31 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 theState has significant influence of €485m (2010: €383m), net derivative liabilities of €18m (2010: €24m) and loans and advancesto banks of €224m (2010: €365m).The volume and diversity of other non-banking transactions are not considered significant. Furthermore, while the IrishGovernment or Government-related entities may in the normal course of their business hold debt securities, subordinatedliabilities and other liabilities issued by the Group, it is not practical to ascertain and disclose these amounts. In the ordinarycourse of business the Group purchases certain utility and other services from entities controlled by the Irish Government.Pension fundsThe Group provides normal investment fund management and banking services to pension funds operated by the Group for thebenefit of its employees. These services are provided on similar terms to third party transactions and are not material to theGroup.Subsidiary undertakingsIrish Bank Resolution Corporation Limited (the 'Bank') is the ultimate parent of the Group. Banking transactions are entered intoby the Bank with its subsidiaries in the normal course of business. Balances between the Bank and its subsidiaries are detailed innotes 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 IBRCProperty Lending Limited. As a result of the loan waivers the Bank has increased its investments in certain of these subsidiaries.Joint ventures and associatesThe Group provides certain banking and financial services to its joint ventures and associates. Details of the Group's loans andadvances to equity-accounted joint venture interests, joint venture interests held in respect of liabilities to customers underinvestment contracts and joint ventures and associates that are measured at fair value through profit or loss are disclosed innote 27. Details of deposits from joint ventures and associates are shown in note 37. Details of significant equity-accountedjoint 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 agreedwith shareholders in a loan restructuring agreement in February 2010. The value of the Bank’s interest in Arnotts is included infinancial 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 ofthe Bank’s 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 insurancebusiness of Quinn Insurance Limited (Under Administration). The value of the Bank's interest is included in interests inassociates and the details are disclosed in note 29.152

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Key management personnelKey management personnel comprise persons who, at any time during the year ended 31 December 2011, were members ofthe Board of Directors (the 'Board') and any other persons having authority and responsibility for planning, directing andcontrolling the activities of the Bank.Changes to the Board since 31 December 2010On 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 inconsultation with the Bank.Key management compensationThe following disclosures are made in accordance with the provisions of IAS 24 'Related Party Disclosures'. These disclosurescover the Board of Directors (Executive and Non-executive) and other key management personnel. The amounts presentedbelow include the figures separately reported in the Report on Directors' remuneration and interests in note 53.2011 2010*€m €mSalaries and short term employee benefits (1)Directors' fees (2)Post employment benefits (3)Termination benefits (4)6 51 11 1- 18 8(1)At 31 December 2011 key management personnel comprise the ten individuals who are members of the Bank’s GroupExecutive Committee, which includes the Executive Director. The amounts presented above include salaries and short termemployee benefits for seventeen persons (2010: fourteen), who were considered key management personnel at somepoint during the year, two of whom had left the Bank by 31 December 2011. In addition, to ensure compliance with taxrules, the Bank also engages professional advisors to assist in the preparation of Irish and foreign tax returns for certain keymanagement personnel who were hired from abroad.(2)(3)(4)Further details in respect of Directors' fees are presented separately in the Report on Directors' remuneration and interestsin note 53.Comprises employer contributions to pension funds.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 to30 September 2006 and which represented a contractual obligation, was paid to one key manager in the prior year.153

Notes to the financial statements continued54. Related party transactions continuedLoans to key management personnelLoan balance movements during the year and the aggregate amounts outstanding at year end to persons who, at any timeduring the year, were key management personnel were:2011 2010Other keyOther keyDirectors management * Directors management *€m €m €m €mAt beginning of year (1)Loan advances during the year (2)Loan repayments during the yearOther movements (3)At end of year (4)Provisions for impairmentAt end of year after provisions for impairment- 1 46 11- - - -- - - -- - (46) (10)- 1 - 1- - - -- 1 - 1Number of persons (5)- 3 - 2* Excludes Executive DirectorsNone 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 timeduring 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 thefifteen month period ended 31 December 2009. A full analysis of the closing balance at 31 December 2009 is presented innote 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, afterprovisions for impairment, in respect of three former key managers who were no longer employed by the Bank at31 December 2010.(2)(3)(4)(5)No new loans and advances to key managers were provided in the year to 31 December 2011.Following changes to the composition of key management personnel which arose during the year, the number of keymanagers with borrowings from the Bank has changed.At 31 December 2011 loans and advances include €1m (2010: €1m) in respect of three (2010: two) individuals who wereconsidered key management personnel at some point during the year. In addition to the amounts included in the tableabove, one current key manager has also provided joint and several guarantees in respect of loans involving two corporateentities. The joint and several guarantees in respect of the two corporate exposures have been provided in conjunctionwith 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.This includes key management personnel who held balances at any time during the year.154

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Deposits and investments by key management personnelDeposit balance movements during the year and the aggregate amounts outstanding at year end from persons who, at anytime during the year, were key management personnel were:2011 2010Other keyOther keyDirectors management * Directors management *€m €m €m €mAt beginning of yearDeposits received during the yearDeposits withdrawn during the yearOther movements (1)At end of year- - 8 1- - - -- - - -- - (8) (1)- - - -Number of persons (2)1 - 1 1* Excludes Executive Directors(1)(2)Other movements include changes to the composition of the Board and other key management personnel. One NonexecutiveDirector had deposits with the Bank at the end of 2010 totalling €213k. One former member of keymanagement, who left the Bank during 2010, had deposits totalling €107k at the end of 2010. Deposits by keymanagement personnel were at commercial interest rates. Along with the vast majority of customer deposits theseaccounts were transferred to AIB on 24 February 2011 as part of the wider AIB Transfer Order. Consequently the bank hadno deposit balances with Directors or other key management as at 31 December 2011.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 investedinto. Fees earned by the Group on their share of these investments are charged at commercial rates and the amounts are deminimis for 2010 and 2011. At 31 December 2011 two persons (2010: three) who were key management personnel during theyear held investments valued at €23k (2010: €132k). Investments held by Directors remaining in office at 31 December 2011totalled €nil (2010: €nil).Loans to connected personsDuring the year there was no transaction, arrangement or agreement of the type referred to in section 31 of the CompaniesAct, 1990 (as amended) between the Bank and any person who was connected with a Director of the Bank during the yearwhich was (a) not entered into by the Bank in the ordinary course of its business, or (b) its value was greater, or its termsmore 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 butunconnected with the Bank.Other related party transactionsNo other related party transactions, arrangements or agreements of the type referred to in section 31 of the CompaniesAct, 1990 (as amended) existed at any time during the year in respect of any current Director of the Bank.155

Notes to the financial statements continued55. Parent Bank information on credit riskMarket, liquidity and funding, and operational risks are managed on a Group basis. A description of these risks, along withrelevant financial information, is set out in note 50. Equivalent information in respect of the Bank would not be meaningful andtherefore has not been provided. While credit risk is managed on a consistent basis throughout the Group, asset qualityinformation 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 salerelates only to third party exposures arising within the parent Bank. There is no net exposure in the Bank that is not in theGroup.Maximum exposure to credit riskThe 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 financialposition, which the Bank does not expect to be fully drawn.Exposures in the statement of financial positionThe Bank2011 2010€m €mCash and balances with central banksFinancial assets at fair value through profit or loss - held on own account *Derivative financial instrumentsLoans and advances to banksAssets classified as held for saleAvailable-for-sale financial assets *Promissory notesGovernment debt securities at amortised costLoans and advances to customers100 181- -1,380 2,1772,112 2,900311 1,3641,276 2,16829,934 25,704947 10,62314,404 21,319Exposures not recognised in the statement of financial positionContingent liabilitiesCommitments to lend174 304237 551Maximum exposure to credit risk50,875 67,291* Excludes equity sharesWhere financial instruments are recorded at fair value, the amounts shown above represent the credit risk exposure as at yearend 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 investmentcontracts.Contingent liabilities includes €157m (2010: €266m) in respect of financial guarantees and irrevocable letters of credit.156

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Additional information for loans and advances to customersAsset quality - profile of loans and advances to customersThe Bank2011Business Residential OtherCommercial Residential Banking Mortgages Lending Total€m €m €m €m €m €mGood quality 1,532 128 314 637 480 3,091Satisfactory quality 7 8 72 150 3 240Lower quality but not past dueor impaired2,152 35 385 38 170 2,780Total neither past dueor impaired3,691 171 771 825 653 6,111Past due but not impaired 1,063 195 133 245 314 1,950Impaired loans 10,664 815 2,172 803 1,735 16,18915,418 1,181 3,076 1,873 2,702 24,250Provisions for impairment (5,544) (571) (1,872) (496) (1,363) (9,846)TotalLess:9,874 610 1,204 1,377 1,339 14,404Lending to policyholders in respectof investment contracts (note 40)Total(724)13,680Provisions for impairment on loansand advances to customersThe Bank2011Business Residential OtherCommercial Residential Banking Mortgages Lending Total€m €m €m €m €m €mAt beginning of year5,260 596 1,865 - 1,318 9,039Acquired under the INBSTransfer Order 164 50 - 421 32 667Charge against profits1,093 96 169 80 35 1,473Write-offs (159) (7) (159) - - (325)Recoveries 1 - 5 - - 6Unwind of discount (123) (11) (14) (9) (10) (167)Exchange movements 53 (18) 28 - 22 85Net transfers (to)/from assetsclassified as held for saleand sectoral reclassification(745) (135) (22) 4 (34) (932)At end of year 5,544 571 1,872 496 1,363 9,846Specific 5,147 534 1,777 361 1,288 9,107Collective 397 37 95 135 75 739Total 5,544 571 1,872 496 1,363 9,846The 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 developmentand investment transactions. Residential mortgages consists of the portfolio of residential loans transferred to the Bank on1 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.157

Notes to the financial statements continued55. Parent Bank information on credit risk continuedThe Bank2010Business OtherCommercial Residential Banking Lending Total€m €m €m €m €mGood quality 4,706 351 428 219 5,704Satisfactory quality 895 21 79 - 995Lower quality but not past dueor impaired3,515 362 73 40 3,990Total neither past dueor impaired9,116 734 580 259 10,689Past due but not impaired 2,483 363 386 1,224 4,456Impaired loans 9,924 1,401 2,436 1,452 15,21321,523 2,498 3,402 2,935 30,358Provisions for impairment (5,260) (596) (1,865) (1,318) (9,039)Less:16,263 1,902 1,537 1,617 21,319Lending to policyholders in respectof investment contracts (note 40)Total(749)20,570Provisions for impairment on loansand advances to customersThe Bank2010Business OtherCommercial Residential Banking Lending Total€m €m €m €m €mAt beginning of year2,606 296 734 922 4,558Charge against profits2,463 279 1,682 414 4,838Write-offs (156) (10) (193) (4) (363)Unwind of discount (106) (17) (24) (7) (154)Exchange movements 35 (13) 4 37 63Net transfers from/(to) assetsclassified as held for sale andsectoral reclassification418 61 (338) (44) 97At end of year 5,260 596 1,865 1,318 9,039Specific 4,588 533 1,694 1,045 7,860Collective 672 63 171 273 1,179Total 5,260 596 1,865 1,318 9,039The charge against profits includes collective provisions for impairment analysed on a portfolio basis.158

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Aged analysis of financial assets past due but not impairedThe following tables present an analysis of financial assets, other than those carried at fair value, and excluding loans classifiedas held for sale, where contractual interest or principal payments are past due but impairment is not appropriate as the level ofcollateral and the present value of estimated future cash flows available to the Bank is sufficient.The Bank2011Business Residential OtherCommercial Residential Banking Mortgages Lending Total€m €m €m €m €m €mPast due 1 to 30 days 101 9 74 49 33 266Past due 31 to 60 days 13 36 - 25 11 85Past due 61 to 90 days 21 1 4 75 2 103Past due 91 days and over 928 149 55 96 268 1,496Total 1,063 195 133 245 314 1,950The Bank2010Business OtherCommercial Residential Banking Lending Total€m €m €m €m €mPast due 1 to 30 days 855 123 287 57 1,322Past due 31 to 60 days 391 3 1 6 401Past due 61 to 90 days 180 18 4 26 228Past due 91 days and over 1,057 219 94 1,135 2,505Total 2,483 363 386 1,224 4,456159

Notes to the financial statements continued55. Parent Bank information on credit risk continuedGross loans and advances to customers by geographical location and industry sector2011UnitedIreland Kingdom USA Total€m €m €m €m %Retail 2,962 839 239 4,040 17%Office 2,257 871 184 3,312 14%Mixed use 693 692 87 1,472 6%Industrial 237 406 - 643 2%Leisure 2,291 2,528 - 4,819 20%Commercial development 187 51 - 238 1%Other property investment 878 16 - 894 4%Residential investment 492 160 104 756 3%Residential development 391 34 - 425 2%Business banking 3,042 34 - 3,076 13%Residential owner occupier 1,440 - - 1,440 6%Residential buy to let 433 - - 433 2%Personal 2,288 24 4 2,316 9%Fund Investment 351 1 - 352 1%Unzoned land 31 3 - 34 0%Total loans and advancesto customers17,973 5,659 618 24,250 100%2010UnitedIreland Kingdom USA Total€m €m €m €m %Retail 1,765 874 1,491 4,130 14%Office 1,722 1,652 2,192 5,566 18%Mixed use 595 1,027 469 2,091 7%Industrial 251 475 548 1,274 4%Leisure 2,139 3,329 1,080 6,548 22%Commercial development 271 94 480 845 3%Other property investment 897 124 48 1,069 4%Residential investment 447 351 1,166 1,964 6%Residential development 380 35 119 534 2%Business banking 3,359 36 7 3,402 11%Personal 2,433 32 43 2,508 8%Fund Investment 390 3 - 393 1%Unzoned land 31 3 - 34 0%Total loans and advancesto customers14,680 8,035 7,643 30,358 100%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 assetsheld by the Group's assurance business in respect of liabilities to customers under investment contracts.160

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Specific provisions against loans and advances to customers by geographical location and industry sector2011UnitedIreland Kingdom USA Total€m €m €m €m %Retail 966 219 18 1,203 13%Office 647 220 - 867 10%Mixed use 254 116 - 370 4%Industrial 123 92 - 215 2%Leisure 1,044 528 - 1,572 17%Commercial development 175 24 - 199 2%Other property investment 718 3 - 721 8%Residential investment 185 15 2 202 2%Residential development 309 23 - 332 4%Business banking 1,767 10 - 1,777 20%Residential owner occupier 206 - - 206 2%Residential buy to let 155 - - 155 2%Personal 1,157 5 3 1,165 13%Fund Investment 96 1 - 97 1%Unzoned land 24 2 - 26 0%Total specific provisions on loansand advances to customers7,826 1,258 23 9,107 100%2010UnitedIreland Kingdom USA Total€m €m €m €m %Retail 504 103 100 707 9%Office 433 117 262 812 10%Mixed use 146 90 97 333 4%Industrial 89 78 60 227 3%Leisure 899 281 359 1,539 20%Commercial development 166 19 100 285 4%Other property investment 683 1 1 685 9%Residential investment 115 11 136 262 3%Residential development 232 20 19 271 3%Business banking 1,693 1 - 1,694 22%Personal 914 3 18 935 12%Fund Investment 87 1 - 88 1%Unzoned land 20 2 - 22 0%Total specific provisions on loansand advances to customers5,981 727 1,152 7,860 100%Geographical location is based on the location of the office recording the transaction.161

Notes to the financial statements continued55. Parent Bank information on credit risk continuedAdditional information for loans classified as held for saleAsset quality - profile of loans classified as held for saleThe Bank2011Business Residential OtherCommercial Residential Banking Mortgages Lending Total€m €m €m €m €m €mGood quality 7 - - - - 7Satisfactory quality 65 - - - - 65Lower quality but not past dueor impaired- - - - - -Total neither past dueor impaired 72 - - - - 72Past due but not impaired 31 - - - - 31Impaired loans 83 193 - - - 276186 193 - - - 379Provisions for impairment (83) (20) - - - (103)Less:103 173 - - - 276Lending to policyholders in respectof investment contracts (note 40)Total(14)262Provisions for impairment on loansclassified as held for saleThe Bank2011Business Residential OtherCommercial Residential Banking Mortgages Lending Total€m €m €m €m €m €mAt beginning of year346 127 - - 46 519Acquired under the INBSTransfer Order 73 163 - 4 96 336Charge against profits(1) 17 4 - 3 23Write-offs (49) (7) - - - (56)Unwind of discount (9) (6) - - (1) (16)Exchange movements 19 4 - - (1) 22Net transfers from/(to) loans andadvances to customers andsectoral reclassification745 135 22 (4) 34 932Net release on disposal of assetsto NAMA (note 14)(73) (169) (4) - (129) (375)Release on loan asset sales(note 15) (968) (244) (22) - (48) (1,282)At end of year 83 20 - - - 103Specific 83 20 - - - 103Total 83 20 - - - 103Residential lending comprises residential development and residential investment, and incorporates large value developmentand investment transactions. Residential mortgages incorporates owner occupier mortgages and buy to let mortgages.162

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011The Bank2010Business OtherCommercial Residential Banking Lending Total€m €m €m €m €mGood quality 166 13 - 2 181Satisfactory quality - - - - -Lower quality but not past dueor impaired321 46 - - 367Total neither past dueor impaired 487 59 - 2 548Past due but not impaired 351 10 3 34 398Impaired loans 616 235 - 54 9051,454 304 3 90 1,851Provisions for impairment (346) (127) - (46) (519)1,108 177 3 44 1,332Less:Lending to policyholders in respectof investment contracts (note 40)Total(15)1,317Provisions for impairment on loansclassified as held for saleThe Bank2010Business OtherCommercial Residential Banking Lending Total€m €m €m €m €mAt beginning of year5,192 2,477 180 1,285 9,134Charge against profits1,630 643 11 343 2,627Write-offs (6) (11) - - (17)Unwind of discount (131) (59) (2) (18) (210)Exchange movements 31 15 9 9 64Net transfers (to)/from loans andadvances to customers andsectoral reclassification(72) (65) (22) 62 (97)Released on disposal of assets toNAMA (note 14)(6,298) (2,873) (176) (1,635) (10,982)At end of year 346 127 - 46 519Specific 346 127 - 46 519Total 346 127 - 46 519163

Notes to the financial statements continued55. Parent Bank information on credit risk continuedAged analysis of loans classified as held for sale past due but not impairedThe following table presents an analysis of loans classified as held for sale where contractual interest or principal payments arepast due but impairment is not appropriate as the level of collateral and the present value of estimated future cash flowsavailable to the Bank is sufficient.The Bank2011Business Residential OtherCommercial Residential Banking Mortgages Lending Total€m €m €m €m €m €mPast due 1 to 30 days - - - - - -Past due 31 to 60 days - - - - - -Past due 61 to 90 days - - - - - -Past due 91 days and over 31 - - - - 31Total 31 - - - - 31The Bank2010Business OtherCommercial Residential Banking Lending Total€m €m €m €m €mPast due 1 to 30 days 8 1 3 - 12Past due 31 to 60 days 15 - - - 15Past due 61 to 90 days 21 - - - 21Past due 91 days and over 307 9 - 34 350Total 351 10 3 34 398164

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Gross loans classified as held for sale by geographical location and industry sector2011UnitedIreland Kingdom USA Total€m €m €m €m %Retail 11 - - 11 3%Office 11 - 65 76 20%Mixed use 2 - 5 7 2%Industrial - - 14 14 4%Leisure 72 - - 72 19%Commercial development 6 - - 6 2%Other property investment - - - - 0%Residential investment - - 169 169 44%Residential development - - 24 24 6%Business banking - - - - 0%Residential owner occupier - - - - 0%Residential buy to let - - - - 0%Personal - - - - 0%Fund Investment - - - - 0%Unzoned land - - - - 0%Total loans classified as heldfor sale102 - 277 379 100%2010UnitedIreland Kingdom USA Total€m €m €m €m %Retail 283 268 21 572 31%Office 127 45 - 172 9%Mixed use 31 30 80 141 8%Industrial - 27 8 35 2%Leisure 148 - 44 192 10%Commercial development 13 1 309 323 17%Other property investment 19 - - 19 1%Residential investment 46 23 110 179 10%Residential development 38 - 87 125 7%Business banking 3 - - 3 0%Personal 78 1 - 79 4%Fund investment - - - - 0%Unzoned land 11 - - 11 1%Total loans classified as heldfor sale797 395 659 1,851 100%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 bythe Group's assurance business in respect of liabilities to customers under investment contracts.165

Notes to the financial statements continued55. Parent Bank information on credit risk continuedSpecific provisions against loans classified as held for sale by geographical location and industry sector2011UnitedIreland Kingdom USA Total€m €m €m €m %Retail - - - - 0%Office - - - - 0%Mixed use - - 5 5 5%Industrial - - - - 0%Leisure 72 - - 72 70%Commercial development 6 - - 6 6%Other property investment - - - - 0%Residential investment - - 20 20 19%Residential development - - - - 0%Business banking - - - - 0%Residential owner occupier - - - - 0%Residential buy to let - - - - 0%Personal - - - - 0%Fund Investment - - - - 0%Unzoned land - - - - 0%Total specific provisions on loansclassified as held for sale78 - 25 103 100%2010UnitedIreland Kingdom USA Total€m €m €m €m %Retail - - 15 15 3%Office - 9 - 9 2%Mixed use - 6 58 64 12%Industrial - - 6 6 1%Leisure 75 - 28 103 20%Commercial development 11 - 138 149 29%Other property investment - - - - 0%Residential investment - - 47 47 9%Residential development 23 - 57 80 15%Business banking - - - - 0%Personal 46 - - 46 9%Fund investment - - - - 0%Unzoned land - - - - 0%Total specific provisions on loansclassified as held for sale155 15 349 519 100%Geographical location is based on the location of the office recording the transaction.166

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Available-for-sale financial assetsThe external ratings profile of the Bank's available-for-sale financial assets, excluding equity shares, is as follows:The Bank2011Asset NAMAFinancial Backed SubordinatedSovereign Institutions Securities Bonds Total€m €m €m €m €mAAA / AA - 43 - - 43A - 214 - - 214BBB+ / BBB / BBB- 303 496 - - 799Sub investment grade - 96 - - 96Unrated - - - 124 124303 849 - 124 1,276The Bank2010Asset NAMAFinancial Backed SubordinatedSovereign Institutions Securities Bonds Total€m €m €m €m €mAAA / AA 72 418 - - 490A - 684 - - 684BBB+ / BBB / BBB- 279 548 - - 827Sub investment grade - - - - -Unrated - - - 167 167351 1,650 - 167 2,168167

Notes to the financial statements continued56. Asset management activitiesIn the past the Group provided custody, investment management and advisory services to third parties which involved theGroup making allocation, purchase and sale decisions in relation to a wide range of assets. Those assets that are held in afiduciary capacity are not included in these financial statements. At the end of the reporting period the Group still holds thefollowing assets under management:2011 2010€m €mEquities and investment properties 129 179Managed cash and other assets 21 28150 20757. Events after the reporting periodWealth Management businessOn 30 January 2012 the Bank announced that the Board had approved a strategy and direction put forward by management towind down its Wealth Management business in an orderly fashion. This process is currently underway and may include a cosourcingarrangement. Any final arrangement reached between the parties will be subject to the approval of the Boards of theBank and IBRC Assurance Company Limited and the consent of the Central Bank of Ireland with final ratification by the Ministerfor 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 itscommercial mortgage asset covered securities in issue, all of which were held by the Bank. These redemptions were completedfollowing consultation with the Central Bank of Ireland and in accordance with the requirements of the independent Cover-Assets Monitor. In addition, the beneficial interests in the portfolio of commercial mortgage loans acquired by IBRCMB weretransferred back to the Bank, significantly reducing the level of assets in IBRCMB. All derivative hedging contracts entered intobetween IBRCMB and the Bank have been terminated.Promissory notesFollowing an outline request, made on behalf of the Minister for Finance, the Bank is in discussions with the Department ofFinance and the NTMA regarding a settlement proposal to utilise the funds due from the next instalment under the promissorynotes on 2 April 2012 to acquire an Irish Government bond with an equivalent value. In the context of the ongoing financialsupport provided by the State to the Group, the Directors’ statutory public interest obligations and on the basis that thesettlement proposal takes account of commercial market based considerations including valuation, liquidity and fundingfactors, 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 remainingannual instalments under the promissory notes. Detailed discussions on the technical aspects of the proposal continue.58. Approval of financial statementsThe Group financial statements were authorised for issue by the Board of Directors on 28 March 2012.168

Supplementary information (unaudited)Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Additional residential mortgage informationThe following unaudited supplementary information provides more granular detail in relation to the asset quality profile of the Bank'sresidential mortgage portfolio. The information provided is consistent with the Central Bank of Ireland Impairment Provisioning andDisclosure 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, wastransferred to the Bank under the INBS Transfer Order on 1 July 2011. The portfolio is divided between owner occupier and buy to letmortgages, with approximately 77% being owner occupier and the remainder buy to let. The loans are almost exclusively secured onproperties 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 theportfolio comprises fixed rate loans. €260m of the fixed rate loan portfolio reverted to a higher standard variable rate at the end ofFebruary 2012.The information shown reflects balances as at 31 December 2011. Information in respect of charges to the income statement andcollateral disposals cover the period for the six months ended 31 December 2011.Asset quality - profile of residential mortgagesThe table below details the overall asset quality of the portfolio at 31 December 2011. The Bank monitors the asset quality of theresidential mortgage portfolio on an ongoing basis. An explanation of each asset quality category is contained in note 50.31 December 2011Owner Buy toOccupier Let Total€m €m €mGood qualitySatisfactory qualityLower quality but not past due or impairedTotal neither past due or impairedPast due but not impairedImpaired loansTotal gross loansSpecific provisions for impairmentCollective provisions for impairmentTotal loans net of provisions577 60 637136 14 15035 3 38748 77 825215 30 245477 326 8031,440 433 1,873(206) (155) (361)(120) (15) (135)1,114 263 1,377Total provision % 23% 39% 26%Specific coverage ratio *43% 48% 45%* The specific coverage ratio measures specific provisions as a percentage of impaired loans.169

Supplementary information (unaudited) continuedAdditional residential mortgage information (continued)Aged analysis of residential mortgages past due but not impairedPast due 1 to 30 daysPast due 31 to 60 daysPast due 61 to 90 daysPast due 91 days to 180 daysPast due 181 days to 360 daysPast due 361 days and overTotal31 December 2011Owner Buy toOccupier Let Total€m €m €m45 4 4923 2 2565 10 7525 3 2827 4 3130 7 37215 30 245All 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 forspecific impairment. In cases where a provision is necessary the loan is considered impaired and is reported in the impaired loanbalances.Further information on the Bank's overall approach to the management of credit risk relating to its mortgage portfolio can be found innote 50 to the financial statements.Loan origination profile of residential mortgages beforeprovisions for impairment31 December 2011Impaired residentialResidential mortgagesmortgagesNumber €m Number €m1996 and before 2,182 38 50 21997 716 18 19 11998 823 30 48 41999 908 43 63 82000 692 40 83 102001 744 54 116 182002 1,181 102 198 302003 1,553 154 332 522004 2,286 283 639 1132005 2,233 288 701 1382006 2,370 404 860 2132007 1,909 335 752 1952008 486 45 107 172009 91 5 11 12010 173 27 4 12011 35 7 - -Total 18,382 1,873 3,983 803The above table summarises the total number of loan accounts and balances by year of origination. In certain scenarios more than oneloan can be secured on an individual property. This would normally arise where a customer availed of an equity release loan after theinitial mortgage origination. Where a customer facility has been classified as impaired, both the original mortgage and the subsequentequity 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).170

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Loan to value ('LTV') information on residential mortgagesThe Bank’s primary security for its residential mortgage lending portfolio is the underlying property, and therefore LTV is an importantfactor when assessing credit risk. However, it is not the only factor used when determining the overall credit quality of a facility. Therepayment history and the current and future capability of the borrower to repay the debt are equally important considerations. Thehighest risk loans are those that are past due and have a high LTV.Actual LTVs across total mortgage portfolio 31 December 2011Owner Buy toOccupier Let Total Total€m €m €m %Less than 50% 255 46 301 16%50% to 70% 155 20 175 9%71% to 80% 87 15 102 6%81% to 90% 99 15 114 6%91% to 100% 111 26 137 7%101% to 120% 213 41 254 14%121% to 150% 252 72 324 17%Greater than 150% 268 198 466 25%Total 1,440 433 1,873 100%Average LTV 108% 152% 119%Average LTV has been estimated based on indexing the most recently available property valuations against a combination of thePTSB/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 31 December 2011Owner Buy toOccupier Let Total Total€m €m €m %Less than 50% 242 33 275 26%50% to 70% 149 18 167 16%71% to 80% 68 8 76 7%81% to 90% 70 6 76 7%91% to 100% 77 9 86 8%101% to 120% 140 10 150 14%121% to 150% 138 10 148 14%Greater than 150% 79 13 92 8%Total 963 107 1,070 100%Average LTV 85% 97% 87%171

Supplementary information (unaudited) continuedAdditional residential mortgage information (continued)Forbearance arrangementsSupport for mortgage customers who are experiencing financial difficulties with their scheduled residential mortgage repayments isprovided by the Bank’s Arrears Support Unit. Forbearance options for customers are considered on a case-by-case basis, and areconsistent with industry guidance and practice. Forbearance measures include arrears capitalisation, interest only concession, less thaninterest only concession, greater than interest only concession and, subject to any constraints under the commitments, term extensionfor 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 theobjective of bringing the mortgage back onto sustainable terms within a reasonable timeframe. These management policies andpractices typically provide the customer with terms and conditions that are in line with their current capacity to service the loan. Loanswhere forbearance has been granted or is being considered are taken into account within the Bank’s impairment assessment process.At all times the Bank complies with the Central Bank of Ireland’s statutory codes of conduct for mortgage lenders when dealing withmortgage arrears.The information provided and the format of this information reflect the detailed requirements of the Central Bank of Ireland and areconsistent with quarterly reporting submitted to the Central Bank of Ireland by the Bank.Owner occupier mortgages 31 December 2011Loans > 90 daysAll loansin arrears and/or impairedNumber €m Number €mInterest only ('IO') 283 37 186 29Payment reduced (less than IO) 221 36 193 33Payment reduced (greater than IO) 307 29 173 19Payment moratorium 93 14 64 12Arrears capitalisation 1,565 180 904 130Term extension 366 24 253 21Hybrid 849 114 577 96Total 3,684 434 2,350 340Buy to let mortgages 31 December 2011Loans > 90 daysAll loansin arrears and/or impairedNumber €m Number €mInterest only ('IO') 145 27 115 24Payment reduced (less than IO) 33 11 31 11Payment reduced (greater than IO) 10 2 6 1Payment moratorium 13 2 10 2Arrears capitalisation 261 53 204 49Term extension 72 15 54 13Hybrid 82 20 77 18Total 616 130 497 118172

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Provisions for impairment - residential mortgages6 monthsended31 December2011€mSpecific- Owner occupier 46- Buy to let 16Collective 18Total 80The total impairment charge of €80m represents 5% of the Bank's total lending impairment charge for the year and reflects the overallcredit quality of the portfolio and the continuing difficult conditions in the Irish residential property market. Of the specific residentialmortgage impairment charge, €28m relates to mortgages where forbearance has been granted.Repossessed collateralRepossession 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 ofsecurity held.Residential repossessions31 December 2011GrossNumber of BalanceRepossessions Outstanding€mOwner occupier 51 18Buy to let 81 26Total 132 44During the six months since the INBS Transfer Order on 1 July 2011, 33 properties have been repossessed. Following repossession of aproperty, 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 tomanage 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 theperiod 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 2011Number Gross balance Grossof outstanding at sales Costs to Loss ondisposals repossession proceeds sell sale€m €m €m €mResidential mortgagesOwner occupier 15 4.1 1.6 0.1 (2.6)Buy to let 13 5.2 1.5 0.1 (3.8)Total 28 9.3 3.1 0.2 (6.4)173

Supplementary information (unaudited) continuedConsolidated income statementFor the year ended 31 December 2011$m £mInterest and similar income 3,195 2,062Interest expense and similar charges (1,973) (1,274)Net interest income 1,222 788Fee and commission income 83 53Fee and commission expense (6) (4)Net trading expense (96) (62)Financial assets designated at fair value 3 2Gain on liability management exercise - -Other operating income/(expense) 11 8Other (expense)/income (5) (3)Total operating income 1,217 785Administrative expenses (384) (248)Depreciation (17) (11)Amortisation of intangible assets - software (13) (8)Total operating expenses (414) (267)Operating profit before disposals and provisions 803 518Loss on transfer of assets and liabilities (277) (179)Gain/(loss) on disposal of assets to NAMA 1,004 648Loss on deleveraging of other financial assets (551) (356)Provisions for impairment and other provisions (2,127) (1,373)Operating loss (1,148) (742)Share of results of associates and joint ventures 19 12Loss before taxation (1,129) (730)Taxation (16) (10)Loss for the year (1,145) (740)Attributable to:Owner of the parent (1,144) (739)Non-controlling interests (1) (1)(1,145) (740)Exchange rates used at 31 December 2011€1 = $1.2939 / £0.8353174

Irish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Consolidated statement of financial positionAs at 31 December 2011$m £mAssetsCash and balances with central banks 129 84Financial assets at fair value through profit or loss- held on own account 16 10- held in respect of liabilities to customers under investment contracts 251 162Derivative financial instruments 1,418 915Loans and advances to banks 2,984 1,926Assets classified as held for sale 507 327Available-for-sale financial assets 1,723 1,113Promissory notes 38,732 25,004Government debt securities at amortised cost 1,225 791Loans and advances to customers 22,888 14,776Interests in joint ventures 74 48Interests in associates 128 83Intangible assets - software 13 8Investment property -- held on own account 114 74- held in respect of liabilities to customers under investment contracts 1,462 944Property, plant and equipment 23 15Current taxation 27 17Retirement benefit assets 10 7Deferred taxation 55 35Other assets 40 26Prepayments and accrued income 45 29Total assets 71,864 46,394LiabilitiesDeposits from banks 55,108 35,576Customer accounts 772 499Derivative financial instruments 2,910 1,879Debt securities in issue 6,950 4,486Liabilities to customers under investment contracts 366 236Current taxation 85 55Other liabilities 703 454Accruals and deferred income 110 71Deferred taxation 1 1Subordinated liabilities and other capital instruments 669 432Total liabilities 67,674 43,689Share capital 5,335 3,444Share premium 1,496 966Capital reserve 33,656 21,727Other reserves (319) (206)Retained earnings (35,978) (23,226)Shareholders' funds 4,190 2,705Non-controlling interests - -Total equity 4,190 2,705Total equity and liabilities 71,864 46,394Exchange rates used at 31 December 2011€1 = $1.2939 / £0.8353175

Acronyms and abbreviationsAFSAvailable-for-saleAIBAllied Irish Banks, p.l.c.AIB Transfer Order Transfer order made by the Irish HighCourt under section 34 of CISA on24 February 2011AIB UKAIB Group (UK) p.l.c.ALCOGroup Asset and Liability CommitteeBasel II2006 Basel Capital AccordbpBasis pointCCFCredit and Collections ForumCIFS Scheme Credit Institutions (Financial Support)Scheme 2008CIROCCovered Institutions RemunerationOversight CommitteeCISA Credit Institutions (Stabilisation) Act 2010CIWUDCredit Institutions Reorganisation andWinding Up DirectiveCLSContinuous Linked SettlementCRDCapital Requirements DirectiveCredit Policy Group Credit PolicyCROGroup Chief Risk OfficerCRUCollections and Recoveries UnitCSAsCollateral support agreementsCVACredit valuation adjustmentDirection Order Direction order made by the Irish HighCourt under section 9 of CISA on8 February 2011ECEuropean CommissionECBEuropean Central BankELG Scheme Credit Institutions (Eligible LiabilitiesGuarantee) Scheme 2009EUEuropean UnionEU/IMF Programme EU/IMF Programme of Financial Supportfor IrelandEuriborEuro interbank offered rateFDFacility Deed agreementGBSMGroup Balance Sheet ManagementHigh Level Steps High level restructuring and work-outPlansteps plan, based on the RestructuringPlanIASInternational Accounting StandardsIBNRIncurred but not reportedIBRCIrish Bank Resolution Corporation Limitedand its subsidiariesIBRCMBIBRC Mortgage BankICAAPInternal Capital Adequacy AssessmentProcessIFRSInternational Financial ReportingStandardsIMFInternational Monetary FundINBSIrish Nationwide Building SocietyINBS Transfer Order Transfer order made by the Irish HighCourt under section 34 of CISA on1 July 2011IOInterest onlyLIBORLondon interbank offered rateLMELiability management exerciseLTVLoan-to-valueMinisterial Requirements issued by the Minister forrequirements Finance under section 50 of CISA on7 April 2010MLRAMaster Loan Repurchase AgreementNAMANational Asset Management AgencyNAMA Act National Asset Management Agency Act2009NTMANational Treasury Management AgencyPVBPPresent Value of a Basis PointRestructuring Plan Restructuring plan for IBRC, including theintegration of INBS / High Level StepsPlanRMIRecovery Management IrelandRWARisk weighted assetsS&PStandard and Poor's rating agencySenior bonds Government Guaranteed Floating RateNotesSLPScottish Limited PartnershipSMRASpecial Master Repurchase Agreementthe 1986 Act Companies (Amendment) Act, 1986the 2010 Act Central Bank Reform Act 2010the BankIrish Bank Resolution Corporation Limitedthe Board The Board of Directors of the Bankthe CodeCentral Bank of Ireland's CorporateGovernance Code for Credit Institutionsand Insurance Undertakingsthe Code of Practice 2009 Code of Practice for theGovernance of State Bodiesthe Directors The Board of Directors of the Bankthe Group Irish Bank Resolution Corporation Limitedand its subsidiariesTier 1Primary capitalTier 2Secondary capitalTSATransfer Support Agreement concludedbetween IBRC, AIB and AIB UKTurnbull guidance Financial Reporting Council RevisedGuidance on Internal ControlUKUnited KingdomUSUnited States of AmericaVaRValue at RiskVATValue Added Tax176

Irish Bank ResolutionCorporation LimitedLocationsDublinRegistered OfficeStephen Court18/21 St Stephen’s GreenDublin 2Tel: +353 (0)1 616 2000Fax: +353 (0)1 616 2323www.ibrc.ieConnaught House1 Burlington RoadDublin 4Tel: +353 (0)1 631 0000Fax: +353 (0)1 631 00982 Grand ParadeDublin 6Tel: +353 (0)1 609 6000Fax: +353 (0)1 609 6599Cork11 Anglesea StreetCorkTel: +353 (0)21 453 7300Fax: +353 (0)21 453 7399GalwayForster StreetGalwayTel: +353 (0)91 536 900Fax: +353 (0)91 536 931London10 Old JewryLondon EC2R 8DNTel: +44 (0)20 7710 7000Fax: +44 (0)20 7710 7050Belfast14/18 Great Victoria StreetBelfast BT2 7BATel: +44 (0)28 9033 3100Fax: +44 (0)28 9026 9090Centrepoint24 Ormeau AvenueBelfast BT2 8HSTel: +44 (0)28 9055 0093Fax: +44 (0)28 9055 0094Manchester1 Marsden StreetManchester M2 1HWTel: +44 (0)16 1214 3020Fax: +44 (0)16 1214 3030Boston(Representative Office)265 Franklin StreetBoston MA 02110Tel: +1 617 720 2577Fax: +1 617 720 6099Limerick98 Henry StreetLimerickTel: +353 (0)61 461 800Fax: +353 (0)61 461 899WaterfordMaritana GateCanada StreetWaterfordTel: +353 (0)51 849 300Fax: +353 (0)51 849 399Cover design: DesignbankForward looking statementsThis report contains certain forward looking statements with respect to the financialcondition, results of operations and businesses of Irish Bank Resolution CorporationLimited. These statements involve risk and uncertainty because they relate to eventsand depend upon circumstances that will occur in the future. There are a number offactors which could cause actual results or developments to differ materially fromthose expressed or implied by these forward looking statements. The statements arebased on current expected market and economic conditions, the existing regulatoryenvironment and interpretations of IFRS applicable to past, current and future periods.Nothing in this report should be construed as a profit forecast.

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