UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 6-K Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 under the Securities Exchange Act of 1934 For the date of 1 August 2006 ALLIED IRISH BANKS, public limited company Bankcentre, Ballsbridge, Dublin 4, Republic of Ireland Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F..X... Form 40-F..... Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes ..... No ..X... If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________ Highlights - AIB Group interim results 2006 Basic earnings per share EUR 121.2c less profit from Ark Life(1) EUR (18.2c) less profit on Bankcentre(2) EUR (11.0c) adjust for hedge volatility(3) under IFRS EUR 1.7c Adjusted basic earnings per share EUR 93.7c up 29%(4) Divisional pre-tax profit performance (5) - AIB Bank ROI up 19% - Capital Markets up 58% or 45% on an operating profit (6) basis - AIB Bank UK up 18% - Poland up 62% - M&T contribution up 11% Income / cost gap +6% Cost income ratio down 2.7% to 52.4% Exceptionally high credit provision write-backs Return on equity 30.4% Tier 1 capital ratio 8.0% Interim dividend of EUR 25.3c, up 10% AIB Group Chief Executive Eugene Sheehy said: 'The very strong results for the first six months of 2006 reflect buoyant well-spread growth in all our markets and the development of high quality franchises. This performance was achieved thanks to the outstanding commitment and dedication of our people throughout the group. While exceptionally good asset quality complemented the first half results, the strong operating performance and customer demand underpins confidence in the future growth and resilience of our business.' (1) Includes the profit from Ark Life discontinued operation (EUR 132 million after tax) and the profit on the transfer of the management of certain investment contracts to Aviva as part of the Ark disposal (EUR 26 million after tax). (2) Includes profit on the new Bankcentre development (EUR 29 million after tax) and part of the profit on the disposal of the existing Bankcentre (EUR 67 million after tax). (3) The impact of interest rate hedge volatility (derivative ineffectiveness and volatility) under IFRS was a decrease of EUR19 million to profit before taxation for the half-year (EUR 15 million after tax). (4) A 29% increase compared with EUR 72.4c for the half-year to June 2005, which includes the earnings in 2005 from Ark Life which is now a discontinued operation. (5) Excluding the impact of exchange rate movements on the translation of foreign locations' profit. (6) Operating profit excludes the EUR 26 million profit on the transfer of the management of certain investment contracts to Aviva as part of the disposal of Ark Life. Results for the half-year ended 30 June 2005 have been restated to represent the results of Ark Life as a discontinued operation (note 2). Dividend The Board has declared an interim dividend of EUR 25.3c per share, an increase of 10% on the half-year ended 30 June 2005. The dividend will be paid on 26 September 2006 to shareholders on the Company's register of members at the close of business on 11 August 2006. For further information please contact: John O'Donnell Alan Kelly Catherine Burke Group Finance Director General Manager,Group Finance Head of Corporate Relations Bankcentre Bankcentre Bankcentre Dublin Dublin Dublin 353-1-660-0311 353-1-660-0311 353-1-660-0311 Ext. 14412 Ext. 12162 Ext. 13894 This results announcement and a detailed informative presentation can be viewed on our internet site at www.aibgroup.com/investorrelations Forward-looking statements A number of statements we make in this document will not be based on historical fact, but will be 'forward-looking' statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in the 'forward-looking' statements. Factors that could cause actual results to differ materially from those in the ' forward-looking' statements include, but are not limited to, global, national, regional economic conditions, levels of market interest rates, credit and other risks of lending and investment activities, competitive and regulatory factors and technology change. Any 'forward-looking' statements made by or on behalf of the Group speak only as of the date they are made. Financial highlights (unaudited) for the half-year ended 30 June 2006 Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 EUR m EUR m EUR m Results Total operating income 2,078 1,764 3,647 Operating profit 978 750 1,493 Profit before taxation - continuing operations 1,214 825 1,706 Profit attributable to equity holders of the parent 1,089 661 1,343 Per EUR 0.32 ordinary share Earnings - basic (note 12a) 121.2c 72.3c 151.0c Earnings - diluted (note 12b) 120.1c 71.7c 149.8c Dividend 25.3c 23.0c 65.3c Dividend payout 21% 32% 44% Net assets 851c 770c 773c Performance measures Return on average total assets 1.67% 1.23% 1.20% Return on average ordinary shareholders' equity 30.4% 20.1% 20.6% Balance sheet Total assets 144,073 115,937 133,214 Ordinary shareholders' equity 7,413 6,636 6,672 Loans etc 105,594 78,214 92,361 Deposits etc 123,349 93,646 109,520 Capital ratios Tier 1 capital 8.0% 7.7% 7.2% Total capital 11.1% 11.0% 10.7% Allied Irish Banks, p.l.c. Group Headquarters & Registered Office Bankcentre, Ballsbridge Dublin 4, Ireland Telephone (01) 6600311 Registered number 24173 Results for the half-year ended 30 June 2005 have been restated to represent the results of Ark Life as a discontinued operation (note 2). Consolidated interim income statement (unaudited) for the half-year ended 30 June 2006 Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 Notes EUR m EUR m EUR m Interest and similar income 4 3,130 2,421 5,151 Interest expense and similar charges 5 1,701 1,195 2,621 Net interest income 1,429 1,226 2,530 Dividend income 19 15 17 Fee and commission income 598 513 1,061 Fee and commission expense (76) (70) (145) Trading income 6 79 43 112 Other operating income 7 29 37 72 Other income 649 538 1,117 Total operating income 2,078 1,764 3,647 Administrative expenses 8 1,018 907 1,881 Depreciation of property, plant and equipment 43 42 83 Amortisation/impairment of intangible assets and goodwill 27 23 47 Total operating expenses 1,088 972 2,011 Operating profit before provisions 990 792 1,636 Provisions for impairment of loans and receivables 16 12 46 115 Provisions for liabilities and commitments - (5) 20 Amounts written off financial investments - 1 8 Operating profit 978 750 1,493 Share of results of associated undertakings 86 70 149 Profit on disposal of property 9 90 5 14 Construction contract income 10 34 - 45 Profit on disposal of businesses 26 - 5 Profit before taxation - continuing operations 1,214 825 1,706 Income tax expense - continuing operations 11 221 167 319 Profit after taxation - continuing operations 993 658 1,387 Discontinued operation, net of taxation 2 132 24 46 Profit for the period 1,125 682 1,433 Attributable to: Equity holders of the parent 1,089 661 1,343 Minority interests in subsidiaries 36 21 90 1,125 682 1,433 Basic earnings per share - continuing operations 105.9c 69.4c 145.7c Basic earnings per share - discontinued operations 15.3c 2.9c 5.3c Total 12(a) 121.2c 72.3c 151.0c Diluted earnings per share - continuing operations 105.0c 68.9c 144.6c Diluted earnings per share - discontinued operations 15.1c 2.8c 5.2c Total 12(b) 120.1c 71.7c 149.8c Results for the half-year ended 30 June 2005 have been restated to represent the results of Ark Life as a discontinued operation (note 2). Consolidated interim balance sheet (unaudited) 30 June 2006 30 June 31 December 30 June 2006 2005 2005 Notes EUR m EUR m EUR m Assets Cash and balances at central banks 618 742 666 Treasury bills and other eligible bills 129 201 - Items in course of collection 927 402 695 Trading portfolio financial assets 14 10,820 10,113 9,502 Financial assets designated at fair value through profit or loss - - 2,197 Derivative financial instruments 22 2,239 2,439 2,604 Loans and receivables to banks 9,932 7,129 3,543 Loans and receivables to customers 15 95,662 85,232 74,671 Financial investments available for sale 18 18,664 16,864 16,487 Interests in associated undertakings 1,846 1,656 1,629 Intangible assets and goodwill 516 517 518 Property, plant and equipment 625 706 736 Other assets 1,005 778 1,726 Current taxation 8 18 - Deferred taxation 224 253 197 Prepayments and accrued income 807 801 766 Disposal group and assets classified as held for sale 51 5,363 - Total assets 144,073 133,214 115,937 Liabilities Deposits by banks 34,318 29,329 22,321 Customer accounts 19 66,564 62,580 55,046 Trading portfolio financial liabilities 255 240 203 Derivative financial instruments 22 1,992 1,967 2,084 Investment and insurance contract liabilities - - 4,351 Debt securities in issue 22,467 17,611 16,279 Current taxation 242 133 225 Other liabilities 2,590 1,599 2,207 Accruals and deferred income 1,020 1,092 792 Retirement benefit liabilities 644 1,227 1,061 Provisions for liabilities and commitments 133 140 110 Deferred taxation 9 32 41 Subordinated liabilities and other capital instruments 20 4,693 3,756 2,853 Disposal group classified as held for sale - 5,091 - Total liabilities 134,927 124,797 107,573 Shareholders' equity Share capital 294 294 294 Share premium account 1,693 1,693 1,693 Other equity interests 497 497 497 Reserves 519 1,152 1,451 Profit and loss account 4,907 3,533 3,198 Shareholders' equity 7,910 7,169 7,133 Minority interests 1,236 1,248 1,231 Total shareholders' equity including minority interests 9,146 8,417 8,364 Total liabilities, shareholders' equity and minority interests 144,073 133,214 115,937 Results for the half-year ended 30 June 2005 have been restated to represent the results of Ark Life as a discontinued operation (note 2). Condensed interim statement of cash flows (unaudited) For the half-year ended 30 June 2006 Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 Consolidated statement of cash flows EUR m EUR m EUR m Net cash flows from operating activities 4,731 1,594 4,513 Investing activities Net increase in financial investments (2,041) (9) (264) Additions to property plant and equipment and intangible assets (94) (50) (136) Disposal of property plant and equipment 142 11 89 Investment in associated undertaking - - (3) Disposal of associated undertakings 3 - 4 Disposal of investment in businesses 186 - 7 Dividends received from associated undertakings 29 18 41 Cash flows from investing activities (1,775) (30) (262) Financing activities Issue of ordinary share capital 35 37 47 Redemption of subordinated liabilities - (441) (630) Issue of new subordinated liabilities 1,004 718 1,813 Interest paid on subordinated liabilities (70) (26) (90) Equity dividends paid (368) (333) (532) Dividends on other equity interests (38) (38) (38) Dividends paid to minority interests (35) (1) (14) Cash flows from financing activities 528 (84) 556 Net increase in cash and cash equivalents 3,484 1,480 4,807 Analysis of changes in cash At beginning of period 7,670 2,056 2,773 Net cash inflow before the effect of exchange translation 3,484 1,480 4,807 adjustments Effect of exchange translation adjustments (180) 81 90 At end of period 10,974 3,617 7,670 Results for the half-year ended 30 June 2005 have been restated to represent the results of Ark Life as a discontinued operation (note 2). Consolidated interim statement of recognised income and expense (unaudited) Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 EUR m EUR m EUR m Foreign exchange translation differences (168) 252 287 Net change in cash flow hedges, net of tax (259) 120 (76) Net change in fair value of available for sale securities, net of (136) 104 (6) tax Net actuarial gains and losses in retirement benefit schemes, net 492 (157) (285) of tax Income and expense recognised directly in equity (71) 319 (80) Profit for the period 1,125 682 1,433 Total recognised income and expense for the period 1,054 1,001 1,353 Attributable to: Equity holders of the parent 1,018 980 1,263 Minority interests in subsidiaries 36 21 90 Total recognised income and expense for the period 1,054 1,001 1,353 Condensed consolidated interim reconciliation of movements in shareholders' equity (unaudited) Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 EUR m EUR m EUR m Profit attributable to equity holders of the parent 1,089 661 1,343 Transition adjustment at 1 January 2005 arising from - 545 545 IAS 32, IAS 39 and IFRS 4 Dividends on ordinary shares (368) (333) (532) Dividends on other equity interests (38) (38) (38) Share based payments 17 5 16 Actuarial gain/(loss) recognised in retirement benefit schemes 488 (154) (285) Actuarial gain/(loss) recognised in associated undertaking 4 (3) - Other recognised (losses)/gains relating to the period (559) 470 198 Other recognised (losses)/gains in associated undertaking (35) 6 (65) Other ordinary shares issued 60 56 66 Net movement in own shares 83 (9) (6) Net additions to shareholders' equity 741 1,206 1,242 Opening shareholders' equity 7,169 5,927 5,927 Closing shareholders' equity 7,910 7,133 7,169 Shareholders' equity: Ordinary shareholders' equity 7,413 6,636 6,672 Other equity interests 497 497 497 7,910 7,133 7,169 Commentary on results Earnings per share Adjusted earnings per share of EUR 93.7c (see note 13) was up 29% compared to EUR 72.4c for the half-year to June 2005,which includes the earnings in 2005 from Ark Life which is now a discontinued operation. Rates of Exchange The following table shows the average accounting rates and average effective rates for both periods. The average effective rates include the impact of currency hedging activities. Average Average Average Average accounting rates accounting rates effective rates effective rates half-year half-year half-year half-year June 2006 June 2005 June 2006 June 2005 US dollar 1.23 1.29 1.20 1.32 Sterling 0.69 0.69 0.69 0.70 Polish zloty 3.90 4.08 3.86 4.08 Basis of preparation The results for the half-year ended 30 June 2005 have been restated to represent the results of Ark Life as a discontinued operation. The following commentary is on a continuing operations basis. The growth percentages are shown on an underlying basis, adjusted for the impact of exchange rate movements on the translation of foreign locations' profit and excluding interest rate hedge volatility under IFRS. "Total operating income up 17%" "Strong loan and deposit volume growth" Total operating income Total income increased by 17% to EUR 2,078 million. Half-year Half-year Underlying June 2006 June 2005 % change Total operating income EUR m EUR m 2006 v 2005 Net interest income 1,429 1,226 16 Other income 649 538 18 Total operating income 2,078 1,764 17 Commentary on results Net interest income Net interest income amounted to EUR 1,429 million, an increase of 16%. Strong loan and deposit growth in Republic of Ireland and UK, strong loan growth in Poland and continuing growth in loan arrangement fees were the key factors generating the increase. Loans to customers increased by 12% and customer accounts increased by 10% on a constant currency basis since 31 December 2005 (details of loan and deposit growth by division are contained on page 13 of this release). Half-year Half-year % June 2006 June 2005 change(1) Average interest earning assets EUR m EUR m 2006 v 2005 Average interest earning assets 126,030 99,988 26 (1) This particular analysis is not adjusted for the impact of exchange rate movements. Half-year Half-year Basis June 2006 June 2005 point Net interest margin % % change Group net interest margin 2.29 2.47(2) -18 (2) The half-year to June 2005 net interest margin has been restated to exclude Ark Life. The domestic and foreign margins for the half-year to June 2006 are reported on page 32 of this release. AIB Group manages its business divisionally on a product margin basis with funding and groupwide interest exposure centralised and managed by Global Treasury. While a domestic and foreign margin is calculated for the purpose of statutory accounts, the analysis of net interest margin trends is best explained by analysing business factors as follows: The Group net interest margin amounted to 2.29%, a decrease of 18 basis points compared with the half-year to June 2005. The margin reduction was due to a combination of the following factors: (a) loans increasing at a faster rate than deposits. (b) a changing mix of products where stronger volume growth has been achieved in lower margin products; corporate loans, home loans and prime rate advances on the lending side and term deposits and other lower margin products on the deposit side. (c) competitive pressures on loan and deposit pricing. (d) lower yields on the re-investment of deposit and current account funds as they mature. The largest factor in the margin reduction was average loans increasing at a greater rate than average deposits compared with 2005. While this strong lending growth generated good incremental profit, the funding impact resulted in a reduction in the overall net interest margin calculation when net interest income is expressed as a percentage of average interest earning assets. The impact of low yields on the investment of deposit and current account funds particularly affected AIB Bank Republic of Ireland and UK divisions. As interest rates increase, the impact of this factor is expected to reduce. While it is difficult to disaggregate trends in product margins between mix and competitive factors, competitive pricing behaviour did impact loan and deposit margins. The Group's new business lending continued to meet targeted return on capital hurdles. Commentary on results "Strong increase in investment banking and asset management fees" "Banking fees and commissions up 5%" Other income Other income was up 18% to EUR 649 million compared with the half-year to June 2005. Half-year Half-year Underlying June 2006 June 2005 % change Other income EUR m EUR m 2006 v 2005 Dividend income 19 15 27 Banking fees and commissions 457 429 5 Investment banking and asset management fees 141 84 67 Fee and commission income 598 513 15 Less: fee and commission expense (76) (70) 7 Trading income 81 50 63 Currency hedging profits / (losses) 17 (9) - Interest rate hedge volatility (IAS 39) (19) 2 - Trading income 79 43 47 Other operating income 29 37 -22 Total other income 649 538 18 Dividend income increased 27% mainly reflecting growth in dividends from investments held by the Poland business. Banking fees and commissions increased by 5%, due to increased business and transaction volumes in AIB Bank Republic of Ireland, AIB Bank UK, Poland and Corporate Banking and there was strong growth in credit card activity in Ireland. Investment banking and asset management fees increased by 67% driven by particularly strong sales performances in Asset Management in Poland and BZWBK's brokerage operation. Total fee and commission income was up 15%. Trading income increased, with strong growth in interest rate swap and foreign exchange income, bond management activities and increased volumes in the Poland Treasury business. Trading income excludes interest payable and receivable arising from these activities, which is included in net interest income. Other income as a percentage of total income increased to 31.2% from 30.5% for the half-year June 2005. Commentary on results "Investment to ensure the long term health of the business" "Improved efficiency" - "Very good income / cost gap +6%" - "Cost income ratio down 2.7% to 52.4%" Total operating expenses Operating expenses increased by 11% compared with the half-year to June 2005. Half-year Half-year Underlying June 2006 June 2005 % change Operating expenses EUR m EUR m 2006 v 2005 Personnel expenses 699 630 10 General and administrative expenses 319 277 14 Depreciation(1)/amortisation(2) 70 65 6 Total operating expenses 1,088 972 11 Operating expenses were up 11%, in an environment of significantly higher business volumes and strong revenue growth. In this time of exceptional opportunity and income buoyancy, the decision has been made to invest to sustain the long-term health and development of the business. This has required investment in a resilient risk, compliance and corporate governance framework, recruitment of appropriate skills, the introduction of enhanced reward systems and the building of common operating systems. In addition, costs are being incurred to ensure compliance with a range of regulatory requirements such as Sarbanes Oxley and Basel II. Excluding regulatory driven costs and performance related remuneration resulting from very strong profit growth, the increase was 9%. Personnel expenses were up 10%, due to higher pension costs and a higher level of variable performance related remuneration. General and administrative expenses were up 14% mainly due to consultancy and systems costs to ensure compliance with a range of previously mentioned regulatory requirements. Depreciation/amortisation increased by 6%, mainly due to the commencement of depreciation on the aforementioned recent investment initiatives. Improved productivity was evident in a reduction in the cost income ratio by 2.7% to 52.4% from 55.1% in the half-year to June 2005. (1) Depreciation of property, plant and equipment. (2) Amortisation/impairment of intangible assets and goodwill. Commentary on results "Exceptionally positive bad debt experience reflecting benign credit environment" "Reduction in impaired loans as a percentage of loans to 0.8%" "Provision charge down to 3 basis points, not expected to recur" "Very significant level of provision write-backs in the period" Provisions Total provisions were EUR 12 million, down from EUR 42 million in the half-year to June 2005. Half-year Half-year June 2006 June 2005 Provisions EUR m EUR m Provisions for impairment of loans and receivables 12 46 Provisions for liabilities and commitments - (5) Amounts written off financial investments - 1 Total provisions 12 42 Bad debt experience was exceptionally positive reflecting a benign credit environment and a significant level of provision write-backs in the period. There was a reduction in impaired loans as a percentage of total loans from 1.0% at 31 December 2005 to 0.8% at 30 June 2006 and the provision coverage for impaired loans increased to 81%. The provision for impairment of loans and receivables was EUR 12 million compared with EUR 46 million in the half-year to June 2005, representing a charge of 0.03% of average loans compared with 0.13% in the period to June 2005. The 0.03% charge represents EUR 14 million in the incurred but not reported ('IBNR') category and a net specific write-back of EUR 2 million. In AIB Bank Republic of Ireland asset quality continued to be strong. Impaired loans as a percentage of total loans reduced to 0.6% at 30 June 2006 from 0.7% at 31 December 2005 and the provision charge remained at 0.14% of average loans compared with the half-year to June 2005. All leading indicators of asset quality across the retail and commercial portfolios remain solid. The bad debt charge in the UK division decreased to 0.08% compared with 0.11% for the half-year to June 2005 reflecting positive bad debt experience and very strong recoveries. Impaired loans remained at 0.9% of total loans compared with 31 December 2005. In Capital Markets, there were exceptional non-recurring credit provision write-backs during the period. There was a net provision write-back of EUR 37 million or -0.39% of average loans and impaired loans reduced to 0.3% from 0.7% of total loans at 31 December 2005. The provision charge in Poland was 0.31% of loans compared with 0.26% in the half-year to June 2005. The downward trend in impaired loans continued with the ratio of impaired loans as a percentage of loans declining to 6.3% from 6.8% at 31 December 2005. There were no net provisions for liabilities and commitments or for amounts written off financial investments in the half-year to June 2006. Share of results of associated undertakings The profit in the half-year to June 2006 was EUR 86 million compared to EUR 70 million in the half-year to June 2005 and mainly reflects AIB's 23.9% share of the income after taxation of M&T Bank Corporation (EUR 80 million) and income after taxation from the recently completed venture in Life and Pensions with Hibernian. Commentary on results The following commentary is in respect of the total Group. "Loans up 12%, deposits up 10%" "Effective tax rate at 18.2%" Balance sheet Total assets amounted to EUR 144 billion compared to EUR 133 billion at 31 December 2005. Adjusting for the impact of currency, total assets were up 10% and loans to customers were up 12% since 31 December 2005 while customer accounts increased by 10%. Risk weighted assets excluding currency factors increased by 11% to EUR 111 billion. Risk weighted assets, loans to customers and customer accounts (excluding currency factors) Risk weighted Loans to Customer assets customers accounts(1) % change June 2006 v December 2005 % change % change % change AIB Bank Republic of Ireland 18 16 7 AIB Bank UK 9 9 13 Capital Markets 5 7 25 Poland 6 8 3 AIB Group 11 12 10 (1) Excludes money market funds Assets under management/administration and custody Assets under management in the Group amounted to EUR 15 billion and assets under administration and custody amounted to EUR 265 billion at 30 June 2006. Taxation The taxation charge was EUR 221 million compared with EUR 167 million in the half-year to June 2005. The effective tax rate was 18.2% compared with 20.2% in the half-year to June 2005 (or 18.4% excluding the bank levy). The taxation charge excludes taxation on share of results of associated undertakings. Share of results of associated undertakings is reported net of taxation in the Group profit before taxation. The effective tax rate is influenced by the geographic mix of profits, which are taxed at the rates applicable in the jurisdictions where we operate. Commentary on results "EPS guidance increased - growth targeted to be over 20% for year 2006" "Return on equity 30.4%" Return on equity and return on assets The return on equity increased to 30.4% compared to 20.1% in the half-year to June 2005 and the return on assets was 1.67%, up from 1.23% in the half-year to June 2005. The return on equity was boosted by the profit on Bankcentre(1) and the profit on the disposal of Ark Life. Capital ratios A strong capital position was reflected in a Tier 1 ratio of 8.0% and a total capital ratio of 11.1%. Outlook Momentum and the operating performance in all our principal franchises is strong. The impaired loan provision charge in the first half-year should be considered exceptional due to very high levels of credit provision write-backs. Arising from positive business trends and well distributed customer demand, growth in adjusted basic earnings per share (2005 base EUR 145.9c) is now targeted to be over 20% for the full year 2006. (1) Includes profit on the new Bankcentre development (EUR 29 million after tax) and part of the profit on the disposal of the existing Bankcentre (EUR 67 million after tax). Divisional commentary On a divisional basis, profit is measured in euro and consequently includes the impact of currency movements. The underlying percentage change is reported in the divisional income statements adjusting for the impact of exchange rate movements on the translation of foreign locations' profit. AIB Bank Republic of Ireland division profit was up 19% "Very strong revenue growth" "Income / cost gap at +4%" "Cost income ratio decreases to 49.4%" AIB Bank Republic of Ireland Retail and commercial banking operations in Republic of Ireland, Channel Islands and Isle of Man; AIB Finance and Leasing and Card Services. Half-year Half-year Underlying June 2006 June 2005 % change AIB Bank Republic of Ireland income statement EUR m EUR m 2006 v 2005 Net interest income 745 637 17 Other income 212 183 16 Total operating income 957 820 17 Total operating expenses 473 417 13 Operating profit before provisions 484 403 20 Provisions 35 27 35 Operating profit 449 376 19 Share of results of associated undertakings 4 - - Profit on disposal of property - 4 - Profit before taxation 453 380 19 AIB Bank Republic of Ireland generated growth in profit before tax of 19% underpinned by a continuing strong Irish economy and a dynamic AIB franchise. Operating income was up 17% and operating expenses were up 13% with the operating income/cost gap at +4%. The strong profit growth reflects increased customer demand for products and services and the benefits of a refined branch operating model. Loans and deposits increased by 16% and 7% respectively since 31 December 2005 (+33% and +20% compared with June 2005), despite ongoing, though largely unchanged competitive pressure. Operating expenses were up 13%. Increased staff numbers reflecting higher activity levels across the business, annual salary inflation, the impact of a new career framework pay structure, performance related costs and pension costs were key drivers. In addition increased costs were incurred in a number of non-business related areas, including mandatory / regulatory driven project costs. The strong operating performance is further reflected in an improvement in the cost income ratio which reduced to 49.4% compared with 51.0% in June 2005. Asset quality remains strong and the provision charge for the half-year to 30 June 2006, was 0.14% of average loans, unchanged from the half-year to 30 June 2005. The increase in absolute amounts reflects the growth in loans. Retail Banking reported a very strong half-year profit. Business lending growth was exceptionally strong, with personal lending, home mortgages and private banking activities all experiencing excellent increases reflecting buoyant customer response to competitive product offerings. Profit growth in AIB Card Services also increased significantly, resulting from strong revenue due to higher consumer spending and card balances, with costs flat compared with the comparative period. In AIB Finance and Leasing there was solid profit growth reflecting a strong growth in loan volumes and new business levels, particularly in the motor, plant and equipment and property finance sectors. The recently completed venture in Life and Pensions with Hibernian is an important part of the wealth management platform being developed by AIB in Ireland. Divisional commentary Capital Markets division profit was up 58% on the half-year to June 2005 "Another excellent performance in Corporate Banking" "Exceptional credit provision write-backs" "Customer treasury business was very strong and wholesale trading performed well" "Investment Banking profits show strong growth" "Income / cost gap at +13%" Capital Markets Global Treasury, Corporate Banking and Investment Banking. Half-year Half-year Underlying June 2006 June 2005 % change Capital Markets income statement EUR m EUR m 2006 v 2005 Net interest income 239 214 11 Other income 227 194 15 Total operating income 466 408 13 Total operating expenses 202 200 - Operating profit before provisions 264 208 26 Provisions (34) 3 - Operating profit 298 205 45 Share of results of associated undertakings 2 1 47 Profit on disposal of business 26 - - Profit before taxation 326 206 58 Profit before taxation at EUR 326 million was 58% ahead of the comparative period, with operating profit up 45%. The performance benefited from a combination of strong revenue growth, tight cost management and exceptional credit provision write-backs. Operating profit before provisions at EUR 264 million was 26% ahead of the comparative period. Performance in Corporate Banking was excellent with operating profit before provisions up 24% and pre-tax profit up 59% on the comparative period. Loans increased by 7% since 31 December 2005 (21% since 30 June 2005), reflecting strong underlying growth, principally in our International and New York businesses, partly impacted by the repositioning of certain loan portfolios. Overall, Global Treasury profit was up 36% compared with the half year to June 2005. Our Customer Treasury business performed strongly and was well ahead of the comparative period. Wholesale Treasury business performed well, in a difficult trading environment in the first half-year, with a good profit increase compared to 2005. Investment Banking profit was 35% ahead of the half-year to June 2005. The result was underpinned by strong profit growth in asset management and stockbroking. Operating expenses were in line with June 2005 with investment in growth businesses offset by the impact of selective business rationalisation during the latter half of 2005. The cost income ratio decreased to 43.5% from 49.1% reflecting increased productivity. Exceptional credit provision write-backs were experienced during the period, reflecting the uniquely benign global credit environment. A conservative approach to credit management continues to be adopted and the quality of our loan portfolios remains strong. Profit on disposal of business was earned on the transfer of the management of certain investment contracts to Aviva, as part of the Ark Life disposal. The consistency and quality of growth underlines the capability within the division to identify, develop and sustain profitable sectors and niches. Divisional commentary AIB Bank UK division profit was up 18% "Buoyant growth in customer volumes" "Income / cost gap at +5%" "Cost income ratio improves by 2.0% to 47.3%" AIB Bank UK Retail and commercial banking operations in Great Britain and Northern Ireland. Half-year Half-year Underlying June 2006 June 2005 % change AIB Bank UK income statement EUR m EUR m 2006 v 2005 Net interest income 287 247 17 Other income 75 74 2 Total operating income 362 321 13 Total operating expenses 171 158 8 Operating profit before provisions 191 163 18 Provisions 7 8 -4 Operating profit 184 155 19 Profit on disposal of property - 1 - Profit before taxation 184 156 18 AIB Bank UK had an excellent business performance in the half-year to June 2006 with profit before taxation increasing by 18%, continuing the trend of strong double-digit growth in recent periods. Loans and deposits increased by 9% and 13% respectively since 31 December 2005 and by 25% and 18% when compared with 30 June 2005,resulting in a net interest income increase of 17%. Other income was up 2%, reflecting growth in credit card income and banking commissions. Operating expenses were up 8%, due to increases in staff numbers, marketing expenditure and pension costs combined with annual salary increases. The cost income ratio improved from 49.3% to 47.3%. Allied Irish Bank (GB), primarily a business bank, reported significant profit growth of 27% to EUR 103 million in 2006. This growth was driven primarily by strong volume growth with loans and deposits increasing by 27% and 21% respectively since 30 June 2005. This volume growth underpins the strength of customer demand and is the result of consistently focusing on chosen business sectors. Costs increased by 11% when compared against the same period last year, driven by the same factors noted above. The cost income ratio improved from 48.7% to 46.0% reflecting improved productivity. In Northern Ireland, First Trust Bank increased profit before tax to EUR 81 million representing 9% growth on the same period last year (11% if the impact of property disposals is excluded). Loans and deposits were up 23% and 15% respectively when compared with 30 June 2005 with strong growth in business and home mortgage lending activity. Costs increased by 6% impacted by higher pension costs. Higher productivity resulted in an improvement in the cost income ratio from 50.0% to 48.7%. Divisional commentary Poland division profit was EUR 114 million, up 62% "Substantial profit growth" "Strong increase in customer lending" "Exceptional growth in mutual funds" "Income / cost gap + 17%" Poland Bank Zachodni WBK ('BZWBK'), in which AIB has a 70.5% shareholding, together with its subsidiaries and associates. BZWBK Wholesale Treasury and share of certain Investment Banking subsidiaries results are reported in Capital Markets division. Half-year Half-year Underlying June 2006 June 2005 % change Poland income statement EUR m EUR m 2006 v 2005 Net interest income 112 93 16 Other income 162 115 34 Total operating income 274 208 26 Total operating expenses 156 136 9 Operating profit before provisions 118 72 58 Provisions 4 4 -2 Profit before taxation 114 68 62 Profit before taxation was up by 62% on a local currency basis to EUR 114 million, reflecting increasingly strong momentum across the division's business lines, generated through higher business activity and volumes and the execution of its business strategy. Total operating income increased by 26% with net interest income increasing by 16% and other income increasing by 34%. The first half-year saw a material pick up in the demand for credit. Total loans increased by 8% since December 2005 (12% since 30 June 2005), with the pick-up in retail lending continuing and an increased demand for business lending, which increased by 8%. Mortgage growth at 10% continued to be tempered by the market preference for foreign exchange denominated lending. Overall lending margins were maintained reflecting a better product mix, despite increasing competition in business and mortgage lending. Customer deposits increased by 3% since December 2005 (7% since 30 June 2005), with growth primarily in current accounts and foreign exchange deposits. Deposit growth must be seen in the context of customer preference for mutual funds in which we are achieving very significant growth (as outlined below). Lower interest rates and increased competition reduced deposit margins, compensated somewhat by a better product mix. Other income growth of 34% was driven by a variety of positive factors, including exceptional growth in assets under management. Mutual fund balances increased 230% on June 2005 and market share increased to 16.4% in June 2006 from 12.6% in December 2005. Outstanding sales and favourable portfolio mix resulted in asset management income growth of 341%. The brokerage business enjoyed an excellent half-year with substantial increases in turnover, buoyed by the performance of the Warsaw Stock Exchange in the first half of 2006. In addition, E-business and payment fees, dividends, equity disposals and foreign exchange income also contributed to the strong growth. Operating expenses increased by 9% reflecting increased business activity and higher performance related costs. Impaired loans as a percentage of total loans continued to decline with the ratio at 6.3% at 30 June 2006 compared with 6.8% at 31 December 2005. Total provisions were at the same level as the half-year to June 2005. The credit provision charge as a percentage of average loans was 0.31%, compared with 0.26% in the half-year to June 2005. Divisional commentary Group Group includes interest income earned on capital not allocated to divisions, the funding cost of certain acquisitions, hedging in relation to the translation of foreign locations' profit, unallocated costs of central services and the contribution from AIB's share of approximately 23.9% in M&T Bank Corporation ('M&T'). Half-year Half-year June 2006 June 2005 Group income statement EUR m EUR m Net interest income 46 35 Other income/(loss) (27) (28) Total operating income 19 7 Total operating expenses 86 61 Operating loss (67) (54) Share of results of associated undertaking - M&T 80 69 Profit on disposal of property 90 - Construction contract income 34 - Profit before taxation 137 15 Group reported profit of EUR 137 million for the half-year to June 2006 compared with a profit of EUR 15 million in 2005. The increase mainly reflects profit on the partial disposal of the existing Bankcentre building and profit on the new Bankcentre development (total EUR 124 million). Net interest income increased due to higher capital income resulting from higher capital balances (strong retained earnings and the return on the funds generated from the sale of Bankcentre and Ark Life). Other income/(loss) remained broadly in line with June 2005. In the half-year to June 2006 there was profit from the economic hedging of foreign currency translation including EUR 12 million of mark to market profit relating to economic hedges in place for the second half of 2006. The profit from foreign exchange hedging was offset by interest rate hedge volatility. Other income/(loss) in the half-year to June 2005 included economic hedging losses in relation to foreign currency translation hedging and interest rate hedge volatility. Total operating expenses were higher due to increased compliance related spend, mainly Sarbanes Oxley and Basel II and systems development costs. Performance related costs were higher in line with strong profit growth. AIB's share of M&T after-tax profit in 2006 amounted to EUR 80 million. On a local currency basis M&T's contribution of US$ 98 million increased by 11% relative to the half-year to June 2005 of US$ 88 million. AIB benefited from a 23.9% share of profit compared to a 23.3% share in the half-year to June 2005. M&T reported its half-year results on 12 July 2006, showing strong earnings growth with net income up 8% to US$ 415 million. US GAAP-basis diluted earnings per share was up 10% to US$ 3.64 from US$ 3.31 in the half-year to June 2005. Diluted net operating earnings per share, which excludes the amortisation of core deposit and other intangibles and branch acquisition related expenses, was US$ 3.79, up 10% from US$ 3.46. Profit on disposal of property relates to part of the profit on the disposal of the existing Bankcentre building. Construction contract income reflects the profit from the new development at Bankcentre. NOTES IN AIB 2006 INTERIM RESULTS PART 2 Notes 1 Accounting policies and presentation of financial information The accounting policies that the Group applied in the preparation of the interim financial statements for the half year ended 30 June 2006 are in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the EU and are consistent with those set out in the Annual Report and Accounts for the year ended 31 December 2005. 2 Disposal of Ark Life Assurance Company Limited ('Ark Life'). Acquisition of an interest of 24.99% in Hibernian Life Holdings Limited. On 30 January 2006, the previously announced venture with Aviva Group p.l.c. for the manufacture and distribution of life and pensions products in the Republic of Ireland was completed. The transaction brought together Hibernian Life & Pensions Limited and Ark Life under a holding company Hibernian Life Holdings Limited of which AIB owns 24.99%. AIB has entered into an exclusive agreement to distribute the life and pensions products of the venture. Under IFRS 5,'Non-current assets held for sale and discontinued operations', the income and expenses, up to the date of disposal, the operations deemed to be disposed of, have been reported net of taxation as a discontinued operation below profit after taxation. The impact of the restatement on the previously reported June 2005 figures is outlined below. The assets and liabilities of Ark Life as 31 December 2005 were classified as held for sale, separate from other assets and liabilities on the balance sheet. There has been no restatement of 30 June 2005 balance sheet figures as the assets and liabilities were not held for sale at that date. 30 June 2005 As previously Discontinued Continuing reported operations operations EUR m EUR m EUR m Net interest income 1,268 42 1,226 Other income 890 352 538 Total operating income 2,158 394 1,764 Insurance and investment contract liabilities 355 355 - and claims Total operating expenses 985 13 972 Provisions 42 - 42 Operating profit 776 26 750 Share of results of associated undertakings 70 - 70 Profit on disposal of property 5 - 5 Profit before taxation 851 26 825 Taxation 169 2 167 Profit after taxation 682 24 658 The transaction gave rise to a profit of EUR 154m of which EUR 26m is treated as a profit on disposal of business and EUR 128m as a profit on disposal of a discontinued operation. The profit for Ark Life for the period to date of disposal is included within discontinued operations. The contribution of the venture for the 5 months ended June 2006 is included within share of results of associated undertakings. The carrying value of the investment is shown within interests in associated undertakings. Notes Half-year 30 June 2006 AIB Bank AIB Bank Capital Poland Group Total ROI UK Markets 3 Segmental information EUR m EUR m EUR m EUR m EUR m EUR m Operations by business segments(1) Net interest income 745 287 239 112 46 1,429 Other income 212 75 227 162 (27) 649 Total operating income 957 362 466 274 19 2,078 Total operating expenses 473 171 202 156 86 1,088 Provisions 35 7 (34) 4 - 12 Operating profit/(loss) 449 184 298 114 (67) 978 Share of results of associated undertakings 4 - 2 - 80 86 Profit on disposal of property - - - - 90 90 Construction contract income - - - - 34 34 Profit on disposal of business - - 26 - - 26 Profit before taxation - continuing operations 453 184 326 114 137 1,214 Balance sheet Total loans 52,754 19,721 28,380 4,478 261 105,594 Total deposits 39,275 12,177 65,515 6,262 120 123,349 Total assets 58,261 21,851 50,134 7,702 6,125 144,073 Total risk weighted assets 45,997 19,874 39,654 4,716 826 111,067 Net assets(2) 3,070 1,326 2,647 315 55 7,413 Half-year 30 June 2005 AIB Bank AIB Bank Capital Poland Group Total ROI UK Markets EUR m EUR m EUR m EUR m EUR m EUR m Operations by business segments(1) Net interest income 637 247 214 93 35 1,226 Other income 183 74 194 115 (28) 538 Total operating income 820 321 408 208 7 1,764 Total operating expenses 417 158 200 136 61 972 Provisions 27 8 3 4 - 42 Operating profit/(loss) 376 155 205 68 (54) 750 Share of results of associated undertakings - - 1 - 69 70 Profit on disposal of property 4 1 - - - 5 Profit before taxation - continuing operations 380 156 206 68 15 825 Balance sheet Total loans 39,858 15,772 18,546 3,827 211 78,214 Total deposits 29,260 10,576 47,771 5,869 170 93,646 Total assets 44,672 17,625 40,935 7,563 5,142 115,937 Total risk weighted assets 34,781 14,611 33,643 4,154 1,047 88,236 Net assets(2) 2,616 1,099 2,530 312 79 6,636 Notes Year 31 December 2005 AIB Bank AIB Bank Capital Poland Group Total ROI UK Markets 3 Segmental information (continued) EUR m EUR m EUR m EUR m EUR m EUR m Operations by business segments(1) Net interest income 1,314 516 435 205 60 2,530 Other income 376 148 407 222 (36) 1,117 Total operating income 1,690 664 842 427 24 3,647 Total operating expenses 867 323 400 280 141 2,011 Provisions 55 21 46 15 6 143 Operating profit/(loss) 768 320 396 132 (123) 1,493 Share of results of associated undertakings (1) - 2 - 148 149 Profit on disposal of property 12 2 - - - 14 Construction contract income - - - - 45 45 Profit on disposal of businesses - - 5 - - 5 Profit before taxation - continuing operations 779 322 403 132 70 1,706 Balance sheet Total loans 45,523 18,346 23,794 4,487 211 92,361 Total deposits 34,172 10,958 58,038 6,229 123 109,520 Total assets 55,224 20,031 44,371 7,813 5,775 133,214 Total risk weighted assets 39,073 18,335 38,974 4,640 634 101,656 Net assets(2) 2,564 1,203 2,558 305 42 6,672 Half-year 30 June 2006 Republic of United United Poland Rest of Total Ireland States of Kingdom the world America EUR m EUR m EUR m EUR m EUR m EUR m Operations by geographical segments(3) Net interest income 891 26 381 126 5 1,429 Other income 310 31 113 190 5 649 Total operating income 1,201 57 494 316 10 2,078 Total operating expenses 682 21 220 160 5 1,088 Provisions 28 (1) (19) 4 - 12 Operating profit 491 37 293 152 5 978 Share of results of associated undertakings 6 80 - - - 86 Profit on disposal of property 90 - - - - 90 Construction contract income 34 - - - - 34 Profit on disposal of business 26 - - - - 26 Profit before taxation - continuing operations 647 117 293 152 5 1,214 Balance sheet Total loans 69,964 3,881 26,837 4,478 434 105,594 Total deposits 89,024 4,479 23,570 6,262 14 123,349 Total assets 99,707 5,299 30,907 7,721 439 144,073 Net assets(2) 4,593 538 1,909 338 35 7,413 Notes Half-year 30 June 2005 Republic of United United Poland Rest of Total Ireland States of Kingdom the world America 3 Segmental information (continued) EUR m EUR m EUR m EUR m EUR m EUR m Operations by geographical segments(3) Net interest income 758 20 339 106 3 1,226 Other income 249 37 124 125 3 538 Total operating income 1,007 57 463 231 6 1,764 Total operating expenses 596 35 198 140 3 972 Provisions 21 (2) 19 4 - 42 Operating profit 390 24 246 87 3 750 Share of results of associated undertakings 1 69 - - - 70 Profit on disposal of property 4 - 1 - - 5 Profit before taxation - continuing operations 395 93 247 87 3 825 Balance sheet Total loans 49,987 2,428 21,780 3,827 192 78,214 Total deposits 62,020 3,730 22,027 5,869 - 93,646 Total assets 79,207 3,561 25,488 7,487 194 115,937 Net assets(2) 4,148 471 1,791 214 12 6,636 Year 31 December 2005 Republic of United United Poland Rest of Total Ireland States of Kingdom the world America EUR m EUR m EUR m EUR m EUR m EUR m Operations by geographical segments(3) Net interest income 1,564 45 689 225 7 2,530 Other income 537 68 252 251 9 1,117 Total operating income 2,101 113 941 476 16 3,647 Total operating expenses 1,239 62 413 290 7 2,011 Provisions 70 1 54 15 3 143 Operating profit 792 50 474 171 6 1,493 Share of results of associated undertakings 1 148 - - - 149 Profit on disposal of property 12 - 2 - - 14 Construction contract income 45 - - - - 45 Profit on disposal of businesses - 4 1 - - 5 Profit before taxation - continuing operations 850 202 477 171 6 1,706 Balance sheet Total loans 58,831 3,863 24,888 4,487 292 92,361 Total deposits 77,971 4,021 21,291 6,229 8 109,520 Total assets 91,622 5,071 28,411 7,815 295 133,214 Net assets(2) 4,039 477 1,810 320 26 6,672 Notes 3 Segmental information (continued) (1)The business segment information is based on management accounts information. Income on capital is allocated to the divisions on the basis of the capital required to support the level of risk weighted assets. Interest income earned on capital not allocated to divisions is reported in Group. (2)The fungible nature of liabilities within the banking industry inevitably leads to allocations of liabilities to segments, some of which are necessarily subjective. Accordingly, the directors believe that the analysis of total assets is more meaningful than the analysis of net assets. (3)The geographical distribution of profit before taxation is based primarily on the location of the office recording the transaction. Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 4 Interest and similar income EUR m EUR m EUR m Interest on loans and receivables to banks 140 50 167 Interest on loans and receivables to customers 2,460 1,905 4,032 Interest on trading portfolio financial assets 181 142 305 Interest on financial investments available for sale 349 324 647 3,130 2,421 5,151 Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 5 Interest expense and similar charges EUR m EUR m EUR m Interest on amounts due to banks and customers 1,187 902 1,944 Interest on debt securities in issue 424 239 545 Interest on subordinated liabilities and other capital 90 54 132 instruments 1,701 1,195 2,621 Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 6 Trading income EUR m EUR m EUR m Foreign exchange contracts 61 18 59 Profits less losses from trading portfolio assets (4) 38 84 Interest rate contracts 18 (15) (32) Equity index contracts 4 2 1 79 43 112 Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 7 Other operating income EUR m EUR m EUR m Profit on disposal of available for sale debt securities 1 16 17 Profit on disposal of available for sale equity shares 7 4 2 Profit on disposal of investments in associated undertakings 2 - - Miscellaneous operating income 19 17 53 29 37 72 Half-year Half-year Y ear 30 June 30 June 31 December 2006 2005 2005 8 Administrative expenses EUR m EUR m EUR m Personnel expenses 699 630 1,298 General and administrative expenses 319 277 583 1,018 907 1,881 Notes 9 Profit on disposal of property In April 2006, the Group announced that it had agreed a sale and leaseback of its existing headquarters building. The property has been sold in two lots, for a total consideration of EUR 378m. One part of the sale and leaseback transaction had completed at 30 June 2006, giving rise to the recognition of a profit of EUR 90m (tax charge EUR 23m). The second part of the transaction completed on 21 July 2006, giving rise to a profit of EUR 168m (tax charge EUR 32m), to be recognised in the second half of the year. The initial annual rent payable on these buildings is EUR 11.6m. Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 10 Construction contract income EUR m EUR m EUR m Construction revenue 62 - 81 Construction expense (28) - (36) 34 - 45 In 2005, Blogram Limited a property development company and subsidiary of Allied Irish Banks, p.l.c., contracted with the Serpentine Consortium to construct on a fixed price contract basis, a new development at Bankcentre, Ballsbridge, Dublin on the behalf of the consortium. At 30 June 2006, EUR 87m (31 December 2005: EUR 26m) was due from the consortium in respect of construction contracts in progress. A subsidiary of AIB has contracted with the Serpentine Consortium to lease the property on completion at an initial rent of EUR 16.1m per annum for a period of 33 years with a break clause at year 23. Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 11 Taxation EUR m EUR m EUR m Allied Irish Banks, p.l.c. and subsidiaries Corporation tax in Republic of Ireland Current tax on income for the period(1) 120 75 160 Adjustments in respect of prior periods - 2 1 120 77 161 Double taxation relief (14) (10) (10) 106 67 151 Foreign tax Current tax on income for the period 139 106 163 Adjustments in respect of prior periods (6) (1) (11) 133 105 152 239 172 303 Deferred taxation Origination and reversal of timing differences (18) (6) 16 Other - 1 - (18) (5) 16 Total income tax expense - continuing operations 221 167 319 Effective income tax rate - continuing operations 18.2% 20.2% 18.7% (1) The 30 June 2005 and 31 December 2005 figures included a charge of EUR 14.7m and EUR 29.5m respectively in relation to the Irish Government bank levy. Notes Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 12 Earnings per EUR 0.32 ordinary share EUR m EUR m EUR m (a) Basic Profit attributable to equity holders of the parent 1,089 661 1,343 Distributions to other equity holders (38) (38) (38) Profit attributable to the ordinary shareholders 1,051 623 1,305 Weighted average number of shares in issue during the period 868.0m 862.6m 864.5m Earnings per share EUR 121.2c EUR 72.3c EUR 151.0c Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 (b) Diluted EUR m EUR m EUR m Profit attributable to ordinary shareholders 1,051 623 1,305 Dilutive impact of potential ordinary shares in associated company (1) (1) (1) Adjusted profit attributable 1,050 622 1,304 Number of shares (millions) Weighted average number of shares in issue during the period 868.0 862.6 864.5 Dilutive effect of options outstanding 6.6 5.0 5.7 Adjusted weighted average number of shares 874.6 867.6 870.2 Earnings per share - diluted EUR 120.1c EUR 71.7c EUR 149.8c Basic Diluted Half-year Half-year Year Half-year Half-year Year 30 June 30 June 31 December 30 June 30 June 31 December 2006 2005 2005 2006 2005 2005 13 Adjusted earnings per share cent cent cent cent cent cent Earnings per share 121.2 72.3 151.0 120.1 71.7 149.8 EPS - discontinued operations 15.3 2.9 5.3 15.1 2.8 5.2 EPS - continuing operations 105.9 69.4 145.7 105.0 68.9 144.6 Adjustments: Profit on sale of Bankcentre (7.6) - - (7.6) - - Construction contract income (3.4) - (4.4) (3.3) - (4.4) Profit on disposal of business (2.9) - - (2.9) - - Hedge volatility 1.7 0.1 (0.7) 1.7 0.1 (0.7) Adjusted EPS - continuing operations 93.7 69.5 140.6 92.9 69.0 139.5 Adjusted earnings per share is presented to help understand the underlying performance of the Group. The adjustments in 2006 and 2005 are items that do not reflect the underlying business performance. Notes 30 June 31 December 30 June 2006 2005 2005 14 Trading portfolio financial assets EUR m EUR m EUR m Loans and receivables to banks 3 3 3 Loans and receivables to customers 18 72 39 Debt securities: Government securities 717 922 1,234 Other public sector securities 39 19 20 Other debt securities 9,913 9,008 8,136 10,669 9,949 9,390 Equity shares 130 89 70 10,820 10,113 9,502 30 June 31 December 30 June 2006 2005 2005 15 Loans and receivables to customers EUR m EUR m EUR m Loans and receivables to customers 91,667 81,171 71,071 Amounts receivable under finance leases 1,634 1,620 1,593 Amounts receivable under hire purchase contracts 1,288 1,154 1,084 Unquoted debt securities 1,073 1,287 923 95,662 85,232 74,671 30 June 31 December 30 June 2006 2005 2005 16 Provisions for impairment of loans and receivables EUR m EUR m EUR m At beginning of period 676 760 760 IFRS transition adjustment - (146) (146) Transfer from debt securities - - 4 Exchange translation adjustments (14) 16 10 Charge against income statement 12 115 46 Amounts written back (36) (72) (23) Recoveries of amounts written off in previous years 4 3 1 At end of period 642 676 652 At end of period: Specific 468 514 500 IBNR 174 162 152 642 676 652 Amounts include: Loans and receivables to banks 2 2 2 Loans and receivables to customers 640 674 650 642 676 652 Notes 17 Risk elements in lending Management has set out below the amount of loans, without giving effect to available security and before deduction of provisions, classified as (a) Impaired Loans and (b) Accruing loans which are contractually past due 90 days or more as to principal or interest: 30 June 31 December 30 June 2006 2005 2005 EUR m EUR m EUR m Impaired loans(1) Republic of Ireland 332 347 350 United Kingdom 198 246 234 Poland 248 262 277 Rest of world 9 13 4 787 868 865 Accruing loans which are contractually past due 90 days or more as to principal or interest(2) Republic of Ireland 158 124 113 United Kingdom 109 61 54 267 185 167 (1)Total interest income that would have been recorded during the half-year ended 30 June 2006, had interest on gross impaired loans been included in income amounted to EUR 9m for Republic of Ireland (31 December 2005: EUR 15m; 30 June 2005: EUR 9m), EUR 4m for United Kingdom (31 December 2005: EUR 8m; 30 June 2005: EUR 3m) and EUR 9m for Poland (31 December 2005: EUR 23m; 30 June 2005: EUR 8m). Interest on impaired loans (net of provisions) included in income for the half-year ended 30 June 2006 totalled EUR 10m (31 December 2005: EUR 19m; 30 June 2005: EUR 5m). (2)Overdrafts generally have no fixed repayment schedule and consequently are not included in this category. 30 June 31 December 30 June 2006 2005 2005 18 Financial investments available for sale EUR m EUR m EUR m Debt securities: Government securities 8,273 8,522 7,744 Other public sector securities 915 507 603 Bank and building society certificates of deposit 1,232 643 495 Other debt securities 8,072 7,021 7,479 18,492 16,693 16,321 Equity shares 172 171 166 18,664 16,864 16,487 Notes 30 June 31 December 30 June 2006 2005 2005 19 Customer accounts EUR m EUR m EUR m Current accounts 22,512 20,909 18,612 Demand deposits 8,372 8,013 7,990 Time deposits 29,764 28,118 24,296 60,648 57,040 50,898 Securities sold under agreements to repurchase 3 6 49 Other short-term borrowings 5,913 5,534 4,099 5,916 5,540 4,148 66,564 62,580 55,046 20 Subordinated liabilities and other capital instruments In June 2006, Fixed Rate/Floating Rate Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities ('Preferred Securities') were issued in the amount of StgGBP 350,000,000 and EUR 500,000,000 through Limited Partnerships. The Preferred Securities were issued at par and have the benefit of a subordinated guarantee of Allied Irish Banks, p.l.c. ('AIB'). The Preferred Securities have no fixed final redemption date and the holders have no rights to call for the redemption of the Preferred Securities. The Preferred Securities are redeemable in whole but not in part at the option of the general partner and with the agreement of the Financial Regulator (i) upon the occurrence of certain events or (ii) on or after 14 June 2016 for the Stg GBP 350,000,000 Preferred Securities and 16 June 2016 for the EUR 500,000,000 Preferred Securities. Distributions on the Preferred Securities are non-cumulative. The distributions on the Stg GBP 350,000,000 Preferred Securities will be payable at a rate of 6.271% semi-annually until 14 June 2016 and thereafter at a rate of 1.23% per annum above 3 month LIBOR, payable quarterly. The distributions on the EUR 500,000,000 Preferred Securities will be payable at a rate of 5.142% per annum up to 16 June 2016 and thereafter at the rate of 1.98% per annum above 3 month EURIBOR, payable quarterly. In the event of the dissolution of the Limited Partnerships, holders of Preferred Securities will be entitled to receive a liquidation preference in an amount equal to the distributions that those holders would have received in a dissolution of AIB at that time, if they had held, instead of the Preferred Securities, non-cumulative preference shares issued directly by AIB, having the same liquidation preference as the Preferred Securities, and ranking junior to all liabilities of AIB including subordinated liabilities. Contract amount 30 June 31 December 30 June 2006 2005 2005 21 Memorandum items: contingent liabilities and commitments EUR m EUR m EUR m Contingent liabilities: Endorsements - - 10 Guarantees and assets pledged as collateral 6,526 7,157 6,548 security Other contingent liabilities 1,090 1,396 823 7,616 8,553 7,381 Commitments: Other commitments 22,380 19,558 16,932 29,996 28,111 24,313 The Group's maximum exposure to credit loss under contingent liabilities and commitments to extend credit, in the event of non-performance by the other party where all counterclaims, collateral or security prove valueless, is represented by the contractual amounts of those instruments. Notes 22 Derivative financial instruments The following table presents the notional amounts and fair values of derivative financial instruments as at 30 June 2006 and 31 December 2005. 30 June 2006 31 December 2005 Notional Fair values Notional Fair values amount Assets Liabilities amount Assets Liabilities EUR m EUR m EUR m EUR m EUR m EUR m Interest rate contracts(1) 200,368 1,710 (1,494) 178,326 1,924 (1,600) Exchange rate contracts(1) 13,522 242 (216) 19,799 261 (244) Equity contracts(1) 5,904 284 (275) 4,386 254 (123) Credit derivatives 639 3 (7) - - - Total derivative financial instruments 220,433 2,239 (1,992) 202,511 2,439 (1,967) (1)Interest rate, exchange rate and equity contracts have been entered into for both hedging and trading purposes. The Group uses the same credit control and risk management policies in undertaking all off-balance sheet commitments as it does for on balance sheet lending including counterparty credit approval, limit setting and monitoring procedures. In addition, in relation to derivative instruments, the Group's exposure to market risk is controlled within the risk limits in the Group's Interest Rate Risk and Foreign Exchange Risk Policies and is further constrained by the risk parameters incorporated in the Group's Derivatives Policy as approved by the Board. 23 Average balance sheets and interest rates The following tables show the average balances and interest rates of interest earning assets and interest bearing liabilities for the half-year ended 30 June 2006 and the year ended 31 December 2005. The calculation of average balances include daily and monthly averages for reporting units. The average balances used are considered to be representative of the operations of the Group. Half-year ended 30 June 2006 Year ended 31 December 2005 Average Interest Average Average Interest Average balance rate balance rate Assets EUR m EUR m % EUR m EUR m % Loans and receivables to banks Domestic offices 5,061 80 3.2 4,596 117 2.5 Foreign offices 2,595 60 4.7 1,131 50 4.4 Loans and receivables to customers Domestic offices 58,694 1,376 4.7 47,806 2,084 4.4 Foreign offices 31,893 1,018 6.4 27,664 1,768 6.4 Trading portfolio financial assets Domestic offices 9,301 165 3.6 7,786 257 3.3 Foreign offices 963 16 3.3 1,308 48 3.7 Financial investments Domestic offices 13,618 258 3.8 12,869 470 3.7 Foreign offices 3,905 91 4.7 3,220 177 5.5 Total interest earning assets Domestic offices 86,674 1,879 4.4 73,057 2,928 4.0 Foreign offices 39,356 1,185 6.1 33,323 2,043 6.1 Net interest on swaps 56 125 Total average interest earning 126,030 3,120 5.0 106,380 5,096 4.8 assets Non-interest earning assets 10,012 13,209 Total average assets 136,042 3,120 4.6 119,589 5,096 4.3 Percentage of assets applicable to foreign activities 31.6 31.1 Notes 23 Average balance sheets and interest rates (continued) Half-year ended 30 June 2006 Year ended 31 December 2005 Average Interest Average Average Interest Average balance rate balance rate Liabilities and shareholders' equity EUR m EUR m % EUR m EUR m % Due to banks Domestic offices 26,689 450 3.4 25,288 693 2.7 Foreign offices 2,250 45 4.0 1,963 81 4.1 Due to customers Domestic offices 33,164 336 2.0 27,820 473 1.7 Foreign offices 20,675 346 3.4 18,545 642 3.5 Other debt issued Domestic offices 12,451 187 3.0 7,001 171 2.4 Foreign offices 10,789 237 4.4 8,486 374 4.4 Subordinated liabilities Domestic offices 3,771 87 4.7 2,925 132 4.5 Foreign offices 89 3 5.7 - - - Total interest earning liabilities Domestic offices 76,075 1,060 2.8 63,034 1,469 2.3 Foreign offices 33,803 631 3.8 28,994 1,097 3.8 Total average interest earning liabilities 109,878 1,691 3.1 92,028 2,566 2.8 Non interest earning liabilities 18,623 21,237 Total average liabilities 128,501 1,691 2.7 113,265 2,566 2.3 Shareholders' equity 7,541 6,324 Total average liabilities and shareholders' equity 136,042 1,691 2.5 119,589 2,566 2.2 Percentage of liabilities applicable to foreign activities 30.6 30.7 24 Post-balance sheet events On 31 July 2006,subsequent to the interim balance sheet date, an interim dividend of EUR 25.3 cent per share was declared by the Board of Directors for payment on 26 September 2006. The interim dividend amounts to EUR 221 million and has not been recorded as a liability in the balance sheet. 25 Approval of accounts The interim financial statements (unaudited) were approved by the Board of Directors on 31 July 2006. Financial and other information Half-year Half-year Year 30 June 30 June 31 December 2006 2005(1) 2005 Operating ratios Operating expenses/operating income 52.4% 55.1% 55.2% Other income/operating income 31.2% 30.5% 30.6% Net interest margin Group 2.29% 2.47% 2.38% Domestic 2.04% 2.30% 2.17% Foreign 2.84% 2.85% 2.83% Rates of exchange EUR/US $ Closing 1.2713 1.2092 1.1797 Average 1.2287 1.2894 1.2484 EUR/Stg Closing 0.6921 0.6742 0.6853 Average 0.6883 0.6862 0.6851 EUR/PLN Closing 4.0546 4.0388 3.8600 Average 3.8991 4.0827 4.0276 (1)The results for the half-year ended 30 June 2005 have been restated to represent the results of Ark Life as a discontinued operation to reflect the disposal (note 2). Half-year Half-year Year 30 June 30 June 31 December 2006 2005 2005 Capital adequacy information EUR m EUR m EUR m Total risk weighted assets 111,067 88,236 101,656 Capital Tier 1 8,913 6,794 7,275 Tier 2 3,815 3,412 4,089 12,728 10,206 11,364 Supervisory deductions 349 477 487 Total 12,379 9,729 10,877 Independent review report of KPMG to Allied Irish Banks, p.l.c. Introduction We have been engaged by the company to review the financial information for the six months ended 30 June 2006, which comprises the statement of accounting policies, consolidated interim income statement, consolidated interim balance sheet, consolidated condensed interim statement of cash flows, consolidated interim statement of recognised income and expense, condensed consolidated interim reconciliation of movements in shareholders' equity and the related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Listing Rules of the Irish Stock Exchange and the UK Financial Services Authority. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this review report, or for the conclusions we have reached. Directors' responsibilities This interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing this interim report in accordance with the Listing Rules which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual financial statements except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 Review of interim financial information issued by the Auditing Practices Board for use in Ireland and the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2006. KPMG Chartered Accountants Dublin 31 July 2006 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorised. ALLIED IRISH BANKS, p.l.c. (Registrant) Date 1 August 2006 By: ___________________ John O'Donnell Group Director, Finance, Risk and Enterprise Technology Allied Irish Banks, p.l.c.