The past year is one in which AIB made consistent progress in achieving the bank’s business objectives. Progressively rebuilding trust with our customers, restoring the bank to better financial health and playing a robust role in the recovery of the Irish economy were critical priorities for the bank and we made solid progress across all these areas throughout 2013.

Evidence of AIB’s pace of change is clear. We achieved significant cost restructuring, improved levels of lending, finalised the asset disposals required in our deleveraging plan, made tangible progress towards resolving the arrears problem, and completed four issuances in the funding markets. Stabilisation of the bank is now well advanced and we look forward to a return to profitability before tax during 2014. It has not been an easy journey for any stakeholder in AIB and while the path ahead is more encouraging, a number of challenges remain, for the bank and the wider Irish economy.

The AIB Group’s UK operations, Allied Irish Bank (GB) and First Trust Bank in Northern Ireland also saw significant progress in continuing to win business in challenging environments.

Acutely aware of the financial stress facing many of our customers, AIB has progressively built its capabilities to deal more expeditiously with arrears and customers in financial difficulty. It is a significant task. The process is, by definition, labour-intensive and each case requires understanding, empathy with the difficulties facing customers, patience as well as persistence, but we are making significant inroads to reach appropriate, sustainable solutions in scale.

Our priority remains as it was – to agree sustainable solutions with customers where possible. This requires borrowers in arrears to prioritise their mortgage debt, and pay back what is, affordable in the context of reasonable living expenses. We believe the loan loss provisions already made to date are sufficient to allow the debt restructuring that may be required.

Engagement is the key to reaching long-term arrears resolutions and in order to increase this we have actively sought to explore new avenues. This has included ongoing engagement with consumer advocacy groups.

A large portion of the national debate around arrears has been focused on the issue of mortgage arrears, to a far greater degree than that of SME arrears. This is despite the fact that SME arrears, in monetary terms, are the larger issue for AIB. As part of the overall resolution process AIB is making significant progress and continues to devote considerable time and resources working to return troubled SMEs to viability.

When it comes to banking services, we do not believe the concept of “free banking” is sustainable over the long term. AIB

has endeavoured to price its services to cover the costs incurred and offers more cost effective online, self-service and paperless options. Charging for our services must mean, however, that we continue to improve and focus on our customer service levels.

Whilst remaining prudent in the application of lending standards, AIB allows branch managers discretion to approve certain loan requests, as well as reinforcing the market and sectoral expertise of its relationship management teams. I firmly reject any assertion that the bank is not lending – it is vital to our customers as well as the bank that we provide credit and we welcome constructive engagement to improve our offerings and resolve specific customer concerns.

There has been much commentary about the possible need for further recapitalisation after the Euro-wide stress tests later this year. AIB remains robustly capitalised relative to our minimum regulatory requirements and, unless external extenuating circumstances beyond our control dictate otherwise, I do not envisage any change in that situation.

Fulfilling the necessity to develop a banking model fit for the future has, and will continue to involve enormous determination on the part of AIB’s Board, management and employees. We remain constantly aware and thankful for the support of the Irish taxpayer since the economic crisis began and our focus now is to deliver a return to the State over time as market conditions permit. After five years of economic turmoil, we are at last seeing welcome signs of a turnaround. In order to survive as a bank of systemic importance to the economy and in order to restore our customers’ lost trust, we had to undertake radical reform.

After a year of solid progress in 2013, I am very satisfied that AIB’s recovery strategy allows us to play an increasingly important and beneficial role in Ireland’s recovering economy. One of our objectives is that AIB will progressively move back into private ownership and we will work closely with the Government on how and when is best to achieve this, taking into account the capital structure of the bank in the context of emerging regulatory requirements. While dealing with a number of legacy issues, the bank’s strategy is progressing and is evident in these annual results and we are focused on achieving our goals notwithstanding the ongoing challenges facing the bank.

In difficult circumstances, the bank’s employees continue to work extremely hard and frequently absorb much criticism – and I thank them for implementing the required changes and for striving to provide a consistently professional and reliable service to our customers. I also wish to sincerely thank our colleagues who have left the organisation in 2013 for their contribution to the bank and I wish them success in their future endeavours.

In summary, to our customers and the Irish public, I again say thank you for your ongoing support. The Department of Finance and the Central Bank of Ireland continued to work closely and proactively with AIB throughout 2013. Finally, I would like to acknowledge the on-going support and dedication of the Board of Directors. Together we look forward to reaching our mutual goal – a sound, reliable and profitable AIB. No effort will be spared in the achievement of this objective.

David Hodgkinson

Chairman

4 March 2014

In the second year of our three-year strategic plan, we have met, and in some cases exceeded our targets in the delivery of our business agenda despite a challenging but improving external environment. We remain focused on sustainable growth and returning to profitability during 2014. Notwithstanding the ongoing challenges facing the bank, we are more optimistic for the outlook of both the bank and the Irish economy.

Strategic Objectives

Introduction

2013 was a year of steady progress at AIB as we implemented our key strategic objectives which saw the bank return to pre-provision, pre-exceptional operating profit for the year. A number of important milestones have been reached and the fundamentals of AIB’s operating performance are now trending more positively both from a bank and economic perspective.

Pre-provision operating profit was achieved

AIB’s financial performance in 2013 was a significant improvement on 2012, with pre-provision, pre exceptional operating profit of € 445 million in 2013. This was achieved in part through continued positive momentum in our Net Interest Margin (“NIM”) which has increased by 15 basis points from 2012, to an average of 1.37% in 2013 excluding Eligible Liabilities Guarantee (“ELG”) costs. NIM increased by 27 bps from 2012 to an average of 1.54% in 2013 excluding ELG and NAMA bonds.

ELG costs have reduced by € 215 million without materially impacting deposit balances. The bank has maintained an ongoing strong focus on efficiency and cost reductions particularly since mid 2012, the benefits of which were evidenced in 2013, with a € 278 million or 16% year-on-year, reduction in operating expenses, pre exceptional items.

Impairment charges reducing

There has been stabilisation in the asset quality of our loan portfolios and the pace of growth in impaired loans, has slowed, relative to 2012, with the overall level of impaired and criticised loans reducing. Impairments and arrears in our mortgage portfolios increased during 2013, however, the pace of increase has slowed compared to 2012.

Our provision charges were € 625 million lower in 2013 than in 2012. The bank determines impairment provisions on an ongoing basis in accordance with IFRS accounting standards, which takes into account impairment triggers, collateral valuations and the timing of realisation. In arriving at the 2013 total credit impairment provisions charge of € 1.9 billion, the Group also considered the Central Bank of Ireland’s (“CBI”) Balance Sheet Assessment (“BSA”) findings and impairment guidelines. The bank’s own assessment of the impairment charge for 2013 is substantially consistent with all of the BSA mean provision finding of € 1.1 billion. Our specific impairment provision coverage is now 55%. Including impairments and exceptional items, the bank’s loss before tax reduced by € 2.0 billion to € 1.7 billion for 2013.

Balance sheet dynamics stabilising

Our gross loan book reduced by € 7 billion in 2013, due to sales of non-core assets as well as amortisation exceeding demand for new credit. The Central Bank of Ireland’s PLAR non-core deleveraging target of € 20.5 billion was completed in September 2013, ahead of schedule and within capital assumptions. Our loan to deposit ratio reduced to 100% reflecting both increased customer accounts and a reduction in net loans. Our core tier one capital ratio, was 14.3%, well above the minimum regulatory requirement of 10.5%. Based on the transitional provisions of CRD IV, the Group’s pro-forma CET 1 ratio, including the 2009 Preference Shares is estimated at 15.0% as at 31 December 2013.

Meeting targets in relation to arrears management

Arrears management and implementing resolutions for customers in financial difficulty has been a key focus of AIB during 2013 and has been designated as the number one area of focus for the bank.

AIB met the quarterly Mortgage Arrears Resolution Targets for sustainable offers during 2013. We have developed a range of tailored permanent solutions and we are implementing resolutions for customers who are engaging with the bank and who are prioritising their mortgage repayments.

We are making tangible progress in restructuring our facilities to SME customers in financial difficulty and are implementing a range of solutions across various asset classes. We aim to have completed a significant portion of SME restructures by the end of 2014 with co-operating customers while implementing our strategy of supporting viable businesses and protecting jobs where possible.

Successful return to the funding markets

Our funding profile was strengthened during 2013, due to stabilisation in both customer account balances and pricing together with the market issuances of € 2 billion. These issuances, which included two Asset Covered Securities, the first Credit Card Securitisation in the Irish market and Senior Unsecured funding demonstrated further normalisation of market conditions.

Expected approval of the EU Restructuring Plan

AIB, through the Department of Finance, has been in detailed discussions with the European Commission to finalise the terms of the bank’s EU Restructuring Plan. The bank expects to implement a range of commitments in line with operational expectations, given the restructuring that has taken place to date, and anticipates approval of the plan in the short term.

Employee commitment to our strategic objectives

The engagement, dedication and professionalism of AIB employees has remained outstanding in the face of significant restructuring following the reduction of c.3,600 employees since June 2012, including those who have left under our voluntary severance programme.

I thank and commend all my colleagues for their hard work and commitment to AIB despite the many challenges.

Customers

We are well positioned in our customer businesses, we have leading market shares across the bank’s key product lines in Ireland and we continue to invest in our franchise. We are committed, to supporting our customers and economic recovery in Ireland by providing credit and a wide range of products to our personal, business and corporate customers. We approved over € 7 billion in mortgage, personal, SME and corporate lending into the Irish economy during 2013 and we are targeting € 7 billion to € 10 billion in lending approvals per year over the next five years.

Delivering differentiated customer service

During 2013, we continued to make investments in our branch transformation agenda and added further enhancements to our digital offering including the launch of tablet banking, the opening of a digital banking location called “The Lab” (learn about banking) and a continued integration and alignment of branch and online banking services for both personal and business customers. We also launched a comprehensive customer experience programme to enhance customer service insight and will continue to use the outputs to shape future offerings.

Focused on lending to Irish SMEs

We are focused on delivering a sectoral led approach which is customer centric. In partnership with key industry bodies, we are undertaking a series of ‘Outlook Research Reports’ across the SME sector of which five were launched during 2013 covering the retail, hotel, dairy, licensed trade and energy sectors. The findings of these extensive reports represent the views of SMEs across a broad spectrum of the economy. AIB exceeded the Irish Government’s € 4 billion SME lending target in 2013 by approving credit to c.32,000 customers, including new, refinanced and restructured facilities. Lending approvals for new facilities increased year-on-year, with an improvement in market conditions in the fourth quarter.

In line with our sectoral strategy, and to meet the need of individual SME sectors, we have recruited expertise from some key growth sectors of the market such as Retail, Energy, Hospitality and Tourism, Healthcare and Life Sciences and Export which will complement our strong Agri team into the future.

The Irish mortgage market remains a key priority for the bank

The pace of drawdowns in the market in 2013 improved as the year progressed, however, the size of the market remains at historically low levels reflecting supply and demand dynamics in certain parts of the country, as well as underlying market conditions.

AIB has maintained a leading position with c. 38% market share of drawdowns in 2013, and approved mortgage lending to over 7,200 mortgage customers.

We have continued to develop our online presence and launched an online mortgage calculator and application, including an online sanction in principle facility. As well as our online presence, we also have a multi-channel distribution model which expands across branches, brokers and the EBS branch network.

Growth in Irish Corporate lending approvals

The corporate market was very active throughout 2013 and our Corporate business has a leading position in this sector. Corporate lending approvals to new and existing customers increased in comparison to 2012 and we maintained our status as the leading bank of choice for FDI companies in Ireland. We have a strong and active pipeline to support our business goals and our customer strategy is built on service and relationship.

AIB GB and First Trust Bank

The economic outlook for Northern Ireland and Great Britain improved in 2013 and AIB UK remains a core component of AIB’s long term strategy. We are focused on growing the business while continuing to emphasise cost control and greater synergies with the domestic core bank

Outlook

Relationship with the Irish Government

We believe that re-establishing AIB as a profitable, investable bank is the best way to provide opportunity for the Irish Government to begin to recover the State’s investment. Creating a stable and profitable model is a key strategic priority for the bank in order to return capital to the Irish Government over time. The bank continues to engage closely with the Department of Finance in line with the terms of the March 2012 Relationship Framework.

Reviewing options in relation to the bank’s capital structure

During the course of 2014 we intend to provide further guidance on AIB’s capital targets. The Department of Finance has indicated that it will enter into discussions with AIB during 2014 regarding AIB’s future capital structure, including the potential conversion of the 2009 preference shares into equity and potential options, in respect of the contingent capital notes. Any possible actions would be subject to all required shareholder and regulatory approvals. The potential conversion of the 2009 Preference Shares into equity and the resulting clarity regarding AIB’s “fully loaded” CRD IV CET1 position is considered a key step towards capital structure simplification.

Forward looking considerations

We made continuous and steady progress during 2013 however, a number of challenges remain as we seek to return the bank to fully normalised operations. While economic conditions improved in Ireland in 2013, unemployment levels remain elevated and recovery in the property market is still at an early stage. The bank’s operating performance will be influenced by the continued stabilisation in the economic environment in Ireland, the UK and

the Eurozone, sustained recovery in business and consumer confidence, continued reductions in unemployment levels, an increase in credit demand, as well as the ongoing commitment and dedication of employees. Notwithstanding these and other dependencies, I remain confident of our ability to deliver against our strategic objectives in the coming period and our stated aim of returning to sustainable profitability during 2014 remains on target. The bank’s forward strategy will continue to focus on:

David Duffy

Chief Executive Officer

4 March 2014

AIB seeks to make a positive contribution to the communities in which we and our customers operate. Central to this is our strategic objective to contribute to economic recovery in Ireland over time. The following section gives a brief overview of some of the actions undertaken by the bank as part of its four pillars of Corporate Social Responsibility activity in supporting these goals.

AIB in the Community

At AIB, we recognise that our involvement and responsibility extends beyond commercial activities and AIB has an established culture of encouraging staff to actively support a wide variety of groups in our local communities. AIB is actively involved in financial education initiatives in communities and schools, and supports organisations such as the National Consumer Agency and Junior Achievement in their financial education programmes.

AIB has been associated with the GAA for over 30 years and 2013 marked AIB’s twenty second year as official sponsor of the GAA Football and Hurling All-Ireland Club Championships, which now encapsulates Junior, Intermediate and Senior level. In October 2013, AIB also announced the additional sponsorship of the AIB Camogie All Ireland Junior, Intermediate and Senior Club Championships. The Bank seeks to support clubs throughout the country and elevate the profile of the AIB GAA Club Championships.

AIB’s Add More Green Programme continued in 2013 with AIB supporting the Grow It Yourself (“GIY”) Get Ireland Growing Fund, a community and environmental project. This fund is open to community groups, schools, allotments, community gardens and not-for-profits looking to develop or enhance an existing community food-growing initiative. In 2013, a total of 72 community food projects nationwide received grants from the GIY Get Ireland Growing Fund.

In 2013, AIB supported the Press Photographers Association of Ireland for the eleventh consecutive year in the Photojournalism Awards. These awards are open to members of the Press Photographer’s Association of Ireland, and celebrate and reward excellence in Irish photojournalism. The AIB Photojournalism Exhibition visited 20 AIB branch locations nationwide and other venues throughout Ireland during the year. Classes for schools, camera clubs and photography students were also held.

AIB continued to support a number of charities across the country by organising a wide range of fundraising activities throughout the year. For example, various charities were invited into AIB Bankcentre to take part in a charity Christmas market in December. The money raised by purchases and donations made by AIB staff on the day made a tangible difference to these causes. EBS also continued its charity support with an ongoing partnership with Temple Street Children’s Hospital in Dublin. AIB GB and First Trust also undertook numerous staff fundraising initiatives throughout 2013 and the GB Staff Care Committee made its annual charity donation.

AIB and the Environment

AIB continued to make progress in 2013 in the areas of energy and environmental management, with foundations laid for further work in 2014. AIB made its annual return to the Carbon Disclosure Project in May 2013 which showed an overall score of 85% for disclosure, moving from a performance band ‘C’ to a performance band ‘B’. AIB retains its position as a ‘Carbon Leader’, (exceeding the requisite score of 75%), demonstrating AIB’s commitments and continued improvements within the energy and environmental management delivery.

In 2013, AIB undertook a project to commence implementation of an environmental management system (ISO14001 environmental management standard) and is on track to be awarded this standard in 2014 for its Bankcentre location.

AIB are working closely with the Sustainable Energy Authority of Ireland (“SEAI”) to promote energy efficiency and reduction of energy consumption. Considerable work has been completed to date with the objective of achieving the ISO50001 energy management standard in 2014.

Energy related projects undertaken included: upgrading in energy monitoring systems in head office locations; the addition of metering and monitoring systems for all catering facilities of significant size; development of an energy utility database and an upgrade of lighting control systems in Bankcentre.

Finally, in December 2013, AIB announced that it intends to make € 100 million available for lending to enable Irish SMEs to lower their energy bills – with the bank taking into account the projected savings from energy efficiency projects when calculating a borrower’s repayment capacity.

AIB in the Marketplace

We are actively seeking to support economic recovery in Ireland through the provision of products and services to our business and personal customers. As part of this strategy in 2013, we continued to develop our customer proposition for our personal and business customers.

With the majority of AIB banking transactions now taking place away from the branch counter, we continued to invest in our technology banking platform in 2013. We increased investment in our physical banking infrastructure including the deployment of self-service banking kiosks and enhanced our offerings with improved availability and functionality of Intelligent Deposit Devices which are now in place at many branches nationwide. Our dedicated digital banking store “The Lab” opened in Dundrum Town Centre, Dublin, allowing customers to learn about the use of existing and emerging technologies in banking services. These enhancements to our physical branch network were made in tandem with improvements to our mobile and internet banking capabilities for our business and personal customers.

AIB‘s strategy for the SME market has taken on a strong sectoral focus as we examine and address the specific needs of individual SME sectors. As part of our strategy development, we are aligning our strategy to those sectors of the market with the strongest potential to contribute to the recovery of Ireland and thus create jobs.

A core part of our new SME strategy is that we are equipped to support business needs across sectors and business disciplines. Progress has been made in recruiting external expertise from some key growth sectors to further develop our sectoral knowledge. AIB commissioned significant research throughout 2013, to deepen our understanding of customers’ needs, resulting in a series of sectoral ‘Outlook’ reports. The reports analysed the key issues and opportunities in particular sectors within the Irish economy, offering opinion from relevant stakeholders. Five comprehensive reports have been issued to date focusing on the retail, hotels, licensed trade, dairy and energy sectors of the Irish economy.

Finally, AIB continued to support a number of national SME and Agricultural events throughout 2013, including the SFA National Small Business Awards, Business and Finance Awards and the National Ploughing Championships.

AIB and our people

Our employees are central to recovery at AIB and in 2013, we made tangible progress on our strategy of engaging with our employees across the business. We began the year with the launch of our new performance management programme which focused on aligning individual employee objectives more closely with AIB’s strategic priorities. In 2013, we also made a significant investment in our people leadership agenda. This included the launch of our first People Leadership Summit which was attended by over 1,300 people leaders across the Bank. We also launched an employee survey, achieving significant overall response rates from employees which is being used to improve engagement levels across the bank. We will continue to focus on improving employee engagement during 2014.

In the latter part of 2012 AIB commenced organising its internal structure to a more customer centric model comprising the following key segments: Domestic Core Bank (“DCB”), AIB UK,

Domestic Core Bank Overview

Business description

The Domestic Core Bank is made up of two business areas – Personal, Business & Corporate Banking and Products.

Products

The Products area is responsible for portfolio and balance sheet management. It provides a portfolio of banking products for distribution across the bank. Through focused pricing strategies, the business area balances customer value with delivery of an appropriate return for the Bank. The area continues to redesign and simplify the bank’s product portfolio to facilitate a digitally-enabled omni-channel distribution strategy with a customer centric focus. Products is also responsible for the bank’s treasury & capital markets functions including identification and execution of specific balance sheet restructuring initiatives.

Personal, Business and Corporate Banking

Personal, Business and Corporate Banking (“PBC”) services the personal, business and corporate customers of AIB in the Republic of Ireland including wealth management services. PBC has a strong presence in all key sectors including SMEs, mortgages, personal banking and corporate banking. It provides customers with choice through a range of delivery channels consisting of a network of 200 AIB branches/outlets, 74 EBS offices, 10 business centres, c. 755 ATMs and AIB phone and internet banking as well as a partnership with An Post offering services at over 1,000 post offices nationwide.

Complementing the physical distribution channels of branches (including EBS) and business centres, is AIB’s Direct Channels operation, offering self service capability through self-service kiosks and automated payments including telephone, internet, mobile and tablet banking.

The Wealth Management unit delivers wealth propositions to AIB customers, tailored to the needs of specific customer segments, including a Private Banking offering to high net worth clients. AIB Corporate banking provides a fully integrated relationship-based banking service to top-tier companies, both domestic and international, including financial institutions, Irish commercial state companies and large multinationals.

and Financial Solutions Group (“FSG”). Reporting on this new segment basis commenced in 2013. The following pages provide an overview of these business segments.

EBS Limited, whilst part of the AIB Group, operates as a standalone, separately branded subsidiary of AIB with its own banking licence. EBS operates in the Republic of Ireland and has a countrywide network of 74 offices. EBS’s network gives it a physical presence in communities across Ireland and this is important in allowing it to provide a high quality personal service to its customers. EBS offers residential mortgages and savings products, bancassurance, personal banking and general insurance products on an agency basis.

Customer Strategy

The strategy for the Domestic Core Bank is to be a customer-led bank. AIB’s customer strategy is enabled by digital technology. Global consumer trends show that more and more consumers are using technology to make their lives easier. AIB is enabling its customers with technology to give greater flexibility as to how and when they want to interact with the bank. The bank’s continued investment and development of technology complements the existing ways of banking through branch and phone channels, providing customers with an omni-channel banking experience.

Personal Customers

For personal customers, AIB wants to be their bank of choice; a bank where customers choose to come to and be with because of the proposition and service provided. AIB’s customer proposition is a combination of the wide range of products offered, relationship management approach and the capability customers have, to do their banking across multiple channels from branches through to online, mobile and tablet.

In 2013 customers continued to adapt to digital technology. 465,000 customers do their banking at a time and place that suits them using the Mobile Banking app on their smartphones. AIB launched Tablet Banking where a key feature is the ‘My Money Manager’ tool. Customers are using this tool to classify their spending, create budgets and set savings goals helping them to manage their finances. AIB also launched its smartphone person-to-person payments app called Me2U. Customers send money to their friends by simply using the receiver’s mobile phone number on Me2U.

For customers looking for mortgages in 2013, AIB estimates it provided c. 38% of all mortgage drawdowns and supported First Time and Second Time Buyers with financing their new home and providing funds to refurbish existing homes.

Business Customers

AIB is focused on Business Customers through a sectoral strategy approach. This strategic approach allows AIB to understand the challenges and opportunities that exist for customers in those sectors. To support this approach, in 2013 AIB commissioned in-depth research in partnership with key industry experts, on a number of sectors. AIB launched a series of sectoral research reports focused on specific sectors to include, Retail, Hotels, Dairy, Energy and the Licence Trade. AIB will continue with this programme in 2014.

AIB launched a series of funds in 2013 demonstrating commitment to customers. These included a €200m Renewable Energy Fund, €100m Energy Efficiency Finance Fund and a €200m EIB SME Loan Fund. In addition, a €50m Agri Loan Fund was made available to promote credit for farming customers in the agri

sector, during the harsh weather conditions of early 2013. AIB also launched the Small Business Internet Banking facility with enhanced capabilities on Internet Banking for SME customers to make banking online easier and more useful for them.

Corporate Customers

For corporate customers, AIB continued to develop and deepen relationships with existing and new corporate customers throughout 2013. AIB maintained its position as the No 1 bank of choice for providing banking services to Foreign Direct Investment companies in Ireland in 2013.

Investing in Distribution

To allow AIB to continue to serve its Personal, SME and Corporate customers, AIB have continued to invest in its physical channels.

AIB continues to maintain the largest physical distribution capability of any of the financial institutions in Ireland, with its branch locations, EBS offices in addition to its banking relationship with An Post.

In 2013, although AIB closed some branch locations, the bank has continued to invest in branches. AIB opened a new branch of the future in Dublin called the LAB (‘Learn About Banking’). The Lab is an innovative learning and research banking store focused on helping customers to maximise their use of existing and new technologies in banking services. AIB continued to invest in Self-Service lobbies, with 11 now open, and plans to open more lobbies in 2014. These lobbies allow customers to do their banking outside of normal banking hours. In addition, AIB also continued to upgrade and invest in branches across the country to allow AIB to better serve its customers.

DCB Franchise in figures

Business description

The AIB UK segment operates in two distinct markets, Great Britain and Northern Ireland, with different economies and operating environments. The segment’s activities are carried out primarily through AIB Group (UK) p.l.c., a bank registered in the UK and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. In addition, Structured Lending Solutions for the UK deals with all its customers in difficulty, and principally manages assets that are in AIB UK Loan Management and the UK Corporate Banking branch of AIB plc.

Great Britain

In this market, the segment operates under the trading name Allied Irish Bank (GB) from 20 locations in major business centres in Great Britain. The head office is located in Central London with a processing centre based in Belfast. A full banking service is offered to business customers (primarily owner managed businesses and professional services firms) and associated high net worth individuals with a strong focus placed on supporting British Irish Trade.

Northern Ireland

In this market, the segment operates under the trading name First Trust Bank from 32 branches and outlets throughout Northern Ireland. The First Trust Bank head office is located in Belfast, together with a processing centre. A full service, including online, mobile and telephone banking is offered to business and personal customers across a range of customer segments, including professionals, high net worth individuals, SMEs, as well as the public and corporate sectors.

Both of these institutions remain a core element of the future strategy for the bank.

Performance

The financial performance in 2013 has been achieved in an economic environment that has been particularly challenging in Northern Ireland and in the regions of GB, with resilient economic conditions in London and South East Great Britain.

Despite that challenging backdrop the bank is engaging in new business in both FTB and GB. The strength of our brands and the dedication of our employees demonstrates to customers that the bank can genuinely differentiate on quality of the service.

AIB GB

We believe that customers bank with Allied Irish Bank (GB) because of the quality of its customer service and its delivery of genuine relationship banking for businesses.

‘Tailoring services to British businesses’

Allied Irish Bank (GB) has a long history of banking in Great Britain and can trace its roots back to London in 1825. Allied Irish Bank (GB) operates from 20 locations in major business centres across Great Britain and employs 700 staff. A full range of business banking, corporate banking and international trade services are available from Allied Irish Bank (GB), as well as dedicated wealth management, personal banking and direct savings

services. GB has also achieved considerable success in terms of deposit gathering from its traditional core relationship deposits in the branch network as well as its new Savings Direct retail offering via remote channels.

‘Award-winning commitment to exceptional service’

It is a testament to the Bank’s long standing commitment to exceptional customer service, that Allied Irish Bank (GB) boasts an impressive history of business awards. Winner of Best Business Fixed Account provider at Business Moneyfacts Awards in 2013. Moneyfacts Awards Finalist in three categories: Business Bank of the Year 2013, Best Service from a Business Bank 2013 and Best Business Card Provider 2013. Multiple former winner of Britain’s Best Business Bank from the Forum for Private Business.

First Trust

Throughout 2013, First Trust Bank has been actively promoting its ‘Open for business’ agenda with a clear focus on strengthening customer relationships and capitalising on new business opportunities, particularly in relation to home loans and SME lending.

In 2013 the Bank launched a new suite of mortgage products which have successfully achieved Moneyfacts 5* ratings. A mobile banking website and app were also launched to customers in June 2013, with significant numbers of downloads achieved in the first few months. Free Wifi was installed in all First Trust Bank branches from October 2013, primarily as an enabler for customer education and support in relation to online and mobile banking technologies.

For the SME market, two business lending funds have, and continue to be, actively promoted: the Business Support Fund and the Owner Managed Fund. Both offer transparent pricing with a clear application process in direct response to feedback from local SME customers. The Bank is keen to ensure that credit demand for viable business is met; thereby ensuring it plays its part in the recovery of the NI economy.

UK Structured Lending Solutions (“SLS”)

As a result of loan transfers AIB UK set up SLS to deal with all its customers in difficulty. This will ensure there is a centre of expertise where the right people with the appropriate products can tailor solutions for each customer on a case by case basis. In all cases possible AIB UK will work with its customers whether they be mortgage holders, SME’s or Corporate to establish a path back to affordability/viability. The emphasis is on early engagement as it is mutually beneficial for the bank and customers to manage issues in a constructive way.

Business description

The Financial Solutions Group (“FSG”) is a segment dedicated to supporting business and personal customers in financial difficulties, including BTL (“Buy To Let”) mortgages. It also provides a service to DCB to manage its PDH (“Private Dwelling House”) arrears cases. The FSG team have the training, the focus and the products to tailor solutions for customers on a case by case basis. FSG consists of the following AIB business units:

These three business units manage customers in financial difficulty, including corporates, SMEs and personal borrowers. The portfolio includes a wide spectrum of industries and asset types.

This unit includes AIB and EBS consumer mortgages that are either in arrears or in pre-arrears.

This team incorporates centralised asset management, litigation management and personal insolvency units.

Third Party Servicing in AIB is a service provider to NAMA, assisting NAMA in the management of a portfolio of assets acquired by NAMA from AIB.

Strategy

FSG comprises staff trained in financial restructuring and applies tailored solutions through the use of established treatment strategies, focused on:

In order to be efficient and effective AIB have restructured the business to create a flatter, more streamlined, centralised operating model with regionalised teams that:

Mortgage Arrears Resolution

AIB’s strategy is to stem the growth in arrears, to return as many loans as possible to performing status, and where necessary to make such modifications to loans as are necessary to have a sustainable outcome.

AIB’s focus is on replacing short term forbearance measures with sustainable solutions including where necessary legal options for

non co-operating customers. Increasing levels of engagement with customers remains a crucial component of agreeing sustainable solutions.

The Central Bank of Ireland outlined Mortgage Arrears Resolution Targets in March 2013. In November 2013 the Central Bank of Ireland confirmed that in line with requirements AIB had reported sufficient proposed solutions to meet the target of 20% proposed sustainable solutions in Quarter 2 and 30% in Quarter 3. The bank has met the 50% target required for Quarter 4. In December 2013 and in line with the EU/IMF Programme, the Central Bank of Ireland set its expectation for end June 2014 which requires sustainable solutions offered to mortgage customers to reach 75% of over 90-days arrears and for concluded solutions to reach 35% by that date. AIB is focused on continuing to meet all relevant targets.

Non-core deleverage programme

On 24 September 2013 AIB confirmed completion of its deleveraging plan, a significant milestone in the bank’s overall restructuring as part of its strategy to return to sustainable profitability. Under the terms of the March 2011 Prudential Liquidity Adequacy Review (‘PLAR’) contained in the Financial Measures Programme, AIB was required to deleverage € 20.5 billion of non-core net loans by December 2013.

Despite challenging market conditions in recent years the plan has been achieved ahead of schedule with a positive capital variance versus the Financial Measures Programme Assumptions. Deleveraging of € 2.2 billion of non-core net loans was achieved in 2013. In addition, on completion of non-core deleveraging, € 6.7 billion of loans were transferred from FSG to other segments. See page 38 for further details.

1.1 History

The AIB parent company, Allied Irish Banks, p.l.c., originally named Allied Irish Banks Limited, was incorporated in Ireland in September 1966 as a result of the amalgamation of three long established banks: the Munster and Leinster Bank Limited (established 1885), the Provincial Bank of Ireland Limited (established 1825) and the Royal Bank of Ireland Limited (established 1836).

The following material transactions have taken place since 1983:

1.2 Developments in recent years

A key element of AIB’s pre-crisis market positioning was its involvement in the Irish property sector, which was the fastest growing segment of the Irish economy. From the late 1990s to 2006, the mortgage market in Ireland expanded rapidly as housing prices soared, driven in part by economic and wage growth and a low interest rate environment.

The global financial system began to experience difficulties in mid-2007 resulting in severe dislocation of international financial markets around the world with unprecedented levels of illiquidity in the global capital markets and significant declines in the values of asset classes. Governments throughout the world took action to support their financial systems and banks, given the critical role which properly functioning financial systems and banks play in economies.

Global financial market conditions triggered a substantial deterioration in domestic economic conditions and property values. In 2008, as the Irish economy started to decline and as

interest rates continued to increase, housing oversupply persisted and mortgage delinquencies increased. Declining residential and commercial property prices also led to a significant slowdown in the construction sector in Ireland. As a result, loan impairments in the Irish construction and property and residential mortgage sectors, to which AIB was heavily exposed, increased substantially. These dynamics began to present funding and liquidity issues for AIB as well as a rapid deterioration in the Group’s capital base.

The Irish Government recognised the pressing need to stabilise Irish financial institutions and to create greater certainty for all stakeholders. A number of measures were implemented by the Irish Government in response to the crisis including:

In addition, the following notable events occurred during 2013:

1.3 Competition

Republic of Ireland

Competition in the retail banking sector in the Republic of Ireland has changed significantly since 2008 as a result of the prolonged downturn in the Irish economy and changes to the operating models of both foreign and domestic institutions. The number of banks (both domestic and foreign) operating in Ireland has declined significantly from pre crisis levels and a majority of the banks still operating in Ireland have received state sponsored capital injections which has necessitated a restructuring of operating models as well as the transfer of property related assets to the National Asset Management Agency in some instances.

The focus of retail banking continues to be to provide sustainable credit to customers, in particular SMEs and mortgages to support stimulation of economic turnaround, provision of support for customers in financial difficulty, as well as retention and gathering of deposits. Activity in the mortgage market in 2013 was constrained due to limited supply of appropriate housing in many urban areas, however, a stabilisation in the housing market has led to increased competition and availability of credit. Deposits pricing continues to be competitive although market pricing levels have declined from elevated rates. Demand for business lending has improved although the overhang from legacy debt associated in large part with property, continues to constrain demand.

UK

While the UK economy has had limited growth over the past three years, signs of improvement were evident in 2013 with growth forecasts for 2014 now exceeding most other European countries.

The UK government continues to play an active role in the banking market through initiatives designed to drive bank support for business and retail customers. New entrants continue to emerge with established players developing their offerings. As a result, the competitive landscape in the UK continues to evolve.

AIB’s focus remains on maintaining close customer relationships and community links throughout Great Britain and Northern Ireland.

1.4 Economic conditions affecting the Group

AIB’s activities in Ireland accounted for the bulk of the Group’s business. As a result, the performance of the Irish economy is extremely important to the Group. The Group also continues to operate significant business in the United Kingdom, which means that it is also influenced directly by political, economic and financial developments there.

The United States, the United Kingdom and the Eurozone are Ireland’s three most important trading partners. A moderate recovery in activity has been underway in all three economies in 2013. US GDP is estimated by the IMF to have grown by 1.9% in 2013 following growth of 2.8% in 2012, with the IMF forecasting

growth of 2.8% for 2014. Meanwhile, GDP in the United Kingdom is estimated to have risen by 1.9% in 2013 after growth of 0.3% in 2012, and the IMF is forecasting UK GDP growth of 2.4% for 2014. For the Eurozone, the IMF estimates the economy to have contracted by 0.4% in 2013, following a 0.7% decline in 2012. Both the IMF and ECB forecast that the eurozone GDP will grow by 1% this year.

According to Ireland’s Central Statistics Office (“CSO”) National Accounts data, real GDP in Ireland rose by 0.2% in 2012, following growth of 2.2% in 2011. CSO data currently available for 2013 covers up to end of the third quarter, and shows that GDP is 0.5% lower in the first three quarters of 2013 than in the same period of 2012

The slowdown in growth in 2012 – 2013 was mainly due to a slower rate of growth in exports, arising from the slowdown in our key trading partners and weak pharmaceutical exports due to the impact from the patent cliff which was the clustering of a number of patented drugs going off patent in quick succession.

The Irish Department of Finance estimates another modest rise in GDP of around 0.2% in 2013. For 2014, the Department is forecasting GDP growth of 2%, helped by a pick up in exports and some modest growth in domestic demand. (Source: Dept of Finance Budget 2014).

In terms of the labour market, conditions improved steadily over the course of 2013. Employment rose for the fifth consecutive quarter in the fourth quarter of 2013. There was a rise of 61,000 in employment, or 3.3%, compared to the corresponding quarter of 2012 (Source: CSO Quarterly National Household Survey Q4 2013). The unemployment rate fell to 12.1% in the fourth quarter, from 12.7% in quarter two and 14.2% a year earlier. (Source: CSO Quarterly National Household Survey Q4 2013).

Credit growth remained weak in Ireland in 2013. Total household loans outstanding were down 4.1% year-on-year at end of December 2013, while lending for house purchase fell by 3.0% in the same period. (Source: Central Bank of Ireland, Money and Banking Statistics December 2013).

House prices rose every month from April through to December 2013 according to the CSO house price index. As a result, prices were up by 6.4% year on year by end December. (Source: CSO Residential Property Price Index, December 2013). Overall, the housing market showed signs of stabilising last year, albeit at low activity levels, with increases in mortgage approvals and transactions, as well as prices increases.

The European Central Bank, which has responsibility for monetary policy in the Euro area as a whole, cut the official refinancing rate by 50 basis points (“bps”) over the course of 2013 ( 25 bps in May and November), with the rate finishing the year at 0.25%. The ECB also introduced forward guidance on interest rate policy at its July meeting, by stating that it expects the key ECB interest rates to “remain at present or lower levels

for an extended period of time” (Source: European Central Bank Governing Council Statement July 2013).

After having deteriorated sharply during the recession, Irish public finances continued to show improvement over the course of 2013. The Department of Finance estimates that the budget deficit declined to 7.3% of GDP in 2013. This compares to a high of 11% in the underlying deficit in 2010. As of Budget 2014, the Government has now implemented € 30 billion of the planned € 32 billion fiscal consolidation programme, leaving around € 2 billion to be completed in 2015 with the aim of reducing the deficit to below 3% of GDP by 2015. (Source: Department of Finance, Budget 2014).

Ireland’s General Government Gross debt/GDP ratio is estimated by the Department of Finance (Budget 2014) to have peaked at 124% of GDP at end 2013, up from 117% in 2012, however, the high Exchequer cash balances and deposits, reduces the Net debt ratio to 98.7% at end 2013.

Since the middle of 2011, there has been a marked improvement in market sentiment towards Ireland with a consequent sharp drop in yields on Irish Government bonds. The National Treasury Management Agency issued € 3.75 billion of ten year debt at a yield of 3.54% on the 7 January 2014. This ten year bond yield is a material reduction from the peak of 14% back in 2011 (Source: Thomson Datastream). This represented Ireland’s first debt issuance since it exited the EU/IMF programme on the 15 December 2013.

In January 2014, Moody’s restored Ireland’s long-term sovereign credit ratings to investment grade of Baa3. S&P and Fitch had Ireland at an investment grade rating of BBB+ in 2013. Both S&P and Moody’s have Ireland on a positive outlook, while Fitch has the sovereign on a stable outlook for their respective ratings. (Source: National Treasury Management Agency).

Basis of presentation⁺

The following management report is prepared in line with how management views the ongoing performance of the Group. The information is presented with exceptional and one-off items which management deem do not present an accurate reflection of performance during the period highlighted separately. A list of the items classified as exceptional and one-off are included below. Comparative data has been restated to reflect the impact of IAS 19 Employee benefits (see note 12 for further details). Percentages presented throughout this report are calculated on the underlying figures and therefore may differ from the percentages based on the rounded numbers in the report.

The summary income statement comparing 2013 with 2012 is set out on page 24 with the relevant commentary on pages 25 to 42. The performance commentary comparing 2012 with 2011 is set out on pages 43 to 46.

Exceptional items

The Group’s performance is presented to exclude those items that management believe obscures the underlying performance trends in the business.

Overview of results

Operating profit before provisions and exceptional items of € 445 million in 2013 compared to a loss of € 324 million in 2012, a € 769 million turnaround.

The Group recorded a loss before taxation from continuing operations of € 1,687 million in 2013 compared to a loss of € 3,729 million* in 2012. The performance reflected higher levels of income, lower costs and a reduction in provisions.

Net interest income increased by € 239 million (22%) compared to 2012, reflecting a lower ELG charge (€ 215 million lower) as a result of the cessation of the ELG scheme, a lower cost of

deposits and other liabilities and higher asset pricing, partly offset by lower average interest earning assets. Other income was € 252 million (79%) higher with higher banking fee and commission income and increased non-banking fee income including a gain of € 62 million resulting from re-estimating the timing of cash flows on NAMA senior bonds and investment asset realisations.

Total operating expenses were € 278 million (16%) lower compared to 2012. This reduction in costs mainly related to the impact of staff exits in the latter part of 2012 and throughout 2013 as part of the voluntary severance/early retirement schemes, lower occupancy costs and lower external consultancy and advisory fees.

Provisions for impairment on loans and receivables reduced by € 518 million to € 1,916 million in 2013. See the Asset quality section (page 31 to page 32) for more detail on provisions.

At 31 December 2013, the Group remained well capitalised with a core tier 1 capital ratio of 14.3%, comfortably above the 10.5% minimum target level as prescribed by the Central Bank of Ireland. The Basel III fully loaded common equity tier 1 ratio was 10.5% at 31 December 2013 including the 2009 preference shares of € 3.5 billion.

Net interest income

Net interest income increased € 239 million (22%) to € 1,345 million in 2013 from € 1,106 million in 2012. The increase of € 239 million was mainly due to reductions in the cost of the ELG scheme of € 215 million and lower costs of funding partly offset by lower loan income on lower loan balances.

The reduction in funding costs largely resulted from deposit pricing actions on interest bearing customer accounts which commenced in 2012 and continued during 2013. The gross cost of customer accounts decreased from 264 basis points (“bps”) in 2012 to 187 bps in 2013.

Market rates reduced between 2012 and 2013 driving lower yields on assets and reducing the cost of interest earning liabilities.

The impact of the decreasing interest rate environment on asset yields and the bank’s continued deposit pricing actions to manage down the cost of customer accounts resulted in the gap between asset yields and the cost of funds increasing from 73 bps in H1 2012 to 109 bps in H2 2013.

Eligible liabilities guarantee (“ELG”)

The ELG charge was € 173 million in 2013 compared with € 388 million in 2012. The reduction in the charge was due to the withdrawal of AIB Group (UK) p.l.c. from the scheme in August 2012 and the cessation of the ELG scheme in the Republic of Ireland for new liabilities in March 2013. As existing liabilities that are covered by the scheme mature, the ELG charge will reduce.