Company Announcements

03 November 2020                                                                                                                          

Permanent TSB Group Holdings plc ('the Bank')

Trading Update For The Third Quarter Ended 30 September 2020 (Unaudited)

As the country continues to deal with the impact of Covid-19, we have remained focused on our Purpose to build trust with customers, providing ongoing support to our customers and communities.

While both business and financial performance has been impacted by the pandemic and the associated challenging economic environment, I am pleased that the third quarter saw improved trading conditions compared to quarter two. The Bank's mortgage applications and approvals in September were the highest so far this year and the pipeline remains strong in the final quarter.

The Bank continues to deliver digital enhancements for customers, and quarter three saw further improvements to our App offerings most notably; the ability to apply for overdrafts, enhanced secure customer authentication and self-service PIN management. We will also launch Apple Pay in the coming weeks and our online current account in quarter one next year.      

The recently announced sale of €1.4 billion of performing Buy-to-Let (BTL) originated loan accounts is a significant transaction for the Bank, which strengthens the Balance Sheet and increases the capital position, generating an additional 2.1% of total capital on a transitional basis.

The duration of the Covid-19 pandemic and its impact on the economy remains unpredictable, the recent government announcement, placing further restrictions on the country presents continued uncertainty.  However, I am confident of the Bank's ability to remain resilient, to continue to build trust with our customers and compete in our core markets of personal mortgages, personal lending and SME lending.

Eamonn Crowley, Chief Executive

Key Points:

·      Capital position remains strong; fully loaded CET1 capital ratio at 30 September 2020 of 14.3%¹.

·      Total new lending of €0.9 billion YTD; 23% lower compared to prior year. Market share of new mortgage lending of 14.9%² YTD, down from 15.2% at H1'20, however strong quarter three lending performance saw new lending increasing c. 30% quarter on quarter.

·      Net Interest Income was 6% lower when compared to the same period in the prior year; Net Interest Margin (NIM) of 1.73%, 2 basis points lower than H1'20.

·      Continued commitment to cost efficiency, creating capacity to invest in the business and enabling a rapid response to the challenges presented by the coronavirus pandemic.

·      Non-performing loans of €1.1 billion remain broadly in line with the balances at June 2020, the NPL Ratio increased by c. 0.9% to c. 7.7%, primarily as a result of the reduction in gross loans due to the recent BTL loan sale transaction.

·      At the end of October, the majority of Covid-19 approved mortgage payment breaks have now returned to original payment terms leaving c. 13% / c. €0.2 billion remaining on an active payment break.

¹ Includes profits earned in Q3 2020

² BPFI data as at 30 September 2020

Business Performance

·      Activity levels increased in the third quarter of 2020, particularly in mortgage applications and consumer spending.

·      Total new lending of €0.9 billion reduced by 23% year-on-year (YoY) as Covid-19 impacted all new lending activity; new mortgage lending of €0.8 billion reduced by 22% YoY while the market reduced by 16%.

·      The year to date market share of mortgage drawdowns was 14.9%, down from 15.2% at June 2020 due to a lower share of mortgage applications during quarter one. Following the introduction of an improved mortgage proposition in July, application volumes have rebounded strongly; doubling quarter on quarter, and c. 40% higher than quarter one.          

·      Following the opening up of the economy in the third quarter, the mortgage market has grown steadily and remains competitive. We continue to manage our offering, carefully maintaining price discipline and credit underwriting standards.

·      YTD SME lending is c. 8% higher YoY, albeit from a low base. The Bank will begin to provide funding through the 'SBCI Future Growth Loan Scheme" in quarter four, with an on-line customer application process, a first in the market for this scheme and very helpful to our business customers in the current Covid environment.

Financial Performance

·      Net Interest Income was 6% lower YoY; the performing loan book remains stable, despite the lower new lending volumes, supported by the active management of the Bank's cost of funds, partly offset by the reduced income from non-performing loans due to loan sales in H2'19 and lower income from the maturities of higher yielding treasury assets.

·      YTD NIM of 1.73%, 2 basis points lower than H1'20, reflects the low interest rate environment and the growth of liquid assets.

·      Operating expenses remain in line with management expectations; we continue to focus on delivering cost saving initiatives to allow for the investment required to deliver both business efficiencies, digital transformation and paying for the ongoing Covid-19 related costs, c. €4m incurred to date in 2020.

·      The Bank's organisation structure and operating model will continue to evolve in line with changing customer behaviours, ensuring that we are set up to deliver our Purpose of building trust with customers and delivering on our strategic priorities.

·      Asset quality remains a key focus with 2020 Expected Credit Loss (ECL) being closely monitored through quarter four. An ECL charge of €17 million was recognised in quarter three, which is in addition to the €75 million ECL reported at H1'20.

Balance Sheet

Customer Balances

·      Customer deposits of €17.8 billion at 30 September 2020 are €0.6 billion higher than 31 December 2019, with current account balances up 17% from December 2019. The loan to deposit ratio was 87% at the end of September 2020.

·      The total performing loan book is €15.0 billion at 30 September 2020, slightly lower than the total performing loan book at 31 December 2019, as the pace of repayments exceeds that of new business. Post the BTL loan sale transaction, the total performing loan book is €13.6 billion with a total performing home loan mortgage book of €11.6 billion.

·      Non-performing loans of €1.1 billion at 30 September 2020 remain broadly in line with the balances at December 2019, where organic cures were offset by new defaults.

Payment Breaks

·      The Bank approved a total number of c. 10.7k Covid-19 mortgage payment breaks; c. €1.6bn or 10% of total gross loans.

The table below reflects the active number of Covid-19 mortgage payment breaks at the end of October 2020:

·      The Bank continues to support and engage with customers on their payment break journey. A significant majority of those customers who have come off payment breaks have resumed capital and interest repayments.

Capital & Funding

The table below details the Bank's capital ratios as at 30 September:

·    The Bank's funding position remains strong. All funding and liquidity metrics are above regulatory requirements with the Liquidity Coverage Ratio (LCR) at 209%.

·      The Bank has received confirmation of revised MREL requirements and has been given an extended transitional period of six months to 30 June 2021 to comply with this requirement. The Bank awaits confirmation of a new MREL decision by early 2021 based on the Bank Resolution and Recovery Directive 2 (BRRD2) framework. The BTL loan sale will reduce the Bank's MREL requirements by c. €260 million.

Outlook

·      Third quarter business performance was strong therefore we anticipate 2020 new lending to be c. 70% of 2019 volumes (€1.7bn). Transactional banking activity has improved in quarter three however Fees & Commissions will remain lower than prior year as a result of the quarter two impact.

·      Operating costs will remain stable in 2020 while remaining committed to delivering cost savings in the medium term.

·      97% of total performing assets are secured residential mortgages. The full year loan loss experience will take into consideration; impacts from changes to macro assumptions, calendar provisioning, the remaining uncertainty brought by the recent Covid-19 restrictions in Ireland, active payment breaks and Brexit.

·      Capital remains strong, having assessed a range of scenarios, the CET1 ratio will remain well above the Bank's minimum regulatory requirements.

-   Ends -

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Note On Forward-Looking Information:

This announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Bank or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements referred to in this paragraph speak only as at the date of this announcement. The Bank undertakes no obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority.