Company Announcements

7 March 2024                                                                                                    

Permanent TSB Group Holdings plc ('the Bank')

Comment by Eamonn Crowley, Chief Executive:

"Our results demonstrate real momentum through a robust financial performance, driven by income growth, a strong deposit franchise and good asset quality.

2023 was a very significant year for PTSB as we supported customers with new lending of €2.8bn, while also successfully completing the integration of Ulster Bank businesses, including: 330 former Ulster Bank colleagues; over 65,000 mortgage customers; an Asset Finance Business, a Private Banking Team and a Business Banking book.

In October, we announced a major overhaul of our brand and customer positioning for the first time in over 20 years, with PTSB becoming the new brand name for the Bank and the introduction of a new customer promise 'Altogether more human'. This repositioning reflects our ambitions as a full-service personal and business bank and our focus on changing customer needs.

Looking to the year ahead, we remain in a strong position to build on the momentum of 2023 as we continue to grow our business, invest in our customer, colleague and community experience, while delivering sustainable returns for our shareholders."

 Key Points:

·   Underlying Profit Before Tax^[1] of €166 million (FY'22: €45 million)

·   Profit Before Tax of €79 million (FY'22: €267 million, inclusive of negative goodwill on the purchase of the Retail and Business Banking businesses of the Ulster Bank transaction)

·   Strong capital position; fully loaded CET1 capital ratio of 14.0%; regulatory CET1 capital ratio of 14.3%

·   Total new lending of €2.8 billion, in line year on year (YoY), as growth in business banking and consumer finance loans offset lower new mortgage lending 

·   New Mortgage lending of €2.3 billion, 11% lower YoY, with the overall new mortgage market c. 14% lower YoY. New business mortgage market share of 19.2%[2] compares to 18.5% at December 2022

·   Net Interest Income 71% higher YoY due to the changed interest rate environment, loan book growth and the migration of the Ulster Bank loans

·   Net Interest Margin (NIM) of 2.32%, 78 bps higher YoY

·   Underlying Operating Expenses[3] have increased YoY to €495 million, +25% YoY in line with management expectations, with the cost income ratio[4] of 66%, 18 ppts lower YoY

·   Customer deposits of €23 billion, an increase of c. 6% (€1.3 billion) YoY

·   Robust asset quality, Non-performing loans (NPLs) of €0.7 billion and NPL ratio of 3.3% at December 2023 are in line with December 2022

·   Following the 2023 Supervisory Review and Evaluation Process ('SREP'), effective from 15^th December 2023, PTSB is no longer prohibited from paying out dividends to shareholders and has been identified as an Other Systemically Important Institution ('O-SII')

·   As a result of this identification, an O-SII buffer of 50 basis points is to be held in the form of CET1 capital from 1^st January 2025

Income

Net interest income in 2023 has increased by 71% YoY, with the net interest margin increasing by 78bps YoY to 2.32%; benefitting from the changed interest rate environment, increased loan book volumes and a managed cost of funds. Net fees and commission income performance remains strong and in line with prior year, as we continue to support our larger customer base.

Costs & Investments

The Bank continues to closely manage its cost base. Reported total costs in 2023 of €504 million increased by 28% when compared to the prior year reflecting the impacts of the acquisition, the higher inflationary environment, together with a €9 million once-off non-recurring fee for the Deposit Guarantee Scheme, while also continuing to invest in the Bank for its future. Excluding the once-off fee for the Deposit Guarantee Scheme, the underlying operating expenses of €495 million increased by 25% YoY, in line with management expectations. The Cost Income Ratio⁴ reduced by 18ppts from 2022, to 66%.

The Bank increased headcount[5] to 3,206 by December 2023 (2,488 at December 2022) as 330 colleagues joined from Ulster Bank together with additional headcount ensuring the safe execution of the large scale transaction while maintaining service levels for both new and existing customers nationwide. The Bank also invested in a refreshed brand promise for the first time in more than 20 years which will further support the Bank in driving long-term success. This move is a major statement of intent, reflecting the much larger scale and business diversification of the Bank, its customer focus and growing ambitions for the coming decade.

Through the Bank's multi-year digital transformation programme, several enhancements to the PTSB mobile app and desktop services have been delivered, including the introduction of Webchat service in-app. In a global-banking first, in late 2023 the Bank also launched 'PTSB Protect', a new feature to its banking app which will help prevent customers falling victim to fraudulent scams.

The Bank continues to invest in further improving its customer experience reflected in an improvement in Relationship Net Promoter Score[6] from +10pts in December 2022 to +20pts in December 2023.

Balance Sheet & Business Performance

Customer deposits of €23.0 billion at 31 December 2023 are €1.3 billion higher than at 31 December 2022, with a c. 4% increase in current account balances to €9.3 billion, and c. 7% increase in other retail deposits to €12.4 billion. The Bank has completed seven personal deposit rate increases since November 2022, offering customers a range of competitive deposit products. Despite the elevated cost of inflation and the higher interest rate environment, the overall deposit market has grown by 2.5% in 2023[7], however this growth is lower versus the same period in 2022 indicating that the pace of deposit growth is slowing.

Approximately 70% of the Bank's total customer deposits at 31 December 2023 are covered under the Deposit Guarantee Scheme ('DGS'), broadly in line with balances at 31 December 2022. The loan to deposit ratio of 93% and liquidity coverage ratio of 220% at the end of December 2023 provides the Bank with a strong liquidity position and a secure funding source for future growth in lending volumes.

The total performing loan book of €20.9 billion at 31 December 2023 is c. €1.8 billion higher than the total performing loan book at 31 December 2022, as a result of the former Ulster Bank Micro-SME migration in February 2023 (€0.2 billion), additional mortgage migration in May 2023 (€0.9 billion), Asset Finance migration in July 2023 (€0.5 billion), and new mortgage lending outpacing repayments and redemptions (€0.2 billion).

The Bank continues to support its customers with total new lending of €2.8 billion broadly in line YoY. New mortgage lending of €2.3 billion was 11% lower YoY, however, the mortgage market in Ireland reduced by c. 14% due to a material contraction in the switcher portion of the market. The mortgage market was €12.1 billion in 2023[8], down from €14.1 billion in 2022. New mortgage lending across fixed rate products was 94% of total new mortgage lending, with fixed rate Green mortgage lending accounting for 30% (+10% YoY) as we support customers in their transition to a low carbon economy. Market share of mortgage drawdowns reached 19.2% in 2023, which was 70 bps higher than the 2022 market share (18.5%).

Business lending of €167 million in 2023, an increase of 11% YoY, reflects our stated ambition to offer a meaningful alternative to business customers seeking a new banking relationship. Live applications and approved business lending pipeline represents further opportunities for growth in 2024. PTSB Asset Finance new lending of €223 million in 2023 is 7% higher than that of the prior year. Since its launch in July 2023, the PTSB Asset Finance business has allowed us to diversify our product offerings and to broaden our customer base. The successful migrations of the Ulster Bank SME and Asset Finance portfolios, coupled with new lending growth, has resulted in the Bank's Business Banking book reaching over €1 billion in December 2023. This represents growth which is three times the December 2022 book of c. €0.3 billion.

New consumer term lending pay-outs of €117 million increased by 22% YoY. Digital adoption continues to be a key enabler for this product with c. 80% of new term lending drawdowns through our direct channels.[9]

Incorporating Sustainability into our business practices remains a key priority for the Bank, with steady progress being made across the four pillars of PTSB's Sustainability Strategy. The Bank will also expand its green customer propositions in 2024, including participation in the SBCI Retrofit Scheme.

In July, the Bank issued its first Task Force on Climate-related Financial Disclosures Report (TCFD) Report to the market. The Bank also completed a review of its carbon impact across Scope 1, 2 and 3 emissions with a commitment to set Science Based Targets in 2024.

The Bank's progress in continuing to evolve its culture has also been recognised internally with a Culture Index score of 81% and a Trust score of 82% being reported through the Bank's annual colleague engagement survey.

Progress was also recognised externally with the Irish Centre for Diversity awarding PTSB with Investors in Diversity Gold accreditation in September.

Asset Quality

Asset Quality remains strong with Non-Performing Loans of €0.7 billion at 31 December 2023, and in line with balances at 31 December 2022. While the global macroeconomic environment remains uncertain, the Irish economy continues to perform well with no notable deterioration in the asset quality of the Bank's loan book evident to date.

The income statement reports an impairment release of €2 million, reflecting the current macro-economic conditions which the Bank is currently operating in. The Bank also reports a capital deduction of €13 million for the NPL backstop. Notwithstanding the challenges of the higher inflation and interest rate environment on our customers, and the potential for second order impacts from ongoing geopolitical tensions in the Ukraine and Middle East, the Bank believes it is adequately provided for having assessed a range of scenarios. The Bank has no exposure to Commercial Real Estate.

Capital

The Bank's Common Equity Tier 1 (CET1) ratio at 31 December 2023, on a fully loaded basis remains strong at 14.0%, 120 bps lower than 31 December 2022 of 15.2%, reflecting the increase to Risk Weighted Assets following the migration of the Ulster Bank Micro-SME, the remaining Mortgages and Asset Finance portfolios, together with organic growth during the year.

The CET1 ratio on a transitional basis of 14.3% at 31 December 2023, reduced by 190 bps from 16.2% at 31 December 2022. This reduction is primarily driven by the annual transitional phase-in of prudential filters in addition to the migration of Ulster Bank loans. The minimum regulatory requirement for CET1 on a transitional basis is currently 9.83%[10] and has increased by 39bps since Q3'23 following the continued phase in of the Counter-cyclical buffer ('CCyB') in Q4'23 of +50bps, partially offset by a reduction in the Pillar 2 Requirement ('P2R') of 11bps[11].

The Total Capital ratio on a transitional basis was 20.0% at 31 December 2023. The minimum regulatory requirement for Total Capital on a transitional basis is currently 14.75% and has increased by 30bps since Q3'23 following the continued phase in of the CCyB in Q4'23 of +50bps, partially offset by a reduction in the P2R of 20bps.  

2024 Outlook

The Bank remains in a strong position to continue to support our customers, the Irish economy and our shareholders.  Net Interest Income will be broadly in line with FY23 as rising lending yields due to loan book repricing are offset with a higher cost of funds as a higher proportion of customers' avail of higher yielding deposit accounts.

Following the very successful and safe acquisition of the Ulster Bank portfolio; the transfer of employees; opening 25 new branches; together with on-boarding additional headcount to safely acquire and serve a significant growth in customer numbers; the Bank is focused on further improving operational efficiencies through prudent cost management with the ambition to operate with a cost base of c. €500m p.a. in the medium term while we continue to invest in the Bank.

The Bank expects a mid-single digit increase in 2024 operating costs as we continue to manage the impacts of inflation, business growth and required investment for the future. This will partially be offset by efficiencies as we continuously review our operating environment.

Asset quality remains strong and is benefitting from the strict underwriting criteria in place over the last decade. Furthermore, Irish macroeconomic conditions remain supportive of continued growth over the coming years, as such the cost of risk is expected to be c. 10bps in FY'24.

Capital remains strong and having assessed a range of scenarios, the CET1 ratio will remain well above the Bank's minimum regulatory requirement. The Bank will announce a distribution policy in H2'24.

- 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.