Commentary on 2022 Annual Financial Report

RNS Number : 4211R

Permanent TSB Group Holdings PLC

01 March 2023

 

01 March 2023

Permanent TSB Group Holdings plc ('the Bank')

Annual results for year ended 31 December 2022

"2022 was a transformational year for Permanent TSB, as we combined the once-in-a-generation opportunity of acquiring certain elements of Ulster Bank's retail, SME and asset finance businesses in the Republic of Ireland with an outstanding business performance.

We have become a bigger bank, with an expanded branch presence throughout Ireland following our recent acquisition of 25 new branch locations; an even stronger competitor, with many more personal and SME customers; a larger employer, with the addition of more than 250 former Ulster Bank employees to date; and an organisation that is well positioned to build on the exceptional momentum we have generated.

Our underlying profit improved significantly as we attracted new customers and did more business with existing customers.

We were successful in growing our mortgage market share to 18.5% by supporting mortgage customers with €2.6bn of new lending - an increase of 40%. We also completed the transfer of c. €5.2bn in Ulster Bank mortgage loans, with the remainder scheduled to transfer in the coming months.

In an unprecedented era of switching activity, we opened over 160,000 new accounts in 2022, with our award winning digital current account offering, our customer-friendly app and our availability in-person and through our digital and mobile channels making it easier for customers to navigate the transition.

And we made major progress in scaling up our SME offering through a mixture of organic growth and the Ulster Bank acquisition, as we make our plan for €1bn in new SME lending over 3 years a reality.

Despite a challenging economic backdrop, we approach the remainder of the year and beyond with confidence. We are committed to supporting our customers in the face of cost of living pressures. We see immense opportunity in the Irish retail and SME market and will continue to bring real competition to the market in the years ahead."

Eamonn Crowley, Chief Executive

Key Highlights FY 2022

§ The Bank maintains a strong Capital position; regulatory CET1 ratio 16.2%, fully loaded CET1 capital ratio of 15.2% (+10bps YoY)

§ Profit Before Tax of €267 million (FY'21: -€21 million), of which €222 million arose from Exceptional Items

§ Underlying Profit Before Tax[1] of €45 million (FY'21: €17 million)

§ Strong new lending of €2.8 billion; c.40% higher compared to prior year

§ New mortgage market share of 18.5%[2], compared to 17.8% at December 2021

§ Total Income 13% higher year on year (YoY); Net Interest Margin (NIM) of 1.54%, 3bps higher than prior year; Q4'22 NIM% of 1.92%

§ Underlying Operating Expenses[3] of €344 million, €49 million or 16% higher YoY as we accelerate our investment in customer services, product offerings and take on new businesses

§ Non-Performing Loans have reduced by €167 million to €650 million, or 3.3% of gross loans

§ Completed an ESG Risk Rating through Sustainalytics and received a 'Low' Risk Rating

Business Performance

2022 was a transformational year for the Bank, with growth across key product lines, significant increases in new customers and the principal completion of the Ulster Bank transaction.

Total new lending of €2.8 billion is c. 40% higher YoY, while market share of mortgage drawdowns grew to 18.5%. The second half of 2022 saw a sharp increase in new mortgage drawdowns as growth in the switcher market intensified. The changed interest rate environment has encouraged customers to seek rate certainty, with c. 40% of new lending into 5-year fixed rate products. In particular, there has been a strong performance of our inaugural Green mortgage product, the 5-year fixed rate which offers discounts of 0.2% for both new and existing mortgages on homes with a Building Energy Rating of A1 to B3, c.20% of new lending, c. €500m in 2022.

SME Lending of €150 million in 2022, an increase of 53% YoY, reflects our stated ambition to offer a meaningful alternative to business customers seeking a new banking relationship. Our partnerships with the Irish Government's Strategic Banking Corporation of Ireland (SBCI) and other providers of support services to SMEs, have allowed further expansion in Business Banking and support to small business in communities throughout Ireland. Live applications and sanctioned SME pipeline represent further opportunities for growth in 2023.

New consumer term lending pay-outs of €96 million increased by 3% YoY. Digital adoption continues to grow with 80% of new term lending drawdowns through our direct channels[4].

We continue to enhance our customer servicing journey which are delivered through a combination of digital and in person support. Customer loyalty, trust and digital innovation is a key strategic priority and has enabled the Bank to maintain its Relationship Net Promoter Score (RNPS) at +10.[5]

Ulster Bank Transaction & Customer Switching Activity and Supports

Q4'22 marked the principal completion of the Ulster Bank transaction, with the transfer of c. €5.2 billion Ulster Bank performing non-tracker mortgages. In February, we completed the migration of the performing Micro-SME portfolio of c. €165m and c. 3,200 customer relationships. The Bank continues to work with NatWest and Ulster Bank DAC towards the acquisition of the remaining Mortgage and Asset Finance portfolios in H1'23.

As part of this transaction we have also expanded our nationwide footprint to many new communities with the acquisition of 25 new branches, allowing the Bank to build relationships and reinforce our commitment to supporting customers across the country. To date, we have welcomed over 250 new colleagues from Ulster Bank who will help us to move forward together as we deliver on our ambition of being Ireland's best personal and small business bank.

The exit of two competitors from the Irish retail banking market has provided an opportunity for the Bank to fulfil its purpose of serving the community, with the opening of 113k new personal current accounts (+217% YoY) and 43k personal deposit accounts (+85% YoY) and 6k new business current accounts (+147% YoY).

This growth has been supported by the launch in 2021 of our Digital Current Account, and more recently Digital Joint Current Account, which enables new customers to open a new current account through our app in less than ten minutes. Greater than 50% of new Current Account openings are now taking place through the Bank's award-winning Digital Current Account.

Sustainability

We have made progress on integrating Sustainability into our business model. We launched a Sustainability Strategy for the Bank aligned to the Sustainable Development Goals, as well as ensuring strong governance with the establishment of a Sustainability Committee. We also increased our focus on Climate Risk with the development of a Climate-related and Environmental Risk Implementation Plan and we disclosed our carbon impact across Scope 1, 2 and 3 with a commitment to set Science Based Targets (SBTs) by 2024. Following a comprehensive assessment, we received a 'Low' ESG Risk Rating from Sustainalytics, placing the Bank in the second position amongst Irish banks.

The Bank's Green Mortgage is performing strongly, with further green products planned to support customers in the transition to a low carbon economy. We also became a founding member of the International Sustainable Finance Centre of Excellence, a key output of Ireland's Sustainable Finance Roadmap.

Financial Performance

The Bank delivered an Operating Profit of €14 million (FY'21: Operating Profit €16 million) and a Profit before Tax, inclusive of Exceptional Items, of €267 million (FY'21: Loss before Tax of €21 million).

Net Interest Income of €362 million has increased by 16% year-on-year, driven primarily by the changed interest rate environment, improved returns from treasury balances, and the migration of c. €5.2 billion Ulster Bank Performing Loans. The FY'22 exit NIM of 1.54% has improved by 3 basis points from 1.51% at Dec'21. However, the Q4'22 NIM of 1.92% more accurately reflects the upward trajectory as it takes into account the initial impacts from interest rate rises and acquisition of Ulster Bank DAC assets.  

Fees and Commission Income of €42 million was 20% higher than the prior year, with strong transactional activity and increased Current Account volumes.

Underlying Operating Expenses of €344 million are 16% higher than the prior year, as we accelerate our investment in customer services, higher staff numbers as we grow our business, wage inflation and increased Depreciation costs drives higher expenses including a higher depreciation charge of €52 million, +10% YoY as we pay for investment in the business.

A €20 million Net Impairment release reflects the continued growth in house prices YTD whilst maintaining a prudent level of provisions in light of high levels of inflation. Net Impairment release reflects P&L release of €31 million, minus a Capital Deduction for NPL Backstop of €11 million.

The Bank reports an Exceptional Item Gain of €222 million at 31 December 2022, driven primarily by the Gain on Bargain Purchase of the retail and SME businesses from Ulster Bank DAC. Exceptional Items are shown net of transaction costs associated with the Ulster Bank transaction together with some additional restructuring costs and provision for non-Core items.

Growing Balance Sheet with strong capital, funding and liquidity levels

The Bank's funding position remains strong, with all funding and liquidity metrics well above regulatory requirements. Total Customer Deposits of €21.7 billion at 31 December 2022 are €2.6 billion higher than at 31 December 2021, reflecting a 26% increase in current account balances to €9.0 billion. The loan to deposit ratio of 90% at 31 December 2022 reflects the Bank's strong new lending.

The Total Performing Loan Book of €19.2 billion at 31 December 2022 is €5.3 billion higher than the Total Performing Loan Book at 31 December 2021, following the migration of the first cohort of Ulster Bank performing non-tracker mortgage loans in November, and strong new lending performance throughout the year.

Non-Performing Loans of €650 million at 31 December 2022 are €167 million or 20% lower when compared to the balance at 31 December 2021, driven by a combination of deleveraging activity and net organic cures. The FY'22 Non-Performing Loan Ratio of 3.3% has reduced from 5.5% at December 2021, also due to the migration of €5.2bn of mortgage assets from Ulster Bank DAC.

Capital

The Bank's Common Equity Tier 1 (CET1) ratio on a fully loaded basis remains strong at 15.2% at 31 December 2022, an increase of 10bps when compared with the CET1 Pro forma ratio on a fully loaded basis at 31 December 2021, primarily reflecting the YTD Income Statement profit; partially offset by the Balance Sheet growth.

The CET1 ratio on a transitional basis of 16.2% at 31 December 2022 reduced by 120 bps compared to the CET1 Pro forma ratio on a transitional basis of 17.4% at 31 December 2021, due to the annual phase-in of transitional filters; regulatory requirement for CET1 on a transitional basis is currently 8.94%[6].

The Total Capital ratio on a transitional basis was 22.3% at 31 December 2022; regulatory requirement for Total Capital on a transitional basis is currently 13.95%.

The table below details the Bank's capital ratios at 31 December 2022 and compares them to the capital ratios at 31 December 2021.

Capital Ratios (%)	(Reported) December 2022	(Pro Forma) December 2021	(Reported) December 2021
CET1 (Fully Loaded)	15.2%	15.1%	14.7%
CET1 (Transitional)	16.2%	17.4%	16.9%
Total Capital (Transitional)	22.3%	22.4%	21.8%
Total Capital (Fully Loaded)	21.3%	20.1%	19.5%

2023 Outlook

Notwithstanding uncertainty in the macroeconomic backdrop, the Bank's core business markets remain strong and are expected to continue to grow during 2023.

The mortgage market is forecast to grow from 14.1 billion in 2022 to c. 14.5 billion [7]  in 2023 supported by an active, but slowing Switcher market and house price growth of c. 4%. The performing loan book is expected to continue growing at a similar pace to 2022.

Net Interest Income is on course to continue growing due to loan book growth, the changed interest rate environment and from the elimination of costs associated with carrying excess liquidity when yields were negative.  The €6.7bn of Ulster Bank DAC assets are expected to generate c. 170 million in gross interest income (excluding discount unwind) in FY'23. The micro-SME (c. €0.2bn) assets migrated in February 2023 and the final asset migrations are expected before the end of H1'23. The aforementioned items will also see the Bank's Net Interest Margin increase to c. 2.25%.

Total Operating Costs in 2023 are expected to be c. 15% higher than 2022 as we fully complete the Ulster Bank transaction, transfer of employees, and absorb the previously guided higher depreciation charges and invest in key strategic and regulatory initiatives which will support the growing business. The Bank remains committed to continuing to rigorously manage costs over the medium term in order to remain efficient and we expect a material reduction in the Bank's cost to income ratio as a result.

Asset quality remains robust, despite the ongoing cost of living challenges for customers. Subject to there being no material deterioration in the operating environment, the cost of risk for 2023 is expected to be not more than ten basis points.

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

- Ends -

For Further Information Please Contact:

Denis McGoldrick  Leontia Fannin

Investor Relations Manager      Head of Corporate Affairs and Communications

Email: [e-mail]  Email: [e-mail]

Phone: [phone]      Phone: [phone]

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.

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[1] Underlying Profit or Loss before Tax is the Profit or Loss before Exceptional Items and Tax

[2] Based on BPFI data as at 31 December 2022

[3] Underlying Operating Expenses are Total Operating Costs per the financial statements less a provision for legal, compliance and other costs shown in Exceptional Items for ease of comparison (see further details in the Financial Performance)

[4] Direct channels include Desktop, App and Voice through Open24

[5] A Relationship Net Promoter Score (RNPS) is a measure of customer advocacy towards a brand and indicates the willingness of a customer to recommend a company's products or services to others. The question asks customers how likely they are to recommend their bank to friends or family on the basis of their own experience. The range for the scoring is -100 to +100.

[6] Regulatory requirements for both CET1 and Total Capital on a transitional basis excludes P2G

[7] Source: Davy

 

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