Commentary on 2024 Half-Year Report

Permanent TSB Group Holdings PLC

01 August 2024

 

1 August 2024                                                                                                  

Permanent TSB Group Holdings plc ('the Bank')

Interim Management Statement - H1 2024 Update

Comment by Eamonn Crowley, Chief Executive:

"We have delivered a strong performance in the first half of 2024 as we continue to further grow and diversify our business.

We are offering customers much-needed choice with our market-leading six-month and one-year fixed term deposit rates which have supported a €1 billion increase in deposits since this time last year. Our Business Banking presence is growing with new lending tripling in the past twelve months.

We are focused on ensuring that we remain a strong and resilient competitor in the Irish retail banking market and as a result of our recent non-performing loan sale, we will be able to free up capital that will be used to support up to €2 billion of lending into the Irish economy. Despite a reduced switcher market, we are seeing positive trends in our mortgage market share in Q2, with recent mortgage rate reductions driving a strong pipeline for the remainder of the year.

Our title sponsorship of Team Ireland for both the Olympic and Paralympic Games taking place in Paris, has given us a unique platform to demonstrate our commitment to communities across the country and show our support for the role they play in supporting our incredible Olympic and Paralympic athletes - we wish our inspiring sporting heroes every success for the Games.

We remain confident that the acquisitions and investments we have made, and continue to make, are putting us in a strong position to continue to further grow and diversify our business and deliver sustainable returns for our shareholders over time."

Key Financial Figures:

·     Profit before Tax €75 million, €49 million higher year-on-year ('YoY').

·     Net Interest Income increased by 4% YoY; Net Interest Margin (NIM) of 2.27%, 2bps lower YoY.

·     Total Operating Income has increased by 4% YoY to €336 million.

·     Operating expenses are 20% higher YoY, in-line with guidance and management expectations; Cost Income Ratio^[1] of 73%. 2024 guidance remains for a mid-single digit percentage increase in costs.

·     The Bank maintains a strong capital position; pro forma Common Equity Tier 1 (CET1) capital ratio of 14.9%^[2], an increase of 90bps compared to 31 December 2023.

·     Asset quality further strengthened; impairment release of €20 million and NPL ratio of 1.7%.

Other Highlights:

·    Strong performance in acquiring and retaining Customer Deposits with balances of €23.6 billion at 30 June 2024, an increase of c. 4% (c. €1.0 billion) since June 2023 and c. 3% (c. €0.6 billion) since December 2023.

·   Net Loans and Advances to Customers are 2% higher YoY, and broadly in line with December 2023[3], following a slower pace of new lending, partially offset by higher retention.

·    The Bank has announced a Non-Performing Loan (NPL) sale "Glas III", with a value of €348 million and an overall risk weight intensity of c. 68%. On completion by the end of this year, the transaction increases the Bank's Common Equity Tier 1 (CET1) Ratio by c. 35 bps and the Total Capital Ratio by c. 45 bps.

·     H1'24 new business mortgage market share^[4] of 13.5%. New mortgage pricing in Q2'24 is building a strong pipeline of activity heading for H2'24 outlook.

·     Asset Finance and Business new lending of €180 million is treble that of the prior year. This strong business performance is due to the Asset Finance business, acquired in July 2023, together with solid SME lending in the first half of 2024.

·    Permanent TSB Group Holdings plc was upgraded to Investment Grade status by Fitch Ratings agency in Q1'24, which has reduced the margin the Bank will pay for funding.

·     The Bank successfully issued its inaugural Green HoldCo Senior MREL eligible notes of €500 million in April 2024, with an order book larger than any previous issuance at c. 4 times over-subscribed and leading to a 190bps reduction in margin from the previous issuance.

·   The ongoing review of the IRB mortgage models is progressing in line with previously communicated timelines; outcome expected by end-2025.

Business Performance

Deposits:

The Bank has continued its strong focus on acquiring and retaining customer deposits in the first half of the year, with growth of €0.6 billion since December 2023, primarily due to a c. 4% increase in retail deposit balances to €12.9 billion. Current account balances of €9.3 billion are broadly in line with 31 December 2023. Interest-bearing deposits[5] grew by €1.1 billion or 21% since 31 December 2023 while non-interest-bearing deposits reduced by €0.5 billion or 3%.

The Bank is offering both business and personal customers much needed choice in the Irish deposit market. In recognition of demand for shorter-term products, the Bank launched a new 32-day notice deposit product to business customers, along with announcing rate increases for personal customers which includes market-leading six-month and one-year fixed term deposit products.

Building on this, the Bank launched its Interest First Fixed Term deposit product in June 2024, with a one-year Term for balances in excess of €5k, offering a 2.75% return. This product is unique in the Irish market as customers can receive their interest upfront as a lump sum, within the first month of opening the account, instead of waiting until the end of the one-year fixed term.

Business Banking:

The Bank is pleased with its Business Banking performance in the first half of the year, with new SME lending of €63 million increasing by 5% versus H1'23 with a strong pipeline for the remainder of the year. Since its acquisition in July 2023, Asset Finance has performed strongly with new lending of €117 million in H1'24, an increase of 24% (€23 million) versus H2'23.

We were also delighted to extend our Business Banking offering by joining the Strategic Banking Corporation of Ireland's (SBCI) €500 million Growth & Sustainability Loan Scheme, with a significant pipeline of c. €70 million built since launched in April 2024. Our participation in this scheme enables us to support SMEs (including farmers, fishers, foresters, and food businesses) that are investing in their growth, resiliency, or investing in climate action and environmental sustainability measures that will enhance their performance.

Mortgages:

The Bank is committed to providing competitive offerings across our mortgage products, while meeting the needs of our customers and the wider economy and as such has announced a number of mortgage rate reductions in May 2024 for both new and existing customers. This move has been well received in the market and has led to a significant increase in the mortgage pipeline in the first half of this year which will support the overall market share for residential mortgage lending through the coming months.

Our mortgage pricing remains competitive with pricing in three-year and four-year fixed term mortgages from 3.7% for new and existing customers, with further value available for those customers with a Building Energy Rating of B3 or above through our Green mortgage product.

The Q2'24 mortgage business reports an increase of 10bps in our mortgage market share to 13.5% as compared to Q1'24, with good momentum as we head into the second half of the year. The market continues to be impacted by the low level of switching activity, however we anticipate this segment will increase activity in the future as the ECB reduces rates.

74% of new mortgage drawdowns in H1'24 were to fixed rate products, a reduction of 24 ppts YoY, with some customers choosing a variable rate, retaining the flexibility to fix at a time of their choosing. Meanwhile the Bank's Green product offering accounted for 38% of total new mortgage drawdowns, an increase of 10 ppts YoY.

The mortgage market[6] in Ireland is estimated to remain in line with 2023 at €12.1 billion.

Consumer Finance:

New Consumer Term Lending pay-outs of €65 million increased by 9% YoY, supported by consumer confidence and the strength in the Irish economy. Digital adoption continues to grow with 83% of new term lending drawdowns through our direct channels.

To further support customers in meeting their sustainability goals, we are delighted to have been the first financial institution to participate in the SBCI's €500 million Home Energy Upgrade Loan Scheme, offering customers low-cost loans to upgrade the energy efficiency of their home.

Financial Performance

Net Interest Income has increased by 4% YoY; with gross interest income growing by 29% due to higher interest rates and the growth in average interest earning assets, partly offset by an increase in cost of funds due to the growth in deposit volumes which was primarily in higher interest-bearing retail deposits. NIM of 2.27% remains strong, albeit shows a reduction of 2bps YoY.

Fees and Commission Income of €23 million is in line YoY, however the Bank has seen a 20% increase in Fees & Commissions quarter-on-quarter in 2024, as changes to the current account fee structure announced in H1'24 begin to materialise. This increasing trajectory is expected to continue through H2'24 supporting the Fees and Commission income growth in 2024. These were the first increases in current account fees applied by the Bank since 2019 and in that time, the Bank has and will continue to invest significantly in its current account offering, including its recently launched new banking app and the launch of 'PTSB Protect', a unique in-app fraud protection service.

Total Operating Expenses excluding Regulatory Charges of €245 million increased by €41 million (20%) YoY and are in line with management expectations. Underlying operating expenses increased as a result of higher resourcing requirements, cost inflation and investment. The Bank remains committed to making efficiencies and underlying savings in 2024 and over the medium term to offset the increased costs associated with investment and is reaffirming its guidance for a mid-single digit percentage increase in operating expenses in 2024.

Total Regulatory Charges increased by €5 million (21%) to €29 million in H1'24. Due to a change in legislation the Bank Levy (€24 million) is now recognised in the first half of the year compared to the last quarter in the prior year. Other regulatory charges, primarily the Deposit Guarantee Scheme and the Single Resolution Fund have reduced by c. €19 million YoY. 

Credit Quality remains strong and is benefitting from the strict underwriting criteria the Bank has in place. A net impairment release of €20 million reflects strengthened asset quality and a positive macro-economic environment with strong employment and increases in the House Price Index observed during the first half of the year.

The Bank reports an Exceptional Item charge of €7 million at 30 June 2024 which primarily relates to the transaction costs on the 'Glas III' NPL sale.

Balance Sheet

The Total Performing Loan book of €20.7 billion at 30 June 2024 is broadly in line with 31 December 2023, following a slower pace of new lending, partially offset by higher retention.  

Non-Performing Loans of €0.4 billion at 30 June 2024, reporting a reduction of €0.3 billion compared to 31 December 2023 following de-recognition of loans within the 'Glas III' NPL loan sale perimeter. The transaction reduces the Bank's H1'24 NPL ratio to c. 1.7% 20bps lower than the European average of 1.9%^[7].

Liquidity and Funding

The Bank's Loan to Deposit Ratio of 90% and Liquidity Coverage Ratio of 232% at 30 June 2024 provides the Bank with a strong liquidity position and a secure funding source for future growth in lending volumes.

Capital

Capital Ratios (%)	June 2024 (Pro forma)1	June 2024 (Reported)	December 2023 (Reported)
CET1	14.9%	14.5%	14.0%
Total Capital	20.8%	20.3%	19.7%

From 1 January 2024, the Bank's transitional and fully loaded capital ratios have fully converged. The 31 December 2023 capital ratios in the table above refer to the fully loaded position at that point in time.

Once the "Glas III" non-performing loan sale has been factored into the Bank's capital ratios, the Bank reports pro forma CET1 Capital Ratio at 30 June 2024 of 14.9% and a pro forma Total Capital Ratio of 20.8%, further strengthening the Bank's capital base.

The Bank's reported CET1 Ratio at 30 June 2024 remains strong at 14.5%, an increase of 50bps compared to 31 December 2023.

The reported Total Capital Ratio is 20.3% at 30 June 2024, an increase of 60bps compared to 31 December 2023.

From 30 June 2024, the CET1 Regulatory requirement is 10.33%^[8] while the Total Capital Regulatory requirement is currently 15.25%. Both requirements have increased by 50bps when compared to 31 December 2023 due to the final phase-in of the Countercyclical Buffer ('CCyB') in June 2024.

Distribution Policy 

The Bank's ambition is to recommence shareholder distributions over the medium term subject to available surplus capital, regulatory and shareholder approval. It is anticipated the Bank will recommence with a modest distribution, building towards a target pay-out ratio of up to c. 40% of Profit Attributable to Shareholders through the medium term. The Bank will retain flexibility as to the distribution mix and will update the market in this regard in due course. Proposed distributions will be considered in line with the Bank's Capital Management Framework considering availability of surplus capital at least annually. Distribution levels will reflect, amongst other things, the strength of the Banks capital and capital generation, the Board's assessment of the growth and investment opportunities available, any capital the Bank retains to cover uncertainties (e.g., related to the economic outlook) and any impact from the evolving regulatory and accounting environments.

2024 Outlook

Performance in H1'24 has been strong, supported by the positive macroeconomic environment and strong asset quality. Subject to no material change in economic conditions or outlook, the Bank is updating its expected cost of risk for FY'24 to c. -10bps from +10bps previously. All other guidance for FY'24 remains in line with prior market communications. 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                                                 Tríona Carroll

Investor Relations                                                 Corporate Affairs & 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] Cost Income Ratio is calculated as Operating Expenses (excl. Regulatory Charges/Fees and Exceptional Items) divided by Total Operating Income

[2] Pro forma CET1 ratio includes c. 35bps impact from the 'Glas III' Non-Performing Loans transaction

[3] Excludes the impact of Glas III transaction

[4] Based on BPFI data in June 2024

[5] Interest bearing deposits refer to Notice, Term and Corporate Deposits with the remainder classified as non-interest bearing

[6] Source: Goodbody

[7] Based on Q1'24 EBA Risk Dashboard

[8] Regulatory requirements for both CET1 and Total Capital excludes P2G

 

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