Trading Statement

29th October 2024                                                                                                                             

Permanent TSB Group Holdings plc ('the Bank')

Comment by Eamonn Crowley, Chief Executive:

"The Bank continued to deliver a robust business and financial performance in the third quarter, with strong momentum in our new lending pipeline. Both new and existing customers are responding positively to our attractive and competitive product offering, as our share of the new mortgage lending market grew to 16.3%. We are also demonstrating good progress as we grow and diversify our business with new SME lending within business banking increasing 25% year on year.

We had a step change in scale and profitability last year and as we continue embedding our new business lines, we remain focused on creating efficiencies that will ensure we deliver for our colleagues, customers and shareholders in the most optimal, sustainable and cost-effective way. The Irish market remains extremely attractive and with strong capital and liquidity positions, we are well positioned to achieve our ambition of being Ireland's best personal and business bank through exceptional customer experiences."

Key highlights:

·     Total operating income for the first nine months up c. 3% year on year (YoY)

·     Net Interest Income c. 1% higher YoY

·     Net Interest Margin (NIM) of 2.23% for the first nine months, 8 bps lower YoY

·     Total and underlying[1] operating expenses grew by c. 17% YoY, down from 20% in H1 and in line with management expectations

·     Total gross loans rose to €21.5 billion at end September up from €21.4 billion at end June

·     New business mortgage market share of 16.3%[2] in Q3 compares to 13.5% for the six months to June

·     Customer deposits of €23.8 billion at end September, an increase of c. 3% (€0.8 billion) since end December 2023 and c. 5% YoY

·      The Bank maintains a strong capital position with a CET1 capital ratio of 14.8% on a pro-forma[3] basis

Business Performance

The Bank's share of new mortgage lending increased in the third quarter to 16.3% as customers responded to the significant rate reductions announced by the bank. There is also a strong pipeline of new business which suggests this will continue into year end. We remain focused on customer retention and offering borrowers a competitive suite of products as their fixed rate terms come to an end. This includes the extension of our competitive three-year Green mortgage product to existing customers. As a result, retention rates are running above 93% over the first nine months of the year. New mortgage lending across the market in Ireland is likely to be flat YoY in 2024 at c. €12.2 billion[4].

We are seeing strong momentum in our Business Banking area with new SME lending up c. 25% YoY, and new lending in our asset finance business also doing well and slightly ahead of plan.

The Bank's focus on acquiring and retaining customer deposits continues with growth of €0.8 billion since December 2023 and c. 5% YoY. Over 90% of flows into term deposits are now in our one-year fixed-term products as customers respond positively to our competitive interest rates and our innovative Interest First product offering.

Our Explore current account continues to gain traction in the market as it is the only current account in Ireland currently rewarding customers with cashback on debit card usage, utility bill payments, and customers can also save on fuel purchases. Additionally, new and existing PTSB mortgage customers who pay their monthly mortgage through an Explore account can benefit from 2% cashback rewards on their monthly PTSB mortgage repayments.

Income

Net Interest Income for the first nine months is c. 1% higher YoY as higher average earning assets offset some margin erosion. Liquid assets are higher this year while average loans incorporate a full nine months of the Ulster Bank asset finance business that was acquired in July 2023.

The Net Interest Margin (NIM) was 2.23% for the first nine months, which is 8 bps lower than the equivalent period last year and compares with 2.27% in the first half of 2024. This reflects higher term deposit costs and a reduction in our fixed mortgage rates announced in May.

Net fees and commissions in the first nine months are running well ahead of the same period last year (+24%). This in part reflects momentum in underlying activity but also a fee increase to our current account offering introduced in April, the first by the bank in many years.

Costs

Both total and underlying operating expenses grew by c. 17% in the first nine months, down from 20% in the first half.  As previously guided, total operating expenses are on track to grow by a mid-single digit percentage for the year. Factors contributing to the projected slowdown in the fourth quarter are  lower regulatory charges and the recognition of the bank levy earlier in the year.

However, the pace of underlying expense growth is also slowing considerably and is expected to be down to low single digits in the second half of the year and management remain committed to reducing costs in absolute terms over the coming years. The cost income ratio on an underlying basis was c. 73% in the first nine months of the year.

Asset quality

Economic conditions in Ireland are very supportive of our business and asset quality remains strong. As a result, the Bank recorded another small write-back in Q3 and we continue to expect the full year cost of risk to be -10bps. As previously indicated, a review is taking place of our IFRS9 models which will capture the recent experience of our loan book. Following the Glas III transaction, which is on track for completion in Q4, our non-performing loans have fallen to less than €0.4 billion or 1.7% of loans which is below the European average[5].

Balance Sheet

Customer deposits of €23.8 billion at end September are €0.8 billion or c. 3% higher than end December 2023 and c. 5% YoY. This is largely due to retail term deposits as customers locked in higher rates. Notwithstanding the increased appetite for term deposits, current account balances are stable as the bank successfully acquires new customers with our innovative Explore Current Account.

Total gross loans on the balance sheet rose to €21.5 billion at end September from €21.4 billion at end June and compare with €22.0[6] billion at end December 2023.

The loan to deposit ratio of 89% and liquidity coverage ratio of 248% at the end September provides the Bank with a strong liquidity position and a secure funding source for future growth in lending volumes. The Bank was further upgraded by Moody's in September, recognising the progress that has been made across the board and cementing its Investment Grade status.

Capital

The Bank's Common Equity Tier 1 (CET1) ratio at end September on a pro-forma basis remains strong at 14.8%, compared with 14.0% at end December 2023 and is above our regulatory minimum.

The Bank's Leverage ratio at end September was 7.1% on a pro-forma basis, compared with 7.2% at December 2023 and remains very strong for a bank with our residential mortgage exposure.  

Sustainability

Sustainability continues to be a key strategic priority for the Bank and in August, the new role of Chief Sustainability & Corporate Affairs Officer came into effect to reflect the Bank's commitment to sustainability as a key driver of its corporate strategy. The Bank's focus on supporting both business and personal customers transition to a low-carbon economy is evident through its participation in the SBCI Home Energy Upgrade Loan Scheme and Growth & Sustainability loan scheme. Additionally, green lending has accounted for 41% of the Bank's total new mortgage lending year to date, and the Bank has also extended its competitive three-year green mortgage product to existing customers.

From a social strategy perspective, and reflecting the importance of inclusivity, the Bank recently announced a multi-year partnership with Ireland's Autism Charity, AsIAm, as we became the first bank in Ireland to receive autism-friendly branch accreditation. Under the terms of this three-year partnership, PTSB will provide funding to AsIAm to scale and grow the supports that the charity offers throughout Ireland.

We are also well progressed for the implementation of the Corporate Sustainability Reporting Directive (CSRD). The Bank's first disclosure aligned to guidance set out within the CSRD will issue as part of our full-year 2024 financial results.

Outlook 

Reflecting the strength of the Irish economy, overall business levels remain encouraging and the bank expects new lending to increase further in the fourth quarter reflecting our strong pipeline of applications. As previously signalled, margins in the second half of 2024 will be below the first half reflecting price changes on both sides of the balance sheet and the change in deposit mix. Our latest guidance for the 2024 outturn is as follows:

·     Total income broadly unchanged YoY

·     NIM c. 220bps for the year

·     Total operating costs are expected to rise by a mid single digit percentage

·     We continue to expect a cost of risk of -10bps for the full year reflecting the benign credit environment in Ireland

Looking out beyond 2024, in view of the change in the likely path of interest rates, as part of the annual budgeting process the bank is reviewing what measures it can take to continue to protect and grow shareholder returns.

The transition to Basel IV will take place on 1 Jan 2025. We currently estimate that the impact would be to reduce total risk weighted assets by up to 5%. Further clarity will be provided in our full year results. Meanwhile work continues on our IRB modelling project as previously outlined.

- 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.