Commentary on 2024 Annual Financial Report

4 March 2025

Permanent TSB Group Holdings plc ('the Bank')

Comment by Eamonn Crowley, Chief Executive:

"The Bank had a strong business and financial performance in 2024, generating an increased underlying profit before tax of €180 million. We are seeing continued organic growth in our balance sheet as our brand resonates in the market and attracts new customers to the Bank. Our deposits have increased by almost €1.2 billion, our new SME lending has increased by 28%, and our share of the new mortgage lending market grew to 20.2% in Q4 of 2024.

Today, the Bank is announcing its refreshed Business Strategy 2025-27, which is focused on deepening customer relationships, diversifying income and differentiating through customer experience. We will do this while driving continuous operational efficiencies and prudent cost management so the Bank can continue to grow and prosper in a sustainable manner while rewarding shareholders.

PTSB is the challenger bank in Ireland and with our strong capital and liquidity positions, we are in prime position to continue to provide much needed competition in the Irish market and achieve our Ambition of being Ireland's best personal and business bank through exceptional customer experiences."

KEY FINANCIAL HIGHLIGHTS (all comparisons vs. 2023 unless otherwise stated):

· Underlying Profit Before Tax[1] up 8% to €180 million; RoTE[2] 7.5%

· Profit Before Tax of €159 million (2023 €79 million)

· Total Income of €672 million, up 1% and in line with guidance

· Net Interest Income of €612 million, 1% lower

· Net Interest Margin (NIM) of 2.20% (2023 2.32%) and in line with guidance

· Operating Expenses of €531 million up 5%, in line with guidance

· Cost Income Ratio[3] of 74%, 8 ppts higher

· Asset Quality remains strong: Impairment release of €39 million (-18bps Cost of Risk) with Non-performing loans (NPLs) of €0.4 billion (1.8% of gross loans)

· Strong Capital position: CET1 ratio of 14.7% or 15.3% on a pro-forma basis (1st Jan 2025 due to Basel IV implementation)

· Total Gross Loans of €21.8 billion, up c. 1% when Glas III[4] loans are excluded from the base

OTHER HIGHLIGHTS:

· Total new lending of €2.6 billion (2023: €2.8 billion), up 19% YoY in H2 and demonstrating good momentum in diversifying income through growth in Business Banking lending 

· New Mortgage lending of c. €2.1 billion (2023: €2.3 billion), with a 95% increase in H2 vs H1. Mortgage market share increased to 20.2% in Q4 and was 16.4%[5] for the year

· SME banking book up 16%, with new SME lending up 28%

· Customer deposits of c. €24.1 billion, an increase of 5% (c. €1.2 billion)

· Strategic Business Transformation Programme focusing on operational improvements and cost efficiency. Initiatives include delivery of the bank-wide Voluntary Severance Scheme

· Work on our IRB models is progressing, with submission to the Central Bank of Ireland expected in Q2

· Green mortgage Lending was 43% of all new mortgage loans and our new CSRD disclosures significantly enhance our sustainability information for all our stakeholders

· Bank expects to return to making shareholder distributions next year subject to financial position and required approvals

· Refreshed business strategy with 2027 medium-term targets:

o  NIM >2.2%

o  Total Operating Costs c. €500 million

o  Cost/Income Ratio c. 60%

o  Cost of Risk 20-25bps

o  RoTE c. 9%

o  CET1 >14%

FINANCIAL PERFORMANCE

(all comparisons vs. 2023 unless otherwise stated)

Income

Net Interest Income of €612 million was 1% lower as a reduction in margins in the second half of the year offset higher average interest earning assets.

The Net Interest Margin (NIM) of 2.20% for 2024 (2023 2.32%) was in line with expectations. The Q4 exit margin was 2.10%. The reduction in margins reflects higher term deposit costs, a reduction in our mortgage fixed rates announced last May and the impact of lower ECB rates on both tracker mortgage and liquidity balances.

Non-interest income of €60 million was up 25%, and primarily comprises fees and commissions. This reflects momentum in underlying activity, along with the changes introduced to our current account fee structure last April - the first increase introduced by the Bank since 2019.

Operating Expenses 

Total operating costs in 2024 of €531 million increased by 5% and were in line with expectations, reflecting the higher inflationary environment, investment costs and the full year impact of the final elements of the Ulster Bank acquisition.

Regulatory charges were €33 million down from €60 million in 2023 and slightly lower than expected due to a reduced charge for the Deposit Guarantee Scheme (DGS). Excluding these charges, the Bank's Cost Income Ratio was 74%, and a key priority for the Bank is reducing this ratio in the coming years. As such, the Bank is undertaking a Strategic Business Transformation (SBT) Programme that focuses on operational improvements and cost efficiency, the outcome of which will be improvements in both customer and colleague experiences and a reduction in costs.

Initiatives being delivered under the SBT programme include the introduction of customer correspondence via email to reduce paper usage, the development of an end-to-end in-life mortgage servicing platform to enable process simplification and self-serve capabilities, a rationalisation of our software and IT suppliers, and the introduction of a new contact centre platform to improve both colleague and customer experience. 

As part of the SBT Programme, a Voluntary Severance Scheme (VSS) was extended to all employees last December and the Bank envisages accommodating around 300 colleagues exiting the bank on a phased basis in 2025. This will generate annualised cost savings of over €20 million per annum and, together with a series of other initiatives, will see our total costs reduce in absolute terms towards €500 million in the medium term. An exceptional charge in the region of €25m associated with this scheme will be incurred in 2025.

We will continue to invest in our business to serve the evolving needs of our customers across our digital, voice and in-person channels, explore the role for AI technology, while also meeting our regulatory requirements. After a number of years of significant investment in our IT infrastructure, we expect capital spending to plateau this year and then start reducing, and this will benefit the trend in our non-staff costs.

Exceptional charges were €21 million, €8 million of which related to restructuring & deleveraging costs, and €9 million comprised accelerated depreciation.

Asset Quality

Asset Quality remains strong and for the fourth year in a row we recorded an impairment release in the income statement (€39 million or -18bps cost of risk). Non-Performing Loans reduced to €0.4 billion at December 2024 (€0.7 billion at December 2023) largely due to the Glas III loan sale. This represents 1.8% of gross loans and compares with c. 28% at its peak.

Our total provision coverage ratio was 1.8% of gross loans at year end which includes c. €92 million in model overlays. As previously indicated, a review is taking place of our IFRS9 models which will capture the recent experience of our loan book. The Bank has no exposure to Commercial Real Estate.

BALANCE SHEET & BUSINESS PERFORMANCE

Sustainable Business Growth

The Bank's investment in its brand and differentiated positioning on customer experience is resonating with customers. We are now seeing a considerable increase in product consideration as 62%[6] of all consumers in the Irish market now give serious and first choice consideration for PTSB to meet their next financial need.

Relationship Net Promoter Scores have increased by 10% YoY, Transactional Net Promoter Scores have increased by 44% YoY, and brand equity is at an all-time high. The popularity of the Bank's digital channels continues to grow, evident by a c. 90% increase in our mortgage drawdowns last year via our online portal and over €400m in new deposits coming through digital channels.

Incorporating Sustainability into our business practices remains a key strategic priority for PTSB, with strong progress being made across the four pillars of our Sustainability Strategy. A key highlight of our 2024 results is our first report under the Corporate Sustainability Reporting Directive (CSRD) and we will launch a refreshed Sustainability Strategy in H1 2025. The Bank is also at the final stages of setting Science-Based Targets and is submitting targets to the Science-Based Targets Initiative for validation in the coming weeks.

Customer Loans

Total gross customer loans were €21.8 billion at year end and were up c. 1% for the year when Glas III loans are excluded from the 2023 base.

The Bank's total new lending was €2.6 billion for 2024, demonstrating strong momentum in H2 with new lending up 19% YoY, and there was a strong pipeline of activity across all business lines at the turn of the year.

New mortgage lending was c. €2.1 billion with drawdowns in H2 accelerating to nearly twice the level of H1 as customers responded positively to the Bank's competitive mortgage offering. This was also reflected in our strong mortgage market share which reached 20.2% in Q4.

Fixed-rate products accounted for 85% of our new mortgage lending, with Green mortgage lending accounting for 43% of all new loans as we supported customers in their transition to a low-carbon economy. The mortgage market in Ireland was €12.6 billion in 2024[7], up 4% on its level for 2023 though still lower than the €14.1 billion recorded in 2022.

Our SME book grew 16% with new lending up 28%, demonstrating our commitment to offer a meaningful alternative to business customers seeking a new banking relationship. Our Asset Finance book, which was acquired in July 2023, grew 4% with new lending for the year of €221 million despite a flat market for new vehicle sales.

The Bank's combined SME and Asset Finance books grew 11% to over €1.1 billion at year end. Due to the acquisition of the Ulster Bank portfolios, this is more than eight times the size of the book in 2019, and we are well positioned to continue growing strongly in the years ahead.

New consumer term lending pay-outs of €132 million increased by 13%. Digital adoption continues to be a key enabler for this product with c. 84% of new term lending drawdowns occurring through our direct channels.[8]

Funding and Liquidity

Customer deposits were c. €24.1 billion at end 2024, an increase of 5% (c. €1.2 billion). This growth was driven by retail term deposits as customers responded positively to our competitive interest rates and our innovative Interest First product offering.

Notwithstanding the increased appetite for term deposits, current account balances were broadly unchanged. The Bank was successful in acquiring new customers with our innovative Explore Current Account and this will remain a key area of focus in the medium term.

Our loan/deposit ratio was 89% at year end and our Liquidity Coverage Ratio was 255% (93% and 220% at December 2023 respectively). The Bank completed one MREL issuance during the year, a Green senior MTN of €500 million in April 2024 which was c. 4 x over-subscribed. Given our strong MREL position we currently have no plans to issue senior debt in 2025.

Fitch upgraded the Bank's senior rating in Permanent TSB Group Holdings (HoldCo) to Investment Grade in early 2024 while Moody's further cemented its Investment Grade rating on the HoldCo in September with a one notch upgrade to Baa1. These moves improve our ability to issue and refinance our wholesale debt in the years ahead.

Capital

The Bank's Common Equity Tier 1 (CET1) ratio at December 2024 remains strong at 14.7%, c. 0.7% higher than December 2023, reflecting a number of moving parts. These were Profit after tax (+1.4%), Glas III loan sale (+0.4%), AT1 coupons (-0.4%), Net Loan Book Growth (-0.3%), and Intangible software (-0.4%).

Reflecting the transition to Basel IV which took place on 1 Jan 2025, our CET1 ratio would rise to 15.3% on a pro-forma basis due to a decline in risk-weighted assets. This is well above our 2025 regulatory requirement of c. 10.8% which from 1 Jan 2025 reflects an Other Systemically Important Institution (O-SII) buffer of 0.5%. The Bank's Leverage ratio at December 2024 was 7.1% (7.2% at December 2023) and remains very strong for a bank with our residential mortgage exposure. The Bank is committed to optimising its capital structure in the coming years.

BUSINESS STRATEGY 2025-27

Today, the Bank is announcing a Board-approved, refreshed three-year business strategy which will see us deepen customer relationships, diversify our income, and differentiate through customer experience. We will do this by driving continuous operational efficiencies and prudent cost management so we can continue to grow and generate sustainable returns for our shareholders.

Building on the investments made in recent years, the Bank is now in prime position to challenge the dominant pillar banks in the Irish market, providing retail and business banking customers with an attractive and competitive alternative; one that is underpinned by both resilient and innovative technology and by human support.

MEDIUM-TERM TARGETS AND 2025 OUTLOOK

The Irish mortgage market is growing again and is expected[9] to rise from €12.6 billion in 2024 to €13.9 billion in 2025 and €15.0 billion next year. This will be very positive for our business but the pace of growth has been slower to materialise than originally expected. Taken together with a lower interest rate environment, the Bank has set new medium-term (2027) profitability targets as follows:

· NIM >2.2%

· Total Operating Costs c. €500 million

· Cost/Income Ratio c. 60%

· Cost of Risk 20-25 bps

· CET1 > 14.0%

· RoTE c. 9%

As with previous targets, these do not assume any benefit from a review of our IRB capital models which is a critical development.

The Bank entered 2025 with a very strong pipeline of mortgage and business lending. While falling interest rates will reduce income this year, market conditions in Ireland remain supportive and asset quality is strong, reflecting robust underwriting criteria over the last decade. As previously indicated the Bank expects to return to making distributions to shareholders next year.

Our guidance for 2025 is as follows:

· Total Income to decline by a low to mid-single digit percentage

· NIM > 2.0%

· Total Operating Costs c. €525 million

· Cost of Risk 0bps

· Exceptional Costs €25 million

· RoTE c. 5.0%

- 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.