Trading Statement

PERMANENT TSB GROUP HOLDINGS PLC

14 aPRIL 2015 07:00

Current Trading and Outlook

Trading Update

Trading conditions have continued to improve during the first quarter of 2015, aided by the ongoing improvement in the macroeconomic environment in Ireland. GDP growth is estimated to be in the region of 4.0 per cent. (note 1) for 2015. In addition, the unemployment rates reduced to 10.0 per cent. (note 2) in March 2015, and Irish residential house prices have recovered sharply from their trough and at February 2015, stood at 38.7 per cent. (note 3) lower than their peak level in 2007.

The Group received formal approval of its Restructuring Plan from the European Commission on 9 April 2015. This marks an important milestone for both the Group in its journey to sustainable profitability and all of its stakeholders including shareholders, customers and employees.

Notes:

1 http://budget.gov.ie/Budgets/2015/Documents/141014%20Economic%20and%20Fiscal%20Outlook%20REV%202.pdf

2 http://www.cso.ie/en/releasesandpublications/er/lr/liveregistermarch2015/#.VSWd8dLF_y1

3 http://www.cso.ie/en/releasesandpublications/er/rppi/residentialpropertypriceindexfebruary2015/#.VSWeUdLF_y0

Core Bank

Irish Retail Deposit balances continued to increase in the first quarter of 2015 notwithstanding further rate reductions by the Group. Growth in Current Accounts also continued with over 10,000 new accounts opened in the first quarter of 2015.

New Mortgage drawdowns increased by 16 per cent. in the first quarter of 2015 compared to the first quarter of 2014. Term Lending has also shown growth of over 50 per cent in the period compared to the first quarter of 2014.

It is worth noting that the Central Bank of Ireland's macro-prudential supervisory lending limits, which came into effect on 9 February 2015, will impact lending volumes and eligibility of customers across the Irish mortgage market. Management continues to monitor and explore initiatives to increase new business given the regulatory lending restrictions in place.

Strong progress in managing arrears levels continued in the first quarter of 2015. The Group has seen lower levels of new defaults in the period compared to the first quarter of 2014 and Management expects this trend will continue to the second quarter of 2015 and beyond.

The Group has also seen a further reduction in levels of Irish Home Loans and Buy-to-Let ("BTL") arrears over 90 days; these are now 37 per cent lower than the peak level in August 2013. Irish Home Loans arrears over 90 days were 9.9 per cent. (10.7 per cent. at 31 December 2014) and BTLs were 12.8 per cent. (13.6 per cent. at 31 December 2014).

Management continues to review the appropriateness of the Group's provision levels and the potential scope for further write-backs through both operational performance improvements and model recalibration (including the residential house price index).  

Non-Core Business

Following the signing of the agreements to sell €3.5bn of the Capital Home Loans ("CHL") Mortgage Book (and the CHL Loan Servicing Platform), and the sale of €1.5bn of the Irish Commercial Real Estate ("CRE") portfolio, Management continues to progress the completion of these transactions which are expected between the second and third quarters of this year. The Group intends to dispose of the remaining CHL portfolio (for a discount not more than 10% of the book value) and non-performing Irish CRE assets over the next 12 months, in line with Restructuring Plan commitments.

Profitability

Increasing the Net Interest Margin ("NIM") remains one of the Group's main priorities. In the current year, we anticipate this will be mainly supported by an ongoing reduction in the cost of funds, the reduction in ELG fees, and deleveraging.

The Group remains confident that it can achieve its previously communicated NIM target of 1.7 per cent. by 2018. Achieving the Group's NIM target of 1.7 per cent. by 2018 will not be linear and Management expects to deliver single digit basis point year-on-year improvements for 2015 with stronger improvements for 2016 as the full year benefits of the repayment of the contingent capital instrument materialise and as the retail deposit back book is re-priced towards market levels. In this context, the Group continues to see improvements in the cost of funds, which declined from 157 bps for the year ended 31 December 2014 to 145bps over the first quarter of 2015. Management expects NIM to continue to improve beyond 2016 as the costs associate with an amortising (purchased) deposit book disappear and full benefits of deleveraging are realised, including the re-pricing of the corporate and institutional deposit balances.

There continues to be both political and regulatory focus on the pricing of variable rate mortgages with significant pressure both to align front and back pricing levels, and to bring pricing in line with selected European mortgage markets. However, while the Group is fully cognisant that its mortgage pricing decision framework should take account of all stakeholders, it will continue to review its pricing and product strategies on a commercial basis with full consideration of long-term sustainable shareholder value creation.

Operating expenses are expected to reduce in 2015 from the elevated levels in 2014 which were affected by significant non-recurring items. Management remains committed to achieve ongoing cost efficiencies and delivering on its target of a cost income ratio of c.50 per cent. in 2018.

As a result of continued reduction in arrears levels and new defaults flows aided by the improving economic background, the impairment charge for the first quarter of 2015 has continued to reduce (compared to the first quarter of 2014).

Funding and Liquidity

The Group's funding mix has continued to improve further through deposit growth (total deposits increased by c.€140m in the first quarter) and a continued reduction in loan book levels. The Group expects that this position will be further assisted by the completion of the announced sale of €3.5bn of CHL Mortgage Book (and the CHL loan servicing platform), and €1.5bn of the Irish CRE portfolio. Borrowings from ECB further reduced by c.€0.4bn in the first quarter of 2015 compared to the level at 31 December 2014. In the first quarter of 2015, NAMA bonds also reduced by a further c.€100m.

The Group's liquidity position will improve as sales of remaining CHL and non-performing Irish CRE assets will allow a reduction in treasury asset holdings over time. The residual portfolio will become more aligned with the Basel III High Quality Liquid Assets ("HQLA") definition.

The Loan-to-Deposits Ratio ("LDR") for the Group has reduced to 134 per cent as at 31 March 2015, which is 4 percentage points lower than the LDR as at 31 December 2014.

Capital

The Group's capital ratios have remained broadly stable in the first quarter of 2015 compared to the position at 31 December 2014. During the year, the Group's capital position will be improved by the proposed capital raise, offset by the capital reductions arising from deleveraging losses and any losses incurred.

Outlook

In 2015, the focus of the Group is to continue to achieve the Core Bank's natural market share in deposits and lending products in line with published targets in the context of the improving economic environment in Ireland. In addition, the Group intends to execute and complete the recently announced sales of non-core assets. The Board remains confident that the Group will be able to meet the 2018 targets previously communicated.

Contact Details

Glen Lucken,

Group Chief Financial Officer

Tel: +353 1 669 5145

Media:

Ray Gordon

Gordon MRM

[email protected]

Mobile +353 87 2417373

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 Company 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 Company will not undertake any 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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