Commentary on 2020 Annual Financial Report
03 March 2021
PERMANENT TSB GROUP HOLDINGS PLC (the "Bank")
FULL YEAR RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2020
Permanent TSB Group Holdings plc ("PTSB", "the Bank") today reports its full year results for 2020
'Despite the challenges that 2020 brought, I am confident that the Bank is in a strong position to make the most of the opportunities that will arise in the post-pandemic recovery phase.
I have made it the organisation's priority to continue to build trust with our customers and re-connect with the Bank's community heritage. We will keep an unrelenting focus on making Permanent TSB the best bank it can possibly be, continuing to grow, continuing to support our customers and continuing to find new and better ways to serve them and the communities in which we operate.
While 2020 was a loss making year for the Bank, the second half of the year saw the Bank increase its new lending volumes and transactional activity as the economy began to reopen. Our active mortgage offer pipeline is at a strong level and positions us well to continue our strong performance into 2021.
I can assure you of the commitment that my colleagues and I share to combine the best of our digital offering with that of our long history of personal service, as we continue to rebuild trust, build a sustainable bank for the future, and fulfil our ambition of being Ireland's best personal and small business bank.
And finally, we have ambitious plans to grow our position in the Retail and SME markets in Ireland and support customers and communities across the country. In line with that ambition, the Bank is in early discussions with NatWest in relation to acquiring certain elements of the Ulster Bank businesses in the Republic of Ireland. This includes certain Retail and SME assets, liabilities and operations. Until an acquisition is finally concluded there can be no certainty that an acquisition will occur or on what terms. Any such transaction would be subject to normal shareholder and regulatory approvals.'
Eamonn Crowley, Chief Executive
Key Points:
· Loss before tax of €166m.
· Capital position remains strong; fully loaded CET1 capital ratio at 31 December 2020 of 15.1%.
· Total new lending of c. €1.4 billion; 15% lower compared to prior year. Market share of new mortgage lending of 15.3[1]%. A strong lending performance, particularly in the second half of the year, led to a 43% increase in new mortgage drawdowns compared to the first half of 2020.
· Mortgage applications also increased significantly in the second half of the year, with full year market share ending at 14.5%. H1'20 market share was 12.4% while H2'20 saw a market share of 16.2%.
· Net Interest Income was 4% lower when compared to the same period in the prior year; Net Interest Margin (NIM) of 1.73%, 7 basis points lower than FY19.
· A net impairment charge of €155 million reflects a prudent approach to the current macro-economic environment.
· Exceptional Costs of €57m are comprised of €26m net deleveraging costs, and €31m restructuring costs, primarily associated with the Bank's Enterprise Transformation programme.
· Operating costs of €329m, including €5m of Covid-19 costs, are €1m lower year-on-year (YoY). Continued commitment to cost efficiency, creating capacity to invest in the business, and enabling a rapid response to the challenges presented by Covid-19.
· Non-performing loans of €1.1 billion increased by c. €80m YoY, with the NPL Ratio increasing by c. 120 basis points to c. 7.6%. The increase in the NPL Ratio is primarily as a result of the reduction in gross loans due to the performing loan sale transaction (Glenbeigh II).
· In November 2020, the Bank successfully issued a new €125m AT1 instrument which provides financial flexibility and further diversifies funding sources and investor base.
· On the 24th of February 2021, the Bank announced that on 1 April 2021, the Bank will redeem the existing €125m AT1 instrument issued in 2015, in compliance with the requirements set out in CRD IV Regulation.
Supporting Customers and Colleagues through the Pandemic
· The Bank approved c.10.7k Covid-19 mortgage payment breaks in 2020 to alleviate temporary financial pressures for our customers; c. €1.6bn or 10% of total gross loans.
· 99% of Covid-19 approved mortgage payment breaks have now expired, c. €19m (103 borrowers) remain on an active payment break at the end of January 2021.
· All of our branches and contact centres remained open ensuring continuity of service, we redeployed over one hundred staff and mobilised four new regional centres to further support in answering customer queries, providing an essential service to customer's right across the country.
· More than 1,200 colleagues are working from home, supported by a range of investment in digital equipment and functionality, ensuring continuous connectivity and enhanced communication from remote sites.
Business Performance
· Total new lending of €1.4 billion reduced by 15% YoY as Covid-19 impacted all new lending activity; new mortgage lending of €1.3 billion reduced by 14% YoY.
· The full year market share of mortgage drawdowns was 15.3%, broadly in line with the prior year, due to a higher share of mortgage drawdowns in the second half of the year. Following the opening up of the economy in quarter three, together with the introduction of an improved mortgage proposition in July, application volumes rebounded strongly; H2'20 new mortgage applications were c. 70% higher than the first half of the year.
· The mortgage market has regained steadily in the second half of the year and remains competitive. We continue to manage our offering carefully, maintaining price discipline and credit underwriting standards.
· In July, the Bank launched competitive 3 and 5 year fixed rate products, for new high value mortgages (loans greater than or equal to €250k) with LTVs less than 80%, at rates as low as 2.50% and 2.55% respectively.
· Significant reductions were also made to both fixed and variable mortgage rates, for new and existing customers, these rate reductions go a long way to addressing the discrepancy which traditionally existed between pricing for new and existing mortgage customers.
· SME lending is c. 2% higher YoY, albeit from a low base. In November, the Bank announced a major expansion of our SME offering by partnering with the Strategic Banking Corporation of Ireland (SBCI), providing €50m in low-cost loans under the Irish Government's Future Growth Loan Scheme for SMEs. Customers can apply on-line, a first in the market for this scheme, and very helpful to our business customers in the current Covid-19 environment. We are pleased to say that the Bank has received applications significantly in excess of the €50m and we will work with these customers over the coming months as they proceed to drawdown.
· The Bank achieved a Relationship Net Promoter Score (RNPS)[2] of +12 at the end of January 2021, placing it top two of the main Retail Banks in Ireland.
Enterprise Transformation Programme
· In November 2020, a bank wide Enterprise Transformation programme was announced, focusing on three core areas; organisational structure, the introduction of smarter and new digital ways of working, and a review of our property footprint.
· As part of this programme, a Voluntary Severance (VS) programme was launched on the 12th of November. We anticipate that we will be able to facilitate the reduction of c.300 full time equivalent staff (FTEs) via voluntary severance. The programme is now closed for applications and the Bank will communicate with staff in due course.
· €31m restructuring costs, primarily associated with the Bank's Enterprise Transformation programme have been accounted for through Exceptional Items in the year end accounts.
· Introduction of smarter and new digital ways of working allows the Bank to look at how we work, adapting processes and the way we interact with our customers and our colleagues, it also allows more effective utilisation of workplaces and the mobilisation of four regional service centres.
· In addition to the above, the Bank has also made the decision not to renew the lease in Park Place on Hatch Street. We will exit Park Place in April of this year.
Financial Performance
· Net interest income reduced by 4% year-on-year. Our performing loan book income was broadly stable in 2020 supported by the active management of the Bank's cost of funds. The deleveraging of non-performing loans (NPLs) in H2 2019 and lower income from the maturities of higher yielding treasury assets were the main drivers of the reduction in the year.
· NIM of 1.73% is 7 basis points lower than NIM at FY19 (1.80%).
· Fees and commissions have reduced by €9m when compared to the prior year as Covid-19 had a material impact on transactional activity in 2020.
· Net other income has reduced due to lower gains from the sale of properties in possession in 2020 compared to 2019. The stock of properties in possession has reduced by c. 50% YoY to 295 properties at the end of December 2020, of which 59 are sale agreed.
· Underlying operating expenses (excluding regulatory charges and Covid-19 related costs) of €275m were €8m (c.2%) lower YoY and within management expectations. We continue to focus on delivering cost saving initiatives to allow for the investment required, deliver on the Bank's Enterprise Transformation programme, ensuring delivery of both business efficiencies and digital transformation.
· Regulatory charges amounted to €49m, an increase of €2m YoY. The Bank levy of c. €24 million was paid in October 2020.
· The Bank incurred €5m of Covid-19 costs in 2020, in its direct response to ensuring continuity of service, for both customers and colleagues, in a safe and secure way.
· Credit quality overall remained strong, the Expected Credit Loss of €155m in 2020 reflects changes in the forward looking macro-economic scenarios driven by Covid-19, including post model adjustments of c. €110m as we continue our cautious and prudent approach to risks, as visibility of outcomes remains limited.
Customer Balances
· Customer deposits of €18.0 billion at 31 December 2020 are €0.9 billion higher than 31 December 2019, with Current Account balances up 24% from December 2019, further enhancing the strength of the franchise.
· The Loan to Deposit ratio was 79% at the end of December 2020, providing a strong liquidity position and significant potential to lend to customers.
· The total Performing Loan Book is €13.7bn at 31 December 2020, €1.6bn lower than the total Performing Loan Book at 31 December 2019, primarily due to the loan portfolio sale (Glenbeigh II) completed during the year. The Performing Home Loan book grew marginally in the year by c. €40m.
· Non-performing loans of €1.1 billion at 31 December 2020 increased by €80m when compared to December 2019, primarily as a result of new defaults from payment breaks.
Payment Breaks
· The table below reflects the Covid-19 mortgage payment break population at the end of January 2021:
|
Mortgage Payment Breaks |
€m |
Volume |
|
Total Granted in 2020 |
1,610 |
10,650 |
|
Active at end Jan 2021 |
19 |
103 |
|
Expired at end Jan 2021 |
1,591 |
10,547 |
|
- Of which further forbearance approved |
70 |
350 |
|
- Of which likely to require further forbearance |
110 |
650 |
· The Bank continues to support and engage with all customers who require assistance as a result of the Covid-19 pandemic.
Capital
· The Bank's Common Equity Tier 1 (CET1) ratio on a fully loaded basis remains strong at 15.1% at 31 December 2020, an increase of 10 basis points on the Pro-Forma CET1 ratio on a fully loaded basis at 31 December 2019 (15.0%). The CET1 ratio on a transitional basis of 18.1% remains in line with the pro-forma CET1 ratio on a transitional basis at 31 December 2019.
· The table below details the Bank's capital ratios at 31 December 2020 and compares them to the pro-forma capital ratios at 31 December 2019:
|
Regulatory Capital Ratios |
(Pro-Forma) December 2019 |
December 2020 |
|
CET1 (Transitional) |
18.1% |
18.1% |
|
CET1 (Fully Loaded) |
15.0% |
15.1% |
|
Total Capital (Transitional) |
19.6% |
21.0% |
|
Total Capital (Fully Loaded) |
16.7% |
18.2% |
Funding
· The Bank's funding position remains strong. All funding and liquidity metrics are above regulatory requirements with the Liquidity Coverage Ratio (LCR) at 276%.
· Similar to other banks, management of excess liquidity continues to be a priority. The average balance of excess liquidity in 2020, which attracted a negative interest rate, was c. €0.5bn. However, the current balance is c. €1.7bn, following the receipt of proceeds from the performing loan sale transaction (Glenbeigh II), along with growing deposit balances as a result of the continued Covid-19 restrictions.
· The Bank's current MREL target becomes binding on 30 June 2021 and the Bank expects to be compliant in advance of this date. The Bank awaits confirmation of a new MREL decision based on the Bank Resolution and Recovery Directive 2 (BRRD2) framework.
· In November 2020, the Bank successfully issued a €125m AT1 instrument which provides financial flexibility and further diversifies funding sources and investor base.
· On the 24th of February 2021, the Bank announced that on 1 April 2021, the Bank will redeem the existing €125m AT1 instrument issued in 2015, in compliance with the requirements set out in CRD IV Regulation.
· When we factor in the impact on Total Capital of the redemption of the existing AT1 Instrument issued in 2015, the pro-forma Total Capital Ratio at 31 December 2020, is 20.0% on a transitional basis and 17.1% on a fully loaded basis. The impact of redeeming the AT1 instrument, reduces the Total Capital Ratio on a transitional basis by 100 basis points and reduces the Total Capital Ratio on a fully loaded basis by 110 basis points.
Digital Transformation Continues to Enhance the Customer Journey
· The Bank's Digital Transformation Programme continues to progress and has met some key milestones;
§ Term Lending, Credit Cards and Overdraft all available for application through the App;
§ Online portal to facilitate Mortgage and Term Loan payment breaks, with document upload facility which also allows customers to complete the Standard Financial Statement (SFS);
§ SBCI Future Growth Loan Scheme online application process;
§ Email communication to all personal customers;
§ Video Banking, the first of its kind in Ireland;
§ Launch of online secure customer authentication, together with a simplified Customer Log In process in App, with PIN management available in App. Giving customers peace of mind;
· The pandemic has accelerated a shift towards digital for every day banking needs. It is now very clear that customers want the ability to interact with the Bank at a time and place that works for them, and through a channel of their choosing. In 2020 we saw;
§ 72% of customers choose to bank using online channels;
§ 400k customers actively using the mobile App (+15% YoY)
§ 100m successful log-ins on both Open 24 and the Mobile App (+22% YoY);
§ 92m Contactless Payments (+40% YoY); and
§ 81% of Term Loan Applications are now completed online (+5% YoY);
· In November 2020, the Bank launched Apple Pay for personal debit and credit cards, and business debit cards. Approximately 94k customers have signed up to use the service which has so far resulted in 1.2 million transactions since launch. Android Pay is due to launch in the next six months.
· The Digital Current Account, with the ability to open a current account in just six minutes, will also launch in the coming months.
Sustainable and Responsible Business
· Achievement of the Business Working Responsibly Mark from Business in the Community Ireland (BITCI) - an external accreditation recognising best in class Responsible Business Programmes in Ireland.
· A five year partnership with Social Entrepreneurs Ireland, supporting the work of hundreds of social entrepreneurs across the country.
· A 3 year partnership with Ó Cualann Cohousing Alliance to support the development of 1,800 affordable homes across the country.
· €700k in financial contributions provided to Irish community organisations in 2020 via the Permanent TSB Community Fund and a range of community partnerships.
· 10% reduction in Carbon Emission Intensity in 2020 (55% reduction since 2009).
· 3 year partnership with Work Equal to promote gender equality in workplaces across Ireland.
· Partnership with LIFT Ireland to develop personal leadership qualities for Permanent TSB colleagues. To date, 600 Colleagues have participated in the programme.
· Employee Engagement at 71% in 2020, which compares favourably against industry standards.
· Winner of the Employee Empowerment and Trust Award at the 2021 CIPD HR Awards.
Outlook
Looking ahead, the outlook continues to remain uncertain with recovery being dictated by the success of the Government led vaccination programme and the overall suppression of the Covid-19 virus. In terms of business performance the Bank has started the year with a strong performance in new mortgage lending. However, in light of the third lockdown, household spending has been curtailed, resulting in a continued build-up of deposits and a reduction in fee income due to lower transactional activity.
· Business activity was strong in Quarter 4 2020 both in terms of drawdowns and applications, positioning the Bank well at the start of 2021. We expect new lending volumes for this year will be ahead of 2020.
· NIM is expected to reduce to below 170 basis points, reflecting the cost of holding excess liquidity, the lower reinvestment rate on treasury assets and continued price competition in the mortgage market.
· Achieving cost reductions in the current economic environment will prove challenging; however, the Bank retains its outlook that operating costs will remain stable in 2021; the Bank is committed to delivering cost savings in the medium term while paying for investment.
· 97% of total performing assets are secured residential mortgages; as such, the full year loan loss experience will be directly linked to the emerging macro-economic indicators and the length and severity of Covid-19 restrictions.
· The successful reopening of the economy along with the number of house completions will be key indicators with respect to the lending market during the year. The Bank will keep the ECL under constant review throughout the year.
· Capital remains strong and having assessed a range of scenarios, the CET1 ratio will remain well above the Bank's minimum regulatory requirements.
· In line with the Bank's ambition to grow our position in the Retail and SME markets in Ireland and continue to be a force for competition, we are in early discussions with NatWest in relation to acquiring certain elements of the Ulster Bank businesses in the Republic of Ireland. This includes certain Retail and SME assets, liabilities and operations. Until an acquisition is finally concluded there can be no certainty that an acquisition will occur or on what terms. Any such transaction would be subject to normal shareholder and regulatory approvals.
- Ends -
For Further Information Please Contact:
Nicola O'Brien, Head of Investor Relations | Nicola.obrien@permanenttsb.ie | +353 87 148 2275
Leontia Fannin, Head of Corporate Affairs and Communications | Leontia.Fannin@permanenttsb.ie | +353 87 973 3143
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.
[1] BPFI data as at 31 December 2020
[2] Kantar Survey, based on six months rolling data to January 2021
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