permanent tsb Group Analyst and Investor Presentation Please refer to the important information in disclaimer on pages 105 to 106 before continuing

Transcription

1 permanent tsb Group Analyst and Investor Presentation Please refer to the important information in disclaimer on pages 105 to 106 before continuing 12 March 2015

2 Today s Presenters Jeremy Masding Group Chief Executive Officer Glen Lucken Group Chief Financial Officer Paul Byrne Group Treasurer David Curtis Group Chief Credit Officer Shane O Sullivan Managing Director, Asset Management Unit Niall O Grady Director, Transaction Banking, Savings and Investments 1

3 The Equity Story: An Overview Well positioned for continued macroeconomic and banking sector recovery in Ireland Conservative balance sheet and strong capital position Legacy issues increasingly behind us Simple business model targeting sustained and attractive returns over the medium term Upside potential in the short term through pace of recovery and longer term through profitable growth 2

4 Order Of The Day 4 Commercial Operations 5 Funding, NIM, 1 2 Trackers And Liquidity 8 9 Comprehensive 3 Introduction Financial Assessment And To PTSB And Performance Capital Plan Investment Case 6 Financial Targets 10 Closing Remarks Asset Quality 7 Arrears Management Note: Numbers in this presentation and its Appendix may not be the sum of their parts due to rounding 3

5 Section 1 Comprehensive Assessment and Capital Plan

6 Comprehensive Assessment And Capital Plan: An Overview SSM Outcome Provisioning levels validated by the Asset Quality Review Sufficiently capitalised in the Baseline Scenario Capital shortfall of 855m identified in the Adverse Scenario The Group s Capital Plan is Endorsed by the ECB/JST (a) with no major amendments Capital Plan At least 330m of Management Actions 525m of new capital ( 400m equity (b) + 125m AT1) Use of Funds includes repurchase of State Contingent Capital Note (CCN) of 400m (ineligible instrument for Capital Plan unless converted) (a) Joint Supervisory Team (b) Gross equity raise 5

7 CET1 Ratio vs Requirements, Year-End AQR CET1 Ratio vs Requirements, Year-End Baseline Scenario CET1 Ratio vs Requirements, Year-End Adverse Scenario Comprehensive Assessment: Outcome Asset Quality Review (AQR) Baseline Stress Test Scenario Adverse Stress Test Scenario 15% 15% 15% (0.3)% 10% Min. CET 1 Ratio (8.0%) 10% (4.0)% Min. CET 1 Ratio (8.0%) 10% 5% 13.1% 12.8% 5% 12.8% 8.8% 5% 12.8% Min. CET 1 Ratio (5.5%) 0% Capital Buffer vs 8.0% ( m) 2013 Available Capital AQR Impact 2013 Capital Post-AQR % Capital Buffer vs 8.0% ( m) 2013 Capital Post-AQR Baseline Scenario Impact Minimum Test Capital % Capital Buffer vs 5.5% ( m) 2013 Capital Post-AQR (11.9)% Adverse Scenario Impact 1.0% Minimum Test Capital 1,232 (855) Capital Surplus in the AQR and Baseline Stress Test Capital Shortfall in the Adverse Stress Test Note: The AQR adjusted CET1 ratio of 12.8% is the starting point for the baseline and adverse scenarios 6

8 Adverse Stress Test Scenario CET1 Ratio (Transitional) Capital Plan: The Capital Plan Has Been Endorsed By ECB/JST 10% Capital Plan 855m capital shortfall in the Adverse Stress Test excluded the 400m CCN which only qualifies as available capital upon conversion 8% Capital Plan submitted to address shortfall included: 6% Min. CET1 Ratio (5.5%) >3.1% >5.5% 525m of new capital, through a combination of Equity and AT1; and 4% 2% 1.0% >1.4% At least 330m of capital from Management Actions (2014 actual performance, asset sales, technical items) Resulting 2016 Capital Post-Capital Plan The Group s Capital Plan is Endorsed by the ECB/JST with no major amendments 0% Capital Buffer/ (Shortfall) ( m) CA Outcome Management Actions And Technical Adjustment Combination Of New Equity And AT1 CA Outcome Post-Capital Plan (855) > >0 Formal approval of the Capital Plan is subject to its implementation the Group has until July 26 th to execute the outstanding elements of the plan; in particular, the Capital Raise 7

9 Section 2 Introduction To PTSB

10 Group Organisation Group (Net Loans: 28.2bn) Core Bank (Net Loans: 20.1bn) Non-Core (Net Loans: 8.2bn) Full service retail bank across Current Accounts, Deposits, Mortgages, Credit Cards and Personal Loans Dedicated Asset Management Unit (AMU) platform for arrears management (a) RoI Non-Core (Net Loans: 1.5bn) Commercial Real Estate assets Sale of 0.8bn net loans announced Remaining assets to be deleveraged over next 12 months UK Non-Core (Net Loans: 6.7bn) (b) Predominately CHL; a good credit quality but low yield Buy-To-Let mortgage book Sale of 3.5bn (c) net loans announced Remaining assets to be deleveraged over next 12 months subject to minimum price thresholds Note: Figures are net loans as at 31 December 2014 and include assets classified as held for sale. See Appendix for full explanation of Core Bank/Non-Core split and for pro-forma for sales announced in March 2015 (a) Also manages CRE Non Performing (Residential) loans which are part of Non-Core (b) FX rate of EUR:GBP 0.78 as at 31 December (c) 3.5bn gross ( 3.5bn net) based on FY2014 figure and FX rate of EUR:GBP 0.73 as at 28 February bn gross ( 3.2bn net) based on FY2014 and FX rate of EUR:GBP 0.78 as at 31 December 2014

11 Group Overview Retail Current Accounts 13% Group Deposits Corporate 13% Institutional 14% PBI (IoM) (a) 3% Retail (ex-current Accounts) 57% FY2014 Financials ( bn Unless Stated) Core Non-Core Group Deposits Net Loans Provisions RWA Equity 2.3 Total Operating Income ( m) 310 (2) 308 Non-Core Net Loans: 8.2bn Non-Core 29% Consumer Finance 1% Total Deposits: 20.4bn Core BTL 17% Group Loans Group Net Loans: 28.2bn Core Bank Net Loans: 20.1bn Core HL 53% Total Operating Expenses ( m) (356) (33) (389) Pre-Provision Loss ( m) (46) (35) (81) Writeback/(Charge) Of Impairments ( m) 51 (9) 42 Exceptional Items ( m) 0 (9) (9) Profit/(Loss) Before Taxation ( m) 5 (53) (48) NIM (pre-elg Fees) 1.21% na 0.90% Underlying Cost:Income Ratio (b) 86% nm 97% RoE na na (4.6)% LDR 101% nm 138% CET1 Ratio (Transitional) 14.2% CET1 Ratio (Fully Loaded) 12.4% Note: See Appendix for full explanation of Core Bank/Non-Core split and for pro-forma as of June 2015 (a) Permanent Bank International Limited ("PBI") is a deposit business in the Isle of Man which, while considered core to the overall business of the Group, has historically been included in the Non-Core to enable the Group to hedge its GBP foreign exchange exposure more efficiently (b) Adjusted for non-recurring items. See Appendix for more details 10

12 Non-Core: Focused Deleveraging Means Group Will Equal Core Bank By The Middle of 2016 Overview Exit Strategy Non-Core RoI 2.0bn CRE Non Performing portfolios 0.6bn CRE Performing portfolios Sale of 1.5bn of gross ( 0.8bn net) assets announced Management targeting a sale of remaining loans over the next 12 months Non-Core UK (a) 6.5bn CHL portfolio Low LTV, predominantly Trackers 0.3bn IPI (b) closed mortgage book Sale of 3.5bn (c) of gross ( 3.5bn net) assets (c.50% of the outstanding CHL) and the CHL underwriting platform announced Management targeting a sale of remaining CHL assets to be agreed at no more than a 10% discount to gross assets over next 12 months Note: Figures are gross loans as at 31 December 2014 (a) Non-Core UK also includes Permanent Bank International Limited ("PBI") deposits of 0.6bn. PBI is a deposit business in the Isle of Man which, while considered core to the overall business of the Group, has historically been included in the Non-Core to enable the Group to hedge its GBP foreign exchange exposure more efficiently (b) Irish Permanent Isle of Man (IoM) Limited; a closed mortgage book in the Isle of Man comprising 0.3bn residential loans (c) 3.5bn gross ( 3.5bn net) based on FY2014 figure and FX rate of EUR:GBP 0.73 as at 28 February bn gross ( 3.2bn net) based on FY2014 and FX rate of EUR:GBP 0.78 as at 31 December

13 Core Bank: Focused Domestic Retail Bank Well Positioned To Grow PTSB Overview RoI Current Account Market Share Focused Domestic Retail Bank well placed to capture market share: 1 million plus customers 36% 30% 17% 13% 77 branches plus phone and web capability 2,321 FTEs Pure retail offering with full service product suite AIB BoI PTSB Ulster Note: Data is stock market share calculated based on results of polling Source: RedC Brand and Ad Tracking, Q poll commissioned by PTSB RoI Total Deposits ( bn) Well positioned to benefit from profitable growth opportunities in a consolidated market and increasing credit demand Aiming for growth to achieve 13-17% share in key products: Current Accounts Retail Deposits Residential Mortgage Lending Seeking to explore opportunities in: SME Consumer Finance (a) AIB BoI PTSB Ulster KBC (a) Excludes PBI deposits Source: FY2014 for PTSB, AIB and BoI; FY2013 for Ulster and KBC RoI Gross Residential Mortgages ( bn) AIB BoI PTSB Ulster KBC Source: FY2014 for PTSB, AIB and BoI; FY2013 for Ulster and KBC 12

14 Section 3 Investment Case

15 Investment Themes Capturing Profitable Growth Managing The Legacy Maintaining A Strong Capital Position Trending To Attractive Returns Increasing demand for credit as Irish economy recovers Full service domestic retail bank well placed to capture market share Attractive front book margins Entry into SME market via OME (a) provides potential for further upside NIM drag expected to be reduced by decreasing cost of funds Funding and Liquidity expected to be strengthened by active balance sheet management Arrears Management expected to be enhanced by focus on best practice Non-Core deleveraging plan clearly defined and under way Strong pro-forma capital position with potential for dividends in the future CCN to be repurchased and capital stack normalised Additional capital provides buffer for future stress tests, flexibility to accelerate deleveraging and potential for additional growth Phase 1 cost base restructuring complete. Defined benefit pension schemes wound-up Well provisioned asset book and improving profitability metrics across Core Bank Robust management targets including a Core Bank RoE of around 10% by 2018 Potential upside from provision releases and lower cost of deleveraging remaining Non-Core assets 5 Delivering Through A Robust Management Model Experienced and committed management team with a track record of delivering change Strong corporate governance with supportive majority shareholder Integrated approach between strategy and finance (a) Owner Managed Enterprises; OME segment has <10 employees and either < 2m turnover or < 2m balance sheet 14

16 1a Capturing Profitable Growth: Strong Macro-Economics Support Increasing Demand For Credit 0% (20)% (40)% (60)% House Prices Note: Data shown is the percentage fall of HPI Index from its peak Source: Goodbody (January 2015) 13.1% (46)% (37)% (33)% Unemployment F 2016F Source: CBI Quarterly Bulletin (January 2015) GDP Growth (28)% F 2016F 11.4% 5.1% 10.4% 9.3% 3.7% 3.8% 14.3 Market Mortgage Drawdowns Source: Banking and Payments Federation Ireland Domestic Consumption F 2015F Note: Growth in consumer spending Source: Ulster Bank RoI Quarterly Economic Update (August 2014) Business Confidence Value ( bn) Volume ('000s) (1.1%) (0.8%) 1.1% 21% % 42% 0.2% F 2016F Source: CBI Quarterly Bulletin (January 2015) 15 (11%) (8%) Note: Based on quarterly average for the calendar year Source: Quarterly Trends Survey, Irish Small and Medium Enterprises Association

17 1b Capturing Profitable Growth: The Group Has Scale Natural Market Share In Key Products Growing Retail Deposit Base Growing Mortgage Lending Flow % % 12.1% 12.7% % % Retail Deposit Volumes ( bn) Market Share (%) Mortgage Drawdowns ( m) Market Share of Mortgage Drawdowns (%) Mortgage Approvals ( m) Note: Market share for lending is flow, for deposits is stock. Deposit volumes reflect RoI only (PBI excluded) Source: PWC/IBF Quarterly Mortgage Data, CBI Data 16

18 1c Capturing Profitable Growth: Business Plan Underpinned By Grounded Assumptions Deposits Current Accounts Mortgages 2.0% 1.5% 1.0% 0.5% Balancing Growth And Attractive Customer Pricing 1.75% 0.75% 1.30% 0.50% 0.99% 0.81% Strong Growth In Current Accounts Driven By Switchers 56.2k 41.9k 28.2k Maintaining Share In A Recovering Market Gross Lending 3.9 >8.0 (a) Value ( bn) 13% - 17% 11% 0.0% Dec 13 Mar 14 May 14 Jul 14 Sep 14 Dec E Target Blended Market Rate Note: RoI Deposits Only Source: CBI Data Blended PTSB ROI Retail Rate Credit Cards Term Loans SME Increased Cross-Selling Supported By Current Account Growth Note: Figures are new accounts opened in given year Increased Cross-Selling To Existing Customer Base Note: Mortgage Drawdowns (a) Investec (February 2015) Source: IBF Data (for 2014), Internal Management Assumptions Capturing Credit Opportunities In A Concentrated Market 7.6k 12% 3.2k 5% 0.8k Note: Figures are new accounts opened in given year PTSB Note: Graph shows % of PTSB primary current account holders with a PTSB term loan compared to % of BoI, AIB or Ulster Bank primary current account customers that have a personal loan with that same bank Source: RedC Brand and Ad Tracking, Q poll commissioned by PTSB 17 Market 59% of firms say banks making it more difficult to access finance Source: ISME Quarterly Bank Watch Survey (December 2013)

19 2 Managing the Legacy NIM expansion supported by normalisation of funding costs versus peers Steadily Improving NIM Legacy funding costs reducing Tracker mortgages expected to be a decreasing proportion of the loan book in future Growing front book at attractive margins Significantly Strengthened Funding And Liquidity Position Superior NPL Management System funding down two thirds from peak levels in bn deposit net inflows since 2011 LDR reduced to 138% from 271% peak in 2008 c.80% of home loan customers in late arrears have provided an SFS (a) c.90% of accounts with long-term treatments performing to modified terms Significant cash collection on NPLs with over 50% of total bills paid (b) Springboard sold in H Non-Core Being Addressed Sale of 1.5bn (gross) Non-Core RoI assets announced in March m (gross) CHL assets sold in September 2014 Sale of 3.5bn (gross) (c) CHL assets announced in March 2015 Management targeting sale of remaining assets by mid 2015 (RoI) and mid 2016 (UK) (a) Detailed income and expenditure report that requires supporting documentation (b) Cash collected as % of total bill owed for the 6 months to December 2014 (c) 3.5bn gross ( 3.5bn net) based on FY2014 figure and FX rate of EUR:GBP 0.73 as at 28 February bn gross ( 3.2bn net) based on FY2014 and FX rate of EUR:GBP 0.78 as at 31 December

20 3 Maintaining A Strong Capital Position: Indicative Pro-Forma CRD IV Fully Loaded Leverage Ratio: 4.5% 4.1% 5.5% 2.8% 12.4% 14.3% 11.5% (0.9)% 2014 CET1 Fully Loaded Impact Of Announced 2014 CET1 Fully Loaded (a) Deleveraging Pro-Forma For Deleveraging Capital Raise 2014 CET1 Fully Loaded Pro-Forma For Capital Raise RWA 14.8 (1.4) 13.4 n/a 13.4 CET1 (Fully Loaded) 1.8 (0.3) Tangible Book Value 2.2 (0.3) Management targeting a sale of remaining CHL and CRE loans in next 12 months CHL subject to maximum haircut of 10% of gross assets, in addition to c. 80m expected transaction costs CRE expected to be broadly capital neutral Note: All figures in table are bn. FX rate of EUR:GBP 0.78 as at 31 December 2014 has been used for above calculations (a) Impact of deleveraging announced March

21 4 Trending To Attractive Returns Core Bank RoE Target of c.10% (a) Medium-Term Targets Representative only: not intended to portray actual contributions from each category Core Bank NIM c.1.70% c.10.0% Core Bank Cost:Income Ratio c.50% Core Bank Cost of Risk <0.4% na 2014E Asset Core Bank Backbook+ RoE Frontbook Margin Management Deposit Mix/ Pricing ELG Fees Legacy Funding Costs (b) Cost Reduction 2018E Core Bank Target Core Bank RoE (a) c.10.0% (a) RoE target based on a notional fully loaded CET1 ratio of 11% (b) Legacy Funding Costs include CCN and deposit intangibles amortisation 20

22 5 Delivering Through A Robust Management Model Key Achievements Strengthened Group Functions Strong Governance embedded: 152 Management Committees: ExCo, ALCo, Group Risk Co, Credit etc Lines of Defence model embedded 657 Strong Strategic Management Process: Management Agenda comprising Strategy and Performance Agenda Programme Management Office Annual Planning Process Strong Group Functions Re-engaged workforce FTE Group Centre Functions Opex ( m) Note: Group Centre functions in 2011 include ExCo, Operations, IT, Credit, HR and Finance Costs include a recharge from the Group Centre for Group Functions HR, IT, Internal Audit and Exco Group Centre includes ExCo, Secretariat, Internal Audit, Operations, ERM, Strategy and Planning, HR, Finance and IT Underpinned by an experienced Management Team who have undertaken a fundamental restructuring of the Group since early

23 Section 4 Commercial Operations

24 Context: Relaunch As An Innovative Personal Bank Products Pre-2012 Standard Product Set Limited new lending from 2008 SME not targeted Post-2012 Key product and service innovations Started to acquire new customers and cross sell Targeting undeveloped business areas SME entry strategy approved and commenced soft implementation Marketing Brand weakened due to underinvestment Limited marketing activity post financial crisis Back to Basics focuses on Easy ways to do banking Direct customer campaigns reactivated Distribution Sub-optimal branch footprint Outdated functionality to support online banking No mobile offering Branch network right sized and started upgrading New digital strategy implementation Website redesigned, Apps launched 23

25 The Commercial Journey Clear Competitive Positioning And Brand Franchise Innovative Product And Service Design Focused Marketing To Profitable Customers Multi-Channel Distribution 24

26 Balanced Customer Base Age Distribution Location of Customers Munster 32% Dublin 32% Ulster/ Connacht 9% Leinster (ex Dublin) 27% Note: Includes all current account customers active within the last 3 months (c.590k) Typical First Product Bought Mortgage 7% Term Loan 1% >75 Male Female Personal Current Account Holders (Active last 3 months) Personal Current Account Holders (Payroll) 590k 275k Saving/ Deposit 25% Credit Card 0% Current Account 69% Note: Figures in thousands, includes all customers 25 Note: Includes all current account customers active within the last 3 months (c.590k)

27 Brand: Highly Regarded Franchise By Both Existing And Potential Customers Highly Regarded Franchise Across Key Customer Metrics With Strong Endorsement Among Existing Customers Traditional Friendly Helpful Efficient Fair Reliable Understanding (10) (20) (30) (40) 9 Net Promoter Score Across Irish Banks (7) (6) (3) (24) (22) (28) (27) (17) (9) (7) (17) (15) (23) (23) (25) Q4 13 Q4 13 Q1 14 Q1 Q2 14 Q2 Q3 14 Q3 Q4 14 UB BOI AIB PTSB Note: Includes all current account holders aged 18+ Source: RedC Brand and Ad Tracking, Q poll commissioned by PTSB And Excellent Potential To Attract New Customers Transparent Trustworthy Honest Innovative Total PTSB Total Banking (ex PO & CU) Flexible Note: Includes all current account holders aged 18+ (a) ex Post office and Credit Unions Source: RedC Brand and Ad Tracking, Q poll commissioned by PTSB (a) 26 Net New Consideration: Would Consider for any financial services product (New and Switcher customers) Q4'13 Q4'13 Q1'14 Q1 Q2'14 Q2 Q3'14 Q3 Q4'14 UB BOI AIB PTSB Note: Includes all current account holders aged 18+ Source: RedC Brand and Ad Tracking, Q poll commissioned by PTSB

28 The Commercial Journey Clear Competitive Positioning And Brand Franchise Innovative Product And Service Design Focused Marketing To Profitable Customers Multi-Channel Distribution 27

29 Innovative Product And Service Design First to market with Fee-Free (a) Current Account for payroll customers Deposits and Current Accounts Interest First Account, a market first; Booster Bonus offers access and loyalty bonus. Automated 15 minute process covering needs analysis and account opening recommendations Only bank in market to offer a Tracker Portability Mortgage and Non-Resident Mortgage offering Mortgages Improved customer experience through 15-minute 'Approval-in-Principle Revised Managed Variable Rate (MVR) mortgage pricing structure from 2 to 5 bands to reward larger equity First bank to market with Cash Secured Lending Product with rates discounted Consumer Finance Car Loan product combining Hire Purchase rates with flexibility of a Personal Loan Only Irish Bank with Motorcheck for each approved car loan 0% on credit card balance transfers for 6 months (a) No fee on Current Account when at least 1,500 is deposited monthly, otherwise 12 monthly fee 28

30 Deposits: Growth Of Sticky Funds While Reducing Rates Progress Made 14.3bn Retail Deposits Include 2.6bn Current Accounts Book size almost doubled between 2007 to 2014 Sticky Retail Funds Behavioral ahead of contractual term (51 vs 4 months) Risk averse older customers (71% >55 years) (a) Online end to end account opening ( 605m) Growth maintained alongside rate reductions 2.7bn Corporate Deposits Front book rates continually being managed down Deposits Balances ( bn) Yield % 1.07% 2.65% 0.04% 1.78% 2.8bn Institutional Deposits Expected to be significantly reduced by end bn PBI Deposits (a) Growth aided by market consolidation (a) Figure for term deposit customers only (b) Permanent Bank International Limited ("PBI") is a deposit business in the Isle of Man which, while considered core to the overall business of the Group, has historically been included in the Non-Core to enable the Group to hedge its GBP foreign exchange exposure more efficiently Retail (ex Current Accounts) Retail Current Accounts Corporate Insitutional PBI (IoM) Note: Volumes at period end. Yields average for the period

31 Current Accounts: Capturing Switchers Through Fee Free Accounts Progress Made Launched Fee-Free (a) Current Account proposition in April 2013 as primary customer acquisition product Service Enhancements Switcher Buddy Team, Mobile Money App, Card Personalisation, Emergency Cash 92k new accounts opened since launch (b) 34% payroll, average balance 4,400 66% fee paying, average balance 2,600 H spike due to Danske customers Number Of Current Accounts Opened 33k 25k 23k 16k H H H H Tapping Opportunity From Current Account Switchers Further growth potential as employment drives more payroll accounts and GDP drives higher average balances Others 38% PTSB 62% (a) No fee on Current Account when at least 1,500 is deposited monthly, otherwise 12 monthly fee (b) 92k since April 2013, 97k since 1 January Note: Market share of Current Account switchers who went through the CBI channel for H Source: CBI 2013 data, Management Estimates

32 Mortgages: Targeting A Market Share Of 13-17% Progress Made RoI Residential Mortgage market recovering following collapse: Peak of 40bn in 2006, 3.9bn in 2014 (+55% on 2013) Expected to continue despite low supply and prudential changes House price recovery continuing PTSB lending growth underpinned by: New rate launches (Managed Variable Rate, Fixed Rates) Innovative Products Tracker Portability and Negative Equity Home Mover Improved processes (15 minute Approval in Principle) (a) Resulting in share growth: 3% in 2012 to 11% in 2014 Increasing front book yield to 4.2% in 2014 c.50% First Time Buyers, c.40% Next Time Buyers, c.10% equity release and BTLs (a) Mortgages 15 minutes; Personal loans 5 minutes Gross Mortgage Lending and Market Share 3.9% 3.1% 8.3% 11.1% % 4.2% Gross New Lending ( m) Front Book Yield Note: Volumes at period end. Yields average for the period Source: PWC/IBF Quarterly Mortgage Data Market Share (Drawdowns) 31

33 Consumer Finance: Significant Opportunity To Build Relationships Personal Loans Opportunity For Growth Significant opportunity for low risk growth targeting existing customer base Targeting double digit growth of balances and new lending 5% personal loan cross sale versus 12% for other main banks Product and Service Innovations: Branch AIP in 5 minutes Car Loan approval in 3 hours Same Day Payout Key Metrics PTSB Gross Loans 175m 176m Credit Cards Significant opportunity for low risk growth targeting existing customer base c.20% of current account customers have a credit card customers with PTSB versus market average of c.50% Strong proposition: 0% balance transfer for 6 months PTSB Balance 124m 110m PTSB No. Credit Cards 150k 149k Source: RedC Brand and Ad Tracking, Q poll commissioned by PTSB 32

34 SME: Controlled Growth In Focused Segment Gross market balances of 21.8bn (Q3 2014) with gross lending of 1.6bn in 9M 2014 Opportunity: Market growth alongside improving Irish economy Diminished choice due to market consolidation Incumbent banks less focused on this target segment Build on existing customer base (corporate deposits and current accounts) PTSB soft launched new proposition in Q with focus on Owner Managed Enterprises (OME) (a) segment: Target share growth from c.2% to c.5% share across loans, current accounts, overdrafts and deposits Initial focus on products for low risk existing customer base Simple product offering supported by local service Cost to serve kept low by adding to and leveraging existing personal banking infrastructure (a) OME segment has <10 employees and either < 2m turnover or < 2m balance sheet 33

35 The Commercial Journey Clear Competitive Positioning And Brand Franchise Innovative Product And Service Design Focused Marketing To Profitable Customers Multi-Channel Distribution 34

36 Campaign Message: Back to Basics PTSB Brand Campaign History as trusted, respected brand Brand reintroduced to the market in 2013 Back to Basics campaign focused on simple ways to bank Outstanding campaign success strengthens franchise: Impact rating of 60 versus Banking average of 49 Now rated as the leading option for customers considering switching current accounts Highest Customer Loyalty level (87%) and lowest level of rejection (12%) Source: RedC Brand and Ad Tracking, Q poll commissioned by PTSB 35

37 Customer Campaigns: Transactional Banking And Savings Examples Acquiring New Salaried Customers Current Accounts Product: Service: Relationship: Fee-free account Simple switch process with dedicated switching buddy Combined sales process at point of sale and follow up activation campaign Targeting Existing Customers To Increase Average Product Holding Deposits Product: Relationship: Interest First, Booster Bonus Account Campaigns targeting customers with greatest potential value Targeting Existing Customers Credit Cards Product: Relationship: Advertising 0% balance transfer At current account opening and delayed campaigns 36

38 Customer Campaigns: Mortgages And Personal Lending Examples Targeting New and Existing customers Mortgages Speed: Service: Relationship: 15 minute AIP online, phone and branch Dedicated mortgage advisor, mortgage approval valid for 10 months Mortgage and Home Insurance cross sale Targeting Existing Customers Personal Lending Speed: Service: Relationship: 5 minute AIP online, phone and branch Improved customer experience, 3 hour approval and same day payout Car History Check, Topaz Fuel Card Affinity 37

39 The Commercial Journey Clear Competitive Positioning And Brand Franchise Innovative Product And Service Design Focused Marketing To Profitable Customers Multi-Channel Distribution 38

40 Multi-Channel Distribution Branch Phone Digital Right Sized at 77 branches (a) Network upgrade in progress (>20 branches to date) Business Development through Corporate Affinities Campaign Infrastructure for expanding customer relationship Award winning Switch Buddy team Support product sales for direct customers Investment to support migration Upgraded internet banking platform in Jan 2015 Digital applications such as Mobile Money West: 8 branches North West: 8 branches Kerry Donegal Cavan Roscommon Mayo Louth Longford Meath Galway Westmeath Offaly Clare Kildare North Tipperary Laois Wicklow Carlow Limerick South Kilkenny Tipperary Wexford Cork Sligo Leitrim Waterford Monaghan North East: 8 branches Dublin North West : 8 branches Dublin North East: 8 branches Dublin South: 7 branches East: 7 branches Intermediaries Access to additional source of customers South West: 8 branches South: 7 branches South East: 8 branches (a) 76 branches as of 31 December 2014, new branch opened in February 2015 (b) Winner of Best Customer Acquisition or Sales Campaign at Contact Centre Management Association (CCMA) Awards

41 Multi-Channel Distribution Telephony Online Mobile Over 400k registered users with 38% banking penetration PTSB customers have above average usage of telephone services versus competitors (a) Introduced the award-winning (b) Switch Buddy team for current accounts Significantly higher than average customer usage of online banking and joint highest levels of customer satisfaction for online banking service reliability (a) Relaunched internet banking platform in January 2015 Developed the permanent tsb Mobile App, nominated for Best Mobile App at the Social Media Awards Winner of Best Initiative in Mobile Payments award at 2015 UK/Ireland Card and Payments Awards (a) Ipsos MORI Q Customer Research, commissioned by PTSB (b) Contact Centre Management Association Award

42 Clear View Of The Future The Way We Do Things Future Business Focus Performance management Multi-channel integration and customer migration Relationship building Future Focus Digital Strategy implementation Maintain Right Sized footprint Ongoing centralisation and automation Future Behaviour The Way We Do Things culture programme Future Service Extending opening hours in Branch and Telephone Refurbishment program Future Customer Focus Build on leading NPS of 15 41

43 Section 5 Funding, NIM, Trackers and Liquidity

44 Funding: Rightsizing Deposits And System Funding Significant Growth In Customer Deposits System Funding Returning To Normalised Levels 227% 191% c.60% of Group Funding (c) % 191% c.60% Group Fu 15.1 (b) % 138% <130% % 133% <130% <15% of Group Funding E Target Customer Deposits ( bn) (a) LDR (a) E 2014 Target 2018E Ta System Funding ( bn) LDR 2011: Deposit base neglected and sub-scale with an LDR of 227% 2014: Strong growth in deposit base with sustainable LDR of 138% 2018: Core Bank LDR target of <130% (a) (b) (c) : System funding peaked in July at 19.5bn including a component of Emergency Liquidity Assistance (ELA) 2014: 14.7bn of System Funding re-paid 2018: Maintain a component of System Funding at <15% of Group funding Historic figures include funds placed by a government institution, comprising cash deposits and funds placed under repurchase agreements ( Repos ). As at 2013 and 2014 the cash segment was 0.5bn and 0.4bn respectively, the Repos were 2.2bn and 1.9bn respectively, giving a total of 2.7bn and 2.3bn respectively Includes inter-group deposit balance of 0.7bn Includes Corporate and Institutional deposits

45 Funding: Mix And Maintenance Led Funding: Composition Total Funding ( bn) % 100% 100% 1% 1% <2.5% 10% <2.5% 21% 7% 34% (a) 37% 61% 13% c.60% c.20% 15% <15% E target mix Retail Deposits: Base is right sized Maintenance with 1-1.5% organic growth per annum Corporate Deposits: Expensive backbook tail running off, the last of which will mature in 2017 Volumes managed such that cost will reduce below Retail Deposits Institutional Deposits: Priced away as C/A volumes increase, which are lower cost and more beneficial from liquidity perspective Wholesale Funding: System Funding Wholesale Funding Customer Deposits May increase (secured and unsecured) over medium term, targeting c.20% of overall funding mix Debt Securities Subordinated Liabilities (a) Includes inter-group deposit balance of 0.7bn 44

46 NIM: Trending Towards 170bps Core Bank NIM Target NIM Of 170bps By % 2.66% 2.49% 2.49% 2.40% 1.19% 1.21% 0.93% 1.73% 1.05% 1.44% 1.19% 1.23% 1.30% 1.17% 0.97% Representative only: not intended to portray actual contributions from each category 2011/12 spread compression driven by a requirement to build scale into our deposit base Asset yields impacted by lower interest rate environment, in particular RoI tracker mortgages, as the ECB rate has decreased by 95bps since start of 2012 NIM improvement driven by larger fall in cost of funds including cost of retail deposits, change in deposit mix and lower cost of (a) H H H H System Funding Core Bank Asset Yield Note: Figures exclude ELG fees Core Bank Cost of Funds Legacy funding costs include CCN and deposit intangibles amortisation 45 Core Bank NIM 2013 Core Bank NIM H Core Bank NIM 2014 Note: Figures exclude ELG fees Legacy Funding Costs Falling Cost of Deposits Change in Deposit Mix Back Book Run-Off Front Book Growth Core Bank NIM 2018 Target Cost of funds expected to continue to fall as the back book tail rolls off and as we continue to re-price to the market Potential further upside from adjusting the deposit mix (a) Expected repurchase of CCN to contribute to reduction in legacy funding costs

47 NIM: Cost Of Funds Within Our Control Group Falling Cost Of Funds Retail Rates And Spread To The Market 2.32% 2.0% 1.5% 1.75% 0.75% 1.30% 2.20% 1.0% 0.99% 0.50% 0.5% 0.81% 1.96% 0.0% Dec 13 Mar 14 May 14 Jul 14 Sep 14 Dec % 1.70% Blended Market Rate Blended PTSB ROI Retail Rate Source: CBI Data 3% Retail Rate Actions Taken 1.44% 2% 1% H H H H H H % Demand Notice 3m 6m 9m 12m 18m 24m 36m 60m Jun 13 Jun 14 Nov 14 Dec 14 Feb 15 Note: Figures are period average cost of funds. FY 2012: 2.26%, FY 2013: 1.85%. FY 2014: 1.57% 46

48 Redemptions and Repayments (pa) NIM: Asset Returns Improving Over Time Asset Split (FY 2014) Balance ( bn) (a) Average Yield (%) (b) Treasury Assets (c) % Core Bank Loans % Mortgage Back Book % o/w Tracker Mortgages % Mortgage Front Book (d) % Deferred fees, discounts and fair value adjustments 0.1 na Consumer Finance % Variable 34% Core Bank Mortgage Book Split By Type Fixed 2% Total Mortgage Net Loans: 19.7bn Core Bank WAM By Mortgage Type Tracker 64% % 6% % 10% Core Bank Tracker Split By Yield > % % 23% Total Mortgage Tracker Net Loans: 12.8bn < % RoI Run-Off Upside Non-Core Loans % RoI Non-Core % % o/w Performing 0.6 na o/w Non Performing 0.9 na 3.9% UK Non-Core % 2 Total % (a) Loan balances presented are net of provisions (b) Gross Interest Income/Average Gross Loans for FY 2014 (c) Treasury Assets include Debt Securities and Loans and Advances to Banks (d) Loans drawdown since 1 January Tracker Variable Fixed Note: Weighted Average Maturity (WAM) in years Pre-Crisis (2008) 2014 (a) RoI tracker only for 2014 of 3.9% (a)

49 Trackers: Drag Decreasing In Line With Natural Repayments And Cost Of Funds Reductions Irish Tracker Book Tracker Margin Impact (bps) Average Customer Pay Rate 127 ECB Repo Rate (a) (16) Average Fixed Spread 111 Cost of Funds (157) Jun 13 Dec 13 Jun 14 Dec 14 Note: Dec 14 figure reflects the disposal of the Springboard portfolio ( 0.5bn gross, 0.3bn net loans as of Sep-14) of which c.63% was tracker Volume of loans reduced by 0.5bn in 2014 ( 0.8bn since June-13) Net Interest Margin (30) (a) Average ECB bank rate for the period 48

50 Liquidity: Significantly Improved Liquidity Buffer ( bn) (a) The Group has significantly improved its Liquidity Buffer by a combination of: Growing unsecured liabilities External securitisations Liquidity Balances OUB (a) Includes Retained Securitisation Bonds which are eligible for use as collateral at the ECB Liquidity Portfolio Composition Collateral optimisation (driving down asset encumbrance) Deleveraging and balance sheet run down Cancelled 3.1bn Own Use Bond ( OUB ) in December 14 Redeemed the 1.4bn of MTNs that matured on 10th March 2015 Irish RMBS 35% Credit Line 4% Bank Paper 3% Government Bonds 34% Total HQLAs (a) : 3.2bn Liquidity Buffer is made up of cash, cash equivalents and unencumbered collateral (including Basel 3 definition High Quality Liquid Assets) Basel 3 Liquidity Coverage Ratio (b) of 160% at 2014YE Glide path towards compliance with the 2019 Basel 3 Net Stable Funding Ratio requirements NAMA Bonds 24% Total Liquidity Buffer: 5.3bn (a) HQLAs: High Quality Liquid Assets (b) Ratio of the stock of high quality liquid assets to expected net cash outflows over the next 30 days under a stress scenario. CRD IV requires that this ratio exceed 60% on 1 January 2015 and 100% on 1 January

51 Liquidity: Deleveraging Supports Cash Generation Gross Loans ( bn) Provisions ( bn) Non-Core Loan Book Summary CRE Performing RoI Note: CRE Performing and CRE Non Performing both include a Residential and a Commercial Segment (a) Irish Permanent Isle of Man (IoM) Limited (b) 3.5bn gross ( 3.5bn net) based on FY2014 figure and FX rate of EUR:GBP 0.73 as at 28 February bn gross ( 3.2bn net) based on FY2014 and FX rate of EUR:GBP 0.78 as at 31 December 2014 UK CRE Non Performing CHL IPI (a) Total Net Loans ( bn) NPLs ( bn) NPL% of Gross Loans 0% 100% 3% 1% 23% PCR % 9% 54% 27% 36% 54% RWAs ( bn) Non-Core RoI includes CRE Non Performing loans Sale of 1.5bn gross ( 0.8bn net) loans announced in March 2015 Management targeting a sale of remaining assets in next 12 months. Capital impact expected to be broadly neutral Non-Core UK comprises: Capital Home Loans (CHL); predominantly UK BTL portfolio Sale of 3.5bn (b) gross ( 3.5bn net) assets announced in March 2015 Management targeting a sale of remaining assets to be agreed at no more than a 10% haircut to gross assets in the next 12 months in addition to expected transaction costs of c. 80m IPI closed mortgage book (a) Execution against Non-Core deleveraging plan expected to result in approximately 3bn of cash being returned to the Group: Provides opportunity to re-price aggressively non-retail deposit base Potential for future acquisitions of profitable mortgage books Available for general corporate purposes Continue to build liquidity portfolio CHL related secured funding costs, including the costs associated with hedging arrangements, amount to c. 100m in 2014

52 Funding, NIM, Trackers and Liquidity: Summary Rightsizing of deposit base and System Funding largely completed Improving NIM with significant further upside from CoF declines and CCN repayment Attractive front book margins and tracker margin impact slowly decreasing will also support asset margins Non-Core deleveraging expected to provide additional liquidity to manage legacy funding base 51

53 Section 6 Asset Quality

54 Asset Quality: Significant Progress Has Been Made Significant Progress In Addressing Legacy Poor Quality Portfolios Provisioning Coverage Rates Are High Risk management has been strengthened (People & Systems) AMU established in 2012 Specific strategies in place for resolution of defaulted HL and BTL portfolios Core Bank provisions increased to 2.5bn Asset Quality Review (AQR) confirmed adequacy of the Group s Provisions Despite 2014 write-back provision coverage remains stable Improving Asset Quality Early arrears decreased by c.3ppt (a) since June 2012 for both HL and BTL New defaults have significantly reduced >90 Days In Arrears cases continue to decrease Seasoned portfolio given vintages Low redefault rate on treated loans Non Performing Loans Are Improving Negative Equity New Lending Exhibiting Low Arrears NPLs have peaked and are gradually reducing NPL composition is changing and loss severity varies by cohort All NPLs are not the same Negative equity has decreased by over 30% since December 2013 Core Bank NPL negative equity balances of 1.2bn are supported by 2.5bn of provisions Core Bank has returned to the market for both secured and unsecured products Recent arrears vintages are low and improving (a) Percentage of Total Book (see slide 79) 53

55 Asset Quality: Overview of the Book ( bn Unless Stated) Home Loan Buy-To-Let CRE (Residential) Consumer Core Bank Accounts (000s) Gross Loans Provision Net Loans <90 Days In Arrears (Not Classified As NPLs) NPLs Loans In Forbearance o/w Performing In Forbearance o/w Non Performing In Forbearance Loans In Closures (a) Core Bank gross loans of 22.5bn with c.73% performing or in early arrears (<90 days in arrears) 16.3bn (73%) performing and 0.5bn in arrears <90 days (2)% 6.2bn (27%) classified as non performing but only 16% >90 days in arrears 3.1bn in Forbearance (i.e. Treatment) 1.7bn in Legal 0.9bn in Closure 0.4bn in Untreated 2.5bn provision stock equivalent to coverage ratio of 45% of NPLs (b) 1.3bn loans in Forbearance and classified as Performing (i.e. have been treated and no redefault for 12 months or greater and are not split mortgages) Loans In Legal Process Note: HL and BTL in above table include CRE (Residential) loans which are classified as Non-Core. These should be subtracted from the sum of Home Loan, Buy-To-Let and Consumer to get Core Bank (a) Excludes 138m of deferred fees, discounts and fair value adjustment (b) 45% Provision Coverage Ratio (PCR) calculated as total provisions divided by NPLs greater than 90 days in arrears and/or impaired loans. Provisions divided by total NPLs is 41% 54

56 Building Blocks Of Asset Quality New Lending NPL Trends NPL Loss Severity Provisioning Collateral 55

57 NPL rate (>90) New Lending: Low Arrears To Date All Products NPL Trends 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 12,000 10,000 8,000 6,000 4,000 2,000 0 H H H H H Quarter Funded Mortgages: NPL Rate Unsecured Products: NPL Rate Mortgages: Funded No. Unsecured Products: Funded No. No. of Funded Cases Mortgage Portfolio : ~4,900 cases, 719m new Mortgage lending since 2011 Low arrears trend to date. As at 31 December 2014: 99.9% < 90 days in arrears 0.1% NPLs with 6 default cases 61.7% weighted average LTV Unsecured Portfolio : ~29,000 cases, 144m new Unsecured lending since 2011 Low arrears trend to date. As at 31 December 2014: 99.5% < 90 days in arrears 0.5% NPLs with 135 default cases Note: The spike in H for Unsecured Products is due to Danske Bank customers switching to PTSB 56

58 Building Blocks Of Asset Quality New Lending NPL Trends NPL Loss Severity Provisioning Collateral 57

59 NPL Trends: Fewer Defaults, More Cures And An Increasing Number of Treatments Are Reducing NPLs New Defaults ( m) Cures ( m) As % of NPLs (a) 39.1% 35.8% 12.3% As % of NPLs (a) 13.1% 9.6% 14.3% 4,000 3,500 3,000 2,500 2,000 1,500 1, ,616 1, Q1-14 Q2-14 Q3-14 Q ,000 1,800 1,600 1,400 1,200 1, Q1-14 Q2-14 Q3-14 Q4-14 1, New defaults are slowing, mainly driven by improvement in Home Loans Recent new defaults mainly reflect defaults of assets which have exhibited stress in the past Cures steadily increasing 2014 cures higher than 2013 Note: Data is for the entire RoI Residential Mortgage portfolio including CRE Performing and Non Performing (Residential) (a) Annual new default/cure as a % of opening stock of NPLs 58

60 NPL Trends: Increasing Number Of Treatments Leading To Reducing NPLs NPLs As % Of Gross Loans 6.0 Non-Performing Loans Home Loan ( bn) Non-Performing Loans Buy-To-Let ( bn) NPLs As % 18% 21% 26% 27% 26% Of Gross Loans 31% 30% 38% 38% 36% Dec-12 Jun-13 Dec-13 Jun Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 >90 Days In Arrears <90 Days In Arrears But Impaired NPLs represent c.28% of the mortgage portfolio HL NPLs peaked in Q and are gradually reducing. Similarly BTL NPLs peaked in Q4, 2013 and are gradually reducing NPLs will remain elevated for some time given regulatory and IFRS classification of treated assets Note: Data is for the entire RoI Residential Mortgage portfolio including CRE Performing and Non Performing (Residential) 59

61 Building Blocks Of Asset Quality New Lending NPL Trends NPL Loss Severity Provisioning Collateral 60

62 Treatment Mix: Loss Severity Expected To Change Over Time As Treatment Mix Varies Home Loan NPLs ( bn) Buy-To-Let NPLs ( bn) % 16% 25% 4% 7% 12% % 27% 43% % 20% 1% 7% 1% 5% % 14% In Treatment 48% % 3% 4% In 31% Treatment 35% 34% 39% 35% 41% 4% 9% 9% 3% 2% 12% 10% 6% 11% 56% % 33% 48% 43% 39% % 31% 9% 4% 0% 47% 13% 24% 5% 39% 11% 10% 35% 2% 4% Dec-13 Jun-14 Dec-13 Dec-14 Jun-14 Dec-13 Dec-14 Jun-14 Dec-14 >90days or Legal Closures Technically Held Short Term Long Term Treated Splits Increasing proportion of total NPL stock is in treatment >90 days in arrears or Legal is reducing significantly Treated But Impaired i.e. Split Mortgages, are a key feature of PTSB s approach to resolution. However, Splits results in NPL stock reported remaining elevated due to IFRS definitions Future NPL ratio will be driven by volume of Splits, Technically Held and >90 or Legal Cases as the remainder should exit NPL over the long term Note: Technically Held relate to assets which have not breached the standard delinquency triggers, but are classified as default, typically through association with other defaulted assets. Data is for the entire RoI Residential Mortgage portfolio including CRE Performing and Non Performing (Residential) 61

63 Forbearance: Of The 4.5bn In Total Forbearance, 3.2bn Is Classified As Non-Performing Home Loan in Forbearance Non Performing Buy-To-Let in Forbearance Non Performing Short Term 5% Short Term 10% Split 9% Trials 27% Split 46% Trials 15% Term Extension/ Capitalisation 9% Interest Only 44% Term Extension/ Capitalisation 11% Part Capital & Interest 10% Interest Only 1% Part Capital & Interest 13% Total: 2.2bn Total: 1.0bn Splits comprise the majority of Home Loan treatments (46%) Remaining 54% treatments, excluding interest only, will release to the performing portfolio subject to non redefault criteria Once in performing portfolio, these loans are subjected to much higher collective provisioning For BTLs, given investment criteria Interest Only comprise the majority of treatments (44%) The remaining 56%, excluding splits will release to performing portfolio Once in performing portfolio, these loans are subjected to much higher collective provisioning Note: Data is for the entire RoI Residential Mortgage portfolio including CRE Performing and Non Performing (Residential). Trials are loans which are still in initial 6 month trial period 62

64 Forbearance: Of The 4.5bn In Total Forbearance, 1.3bn Is Classified As Performing And Has A Lower Loss Severity Home Loan In Forbearance Performing Buy-To-Let In Forbearance Performing Short Term 12% Interest Only 2% Trials 7% Short Term 4% Trials 11% Term Extension/ Capitalisation 36% Part Capital & Interest 39% Term Extension/ Capitalisation 25% Part Capital & Interest 64% Total: 0.9bn Total: 0.4bn All Forbearance is subject to sustainability and affordability guidelines Performing forborne for both HL and BTL are generally lower loss severity loans Redefaults remain low on both portfolios to date, although seasoning data is limited Lower redefault trigger at >30 days and higher collective provisions applied Note: Data is for the entire RoI Residential Mortgage portfolio including CRE Performing and Non Performing (Residential). Trials are loans which are still in initial 6 month trial period 63

65 Building Blocks Of Asset Quality New Lending NPL Trends NPL Loss Severity Provisioning Collateral 64

66 Provisioning Approach 0 90 Days >90 Days or Defaulted PD x EAD x LGD EAD x LGD RoI Residential PD (Probability of Default) Utilises a roll rate model (transition to >90 days past due) Scalar (uplift factor) applied to cohorts which have exhibited distress e.g. forborne, prior forborne, prior default 12 month emergence period EAD (Exposure at Default) current exposure LGD (Loss Given Default) Collateral sale model with empirically based cure assumptions EAD (Exposure at Default) current exposure LGD (Loss Given Default) Index LTV is the main driver of losses, includes Fire Sales, Other Costs, Discounting, etc Specific cases where a standard LGD (cure/collateral recovery) assessment is not appropriate, e.g. split (interest foregone), shortfall (100% of outstanding balance), etc Exposure > 1m, subject to manual review with collateral > 0.5m subject to additional valuation haircut CRE PD (Probability of Default) based on obligor characteristics EAD (Exposure at Default) current exposure LGD (Loss Given Default) DCF (collateral realisation) applied to all cases assuming 4 year workout EAD (Exposure at Default) current exposure LGD (Loss Given Default) Modelled approach for accounts < 750k (cure\collateral recovery) A manual review generates specific provisions where exposure is 750k using a discounted cash flow approach; included within this are large exposures and watchlist cases Consumer Finance PD (Probability of Default) Utilises a roll rate model (transition basis) EAD (Exposure at Default) current exposure LGD (Loss Given Default) Determined from historical recovery rates Non performing at >90 days, specifically impaired >151 days 65

67 Provisions ( m) Provision Release: 2014 Provision Release Supported By Combination Of Strong Operational Performance, Model Recalibration And HPI Core Credit Impairment And Provision Impact Group Credit Impairment 2,659 Core Portfolio Write Back (51)m (18 ) (280) (108) 44 2,544 H1 Out-Turn 149 Full Year Trajectory 250 Recalibration (145) Recalibration Performance Performance (147) 2014 Impairment (42) 2013 HPI PTT (a) (5)% Sale Parameters/ Haircuts New Defaults Back Book Charge Write-Offs Other Impairment 929 Core Bank provision stock levels have decreased by 4% ( 115m) in 2014 driven by reduced levels of new defaults, positive portfolio performance and limited adjustment of provision parameters Core Bank had a provision write back of 51m in Focusing on residential mortgages (main component), this had a 45m write back in 2014 compared to a charge of 730m in 2013 Key components of Core performance are: Reduced levels of new default in 2014 of c.55% Reduction in IBNR given performance of c. 20m Successful treatment of assets in default in both HL and BTL Recalibration of Peak to Trough model with a 5% reduction (releasing c. 280m) Model adjustments: an increase in fire sale costs on both HL and BTL and a rebalancing of repossession levels increasing provision stock by 150m (a) Peak To Trough 66

68 Provision Coverage: Loan Book Adequately Provisioned Provisions and Provision Coverage Ratio ( m) PCR% (a) 44% 43% 44% 44% 45% 2.5bn provisions against 22.5bn RoI gross residential and consumer loans 2, ,750 2,714 2, , ECB SSM/AQR confirmed adequacy of provisioning stock as at 31 December ,117 1,110 1,088 1, PCR (a) at 45% is a moderate increase from December 2013 given improved portfolio performance and modest change in provisioning parameters reflecting economic improvement 1,444 1,539 1,549 1,551 1, Q H Q HL BTL Consumer Finance Note: Data is for the Core Bank RoI Residential mortgages only; excludes CRE (Residential) (a) Provision Coverage Ratio, calculated as total provisions divided by NPLs greater than 90 days in arrears and/or impaired loans 67

69 HPI Index fall from peak Upside Potential Through HPI Lens PTSB HPI Assumptions More Conservative Than External Forecasts Sensitivity Of HPI Driven Write-Backs (25)% (28)% HPI Curves Impact Upside To Business Plan (30)% (33)% (34)% Business Plan Assumption ( ) (a) 85m (35)% (37)% (37)% (36)% ESRI HPI (b) 325m 240m (40)% (45)% (42)% (44)% (41)% Source: Management Assumptions, CSO HPI Index, ESRI, Goodbody (January 2015) The current level of HPI is well in excess of the Business Plan assumption for 2014 and only 2 percentage points lower than the assumption for 2016 HPI Dec 14: (38)% (50)% Business Plan HPI Assumption (Pre Buffer) ESRI Paper Goodbody Goodbody HPI (b) 475m 390m (a) Impact relates to progression from 2014 to 2016 HPI assumption while maintaining a buffer (b) ESRI and Goodbody modeled on basis of curve presented Note: Sensitivity assumes all other factors remain the same Core Bank provisions are most sensitive to HPI movements The Group operates with a buffer to the Business Plan HPI assumption to reduce volatility In 2014 post buffer the Group provisioned to an HPI level of (48)% In 2014, the Group released 280m from a 5% change in peak to trough Conservative HPI forecasts in the Group s Business Plan underpin the potential for provision write-backs 68

70 Building Blocks Of Asset Quality New Lending NPL Trends NPL Loss Severity Provisioning Collateral 69

71 Collateral Coverage: NPL Negative Equity Balance Of 1.1bn Offset By 2.5bn Of Provisions Loan Split by LTV Negative Equity Falling ( m) Cumulative Non Performing Performing Total Cumulative As % Of Total 3.8bn (7)% 3.5bn <70% 840 5,268 6,108 6, % 70% 90% 700 2,956 3,656 9, % (32)% 2.4bn 90% 110% 1,065 2,899 3,964 13, % % 130% 1,333 2,758 4,091 17, % % 160% 1,514 2,037 3,551 21, % % 180% , % > 180% , % Not Applicable (a) , % Total 6,468 16,247 22,715 (b) Note: Data is for the entire RoI Residential Mortgage portfolio including CRE (Residential) (a) Not applicable loans are loans where no known collateral value exists from which to derive LTV. Figures are gross loans indexed linked as of 31 December 2014 (b) Excludes 137m of deferred fees, discounts and fair value adjustment ( 1m out of total 138m relates to Consumer Finance) 70 Dec 13 Jun 14 Dec 14 Performing ( bn) Non Performing ( bn) Rising house prices have driven improved LTVs. Negative equity balances for the overall portfolio have reduced by 37% since December 2013: As per CSO, HPI has improved from a peak to trough fall of 46% in December 2013 to 38% in December 2014, circa 16% improvement NPL negative equity balance of 1.1bn supported by 2.5bn of existing provisions Note: Data is for the entire RoI Residential Mortgage portfolio including CRE Performing and Non Performing (Residential)

72 Asset Quality: Summary Significant progress has been made Asset Quality Review confirmed provisioning levels are adequate Asset quality is improving: Strong performance in early arrears collections Fewer new defaults Increasing proportion of NPLs in treatment NPL loss severity falls as proportion in treatment grows Provision coverage ratios remain strong: 2014 write-back of 280m reflects strong HPI performance Further write-backs expected Falling balance of negative equity more than offset by existing provisions New lending is growing with low arrears 71

73 Section 7 Arrears Management

74 AMU Overview Overview Asset Management Unit (AMU) established in 2012 by the new management team to address the large volumes of defaults Group Loans and Scope of AMU 1.2bn na 1.0bn 0.9bn 31.8bn 8.3bn Specialist division within the Core Bank with a clear strategy focused on maximising the value of NPLs through: Cash collections Treatment and restructuring 23.5bn 1.5bn 0.2bn 0.4bn 1.9bn 0.1bn 6.6bn 0.4bn 0.4bn 1.9bn 0.1bn 6.2bn 1.9bn 0.1bn Litigation and repossession 95% of Home Loans and 88% of Buy-To-Lets are either in a treatment or closure position (a) New capability build-out has improved cash collections e.g. 54% of HL and 44% of BTL bills were collected in the 6 months to December 2014 (b) 8.3bn 4.1bn 4.1bn 4.1bn AMU also manages 0.4bn CRE Non Performing (Residential) loans comprised of RoI HLs and BTLs, currently part of the Non-Core loan book Group Loans NPLs Loans Managed by AMU Core Bank Loans Non Performing Performing Home Loan Buy-To-Let Consumer CRE Non Performing (Residential) CHL/IoM CRE Non Performing (Commercial) Early Arrears (1-90 days In Arrears) (a) (b) Figures as a % of total loans classified as >90 days in arrears at either 31 December 2012 or 31 December 2013 irrespective of a loan s current classification Cash collected as a % of the total bill owed. The total bill owed is adjusted for treatments and does not reflect the full original amount owed by customers. The total bill owed can include both principal and interest 73

75 AMU Capability Build-Out Since 2012 AMU Build-Out Q3 Q4 H1 H2 H1 H2 Key Initiatives Qualified staff and enhanced technology engaged to develop value optimising solutions to manage NPLs and Early Arrears Build Contact Centre Build Arrears Support Unit Review & Enhance Re-build Legal Review & Enhance Review & Enhance Re-build Property Management New dedicated Contact Centre, Arrears Support Unit and Recoveries Unit Existing Legal and Property Management functions rebuilt Buy-To-Let Implement & Deliver Build Recoveries Customer strategies implemented from Q for BTL and H for HL. Unsecured launched in H Define and Deliver Sustainable Customer Strategies Home Loan Unsecured Implement & Deliver Implement & Deliver Processes continuously improved to deliver better results in future cases Learn and Iterate 74

76 Is loan >90 days in arrears? Yes Have last 3 payments been met? Implied sustainable Implied unsustainable No Not Paying Paying Are reasonable payments made, given affordability?¹ Are underlying payments affordable? Can pay Can pay Cannot pay No Can sustainable payments within policy be met? Is underlying payment affordability resilient to shocks? Cannot pay Are savings sufficient? Can loan be repaid? What is LTV position? Oliver Wyman 2 2 No Yes Is ST treatment suitable? No No What is LTV position? Yes Yes No Yes Yes Yes 90% >90% 90% >90% Operational segment Performing Recovering Recovering - High risk Won t pay can pay Won t pay PIA risk Likely recover Unsustainable without modification Unsustainable within policy strong equity Unsustainable within policy weak equity Unsustainable outside policy strong equity Unsustainable outside policy weak equity Investment In New Platform, Infrastructure And Process New Infrastructure New Processes Working Environment AMU platform relocated to a new fit-forpurpose building in Q Robust Processes Mapped coherent end-to-end process with clear handoffs between teams and departments Complications and unconventional customer paths taken into account Processes continuously reviewed as appropriate Enhanced Decision Engine Enhanced Decision Engine introduced in Q Enables customer segmentation based on current arrears status and determines the most appropriate collections action based on customer reaction and engagement Clear Scripts Customer communications written to be clear, concise and to address needs from all channels: Call Centre scripts Arrears Management Unit scripts Portfolio Manager scripts Specific customer situations accounted for: How to deal with vulnerable customers? How to deal with non-engaging customers? Customer Segmentation for Home Loans EXAMPLE Technology Enablement Graphical User Interface and imaging system brings information for each call to one screen, providing single customer view Predictive Dialer, Dynamic Call Routing, Automated IVR (a) and Decision Support Tools have been introduced Enhanced Letters Mapped out set of interactions with customer, from a communications perspective: Automated letters Tailored letters Legal proceedings communications (a) Interactive Voice Response 75

77 Strategy To Maximise Value AMU is focused on maximising the value of the Group s arrears and defaulted RoI HL and RoI BTL Mortgages: For customers in early arrears: Focus on cash collections to reduce the flow of new default (>90 days in arrears) cases For customers in default: Engage and identify a treatment (repayment plan) that is both sustainable and affordable, seeking to keep customers in their home whilst mitigating capital losses for the Group For customers for whom repossession of the property is necessary: Manage the legal process to take ownership of the property, disposing of it, and then seeking recovery of any shortfall from the customer 76

78 Effective Process: Customers Are Moved Onto A Treatment Or Into Pre-Legal Process 3 6 Months After Falling Into Arrears Approximate Time From First Missed Payment 0 3 Months (Day 1 90 in arrears) 3 6 Months 6 12 Months 12+ Months Account falls 1 day into Arrears Customer contacted Immediate payment Payment arrangement Standard Financial Statement (SFS) (a) completed Customer treatment offer period Customer monitored while on treatment Customer arrears capitalised after 6 months performance Provision released after 12 months performance Follow process to Pre-Legal if non-cooperating Pre-Legal (pre-demand and demand letters, dialler campaign and potential use of Debt Collection Agency) Customer managed through Legal Process, including Voluntary Sale to Repossession and Shortfall Management days 4 6 year process (a) Detailed income and expenditure report that requires supporting documentation 77

79 Broad Range of Treatment Tools: Best Suiting Customer Situation Short Term Treatments (a) Interest Only Capital Payment Holiday (Interest Only) Plus (b) Capital Payment Holiday (Interest Only) Minus (c) Long Term Treatments (a) Term Extension Arrears Repayment Plan Part Capital and Full Interest with Bullet Split Mortgage With Bullet Interest Only (Restricted to BTL, limited to 3 years and re-underwritten thereafter) Capitalisation Other Options Trade Down Voluntary Sale (With Upfront Shortfall Agreement) Voluntary Surrender Mortgage To Rent (MTR) (d) Insolvency (a) (b) (c) (d) Typically offered following a thorough review of a Standard Financial Statement, including robust challenges related to lifestyle and debt prioritisation Full capital payments are suspended for a period and the customer pays more than interest only Capital payments are suspended for a period and the customer pays less than interest only Property is sold to a housing authority by the Group and the customer becomes a tenant 78

80 Best In Class Arrears Performance Early Arrears Home Loan Home Loan % Of Total Balance 1 90 Days In Arrears 8% 7.2% 6.7% 6.7% 7% 6.9% 5.9% 6% 6.3% 5.2% 5% 5.9% 4.5% 5.4% 4% 4.6% 4.2% 3% Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Early Arrears Buy-To-Let Buy-To-Let % Of Total Balance 1 90 Days In Arrears 10% 8% 7.8% 7.6% 7.8% 7.1% 6.4% 6% 6.7% 5.2% 4% 5.5% 5.0% 4.8% 4.8% 2% 3.8% Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Industry Late Arrears Home Loan Home Loan % Of Total Balance >90 Days In Arrears 22% 19.9% 20.1% 20% 17.9% 17.3% 18% 16.2% 16% 14.8% 16.5% 16.4% 16.4% 14% 15.4% 14.5% 12% 13.7% Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Late Arrears Buy-To-Let Buy-To-Let % Of Total Balance >90 Days In Arrears 35% 33.1% 30.8% 30.8% 32.1% 28.3% 28.9% 30% 25% 25.9% 27.0% 20% 22.7% 23.2% 22.0% 20.0% 15% 10% Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 PTSB Note: PTSB data above is published on the same basis as the industry data and so data on this slide is not consistent with the rest of the information pack. In contrast to the rest of the pack the above data does not include shortfalls post the sale of properties which have been taken into possession (i.e. unsecured debt) but does include loans where the balances have been charged off, (transferred to an off-balance sheet recoveries ledger). There is a limited impact from the differing treatment of these two data items 79

81 Significant Cash Collection On NPLs: 54% (a) Of Home Loan And 44% (a) Of Buy-To-Let Total Bills Paid Cash Collection On Home Loan NPLs (a) Cash Collection On Buy-To-Let NPLs (a) 54% of Total HL Bill Paid (a) 29% 13% 13% 12% Balance ( bn) HL NPLs with billing information Warehoused Split Mortgages Total HL NPLs % of Total BTL Bill Paid (a) 41% 10% 7% 9% Balance ( bn) BTL NPLs with billing information Warehoused Split Mortgages Total BTL NPLs % 20% 26% 10% 41% 8% 9% 7% Total 8% 26% Total Cash collected as % of due amount Overall 55% of HL NPLs collect more than 50% cash on scheduled payments 95% of HL <90 days in arrears collect 50% or more cash on scheduled payments 33% of HL >90 days in arrears collect more than 50% cash on scheduled payments Total Cash collected as % of due amount 0% <25% <50% <75% <100% 100% Overall 57% of BTL NPLs collect more than 50% cash on scheduled restructured payments 96% of BTL <90 days in arrears collect 50% or more cash on scheduled payments 28% of BTL >90 days in arrears collect more than 50% cash on scheduled payments Note: The graphs show the percentage of HLs or BTLs with billing information ( 3.7bn or 2.2bn) which pay a given range of the total bill owed for the 6 months to December Warehoused loans are not included in the graph as no payment is due on the warehoused portion of split mortgages. The total bill owed is adjusted for treatments and does not reflect the full original amount owed by customers. The total bill owed can include both principal and interest (a) Cash collected as % of total bill owed for the 6 months to December

82 Long Term Treatment: 2.4bn of Long Term Sustainable Solutions Applied To Customer Accounts Long Term Home Loan Treatment Mix Long Term Buy-To-Let Treatment Mix Capitalisation 15% Interest Only 2% Term Extension 10% Part Capital & Interest 40% Interest Only 46% Part Capital & Interest 39% Split 33% Capitalisation 8% Split 6% Term Extension 1% Total Balance: 1.5bn (Total Cases: 13,429) Part Capital & Interest remains the most frequently applied treatment for Home Loan Customers 25% of Home Loan customers can pay full Capital Interest (in some cases with a Term Extension) Total Balance: 0.9bn (Total Cases: 2,688) Interest Only remains the most frequently applied treatment for BTL Customers Approx 40% of BTL Customers are making a contribution to the capital balance on their loan Note: Data is for the entire RoI Residential Mortgage portfolio including CRE (Residential). Data shown based on accepted treatments post 6 month trial period, includes interest only treatments 81

83 Performance Of Loans With Long Term Treatments Is Positive Number Of Days In Arrears Home Loan Number Of Days In Arrears Buy-To-Let Days 1.8% 1-30 Days 5.9% Days 0.7% >90 Days 1.3% Days 1.6% 1-30 Days 5.2% Days 1.1% >90 Days 3.7% 0 Days 90.3% 0 Days 88.4% Total Balance: 1.5bn (Total Cases: 13,429) Total Balance: 0.9bn (Total Cases: 2,688) 90% of HL with accepted treatments not in arrears 88% of BTL with accepted treatments not in arrears Note: Data is for the entire RoI Residential Mortgage portfolio including CRE (Residential). Data shown based on accepted treatments post 6 month trial period, includes interest only treatments 82

84 Legal: We Are Seeing Early But Positive Signs Of Customer Rehabilitation Stages Of Litigation c. 1,900 c. 150 c. 3,400 c. 600 Instructions / Rehabilitated Court Hearings c.2,800 accounts currently in the Court process Following commencement of legal proceedings, a solicitor is required (under SLA) to continue working with the customer to rehabilitate the account AMU believes rehabilitation is a beneficial process for both the Group and the customer: Customer retains their home/property Reduced NPLs and increased cash collections Provisions release where appropriate Note: Data is for the entire RoI Residential Mortgage portfolio including CRE (Residential) as of 31 January

85 Arrears Management: Summary AMU platform created in 2012 to bring arrears under control and effectively manage the Group s legacy NPLs Since 2012 PTSB have moved from lagging to outperforming the industry in terms of arrears performance The focus on achieving long term sustainable and affordable solutions is paying off, with high performance levels for treated loans Rehabilitation is a key proposition throughout the legal process Building on success achieved to date and focused on the commencement of periodic treatment reviews with customers 84

86 Section 8 Financial Performance

87 Financial Headlines Group Result Operating Profit NIM Pre-Tax Loss REDUCED 93% from 668m to 48m Profit Before Impairments, Non-Recurring and Exceptional Items: Group: 8m Core Bank: 45m Further Progress: Group: 90bps (+8bps) Core Bank: 121bps (+24bps) Impairments System Funding Capital 1bn reduction from m write-back in 2014 System Funding down 29% 4.9bn at year-end, down from 6.9bn CET1% of 14.2% Up 1.1% on prior year 86