permanent tsb Group Holdings plc announces major corporate developments and its financial results for 2014.

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1 This notice does not constitute, or form part of and should not be construed as, any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities in permanent tsb Group Holdings p.l.c. (the Company). The distribution or publication of this notice and any related documents, and the offer, sale and/or issue of securities in the Company in certain jurisdictions may be restricted by law and therefore persons into whose possession this notice comes should inform themselves about and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of the securities laws of any relevant jurisdiction. permanent tsb Group Holdings plc announces major corporate developments and its financial results for Capital Raise The Group announces that it intends to raise 525m from private investors and will use 400m of this to repurchase Contingent Capital (CoCos) held by the State. Restructuring Plan Sale of Non-Core Assets The Group has announced that its Restructuring Plan has been approved in principle by the EU and a Term Sheet is being finalised. The Group announces the signing of agreements to sell approximately 5bn in non-core assets including: 3.5bn (GBP 2.5bn) of the Group s Capital Home Loans (CHL) mortgage book (50% of total) (subject to regulatory approval); and 1.5bn of a portfolio of non-core loans largely backed by commercial properties in Ireland. The Group has also announced the signing of an agreement to sell the CHL legal entity and its loan servicing platform Results The Group announces that its Core Bank the Irish retail bank trading as permanent tsb recorded a Profit Before Exceptional Items of 5m in 2014 (2013: Loss Before Exceptional Items of 694m). The Group Loss Before Tax for 2014 was 48m (2013: Group Loss Before Tax of 668m). Mortgage Arrears Through 2014 the number of customers in mortgage arrears for more than 90 days fell by 8,000 down 32% from the peak in The Group has offered almost 27,000 sustainable, longterm treatments to mortgage customers in arrears. Group Chief Executive Jeremy Masding comments Overall: Today s announcements herald a series of moves which will, on completion, transform the permanent tsb Group and start the process of returning the Group to the private sector as a stand-alone, competitive and successful force. 1

2 On Capital Raising: We intend to raise 525m in private sector capital in the coming months, which will mark the first stage in returning the Group to private ownership. This will allow us to return 400m to the State by way of repurchasing the CoCo note held by the State in the Group. The encouraging level of engagement we have received from potential investors reflects the enormous progress we have made and the strength of our business model. On The Restructuring Plan: Reaching approval in principle with the European Commission provides certainty that the future shape and size of the Group will be consistent with our business plan. On The Sale Of Non-Core Assets: The sale of these non-core loans is a key objective for the Group and it will allow us to concentrate on our core retail banking business in Ireland. Completion of the three transactions announced today will mean that we will have completed over 50% of our total deleveraging target for non-core loans; this is well ahead of schedule. On The Sale Of The CHL Legal Entity And Loan Servicing Platform: The sale of the legal entity and the servicing platform provides certainty for the staff and gives them the opportunity to grow the business under new ownership. On Today s Results: Our pre-tax numbers improved by 620m in The Core Bank reported a profit and we are well placed to return to sustainable profitability on schedule. On Mortgages Arrears: Our arrears performance has been particularly encouraging, with a 32% reduction in the number of customers in arrears of more than 90 days the equivalent of c.8,000 customers who are back on track after engaging with us and agreeing a sustainable long-term treatment. Results for 2014: permanent tsb Group Holdings plc ( the Group ), the holding company of permanent tsb bank, has published its results for the year ended 31 December Key Figures: Income Statement Change Group Loss Before Tax (48) (668) 620 Core Bank Profit / (Loss) Before Exceptional Items 5 (694) 699 Core Bank Profit / (Loss) Before Impairments, Non-Recurring Items and Exceptional Items 45 (31) 76 Impairment Write-Back (Charge) 42 (929) 971 Total Income Net Interest Margin 90 bps 82 bps 8 bps Balance Sheet Change Capital: Common Equity Tier 1 Ratio (Transitional Rules) 14.2% 13.1% 1.1% Common Equity Tier 1 Ratio (Fully Loaded Basis) 12.4% 11.3% 1.5% Loan To Deposit Ratio 138% 151% 13% System Funding 4.9bn 6.9bn 2.0bn 2

3 RoI Mortgage Arrears Management Change % Arrears >90 days cases % 11% 16% 5% NPL%* 26% 27% 1% Provision Coverage Ratio** 48% 47% 1% *Total Non-Performing Loans as % of total loans and advances to customers net of impairment provisions **Calculated as impairment provisions as a % of loans greater than 90 days in arrears and/or impaired Financial Performance The results show a significant improvement in key performance indicators across the Group. Loss Before Tax improved by 620m. The Group s Underlying Loss Before Exceptional Items reduced significantly from 977m to 39m. Net Interest Margin improved to 90bps (2013: 82bps) as the Group continued to reduce its cost of funding and broadened its customer deposit base to reduce the reliance on system and wholesale funding. Profitability was improved by an Impairment Write-Back of 42m (2013: Impairment Charge of 929m) as a result of higher collateral values and continued improvements in the Group s arrears experience. The Group will continue to maintain a prudent approach to provisioning levels notwithstanding revisions in its peak-to-trough house price estimates (as measured by the CSO). The Core Bank the Group s Irish retail banking business reported a Profit Before Exceptional Items of 5m (2013: Loss Before Exceptional Items of 694m). The Core Bank Net Interest Margin (NIM) improved to 121bps (2013: 97pbs). New business volumes performed strongly. Irish Retail Deposits (including Current Account balances) grew to 14.3bn (2013: 13.6bn), with a 21% increase in Current Account balances. New Mortgage lending was up 105% to 429m (2013: 209m) and Term and Credit Card lending increased by 18%. Capital Ratios improved and remain in excess of regulatory requirements. Liquidity and Funding ratios continued to improve; the Group reduced its reliance on ECB funding to 4.9bn at end December (2013: 6.9bn), which represents less than one third of its peak level. It also successfully retired a 3.1bn Own Use Bond in late 2014 and repaid a 1.4bn Medium Term Note earlier this week. Arrears Performance Close to 27,000 sustainable, long-term treatments have been offered to customers in arrears. Approximately 90% of solutions accepted by customers are being adhered to. The Group reported that the number of customers in both early (<90 days) and late (>90 days) arrears has declined and that permanent tsb s arrears management performance is ahead of the industry. Late Arrears (> 90 days) stood at 10.2% of Home Loan customers at the end of 2014 (down by 33% from peak) and 13.3% of Buy to Let customers (down by 39% from peak). The total number of customers in Late Arrears now stands at 32% fewer than the peak recorded in 2013 representing circa 8,000 customers who are no longer in late arrears. The Group achieved its Mortgage Arrears Resolution Targets for Q and the level of engagement from its customer base remains high. 3

4 Capital Raise Preparations The Group has today confirmed that it plans to raise 525m in Tier 1 Capital before the end of June The capital raise is expected to comprise 400m of new equity and 125m of Additional Tier 1 Capital as permitted under Single Supervisory Mechanism (SSM) rules (the Capital Raise ). The Group has also confirmed that this capital raise will enable the Group to (1) repurchase the State 400m through the repurchase of State-owned CoCos which are due for redemption in 2016; (2) address the Single Supervisory Mechanism Comprehensive Assessment (SSM CA) requirement; and (3) allow for losses on deleveraging of the Non-Core business in line with the Group's stated strategy. This Capital Raise is in line with the Capital Plan submitted by the Group to the ECB following the completion of the SSM CA in October The Group will structure the Capital Raise in a manner that will allow (subject to customary exclusions only) its c.134,500 small shareholders, who between them own 0.8% of ordinary shares in issue, to participate, if they wish to do so, in order to maintain a percentage interest in ordinary shares following the Capital Raise which is not less than they held prior to the equity issue. The terms of the Capital Raise have not been finalised. Further announcements on this Capital Raise will be made during the coming weeks and it is intended that the resolutions necessary to facilitate the future implementation of the Capital Raise will be proposed for consideration at the 2015 AGM of the Company. Restructuring Plan Progress The Group has reached a point where it can report that it has approval in principle from the European Commission (EC) on the terms of its Restructuring Plan and anticipates that final approval by the EC will be forthcoming in the coming months. The Group has received significant support from the Irish State in the context of the financial crisis because of its systemic importance to the Irish financial system. As a result of these State support measures, the Minister for Finance of Ireland acquired 99.2 per cent of the issued ordinary shares of permanent tsb Group Holdings plc together with the CoCos, and thus the Group is the subject of an ongoing review by the EC under EU State aid rules. As part of the EC review, a Restructuring Plan was prepared by the Group and submitted by the Irish Government to the EC. Any such Restructuring Plan is required to contain measures to limit any distortions of competition resulting from State aid received by the Group, as well as measures to support the long-term viability of the Group. The discussions to date have been very constructive and, subject to the EC's final decision, the Group expects the decision regarding the approval of the proposed measures, including the final terms of the Restructuring Plan, to be taken by the EC in the first half of While neither the outcome of the State Aid proceedings nor the content of the EU Restructuring Plan has been finalised, taking into account the current status of discussions with the EC, the Group estimates that the Term Sheet forming part of the final decision of the EC will consist broadly of the following key elements: 4

5 Deleveraging Commitment The Group will commit to dispose of or deleverage the following portfolios within prescribed time frames, subject to defined maximum haircuts: Disposal of the CHL Loan Portfolio for a discount not less than 10% of the book value (*50% of assets now sale agreed) The portfolio is comprised mostly of performing, well-collateralised UK buy-to-let loans (predominantly tracker mortgages), accounting for c.95 per cent of the Group s Non-Core UK book Closed for new lending since billion of assets within the portfolio as at 31 December 2014 Disposal of the Non-Performing CRE Portfolio The portfolio is comprised largely of defaulted commercial real estate loans Managed primarily by third party specialists, focusing on maximising value through workout 1.7 billion of non-performing assets within the portfolio at 31 December 2014 Deleveraging of Defaulted Tracker Mortgages The portfolio is comprised of defaulted Irish residential tracker mortgages 1.2 billion of assets committed to be deleveraged through a combination of measures, including cures and asset sales Cost Income Ratio Commitment The Group will commit to manage and control its costs so as to achieve defined Cost Income Ratio targets, declining each year between 2015 and 2018, and not to exceed a defined amount of annual operating expenses until the end of These commitments are consistent with, and would be satisfied by achievement of, Management s strategic and financial plans. Other Commitments Certain behavioural commitments, including: Restructuring of the Group: The Group will report on, and monitor performance of, the Core Bank and Non-Core units separately, consistent with the Group s current structure Portfolio Restructuring: The Group will deliver on loan treatment targets for non-performing residential loans, broadly consistent with Central Bank of Ireland targets Limitation of Size of Balance Sheet: The Group will observe a limit on the maximum size of its Balance Sheet each year between 2015 and 2018 Use of State Aid for Marketing and Advertising: The Group will observe a prescribed limit on its marketing and advertising spend during the term of the Restructuring Plan Acquisition and Scope of Business Restrictions: The Group commits not to acquire any undertaking, except in a limited number of pre-defined circumstances Exposure to the Irish Sovereign: The Group will observe a limit on its Irish Sovereign bond holdings during the restructuring period Competition Measures: The Group will provide service and customer mobility packages to relevant competitors if the Group s market share exceeds defined thresholds in relation to specified products Public Awareness Campaign: The Group will contribute to a public awareness campaign relating to customer switching each year between 2015 and 2018 Geographical Participation: The Group will, other than in the case of its Capital Home Loans ( CHL ) portfolio and Isle of Man activities, limit new activities outside Ireland 5

6 Payment of Dividends: The Group will limit distribution of dividends, subject to repayment of the CoCo and such that capital is adequately maintained to deliver on the restructuring plan commitments. Diversification: The Group commits not to deviate from its current activities materially or in a manner which would be damaging to the Group These measures have to be implemented at varying points between 2015 and 31 December Implementation is subject to a final decision by the EC. Sale of Non-Core Assets The Group has announced today that it has reached agreement to sell three major Non-Core loan portfolios with an aggregate portfolio size of approximately 5bn; and in addition, the CHL servicing platform has been agreed for sale. Sale agreed on 3.5bn of Non-Core loans held by CHL in the United Kingdom. The Group has reached agreement to sell of 3.5bn (GBP 2.5bn) of loans held by its UK business CHL. Completion of this transaction will mean that the Group will have successfully deleveraged 50% of the CHL loan book. The Group intends to pursue the sale of the remaining CHL assets as per the Restructuring Plan and Capital Plan commitments. The acquirer of the loans is an affiliate of Cerberus Capital LP. The Group was advised by Morgan Stanley & Co International plc and by Deutsche Bank. The acquirer was advised by Credit Suisse. While the sale price is not being disclosed at this point, the resulting capital usage is within the Group s planning parameters and also within the Restructuring Plan commitments. This sale is expected to close before the end of July and is subject to regulatory approval. Further detail in relation to the sale, and the intended application of the net proceeds, will be disclosed in due course. Sale agreed on 1.5bn of Non-Core loans in Ireland. The Group has agreed the sale of two portfolios of non-core loans backed largely by Irish commercial real estate. The portfolios comprise approximately 1.5bn of loans and each portfolio included loans backed by assets spread across the country. The acquirer of the two portfolios is owned by a global investment bank and a global alternative asset manager. The Group was advised by Morgan Stanley & Co International plc. While the sale price is not being disclosed at this point, the transaction is capital accretive to the Group. This sale is expected to close before the end of June. Further detail in relation to the sale, and the intended application of the net proceeds, will be disclosed in due course. The Group intends to pursue the sale of the residual (circa 450m) portfolio of non-core loans linked to commercial real estate in Ireland which would conclude the Group s deleveraging programme for Irish non-core assets. Any such transaction is expected to be capital neutral or accretive. Sale of CHL Loan Servicing Platform The Group has also announced today the signing of an agreement to sell the CHL legal entity and its loan servicing platform to the affiliate of Cerberus Capital LP which is acquiring the portion of the CHL mortgage book. 6

7 This provides certainty for the CHL Team and will enable them to grow and strengthen this servicing business under new ownership. The CHL Team, which consists of approximately 90 UK-based employees, will continue to service UK assets after the CHL deleveraging transaction announced today has completed. The CHL Team will also service on behalf of the Group, on commercial terms, the residual CHL assets until such time as they are deleveraged. This will provide increased operational certainty over the management of the residual CHL assets pending their sale. Key Medium Term Targets: Finally the Group has set out a number of key Medium Term Targets (2018 estimate) for the Core Bank and Group as follows: Core Bank: Market Share in key product offerings of between 13 17%; NIM of circa 1.70%; Cost to Income Ratio of circa 50%; Impairment Charges as a percentage of net loans, also known as the Cost of Risk, is targeted to remain at less than 40 basis points; Overall target for Return on Equity of circa 10% for the Core Bank (based on a notional fully loaded CET1 ratio of 11%); Group: The Group is targeting a Loan to Deposit Ratio of less than 130% and Common Equity Tier 1 Ratio of over 11%. The Group believes these Medium Term Targets are both realistic and achievable. Analysts and Investors Day The Group will host a presentation for Analysts and Investors on Thursday 12 th March starting at 10.00am GMT. This presentation may be accessed via internet at the following link: Further Information: Investors: Glen Lucken Group Chief Financial Officer Glen.Lucken@permanenttsb.ie Media: Ray Gordon / David Clerkin Gordon MRM ray@gordonmrm.ie / david@gordonmrm.ie (RG) (DC) 7

8 Important Notices This announcement has been issued by permanent tsb Group Holdings p.l.c. and is the sole responsibility of permanent tsb Group Holdings p.l.c. The information in this announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this announcement or its accuracy or completeness. The material set forth herein is for information purposes only and should not be construed as an offer of securities for sale in the United States or any other jurisdiction. This announcement does not constitute or form part of an offer to sell, or the solicitation of an offer to buy or subscribe for, securities to any person in any jurisdiction to whom or in which such offer or solicitation is unlawful and, in particular, is not for release, publication or distribution in or into the United States, Australia, Canada, Japan, Switzerland or South Africa. The securities referred to in this announcement have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements under the Securities Act. Certain statements contained in this announcement constitute "forward-looking statements" regarding the belief or current expectation of the Company, and the Directors about the Company's financial condition, results of operations and business. Generally, but not always, words such as "may", "could", "should", "will", "expect", "intend", "estimate", "anticipate", "assume", "believe", "plan", "seek", "continue", "target", "goal", "would" or their negative variations or similar expressions identify forwardlooking statements. Such forward-looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside the control of the Company and are difficult to predict, which may cause the actual results, performance, achievements or developments of the Company or the industries in which it operates to differ materially from any future results, performance, achievement or developments expressed or implied from these forward-looking statements. Forward-looking statements speak only as of the date they are made and cannot be relied upon as a guide to future performance. A number of material factors could cause actual results to differ materially from those contemplated by the forward-looking statements. The Company does not undertake any obligation to release publicly any revisions or updates to these forward-looking statements to reflect events, circumstances, unanticipated events, new information or otherwise occurring after the date of this announcement except as required by law or by any appropriate regulatory authority. The information contained in this announcement is given at the date of its publication (unless otherwise marked). In particular, the proposals referred to herein are tentative and are subject to verification, material updating, revision and amendment. The contents of this announcement are not to be construed as legal, financial or tax advice. Each recipient should consult his own legal adviser, financial adviser or tax adviser for legal, financial or tax advice, respectively. 8