THIS CIRCULAR AND THE ACCOMPANYING FORM OF PROXY ARE IMPORTANT AND REQUIRE YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this Circular and what action you should take, you are recommended to consult your independent professional adviser, who is authorised or exempted under the European Union (Markets in Financial Instruments) Regulations 2017 (as amended) or the Investment Intermediaries Act 1995 (as amended), if you are resident in Ireland, or who is authorised under the Financial Services and Markets Act 2000 (as amended), if you are resident in the United Kingdom, or from another appropriately authorised independent financial adviser if you are in a territory outside Ireland or the United Kingdom.

If you sell or otherwise transfer or have sold or otherwise transferred all of your Permanent TSB Group Holdings plc shares, please forward this Circular and the accompanying Form of Proxy to the purchaser or transferee of such shares or to the broker, custodian or nominee through whom the sale or transfer is/was effected for onward transmission to the purchaser or transferee. If you have sold or otherwise transferred only part of your holding of shares in Permanent TSB Group Holdings plc, you should retain this Circular and the Form of Proxy and please consult the stockbroker, bank or other agent through or by whom the transfer or sale was effected.

The distribution of this Circular and/or the accompanying documents (in whole or in part) in jurisdictions other than the United Kingdom and Ireland may be restricted by the laws of those jurisdictions and therefore persons into whose possession this Circular comes should inform themselves about and observe any such restrictions. Failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdiction.

PERMANENT TSB GROUP HOLDINGS PLC

(incorporated and registered in Ireland under the Companies Act 2014 with registered number 474438)

Proposed acquisition of the Target Business by Permanent TSB plc from Ulster Bank

and

Notice of Extraordinary General Meeting

This Circular should be read as a whole. Your attention is drawn to the letter from the Chair of the Company set out on pages 10 to 18 of this Circular, which contains the unanimous recommendation of the Board to Shareholders to vote in favour of the Resolutions to be proposed at the Extraordinary General Meeting referred to below. You should read this Circular in its entirety and consider whether or not to vote in favour of the Resolutions in light of the information contained in this Circular.

Notice of the Extraordinary General Meeting of Permanent TSB Group Holdings plc to be held at the Marker Hotel, Grand Canal Square, Dublin Docklands, Dublin, D02 CK38, Ireland on Friday, 24 June 2022 at 11:30am (Irish Time) is set out in this Circular accompanied by a Form of Proxy for use in connection with the resolutions at the EGM. To be valid, the Form of Proxy must be returned so as to

be received by the Company's Registrar, Link Registrars Limited (PTSBGH), P.O. Box 1110, Maynooth, Co. Kildare, Ireland not later than 11:30am (Irish Time) on Wednesday, 22 June 2022 in the manner set out in the notes attached to this notice. However, please note that persons holding shares through the Euroclear Bank or CREST (via CDI) systems must also comply with any additional voting deadlines imposed by the Euroclear Bank system (expected to be 10:30 am (Irish Time) on Wednesday, 22 June 2022) and the Broadridge system (expected to be two business days prior to Euroclear Bank's voting instruction deadline, as set out above, and is expected to be 6:59 pm (Irish Time) on Monday 20 June 2022). All persons affected are recommended to consult with their stockbroker or other intermediary at the earliest opportunity for further information on the processes and timelines for submitting proxy votes for the EGM through the respective systems.

The completion and return of a Form of Proxy will not preclude you from attending and voting in person at the Extraordinary General Meeting, or any adjournment thereof, should you wish to do so.

Alternatively, electronic proxy appointment is also available for the EGM, subject to the terms and conditions of electronic voting, via the internet by accessing the EGM page on the Company's website, www.permanenttsbgroup.ie or via the shareholder portal on Link Registrars Limited's website, www.signalshares.com and entering the Company name, Permanent TSB Group Holdings plc. You will need to register for Share Portal by clicking on "registration section" (if you have not registered previously) and following the instructions thereon. The proxy appointment must be received electronically by no later than 11:30am (Irish Time) on 22 June 2022.

Further instructions on how to appoint a proxy are set out in the notes to the Notice of EGM and on the Form of Proxy.

J&E Davy Unlimited Company (trading as "Davy"), which is regulated in Ireland by the Central Bank, is acting exclusively for the Company as financial adviser and sponsor in connection with the Transaction and for no one else (including the recipients of this Circular) and will not be responsible to any other person for providing the protections afforded to clients of Davy or for providing advice in relation to the Transaction, the contents of this Circular, or any other matter referred to in this Circular and neither Davy nor any of its subsidiaries, branches or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Davy in connection with this Circular, any statement contained herein or otherwise.

This Circular is not a prospectus and it does not constitute or form part of any offer or invitation to purchase, acquire, subscribe for, sell, dispose of or issue, or any solicitation of any offer to purchase, sell, dispose of, acquire or subscribe for any security, including any shares in the Company to be issued in connection with the Transaction.

This Circular (including any document incorporated into it by reference) should be read as a whole and in conjunction with the accompanying Form of Proxy. The contents of this Circular should not be construed as legal, business or tax advice. Each Shareholder should consult his, her or its own legal adviser, financial adviser or tax adviser for legal, financial or tax advice.

COVID-19 Notice

While we expect the EGM to proceed as planned on 24 June 2022, the health and safety of our shareholders, colleagues and advisers is a primary concern for the Company and its Board, who are closely monitoring developments relating to the COVID-19 pandemic ("COVID-19") and guidance issued by the Government of Ireland in relation to COVID-19. We will take all recommendations and applicable law into account in the conduct of the EGM.

Shareholder participation and engagement remains important to the Company and we note the ongoing risk of the COVID-19 pandemic. Therefore, we are pleased to be able to provide a teleconferencing and web based service facility for shareholders to view and listen to the business of the meeting. The details for accessing and registering for such facilities will be provided on the Company's website, http://www.permanenttsbgroup.ie, in advance of the EGM. Please note that these facilities will allow you to listen to and watch the business of the EGM and submit questions or points only, you will not be able to use this facility to speak or vote (as noted above, voting is facilitated through the proxy service).

If you have any questions that you would like to raise and/or might otherwise have raised in person at the EGM, please submit those questions in writing by email together with evidence of your shareholding to [email protected] no later than 8am (Irish Time) on Friday, 24 June 2022 or by sending a letter and evidence of your shareholding at least four (4) business days prior to the EGM by post to the Company Secretary at the Company's registered office. Alternatively, questions can also be submitted during the meeting by those who choose to attend electronically by using the messaging functionality available on our web-based service. The procedures for question submissions are described in more detail in the notes to the Notice of the EGM.

The Company continues to monitor the impact of COVID-19 and any relevant updates regarding the conduct of the EGM, including any changes to the arrangements outlined in this Circular, will be announced via a Regulatory Information Service and will be available on the website of the Company at www.permanenttsbgroup.ie. Shareholders should monitor the Company's website for update announcements regarding the EGM in the event that circumstances change. Shareholders are also encouraged to keep up to date with the advice and guidance of the Government of Ireland and the Health Service Executive in relation to COVID-19.

Capitalised terms used in this Circular are defined in PART VII (Definitions) of this Circular.

The date of this Circular is 24 May 2022.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS	5
PRESENTATION OF INFORMATION	6
PART I – CHAIR'S LETTER	10
PART II - SUMMARY OF THE PRINCIPAL TERMS AND CONDITIONS OF THE
TRANSACTION AND THE TRANSACTION DOCUMENTS	19
PART III - RISK FACTORS	24
PART IV - HISTORICAL FINANCIAL INFORMATION	34
PART V - UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE
ENLARGED GROUP	95
PART VI - ADDITIONAL INFORMATION	105
PART VII - DEFINITIONS	121
PART VIII - NOTICE OF AN EXTRAORDINARY GENERAL MEETING	135
APPENDIX – BRANCH PROPERTIES	144

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Shareholders should take note of the dates and times set forth in the table below in connection with the Transaction.

EVENT	TIME AND DATE
Announcement of the Transaction	17 December 2021
Publication of this Circular and Notice of Extraordinary General Meeting	24 May 2022
Posting of this Circular and the Form of Proxy	On or before 1 June 2022
Latest time and date for receipt of Form of Proxy	11:30am (Irish Time) on 22 June 2022
Voting record date for Extraordinary General Meeting	7pm (Irish Time) on 20 June 2022
Extraordinary General Meeting	11:30am (Irish time) on 24 June 2022
Target completion date for Principal Completion / Subscription Shares issued	On or around 7 October 2022
Admission of Subscription Shares	On or around 7 October 2022
Target completion date for acquisition of the Asset Finance Business	By no later than the end of Q1 2023
Indicative Long-Stop Date for Principal Completion / Receipt of Regulatory Approvals / Required Approval Date	30 November 2022
Target completion date for migration of the Branch Properties	By no later than the end of Q1 2023
Target completion date for the Business Direct Loans	By no later than the end of Q1 2023
Indicative Long-Stop Date for Final Completion	30 June 2023

Each of the times and dates in the table above are indicative only and assume that the Conditions to Completion have been satisfied before the date estimated for Principal Completion. All dates and times are based on the current expectations of the Company and are subject to change, which will depend, among other things, on the date on which the Conditions to Completion are satisfied. If any of the above times and/or dates change, the revised times and/or dates will be notified to Shareholders by announcement via a Regulatory Information Service to the extent that such a notification is required pursuant to applicable law.

The Company will make appropriate announcements to a Regulatory Information Service promptly after the EGM giving details of the results thereof.

PRESENTATION OF INFORMATION

1. FORWARD-LOOKING STATEMENTS

Certain statements contained in this Circular (or incorporated by reference into it), oral statements made regarding the Transaction and other information published in connection with the Transaction constitute, or may be deemed to constitute "forward-looking statements". These forward-looking statements include, but are not limited to, statements other than statements of historical facts contained in this Circular, including, without limitation, those regarding the PTSB Group's intentions, beliefs or current expectations concerning, amongst other things, their future financial condition and the performance and results of operations; their strategy, plans, objectives, prospects, growth, goals and targets; future developments in the industry and markets in which the PTSB Group participate or are seeking to participate; and anticipated regulatory changes in the industry and markets in which the PTSB Group operate. In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms "aims", "anticipates", "believes", "budget", "continue", "could", "estimates", "expects", "is expected to", "forecasts", "guidance", "intends", "may", "plans", "projects", "schedules", "should", "is subject to" or "will" or, in each case, their negative, or other variations or comparable terminology.

Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. By their nature, forward-looking statements are subject to known and unknown risks, uncertainties and other factors because they relate to events and depend on circumstances that may or may not occur in the future. These factors include the satisfaction of the Conditions, as well as factors such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of regulators and other factors such as changes in the political, social and regulatory framework in which the PTSB Group will operate or in economic or technological trends or conditions. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements. Such forward-looking statements should therefore be construed in the light of such factors.

Shareholders are cautioned that forward-looking statements are not guarantees of future performance and that the PTSB Group's and, following Completion, the Enlarged Group's actual financial condition, results of operations, cash flows and distributions to shareholders and the development of their financing strategies, and the development of the industry in which they operate, may differ materially from the impression created by the forward-looking statements contained in this Circular. In addition, even if their financial condition, results of operations, cash flows and distributions to shareholders and the development of their financing strategies, and the development of the industry in which they operate, are consistent with the forward-looking statements contained in this Circular, those results or developments may not be indicative of results or developments in subsequent periods.

Forward-looking statements should, therefore, be construed in light of the foregoing risk factors and the other factors identified in PART III (Risk Factors) of this Circular. Undue reliance should not be placed on these forward-looking statements. These forward-looking statements are made as at the date of this Circular and are not intended to give any assurance as to future results. None of the Company or any of its associates or directors, officers or advisers provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this Circular will actually occur. You are cautioned not to place undue reliance on these forward-looking statements. Other than in accordance with its legal or regulatory obligations, the Company is under no obligation, and the Company expressly disclaims any intention or obligation, to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Shareholders should note that the contents of these paragraphs relating to forward-looking statements are not intended to qualify the statements made as to sufficiency of working capital in this Circular. Information in this Circular will be updated as required by the Euronext Dublin Listing Rules, the Transparency Rules or other applicable law.

2. PRESENTATION OF FINANCIAL INFORMATION

Unless otherwise indicated, all references in this Circular to "€", "euro" or "cent" are to the lawful currency of participating member states of the European Union. Unless otherwise indicated, all references in this Circular to "Sterling", "£" or "p" are to the lawful currency of the UK. Certain figures contained in this Circular or in the documents incorporated by reference herein, including financial, statistical and operating information, have been subject to rounding adjustments. Accordingly, in certain instances, the sum of the numbers in a column or row in tables contained in this Circular or in the documents incorporated by reference herein may not conform exactly to the total figure given for that column or row.

This Circular references (i) Return on Equity; and (ii) cost-income ratio, which are non-IFRS measures. The Company believes these non-IFRS financial measures will provide Shareholders with useful supplemental information about the financial and operational performance of the Company, the Target Business and the Enlarged Group and enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by relevant management in operating its business, identifying and evaluating trends, and making decisions. Although the Company believes these financial measures are important in evaluating the Company, the Target Business and the Enlarged Group, they are not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with IFRS. They are not recognised measures under IFRS and do not have standardized meanings prescribed by IFRS. These measures may be different from non-IFRS financial measures used by other companies, limiting their usefulness for comparison purposes. Moreover, presentation of these measures may be provided for year-over-year comparison purposes, and Shareholders should be cautioned that the effect of the adjustments thereto provided herein have an actual effect on the operating results of the Company, the Target Business and/or the Enlarged Group.

Other than the Company's audited consolidated financial statements for the financial years ending 31 December 2021, 2020 and 2019 which are incorporated by reference into this Circular, the financial information set out in this Circular does not constitute statutory financial statements within the meaning of section 340 of the Companies Act 2014 and has been published to meet the requirements of the Listing Rules. The statutory financial statements for the years ended 31 December 2020 and 2019 and the report of the statutory auditor thereon have been delivered to the Registrar of Companies of Ireland. The statutory financial statements for the year ended 31 December 2021 and the report of the statutory auditor thereon were published on 1 March 2022 and will be delivered to the Registrar of Companies in Ireland by the deadline for doing so under Irish law. The matters referred to in the statutory auditor's reports were unqualified, and did not include references to any matters to which the statutory auditor drew attention by way of emphasis without qualifying the report.

2.1 Presentation of financial information relating to the PTSB Group

Unless otherwise indicated, the historical financial information relating to the PTSB Group included in this Circular has been extracted without material adjustment from the audited consolidated financial statements of the PTSB Group for the years ended 31 December 2021, 2020 and 2019.

Unless otherwise indicated, the historical financial information relating to the PTSB Group has been prepared in accordance with the requirements of the Companies Act 2014 and the International Financial Reporting Standards ("IFRS") adopted pursuant to Regulation (EU) No 1606/2002 as it applies in the European Union.

2.2 Presentation of the financial information relating to Ulster Bank

All financial information relating to Ulster Bank in respect of the Target Business contained in this Circular, unless otherwise stated, has been prepared in accordance with the basis of preparation set out in note 1.2 to the carve-out historical financial information of Ulster Bank in respect of the Target Business included in Section B of PART IV (Historical Financial Information) of this Circular using the accounting policies applied by the PTSB Group in its financial statements for the year ended 31 December 2021.

The carve-out historical financial information of Ulster Bank in respect of the Target Business as at and for the years ended 31 December 2021, 31 December 2020 and 31 December 2019 have been reported on for the purposes of this Circular by EY and their accountant's report is included herein.

3. MARKET AND INDUSTRY DATA

Certain information in this Circular has been sourced from third parties. Where information in this Circular has been sourced from third parties, the source of such information has been clearly stated adjacent to the reproduced information.

All information contained in this Circular which has been sourced from third parties has been accurately reproduced and, as far as the Company is aware and is able to ascertain from the information published by the relevant third party, no facts have been omitted which would render the reproduced information inaccurate or misleading.

All references to market data, industry statistics and forecasts and other information in this Circular consist of estimates based on data and reports compiled by industry professionals, organisations, analysts, publicly available information or the Company's own knowledge of its sales and markets.

4. PRO FORMA FINANCIAL INFORMATION

In this Circular, any reference to "pro forma" financial information is to information which has been extracted without material adjustment from the unaudited financial information contained in PART V (Unaudited Pro Forma Financial Information of the Enlarged Group) of this Circular.

The Unaudited Pro Forma Financial Information is for illustrative purposes only. Because of its nature, the pro forma financial information addresses a hypothetical situation and, therefore, does not represent the actual financial position or results of the PTSB Group, the Target Business or the Enlarged Group.

The Unaudited Pro Forma Financial Information has been prepared on a basis consistent with the accounting policies adopted by the PTSB Group in the audited consolidated financial statements of the PTSB Group for the year ended 31 December 2021 and in accordance with item 12.3.3 of the Euronext Dublin Listing Rules.

Future results of operations may differ materially from those presented in the Unaudited Pro Forma Financial Information due to various factors.

5. ROUNDING

Certain financial data, information and percentages have been rounded. As a result of such rounding, the totals of financial data, information and/or percentages presented in this Circular may vary slightly from the actual arithmetic totals of such data, information and percentages may not add up to 100%.

6. NO PROFIT FORECAST OR ESTIMATES

No statement in this Circular or incorporated by reference into this Circular is intended to be or is to be construed as a profit forecast or estimate for any period and no other statement in this Circular should be interpreted to mean that earnings for the PTSB Group or Ulster Bank, as appropriate, for the current or future financial years would necessarily match or exceed the historical published earnings for the PTSB Group or Ulster Bank, as appropriate.

7. NO INCORPORATION OF WEBSITE INFORMATION

The contents of the Company's and Ulster Bank's websites or any hyperlinks accessible from those websites do not form part of this Circular and Shareholders should not rely on them.

8. DEFINITIONS

Certain terms used in this Circular, including capitalised terms and certain technical terms, are defined and explained in PART VII (Definitions).

9. NO OFFER OF SECURITIES

This Circular does not constitute or form part of any offer or invitation to purchase, acquire, subscribe for, sell, dispose of or issue, or any solicitation of any offer to sell, dispose of, purchase, acquire or subscribe for, any security, including the Subscription Shares to be issued as partial non-cash consideration in connection with the Transaction.

PART I – CHAIR'S LETTER

PERMANENT TSB GROUP HOLDINGS PLC

(Incorporated and registered in Ireland with limited liability under the Companies Act with registered number 474438)

Directors: Registered Office:

Robert Elliott	(Group Chair)	Permanent TSB Group Holdings plc
Eamonn Crowley	(Chief Executive Officer)	56 - 59 St Stephen's Green
		Dublin 2
		Ireland

Ronan O'Neill	(Senior Independent Non
	Executive Director)
Ruth Wandhöfer	(Independent Non-Executive
	Director)
Donal Courtney	(Independent Non-Executive
	Director)
Ken Slattery	(Independent Non-Executive
	Director)
Andrew Power	(Independent Non-Executive
	Director)
Anne Bradley	(Independent Non-Executive
	Director)
Celine Fitzgerald	(Independent Non-Executive
	Director)
Marian Corcoran	(Non-Executive Director)
Paul Doddrell	(Non-Executive Director)
Conor Ryan	(Company Secretary)

24 May 2022

To the holders of Shares in Permanent TSB Group Holdings plc

Dear Shareholder,

Proposed acquisition of the Target Business by Permanent TSB plc from Ulster Bank and Notice of the Extraordinary General Meeting

1. Introduction

On 23 July 2021, the Company announced that Permanent TSB, a wholly owned subsidiary of the Company, had entered into a non-binding Memorandum of Understanding ("MOU") with NatWest and Ulster Bank regarding a potential acquisition of approximately €7.6bn (as of 30 June 2021) of assets from Ulster Bank, including certain elements of its retail, SME and asset finance business in the Republic of Ireland. On 17 December 2021, the Company announced that, following completion of a due diligence process and negotiation and agreement of final terms, Permanent TSB had entered into binding agreements with NatWest and Ulster Bank in respect of the Transaction and the acquisition of the Target Business.

Due to the size of the Transaction comparable to the Bank's existing business, the Transaction constitutes a Class 1 transaction for the Company under the Listing Rules and is therefore subject to, and conditional upon, the approval of Shareholders. In addition, the issuance of the Subscription Shares to the NatWest Group as partial non-cash consideration for the Transaction is subject to the approval of Shareholders. An EGM is being convened for this purpose and will be held at 11:30am (Irish Time) on Friday, 24 June 2022 at the Marker Hotel, Grand Canal Square, Dublin Docklands, Dublin, D02 CK38, Ireland. A Notice of EGM and the Resolutions to be proposed and considered at the EGM is set out at the end of this Circular.

The Board considers that the Transaction is in the best interests of Shareholders as a whole and unanimously recommends that Shareholders vote in favour of the Resolutions to be proposed at the EGM.

The purpose of this Circular is to: (i) explain the background to and reasons for the Transaction; (ii) explain why the Board considers the Transaction to be in the best interests of Shareholders as a whole; and (iii) convene an EGM to seek shareholder approval for the Transaction and for the issuance of the Subscription Shares to the NatWest Group as partial non-cash consideration for the Transaction.

2. Background to the Transaction

In February 2021, NatWest announced that it would begin a phased withdrawal from the Republic of Ireland over the coming years. Following this, in July 2021, NatWest announced that Ulster Bank and NatWest had entered into the MOU with Permanent TSB for the proposed sale of the Target Business. Permanent TSB, Ulster Bank and NatWest subsequently entered into binding agreements for the acquisition of the Target Business by Permanent TSB in December 2021.

The Transaction complements Permanent TSB's growth strategy and is supportive of the Bank's financial objectives, which include increasing net interest margin, diversifying the business through the increase of other income, reducing the cost/income ratio, increasing operating profit and increasing the Group's Return on Equity. The Directors believe that it will accelerate the delivery of the Bank's ambition to become Ireland's best personal and small business bank. It provides Permanent TSB with greater scale and business model diversification together with an increased national footprint that will provide enhanced products and services to present and future customers. The Directors believe that the Transaction is a once in a generation opportunity to expedite the growth of the Bank with a strong community and customer service ethos that has evolved over its 200‐year history. It is expected to reduce the Bank's cost income ratio and be earnings accretive. It also supports the investments that Permanent TSB is making in the transformation of its in‐branch and digital banking services. Based on the expected portfolio size at completion, the Bank expects incremental annual gross interest income of c.€180m (excluding discount unwind) in 2023, which will reduce over time as the portfolios redeem. This additional income is the key driver in the expected reduction to the Bank's cost income ratio as it materially offsets the expected increased operational costs of c.€50m per annum. Transaction and implementation costs are estimated at c.€130m but these are once-off costs. The Bank's Return on Equity is expected to grow to c.5% by 2024, with a medium term target of c.9%. These returns are underpinned by the acquisition of the Target Business.

Permanent TSB is committed to growth and to supporting customers and communities in Ireland. The intention is that the Transaction will accelerate the Bank's growth, complementing its organic growth strategy and driving much needed competition in the Irish retail banking market. The Directors believe that the Transaction, together with the ongoing changes to the Irish banking market through the announced proposed exits by Ulster Bank and KBC Bank Ireland presents a unique opportunity for the Bank to maximise its potential and provide enhanced competition across all product lines. The Bank's share of the new mortgage market in Ireland, which continued to grow in 2021 reaching circa 18% (up over 2% in the twelve month period ending on 31 December 2021), represents further consolidation of the Bank's competitive proposition and its success in winning new mortgage customers with a combination of competitive and innovative products together with outstanding levels of service. The steady increase in mortgage market share that has been an established pattern over much of the last

decade is, in the Directors' opinion, a welcome reminder that this is an area of significant opportunity for the Bank, with more customers realising the strength of the Bank's competitive positioning. The Directors believe that Permanent TSB has an excellent platform from which it can build further and the Transaction offers scope to accelerate this building process, with expected continued growth in the mortgage book over the medium term. The Bank's SME lending for 2021 was €98m which was a 104% increase on the 2020 lending of €48m, which represents a year-on-year increase of 104%. The Bank recently announced plans to scale up its SME lending with the launch of a new €1 billion SME lending fund which Permanent TSB aim to deploy over the next 3 years. The Transaction will add significant momentum to the SME growth plans by adding asset finance and micro-SME lending businesses to the Bank's organic growth. As a result of the Transaction, Permanent TSB will become a bigger bank with many more customers and a branch presence in 25 more communities. This greater reach and scale will enable the Bank to compete even more strongly. Furthermore, the ongoing investment in the Bank's digital capabilities will ensure that the Bank is well positioned to offer customers the best of modern banking, combining outstanding personal service in branches and contact centres with the best digital banking services available in the market.

3. Information on the Target Business

The Target Business includes approximately €7.5 billion of gross loans as at 31 December 2021 and consists of the following parts of the Ulster Bank business:

the entire performing non-tracker mortgage book (including undrawn facilities) of Ulster Bank as at 30 June 2021 together with such additional Underlying Loans as are originated between 30 June 2021 and Principal Completion (the "Performing Loans"). To the extent any Performing Loans subsequently become non-performing after 30 June 2021, such loans will not be removed from the Target Business and will be acquired by Permanent TSB as part of the Transaction;
those non-performing loans within the non-tracker mortgage book of Ulster Bank that, as at 30 June 2021 or the date falling three months prior to the Principal Completion Date, have nil arrears, the customer is meeting contractual payments and is on a 12 month probation period (the "Probationary Loans");
the entire performing micro-SME/business direct ("Business Direct") loan book (including undrawn facilities) of Ulster Bank as at 30 June 2021 and such additional Business Direct loans as are performing as at the date falling three months prior to the Principal Completion Date (the "Business Direct Loans");
the entire asset finance business of Ulster Bank, details of which are set out below (the "Asset Finance Business"); and
25 branches in Ulster Bank's branch network, being the Branch Properties.

It is also expected that approximately 400-500 Ulster Bank employees who are wholly or mainly assigned to the Target Business, will be entitled to transfer to Permanent TSB (or its third party servicer, Pepper) under the TUPE Regulations. The final number of employees transferring will be agreed and confirmed in advance by the parties.

The Asset Finance Business is comprised of Lombard, which is the asset finance division of Ulster Bank's Commercial Banking division. The Asset Finance Business provides asset finance solutions to corporates, SMEs and consumers through three primary channels:

• Business & Commercial

• This channel supports businesses to fund the assets they require to expand and grow.

• Motor Finance

• This channel provides options to consumers and sole traders to purchase cars and other commercial vehicles, through financing arrangements such as hire purchase agreements and contract hire (e.g. operating lease agreements).

• Unit Stocking

• This channel includes revolving working capital facility being offered to customers, which compliments the motor channel.

The tables below set out selected key financial information for the Target Business for the periods indicated as derived from the carve-out historical financial information as set out in Section B of PART IV (Historical Financial Information) of this Circular:

	Year ended 31 December 2021	Year ended 31 December 2020	Year ended 31 December 2019
	€m	€m	€m
Total operating income	214	211	202
Total operating expenses	(184)	(172)	(165)
Credit impairment releases / (losses)	42	(22)	13
Profit and total comprehensive income for the year	72	17	50

	As at 31 December 2021	As at 31 December 2020	As at 31 December 2019
	€m	€m	€m
Total assets	7,509	7,532	7,002

The Target Business has not comprised a separate legal entity or a separate group of entities for the years ended 31 December 2021, 2020, and 2019 (the "Track Record Period"). The Carve-out HFI has been prepared specifically for the purpose of this Circular. The assets and liabilities, results of operations and cash flows of the Target Business have been carved out from the accounting records of UBIDAC using the historical assets and liabilities, results of operations and cash flows of UBIDAC attributable to the Target Business. Consequently, the Carve-out HFI is prepared on a different basis from the statutory financial statements of UBIDAC for the comparable three years albeit both are prepared in accordance with IFRS.

The Carve-out HFI has been prepared in accordance with the accounting policies of the PTSB Group applied in its consolidated financial statements for the year ended 31 December 2021 and requirements of the Euronext Dublin Listing Rules and in accordance with this basis of preparation as set out in note 1.2 to the Carve-out HFI.

Further details on the basis of preparation of the Carve-out HFI is included in Section B of PART IV (Historical Financial Information) of this Circular.

4. Reasons for and financial effect of the Transaction

The Directors believe that the entry into and completion of the Transaction by Permanent TSB has a strong strategic and financial rationale as described below, creating a compelling investment opportunity for the Company and Shareholders as a whole.

This Transaction will position Permanent TSB for significant future growth in the personal and SME banking business in the Irish market and support customers as the country exits the COVID‐19 pandemic. It will also provide certainty and continuity to the retail, SME and asset finance customers of Ulster Bank associated with this acquisition, along with the employees of Ulster Bank who are entitled to transfer to Permanent TSB (or its third party servicer, Pepper) under the TUPE Regulations.

Permanent TSB is committed to growth and to supporting customers and communities. The Transaction aligns with the Bank's ambition to be Ireland's best personal and small business bank and also supports the investments that Permanent TSB is making in the transformation of its in-branch and digital banking services. This will allow Permanent TSB to accelerate digital enhancements that will improve the experience of customers and thus its overall proposition. Following the Transaction, Permanent TSB will have the capabilities and scale required to be a leading provider within the SME retail market.

With over 200 years of history, Permanent TSB is a leading retail and SME bank within Irish communities. In April 2021, the Bank announced a further €50 million investment in its technology infrastructure and digital capability, allowing the Bank to prepare for a significant expansion of customers and services and bring an enhanced digital experience to customers. The Bank is in a strong position to take on customers from Ulster Bank as part of the Transaction and will provide an enhanced digital service offering to all customers.

The Bank's long-established retail and SME offerings, which serve over 1.1million customers, includes mortgages, personal lending and SME lending within the Irish market. As at 31 December 2021, the Bank had €19.1 billion of customer deposits, €14.2 billion residential loan portfolio and approximately €0.2 billion SME lending portfolio. The Bank has approximately an 18% share of the mortgage market in Ireland, up over 2% in the twelve-month period ending 31 December 2021. As a result of the Transaction, the Bank expects to generate a Return on Equity (RoE%) of circa 5% by FY24 and circa 9% over the medium term.

The main strategic highlights of the Transaction are as follows:

increases scale and supports organic balance sheet growth, allowing Permanent TSB to achieve its current strategic goals in a shorter timeframe;
increases market share in complementary products and provides significant growth in the micro-SME market;
continued acceleration of digital enhancements through increased investment in IT infrastructure for the PTSB Group;
transfer of approximately 400-500 new employees with new growth opportunities created for staff;
diversification of revenue through the creation of an asset finance solution for Permanent TSB; and
increased scale will create a more robust balance sheet with increased income, a stable funding profile and strong/improving capital and liquidity ratios.

The Target Business is highly complementary to the Bank's existing Irish business and is supportive of the Bank's financial objectives. Permanent TSB expects that the Transaction will:

• increase the Bank's mortgage book by approximately 40% from its position at 31 December 2021;

increase the Bank's branch network by approximately 30% from its position at 31 December 2021;
triple the Bank's business lending relative to its position at 31 December 2021 when incorporating the micro-SME loans and the established Asset Finance Business;
increase the Bank's incremental gross interest income by approximately €180 million (excluding discount unwind) in 2023, which will reduce over time as the portfolios redeem;
assist in reducing the Bank's cost-income ratio to approximately 60% by 2024;
increase the Bank's return on equity to approximately 5% by 2024; and
reduce the Bank's pro-forma non-performing exposure ratio to below 5%.

The information on the financial effects of the Transaction has been calculated on the basis that Business Combination Accounting will apply to the Transaction and that the accounting gain associated with the discount received on the Target Business relative to its fair value can be recognised at Principal Completion and included within the Bank's capital ratios upon regulatory approval. Based on the current structure, the Company is confident that BCA is applicable to the Transaction and this will be continuously assessed up to Principal Completion.

5. Summary of the Transaction

On 17 December 2021, Permanent TSB, NatWest and Ulster Bank entered into the Framework Agreement for the purposes of setting out the overarching principles which will apply to the Transaction.

In addition, the parties entered into various binding agreements which provide for the acquisition of the Target Business, the orderly transfer and integration of the constituent parts and the consideration.

The Shareholder Co-operation Agreement will be entered into on or around Principal Completion between the Company, the Subscriber and the Minister to govern how the parties will co-operate with each other with regard to the orderly selling arrangements for the shares of Permanent TSB post-Completion.

For more information on the terms of the Transaction Documents, see PART II (Summary of the Principal Terms and Conditions of the Transaction and the Transaction Documents) of this Circular.

a. Conditions to the Transaction

The obligations of the parties in the Transaction Documents to complete the Transaction are subject to the satisfaction of the Conditions, which include:

the approval of the Transaction as a Class 1 transaction by the Shareholders representing a simple majority of the votes represented in person or by proxy at the EGM;
the approval of the Transaction by the CCPC;
other approvals required by NatWest for the allotment of the Subscription Shares;
the requisite approval being obtained by the Subscriber (being a subsidiary of NatWest) from the ECB (acting via the Central Bank) in relation to the Subscription Shares; and
the requisite approval being obtained by Permanent TSB from the Central Bank and the ECB in relation to the Transaction.

In addition, completion under the Property Transfer Documents is also subject to the terms set out in the Agreement for Assignment and the Contract for Sale (as described in further detail in PART II (Summary of the Principal Terms and Conditions of the Transaction and the Transaction Documents) of this Circular.

b. Completion

Each of NatWest, Ulster Bank and Permanent TSB are committed to using all reasonable endeavours to achieve the timelines agreed between them in respect to completion of the Transaction. These timelines are subject to change for various reasons, including the requirement to satisfy the Conditions.

For details on the anticipated timeline of principal events up to and including Completion, please see the section of this Circular entitled "Expected Timetable of Principal Events" on page 5 of this Circular.

c. Financing / Consideration

Based on an expected portfolio size of approximately €6.75bn at Principal Completion (anticipated range of €6.5bn – €7bn), Permanent TSB will acquire the Target Business for €6.4bn of cash consideration funded from internal cash resources, existing funding sources including market and ECB liquidity operation, in addition to the issue of the Subscription Shares to the Subscriber (a subsidiary of NatWest) as partial non-cash consideration for the Transaction so that the Subscriber will hold 16.66% of the enlarged issued share capital of the Company at Principal Completion, expected to be approximately 90,893,627 Ordinary Shares of the Company. The total consideration to be paid by Permanent TSB to Ulster Bank is equivalent to approximately 98% of par value of the assets forming part of the Target Business and represents a discount to the fair value of the assets being acquired and is expected to result in Permanent TSB recognising an accounting gain on the Transaction at Principal Completion.¹ The exact size of the portfolios and cash consideration payable will depend on movements in the portfolios up to Principal Completion. Following Principal Completion, Permanent TSB expects to maintain a pro forma Common Equity Tier 1 ratio of >14% and will not require additional new equity capital to complete the Transaction.

In addition, there are various incentive payments set out in the Framework Agreement, which, depending on the circumstances, could become payable by either (i) Permanent TSB (further details of which are set out in paragraph 5 of Section A of PART III (Risk Factors) of this Circular); or (ii) Ulster Bank, in circumstances where it fails to meet timelines agreed in the Framework Agreement with regards to delivery of loan file documentation to enable effective customer transfer, a one-off incentive fee will become payable to Permanent TSB.

d. Key Terms

The Subscription Shares to be issued to the NatWest Group as partial non-cash consideration pursuant to the Transaction will be issued as fully paid and free of any pre-emptive rights and liens and will rank pari passu in all respects with the existing Shares then in issue, including in respect of the right to receive and retain in full all dividends and other distributions (if any) announced, declared, made or paid or any other return of capital (whether by reduction of share capital or share premium account or otherwise) made, in each case, by reference to a record date falling on or after the date of allotment. The Subscription Shares will be issued in registered form, will trade under the same ISIN number as the existing Shares (IE00BWB8X525) and will be capable of being held in uncertificated form. Fractions of Subscription Shares will not be allotted or issued to the Subscriber. Subject to the passing of the Resolutions by Shareholders at the EGM, the Subscription Shares will be issued on the Principal Completion Date as partial non-cash consideration for the Transaction. The exact timeline of events after the EGM is not fully ascertainable at this time and will depend, inter alia, upon the satisfaction of the Conditions, as described in paragraph 5.a (Conditions to the Transaction) of this letter.

It is expected that approximately 400-500 Ulster Bank employees who are wholly or mainly assigned to the Target Business, will be entitled to transfer to Permanent TSB (or its third party service provider,

¹ The fair value estimates for loans and advances to customers applied in calculating the expected accounting gain and expected CET1 ratio following completion of the Transaction is based on discounted cash flow models prepared by PTSB Group management, using available loan level information and related interest rate assumptions over the expected full term of those loans. This is the approach that will be applied by the Company in calculating fair value at Completion.

Pepper) under the TUPE Regulations. The final number of employees transferring will be agreed and confirmed in advance by the parties. It is currently envisaged that Permanent TSB will partner with Pepper to support the servicing of the Ulster Bank mortgage book being acquired. This servicing arrangement will have no impact on customers and is subject to the completion of contractual and regulatory processes. Any employees who may have a right to transfer to Pepper will also be offered a role within Permanent TSB. Permanent TSB has commenced a consultation process with Ulster Bank and the applicable employee representatives in relation to the impact of the transfer on the Employees. Permanent TSB will comply with its obligations under the TUPE Regulations, which provide for the protection of existing contractual and statutory employment rights following a transfer.

6. Shareholder Support

The Minister, who holds 340,661,653 Shares, representing approximately 74.92% of the existing issued share capital of the Company as at the Latest Practicable Date, has confirmed in writing to the Company that he is supportive of the Transaction.

In addition, the directors of the Company have irrevocably undertaken to vote or procure that the registered holders vote in favour of the Resolutions in respect of their beneficial holdings for which they have an aggregate interest amount of 76,504 Shares, representing approximately 0.02% of the existing issued share capital of the Company as at the Latest Practicable Date.

7. General Meeting and the Resolutions

Owing to its size, the Transaction constitutes a Class 1 transaction for the purposes of the Listing Rules and is therefore conditional on the passing of the Resolutions at the EGM. Accordingly, an EGM has been convened for the purpose of approving the Transaction.

Notice of the EGM, which will be held at the Marker Hotel, Grand Canal Square, Dublin Docklands, Dublin, D02 CK38, Ireland at 11:30am (Irish Time) on Friday, 24 June 2022 is set out in PART VIII (Notice of an Extraordinary General Meeting of Permanent TSB Group Holdings plc) of this Circular. The full text of the Resolutions are set out in PART VIII (Notice of an Extraordinary General Meeting) of this Circular.

The EGM has been convened to consider and, if thought fit, to approve ordinary resolutions approving the Transaction and authorising the Directors to allot the Subscription Shares as partial non-cash consideration for the Transaction. If passed, the Resolutions will authorise the Transaction substantially on the terms and subject to the Conditions, summarised in paragraph 5.a (Conditions to the Transaction) of this letter.

The Resolutions will be proposed as ordinary resolutions requiring a simple majority of votes cast in favour. If you would like to vote on the Resolutions but cannot attend the EGM, you can appoint a proxy to exercise all or any of your rights to attend, vote and speak at the EGM by using one of the methods set out in the notes to the Notice of the EGM.

In the event that both the Resolutions are not passed, the Transaction will not proceed to Completion.

8. Risk Factors

Shareholders should consider fully and carefully the risk factors associated with the Transaction. For a discussion of the risks and uncertainties which you should take into account when considering whether to vote in favour of the Transaction, please refer to PART III (Risk Factors) of this Circular.

9. Action to be taken

Depending on your selected method of shareholder communication you will either find enclosed with this Circular (or will have received separately in the post) a Form of Proxy for use at the EGM or you can access the Form of Proxy form electronically. Whether or not you intend to be present at the EGM, it is important that you complete the Form of Proxy (in accordance with the instructions printed thereon) and return it to the Company's registrar, Link Registrars Limited (PTSBGH), P.O. Box 1110, Maynooth, Co. Kildare, Ireland as soon as possible and in any event so as to be received by no later than 11:30am (Irish Time) on Wednesday, 22 June 2022 in the manner set out in the notes attached to the Notice of EGM. You may also submit your proxies electronically, subject to the terms and conditions of electronic voting, via the internet by accessing the EGM page on the Company's website, www.permanenttsbgroup.ie or via the shareholder portal on the Link Registrars Limited website www.signalshares.com.

However, please note that persons holding shares through Euroclear Bank or CREST (via CDI) must also comply with any additional voting deadlines imposed by those systems. Accordingly, Shareholders are strongly advised to review the explanatory notes to the Notice of EGM and familiarise yourself with the requirements and relevant deadlines for proxy vote submissions and consult with your stockbroker or other intermediary at the earliest opportunity.

The completion and return of the Form of Proxy will not preclude you from attending the EGM and voting in person if you wish to do so and are entitled.

Please refer to the notes to the Notice of EGM for guidance notes on the return of the Form of Proxy.

10. Further information

Your attention is drawn to the further information set out in this Circular. Shareholders should read the whole of this Circular and not just rely on the key or summarised information set out in this letter.

11. Recommendation to Shareholders

The Board considers the Transaction and the Resolutions to be in the best interests of the Company and Shareholders as a whole. Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolutions set out in the Notice of EGM.

The Directors of the Company have irrevocably undertaken to vote or to procure that the registered holders vote in favour of the Resolutions in respect of their beneficial holdings and Shares in respect of which they have an interest amounting to 76,504 Shares in aggregate, representing approximately 0.02% of the issued ordinary share capital of the Company as at the Latest Practicable Date.

Yours faithfully,

Robert Elliott Chairman For and on behalf of the Board

PART II - SUMMARY OF THE PRINCIPAL TERMS AND CONDITIONS OF THE TRANSACTION AND THE TRANSACTION DOCUMENTS

A summary of the essential terms of the Transaction is set out at paragraph 5 (Summary of the Transaction) of PART I (Chair's Letter) of this Circular. Further details of the key terms of the Transaction and the Transaction Documents are set out below.

1. Overview

1.1 On 17 December 2021, Permanent TSB, NatWest and Ulster Bank entered into the Framework Agreement, which sets out the overarching principles of the Transaction and the acquisition by Permanent TSB of the business and assets of Ulster Bank comprising the Target Business, which consists of:
(a) the Performing Loans;
(b) the Probationary Loans;
(c) the Business Direct Loans;
(d) the Branch Properties; and
(e) the Asset Finance Business.
1.2 The business and assets which do not form part of the Target Business and which will therefore not transfer from Ulster Bank to Permanent TSB or the Company on Completion are as follows:
(a) all non-performing loans as at 30 June 2021 other than the Probationary Loans and those forming part of the Asset Finance Business; and
(b) any performing non-tracker mortgage which is secured over property which also secures a tracker mortgage provided by Ulster Bank (i.e. cross-secured loans).
1.3 Whilst the Framework Agreement contains the overarching principles of the Transaction, the mechanics effecting the transfer of the Target Business are set out in the relevant Transaction Documents, further details of which are set out in paragraph 7 (Material Contracts) of PART VI (Additional Information) of this Circular.

2. Consideration

2.1 The total consideration payable by Permanent TSB to Ulster Bank for the sale and purchase of Ulster Bank's interests in the Target Business shall be the aggregate of:
(a) the Purchase Price (as same may be adjusted in accordance with the Framework Agreement), which is described in further detail at note 3 of Section A (Unaudited Pro Forma Financial Information of the Enlarged Group at 31 December 2021) of PART V (Unaudited Pro Forma Financial Information Of The Enlarged Group) of this Circular on page 98; and
(b) the Branch Properties Consideration, being a total consideration amount of €8,121,000.
2.2 The total consideration is made up of cash and non-cash consideration. The cash component will be paid over a period of time in accordance with the terms of the Transaction Documents and the non-cash component will be satisfied by way of the allotment of the Subscription Shares to the Subscriber (a subsidiary of NatWest) on

Principal Completion such that the Subscriber will hold 16.66% of the total issued share capital of the Company following Principal Completion.

2.3 In addition, there are various incentive payments set out in the Framework Agreement, which, depending on the circumstances, could become payable by either (i) Permanent TSB (further details of which are set out in paragraph 5 of Section A of PART III (Risk Factors) of this Circular); or (ii) Ulster Bank, in circumstances where it fails to meet timelines agreed in the Framework Agreement with regards to delivery of loan file documentation to enable effective customer transfer, a one-off incentive fee will become payable to Permanent TSB.

3. Conditions to Completion

3.1 Completion of the Transaction is conditional upon the satisfaction of certain conditions which include:
(a) the approval of the Transaction as a class 1 transaction by the Shareholders representing a simple majority of the votes represented in person or by proxy at the EGM;
(b) the approval of the Transaction by the CCPC;
(c) the requisite approval being obtained by the Subscriber (being a subsidiary of NatWest) from the ECB (acting via the Central Bank) in relation to the Subscription Shares; and
(d) the requisite approval being obtained by Permanent TSB from the Central Bank and the ECB in relation to the Transaction,

(the Conditions listed at paragraphs 3.1(b) to 3.1(d) being the "Regulatory Approvals").

3.2 Completion under the Property Transfer Documents is also subject to the terms set out in the Agreement for Assignment and the Contract for Sale. In particular, completion is subject to the satisfaction of standard conveyancing and assignment conditions, including landlord consent to assignment and certain works.
3.3 NatWest, Ulster Bank and Permanent TSB have agreed in the Framework Agreement to use all reasonable endeavours, subject to certain limitations, to procure satisfaction of the Conditions as soon as possible after the Signing Date. As part of the regulatory approval processes and/or the anti-trust clearance processes required to implement the Transaction, the CCPC, Central Bank and/or ECB may impose conditions to Completion or require changes to the terms of the Transaction, including conditions which are not commercially acceptable to the PTSB Group or the Ulster Bank Group. Pursuant to the terms of the Framework Agreement, Permanent TSB is obliged to provide any commitments that may be required by the CCPC, the Central Bank or the ECB as part of the regulatory approval processes and/or the anti-trust clearance processes, provided always that Permanent TSB shall not be obliged to offer any commitments which would be unreasonable or material in the circumstances.

4. Covenants

The principal material covenants included in the Transaction Documents are as follows:

4.1 Pre-Completion Liabilities / Post-Completion Liabilities: No liabilities or obligations of Ulster Bank or the Ulster Bank Group shall transfer or be assumed by Permanent TSB pursuant to the Transaction except those liabilities specifically identified in the Framework Agreement as forming part of the Target Business.

4.2 Guarantee: NatWest has given a guarantee to Permanent TSB in respect of all sums that are payable by Ulster Bank under the Transaction Documents.
4.3 Business Combination Accounting: Permanent TSB confirmed to Ulster Bank and NatWest, subject to specified assumptions, that Business Combination Accounting Treatment will apply to the Transaction.
4.4 Business Direct Customers: Permanent TSB is obliged to make available overdraft facilities to Business Direct customers in certain circumstances.
4.5 Remediation/AML Outreach: Ulster Bank has covenanted to carry out certain remediation actions in relation to a small, select number of impacted assets that form part of the Target Business and has also agreed to carry out certain steps for the purposes of collating certain required anti-money laundering documentation to enable Permanent TSB to satisfy its ongoing anti-money laundering obligations.
4.6 Servicing/Origination: Ulster Bank has agreed to provide certain customary covenants in respect of the servicing, management, administration and origination of the business and assets forming part of the Target Business in the period between the Signing Date and Completion.
4.7 Restrictive Covenant: A restrictive covenant, non-solicitation covenant and nondisparagement covenant in respect of the Asset Finance Business, which are customary for a transaction of this nature, is provided by NatWest and Ulster Bank to Permanent TSB in the BTA.
4.8 Shareholder Co-operation Agreement: The Shareholder Co-operation Agreement contains customary anti-concentration provisions, anti-dilution provisions, tag-along provisions and certain other commitments by the Company in relation to its listing on Euronext Dublin and the London Stock Exchange and the facilitation of any sell-down arrangements between the Minister and the Subscriber.
4.9 Trustee Agreements: At the election of Ulster Bank, Permanent TSB has agreed to act as trustee and provide certain account services for Ulster Bank customers who have not withdrawn their deposit or current account balances held with Ulster Bank prior the surrender of its licence. If Ulster Bank makes that election then, pursuant to the terms of the Trustee Agreements, Permanent TSB agrees to (a) act as trustee for certain current account holders; (b) hold and manage unclaimed balances which relate to closed Ulster Bank customer accounts on trust for the relevant customers; (c) act as account bank and accept the deposit by the trustee of the aggregate unclaimed balances; and (d) accept management of Ulster Bank's existing claimant database of funds passed by Ulster Bank to the NTMA Dormant Accounts Fund and any future pass-through of unclaimed balances from the trustee to the NTMA Dormant Accounts Fund.

5. Warranties and Indemnities

5.1 Pursuant to the Framework Agreement and other Transaction Documents, certain customary warranties are given by each party in relation to its ability to complete the Transaction.
5.2 Customary warranties are provided by Ulster Bank in favour of Permanent TSB in respect of (i) the Residential Mortgage Loans and the Business Direct Loans to be acquired by Permanent TSB pursuant to the MSD and MSD 2; (ii) the Asset Finance Business to be to be acquired by Permanent TSB pursuant to the BTA and BTA 2; and (iii) the employees who are entitled to transfer employment to Permanent TSB or Pepper under the TUPE Regulations.

5.3 The Transaction Documents contain customary indemnities for a transaction of this nature.

6. Limitations on Liability

Ulster Bank and Permanent TSB have negotiated detailed provisions in relation to the limits of their respective liabilities under each of the Transaction Documents, including in respect of the warranties and indemnities (as outlined above).

7. Employees

Each of Permanent TSB, Ulster Bank and NatWest acknowledge and agree that the TUPE Regulations apply to the Transaction and the Ulster Bank employees who are wholly or mainly assigned to the Target Business that is being acquired, will be entitled to transfer to Permanent TSB (or its third party service provider, Pepper) under the TUPE Regulations. The final number of employees transferring will be agreed and confirmed in advance by the parties.

8. Termination

8.1 Framework Agreement:

(a) If the Framework Agreement is terminated by Permanent TSB or Ulster Bank for any reason in accordance with its terms, including as a result of any Condition not being fulfilled and satisfied by the Long-Stop Date (as may be extended in accordance with the terms of the Framework Agreement), then each of the other Transaction Documents, to the extent they have been entered into between the parties at that time, shall simultaneously terminate.
(b) Ulster Bank has the ability to terminate and, in certain circumstances, rescind the Transaction Documents to the extent those documents have been entered into by the parties at the relevant time in the event that Permanent TSB fails to pay the Purchase Price to Ulster Bank on its due date for payment.
(c) Permanent TSB has the ability to terminate and, in certain circumstances, rescind the Transaction Documents to the extent those documents have been entered into by the parties at the relevant time in the event that Ulster Bank fails to deliver the items it is required to deliver under the Transaction Documents at the appropriate time.
8.2 Other Transaction Documents: Certain of the other Transaction Documents (including the Onboarding Agreement, Trustee Agreements and the Shareholder Cooperation Agreement) contain bespoke termination provisions including:
(a) Onboarding Agreement: By written notice by either party, upon material breach by Ulster Bank or upon failure of Permanent TSB to pay any charges properly due to and owing within thirty (30) days of the due date.
(b) Trustee Agreements: By written notice of either party in certain circumstances including material breach, non-payment or insolvency of another party or in order to ensure compliance with applicable law. However, with respect to a termination of the Trustee Agreements by Permanent TSB a successor for the Trustee Agreements will need to be appointed (subject to certain conditions) before such termination can take effect.
(c) Shareholder Co-operation Agreement: The Shareholder Co-operation Agreement shall terminate upon the Subscriber ceasing to hold Shares in the Company.

8.3 Governing Law: The Transaction Documents are governed by Irish law.

PART III - RISK FACTORS

The proposed Transaction may give rise to certain risks which, if they occur, may have a material adverse effect on the business, financial condition, results of operations or prospects of the PTSB Group and following each Completion, the Enlarged Group. Accordingly, the risk factors should be afforded careful consideration together with all the other information set out in, or incorporated by reference into, this Circular in deciding whether to approve the Resolutions being put to Shareholders at the EGM.

The risks which the Directors consider to be material as at the date of this Circular are set out in this PART III . The risks described in this PART III are based on information known at the date of this Circular but may not be the only risks to which the PTSB Group and, following each Completion, the Enlarged Group, are or might be exposed.

Additional risks and uncertainties, which are currently unknown to the PTSB Group or that the PTSB Group does not currently consider to be material, may adversely affect the business of the PTSB Group and, following each Completion, the Enlarged Group and could have a material adverse effect on the business, financial condition, operating or financial results and future prospects of the PTSB Group and, following each Completion, the Enlarged Group. If any of the following risks were to materialise, the business, financial condition, operating or financial results and future prospects of the PTSB Group and, following each Completion, the Enlarged Group could be materially adversely affected and the value of Shares could decline and Shareholders could lose all or part of their investment in those Shares.

Shareholders should read this Circular as a whole and not rely solely on the information set out in this section.

SECTION A: MATERIAL RISKS RELATING TO THE TRANSACTION

1. Completion is subject to the satisfaction of the Conditions and there may be an adverse impact on the Company's reputation if the Transaction does not proceed

Completion of the Transaction is conditional upon the satisfaction of the Conditions, as set out in the Transaction Documents and described in PART I (Chair's Letter) and PART II (Summary of the Principal Terms and Conditions of the Transaction and the Transaction Documents) of this Circular, including

1.1 the approval of the Transaction as a class 1 transaction by the Shareholders representing a simple majority of the votes represented in person or by proxy at the General Meeting;
1.2 the approval of the Transaction by the CCPC;
1.3 the requisite approval being obtained by the Subscriber (being a subsidiary of NatWest) from the ECB (acting via the Central Bank) in relation to the Subscription Shares; and
1.4 the requisite approval being obtained by Permanent TSB from the Central Bank and the ECB in relation to the Transaction.

If the Conditions are not satisfied, the Transaction may be delayed or will not proceed, the benefits expected to result from the Transaction will not be achieved, none of the Subscription Shares will be issued and the market price of the Company's Shares may be adversely affected. Although NatWest, Ulster Bank and Permanent TSB have agreed in the Framework Agreement to use all reasonable endeavours, subject to certain limitations, to procure satisfaction of the Conditions as soon as possible after the Signing Date, the Conditions may fail to be satisfied. In addition, satisfying the Conditions may take longer, and could cost more, than NatWest, Ulster Bank and Permanent TSB expect. Any delay in completing the Transaction may adversely affect the synergies and other benefits that Permanent TSB expects to achieve if the Transaction and the integration of the respective businesses and assets are not completed within the expected timeframe. In addition, NatWest's, Ulster Bank's and Permanent TSB's management would have spent significant time in connection with the Transaction, which could otherwise have been spent in connection with the other activities of the NatWest Group and PTSB Group, as applicable. Therefore, the aggregate consequences of a material delay in completing or failure to complete the Transaction may have a material adverse effect on the business, financial condition and operating or financial results of the PTSB Group and, in the case of a delay only, the Enlarged Group.

The regulatory approval processes and/or the anti-trust clearance processes required to implement the Transaction may take a lengthy period of time to complete, which could delay Completion beyond its currently anticipated date or result in the abandonment of the Transaction. In addition, as part of such approval processes, the CCPC may impose conditions to Completion or require changes to the terms of the Transaction, including conditions which are not commercially acceptable to the PTSB Group or the Ulster Bank Group. The terms and conditions of regulatory approvals that are granted, or any undertakings required from Permanent TSB or Ulster Bank in order for such approvals to be granted, may impose additional requirements, limitations or costs on the business of the Enlarged Group. Pursuant to the terms of the Framework Agreement, Permanent TSB is obliged to provide any commitments that may be required by the CCPC, the Central Bank or the ECB as part of the regulatory approval processes and/or the anti-trust clearance processes, provided always that Permanent TSB shall not be obliged to offer any commitments which would be unreasonable or material in the circumstances. To the extent that Permanent TSB is obliged and/or agrees to provide certain commitments, there can be no assurance that these terms, conditions or undertakings will not materially adversely affect the business of the Enlarged Group including, in particular, limiting the revenues of the Enlarged Group, increasing the costs of the Enlarged Group and reducing the ability of the Enlarged Group to achieve the anticipated cost synergies.

2. The information on the financial effects of the Transaction has been calculated on the basis that Business Combination Accounting will apply to the Transaction

The information on the financial effects of the Transaction has been calculated on the basis that Business Combination Accounting will apply to the Transaction and that the accounting gain on bargain purchase associated with the discount received on the Target Business relative to its fair value can be recognised at Principal Completion and included within Permanent TSB's capital ratios upon regulatory approval.

The transfer of an Organised Workforce to Permanent TSB as part of the Transaction and the migration of the Residential Mortgage Loans in the manner as materially contemplated in the Framework Agreement are key elements of the Transaction qualifying as a Business Combination for the purposes of Business Combination Accounting.

Achieving Business Combination Accounting allows Permanent TSB to complete the Transaction without the requirement of raising new equity capital. If Business Combination Accounting is not achieved, the accounting gain associated with the discount received on the Target Business relative to its fair value would not be recognised at Principal Completion and therefore would have a negative impact on Permanent TSB's capital ratios. This would result in Permanent TSB requiring equity capital in order to maintain its regulatory capital requirements if it were to proceed with the Transaction, which is not contemplated by Permanent TSB. Therefore if Business Combination Accounting was not achieved, Permanent TSB would not be in a position to proceed with the Transaction as planned and would seek to engage with NatWest and all other relevant stakeholders as outlined below.

In the event that Business Combination Accounting was determined by the Company not to be applicable at Principal Completion then the Company would engage with NatWest and all other relevant stakeholders to seek to restructure the Transaction to the extent possible and necessary to enable Permanent TSB to proceed to Completion. Any such restructured Transaction would remain subject to regulatory approval, to the extent not already obtained, and would likely constitute a material change to the terms of the Transaction requiring further shareholder approval.

3. The uncertainties about the effects of the Transaction could have a materially adverse effect on the PTSB Group, the Target Business, and, if the Transaction completes, the Enlarged Group

Uncertainty about the effects of the Transaction, including effects on employees, partners, customers, vendors, distributors and suppliers, may have a material adverse effect on the business, financial condition and operating or financial results of the PTSB Group, the Target Business and, if the Transaction completes, the Enlarged Group. These uncertainties could cause parties that have business or other relationships with the PTSB Group or Ulster Bank to defer the completion of transactions or other decisions concerning the business of the PTSB Group or Ulster Bank and, if the Transaction completes, the Enlarged Group or to seek to change their terms of business. In addition, prior to and following each Completion, there is also a risk that some current and prospective employees may experience uncertainty about their future roles within the Enlarged Group, which may adversely affect the PTSB Group's, Ulster Bank's and, following each Completion, the Enlarged Group's ability to retain or recruit key managers and other employees.

4. Permanent TSB may be obligated to complete the Transaction even if an adverse change to the Target Business were to occur prior to each Completion

Permanent TSB may terminate the Framework Agreement and each other Transaction Document to the extent it has been entered into by the relevant parties thereto at that time, only in certain limited circumstances, including if, as a result of any Condition not being fulfilled and satisfied, Principal Completion has not occurred by the Long-Stop Date. Certain changes, events or developments may have a significant negative impact on the Target Business (including its size and/or credit quality) but nonetheless Permanent TSB may still be obligated to complete the Transaction pursuant to the terms of the Framework Agreement. Such changes, events or developments may include changes to global economic conditions, any failure by Ulster Bank to meet any internal or published projections or forecasts or the impact of entering into the Framework Agreement on Ulster Bank's relationships with employees, customers or suppliers. Due to the limited termination rights of Permanent TSB under the Framework Agreement, even if such adverse changes to the Target Business were to occur prior to Principal Completion, Permanent TSB may still be required to complete the Transaction, and the market price of the Enlarged Group's shares may suffer.

5. Permanent TSB may be required to pay incentive fees in certain circumstances

5.1 Delay Incentive Fee

To the extent that completion of the Asset Finance Business does not occur by the Target Lombard Date, with effect from the date falling four months after the Target Lombard Date, Permanent TSB will be obliged to pay a monthly incentive fee (being an amount equal to 40bps per annum on the amount of the gross outstanding balance of the loans forming part of the perimeter of the Asset Finance Business (calculated on a monthly basis) and increasing on a monthly basis by 5bps per annum thereafter up to a maximum of 60bps per annum) to Ulster Bank provided that Ulster Bank are not wholly or mainly at fault for the delay or the delay did not arise as a result of a delay in receipt of Regulatory Approvals.

Similarly in respect of the Business Direct Loans, to the extent that completion of the Business Direct Loans does not occur by the Target BD Date, with effect from the date falling two months after the Target BD Date, Permanent TSB will be obliged to pay a monthly incentive fee (being an amount equal to 40bps per annum on the amount of the gross outstanding balance of the Business Direct Loans (calculated on a monthly basis) and increasing on a monthly basis by 5bps per annum thereafter up to a maximum of 60bps per annum) to Ulster Bank provided that Ulster Bank are not wholly or mainly at fault for the delay or the delay did not arise as a result of a delay in receipt of Regulatory Approvals.

5.2 Non-Completion Incentive Fee

In circumstances where the completion and migration of the Asset Finance Business and/or the Business Direct Loans has not been completed by the SC Long-Stop Date, Permanent TSB will be obliged to pay a once-off incentive fee of EUR10,000,000 to Ulster Bank in respect of each of the non-transferring business units (being a total amount of EUR20,000,000) (and any delay incentive fee paid will be deducted from this amount), however, this fee will not become payable in circumstances where Permanent TSB confirms, before the SC Long-Stop Date, that it will be in a position to complete and migrate the relevant non-transferring business units within 10 Business Days of the SC Long-Stop Date and, to the extent this confirmation is provided, the SC Long-Stop Date will, on one occasion only, automatically be extended and the fee shall not be payable provided completion and migration of the relevant unit(s) occur(s) by that extended date.

5.3 Split-Completion Incentive Fee

In circumstances where all of the Residential Mortgage Loans are not transferred and migrated on the Principal Completion Date, Permanent TSB will be obliged to pay an incentive fee of an amount equal to 15bps per annum on the amount of the gross outstanding balance of the Residential Mortgage Loans which have not transferred on the Principal Completion Date (calculated on a monthly basis) to Ulster Bank with effect from the Second Principal Completion Delay Date until the date on which the relevant Residential Mortgage Loans are transferred and migrated from Ulster Bank to Permanent TSB provided always that the fee will not become payable in circumstances where Ulster Bank is wholly or mainly at fault for the failure to complete and migrate the remainder of the Residential Mortgage Loans.

6. The Transaction may be subject to litigation, which could delay the Transaction and prevent Completion

Members of the PTSB Group and Ulster Bank may in the future be party to legal proceedings and claims related to the Transaction or the Transaction Documents. Legal challenges to the Transaction could result in an injunction, preventing or delaying Completion. Litigation could also result in the PTSB Group and, following each Completion, the Enlarged Group incurring defence costs and other liabilities.

7. Permanent TSB's due diligence on the Target Business may not uncover all the risks associated with the Transaction

Permanent TSB has conducted business, legal and financial due diligence in relation to the Target Business with the goal of identifying and evaluating material risks involved in the Transaction. However, the due diligence carried out may not have identified and/or evaluated all such risks. Whilst the Transaction Documents provide some contractual protection, any warranty claims will be subject to customary contractual limitations and common law rules which may restrict Permanent TSB's ability to recover all or a substantial proportion of any losses suffered (as described in PART II (Summary of the Principal Terms and Conditions of the Transaction and the Transaction Documents) of this Circular). A material level of defect in the performance of the business, legal and financial due diligence in relation to the Target Business could have an adverse impact on the Enlarged Group's ability to implement its business plan and could adversely impact the Enlarged Group's ability to realise the benefits of the Transaction or delay their realisation. As a result, Permanent TSB may not realise the expected benefits and/or synergies which could have a material adverse effect on the Enlarged Group's business, financial condition and results of operations.

8. The Transaction Document contains customary limitations on liability for a transaction of this nature

The liability of the NatWest Group and Ulster Bank pursuant to the Transaction Documents is limited in time and amount (as described in PART II (Summary of the Principal Terms and Conditions of the Transaction and the Transaction Documents) of this Circular). Accordingly, Permanent TSB may not have recourse against, or otherwise be able to recover from, NatWest and Ulster Bank in respect of material losses which it may suffer in respect of a breach of warranty or otherwise in respect of liabilities of NatWest and Ulster Bank.

9. Landlord consent may not be granted in respect of the leasehold properties currently occupied by Ulster Bank and forming part of the Target Business

Permanent TSB is to take an assignment of the occupational lease interests under which the 9 occupational leasehold properties and 1 ATM lease is held. Ulster Bank is required to take steps to (i) in circumstances where they are over-holding under the terms of expired occupational leases, extend the terms of the expired leases to a date not earlier than 31 May 2023 and not later than 31 December 2023 and include an option to renew the lease for a 5 year period, (ii) obtain landlord consent to assign the occupational leasehold properties; and (iii) obtain landlord consent to the proposed Permanent TSB works to be carried out. Permanent TSB and Ulster Bank have agreed that in the event that Ulster Bank did not complete steps (i), (ii) and (iii) as described above by 15 April 2022 (or such other later date as is applicable pursuant to the terms of the Transaction Documents) in respect of a particular occupational lease then either party may elect not to assign that occupational lease. Where this election is exercised (by either party), Permanent TSB is under an obligation to use all reasonable endeavours to find and sign a legally binding agreement by 1 November 2022 for alternative premises in the same town in Ireland as the relevant occupational lease premises, which must be suitable for opening and operating as a ground floor "on street" retail bank branch by Permanent TSB within 12 months of 15 April 2022. While there are a number of mitigants in place to ensure that these properties are transferred, there is a remote risk the non-assignment of such leases may have a material adverse effect on the operations and financial results of the Enlarged Group. As at the Latest Practicable Date, neither Permanent TSB or Ulster Bank has elected not to assign any of the occupational lease interests and it remains the intention of both parties to complete all assignments as contemplated in the Transaction Documents.

10. The costs of the Transaction may exceed expectations

The PTSB Group's transaction-related costs may exceed expectations. The Enlarged Group will also incur a number of costs in relation to the Transaction, including post-Completion costs, in order to successfully combine the operations of the PTSB Group and the Target Business. In addition, the PTSB Group will incur legal, accounting and other fees and costs relating to the Transaction, some of which are payable by the PTSB Group whether or not Completion occurs.

11. The Transaction's success will be dependent upon Ulster Bank's organisational capacity being sufficient to undertake the Transaction

Ulster Bank's intention to withdraw from the Irish market may have a negative impact on its workforce and lead to staff shortages and the need to reallocate and divert its staff to cater for the demands of the withdrawal. If Ulster Bank experiences an unplanned level of reduced organisational capacity prior to Completion, it may not have sufficient resources and capacity to, amongst other things, effectively migrate the Target Business from Ulster Bank to Permanent TSB (or its service providers).

SECTION B: MATERIAL RISKS RELATING TO THE ENLARGED GROUP AS A RESULT OF THE TRANSACTION

The Enlarged Group's success will be dependent upon its ability to integrate the Target Business and deliver the value of the combined underlying businesses and assets; the full financial benefits and synergies expected from the Enlarged Group may not be fully achieved

The success of the Enlarged Group will depend, in part, on the effectiveness of the integration process and the ability of the Enlarged Group to realise the anticipated financial benefits and synergies from combining the respective businesses and assets.

In particular, some of the key integration challenges of combining the businesses and assets include consolidation and co-ordinating services and operations, retaining key contracts, maintaining relationships with customers, suppliers, unions (both existing and new) and other employee representatives, harmonising business cultures, consolidating infrastructure, procedures, processes, facilities, systems and policies and compensation structures, aligning any gaps identified in respect of customer products, realising synergies, and retaining key employees of the Enlarged Group (as detailed further below). If the Enlarged Group does not properly manage these challenges, they may affect the effective running of the business in the ordinary course and the efficient allocation, including redeployment, of resources in the Enlarged Group.

While the Directors believe that the financial benefits and synergies of the Transaction and the costs associated with the Transaction have been reasonably estimated, unanticipated events or liabilities may arise or become apparent which result in a delay or reduction in the benefits anticipated to be derived from the Transaction, or in costs significantly in excess of those estimated. No assurance can be given that the integration process will deliver all or substantially all of the expected benefits or realise any such benefits within the assumed timeframe, or that the costs to integrate and achieve the financial benefits and synergies will not be higher than anticipated.

Further, the demands that the integration process may have on management time could result in diversion of the attention of the PTSB Group's management and employees from ongoing operations, pursuing other potential business opportunities and may cause a delay in other projects currently contemplated by the PTSB Group. As a result, the underlying business may not perform in line with management expectations.

To the extent that the Enlarged Group is unable to efficiently integrate the operations of the PTSB Group and the Target Business, realise anticipated financial benefits and synergies, retain key personnel and avoid unforeseen costs or delay, there may be a material adverse effect on the business, financial condition, operating or financial results and/or prospects of the Enlarged Group.

2. The Enlarged Group's success will be dependent on the capacity and resilience of its IT systems

The Enlarged Group's future success depends upon the capacity and resilience of Permanent TSB's IT systems. The Enlarged Group's business is dependent on technology and its IT systems are critical for the effective management of its operations. The Enlarged Group will depend upon its IT systems having the capacity to support the onboarding activities and additional customer volumes expected as a result of the Transaction. Additionally, damage to the reputation and brand of the Enlarged Group may arise from such technology failures.

The Enlarged Group is exposed to risks in regard to the failure or outage of its IT systems, the risk of cybercrime and the unauthorised access to its IT systems. In order for the Enlarged Group to continue its operations effectively, it must maintain its systems in good working order. If the Enlarged Group's IT systems fail, even for a short period of time, it could be unable to serve some or all customers' needs on a timely basis.

The occurrence of any failures, breaches or interruptions in the Enlarged Group's IT systems and operations infrastructure could cause significant disruption to its business, operations, or damage to its reputation resulting in a loss of revenue and potentially higher costs in the future, which could have an adverse effect on its business, financial condition, results of operations and/or prospects.

3. The Enlarged Group will be reliant on third party providers of services

Following Completion, the Enlarged Group will rely on Pepper to provide loan servicing and support functions in respect of the Target Business. Any interruption in the services to be provided by Pepper or deterioration in performance of the outsourced service could impair the timing and quality of the Enlarged Group's services to its customers.

Furthermore, if the contract with Pepper were to be terminated, the Enlarged Group might not be able to find alternative service providers on a timely basis or on as favourable terms or may suffer disruption as a result of the transition of functions to one or more new service providers. The occurrence of any of these events could have an adverse effect on the PTSB Group's and, following Completion, the Enlarged Group's business, reputation, results of operations, regulatory and financial condition.

4. The Enlarged Group's success will be dependent on the organisational capacity of Permanent TSB to manage the migration and integration of the Target Business

The Target Business is highly complementary to Permanent TSB's existing Irish business and is supportive of Permanent TSB's financial objectives, however, Permanent TSB will be required to maintain sufficient organisational resources and capacity in order to manage the migration and integration of the Target Business. There may be financial, operational, regulatory, customer and reputational implications if Permanent TSB fails (either wholly or in part) to meet its objectives and could place strain on the operational capacity of the Enlarged Group. The scale and nature of the Transaction may cause disruption to resourcing through heightened uncertainty, increased workloads and short-term resource stretch.

5. As a result of the Transaction the Enlarged Group may fail to retain key management or other personnel

The calibre and performance of the PTSB Group and the senior management and other key employees that will transfer from Ulster Bank to Permanent TSB as part of the Transaction, once a part of the Enlarged Group, will be critical to the success of the Enlarged Group. Such employees have key relationships with clients, knowledge of key IT systems and processes, among other skills, and are key to the successful operations and prospects of the Enlarged Group. Maintaining good relationships with employees, unions (both existing and new) and other employee representatives will be crucial in this regard. There can be no assurance that key personnel will not leave the PTSB Group, Ulster Bank or the Enlarged Group, following the Transaction, either as a result of the Transaction or for other reasons. Such attrition may take place either before the Transaction is completed or during the Enlarged Group's integration process following the Transaction, or thereafter. Failure of the Enlarged Group to incentivise or otherwise remunerate employees appropriately could result in a loss of key personnel. The loss of a significant number of management or key employees could adversely affect the Enlarged Group's ability to run its businesses (through an inability to execute business operations and strategies effectively) and could have a material adverse effect on the Enlarged Group's business, financial condition and results of operations.

6. The acquisition of the Asset Finance Business may increase Permanent TSB's risk profile

The Asset Finance Business being acquired from Ulster Bank as part of the Transaction is a new business line for Permanent TSB. Such expansion of Permanent TSB's business activities and the introduction of new products exposes Permanent TSB to a number of risks and challenges. Permanent TSB may have limited or no experience in the new business activities and may not compete effectively in these areas. In addition, the new business activities may not meet expectations for profitability.

Permanent TSB is, in relation to the Asset Finance Business, subject to all of the risks and uncertainties associated with any new business enterprise which could have an adverse effect on Permanent TSB's financial condition, results of operations and prospects, with a consequential adverse effect on returns to Shareholders and the market value of the Shares.

As Permanent TSB is not involved in the Asset Finance Business, Permanent TSB has not yet adopted policies or procedures in relation to the management of such a portfolio. This creates a risk that the integration of the Asset Finance Business by Permanent TSB will increase its risk profile.

In addition, the Asset Finance Business is not currently regulated by the Central Bank, however, this is subject to change, thereby creating a risk for the Enlarged Group that it will be required to adhere to certain regulatory requirements that are not currently understood. This may expose the Enlarged Group to increased regulatory risk.

7. The Trustee Agreement may increase Permanent TSB's risk profile

At the election of Ulster Bank, Permanent TSB has agreed to act as trustee and provide certain account services for Ulster Bank customers who have not withdrawn their deposit or current account balances held with Ulster Bank prior the surrender of its licence. If Ulster Bank makes that election, the provision of such trustee services for ex-Ulster Bank customers will be a new service for Permanent TSB and may therefore expose Permanent TSB to additional risks. It is expected that Permanent TSB will be taking on two roles: (a) trustee service provider and (b) account holder / paying bank. Permanent TSB is required to perform the obligations under the Trustee Agreement with limited experience in this area. Permanent TSB is also subject to all of the risks and uncertainties associated with any new business enterprise which could have an adverse effect on Permanent TSB's financial condition, results of operations and prospects, with a consequential adverse effect on returns to Shareholders and the market value of the Shares. The significant duration of the Trustee Agreement and the requirement to appoint a successor upon termination of the agreement by Permanent TSB in order for the termination to take effect (subject to certain conditions) further increases Permanent TSB's risk profile.

8. The use of Permanent TSB's existing cash resources in connection with the Transaction may affect the Enlarged Group's business flexibility in the longer term

The consideration to be paid by Permanent TSB to Ulster Bank for the Target Business shall be made up of cash and non-cash consideration. Permanent TSB intends to use its existing cash resources to part-finance the cash element to be paid by Permanent TSB to Ulster Bank. In the longer term, the use by Permanent TSB of its existing cash reserves could have the effect, among other things, of reducing the Enlarged Group's flexibility to respond to changing business and economic conditions and could also reduce funds available for the Enlarged Group's investments in capital expenditures, further M&A activities, share repurchases and other activities and may create competitive disadvantages for the Enlarged Group relative to other companies.

9. Permanent TSB's use of liquidity operations to finance the Transaction may increase the risk of a liquidity regulatory breach by the Enlarged Group in the short term

Permanent TSB's intended use of ECB liquidity operations in the short-term to support the financing of the cash element of the consideration to be paid by Permanent TSB to Ulster Bank in connection with the Transaction could trigger a breach in Permanent TSB's, and following Principal Completion, the Enlarged Group's liquidity regulatory requirements. A breach of Permanent TSB's, and following Principal Completion, the Enlarged Group's liquidity regulatory requirements could result in regulatory action by a Governmental Authority including penalties, a fine and increased liquidity regulatory requirements.

10. The Transaction is expected to have an initial adverse impact on the Enlarged Group's capital ratios, reducing the level of capital headroom above regulatory obligations and/or market expectations

As a result of the Transaction, the Enlarged Group's capital ratios will be reduced (relative to the PTSB Group's) and, as a result, this increases the risk of the Enlarged Group failing to meet its regulatory capital obligations. Additionally, this could restrict its ability to invest in capital expenditures, carry out further M&A activities, share repurchases and other activities and may create competitive disadvantages for the Enlarged Group relative to other companies.

As a result, the Enlarged Group may need to obtain additional capital in the future which may not be available on commercially favourable terms, or at all. Moreover, should the Enlarged Group's capital ratio fall close to regulatory minimum levels, the Enlarged Group may need to adjust its business practices, including reducing the risk and leverage of certain activities or undertaking asset disposals. If the Enlarged Group is unable to maintain satisfactory capital ratios, its credit ratings may be lowered and its cost of funding may therefore increase. The Enlarged Group may also become subject to regulatory sanctions. Any of these factors could have a material adverse effect on the Enlarged Group's business, financial condition, results of operations and prospects.

11. Permanent TSB's deposit acquisition strategy may not achieve its objectives and may affect the Enlarged Group's profitability in the longer term

Permanent TSB intends to utilise a combination of market and ECB liquidity operations to support the initial financing of the cash element of the consideration to be paid by Permanent TSB to Ulster Bank in connection with the Transaction. This funding is expected to be replaced by customer deposits over a 12-18 month time horizon post-acquisition. There is a risk that this funding may need to be replaced by external third party debt in the event that Permanent TSB's deposit acquisition strategy does not fully achieve its objectives. The requirement to rely on third party debt could have the effect, among other things, of reducing the Enlarged Group's future profitability while increasing its refinancing risk and could also reduce funds available for the PTSB Group's, and following Principal Completion, the Enlarged Group's investments in capital expenditures, further M&A activities, share repurchases and other activities and may create competitive disadvantages for the Enlarged Group relative to other companies with lower debt levels.

12. The Enlarged Group may be subject to increased regulatory scrutiny

The integration of the Target Business into the PTSB Group may expose Permanent TSB to risks associated with the demands of meeting increasing regulatory expectations. Increased regulatory requirements and future regulatory initiatives may expose Permanent TSB to increased regulatory scrutiny, which could have a material adverse effect on its business, results of operations, financial condition and prospects.

13. Increased complexity for the Enlarged Group in respect of anti-money laundering and counter terrorism regulation

The PTSB Group and, following each Completion, the Enlarged Group, is subject to laws and regulations aimed at preventing money laundering, corruption and the financing of terrorism. These laws and regulations are constantly changing and monitoring compliance with these areas requires significant technical ability and may result in additional financial costs. The PTSB Group's and, following each Completion, the Enlarged Group's obligations in this regard following each Completion may become more onerous given the scale and complexity of the Transaction.

Although the PTSB Group and, following each Completion, the Enlarged Group, has policies and procedures that it believes are sufficient to comply with currently applicable anti-money laundering, anti-corruption and sanctions rules and regulations, and best practices, it cannot guarantee that such policies and procedures completely prevent, especially as its business expands, situations of money laundering or corruption, including actions by the Group's employees, agents, merchants, third-party suppliers or other related persons for which the Group might be held responsible. Such events may have severe consequences, including litigation, sanctions, administrative measures, fines, penalties and reputational consequences, which could have a material adverse effect on the Enlarged Group's business, financial condition and results of operations.

14. The Enlarged Group may be required to carry out remediation in respect of the Target Business Loans which could have an adverse impact on the Enlarged Group.

As part of the Transaction, Ulster Bank is required to remediate certain defined categories of issues in respect of the Target Business either in advance of the Completion Date or as soon as possible after the relevant Completion Date. Notwithstanding this, the PTSB Group and, following each Completion, the Enlarged Group, may receive claims or complaints from customers in respect of these issues (or other unidentified issues that ought to be remediated). As a result, the Enlarged Group may be required to remedy these issues (notwithstanding Ulster Bank's obligations) and such issues could result in (i) restrictions or limitations on the Enlarged Group's operations, (ii) adverse publicity or negative perceptions regarding the Enlarged Group; and/or (iii) diverting attention from the day-to-day management of the business.

PART IV - HISTORICAL FINANCIAL INFORMATION

SECTION A: ACCOUNTANTS' REPORT ON THE CARVE-OUT HISTORICAL FINANCIAL INFORMATION OF ULSTER BANK RELATING TO THE TARGET BUSINESS

24 May 2022

The Directors Permanent TSB Group Holdings plc 56-59 St. Stephen's Green IE-D2 Dublin, Leinster Ireland

Dear Sirs

The assets and business of Ulster Bank Ireland DAC that are to be transferred to Permanent TSB Group Holdings plc (the "Target Business").

The Target Business includes (i) the entire performing non-tracker mortgage book (including undrawn facilities) and those non-performing probationary loans within the non-tracker mortgage book, (ii) the entire performing micro-SME/business direct loan book (including undrawn facilities), (iii) the entire asset finance loan business, including the rights in the Lombard IT platform and the non-performing loans within the Lombard business, (iv) branch properties and (v) transfer of employees to support the acquired business.

We report on the financial information set out in Section B of PART IV of the circular dated 24 May 2022 of Permanent TSB Group Holdings plc (the "Circular") for the years ended 31 December 2019, 31 December 2020 and 31 December 2021 (the "Financial Information").

This report is required by Listing Rule 12.5.21 and is given for the purpose of complying with that rule and for no other purpose.

Save for any responsibility which we may have to those persons to whom this report is expressly addressed and which we may have to ordinary shareholders as a result of the inclusion of this report in the Circular, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Listing Rule 12.4.1 (6), consenting to its inclusion in the Circular.

Opinion

In our opinion, the Financial Information gives, for the purposes of the Circular dated 24 May 2022, a true and fair view of the state of affairs of the Target Business as at the dates stated and of its profits, cash flows and changes in equity for the periods then ended in accordance with the basis of preparation set out in note 1.2 to the Financial Information.

Responsibilities

The Directors of Permanent TSB Group Holdings plc are responsible for preparing the Financial Information in accordance with the basis of preparation set out in note 1.2 to the Financial Information.

It is our responsibility to form an opinion on the Financial Information and to report our opinion to you.

Basis of Preparation

The Financial Information has been prepared for inclusion in the Circular on the basis of the accounting policies set out in note 1.2 to the Financial Information.

Basis of opinion

We conducted our work in accordance with Standards for Investment Reporting issued by the Financial Reporting Council in the United Kingdom. We are independent in accordance with the FRC's Ethical Standard as applied to Investment Circular Reporting Engagements, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Our work included an assessment of evidence relevant to the amounts and disclosures in the Financial Information. It also included an assessment of significant estimates and judgments made by those responsible for the preparation of the Financial Information and whether the accounting policies are appropriate to the entity's circumstances, consistently applied and adequately disclosed.

We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Financial Information is free from material misstatement whether caused by fraud or other irregularity or error.

Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.

Conclusions Relating to Going Concern

In performing our work on the Financial Information, prepared on the basis that the acquisition of the Target Business by Permanent TSB Group Holdings plc completes, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the Financial Information is appropriate.

Based on the work we have performed, we have not identified any material uncertainties related to events or conditions that, individually or collectively, may cast significant doubt on the Target Business' ability to continue as a going concern for a period of at least twelve months from the date of the Circular.

Yours faithfully

Ernst & Young Chartered Accountants

SECTION B: HISTORICAL FINANCIAL INFORMATION `

Income Statements

For the years ended 31 December 2021, 2020 and 2019

	Year ended		Year ended	Year ended
	Note	31 December 2021	31 December 2020	31 December 2019
		€m	€m	€m

Interest income	4	214	216	208
Interest expense	4	(1)	(6)	(7)
Net interest income		213	210	201
Fees and commission income		1	1	1
Total operating income		214	211	202
Administrative, staff and other expenses (excluding exceptional
items)	5	(149)	(150)	(141)
Bank levy and other regulatory charges	6	(35)	(20)	(16)
Depreciation of property and equipment	11	(1)	(1)	(1)
Impairment of property and equipment	11	1	-	(1)
Exceptional items	7	-	(1)	(6)
Total operating expenses		(184)	(172)	(165)
Operating profit before credit impairment and taxation		30	39	37
Credit impairment releases/(losses)
Loans and advances to customers	10	42	(22)	13
Total credit impairment losses		42	(22)	13
Operating profit before taxation		72	17	50
Taxation	8	-	-	-
Profit and total comprehensive income for the year		72	17	50
Attributable to:
Equity holders of the parent*		72	17	50

*The Target Business is not a separate legal entity and has no separate equity. UBIDAC is considered the parent entity of the Target Business.

The Target Business had no recognised income or expense in the financial years presented other than those dealt with in the Income Statement.

Statements of Financial Position

As at 31 December 2021, 2020 and 2019

		Year ended	Year ended	Year ended
		31 December 2021	31 December 2020	31 December 2019
	Note	€m	€m	€m

Assets
Loans and advances to customers	9	7,494	7,521	6,990
Property and equipment	11	8	8	9
Other assets	17	6	2	2
Prepayments and accrued income	17	1	1	1
Total assets		7,509	7,532	7,002

Liabilities
Other liabilities and accruals	12	25	21	22
Provisions	13	4	3	7
Total liabilities		29	24	29
Equity
Invested capital		7,480	7,508	6,973
Total equity		7,480	7,508	6,973
Total liabilities and equity		7,509	7,532	7,002

Statements of Changes in Equity

For the years ended 31 December 2021, 2020 and 2019

	Invested capital attributable to equity owners of the parent
	Balance as at 1 January	Total comprehensive income for the year	Increase / (decrease) in funding liability to parent entity	Balance as at 31 December
	€m	€m	€m	€m
2021 financial year	7,508	72	(100)	7,480
2020 financial year	6,973	17	518	7,508
2019 financial year	5,952	50	971	6,973

Statements of Cash Flows

For the years ended 31 December 2021, 2020 and 2019

	Year ended	Year ended	Year ended
	31 December 2021	31 December 2020	31 December 2019
	€m	€m	€m
Cash flows from operating activities
Operating profit before taxation for the year	72	17	50
Adjusted for non-cash items and other adjustments:
Depreciation, amortisation and impairment of property, equipment and intangibles	-	1	2
Impairment (write-back)/charge on:
- Loans and advances to customers	(42)	22	(13)
Other provisions	2	-	(1)
	32	40	38
(Increase)/decrease in operating assets
Other assets	(4)	-	4
Prepayments and accrued income	-	-	3
Loans and advances to customers	69	(553)	(1,005)
Increase/(decrease) in operating liabilities
Other liabilities and accruals	4	(1)	-
Provisions	(1)	(4)	(10)
	68	(558)	(1,008)
Net cash flow from operating activities before tax	100	(518)	(970)
Tax paid	-	-	-
Net cash flow from operating activities	100	(518)	(970)
Cash flows from investing activities
Purchase of property and equipment	(1)	-	(1)
Sale of property and equipment	1	-	-
Net cash flows from investing activities	-	-	(1)
Cash flows from financing activities
(Decrease)/increase in invested capital	(100)	518	971

Net cash flows from financing activities	(100)	518	971
Increase in cash and cash equivalents	-	-	-
Analysis of changes in cash and cash equivalents
Cash and cash equivalents as at 1 January	-	-	-
Increase in cash and cash equivalents	-	-	-
Cash and cash equivalents as at 31 December	-	-	-

1. General information, basis of preparation and significant accounting policies

1.1 General information

Ulster Bank Ireland Designated Activity Company ("UBIDAC"), a wholly owned subsidiary of NatWest Group plc ("NatWest"), is incorporated as a designated activity company and registered in the Republic of Ireland, and together with its subsidiary and associated undertakings is referred to as "UBIDAC Group".

In February 2021, NatWest announced that it would begin a phased withdrawal from the Republic of Ireland over the coming years. As part of this process, in December 2021 Permanent TSB plc ("PTSB"), UBIDAC and NatWest entered into binding agreements for the proposed sale (the "Transaction") of the Target Business, as defined below.

The "Target Business" is defined as the following parts of the UBIDAC business:

the entire performing non-tracker mortgage book (including undrawn facilities) of UBIDAC;
those non-performing probationary loans within the non-tracker mortgage book of UBIDAC that have nil arrears, the customer is meeting contractual payments and is on a 12-month probation period;
the entire performing micro-SME/Business Direct ("Business Direct") loan book (including undrawn facilities) of UBIDAC;
the entire asset finance loan business of UBIDAC including the rights in the Lombard IT platform and the non-performing loans within the Lombard business; and
25 branches in UBIDAC's branch network, being the Branch properties.

It is also expected that 400-500 UBIDAC employees who work wholly or mainly to support the Target Business will be entitled to transfer to PTSB under the TUPE regulations. The final number of employees transferring will be agreed and confirmed in advance by the parties.

No liabilities or obligations of UBIDAC or UBIDAC Group other than those related to the Target Business shall transfer or be assumed by PTSB pursuant to the Transaction.

1.2 Basis of preparation

Statement of compliance

The Target Business has not comprised a separate legal entity or a separate group of entities for the years ended 31 December 2021, 2020 and 2019 ("Track Record Period"). The carve out historical financial information of the Target Business ("Carve-out HFI") has been prepared specifically for the purpose of the Class 1 Circular prepared in connection with the Transaction. The assets and liabilities, results of operations and cash flows of the Target Business have been carved out from the accounting records of UBIDAC using the historical assets and liabilities, results of operations and cash flows of UBIDAC attributable to the Target Business. Consequently, the Carve-out HFI is prepared on a different basis from the statutory financial statements of UBIDAC for the corresponding three years albeit both are prepared in accordance with IFRS.

The Carve-out HFI has been prepared in accordance with the accounting policies of PTSB applied in its consolidated financial statements for the year ended 31 December 2021, the requirements of the Euronext Dublin Listing Rules and in accordance with this basis of preparation.

The basis of preparation describes how the financial information has been prepared in accordance with International Financial Reporting Standards and interpretations issued by the IFR Interpretations Committee (IFRIC) as adopted by the EU (together "IFRS"), except as described below. IFRS does not provide for the preparation of carve out financial information, and accordingly, in preparing the Carveout HFI, certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 Standards. for Investment Reporting applicable to public reporting engagements on historical financial information issued by the UK Financial Reporting Council have been applied. The application of these conventions results in the following material departures from IFRS. In all other material respects, IFRS has been applied.

The Carve-out HFI of the Target Business is not prepared on a consolidated basis and therefore does not comply with the requirements of IFRS 10 Consolidated Financial Statements. The Carve-out HFI has been prepared on a basis that combines the results and assets and liabilities of each of the elements that constitutes the Target Business, derived from the accounting records of UBIDAC Group, by applying the principles underlying the consolidation procedures of IFRS 10.
The Carve-out HFI does not constitute a set of general-purpose financial statements under paragraph 3 of IAS 1 Presentation of Financial Statements and consequently there is no explicit and unreserved statement of compliance with IFRS as contemplated by paragraph 14 of IAS 1.

The following summarises the key accounting and other principles applied in preparing the Carve-out HFI:

Mortgages

The key criterion for inclusion of historical financial information throughout the Track Record Period is the identification of a customer's mortgage accounts that are associated with the performing nontracker mortgage book or probationary non-performing non-tracker mortgages with no arrears. Any mortgage accounts containing tracker sub-accounts in combination with non-tracker sub-accounts are excluded. Furthermore, certain mortgages subject to customer complaints procedures have been excluded.

Loans to customers include all gross loans, accrued interest and deferred fees that relate to the Target Business perimeter. Loss allowances for expected credit losses ("ECL") have been recognised based on the specific customer loans in the Target Business. Interest income and fee income are directly attributable to the assets of the Target Business.

Asset finance loan business (Lombard)

The Lombard business loans included in the Carve-out HFI represent the entire Lombard business throughout the Track Record Period. The Lombard IT platform is not recognised in the UBIDAC financial statements hence there is no value attributed to the Lombard IT platform in the Carve-out HFI.

The Lombard business is ring fenced on the UBIDAC ledger and therefore the loans to customers, interest income and ECL information which are directly attributable to the Target Business are taken directly from the ledger without allocation.

Business Direct loans

The Business Direct loans included in the Carve-out HFI are based on the performing loans throughout the Track Record Period.

Loans to customers includes all gross loans, accrued interest and deferred fees that relate to the Business Direct performing loan book. The loan balances are taken directly from the management information system for Commercial lending (which is reconciled to the ledger) on a monthly basis. Associated ECL

provisions are apportioned by the Credit Risk team based on data inputs. Interest income has been extracted directly from the system for the loans which relate to the Business Direct performing loan book.

Interest payable / funding charge

The Target Business was historically funded and hedged on a UBIDAC Group basis and therefore there are no funding instruments, balances or hedging relationships directly attributable to the Target Business. The funding charge for the Target Business was apportioned on the basis of the invested capital of the Target Business as a proportion of the funding liabilities for UBIDAC.

Operating costs allocation

Expenses include those which are directly attributable to the Target Business and an apportionment of central overhead expenses based on appropriate product, portfolio or other size metrics reflective of the nature of the allocated costs.

Historically, the central overhead expenses have included those of executive senior management and non-customer facing support teams. Whilst these amounts are apportioned based on appropriate product, portfolio or other size metrics, they are not necessarily representative of the amounts that would have been incurred by the Target Business as a standalone entity. Actual costs that may have been incurred if the Target Business had been a standalone entity would depend on a number of factors, including the chosen organisational structure, functions outsourced or performed by employees and strategic decisions made.

The costs of the staff who will be entitled to transfer to PTSB under the TUPE Regulations have been attributed 100% to the Carve-out HFI. Any associated payroll balances that are not separately identifiable have been allocated based on attributable staff costs as a proportion of overall staff costs.

Allocation of conduct provisions

UBIDAC conduct provisions have been assessed to determine whether the provisions have elements attributable to the Target Business. In the case of those which have attributable elements, an exercise has been undertaken to determine the number of accounts in the Target Business as a proportion of the total accounts assessed under the provision.

Property, plant and equipment

Branch properties that are included in the Target Business perimeter are being transferred as locations only. The assets, including the cash balances and fixtures and fittings, held in those locations are not part of the sale process and as such will not be included in the Carve-out HFI.

Property balances are based on 25 in-scope branch properties. Directly attributable property costs include depreciation and impairment costs plus appropriately allocated costs from UBIDAC to reflect the true cost base. Property provisions costs are also included where appropriate.

Taxation

Current tax charges or credits are based on the profit or loss shown in the Carve-out HFI income statement. As the Target Business does not represent a legal entity, tax owing to/from Revenue Commissioners will not be shown on the balance sheet. Similarly, tax losses are not transferring as part of the Transaction and belong to the UBIDAC legal entity in as a whole. Although it is not possible to attribute a specific quantum of the tax losses to the Target Business, any current tax charge computed that is attributable to the Target Business is deemed to be offset by tax losses available to UBIDAC in the Track Record Period, that would have been applied to the Target Business.

Invested capital

The Target Business did not form a separate legal entity or group of entities throughout the Track Record Period and as described above, a number of items in the income statement and on the balance sheet are presented as allocations of transactions of the wider UBIDAC Group. In addition, the Transaction is primarily a sale of loan assets and as such there are no directly connected liabilities, funding or equity subject to transfer. Therefore, it is not possible to compute an equity or a funding balance, and both equity and funding will be represented by a balancing Invested Capital line in the balance sheet which would also include a combination of the overall intra-group receivables and payables with UBIDAC Group, which cannot be separately identified or allocated throughout the Track Record Period.

Cash

There is no cash associated with the Transaction and the cash held in the Branch properties is not in scope as the branches are being sold as locations only. Therefore, there is no cash on the balance sheet of the Carve-out HFI, the cash flow statements have opening and closing balances of zero and any cash flow activity associated with the due to/from remaining UBIDAC entity is shown as movements in the invested capital.

Accruals and other liabilities

Liabilities include those which are directly attributable to the Target Business, an allocation of other liabilities and accruals where an identifiable element relates to the Target Business and an apportionment of central overhead related liabilities based on an appropriate product, portfolio or other metric reflective of the associated costs.

The principal accounting polices applied in the preparation of the Carve-out HFI are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

Basis of measurement

The Carve-out HFI has been prepared on the historical cost basis.

Functional and presentation currency

This Carve-out HFI is presented in Euro, which is the functional currency of the Target Business. Except where otherwise indicated, financial information presented in Euro has been rounded to the nearest million (m).

Going concern

This Carve-out HFI has been prepared on a going concern basis. PTSB management has considered the planned acquisition of the Target Business and expects that the appropriate funding will be available for future operations after the acquisition occurs. PTSB management expects that following acquisition, the Target Business will continue operating. The forecasts and projections of the Target Business, taking account of possible changes in trading performance, and including stress testing and scenario analysis, show that the Target Business will be able to operate at adequate levels of both liquidity and capital for the foreseeable future.

1.3 Summary of significant accounting policies

(i) Foreign currencies

Foreign currency transactions are translated into the functional currency of the Target Business, being the currency of the primary environment in which the Target Business operates at the exchange rate prevailing at the date of the transaction or valuation where items are re-measured. Monetary assets and liabilities denominated in foreign currency are translated at the exchange rates prevailing at the reporting date. Exchange movements are recognised in the income statement.

(ii) Recognition of income and expenses

(a) Interest and similar income and expenses

For all interest bearing financial instruments, interest income or expense is recorded using the effective interest rate ("EIR") method.

The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:

the gross carrying amount of the financial asset; or
the amortised cost of the financial liability.

The calculation of the EIR includes transaction costs, premiums or discounts, and fees paid or received that are an integral part of the EIR. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.

Interest income is calculated by applying the EIR to the gross carrying amount of financial assets, except for financial assets that have subsequently become credit-impaired (or 'Stage 3'), for which interest revenue is calculated by applying the EIR to their amortised cost (i.e. net of Expected Credit Loss ("ECL") provision).

(b) Fees and commission income and expense

As outlined above, fees and commission income and expense that are integral to the EIR on a financial asset or liability are included in the measurement of the EIR.

Other fees and commission income are recognised as the related services are performed.

(c) Exceptional items

Certain items, by virtue of their nature and amount are disclosed separately in order for the user to obtain appropriate understanding of the financial information. These items would not ordinarily occur while carrying out normal business activities.

Exceptional items include material restructuring costs.

(d) Bank levy and other regulatory charges

Bank levy and other regulatory charges consist of Deposit Guarantee Scheme ("DGS") fees, Central Bank Industry Funding levy, BRRD levy, ECB fees and a bank levy.

A bank levy, payable to the Government by the parent of the Target Business, is provided for on the occurrence of the event identified by the legislation that triggers the obligation to pay the levy and allocated as described in Note 1.2.

(iii) Employee Benefits

(a) Defined contribution pension plan

The Target Business participates in a defined contribution pension scheme, under which the Target Business pays fixed contributions to a separate entity.

The contribution payable to a defined contribution plan is recorded as an expense under administration, staff and other expenses. Unpaid contributions are recorded as a liability.

(b) Defined benefit pension plan

The Target Business contributes to a number of defined benefit pension schemes in respect of its employees. As the plans are not operated by the Target Business, the contributions payable are recorded as an expense under administration, staff and other expenses. As these defined benefit schemes are not operated by the Target Business and do not form part of the Transaction, no pension assets or liabilities are recognised on the balance sheet of the Target Business.

(c) Short term employee benefits

Short term employee benefits, such as salaries and other benefits, are accounted for on an accruals basis over the period in which the employee's service is rendered. Bonuses are recognised where the Target Business has a legal or constructive obligation to employees that can be reliably measured.

(d) Termination payments

Termination benefits may be payable when employment is terminated by the Target Business before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Target Business recognises termination benefits at the earlier of the following dates: (a) when the Target Business can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees where the offer is irrevocable.

(iv) Current and deferred taxation

Taxation comprises both current and deferred tax and is recognised in the income statement.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years (ROI: 12.5% from 1 April 2015).

As the Target Business does not represent a legal entity, tax losses are not transferring as part of the Transaction and belong to the UBIDAC legal entity as a whole. Therefore deferred tax in respect of these losses has not been recognised on the Target Business balance sheet. Although it is not possible to attribute a specific quantum of the tax losses to the Target Business, any current tax charge computed that is attributable to the Target Business is deemed to be offset by tax losses available to UBIDAC in the Track Record Period that would have been applied to the Target Business.

(v) Financial instruments

(a) Classification of financial assets

Financial assets are recorded at fair value and are classified, on initial recognition, as amortised cost, fair value through OCI (FVOCI), fair value through profit or loss (FVTPL), elected at FVOCI or designated at FVTPL.

With the exception of assets classified as FVTPL, the initial fair value of a financial asset includes direct and incremental transaction costs. The fair value of assets traded on an active market will be the price that would be received if an asset were to be sold in an orderly transaction between market participants at the measurement date. In the absence of an active market, the Target Business establishes a fair value using various valuation techniques that use observable and unobservable inputs. These include recent transactions in similar items, discounted cash flow projections, option pricing models and other valuation techniques used by market participants.

Debt instruments

Debt instruments, including loans and advances to customers, are classified into one of the following measurement categories:

Amortised cost; or
FVOCI; or
FVTPL; or
Designated at FVTPL.

Classification and subsequent measurement of debt instruments depend on:

(i) The Target Business' business model for managing the asset; and
(ii) The cash flow characteristics of the asset.

(i) Business model assessment

The business model reflects how the Target Business manages the assets in order to generate cash flows. That is, whether the objective of the Target Business is solely to collect the contractual cash flows from the assets (HTC) or is to collect both the contractual cash flows and cash flows arising from the sale of assets (HTC&S). If neither of these is applicable, then the financial assets are classified as part of 'other' business model and measured at FVTPL.

The Target Business assesses its business model at a portfolio level based on how it manages groups of financial assets to achieve its business objectives. The observable factors considered include:

How the performance of the business model and the financial assets held within that business model are evaluated and reported to Target Business Executive Committee;
How risks that affect the performance of the business model are managed;
How business managers are compensated; and
The timing, frequency and volume of sales.

(ii) Cash flow characteristics assessment

The Target Business carries out the cash flow characteristics assessment using the contractual features of an instrument to determine if they give rise to cash flows that are consistent with a basic lending arrangement. Contractual cash flows are consistent with a basic lending arrangement if they represent cash flows that are solely payments of principal and interest (the 'SPPI' test). Principal, for the purpose of this test, is defined as the fair value of the financial asset at initial recognition and may change over the life of the financial asset, for example, due to repayments or amortisation of the premium/discount. Interest is defined as the consideration for the time value of money and credit risk, which are the most significant elements of interest within a lending arrangement. If the Target Business identifies any contractual features that could significantly modify the cash flows of the instrument such that they introduce exposures to risk or volatility that are inconsistent with a basic lending arrangement, the related financial asset is classified and measured at FVTPL.

The Target Business carries out the SPPI test based on an assessment of the contractual features of each product on origination and subsequently at every reporting period.

Based on the above assessments, the Target Business classifies its loans and advances to customers at amortised cost.

Loans and advances to customers are measured at amortised cost if they are held within a business model whose objective is to hold the assets to collect contractual cash flows, where those cash flows represent solely payments of principal and interest. After initial measurement, debt instruments in this category are measured at amortised cost. Interest income on these instruments is recognised in interest income using the EIR method. The EIR is the rate that discounts estimated future cash payments or receipts through the expected life of a financial asset to the gross carrying amount of a financial asset. Amortised cost is calculated by taking into account any discount or premium on acquisition, transaction costs and fees that are an integral part of the EIR.

Impairment on debt instruments measured at amortised cost is calculated using the ECL approach. Loans measured at amortised cost are presented net of allowance for ECL in the SOFP.

(b) Impairment of financial assets

The Target Business recognises loss allowances for ECL for the following financial instruments that are not measured at FVTPL:

Financial assets at amortised cost; and
Loan commitments.

Measurement

ECL is measured by the Target Business in a way that reflects:

an unbiased probability weighted amount that is determined by evaluating a range of possible outcomes;
the time value of money; and
reasonable and supportable information that is available without undue cost or effort at the reporting date and past events, current conditions and forecast of future economic conditions.

The amount of ECL recognised as a loss allowance depends on the change in credit risk of the financial instrument since origination and whether the credit risk on those financial instruments has increased significantly since initial recognition. In order to determine the appropriate ECL, a financial instrument is allocated to a stage dependent on the credit risk relative to when the financial instrument was originated:

Stage 1 includes financial instruments that have not had a significant increase in credit risk (SICR) since initial recognition. For these assets, 12-month ECL is recognised. 12-month ECL is the ECL that results from default events that are possible within 12 months of the reporting date. It is not the expected cash shortfalls over the 12-month period but the entire credit loss on an asset weighted by the probability that the loss will occur in the next 12 months. Therefore, all financial assets in scope will have an impairment provision equal to at least 12-month ECL;
Stage 2 includes financial instruments that have had a SICR since initial recognition but that does not have objective evidence of impairment. For these assets, lifetime ECL is recognised, being the ECL that results from all possible default events over the expected life of the financial instrument; and
Stage 3 includes financial assets that have objective evidence of impairment at the reporting date, i.e. are credit-impaired. For these assets, lifetime ECL is recognised.

The Target Business has adopted an ECL framework that reflects a component approach using Probability of Default ("PD"), Exposure At Default ("EAD") and Loss Given Default ("LGD")

components calibrated for IFRS 9 purposes. To adequately capture life-time expected losses, the Target Business also models early redemptions as a separate component within the ECL calculation.

The expected cash flows included in the ECL calculation are derived from cash flows arising from the loan contract or on the disposal of collateral. As the sale of loans is not part of the Target Business' normal recovery strategy, cash flows from this source are not considered a part of the ECL calculation.

Credit loss is the difference between all contractual cash flows that are due to an entity in accordance with the contract and all the cash flows that the entity expects to receive (i.e. all cash shortfalls), discounted at the original EIR.

Expected life

When measuring ECL, the Target Business must consider the maximum contractual period over which the Target Business is exposed to credit risk. All contractual terms should be considered when determining the expected life, including prepayment options, extension and rollover options. For most instruments, the expected life is limited to the remaining contractual life, adjusted as applicable for expected prepayments.

For instruments in Stage 2 or Stage 3, loss allowances will cover ECL over the expected remaining life of the instrument.

Expert Credit Judgement

The Target Business' ECL accounting framework methodology, in line with the requirements of the standard, requires the Target Business to use its experienced credit judgement to incorporate the estimated impact of factors not captured in the modelled ECL results, in all reporting periods.

Effective Interest Rate

The discount rate used by the Target Business in measuring ECL is the EIR or an approximation thereof.

For undrawn commitments, the EIR, or an approximation thereof, is applied when recognising the financial assets resulting from the loan commitment.

Modification Policy for Financial Assets

The Target Business sometimes renegotiates or otherwise modifies the contractual cash flows of loans to customers. When this happens, the Target Business assesses whether or not the new items are substantially different to the original terms. The Target Business does this by considering, among others, the following factors:

If the borrower is in financial difficulty, whether the modification merely reduces the contractual cash flows to amounts the borrower is expected to be able to pay;
Whether any substantial new items are introduced such as a profit share/equity-based return that substantially affects the risk profile of the loan;
Significant extension of the loan term when the borrower is not in financial difficulty;
Significant change in the interest rate;
Change in the currency the loan is denominated in; and
Insertion of collateral, other security or credit enhancements that significantly affect the credit risk associated with the loan.

If the terms are substantially different, the Target Business derecognises the original financial asset and recognises a new asset at fair value and recalculates a new EIR for the asset. The date of renegotiation of the new financial asset is consequently considered to be the date of initial recognition for impairment calculation purposes, including for the purpose of determining whether a SICR has occurred. However, the Target Business also assesses whether the new financial asset recognised is deemed to be creditimpaired at initial recognition, especially in circumstances where the renegotiation was driven by the debtor being unable to make the originally agreed payments. Differences in the carrying amount are also recognised in profit or loss as a gain or loss on derecognition.

If the terms are not substantially different, the renegotiation or modification does not result in derecognition, and the Target Business calculates the gross carrying amount based on the revised cash flows of the financial asset and recognises a modification gain or loss in profit or loss. The new gross carrying amount is recalculated by discounting the modified cash flows at the original EIR.

Write-off policy

The Target Business writes off an impaired financial asset (and the related impairment allowance), either partially or in full, when there is no realistic prospect of recovery or on foot of a negotiated settlement. Indicators that there is no prospect of recovery include the borrower being deemed unable to pay due to their financial circumstances or the cost to be incurred in seeking recovery is likely to exceed the amount of the write-off. In circumstances where the net realisable value of any collateral has been determined and there is no reasonable expectation of further recovery, write-off may be earlier than collateral realisation. Write-off on those financial assets subject to enforcement activity will take place on conclusion of the enforcement process.

In subsequent periods, any recoveries of amounts previously written off are credited to the provision for credit losses in the income statement.

Presentation of ECL allowance in the statement of financial position

The ECL on financial assets measured at amortised cost is presented as a deduction from the gross carrying amount.

Off-balance sheet credit risks include certain undrawn lending commitments.

(c) Derecognition of Financial instruments

Financial assets

The Target Business derecognises a financial asset when the contractual right to the cash flow from the financial asset expires, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Target Business neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. Control over the assets is represented by the practical ability to sell the transferred asset.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in OCI is recognised in profit or loss.

(vi) Cash and cash equivalents

Cash comprises cash on hand and demand deposits and cash equivalents include liquid investments that are readily convertible to known amounts of cash which are subject to an insignificant risk of change in value and with an original maturity of less than three months.

(vii) Leases

(a) Classification of Leases

At inception of a contract, the Target Business assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Target Business assesses whether:

the contract involves the use of an identified asset; this may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;
the Target Business has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and
the Target Business has the right to direct the use of the asset. The Target Business has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Target Business has the right to direct the use of the asset if either:
the Target Business has the right to operate the asset; or
the Target Business designed the asset in a way that predetermines how and for what purpose it will be used.

Unless the lease is of short-term and of low-value assets, where the Target Business has the right to obtain substantially all of the economic benefits from use of identified assets and has the right to direct the use of the identified asset, a right-of-use asset is recognised in property and equipment and a lease liability is in other liabilities and accruals.

As a lessee

The Target Business recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is measured at amortised cost using the incremental borrowing rate. Incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right of use asset in a similar economic environment.

Lease payments included in the measurement of the lease liability comprise the following:

Fixed payments, including in-substance fixed payments;
Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
Amounts expected to be payable under a residual value guarantee;
The exercise price under a purchase option that the Target Business is reasonably certain to exercise, lease payments in an optional renewal period if the Target Business is reasonably certain to exercise an extension option; and
Penalties for early termination of a lease unless the Target Business is reasonably certain not to terminate early.

The lease liability is remeasured, if there is a change in future lease payments arising from a change in index-linked considerations, if there is a change in the Target Business' estimate of the amount expected to be payable under a residual value guarantee, or if the Target Business changes its assessment of whether it will exercise a purchase, extension or termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-ofuse asset has been reduced to zero.

Short-term leases and leases of low-value assets

The Target Business has elected not to recognise right-of-use assets and lease liabilities for short-term leases of vehicles that have a lease term of twelve months or less and leases of low-value assets, including office equipment. The Target Business recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

As a lessor

When the Target Business acts as a lessor, it determines at lease inception, whether each lease is a finance lease or an operating lease.

To classify each lease, the Target Business makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Target Business considers certain indicators such as, whether the lease is for the major part of the economic life of the asset.

When the Target Business is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a shortterm lease to which the Target Business applies the exemption described above, then it classifies the sub-lease as an operating lease.

If an arrangement contains lease and non-lease components, the Target Business applies IFRS 15 to allocate the consideration in the contract.

The Target Business recognises lease payments received under operating leases as income, on a straightline basis, over the lease term, as part of other income.

The accounting policies applicable to the Target Business as a lessor throughout the Track Record Period were not different from IFRS 16. The Target Business presents right-of-use assets in property and equipment and lease liabilities in other liabilities and accruals in the SOFP.

(viii) Property and equipment

Property and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation is calculated on a straight-line basis to write off the costs of such assets to their residual value over their estimated useful lives, which are assessed annually.

Subsequent costs are included in the asset's carrying amount, only when it is probable that increased future economic benefits associated with the item will flow to the Target Business and the cost of the item can be measured reliably.

Property and equipment are assessed for impairment where there is an indication of impairment. Where impairment exists, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognised against the revaluation reserve to the extent it is available and any remainder is recognised in the income statement. The depreciation charge for the asset is then adjusted to reflect the asset's revised carrying amount.

The estimated useful lives are as follows:

Freehold Buildings	50 years
Leasehold Buildings	50 years or term of lease if less than 50 years

(ix) Provisions

A provision is recognised if, as a result of a past event, the Target Business has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

A restructuring provision is recognised when there is an approved detailed and formal Restructuring Plan, and the restructuring either has commenced or has been publicly announced. Future operating losses are not permitted to be recognised.

Present obligations arising under onerous contracts are recognised and measured as provisions at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. An onerous contract is a contract in which the unavoidable cost of meeting the obligation under the contract exceeds the economic benefits expected to be received under it. Contingent liabilities are either possible obligations that arise from past events whose existence is dependent on whether some uncertain future events occur which are not wholly within the control of the entity or are a present obligation that arises from a past event but is not recognised because:

It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or
The amount of the obligation cannot be measured with sufficient reliability.

Contingent liabilities are not recognised but are disclosed unless the probability of their occurrence is remote.

1.4 Application of new and revised IFRSs

In 2021, the Target Business assessed the impact of new and revised pronouncement of IFRSs which took effect during the year. The changes to IFRS during 2021 did not have a material impact on the Target Business Carve-out HFI. The Target Business has not early adopted any of the changes described below.

Accounting Standard Update	Description of Change	Key effects for the Target Business	Effective Date
Annual Improvements to IFRS Standards 2018– 2020 Cycle	Minor amendments to IFRS 1, IFRS 9, IAS41 and IFRS 16.	This amendment is expected to have no significant impact on the Historical Financial Information or future reporting.	Annual periods beginning on or after 1 January 2022
Amendments to IAS 8 - Definition of Accounting Estimates	The amendments clarify that a change in accounting estimate that results from new information or new developments is not the correction of an error.	This amendment is expected to have no significant impact on the Historical Financial Information or future reporting.	Annual periods beginning on or after 1 January 2022
Amendments to IFRS 3 – Reference to the Conceptual Framework	Updates certain references to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations.	This amendment is expected to have no significant impact on the Historical Financial Information or future reporting.	Annual periods beginning on or after 1 January 2022
Amendments to IAS 16 – Property, Plant and Equipment: Proceeds before Intended Use	Requires amounts received from selling items produced while the company is preparing the asset for its intended use to be recognised in profit or loss, and not as an adjustment to the cost of the asset.	This amendment is expected to have no significant impact on the Historical Financial Information or future reporting.	Annual periods beginning on or after 1 January 2022
Amendment to IAS 37 – Onerous Contracts: Cost of Fulfilling a Contract	Specifies which costs to include when assessing whether a contract will be loss making.	This amendment is expected to have no significant impact on the Historical Financial Information or future reporting.	Annual periods beginning on or after 1 January 2022

1.5 Impact of other accounting standards with effective periods beginning on or after 1 January 2022

Accounting Standard Update	Description of Change	Key effects for the Target Business	Effective Date
Amendment to IAS 1 - Classification of Liabilities as Current or Non-current	Clarifies that the classification of liabilities as current or non- current should be based on rights that exist at the end of the reporting period.	This amendment is expected to have no significant impact on the Historical Financial Information or future reporting.	Annual periods beginning on or after 1 January 2022
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2	Amendments are intended to help preparers in deciding which accounting policies to disclose in their financial statements.	This amendment is expected to have no significant impact on the Historical Financial Information or future reporting.	Annual periods beginning on or after 1 January 2023
Amendments to IAS 8 – Definition of Accounting Estimates	Distinguishes between accounting policies and accounting estimates.	This amendment is expected to have no significant impact on the Historical Financial Information or future reporting.	Annual periods beginning on or after 1 January 2023
Amendments to IAS 12 – Deferred Tax	Clarifies how to account for deferred tax on transactions such as leases and decommissioning obligations.	This amendment is expected to have no significant impact on the Historical Financial Information or future reporting.	Annual periods beginning on or after 1 January 2023

2. Critical accounting estimates and judgements

The preparation of this carve out HFI, in conformity with IFRS, requires management of the Target Business to make assumptions, estimates and judgements that affect the application of accounting policies and the reported amounts of income, expenses, assets and liabilities and the related disclosures.

Due to the inherent uncertainty in making estimates, actual results in future periods may differ from those estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable in the circumstances.

Critical accounting estimates and judgements made by management of the Target Business are set out below.

(a) Carve out principles (note 1.2, basis of preparation)

(b) Allowance for credit losses under IFRS 9

IFRS 9 requires an impairment allowance to be recorded for ECL on financial assets regardless of whether there has been an actual loss event. There is a requirement to track and assess changes in credit risk on financial instruments since origination and determine whether the credit risk on those financial instruments has increased significantly since initial recognition.

Government-led customer support initiatives in response to the pandemic have weakened established relationships between model inputs and outputs, reducing the ability to forecast using models alone. In addition, models are constructed based on a single economic cycle. As a result a greater level of management judgement is required to reflect the nature and uncertainty of the economic outlook.

The following concepts introduce significant judgement within impairment and have a tangible impact on the level of ECL allowances:

Determination of significant increase in credit risk (SICR)

The determination of whether a loan has experienced a significant increase in credit risk may have a material impact on the level of ECL impairment allowance as a 12-month ECL is recognised for Stage 1 loans whereas a lifetime ECL is recognised for Stage 2 loans.

Migration of loans between Stage 1 and Stage 2 can cause some volatility in the amount of the recognised ECL allowances and the provision for expected credit losses in any accounting period.

The Target Business has relied on a number of measures including delinquency, forborne status, change in remaining lifetime PD and PD at maturity to determine SICR.

Forward Looking Information

The Target Business has adopted an ECL framework that reflects a component approach using PD, EAD and LGD.

Judgement is combined with statistical evidence in determining which forward-looking variables are relevant for the Target Business' loan portfolios. The estimation and application of forward looking information ("FLI") requires significant judgement. In its calculation of ECL, the Target Business considers multiple scenarios and possible outcomes together with their probability of occurrence. Scenarios are designed to capture a range of possible outcomes. Each macroeconomic scenario in the Target Business' ECL calculation includes a projection of all relevant macroeconomic variables applied in the models for a five year period.

The Target Business' approach applies extreme-but-plausible economic scenarios (i.e. underpinned by historical evidence) to estimate the distribution of ECL to which the Target Business is exposed. Using statistical techniques combined with expert credit judgement the Target Business then formulates an unbiased probability weighted estimate of ECL at the reporting date.

Four scenarios are currently considered in the Target Business' calculation of ECL. The base scenario is used for financial planning purposes. The Target Business considers one scenario that represents a macroeconomic environment that is more favourable to the central scenario, one scenario that represents a macroeconomic environment that is less favourable to the central scenario and one more extreme downside scenario.

The following table details the key macroeconomic variables applied to model credit losses and probability weightings for Stages 1 and 2 at 31 December 2021. Macroeconomic scenarios were most recently updated in December 2021. The update in the Base Case Scenario reflects the improvement in the outlook for the Irish economy in future years, with higher forecast HPI and GDP growth, and headwinds as a result of higher forecast inflation.

		2021
	Upside %	Base case %	Downside %	Extreme downside %
GDP - CAGR(2)	4.4	3.7	2.9	1.6

Unemployment rate(3) - average	4.2	5.2	6.8	9.3
House price inflation - total change	30.3	23.4	16.3	4.6
ECB Refi rate - average	0.8	0.1	0.2	-
Probability weight	30.0	45.0	20.0	5.0

	2020
	Upside %	Base case %	Downside %	Extreme downside %
GDP - CAGR(2)	4.2	3.5	3.0	1.6
Unemployment rate(3) - average	5.6	7.5	9.3	11.2
House price inflation - total change	21.1	13.3	6.8	(7.0)
ECB Refi rate - average	0.1	-	-	-
Probability weight	20.0	40.0	30.0	10.0

(1) The five-year period starts after Q3 2021 for 2021 and Q3 2020 for 2020.

(2) Compound Annual Growth Rate

(3) The unemployment rate in table above and following tables corresponds to the mid-point of the Irish Central Statistics Office lower and upper bound unemployment rate measures.

GDP - annual average growth	Upside %	Base case %	Downside %	Extreme downside %
2021	15.1	15.1	15.1	15.1
2022	8.9	6.8	2.9	(5.0)
2023	5.8	4.1	3.8	5.3
2024	3.0	3.1	3.3	3.1
2025	2.9	3.1	3.1	3.2
2026	2.8	2.7	2.7	3.1

Unemployment average	Upside %	Base case %	Downside %	Extreme downside %
2021	11.2	11.2	11.2	11.2
2022	4.5	5.5	8.8	13.7
2023	4.1	5.3	7.2	10.2
2024	4.0	5.1	6.3	8.4
2025	4.0	5.0	5.7	7.5
2026	4.0	5.0	5.5	7.0

House price inflation - annual average growth	Upside %	Base case %	Downside %	Extreme downside %
2021	12.9	12.9	12.9	12.9
2022	12.2	5.1	(3.0)	(18)
2023	3.4	4.0	2.0	(5.0)
2024	2.6	3.3	4.1	16.1
2025	3.4	3.4	5.9	6.8
2026	3.3	3.0	4.4	4.9

The Base, Upside, Downside and Extreme Downside scenarios are described as follows:

Base scenario (referred to as the "Base Case Scenario")

Projected continued health of the recovery in the near term reflects the ongoing post-lockdown pickup in economic activity, the release of pent-up demand, supportive fiscal and monetary policy settings, a broadly favourable global backdrop, continued buoyancy in multi-national sectors including pharmaceuticals and technology, and the assumption of no further major tightening of public health restrictions. The pace of recovery is then projected to ease over the medium term to more sustainable rates of growth with house price inflation moderating, reflecting expected further improvement in supply, while unemployment returns to pre-pandemic levels.

Upside scenario

This scenario features a stronger recovery, capturing a more favourable outlook for the domestic and world economies which mainly reflects a stronger near-term performance in 2022/23 amid muchreduced uncertainty post the pandemic. The result is a marked further strengthening in business and consumer confidence and an associated boost to activity, spending and labour and housing market conditions.

Downside scenario

The recovery is thrown off course by the combination of adverse virus developments requiring the reintroduction of restrictions amplified by the effects of a sharper, more sustained burst of domestic and global inflation pressures. Faster inflation erodes spending power and real economic activity and also triggers the need for central bank monetary policy tightening to address the resulting un-anchoring of inflation expectations. In time, recovery is re-established as the COVID-19 containment measures are eased and the policy tightening brings inflation back down which then allows for monetary policy to be eased once again.

Extreme Downside scenario

This scenario features a very sharp downturn based on a COVID-19 resurgence and highly severe outcomes for the Irish economy, reflecting the assumed crystallisation of several prominent downside risks spanning several key areas of vulnerability. These include a highly adverse COVID-19 impact occurring in early 2022, marked weakness in the international economic environment across Ireland's Key Trading Partners and adverse impacts of global tax reform on Ireland. The post-downturn recovery is incomplete with residual scarring remaining across output, unemployment and property prices.

The Target Business applies statistical techniques combined with expert credit judgement to formulate an unbiased probability weighted estimate of ECL at the reporting date. Given the relative sizes of the portfolios, the key judgemental area for the Target Business is in relation to the level of ECL calculated for the residential mortgage portfolio.

Determining probability weightings of the scenarios and forecasting FLI in respect of those scenarios requires a significant degree of management judgement. The reported ECL allowance is impacted by the probability weighting attributed to each macroeconomic scenario.

If the Target Business were to only use its Base Case Scenario for the measurement of ECL for the secured mortgage portfolio, excluding management's adjustment to modelled outcomes, the ECL impairment allowance would be €1m less than reported at 31 December 2021.

Similarly, excluding management's adjustment to modelled outcomes, if the Target Business were to only apply its Upside Scenario for the measurement of ECL for the secured mortgage portfolio, the ECL impairment allowance would be €1m less than reported at 31 December 2021. Whereas, if the Target Business were to only use its Downside Scenario and Extreme Downside Scenario, the ECL impairment allowance would be €2m and €7m greater than reported at December 2021, respectively. Sensitivity analysis is not presented for 2020 and 2019 financial years as it is regarded as both qualitatively and quantitatively immaterial.

Management's adjustment to modelled outcomes

The adequacy of ECL allowance is reviewed by the Management of the Target Business on a halfyearly basis. At 31 December 2021, the total impairment provision included €5m of management's adjustments to modelled outcomes (31 December 2020: €28m) which primarily comprises the following:

€3m of management's adjustment deferring the beneficial impact of updates to economic scenarios at 31 December 2021. This adjustment reflects management concerns with respect to possible impacts of the Omicron variant of SARS-CoV-2 on portfolio performance.
€2m of management's adjustment reflecting concerns that losses arising from projected defaults in 2022 will be higher than modelled.

At December 2021, management judgement has been applied to specified non-standard mortgages classified as Stage 1 by Impairment models and these loans were transferred to Stage 2 with a lifetime impairment loss allowance applied. The impact of this staging adjustment is a €79m increase in Stage 2 volumes.

3. Operating segments

The Target Business reports one operating segment based in Ireland.

4. Net interest income

	Year ended	Year ended	Year ended
	31 December 2021	31 December 2020	31 December 2019
	€m	€m	€m
Interest income
Loans and advances to customers	214	216	208
	214	216	208

Interest expense	(1)	(6)	(7)
Net interest income	213	210	201

5. Administrative, staff and other expenses (excluding exceptional items)

	Year ended	Year ended	Year ended
	31 December 2021	31 December 2020	31 December 2019
	€m	€m	€m
Staff costs (as detailed below)	74	79	74
Other general and administrative expenses	75	71	67
Administrative, staff and other expenses (excluding exceptional items)	149	150	141

Staff costs

	Year ended	Year ended	Year ended
	31 December 2021	31 December 2020	31 December 2019
	€m	€m	€m
Wages and salaries (including commission payable to sales staff)	57	60	61
Temporary and contractor costs	2	2	2
Social insurance	6	7	7
Pension costs
- Payments to defined benefit pension schemes	7	9	2
- Payments to defined contribution pension schemes	2	1	2
Total staff costs	74	79	74

Staff redundancy costs associated with exceptional items for the years ended 31 December 2021, 31 December 2020 and 31 December 2019 are included as part of note 7 exceptional items.

Staff numbers

The number of staff attributable to the Target Business is broken down by geographical location for 31 December 2021, 31 December 2020, and 31 December 2019 in the table below:

	Closing staff numbers		Average staff numbers
	2021	2020	2019	2021	2020	2019

Ireland	910	993	971	929	1,017	996

The staff numbers are inclusive of 400-500 UBIDAC employees who work wholly or mainly to support the Target Business entitled to transfer to PTSB under the TUPE regulations, as detailed in note 1.1.

6. Bank levy and other regulatory charges

	Year ended	Year ended	Year ended
	31 December 2021	31 December 2020	31 December 2019
	€m	€m	€m
Bank levy	17	11	9
Other regulatory charges	18	9	7
Bank levy and other regulatory charges	35	20	16

For the year ended 31 December 2021, other regulatory charges include €5m for the Deposit Guarantee Scheme (DGS) (31 December 2020: €4m, 31 December 2019: €3m), €10m for the Single Resolution Fund (SRF) (31 December 2020: €3m, 31 December 2019: €2m), €2m for the Central Bank Industry Funding Levy (31 December 2020: €1m, 31 December 2019: €1m) and €1m related to other regulatory charges (31 December 2020: €1m, 31 December 2019: €1m).

7. Exceptional items

	Year ended	Year ended	Year ended
	31 December 2021	31 December 2020	31 December 2019
	€m	€m	€m
Restructuring and other charges – redundancy costs	-	1	6

8. Taxation

(a) Analysis of taxation charge

	Year ended	Year ended	Year ended
	31 December 2021	31 December 2020	31 December 2019
	€m	€m	€m
Current taxation
Charge for current year	-	-	-
Deferred taxation
Origination and reversal of temporary differences	-	-	-
Deferred taxation recognised in the income statement	-	-	-
Taxation (credited)/charged to income statement	-	-	-
Effective tax rate	-	-	-

(b) Reconciliation of standard to effective tax rate

	Year ended	Year ended	Year ended
	31 December 2021	31 December 2020	31 December 2019
Profit on the Target Business activities before tax	€m 72	€m 17	€m 50

Tax calculated at standard ROI corporation tax rate of 12.5% (2020, 2019: 12.5%)	9	2	6
Tax effect of non-deductible expenses and non-trading			3
income	3	2
Unrecognised losses brought forward and utilised	(12)	(4)	(9)
Taxation charged to income statement	-	-	-

9. Loans and advances to customers

Loans and advances by category are set out below:

	31 December 2021	31 December 2020	31 December 2019
	€m	€m	€m

- Residential mortgages	6,893	6,932	6,337
Commercial lending (term loans/other)	600	626	656
Gross loans and advances to customers	7,493	7,558	6,993
Less: provision for impairment (note 10)	(31)	(73)	(40)
Deferred fees, discounts and fair value adjustments	32	36	37
Net loans and advances to customers	7,494	7,521	6,990

Loans and advances can be analysed into fixed and variable rate loans as follows:

		Gross loans and advances to customers			Net loans and advances to customers
	31 December 2021	31 December 2020	31 December 2019	31 December 2021	31 December 2020	31 December 2019
	€m	€m	€m	€m	€m	€m
Variable rate	1,303	1,602	1,991	1,295	1,580	1,970
Fixed rate	6,190	5,956	5,002	6,167	5,905	4,983
	7,493	7,558	6,993	7,462	7,485	6,953
Deferred fees,
discounts and fair value adjustments	32	36	37	32	36	37
Total	7,525	7,594	7,030	7,494	7,521	6,990

		Non-credit impaired		Total
	Stage 1	Stage 2	Stage 3
	€m	€m	€m	€m

Balance as at 1 January 2021	6,933	516	109	7,558
New assets originated*	534	9	32	575

Stage Transfers:
Transfers from Stage 1 to Stage 2	(200)	200	-	-
Transfers to Stage 3	(1)	(12)	13	-
Transfers from Stage 2 to Stage 1	386	(386)	-	-
Transfers from Stage 3	7	67	(74)	-
Net movement arising from transfer of Stage	192	(131)	(61)	-
Redemptions and repayments	(561)	(63)	(16)	(640)
Balance as at 31 December 2021	7,098	331	64	7,493

*Loan originations are net of repayments in the year.

		Non-credit impaired		Total
	Stage 1	Stage 2	Stage 3
	€m	€m	€m	€m

Balance as at 1 January 2020	6,484	351	158	6,993
New assets originated*	963	45	88	1,096

Stage Transfers:
Transfers from Stage 1 to Stage 2	(529)	529	-	-
Transfers to Stage 3	(1)	(17)	18	-
Transfers from Stage 2 to Stage 1	357	(357)	-	-
Transfers from Stage 3	5	78	(83)	-
Net movement arising from transfer of Stage	(168)	233	(65)	-
Redemptions and repayments	(346)	(113)	(72)	(531)
Balance as at 31 December 2020	6,933	516	109	7,558

*Loan originations are net of repayments in the year.

	Non-credit impaired		Credit impaired	Total
	Stage 1	Stage 2	Stage 3
	€m	€m	€m	€m

Balance as at 1 January 2019	5,420	379	101	5,900

New assets originated*	1,244	56	152	1,452

Stage Transfers:
Transfers from Stage 1 to Stage 2	(251)	251	-	-
Transfers to Stage 3	(4)	(11)	15	-
Transfers from Stage 2 to Stage 1	299	(299)	-	-
Transfers from Stage 3	3	49	(52)	-
Net movement arising from transfer of Stage	47	(10)	(37)	-

Redemptions and repayments	(227)	(74)	(58)	(359)
Balance as at 31 December 2019	6,484	351	158	6,993

*Loan originations are net of repayments in the year.

10. Impairment provisions

(a) Loans and advances to customers

The following table reflects non-performing loans for which ECL provisions are held and an analysis of Stage 1, Stage 2 and Stage 3 ECL provisions across the loans and advances to customers portfolio.

The non-performing loan balance as at 31 December 2021 was €62m (31 December 2020: €103m and 31 December 2019: €138m). Refer to note 16 for further details.

			ECL provisions
	Loans and advances to customers	NPLs	NPL % of total loans	Stage 1	Stage 2	Stage 3	Tota l	Total ECL provisions as % of total loans
31 December 2021	€m	€m	%	€m	€m	€m	€m	%
Residential:
-Home loans	6,747	49	0.7%	5	8	8	21	0.3%
-Buy-to-let	146	2	1.4%	-	-	-	-	-
Commercial lending:
-Term loans/other	600	11	1.8%	3	1	6	10	1.7%

Total gross loans	7,493	62	0.8%	8	9	14	31	0.4%
Impairment provision	(31)
Deferred fees, discounts and fair value adjustments	32
Balance as at 31 December

2021 7,494

			ECL provisions
	Loans and advances to customers	NPLs	NPL % of total loans	Stage 1	Stage 2	Stage 3	Tota l	Total ECL provisions as % of total loans
31 December 2020	€m	€m	%	€m	€m	€m	€m	%
Residential:
-Home loans	6,764	89	1.3%	14	22	23	59	0.9%
-Buy-to-let	168	2	1.2%	-	1	-	1	0.6%
Commercial lending:
-Term loans / other	626	12	1.9%	4	5	4	13	2.1%
Total gross loans	7,558	103	1.4%	18	28	27	73	1.0%
Impairment provision	(73)
Deferred fees, discounts and fair value adjustments	36
Balance as at 31 December 2020	7,521

				ECL provisions
	Loans and advances to customers	NPLs	NPL % of total loans	Stage 1	Stage 2	Stage 3	Total	Total ECL provisions as % of total loans
31 December 2019	€m	€m	%	€m	€m	€m	€m	%
Residential:
-Home loans	6,148	132	2.1%	4	7	23	34	0.6%
-Buy-to-let	189	3	1.6%	-	1	-	1	0.5%
Commercial lending:
-Term loans / other	656	3	0.5%	4	1	-	5	0.8%
Total gross loans	6,993	138	2.0%	8	9	23	40	0.6%
Impairment provision	(40)
Deferred fees, discounts and fair value adjustments	37
Balance as at 31 December 2019	6,990

A reconciliation of the provision for impairment losses for loans and advances is as follows:

2021	Residential mortgages €m	Commercial lending €m	Total €m

Total by portfolio
ECL as at 1 January 2021	60	13	73

Redemptions and repayments	(6)	(2)	(8)
Net remeasurement of loss allowance	(42)	(1)	(43)
Loan originations	9	-	9
Net movement	(39)	(3)	(42)

ECL as at 31 December 2021	21	10	31

Net movement (from above)			(42)
Other movements			-
Impairment release on customer loans and advances for

the year ended 31 December 2021 (42)

	Residential mortgages	Commercial lending	Total
2020	€m	€m	€m
Total by portfolio ECL as at 1 January 2020	35	5	40
Redemptions and repayments	(9)	5	(4)
Net remeasurement of loss allowance	16	3	19
Loan originations	18	-	18
Net movement	25	8	33
ECL as at 31 December 2020	60	13	73

Net movement (from above)			33
Other movements			(11)
Impairment charge on customer loans and advances for the year ended 31 December 2020			22

	Residential mortgages	Commercial lending	Total
2019	€m	€m	€m
Total by portfolio
ECL as at 1 January 2019	34	11	45
Redemptions and repayments	(11)	(6)	(17)
Net remeasurement of loss allowance	(9)	-	(9)
Loan originations	21	-	21
Net movement	1	(6)	(5)

ECL as at 31 December 2019	35	5	40

Net movement (from above)			(5)
Other movements			(8)
Impairment release on customer loans and advances for the year ended 31 December 2019			(13)

	Stage 1	Stage 2	Stage 3	Total
Total by stage	€m	€m	€m	€m
ECL as at 1 January 2021	18	28	27	73
Transfer to Stage 1	21	(17)	(4)	-
Transfer to Stage 2	(1)	11	(10)	-
Transfer to Stage 3	-	(2)	2	-
Stage transfers	20	(8)	(12)	-

Redemptions and repayments	(3)	(2)	(3)	(8)
Net remeasurement of loss allowance	(29)	(10)	(4)	(43)
Loan originations	2	1	6	9
Net movement	(30)	(11)	(1)	(42)
ECL as at 31 December 2021	8	9	14	31
Net movement (from above)				(42)
Other movements				-
Impairment release on customer loans and advances for the year ended 31 December 2021				(42)

	Stage 1	Stage 2	Stage 3	Total
Total by stage	€m	€m	€m	€m
ECL as at 1 January 2020	8	9	23	40
Transfer to Stage 1	12	(8)	(4)	-
Transfer to Stage 2	(2)	9	(7)	-
Transfer to Stage 3	-	(1)	1	-
Stage transfers	10	-	(10)	-
Redemptions and repayments Net remeasurement of loss allowance Loan originations	- (2) 2	(1) 18 2	(3) 3 14	(4) 19 18
Net movement	-	19	14	33
ECL as at 31 December 2020	18	28	27	73
Net movement (from above)				33
Other movements				(11)
Impairment charge on customer loans and advances for the year ended 31 December 2020				22

	Stage 1	Stage 2	Stage 3	Total
Total by stage	€m	€m	€m	€m
ECL as at 1 January 2019	7	15	23	45
Transfer to Stage 1	3	(3)	-	-
Transfer to Stage 2	-	5	(5)	-
Transfer to Stage 3	-	(1)	1	-
Stage transfers	3	1	(4)	-
Redemptions and repayments	(1)	(5)	(11)	(17)
Net remeasurement of loss allowance	(1)	(4)	(4)	(9)
Loan originations	-	2	19	21
Net movement	(2)	(7)	4	(5)
ECL as at 31 December 2019	8	9	23	40
Net movement (from above)				(5)
Other movements				(8)
Impairment release on customer loans and advances for the year ended 31 December 2019				(13)

Modified Financial Assets

At 31 December 2021 there have been no significant modified financial assets for which the loss allowance has changed from lifetime to 12-month ECL.

11.	Property and equipment
-----	------------------------	--

		Right-of-use assets*
	Held at cost land and buildings	Leased buildings	Total
2021	€m	€m	€m

Cost
At 1 January	18	8	26
Additions	1	-	1
Disposals and write-offs	(9)	-	(9)
At 31 December	10	8	18

Accumulated depreciation
At 1 January	(11)	(7)	(18)
Provided in the year	(1)	-	(1)
Disposals	8	-	8
Impairment	1	-	1
At 31 December	(3)	(7)	(10)
Net book value at 31 December	7	1	8

*For further details on right-of-use assets refer to note 14.

The €1m impairment write-back is recognised in the income statement.

		Right-of-use assets*
	Held at cost land and buildings	Leased buildings	Total
2020	€m	€m	€m
Cost
At 1 January and 31 December	18	8	26

Accumulated depreciation
At 1 January	(10)	(7)	(17)
Provided in the year	(1)	-	(1)
At 31 December	(11)	(7)	(18)

Net book value at 31 December	7	1	8

*For further details on right-of-use assets refer to note 14.

		Right-of-use assets*
	Held at cost land and buildings	Leased buildings	Total
2019	€m	€m	€m

Cost
At 1 January	17	8	25
Additions	1	-	1
At 31 December	18	8	26

Accumulated depreciation
At 1 January	(9)	(6)	(15)
Provided in the year	(1)	-	(1)
Impairment	-	(1)	(1)
At 31 December	(10)	(7)	(17)

Net book value at 31 December	8	1	9

The net book value of land and buildings includes the following:

	31 December 2021	31 December 2020	31 December 2019
	€m	€m	€m

Land	4	4	4
Buildings - freehold cost	3	3	4
Buildings – leasehold	1	1	1
	8	8	9

The historic cost of land and buildings is €10m (31 December 2020: €18m and 31 December 2019: €18m).

12. Other liabilities and accruals

	31 December 2021	31 December 2020	31 December 2019
	€m	€m	€m
Amounts falling due within one year
PAYE and social insurance	3	3	4
Other taxation including deposit interest retention tax (DIRT)	11	6	5
Other	9	10	10
Lease liability (See note 14 for further information on lease liabilities)	-	-	-
Total amounts falling due within one year	23	19	19
Amounts falling due greater than one year
Lease liability (See note 14 for further information on lease liabilities)	2	2	3
Total amounts falling due greater than one year	2	2	3
Total other liabilities and accruals	25	21	22

Other includes accruals for sundry creditors of €5m at 31 December 2021 (31 December 2020: €5m, 31 December 2019: €7m) and miscellaneous liabilities.

13. Provisions

2021	Provision for legacy, legal and compliance liabilities €m	Other €m	Total €m
As at 1 January	2	1	3
Provisions made during the year	2	-	2
Provisions used during the year	(1)	-	(1)

As at 31 December 3 1 4
----------------------------------

2020	Provision for legacy, legal and compliance liabilities €m	Other €m	Total €m
As at 1 January	7	-	7
Provisions made during the year	-	1	1
Write-back of provisions during the year	(1)	-	(1)
Provisions used during the year	(4)	-	(4)
As at 31 December	2	1	3

	Provision for legacy, legal and compliance liabilities	Other	Total
2019	€m	€m	€m
As at 1 January	18	-	18
Write-back of provisions during the year	(1)	-	(1)
Provisions used during the year	(10)	-	(10)
As at 31 December	7	-	7

The provision at 31 December 2021 is €4m (31 December 2020: €3m, 31 December 2019: €7m) which is comprised of the following:

Provision for legacy, legal and compliance liabilities

As at 31 December 2021, the Target Business has provisions of €3m relating to legal, compliance and other costs of on-going disputes in relation to legacy business issues (31 December 2020: €2m, 31 December 2019: €7m).

Management has exercised judgment in arriving at the estimated provision in respect of the potential liabilities. Assumptions relating to these are inherently uncertain and the ultimate financial impact may be different from the amount provided. Customer remediation across these issues has progressed in 2021. The Target Business expects the majority of this provision to be utilised within the next 12 months.

Other

As at 31 December 2021, the provision of €1m (31 December 2020: €1m, 31 December 2019: €Nil) primarily relates to property provisions.

14. Leases

	Land and buildings
Right-of-use assets	€m

Balance as at 31 December 2021 1

	Land and buildings
Right-of-use assets	€m

As at 1 January 2020	1
Balance as at 31 December 2020	1

	Land and buildings
Right-of-use assets	€m

As at 1 January 2019	2
Impairment of right-of-use assets	(1)
Balance as at 31 December 2019	1

	Land and buildings
Lease liabilities	€m

As at 1 January 2021	(2)
Balance as at 31 December 2021	(2)

	Land and buildings
Lease liabilities	€m

As at 1 January 2020	(3)
Repayment of lease liabilities	1
Balance as at 31 December 2020	(2)

	Land and buildings
Lease liabilities	€m
As at 1 January 2019	(3)
Balance as at 31 December 2019	(3)

	31	31	31
	December	December	December
	2021	2020	2019
Lease liabilities	€m	€m	€m

Maturity analysis - contractual undiscounted cash flows

Less than one year	-	-	-
One to five years	(1)	(1)	(2)

More than five years	(1)	(1)	(1)
Total undiscounted lease liabilities	(2)	(2)	(3)
Lease liabilities included in the statement of financial position	(2)	(2)	(3)
Current lease liability	-	-	-
Non-current lease liability	(2)	(2)	(3)

Amounts recognised in income statement*

	31 December 2021 €m	31 December 2020 €m	31 December 2019 €m
Impairment of right-of-use assets	-	-	(1)
Total charge in profit or loss	-	-	(1)

Amounts recognised in statement of cash flow

	31 December 2021	31 December 2020	31 December 2019
	€m	€m	€m
Cash outflow for leases	-	-	-
Total	-	-	-

15. Measurement basis and fair values of financial instruments

(a) Measurement basis and fair value of financial instruments

		Held at amortised cost	Fair value
31 December 2021		€m	€m
Financial assets
Loans and advances to
customers	9	7,494	7,547

	Held at amortised cost		Fair value
31 December 2020	€m		€m
Financial assets
Loans and advances to customers	9	7,521	7,579

	Held at Note amortised cost Fair value
31 December 2019		€m	€m

The following table sets out the fair value of financial instruments that the Target Business holds during the Track Record Period. It categorises these financial instruments into the relevant level on the fair value hierarchy.

The fair values of financial instruments are measured according to the following fair value hierarchy:

Level 1 – financial assets and liabilities measured using quoted market prices (unadjusted).

Level 2 – financial assets and liabilities measured using valuation techniques which use observable inputs including quoted prices of financial instruments themselves or quoted prices of similar instruments in either active or inactive markets.

Level 3 – financial assets and liabilities measured using valuation techniques which use non-observable inputs.

Basis and fair values of financial instruments

31 December 2021	Note	Total carrying Value €m	Level 1 €m	Level 2 €m	Level 3 €m	Total fair value €m
Financial assets
Loans and advances to customers	9	7,494	-	-	7,547	7,547
31 December 2020	Note	Total carrying Value €m	Level 1 €m	Level 2 €m	Level 3 €m	Total fair value €m
Financial assets
Loans and advances to customers	9	7,521	-	-	7,579	7,579
31 December 2019	Note	Total carrying Value €m	Level 1 €m	Level 2 €m	Level 3 €m	Total fair value €m
Financial assets
Loans and advances to customers	9	6,990	-	-	7,025	7,025

(b) Fair value measurement principles

The accounting policy on valuation of financial instruments is described in note 1 which contains details on the estimates and judgements made by management in relation to the fair value measurement of financial instruments. The fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Where possible, fair value is calculated using observable market prices in an active market. Where market prices are not available, fair values are determined using valuation techniques. These techniques are subjective in nature and may involve assumptions which are based upon management's view of market conditions at year end, which may not necessarily be indicative of any subsequent fair value. Any changes in the assumptions used could have a significant impact on the resulting estimated fair values and, as a result, it may be difficult for the users to make a reasonable comparison of the fair value information disclosed in this note, against that disclosed by other financial institutions or to evaluate the financial position of the Target Business and, therefore, are advised to exercise caution in interpreting these fair values.

Loans and advances to customers

Loans and advances to customers are carried net of impairments. A discounted cash flow valuation model is used to estimate the fair value for the residential mortgages and commercial lending. Cash flows are discounted using the current weighted average interest rate based on the specific portfolio. The fair value calculation also takes into account loan impairment provisions at the balance sheet date. The carrying value of the Business Direct portfolio is considered equal to its fair value due to its maturity profile.

16. Financial risk management

Maximum exposure to credit risk before collateral held or other credit enhancements

The following table outlines the maximum exposure to credit risk before collateral held or other credit enhancements in respect of the Target Business' financial assets as at the statement of financial position date.

	Note	31 December 2021 €m	31 December 2020 €m	31 December 2019 €m
Loans and advances to customers	9	7,494	7,521	6,990
Commitments and contingencies	18	193	188	164
		7,687	7,709	7,154

The following tables outline the Target Business' exposure to credit risk by asset class

(i) Loans and advances to customers

Gross customer loans and advances

The tables below outline total loans and advances to customers for the Target Business analysed by home loan, buy-to-let and commercial lending.

	31 December 2021	31 December 2020	31 December 2019
Measured at amortised cost	€m	€m	€m
Residential mortgages:
Home loan	6,747	6,764	6,148
Buy-to-let	146	168	189
Total residential mortgages	6,893	6,932	6,337

Commercial lending	600	626	656
Total measured at amortised cost	7,493	7,558	6,993
Analysed by ECL staging:
Stage 1	7,098	6,933	6,484
Stage 2	331	516	351
Stage 3	64	109	158
Total measured at amortised cost	7,493	7,558	6,993
Of which at the reporting date
Neither past due nor Stage 3	7,294	7,316	6,713
Past due but not Stage 3	135	133	122
Stage 3	64	109	158
Total measured at amortised cost	7,493	7,558	6,993
Of which are reported as non-performing loans	62	103	138
Deferred fees, discounts and other adjustments	32	36	37

The following table provides an aged analysis of secured customer loans and advances which are past due but not Stage 3.

	Home loans	Buy-to-let	Total
31 December 2021	€m	€m	€m

0-30 days	57	2	59
31-60 days	28	2	30
61-90 days	5	-	5
Total past due not Stage 3	90	4	94
Fair value of collateral held	90	4	94

Fair value of collateral held

	Home loans	Buy-to-let	Total
31 December 2021	€m	€m	€m
0-30 days	57	2	59
31-60 days	28	2	30
61-90 days	5	-	5
Total past due not Stage 3	90	4	94

Collateral held against residential mortgages is principally comprised of residential properties; their fair value has been estimated based upon the last actual valuation, adjusted to take into account subsequent movement in house prices and is capped at the loan balance .

	Home loans	Buy-to-let	Total
31 December 2020	€m	€m	€m
0-30 days	52	2	54
31-60 days	28	2	30
61-90 days	5	-	5
Total past due not Stage 3	85	4	89
Fair value of collateral held	85	4	89

Fair value of collateral held

	Home loans	Buy-to-let	Total
31 December 2020	€m	€m	€m
0-30 days	52	2	54
31-60 days	28	2	30
61-90 days	5	-	5
Total past due not Stage 3	85	4	89
	Home loans	Buy-to-let	Total

31 December 2019	€m	€m	€m

0-30 days	51	3	54
31-60 days	16	2	18
61-90 days	5	-	5
Total past due not Stage 3	72	5	77

Fair value of collateral held

	Home loans	Buy-to-let	Total
31 December 2019	€m	€m	€m

0-30 days	51	3	54
31-60 days	16	2	18
61-90 days	5	-	5
Total past due not Stage 3	72	5	77

Non-performing loans

Non-performing loans ("NPLs") are loans which are credit impaired or loans which are classified as defaulted in accordance with the definition of default. The definition of default considers objective indicators of default including the 90 days past due criterion, evidence of exercise of concessions or modifications to terms and conditions and is designed to be consistent with European Banking Authority ("EBA") guidance on the definition of forbearance.

	Stage 3
	Home loans	Buy-to-let	Commercial lending	Total
31 December 2021	€m	€m	€m	€m
NPL is < 90 days	5	-	4	9
NPL is > 90 days and < 1 year past due	8	1	4	13
NPL is 1-2 years past due	5	-	3	8
NPL is 2-5 years past due	7	1	-	8
NPL is > 5 years past due	24	-	-	24
Non-performing loans	49	2	11	62
NPLs as % of gross loans	0.7%	1.4%	1.8%	0.8%

	Stage 3
	Home loans	Buy-to-let	Commercial lending	Total
31 December 2020	€m	€m	€m	€m
NPL is < 90 days	-	-	4	4
NPL is > 90 days and < 1 year past due	4	-	4	8
NPL is 1-2 years past due	13	-	4	17
NPL is 2-5 years past due	14	-	-	14
NPL is > 5 years past due	58	2	-	60
Non-performing loans	89	2	12	103
NPLs as % of gross loans	1.3%	1.2%	1.9%	1.4%

	Stage 3
	Home loans	Buy-to-let	Commercial lending	Total
31 December 2019	€m	€m	€m	€m
NPL is < 90 days	-	-	1	1
NPL is > 90 days and < 1 year past due	12	1	1	14
NPL is 1-2 years past due	7	-	1	8
NPL is 2-5 years past due	19	1	-	20
NPL is > 5 years past due	94	1	-	95
Non-performing loans	132	3	3	138
NPLs as % of gross loans	2.1%	1.6%	0.5%	2.0%

Non-performing loans as a percentage of total loans and advances were 0.8% at 31 December 2021, a decrease from 1.4% at 31 December 2020 and a decrease from 2.0% at 31 December 2019.

Total portfolio loss allowance: statement of financial position

The tables below outline the ECL loss allowance total throughout the Track Record Period in respect of total customer loans and advances.

The impairment reversal in respect of the total loans and advances for year ended 31 December 2021 was €42m, compared to an impairment charge of €22m for the year ended 31 December 2020 and impairment reversal of €13m for the year ended 31 December 2019.

	31 December 31 December 2021 2020		31 December 2019
	€m	€m	€m
Loss allowance - statement of financial position
Stage 1	8	18	8
Stage 2	9	28	9
Stage 3	14	27	23
Total loss allowance	31	73	40

	31 December 2021	31 December 2020	31 December 2019
	%	%	%
Provision coverage ratio*
Stage 1	0.1	0.3	0.1
Stage 2	2.7	5.4	2.6
Stage 3	21.9	24.8	14.6

*Provision coverage ratio is calculated as loss allowance/impairment provision as a percentage of gross loan balance.

Origination profile

Loan origination profile of the residential mortgage loan portfolio before provision for impairment:

	Residential mortgages portfolio		Stage 3 residential mortgages portfolio
	Number	Balance	Number	Balance
31 December 2021		€m		€m

1998 and before	845	11	35	1
1999	733	15	28	1
2000	952	27	51	2
2001	1,085	35	33	1
2002	1,456	51	48	2
2003	1,711	83	71	4
2004	1,874	131	59	4
2005	2,387	241	89	10
2006	1,661	217	44	6
2007	1,565	238	36	8
2008	729	108	19	3
2009	538	72	6	1

Total	47,541	6,893	588	51
2021	2,360	543	2	-
2020	3,851	901	-	-
2019	5,251	1,111	5	1
2018	4,245	837	6	1
2017	3,804	668	4	1
2016	4,035	624	11	1
2015	3,207	409	14	2
2014	2,105	243	7	1
2013	1,334	145	5	-
2012	1,219	122	9	1
2011	409	43	4	-
2010	185	18	2	-

	Residential mortgages portfolio		Stage 3 residential mortgages portfolio
	Number	Balance	Number	Balance
31 December 2020		€m		€m

1998 and before	1,109	14	61	1
1999	820	19	47	1
2000	1,085	32	62	2
2001	1,491	43	68	3
2002	1,587	62	82	4
2003	1,857	99	95	6
2004	2,002	151	119	10
2005	2,535	268	133	16
2006	1,781	242	79	11
2007	1,655	259	68	12
2008	761	117	44	8
2009	570	79	27	5
2010	202	21	4	1
2011	443	47	3	1
2012	1,285	136	10	1
2013	1,428	164	8	2
2014	2,265	275	9	1
2015	3,395	449	9	1
2016	4,290	701	11	2
2017	3,993	737	6	1
2018	4,395	912	2	1
2019	5,433	1,197	7	1
2020	3,866	908	-	-

Total	48,248	6,932	954	91

		Residential mortgages portfolio		Stage 3 residential mortgages portfolio
	Number	Balance	Number	Balance
31 December 2019		€m		€m

1998 and before	1,354	19	66	2
1999	951	23	51	2
2000	1,536	38	70	3
2001	1,620	51	66	3
2002	1,664	71	110	6
2003	1,891	107	101	7
2004	2,015	159	167	17
2005	2,581	281	184	25
2006	1,803	253	128	21
2007	1,664	269	130	25
2008	769	121	44	11
2009	580	82	30	5
2010	216	22	8	1
2011	458	51	5	1
2012	1,336	148	6	1
2013	1,494	178	8	1
2014	2,345	297	15	2
2015	3,377	467	5	1
2016	4,463	767	7	1
2017	4,123	790	1	-
2018	4,469	958	1	-
2019	5,445	1,185	1	-
Total	46,154	6,337	1,204	135

Loan-to-value profile

Loan-to-value (LTV) of mortgage lending (index linked):

The LTV ratio is calculated at a property level and is the average of indexed property values in proportion to the outstanding loan balance. LTV is a key input to the impairment provisioning process. The tables below outline the composition of this ratio for the residential loan portfolio.

Actual and average LTVs across principal mortgage portfolios:

The tables below outline the weighted average LTVs for the total residential mortgage portfolios analysed across home loan and buy-to-let facilities by value. The weighted average LTV on the residential mortgage portfolios is 43% at 31 December 2021 compared to 47% at 31 December 2020 and 45% at 31 December 2019.

31 December 2021	Home loans %	Buy-to-let %	Total %

Less than 50%	56%	82%	57%
51% to 70%	28%	12%	28%
71% to 90%	15%	5%	14%
91% to 100%	1%	1%	1%
Total	100%	100%	100%

Weighted average LTV:
Stock of residential mortgages	43%	30%	43%
New residential mortgages	57%	47%	57%
Stage 3 mortgages	35%	29%	34%
	Home loans	Buy-to-let	Total
31 December 2020	%	%	%

Less than 50%	50%	74%	51%
51% to 70%	27%	16%	27%
71% to 90%	20%	7%	19%
91% to 100%	2%	1%	2%
Subtotal	99%	98%	99%

101% to 110%	1%	1%	1%
111% to 120%	-	1%	-
Subtotal	1%	2%	1%
Total	100%	100%	100%
Weighted average LTV:
Stock of residential mortgages	47%	33%	47%
New residential mortgages	64%	48%	64%
Stage 3 mortgages	43%	41%	43%

31 December 2019	Home loans %	Buy-to-let %	Total %

Less than 50%	53%	73%	53%
51% to 70%	27%	17%	27%
71% to 90%	18%	6%	18%
91% to 100%	1%	2%	1%
Subtotal	99%	98%	99%

101% to 110%	1%	1%	1%
111% to 120%	-	1%	-
Subtotal	1%	2%	1%

Total	100%	100%	100%
Weighted average LTV:
Stock of residential mortgages	45%	34%	45%
New residential mortgages	64%	49%	64%
Stage 3 mortgages	48%	36%	48%

Analysis by LTV of the Target Business' residential mortgage lending which is neither past due nor Stage 3:

The tables below illustrate that 100% of residential home loan mortgages (31 December 2020: 99%, 31 December 2019: 99%) and 100% of residential buy-to-let mortgages (31 December 2020: 98%, 31 December 2019: 98%) that are neither past due nor Stage 3 are in positive equity as at 31 December 2021.

	Home loans	Buy-to-let	Total
31 December 2021	%	%
Less than 50%	55%	82%	57%
51% to 70%	29%	12%	28%
71% to 90%	15%	5%	14%
91% to 100%	1%	1%	1%
Total	100%	100%	100%

	Home loans	Buy-to-let	Total
31 December 2020	%	%	%
Less than 50%	50%	75%	50%
51% to 70%	27%	16%	27%
71% to 90%	20%	6%	20%
91% to 100%	2%	1%	2%
Subtotal	99%	98%	99%

101% to 110%	1%	1%	1%
111% to 120%	-	1%	-
Subtotal	1%	2%	1%

Total	100%	100%	100%

	Home loans	Buy-to-let	Total
31 December 2019	%	%	%
Less than 50%	53%	73%	54%
51% to 70%	27%	17%	27%
71% to 90%	18%	6%	17%
91% to 100%	1%	2%	1%
Subtotal	99%	98%	99%

101% to 110%	1%	1%	1%
111% to 120%	-	1%	-
Subtotal	1%	2%	1%
Total	100%	100%	100%

Analysis by LTV of the Target Business' residential mortgage lending which are classified as Stage 3:

The tables below illustrate that 98% of residential home loan mortgages (31 December 2020: 93%, 31 December 2019: 91%) and 100% of residential buy-to-let mortgages (31 December 2020: 100%, 31 December 2019: 92%) that are classified as Stage 3 are in positive equity as at 31 December 2021.

	Home loans	Buy-to-let	Total
31 December 2021	%	%	%
Less than 50%	69%	75%	69%
51% to 70%	20%	25%	20%
71% to 90%	7%	-	7%
91% to 100%	2%	-	2%
Subtotal	98%	100%	98%
101% to 110%	1%	-	1%
111% to 120%	1%	-	1%
Subtotal	2%	-	2%
Total	100%	100%	100%
	€m	€m	€m
Stage 3	49	2	51
	Home loans	Buy-to-let	Total
31 December 2020	%	%	%
Less than 50%	58%	55%	58%
51% to 70%	18%	27%	18%
71% to 90%

91% to 100% 4% - 4%

Subtotal	93%	100%	93%
101% to 110%	3%	-	3%
111% to 120%	2%	-	2%
121% to 130%	2%	-	2%
Subtotal	7%	-	7%

Total	100%	100%	100%

	€m	€m	€m
Stage 3	89	2	91

	Home loans	Buy-to-let	Total
31 December 2019	%	%	%

Less than 50%	50%	52%	50%
51% to 70%	19%	20%	19%
71% to 90%	17%	16%	17%
91% to 100%	5%	4%	5%
Subtotal	91%	92%	91%
101% to 110%	4%	4%	4%
111% to 120%	2%	-	2%
121% to 130%	2%	-	2%
131% to 140%	1%	-	1%
Greater than 180%	-	4%	-
Subtotal	9%	8%	9%

Total	100%	100%	100%

	€m	€m	€m
Stage 3	132	3	135

(ii) Additional disclosures on forborne loans

The Target Business operates a number of mechanisms which are designed to assist borrowers experiencing credit and loan repayment difficulties.

The tables below set out the asset quality and volume of loans for which the Target Business has entered formal temporary and permanent forbearance arrangements with customers for the years ended 31 December 2021, 31 December 2020 and 31 December 2019. The number and balances of loans in forbearance arrangements for residential home loan mortgages and buy-to-let residential mortgages are analysed below.

(a) Weighted Average – LTV

LTV on total portfolio in forbearance

The tables below illustrate that 95% of residential home loan mortgages (31 December 2020: 94%, 31 December 2019: 89%) and 100% of residential buy-to-let mortgages (31 December 2020: 100%, 31 December 2019: 100%) that are in forbearance are in positive equity as at 31 December 2021.

	Home loans	Buy-to-let	Total
31 December 2021	%	%	%

Less than 50%	42%	100%	42%
51% to 70%	29%	-	29%
71% to 90%	20%	-	20%
91% to 100%	4%	-	4%
Subtotal	95%	100%	95%

111% to 120%	1%	-	1%
121% to 130%	1%	-	1%
131% to 140%	3%	-	3%
Subtotal	5%	-	5%
Total	100%	100%	100%
Weighted average LTV:
Stock of residential mortgages	51%	25%	50%
New residential mortgages	6%	-	6%
Stage 3 mortgages	51%	25%	49%

	Home loans	Buy-to-let	Total
31 December 2020	%	%	%

Less than 50%	55%	50%	55%
51% to 70%	18%	50%	18%
71% to 90%	16%	-	16%
91% to 100%	5%	-	5%
Subtotal	94%	100%	94%

101% to 110%	4%	-	4%
111% to 120%	1%	-	1%
121% to 130%	1%	-	1%
Subtotal	6%	-	6%
Total	100%	100%	100%

Weighted average LTV:
Stock of residential mortgages	47%	52%	47%
New residential mortgages	75%	-	75%
Stage 3 mortgages	45%	52%	45%

	Home loans	Buy-to-let	Total
31 December 2019	%	%	%

Less than 50%	48%	100%	49%
51% to 70%	22%	-	22%
71% to 90%	13%	-	13%
91% to 100%	6%	-	6%
Subtotal	89%	100%	90%

101% to 110%	5%	-	5%
111% to 120%	2%	-	1%
121% to 130%	2%	-	2%
131% to 140%	1%	-	1%
Greater than 180%	1%	-	1%
Subtotal	11%	-	10%

Total	100%	100%	100%
Weighted average LTV:
Stock of residential mortgages	50%	12%	48%
New residential mortgages	105%	-	105%
Stage 3 mortgages	49%	12%	48%

(b) Forbearance arrangements - residential mortgages

The Target Business operates a number of mechanisms which are designed to assist borrowers experiencing credit and loan repayment difficulties. These are set out in the table below.

Residential mortgages

The tables below set out the volume of loans for which the Target Business has entered formal temporary and permanent forbearance arrangements with customers as at 31 December 2021, 31 December 2020 and 31 December 2019.

(i) Residential home loan mortgages:

The incidence of the main type of forbearance arrangements for residential home loan mortgages are analysed below:

	All loans		Stage 3
	Number	Balances	Number	Balances
31 December 2021		€m		€m

Interest only	5	1	-	-
Reduced payment (less than interest only)	11	2	1	-
Reduced payment (greater than interest only)	37	4	9	1
Payment moratorium	1	-	-	-
Arrears capitalisation	10	1	4	1
Term extension	12	1	7	-
Hybrid*	31	5	19	3
Split mortgages	1	-	1	-
Total	108	14	41	5

* Hybrid is a combination of two or more forbearance arrangements.

		All loans	Stage 3
	Number	Balances	Number	Balances
31 December 2020		€m		€m

Interest only	6	-	-	-
Reduced payment (less than interest only)	9	2	-	-
Reduced payment (greater than interest only)	30	4	5	1
Payment moratorium	3	-	-	-
Arrears capitalisation	101	10	91	9
Term extension	49	4	38	3
Hybrid*	27	3	2	-
Total	225	23	136	13

* Hybrid is a combination of two or more forbearance arrangements.

		All loans	Stage 3
	Number	Balances	Number	Balances
31 December 2019		€m		€m

Reduced payment (less than interest only)	9	1	-	-
Reduced payment (greater than interest only)	8	1	-	-
Arrears capitalisation	202	22	199	21
Term extension	54	4	53	4
Hybrid*	23	3	23	3

Total 296 31 275 28
---------------------------------	--

* Hybrid is a combination of two or more forbearance arrangements.

(ii) Residential buy-to-let mortgages:

The incidence of the main type of forbearance arrangements for residential buy-to-let mortgages only is analysed below:

		All loans	Stage 3
	Number	Balances	Number	Balances
31 December 2021		€m		€m

Reduced payment (greater than interest only)	1	-	1	-
Payment moratorium	1	-	1	-
Total	2	-	2	-

		All loans	Stage 3
	Number	Balances	Number	Balances
31 December 2020		€m		€m
Arrears capitalisation	1	-	1	-
Term extension	1	-	1	-
Total	2	-	2	-

		All loans	Stage 3
	Number	Balances	Number	Balances
31 December 2019		€m	€m

Reduced payment (greater than interest only)	1	-	-	-
Arrears capitalisation	1	-	1	-
Total	2	-	1	-

(c) Reconciliation of movement in forborne loans for all classes

The tables below provide an analysis of the movement of total forborne loans and Stage 3 forborne loans during the year. It outlines the number and balances of forbearance treatments offered, expired and loans paid down during the year.