Permanent TSB Group Holdings plc (IL0A.MU) Earnings Call Transcript & Summary

Good morning, and welcome to our 2025 interim results presentation. I'm going to give you an overview of the performance of the bank during the first half of 2025 and say a little about the progress that we've made through the first 6 months of our new 3-year strategy. And in a few moments, our CFO, Barry D'Arcy, will provide a more detailed review of our financial performance. And I'll come back just at the end to discuss our progress towards our medium-term financial targets, and then we'll take some questions. So if we just turn to Slide 5. We've delivered a strong performance in the first half of 2025, supporting customers and communities around the country. Our customer deposits rose by EUR 1.1 billion in the first half to EUR 25.2 billion and are 7% or EUR 1.6 billion higher than a year ago. And to put that in perspective, we attracted the same amount of deposits during the first 6 months of this year as we did during all of 2024. After many years where our loan book was shrinking, I'm pleased to say that our mortgage book grew nearly 1.5% in the first 6 months and is up 3% year-on-year. We signaled during our quarter 1 update that as the year progressed, the growth rate in our loan book would accelerate, and this is now happening. I will take you through the latest trends in the mortgage market and our market share shortly. We also continue to diversify our loan book during the first half with our business banking book up 14% year-on-year to EUR 1.2 billion. And looking at our key financials and due to the fall in interest rates, our total income reduced by 4% in the first half, but our operating expenses also reduced by 1%. In terms of profitability, our profit before exceptional items was EUR 51 million. And as we recorded a nil impairment charge for the period, this was also our operating profit figure, which was 17% lower year-on-year. Moving to capital. Our CET1 ratio was 15.5% at the end of June, putting us in a very healthy position relative to our regulatory requirement. This has increased by 80 basis points since the end of last year. CRR III or Basel IV contributed 1.2% to capital during the period which is larger than the 70 basis points we previously estimated. Another highlight of the first half was the submission of our new IRB mortgage model to our regulator, the Central Bank of Ireland, seeking their approval. And this is a major project for us that we've been working on for quite some time, and Barry will say more about this later. I'd also like to highlight our loan-to-deposit ratio, which is at 86%, which is 3 points lower than where it was at the end of 2024. And this leaves us well positioned for future -- to fund future lending. If we just turn to the next slide. PTSB operates exclusively in the Republic of Ireland and we are fortunate that we have a very healthy economic backdrop to our business. The labor market in Ireland has been extremely strong in recent years and while there are signs that businesses have become more cautious about hiring, this has not impacted our business in any way, though we do remain vigilant. The deal between the U.S. and the EU on tariffs earlier this week, while not exactly what Ireland and Europe wanted, at least it provides some certain level of certainty so the business can plan and adjust to a new environment. From our perspective, we've conservatively modeled a scenario slightly worse than this in how we thought about our provision cover. And again, Barry will cover that later in the presentation. Irish consumers in aggregate have a healthy balance sheet. Household debt has been reducing for many years and is only now showing signs of growing again. Deposits meanwhile continue to rise to record levels. And I've mentioned, our bank continues to benefit as a result. Meanwhile, the mortgage market is growing as we expected, with new lending forecast to increase to EUR 14 billion this year and expected to be EUR 15.2 billion next year as we tackle our large housing deficit. House price growth in Ireland has slowed this year, but by year-end, it is still expected to be at least 5% higher year-on-year. If we just turn to Slide 7. Given all the news around tariffs and the fact that Ireland is a small open economy, investors are naturally very interested in our resilience on foreign direct investment or reliance, I should say, on foreign direct investment and its linkages with the domestic Irish economy and the risk to this investment flow in the future. So on Slide 7, I just want to spend a moment commenting on some of the trends that we have created -- that have created the modern successful Irish economy that we see today. Ireland has been a huge beneficiary of trade and globalization, but the growth and development we've seen over decades was no accident. A big emphasis on education and support of government policy as evident in some of the statistics we show here, have create a virtuous cycle of growth, rising living standards and inward migration. And as a bank, we are naturally keeping a close eye on any warning signs that this support environment may be changing. But so far, there is little to report. In the event the Irish economy deteriorates, it is encouraging that the government is running budget surpluses and our debt as a percentage of GNI* is forecast to be down at 65% at the end of this year. If we just turn to Slide 8. Turning to our lending performance in the first half. We had our strongest first half period in recent years. In fact, it's the best performance we've had since before the global financial crisis. Our total new lending was EUR 1.6 billion and that's up 66% year-on-year with 18% of our new lending coming from higher-yielding business and personal lending. In mortgages, we lent EUR 1.3 billion in the first half and that's nearly twice what we lent in the first half last year and our market share has landed at over 20% when you compare it to the 13.5% we recorded in the first half of 2024. New lending in business banking, which includes SME and asset finance was EUR 221 million and that's an increase of 23% year-on-year, which we're particularly pleased about as this is a new area of lending that we've been playing or participating and competing in over the last 4 years. Consumer term lending payouts were lower year-on-year, but we have a strong ambition in this space to increase our market share and we'll come back to that when we get to the year-end results. If we just turn to Slide 9. This outlines our business strategy for 2025 to 2027. It's a 3-year strategy. And in March, I took you through this strategy. And our ambition continues to be the best personal and business bank through exceptional customer experience. And the overarching goal of our strategy is to deepen customer relationships, diversify our income and differentiate ourselves through customer experience. And in parallel, the bank will drive greater operational efficiency so that we continue to grow and generate sustainable returns for our shareholders. And to show our strategy on action, we turn to page -- Slide 10. And here are some examples of this strategy working. And as I've said, we want to deepen our relationships with our customers. Our correlation relationship NPS score was 22 points and this is up 2 points year-on-year and we're working hard every day to drive that higher as happy customers are more likely to consider us for their next financial need. And indeed, on that front, our latest survey suggests that 71% of all consumers would give serious and first choice consideration to PTSB to meet their next financial need. And you can see evidence of this in the number of new accounts we've opened. It is also our opinion -- our ambition to diversify our income. Our business banking book is growing at double-digit pace. We're performing well in green mortgages while in areas where we have work to do, like fee income, we have plans in place that will up our game. For instance, we are meeting more customers each month for financial health checks and in due course, that should bring more business and more activity. We want the customer experience at PTSB to be different from that of our competitors or altogether more human as we like to say. We're striving to offer great technology with a human touch. Customers give us a 9 out of 10 score for our current home buying journey. So they clearly like what we're doing today. However, we know we still need to get better and I will touch on that in a moment. On the technology front, we've made more progress in recent months with a lot of new features introduced into our app, such as the faster log-in times, biometrics, card management and a digital gambling block. We have a very ambitious delivery plan over the next 12 months and we're only starting by way of the increasing and improving the activity on our app. And finally, our strategic business transformation program or the SBT is underway and you can see from our performance in the first half that we're starting to make progress on our cost base. So if we just turn to Slide 11. I spoke to you in March about the strategic banking transformation program. The initiatives under SBT are focused on simplifying our business, digitizing processes, improving agility and enhancing cost efficiency, all to improve both customer and colleague experience. Since mortgages make up 90% of our loan book, a key initiative in this program is reengineering our mortgage sales and service journeys. We are developing new and improved -- a new and improved mortgage self-service portal to enhance the customer experience and streamline back-office processing. Currently, over 90% of customers who apply for a mortgage or PTSB start their journey on our online mortgage portal developed in conjunction with CreditLogic and Irish Fintech. This portal allows you to submit documentation like bank statements, track your application and interact with our staff via chat or phone. You can manage your mortgage application from start to finish through this portal and customers really love this process as we can see and as I mentioned in our survey results. We are enhancing this by integrating Fintech-led services like open banking and categorization to improve the experience. We will also be better able to target cross-sales, particularly our insurance protection and indeed our current account offerings as part of the mortgage process. Managing our mortgage throughout its lifetime is currently a manual process for both customers and PTSB. In the near term, we will launch app functionality that allows customers to easily change payment dates, to manage rates, to request statements and access other services directly through the PTSB app. And this will significantly reduce time and effort for both customers and colleagues while eliminating unnecessary paperwork. Over time, we will add more mortgage features to this self-service portal, enabling our customers to meet their banking needs on the go at a time that suits them best. And to better help customers when they do need more human support, we've invested in a new AI-enabled system for our call center. And this system will reduce call times and after call wrap-up times, enabling our colleagues to support our customers more efficiently and deliver a better consumer -- or customer experience overall. So if we just turn to Slide 12. I want to just put a spotlight on our business lending and business activity. And this is another important element of our strategy, which is to diversify our income by growing our business banking portfolio. On Slide 12, we provide more of a deep dive into both the SME and asset finance businesses, which make up our value stream, which is grow and run my business. We start from a position where our loan book is a combined EUR 1.2 billion with market share percentages in the single-digit area. We think we can grow this book by 15% to 20% per annum over the next few years as we take back some of the share, which was vacated by the exit of Ulster Bank. And indeed, growth in the 12 months to June was 14% and we believe there's an open door for us in this market if we offer superior customer service with faster underwriting and we intend to build our offering in business banking as we go forward. And you can see from the chart here that our loan book is well diversified across sectors and there are better yields to be gained in this market, which helps our net interest margin. Asset finance by its nature involves security, while on the SME side, 70% of our lending is to facilitate a business or business owners purchasing a property for business use and the building itself acts as the security. Our investment in the near time is focused on making this business scalable. And once we've done that, we will then look to broaden the offering by developing a bespoke business current account and savings offering for customers. If I just turn to Slide 13. In May, we announced our new 3-year sustainability strategy, which is focused on channeling investment and directing impact towards areas that enhance societal wellbeing. Not only is this the right time to do this from a societal perspective, but our recent reflecting business research found that 78% of Irish businesses see the sustainability -- the sustainability market as a major growth opportunity to win more customers and increase revenue. So this shows that there is a commercial benefit to sustainability and we want to support customers in that respect. We're making strong progress in delivering this strategy with 43% of all new mortgage lending so far being green. And this year alone, we've lent EUR 26 million in impact lending. And our science-based targets and carbon reduction plan has been developed and submitted to the science based target initiative for validation. So thank you, and I'll now hand over to our CFO, Barry D'Arcy, who will take you through our financial performance in more detail.

Thank you, Eamonn, and good morning, everyone. Slide 15 sets out our financial performance during H1 2025. Total operating income reduced 4% in the first half as while our balance sheet has grown, our margins reduced, reflecting lower ECB and mortgage rates and higher deposits. Total operating expenses were EUR 271 million or 1% lower. Within regulatory charges came in at EUR 25 million with the reduction related to deposit guarantee scheme. Given the gap between income and cost growth, our cost-income ratio rose 3 points to 76%. We have recorded a nil impairment charge in H1, reflecting a very positive macroeconomic environment and the underlying health of our loan book. Exceptional items were EUR 32 million, which is slightly higher than the EUR 25 million we guided. This includes EUR 29 million for our voluntary severance scheme and EUR 3 million for noncore items. After these exceptionals, our reported profit before tax was EUR 19 million for the period. And stripping out exceptionals and the movement in impairment line to give that better view, operating profit was 17% lower at EUR 51 million. EPS adjusted for exceptionals came in at circa EUR 0.04 for H1, while return on tangible equity on the same basis was 2.9%. Finally, our TNAV per share, our TNAV was EUR 0.0353 at the end of June, which is up 2% year-on-year. On Slide 16, we show our net interest income performance. NII was EUR 288 million for H1 or 7% lower as the effects of falling interest rates on our margin offset higher average interest-earning assets. You can see from the chart here that the main negative driver behind NII was higher deposit costs. This was a function of higher average volumes relative to last year, particularly in term products and higher average rates. This was partially offset by lower wholesale funding costs from reduced repo volumes as well as a gain on our hedge position on our MTNs and Tier 2 instrument. Here, we have swapped a fixed interest cost into a variable and this variable cost reduced during H1 as rates came down. Our asset yield reduced 21 basis points year-on-year as income on our tracker mortgages and cash balances repriced. And I'll talk about that in our lending income in a bit more detail in a minute. Meanwhile, our average cost of funds rose 3 basis points year-on-year, though this was after the hedging gain. Our average cost of deposits rose about 0.25% to 76 basis points, with the increase relative to H2 was near 10 basis points. Our net interest margin or NIM was 202 basis points for the half year, down 8 basis points from our Q4 exit margin of 210 basis points. This was slightly lower than budget, but this was due to stronger deposit inflows. So it's purely the effect of the denominator being a little larger in the calculation. The extra cash we took in during H1 raised our Central Bank deposits and the average ECB deposit rate during the half was circa 2.4%. This extra cash will support our lending in the second half and we still expect a margin of greater than 2% for the full year. As before, this is based off the current ECB deposit rate of 2% persisting to year-end. The bank still remains sensitive to the interest rate environment, but this has reduced materially. At the end of June 2025, using a static balance sheet balance, every 100 basis points decrease in interest rates results in a EUR 9 million reduction in our income. This sensitivity has been reducing as our tracker mortgages and Central Bank balances have declined. And for comparative, if you went back to our H1 '24 results, we said that figure was EUR 25 million for every 1%. So quite a change. On Slide 17, we give some detail on our lending income and our mortgage book in particular. Our performing mortgage book rose 3% in H1 '25 to EUR 19.9 billion. We've shown this chart for a number of years, but it's worth noting that our NPLs are very small now. So if we included those to show you the total mortgage book, the growth rate will be similar. Falling rates outweighed the benefit from volume growth when we compare the 2 halves. And you can see the effect of falling rates on the chart on the bottom left. Our flow yield, which captures new-to-bank customers was 3.69% as of June '25, down 65 basis points year-on-year, but still higher than that for the stock, which was 3.5% measured in the month of June. The other side of our lending story is what's happening with our fixed rate maturities. And here, we have mortgages written when rates were much lower, such as in '22 when maturing on to higher rates today and that is providing support to NIM as we go forward and at least out until 2027. We show you here the latest split of the mortgage book. And as before, fixed rate mortgages make up the majority of our book at 71% of the total and the variable component of the book is now 17%. And the trackers are down 12% of the book. On net fees and commissions, net fees and commissions make up almost all our noninterest income each year and are derived from our current account product, commissions from home life insurance sales as well as from the operation of our card services. During H1 2025, we saw net fees and commissions increase 35% to EUR 31 million. This reflects modest growth in underlying activity with income boosted by the full 6 months of impact to changes in current account pricing that we introduced in April 2024, also and favorable timing of receipts in our -- in the payment area. The latter added EUR 4 million of income, which normally comes in the second half of the year and we've shown this in the shaded box on the chart. So in modeling the full year outcome, you just need to bear that in mind. Aside from fees and commissions, we also recorded EUR 3 million in other income during the half compared with EUR 2 million last year and this line tends to be predominantly FX gains. Just on Slide 19, moving to operating expenses. Total operating expenses were EUR 271 million for H1, down 1%. Regulatory charges came in at EUR 25 million. And excluding these charges, underlying costs were flat but in line with our expectations. Meanwhile, the bank's cost-to-income ratio was 76% and we remain very committed to reducing this ratio in the coming years. Our strategic business transformation program will be a big role -- play a big role in delivering this objective, which Eamonn spoke to earlier. One of the initiatives in this program is a voluntary severance scheme, which is extended to all employees last December and is now at an advanced stage. When combined with management actions and natural attrition, we continue to expect a reduction in staff numbers to circa 300 in 2025. Staff numbers at the end of June were 3,085, down 162 or 5% compared with 3,247 at the end of the year. The scheme will generate annualized cost savings of circa EUR 19 million and an exceptional charge of EUR 29 million associated with this was recognized in the first half. Other exceptional charges of EUR 3 million were recorded in the period. For the full year for 2025, we remain on track to meet our cost target of EUR 525 million. Moving to Slide 20. Asset quality continues to remain very robust. And as a result, the bank has recognized a 0 figure for P&L impairment in H1. So that's cost of risk of 0. Our total provision coverage was 1.8% of loans at the end of June, which is unchanged versus the position at year-end. Our provision stock of EUR 389 million includes EUR 43 million of in-model adjustments and EUR 101 million of model overlay, which involves management judgment. As part of the review of our IFRS 9 models, we continue to challenge these overlays internally with a view to better incorporating them into our existing model parameters. We are working hard to complete these model updates for later this year and it is a challenging piece of work, but we're working hard to deliver that. The weighted average loan-to-value on the home loan mortgage book is at 48% with the new mortgage weighted average loan-to-value at 68%. In terms of guidance for 2025, we believe we are very well provided currently. And while uncertainty persists, we maintain guidance of a 0 charge for the year. And with regard to that uncertainty, just some updates on our conservative macroeconomic assumptions. Obviously, given all the developments in relation to tariffs and Ireland being such an open economy, it's natural that we've received quite a few questions on potential impacts. On this slide, we detail our economic forecasts that are behind our provisioning assumptions and we believe these are conservative. We came into this year with base case projections that were more cautious than consensus as we built a 15% to 20% tariff shock. So these numbers here are very similar to the ones in our annual report. As Eamonn mentioned earlier, the trade deal that was announced with the U.S. is slightly better than we had modeled. So at this point, we don't see any negative read across for impairment numbers. But uncertainty has increased since year-end, but the weightings on our upside and downside scenarios remain unchanged as they are designed to represent a 1 in 20 probability relative to base case. If we're only to use the base case scenario to model ECLs for mortgages, excluding management's adjustment to model outcomes, the ECL impairment allowance would be EUR 91 million less than what we show at the end of June. On Slide 22, just to talk to funding and liquidity. If I pick out key points here, customer deposits grew 7% year-on-year which is a really strong performance and one that was ahead of market. As Eamonn said earlier, the growth of EUR 1.1 billion in H1 was the same as what we achieved throughout all of '24. So we are well funded and I would expect the growth rate to slow as the year progresses. Around 3/4 of this growth was in retail term deposits and corporate, our current account balances are also up nearly 3% since year-end. You can see that our average cost of interest-bearing deposits was up 35 basis points year-on-year. But as I alluded to earlier, measured against H2 last year, the increase will be less. Indeed, our deposit costs are plateauing and should start to fall from here. Meanwhile, our MREL ratio remains very strong at 37%, which is ahead of our requirement and we have no further plans to issue senior debt this year. The bank now has 2 rating agencies, Fitch and Moody's, who are holding at investment grade. And indeed, Fitch recently upgraded PTSB Group Holdings another notch to BBB. This will benefit us in the future when we come to future issuance and refinancings. On Slide 23, looking at capital, our CET1 on new CRR III basis was 15.5% at the end of June, up 0.8% from December 2024. In the chart on Slide 23, we show the various moving parts in our CET1 over the last 6 months. The single biggest move, obviously, related to CRR III, which came into effect on the 1st of January. We previously conservatively estimated that the impact was a reduction in our RWAs of EUR 0.5 billion. That equated to an increase in our CET1 of circa 0.7%. We can now confirm that the actual impact for CRR III was a reduction in RWAs of EUR 0.9 billion, which has the effect of boosting CET1 by 1.2%. At this level, our CET1 is well in excess of our regulatory requirement with our 2025 SREP requirement at 10.83%. Management CET1 long-term target remains at circa 14% and we're committed to optimizing our capital structure over the coming years. Indeed, the bank has capital instruments with first call dates in Q4 2025 and Q2 '26 and we are considering options in respect of these. And finally, just a brief update on our IRB model program. Our new mortgage model was submitted to our regulator, Central Bank of Ireland on the 30th of May and engagement with relevant teams has started. This is strategically important project for the bank and we are working hard to ensure that we deliver a positive outcome. As you know, the bank's current model was submitted in 2017 when nonperforming loans were extremely high within the bank. The profile of the portfolio has substantially improved since then. For instance, over 73% of the bank's mortgage book has been written since 2015 under both new credit policy and the Central Bank's macro prudential rules. On the provisions slide, I mentioned that our risk-weighted assets moved down by circa EUR 0.9 billion because of CRR III. You should be aware that some of this benefit came through on our standardized book, which is essentially the loans we acquired from Ulster Bank and some came through on the IRB book through the removal of the scaler. In aggregate, the risk density on our mortgage book reduced from 39.6% at year-end to 36.4% at the end of June '25. We will continue to positively and constructively engage with the Central Bank in line with how we engage in all matters with regard to the Central Bank engagement and we'll update the market on the application when it is appropriate. So to summarize, the bank has had a very strong performance in the first half of '25 across our business and particular highlights were the growth in deposits, the acceleration in lending growth and our strong capital position. With the revenue environment more challenging this year, we're working hard to transform the way we operate, improve effectiveness and efficiency. And you can see this in our 1% year-on-year decline in our cost base. We've had a very good start to the year and the second half, and we're confident about our prospects for our business going forward. I'll hand you back to Eamonn now and he'll take you through guidance for the medium term. Thank you.

Thank you, Barry. We just -- we're on to the last slide. So just to -- I just want to finish by reminding you about our guidance for the year 2025 and indeed, our medium-term guidance out to 2027. As Barry has indicated, our business is performing really well and we are reiterating our guidance that we gave you the full year back in March. So we're standing by that guidance. There will be a small change in the exceptional charge number where we said it would be around the EUR 25 million. It will actually be around EUR 32 million. That's what we recorded in the first half of the year. And once again, just again to mention and to say that the medium-term targets do not assume any changes to our risk weight densities as part of our IRB model review. And indeed, when that model review comes through, we will have to amend the medium-term targets to reflect what the impact that will have, but we have to wait until we go through that process. As regards distributions, again, as I said back in March, we plan to restart dividend payments in 2026, but that is subject to our financial position. And indeed, we have to go through an approval process with our regulator in order to make those dividends, but we're still standing by our ambition to pay a dividend. And our current policy is to grow that dividend payout to 40% over time. And again, to put that in context, that will be the first dividend we will pay in 18 years as a bank. And again, it's a clear sign of normalization of where we've come from and indeed where we want to go from a shareholder point of view. So to summarize, we believe we're playing a critical role in the Irish market, providing much needed competition and in particular, in the business lending space. And we believe there's great potential for us to grow our business and improve our cost efficiency while meeting customers' evolving needs. And the first 6 months of 2025 can really demonstrate -- really demonstrates that by way of the growth across the different lines. Finally, it would be remiss of me not to mention the successful disposal by NatWest of the remaining 11.7% share in PTSB. This marks another important step towards normalizing the composition of our shareholder base and creates further liquidity in bank shares and was extremely welcome to us and indeed the market when that deal was successfully executed. It also demonstrates that there's a strong market appetite to invest in PTSB and gives us confidence that our strategic direction to deliver real and sustainable value for our shareholders is recognized and supported. So I'd like to thank you very much today for joining us, and we will now take questions on the results. Thank you.

Diarmaid?

Diarmaid Sheridan from Davy. Maybe firstly, the really strong momentum you saw in the first half of the year in both deposits and lending. What are you thinking about for the second half of the year and into 2026 on those? Secondly, on the RWA, Barry, you mentioned the different components of that benefit that you've received. Maybe if you could update us on what a 1% sensitivity on the IRB mortgage portfolio would do? And on the Ulster Bank portfolio, is that going to stay on standardized? Or would there be an intention to move that to IRB at any point in the future? And then finally, maybe on the costs, obviously, front-loading the noncore costs and the voluntary severance plan. Over what time frame should we expect to see that EUR 19 million benefit kind of come through and accrue into the cost line?

So on your first question, we've momentum in our mortgage -- our pipeline in mortgages is strong. You can see that we've recovered very successfully our market position to above 20%. That's an area where we're comfortable by way of that share of the market. We can also see the market is growing. And it's not as if we're not chasing the market. Our average LTV on new mortgage lending in 2025 is around 70%. So again, we're not out the risk curve by way of attracting customers at higher LTVs. And we have a competitive product offering in mortgages. So we're quite comfortable and that momentum will continue. On business lending, we are a new player in the market. We're growing faster than the other 2 operators, other 2 banks in the space and we're providing optionality in that regard. And again, the pipeline is strong. July has actually been quite a good month for lending and business lending and would even show more positive growth. On the consumer finance story, we are behind the line. We understand that and we will be, from a strategic point of view, dealing with that in the second half of the year and be more competitive in that space. And we'll let our story tell for itself as and when that comes. And on current accounts, we're attracting new business. We're growing our current account base. And indeed, most importantly, we're growing our deposits. And we're attracting new customers to the bank as well. And through use of data and the use of our own DNA around how we think about being able to get more human, we see the value in not only our back book, but the interaction of those customers. So overall, the first half of the year, which typically is -- it's a game of 2 halves, you have a slightly less growth in the first half and a strong second half. We're seeing the signs of clear second half of strength.

Just on the capital front on the Ulster Bank portfolio, it is unstandardized now. It has come down from the 35%. It is something that we are looking at in terms of bringing it into an IRB context, but it will probably take another 2 to 3 years for us to build up history on that portfolio. It's something that we will look at closely. It's something that we'll have to continue to constructively engage with the Central Bank upon. So that's something that ideally once we conclude the IRB program, it's something that we can -- that's where the attention will move toward next. On the noncore element, the forecast savings on an annualized basis up to EUR 19 million. We should start to see that come through in the second half of this year with probably a key element of that being realized in 2026 and the full EUR 19 million recognized in 2027 and beyond. So it has started, obviously, with the 5% reduction in headcount so far this year. The journey has begun.

Great. And just the 1% sensitivity on the IRB?

Oh, sorry, 1% sensitivity on IRB. It has come down from EUR 30 million. And most recent look, it's probably less than EUR 20 million now given the changes that have occurred with regard to the [ 03 ] because in effect, the -- we've seen a benefit of that now come into the capital stack already.

Any questions on the phone lines?

We will now take questions from the telephone lines. Our first question comes from Denis McGoldrick with Goodbody.

Two, please, if I may. Just one on capital and Basel IV. Could you talk us through what's changed between January and June, which has provided the additional 50 bps uplift in CET1? And then secondly, I know that your balance sheet is virtually at the EUR 30 billion threshold now, which would trigger a move back to the SSM. Can I just ask if that process has begun? And what is your understanding around the time lines for that change to take effect?

So I'll take the second question first, then Barry, you might take the first. So first of all, it's extremely welcome that our balance sheet is at EUR 30 billion. It's only 5 years ago, it was around the EUR 20 billion mark. So it shows significant progress in our balance sheet. And indeed, if you look at our NPL position at 1.8% which is the lowest in the market. And indeed, our coverage of that NPL book is well over 100% by way of a provision coverage alone on that measurement. And these are all very positive signs of growth. And by way of the EUR 30 billion itself, it is a trigger for reentry to the SSM. We were in the SSM before and that we were part of the SSM regulatory environment until 2019. And then through deleveraging, we moved out of the SSM. And this is a decision for our regulator to make and how the bank progresses. But we'd expect over the next 18 months or so to be moving back under the SSM regulatory environment. And as I say, that's a welcome sign of growth in the bank and growth in the balance sheet. So it's something we're prepared for and have no issue with in the sense of that transition. We were there before, Denis, so it's not a issue.

And just on CRR III, there are 3 elements to that. As I mentioned, the Ulster Bank piece on standardized. There's also the IRB element that I mentioned a moment ago, but also the key element that change was our interpretation around the pipeline. We've taken -- we've probably a very conservative approach to how we view pipeline and that has had a positive impact, which is kind of the key driver of the change from what we've guided previously. So we're pretty confident that that work is now fully concluded and job is done there.

[Operator Instructions] Our next question comes from Grace Dargan with Barclays.

Maybe one on costs and then one on deposits, please. So I guess on the costs, you've called out the work you're doing on technology. Obviously, we talked about the growth savings coming through. And maybe more specifically, how should we be thinking about the shape of underlying costs and exceptional charges into '26? That would be very helpful. And then secondly, on deposits and kind of funding, how do you expect competition to evolve kind of in H2 and beyond? I know you said you expect deposit costs to come down, but are you seeing any increased pressure in the market from competitors who are now taking deposits in Ireland, for example?

Again, I'll take the second question first and then Barry will answer the first. So on deposits, we're still seeing positive growth in the Irish market on deposits. And indeed, if you look across Europe, there is significant growth in deposits across the European banking system. We -- our deposit book has grown strongly. And again, if you put it over a 5-year period, we've grown significantly by way of our deposit base in an environment where we've come from and we still compete in the market, but we've been able to grow our deposit base in that sense. So it's not something -- new players in the market do not faze us in any way. It's clearly about our strategy of supporting customers and providing additional features for them to use and indeed operate with the bank. To name one of them, last August, we implemented an ability for customers to put their money on deposit through the app and we're collecting EUR 60 million a month just through that channel alone and we'll see that channel developing over time even to higher volumes. So competition is fine and the numbers speak for themselves by way of our ability to grow. And that is linked to our strategy and indeed our brand positioning in the market, which is also growing and is strong. So overall, we have no concerns in that sense. And we expect our deposits to grow over the medium term as well. That's part of our balance sheet growth to fund lending. Barry, yield to you.

Just on the cost side, for 2025, we've reiterated our guidance to the EUR 525 million. The exceptional costs have come in higher. We don't anticipate and do not expect anything equivalent in 2026. We would expect a more normalized year. A key element of our focus is to bring down our cost-income ratio. Our 2027 guidance is to bring it down towards 60%. We want to continue the good work that we've started in 2025 and at the end of '24, to be honest, so that we actually continue with strong momentum as we build forward. A key element, as Eamonn mentioned, is on the mortgage side where a key element of our volumes have been. With the mortgage market increasing, we want to make sure that we create a very effective platform on which we can operate so that we can grow our volume but not increase our cost. So we want to improve both the cost position, but also try and drive that income into a better space. So it's trying to work on both sides. Ideally, 2026 will cut the line between where we plan to be at the end of '27. So continue to build on the momentum through '25 into '26. But at its core, what we're trying to achieve is to engineer costs out of the bank and have it sustainable and strategic long term. So that's our ambition.

I guess maybe just following up on that then. So are you thinking of '26 as kind of a linear progression on costs into '27? Is that a fair way maybe we should think about it?

That's the approach we're working to internally, yes.

Our next question comes from Borja Ramirez with Citigroup.

I have 2. Firstly, on the revenue targets that I have implied based on your cost-to-income ratio and your cost targets. I think there is quite a bit of upside to consensus for 2027. And so I guess there's maybe also upside for 2026. So I would like to ask if you could please provide a bit more details on the moving parts in the net interest income into 2026 and '27 because I think that maybe consensus is not fully factoring in the benefit, for example, from the expected renewal of mortgages at a higher interest rate, particularly for the fixed rate mortgages. So that would be my first question. And then my second question would be, if you could kindly remind me of the potential time line for the IRB. So when would you expect the approval to come from the regulator? And if that would be before you would announce your distribution for the full year?

So again, I'll just take the second question first, and then, Barry, you might...

Yes.

So on the IRB model, I mean, we submitted our model at the end of May. So that's a very formal process. There's a lot of engagement with the regulator by way of that model submission. And it has taken an extended period of time to prepare it and to submit it. And at this moment, as I said, it's high engagement. We have to go through a process with the regulator with regard to our model. There's no particular dates that are set at which we have to complete that program. And I would expect that the annual results that we report at the end of February or early March next year, we'll be able to update the market. But saying that, we'll have to wait and see. At the moment, we're in a good place. They're submitted. There's high engagement. We have to work through that engagement and then we'll keep the market posted. The next key mark or next key engagement, obviously, will be the annual results and we'll see where we are then. But so far, so good and we're confident of an outcome with regard to the engagement we're having so far, but it is -- there isn't a set deadline. So unfortunately, I can't give you fixed dates in that regard.

And just on your first question, Borja, I think when we look at our NIM, we look at both the asset and deposit side. On the asset side, yes, as you call out, we should see a continued improvement on the asset pricing as loans refix. And also, we're trying to make that more straightforward for our customers as well with some updates in the second half of the year. That's -- in addition to that, also, what we're seeing is actually broadly some of the economic forecasts are actually supporting maybe higher volumes in the mortgage market, which we've called out today as well. So some positive momentum on the NIM from an asset perspective and from a volume perspective. On the deposit side, we believe our cost of deposits have -- were plateauing at this moment in time. We had a very strong first half of 2025. We don't expect the same volume of growth in the second half. And if we do see volume growth greater than expected, we will consider what pricing potentially looks at them. So we keep both aspects of asset and the liability side under very close review. But in effect, one key element that we have to keep an eye on also is how the ECB deposit rates move. And currently, we forecast 2%, but September will be interesting to see what way the ECB mix move in that regard. But we're well balanced on both sides and also with a broader macro environment that is helping.

To come back, just one item I didn't answer one of your questions, which was around the link between the IRB modeling and the dividend payment. It would be our ambition and desire that the IRB model would be complete before we make a dividend payment. You can see from our capital numbers today that we have capacity -- capital capacity and distribution capacity at current CET1 levels at 15.5%, but it would be an absolute desire that we would have clarity with regard to our ongoing capital requirement to the IRB models as part of that distribution. So they are linked in that respect. And indeed, that's why I mentioned that our year-end update in quarter 1, 2026 will be key by way of providing clarity in all of these areas. But we're on the road and we're in good shape at this moment with respect to a 2026 distribution, but they are connected. So thank you.

Our next question comes from Andrew Stimpson with Keefe, Bruyette, and Woods.

One on capital and one on provisions for me, please. On capital, some of the banks that have had the bigger benefits from Basel IV have just warned that some of that benefit may come back or they'll give up some of that benefit in future periods. I don't think that's going to apply to you, but just wanted to check that that's -- you believe that's a permanent boost and that other things going on elsewhere across the bank are going to mean that some of that benefit is given up in future periods, but the mortgage model review to one side on that. And then on the stock of provisions, Slide 20 says that a review of the IFRS 9 model is underway and that could lead to an unwind of those overlays, which is good to hear. What's the timing on that? Is that something -- is that a process that needs to be linked to the risk weight model reviews? Or are those separate models? Or can that process go quickly? Is that one that needs to be approved? Or how does that work, please?

Okay. Barry?

Yes. I'll take both of those. On capital and CRR III, we believe that we've -- again, we conservatively forecast in this space and we take a conservative approach in our interpretation. So we don't believe that we'll be walking that back at any time in the future. So I think it's -- ideally, this is once and done. So I don't expect any change in that context. On the provision front, obviously, the same team of people involved in the IRB program are now involved in IFRS 9 program. So the first model that we're looking at is the mortgage model. There's quite a bit of work to be done on that. We're on track to what we want to do at this moment in time, but it's still quite a challenging piece of work to try and conclude that for year-end. So that's something that we have an ambition toward, but there's still a lot of work to be done in that space. And the timing is not absolutely connected to IRB, but in effect, the knowledge that we've built from the whole IRB program will feed into how we consider the provision piece. But I think a key element on this is the -- while the model overlays may reduce, how we actually factor in uncertainty and there's still quite a bit of uncertainty out there, obviously, with the agreement with Trump and EU in recent days. We still need to see the specificity of the detail and how that will transpire. Also, cost of living has increased quite substantially in Ireland. So how do we balance all those pieces together? So again, we look forward to kind of updating that in more detail towards the end of the year. But we have a strong team involved in this and we're working hard to deliver it, but it's just trying to balance everything together. And so...

And just to add in the sense of the uncertainty, we're not seeing any of that uncertainty coming through by way of any delinquency or any delayed payment. The average LTV on our mortgage book, which is over 90% of our lending is below 50% and is performing extremely well. So the real activity in the book is quite strong. It's then about how do we think about that uncertainty in the current global uncertainty and how that's reflected. But the level of model adjustment, including any overlay is quite significant when you take it as a proportion of our provision charge at this moment. So we will wait and see as we get through that program. But the inputs that we have are quite strong in that sense.

Our next question comes from John Cronin with SeaPoint Insights.

Just 2, please. On the target CET1 ratio at 14%, that's very high relative to peer banks around Europe. What is the scope for that to come down in time? And then secondly, just to pick up on one of your earlier points on the -- where you're writing mortgages. Look, average LTV on flow, I think you mentioned was 70%. Just trying to get a sense, given the macro prudential regulations in Ireland and how they compare, they're more stringent than the U.K., for example. Like what would be your risk appetite trying to take everything into consideration here? Okay, like we're in an environment of uncertainty at the moment, I guess, as you've spoken about in the context of the EU U.S. trade deal. But more through the cycle, I mean, are you -- is your risk appetite higher than that? Is it the macro prudential regulations that are kind of suppressing your LTV appetite? You've had very benign impairments for a very long time.

Maybe you can answer the second one, Barry.

Yes.

Which is connected to our IRB model in [indiscernible].

Of course, yes.

But -- and on the first one, so our capital requirement has evolved over time and we can see that the capital requirement of the 3 Irish banks are somewhat consistent. I take your point that our model is different to the other 2 players in the market. So the question is why do we have a higher capital requirement. I think we've proven, John, over recent years that we've reduced -- significantly reduced the risk profile of the bank and we are now making a return. And indeed, when you think -- when you look at our medium-term returns out to '27, including the balance sheet growth we have in the first 6 months, you can see that we have a bank that will start making higher profits. And indeed, if you put the IRB modeling on top of that, it should strengthen those numbers. So this is something will evolve over time. And our position is that we have a safer business model and that should be reflected in a lower capital requirement. And we'll continue to make that argument. I can hear that you're supportive of it as well. And it does have an impact on our ability to make a return on CET1. The IRB models are currently the area that will have an impact in due course, subject to getting them approved. But it's something we will continue to highlight that the level of risk in our model has reduced significantly. And therefore, our CET1 requirement should move in time. But at this moment, the guidance is 14%, so.

And just on the second -- the question on LTV, it kind of ties into the capital weighting on our portfolio today for new business. Our average risk weights are circa 55%, which is quite heavy. Our back book is obviously lower. So -- but for those loans that have got a higher LTV, which are typically the first-time buyer market, the risk weights associated with that are actually even higher. So in effect, the return on that business is not great for us at this moment in time because of that capital weighting. So it's something that we -- as we look forward with IRB is how do we adjust that into the future. So it's something that ideally, once we have our model approved, that will give us more opportunity to play more positively into that first-time buyer market. But today, it's very heavy from a capital perspective. And we are priced very well in the sub-60% LTV space and that works very well for us. But we do, I think at a broader level, want to play across all segments and that's something that we are looking at and very conscious of. But it's not that we have a risk appetite issue. It's more that the capital weighting is very heavy.

Our next question comes from [ Seamus Murphy ] with Craig-Hallum.

Two questions, please. I was just looking at the provisioning. I know you mentioned it already. Can you just give us an idea of what the level of the provision stock that's out against your mortgage book again just because you haven't had a loss when I look back in your mortgage book for -- I mean, for nearly a decade, it seems, or certainly it has been very, very low. My second question in just on the deposits. So total deposits grew from EUR 28.7 billion, I think, in December to EUR 30 billion this year and we've seen growth in current accounts and in overall retail deposits. I know you said that the growth is going to slow in the second half, but have you been more aggressive in this half in terms of pricing deposits in terms of the strategy there? Because obviously, we've seen deposit growth in the 2 big banks basically have guided deposit growth for this year. They're kind of growing at plus 3%, I think, this year. So can you just talk a little bit about your deposit franchise in that context? And also, could you give us an indication of how much of your NII you think comes from the deposit side of your balance sheet?

Okay. I'll just take the middle one on deposits. So we do see deposits as an important part of our product offering and attracting customers, particularly away from the 2 main banks and then using deposits as a way to broaden that relationship. So that's a long-term aim. And we're making progress in that regard. We also have to take into account where we've come from as a bank and our ability to attract deposits in the broader market. And we're really showing that that is now not a question mark that we would have. And in a way, I connect that to the level of wholesale funding the bank had coming through the crisis was at an enormous level. I think it was the highest in Europe at that moment at nearly above 250%. So the deposit franchise is really important to us. We want to be competitive. We want to fund our balance sheet. We want to fund growth. There is a reversionary aspect to it that we have fixed rate deposits on some higher rates that will revert downwards over the next couple of years and that will support NIM generation in due course. But we will continue to compete and we want to match the market growth, but indeed balance it in the sense that compare the marginal cost of collecting those deposits versus what the return we're making on our balance sheet. But overall, we will be active in deposits and we will continue to grow. Barry, on the other aspects?

Just on provisions, what we've seen is the NPL ratio at 1.8% is the lowest in the market. We have seen broadly the balance sheets of households are very, very strong in terms of the mortgage customers within our book. We have, in effect, released provisions over the last 4 years. So it's something that we look at very carefully. It's -- the key challenge with that is what is the uncertainty factor in the broader market, as I mentioned earlier. But you're correct in saying we have about EUR 100 million, EUR 101 million in model adjustment at this moment in time. We have built in quite conservative assumptions in terms of the impact of that uncertainty and tariff shock. So it's something that we will look forward to if the market continues to improve and that macro continues to be strong that we look at toward year-end. But for now, we believe we are conservatively provided and we're in a good position in that context.

And our provision coverage across our book is 1.8%. For a bank of our setup, that's significantly high coverage. And we've released provision over the last 4 years, as Barry has indicated. So we're very well positioned by way of our provision coverage and based on the risk parameters of the bank as well. And again, we'll let that play out over time as we consider the uncertainties in the market. But we're not in provision raising mode at this moment. It's actually it's about how we think about the level of provision we have on our balance sheet and deal with that uncertainty. But we're in a good place in that regard and there's no stress in our book at this moment, nor do we see it coming through.

We currently have no more questions. Thank you to our speakers on today's conference call. We appreciate everyone for joining. You may now disconnect your lines.

Great. Thank you very much, everyone. Thank you.

Thank you.