Permanent TSB Group Holdings plc (PTSB) Earnings Call Transcript & Summary

Good morning and welcome to our 2020 Year-End Results Presentation. I'm going to give you a short presentation in the progress that the bank has made during 2020, and then our Interim CFO, Paul McCann will provide a more detailed review of the financial performance, and then Paul and I will be happy to take questions at the end. So if we just turn to Slide 4 of the presentation. You'll see that 2020, and we all understand this, has been an unprecedented year but where customers and colleague experience have changed so profoundly. But I'm pleased to say that business performance in 2020 has been resilient, and in particular, in mortgage lending. And if we look down along the various items, if we look at customers, you can see that our total new lending was EUR 1.4 billion for the year. And this is a reduction of 15% year-on-year. And you might recall, in the earlier part of the year, we were saying that our lending could be as low as 30% or 40% lower, but indeed with a significant recovery in the second half, which I'll deal with. Our new mortgage lending was EUR 1.3 billion. And the reality there is we took action on mortgage pricing and our service proposition around June, July, which actually helped us turbo boost our mortgage lending activity into the second half of the year and indeed into 2021. And we continue to develop partnerships with -- for our customers. So recently, we've developed -- we obviously have very strong partnerships for intermediaries and brokers. It's a very strong part of our business. And also more recently, we've developed a partnership with Bibby Financial Services in order to provide invoice discounting and invoice finance, and there will be more to come in due course. If we move towards the transformation that we're going through -- if we look at our costs, our costs have reduced by 2% year-over-year and indeed achieving cost savings in the current environment is certainly a bit challenging. However, existing initiatives and programs, which we've already established within the bank, continue to deliver savings over the last month -- or over the last 12 months. If we look at -- this is also a time when we made good progress on our digital transformation program, where we met key milestones, and I'll discuss these later in the presentation. Costs continue to be a key focus of the bank, and we launched a bank-wide enterprise transformation program, which was, again, I'll get into the detail on another slide, but part of that was around launching a Voluntary Severance Scheme. And we anticipate that we would have over 300 colleagues who would decide to take that voluntary severance and indeed, that is the case. And we'll be reporting on the finalization of that scheme in due course. The bank made a loss before tax of EUR 166 million, and this compares to a profit before tax for 2019 of EUR 42 million. And that loss is primarily driven by an impairment charge of EUR 155 million, where we've taken a prudent and conservative approach to the current macroeconomic environment. And obviously, we should note here that the country continues to be in lockdown until the 5th of April, and maybe it will be extended past that date. So we've taken a very prudent and conservative view by way of our impairment. Our operating profit for 2020 was EUR 52 million, and this compares to an operating profit of EUR 84 million in the prior year, with net interest income reducing by 4%. Our net interest margin came in at 173 basis points, which shows a 7 basis points decrease since last year, and this is as a result of lower for longer interest rate and indeed an increase in liquidity towards the end of the year as a result of our -- the sale of our Glenbeigh II portfolio. NPLs increased by EUR 80 million to EUR 1.1 billion bringing the NPL ratio to 7.6%. That's an increase of 120 basis points, but it's actually primarily driven by the fact that performing assets -- performing loans are 9% lower, again, as a result of the Glenbeigh II sale. If we move on to capital. Our capital position remains very -- in excess of management and regulatory minimum, actually to a high degree. And it came in at 15.1% by way of fully loaded Common Equity Tier 1 capital. And that's a 10 basis point increase, and it also reflects that we are recording a loss for the year. So we believe that's a very strong performance and puts us in a good position from a capital point of view moving forward. The successful deleveraging of the EUR 1.4 billion of the buy-to-let performing portfolio in September added 150 basis points. And indeed, it was a very good capital management measure when it happened, and obviously, as I said, this is the way how we manage our capital position. We've received regulatory approval to call an existing AT1 instrument that was issued in 2015. And I should also note we did a very successful issuance of a new AT1 issuance in November, which we issued at a much lower coupon and indeed with a significant increase in investor demand. And lastly, we regard to COVID payment breaks, 99% of COVID payment breaks have expired. And we had a total of EUR 1.6 billion of payment breaks, which -- of mortgage payment breaks, which represents 10% of our gross loans, and 4% of those require additional forbearance measures and that equates to about EUR 70 million and about another 6% are likely to require additional forbearance in due course. So total around EUR 180 million of the mortgage payment breaks will require additional forbearance. So if I just move on to Slide 5 and deal with the pandemic related disruption to the domestic economy. And we can see here that naturally, and we are aware of this, so I'd call it a very sudden and severe contraction in economic activity across the world. And again, if we take in Ireland, the consumer spending has reduced by 8% year-on-year. And it reduced by 40% through the first lockdown period. So a significant shock to the system. And indeed, I think we all remember the first lockdown and the shock we all had and how we dealt with it. But what we've seen on the other side of the equation is that household savings have increased in excess of 20%. And indeed, they actually peaked at 35% in quarter 2. So the unwinding of these elevated deposits in due course will, we believe, support strong consumption growth in the medium term and escape when we exit the lockdown period and also when we actually roll out the vaccination program. In terms of the labor market, on the right-hand side, job losses came in waves, which is aligned to the increasing levels of public health restrictions. But there were signs of recovery in the second half of last year and through the summer months as most sectors became operational. However, the third lockdown has seen the numbers of recipients of state assistance rising again, and this is likely to remain the case for the next number of months as restrictions are gradually eased. The labor force is expected to be smaller over the forecast horizon with unemployment estimated to be around 15% at the end of this year, and it is expected to return to pre-pandemic levels by 2022, but this will be dependent on the successful rollout of vaccine program, and indeed, the key sectors who have been impacted returning to work in a more fulsome way. If we just turn to the housing market, which is a key benchmark for us, given the fact that 97% of our exposure, our loans are actually secured by residential housing. And indeed, we have a strong position in that market. The new mortgage market having reduced from EUR 9.6 billion in 2019 to EUR 8 billion in 2020 is expected to grow by about 13% to EUR 9 billion in 2021, and indeed, in 2022, it's expected to grow to EUR 10.2 billion. So what we're looking at there is something in the region of 27% growth versus last year in the next 2 years. So that's something that is actually quite positive. Demand for credit declined in March 2020, and that follows the initial containment measures with a significant low reported in mid-April. And mortgage -- but mortgage approvals and drawdowns recovered well in the second half with an extremely positive fourth quarter helping to offset the earlier subdued activity levels. Housing supply, which was already insufficient to meet demand, was curtailed by the restrictions. And estimates before the crisis was the total housing completions in 2020 would be between 24,000 and 26,000. As it turns out, it have come in around 19,400, which is 8% lower versus last year, and with demand expected to be in excess of 35,000 units per annum, we believe this will lead to a continued upward pressure on house prices. But overall, the house price index has performed well from what was expected earlier in the year with a 0.9% growth in 2020. And this is around consumers choosing to use their savings to look to invest in housing, buy homes. But also, I suggest a very changing social environment, which makes house purchases more affordable outside key urban areas, and we're seeing that by way of our mortgage lending as well in our mortgage pipeline that there is an increased demand in non urban and leisure locations. So we just move on to our actual performance then. And particularly, I want to focus on our performance in the second half of the year. Our mortgage market share. As I mentioned before, our new mortgage lending was EUR 1.3 billion. That was a reduction of 14% year-on-year, but that reflects the market movements by way of lower mortgage markets. So we're basically in line with the market. Our new -- if you look at on the top left-hand side, if you look at our -- the graph there, you'll see that our mortgage drawdowns increased by 40% in the second half of the year versus the first half. And you can see that our market share basically stayed the same, but with significant increase in performance in that time. And then if you look -- move to the right-hand side, you see an even more positive picture in that our mortgage applications in the second half was 70% higher than in the first half. Now we put that down to, obviously, the recovering market, we put it -- we also put it down to the actions we took in pricing, the actions we took and how we market our products, and indeed, the actions, particularly we took on our proposition that we would provide a 72-hour turnaround for an approval by a customer and almost 100% of applications are turned around within that 72 hours. And that's something that customers really appreciate and even if they get a fast no, it's better than a slow no, if you understand. So in that regard, it's been quite successful for us, and we can see it in our numbers. And if we even looked at our drawdowns up to the end of February, they're actually in excess of last year. And last year, the first 2 months were non-COVID months. So there is a momentum in the mortgage market, which we should be wherever we can see it in our numbers. The other thing I'd say with regard to the slide is you'll see that we have a better conversion ratio. So if you take our mortgage applications for 2019, we have 14.4% share of the market, but that converted to 15.5% of drawdowns. Indeed, we had 14.5% of 2020 applications, and that became 15.3% of drawdowns. So what you can see is when we get an application in, we can convert it at a better rate. And indeed, if you look at our market share in the second half of the year at 16.2%, we would expect to be achieving at least that by the way of drawdown market. And indeed, if you take our previous experience over the last number of years, we should convert drawdowns at the higher rate. So there has to be something positive in that from our point of view. And our track record shows us. If I just move to personal term lending. Obviously, the consumer credit market has taken a hit because of the lockdown, less holidays, less car purchases, et cetera, and less discretionary spend. And you can see that our own personal term lending is 30% -- 31% lower versus 2019. And you could also see we've had a higher proportion of direct activity, which highlights the strength of the process we have there on personal term lending. And we'll just keep an eye on that. It's product area that is actually very linked to the vaccine situation. And with regard to SME lending, we have great ambitions in SME. It's an area that we want to develop. It's an area that we want to compete in. You can see that we actually marginally grew our SME lending this year, which is probably unusual given the year we've seen. And -- but we have intention to grow that even further, and I'll talk about that later in the presentation. So let's just move to now to Slide 8. I want to just talk about our strong ambition, our progress and our priorities. I personally view the vision for Permanent TSB. And despite these unprecedented times, I believe that we've all of the ingredients to become a clear #3 player in the market. Further building trust with customers will be at the heart of what we do. And as I took on my new role as CEO in July of last year, I set out a new purpose for the organization, which is centered on building trust with customers and connecting with the bank's community heritage. And that heritage is over 200 years operating in the Irish market and across the country in key communities. And just to go through this and our purpose is to work hard every day to build trust with our customers and to ensure that we live up to our promise of being a community of people in this bank that serves the community of customers that we have. And indeed, we want to welcome new customers in that regard. We will do this by building a sustainable organization that is transparent and fair with customers. And indeed, an example of this is when we reduced our rate -- our SVR and MVR rates in July of last year, and we want to do more action in those areas. Our ambition is to be Ireland's best personal and small business bank. It's quite straightforward. And -- but best for us doesn't mean the biggest. We don't have to be the most profitable, we don't have to be the biggest by way of volume, but it does mean being the best of what we do for both personal and business customers. And to achieve this ambition, we focused on a number of key priorities, and they include, for our customers, increasing the trust, advocacy and loyalty of our customers. If we talk about our digital capability, it's about continually enhancing those capabilities. Indeed, this year, we have made progress. I mean, in 2020, we have made progress on our digital capability, and we will -- I will talk about that shortly. And we'll continue that focus. If we talk about our culture. So we're conscious about embedding an open, inclusive, risk aware and growth culture, a culture that's focused on customers, a culture that questions itself by way of how it operates internally and externally and a culture that is progressive and positive. We also want to simplify how we do our business. We want to simplify the interaction with our customers. We want to make that interaction easier, and that is our key focus. And I believe by focusing on those 4 things, customers, digital capabilities, the internal culture and the way we operate as an organization to simplifying our business, I believe by focusing on all of those, we will drive a successful and profitable bank that we can all be proud of. And indeed, we have to remember that 75% of the bank is owned by the Irish state, so it's something that all citizens can also enjoy if we become more profitable and we become more sustainable and we become more competitive and our position grows. So to achieve these priorities, we need to focus on building trust and loyalty with our customers, and I can't underemphasize the word trust and what that means and how it's tied into the way we operate. And we have work on transforming some of the key elements of the bank to build a sustainable future for the bank. So let me move to Slide 9, and I just want to talk about the -- our COVID-19 response. And as mentioned at the outset, the bank is and have been fully committed to supporting our customers, colleagues and communities through this pandemic. And I believe we've shown operational resilience and strength through what was a challenging year. Proactive measures were undertaken from early February 2020, and that was around protecting the health and welfare of our customers and indeed our colleagues. I mean, our colleagues' response to the pandemic is a reflection of the positive customer-focused culture that the bank has, in that we had over 76 branches open, and we had specific hours for elderly and vulnerable customers. All our contact centers were fully operational, and we opened 4 new regional centers to cater for not only social distancing, but also to cater for the requirements of our staff who have to travel from different parts of the country. And also -- we also were able to move 1,200 of our colleagues, about 50% of our colleagues, all sites into -- to working from home within a very, very short space of time. So that -- in that respect, we definitely stood up with the challenge of the pandemic. We showed up. We kept every branch open, and that was important. When we talk about key customer support, we approved 10,650 new mortgage payment breaks, which equates to EUR 1.6 billion. We had 800 approved personal loan repayment breaks for up 3 to 6 months. We increased the contact-less payments, increased to EUR 50, and that's been very popular and there's also a demand now to increase that even further. And also, we provided EUR 1 million of cash back rewards to explore customer accounts. And I mentioned already about the payment breaks in that there's about 100 customers, about 1%, who still remain on payment break. There's about 10% of the original applications that require further support from the systems. And we continue to discuss individual requirements on a case-by-case basis. And I think we understand the need to provide in some cases, additional payment breaks, which provides customers the time in which for their sector or the industry that they're working in to come back to open again and for them to actually start earning salary and wages so they can start supporting them all. And indeed we are absolutely focused on ensuring that, that support is given. And the time is given for the lockdown to cease and for some normality to come back. If I just move to the next slide, Slide 10, I want to talk about the customers. Customers are at the heart of what we do. Personal service is at the heart of everything and how we operate. However, as both customers and colleagues experience have changed, digital is playing an ever more increasing role in our service offering and our future ways of working. And we are competing very strongly, bringing new innovations to the market, introducing great new customer offerings and winning new customers. And an example of this is that over 40% of our new mortgage customers -- or sorry, of our mortgage customers actually were new to the bank. And that's fantastic. We look to welcome new customers to the bank. And we look to serve them in a way that suits their needs. And if I just look at a couple of key things on the slides. On the top left is around what we're delivering on our priorities, when I talk about enhancing customer journeys, leveraging the digital capabilities and repositioning our brand. Our NPS is plus 12. So we're top 2 in the market, and we're up 8 points year-on-year. And in that, the key aspects are around the service quality that we have and the service experience. And those things we're very proud of, and we need to develop that and they all play into our purpose, which is around trust. The 72 hour mortgage approval has been very, very popular. It's something we are -- we absolutely measure and we operate under, but it's been quite popular. I mentioned the 40% new to the bank customers. If you talk of our digital activity, it's been quite impressive, in that we've had over 100 million log-ins on our digital channels, and that's a 20% increase year-over-year, with more than 400,000 customers who are active on our app and we improved our app this year by changing the security log in and due to that, we saw an immediate increase in activity in our app. But the activity is up 15% with 92 million contact-less payments made by customers through the year. And that was an increase of 40%. So again, you can see the move away from cash into plastic. We've now 72% of our customers who are choosing to use the bank online. And not only that, our term loan, our credit card and our overdraft offer are all digitally available online now. And so a customer can operate these from their own home in order to open these products. They can obviously also go to the branch as well because, as I mentioned, we kept them all open, all 72% of them. So that's very, very important. If I just talk about partnerships. So partnerships for us is very important. It's about giving customer choice. It's about filling out our product offering to ensure that we can meet the needs of customers. It's accepting the fact that we can't do everything, that there are other parties out there, other partners who can do things slightly better than us, and we can plug them in and link them into our product offer. If we take -- if we talk about the key partnerships we have, we have a very, very strong relation with intermediaries. It's a relation that goes back years, and it's a relationship where it's very -- we provide our intermediary and our brokers with a very successful mortgage broker portal, which allows them operate with the customers that they're interacting with in a very positive way. And we have 25% of the broker market, and it's something that we care for, and it's something that we manage by way of that broker interaction. We also have our new partnership with the SBCI, Strategic Banking Corporation of Ireland, and that was around also accessing for the first time, a EUR 50 million line for the future growth loan scheme for SMEs. And to-date, we're 2x oversubscribed with nearly EUR 100 million of demand for that scheme, and we will look to -- for customers to draw down on that scheme in quarter 2, but it really demonstrates our commitment and our support for SME customers and really that we want to provide something different to customers in this area, a different relationship, a different competition, a new competition. And as I said earlier and I'll say it again, and I'll keep saying this, we invite business customers to come and talk to us about their needs and how we can fulfill them. We also recently entered into a strategic partnership with Bibby Financial Services, and that's to provide customers, business customers with an invoice financing product and service. Bibby are leaders in this area in both the U.K. and Ireland, and we see the benefit of actually linking with them. And there will be more partnerships which we will enter into, which will provide, particularly on the business side, which will allow us complete and fulfill and fill out our offering when it comes to business customers. So if I just move to Slide 11, and I want to talk about transformation. And transformation -- apologies, 1 second. Transformation for us is about how we develop our digital offering, how we think about our business model and simplifying that and then how we embed our values, and we live and behave our values every day. And we've embarked on a 3-year journey to deliver a digital transformation program, and we're investing more than EUR 100 million in that transformation, and we're about halfway through. So we're in a lockdown but we've more to do and to enhance that offering and -- but a couple of things we've delivered. We delivered Apple Pay, which was extremely successful, well, way ahead of what we expected by way of customer takeup and shortly, in the coming months, we will deliver Android or Google Pay. We also brought in digital documentation upload, which allows us to progress our online mortgage journey. We have a direct mortgage journey at this moment. And we've already received applications through that direct mortgage journey, but it's something we want to increase and progress and to really show that we can offer such an ancillary and complementary channel for customers that isn't just branch focused, but also has a direct aspect to it. We've launched video banking, which is the first of its kind of Ireland, and that will allow us to interact with customers in a remote way but yet in a personal and connected way. So it's really, really important. We're working very hard on what we call our customer correspondence management tool, which is a key enabler for how we migrate our correspondence from paper to digital. So it's a really important project for us. And we're making some progress in that way. We're also looking at artificial intelligence technology with a chatbot pilot on the way, and we'll see how that goes. But again, it shows you the direction of travel. If I talk about the branch, the branch, and I keep saying that about our 76 branches, but they're core to us. And what we're equipping branches with is iPads, et cetera, and technology to allow them to deal digitally with customers. We've also upgraded across all our networks our ATM and SSBM technology. And then lastly, with regard to the SBCI funding, the EUR 50 million line that we had, we implemented a digital portal, allowing customers to apply digitally and online to apply for that particular funding. We're the first in Ireland to do it. We did it with a partnership with a fintech, and we had that up and running within a matter of weeks. So really, really important. It shows our -- where our priorities are, and it shows significant developments that we're making. And if I look into 2021, the focus is around our digital current account which we will launch in the coming weeks. It will involve about 6-minute opening time for current accounts. We will also be further implementing a payment strategy around improving our payment experience. I mentioned already Google and Android Pay and also our digital mortgage and SME proposition by way of bringing that fully online and having a service journey that is actually more efficient and more direct for customers. But all that we'll do complement what we're doing in branches already, so we just have to be aware of that. On the right-hand side of this slide, this is by the people, how we're transferring, how we're transforming our culture, how we're transforming the organization, how we're transforming how we operate. And it's around effective organization design, and we're involved in detailed organizational structure review, and this is as a result of launching a Voluntary Severance Scheme in November of 2020. We already mentioned that we were seeking around 300 FTE reduction. And in fact, we had about 400 applications for voluntary severance and we believe we will reach the 300 FTE reduction. And that's about providing optionality for our colleagues, it's about allowing them to take decisions with regard to their future, like their future clearly how they want to operate themselves personally, and I think it's a win-win. It allows us to carry out some organization redesign and indeed allows colleagues who have been with us for an extended period of time in some cases to actually to move on with the life and the working life. We're also looking at smarter and new digital ways of working. And that's around how we think about our colleagues working from home, working in the office, how we enable that work in a way that makes sense. If I take the -- if I move to the sustainable workplace solutions, and this is around our office footprint, so as I mentioned earlier, 50% of colleagues are currently working from home. I want to continue that for at least some days of every week. And we want to facilitate that because we believe that is the right way to go. It actually assists colleagues on how they manage their personal life, but also we've seen firsthand that the effort and commitment of colleagues has given us through the pandemic that we can trust them, we can work with them when we can see that the output that we're getting as an organization is increasing. And it also links to the fact that we can utilize our workspace in a more -- in a better manner. And as part of that, we decided to exit our Park Place office, we've rented office there for a number of years and we've decided to cease that lease and that will cease in April 2021. So again, it was part of the reduction in our cost base, but also how we're moving from a more physical presence to having colleagues working remote. If we look at operational excellence and information security and then how resilient we are, there's no doubt that the pandemic was a significant test around operational resilience. I believe we stood up to operational resilience. We didn't have many issues with our IT platforms. We didn't have any outages that caused us any difficulties. We kept all our call centers and our operation centers and our branches up and running and going from that perspective. So these were all very positive things. So if I just move to the next slide, which is around, well, how we're playing our part in -- by being a responsible business and indeed by being a sustainable business and how we are thinking about doing business in a more responsible way. And this slide, I'll just bring it to you. So if we look at the top left, we've actually strengthened our community partnerships. We -- in July of last year, we launched a partnership with the Ó Cualann Cohousing Alliance where we're providing with financial support over the next 3 years to build affordable housing, 1,800 affordable houses across the country. And actually, that slowed down a little bit because of the pandemic, but the reality of this is, there's a significant demand and on society for affordable housing, and we want to play our part in supporting that. We also provided EUR 700,000 in financial contributions to Irish community organizations. And that was by way of staff volunteering and by way of staff charging activity, but a significant amount of funds with the provider that they make a real difference to the communities and where we operate. By way of supporting our colleagues, our culture index is up 7% to 72%. Our new engagement index registered 71%, which compares very, very favorably against industry standards. We have a significant program ongoing internally in the organization called Living As Leaders where we partnered with LIFT Ireland around developing personal leadership qualities, behaviors and the way we act every day. And to date, over 600 colleagues have participated in that. And by the end of this year, all colleagues will have participated in that. If we think about events, diversity and inclusion, we're heavily involved in the Work Equal campaign, which is a 3-year partnership promoting gender equality in the workplace. And if you look at our gender balance in PTSB, 47% of the staff are female, 53% of the staff are male. If we look at senior leadership, 37% are female leaders within the organization, and that's a 7% increase in female leadership year-on-year. And indeed, we have ambition to improve that even further. And for the first time, this year, we've announced our gender pay gap. We're at 14.9% for 2020. The national average is 14.4%. And while this compares favorably, say, to the U.K. financial services sector, which is around 31.9%, so it's high, and they have a lot of work to do in that area. We also have work in order to improve our gender pay gap from the level we are, and we are absolutely committed to doing that. And it is linked, obviously, to the senior leadership -- female senior leadership development that we have within the organization. And lastly, I want to mention that we achieved The Mark. And what is The Mark? It's an accreditation for the best-in-class responsible business programs. And it's assigned by the Business in the Community Ireland initiative, and we're very, very pleased to get it. It took us a number of years to actually get that accreditation. And it really shows the progress we've been making. And if you look at -- if you take our carbon emission intensity, it's reduced by 10% in 2020, it's reduced by a 55% since 2009. Today, 100% of our electricity supply is renewable. 10% -- we're looking at a 10%, as I mentioned, a 10% reduction already in our carbon -- Scope 1 and 2 carbon emissions, and we're moving on to Scope 3. We've signed up to a lower carbon pledge with the Business In The Community Ireland, and there's a significant focus internally on sustainability. As an organization, it has been around over 200 years. We are -- we understand what sustainability means. It's in our DNA by way of our positioning and the way we've operated over that period of time, and we want to play our part in lowering the carbon footprint of PTSB over the coming years. So with that, I'll hand you over to Paul McCann, our interim CFO. He'll go through the financial performance, and then I'll come back and talk about the outlook in due course. So thank you.

Thanks, Eamonn. I'm pleased to present the financial statements of Permanent TSB Bank for the financial year 2020. The first thing to say is there's no question that 2020 was a challenging year in terms of the COVID-19 pandemic. And what is true to say is it's the same for banks across Ireland, Europe and indeed the world. But I'm pleased to say that we have beaten guidance for 2020 and we remain on a good sound financial position for 2021. So just as our customers have been resilient and our bank colleagues have been resilient and you'll see resilience in the financial statements for 2020. So to discuss the numbers, the bank made a loss before tax of EUR 166 million. And the moving parts in relation to that is an operating profit of EUR 52 million, which is down EUR 32 million from the financial year '19 from EUR 84 million. Our operating income is down 9% to EUR 375 million. I'll discuss in more detail in a moment our net interest income. Our fees and commissions are down EUR 9 million, and that's mainly as a result of reduced transactional activity in the market, the inability of people to spend money from last year. And I'll also discuss our other income in a moment. Our regulatory charges are up EUR 2 million, which brings our operating profit to EUR 52 million. We have an impairment charge of EUR 155 million for the year, which I'll discuss in a moment. And we have exceptional items of EUR 63 million, which relate to restructuring costs of EUR 31 million. A large part of that is a provision for our voluntary severance scheme, a deleveraging cost of EUR 26 million and exceptional COVID-19 costs of EUR 5 million. So to discuss the net lending income. The net lending income was EUR 332 million in the financial year 2020, which has increased by 4% year-on-year as new lending mortgage volumes yielding an average of 2.8% exceeded outflows at a yield of 2.5%. There was a decrease in our other interest income, which has decreased to EUR 9 million from EUR 37 million. And this is largely due to our treasury income reducing by EUR 18 million due to the continued maturity of legacy high-yielding treasury assets. These assets have now matured and we're now in a low interest rate, lower yield environment. We also have lower income from our nonperforming loan book, which we sold in FY '19, and that has resulted in a negative charge of EUR 6 million. So what does that mean for our net interest margin? Our net interest margin has declined from 1.8% to 1.73%, primarily due to an increase in excess liquidity and lower investment yields on treasury assets. We are guiding NIM of less than 1.7% in 2021 before increasing again in 2022. Our asset yield is 1.95%, which is 15 basis points lower year-on-year, mainly as a result of the continued maturity of high-yielding legacy treasury assets, the cost of excess liquidity together with some pricing adjustments, which the bank made in 2020. On a positive note, the bank continued to actively manage our cost of funds and that has reduced 7 basis points year-on-year. To look now at our performing home loan book, it's remained stable at EUR 11.7 billion in 2020, which is the same as our FY '19 figure. Our home loan mortgage book has grown 4% since 2018. This is a good new business performance considering the year that it was, as Eamonn has mentioned, with 95% of inflows or EUR 1.3 billion to fixed interest products. And you can see from the graph, the change in the mix of our performing home loan book. As our fixed interest percentage increases, our variable rate decreases and our tracker rate decreases and will continue to do so. 92% of new business to customers are availing of the 3 and 5-year into fixed interest rate, and the average yield on those -- in that new business is 2.8%. Our new business equaled our outflows in 2020 with 38% of the outflows from tracker products, yielding a lower 1.3%. So our tracker mortgage book is now circa 40% of our total book. What does that mean for our home loan yield? The stock has decreased to 2.49%, which is a reduction of 9 basis points year-on-year. However, our flow is at a much higher 32 basis points higher, 2.81%. A significant transaction that happened during the year was the sale of our Glenbeigh II performing buy-to-let book, which has significantly transformed that part of the book. The gross figure has gone from EUR 3.2 billion to EUR 1.5 billion. Our buy-to-let book is 85% tracker with 14% variable and 1% fixed. 47% of that book is interest only. After the sale of Glenbeigh II, our average yield has increased 22 basis points to 1.64% from 1.42% before the loan sale. The loan sale was EUR 1.4 billion, which has resulted in a 40% reduction in the performing buy-to-loan book for the transformational transaction, and the average yield on that book was 1.08%. Moving on to costs. And the bank and everyone in the bank has maintained really good cost discipline throughout the year. Our total costs have gone to EUR 323 million, down 7% and or EUR 7 million year-on-year. Our regulatory charges has gone up EUR 2 million, resulting in total operating expenses of EUR 274 million, down EUR 9 million on the previous year. After charging depreciation and amortization, our total addressable costs are EUR 237 million, which is down EUR 13 million from EUR 250 million in the previous year. So our cost-to-income ratio has gone up to 73%. But as you can see, that has nothing to do with our cost line and more to do with our income line, and we see that lowering in coming years. Our average staff numbers have increased during the year by 43. And again, all the initiatives that Eamonn was discussing earlier, a lot of our colleagues are working on those initiatives during -- and have been busy with that during the year. I think that the cost discipline is best described in the graph on the right-hand side of the page. And just to draw your attention to the EUR 15 million decrease in non payroll savings. And this is a huge amount of effort, not just by finance, but everyone in the bank to have cost discipline and to be ensuring value for money in everything that we procure. And there was significant savings during the year on management consultancy, legal fees, IT and telecoms, professional services, marketing, and there was a lot of work around contract renewals and optimizing those contract renewals for the benefit of the bank. And just in terms of the cost, it's not a 1-year wonder story. This reflects a number of years of cost discipline and cost control. In the last 4 years, there's been a 13% reduction in addressable costs. And it is the firm intention of the bank to continue this cost discipline over the coming years with an estimated 11% reduction in addressable costs. And how was this achieved? It was achieved through a rigorous approach through the management of the third-party costs. It's also been achieved through the enterprise transformation program, which was launched in November 2020, which is looking for a reduction in headcount, mainly in the management side of things, sort of 300 FTE and also smarter ways of working so that our colleagues can work in a better way for them. And also customer behavior is driving how we will distribute our products into the future. But we don't want to just be top of the class for costs, it's not for cost sake. We're focused on cost because we are looking to invest in our key priorities, a lot of the priorities that were outlined earlier in the presentation. Just to give you some numbers around this, between 2018 and 2020, we spent an average of EUR 48 million per year and EUR 27 million of that relates to commercial and technology spend. After investing a lot of money in our core platforms and core base, we will spend less in the coming years, reducing to 33% (sic) [ EUR 33 million ] but I would like to single out today that our depreciation from that CapEx spend will begin to take effect over the coming years. Of course, we will try to offset that by further cost savings as we go. So over the coming years, we intend to spend money on the digital current account, the launch of Android Pay, developing the digital mortgage and digitizing the SME customer journeys and having a digital service for all routine transactions. The demand to the bank will continue, and we will also have to invest in regulatory and mandatory spend, including cybersecurity, data centers to ensure we have enough data storage for our customers and anti-money laundering. Over the last 3 years, we have invested over EUR 100 million in technology and digital programs, over EUR 30 million in branch refurbishment and modernization, along with other business programs around people and culture to make the bank a better place for our people and our customers. In terms of the impairment charge for the year, we have booked a further EUR 80 million in H2 for 2020, resulting in a total charge for the year of EUR 155 million. And this charge reflects the changes in forward-looking macroeconomic scenarios, largely driven by the COVID-19 pandemic, we have included post-model adjustments of EUR 110 million in that EUR 155 million, with the remainder being mainly P&L items. We're very comfortable with this prudent approach to impairment. We believe the economy will take a few twists and turns as the epidemic draws to a close, and we want to make sure the bank is in a well provided and stable position, launching into the challenges in 2021 and beyond. We would also say that we do not see the charge for 2021, we would see that being significantly lower than our 2020 provision. Looking at our provision coverage. There are EUR 10.6 billion at Stage 1, EUR 3.2 billion at Stage 2, and EUR 1.1 billion at Stage 3. Our nonperforming loan book increased by EUR 80 million to EUR 1.1 billion. But the bank remains committed to mid-single-digit NPL ratio. We estimate that 40% of our NPLs are going to cure organically or technically over the next 12 to 18 months. And the balance will be assessed using all alternative options as the months progress. In terms of our provisions by stage and there is EUR 0.1 billion at Stage 1, EUR 0.3 billion at Stage 2, EUR 1.4 billion at Stage 3. Our Stage 1 and Stage 2 coverage remains flat at circa 2.5%, but we've increased our Stage 3 NPL percentage by 2.1 percentage points to 34.3. And again, this emphasizes our prudent approach to making sure the bank is in a stable financial position for the future. In terms of funding and liquidity, we are in a strong funding and liquidity position. We remain a bank that is largely funded by our customers. And the customers that trust us with their money. Our deposits -- retail deposits increased to EUR 10.5 billion during the year, which has increased. In line with other trends across the markets, the bank has also increased our current account position by 23% year-on-year to EUR 5.8 billion. Our loan-to-deposit ratio is now 79%, which is a reduction of 12 percentage points year-on-year, and this reflects the overall higher level of deposits in the market and also -- and the result of our performing loan at sale. So our liquidity ratio is 276%, which is significantly higher than our European bank peers. That reflects the higher deposit levels from our COVID-19 lockdowns as people save money and also the proceeds from our loan sale. The bank's current MREL target becomes binding on the 30th of June in 2021, and the bank expects to be compliant in advance of these days. The bank awaits confirmation of a new MREL target based on the bank resolution and recovery directive to framework. As at 31st of December 2020, the excess liquidity held with the Central Bank of Ireland was EUR 1.7 billion, which attracted a rate of minus 50 basis points. Our CET1 ratio in relation to capital, it remains strong. Our CET1 ratio increased by 10 basis points. There would not be too many banks that have increased their CET1 ratio during 2020. It increased from 15% to 15.1%. In response to the COVID-19 pandemic, the Central Bank of Ireland introduced measures to support the sustainable provision of credit to the economy, specifically the removal of the countercyclical buffer of 1% and the early introduction of the CRD 4 regulatory amendment. In November 2020, we issued an AT1 issuance of EUR 125 million, which added 130 basis points to total capital. That issuance was oversubscribed, and there's a lot of interest in the market in where the bank was going. Our pro forma December 2020, total capital transitional reflects the impact of the derecognition of the 2015 AT1 issuance following Central Bank approval in February of this year. So our CET1 remains above our regulatory requirements of 8.94%. And the moving parts in relation to our capital during the year was the Glenbeigh II sale on 1 hand. And obviously, the credit impairment on the other. We had capital generating -- generated from operating profit, and that was offset by some of the exceptionals that I outlined earlier. Our risk-weighted assets decreased significantly from EUR 9.7 billion pro forma to EUR 8.5 billion, and that was largely, again, driven by our sale of our Glenbeigh II portfolio. So management CET1 expectation over the long-term is 13.5%. So to summarize the financial year for 2020, there was significant resilient lending during the year of EUR 1.4 billion despite the challenges that 2020 brought. Mortgage lending was EUR 1.3 billion. Our mortgage market share was 15.3%. Our net interest margin was 1.73%. Our net fee income was circa 8% of our total income. And customers trusted us with their money, and our total retail deposits, including current accounts, grew 9% year-on-year strengthening our brand and our franchise. From an efficiency perspective, we reduced our addressable costs by 3% year-on-year. We now have a proven track record of managing costs over 4 years with a 13% reduction over 4 years. We have been conservative and prudent in our impairment charge of 103 basis points of total gross loans. And we continue to take a prudent approach as we await the outcome of the economy in this pandemic. Our NPL ratio was 7.6%, but we remain committed to mid-single-digit percentages. And again, we have a proven track record in dealing with our NPL loans. In terms of returns, the bank generated an operating profit of EUR 52 million. We're in a stable funding and capital position. We had a very successful transaction, again, not many billion-dollar plus -- billion-euro transactions in 2020. And again, that improved our CET1 ratio for the year. We had a very successful AT1 issuance in November 2020, which added 130 basis points, and our leverage ratio remains strong. So the financial statements for 2020 are resilient. And give the bank and the management team a good platform for the medium-term. Just to talk about the medium-term, I hand you back to, Eamonn.

Thank you, Paul. So I'm just going to talk about the medium-term outlook for the next 5 years, for the period 2021 to 2025. This outlook is based on Permanent TSB stand-alone. So naturally, when we get to the Q&A, you might have questions on the Ulster Bank, but it's not -- that obviously is not part of this. And indeed, when I talk about the numbers, they're actually impaired on the basis that Ulster Bank remains in the market, and that's only the decision to withdraw from the market or now best decision to go draw market was only made on the 19th of February. So again, I'll talk about that when we get to the numbers. So really about -- on Slide 27 here, we're talking about what's our ambition, what's our purpose, what's our priorities. And I cannot underestimate or under state, our purpose and our ambition and how we think about it. And the fact as an organization, we are absolutely focused on achieving both of those aims. And how are we going to do it? We're going to do it by maintaining our physical footprint. We have been investing in our branches, and we will continue to invest in our branches. And as I've mentioned earlier on, we've seen an increase in mortgage activity in branches, particularly outside urban centers this year, and we believe that is something that will continue. We will be digitally led. We'll have an OPTI channel approach with digital capabilities across key sales and service journeys. And again, you'll see enhancements over the coming years, and we're putting money behind that. You'll see the right products at the right price and a strong market share in our target segments, and our target segments are in the personal and small business area. That's where we want to play. That's where we can make the difference. That's where we want to attract and support and service customers. And by way of our -- how we think about routine service transactions, there's aspects of transactions today that are in branch, and we have to move them in a more fulsome way on to digital channels, and that's something that we will be doing. For example, we talk about the online current account, which will be -- which we can open in 6 minutes. So these are the examples of how we're moving things. If you think about where we're focused, I talked about partnerships and innovation. I talked about digital support and digital progress. I talked about the enhancing journeys. If you think about the mall, which journey is an area that we can enhance, we're on it already, simplifying how we do business, and indeed, we have a history of increasing efficiency and reducing costs, and that's something which we will continue to manage. And I would suggest that is clearly in our DNA. We clearly have an ability to manage our cost base in a way that makes sense, not only for us but for shareholders and all stakeholders. So if we look at the -- what we believe is the medium-term outlook for the bank, we're looking at a mortgage market share between 16% and 18%. But I believe we can actually do something better than that. And indeed, that market share is with Ulster Bank still in the market, and we should get our fair share of Ulster Bank market share. By way of SME new lending, we're looking to grow from a very low position today, but they are green shoots to having around 8% market share in the coming years. We're looking to double consumer lending per annum. Again, we might exceed that, but that is -- at this moment, that's a reasonable target. We're looking at bringing our net interest margin to 1.9%. And by the way, that is not on the basis of any interest rate increases. And we've talked here, not in recent years, but in prior years, we talked about the very positive impact that an interest rate increase would have on our position given our tracker book exposure, which has been reducing, but it's still a substantial part of our balance sheet. So that would be an interest rate movement would be very beneficial to us by way of a return. And then our net fee income is currently around 9% of total income. And we're looking to move that a book 10%. In fact, we have a target of around 15% if we can get there, but we're definitely looking above the 10%. If we take efficiency, Paul has already talked about the outlook with regard to our cost base. We're looking to reduce our addressable cost by about 11%. That will bring us to about a 65% cost income ratio. That actually includes regulatory costs. If you took out of regulatory costs, it's probably going to be in the 50s area. I just don't have that number to hand, but we're looking at a 65% cost/income ratio overall. NPLs, Paul has touched on that, but we look to further reduce those. We have the lowest nominal amount in the market. We have a lot of track record here in ensuring that we do that in a way that protects capital. And that's something we -- again, over the coming years, we will be looking to manage. And then the net of impairment charge 2020 was quite exceptional given the COVID impact, but we're looking at around a 30 basis points charge over the period. If you look at our experience, pre-COVID it was well below that. But I think it's reasonable that we should think about it at that level. Given that we are changing the mix, we want to have more on secured lending, more SME lending. So we'll change the mix in our impairment charge, but naturally also changes the mix in our interest income and our net interest margin, and that is positive in that regard. Paul has already mentioned that our target as a bank is around 13.5% fully loaded correctly Tier 1, and we're in a very good position at this moment with regard to our capital position. And you will see over previous years that we mined our capital position like the baby, it's something we focus on. We manage -- we actively manage it, and we ensure that we have put enough capital as an organization to manage the risk profile we have, but also leave enough a capacity to grow as a bank and to support customers and to support variety of society. Our leverage ratio around 7% over the period, the next 4 to 5 years. That is a leverage ratio, which is very safe. If you compare it to an equivalent U.K. bank, we're about twice as safe as an equivalent mortgage lender, but it does highlight some of the more recent market information around the capital levels that are required for an Irish back of our size. And then lastly, we're looking at a return on equity in excess of 6%. That is more towards the back end of the outlook given our go trajectory, I should say. But if you -- I have to just emphasize again, this is on the basis that Ulster Bank are competing in the market with us and that we wouldn't pick up additional market share, whether it's an SME, where we have great ambition or in the mortgage area. So there might be some additional pluses there to offset any particular minuses we might have in other aspects. But the reality is we're looking at a 6% return on equity, which -- where we're coming from, I think, is a respectable level. If we went back to last year's presentation, we were looking at that around 23, 24 but the reality is that the COVID pandemic has probably pushed it out a little bit. And as I said, the offset -- the positive offset there is the fact that we should generate more -- we should generate more business from the fact that Ulster Bank will not be present in the market over this medium-term. So I just want to finish off by saying that the results show a high degree of resilience, they show a high degree of progress in lots of aspects of what we do. We have not been sitting idle during the pandemic, we've been doing an awful lot by way of how we think about the culture of the bank, how we think about the digital transformation, how we manage our capital, how we manage our risk, how we manage our balance sheet, and how we transform the business. And indeed, I think you can see that this year in 2020 has been a changing year in that respect. And indeed, the coming years, we'll give you more of a flavor of how we're progressing and how we're proceeding. So on that basis, I'd like to say thank you for your time. Thank you for your attention, and we'll now move to questions. And myself and Paul will be more than happy to talk to you and answer your questions. So thank you.

[Operator Instructions] Our first question comes from the line of Diarmaid Sheridan from Davy.

Thank you for your presentation. I hope you're both well. Firstly, maybe just on Ulster Bank and appreciate discussions remain at a very early stage. But I wonder if you might provide us with some details around the parameters that you're thinking of and looking at it at this point. Clearly, there are a number of portfolios and scenarios. Just trying to get a sense from you around that, please. Secondly, just on the cost outlook, obviously, you've done significant investment in the last few years in both IT and your digital capability. I think how should we think about cost in that context over the period that you set out in the latter slides there, Eamonn? And also just in regard to the branch network in the context of recent competitive moves, please. And then finally, maybe just on nonperforming loans. It looks like in the disclosures that a large chunk of the impairment charge in 2020 was related to Stage 3 loans. I just wonder within that context, should we expect further deleveraging giving the market for loan sales as this reopened?

Diarmaid, I'll cover the Ulster Bank question and the branches, and Paul will cover the other 2 questions. So I'll just kick off, if that's okay. With regard to Ulster Bank, if you take our ambition, our ambition is clear to be the best personal and small business bank. So if you look at the type of areas that we're interested in Ulster markets in that area. So it's effectively the retail business. And the small business aspect for SME or [ Michael ] business exposure that Ulster have. Naturally, those discussions that are in early stage. And there's aspects of it that we'd have to reach agreement on and negotiate. And we're talking about Ulster would have in the region of 1 million customers. So you're talking about a significant a lot of complexity and a lot of challenge around how 1 would migrate and close a bank on the Ulster NatWest side. So there are things we are discussing at a high level. So it's in the retail SME space. Naturally, we're also interested in the funding position attaching to those -- the deposits that come with those customers that come with those positions. And we will then just enter into that negotiation to understand the dynamics, the perimeter. And then obviously, the financial aspects of and what will require by way of what value it will produce for our shareholders. And indeed, if there's capital required in order to purchase those aspects of the Ulster Bank business, what level of capital be required, but it's too early to speculate on those levels. With regard to branches, we have 76 branches across the country. As I mentioned, they're a key part of how we offer our service to customers. We made it a key priority that we kept all those branches open. So they were opened every morning during the pandemic and closed in the evening for customers to access and they are key by way of our presence. We have no plans at this moment to close any branches. And indeed, obviously, when we think of Ulster and how they operate, and indeed, the nature of their business and the nature of the extent of the retail business, if we were to be successful there in getting to the negotiations, getting a value story that makes sense for everybody. Obviously, then that seeking capital to back that value story, we would be looking to, in fact, extend our branch network in due course because of the Ulster Bank position as well. So that's how we think about branches at this moment. So for the other 2 questions, I'll hand over to Paul.

Thanks, Eamonn. Yes, I mean, thanks, Diarmaid, for your question. And yes, in relation to costs, I think what we're aiming for over the period that he described is an 11% reduction in addressable costs. And again, because of our track record and the rigor at which we go after our costs, I'd be confident of that that is going to be offset by depreciation. And I think we outlined today in a lot of detail, the amount of work and investment that's going on there. So I think our guidance would be our cost to be in line in 2021 from last year. And then I suppose we know that the -- we're hoping to reap the benefit of a lot of our investment in terms of a better customer experience. So we'll generate more income in the future, and our cost-to-income ratio will then arrive at what Eamonn described around circa 65%. In relation to your second question, Diarmaid, I think, obviously, we watch all the transactions in the market with interest. We noted the transactions in 2021 with interest. As you know, we have a really good track record of deleveraging our NPL book. And we will look at all options, but that will depend on the market and the prevailing conditions. So we will evaluate it this year as the year unfolds. But again, we're in a very good position in terms of what we've delivered from that regard and will continue to monitor.

Our next question comes from the line of Eamonn Hughes from Goodbody.

Thanks for the presentation. Just 2 or 3 for me, if that's okay. So just firstly, on capital. So I'll kind of direct this to either of you. Just the 13.5% to the target over the medium-term. I'm kind of conscious your P2RNG you're probably elevated now, but that's still for the type of bank that you are, and I know the mix is changing a little, but it just looks a little bit on the high side. So I just wanted to get maybe a sense around the thought process on us. Secondly, in relation to revenues, I suppose 1 point is probably a clarification on my part. I thought, Eamonn, you had mentioned that maybe looking or reviewing your SVR and MVR pricing. So I just wanted to make sure I heard that correctly or incorrectly, in first point? And then more strategically, given that you're now with Ulster Bank, say, exiting, you're the kind of the main challenger to the big two. So would there be an opportunity for you, particularly now since trackers or 40% of your book and you're fixed at 20%. So there's only 20%, let's call it, variable, you could have an opportunity here to significantly go for market share around pricing. So I just wanted to get your thought process on that. And then finally, just on volumes. You talked about kind of good interest outside urban areas. Does that mean you might struggle on the average loan size this year in relation to your mortgage lending?

Okay. Eamonn, so I'll pick up on those, if you don't mind. And I just missed the last -- we struggled on loss. I just missed the last.

Just on the average loan size, I think, Eamonn, you made a reference in your piece about you've seen good interest outside urban areas in terms of mortgage activity or maybe outside Dublin. And I just wondered, does that change the loan book, the average loan size potentially. So you could see kind of good volume uplift, but lower value.

Yes. I would take that 1 last actually, -- I just clarify, and thank you for your questions, Eamonn. Now the increase outside of the urban area is actually complementing or increasing our volume. It's not actually detracting it in any way. And we're seeing -- we're seeing an increase in volumes from brokers in recent months, and we're also seeing increased volumes to our branches. Our branch market share has increased. Our share of mortgages through branches has increased on a consistent basis over the last years. It's actually increased every year for the last 3. And naturally, we complement and supplement that by the broker, the very positive broker interaction we have. So you tend to see a bigger ticket coming from brokers and then a smaller ticket or slightly smaller ticket come into the branch system. And that's just the nature of customer choice really and how they operate. And how customers operate, I should say. So your point on the 13.5% is fair. We do look at in a conservative manner. We also have to be conscious of how a regulator and how a regulator thinks about capital requirements and indeed, sometimes our regular tends to be in the rearview mirror, which is fine. They're looking back to at-risk rather than forward at how the market evolving. So we feel like 13.5% is a reasonable level. Indeed, if we got to 13.5%, be wondering should we be moving to another level, but at this moment, it is reasonable. We still operate under a dividend blocker. So our ability to reduce our core equity Tier 1 is either we lose money, or we actually lend more. And we're in the lending more category by way of how we manage that capital going forward. And as I say, today, our benchmark is around 13.5%. Indeed, if we have a chance, as we see, naturally, the risk profile. And of course, we've just in recent months got parity on Brexit, et cetera. So we see all those things reducing. We may have a chance to reduce that requirement. But at this moment, that's where we're operating. By way of my point on SVR and MVR, I mean I think we were somewhat bold, if I don't mind saying this about ourselves, we were somewhat bold to reduce our rates and to actually to give something back to 70,000 customers, loyal customers who are at SVR rates and MVR rates. And we gave back in the region of 55 basis points for SVR customers and a range of 20 to 50 for MVR customers. So quite attractive. We do see -- today, we have a raise only product offering on -- sorry, an incentive only product offering on mortgages. And in the next couple of months, we'll be bringing a non incentive price because we think that's an area of the market we should be competing in as well. And we will continue just to review our SVR rates and MVR rates as we move along. And it's just part of how we operate, operate now and trying to balance. We've got customer loyalty and customers who have been with us for an extended period of time with our financial position and where we're going by way of competition, et cetera. By way of the Ulster Bank and pricing, it's -- on new mortgage volumes, and maybe other lenders will talk about this as well this week is around -- we have seen some increase in activity, increase in applications. As I mentioned during the presentation, we tend to -- once we get an application and we approve it, we tend to convert it at a higher market share percentage so we can actually grow our drawdowns, if you understand as a percentage of those applications, and that's been happening for a number of years. And it's all about that customer service that we offer customers who apply the 72-hour approval. All of that is really, really key to that engagement of customers. Indeed, as an aside, I actually talk to customers every 2 weeks, I spend time and co customers on an ad hoc basis. And what I found is all our mortgage customers who've dealt with us in the last year or 2 years are extremely happy with the service they've got and how the bankers engage with them to ensure that they can draw down their mortgage successfully. So we don't envisage reducing price at this moment. We do see -- we are competing as it is. We're growing by way of applications. And therefore, we're doing something like by way of the price offering we have. But I think it will be enhanced by the fact that we will be able to offer a non incentive price into the market in the next couple of months. And that will attract customers who value the incentive aspect at 2% upfront less, and we want to play in that aspect -- area of the market as well. So hopefully, they answer your question, Eamonn, unless you might have some follow-ons.

Yes. Do you mind if I do actually just a take a look at 2 points? Just -- I mean, slightly maybe disingenuous in relation to the question on capital and that. I'm wondering, is that how you would think about any if there was any loans coming across Ulster, that it would be premised on that same sort of 13.5% CET base, around any requirements that are needed or not. So is that kind of just a follow-on to that point. And just maybe if I can go back to Diarmaid's question just in relation to [ Carson. ] Am I looking at this too simply and then in terms of the guidance you've given, you're looking at addressable costs up or slight down? EUR 26 million, EUR 27 million and investment, i.e., depreciation up that got to EUR 15 million. So we could be looking at that high 320s cost base down closer to the teens somewhere like EUR 350 million, and that sort of range. So sort of a net sort of EUR 10 million to EUR 15 million benefit. Is that how we should be thinking about it?

So I'll answer your first question last, if you okay. And Paul, you might pick up on the cost. If that's okay.

Yes. No, I think yes, Eamonn, you're right, yes, that's how we would see it as you've described it, yes.

Okay.

So to come back to your point, if you look at how banks look at our competitors, look at their capital positions, obviously, their business models and profit generation and things of that nature. We're all around this level of core equity Tier 1 fully loaded. And we have to be conscious of that as we think of Ulster Bank and think about their business, but there's lots of moving parts within that Eamonn, it's not just capital. It's also -- there's an income aspect, there's a cost aspect to it. There's a migration aspect if it was to work. So it's not all about capital. But saying that we have to ensure that we operate -- if we're successful, and indeed, it's possible that we may not be successful here. That's the reality. But if we're successful, we have to ensure that the new PTSB, the enlarged PTSB is on a sound capital footing, has a sound profitability aspect to it that is generating profits and generating capital and is in a position that it can compete in that respect. So I won't naturally answer your question head on. But if you look at the market today, you can see that we're all operating around these fully loaded levels today and how that will evolve in due course will be a matter of loss history the regulatory environment by way of the risk profile of the Irish economy and the banks that operate within it. So that's how I would leave it Eamonn, if that's okay.

Currently, we have 1 further question queued via the phone lines. [Operator Instructions] Our next question comes from the line of Alastair Ryan from Bank of America.

So if the framing of the Ulster Bank thing, please? Clearly, and it's direct opportunity to your space. You have a pile of surplus cash on the balance sheet. But equally, you have a share price, which is pretty trivial. What are the constraints you're applying to yourselves when you're looking at the opportunities around what you can do without issuing shares or the opportunity is so big that you might be able to make it work even if you share prices as low as it currently is.

Okay. Well, our share price has improved, Alastair. And by the way, thank you for the question, and hello. Our share price has improved. But naturally, Irish share prices have been depressed in recent years across the sector. And the -- that obviously makes any deal challenging no matter what deal you have if you're seeking capital support for any particular transaction. So it's about true negotiation, trying to make sense of all of that, trying to make sense of the proposition that we would be trying to create here which is an enlarged Permanent TSB, which is a Permanent TSB that has an increased profit line, obviously, an increased cost line as well associated with it. But indeed, a higher return because that's where we would create value. So I would suggest the -- there are challenges in all that, and they are the things we'll have to work through in due course. But it's very early to actually talk about them in any particular detail. But naturally, we won't be putting forward any transaction that we would agree unless it made sense to all shareholders and indeed create value for those shareholders, and that will be the things we will look at when we get there.

And if I could just have a follow-up. I mean, when you're talking about the scope, so you're talking substantially about all the customers of Ulster Bank say in the outside of the larger corporates. Can you imagine the whole balance sheet? I mean, clearly, a range of options you'd be considering a small business piece would be the most natural, but the mortgage book is very substantial, excluding the NPL event book wing.

So that's subject to negotiation. And we're not ruling anything out at this moment by way of how we look at it and how we frame it and how we think about it. The Ulster has a 4,400 position by way of its liabilities and its assets. And naturally, we want to acquire a balanced position as well. We have excess funding already. But it's -- but indeed, we want to try and acquire a business with customers with assets and liabilities. And the scale of that has yet to be agreed. And indeed, there's nothing ruled out at this moment, it's for negotiation and which -- what makes sense for both parties. And indeed, if it doesn't make sense for both parties, then it may not happen. But the reality is we will -- should be stronger even -- but I was -- but I announced our transaction. I do appreciate and I do agree it's a historic opportunity for us. But on that basis, we will still be stronger given our market position given where we're going, as outlined, not only by Paul, but by my itself and how we're trying to address the market. So -- and just to finish, that's the reason why we're interested because we do understand the transformational nature it would have for our organization and the position, we have within the banking sector. And that's why we're interested in talking and trying to make sense and create a value position that works for everybody.

Our next question comes from the line of Rob Noble from Deutsche Bank.

Three, if I may. Can you give us an idea of the underlying asset quality of book towards the end of the year, if I take out the loan book sale if I take away with the payable per table? Secondly, have you got a sense as to whether the government would be willing to provide capital, should the deal with those to look attractive enough? And lastly, just a clarification on numbers. Does your cost income ratio target ex depreciation or including depreciation?

Okay. So I didn't catch the first question, Rob, but let me answer the other 2, we'll come back to your first question. So our target of 65% includes all costs. So it's regulatory depreciation and addressable costs. So that's -- and I appreciate, we did present our 2020 cost/income ratio, excluding regulatory costs, and we showed a 73% cost increases. But the 65% target is all costs. With regard to the government position, naturally, we have 75% of the bank is owned by the state, 25% of the bank is free float. I cannot answer for how the state would think about supporting any transaction. But what I can do is try and ensure that if we're presenting a transaction to all shareholders that it has -- that it is something that is value-accretive and it makes sense, both from a strategic point of view and a financial point of view. And in that regard, it's then up to the government if they -- as a shareholder to decide whether they would support it or not. And that's all I can say. And we would not put ourselves and the Board, obviously, would not put a transaction in front of our shareholders unless we believed that we felt it was value-accretive and made, as I say, strategic and financial sense. With regard to your first question, Rob, just maybe just clarify that with us again.

Yes. Could you give us an idea of the underlying asset quality on the book towards the end of the year, if I strip out the loan book sale, is it stable? Or would you see it as deteriorating or just stable?

It's stable. And obviously, the 1 area that you can see the movement in it in the payment break area. So that naturally, that is an area where we have something in the region of EUR 118 million of exposure, which requires further forbearance. It's about 1,000 customers. So if we think about our asset quality, it's in that particular area that the -- any movements have been. If you think of the overall book, I believe actually quite a conservative position on our impairment. And a material amount of post-model adjustments as well, just to reflect the movement in the economy and the exposure that may or may not result. But at this moment, if you look at the core aspects, 97% of our portfolio is secured by property and property prices look like they're increasing. And we've a situation that, subject to vaccination rollout that sectors -- the main sector's that have been impacted will return to work. And indeed, 1 of the key factors for us is construction, not only because we have customers who are -- who work in construction, but also, we're interested in-house building and housing supply for the purposes of the mortgage market. So it suggests far the payment situation, our credit quality has been stable. So thank you for your question.

Our final question today comes from the line of Diarmaid Sheridan from Davy.

Maybe just 2 quick questions, if I may. Thank you for the disclosure and the buy-to-let portfolio as it stands at the end of the year. I just wonder now that you've disposed of the other parts of the portfolio. Should we think of that portfolio now as being core to the bank? Or is there certain aspects of that where, depending on market conditions that you might look to dispose of in the future? And then just finally, I appreciate it's very early in the year, but just any anecdotes that you might have around activity levels on the mortgage side so far into 2021?

Okay. So I'll just pick up on those 2. So by way of the buy-to-let portfolio. So the Glenbeigh II transaction of EUR 1.4 billion transaction was a significant transaction that we feel is right. And indeed, that closed very fast given the accounting treatment. And in fact, we've got the capital benefit. But in fact, we're migrating all of the customers relating to the buy-to-let portfolio in the next 2 weeks, and that is actually going quite well by way of that migration and that management. With regard to the remainder of the portfolio, the question is at the core or not? I mean, the reality is, if you look at the dynamics of that portfolio, we've increased our yield on that portfolio. We've also -- we still have an outreach program with some of the customers who are on an interest-only exposure, and that continues on. So we don't rule anything in and then run anything else at this moment, Diarmaid. But the reality is we have large transaction last year, our capital position is in good place, and we're balancing that -- the risk profile of that portfolio together with the income situation. So I wouldn't -- it's more core, but they won't be disposed of, but we keep all options open. With regard to activity, what we've seen is, and indeed, if you take the first 2 months of the year up to the end of February, we're still in lockdown but if you compare those to the first 2 months of last year, where we didn't even -- we had no idea what COVID was going to bring. We can see that our mortgage drawdowns this year in the first 2 months are in excess of the mortgage drawdowns last year. So that would give us some hope by way of not only what the activity in the market, but the fact that we're gaining more market share by way of applications and that is -- that is converting to drawdown activity at a higher level than it was last year. But of course, last year, in the first half of the year, we were slower than in the second half as I already mentioned. But anecdotally and even more than anecdotally, the real message is our mortgage drawdowns are ahead in the first 2 months than they were last year. So thank you for the question.

We have no further questions via the phone lines. So I will now turn the call back to your hosts.

Thanks, everyone. Thank you.

Great. Super.

Thank you.