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

Good morning, and welcome to our 2021 Annual Results Presentation. I'm going to give a short presentation on the progress that the bank has made in 2021. And then our interim CFO, Declan Norgrove, will provide a more detailed review of our financial performance. And Declan and I will be happy to take questions after that. So if we just turn to Slide 4 of the presentation. This slide highlights very strong business performance through 2021. And really, the #1 item there is the transformational transaction that we've signed with NatWest with regard to acquiring EUR 7.6 billion of the Ulster Bank retail, [ SME ] asset finance business in Ireland. So this was a fantastic deal for us and really transformational by way of signing it during 2021. So a couple of positive organic growth. This for us is a one-in-a-generation opportunity, which enables the bank to grow our mortgage book by 40%, to triple our SME business relative to where we are today and to increase our branch network by 30% and, indeed, welcome up to 450 new colleagues to the bank in order to support a larger customer base. Performance in 2021 sees the bank competing very strongly, bringing real innovation to the market and introducing new customer offerings and attracting new customers to the bank. We're reporting an underlying profit of EUR 17 million, and that's a significant increase when you compare to the underlying loss of EUR 103 million from the -- in the prior year. Total new lending in the financial year amounted to EUR 2.1 billion to Irish customers. And this was an increase of 44% year-on-year and versus 2019 it's an increase of 23%. And this increase largely reflects a strong performance in mortgage lending relative to the prior year, where the pandemic-related uncertainty caused a falloff on mortgage activity, and we are pleased to report good performance in our SME lending, where we continue to grow. New mortgage lending was EUR 1.9 billion, and that's 45% up year-on-year, and that outperformed the mortgage market, which grew by 25%. And our market share, as a result, grew from 15.3% in 2020 to 17.8% in 2021. Excluding the cost of holding additional excess liquidity, the bank's underlying net interest margin was 176 basis points, and that's a 3 basis points reduction year-on-year. And when we look at operating expenses, when you exclude exceptionals and other nonrecurring costs, our EUR 345 million of costs are 7% higher versus the prior year. And the bank continues to maintain tight cost control over the -- over our cost base. However, we have accelerated our planned investment in technology, which has driven higher costs, and this is related to the fact that we will be taking on more customers in this year and, hence, the increase in costs in 2021. One of the areas that we focused on over recent years was our NPL ratio. It's not so long ago that it was at 28% level. This year, I'm happy to report, at the end of 2021, it has reduced to 5.5%, and that's a decrease from 7.6% in the prior year. Nonperforming loans reduced by EUR 300 million as a result of a transaction we undertook during the year, and they stand today at EUR 800 million of NPLs. And the bank will continue to actively manage our NPL portfolio, and we are committed to reducing the NPL ratio to low single digits in the medium term. And actually, as we take on the Ulster Bank performing book, it will naturally reduce in its own right by way of just the denominator will change. And with regard to capital, we have a very strong capital position. We're a 15.1% pro forma CET1 on a fully loaded basis. That's in line with December 2020. But indeed, when we look at even the end of January number, it's higher than that. It's a higher number, so our capital position is strengthening. We issued EUR 250 million of a Tier 2 issuance in May 2021. It's something we would have spoken about at last year's annual results, and that was over 2.5x oversubscribed, so lots of demand for that issuance and, indeed, the demand for the story that is -- that we're -- the strategy and story that is Permanent TSB. So if we just turn to the next slide, which talks about macroeconomic position. And indeed, if we look at the labor market, the labor market continues to rapidly recover post pandemic, with unemployment reducing to 5.2% at the end of 2021. And based on current macro economic forecast, it's expected to reduce further over the coming years. Demand for labor has bounced back strongly, with the supply of labor remaining somewhat constrained due to the fall in inward migration since the beginning of the pandemic and, indeed, an increase in competition for staff and for people. Wage inflation pressure has already emerged and expectation that this will intensify in 2022 as unemployment rates returned to their prepandemic level. Consumer spending is expected to lead the way in this recovery. The strong growth in consumer spending is a function of the normalization of the savings rate rather than the utilization of deposit funding that is built over the last 2 years. And Ireland, it should be noted, has the highest level of household deposits compared to any other European country. As investment rebound -- an investment rebound is due to the expected growth in housing completions after the flat trend from 2019 to 2021 and return to business investment growth after uncertainties from the pandemic period. We'll just turn to the next slide, which relates to the housing market. Clearly, the Housing for All plan launched by the government is helpful by way of providing more supply in a market that has excess demand. So that's a welcome policy by government by way of delivering housing. But it's clear that the market has been -- is characterized by a stalling of supply over recent years. And that has led to a sharp rise in prices, particularly in 2021, where we see pricing going up -- price has gone up an average 14.4%. There's also a prediction that the prices will continue to increase until the supply starts to go on board. And in that respect, it is expected that 25 -- roughly 25,000 houses will be delivered in 2022. Increasing to 28,000 in 2023 is the forecast. But indeed, when we see -- around 32,000 units were commenced in 2021, and that's up 17% versus 2019. So we can see that supply is coming. We'd rather, I think, generally, that it would arrive faster, but the pandemic has stalled growth for 2 years. And hopefully, we're back on track now by way of supply. Naturally from our point of view, we're ready to support customers as they buy and invest in housing in due course. If you look at the lower part of Slide 6, you'll see where applications flowed in the -- during each quarter, the mortgage market approvals and, indeed, drawdowns. And you can see an increase in drawdown levels to EUR 3.3 billion in quarter 4 from -- in the market. And we, obviously, from my earlier slide, we were able to support customers through their application process and, indeed, by way of their drawdown as well. And you can see this on the next slide, which is Slide 7, where you can see that our total lending into the Irish market, as I mentioned, was EUR 2.1 billion. That is -- you can see versus previous year as a significant increase, a compound annual growth rate of 12% over the last 3 years. And then if you look at our application, our share of applications was 15.7% in 2021, and our drawdown share was 17.8%. So in effect, you can see as a bank, and this is something we've seen over recent years, we can convert to a higher level of drawdown market share versus application market share. And that is really the secret sauce we have as an organization around assisting and supporting customers through that application process to the drawdown process as well, and that is a consistent theme where we have -- we overperformed on drawdown market share versus application market share. If we look at the SME -- our SME lending on the bottom left, we are committed to providing competition in the SME and business banking area. Our lending was EUR 98 million in 2021. If you -- that's effectively a doubling of lending volume versus 2020 and, indeed, 2019. Our pipeline is very strong in this area and that we have -- we announced recently that we have EUR 1 billion to lend to SMEs and businesses over the next 3 years, and we are committed to doing that. And our pipeline, in this respect, has been very strong. And we should also mention that we've also partnered with the SBCI with regard to 2 particular funds, and they are performing quite well by way of that partnership, and that is something we will continue over the coming years as well. On the right-hand side, you'll see personal term lending. Personal term learning has been impacted. It actually was -- it's down 4% year-on-year but particularly impacted over the last 2 years because of the COVID pandemic, but you can see by way of our digital adoption in this area, where about 81% of all customers now come through our digital channel. And that has grown from 57% in 2018. But it's clear there's -- the personal and consumer finance area should recover now post pandemic given that we will get back to some normality. So overall, this slide is really a very positive slide by way of you can see clearly on this slide where our strategy is to continue to be progressive in the mortgage space, to provide more competition and, indeed, create volume in the SME space and, indeed, to support customers with regard to their own consumer finance needs on an ongoing basis. On slide -- if we just turn to Slide 8. This is our purpose, ambition and our priorities, and they haven't changed from the last presentation. We are -- our purpose is to work hard every day to build trust with customers and, indeed, to highlight that we are a community of staff and people and colleagues in the organization who are serving the communities in which we operate in. And those communities, we're in 75 branches across the country. We also have a digital presence through our digital community. And indeed, with the Ulster Bank transaction, we're taking on an additional 25 branches to operate in communities where we're not there today. And this is our contract with our customers is around building trust and around ensuring that we're meeting their needs. And our ambition, again, is very straightforward. It's to be the best personal and small business bank. It's fair to say in the mortgage side, we believe we are the best. We are growing market share. We are supporting customers, and we have to prove that again to the business community and the small business banking -- small business community by way of supporting those customers over the next years. Our priorities here is around our customers; around increasing trust, obviously, the loyalty of our customers; around our digital transformation, enhancing our digital capability. And in this respect, we have committed to invest EUR 150 million to our digital transformation. And we will see the delivery of those changes through this year and into next year, and it's something I'll come back to in a slide shortly. Around our culture and sustainability. So for us, it's about embedding a risk-aware, open and inclusive socially conscious growth culture in the organization. It's about simplifying our business. And we believe if we can get the 4 of those things right, and we are getting them right, I believe, that will lead to a growing sustainable profit and return in the organization over time. If we just turn to the next slide. I mentioned at the core of our purposes around trust. And in this respect, personal service will remain at the heart of everything we do. However, as both customer and colleague experience have changed so profoundly, digital is playing an ever-increasing role in how we service customers and, indeed, our future way of working. We are competing very strongly. I mentioned about us bringing innovation already and introducing new great customer offerings. And indeed, winning awards with regard to what we're doing. For instance, Bonkers recently awarded us as having the best current account in the market and the best current account offer, which is really important in a situation where both Ulster Bank and KBC are withdrawing from the market, and we'll be advising their customers to find a new current account bank. We believe we provide the best current account. And indeed, it's not only we believe it. Bonkers, who are an independent party, also believe it as well. And that's something I will come back to later. But customer experience is a key priority for the bank. And what are we doing here? We're trying to enhance our customer journeys. We're trying to leverage that digital capability to complement not only the personal touch we have but also the technology touch and, indeed, reposition our brand as a bank in how customers experience our service, how they experience their engagement with us and, indeed, how -- what's the perception of our bank in the market is really, really important for us. If you look at the ongoing focus that we have in the customer area, trust and digital innovation, that's enabled us to achieve a top 2 position in relationship NPS, and that's for the second year running. So again, these are critical third-party tests of how we're performing, and we will mark ourselves internally and challenge ourselves internally to ensure that we're doing the best we can to achieve the top position in the market. Customers now want the ability to interact with us at any time and place that works for them and through whatever channel, and in 2021, we've seen 116 million digital logins across our digital channels. That's up 16%, but if you go back to 2019, it was 80 million. So it's gone up 50% in 2 years, and that will continue to increase as we move along. So -- and we're meeting our needs. We -- more than 570,000 digital active customers. Again, that's up 10% year-on-year. But if you went back 2 to 3 years ago, it's up about 200,000 customers who are active with us in that respect, and that will continue to increase, and I'll talk about that ambition in a second. We also have 100 million contactless payments made by Permanent TSB customers, and that's up 10% year-on-year. And indeed, we've continued to match our words with actions and we've introduced new products and services for all customers. And in that -- there's no doubt that our branch network will continue to evolve in order to meet customer needs. And through 2021, we evolved a significant portion of our branches to be -- to allow the staff in those branches to interact with customers with regard to their day-to-day needs, not just the serving -- servicing aspects of their needs. And what do we mean by that, the introduction of more modern machines in each branch, cash lodgement machines and cash withdrawal machines and an ability then for customers, as I say, to get a more value-add experience from staff within those branches. Partnerships will always be at the heart of what Permanent TSB does and how we operate, given our size. We have a long history of having very positive and well-established relationships with mortgage intermediary partners or brokers, and our share of this market has grown 2% from 25% in 2020 up to 27%. And indeed, the broker share of the mortgage market has also increased. It's increased from being 30% of the market to 40% of the market. And that is a very -- obviously, brokers can select from any organization, they deal with. They are the true sense of where competition lies in that respect. And you can see that we are [ meeting ] the needs of brokers and their customers by increasing our market share year-on-year. We also established a partnership with CreditLogic during the year. It's an Irish fintech, and that Irish fintech is designed -- is focused on making the mortgage application journey as easy for customers as is possible. So the traditional sense of filling in a 20- or 30- or 40-page application in paper and submitting that to a bank, that is now moving away to a digitized application journey, whereby customers can measure at any stage where they are in the process. And in that respect, we're very happy to have CreditLogic as a partner. We've also -- our partnership with Worldpay around merchant solutions and POS machines. And indeed, I mentioned already our partnership with the Strategic Banking Corporation of Ireland. It's only a partnership that we started in 2020. And at this stage, we already have EUR 82 million of agreed schemes with the SBCI, and I see that growing even further over the coming years. And if we look at the right-hand side, the right-hand side of the slide really talks about our ambition, so what's -- where are we today versus where do we want to be in 2024? So we have 1.1 million customers today. We want to grow that to 1.4 million customers in 3 years. We have 780,000 current accounts. We want to grow that to 1 million current accounts by the end of 2024. 73% of our customer base -- our current account base today interact with us digitally. We want to increase that to 85% and, indeed, even increase that even further, and that will be part of the delivery of the digital service that we will provide to customers. But also, it highlights that there are -- is an element of our customer base that want to continue to interact with us in a traditional form, and we'll also meet their needs as well. So it's really our ambition here around how we think about customers, how we collect customers, how we nurture them and assist them. And indeed, our ambition to grow here is really important. So if we just turn to Slide 10 -- apologies, Slide 10, exactly. So this is about transformation. So what is happening, or what have we done in the last number of years and, indeed, in 2021 around transformation? And this comes into the area of actions speaking louder than words. We can say whatever we want. But really are we delivering? And what we have delivered -- for instance, we've delivered a digital current account which allows customers to open a current account with us within 10 minutes. And the numbers going through that channel have increased significantly year-on-year. And indeed, we expect it to increase even further, and we will be encouraging Ulster customers who are looking for a new current account to use that channel. They can also use a branch channel, but this will -- we believe this will be -- the digital current account opening channel will be very supportive of what -- of those new customers coming on joining Permanent TSB. But we can provide an online overdraft, credit card, term loan, and indeed, deposit customers, we shouldn't forget about those and not. We have more than 40,000 customers who used our digital deposit journey last year. In fact, it's probably the most used channel of all, but yet, it's something that customers benefit from. I mentioned already our partnership with CreditLogic around our digital mortgage journey. That's about having not only just the front end of that application journey but also going end to end by way of how we think about it within the organization and not only improving that customer experience but also using -- managing from an efficiency and a risk management point of view as well. And we delivered what we had -- we -- traditionally, we had a gap in our payment offering by not having Apple Pay and Google Pay as an offer. And indeed, we closed that gap last year, and the customer take-up has been extremely strong in that respect. If we -- the one other aspect of -- by way of digital capability, all banks had to bring in strong customer authentication to 2021. We were no different than banks across Europe, and we did that successfully and in a way that protects customers. If we move to simplifying our business, this is about enhancing and modernizing our branch network. An awful lot of work has been done last year. We'll be taking on 25 branches this year from Ulster Bank, and we'll also be modernizing them and making them work for our customers. But we have operational excellence. We have a myriad of robotic -- internal robotic services helping how we manage that operational activity, and that will continue. And that's actually not about reducing headcount. It's about redirecting headcount to more value-add activity within the organization. In fact, if you look, our plans are to increase our headcount over time as we increase our business. And cybersecurity, never more than now when we look at what's happening in Eastern Europe and the threats coming by way of cybersecurity. We continue to invest there and, indeed, our ability to have cloud and other areas of support regard to how we operate our infrastructure. Culture has never been any more important to us than today. We've spent many years -- recent years developing our culture. The numbers highlight that our culture is heading in the right direction, and indeed, from that respect, I -- when I took over as Chief Executive, I was looking at a range of measures in both small measures, which are very important and, indeed, large ones, which is around developing our culture. And -- if we look at -- like we started the year talking about a bank-wide Enterprise Transformation program, and that was allowing us to conduct a full review of the organization, and as part of this, 300 of our colleagues availed of a voluntary severance program, and they have left the bank. But indeed, we defined through that process to find new roles within the organization, i.e., that we need 300 people to join the organization in order to work in areas such as IT and digital systems to customer-facing operations, working on our app and how we think about digital transformation and digital delivery and data and analytics, which are key areas for any organization at this stage. And that is -- that's something that we are working on and assisting this. We're using smarter ways of working to correct and to gather and attract the staff to the bank, and it's -- so far, it's very successful. One other point I just want to mention with regard to culture is our cultural index score is at 71%. That's effectively a benchmark for cultural measurement, so we're not deficient in any way. We can build on that score over time as well but just to mention that. We also have 1,500 colleagues who've attended Living as Leaders program, which is operated by LIFT Ireland in partnership with the bank. We have a great, great partnership with LIFT Ireland. And this is about living our values every day, both -- internally, it's how we work together as colleagues in the organization but, most importantly, then how we display and turn up with respect to our customers. And when it comes to our diversity and inclusion aspect, 36% of senior management in the organization are represented by female talent, but we are striving towards 50-50 gender balance at senior leadership level by 2025. We're absolutely committed to that. We also are disclosing our gender pay gap. In our case, it's 16.5% versus a national average of 14.4%, so there's no doubt that we have some work to do there, and I'm absolutely committed to closing that gap. If we look at the next 2 years, I already talked about in our previous slide, the ambition we have in growing our customers and, indeed, growing our digital penetration and digital activity amongst those customers. Everyday banking is around us, having a scalable, resilient digital service platform, which will allow customers to undertake their all -- a much broader range of servicing journeys digitally that they can today. We'll also continue to improve our payment activity. We'll also develop our SME proposition, and as mentioned, SME and Business Banking is growing. So if we just turn to the last slide. We launched our first sustainability strategy during the year. There's 4 legs to that -- to our sustainability strategy. We have the addressing climate change aspect, which is really important, but it's not the only thing that we will focus on. Excuse me, I'm just losing my voice here. We will also elevate our social impact, enhance our culture and invest in our people. And indeed, for us, a key area of focus is around championing small business and creating an organization that is fit for the future. And if you look at our Sustainability Strategy, 6 of the United Nations Sustainable Development Goals are included in our strategy. That's around education. It's around equality. It's around decent work and economic growth for all. It's around sustainable cities and communities. Indeed, we see our branch network as being part of that. And indeed, naturally a key challenge for all of us is around climate action and how we actually play our part in addressing the challenges of transitioning to a low-carbon economy. And as part of that strategy, the bank joined the global task force on climate-related financial disclosures, which includes more than 2,700 major companies worldwide and over 30 in Ireland. And by joining this network, we're committed to support the program of enhancing the quality and detail of climate-related financial disclosures. And we know if you measure something and you measure your progress, things start to move, and that is our commitment as part of signing up to that. We also will be launching a range of sustainable financial products during 2022. And we'll build on those products over time. If we look at our lending last year in the mortgage space, about EUR 700 million of our mortgage lending was green lending by way of -- it was lending to support housing from an A1 to a B3 rating, so that is a significant portion. But there's more to do in that respect. If you look at our wider support for social activity, we are -- we continue to be a partner of the Ó Cualann affordable housing scheme, where we provide finance to Ó Cualann to develop their capability of delivering 1,800 houses to -- affordable houses to wider society. We've made EUR 600,000 in financial contributions to the Irish community organizations in 2021. And we've also made over EUR 200,000 of donations through our community fund. In that respect, I'm happy to announce today given the humanitarian issues that are happening and the crisis -- the humanitarian crisis that's happening in Ukraine, I'm very pleased to announce and say to the market that we are donating EUR 250,000 to be distributed 50-50 or evenly to the Red Cross and UNICEF with regard to the work they're doing in Ukraine. We believe this is a real gesture and a real demonstration of our commitment to how this humanitarian issue can be addressed for the people of Ukraine. And we are seeing the situation there unfolding in a most dreadful manner, and that is -- that's something I'm more than happy to highlight our support of what's happening there and, indeed, our commitment and demonstration that we want to see the war end and we want to see the people of Ukraine supported in a direct manner. So thank you for that. And I'll hand over to Declan now, and apologies for the voice -- my voice during the presentation, but it seems to be back in order again. So I'll hand over to Declan. Thank you.

Thank you, Eamonn, and good morning, everybody. I'll now cover the financial performance of the bank. So the key message I want to convey today is that we are reporting a significant improvement in our financial performance in 2021. Our underlying profit of EUR 17 million for 2021 compares favorably with the EUR 103 million loss of 2020 and puts the bank in a stronger financial position as the economy recovers from the pandemic. We look at net interest income in more detail on the next slide. However, it has reduced by 8% when compared to the prior year. Fees and commissions income of EUR 35 million is at circa 10% of total income and is 25% or EUR 7 million higher than the prior year. This is due to the increase in transactional banking activity year-on-year as COVID-19 restrictions eased. Fees and commissions income is now back in line with the prepandemic levels. Net other income generated EUR 13 million in 2021, primarily due to the revaluation of and gains on the disposals of properties in possession. Prior year, other income was EUR 6 million. Over the last number of years, the bank has made significant progress in reducing its stock of properties in possession, and this trend continued in 2021 with a reduction of circa 30%. So the overall total operating income has reduced by 4% year-on-year. Underlying operating expenses have increased by 8% or EUR 21 million due to the acceleration of investment in the bank's digital transformation program and higher depreciation costs as we pay for the investment. We have recorded a net impairment release of EUR 1 million versus an impairment charge of EUR 155 million in the prior year, which reflects a prudent approach to provisioning as we balance a better-than-anticipated macroeconomic forecast with the impact which may arise over the coming months from the removal of pandemic-related state supports for households and businesses. Under IFRS 9, the bank is required to look forward and estimate future expected credit losses based on a range of potential outcomes with multiple economic scenarios. Exceptional items of EUR 38 million can be broken down into the following key items: EUR 28 million of costs related to the NatWest-Ulster Bank transaction, EUR 14 million in respect of the bank's restructuring costs and EUR 15 million of net provisions for legal compliance and other ongoing legacy business issues. And these are partially offset by EUR 19 million gains from the Glenbeigh III nonperforming loan sale in Q4 2021 and from the release of provisions held for previous deleveraging transactions. Net interest income reduced by 8% to EUR 313 million, mainly due to reduced income as a result of the EUR 1.4 billion loan sale in quarter 4 of 2020 and, to a lesser degree, the EUR 400 million loan sale in quarter 4 2021. The cost of holding higher levels of excess liquidity, price reductions for the bank's existing mortgage customers, along with the lower-for-longer interest rate environment also contributed to the year-on-year reduction in gross interest income. The continued active management of the cost of deposits has helped to partially offset the reduction in net interest income. The interest -- net interest margin decreased from 173 basis points at December 2020 to 151 basis points at December 2021. The cost of holding circa EUR 2 billion of excess liquidity had a significant impact on the net interest margin. If we exclude the cost of excess liquidity circa EUR 11 million, the underlying net interest margin is 176 basis points, just 3 basis points lower than the prior year. The asset yield was at 1.63%, a 32 basis points reduction when compared to the same period in 2020. This reduction in asset yield was primarily due to the cost of excess liquidity together with the price reductions to the bank's fixed-rate products. Yield on lending assets at 2.43% remained broadly in line with the prior year. As mentioned, we continue to actively manage the cost of funds with an additional reduction of 10 basis points year-on-year to a low of 13 basis points. This reduction was achieved primarily through rate reductions applied to deposits. As we continue to manage excess liquidity in the low interest rate environment, we expect the 2022 NIM trajectory to remain in the low 150 basis points. We will continue to hold excess liquidity as we prepare to fund the acquisition of loan portfolios from Ulster Bank expected later this year and subject to regulatory approvals. Our total home loan performing book of EUR 12.2 billion at the end of 2022 (sic) [ 2021 ]. This was 4% higher than the prior year as a result of new lending volumes being higher than repayments. The increase is reflective of a strong 2021 lending performance, and we remain competitive within the mortgage market in Ireland. The bank wrote EUR 1.9 billion of new mortgage business in 2021, 45% higher year-on-year, with 97% of the business in fixed-rate products with an average yield of 2.69%. The average yield on new mortgage business has reduced by 12 basis points year-on-year. However, it is in line with the market. This average yield reflects the rate cuts announced during 2021, along with the introduction of the lower 4-year fixed-rate-only offer. Tracker mortgages now account for 35% of our book, down from 41% in 2020. Fixed-rate mortgages account for 48% of the home loan performing book, almost 20 percentage points higher, with growth in the last 2 years, and the remaining 17% is made up of variable rate mortgages. The EUR 1.9 billion reduction in the performing buy-to-let book over the last 2 years primarily reflects the EUR 1.4 billion performing loan sale in quarter 4 of 2020 and the repayments and redemptions in 2020 and 2021. A lot of work has been done over the last number of years in relation to the nonstandard mortgage review program, and we have now completed this program of work. The average yield underperforming buy-to-let book at December 2021 was 1.69%, remaining in line with the prior year. The SME loan book has grown 38% in 2021. New business has performed strongly with a blend -- with the new lending up 104% year-on-year, with a blended yield on new business above 4%. Approximately 40% of the SME lending in the year was funded through the SBCI Future Growth Loan Scheme. And we've had strong demand across wholesale, retail, agriculture and manufacturing, which accounted for 55% of new business, up from 46% in the prior year. And the bank, as Eamonn said, has recently announced a significant expansion in our SME offering to a new -- with a new EUR 1 billion SME lending fund over the next 3 years. Total underlying operating costs of EUR 345 million have increased by EUR 22 million or 7% year-on-year. Underlying operating expenses before depreciation, amortization and regulatory charges, what we refer to as our addressable costs, were EUR 248 million in 2021, EUR 11 million or 5% higher than the prior year. With the reduction in total income of 4% and the increase in expenses of 7%, this has led to an increase in our cost-income ratio of 9 percentage points to 82%. Staff numbers have reduced year-on-year by a net 8% driven by the Enterprise Transformation program, which resulted in a reduction in headcount through voluntary severance. If we look over on the right-hand side of the slide, we can see a cost walk showing the primary movers within the underlying operating expenses. Through the bank's Enterprise Transformation program, circa 300 colleagues chose to leave the bank under a voluntary severance program. This supported a net cost saving of circa EUR 9 million in 2021 as we absorbed the EUR 1 million cost of wage inflation. The net savings -- this net saving supports the investment in the organizational redesign, where the bank is investing in key areas of demand and the acceleration in the delivery of the digital banking program. The 2021 depreciation charge of EUR 47 million increased by EUR 10 million due to the investments we've made in the business and in the technology transformation over the last number of years. This increase is within our management's expectations. The bank has made significant investment over the last number of years in order to enhance our product offering and to align with our customers' changing needs. These include modernizing our technology architecture and renovating our core banking platforms, developing the digital customer journeys, deploying new payment tools, such as Apple Pay and Google Pay, modernizing our property and ensuring robust operational resilience and cybersecurity processes. As we move forward, we expect to continue to invest in commercial and technology as we roll out digital servicing for all routine transactions. Other significant investments in the coming years include further development of product and service propositions for our customers, brand investment and data analytics. We will continue to support our regulatory and mandatory agenda through further investment in cybersecurity, data centers and enhancing critical service resilience. A consequence of the investment over the last number of years is that depreciation and amortization will be higher going forward. However, we are committed to continue to identify savings to help pay for this. The bank has recognized an impairment release of EUR 1 million for the year, equating to a negligible cost of risk. This represents a significant reduction from the prior year impairment charge of EUR 155 million and a cost of risk of 103 basis points. Provision stock reduced by circa EUR 125 million in the year. This was predominantly due to the Glenbeigh III loan sale in Q4 2021. And the table on the right-hand side also shows the forecast macroeconomic projections for full year 2022 across the base upside and downside scenarios, which informed the IFRS 9 run model for the year-end. Nonperforming loan book decreased by EUR 300 million to EUR 1.1 billion -- by EUR 300 million from EUR 1.1 billion to EUR 800 million, a 28% reduction year-on-year, primarily driven by the Glenbeigh III loan sale. As a result, the nonperforming loans ratio of 5.5% is 2.1 percentage points lower than the year-end position in 2020. Along with a reduction in nonperforming Stage 3 assets, we saw a movement of EUR 1 billion from Stage 2 to Stage 1, evidence of an improvement in the quality of our loan book. Looking forward, we remain committed to reducing the NPL ratio further in the medium term whilst protecting capital. As you will see from the table on the right-hand side of the slide, our total asset quality and level of provision coverage of 4.1% has reduced by 80 basis points year-on-year, whilst an expected credit loss of EUR 300 million on EUR 800 million of Stage 3 nonperforming assets, we have an overall 37% coverage ratio, which we believe is appropriate. This has increased 3 percentage points on the prior year, primarily as a result of the NPL sale in Q4 2021. Current account balances have increased by EUR 1.3 billion or 23% in 2021. This is ahead of the market growth of 16%. Retail deposits remained broadly in line, while active management of our deposit base has resulted in a EUR 400 million or 21% reduction in corporate deposits in the year. Post the sale of performing loans in quarter 4 2022, together with additional current account balances, the average excess liquidity held with the CBI, which attracted a rate of negative 50 basis points was EUR 2.3 billion. The bank's current MREL target at 24.5% became binding on the 1st of January 2022 and the bank's December 2021 ratio, 25.9%, is comfortably above the management and regulatory requirements. The liquidity coverage ratio was 274% at December 2021, broadly in line with the prior year. As you can see from the table at the bottom right hand of the slide, at December 2021, the bank's liquidity and funding ratios are materially ahead of the average for our European peers. Our regulatory capital ratios remain comfortably above regulatory minimum requirements. I'd like to focus under pro forma capital ratios, which include the capital accretion from the most recent sale Glenbeigh III, which closed in February 2022. The CET1 ratio on a pro forma, fully loaded basis of 15.1% is in line with December 2020. However, the CET1 ratio, on a transitional basis, had reduced by 70 basis points. The fully loaded CET1 ratio remained the same year-on-year. However, there were notable movements -- offsetting movements within that percentage. We had gains from the sale of the nonperforming loans in quarter 4 2021 and from a loan securitizations that we redeemed in the latter half of the year. And these are offset by the exceptional costs we referred to earlier for the NatWest transactions, increased risk-weighted assets for new business and year-on-year prepayments. The CET1 minimum SREP requirement remains at 8.94%, the same level as at December 2020. And the total capital ratio also remains at 13.95% both on a transitional basis. Total capital transitional ratio of 22.4% increased by 140 basis points in the year, primarily due to the EUR 250 million Tier 2 issuance in May 2021. The management CET1 fully loaded target is 14%. The bank maintains robust leverage ratios with Tier 1 capital fully loaded greater than 6% and Tier 1 capital transitional greater than 7%. So to summarize, the bank has shown growth in many key areas. Total new lending of EUR 2.1 billion is 44% higher year-on-year, elevating the mortgage market share to nearly 18% and placing PTSB as the clear #3 mortgage provider in Ireland. On an overall book level, the home loan mortgage book grew 4% year-on-year, and the SME loan book grew 38% in the same period. Operating income decreased by 4%. However, fees and commissions increased by 25% in the year, contributing to net interest income, making up -- to noninterest income, making up circa 10% of total income. The net interest margin fell to 150 basis points. However, this was severely impacted by the cost of holding circa EUR 2 billion of excess liquidity at a negative 50 basis points. The underlying NIM is a healthier 176 basis points. The bank continues to invest in its digital infrastructure to ensure a secure and resilient platform for scalable growth. As we prepare for taking opportunity in the marketplace, we must also invest in key demand areas. At the same time, the bank is continuing to make underlying cost savings to help pay for these investments. The nonperforming loan ratio has reduced by 2.1 percentage points to 5.5% while protecting capital. We are committed to continuing reducing the NPL ratio in the medium term. The EUR 1 million impairment release demonstrates asset quality as well as the favorable macroeconomic environment. The bank forecasts a return to profitability in 2022 onwards, supported by growth and the net accounting gains on the Ulster Bank transaction. As we moved into 2022, the bank is well positioned to continue its strong lending performance from 2021 with significant pipelines in our core business areas. The minimum management CET1 ratio, on a fully loaded basis, will be 14% while the leverage ratio is 7%. I will now hand you back to our CEO, Eamonn Crowley, for the medium-term outlook and concluding remarks.

Thanks, Declan. Thanks for that. So I'm just going to go through a couple of slides here to provide some outlook on where we're heading to. And if you look on Slide 25, sometimes in order to understand where you're heading, you have to understand where you've come from. And as a bank that's been around over 200 years, we have a snapshot here over the last 10 years, which is fair to say, shows significant progress and significant execution of change in the first 5 years to 2016 around the balance sheet -- repairing the balance sheet and the funding profile, going from system funding in 2011 to -- of EUR 20 billion to EUR 1.4 billion in 2016, with increasing new lending from EUR 100 million to around EUR 600 million. But indeed, in the last 5 years, we've more than tripled that or nearly quadrupled that lending, which has led that our mortgage market share has almost doubled in the last 5 years and, indeed, at the same time, as I mentioned earlier, where we've reduced NPLs from 28% to 5.5% and grew our capital -- sustained our capital base and, indeed, grew it over that time. So a complete transformation of what was a very risky balance sheet to what it is, today, an extremely safe balance sheet. And the next frontier for us is not balance sheet safety. It's about profitability and growth, and part of that is around the Ulster Bank acquisition. I'm not going to go through all the details again but just to mention a couple of key things: a 40% increase in our mortgage book; a doubling, if not a tripling, of our SME lending book; an increase in our branch network by 30%, taking on 450 additional staff to support us in supporting our customers; broadening our SME proposition, particularly in the area of asset finance; and indeed, what's not on this page is us welcoming customers from the -- from Ulster Bank and from KBC to Permanent TSB over the next 12 to 18 months. And that is something that we're really looking forward to in that respect. And as I've mentioned before, this transaction -- we are executing this transaction without asking our shareholders for any additional capital. So in anyone's book, in anyone's measurement, increasing their balance sheet by up to 40% without asking shareholders for capital sounds like a good transaction from a shareholder point of view. So what does PTSB look like in 2024? What is its business model? How could you visualize what -- if you were to think of various phrases, what would you say? Well, what we say is that we will be a great tech and great people business, combining our ability to have the personal touch with the digital capability that will meet and, indeed, we believe, exceed customer needs. Today, I think our digital capability meets our customers' needs. But saying that, we don't allow our customers to do sufficient service journeys on digital channels. Sometimes, they have to go to our branches, or they have to go to a call center in order to complete day-to-day activity. So in that respect, if you look at the 6 boxes here and read them left to right, we will be a digitally led, everyday banking provider. So you -- as a customer, you won't have to visit a branch. You can do everything digitally, but we will have a nationwide community presence in order to facilitate that direct engagement with our staff around added value areas of whether it's a mortgage aspect, whether it's deposits or different pension or different investment activities or, indeed, seeking insurance and other products. So digitally led but with a nationwide community presence. A personalized customer experience through that channel and with enhanced product offering, so a broadening of our product offering. We already talked about Business Banking and SME lending and what we're doing there by way of broadening that but also a broadening of our retail offer as well in that respect. And I mentioned earlier, our objectives and our plans around having a diverse and inclusive workplace, we believe it's -- we have one today. We have more than 40 different nationalities working in the bank. That will only increase over time by way of that diversity and inclusivity as an organization in that respect. But we will have sustainability fully integrated into how we operate, which will cross over all aspects of climate change, individuals by way of diversity inclusion but also how we will turn up socially and how we will be present. And I mentioned, again, our commitment today of EUR 250,000 donation to support the Ukrainian crisis and that provision to 2 global operators in this area, to the Red Cross and to UNICEF. So that's how you visualize Permanent TSB. That's how I visualize Permanent TSB, [ nice small ] presence with digital support to provide customers their day-to-day banking needs in a proficient way, but they can still talk to individuals to get support and talk to our staff. They will have a personalized customer experience through those channels and more products to -- and offer from the bank. And we will turn up, and we will be present by way of how we think about sustainability across the 4 pillars that I mentioned already in the presentation. And of course, all of that has to mean something from not only that visualization but also from a numbers perspective, and to try and put it in perspective, well, what does this equate to by way of pound, shillings and pence if we're allowed to use those terms. So we're talking about an underlying NIM of 190 basis points in 2024. I should mention that, that does not include any interest rate rises, but it includes a change in the mix of our business over the next 3 years. Other income increasing to EUR 80 million. Our cost-income ratio, which will -- we believe will reduce to 60% and operating profit, preimpairment and preexceptional of EUR 200 million and a cost of risk of 30 basis points. And we will see how that evolves over the coming years. Again, some of that will be driven by the mix in our business. And one of the challenges, naturally, we've had as an organization over recent years is our ability to generate return and generate a return on equity for our shareholders. And we must remember that our main shareholder is the state, is the taxpayer in that respect. And even post the Ulster Bank transaction, subject to regulatory approval, the state will still be a majority shareholder, with around 62% of shares. But what we're projecting by way of return on equity is to get to 5% by 2024. And over the medium term, in 2 to 3 years after that, we will be looking at getting to a return of 9%. But of course, we could exceed that depending on how volumes grow, and there's naturally the change in the environment by way of going from 5 banks to 3 and, indeed, us being clearly an alternative bank provider to the 2 larger players in the market, and we will see how that evolves over time. But I believe by way of these numbers, we have put forward our ambition. We're putting forward that ambition with credibility. That credibility is provided on the basis of what we've done over the last decade, particularly over the last 3 years by way of growth in our business and putting actions behind our words in that respect. And the Ulster Bank opportunity is transformational in that it brings the scale of our business on to a new level in which to operate. So it underpins our balance sheet progression -- and our profitability progression, but really, it's the organic aspect of our business that will really drive on our return. So that's the -- they're the numbers, and that's how we're projecting things. And in that respect, we are -- Declan and I are happy to take any questions that are -- that you have. So thank you very much.

The first question comes from the line of Diarmaid Sheridan from Davy.

Congratulations on a very strong set of numbers. Firstly, just around new lending, obviously, a very strong performance in 2021, just thoughts that you might have in terms of how that might progress out in the next coming years, particularly as the mortgage market maybe normalizes and just the opportunities you might see in the SME and consumer space also.

Yes. So thank you, Diarmaid, for the question. So if you take our core product as mortgages and even in 3 and 5 years, it will be the vast majority of our balance sheet growth as we widen and broaden our offer to the market. So the projections on the mortgage market is that it will grow from what was EUR 10.5 billion last year to up to EUR 15 billion in over 3 and 4 years. We naturally have a -- we've had -- we have a strong position within the market, and we will benefit from that growth and benefit from that volume. So that's the first area of growth, and that's supported by government policy and the Housing for All scheme and, indeed, the demand, the need by the wider population -- Irish population to have more houses and more residential units available to buy. So that's one aspect. The second aspect is in SME. One of the weaknesses in our offering from a strategic point of view in SME was the asset finance area because most small businesses use either higher purchase or leasing as a form of finance for their business. We didn't have that as part of our stable as part of our product offer, and the acquisition of the Lombard business will bring a wider group of business customers to us that would have been with us heretofore. We have to work in this area with regard to Business Banking. We have to work in the area of perception of PTSB. We're perceived to be a mortgage bank, and naturally, from a financial point of view, that is, as I mentioned, the vast majority of our business. But we are open to doing business lending. We believe we have about 8% of the business current account market, but we haven't developed the wider relationship with those customers in the past. So it's -- the opportunity for us here is very attractive because every new euro we lend is an incremental growth in our balance sheet in that respect. So that's the second element. And the third element is around consumer finance. I think it's fair to say the banking sector underperformed in consumer finance versus, for instance, the credit unions in this respect. And we believe we have opportunity to compete in a more direct manner around winning back some customers who may be with the credit unions, et cetera. But that is an area where we can see some growth as well. And consumer finance to us isn't just term lending. It's also the growth in credit cards -- the growth in credit card balances, and we should get some additional growth there from the Ulster Bank franchise and, indeed, overdrafts as well by way of that product. It's still 1 in 3 of our customers or 1 of 4 of our customers, I should say, currently have an old draft as well. What we've seen in the last 18 months is they have not been utilizing them to the extent that they would have heretofore, but there is -- it is a product that is still in demand. So there are the 3 areas of growth for us Diarmaid at this moment.

Great. And maybe secondly, on investment costs, and I might come in with a capital question afterwards, if that's okay. Maybe if you could provide some areas -- some maybe additional details around the areas where the investment is targeted and focused. And maybe just then thinking beyond 2022 and into '23 and '24, what the operating cost base might evolve once you have the Ulster Bank portfolios and assets integrated.

Thanks, Diarmaid. Yes. Well, we are in the short term. So for 2022, looking at an increase in our operating costs as we get ready further to take on the Ulster Bank loan portfolios towards the end of this year and into the beginning of next year. You will have seen from the slide that we will continue to develop out our digital customer journeys over the next couple of years. And we will continue to have investment in the digital area. However, it won't be at quite the same pace it has been last year and this year. So you will see some slowdown there. And we will then, as a bigger organization, have the opportunity to look for efficiencies within our cost base as we go forward. So we do see an investment in the short term, maintaining it then over the longer term and digitizing as much as we possibly can, particularly routine transactions that customers can do online, which is really, I think, where the market is moving to and then, over time, reducing that level of investment and looking for cost savings then that should come through in order to pay for those investments and to generate the efficiencies from the investments we would have made at that point in time.

That's great. And just on capital, the 14% management's target, I suppose today, it appears conservative in the context of your overall minimum capital requirements. I appreciate there are potentially some increases from countercyclical and potentially the evolving market structure. But what do you think should happen for -- will you be in a position to revisit that once you have greater clarity? And maybe just a follow-up on that one. Once the Ulster Bank portfolios and acquisitions are on board, as you've outlined there previously, you'll have greater scale and profitability. So how should we think about the dividend blocker and your ability to add distributions to the [ investment case ]?

So just the 14% number is just something we have to work with today. We have to remember that we are in a significant transformation as an organization through the Ulster Bank transaction and, indeed, the wider transformation in the market as well in the banking market and the banking sector as 2 banks withdraw. So we have to work with 14% at this moment in order to ensure that we have sufficient safety in our capital numbers and, indeed, safety in how we operate. But we can't get away from the fact that we are a mortgage bank predominantly. And as I mentioned, even in 3 to 5 years, as we build SME, we will be predominantly a mortgage bank, which, in theory, is a safer product, which, in theory, requires less capital. And some of this is linked to the issues that arose from the crisis for Irish banking that still persists at this moment, and you'd like to see -- or at least, I would like to see over the next couple of years as the book -- the mortgage book created post that crisis and, indeed, under the macroprudential rules, begins to dominate the mortgage book that we would see some natural relief in how capital requirements are thought of from a regulatory perspective. But at this moment, we have to deal with the 14% level, and we are set up to do that. With respect to the dividend, we have operated under a dividend blocker for a number of years. And I would expect that to continue as we transform the bank. It is -- you probably -- you've pointed to the right area, which is around sustained profitability by the organization and an ability to generate organic capital rather than through transactions, which has been the case over recent years, which was the right thing to do, but to generate sustainable profitability, which in turn will generate organic capital, which in turn will, we believe, over time, allow us to return to pay dividends to shareholders. But I would suggest that's a number of years away, and we have to prove our -- that profit sustainability over the next number of years in order to get there. But I believe once we get there, we'll have a bank that is very attractive by way of the safety of its income together with the ability to generate a return and obviously then hopefully pay a dividend to shareholders or, indeed, reinvest it back into a growing business at that stage.

The next question comes from the line of John Cronin from Goodbody.

Just a few for me. Maybe firstly, just to read the cost question and following up from Diarmaid. And I guess, are there any more specifics you can give us in respect of 2022 and how we would expect underlying operating costs to evolve more specifically in that year? And as well as that, look, some color on exceptional cost trajectory would help as well, including transaction costs, just how we should think about modeling for 2022 particularly there. And then, Declan, I'll try to get on the, I guess, the cost-income ratio target of circa 60% for FY '24. What type of cost base does that imply in terms of what you're thinking about in absolute terms of costs?

Thank you. For 2022, in particular, we're looking at a circa 12% increase in our operating costs. And this is, as I said, as we get ready, we're accelerating our investments on the digital side, and we're getting ready to take on the portfolios from Ulster Bank and also a significant number of additional customers and colleagues into the organization. So that's where that 12% increase will come in 2022. As we go forward into 2024, we're looking at an average cost base of around EUR 400 million mark overall for the organization. That will, of course, include higher depreciation costs from the investments that we're making now and have been making over the last number of years, and we will be looking for efficiencies within our cost base to pay then for those investments once the consolidation has happened with the Ulster Bank portfolios later on this year and really into the first quarter of next year. So they're the key areas that we see in terms of the cost-income ratio getting down to 60% over the course of the next 3 years.

And just on exception of the bank for '22 includes the transaction costs.

Yes. The exceptions, we've taken some transaction costs in both 2020 and in 2021. For 2022, the -- we're likely to spend in the region of EUR 130 million on the integration and migration of the Ulster Bank portfolios, including the branch networks coming across and including the Ulster Bank employees coming across as well colleagues coming over to us. So that's likely to be the size of the exceptional costs in 2022.

Okay. And then just a couple of others. One is on the asset quality. So last year, you've taken an impairment release of EUR 1 million net. And I was a bit surprised that the [ management ] results shows -- draw over EUR 59 million charge, which was then offset, obviously, by the PMA release and some other items. And could you just talk through that EUR 59 million charge in terms of ascertaining the prospects for further write-backs? I know your guidance is for single digit or low single-digit cost of risk in FY '22. But I guess when I even just look at things like your Stage 2 loans coverage of 10.6%, that's very, very high. So could you just give a bit more color on the EUR 59 million charge and whether or not you think that's been quite a conservative modeling and a conservative modeling assumption?

Yes. Well, we do -- within the 1 million release, we do have a charge for the year, you're right, of EUR 60-odd million. And that's really to do with looking at the level of defaults within our portfolio but also that we -- the fact that we've increased our portfolio over the course of the year. We've got movements from Stage 2 into Stage 1 -- quite a big movement from Stage 2 to Stage 1 of close to EUR 1 billion. That's to do with things like PD refinements within the models, which has been favorable. It's also to do with the reduction in the forborne accounts and customers moving to a full payment of capital and interest and has moved them from Stage 2 to Stage 1, but also from Stage 2, we've also had closures of up to EUR 260 million. So that's contributed to the reduction in the Stage 2 balances.

Okay. And on Stage 2 coverage, I mean 10.6% seems very high. I mean [indiscernible] profits from further migration from Stage 2 to Stage 1, [ but then do you ] think that would drive potential provision release?

Yes. We have been conservative enough in our models. We do have PMAs held within the models. They're held there for the reasons that the environment remains uncertain. Certainly, the -- they were originally there in terms of the COVID-19 uncertainty. And as that eases, there's other uncertainties coming into the economic environment. So we will certainly look at those and review those again at our interim results stage in terms of the easing as well of the government supports to come through over the next number of months to see what the impact is on that. So we have been a little bit conservative in terms of the coverage ratios there.

But just to add, John, over a couple of years, you can see the reduction in -- obviously, both Stage 3 and Stage 2, as a proportion of our overall book, it's improved significantly. It's become more normalized in that respect. And we should see that continue to transform over the coming years as well. But we are and have been known to be conservative in this area, and it has worked to our benefit. But as the risk profile of the balance sheet reduces, it's clear that we are adequately provisioned at this moment and well set up for the future in that respect. So we can -- we continue to watch this space. And as -- the last is, as Declan has mentioned, one of the -- or indicators in his part of the presentation. One, if I went back 2 years ago, one of the issues we were highlighting is -- the fact that as a portion of our book, we had interest-only exposure, particularly in our buy-to-let book. And that is something that we have now by way of a full program review of those loans, we have closed. Some of those loans still contain some risk, but it's quantified risk now by way of interacting with customers and understanding how those loans will be paid down over time. But we are still retaining some provision coverage in the event that anything unusual happens there in that respect. But I think the proof is in the trajectory of the risk profile over recent years in that respect, but we continue to be prudent.

Okay. And look just one final one. Could I ask you to make some comments on rate sensitivity and, ideally, I guess, a sense of what the impact on NII would be for 25 bps or 100 bps shift in interest rates? And -- but if you don't want to draw that number specifically, could you maybe just talk kind of qualitatively through how exposed you are, be it related to liquid asset balances or the tracker portfolios and whatnot?

Yes, I would expect that a 25-basis-point increase in interest rates would probably add circa EUR 10 million, maybe slightly over EUR 10 million to the income for the year. So that's the type of level we're talking about.

The question come from Diarmaid Sheridan from Davy.

Maybe just thinking on Slide 26, for a moment where you outlined the binding agreements with NatWest. Maybe if you just remind us -- give us a sense of the sale in terms of the revenues that, that can bring, just so we get a sense of, I suppose, moving parts between organic growth and inorganic growth in the next coming years.

Yes. I think it was in our RNS today that we issued that the income benefit from taking on the portfolios in a full year is circa EUR 170 million to EUR 180 million. The portfolios, of course, will be slightly lower than they are here on the slide due to repayments or whatever within those various portfolios. And then we will have costs certainly in the first year coming forward of EUR 50 million in terms of taking on the colleagues from the Ulster Bank and other costs involved of acquiring the portfolios.

Just to say, Diarmaid, as well to add to that. That's within the deal, but naturally, we expect to take on new customers who will open current accounts with us. We're doing that already. We bolster bank customers who are opening accounts today. And then that will bring additional fee income, which isn't in that number because, naturally, it has to be quantified, but they will also bring credit cards, credit card balances and, indeed, overdraft income and things of that nature, which we would expect to benefit from as well. So that's not in there -- in that EUR 180 million. That's really the perimeter of the deal itself at this moment.

Yes. Currently, our noninterest income is about 10% of our total income. We would expect that over time with the acquisition of the new accounts, as Eamonn has pointed out, as well as the customers within the perimeter to grow to circa 13% over time.

That's clear. And that's the -- sorry, Declan, the cost that you referred to there as part of the deal, I mean, clearly, they will then be offset by the recognition of the gain on day 1 from the acquisition being below par. Is that the best way to think about some of those costs?

Well, that's taken separately, Diarmaid, below the line. So that will be seen below the operating income line. But yes, there is a day 1 gain there in terms of an accounting gain, in terms of the negative goodwill from the transaction. And that will be partially offset by the day 1 expected credit loss that we take over. And also the cost of the transaction in 2020, '21 -- or '22, sorry.

Great. And just a quick follow-up on John's last question there around rate sensitivity and the EUR 10 million for 25 basis points. Is there sensitivity to when deposit rates, the ECB deposit rate moves? Or do we need to wait beyond that for the main refinance rates? Maybe -- or how should we think about the kind of shape of the curve, I suppose?

Yes. Well, under deposit rate, that obviously applies to excess liquidity, and we are carrying excess liquidity. We will be utilizing that excess liquidity for the purpose of the Ulster funding. But of course, then we have to analyze and understand, for instance, how many Ulster Bank customers will bring their deposits to Permanent TSB as well. So a movement in that will be helpful because it is highly likely that the banking system -- the Irish banking system will remain over liquid post this transaction. So that will be helpful on the negative carry we're carrying in excess, which cost us...

EUR 11 million.

EUR 10 million in 2021 by way of an impact on our net interest income. And then the ECB rate for the purpose of the tracker, for instance, the tracker book and other aspects of our book is the sensitivity that Declan is talking to -- talking about. It excludes the negative carry aspect, which, as I say, cost EUR 10 million last year based on excess liquidity.

The next question comes from the line of Ronan Dunphy from Goodbody.

Just a couple of ones by way of follow-up for his previous comments. Firstly, in relation to costs again and staff cost, in particular, I see that there was only a modest increase in paying inflation costs in FY '21, just EUR 1 million higher. But given the market backdrop and, generally, wage inflationary pressures out there, what's the outlook for, I suppose, 2022 and beyond? Presumably, it will be difficult to hold the increases to that modest increase that we saw in 2021. And then secondly, on new lending and SME lending in particular and in the context of the EUR 1 billion lending targets over the next 3 years and also the Lombard business coming across, do you feel that the mix of staff that are transferring across from Ulster Bank will be sufficient to support these ambitions? Or would you need to recruit externally, I suppose, coming from a very small SME lending base a couple of years ago? And I might just throw in one additional one then on capital and debt issuance and following the Tier 2 issue in May last year. How should we think about the outlook for further debt issuance as you grow, particularly in light of the [ planned introduction ]?

So I'll answer the first 2. And Declan, you might handle the capital aspect. So with regard to inflation and its impact on wages and other costs, it's not just wages, there will be other cost increases as well. It's clear we're in an inflationary cycle. We've seen other banks in the market agree various pay deals with unions, et cetera. We are currently in our own negotiations with the representative bodies of our colleagues. So I'd rather not go into the detail of that, but we would expect that our payroll cost will increase over the coming years to reflect what's happening in the market. Naturally, that works as long as your top line is also growing and you're getting the benefit of that. But that is -- I won't go to say the numbers, but we should expect some increase in that respect. With regard to the EUR 1 billion, we built -- we have built an SME business banking team from the ground up. The EUR 1 billion we actually talked about is sufficient. The team we have today is sufficient to grow that EUR 1 billion. It actually excludes the Ulster Bank impact. With regard to Lombard -- growth in the Lombard book, and indeed, Lombard has continued to grow. It's actually -- it isn't reducing even though -- given the closure of the Australian business -- actually, the Lombard business continues to perform extremely well. And it's coming to us as a self-contained, fully resourced unit that today is growing. So we do not want to upset or interrupt its growth trajectory. We want to support it and nurture it and, indeed, benefit from the customers that, that asset finance have by way of developing a deeper relationship. And that is not in the EUR 1 billion number, for example. The EUR 1 billion number is as we stand today. But also, there's an SME book coming with the Ulster Bank deal. It's about EUR 200 million. It's not included in the billion. It also has a number of staff which are attached to that book. We don't have -- we don't know who those individuals are because we haven't gotten to that stage yet in that negotiation. But indeed, that will give a new impetus to us developing relationships with Ulster Bank customers who will be part of that portfolio or, indeed, have, in the past, been part of that portfolio as well. So we -- to answer your question, we believe we're fully resourced. We have the capability. Our pipeline is quite strong at this moment based on historic numbers, very strong for us, and we see growth there. So I'm happy enough, Ronan, that we're well set up for that growth. And actually, external factors may impact that, but we're on the road here to growing, and we have the various ingredients in order to make it happen. With regard to capital and issuances, Declan, you might pick up on that.

Yes, sure. So we would have a number of issuances planned throughout the year for 2022. Some of these will be to -- unsecured MTN issuances to meet our MREL requirement, so they're likely to happen towards the half year stage. And then we're also, in the third quarter, like we had planned in an AT1 issuance as well towards the end of the third quarter of this year. And I think it's a number of different transactions we'll be looking to do. However, I think we've shown to date that we've been quite successful in the market in executing on these transactions over the last number of years.

Yes. So in this case, we have to build through the stack -- our capital stack to support the Ulster business through Tier 2 and MREL, and we'll be -- from where we've come from, again, we'll be an active participant in the market over the coming year to 2 years as we build the stack to support that book.

We currently have no questions on the line [Operator Instructions] We have no more questions on the line.

Great. Well thanks, thank you very much everyone. Take care.

Thank you.