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

Good morning, everyone. Welcome to our 2022 annual results presentation. I'm going to give a short presentation on the significant and it has been significant progress that the bank has made in 2022. And then our CFO, Nicola O'Brien will provide a more detailed review of our financial performance. And after that, Nicola and I will be happy to take questions. So let's move to the business performance. So you'll see that the -- it's been strong strategy execution, delivering what we call record results. During the year, we welcomed over 200,000 new customers, and we've expanded our branch network to 25 new communities nationwide. And by the end of 2022, we are now serving over 1.2 million customers with our customer base larger and indeed much more active than it has been before, which again is another important factor. Our mortgage book has increased 40% since December '21, that's benefited from the migration of the Ulster Bank assets and organic growth of new lending volumes offset repayments and redemptions. The transaction with Ulster Bank will give us valuable opportunity to serve more retail and SME customers, and it will make us better equipped to target new markets where there is considerable scope for Permanent TSB to scale up its presence significantly in 2023. Our mortgage market share has increased to 18.5% and loans are our core product of our business and are pleased that we continue to play a significant role in helping customers attain new homes. The bank has achieved an underlying profit of EUR 45 million, and that's an increase of 165% year-on-year. And although the economic outlook is uncertain as we begin 2023, we face into it with confidence. That's not only confidence in the bank and colleagues, but also in the Irish economy, which has proven its resilience in recent years. Net interest income of EUR 362 million in 2022, and that's 16% higher year-on-year, and that's benefited primarily from a larger loan book, the changing interest rate environment and the migration of the Ulster Bank assets in November. The exit net interest margin for 2022 was 1.54%, and that's a 3 basis points increase on the last year, and that's despite the cost of holding excess liquidity in H1. But what's most important here is our quarter 4 NIM was a very strong 1.92%, and that's an increase of 37 basis points year-on-year, and it more accurately reflects the upward trajectory, which we will see in 2023 and beyond. The opening of 120,000 new current accounts and increased transaction activity has also supported a 20% increase in fee and commission income year-on-year. And then if we look at operating expenses, excluding exceptional and other non-recurring costs that came in at EUR 344 million, which is 16% higher than the prior period. The bank continues to maintain a tight control over the administration cost base. However, in 2022, we've accelerated our planned investment in technology, driving higher investment costs together with a rising depreciation charge as we pay for the investment in the business. Operating expenses will continue to be subject to the inflationary pressures that we move forward, and Nicola will get into more detail later on. The most key part of our results this year is the exceptional gain of EUR 222 million, and that's primarily driven by the Ulster Bank transaction and the net of provisioning and transaction costs, and this has supported a profit before tax of EUR 267 million. Asset quality continues to improve and is reflected in the reduction of our NPL ratio to 3.3%. And it's only 5 years ago that was 28%, so a significant move in that respect. And if you take it in normal terms, they're reduced to EUR 667 million and a 18% lower than December '21. Our net impairment release of EUR 20 million is reflective of the continued growth in HPI during the year, while also remaining conservative as we assess the impacts of the rising cost of living challenges on customers. All capital ratios remain above management and regulatory minimum with the common tier equity ratio on a fully loaded basis at 15.2%. And even after a 40% increase in our balance sheet, that has increased by 10 basis points. And we have to remember that we didn't ask our existing shareholders for any additional capital to support that growth. In October '22, we also completed a successful EUR 250 million AT1 issuance, which was 2.5x oversubscribed. And with issues that at time to support the migration of the mortgage assets, which happened in Ulster Bank mortgage assets, which happened in early November. So we'll just move on to the macro outlook. House price growth has been the future of the Irish housing market over the last several years. However, higher interest rates and lower household income as a result of the cost of living challenge is expected to curb growth in 2023. Housing commencements were lower in '22 and therefore, completions were expected to reduce across '22 and '23. And this should offset any reduction in demand due to the changing interest rate environment. And we still see it as appropriate environment for house prices. Consumer price in '22, measured by the Harmonised Index of Consumer Prices recorded headline inflation peaking in '22. And several success of the ECB interest rate rises over the last 8 months are expected to begin to have desired impact with the HICP is estimated to reduce to 5% by 2023. But we know that the target continues from ECB to be around the 2% level. The labor market continues to expand with the current labor force now reaching an all-time high of 2.58 billion employees in the economy, and the employment rate reduced -- rate itself reduced to 4.3% in '22 and a slight increase in '23, of up to 4.6%, but there's a lot of significant job creation in the market. And also, we see a migration in that respect as well. The mortgage market itself saw a year-on-year growth of 34% to EUR 14.1 billion. As a switcher portion of the market experienced significant increases as customers solve certainty in light of the changing interest rate environment. And it is expected that this will still be a factor in 2023, but to a lesser degree. And therefore, we're forecasting the growth of 3% to EUR 14.5 billion of a market. Mortgage approvals have continued to grow by EUR 2.5 billion to EUR 15.9 billion in '22, with a surge in remodels and type of approvals as low levels of supply effect the level of house purchase. So there's the market itself is quite buoyant and as we look back over a number of years, we would not have been forecasting a EUR 14.1 billion marker for '22 and indeed, a EUR 14.5 billion mark for '23. So it's been a very -- the growth has been very attractive in that sense. So we'll just move on to our strategy. This is our strategy on the page. We review it on an annual basis. And it's keyed by way of our supporting our ambitions as an organization. We -- our purpose is to work hard every day to build trust with customers, and that we say that we're a community that sort the community. And we highlight this by not only investing in the 25 branches that we've taken on, but also on a daily day throughout the organization, trying to link with customers and ensure that we're meeting their needs, whether it's new products or the service they receive with regard to existing products. Our ambition is to be Ireland's best Personal and Small business bank. We've made great strides this year in our business lending that's up 50%, and we have further ambition in that respect. And I'll talk about the impact of the Ulster Bank deal on that in due course. If you think about what we're trying to build our strategy on, it's strong foundations have been laid in recent years. And if we look at it going forward, where our 3 key strategic areas, well, it's been customer journeys and experience and particularly in that area of customer experience. It's in our continued investment in digital platforms and how we ensure that customers have an option to go digitally or to walk into a branch and that's seamless. But that digital experience is where it should be. It's around ensuring that we're cyber -- we prefer cybersecurity measures and indeed that our operating platform is resilient and can work 24/7 in that respect. And lastly, around data. So we know important data in this current world. It's ensuring that we maintain historic data we report properly, but also we can use for insightful customer interactions in that respect. If I look at the -- how we are going to achieve the ambition? It's going to be focused on 4 key areas. I mentioned the connected customer experience. And this is around having customers at the heart of our decision-making, were at the heart of our business. So it's about feedback, complaints, reacting, continuous improvement in that respect. And we are serious about that customer experience and ensuring that we can do the best we can in that space. It's around our cultural evolution, which is around 7 new culture and reputational standards for banking in general, but also celebration diversity and inclusion on the basis of which we can not only benefit financially and from a business point of view from that, but also improve our culture in that regard. I mentioned already about having secure and resilient foundations around this investing and ensuring that we're robust and resilient operating platforms and an environment which protects our customers and colleagues. And lastly, in its broader sense, sustainable business growth, which this is around using data and analytics to ensure that we can build external partnerships. We can build a product set for customers. We can make a return on that. And indeed, we can support customers in their transition to lower the CO2 emissions in that respect. So these are the 4 pillars on which we will move forward and priorities, which we will move forward as an organization. And I believe they will result in a very strong organization going forward, and we'll talk about forecasts, et cetera, as we get into the presentation later on. Let me just talk about the Ulster Bank transaction. So we started the Ulster Bank transaction at the start of '21. We just signed the agreement, and we had to phase into them how we were going to migrate more which is the branches as the lead customers indeed open new current accounts for new customers and also plan for The Lombard Asset Finance and transfer. What I can say is that we're in extremely good shape. In November, we closed the transaction with a EUR 5.2 billion migration of mortgage assets. By the way, I think that's the largest integration that ever happened in Ireland to date. There may be larger ones in due course, but that was the largest one to-date. So it happened successfully and we closed and opened 25 branch locations in a 2-week period over January. They're up and running, the brand of Permanent TSB, they're staffed with Permanent TSB's staff and all the systems, et cetera work, ATMs, all that stuff. In February, we migrated EUR 165 million of the micro SME book, that was 3,200 new customer relationships. And indeed, when you look at that wider, that's sparring relations, but there's a wider customer interaction there in that book as well, and that migrated successfully in February. To date, we have taken on and transferred around 280 of the bank staff and the remaining staff will transfer with the Lombard Asset Finance business in quarter 2. And that Lombard Asset Finance business is really important to us because it will allow us then enter directly the leasing and higher purchase market, which is important from a business customer point of view. So overall, the transaction to date has delivered exactly what we said it would. And the numbers today show us that they've come through as we planned. And we're absolutely delighted with the colleagues -- the ex-Ulster Bank colleagues who joined us and really delighted on how they've commenced their own career with Permanent TSB, it's been fantastic. So let me move on to the -- just the balance sheet aspect of where we are. So if you look at Slide 6, you'll see that new customer lending was EUR 2.8 billion in 2022. That's double of what it was in 2020. I appreciate there was a COVID impact in that year, but still it's still -- by way of its size and scale, and it's a 40% year-on-year with a compound annual growth rate of 26%. So really, really strong in that regard. If we look at our mortgage market share, it's increased to 18.5%. So while the mortgage market itself grew by 34%, we grew our book by 40%. And if you actually pay that down, our growth -- in our market share in quarter 4 is almost 22% of the market. So there was momentum through the whole year into the end of '22, and we're seeing that momentum carrying into the early part of this year as well. SME lending, we lent EUR 150 million in -- at the end of '22. You can see that's 3x what we would have done in 2020, and it's 50% up year-on-year. The key success here will be The Lombard Asset Finance business, I mentioned that already. But also, we are providing a competitive competition in this market. where we believe there is a need for more competition in that respect and a space for Permanent TSB, say, in SME lending. And in personal lending, it was up 3% year-on-year on credit cards and overdraft balances were up 10%, and we're seeing further growth in personal lending as we move along in that space. We'll just turn to the next slide, which is Slide 7. So as I mentioned, our core here, our core purpose is around building trust and loyalty with our customers. That's what we wake up every day to do and where we come to work to actually build that trust level, which is demonstrated in lots of different ways. It's demonstrated through our NPS score. You can see it's a plus 10 there, but we have ambitions in that space, new current account and deposit accounts of 177%. New to bank mortgage customers up 1%, but that excludes all the Ulster Bank customers. So if you included them it would be substantial. Our digital activity is up 20%. Our active digital customers are up 20%, payments up 13%. In fact, if you look back to 2020, those numbers are up in the region of 40% to 50%. So when I talk about having a resilient platform, it's all about being able to serve and support existing day-to-day banking customers, but also have a bank that can attract more, and that's what we're all about. And if you look at the top right, our total customer numbers are up over 1.2 million now, up 9%. We've envisioned to go even further. Our current account numbers are 870,000, of which 78% of those are active through our digital channels. So as I mentioned, our -- we'll be bringing a new digital app, a new front-end to the market in -- before the half year, and that will support that digital customer interaction and activity by delivering more journeys. And we also have a very successful partnership with SBCI, we have total funding of EUR 82 million of which EUR 72 million is lend, and we will also enter into future schemes that the SBCI will bring. Our First Home Scheme where a part of that EUR 3 million in approvals, of which EUR 1 million has been drawn. And then if you look at one of the key developments for us during the year is around our proud sponsorship of Team Ireland for the Olympics and Paralympics in 2024 in Paris. So we are really looking forward to supporting both teams as they compete against the world in next year, in that respect. So if I just move forward to how we're transforming the organization. As I mentioned, it's around building a sustainable future for the bank. And anyone who has traveled a journey with us over the recent years, I think this year really shows what is a sustainable future for our Bank, by the way of its size, scale, and profitability and its positioning in the market. If you look at the things we've delivered on the digital and digital capability, and a new single digital current account 50% of customers opened their account digitally. And we're the only bank in the market that has a joint current account digital offering today, which we brought to the market in November. So if you're -- if you have an account jointly, you can open an account digitally with us, we are the really ones in the market. Actually, revenue don't have that either, just to mention that. Term lending applications, 94% completed digitally. We moved -- we are the Moving Bank online hub, which we introduced in quarter 2 of '22. We have the SME Digital Current Account Application process, which simplified how SMEs interact with the bank. We get it off the noise around that AML journey, et cetera. So we simplified that for the limited company and partnership and -- or another type of SME organization, we actually simplified that. As I mentioned, the Digital Joint Current Account was launched in quarter 4. And we also have a very successful digital mortgage application journey. In fact, last year, up to 5% of our mortgages were completed digitally end-to-end without branch interaction or broker interaction, and that is going to even increase as we move forward. If we look at that operational excellence, we've taken out paper statements, we've been growing our robotic processes, but really now with the Ulster Bank transaction now kind of settled, we will be going back really at more robotic process automation to try and do more in that space. This form of switching process, we've improved, and that's on the basis, you can see the amount of accounts we've opened and opened them, we believe, seamlessly. We've taken out the paper on current account applications through the digital account and indeed, through the credit logic digital journey for the mortgage, we've taken our 250 pages of paper, but we have that online journey, and now it's about how we spread that online journey out through our branches and out into a wider society. What are we planning? We launched already a new online banking desktop. We're bringing a new banking platform, our app in the second quarter. And that will allow us to have 68 digital customer journeys on that app in due course, but it will also allow us to develop more and more customer journeys on that app and indeed improve that customer experience. And by way of branches and technology, branches are a key part of how we offer our service for a key part of who we are. We now have 98 branches across the country with 25 new branches opened in key locations. We're also investing in branches by way of new kiosks. I mentioned bringing the online mortgage application journey to the branch as well and also developing customer web chat. So these are all activity -- activities that we've done and what we're planning to build more sustainability from that point of view, but from a profitable point of view, but also from a CO2 and transition point of view. And if I talk about just how we think about ESG and we launched a green mortgage product last year, we have EUR 500 million in green mortgage lending, that's up 20%. In fact before we launch it, we had a number of customers who fitted into the other category as well. So our lending is higher than EUR 500 million for the purpose of how we think about that grain mortgage lending product, it's EUR 0.5 billion. We're the first bank to disclose our carbon footprint by the Scope 1, 2 and 3. It's in our numbers today. And no one has done that yet. So now we'll move forward with regard to setting scientific targets around how we can reduce that. And we have developed a sustainable supplier charter with no doubt like lots of businesses, there's more to do in that space. And we're also a founding member of the International Sustainable Finance Center of Excellence. That's on the environmental side. On the social side, our recent employee voice count survey, our culture index was 80%, 10 basis points over the benchmark. And the target, if you're looking at a target, you'd be looking at 70%, but we're ahead of that. We've also contributed EUR 600,000 to community organizations during 2022. It's probably one of the most pleasurable part of my job when I have to -- when we do that, it's great. And we would continue that into 2023. Our gender -- Board gender composition is 42%. Our senior leadership gender composition is 38%, and that's up from 28% in the last 3 years. And our ambition in both of these spaces is to have gender balance in the organization at 50-50 level in 2025. And lastly, we've been -- for the last 3 years in this space, we've been announcing our gender pay gap of 16.5%. It has reduced by 1% since H1, and we will continue to work in that respect. And on Friday last, the CIPD award, the Inclusion & Diversity award for a large business in Ireland. And if I look at governance and disclosure, we're proud to say today that analytics has awarded us and given us a rating a low ESG rating. So we're very, very pleased with that rating. And naturally, we will now be engaging fully with Sustainalytics over the coming years around how we manage that rating. But that is a key step for us, together with the disclosure of Scope 1, 2 and 3 emissions today. And we have a Board-approved sustainability strategy, which is quite broad, naturally the green transition is part of that, but there's other aspects social inclusion and indeed how we play into the Irish business market is in there. We'll also -- we are signatory to the task force and climate-related financial disclosures, and we will be reporting those disclosures in the first half of this year. They're not disclosed today, but we will be bringing those. And we also have a CDP rating of C, and that's indicating an awareness level of engagement in this space. So today, around green -- around our green proposition around CO2 transmission -- our transition, I should say, we are laying down sort of the red line by way of where are our emissions are, where we are with Sustainalytics, where are we on CDP and we come with TCFD in the first half of this year. So it's really us laying out our position and how we can work from that by way of ensuring that or we as a bank play a large part in the transition that the Irish economy has to go through. And indeed, we see it as a business opportunity with the bank, we're about positioned, particularly when we look -- think about our -- all our mortgage customers who need to either upgrade or retrofit their house in due course. So we believe this is a significant business, but also a social benefit for us and for wider society. So I'm going to pass over to Nicola now to bring us through the financial performance, and then I'll come back on the medium-term outlook. So thank you very much.

Thank you Eamonn, and good morning everyone. I'm delighted to present the bank's 2022 financial results, my first since taking up the role as Chief Financial Officer this year. Looking at the income statement, as Eamonn mentioned, this has been a transformative year for the bank, and I'm pleased to report that we have posted the highest level of profitability since before the global financial crisis. Our reported profit before tax of EUR 267 million is EUR 288 million higher than full year 2021, largely driven by the accounting gains associated with the Ulster Bank transaction. In November 2022, the bank purchased retail and SME businesses at a discount to their fair value, thereby adding again on the bargain purchase of EUR 362 million, which is being recognized in CET1 on funds. Our underlying profit has increased by 165% to EUR 45 million as a result of higher total operating income and impairments released through the P&L partially offset by higher operating expenses. Overall, total operating income has increased by 13% year-on-year to EUR 409 million. This increase is supported by a growing loan book plus the initial impact of the interest rate rises and the migration of EUR 5.2 billion of residential mortgages from Ulster Bank in quarter 4. The foundations are in place for further growth as we realize the impact of the full year of the larger customer base. We are encouraged by the extent of the opportunity that we see in the Irish retail banking market. Underlying operating expenses have increased by 16% or EUR 49 million and are in line with management's expectations. Regulatory charges have increased by EUR 1 million to EUR 51 million, up 2% year-on-year as we pay higher fees on the back of increasing deposit balances. We've recorded a P&L impairment release of EUR 31 million, reflecting continuous growth in the house price index, whilst maintaining a prudent level of provisions given the high inflationary environment. The overall net impairment release is EUR 20 million, following a capital deduction of EUR 11 million in relation to the NPL calendar provisioning. Exceptional items show a gain of EUR 222 million, EUR 260 million higher than prior year as a result of the net EUR 239 million gain relating to the NatWest Ulster Bank transaction, which includes the gain and bargain purchase of EUR 362 million, transaction costs of EUR 74 million and the day 1 expected credit loss of EUR 30 million on the EUR 5.2 billion of assets migrated. First, circa EUR 19 million of other provisions. Total operating income has grown 13% year-on-year. Net interest income increased 16% to EUR 362 million. This increase was driven by the 2 months of interest income and the migrated assets for Ulster Bank. Net organic growth of the existing PTSB performing loan book, which grew 7% year-on-year and interest rate repricing on loan book and treasury assets, partially offset by higher wholesale funding costs. The average interest margin of 1.54% increased from 1.51% in the prior year with the quarter 4 NIM of 1.92%, more accurately reflecting the net interest income increases materializing. The total yield on assets was 1.71%, 8 basis points higher year-on-year. This increase in total assets yield is primarily due to the interest rate rises on the tracker portfolio, partially offset by higher wholesale funding costs. The bank is disclosing an interest rate sensitivity analysis to assess the potential impact of changes in interest rates can have on net interest income. Assuming a start in ECB refinance rate of 3% and a deposit rate of 2.5%, a 100 basis point increase would result in higher interest income of EUR 50 million, a 50 basis points increase would result in higher interest income of EUR 25 million and a 100 basis point decrease would result in lower interest income of EUR 53 million. These sensitivities should not be considered as a forecast for future performance, but they do give a good indication of how the bank is leveraged to the interest rate environment. We're pleased to report the positive performance in net fees and commissions, which is set to continue into 2023, with growing customer numbers increasing transactional banking income. Given the material growth expected in net interest income, the bank's ambition is to continue to grow fees and commission income to more than 10% of total income. The total performing loan book is on a positive growth trajectory. Our total home loan performing book is EUR 18 billion at December 2022, EUR 13 billion of which relates to the bank's existing portfolios and EUR 5 billion relates to mortgages migrated from Ulster Bank in quarter 4. The Bank's performing home loan book has grown by 7%, a strong performance with new lending of EUR 2.6 billion, outpacing repayments and redemptions of EUR 1.8 billion. Tracker mortgages now make up 27% of the bank's home loan performing book, down from 35% in the prior year. Variable rate mortgages can add the smallest cohort of the performing home loan mortgage book. They reduced by 17% year-on-year as customers consider the rising interest rate environment. 26% of variable customers chose to fix with the bank at a lower fixed rate in 2022. Fixed rate mortgages are now the bank's largest cohort of mortgages accounting for 63%. The fixed book increased from 48% a year ago, reflecting the successful launch of the bank's 5-year fixed rate green mortgage and the 4-year fixed rate only product, both of which have performed strongly since the launch. The future markets, particularly in the second half of the year, increased significantly on the back of the rising interest rate environment, and we saw customers choosing fixed rate products for rate certainty. When we look at the EUR 5 billion of performing mortgages that migrated from Ulster Bank, 88% are around fixed rates with the remainder on variable rates. The average yield on new mortgages is 2.56%, a reduction of 13 basis points year-on-year as the bank's green mortgage, which offers a discount of 20 basis points on the 5-year product and the 4-year fixed rate only products were very popular with our customers. Today, the bank has increased interest rates by an average of 100 basis points across its fixed rate mortgage products, full benefit of which will be recognized during 2023. Aided by the automatic pass-through of the ECB rate rises to track our mortgage customers and the inclusion of the Ulster Bank assets, the yield underperforming home loan book has increased by 40 basis points year-on-year to 2.92%. Looking at the graph on the right -- top right-hand side of the slide, we're very encouraged by the growth in the SME loan book, which Eamonn has mentioned earlier, having increased 59% year-on-year with the pace of new lending exceeding outflows. New business has performed strongly with EUR 150 million of new lending, 53% higher year-on-year. The bank, as Eamonn said, had EUR 82 million loan fund available through the SBCI, EUR 72 million drawn down with the remainder to draw down in 2023. And we're delighted that on February of this year, EUR 165 million of micro-SME assets successfully migrated from Ulster Bank, and we expect to migrate The Lombard Asset Finance business, circa EUR 450 million in quarter 2 of this year. These migrations, along with our new lending ambitions to see the bank's SME loan book grow to circa EUR 1 billion this year as we deliver on our ambition to provide a meaningful alternative for business customers. Looking at costs. Total operating -- underlying operating expenses of EUR 395 million have increased by EUR 50 million or 14% year-on-year. On this, regulatory costs are 2% higher year-on-year at EUR 51 million, with higher deposit balances driving increase in fees. Looking at the cost income ratio, taking the underlying operating expenses cost before regulatory costs of EUR 344 million as a percentage of total operating income, gives a cost income ratio of 84%, 2 percentage points higher year-on-year. The 2023 outlook for the bank's cost income ratio is for to reduce by 10 to 15 percentage points as the top line income growth and the bank maintains good cost discipline. If we look over to the right-hand side of the slide, we can see a cost walk, showing the primary movers within the underlying operating expenses, which has increased from EUR 295 million in 2021 to EUR 344 million in 2022. The Increased staff numbers, coupled with wage inflation has resulted in a EUR 16 million increase in staff costs year-on-year. The Bank supported circa 2,900 staff direct employees and contingency workers, with the cost of living support in December 2022 in the form of a EUR 1,000 voucher, which increased costs by EUR 3 million. We continued our planned investment in the digital banking program, maintaining our operational resilience and allowing us to enhance servicing of our existing and new customers' everyday banking needs in a more direct and efficient way. We're also investing in developing our accountability framework, developing our change function and are delighted to be the main Team Ireland sponsor of the Olympic and Paralympic Games in 2024. Depreciation is in line with expectations, EUR 5 million higher than the equivalent period in 2021 as the bank paid for the investments made in prior years. The Bank will maintain investment spend as we move into 2023 and beyond, with a particular focus on the expansion of digital customer journeys, customer payment options, cybersecurity enhancements and operational resilience. Despite this significant investment, we anticipate a material reduction to the cost income ratio in full year '23, down below 70%, benefiting from the income growth previously mentioned. The positive trajectory will continue across the medium term as revenue growth, together with ongoing cost discipline in the context of inflationary pressure will support a lower cost income ratio. As mentioned earlier, the bank has recognized a P&L impairment release of EUR 31 million for the year. However, the net impairment release is EUR 20 million as we gross to EUR 11 million from capital. Subject to the prevailing macroeconomic environment, the bank expects a cost of risk of not more than 10 basis points for full year '23. As you can see from the graph on the top right-hand side of the slide, the provision stock reduced by EUR 83 million since year-end 2021 with closing provision stock of EUR 521 million. This reduction is largely driven by the reduction of provisions held in relation to legacy deleveraging transactions. ECL model results have also reduced year-on-year, reflecting improvement in asset quality. A EUR 7 million post-model adjustment increase has been included to reflect more uncertain macroeconomic outlook in light of inflationary pressure. On the EUR 37 million day 1 ECL was added on the first tranche of Ulster Bank mortgage assets. The Bank's closing provision stock of EUR 521 million holds a conservative EUR 137 million post-model adjustment provision, which will ensure that the bank is adequately provided for in the event of any deterioration in asset quality. The table on the bottom right-hand side of the slide shows the forecast macroeconomic projections for full year '22 across the base, upside and downside scenarios, which informed the IFRS 9 model run for the year-end. The Bank has made significant progress with the nonperforming loan book, reducing 20% or EUR 167 million since the prior year. The NPL ratio is 3.3%, 2.2 percentage points lower than the prior year-end position. The asset quality improvement has been achieved through a net cure position, together with an increased gross loan balances as a result of the first tranche of Ulster Bank assets. As you'll see from the table on the right-hand side of the slide, our total asset quality and level of provision coverage of 2.6% has reduced by 1.5% in full year 2021. With the Stage 3 expected credit loss of EUR 220 million on EUR 650 million of assets, we have an overall Stage 3 coverage ratio of 34%, which we believe is appropriate. The deposit franchise is performing very well with current account balances increasing by EUR 1.9 billion or 26% in 2022 and retail deposits increasing by EUR 1 billion and 9% year-on-year. 93% of the bank's total funding is now driven by customer deposits, and the bank's loan-to-deposit ratio has increased from 75% to 90% this year. Liquidity coverage ratio and net stable funding ratio has decreased from their position in 2022 due to the utilization of excess liquidity to fund the NatWest Ulster Bank transaction. However, as you can see, the bank's key liquidity and funding ratios remain favorable to European bank averages. The Bank successfully completed EUR 300 million MTN issuance in June '22 and a further EUR 250 million AT1 issuance in October '22, which leaves the bank with an MREL ratio of 28.9% at December '22, both above management and regulatory requirements. The MREL target for 1 January 2024 has been set at 27.15%. The Bank expects to issue a circa EUR 1 billion of HoldCo senior debt during 2023 as we onboard the remaining Ulster Bank assets and take into account upcoming maturities and build management buffer. It's our intention to make an annual issuer of MREL-eligible senior debt given the projected risk-weighted assets growth from the enlarged balances. Our regulatory capital ratios remain comfortably above the regulatory minimum requirements. The CET1 ratio on a fully loaded basis is 15.2%, an increase of 10 basis points year-on-year. This movement is primarily driven by capital accretion from the Ulster Bank acquisition and the Glenbeigh IV loan disposal, offset by capital utilization from the net growth in the underlying loan book, ongoing investment in software assets, AT1 distributions and P&L movements. The management CET1 target on a fully loaded basis remains at circa 14%. So to summarize, the bank has had a transformative year, which results showing a robust financial performance with a positive outlook. Profit before tax of EUR 267 million shows the net positive gain from the Ulster Bank transaction, which was capital accretive. The underlying profit before tax of EUR 45 million increased 165% year-on-year with quarter 4 '22 net interest margin of 1.92%, showing the momentum building in net interest income while the bank remains positively exposed to rising interest rates. Total new lending of EUR 2.8 billion, 40% higher year-on-year with the mortgage market share of 18.5%. The bank has continued strength in its deposit base with new current account and deposit account balances having increased by an additional EUR 2.9 billion in 2022 as we grow our loyal customer base and strengthen the franchise. While the bank's underlying cost income ratio remained high at 84%, it's on a positive outlook, targeting a 10 percentage point reduction in 2023. The bank has completed a lot of work to ensure the balance sheet over the last number of years, resulting in an NPL ratio that has reduced to 3.3% while still protecting capital. The capital position, as I said, remains strong, with CET1 on a fully loaded basis having grown 10 basis points while we grew risk-weighted assets by 26%. We actively manage our capital position and having assessed a range of scenarios, the CET1 ratio will remain well above the bank's minimum regulatory requirements. Looking forward, the bank's medium-term targets represent higher and more sustainable returns. I'll hand you back to Eamonn now to talk you through in more detail the outlook for 2023 and the medium-term outlook. Thank you.

Well, thanks, Nicola. Thanks for that. So I'm going to talk, as Nicola mentioned, talk about 2023 and beyond. So just it's clear that we're coming into '23 with a different bank. I mean we've migrated most of the EUR 6.7 billion of assets from Ulster Bank. We're growing our employee base to around 3,000. That's true welcoming 330 new Ulster Bank colleagues, of which 280 have already arrived and ingrained -- already ingrained in the organization. We're extending our offering to business customers to asset finance and the micro-SME offer, increased our branch network. We've launched -- we're launching new and compelling customer journeys. We're also, as I mentioned, setting a very -- we've set the levers now for our sustainability strategy on our green transition in that respect. And also, we're very excited about activating the Olympic and Paralympic sponsorship for July and August 2024 in Paris. So very, very excited about that, and you'll see more about that during the year. And so if we look at the outlook, what we're saying is we expect total income to be around EUR 650 million. We expect the cost income ratio to below 70%, as Nicola has mentioned. We believe the cost of risk will be around 10 basis points, possibly less in around that level and underlying profit over -- of over EUR 160 million, and that leads to an underlying ROE of around 7%. So that's what we -- how we're positioning ourselves for 2023. And all the pieces of the jigsaw are there with regard to achieving that. It's not -- there's no what-ifs in that number in that respect. So it's our position. If we look at our medium-term outlook, we would have presented this last year, and indeed, it's approved given the overall environment of where things are. And just to pick on a couple of things there. The cost income ratio in the 55% level, operating profit above EUR 300 million. That's inclusive of a cost of risk of 30 basis points, and we will see how that obviously evolves over the next -- the coming years. Total income going up over EUR 800 million. And all those pieces of the ingredients, we believe in '25 brings us to around 11% ROE and not too long after that to 13%. So that's our ambition and our medium-term goal. And we are -- as I said, that's improved from last year. And just lastly, just the investment case. So why would you buy shares in Permanent TSB. Indeed, why would I hold my shares in Permanent TSB as a shareholder. And so really, as we've seen the market evolve, we're now in a very strong market position. We are a challenger bank in that respect. And indeed, our journey from [ A2B ] will be, I believe, a stronger growth in that respect. We have a larger, and as I mentioned earlier, a much more active customer base that's transacting more, that's interacting more in digital channels. And that is actually quite a positive move as well. There's ongoing transformation of the customer and colleague experience. And that's -- you can see that coming through in our cultural scores. You can see that coming through by the way of our customer experience. And indeed, we have more to do in that respect. We are continuing to invest in the business, but yet, we can bring the cost to income ratio to the level that's mentioned in 2025. So again, that's quite positive. And by the way, as a business over many years, we've been investing in the business to ensure that we're achieving the right outcomes in that respect. We're much more balance sheet assured in that respect, in that we have strong capital with capital generation. We have strong funding and a much lower risk profile than we would have had a number of years ago, but 95% of our origination last year was in the mortgage space. And even if we roll that forward a couple of years, it will still be in the 90% zone. So that you'd have to argue that, that does represent a low risk profile in that regard. The sustainability strategy has been set. We're on the road and now we have strong foundations by way of executing that sustainability strategy. Overall, I believe we're well positioned for the target growth we're putting forward. And I think it's absolutely reasonable that we should be saying that we can achieve an ROE in the range of 11% to 13% at this moment given what we can see in the environment, we can see by way of our strategic position and the market sea change that the Ulster Bank transaction has brought to the bank across many, many areas. So thank you very much. And we'll be happy now to take some questions. So, thank you.

It's John Cronin from Goodbody. Just a few, one in relation to the 2023 total income guidance of EUR 650 million, what official rate assumptions are you incorporating there? Second one, another probably question for Nicola is on the -- anything you can say to us in terms of expected exceptional items to hit the P&L in '23? How should we think about modeling that? And how does that break out move between day 1 ECL and other? And then I guess, thirdly, one for you, Eamonn, I guess, on the -- look, you're back to profitability, okay. It's the first year. It's a turnaround from 2021. So without getting ahead of myself, what do you need to demonstrate I guess, to the ECB over time in the context of the dividend stopper? I mean, would it be years and years of consistent profitability? Anything you could kind of, I suppose, guide us to in terms of how we should be thinking about the potential for a prospective change there, albeit recognizing it's not within your direct control?

Okay.

Yes, I think the first one up on the rate assumptions, I suppose, when we did our forward-looking view or forecast, it was very hard to determine what interest rates were actually going to where they were going to go. And so within that, at the moment, we have a refinance rate of [ 3.25% ] in 2023 and a deposit rate of [ 2.75% ] and static at that for going forward. So certainly, from where we are today and what the market is indicating higher interest rates in the future, we have upside with regards to that. On the second question on exceptionals, so next year, you will see some exceptionals primarily because we have -- we still do asset finance in 2023. So the SME micro will come in just there in February. So we bring that day 1 ECL in. We also have some additional mortgages to bring in. So overall, our day 1 ECL was around EUR 80 million. If you think of us, the EUR 37 million has been brought in to date, we have a remainder to bring in, and then there are operating costs that will be in the exceptional line item with regards to the program. So those program costs will probably be there, although not as heavy because principal completion is done, but they will be there until into the second quarter.

And is there anything you can say on -- maybe give us a bit more color in terms of quantifying those for the purposes of modeling out the P&L?

I think the bigger portion, obviously, would be on the asset finance piece. You'll take a day 1, they're all Stage 1 assets that will come in on day 1, and maybe think about it in terms of EUR 20 million on your asset finance, and there's about [ EUR 1 billion -- EUR 900 million ] of mortgages to come across. So similar to what we would have had before based on the other.

And on the operating cost piece?

Operating costs, you'd imagine, we had about [ EUR 17 million ] this year in relation to the program costs for -- for what we call projects on. And so there will be an element of that as you think about 5 months cost.

So just on the dividend blocker, the dividend block was introduced back in 2016. I think it's fair to say the bank is a completely different -- in a different strategic and financial and business position than it was in 2016. If I look back since that period, we obviously had the NPL story to deal with at that stage. Then we had the negative rate environment that came in, then we had COVID, then we had the war. And now we're into an interest rate environment that's moving a different interest rate environment. So there's been significant amount of items through that period. I think also we have yet while we're very comfortable with the Ulster Bank transaction, we still have yet to finish it. I mean there's still the -- there's 2 pieces yet to do, which is the asset finance business, as I mentioned, and also a portion of the remaining mortgage business, we're saying that's EUR 900 million. which have yet to migrate. So yet -- we have yet to finish that and really settle down the profitability in that respect. So we continue to engage with the regulator with respect to the dividend block result. But as you mentioned yourself, it's in their own -- they solve the decision in that respect. And we continue, I believe, to demonstrate our ability to manage the bank through all those challenges in a safe way, protect capital and indeed now be in a position where we can grow our capital base over the next number of years. So we wait and see, but our responsibility to try and make the bank as best as it can be in order to be sustainable, generate a return, pay a dividend, but also generate capital that we can support the economy by way of new lending as well. So I think -- I'd like to think we ticked a lot of the boxes, but that engagement still continues.

Ronan?

Maybe to follow on with 2 from me. Firstly, on the mortgage market share, obviously, a very big step up in Q4, and just thinking about what extent that will be sustainable into 2023, maybe firstly, and perhaps beyond that but, I guess, there was some dislocation in the market maybe in Q4 with different pricing decisions going on at different speeds, perhaps with an element there, but how do you think about that, I suppose, for 2023? And then just secondly, looking at the cost of risk guidance for this year circa 10 basis points, but circa 30 basis points for 2025. Now the lending mix is going to tilt towards, I guess, lending that carries a higher cost of risk. Is that the sole driver of that difference or is there a reason to think, I guess that the 2023 number is still below trend?

So let me take the first one. So as I mentioned, the quarter 4 market share was around 22%. That's the drawn market share rather than, say, the application market share. So you're typically working off a 3-month to 4-month lag between application and drawdown, which actually is saying that we're quite buoyant coming into the start of the year in that respect. There have been changes in the market. We see how some of both the banks and non-banks have reacted to interest rate increases. There's also the switcher market that has been more prevalent last year. We don't believe it will be as prevalent this year. And first-time buyers as well have been quite active as well in that respect. So I actually -- I think our market share can go higher than 18.5%, I think by way of our product offering and our positioning. And I'd rather not say what we think it could be, but we do believe we can have a larger market share. And then we have to manage that as we transition as true as an organization by way of how we think about our capital, how we think about our funding and our position in the market. So we won't lose the run-off ourselves is what I mean, but there is an upward trajectory in that respect. On the second aspect, Nicola?

Yes. On the expected credit loss, I suppose, less than 10 basis points this year in 2023. When you think about us at the moment, we're 96%, 97% on our asset base is residential mortgages. So that trajectory is good. Our asset quality is good and the basis point risk there is very low. As we grow forward, we're actually building by the end of 2023, EUR 1 billion in an SME space with the ambition to actually grow that towards 10% of the overall market for new business in SME as we go forward. So that actually mix between consumer unsecured, SME secured and unsecured and then our mortgage portfolio brings us to an average over the next -- over the medium-term of less than 40 basis points. So it's the mix of business that we'll do. Obviously, we have to take into consideration the macroeconomics that we build into the forward-looking model, and we're probably conservative with those.

Yes. I mean it's fair to say, we're building a business book, so we can be somewhat selective as well. We want to support business, but also we can be selective. And we've seen how various sectors in the economy have reacted over the various challenges that I mentioned earlier on. And so there's -- we'll see how it turns out, but we're trying to show some conservatism in our approach at the 30 basis points, but time will tell in that respect. But I always go back to the -- our deleveraging. So if you look at our -- all our deleveraging we did, which was over EUR 6 billion, we effectively -- that was booked in net book value. So our provisioning has been tested numerous times by way of its level of conservatism from a provisioning point of view and also from how we think about provisioning in the future, and it's been well tested by way of that real interaction with the market. And we always stick to that position in that regard.

Yes. Well, we open the lines, see if there's any questions online.

Yes.

Of course. Our first question comes from Diarmaid.

A couple maybe if I can. Firstly, around net interest income assumption, especially around the deposit pass-through, please. I'm just wondering, we've obviously seen very little by way of deposit pass-through so far, how you would expect that to develop those in the next 12 months, 18 months? And secondly, maybe just the investments you're doing. Obviously, you provided a good insight into what you have achieved and what's planned in the near term. I just wonder in terms of the longer-term cost income ratio of 55%. Is there scope for that to be improved perhaps that some of those investments will continue to come true and bear fruits in terms of efficiency that you can make?

Thanks, Diarmaid.

Just on the deposits, Nicola has outlined the growth we have on deposits during the year, significant growth in our current account base as well. So we have to remember that that's part of our deposit base. And we would like to welcome indeed try and attract more current account customers to the organization. We have the best current account in the market as awarded by bankers. So we want to attract more customers in that respect which will drive deposits. By way the pass-through rate for term deposits, it's no doubt that in this new interest rate environment, and there is a need to rebalance balance sheets as well to ensure that you've got the right mix of both term and call deposits. We will see, I expect more credit growth in the market as well, which will lead into the excess funding that's there. So it's our ambition to ensure that we have a competitive range and also we can bring some duration into our book as well. And we will compete them with others in that regard. So I'm not going to say today what the pass-through rate will be, but we want to be as competitive as anybody else in that respect. And indeed, ensure that we have the proper duration mix in our -- on the liability side that we're managing accordingly. And then it's the case of for modeling purposes, you're assuming what that might be given the overall environment. But composites it's to ensure -- deposits, just to say, deposits and deposit customers are very important to us in that regard.

Yes. On the second question then in relation to investment, Diarmaid, like we still -- we're still continuing to invest in our business. I think you can appreciate that for 10 years or more, we didn't invest in the business. And so we still have to invest. And what -- like that investment in relation to the larger program of work that we're doing at the moment is coming to an end, but we are still having to invest in our business with regards to our product offerings, our customer servicing. We are still -- we're running 25 extra branches. We will have 330 additional staff within our business. And we also have to invest in operational resilience, cybersecurity, fraud, all of these things that actually face the business on an ongoing basis. So I think actually to bring the cost income ratio down below 70% in 2023 and on a downward trajectory to around 55% by 2025 is probably as good as we can do right now as we continue to invest in the business. And you'll know that there's -- every day, there's something new that the banks have to invest in and make sure that we're protecting our customers and protecting our business. So it's important that we stay on top of those things.

Our next question comes from Alastair Ryan from Bank of America.

Yes. So just in the near-term, your appetite for volume versus price. So it certainly feels like your volume expectations for the market for 2023, a pretty conservative average weekly earnings are growing pretty strongly, employment is growing pretty strongly and mortgage pricing is still pretty low. So it feels like that market could easily be bigger than you were expecting? So how do you respond to that in the near-term? If that is the case, do you take your share? Do you grow a bit faster or do you price up instead because you're busy onboarding and dealing with a lot of complexities?

So thanks for the question. And indeed, we've seen significant growth in the mortgage market this year, Alastair, by 40% -- 34%. So we would be more on take our market share to a certain level, not to over exceed that certain level. So it's about ensuring that, there's a balance between price and volume and also the capital requirements related to that. So I would expect and we would expect an increase in our market share, but in a controlled manner rather than trying to just chase volume for the sake of it. So it's that mix that we want to ensure that we meet in that regard. Does that answer your question?

Well, just to press you a little. So [ 3.95% ] and a 5-year fix, you're by now, I mean the most expensive in the market, and that's still pretty cheap, 5-year swaps are [ 3.5% ] or so. Would you put prices up to slow yourself down or you're happy with pricing where it is, this slight increment to the cost of money and you do more volume if that came through?

Yes. So the -- naturally, the interest rate environment is still evolving in that, there's an expectation that ECB rates may go up again. We watch -- we see the mortgages -- mortgage volume has been critical to us in that regard. It is, as Nicola mentioned, a significant and majority part of what we do. So we protect it quite well in that respect, and we'll watch price accordingly. The way the market has evolved, one could go after lots of volume, but that is not the way we want to progress. We want to ensure there's a proper balance between price and volume in that respect. And we'll see if ECB raise rates again and we watch our own offer in that respect. That's all really I can say at this moment. Like if you went back again, if you look back 5 years, I think our market share of the Irish market was around 9%. It grew to 12%, 15%, now we're at 18.5%, and I -- we believe we can still go a little bit more. But we don't want to grow overly fast at this moment and ensure we have that right balance is the way I would say it.

Yes. It's probably fair to say, Alastair, like we won't be a price leader with regards to all of our products, but we'll certainly remain competitive in the marketplace and actually assess for the right credit assumptions.

We now turn to Rob Noble from Deutsche Bank.

Can I just ask about the nearer term base rate impact? So the 192 basis points NIM in Q4, does that fully reflect the rate rises that we saw in Q4? So what are the repricing and timing mismatches within that number that will then roll into Q1? And then just going forward, I mean, how was the tracker book behavior changed as interest rates have got increasingly higher levels as well?

Yes. So the first time that we've started to actually increase rates in the bank was on our tracker, which was following the August -- in August, following the July rate increase for the first time. So the 192 basis points NIM in quarter 4 is primarily being dictated by that tracker move. On average, by quarter 4, we've only moved 42 basis points -- an average of 42 basis points on fixed rates. And for anybody that was in the pipeline, we gave our customers 90 days for them to actually still draw down on that lower rate that was in the pipeline. So that actually only completed on the 14th or 15th of February. So the rate changes that we've made in quarter 4 won't necessarily be impacting until the end of quarter 1 into quarter 2 for anybody that was in that pipeline. We had a very strong pipeline going into the year, end of the year about EUR 700 million. So it's primarily in the tracker space with an average of about 50 basis points of an increase on new business fixed and then for those pipelines to flow. But this time of the year, you would actually be completing a lot of mortgages that are already in your pipeline because they take on average maybe 5 months to actually close. On the tracker book, the behavior for us, we have seen an uptick in relation to customers looking for rate certainty. And we have seen -- obviously, our tracker book went down from 35% of our total performing book last year to 27% of our performing book this year. And I think now at this stage, customers will probably have made their decisions with regards to where they're going. Interest rates will most likely increase again. We still could see some more attrition into fixed rates. But I think probably from the next rate rise, we'll see that leveling off. Does that answer your question, Rob?

Yes, lovely.

We now turn to Borja Ramirez from Citigroup.

I have 2 quick questions, if I may. The first one is with regards to the financial targets. I would like to ask if you could please provide the sensitivity if we were to assume a deposit rate at, let's say, 3.5%, like or more what the market is pricing today? And then my second question would be with regards to your loan-to-deposit ratio, which if I read well is 90% as of December. I would like to ask if you have a target going forward for the loan-to-deposit?

Yes. So thanks for those questions. In relation to the deposit rates, I suppose we look at it in 2 ways, we have the refinance rate for our assets and then we have our deposit base. The sensitivity that we've given in our slides is that for 100 basis points of the move, we would actually have a EUR 50 million increase in interest income. And so that sensitivity is there, that would take a combination of the pass-through on both assets and on deposits. So if you think about our cost of funds and you think about our loan-to-deposit ratio at 90%, we're a deposit-led lender. It's very important for us to have those deposits. We were at 70% loan-to-deposit ratio. We're now at 90%. That's more efficient for us as a business. And we could go to 100%, our European average peers would actually be in that space. And so we still have some additional space there to grow. And so that's important for us. So our cost of funds as we think about that, with some wholesale funding to do because of the MREL, the remainder would be from our deposit base. And so at a cost of funds of about 20 basis points today, you could see that going towards a 50 basis points or 60 basis points through 2023 as we pass through to our deposit base and as we take on that additional piece of wholesale funding.

Just to confirm the 50 bps to 60 bps that is cost of the deposits?

Well, it's a blended cost of funds for the bank. So it includes some wholesale funding and our cost of deposits.

Very clear.

We now turn to Daniel David from Autonomous.

Congratulations on the results. I was just wondering if you could provide a few more details on the capital headwinds and tailwinds in 2023, I guess, looking at what's to come from Ulster Bank and the relationship with NatWest also. Could we expect you to be down around your target of 14% at the end of 2023 or is that more longer-term? Just on the cost of risk of 10 bps next year, does that include any assumptions on the release of PMAs that you hold? And then finally, just on MREL, just interested to hear what sort of a buffer you're thinking about above minimum requirements going forward?

Okay. So I'll just take the first one. So yes, the -- we still have to compete -- complete in this year, we can -- we already migrated the SME book, EUR 165 million. We will migrate EUR 900 million in mortgages, and we will also migrate the asset finance book. So they will lead to a reduction in our CET1 because they will utilize capital as they land. So yes, we'll head towards that 14% level through the year. And as we face into then next year, we'll be building off that level. And then it's a case of how that moves on a month on a quarterly basis, but we'll report on it. But yes, we'll be reducing it, will be the capital generated on the Ulster Bank transaction landed in November is reflected in the 15.2% fully loaded rate and then the remaining migrations will lead into that. But we still have quite safe levels in that respect. Nicola, do you want to pick up the other?

Yes. In terms of the impairment and the PMA that we have there, EUR 137 million in our provision stock at the moment. Like it's prudent for us to have that at the moment. The models actually don't actually cater for inflation in the same way as they would cater for unemployment or house price index and things like that. So until some of the uncertainty with regards to the inflationary pressures comes out of the market, I think it's actually prudent for us to stay with regards to that level. I won't say that it will be the full EUR 137 million. But I think there will be some ebbs and flows with regards to that, but underlying, the asset quality is very stable. And I think unless something happens within the marketplace to dictate that, at least we have that provision there that will actually safeguard us. And our cost on the MREL buffer. So this year, we'll have to do EUR 1 billion of MREL in the market as we bring on those additional assets and grow that balance sheet. It's important for us to build that buffer as we go. And we're heading towards the 1st of January 2024 with a 27.15% MREL target. As we grow, we actually want to build that buffer up to a level where it would be the equivalent of a market-size deal, so that we would have that in our buffer. So we're not actually talking about a percentage over risk-weighted assets, but we're looking at the equivalent of a benchmark maybe size deal or a near benchmark size deal, that won't be in 2023, but as we move towards the end of 2024 and into 2025 that we'd have the equivalent of a benchmark deal as a buffer.

We have no further questions.

Great. Well, thanks very much, everybody, for being here and for asking lots of questions.

Yes.

So, take care. Thank you.

Thank you very much.