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

Thank you for your patience, everyone. The PTSB call will begin shortly. [Operator Instructions] Thank you.

Good morning, and welcome to the 2024 Interim Results Presentation for PTSB. I'm going to do a short presentation on the strong business performance for the first half of the year. And then our CFO, Nicola O'Brien, will provide more detail with regard to our financial performance. And at the end of that, Nicola and I will be happy to take questions. So if we just turn to Page 4. When it comes to customers and the bank itself, we've delivered a strong performance so far this year. We've supported customers and communities across the country and we will continue to grow and diversify our business in the second half of the year and beyond. We're proud to have grown our deposit base by over EUR 1 billion year-on-year to EUR 23.6 billion. Our deposit product portfolio remains attractive in the market, and we've launched recently leading 1-year and 6-month fixed term products, including an innovative interest-first deposit product, which is really getting traction with customers, and we're seeing continued growth in the deposit side. And deposits are so important to us. As a deposit-led lender, we need them to fund growth and indeed, they deepen our connection with our customer base. If we look at our mortgage product and our mortgage market share, we're sitting at a 13.5% share for the year. That's below where our natural mortgage market share is. And it is as a result of the market, indeed, the switcher market, reducing and I'll talk about that in a future slide. But what we're seeing after making significant, and meaningful cuts to our mortgage rates, we reduced our mortgage rate in May by over 1%. We're seeing a significant increase in our pipeline since that date and with a very attractive mortgage product. And indeed our pipeline is up 60% in the last 8 weeks and continues to grow strongly in that sense. Our Asset Finance business and Business lending area we've grown that by EUR 180 million of new lending this year. That's 3x what we did last year. So it really shows the benefit of the Asset Finance business and indeed combining that with business lending. And in this space, we are a clear challenger to the 2 large lenders in the market, and we're getting traction, which we'll talk about again later in the slides. By the way, for financial performance, we're reporting a profit before tax of EUR 75 million. That's EUR 50 million up last year when we reported EUR 25 million. Our NIM is 2.27%. That's slightly lower, 2 basis points lower and our net interest income has increased by 4%. Our fee and commission line is in line year-on-year, but we're seeing significant momentum into the second half of the year, and Nicola will provide more detail on that later on. Our results also have an impairment release of EUR 20 million, representing a cost of risk of 19 basis points. That's as a result of the improvement and significant improvement in the quality of our book. Our NPL ratio is now reduced to 1.7%. That's 1.6% lower year-on-year. We're now the lowest in the -- in Ireland by a country mile by way of distance to the other 2 players, and we're below the European average by 20 basis points. Our total operating expenses, which probably get some focus are up 20% year-on-year, which I have to look at those in the sense of how we took on Ulster Bank business through 2023. And therefore, the year-on-year comparison isn't exactly the same. We have a larger business, which grew through 2023. And therefore, that comparison is not the same. If you look at the later on in the year, we're forecasting a mid-single-digit growth in our costs by the end of the year, and Nicola will talk more to how we think about costs and cost management going forward. Our cost-income ratio has landed at 73%. It's -- we believe that will reduce by the year-end. And again, we'll give some guidance on that as we go through the presentation. Our performing loans at EUR 20.7 billion, which is 1% higher year-on-year. Again, we'll give some color on that later in the presentation. I mentioned our NPL ratio but that was as a result of the last 3 NPL loan sales for EUR 348 million, which we executed recently, and that's resulted in -- when it closes a 35 basis point increase in our CET1, which is very positive in that sense. It means that our pro forma CET1 has landed at 14.9%, and we've grown our CET1 by 90 basis points year-to-date and underlying organic growth in the space of about 60 basis points. So these are messages that you would not have heard in the past where we're organically growing capital. We're growing profitability. We're diversifying our business and our loan books are growing in different areas in the sense of how we think about business lending. I should also mention we were upgraded to investment grade by Fitch on February '24, and that was a very welcome upgrade. It's -- I don't know how long but it's a minimum of 15 years since the bank has had an investment grade, and that has brought more investors into our issuances. It meant that our issuance of a EUR 500 million green senior MTN debt issuance in April was 4x oversubscribed and it allowed us to tighten our margin by 190 basis points. So if you think about margin, as we watch our MREL maturities over the next couple of years, you will see our cost of MREL funding reducing because of that investment grade. So really, really important. It was hard won by the bank, but is the proof of the stage and the quality of our balance sheet at this stage where our average LTV on a mortgage book is around 50%, and we still have significant and growing capital as a bank. Another important milestone today is announcing a distribution policy, which is designed to build to a payout ratio of 40% over the medium term. This, again, is a signal of a very positive sustainable business that we're growing and indeed, us now looking over the medium term to return funds to shareholders who have started with us and supported us over many years. Again, it's probably 15 to 16 years since the Bank paid a dividend. So again, these are significant milestones that are important by way of our move forward and key messages to the external market of our ambition, our position, and where we're going as a bank. We'll touch on the IRB model review later in the presentation but we're on course to achieve the deadlines that we suggested before. And everything is going well in that sense but that's more of a 2025 story as we move through. Just the strength of the Irish macroeconomy, it's very strong. I won't go through every piece of this slide in the sense of that some of these numbers are very obvious in that sense. What is important to us is how we think about interest rates and how we think about the mortgage market. So what we're seeing in the mortgage market is that this year's volume is going to come in, we believe, around EUR 12 billion. That will be flat year-on-year. It also represents a reduction from 2022 of EUR 14.1 billion, which included a significant amount of switcher activity in that sense. So how do we think about this strategically? We think about it in the sense that we're a bank that's been in the mortgage market for over 200 years. We are also a bank that is very close to first-time buyers. We can see that the first-time bar share of the market is growing. But really, we need to see more supply in the market coming through or wave new housing and secondhand house in that sense. And we also see house price growth continues to perform at a lower single-digit level, but we need to get that supply going. And we are very much in line with government policy around trying to promote that and support house -- homeownership in the country as we move forward. Just if we look at our performance across our various books, our total customer lending in the first half of the year was EUR 1 billion. Within that, you can see that we have EUR 700 million of mortgage lending. As I mentioned, that is below where we would like it to be. And we've made -- took action in May to address that. And as I mentioned, we will see a stronger -- a much stronger pipeline coming through in the second half of the year as we return to our natural level of share of the market, which is around that 18%, 20% level. But what's most importantly on the top left, you can see the diversification in our book. You can see growth in consumer lending. You can see growth in asset finance. And indeed, you will see growth in our business lending. And while we're reporting EUR 63 million of lending into the market as of the end of June, if I was telling you today, it will be over EUR 80 million with a strong pipeline, which again has grown by about 40% versus the start of the year. So lots of momentum in that side of our business as well. Our mortgage market share has reduced from 23% in the first half of last year to 13%. That 23% was somewhat buoyed up or supported by the switcher market, which has dissipated. So we have performed well in the switcher market in the past. When it comes back, we will perform even better in that sense but it has affected our market share. And indeed, then the pricing action we've taken to address the volume will come through. On business lending, you can see the various scenarios there. Business lending tends to be the second half of the year when the volume comes through. We're very confident of a very strong result in the -- growth and a strong result in business lending and our Asset Finance business that we acquired from Ulster Bank, for instance, last month, it did the highest level of commercial leasing that it's ever done, whether one Ulster ownership or our ownership. So we're seeing strong momentum there and strong growth. Just by way of our strategy, we are transforming the bank. It's clear by the way of the messages telling you today. We believe we're differentiated in customer experience. We believe we're a challenger bank against the 2 larger banks who in some areas of this market have a dominant position. And we're challenging in that sense, particularly as we move into the -- strongly move into the business lending space and strongly move into asset finance. We'll be developing a strategic vision. That strategic vision has involved us investing in the banks. If you think about this bank for 10 years up until about 2019, 2020, there was no investment in this bank in the sense that we kept, it was some but it was really just to keep the lights on. The bank itself was, as we know, a 30% NPL ratio and all the challenges around that. Since 2020, we've been investing in the bank. We have a new digital front end. We have a very resilient IT technology platform, which we can scale. And we've been investing in our branches by way of our delivery to the market. And also, we've been investing in our people. And that investment is delivering a diversified business. It is delivering something that is different. It is delivering something that is challenging and competing in the market. So in that sense, I always was saying the numbers never lie. From my point of view, the numbers are telling us we're heading in the right direction. So costs will as part of that investment, Nicola will talk about, but they have been necessary in order to continue with our ambition. And our ambition here is to become Ireland's best personal and business bank through exceptional customer experience. An exceptional customer experience is about knowing the people you are dealing with having a connection with the bank, and understanding that we want to support them in what they want to do, and they have that connection. And through that, our purpose is really enlivening that our purpose on our brand promise, and our purpose is around how we build trust with communities and customers in order to build trust with the outside world, we need to build trust in the inside world. And I'll mention later on that our cultural index, our trust index is 81%, which is 10 points over the average of any bank and the benchmark in that sense. If I think of our brand promise, it's around how we connect good and really cutting-edge technology with people, and that's human interaction. And we believe that those 2 items all together is the secret sauce of our success. And our strategic priorities as a bank, how do we measure this? When we think about our secure and resilient foundations and that's about ensuring that we're investing and maintaining a robust and resilient operating environment that protects customers and colleagues and ensures that we're doing this in an efficient manner. And in that sense, you have to invest to reap the reward of that secure and resilient foundation in that sense. And that's the position we've been in over the last number of years. It's also about having a connected customer experience, where we think of our customers at the heart of our decision-making. And indeed, we deepen those relationships, and we know with the bank that the value in our bank is actually in our existing customer base. We can do more with our existing customer base, whether that's in asset finance and lending or whether it's in the full set of retail products that we have an offer, and there's lots of opportunity just in our base alone. It's about sustainable business growth and delivering an efficient return on capital. And we're all aware that today, we sit on a pre-crisis level of capital. So to give you an example, when we write a new first-time mortgage, the capital allocation we put against that mortgage is over 50%. We have a competitor doing the same thing, and they're applying 25%. So we are making a return based on that challenge. And indeed, our IRB models in that sense will rectify that difference just in the sense that we also have the history of how the bank is operated. But in that sense, this is the next frontier by way of how we think about the return we will make on what should be a normalized capital level, not a crisis level capital level is where we are at this moment. And lastly and probably most importantly, it's around cultural evolution, how we think about our culture, how we think about our reputation standards in banking and indeed in the external market. And I'll mention later on that those indicators again, are moving in the right direction. So if I move to the next slide, which is Slide 8. I won't go through every stat here. Again, the numbers speak for themselves. 24% of our mortgages were completed online. We will see further growth in that number as we move forward. We have 640,000 digitally active customers. Again, we're seeing growth in that as well. We launched our first interest first deposit in July, getting great traction on that sense, and we also have supporting the first home loan scheme by way of a EUR 67 million investment in that scheme. Just to mention that scheme for a moment because it's kind of interesting in the sense that these are for customers who cannot reach the deposit requirements to buy a new home. And in fact, we're seeing great take-up by single people who obviously don't have the benefit of double income in order to get that -- get their first home. And again, this is an important social aspect to how we operate in the bank buying a home should be for everyone, single people, married people, everyone in that sense, and we believe the first home scheme is helping in that respect. We were also the first bank and the first operator in the SBCI home energy upgrade loan scheme, that's a EUR 100 million fund, we're seeing fantastic traction from customers in that space. It's a very attractive scheme. The interest rate is very attractive, and it's also backed by the government, and we're more than happy to be a party to that. If you think about customer experience, our relationship Net Promoter Score is at 20 points, it's up 1 point. Our transaction on that Promoter Scores of 14 points to 47 points. So again, significant movement there. And we were the first bank in the world to introduce PTSB Protect, which protects customers from -- in their app from being -- linking into fake websites that can call it forge and activity, and we're seeing great uptake from customers in that sense. But just to mention, we were the first in the world to operate that. And we've had plenty of inbound from other banks across Europe, interested in how we're doing it. And from a customer point of view, all our ATMs and SSPMs have voice guidance functionality now, which has rolled out nationwide. Again, the only bank in Ireland to operate that. I won't dwell on the awards, but we've got a significant number of awards which continue to note from an external point of view, how we're progressing. That's linked to culture. It's linked to delivery, it's linked to performance but it's really linked to who we are. So if we think about where we're going by way of building in the ESG agenda, I should mention the most important item on this slide is the appointment of a Chief Sustainability and Co-Operate Affairs Officer, who is now at our ex co level, who is actually in the room here as well and Leontia Fannin, who will really drive on our sustainability agenda, which you can see as a busy agenda, if we think about it, our first Green issuance of EUR 500 million, I mentioned it already. We have EUR 267 million of Green lending, which is nearly 40% of new mortgage lending in the first half of the year. We have the SBCI growth and sustainability loan scheme, which is around offering low-cost funds and loans to SMEs with a EUR 70 million fund there. And indeed, in the second half of the year, we're now moving into our commitment to science-based targets around carbon emission reduction as an organization. And again, you'll see more of that as we move forward. By way of our social support, we are absolutely very proud to be the title sponsor for the Irish Olympic team and the Irish Paralympic team. I'll talk about that later on. And Social Finance Foundation, which was set up in Ireland in 2009, really to have small bodies and small groups of people and local communities to fund pitches and different functions and different buildings that they need in the local community, and we've supported that fund over many years now to the tune of EUR 19 million, and we're more than happy to provide more funding as of when it's needed. I mentioned our cultural index at 81%, well above the standard and the target of 70%, and that's been consistent now for a number of years. Our gender and diversity in the Board is 60% female or 58% female to male. And at the senior leadership level, we have 39% of our senior leadership are represented by females. That has grown by 1% year-on-year, and we're taking a lot of action internally to move that number towards the 50-50 level, and indeed, taking lots of actions in that sense. Our gender pay gap of 15.9%, well below our competitors in the sense of where we stand. And in some cases, the general pay gap has actually increased, not reduced. And we will continue to take action to address our gender pay gap, which obviously is linked to the senior leadership positions and indeed linked to how we think about the overall organization. But we're measuring that and when you measure something, it gets done, that's the reality. The Business Working Responsibly Mark, we were certified now for the second time in that market, and we've joined well over 70 diverse companies in Ireland who work with Business Working Responsibility Mark in order to improve both the environmental aspects and the social aspects of how business operates in Ireland and the team we're a proud player with that. In sustainability space, our ESG risk rating is low. We've a B CDP rating, and we're abiding and complying with all the TCFD requirements around disclosures. And again, there's a big agenda there of requirements that are coming through, which we are -- which are abiding by, and we will indeed use that information to drive our sustainability approach from a business point of view and indeed from a social interaction point of view. So that's a key part. And hence, the appointment of Leontia as Chief Sustainability and Corporate Affairs Officer at an executive level in the organization. So I'll just hand you over to Nicola, to our CFO, to go through the financial performance. And thank you very much. I'll be back later on. Thank you.

Thank you, Eamonn, and good morning, everyone. I'm delighted to present the bank's 2024 interim financial results. So looking at Slide 11 shows that we have had strong financial performance in the first half of 2024. Our reported profit before tax of EUR 75 million is EUR 49 million higher than half year '23, with overall total operating income increasing by EUR 13 million or 4% year-on-year to EUR 336 million. This increase is driven by higher net interest income from the growth in interest-earning assets and the higher interest rate environment. And we're happy to say that our fees and commissions income remains resilient and in line year-on-year. Reporting total operating expenses of EUR 274 million. They've increased by EUR 46 million or 20% from compared to the prior year but remain in line with management's expectations, as Eamonn mentioned earlier. Underlying the operating expenses, which are before the bank levy and regulatory charges of EUR 245 million, have increased by 20% also as a result of higher resource requirements, cost inflation, and costs associated with the bank's investment in the future. Regulatory charges, as you see, are EUR 5 million higher year-on-year. They are made up of 2 components. The bank levy is recorded in the first half of this year. It would have been previously in quarter 4. That's EUR 24 million and broadly in line year-on-year with regards to a full-year perspective. And that's partially offset by lower funding requirements from the deposit guarantee scheme and from the other regulatory funds. And we've recorded a P&L impairment release of EUR 20 million, so reflecting really the strength that's in our underlying asset quality and the positive macroeconomic environment with strong employment, the increase in the house price index, we've observed that over the first half of the year and still remains on a positive outlook. Under exceptional items of EUR 7 million, they broadly relate to the NPL sale that we did most recently and compares to a EUR 60 million cost in the prior year, which was primarily driven by the charges in relation to the Ulster Bank transaction. So resilient operating income performance is how I describe it. If we look at Slide 12, net interest income of EUR 311 million increased by EUR 13 million or 4% year-on-year. And this increase was driven by higher yields on tracker. There was probably a 50 basis points increase in H2 '23 that's given us about EUR 3 million additional income in first half '24. EUR 27 million higher interest income from the Ulster Bank assets, of which EUR 15 million comes from our Asset Finance business, which, as you know, we acquired in July, and EUR 46 million from the growth of the performing loan book, together with interest rate repricing from our fixed rate mortgage and then EUR 25 million from increase in treasury assets. That's partially offset by a EUR 48 million higher deposit interest expense, primarily as a result of fixed-term deposits. They increased with the overall yield on interest-bearing deposits increasing from the second half of 2023 -- September '23, so an increase in the interest-bearing rate for deposits. And higher wholesale funding costs of EUR 40 million from larger volumes and the higher costs from the higher interest rate environment. The net interest margin is 2.27%, so it remains resilient, albeit it's 2 basis points lower than the prior year. Our total yield on assets is 3.27%. That's up almost 60 basis points year-on-year, and the increase is due to the loan book and treasury assets operating in that higher interest rate environment. Our cost of funds at 107 basis points has increased by 66 basis points year-on-year, and that's equally to do with the higher interest-bearing deposits and wholesale funding. The bank remains leveraged to the interest rate environment at the 30th of June, assuming a starting ECB refinance rate of 4.25% and a deposit rate of 3.75%, every 100 basis point increase would result in a EUR 30 million increase in net interest income and equally a reduction of 100 basis points would be a decline of EUR 25 million in interest income. These sensitivities should not be considered as a forecast but they do give an indication of how the bank's interest income remains somewhat leveraged to the interest rate environment. We are pleased, as mentioned, about the net fees and commissions that they remain strong at EUR 23 million. And this is in line with the half-year '23 but we have seen a 20% increase in fees and commissions quarter-on-quarter in 2024. So the changes that we've made to the current account fee structure announced earlier in the year, began to materialize now from April of this year. This increase in trajectory is expected to continue through the second half of the year, supporting the overall fee and commission income growth that was expected in '24. These were the first increases in current account fees applied by the bank since 2019. And in that time, the bank has and will continue to invest significantly in its current account offering and indeed in relation to our everyday banking activity and how we serve our customers in that way. We continue to be the only bank in Ireland that offers rewards for current account customers through our Explore account, where customers can earn up to EUR 5 per month by using their current count at point of sale or online. So this, together with the investment the bank has made in the digital everyday banking is really supporting our customers and giving them value for money. Moving on to the total performing loan book and how we're diversifying that. Slide 13 gives us a good picture of the totally performing loan book at EUR 20.7 billion at the 30th of June, broadly in line with December 23, following a slower pace of new lending but partially offset by a higher level of retention, which is actually a really important point for us in the fact that we're retaining our existing customers. Mortgages now represent 93% of gross performing loans. That's down from 96% at half year '23, broadly because we're actually growing that business banking area to greater than EUR 1 billion. And that SME and Asset Finance business now represents circa 5% of total loan book. So we're working to our strategy there in relation to how we can diversify that overall loan book. We'll continue this momentum in new lending, reflecting capital optimization and our business banking growth ambitions, which are equally outpacing repayments and redemptions. Moving on to the home loan book. Our performing home loan mortgage book of EUR 19 billion has reduced marginally when compared to December '23. Variable rate mortgages are now EUR 3.3 billion. They have increased about 52% year-on-year and now make up 17% share of the performing book, up from 11% at June '23. As a higher proportion of our customers who are maturing from fixed-rate choose to roll to a variable rate product, retaining the option to fix at a time of their choosing. Fixed-rate mortgages are 70% of the total mortgage book, 6% lower year-on-year, reducing from EUR 14 billion to EUR 13.2 billion. But this still remains the largest cohort of the mortgage book. As we assess the schedule of fixed-rate mortgage maturities, the bank will manage the price transformation very carefully for maturing fixed-rate mortgages written in a low interest rate environment will transition to a variable rate or a fixed rate and a higher rate environment. This has managed really well through the first half of '24 with customers having the option to choose the variable or fixed rates on maturity, and we've experienced very good retention rates with more than 92% of fixed-rate maturities choosing to remain with the bank on a new rate. Redemptions are therefore trending below prior year experiences. 50% or EUR 6.7 billion of the fixed rate book will mature by the end of 2026. This repricing onto the higher rates on the bank's loan book will be supportive of our net interest margin over the coming years even as ECB rates start to reduce. While fixed-rate maturities represent a rate increase for customers, they have indeed been stressed at the underwriting level to a 2% level above the chosen rate. And this has proven to safeguard affordability. As Eamonn mentioned earlier, we have announced new fixed rates effective from the 15th of May, which have been widely supportive and are benefiting the mortgage pipeline for the second half of '24. Tracker mortgages then remain the lower level of our overall mortgage book at EUR 2.5 billion, have reduced 17% year-on-year, and now make up 13% of the bank's home loan performing book. It's fair to note that the differential between the ECB MRO and the deposit rates is set to reduce from 50 basis points to 15 basis points from September '24, and this will have a circa EUR 2 million adverse impacts to our full year '24 tracker interest income. The average yield on new mortgages is strong. It's increased by 108 basis points year-on-year to 4.33%, aided by the automatic pass-through on the ECB rate to track our mortgages. But equally, we'll see the yield on our performing home loan book increasing 36 basis points year-on-year to 3.59%. So that's our back book that actually sits on the 359 yield. The weighted average loan-to-value on the home loan mortgage book is 51%, with the new mortgage weighted average loan-to-value at 73%. Moving to business banking. The bank is pleased with its performance. The SME and Asset Finance business in the first half of the year with lending in those businesses of EUR 180 million trebled out of the prior year with continued momentum for future growth, providing a meaningful alternative for our business customers. The SME performing book remains at EUR 550 million and at the half year unchanged from December '23 and up from EUR 492 million at the prior half year. Under our new SME lending of EUR 63 million, as Eamonn mentioned, has increased 5% year-on-year and our strong. And our strong -- we have a strong pipeline, which will help us as we go through the second half of the year. The Asset Finance book and business indeed itself at EUR 501 million is performing very well. We acquired it in July '23. The business has shown strong growth in new lending, EUR 117 million in the first half of the year, and that's a 24% increase on new lending from the second half of 2023. Moving on to operating expenses. So managing the cost base in a prudent manner is a key focus for the bank. The impact of inflation is much reduced from the levels experienced over the last 2 years with the recent ECB rate cut in June, signaling confidence that inflation is indeed coming back under control. So we can see on Slide 16, some of the key movements year-on-year. Underlying operating expenses, excluding regulatory charges and bank levy of EUR 245 million, increased by EUR 41 million or 20% year-on-year, and it is in line with management's expectations. The bank increased its headcount from 2,836 at June '23 to closing 3,240 at June '24. That's a 14% increase in year-on-year, of which we had some colleagues that actually joined us from the Asset Finance business. But additional headcount is required in relation to customer-saving, customer servicing, and indeed, our technology areas. As we maintain and expand the service levels for new and existing customers nationwide. This additional headcount, together with increasing cost of wages for our colleagues has driven a EUR 16 million increase in total payroll costs year-on-year. We continue to invest in important areas such as payment transformation, and indeed, that includes SEPA Instant, cybersecurity and fraud protection, and enhancing our digital data and analytics capability, and our IRB capital models programs. So all very important areas of focus and indeed, investment for the bank. Total depreciation has increased by EUR 7 million year-on-year, EUR 6 million of which is coming through from prior year investments, and there's EUR 1 million to EUR 2 million there coming through from the Ulster Bank transaction and the investments that we've made there on acquiring new businesses. The investment over the last 5 years has been a key enabler for the bank to operate safely and meet customers' increasing expectations in areas such as digital and technology and the availability that we have now for our customers through our nationwide branch network. Underlying cost income ratio, when you exclude regulatory costs has increased to 73%, 10 percentage points higher year-on-year as increases in total operating income are partially offset by a higher cost base. The bank remains committed to making underlying savings to offset the increased costs associated with investment and is reaffirming its guidance for a mid-single-digit percentage increase year-on-year in 2024. As previously mentioned, I think in our last results, our ambition is to reduce the overall operating expenses of the bank to EUR 500 million, including bank levy and regulatory charges in the near term. In order to support this, the bank has established a 2-year program of work, which will review the full end-to-end product and service journeys with the aim of delivering efficiencies and effectiveness, together with the full review of support functions, placing the bank in a position of strength as we grow into the future. Our expectation is that we will work to reduce the cost-income ratio in the short term. Moving on to our strong asset quality. Underlying asset quality remains good, and the loan book has withstood the challenges faced by an elevated inflation rate, which now appears to be easing, and the higher interest rate environment. The bank recognized the EUR 20 million release in the half year, reflecting the strength of asset quality and the positive macroeconomic environment. Provision stock decreased by EUR 156 million since year-end '23, primarily as a result of the most recent NPL sale with the closing provision stock of EUR 414 million. This includes a EUR 83 million post-model adjustment, which will ensure that the bank remains adequately provided in the event of any future deterioration in asset quality. The total provision coverage is 2%, 60 basis points below full year '23. And the NPL ratio, as Eamonn mentioned earlier, has reduced by 160 basis points to 1.7%, which we believe is 20 basis points below the European average. From the strong half-year, '24 performance is supported by the positive macroeconomic environment and strong asset quality. The bank is updating its expected cost of risk for full-year '24 to circa minus 10 basis points from a plus 10 basis points previously. Funding and liquidity, very strong. June '24, total funding reached EUR 26.5 billion, 3% growth year-on-year. Customer deposits account for 89% of that funding on June '24. Indeed, customer deposits grew 4% and wholesale funding decreased by 9% due to lower repurchase agreement activity. The deposit franchise continues to perform very strongly with the bank remaining keenly focused on protecting and growing its customer deposit base. As a result, deposits have continued to grow 4% growth year-on-year and a 12% growth since half year 2022. 70% of total deposits are covered by the Irish state deposit guarantee scheme. The bank continued to observe a change in customer behavior as more customers moved funds into interest-bearing deposits from September '23 when pricing across the market increased. The bank's average maturity of term deposits has increased compared to the half year '23 as the bank has secured longer-term funding. Recent prices moves have inverted the curve, which flows now into more shorter-term deposits, giving optionality upon the maturity as rates continue to reduce. Interest-bearing accounts now comprise 27% of total customer deposits up from 18% at half year '23. Wholesale funding at EUR 2.9 billion is 9% or EUR 0.3 billion lower than the prior year due to lower repurchase agreement volumes, partially offset by the banks very successful inaugural EUR 500 million senior Green debt issuance in April '24. As Eamonn mentioned, significantly oversubscribed. I think we had EUR 2.2 billion of demand for a EUR 500 million. So that's really positive for the bank. Three, these issuance contributed to the bank's EUR 4.3 billion of MREL, including CET1 at June '24. That's up from EUR 4.1 billion at June '23. Our MREL ratio is 35.2%. Our MREL requirement is 28.6%. So we have, indeed, buffer there. And it's all aided by the fact that we did have that upgrade from Fitch in the first half of this year. Our liquidity coverage ratio has further strengthened, increasing to 232% compared to 220% at December '23, and our net stable funding ratio at 166% is equally strong and compared to 220% at December '23 -- so just call that wrong, it compares to 155% at December '23. Finally, the bank loan-to-deposit ratio has decreased by 3 percentage points since December and to -- at 90%. So moving on to capital. Our regulatory capital rate has remained comfortably above the regulatory minimum requirements. The pro forma CET1 ratio when you include the outcome from Glas III is 14.9%, an increase of 90 basis points from December 23. Half year operating profits contributed 50 basis points. The Glas NPL sales the circa 35 basis points and impairment release circa 20 basis points. So the bank continues to operate in excess of regulatory requirements. Our CET1 requirement at 10.33% and total capital at 15.25%. and management the CET1 long-term target remains at 14%. Eamonn mentioned to the IRB models. We won't go into that midway through that program of work that we have at the moment, and we're making substantial impact there. Overall, you see our average risk-weighted asset on the book is 41.9%. As Eamonn mentioned, in relation to new business that we're acquiring, and we do have to actually write that at 50% or above. So in summary, I think that the performance has been really strong in the first half. Results are showing a robust business and the financial performance, and we're on a positive outlook, reflecting on where our performance landed. Our profit before tax of EUR 75 million is EUR 50 million higher than the prior year, supported by strong operating income from growth in interest-earning assets and the positive ECL release. Cost income ratio of 73%, a 10 percentage points higher year-on-year is in line with management's expectations, and we will be working towards reducing that cost-income ratio over our short to medium-term. Cost of risk at minus 19 basis points with an impairment release of EUR 20 million, strong asset quality, favorable macroeconomic environment, and minus 28 basis points cost of risk year-on-year. And as mentioned just now, the capital position is very strong. Underlying ROE of 6% and on track to deliver meaningful returns over the medium term. Full year '24 is trending in line with expectations. The cost of risk is the only update that we have at the moment, and that's going to be favorable for our full year '24 outcome, and we're actively managing our capital position. So all in all, a very good first half results for PTSB. And I'll hand you back to Eamonn now. Thank you.

Thank you. Nicola, I'll just turn to Slide 23, just to really summarize the last 3 slides we're going to cover here. So this is about -- the slides about what we've delivered, what's our strategy and what are the future catalysts for growth. And we all know you can measure the confidence is normally driven by what someone has delivered, what they've achieved, what the company has delivered in the sense of what they've done. And in that respect, what we deliver today is a larger and more active customer base. And we have 1.2 million customers within that base, 400,000 of those customers are new to the bank in the last 3 years, whether through acquisition through the Ulster Bank transaction or indeed by attracting those customers and reducing inactive customers in that sense. So it's been significant change underneath the water in the sense of how we think about our active base. If you look at our NPL story, which will be mentioned, it's 1.7%. The regulated ECB changed the rules and NPLs back in 2017. At that moment, like the other 2 banks in the market, we all had about EUR 6 billion in NPLs. Obviously, ours was about 30% of our balance sheet. Today, our NPLs at EUR 348 million, of which 50% of those are on our path to recovery or our path to repair. So it's a significant reduction in our NPL story. I won't comment on the other 2 banks where they are. That's where someone has to look at but we've delivered in that sense. And we are at this moment by way of where our NPL story, we have no further sales, no further action in that respect. It's about ensuring that we're supporting our existing base and indeed helping 50% of those NPLs to come back into performing status. Naturally, the Ulster Bank acquisition has happened. It's finished, it's closed, delivered, no residual issues, and it's added significantly to our financial performance. And it has allowed us significant to invest and continue to invest in the business, which, as I mentioned earlier, will reap rewards, and we're seeing this by way of resilience. We're seeing it by way of innovation. We're seeing it by way of how we're delivering for our customers on day-to-day requirements and seeing how we're building a business bank that will compete and it's competing strongly in the market. Dividend -- our dividend blocker was lifted in 2023 -- December '23, that's a serious and significant vote of confidence from our regulator with regard to how they see us and where we're going. And indeed, the investment community has upgraded us from Moody's and Fitch upgraded by way of investment grade. If we think about the balance sheet and our balance sheet is about our strategy, how we're going to grow the balance sheet, how we're going to grow organic capital. And Nicola already mentioned, we have a focus on efficiency and how now we can take a business that is larger, more diverse, but now how we can efficienize existing processes and procedures that would have been built up over many years, how we can digitize those, make them more efficient, make them more streamlined. And I have absolute confidence in our ability to do that because we're more agile, we can move faster, we can move more efficiently, we can get things done and completed and delivered much faster than our competitors. And there's evidence that in what I've just said earlier on. We're improving customer experience. We can see it in our transactional NPS scores. We can see it in our reputation scores. We can see it in our brand positioning. When we launched a branch -- brand last October, we're seeing the improvement in that. We're simplifying our products, we're including -- we're increasing digitization, we're increasing robotics. It will require some additional investment but we're up for that because we can see, and we can reap the benefits of that in due course. And then what are the catalysts? Well the catalyst around how we go a deposit franchise, we can see again that how we can support the pricing of our assets in the sense of having an appropriate RAROC. That's absolutely linked to our IRB model review in that sense and how we think about a return on capital. How we can prioritize our cost efficiency, which you can hear that there's a thread through how we're presenting here in the sense of that cost efficiency and our approach. And indeed, how that will result in our ability to distribute and make distributions over the medium term up to a payout ratio of 40%. so all of these are connections -- connected. It's about delivery, it's about strategy. It's about being agile and it's about having catalysts for growth and catalysts we're positioning in that sense. So by way of our medium-term targets were, we -- at this moment, we're reaffirming those targets that we would have reported at the year-end and there to be seen by way of return on equity. They do not assume any changes to risk rate under the IRB model review. So as and when they come through, and they themselves will provide a catalyst with regard to how one thinks about the economic capital that's required to run a bank of where we are and how we think about that. You could argue, a release of capital in due course, subject to those IRB models, it will give us extra flexibility of the way we think and how we manage our capital position for growth or other aspects of capital management. Lastly, I just want to finish on this slide. We are absolutely privileged and proud to be the title sponsor for the Irish Olympic and Paralympic Teams, Team Ireland in the sense of how they travel to Paris. There's 133 athletes who have traveled to Paris, the largest team ever, the Team Ireland this week. It's also 100 years since Ireland as a country participated in the Olympics, which was in Paris. So it's a really special moment in that sense. It really has given us a unique platform in which to demonstrate our commitment to the communities in which we operate show our support of the role they play and indeed, support for athletes and their supporting heroes and local communities. And we saw that real action when we saw Mona do the other day and how that has impacted to her small community in Sligo of 700 people in her own town. And if you look at -- if you look closely at the picture, you'll see the back line there, we probably have 5 medal winners lined up there at the, Daniel Wiffen. We've got the 2 rowers, Rhys McClenaghan, Kellie Harrington, indeed, Sarah Lavin coming through as well. We'll see how she gets on over the next few days. But like us, we're winning gold as well. And these results are about how we're performing and how we're turning up not only for our customers but for wider society. So thank you very much. We'll take questions now, if that's okay.

We will now start today's Q&A session. [Operator Instructions]

Eamonn, Nicola, well done on a very strong set of results. Three questions, if I may. Firstly, around the capital and distribution policy. Thank you for that this morning. Just the very strong levels of capital you have compared back to late last year when the dividend blocker was released, is it still appropriate to think about full year 2025 as the first time frame where we might get a distribution being realized from your balance sheet from your income statement relative to maybe at the end of this year? That's suppose the first question. Secondly, just on net interest income, Nicola, maybe if you could talk through some of the moving parts in terms of some of the product changes that you've done towards the end of the first half of the year and how those will impact together with maybe prospective rate changes that will come through in the second half of the year, and maybe not just for the end of this year but maybe into 2025 in terms of how you think about those? And finally, maybe just around the cost piece. I mean, Eamonn, it's quite evident you talk about efficiency, you talk about the investment that's required. Maybe you could just talk through some of the initiatives that are ongoing in terms of maybe bringing them to life for people. And I guess is there specific actions that you will need to take them as those investments are bearing fruit to bring the cost down? Or is it more that some of that investment is elevated and kind of falls away as those are delivered?

Okay. So I'll answer the first and third question, if that's okay. Nicola, you can jump in the next. And indeed, you can come and help me as well if am struggling. On the dividend side, it's how you put that forward, [indiscernible] is reasonable. And the reality is we will have a significant regulatory engagement next year with IRB models. And that has an engagement about the regulators around establishing, you could argue where our settled capital position is required to run this bank. We believe it will be positive because we are updating our data with more -- obtaining models with more recent data. But through that interaction, it would be unlikely that we would be in a position to pay a dividend as we go through that process. But once we get through it, we believe that will free up subject to the normal caveats around interaction with the regulator and seeking their approval but we believe it will provide us with more freedom in how to think about distribution. And it is reasonable to think about those in a 25-year with a 26 payout in that sense. So it is all to be played out. But I think the important thing about the day is to try and provide clarity to provide a thought process around how we think about the level to which we could pay over time. And indeed, then we can see now that time moves on 2025 to next year. So it's time is moving, so it's appropriate that we've been providing clarity in this space coming out of that release of the divided blocker in 2023. So costs have been involved over my own career in many different cost initiatives. They are a feature of how anyone would run a bank or be involved in running a bank in the sense of different ebbs and flows at times around cost efficiency. So it's something personally I'm very comfortable with. And this will involve many initiatives. It's well into the double digits of different initiatives, some small, some more material. But to give you an example of one, we think of our end-to-end mortgage sales process and indeed our servicing process, and the servicing process involves fixing rates, rollover, and customers looking for information, top-ups, all of those good things and positive things that you have with a customer. A lot of those practices are somewhat paper-based and not connected, and we will do a full route and branch review of our end-to-end mortgage -- new mortgage and servicing program. And we believe not only will that deliver some savings but it will also deliver a better engagement and service level for customers in due course. It will also allow us, if you take it by way of the management of a fixed rate rollover that if that is a more digital engagement, it will allow us to retain more customers and indeed give that -- give customers a better service in that sense, provide more data, all those extra things. That's just one example but there's many, many initiatives which we've identified and which we can now progress. We've got an internal program set up. It's resourced. It will require investment but that investment will have a fairly quick payoff over the next 1, 2, 3 years. Nicola, if I hand over to you then.

Yes, certainly. And just on the net interest income, I suppose the way we look at that really is fundamentally our asset yield is strong. And the higher interest rate environment right now reduces but it actually doesn't reduce to the low interest rate environment that we operated in previously. So net interest margin remains strong. If I look at fixed-rate maturities at the moment, we have about EUR 1.3 billion this year. They're coming off at average 270, 275 rate. And even with the rate reductions that we've had, which as Eamonn mentioned, were significant in that we reduced mortgage rates by 100 basis points. Our customers are still rolling on to a race that is in a higher interest rate environment. So on average, around 3.9%. And so we're actually seeing that uplift of 125 basis points that's actually coming through that's supporting that net interest margin. Equally, our treasury assets are actually performing well. If we look across even when the last time I looked at the 3-year was sovereign, it's around that 285, 290 mark for '24. It's really over the curve and out 4 years, it doesn't reduce below 275, maybe 260 next year and it starts to rise again. So it means that the earning power for the bank is actually very resilient and strong. And so we expect that our net interest margin will be supported from the lending that we do diversifying into business lending, which is actually at a very good rate for us and fair for our customers. But equally, that we'll be able to maintain that net interest margin. We do see it growing. But on average, you could say that like 220 margin is probably a good margin for our bank, 220, 225 would be a good margin for our bank. That might tick down a little bit this year based on lower volume and whether or not the ECB makes 2 more rate reductions or maybe just one. But I think a 225, 230 margin for the bank is actually an appropriate margin, and we can see that going through in the future. We'll open up to phones.

We'll open to the phone, please.

[Operator Instructions] Our first question today comes from Andrew Stimpson from Stifel.

Congratulations. Two questions for me, please. One on provisions and then one on interest rate sensitivity, please. So on provisions, you still look very well provisioned here. I'm just wondering how long you can hang on to those post-model adjustments. I realize that they're down to EUR 83 million now but in the context of the annual charge, we might expect from ourselves in a normal year. Those are still pretty material. So can you hang on to those indefinitely? Is that a discussion with auditors at year-end? Or how does that process work, please? And then secondly, on the interest rate sensitivity -- sensitivity guidance on Slide 12, its good news that, that's reduced again, so well done. But I'm just wondering whether that's just the greater funding and deposit costs or whether you change something else with regards to the balance sheet, please?

Perfect. Thanks, Andrew. Yes, just in relation to provisions, and indeed, that post-model adjustment that we have, you'll see through our models, like we are actually, I suppose, through the ECL and through the models, it is driving out of charge on an annual basis. That's expected under IFRS 9. And the post-model adjustments, we have a program of work now where we're actually looking at our IFRS 9 models. It's probably an 18-month journey and will actually refresh our IFRS 9 models and actually we'll be able to get more visibility there. You'll probably see that reduction coming through in relation to the PMA. But there's always an element of post-model adjustment, which is management judgment that you will have to actually cater for. But as we look forward at the moment, the positive outlook in the macroeconomic environment, the underlying asset quality, 70% of our book has been written under macro-prudential rules. It's been a very strong performance over the last number of years. House prices in Ireland are still very strong and the house prices have increasing. So all of those things factor in to actually say that we're well provided. And I think there's an element of that PMA that will come back over the medium term. But you will see the model driving out of charge as we write our new business. Yes. On the interest rate sensitivity, purely, it is the narrowing of the corridor. The interest rate environment coming down, like we're naturally hedged our interest rate sensitivity isn't anything in the balance sheet other than today, what we are earning from our treasury assets that will actually come back and equally any impact from the tracker mortgages as ECB rate reductions but we haven't done anything structurally within our balance sheet that would impact that.

Our next question comes from Borja Ramirez from Citigroup.

I have 2. Firstly, on the NII outlook. I would like to ask if you could kindly provide more -- a bit more details. So it's understood on the NIM that could be 2.25% more or less. But just to understand how should I think about second half net interest income for the second half of this year compared to the first half? How do you think about deposit migration? I think it was -- you had EUR 0.6 billion of increase in interest-bearing deposits in the quarter, slightly higher than the EUR 0.5 billion in Q1. How should we think about that in the second half of the year? And then my second question would be on the capital distribution. So if I understood well, the -- so very good news on the distribution front. It's more likely at this stage that there could be a potential distribution on the back of 2025 earnings distributed in 2026. Would this be correct?

I'll just -- and thank you for your 2 questions. I'll take the second one and then, Nicola, you might pick up on the first. Yes, that's right. It's probably more reasonable to think about our distribution in 2026 based on '25 profit. Not in the sense that we are -- we don't believe we've adequate capital and then we're generating organic capital that is actually reasonably okay. It's actually more in the sense of how we think about the approval process for such a dividend and the fact that we're in -- we will be in ongoing engagement with the regulator with regard to our IRB models through 2025. So that's really the more basic or more actual sense of how we think about the dividend payment. And indeed, once we get to a settled IRB model, it may indeed increase our capacity to think about capital by way of growth and indeed return of distributions in due course. And as I mentioned earlier, the key indicator and the key move forward today is that we are disclosing a distribution policy. We are disclosing clearly our ambition in this area to make distributions. But it is all subject to the normal caveats of regulatory engagement, how we think of a risk profile. Indeed, how our Board thinks about our own positioning and the availability and opportunity for growth versus distribution. But yes, I think it's come back to the core question. It's reasonable to think about this in '26 based on '25 profits.

And just to follow up there on your question on net interest income, Borja. I suppose, overall, when we actually think about H1 versus H2, we do have to consider that we did make interest rates movements in the first half of the year. So when we actually think about the second half of the year, net interest margin will be slightly down. When I'm referencing 220 to 230, that is that net interest margin as we look forward over the next 24 months that we actually should be operating at that level. And there is probably from a deposit cost perspective, we've seen a second. So we were paying a higher rate going out for 3 years. We've inverted that curve now. We're paying 2.75 for 1-year money. That's actually bringing that term back in for us. So I would say that the deposit costs and funding costs in the first half will almost be the same level in the second half, and actually, then we'll make more depending on the interest rate environment, but we'll actually make -- we'll have better margins on our loan book and on our treasury assets as we go through the second half of the year, which will actually support that net interest margin for us as we go forward.

That is very clear. One quick follow-up questions, if I may, sorry. On the IRB process, just to understand if -- could you give an indication on the risk density that could be achieved after the IRB review?

Unfortunately not, and we're working through a process of preparing all the data. It's quite an intricate process that has to be prepared, tested, challenged and indeed submitted in a way that meets the requirements of the EBA. So we're still looking at that submission, the regulator in quarter 1, early quarter 2 next year and then engaging with the regulator with regard to the level. So I would have no indication of what it would be except it would be lower.

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

I guess I just wanted to come back to the distribution policy as well. I think it's great to see that announced today. I guess maybe to probe a little bit more. So what would you define as a modest distribution? Or how are you thinking about that? And I guess maybe linked to that, the commentary around NPLs and kind of seeing those actions undertaken now, would that not help support an argument for maybe paying a dividend with full year '24 results, announcing it with full year '20 results paying in '25. And then secondly, how quickly are you thinking about building to the 40% payout? So would that say be the first year a lower modest payout and then coming into the second year, 40%? Or is there a longer time frame than that?

Okay. So thank you. I mean, the policy clearly sets out that we will now consider the payment of a dividend every year. So I wouldn't rule out -- completely roll out next year but the reality is there's practicalities around our engagement with the regulator that we also have to take into account and discuss with the -- discuss with our Board and seek support, indeed a recommendation that would go to a regulator. So we will consider it at the end of 2024. I wouldn't 100% rule it out but I believe it's more likely to be in the following year rather than next year but we will examine it. And indeed, it is something we will pick up on at the year-end results as well in that sense. And we do say a buildup to 40% in that respect. We do have to just consider the fact that the IRB models do play a part here. We can't necessarily today forecast for the fact that our IRB models will be adjusted, we still have to operate a business on the basis of the models we have today. So once we get through that process, it will give us more clarity with regard to the required running level of capital for this bank. And indeed, then how we can think about either growing the book, applying capital to growing the book or indeed growing our business or indeed distributing it. So we are adopting a cautious approach in that sense. So it's likely the initial one will be lower, and then we would build up what really that IRB model review is a critical part of our responsibility to prepare correctly and indeed submitted but also to get to a settled capital requirement for this bank. And indeed, it's kind of clear when you look at the numbers, it would be very difficult or challenging for us to make -- to give you this in sort of an open way, it will be challenges for us to make a 40% distribution on the current models. They are just so capital consuming and that it makes it difficult. But the future models will give us much more clarity and hence, we're adopting a buildup to 40% over time with that critical interaction with the regular to being a core part of how we think about balancing both returns to shareholders who have no returns for over 15 years and indeed, how we think about our position in the market as a challenger bank, growing our business lending, growing our asset finance, maintaining and growing our share in mortgages. These are all key things we also need to achieve as we grow our balance sheet. So hopefully, that answers the question.

We have no further questions in the queue at this time. I'll hand back over to the management team.

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

Thank you for joining today's call. You may now disconnect your lines.