Permanent TSB Group Holdings plc

Good morning and welcome to the 2024 annual results presentation. I'm going to give you an overview of the performance of the bank during 2024 and in a few minutes our new CFO Barry Darcy will provide a more detailed review of our financial performance. I'll then take you through our refreshed strategy and financial targets and we'll be happy then to take questions that may arise. If we turn to slide four. We delivered a strong performance in 2024 across our business, supporting customers and communities across the country. Our customer deposits rose 5% to 24.1 billion and have grown by over 25% in the last three years. Our mortgage market share was 16.4% for the year, And while this was lower than the previous year, with a tail of two halves, as by quarter four, our market share had recovered strongly to a more normal share of 20.2%. And we've had a very strong start by way of a pipeline of business in the first two months as well. We continue to diversify our loan book during 2024, with our business banking book up 11% to 1.1 billion. It's not so long ago that was just 100 million. So we can see it now at 1.1 billion. And within this, our asset finance book grew by 4% and our SME book grew by 16%. Our total income was up 1% for the year and underlying profit before tax and exceptionals rose by 8% to 180 million. This equates to an underlying return on tangible equity of 7.5%, which is the highest we've recorded in many, many years. Our C21 capital level ended the year at 14.7% and that was up 0.7% for the year, stripping out the 0.4% gain for the Glass 3 MPL transaction, we generated underlying capital of 0.3% during the year. Rolling forward to the 1st of January and the implementation of Basel IV, our CET1 would rise to 15.3% due to a drop in our risk-weighted assets. This puts us in a very strong position as we face into 2025. Finally, our loan deposit ratio was 89%. That's four points lower than what it was at the end of 2023. If we just turn now to slide five. We are fortunate to operate in a very attractive economy. The labour market in Ireland has remained strong and while there are many risks on the horizon, such as what is happening with US trade policy, we start the year in a good place. Irish consumers in aggregate have a healthy balance sheet. Household debt has been reducing for many years and is only now showing signs of growth again. Deposits, meanwhile, continue to rise to record levels. The mortgage market showed signs of life in 2024, with new lending increasing by 0.5 of a billion to 12.6 billion. And the market is expected to grow strongly in the coming years, which will be very good for our business. House prices continue to rise, and after increasing by 9% last year, they're expected to rise at more modest pace from here on. If we turn to slide six, Looking at our new business in more detail, our total new lending was 2.6 billion for the year. And while this figure was slightly down versus last year, if we look at the second half, we were up 19% year-on-year, which highlights significant momentum. In addition, our mix continued to improve, but roughly 22% of new lending coming from higher-yielding business and personal lending. So you'll see that mix of higher yielding lending growing over the coming years as we maintain and grow our mortgage position as well. Mortgages remain a core element of our business. And as I said, in 2024, about 2024, it was a story of two halves. Our mortgage market share at the end of the first half was 13.5%. And by the fourth quarter, it reached 20.2%, which is a more normal level for PTSB. Our pricing remains competitive across our market products and customers are responding to this. And we're in a good position to maintain our recent momentum. New consumer term lending payouts of 132 million increased by 13%. Customers continue to offer our digital channel, which represents 84% of this business volume. Return to business banking, new lending, which includes SME and asset finance, was 434 million in 2024. Just to say in 2021, that was less than 100 million. So again, significant growth. We're particularly pleased with the 28% jump in new SME lending. Our asset finance business did well on the business side, but the consumer side had a more subdued year as new vehicle sales in Ireland were flat in 2024. But just turn to slide seven. It's important to recognise that PTSB is now in a much stronger position than it was a few years ago. After a period of significant investment and growth, the financial performance of the bank has dramatically improved and the core franchise has been revitalised. Our capital expenditure has been around 400 million in the past five years. and this has delivered a new digital front end for our app and desktop service, a new online mortgage portal, our data centre has been transformed and we've invested in our brand and distribution channels, repositioning PTSB as a modern and contemporary bank. These investments are now starting to bear fruit. We have 1.3 million customers and they want the ability to interact with us in a way that works for them. The popularity of our digital channels is growing all of the time. For instance, we had an almost 90% increase in mortgage drawdowns last year via our online portal. We also brought in over 400 million in new deposits through digital channels, and that digital deposit channel was only launched in August of this year, and we collected 400 million. To complement the rise in digital channel usage, we're also adding value for customers in areas such as fraud prevention. And this is due to customers opting for our PTSP Protect feature in our app, which has seen a 64% reduction in customer account exposure year on year. Our relationship net promoter score, which measures the willingness of our customers to recommend our products and our services to others, is high and improving, and last year it increased by 10%. Our brand equity is also at an all-time high, and our customer consideration is also evident as a result, with 62% of consumers in the Irish market giving first-choice consideration to PTSB for their next financial need, And that in itself highlights the significant positive future we have in front of us by way of that level of increase in being considered for first choice financial need. And finally, through our sustainability strategy, which we will refresh later this year, we're committed to further integrating sustainability into our business and maximising the opportunity to drive impact lending across social and environmental areas. We're delighted that Green Mortgages represented 43% of all mortgages last year, and that's up from 39% the year before. And we've seen great appetite from customers for our SPCI Home Energy Upgrade Loan Scheme, which we were first to market on. From a social perspective, we've entered into a multi-year partnership with As I Am, and we became the first bank in Ireland to receive autism-friendly branch accreditation. And we are committed to continue to deliver for our customers, our communities, and for the wider society in this space. So I'd like to thank you, and I'll now hand over to our CFO, Barry Darcy, who will take you through our financial performance in more detail.

Thank you, Eamonn, and good morning, everybody. I'll just jump to slide nine, which sets out our strong financial performance for 2024. Our reported profit before tax was 159 million for the year, double what it was in 2023. Stripping out exceptionals give a better view. Underlying PBT was 180 million, up 8% for the year. Total operating income was up 1% for 2024, as while our balance sheet grew, our margins have reduced, reflecting falling ECB rates and higher deposit costs. Total operating expenses were 531 million, up 5%, and in line with our guidance. Given the gap between income and cost growth, our cost-income ratio has deteriorated eight points to 74%. We have recorded an impairment release of 39 million euros, reflecting a positive macro environment and the underlying health of our loan book. Exceptional items above the line were 21 million, which included 8 million for restructuring costs, which is essentially our gloss three MPL disposal and nine million in accelerated depreciation related to intangible assets. EPS adjusted for these exceptionals, and a one-off gain on our tax line came in at circa 22 cents for 2024, which is up 19%, while return on tangible equity on the same basis was 7.5%, the highest we've recorded in many years. Finally, our tangible net asset value per share, our TNAV, was 3.58 cents, at N24, which is up 5% year-on-year. Moving to slide 10 on net interest income. Our performance here, NI, was 612 million for 2024, down 1%. This headline outcome is the net effect of large increases in both interest income and interest expense during the year, which you can view in more detail through our average balance sheet. Positive drivers included higher income from new lending, together with interest rate repricing of fixed-rate mortgages, and increased income on Treasury assets, both from a larger book and what we see as better yields. These gains, however, were offset by a rise in deposit costs, which came through both higher volume and higher average rate for term deposits, as well as higher wholesale funding costs, reflecting the impact of MRAL issuance in both 2023 and 2024. Our net interest margin was, our name was 220 basis points for the year, down 12 basis points and in line what we guided. And we exited Q4 with a margin of 210 basis points. On slide 11 gives you more detail on our lending income and our mortgage book in particular. Our performing mortgage book rose 1% in 2024 to 19.7 billion. As you know, fixed rate mortgages make up the majority of our performing mortgage book and they represented 85% of our new lending in 2024. The variable component of the book did increase during the year to 18% as some customers churning from fixed rates choose to wait and retain the option to fix at a time of their choosing. Meanwhile, tracker mortgages continue to fall and are now down to around 2.5 billion, or 13% of our performing book. We managed our fixed rate maturities well during 2024, retaining circa 90% of this business and the recent price reductions we made across our product suite will enable us to do that again this year. Another 2.5 billion of fixed rate book will mature in 2025 and these loans will reprice from an average rate in the mid to high twos onto higher rates and that will support our income and margin in this year. You can see this effect in the chart on the bottom left-hand side, which shows that our flow yield for 2024 at 4%, which is higher than that for the stock at 3.56%. Moving on to slide 12. Given the falling interest rate environment, we expect net interest income and margins to decline somewhat this year before increasing again in 2026. Positive NII drivers include new lending, fixed rate mortgages refinancing onto higher rates, and interest rate swaps on our wholesale funding portfolio and our Tier 2 instrument. Negative drivers are the higher term deposit balances, lower income from cash and central banks, and our tracker mortgages due to the fall in ECB rates. The bank still remains sensitive to the interest rate environment. At the end of 2024, using a static balance, every 100 basis points decrease in interest rates results in a 14 million reduction in our income. This sensitivity has been reducing as our tracker mortgages and central bank balances have declined. And our Q4 exit NIM for 2024 was 210 basis points. And we expect NIM to bottom out in the early first half of this year before recovering later in the year. And we're guiding to a margin of greater than 2% for the full year. And this is based off an ECB deposit rate that bottoms out at 2% by July. On slide 13, Net fees and commissions make up almost all our non-interest income each year and are derived from our current account product, commissions for home and life insurance sales, as well as from the operation of our card services. During 2024, we saw net fees and commissions increased 31%. We signalled that changes to our current account fee structure from last April would come through in the second half. And you can bear that in mind when thinking through the outcome for the full year. These were the first increases in our current account fees applied by the bank since 2019. And in that time, the bank has invested, as Eamonn mentioned earlier, significantly in its current account offering. We continue to be the only bank in Ireland that offers rewards to our Current Account customers through our Explore Current Account. And PTSB, along with other banks, now provide instant inbound payments through the separate system. We will introduce the same functionality for outbound payments later this year, which will level the playing field relative to fintechs, our fintech competitors. We currently generate a small fee income stream from our business customers, but we think this will be an area for growth as we build that business over the medium term. On slide 14, moving to operating expenses, total operating expenses were 531 million for the year, which is up 5% and in line with our mid single digit guidance. Regularity charges came in a bit lower than we expected as we incurred a smaller charge for the deposit guarantee scheme, which was the opposite of what we had in 2023. Excluding regulatory charges, underlying operating costs rose 12% during 2024, although I would highlight that they were up closer to 5% in the second half on a year-on-year basis. As income was unchanged for the year, this meant our cost-income ratio increased to 74%. While our headcount is up year-on-year, it is noteworthy that the number remained broadly flat to the half-year point and is now heading in a downward direction. We continue to invest in important areas such as payments, data analytics and digital, customer and change capability, and cyber and fraud protection. This investment has been a key enabler for the bank to operate safely and meet customers' increasing needs and expectations. It has impacted the cost line, however, and this investment through depreciation charge rose 22% during the year to 82 million. As our investment spend will ease off over the coming years, depreciation should start to flatten out from here on. In terms of the outlook for costs, we are very conscious that the bank's cost base needs to be right sized for the current environment in which we operate. So we are pursuing a number of strategic change initiatives to bring this about. As previously mentioned, our ambition is to reduce the overall operating expense of the bank to near 500 million. And in terms of guidance for this year, we would point to a figure of circa 525 million euros. Eamonn will discuss outlook for costs in more detail in a few moments. On slide 15, asset quality continues to remain very strong. And as a result, the bank has recognized a P&L impairment release of 39 million for the year, which is cost of risk minus 18 basis points. This is better than the minus 10 basis points we had guided for. Our provision stock fell by 178 million during the year, primarily as a result of our GLOS 3 NPL sale. This stock still includes a 90 million euro model overlay, which involves management judgment. As part of a review of our IFRS 9 models, we continue to challenge these overlays internally with the view to better incorporate them into existing model parameters. Our total provision coverage ratio was 1.8% at year end, compared with 2.6% at end 23. with most of the difference down to the Gloss 3 NPL sale. Meanwhile, our NPL ratio remains at circa 1.8%, similar to the level at half-year and down from 3.3% in 2023. Obviously, with the US introducing tariffs on its trading partners, the Irish economy could be impacted given its export focus and open nature and exposure to US multinationals, so we're keeping a very close eye on that. The weighted average loan-to-value on a home loan mortgage book is at 48%, with the new mortgage weighted average loan-to-value at 68%. In terms of guidance for 2025, we believe we're well provided for currently and will guide towards a zero charge for 2025. On slide 16, on our funding profile, You can see, as a deposit-led bank, 84% of our funding is sourced from customer deposits. If I pick out the key points here, customer deposits grew 5% year-on-year, which was a good performance relative to the market. All of this growth was in term deposits. Notwithstanding changing preferences amongst our customers, we'd note that our current account balance remained broadly unchanged during the year. Following a busy period of issuance, our MRL ratio remains very strong at 35.2%, which is well ahead of a regulatory requirement, and we have no further plans to issue senior debt this year. The bank now has two rating agencies, Fitch and Moody's, who are holding company at investment grade, and this will benefit us in the future when we come to future issuance and refinancings. On slide 17, looking at capital, our CET1 was 14.7% year-end, up 0.7% from December 23. Stripping out the benefit of Glass 3 transactions, CET1 was up 0.3%, and you can see the different moving parts in the chart there. If we apply BAL4 on the 1st of January, our CET1 was 15.3% on a pro forma basis due to a... a half billion decline in our risk weight. This is well in excess of a regulatory requirement with our 2025 SHREP requirements now at 10.83%, up 50 basis points due to the inclusion of the new OSII buffer. Management CET1 long-term target remains circa 14% and we are committed to optimising our capital structure in the coming years. Finally, just on slide 18, just a brief update on our IRB model programme. As you know, the bank's mortgage credit risk model was submitted in 2017 when non-performing loans were at a peak. The portfolio and profile has substantially improved since that time. For instance, over 70% of the bank's mortgage book has been written since 2015 under the Centre Bank's macro potential rules and our revised credit policies. Our new model will be submitted to our regulator in the second quarter and this is a strategically important project for the bank. We are working hard to ensure that we deliver on a positive outcome. On the previous slide I mentioned that our risk weights moved by half a billion, moved down on the 1st of January because of BAL4. Some of this benefit came through in our standardised book which is essentially our loans which we had acquired from Ulster Bank and some of it came through the IRB book through the removal of a scaler. And just to summarize, the bank had a strong performance in 2024 across our business lines and particular highlight was the recovery in our mortgage market share in the second half to more normal levels. 2025 has also started well and while a less favorable interest rate environment means we have to continue to work hard on costs, we are confident about the prospects for our business. I'll hand you back to Eamonn now and take you through the refreshed three-year strategy on our plans for costs and financial targets. Thank you.

Thank you, Barry. Before I take you through our refreshed strategy, I want to summarise the investment opportunity that PTSB represents. PTSB is a very simple equity story. We are a challenger bank in arguably Europe's best economy. Ireland has a young population with a strong savings culture and is emerging from a long period of deleveraging. Our government finances are in excellent shape. And while we have challenges to resolve, such as our housing deficit, there's no shortage of money or commitment to solve these issues. So that's our market. What about PTSB? We're the third largest bank in the country with 1.3 million customers. Our franchise has been revitalised and is ready to benefit. Our customers are also telling us that there's a huge demand for an alternative in the business banking market and we are in prime position to capitalise on that. Our business has been heavily de-risked in recent years, and we believe there's an opportunity now to remove some of the remaining legacy costs that have held our business back over the past decade. And these include capital models that don't truly reflect the underwriting environment over the past decade, and a wholesale funding cost that has yet to be fully reflected based on our investment grade status, which we received in 2024. If I turn to page, slide 21, today the bank is announcing a refreshed three-year business strategy. Building on the investments made in recent years, the bank is now in prime position to challenge the two dominant banks in Ireland and compete with the wider market. This strategy has been developed with our customers at its heart and in consideration of all stakeholders, that is our colleagues, our investors, our regulator and the broader Irish society. Our ambition is to become Ireland's best personal and business bank through exceptional customer experiences. And to achieve this ambition, we will execute our strategy and maximise our value proposition, which has been digital first, That's complemented by a physical presence, by offering our customers innovative propositions that reward loyalty while remaining competitive in price, and leveraging our modern and contemporary brand to deliver on our promise of being altogether more human. The overarching goal of our strategy is to deepen customer relationships, diversify our income, and to differentiate through customer experience. And in parallel, the bank will drive greater operating efficiency so we can continue to grow and generate sustainable returns for our shareholders. So how will we deliver this? We will organise ourselves around five value streams. The first one being Own My Home, and that's our mortgage and term lending business. The Manage My Money value stream, that's our deposit business, our current account offering, overdrafts and credit cards. The grow and run my business value stream, that's our SME and our asset finance business. And these three value streams are underpinned by two more value streams which cut across the three business areas, which is around transformation and transforming the bank and indeed strengthening our foundations. These two value streams relate to the core workings and systems of the bank, how we organise ourselves, what we invest in, where we embed resilience. So on slide 22, I give you a couple of examples that hopefully will bring these value streams to life. The Own My Home value stream will deliver a new mortgage self-service portal, which will enhance the customer experience and remove admin heavy back office processing. We will also introduce a new customer offering in the retrofit finance as an example, but there will be new offerings as well. Other offerings, I should say. In Manage My Money stream, we'll be focused on maximizing the engagement with 1.3 million customers to increase our average product holding. We're developing new customer service journeys on our app, which will also deepen that relationship, the relationship with customers. And as I mentioned earlier, customer consideration to do more business is already there. A recent current account campaign to our existing customers is evidence of that action. As we extended our Explorer account offer to tens of thousands of mortgage customers who don't currently hold a current account with us. Then there's a grow and run my business value stream. Here we believe we can offer superior service with fast underwriting and we intend to build on our offering in SME and asset finance as we go forward. we will develop a digital credit proposition for small and micro SMEs. In the transformation space, we will elevate sustainability with a strategic focus on this social agenda, where we believe there's an opportunity for us to play. If I move to slide 23, in this slide, we focus on our strategic business transformation. And as we implement this refreshed strategy, we're going to right-size the bank's cost base But interest rates on the way back down, our revenue environment will not be as favourable. And in order to stay competitive and meet customer needs, we need to respond. However, we will do this in a safe manner and in a manner that protects our growth opportunities. For instance, as you can see from the chart on slide 23, we described our addressable cost base of £416 million, which includes an element of investment spend. And while we see our profit and loss investment spend starting to reduce, it would not make sense to reduce this dramatically at this moment. The bank has established a strategic business transformation programme to meet this challenge. And I've listed a few of the key cost initiatives here. We can generate savings and synergies from redesigning the organisation now that the Ulster Bank business has been bedded down. We're looking at product and process simplification and automation. We'll be rolling out customer self-service journeys to maximize digital adoption and straight-through processing. And we'll move to eliminate remaining paper correspondence to the extent that we can. We're also going to rationalize software and IT suppliers. And there's an opportunity for us to utilize digital and AI to streamline customer engagement and to reduce manual effort across our distribution channels. And lastly, there's the contact center. We're going to introduce a new contact center platform later this year, which will significantly improve how we support our customers, as well as providing colleagues with a much better system to support them in the work and reduce costs at the same time. we're progressing over 20 initiatives and more are likely to come into scope as we get deeper into the process. If I move to slide 24. So when we put all these initiatives together, what will our revenue and cost trajectory look like? If you take the revenue side first, the mortgage market looks set to grow by 25 to 30% over the next three years. That should translate into double digit growth in the national book. We aim to hold our share of this growing market. In business banking, we think our book can grow between 15% and 20% as we take back some of the share vacated by the exit of Ulster Bank. Combined, that will translate to growth in our total loans between 4% and 5% per annum. On the other side of the balance sheet, deposits in Ireland should grow between 3% and 4%. And we believe we can grow a little bit faster than that, particularly in current accounts. So in summary, we aim to deepen our relationship with our customers, which should lead to a rise in the number of products they have. And this will be good for interest income and fees and commissions. If I turn to the right-hand side of the page and talk about costs, we see our costs reducing each year out to 2027, with an objective to getting down to around £500 million and a cost income ratio of 60%. Our voluntary severance scheme is one of the initiatives that will help us do this, and we saw our headcount falling by around 300 this year. And while there will be a one-off cost to enable this, which is likely to be around 25 million, the reduction in the wage bill will put us well on the road to reaching our 500 million target. We turn to our guidance. As you can see, our guidance set out for 2025 across the various line items, including total income, which will reduce by a low to mid-single digit percentage, and costs of around 525 million and a risk charge of zero. As regards dividends, as I said at the half-year stage, we hope to be in a position to return to distributions next year and we'll be mindful of shareholder preferences as to the form of any return. A return to growth in the mortgage market will be very good for our business but this growth has been slower to materialise than we originally expected. This together with a lower interest rate environment has prompted us to refresh our medium term targets and they are as follows. A return on tangible equity of around 9% an editor's margin of above 220 basis points, a cost base of around 500 million, a cost-income ratio of 60 percent, and a cost of risk between 20 and 25 basis points. And just to mention that these medium-term targets do not assume changes to risk weight densities as part of our IRB model review. So, they're modeled on the basis of our current capital requirements. and we will have to reflect new targets once we get a revision of our densities in due course. So to summarise, the management team of PTSB are committed to delivering for our shareholders in the coming years. We believe there's a critical role for us to play in the Irish marketplace in offering much needed choice to personal and business customers and that we can grow our business, improve our cost efficiency while meeting our customers' evolving needs. So thank you very much for joining us for a presentation. I'm more than happy to take questions. Thank you. We'll take questions on the phone if there are any across the line.

Thank you. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is by Diarmad Sheridan from Davie. Your line is now open. Please go ahead.

Good morning, Amy. Good morning, Barry. And thank you for the presentation and taking my question. Three questions, if I may. Firstly, maybe just around income growth out to 2027. Maybe you could talk through what your thoughts around the mix of your balance sheet, liquid assets versus loans, and then within loans, what your view around mortgages and SME consumer lending might look like out to 2027, given the growth that you've talked to. Secondly, just around capital and distributions, Eamonn, I appreciate it's a little early, given it can be this time next year, hopefully we start to see those. Maybe just around the trajectory of how you feel that those could start. Do they need to start and build up gradually, or do you feel that there is capability, given the very significant amount of capital there, to kind of more go to a normalised point faster than we have seen elsewhere? And then finally on capital efficiencies and maybe looking beyond the risk-weighted assets points that you've talked to Barry, just thoughts on AT1 level, just mindful of the call later this year and given the various movements in RWA, whether that's a required instrument beyond this year or not. Thank you.

OK, thanks, Jeremy. I'll answer the second question first, and then Barry, you might pick up on the other two. So just on capital distributions, it's our ambition to start next year. It's obviously, we believe we've capacity today, sorry, when we look into next year, capacity to pay a dividend, but we also have to think about where the IRB models will go and how they will land by way of a capital release for us. Therefore, it's a challenge to model distributions out in the long term. We believe we have the capacity to make distributions every year, but they obviously are highly dependent on where IRB models land. In that sense, that will give us much more clarity with regard to levels of dividend payment. If we were on the current models for an extended period, we'd be starting with a lower dividend and then building up over time. But the IRB models will really come into play then because it'll actually educate us clearly as regards what's the capital consumption required in our business and therefore what's left by way of distribution to shareholders. And we believe there will be amounts left over. for distribution to shareholders on a continuing basis. And I think I'll leave the level for the half year or next year, Dermot, in the sense of how we think about it. That's okay.

Barry, back to you. Just on income growth, where we see a mix is we assume loan growth of 4% to 5% this year. There's a mix of both the mortgage portfolio of 3% to 4% and then with our growing business banking, SME, asset finance growing at a greater rate than that. We see steady growth in our consumer finance piece, so it's a mix of those three elements will combine to the 4% to 5% this year and beyond. Regarding the AT1 level, very good question. That's something that we're looking at very closely. We are very cognisant of capital requirements. We are looking to see if that could be something that we may not need to utilise 2025. We have an AT1 ratio of about 35.2%. The requirement is probably 28 to 29%, but we'd probably keep a level toward 32. So it's something that we are looking at very closely. Obviously, the timing of IRB model outcomes is important there. But what we're trying to look at is all our kind of key decisions will be taken on the assumption that we are working on our current state. We're not considering the IRB discussion in that regard right now. So 81, something that we're looking at. Great, thank you very much.

Our next question is from Dennis McGoldrick from GoodBuddy. Dennis, your line is now open. Please go ahead.

Good morning, Eamonn and Barry, and thank you for the presentation and for taking my questions. Just to please, if I may, can you please confirm what interest rate assumptions you're applying for the medium-term guidance out to 2027? And then secondly, on the 500 million cost target, do you foresee additional FT reduction beyond the 300, which will exit as part of the current redundancy scheme? Thanks.

You might pick the first one.

Just on the first one, what we're assuming is that deposit rates will fall to 2% by July and we expect that that will continue out through to 2027, so flat line thereafter. That's the basis for our forecast for interest rates.

On headcount, thank you for the two questions. Our headcount has increased by 1,000 people in the last three years. What we're seeing is a significant bedding down of the business, less legacy issues that we have to deal with, more investment in digital technology and in transformation, and indeed the establishment of our business lending business, our asset finance business, and indeed a real settling down of our current account our offer in that sense, by way of our wider offer, our mortgage offer. We're also seeing customers move more onto digital channels. We've seen the significant increase in the usage of our mortgage portal. We've also, as I mentioned earlier, we've gathered 400 million in deposits digitally since August. and sort of seeing a ramp up there and we're also implementing changes by way of strategic business transformation which will bring more digital activities into play and that will allow us over time look at how we process look at how we where people are allocated and what people are doing within the organization it will allow for more internal movement within the organisation. And it will allow us over time, through attrition, through normal attrition, to look at where jobs are, where roles are, and indeed how we think about employment levels in the overall organisation. So while we have a voluntary scheme in place at this moment, which has been executed, I don't envisage another one, but I do envisage more efficiency by way of how we do our internal work. And in time, that will reduce by way of the level of recruitment we make as an organisation. I should also mention, within our current headcount numbers, we have nearly 100 graduates who we've taken on over the last three years, and they're growing and performing well within the organisation and give us great, great source of talent for the future. We'll take on another 40 to 50 graduates this year. We also have open 200 fixed term contract colleagues within that number as well. So there is flexibility already in our model. And there's also growth by way of attracting talent to the bank. So it's a mixture of those things, Dennis, that will lead us to that call space. But in real terms, our headcount will be lower.

Great, thank you very much.

Our next question is from Andrew Stimson of Keefe, Briette, and Woods. Andrew, your line is now open. Please go ahead.

Good morning, everyone, and congrats to Barry on making CSO. One question for me on capital and one on net interest margins. On capital, just back to Durban's question, Assuming you get a decent answer on the risk models and the risk where assets do come down, could you just talk us through how you're thinking through allocating the boost between dividends, buybacks and organic growth? So just an order of priorities there would be helpful. And then secondly, on net interest margins. Could you just talk through what you think the reason is for the continued slide in the medium-term NIM outlook? I know it's a bit unfair to look back at old targets, but it used to be 2.5, then it was 2.3, and then now today 2.2. And I remember there was some hope that the more expensive time deposits you added in 2023 would roll off, and you mentioned again the wholesale funding costs would come down, but obviously that's then leading to less of a meaningful... pick up in the medium term, even once those things have rolled through. So is it fear for competition or what's driving down that medium term target reduction too, please? Thank you.

So I'll pick on the... Thank you for the questions. I'll pick up on the first question and Barry, you might answer the second. So on the capital, there's a well-trodden path amongst the other... Both AIB and Bank of Ireland with regard to how they've looked at excess capital by way of dividend... directed buyback and indeed proportional buybacks and also retaining capital for growth as well. So we will look at all of those options by way of how we think of the excess capital we will have on board once the IRB models come through. So we will look at dividends, we will look at directed or proportional buyback and we have to engage indeed with our main shareholder with respect to the directed buyback aspect and that's something we will be doing through this year in preparation for when the capital levels do land at a normalised level. It's difficult to to talk about the level of proportion between business growth and return for shareholders because the capital usage that we will have is not known yet. We need to get those IRB models sorted and get them through the system and get out the other side in that sense. But we will have to retain something for growth. We expect to grow our blown book at a faster pace than others. And that's because of our positioning in the mortgage market and a strong position there, very good traditional position. It's also where we are in term lending and indeed other aspects of personal lending, whether it's retrofit, et cetera. And when we look at the business side, we will grow faster than others because we're coming from a different place. So we will have to retain some capital, but I would suggest a significant portion will be going back to shareholders.

Thanks, Eamon. Just on NIM, what we've seen on NIM, our guidance for 2025 is greater than 2%. And no, we're saying greater than 2%, so it's not necessarily down to the 2% level. And as we step out, we see NIM target out to 2027, growing to... 2.2%. In the short term, the rate changes that we have made, which has continued the momentum to build our lending in 2025, has provided some downward pressure. But what we see coming through this year is mortgage repricing on the 2.5 billion of fixed loans mature in 2025, and then further maturities in both 2026 and 2027. That will support NIM improvement. toward that target of 2.2 percent. And what we're seeing in those repricings is that loans are moving from the mid to high twos to the mid to high threes. So we are seeing that change which will be supportive. And also you know we have not changed our deposit pricing since mid 2024. Rates are absolutely kept under review and that could provide further support to NIM in time if the bank were to make changes there.

Thank you.

Our next question is from Grace Dargan of Barclays. Your line is now open. Please go ahead.

Good morning. Thank you for taking my question. I guess maybe just building on the answer a little bit. In terms of that NIM guidance for year 25, what do you see as the bigger drivers that take you down nearer to the 2%? And what do you see as a more bullish upper end? I appreciate it's a greater than 2%, but realistically, what would be a good outcome there? And maybe included in that, what are you assuming around term deposit growth? And then secondly, I appreciate the commentary around submitting the kind of IRB models for review in Q2. I know it's very difficult to say. I guess you've guided historically. You think you might have some clarity on that towards the end of 425. Is that fair or has that changed in any way? Thank you.

Just on both, on the NIM element, just an element that's taking place there is what we see is, as I mentioned, the low point will come in the first half of the year. What we have seen also is that the general pressure on trackers and balances with ECB have about 4.6 billion of balances at the end of 2024. So we have that element coming into play. But as we reprice those loans, we should expect to come up towards the 210 and going out toward the 220 level in 2027. So we should see a stronger second half of the year in that regard. Regarding IRB models, And I think a key element of our focus right now is to conclude the very extensive work that we have been working on for about 18 months now to actually conclude our submission to the central bank in the second quarter. It's a very comprehensive piece of work. That's an element that's within our control. We have been having very good constructive engagement with the central bank in terms of timing and when the submission will be made and just to align on certain expectations they may have and then it's over to them and we're not in control of their time frame. So it's something that we will watch very closely, we'll have good engagement and when we have news we will share it with you and we look forward to that outcome in due course.

Okay. Thank you very much.

Our next question is from Benjamin Toms of RBC. Your line is now open. Please go ahead.

Good morning, and thank you both for taking my questions. Just to follow up on the cost efficiency question, I appreciate you don't expect another voluntary redundancy scheme, but do you expect to take further material exceptional costs post-2025 to achieve the further efficiency measures that you highlighted? And then secondly, in 2027, your cost of risk guidance is now 20 to 25 basis points. Previously, I think that was less than 30 basis points. Is the new guidance a new normalized level, or should we expect the cost of risk to continue to build post-2027, i.e. it would represent a headwind to your 2028 ROTE versus 2027? Thank you.

Thank you, Benjamin, for your two questions. On the first one, we don't envisage any additional exceptional costs at this moment. For the purpose of modelling, there isn't a requirement to put those in. With regard to your question, in fact, if we were showing you the 28 out numbers, they'd be much stronger. Just to say that the four-year numbers are stronger by way of the returns, etc. And, you know, as Barry had indicated earlier, we're going through, not only are we going through an IRB model review, we're also updating our IFRS 9 models. And you can see in our PMA, our management adjustment in that sense, we've over 90 billion in that particular category at the end of this year. We've also seen that our impairment charge over the last four years have been releases, not charges. And we still have a fair amount of conservatism in our book. So our cost of risk is a guide. And I think it's a reasonable level. to reflect into the following year as well. Because really what we're reflecting is the fact that our book is currently primarily a mortgage book with a 48% loan to value ratio, performing extremely well. And we're building up our business book. We're not carrying any commercial real estate. We're not carrying any legacy type business exposure. We're still right in the middle of the transition to a low carbon economy when it comes to financing so we're in a good position there to build a book and therefore we don't believe there's a significant increase in risk profile but as I said if I showed you the 28 numbers they'd be much stronger than 27 but we're showing a three-year view at this moment. Barry, do you want to add to that?

And I think one of the experiences on the cost of risk, as we've built our experience on the SME and business banking, that was an element that was captured in 30 basis points. And as that experience has grown, and also, as Eamonn said, we're creating and building a very strong mortgage portfolio. Our non-performing loans are at 1.8%, one of the lowest in the market here in Ireland. And so we're quite happy with our underlying credit approach. And so the cost of risk is coming down on that basis.

Thank you both.

As a reminder, to ask a question, please press star followed by one on your telephone keypad now. We have a question from Rob Noble of Deutsche Bank. Rob. Your line is now open. Please go ahead.

Morning. Thanks for taking my question. Just a near-term question on cost of risk for 2025, which you've guided to zero. I presume that you've got, you're pointing to growth, so you've got stage one provisions. I presume that you've got some assumption of losses as well in terms of new lending and stage three movement. How do I square it off to zero? Does that mean you're assuming model releases? And then, I guess, help me understand kind of the IFRS 9 models. If you're expecting releases, do you not have to release them now?

Thanks, Rob. What we're looking at right now is with our RFRS 9 models, we're looking to rebuild in advance of, as we grow our balance sheet towards 30 billion, the likelihood of moving back toward the SSM increases. So we're building our models now to future-proof our re-entry into that broader approach with a higher focus on our underlying model approach and how we actually weight the various movements into those models. So we're building that as we speak. We have conservative PMAs in place. we are looking at in model adjustments as well. So what we believe is that those changes that we're going to make in time will give us room to manoeuvre in terms of how we look at that level of PMA through time. It should give us... maneuverability but we want to see how that actually builds out as we progress with that work and so the in effect the the zero should actually allow some element of release offsetting some charges coming through as well but as we've seen over the last three to four years we have been releasing impairment coming from quite high positions now to a more normalized level and And it's all part of the bank normalising into a good way of working, both from a cost and income and an impairment perspective.

I guess from an accounting perspective, if you expect releases, does IFRS 9 not force you to take the release now? Are you allowed to say, positive risk zero, expecting releases, but we're looking at whether there are releases or not.

I think a key element in that is the underlying performance in our portfolio. If the benign environment that we've seen over the last two to three to four years continues, that will allow us to actually see that kind of come through in our portfolio. We haven't reached that moment yet. We are looking ahead at this time. So from an accounting viewpoint, we're pretty comfortable that the accounting at year end is in the right place. We are taking a conservative approach, but again, this is toward a guidance for the full year and looking at our experience over the last two to three years in that context.

All right, thanks very much.

We currently have no further questions, so I'll hand back to Eamon for closing remarks.

Great. Thank you very much. Thanks, everyone, for your questions. And we look forward to delivering for everyone in 2025. So thank you. Bye bye.