BAWAG Group Aktie

Good day, and thank you for standing by. Welcome to the BAWAG Group Q2 2026 Results Call. [Operator Instructions] Please be advised that today's conference is being recorded, and there will also be a transcript on the company's website. I would now like to hand the conference over to your first speaker today, Jutta Wimmer, Head of Investor Relations. Please go ahead.

Good morning, everyone. Before we started with the call, let me remind you of the following: As you know, on 14 April, we announced that BAWAG entered into a recommended transaction to acquire 100% of PTSB. That transaction remains ongoing and is subject to shareholder, high court and regulatory approvals. As the transaction is regulated by the Irish takeover rules, we are restricted in the information we can provide on this call. And as a result, we will not take any questions in relation to the PTSB transaction. With that, I will hand over to Anas, our CEO.

Thank you, Jutta. I hope everyone is keeping well. I'm joined this morning by Enver, our CFO.

Let's go ahead and get started with a summary of second quarter results on Slide 3. We delivered net profit of EUR 255 million, EPS of EUR 3.28 and return on tangible common equity of 29% during the second quarter. The operating performance of our business remains very strong with core revenues of EUR 590 million, up 8% versus prior year, preprovision profits of EUR 413 million and a cost-income ratio of 31%. We continue to realize the benefits of investments over the years as we build out a pan-European and U.S. banking group. Total risk costs were EUR 75 million, translating into a risk cost ratio of 54 basis points. We have a low NPL ratio of 90 basis points and continue to see solid credit performance across our businesses.

In terms of our balance sheet and capital, average customer loans and average customer funding were flat quarter-over-quarter. We have a fortress balance sheet with EUR 14.5 billion in cash equal to approximately 20% of our balance sheet, an LCR of 217% and overall strong asset quality. During the first half of the year, we worked diligently to ensure we positioned ourselves to fully self-fund the PTSB transaction. For the first half of the year, we landed on a CET1 ratio of 17.4%, translating into over EUR 1 billion of excess capital and 40 basis points above the target CET1 ratio of 17% (sic) [ 17.4% ] required to self-fund the deal. We remain incredibly excited about the opportunity to acquire PTSB, which represents a pivotal step in our commitment to the Irish market.

We started this process in November 2025 when we made a strategic decision to enter the announced public auction. We spent 6 months performing due diligence as part of a highly competitive in public auction process that required thorough analysis, planning and coordination to put our best foot forward. Post the announcement of the transaction, we have been working hard to prepare ourselves and have spent significant amount of time with regulators, the PTSB Board and other stakeholders to introduce ourselves, our business and outlining our plans in Ireland. We look forward to the next milestone with the PTSB shareholder vote scheduled at the end of the month and subject to the satisfaction of the remaining conditions, expect the closing of the transaction in the fourth quarter of this year or the first quarter of 2027.

If the PTSB transaction is approved, this will represent our 15th acquisition since 2015 as M&A is a key plank of our strategy. In that time, we have always prided ourselves on being a serious, committed and disciplined buyer. PTSB would represent our first public company acquisition with different dynamics, but never changing our approach. We hope to capture all the learnings over the past decade to ensure a successful integration, leveraging best practices as we continue to adapt and improve our approach. The trust and confidence placed in us by the PTSB Board, the Minister for Finance of Ireland as the bank's majority shareholder and long-term shareholders who supported PTSB over the years is something we take very seriously and are keen to demonstrate our capabilities and contributions.

Ireland is a very attractive market with all the ingredients for successful banking pro-growth economic policies, rich in human capital and a bridge to the EU, the U.K. and the U.S. We aim to drive competition through significant investment in innovation, supporting PTSB's customers and more broadly, the Irish economy, while delivering long-term sustainable growth. We plan to provide an updated midterm outlook with full year earnings assuming a successful closing of the PTSB transaction, which is subject to shareholder and regulatory approvals. Excluding any potential PTSB impact, we reconfirm all of our 2026 targets with net profit over EUR 960 million, return on tangible common equity over 20% and a cost-to-income ratio under 33%. With that, I'll hand it over to Enver.

Thank you, Anas. I will continue on Slide 4. Capital development. Our reported CET1 ratio landed at 17.4% and equal to EUR 105 billion of excess capital above our CET1 target of 12.5%. This factors in the sale of a minority investment that closed in the second quarter of this year. We generated 112 basis points of capital from earnings and we also completed 1 credit card SRT transaction. We have not made any dividend accruals in the first half. This puts us in a position to fully self-fund the planned acquisition, subject to shareholder, high court and regulatory approvals.

On Slide 5, as of today, we anticipate that the transaction will cost us approximately 450 basis points of CET1 capital, which means that we need to be above 17% to meet our management target of 12.5% post transaction. Our starting point as of year-end was 14.6%, and we generated 285 basis points in the first half of 2026 through earnings, RWA measures and the temporary change in dividend policy and landed at 17.4% CET1 ratio. And with that, we are fully funded for the transaction.

In terms of time line, the next relevant milestone is the PTSB shareholder scheme vote that will take place on July 30. And in terms of CET1 targets, these remain unchanged at 12.5% and or about 13% for excess capital distributions.

Moving now to Slide 7, our P&L and balance sheet overview. We delivered a strong quarter with net profit of EUR 255 million and a return on tangible common equity of 28.7%. Core revenues increased by 2% quarter-on-quarter, with net interest income up 2% and net commission income up 3%.

Operating expenses declined by 2% in the quarter, resulting in a cost-to-income ratio of 31%, in line with our through-the-cycle target of below 33%. Risk costs of EUR 75 million (sic) [ EUR 75.4 million ] EUR 10 million higher versus prior quarter, largely driven by macro and asset mix. The tax rate was unusually low this quarter at 23.1% including a positive one-off effect from the sale of the minority investment, while we expect it to return to prior levels for the remaining quarters. In terms of balance sheet, customer loans and customer deposits were flat quarter-over-quarter. Tangible common equity increased by 8%, not including any dividend accrual for 2026. We continue to maintain a fortress balance sheet with EUR 15 billion in cash, representing approximately 20% of total assets an LCR of 217% and the strong asset quality reflected in a low NPL ratio of 90 basis points.

Moving to Slide 8. Net interest income increased by 2% in the quarter, with customer loans flat in Q2 '26 and supported by continued positive trends in unsecured consumer lending, including credit cards. Mortgage volumes remained subdued. Net interest margin at 348 basis points, reflecting an ongoing change in asset mix, while the deposit beta decreased to 31%. NII rate sensitivity is unchanged. Every 25 basis points increase delivers EUR 25 million per year after 12 months and EUR 50 million per year after 24 months. Net commission income increased to EUR 102 million, with continued strong results across business lines of Retail & SME particularly in credit cards and payments. For the rest of the year, we expect net interest income to grow gradually and a stable development in net commission income.

On Slide 9, operating expenses amounted to EUR 185 million, representing a 2% quarterly decline with a cost-income ratio of 31%. We continue to deliver on synergy and efficiency measures across the larger group while the second quarter also includes the new collective bargaining agreement in Austria of plus 3%. We are well on track to achieve our full year outlook of an annual decrease of 5%. Results for the quarter came in at EUR 75 million, up EUR 10 million versus prior quarter. The increase reflects continued growth in higher-yielding unsecured lending, including credit cards, together with updated macroeconomic assumptions.

Importantly, underlying credit performance remains strong with stable delinquency trends and an NPL ratio of just 9 basis points. Given the expected continuation of these dynamics, we now expect a full year risk cost ratio of around 50 basis points.

Slide 10, Retail SME. The segment delivered net profit of EUR 215 million (sic) [ EUR 214.7 ], a return on tangible common equity of 36.5% and Pre-provision profits amounted to EUR 364 million (sic) [ EUR 363.6 million ], 7% higher than the previous quarter. Risk costs amounted to EUR 75.4 million corresponding to 77 basis points, driven by the asset mix change and macro update, while credit quality remains solid with an NPL ratio of 1.4%. We expect continued growth across the franchise.

On Corporate, Real Estate & Public Sector, the segment delivered net profit of EUR 40 million (sic) [ EUR 40.1 million ] with a return on tangible common equity of 27.8%. Our focus remains unchanged on disciplined underwriting and risk-adjusted returns.

Finally, Slide 11. We are entering the second half of the year from a position of strength. Profitability remains robust. Capital generation continues to be strong. Asset quality is resilient, and we remain on track to deliver our 2026 net profit target of more than EUR 960 million, while preparing for the next phase of growth through the planned acquisition of PTSB.

And with that, operator, let's open the call for Q&A. Thank you.

[Operator Instructions] And your first question today comes from the line of Gulnara Saitkulova from Morgan Stanley.

So my first question is on risk-weighted assets. You reported almost EUR 1.4 billion reduction in risk-weighted assets this quarter. Could you walk us through the key drivers behind that reduction? Should we assume that the majority was attributable to the credit card SRTs executed in Q2? Or were there any other meaningful factors that contributed? And looking ahead, is it fair to assume that the risk-weighted assets have now bottomed out and will begin to grow from here. Have you largely completed your capital management initiatives SRTs? Or do you think there will be still further scope for RWA optimization. And finally, could you help us understand the P&L impact of their executed SRTs? And how should we think about the earnings implications of those deals going forward.

Enver?

Yes. So Gulnara, good question. On the risk-weighted asset decline, it is mostly driven by the SRT, you see it also reflected in the segmental numbers. So it's really in the Retail & SME segment. It's roughly EUR 1 billion decline that was coming from that transaction. In terms of outlook, I think consistent with what we said in the past, so we'll obviously look at more measures to do in the future, but at this point in time, we can't really share any more details on that.

And the P&L impact from the measures that you have concluded?

That is the EUR 1 billion that I mentioned of the credit card asset SRT in the second quarter.

P&L impact.

And from this EUR 1 billion reduction, do we -- should we expect any P&L impact from that going forward?

Yes, there is an ongoing P&L impact that we have in the NII line and in the risk cost line. And this specific one, it would be reflected in the NII line. And that's already fully reflected in our guidance.

Okay. And another question on capital. So without asking you to provide a formal target today, can you understand us the framework that you're using to determine the capital level for the Irish Bank? Because looking at the peers, they're operating at 14%, 14.5% CET1, should investors think of that as the right starting point for your subsidiary? Or do you believe the business can operate efficiently with a lower capital requirement over time? Any early thoughts on how you're thinking about it would be helpful.

It's really hard to -- the line is really, I think difficult to make up the question, but I think it was a question around the capital levels of PTSB. Unfortunately, we can't comment on anything specific to PTSB, so you're going to have to be patient on that one. But I appreciate the questions, Gulnara. Thank you.

Your next question today comes from the line of Gabor Kemeny from Autonomous Research.

One on deposits. I noticed that your deposit levels were flattish in Q2. Can you comment on the competitive situation on deposits in your markets, including in Austria, please? And my other question would be PTSB, are you aware of any processes which may have the potential to delay the deal completion?

Gabor, I'll take the PTSB. Unfortunately, we can't answer anything specific to PTSB or the transaction. I think our statements speak for themselves. And for the deposit...

Yes. So Gabor on to deposit levels, very similar to what we have seen in Q1 and also in the prior year. So actually, across the different markets and different franchises that we have. Our core deposits are flat or actually up a bit. There are 2 elements. If you look at the German online deposit market. That is something that we decided actually to let run off given the nature of it and also the higher cost so that's the one offset to it. And the other one, we see a bit of an increased competition in the nonretail part, especially in the money market deposit market as well as the competition that we see from the government in Austria with the bond issuance offer.

And did this have a meaningful impact on your pricing yet?

No, no real impact on the pricing. Again, it's just an offset of the growth that we have seen in the core franchise. So that's why you see an overall slight development, but no change to pricing.

And your next question today comes from the line of Hugo Cruz from KBW.

I have a couple of questions. So first on core revenues. I was wondering if you could give more granularity on the targets, for example, it seems to me that on the current run rate, you could deliver an NII of around [ EUR 1,970 million ] or even above fees of around EUR 400 million. Is that something you agree with? And then related to that, did you slow down -- so you've done the SRT, but I was wondering, did you slow down your loan growth this quarter to support the capital creation for the PTSB deal and where if that happened. And then a final question on the cost of risk. If you could give more detail on the macro assumptions that you took for the top-up I'm wondering if oil price stays at this level by year-end, if you have to do another top-up by -- with the Q4 results. Thank you.

So thanks, Hugo. Good questions. Let me start with the RWA development. We have been very diligent in managing RWAs in the first half. Obviously, with the with the pending transaction. I think we've been pretty transparent about that. Has it impacted our business in terms of pursuing? No, we never -- the reality is markets are pretty frothy. We actually got redeemed out of a number of positions in the second quarter on some of the transactional lending, in particular, in real estate and some -- a few corporate positions. But no, it wasn't an active deflection of volume. We do have a good pipeline that hopefully materializes, but I feel like I'm a broken record, always saying we have a good pipeline and people continue to do, I think, a really aggressive at times, irrational things on the lending side. So -- but we'll be patient and disciplined, and we communicated where we are as far as our targets and being able to deliver that. So we feel good. And core revenue?

Yes, I'll take the part of macro assumptions. Currently yes, I would agree with you, Hugo. I think it's quite realistic. The numbers that you said with [ EUR 1,970 million ] for full year NII and EUR 400 million for the NCI. It's probably the current -- if you extrapolate the numbers and the trends that's where you probably get that for the full year. So yes, very realistic. Macro assumptions, just a regular prudent update that we do on macro, reflecting also the stagnation that we're seeing across the markets, especially on the lower GDP growth in Austria and the adjacent markets.

Your next question today comes from the line of Mate Nemes from UBS.

I have a few questions. The first one would be on the risk of guidance revision to 50 basis points. I just wanted to confirm, is this simply the reflection of the additional macro provisions you put in place in Q2? Or is there an element of perhaps some mix shift, towards credit card and broadly, consumer lending.

The second question is on loan growth. Anas, I hear you about the promising pipeline on the corporate side. Can you talk a little bit about the volume trends and product trends in retail and also perhaps on a country-by-country basis? That would be helpful.

And lastly, on deposits or deposit betas, you were down 4 percentage points sequentially, could you talk about your expectations going into H2? Should we assume a broadly stable development here.

Risk cost guidance, volume trends, betas. Let me do the volume trends and then...

Yes, okay. Thanks, Mate. I'll take the volume trends, if we could kind of again just go around the world or just around the [indiscernible] as far as in different products, corporate and real estate, I think in public sector for that matter, it's a continuous trend and theme over the past few quarters. And I think that's going to probably be reflected in the second half. We do have a pretty decent pipeline, but you do see periods of, I think there's periods of opportunities, but in large part, I think it's a pretty frothy market, and we're going to just continue to be disciplined.

And I know you asked about the Retail & SME. I'd say there's a tale of 2 worlds there on the mortgage side. The volumes have been pretty muted. And that's actually not even country specific. Some countries are, I think, more aggressive than others, but the general theme is as we look at the world right through just credit spreads, they're pretty thin, across the different jurisdictions. And there's pockets of opportunity. But I think you'll see the first half development of mortgages. I think that will continue in the second half [indiscernible]. On the consumer and SME side, which is credit cards, consumer loans and specialty finance, which is leasing and factoring, that's actually going quite well, probably better than expected, and that's probably offsetting the muted nature of mortgages, in that mortgage part is the credit card business in Germany into [indiscernible] Germany. That's been great. And consumer loans, we're seeing pockets of opportunity as well as in the specialty finance. [indiscernible] I think all in all, that's pretty much the overall trend, which is no different than what we saw in the first quarter. And I think that you'll continue to see that in the second half of the year as well.

So Mate, the risk cost guidance of 50 basis points. This is less a reflection of the macro update. It's more a reflection of the changing asset mix that we have seen in the last, I think, probably 3, 4 quarters. So what happens there is we see muted mortgage demand and also development, while we see an increase of high yield in consumer unsecured and especially credit card business. And that comes obviously with a stronger top line, but there is a front-loading of the ECL effect, which drives the risk cost ratio and that's really mainly the driver behind the updated guidance of the 50 basis points.

On the second 1 on deposit trends and betas. So I would expect that deposits will probably remain quite stable in the second half of the year. I would expect technically deposit betas to come down more as a function of higher rates and the rate hikes. Long term, we always said we see stable deposit betas more around 35%. So it might be unnaturally low in the second half given the recent rate hikes and the ones to come.

And your next question comes from the line of Amit Ranjan from JPMorgan.

I have one, please, on costs. How should we think about the second half? Should we expect a declining trajectory? Are there any particular moving parts there that we need to keep in mind here, please.

Thanks, Amit. The trend will continue. We made the comment on that, these are not investments in any particular quarter. These are investments over the years. And obviously, the integrations are bearing fruit in terms of a number of actions that were taken over the past 1.5 years. So these are things that you -- there's such a long lead time that you should be able to accurately forecast kind of your cost development and have a good grip on it. So this -- the trend will continue in the coming quarters.

Your next question today comes from the line of Chris Hallam from Goldman Sachs.

Two quick ones. Just the first on asset productivity. If I look at revenues to RWAs in the second quarter, that was probably the biggest jump in terms of the percentage there in the past 2 to 3 years. Is that a reflection of mix changes? Or is that probably just the timing of the SRT when, in fact, the RWA number came down in the quarter because obviously, looking at a quarter-end number there versus an in-quarter number for revenues. So just RWA productivity on the first question.

Secondly, it's a bit of a mechanical 1 around the dividend guidance. So I'm just trying to figure out for the full year, should we be prioritizing the greater than EUR 960 million guidance or the H2 guide of around EUR 500 million because, obviously, that would get us closer to EUR 990 million.

Yes, I've got to be honest, I've never looked at revenues to RWA. So that's -- maybe I should start looking at that metric, but I think you answered the question because I think you said it at the point in time. I think, Chris, it's probably more a reflection of that. But in all honesty and transparency, we don't really look at that metric in terms of how we manage our business. But...

Yes, it was technical, I think, Chris, as Anas said, we don't look at it, but is I'm quite sure it's driven by the SRT that we have done...

It's just a point in time. The second one, I think it was about dividend and the guidance for the second half.

Yes, we gave a guidance of around EUR 500 million net profit for the second half. And how to think about it is the same as we announced in Q1. So we can go up to the EUR 500 million in terms of net profit as long as we stay above 12.5% in terms of CET1 ratio. These are the 2 guardrails that will follow.

Your next question today comes from the line of Jordan Bartlam from Mediobanca.

I had the first 1 on fees, if possible. So the fee income in Retail & SME continues to show really attractive growth profile, just running around 50% year-on-year currently. I just wonder if you could give a little bit of an update on the drivers of that strong growth progression. And whether that's in line or better than you'd anticipated and whether it's feasible to maintain that rate of growth going forward? And then maybe a quick 1 on litigation risk as well.

So last year, there was the adverse Supreme Court ruling on processing fees and we had the refund program, I think, expired at the end of first quarter. There seems to be a little bit more noise now on trailing commissions with regards to investment accounts. I just wonder if you could give a little bit of an update on litigation risk, where you see it, whether that trading commissions fees is a material risk for the bank? And any other color you can give would be so helpful.

I'll cover the NCI part. So the trend line was very strong versus last year, as we said, but also to be fair, that was largely driven by the acquisitions that we made in Knab and Barclays Consumer Bank now in Germany, that is a big driver of that. We do see a strong underlying trend, not as strong as you would compare year-over-year. But in general, payments, cards and advisory and brokerage business has been strong. we would expect that trend to continue, but not at the same pace as of last year.

And the second question was more about general litigation risk. My view on that, I think it's the new normal. I think you will see more of these consumer protection litigation topics coming up. How do we look at it? And probably from a financial perspective, it's in the numbers. So it's reflected in the numbers we don't really pointed out that it's all in the underlying financial performance and probably you would expect it to happen in the future as small.

Your next question comes from the line of Jovan Sikimic from ODDO BHF.

Just a minor question on asset quality. I think you mentioned in the morning this single case in the corporate segment, I think, but maybe overall, if you can give a bit of a color about asset quality development overall, particularly on the commercial real estate side, if there was any change in the positive or negative? And the second question would be on -- there was a temporarily, I think lower tax rate in Q2 and I think this should reverse back to normal levels going forward, right?

Yes, that is correct. It was exceptionally low because we had the sale of the minority investment in the second quarter that was tax free. That's why the overall tax rate came down. We would expect the tax rate to go up to the prior levels for the rest of the year. And the second one, on the asset quality, not really much to add. So underlying trends are really robust and metrics look really good, especially on real estate. I don't think we have seen any negative surprises over the last rolling 12 to 24 months. So things are good.

We will now take our final question today. And the final question comes from Tobias Lukesch from Kepler Cheuvreux.

Quickly touching back on the risk cost development. So you're guiding for 50 bps. So you were a bit higher this quarter. How much basis points was there for a kind of one-off booking, and understanding the SRTs, you just mentioned that the premium was -- is booked in the NII and part of the outlook. Earlier, I thought I remember that you were booking part of that in the risk costs. So could you please remind me of your SME exposure? And how this is now split between these P&L lines? Or if you have made any changes to that?

Yes. On the first one, on the risks cost line. So we had an increase of EUR 10 billion in this quarter in terms of risk costs. And they're actually -- it's half driven by macro, which is nonrecurring in nature and probably half of the effect was coming from the asset in exchange that is recurring in nature. And as long as the trend continues, which is a good trend that we are doing more high-yielding consumer business. That trend will continue. That's why we updated the overall guidance of 50 basis points.

On the SRT, yes, that is a bit confusing, unfortunately. So the unsecured SRTs i.e., consumer credit cards and the likes, they are booked in NII given the CLM structure of the deal and everything else. So mostly the mortgage part is under the risk cost line. And then the risk cost line, I believe, it's around EUR 5 million of the EUR 75 million that is tied to SRT cost.

And how much would it be in the NII line as the premium?

I don't have it on top on my head Tobias, we'll come back to you on that.

I will now hand the call back to Anas for closing remarks.

Thank you, operator. Thank you, everyone, for joining our 2Q earnings call. We look forward to catching up with you in the weeks and months ahead and hopefully for third quarter results. Take care. Have a nice day.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the BAWAG Group Q1 2026 Results Call. [Operator Instructions] Please be advised that today's conference is being recorded, and there will also be a transcript on the company's website.

I would now like to turn the conference over to your first speaker today, Anas Abuzaakouk, CEO. Please go ahead.

Thank you, operator. I hope everyone is keeping well. I'm joined this morning by Enver, our CFO. We'll start with a summary of the first quarter results on Slide 3. We delivered net profit of EUR 232 million, and a return on tangible common equity of 28% during the first quarter. The operating performance of our business was very strong with core revenues of EUR 579 million, pre-provision profits of EUR 391 million and a cost-to-income ratio of 33%. Realizing the benefits from our investments over the years as we build out a pan-European and U.S. banking group. Total risk costs were EUR 65 million, translating into a risk/cost ratio of 46 basis points. We have a low NPL ratio of 80 basis points and continue to see solid credit performance across our businesses.

In terms of our balance sheet and capital, average customer loans and average customer funding were both up 1% quarter-over-quarter. We have a fortress balance sheet with EUR 13.6 billion in cash equal to approximately 19% of our balance sheet, an LCR of 176% and overall strong asset quality. Our pro forma CET1 ratio stands at 15.4% with EUR 650 million of excess capital. On the back of a record year in 2025 and having integrated both Knab and Barclays Consumer Bank Europe, which was rebranded to easybank earlier this year, we are thrilled to have been selected by PTSB as the preferred buyer. We said this last week, but I cannot stress this enough, the trust and confidence placed in us by the PTSB Board and the Minister for Finance of Ireland as the bank's majority shareholder is something we take very seriously and are keen to demonstrate our capabilities and contributions.

Ireland is an incredibly attractive market with all the ingredients for successful banking, pro-growth economic policies, rich in human capital and the gateway to EU markets. We aim to drive competition through investment and innovation, supporting PTSB's customers and more broadly, the Irish economy, while delivering long-term sustainable growth. We plan to provide an updated midterm outlook with full-year earnings, assuming a successful closing of the PTSB transaction, which is subject to shareholder and regulatory approvals. Excluding any potential PTSB impact, we reconfirm all of our 2026 targets with net profit over EUR 960 million, return on tangible common equity over 20% and a cost-to-income ratio of under 33%.

Okay. Moving on to Slide 4, the PTSB acquisition. PTSB represented an opportunity to acquire the third largest bank in one of our core markets and one that we have followed closely over the years. PTSB serves approximately 1.3 million customers with a strong history as primarily a mortgage lender, providing essential retail banking services through a community banking focused branch network across the country. The total balance sheet amounts to EUR 30.5 billion with EUR 22 billion of customer loans and approximately EUR 26 billion of deposits.

Our 3 key focus areas will be, one, accelerating growth by complementing PTSB's current product offering with a full suite of Retail & SME banking products as well as corporate, public sector and commercial real estate lending. Two, investing in technology and distribution, building up greater digital capabilities while investing in an advisory-focused branch network. We aim to consistently invest in the franchise to position PTSB to compete both in today's environment and over the long term, ensuring the franchise is at the forefront of innovation. Three, marrying local knowledge with broader group capabilities as we leverage the local expertise of the PTSB team with a deep understanding of the Irish market and close relationship to customers with the tech ops platform and balance sheet strength of BAWAG Group.

On Slide 5, the impact of the PTSB acquisition on the BAWAG Group franchise. The PTSB acquisition will grow BAWAG Group total assets by around 40%. The group will serve over 5 million customers across 7 countries with over 90% of revenue and customer loans from euro area countries, further diversifying our earnings, funding and geographic exposure. Given PTSB's solid position in mortgage lending and retail deposits, residential mortgages will account for 2/3 of total customer loans, and retail deposits will account for 3/4 of all funding, further strengthening our balance sheet funding and serving as a catalyst for growth.

We see significant opportunities to invest in technology, enhancing digital capabilities, customer engagement and product innovation. Today, technology spend accounts for around 30% of our total spend at BAWAG Group, a competitive advantage and true differentiator. Our spend is strategic, judicious and focused on the long term. We plan to leverage our tech-ops platform, strengthen in-house capabilities and position the bank to compete not just today but long into the future. On the back of these investments, there will be several synergies in nonpersonnel-related costs, which account for 55% of operating expenses at PTSB. Our goal is to establish a consistent operating rigor, deliver for our customers, underpinned by a strong culture of operational excellence anchored to our meritocratic principles focused on retaining, developing and promoting top talent.

We also plan to capture benefits from overall funding and capital optimization given BAWAG's strong credit rating, funding stack and balance sheet management. From a financial standpoint, the acquisition will be P&L accretive day 1 and in line with our through-the-cycle group return requirements with a return on tangible common equity over 20%. The transaction is expected to contribute net profit over EUR 250 million by 2028, translating into over 20% EPS accretion, and from a capital allocation perspective is more accretive than a share buyback by more than 2x. Given our strong capital position and capital generation, our goal is to fully self-fund the deal, which we will discuss in more detail.

We also see opportunities to grow our product offering, growing both the number of lending and advisory products, expanding cross-sell opportunities across PTSB's customer base as well as addressing new customers and new segments. We will leverage our product factories and partnerships to provide a full suite of Retail & SME banking products. We hope to do this through a modern and digitally enabled branch network, reducing friction from transactional banking and freeing up capacity for more customer-focused advisory. The goal is to provide customers with simple, intuitive and affordable financial products and services that promote their financial health.

However, we will remain patient and disciplined given our conservative approach to risk management, emphasizing risk-adjusted returns rather than leverage-driven growth. Given our experience with acquisitions and prudent nature, the goal is to build a strong foundation that will serve as a springboard for future growth. This is potential upside opportunity to our targets as we do not put any time line on these organic incremental growth opportunities.

Since 2012, our strategy has been consistent: grow within our core markets, prioritizing our customers' needs, deliver efficiency through operational excellence and keep a safe and secure risk profile, all while embracing a continuous improvement mindset and building the right culture. The PTSB acquisition will have been our 15th acquisition since 2015 as M&A is a key plank of our strategy. We hope to capture all the learnings over the past decade to ensure a successful integration, leveraging best practices as we continue to adapt and improve with each new acquisition.

With that, I'll hand it over to Enver to go into detail on the capital development and how we plan to fund the deal.

Thank you, Anas. I will continue on Slide 6. Capital development. Our reported CET1 ratio landed at 15%. On a pro forma basis, our CET1 ratio was 15.4%, equal to EUR 650 million of excess capital above our CET1 target of 12.5%. This factors in the sale of a minority investment that signed in the fourth quarter of 2025, and is expected to close in the second quarter of this year. We generated 103 basis points of gross capital from earnings, and we also completed one SRT transaction, which mostly funded the underlying business growth. We have not made any dividend accruals in the first quarter, and we plan not to do so in the first half of 2026, which leads me to the next slide on how we plan to fund the transaction.

Slide 7. As of today, we anticipate that the transaction will cost us approximately 450 basis points of CET1 capital, which means that we need to be around 17% to also meet our management target of 12.5%. Our starting point as of year-end was 14.6% or 210 basis points above our target, and we plan to generate another 250 basis points in the first half of 2026. 200 of the 250 basis points will come from a dividend policy change for 2026. In simple terms, we will use our first half profit to fund the deal, and only our second half profit of approximately EUR 500 million will be eligible for dividend payment.

In addition, we plan to execute several RWA measures that will generate roughly 50 basis points. So in total, with the starting excess capital of 210 basis points and the dividend policy change and the RWA measures, we should have more than 450 basis points of excess capital by June 2026 to self-fund the whole deal. As an alternative, we would have the opportunity to further adjust the dividend for 2026 or raise capital, but this is clearly not our preferred option. In terms of CET1 targets, these remain unchanged at 12.5% or above 13% for excess capital distributions.

Moving to Slide 9, our P&L and balance sheet overview. We delivered a strong quarter with net profit of EUR 232 million and a return on tangible common equity of 27.6%. Core revenues increased by 1% quarter-over-quarter with net interest income up 2% and net commission income up 1%. Operating expenses declined by 3% in the quarter, resulting in a cost-to-income ratio of 32.5%, in line with our through-the-cycle target of below 33%. Risk costs amounted to EUR 65 million, reflecting the changing asset mix towards consumer unsecured. In terms of balance sheet, customer loans increased by 1% quarter-over-quarter, while customer deposits were down 3%. Tangible common equity increased by 3% quarter-over-quarter, not including any dividend for 2026. We continue to maintain a fortress balance sheet with EUR 14 billion in cash, representing approximately 20% of our total assets, an LCR of 176% and strong asset quality reflected in a low NPL ratio of just 80 basis points.

Moving to Slide 10. On Slide 10, core revenues. Net interest income increased by 2% in the quarter, driven by customer loan growth of 1% with growing consumer business and overall flat mortgage portfolio with varying trends across countries. Net interest margin stood at 345 basis points, reflecting ongoing changing asset mix, while the deposit beta decreased to 35%. We also provide an updated NII rate sensitivity. Every 25 basis points increase delivers EUR 25 million per year after 12 months and EUR 50 million per year after 24 months. Net commission income increased to EUR 99 million with continued strong results across business lines of Retail & SME, particularly in credit cards and payments. For the rest of the year, we expect net interest income to grow gradually and a stable development in net commission income.

On Slide 11, operating expenses amounted to EUR 188 million, representing a 3% quarterly decline with a cost-to-income ratio of 32.5%, which is broadly in line with the pre-acquisition levels and our through-the-cycle target. The integration of the Knab business is now broadly completed, while the integration of the rebranded easybank business in Germany is well on track. Risk costs for the quarter amounted to EUR 65 million with an increase of consumer unsecured in the overall asset mix, primarily driven by credit cards and the corresponding ECL increase in Q1, driven by exposure growth and new business being the main drivers. We continue to closely monitor the evolving geopolitical situation and its potential implications for our portfolio. Direct exposures to sectors most sensitive to geopolitical shocks remain limited, particularly industries with high energy intensity or significant supply chain dependencies.

Slide 12, Retail & SME. The Retail & SME segment delivered net profit of EUR 198 million, a return on tangible common equity of 35.5%. Pre-provision profits amounted to EUR 341 million, broadly flat quarter-over-quarter. Risk costs amounted to EUR 65 million, corresponding to 67 basis points, while credit quality remains solid with an NPL ratio of 1.3%. We expect continued growth across the franchise. Corporate, real estate, and public sector, this segment delivered net profit of EUR 42 million with a return on tangible common equity of 30.8%. Our focus remains on disciplined underwriting and risk-adjusted returns.

And finally, on Slide 13, reconfirming 2026 outlook and targets, we reconfirm our net profit target of more than EUR 960 million in 2026. Our through-the-cycle targets also remain unchanged with an RoTCE of greater than 20%, cost-to-income ratio below 33% and a CET1 target of 12.5%.

And with that, operator, let's open up the call for Q&A. Thank you.

[Operator Instructions] And your first question today comes from the line of Gulnara Saitkulova from Morgan Stanley.

I have 3, please. And the first question regarding the PTSB transaction. What level of shareholder acceptance do you expect? And how material is the risk that the shareholders could push for a higher price?

Well, thanks for the question, Gulnara. We can't comment on the shareholders outside of the government, but the government obviously is committed at 57.5%. So we'll see how things develop, but we think it was a robust process, and we're confident that the transaction will come to fruition.

And then second question, on the 40 basis points participation sale that you also highlighted in the last quarter, can you remind us how was it generated? And why it doesn't have any impact on the P&L? And additionally, for the 50 basis points risk-weighted asset measures related to the funding of the deal, could you outline any expected P&L implications? And do you need any regulatory approvals for that?

Gulnara, it was a bit hard to hear your questions, but I think you were asking about the participation, how that was an impact of 40 basis points. Enver, did you catch it?

Yes, I think the time line. Gulnara, I think it's simple. Closing will only take place in the next 2 to 3 weeks. Once closing is completed, you will see the full impact reflected in our CET1, which is basically reversing the deduction that we have on CET1 right now from that participation. I think the second one was -- sorry, go ahead.

And the impact on the P&L, you don't have any impact from the 40 basis points sale, correct?

There is going to be a P&L impact, but that's not reflected in the CET1 impact.

And from 50 basis points risk-weighted asset measures, is there any P&L impact from this? And do you need any regulatory approvals?

Yes. So we stated on the page, all financial impacts are completely reflected in the targets. So obviously, if it comes to the P&L impact or further CET1 impact, that's all considered in our numbers already, P&L and capital wise.

And there's no regulatory approvals required for the SRTs and other measures?

Depends on the measures, but most of them don't require approval. Some might as SRTs need approval from the ECB.

And third question, looking at your peers in Ireland, for instance, Bank of Ireland is operating at 14.5% CET1 target. Would you expect your Irish business to run at a similar level of capital? Or do you see a scope to operate closer to the group target of 12.5%?

I think it's premature to discuss any capital targets. I think we've been pretty consistent that 12.5% has been a robust capital target across the group. So we'll address that upon closing, obviously, subject to shareholder and regulatory approvals.

And just a last question, if I may. Regarding the share buybacks, is it fair to assume that you would need to reach a CET1 ratio above 13% before considering initiating any further buybacks?

That is correct. Yes, any excess capital above is based on 13% target.

Your next question comes from the line of Jeremy Sigee from BNP Paribas.

Two questions, please, both to do with the sort of shape of PTSB. Firstly, with Knab and Barclays, it was striking that you reduced bits of balance sheet quite materially on integration. There were bits of portfolios that were not core for you. Are there any bits of PTSB that you identified already at this stage that you might want to slim down or do less of?

And then my second question really is the opposite of that actually, which is, do you already have ideas of products and services that you do elsewhere in the group that you think look compelling additions to PTSB, things that could work well with that franchise that they're not already doing?

Yes. Thanks, Jeremy. Just as it relates to Barclays and Knab, outside of just the securities portfolio, everything was core. There was a consumer loan portfolio in Knab, which we had sold off, but that was part kind of the day 1 we had anticipated. So there weren't really portfolios that we ran down or sold off other than what was kind of highlighted from the get-go. As it relates to PTSB, obviously, they're primarily a mortgage lender. They have started in SME lending and consumer loans. We hope to further those efforts.

And I think the complementary -- to your second question, the complementary products, we tried to lay out on one of the pages, where we said specialty finance. We think factoring and leasing could be really interesting. We hope to introduce our brokerage product as well in addition to obviously, the advisory products and insurance as well as in funds, which PTSB is already doing. So hopefully, we'll be able to enhance that.

And then on the non-retail and SME side, I think there could be some interesting opportunities, in particular, commercial real estate. We're pretty big in public sector lending in the DACH region, and potentially corporates if the risk-adjusted returns are there. So I think the takeaway is we're going to be able to bring a full suite of retail and SME and corporate banking products and pretty excited about the opportunity.

Your next question today comes from the line of Gabor Kemeny from Bernstein Autonomous.

A few questions from me. Firstly, on PTSB. Can you give us any steer on how you think about the size of the badwill creation from this deal, perhaps including the fair value reserves you see on PTSB's balance sheet? And then further to that, on your statement that you would invest the badwill in the business, can you walk us through how you are actually thinking about the restructuring and the integration of -- so what you would actually invest in, if you could elaborate on that?

Next question would be on your targets, your financial targets. So as I understand, you are guiding us to more than 25% return on allocated capital based on around EUR 1 billion of capital you would invest here. My question is on the profit side, more than EUR 250 million, because I see the PTSB stand-alone consensus being around EUR 220 million for 2028 right now. So it doesn't seem that you count on meaningful revenue and cost synergies. Can you walk us through your thinking there?

And my final question will be, I believe that you are going to be subject to subordinated MREL requirement with your balance sheet exceeding EUR 100 billion. Can you give us any sense on how you expect to meet those requirements and then the impact on your financials?

Okay. Gabor, I will -- let's mix it around. I'll take the second question with respect to the net profit target, and then Enver will take the badwill, and I think you were referring to the balance sheet marks. So the net profit target is greater than EUR 250 million. We tried to give some indications in terms of if you look at kind of the scenarios around the non-personnel costs and the percentage of PTSB where we see some, I think, initial opportunities and synergies. Historically, we've tended to be pretty conservative and prudent in our forecast. This is no different with this particular transaction.

I would say that probably the biggest element, I've mentioned it through the presentation, is the revenue opportunities, which we think are going to be very interesting. Those are not in the targets, the incremental growth opportunities, the introduction of new products and new segments. And the reason being you need to have a solid foundation, and those are organic, and we're never going to just chase things. We're going to be patient and disciplined and focus on risk-adjusted returns, but we think those are going to be really interesting opportunities as Ireland has a really robust banking market.

So I will pass it to Enver for the other 2 questions.

So Gabor, on the first question on the badwill reinvestment, it's very consistent to what we have done in the prior acquisitions. So we try to reinvest most or all parts of the badwill typically into tech investments, integration costs, if necessary, for restructuring costs and also marking balance sheet items conservatively. So it's a mix of these things that altogether will make us reinvest most parts or all parts of the badwill of the transaction.

On your third question on MREL. So we obviously have informed the SRB that it's too early to say like if there is going to be a subordination requirement on our level. If that is going to be the case, we would expect there is going to be a transition path to fulfill that requirement, and it's going to take a few years. So again, a bit too early, but something that we have in our plans as well.

Just a small follow-up on the balance sheet marks. When do you see a likelihood that you will have to mark down practically balance sheet items at PTSB?

So we cannot really go into the details, but how we look at it are certain spread levels, especially on the asset side that we define as a benchmark. And again, we have done that consistently with all assets or businesses that we have acquired in the past as well.

Your next question today comes from the line of Amit Ranjan from JPMorgan.

Can I ask on Slide 7, please, and the time line of first half '26. Is that a guide point for you, i.e., you would assess the capital position at the end of first half and that drives future capital measures? Is that guide point agreed with the regulator? What's the rationale for that, please?

The second one is on Slide 13, you are reconfirming the through-the-cycle targets. Can I please clarify if these targets are including PTSB as well, please, or stand-alone?

And the last one is on deposits. If you could please talk about the sequential decline during the quarter, if it was related to any particular region, please?

Thanks, Amit. All good questions. Why half year? It's kind of natural if you think about it. So we'll have the scheme vote happening around summertime, so expecting now for July. So we want to have a clean starting point as of half year, then all the application and processes will happen after that. So clean starting point. So by that point in time, we want to have the full self-funding capacity addressed. So that's why we chose to have it as of half year.

On the targets, very simple, it's stand-alone. So the targets that you see in the back are stand-alone without PTSB. Reason for that is tied to the first question, it's timing. So timing of the deal, we expect closing to be Q4 or early 2027. So right now, we don't assume any impact on the financials in 2026 other than potentially the capital position itself.

And the third one, deposit decline, it's unfortunately the seasonality of things. So a better way to look at it is the average deposit balances that you see across the different lines, and they have been flat or increasing quarter-over-quarter. So it's simply just a point in time that sometimes at year-end, just that point in time balances are higher versus Q1. We look at the average balances and they kept growing actually over the quarter.

Okay. Great. And sorry, one clarification on Slide 10, the NII sensitivity to 25 basis points, is that for a parallel shift?

Sorry, say it again?

Parallel...

It's a parallel shift, yes. Just to make it simple, we assume a parallel shift of the curve.

Your next question today comes from the line of Máté Nemes from UBS.

I have 2 questions, please. The first one will be on the phasing of bottom-line benefits. Could you give us a sense to what extent we could see already quite substantial bottom line contribution coming through in 2027, given you're planning to invest the badwill into investments, restructuring, changing balance sheet marks and so on? And to what extent can we get closer to the flagged 20% benefit already in '27? Or is that largely back-end loaded? That's the first one. i.e., the timing?

Second question would be on the existing footprint. It seems like loan growth is showing a continuation of trends that we've been seeing in the past couple of quarters. Could you share your views on the outlook on loan growth, particularly, I guess, in housing loans? And if you could perhaps talk a little bit about the country level trends.

Yes, I'll take the first one. So it's premature. We gave the guidance for 2028 of EUR 250 million plus. But the way we look at it is, first of all, it depends on the closing time line. So if the transaction closes end of year, we will have the full year contribution in '27. If it only closes in Q1, obviously, it's going to be less. So that's number one. And the second one, I think the way we look at it is gradual. It's going to be a gradual development from now until '28. So you will have already quite a relevant impact in 2027.

And Máté, with regards to the loan growth, like we do every quarter, I guess, if we just go kind of around the horn on the different products, mortgages is more of the same from prior quarters. Certain countries, it's a pretty challenging market. We do see the Netherlands picking up. Ireland, there's some interesting opportunities. But I think Austria, Germany continue to be pretty challenging from a pricing standpoint as well as what you see in terms of advance rates and credit.

Consumer and SME actually has been pretty solid. If you go back the past 5, 6 quarters, it's actually been performing really well and credit cards is really a completely different dynamic. That was part of the reason on the risk costs. We actually overperformed in the credit cards, but you get hit with the ECL charge in the first quarter. So that has progressed better than anticipated in the consumer loans and the specialty finance, those continue to grow. So that's kind of the Retail & SME story.

And then the corporates, commercial real estate, public sector, the real driver there is the real estate or commercial real estate business. We had a strong closing in the fourth quarter. We have a pretty, I'd say, robust pipeline. Some of that got pushed into the second quarter. So we should see growth on the real estate side. And then corporates, it's more of the same. I do think that you are starting to see more discipline, in part, obviously, what you are seeing in the private credit space. Hopefully, that provides a lot more discipline and rational pricing yet to be determined. In the public sector space, there's unique opportunities, but those are more idiosyncratic. So I think in kind of taking all of that into the mix, we're still at our growth targets that we had communicated earlier in the year. We feel pretty confident about it. I hope that helps.

Your next question comes from the line of Hugo Cruz from KBW.

So I have a few questions. So first, I would like to ask you about what could be the tax rate for the group after the PTSB acquisition. I'm mindful that Ireland has a lower tax rate than the rest of your footprint. So for example, could it make sense for you to move costs to Ireland to take advantage of this differential?

Second, your guidance on dividends is quite clear, but obviously, it will depend on the volume growth that you report in the second half of the year. So I don't know if you could say anything about that.

Third question, do you expect to adopt any further material RWA measures in the second half after the PTSB acquisition? Again, I'm mindful, PTSB has quite a high RWA density. So I wonder if that could be a source of synergies.

And finally, PTSB's deposit reach, how can you use that -- can you use those deposits outside Ireland and therefore, grow deposits outside Ireland less than you would otherwise?

Yes. I'll start with the group structure. So yes, obviously, we are thinking about the overall group structure, but it's really premature to share any details of that. What I can share with you is the tax rate direction. So as of now, we are oscillating around 26% as a group tax ratio. I think after the combination, we should be in the low 20s. So that's what we can say as of today. Obviously, if things change from a structural perspective, that number could be different.

And I would also take the deposit question. So just the imbalances, so deposit rates on the -- the thing is, we are deposit-rich in almost every country. So we are deposit-rich in Austria, Netherlands and then in Ireland as well. So yes, we will think about a structure to make excess capital and liquidity quite fungible. But ideally, we can deploy that excess liquidity in the market in Ireland, that will be our primary goal.

And then there was a question, I think, on if there are any RWA measures planned for the second half. So our focus is now to get the measures done for first half to get the wholesale funding capacity addressed by half year. But we always look at things and potentially there could be more happening in the second half, but that's not our priority right now.

Was there something else? Hugo, could you repeat? I thought there was something else that I think I missed it.

Yes. Sorry, just one more, which was the volume growth. The dividend in the second half, it's a function of volume growth. So I was wondering -- yes.

Yes. So we indicated that on the page that we expect net profit of the second half to be larger than the first half. And that's a function of 2 things. So asset growth will continue. NIM expansion, as asset mix and deposit betas are getting better, will improve. So top line is going to grow gradually, while the OpEx line is going to come down further. So you will just see better operating leverage that drives the higher profit in the second half.

Your next question comes from the line of Tobias Lukesch from Kepler Cheuvreux.

Also 2, 3 questions from my side, please. Firstly, touching on capital and SRTs. Could you maybe share the SRT benefit that you achieved in Q1? And also maybe shed some light on the further plan for '26, and maybe also give the total amount of the loan book which is currently under SRT program.

Secondly, on the potential share buyback readiness. So if I understand you correctly, you're basically set up for the full acquisition by the end of H1. Then in H2, total earnings will be distributed as dividends. So that would bring or keep you at a roughly 12.5% core Tier 1 ratio. Then assuming you kind of earn 13% by Q1, would that mean that by Q2 next year -- by the end of Q2 next year, you would have excess capital, which could be considered to be distributed, again, not accounting for potential RWA measures, SRT, et cetera. So if that was the case, like how quickly would you then potentially announce further buybacks? Should we expect that then to happen around Q2 results and be executed quite fast?

So thanks, Tobias. I hope I got all the questions. First one on the SRT impact, directionally, the benefit in the first quarter was around 20 basis points to our CET1 ratio. And I think the second question or kind of the topic of the second question was potential share buyback readiness. It's really too early to be completely focused right now on getting everything done for the transaction. But we will follow the same principle as we did in the past. So it comes to year-end and probably also the first half, we will assess the capital position and then look into organic growth, potential other opportunities and then decide if we want to distribute. Nothing is going to change. So our excess capital policy will remain the exact same as we have done in the past. And it's really too early to say if we are going to do something in Q2 of 2027. Let's wait for that and then address it by then.

Very forward thinking, though.

Yes.

Sure. Maybe quickly following up on the SRT. So 20 bps for Q1. Can you remind us how much of the book is now basically under SRT or what kind of RWA relief you got so far from SRTs in percentage points? And what you potentially still consider for the year to come?

Yes, Tobias, so we have that page in the appendix, Page 15, where we showed the split. Right now, EUR 10 billion of the balance sheet is covered under the SRT.

We have one further question. And the question comes from the line of Chris Hallam from Goldman Sachs.

Just 2 from me. So first of all, thank you for the updated NII sensitivity. How would that change with the integration of PTSB? Obviously, they run quite a different hedging program to you. And so would you plan to align that and bring them on to your sort of beta hedge program? And would any costs associated with that will be wrapped up in any sort of day 1 costs on the acquisition?

And then second, just to come back to some of your comments just now on the dividend. I guess I'm just trying to solve for whether the number for FY '26 should be EUR 500 million or lower. And I appreciate it's too early for you to say with any certainty. But just from a sequencing perspective, you get to the 17% plus CET1 needed to fund the deal by the end of the first half. Then through the second half, you're essentially accruing at 100% of net profit. You're then going to make a determination in January or February as to what the rightsized dividend is for FY '26. So as long as the impact remains at 450 basis points, you should mechanically be able to pay out the 500 in April next year and remain above that 12.5% for Q4 pro forma. The only thing I think that might bring that EUR 500 million number lower is organic RWA growth in the second half of this year. Is that the right way to think about all of that just from a sequencing perspective?

Yes, Chris, 100% right. It's exactly how we think about it.

And maybe just coming back to the NII sensitivity. So it's, again, too early to provide the combined NII sensitivity. But also PTSB, if you look at their balance sheet structure, it is heavily deposit funded, which means they are sensitive to rate moves. When you talk about the hedging approach, we will try to be as consistent as possible across the group, but we also obviously reflect what the specifics are in different markets and the Irish market is different than some of the other markets that we are in. So I think the best way to address it is it's going to be a mix of what currently PTSB is doing and what we are doing at our group level.

That was our final question for today. I will now hand the call back for closing remarks.

Thank you, operator. Thanks, everyone, for attending. Really good questions. We look forward to catching up with you guys for second quarter results. And for those who are attending tomorrow's AGM as well, I look forward to talking to you. Take care, guys. Bye.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the BAWAG Group Update Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded, and there will also be a transcript available on the company's website.

I would now like to hand the conference over to your speaker, Anas Abuzaakouk, CEO. Please go ahead.

Thank you, operator. Good afternoon, everyone. Thanks for joining on short notice. It's been a busy few weeks to say the least. First and foremost, we are thrilled to have been selected by PTSB to enter into this transaction. The trust and confidence placed in us by the PTSB Board and the Minister for Finance of Ireland as the bank's majority shareholder is something we take very seriously. I want to personally thank all team members involved from both banks as well as the advisers who worked around the clock to make this process a success.

Ireland is an extremely attractive market for BAWAG, underpinned by a strong macroeconomic backdrop, a robust banking sector and solid long-term fundamentals. Building on our presence in Ireland, the proposed acquisition is a highly strategic opportunity to strengthen our competitive positioning by bringing together PTSB's local market expertise and commitment to community banking with BAWAG Group's balance sheet strength, scale and operating capabilities. This positions us to drive competition through investment and innovation, supporting PTSB's customers and more broadly, the Irish economy, while delivering long-term sustainable growth.

More generally, we believe consolidation among European banks is a catalyst for creating stronger institutions better equipped to compete both domestically and internationally. Strong banks promote investment, drive economic growth and contribute to a more resilient European Union.

Our strategy has been consistent since 2012, patient, disciplined and grounded in a continuous improvement mindset. Our resilience is demonstrated by our ability to deliver results consistently and improve year after year. PTSB will be transformative in advancing our vision to build a pan-European and U.S. banking group. We are excited to welcome our new colleagues from PTSB and shape our shared future together.

Okay. On to the first slide, Slide 2. Ireland has been a core market for BAWAG for several years. We have been active in the Irish market since 2015 and most recently launched the MoCo brand in 2023, a mortgage and deposit platform. Ireland is defined by a strong economic profile with a AA sovereign rating, solid growth trajectory and a business friendly environment that has successfully attracted foreign direct investment and serves as a hub for access to EU markets.

Ireland has also a sound fiscal position and a stable legal environment, defined by strong institutions in the rule of law, foundations for a robust banking market. Favorable demographics and population growth underpin long-term demand for credit and financial services. Lastly, Ireland has a structural housing shortage, creating sustained demand for mortgage lending and retail banking products, which we aim to help address.

PTSB, the third largest banking group in Ireland, accounts for 19% of the mortgage market and 14% of the retail deposit market. These strong market shares achieved in a concentrated, yet competitive banking landscape reflect the quality of PTSB's franchise and the depth of its customer relationships. The franchise provides a solid platform for further investment, innovation and the introduction of new product offerings. We see significant opportunity ahead and believe we are well positioned to contribute meaningfully to the long-term competitiveness and resilience of the Irish banking sector.

On Slide 3, growing our franchise. PTSB represents an opportunity to acquire the third largest bank in one of our core markets, one we have followed closely over the years. PTSB serves approximately 1.3 million customers and has a strong history as a mortgage lender, providing essential retail banking services through a community banking branch network across the country. The total balance sheet amounts to approximately EUR 30 billion with EUR 22 billion of customer loans, over 90% residential mortgages and EUR 24 billion of retail deposits, of which approximately 40% are current accounts.

Our 3 key focus areas will be: one, accelerating growth, the combination of PTSB's strong mortgage and deposit franchise and the full suite of retail and SME banking products across BAWAG Group whether it be SME lending, auto finance, specialty finance products such as leasing and factoring, brokerage or larger ticket corporate, commercial real estate and public sector lending will allow us to offer a broader set of products to PTSB's customer base as well as reach new customers in new segments.

Number two, investing in technology and distribution. We aim to combine digital capabilities developed across the group with PTSB's nationwide branch network. A key investment area is building an advisory-focused branch model with the right products and distribution to ensure a seamless customer experience across digital and physical channels while avoiding the friction of legacy transaction-heavy banking. We also plan to benefit from the scale and technology of the larger group. Over the long term, we intend to invest consistently to keep the franchise at the forefront of technology and innovation.

Number three, combining local expertise with broader group capabilities. We will combine the local expertise of the PTSB team, which has a deep understanding of the Irish market and close relationships with customers with BAWAG Group's tech ops platform and balance sheet strength.

Disciplined capital allocation and M&A specifically is central to our strategy and how we run the bank. This discipline is supported by strong profitability, which enables us to generate significant capital each year. We deploy this capital prudently, extending credit to customers, investing in our franchise and teams, pursuing strategic acquisitions and returning capital to shareholders.

We underwrote this transaction to be in line with our through-the-cycle group return requirements. The transaction is expected to generate over 20% plus EPS accretion after 3 years and from a capital allocation perspective, is more accretive than a share buyback by more than 2x. Given our strong capital position and capital generation, our aim is to fully self-fund the deal.

Moving to Slide 4, delivering on our strategy. Since 2012, our strategy has been consistent, grow within our core markets while prioritizing customers' needs, deliver efficiency through operational excellence and maintain a safe and secure risk profile, all while embracing a continuous improvement mindset and building the right culture. PTSB will be transformative in advancing our vision to build a pan-European and U.S. banking group with a fortress balance sheet, strong and diverse earnings and a platform to continue investing and growing.

Since 2012, we have expanded our footprint from 1 to 7 countries. We started in Austria and expanded Westward to Germany, the Netherlands, Switzerland, the U.K., Ireland and the United States through acquisitions and organic growth. With the acquisition of PTSB, our balance sheet will have grown to over EUR 100 billion in assets, serving over 5 million customers across 7 countries and offering a full suite of retail and SME products and services that are simple, intuitive and affordable and that promote customers' financial health.

Since 2012, we have invested over EUR 2 billion in our franchise, primarily to enhance our technology stack and operational capabilities so we can capture efficiencies and scale the business. These investments have helped transform the franchise from a traditional banking model into a digitally enabled bank with a high-touch advisory-focused branch network where customer service is a true differentiator.

We see the future as one where customers demand seamless banking experiences with products and services delivered when and where they choose across a robust multichannel platform. Most importantly, we have invested in our team members.

Our people are the cornerstone of BAWAG Group's success and are deeply committed to a culture of operational excellence. We focus on attracting, developing and retaining talented, dedicated team members in an environment that supports growth and rewards contributions. Our core markets share similar characteristics with strong financial and macroeconomic fundamentals.

Underpinning our success over the years is a disciplined and conservative approach to risk management, focused on building a fortress balance sheet and prioritizing sustainable risk-adjusted returns rather than leverage-driven growth. This is supported by a conservative, highly collateralized lending mix with approximately 85% of our customer business in secured or public sector lending.

Our transformation over the years has been anchored in our culture, one that is not defined by a mission statement or an employee handbook, but proven daily in how we collaborate, set priorities and uphold our values. It is captured in our meritocratic principles, valuing work ethic, character and performance.

We foster an owner-operator mindset, encourage entrepreneurial thinking and continuously challenge the status quo while maintaining humility. We do not shy away from change, knowing it is the only constant. Our future success depends on preserving this truly unique and dynamic culture as our company continues to grow and evolve.

With that, I'll hand it over to Enver to walk through the transaction structure and time line.

Perfect. Thank you, Anas. I will shortly explain the structure and the potential time line of the transaction. So PTSB shareholders will be entitled to receive for each PTSB share a cash amount of EUR 2.97. This represents a 26% premium to PTSB's undisturbed closing share price of EUR 2.35 as well as a 33% premium to the undisturbed 3-month volume weighted average price.

The acquisition values the entire issued share capital of PTSB at EUR 1.6 billion, implying a price to tangible book value of 0.82x, and a price to earnings multiple of 14.4x. In terms of structure, the transaction is intended to be implemented by way of a High Court-sanctioned scheme of arrangement under Irish law.

The acquisition remains subject to shareholder approval, required regulatory and other approvals and sanction of the Irish High Court. The shareholder approval threshold is 75% in value of those voting at the scheme meeting with a quorum of at least 2 persons holding at least 1/3 of the nominal value of the shares.

From a financing perspective, the consideration will be all in cash and capital is anticipated from internal resources and retained earnings. On timing, the key milestones are -- so today, we had the 2.7 announcement. The scheme document posting will happen within the next 28 days. The shareholder scheme vote is planned to take place in summer 2026 and completion is targeted for Q4 '26 or Q1 '27, subject to receipt of remaining regulatory clearances.

And with that, operator, let's open up for Q&A. Thank you.

[Operator Instructions] We are now going to proceed with our first question. And the questions come from the line of M t Nemes from UBS.

I have 3 questions, please. The first one is on the time line of integration and achieving the 20% plus EPS accretion. Could you confirm by which year do you expect the 20% plus EPS accretion happen? Is that 2028? Is that 2029? Any clarity on that would be much appreciated.

The second question would be on the EUR 1.62 billion fully self-funded as a consideration. Could you elaborate on what is still needed for you to be in that situation to fully self-fund this? Is that 2026 retained earnings? Is that additional capital to be freed up with capital optimization, perhaps SRTs? And also, could you confirm if you do see any impact on BAWAG's dividends in 2026?

And the last question would be whether you could outline the key measures that you'll take to achieve the 20% accretion. How much cost takeout are you expecting as part of the measures? And then how much could come perhaps from other sources?

All right. Thanks, M t . Hopefully, we don't have any issues with the line here. But I would say, M t , first and foremost, next week during our 1Q earnings, we plan to go through more detail with respect to the financing of the deal. So I think this is going to be a key question. We hope to provide more detail by then. We'll have more clarity. So anybody who has questions on that front, unfortunately, will have to wait to the 1Q earnings.

As with respect to the EPS accretion, the '28, '29, you should assume that this is year 1, and it's 3 years from year 1 being 2026. That's kind of the time line, but we'll also hopefully provide more clarity in the weeks ahead. And what was the third question, I think you asked about what the actual -- is it the operational?

Exactly. If you could just outline how exactly you aim to achieve the 20% accretion?

Yes. No, I think it's early on that, M t , as well. I think the 20-plus percent EPS accretion, the accretion of over 2x relative to a buyback, at least for now, just given the time line, I think that should suffice, and then we'll fill in the blanks and provide more details, both next week as well as in the weeks ahead.

We are now going to proceed with our next question. And the questions come from the line of Gabor Kemeny from Autonomous Research.

A couple of clarifications from me, please. In the past, you guided for a 20% plus return on your acquisitions. Can you confirm you are aiming to achieve such returns on PTSB? And a further clarification, if you are looking at your ROI on a constant capital basis or relative to the value of your investment, so the EUR 1.6 billion and any adjustments to that? That's the first one.

And the second one, I noticed in PTSB's statements, a pretty meaningful fair value reserve on the loans side. Can you confirm that you might be able to recognize significant value from a positive fair value adjustment. I think it's in the area of EUR 500 million to EUR 600 million upon the acquisition.

Yes. Thanks, Gabor. Good questions. I'll take the first and then Enver will address the second question. I would say consistent with what we -- what I mentioned during the presentation, we underwrote the transaction to be in line with our through-the-cycle group return requirements, which you are well aware of, that is greater than 20% ROTCE.

When we do acquisitions, we look at the entire group. Given the fact that it's managed as one large group, it's not as a separate entity, given the synergies, given the best practice sharing, and that is one that we don't look at it as an individual investment. But suffice it to say, we underwrote it to through-the-cycle group ROTCE returns. And given that we're -- this is a franchise that we're maintaining for hopefully a forever hold period, you should look at it in the context of the entire group.

And just to remind you, we said the group ROTCE hurdles, I mentioned it at year-end through the cycle, in certain years, you will overdeliver, but that should be seen as more of a floor. So Enver, do you want to take that? I think there was a question on fair value.

Sure. Robert, on fair values, I think it's too early to talk about it, but I think it's fair to say with -- in line with prior practice, what we have done is that we would try to reinvest any potential positive fair value gains of day 1 into the business and reinvest it rather than taking a day 1 gain.

We are now going to proceed with our next question. And the questions come from the line of Hugo Cruz from KBW.

So my first question is around the PTSB AGM to approve the deal. You need to have 75% of those voting in favor. It's quite a concentrated shareholder base. So I was wondering if you could give us any color on any risk that this doesn't get approved? And also if you've had any discussions with some of the other shareholders outside of the Irish government? So that's my first question.

Then I wanted to ask you a couple of other things. So one on PTSB, once it comes into the group, do you -- they have quite a high RWA density. Do you already have a view on if there's any potential of moving them into, let's say, models with lower density?

And the final question on how do you expect to manage this business going forward? Are you keeping a separate legal entity or a Board in Ireland? Or is the plan to kind of get synergies from a branch approach?

Thanks, Hugo. Enver, do you want to take those questions?

So I'll start with the first one. So I think the -- we can't really say anything about the AGM, but I think it's very important to get the 57% vote out of the 75%. But yes, there is going to be a vote that the rules are set. We think the risk is limited, but still there's going to be a vote, and we have to wait for it. I think the second question, Hugo, was any intention to move to models with lower intensity? Is that IRB related, I guess, Hugo?

Yes, exactly.

Yes. So we have the situation, as you know, that we moved most of our models to a standardized approach, especially for retail models. The situation is different with PTSB. And that's something that we need to sit down together once the transaction closes together with the PTSB team as well as with the regulators and discuss the best way forward. But we have not decided yet.

And then the last one was the branch approach, I guess. Yes, I think what we also said in our 2.7 announcement today, so we will keep it a separate entity with a full license in Ireland. So we will not try to branchify. So it's going to be separate entities in the future.

We are now going to proceed with our next question. And the questions come from the line of Jordan Bartlam from Mediobanca.

In the announcement document, it says that you'll review PTSB's fixed asset base following completion, but don't currently intend to make any material changes to redeployment of that fixed asset base. Just wondering if there's anything to read into that in terms of the plans to the footprint going forward. And within that, whether that -- how to factor that into any potential cost synergies going forward?

Thanks, Jordan. I believe is the question related to branches? Is that what you're referring to?

Yes. In the announcement document, there was a comment in there saying that there is no intention to make any material changes to that fixed asset base of PTSB. I'm just trying to work out how the 2 kind of tie up and indicate those.

Yes. Okay. So you're referring to the branches. Yes. So we have indicated, we actually think that the branch network, the nationwide branch network is a real asset. And that if you think about our history of having a kind of a traditional banking model that was more transaction-focused and how we've been able to transform that to kind of a digitally enabled but high investments in advisory, having the right folks, pushing the right distributions, we think that is going to be really complementary -- that the branch network, in particularly the relationships that the PTSB team has built up with their customer base over the decades, we think that's a real asset and that the branch network is one that will continue to be an asset for the company.

[Operator Instructions] We are now going to proceed with our next question. And the questions come from the line of Aman Rakkar from Barclays.

I have a couple. First of all, have you had to offer any assurances to the Irish government around Permanent TSB under BAWAG's ownership? I guess I'm thinking about things such as headcount. You've kind of alluded to the branch -- the enduring value in the branch network and the fact that you run it as the existing kind of entity structure. But is there any kind of assurances around headcount or capital allocation or anything that you've kind of had to offer to the Irish government to kind of get this deal over the line.

And then the second question was around just kind of interested in your high-level thoughts around the extent to which you think the franchise requires...

Excuse me, your line is really -- I have a hard time hearing. Can you -- I'm not sure where -- if you could maybe adjust your line.

Can you hear me now?

That's better. Whatever you did, just keep on doing that.

Okay. Should I repeat that first question? Or did you get it?

I think the team got it, but yes, if you can just start with the second one again, please.

Yes. On the second one, I just wanted to get your high-level thoughts around to what extent you think the franchise requires kind of significant investment from here. In terms of the cost base and whether you think there's kind of significant restructuring of the cost base to be done and investment from BAWAG to execute on that?

And then is there any additional color in terms of your ability to drive the top line? I guess that's part of the strategic rationale that's been put forward as to why Permanent TSB Group would be better served as part of the bigger organization. But it's slightly less clear to me, given the fact that you have a presence in Ireland, but not a hugely material one. So if you could kind of elaborate on your ability to drive the top line over and above, say, Permanent TSB stand-alone, that would be really helpful.

Okay. I'll take the second question because I heard that clearly, and then I'll defer to Enver on the first question. I think the question was around what we intend to do from an operational standpoint and the enhancements. And as I mentioned in the presentation, if you look back to the history of BAWAG, I think the part that probably doesn't get communicated as much or people don't understand as well is we've made almost over EUR 2 billion in investments, which was heavily focused on our technology stack and our operations, what we call tech ops.

We think that's a real competitive advantage. That has allowed us to really reduce the friction in legacy transactional banking, which then frees up capacity for our advisers to really be able to advise and distribute fee-type products. That's why I alluded to the asset of the kind of the overall branch network. So that's something that we intend to do to invest heavily in line with what we've done across the larger group to build those digital capabilities. I'd mentioned just the different distribution channels.

And then in terms of the -- it is really unique because there's over 1.3 million customers. And today, it's primarily a mortgage lender, right? Almost -- I would go to say it's a monoline mortgage lender, although there is some SME products as well. But we hope to introduce the full suite of retail and SME products that we've built over the past decade. And that has been organically as well as through acquisitions.

MoCo, which is more just a mortgage product as well as we introduced the deposits recently. That gave us a good sense of operations on the ground and helped us to become much more informed. I think that was the biggest lesson, and we built up a really strong team that will obviously be supportive to with the PTSB. But we're really excited about the opportunity. We don't comment on revenue synergies or revenue growth. I think everything is reflected in the greater than 20% EPS. We tend to be conservative when we do transactions, and I think this is going to be no different. So I'll pass it over to you, Enver, because I'm not sure I got the first question.

I think on the first one, it's very easy. So all commitments that we made are public or are part of the 2.7 announcement that we released today.

This concludes the question-and-answer session. And I would like now to hand back to Anas Abuzaakouk for closing remarks.

Well, let me first say apologies for the issues with our line. I think in the haste of putting all this together, these things happen. So I hope that wasn't too much of a trouble for folks. More importantly, looking forward to talking to everybody next week. Hopefully, we'll be able to address a number of the questions that I kind of referred to the first quarter earnings and had in the discussion. Take care, everybody. Have a great afternoon. For those across the pond, have a great morning as well. Take care.

Good day, and thank you for standing by. Welcome to the BAWAG Group Full Year 2025 Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. There will also be a transcript on the company's website.

I would now like to hand the conference over to your speaker today, Anas Abuzaakouk, CEO of the company. Please go ahead.

Thank you, operator. Good morning, everyone. I hope everyone is keeping well. I'm joined this morning by Enver, our CFO. So we have a lot to cover. Let's jump right into it with a summary of full year 2025 results on Slide 3. For the full year 2025, we delivered a record net profit of EUR 860 million earnings per share of EUR 10.87 and a return on tangible common equity of 27%. The underlying operating performance of our business was very strong with pre-provision profits of EUR 1.42 billion, up 31% versus prior year and a cost-to-income ratio of 36%. Total risk costs were EUR 228 million with an NPL ratio of 80 basis points. The fourth quarter was particularly strong with a net profit of EUR 230 million, a return on tangible common equity of 28% and a strong springboard as we entered 2026.

We exceeded all of our 2025 targets and distributed EUR 607 million to shareholders, EUR 432 million in dividends, which was equal to EUR 5.50 per share and EUR 175 million share buyback, translating into a cancellation of 1.6 million shares or 2% of shares outstanding. Since our IPO in October 2017, we have reduced shares outstanding by 23% with 77 million shares outstanding as of year-end 2025. We closed the year with a pro forma CET1 ratio of 14.6% after setting aside EUR 481 million for dividends, equal to EUR 6.25 per share, which we will propose at our Annual Shareholder Meeting in April as well as deducting the EUR 75 million share buyback that we completed earlier this year. The recent buyback was used to fund employee stock and remuneration programs as we are keen to avoid diluting our shareholders.

Our liquidity position is robust with cash of EUR 14 billion, equal to 19% of our balance sheet. Organic customer loan growth was strong, up 3% year-over-year when excluding the Barclays acquisition, including the Barclays Consumer Bank Europe acquisition, customer loans were up 12%. Net interest margin for the business was 329 basis points, up 22 basis points from prior year and reflecting the positive impact from the German credit cards and strong growth in consumer and SME. Despite our record performance in 2025 and an EPS CAGR of 14% over the last 3 years, our best years lie ahead. Our strategy has been consistent since 2012, one focused on being patient, disciplined, cutting through the noise and embracing a continuous improvement mindset. Our resilience is proven by our ability to consistently deliver results and improve each year.

On the back of strong customer loan growth in 2025 and the integrations delivering ahead of plan, we are updating our targets and introducing a new 3-year rolling outlook. We are now targeting net profit of over EUR 960 million in 2026, over EUR 1.1 billion in 2027 and over EUR 1.2 billion in 2028, excluding any potential acquisitions. This translates into a net profit CAGR of 12% over the next 3 years from 2025 through 2028. We also continue to build up excess capital with over EUR 1.1 billion projected from 2026 through 2028, leaving us with over EUR 1.5 billion of excess capital, which includes our pro forma excess capital of EUR 468 million to earmark towards M&A, capital distributions or potential new growth opportunities above our stated plans.

It's important to note this excess capital is incremental to the capital underpinning our updated 3-year targets and post our 55% dividend payout ratio. Through the cycle, we are targeting an ROTCE over 20% and cost-income ratio under 33% as the franchise continues to reap the benefits of long-term investments and scale as we build out a pan-European and U.S. banking group. When we refer to through the cycle, there will be years we deliver higher returns given the current rate environment and benign credit cycle with our targets representing a more conservative floor. However, our goal is to consistently deliver results and be prudent in how we run the bank, accounting for the cyclical nature of markets and lending. Our CET1 target remains at 12.5%, 227 basis points above our minimum regulatory capital requirements.

Going forward, we plan to provide a rolling 3-year outlook with full year earnings allowing for a more dynamic outlook that captures internal as well as external developments more real time.

Moving to Slide 4, our capital development. At year-end 2025, our reported CET1 ratio landed at 14.2%. We generated 417 basis points of gross capital from earnings. Closed on the Barclays Consumer Bank Europe acquisition using 180 basis points when compared against year-end RWAs and made or earmarked capital distributions equal to 350 basis points which comprised of earmarked dividends of EUR 481 million as well as EUR 250 million of share buybacks completed across 2 tranches. We also completed 3 SRT transactions, which funded the underlying business growth and provided a net capital relief of approximately 60 basis points.

On a pro forma basis, our CET1 ratio was 14.6% equal to EUR 468 million of excess capital above our CET1 target of 12.5%. This factors in the sale of a minority investment that signed in the fourth quarter of 2025 and is expected to close in the first half of this year. This excess capital starting point provides us with a significant amount of dry powder to capitalize on unique organic and inorganic opportunities should they arise. It is important to note that both the Knab and Barclays Consumer Bank Europe acquisitions were fully self-funded. As our owner operators, we strive to be good stewards of capital, prudent and disciplined in how we allocate capital with a strong aversion to diluting shareholders. However, this is only made possible because of a very strong earnings and capital generation as we are positioned to deliver a through-the-cycle return on tangible common equity of over 20%.

Slide 5. Positioning our balance sheet for growth while staying conservative. A key pillar to our strategy is maintaining a conservative balance sheet that is positioned for growth, ensuring we have excess capital and liquidity and always focusing on risk-adjusted returns taking a proactive approach to risk management. As we look ahead to 2026 and beyond, we have positioned our balance sheet in a few ways. We have purposely kept an excess cash position providing us with dry powder from a liquidity standpoint. We have EUR 14 billion of cash equal to 19% of our balance sheet, and our securities portfolio remains underinvested at EUR 3 billion, equal to 5% of our balance sheet, while we target more of a long-term range of 15% to 20% in a more attractive spread environment. We continue to be patient and disciplined and we'll be ready to deploy into customer lending as well as adding to our securities portfolio when the right opportunities present themselves that meet our risk-adjusted returns.

As far as customer loans, we are focused on secured and public sector lending with an inherently low risk profile as well as providing us with a source of long-term funding. Over 80% of our customer book is secured or public sector lending that is conservatively underwritten and well collateralized. Housing loans account for over 50% of our customer loans with an average LTV of 55% on the nonguaranteed mortgages. In total, 60% of the mortgage portfolio has NHG government guarantees, insurance or risk transfers. Additionally, we have EUR 13 billion of covered bond funding relative to approximately EUR 40 billion of mortgages, commercial real estate and public sector assets with significant potential for further long-term covered bond funding. Over the years, we have deployed various risk management tools to proactively mitigate credit risk and free up capital to fund growth using CDS direct insurance and significant risk transfers or SRTs, in the form of cash and/or guarantees.

We use SRT specifically to free up capital to fund growth and as a loss mitigation tool with an emphasis on unsecured lending. Today, SRTs have become quite prevalent, but our focus over the years was risk mitigation accounting for through-the-cycle losses and ensuring we stay competitive from a risk-adjusted return standpoint. This has become more pronounced across mortgage lending as we transition to the standardized approach in 2024. Today, SRTs cover EUR 9 billion of assets on the balance sheet, of which EUR 6 billion or 2/3 are tied to mortgages on the standardized approach. SRTs on mortgages improve capital efficiency on a low-risk asset class, allowing us to fund growth and better compete with IRB banks and nonbank lenders.

SRTs on unsecured and specialty finance assets, which account for EUR 3 billion, primarily consumer loans, credit cards and corporate loans, mitigate risk of unexpected losses and work more as an insurance policy, specifically against volatility of macro sensitive assets. In terms of lending activity, 2025 was another year defined by being patient and disciplined. Although we saw a pickup in lending activity across consumer and SME, the pricing environment is still challenging across mortgages and corporate lending. We have strategically avoided chasing growth as credit markets remain frothy given the number of players driving down margins and foregoing loan protections. We believe credit risk in general is mispriced given geopolitical risks, the fiscal situation of many sovereigns and a flawed short-term focus on aggressively pushing lending volume given the perpetual need to deploy capital as incentives have decoupled from performance.

On the flip side, our commercial real estate business continues to perform well, and we are finding pockets of opportunity. This is a result of our conservative underwriting over the years and underlying exposure to residential, industrial and logistics assets. which make up approximately 80% of the portfolio. The U.S. office sector overall remains distressed. However, we are now seeing pockets of opportunity in select idiosyncratic transactions across the capital structure.

Moving to Slide 6. Building a pan-European and U.S. banking group. Our success over the years is a result of embracing a continuous improvement mindset, one that allows the company to constantly adapt. This past year was no different. Even though our company is in great shape, we must adapt from a position of strength and not fall victim to complacency. The recent acquisitions have been a catalyst for building the operating framework for a pan-European and U.S. banking group. As we look to the future, we must challenge the status quo we reimagined the company. In the face of shifting demographics, changing customer behavior and transformative technologies, we need to ensure that we stay competitive and relevant for the long term.

Over the years, we have transformed from a branch-heavy business with limited digital capabilities to a digital-first bank complemented by a high-quality advisory branch network. We self-funded 14 acquisitions, expanded into 6 new countries and built a strong leadership team with a deep bench in an owner-operator mindset. Today, our business is 90% retail and SME, 90% digital originations and 90% tied to the euro countries of Austria, Germany, the Netherlands and Ireland. With the integrations of our 2 recent acquisitions largely complete, we are positioning ourselves for future growth, both organic and inorganic. We have redesigned the company to reflect both the broader footprint as well as capture new opportunities. We are starting to see the benefits of greater scale and efficiencies, greater digital engagement, a wider geographic footprint and more opportunities to pursue.

Most importantly, our transformation over the years has been anchored to our culture. We foster an owner-operator mindset, encourage entrepreneurial thinking and continuously challenging the status quo. Our senior leadership team embodies stability and dedication with the Management Board and senior leaders collectively owning approximately 5% of the company. This reflects our owner-operator culture and commitment to long-term success of the franchise. This group has an average tenure of 12 years. 25% of our current leadership team joined through prior acquisitions, and we continue to build a deep bench of leaders cultivated through internal development programs, mentoring, strategic recruitment and acquisitions.

This is vital as we expand into a pan-European and U.S. banking group, ensuring we have the proper bandwidth and skill set to grow the business and address the many challenges and opportunities ahead. Our future success depends on preserving this truly unique and dynamic culture as our company continues to grow and evolve.

Moving to Slide 7. Technology underpinning our transformation, AI is the next leg. Despite our achievements over the years, we recognize that ongoing technological disruption, specifically the rapid advance of artificial intelligence, demands that we proactively redesign our company. This era of innovation and disruption will fundamentally reshape how we serve our customers, structure our organization and define the very nature of work. As a result, some technologies and processes will quickly become obsolete, requiring us to rethink traditional roles and create entirely new ones. The economic landscape is evolving in ways that are hard to understand or predict. Our goal is to proactively navigate these changes and ensure the long-term success of our franchise.

We plan to incorporate AI into our operating framework. We will significantly enhance customer service making this a true competitive advantage as we reduce friction in our processes, enable immediate and effective first touch resolution. While we have already made significant strides in driving operational efficiency, we must remain focused on continuing to eliminate unnecessary bureaucracy, freeing up our people to engage in more impactful and rewarding work that requires more creativity, problem-solving and critical thinking. Our goal is to free up advisers to spend more quality time with customers, enable our operations and call center teams to focus on more complex cases and portfolio management and streamline central functions to play a more strategic role across the group.

Central to our AI strategy is building the right technical infrastructure and fostering institutional expertise to remove friction for both customer journeys and internal operations. Our TechOps investments over the years have enabled us to fully migrate to the public cloud, enhance our data architecture and adopt standardized workflow and reporting tools. This technical foundation will be the foundation for building an AI operating framework, one that seamlessly integrates technology, supports robust governance and drives impactful use cases. To support this, we have set up a dedicated team of business process engineers within our TechOps Group combining process know-how with technical skills to lead AI initiatives in close partnership with functional experts. However, we believe that before AI can be properly implemented, there needs to be NI or natural intelligence around the process.

This means team members with deep process and institutional knowledge working closely with business process engineers to redesign processes through simplification measures, basic workflow automation and ultimately, AI. We believe AI will ultimately enhance our operational excellence and best-in-class efficiency in the coming years, a true differentiator for BAWAG and our competitive advantage.

With that, I'll hand over to Enver.

Thank you, Anas. I will continue on Slide 9. In terms of our balance sheet and capital, customer loans were up 2% and customer deposits were up 4% quarter-over-quarter. Organic customer loan growth was 3% year-over-year when excluding the Barclays acquisition, including the Barclays acquisition, customer loans were up 12%. Tangible common equity is up 9% year-over-year after setting aside a EUR 6.25 dividend per share or EUR 481 million in absolute terms, which we will propose at our Annual Shareholder Meeting in April. We maintained a fortress balance sheet with EUR 14.1 billion in cash equal to 19% of our balance sheet and LCR of 204% and overall strong asset quality with a loan NPL ratio of 80 basis points.

Moving to Slide 10, a strong last quarter with net profit of EUR 230 million and a return on tangible common equity of 28%. Core revenues were up 3% versus prior quarter with net interest income up 3% and net commission income up 4%. Operating expenses were down 3% in the quarter and cost income ratio stood below 34%. Risk costs were EUR 64 million or 45 basis points in the quarter, including provisions for a single name default.

On Slide 11, our core revenues. Strong performance, net interest income was up 3% in the quarter, driven by robust customer loan growth of 2%, with strong momentum in real estate and public sector, solid consumer business and stable mortgage lending. Net interest margin at 332 basis points improved on back of better asset mix, while deposit beta improved by 1 percentage point to 37% in Q4. Net commission income was up 4% with continued strong momentum across business lines, particularly in credit cards and payments. For 2026, we anticipate a continued positive trend with net interest income and core revenues expected to grow by 6%.

On Page 12, operating expenses at EUR 194 million, a 3% decrease for the quarter with the cost income ratio at 33.8%, similar to levels before both acquisitions. To date, more than 80% of the acquisitions have been successfully integrated as planned and cost synergies have increased particularly after the branchification of Knab last November. We continue to drive operational initiatives designed to streamline processes and enhance long-term productivity across our business lines. Combined with the completion of integration efforts, these measures are expected to improve our operational efficiency. We expect a reduction in operational expenses by more than 5% in 2026. Regulatory charges are projected to increase by EUR 9 million to EUR 48 million in 2026 due to increased size of our balance sheet.

Moving to Page 13. Risk costs were EUR 64 million in the quarter, driven by a provision for a single name default and higher share of retail consumer lending. Asset quality remains solid with an NPL ratio of 80 basis points. We expect continued strong asset quality in 2026 with a risk cost ratio of around 45 basis points mainly reflecting a higher share of consumer lending and otherwise strong credit quality.

Slide 14. Our retail SME business delivered a quarterly net profit of EUR 210 million, a very strong return on tangible common equity of 39% and a cost income ratio of 31%. Pre-provision profits were EUR 343 million, up 10% compared to prior quarter with core revenues 4% stronger versus prior quarter, while operating expenses were down 8% in the quarter. The retail risk costs were EUR 58 million, with a risk cost ratio of 60 basis points. We continue to see solid credit performance across the business with a low NPL ratio of 1.2%. Average customer loans and deposits grew by 1% in the quarter, and we expect continued growth across the retail SME franchise in 2026 driven by solid growth in consumer and SME with mortgage originations slowly starting to pick up.

On Slide 15, our corporate real estate and public sector business delivered fourth quarter net profit of EUR 37 million and generating a strong return on tangible common equity of 29% and a cost income ratio of 23%. Pre-provision profits were EUR 58 million, while risk costs were at EUR 6.5 million, mainly tied to provisions for a single name default. Average assets were up 4% in the quarter, with strong momentum in real estate and public sector while corporate lending remained muted. We'll continue with our current approach in 2026 and stay patient, focus on disciplined underwriting, risk-adjusted returns and not blindly chase volume growth.

Slide 16, our updated targets. Following strong customer loan growth in 2025 and progress on integrations being ahead of plan, we are revising our targets and the 3-year outlook. We are targeting net profit exceeding EUR 960 million in 2026 over EUR 1.1 billion in 2027 and over EUR 1.2 billion in 2028 with a 12% CAGR from 2025 to 2028, excluding any acquisitions. Our strategy focuses on improving operating leverage by increasing core revenues and consistently reducing expenses. Top line growth will come from 3% to 4% annual loan growth a higher asset margin due to an improved asset mix and positive effects from deposit hedge roll off. Following integrations, we aim for annual net cost reductions through 2028. These efforts will drive ongoing improvement as we continue investing in advisory, tech infrastructure and data assets.

Looking ahead, with continued mix shifts and effective underwriting, we expect risk costs to remain at 45 basis points for the next few years. In addition to our profit targets, we plan to generate over EUR 1.1 billion in incremental excess capital by 2028, following a dividend payout of 55%. The resulting excess capital of more than EUR 1.5 billion by 2028 may be allocated towards organic growth initiatives, further M&A or capital distributions. Our through-the-cycle targets remain unchanged with a return on tangible common equity of above 20%, cost income ratio of below 33% and a CET1 ratio target at 12.5%. And with that, operator, let's open up the call for Q&A. Thank you.

[Operator Instructions] The question comes from the line of Gabe Kemeny from Autonomous Research.

My first question is on the 2027 guidance that you upgraded by around EUR 100 million. I understand this is primarily NII driven. And can you confirm it's mostly the asset mix as you are shifting more towards consumer to remember about the hedges, how the hedge positions have become more -- or expected to become more profitable? And specifically, on consumer, you pointed out that it's growing nicely. Can you speak a bit about the drivers and the growth outlook in this segment? My other question will be on capital. I mean you ended the year at EUR 0.5 billion of excess capital, but not doing a share buyback for now.

Yes, I understand you are working on -- you are looking at various capital deployment options. But when do you think you will be able to decide on whether you do a share buyback this year or not? And my final question is a broader one. I understand you can't comment on transactions. But can you share your views on the Irish banking market and the performance of your local business there?

Okay. Gabor, let's -- I'll start with the capital allocation question 2 and 3, Ireland and then Enver will take the 2027 guidance, some of the specifics. So all good questions, Gabor. Thanks for submitting. As far as capital allocation, we always say as part of our capital allocation framework, we will assess at year-end given our excess capital position. This is really no different this year. The only difference is we're assessing a number of market opportunities, and we'll be in a better position to communicate what we're going to do with our excess capital and overall capital allocation, hopefully, by the first quarter results.

I think we're going to be in a good position. As to your general question of Ireland, we entered Ireland 2 years ago through MoCo and that was on the back of having studied the market and having went into Ireland for a number of years. We bought DEPO, which was a wind-down platform. We think Ireland is one of the most robust banking markets across the European Union. But that's not a development today. That's been our belief over the past few years. So we think it's structurally a really good retail banking market. But that's one of our core 7 markets that we've defined in 1 of the 4 core European markets. So I will pass it over to Enver on the '27 guidance.

So Gabor, on your question, I think, related to the NII development. Yes, there are 3 factors that we laid out. The first one is we assume loan growth of 3% to 4%. And if you look back, this is consistent with the performance that we have seen, especially over the last 12 months. The second one is better asset mix. The overall balance sheet structure will not change significantly. When we say we have 80-20, like 80% secured public sector lending, then 20% unsecured, that's going to be the same mix in the future.

The only difference, if you look at the front book NIM, the asset mix is healthier in terms of NIM improvement, mainly driven by consumer lending and the credit card business that we acquired, obviously, last year. And the third element is the deposit hedge roll, which is more a technical effect given the duration of our structural hedge that is on the long tail 10 years rolling or 5 years effective. And that effect is coming through now in '26, '27 and '28. I hope that helps.

Your next question comes from the line of Hugo Cruz from KBW.

So yes, could you give a little bit more detail on those NII dynamics? So where do you expect loan growth to -- I mean, you said it was a bit in line with the current trends. But if you could kind of give us a bit more granular expectations of loan growth by country or by key products? And also, can you quantify the benefit from the deposit hedging in each year, so like kind of where is the kind of the front book yields and size of the portfolio, so we can try to model it, please? And final question on M&A, can you remind us like what is your ROI and EPS accretion thresholds for any deals that you might announce?

Okay. Thanks, Hugo. All good questions as well. Let me start with the easy one, the last one. When we do M&A, consistent with the 14 acquisitions that we've done over the past decade, we have the defined return threshold requirement. That for us is kind of our franchise through the cycle return on tangible common equity of over 20%. And I think if you look at prior deals, we've obviously had, I think, really strong performance and outperformed a particular threshold. But you should think of that as kind of the floor. And then when we look at just M&A and just inorganic opportunities more generally, we measure that against potential share buyback.

And I think if you look at not that we focus on the share price or valuations that we don't make strategic decisions based off of that. But if you look at where the business is trading on a price to earnings basis, and take a 2-year 4 PE multiple, I think share buybacks are still very attractive. It's a good return for our investors given that we, I think, trade at or slightly below the European bank index in terms of PE multiples. Okay. So that was M&A return thresholds. What was the...

Loan trends.

So loan trends. More broadly, Hugo, I tried to give some color during the presentation and Enver can add more specifics. But if you look at the different asset classes, so within consumer and SME, the credit card business actually has performed better than we had underwritten after making the acquisition. And that I think that trend will continue in the years to come. That's specific to Germany, but also potentially Austria and adjacent countries, but that's really not in the numbers. Specialty finance which is leasing, in particular, both auto and equipment leasing, I think that's been a positive development as well as our factoring business, and that's a mix of NII and NCI.

The mortgages, I'd say, has been from a consumer standpoint or retail and SME standpoint has been probably the one challenged area, not so much because the volume is there, but I made a comment around just overall margins. And when you look at kind of risk-adjusted returns, I think there's certain levels that for us, we think, have become irrational as far as pricing. So we're pretty conservative on that front. I think when you think about overall mortgages. Now that obviously varies between different countries. I think it's more challenged in Austria and Germany. We see good opportunities in the Netherlands and Ireland from a mortgage standpoint.

Just to answer your question about specific geographies. And then when you look at the nonretail and SME business, I would say don't have much expectations for us, at least in our planning for corporate lending. Obviously, there's pockets of opportunities but the general comment about credit risk being mispriced really is focused on corporate lending and corporate credit risk. And it just feels like there's an irrational exuberance and a real strong focus on volumes because a lot of capital has been -- what's the right way of saying this? There's been a lot of capital that has been raised across different platforms, public and private. And when you raise that much capital, you're incentivized, I think, to deploy that capital and to grow AUM and that was my comment about decoupling of performance in a lending environment.

So that's one where I think we'll just continue to be conservative. Public sector, we see good opportunities. More broadly, not just in Austria but across kind of the core markets that we're in. And then commercial real estate, which is really residential in one form or another. Industrial logistics also to a certain extent, but it's been really focused on residential. That has been robust and we see a good pipeline on the back of a strong fourth quarter. So when you put all of that together, Hugo, that I think, gives you a good perspective and why the team, we feel pretty confident. We usually don't give loan volume targets but this is 1 to 2 points above kind of blended GDP growth in the markets that we're in, which translates to about 3% to 4% loan growth. And hopefully, we'll be able to execute and hopefully even over-deliver.

I think there was a question on the contribution of the deposit hedge to the overall NOI and the trends. We try to provide the details on that target page, but probably I would phrase it is -- if you think about 2026, we are saying the NII will grow by more than 6%. And if you want to break it down by asset or loan growth on the one side and the liability side on the other side, I would probably say 2/3 is coming from loan growth and asset margin improvement and 1/3 is coming from the deposit side. So if you like, 2 points around about deposits and 4 points plus is on the asset side. And I would assume a very similar trend for the other years. Obviously, there's always some nuance to that. But directionally, this is the formula for the NII growth in '26 and the other years.

The question comes from the line of Jeremy Sigee from BNP Paribas.

You've got about EUR 0.5 billion surplus capital as of now with the pro forma numbers. Just continuing the discussion about capital deployment and investment opportunities, could you talk about your attitude to -- so I mean, you could already afford to do another Knab or Barclays Germany. But could you talk about your attitude to potentially larger transactions if something came up in the EUR 1 billion, EUR 2 billion range. Would that be manageable? How would you see the risk reward? And what would be your attitude to potential share issuance or other financing options for that?

Thanks, Jeremy. Good question. I would say, look, if you look at our history of deals that we've done, 14 acquisitions, right, and that's some portfolios as well. It's ranged from as small as EUR 0.5 billion to as large as almost EUR 20 billion we do not discriminate in terms of size. I would say the one thing that we're probably more sensitive to now given just the position of the franchise is a small deal takes as much time as a large deal. So we have no aversion towards going after larger deals, and that varies in size.

I think you mentioned EUR 1 billion to EUR 2 billion in terms of acquisition price. I wouldn't even look at it through that lens. I think from our standpoint, when you look at it through [indiscernible] can we actually create value when we think about what makes BAWAG unique in terms of our culture, our focus on operational excellence, managing the balance sheet, focusing on conservative markets. I think 50% of our balance sheet today is in -- our customer loans is in mortgages. We have a -- how much can you lose as opposed to how much can you make the type mindset when we think about risk management.

And all of that kind of factors into our overall decision. And I would say an important intangible element is do we have the bandwidth and I kind of alluded to it during the presentation, which was I think we have a deep bench of senior leaders. We'vd worked together for over a decade. And I think we have the bandwidth to be able to take on larger acquisitions. And given that the 2 acquisitions are largely complete, Knab and Barclays Consumer Bank Europe, I think we have the bandwidth to be able to address larger acquisitions going forward. Was there another question we were seeing? I think that was in the M&A.

Just about also financing. We just have financing as well. I mean, that would imply if it was bigger than the surplus capital so you had to issue some shares as part of the transaction, what would be your attitude to that?

Jeremy, we're not averse to issuing shares. But if you look again at the 14 deals that we've done, you saw the 2 deals that we did concurrently the more recent ones, we've self-funded everything. We generate over 400 basis points of gross capital through earnings. As you rightly stated, we have about EUR 0.5 billion. We're talking about making almost EUR 1 billion this year. I mean if you kind of put all this stuff together, I think we're in a really fortunate position where we generate a significant amount of capital that to the extent that we can avoid ever diluting shareholders, that's our default position. Yes, we're not [indiscernible]

The next question comes from the line of Borja Ramirez from Citi.

A couple of questions on the NII, please. So the NII guidance includes 6% annual growth includes 4% from the asset side and on the deposit side, if I understood. From the asset side, are you assuming any redeployment of your excess cash into bonds in your target? And then on the deposit side, are you assuming deposit beta remains stable? And also, could you please remind me the notional and the yield of the hedge and the duration, please?

So Borja, I think it's easy to answer. Yes, the split is plus 4% and plus 2%, as I mentioned previously. We do not assume any redeployment of the excess cash into bond investments. So that's not in our numbers. We'd like to do, yes, we have a lot of excess cash to deploy. But if you look at the current market trends, we do not expect any widening of the credit spreads at the current stage. I think the other question was around the structure of the deposit hedge, I guess. So 40% of our nonmaturity deposits, so which oscillates between EUR 35 billion and EUR 40 billion. So 40% of that directionally, we put on a structured hedge, which is 10 years rolling monthly. So on average duration, you have 5 years on that part. And that's the main driver then for the NII uptick in the outer years.

Your next question comes from the line of Amit Ranjan.

The first one is on the slide on AI, Slide 7. How should we think about the investments versus the savings? Are these gross cost savings initiatives, which are then invested in the business? And at one point, midterm, we should think about some net cost savings from this?

Amit, good question. The way you should think about the AI is, look, AI is built into kind of our technological transformation. It's just one component of many components. If you're asking specifically around where is the cost out, it's -- everything is within kind of the mixture of under 33%. And I'd mentioned also like the -- through-the-cycle targets, those are more floors and obviously, hopefully, we look to overdeliver. But for us, AI in terms of like reinvestments, we've continuously made technology investments over the years.

It's not a one thing comes out and one thing goes up. We look at it at a macro level in terms of are we making the right technology investments? Are we building up our tech ops capabilities? And I think that's more was my comment around we will always be best-in-class when it comes to operational excellence as well as efficiency, and that's a true competitive advantage. So we don't go into this kind of change the bank, run the bank. These are like the monikers that we just don't look at it that way, so.

And just one clarification on the NII, are you using the forward curve for '26 and beyond?

Sorry, could you say that again?

Are using the forward curve?

Yes, we always update the numbers based on the most recent forward curve.

There are no further questions in the queue. I will now hand back to Anas Abuzaakouk for closing remarks.

Thank you, operator. Thanks, everyone, for joining this morning. Sorry for the slight delay to get started, but we look forward to catching up with you during first quarter results. Take care, everybody. Have a nice day.

This concludes today's conference. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the BAWAG Group Q3 2025 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. There will also be a transcript published on the company's website.

I would now like to hand the conference over to your speaker today, Anas Abuzaakouk, CEO of the company. Please go ahead.

Thank you, operator. I hope everyone is doing well this morning. I'm joined by Enver, our CFO. Let's start with a summary of third quarter results on Slide 3. We delivered net profit of EUR 219 million, EPS of EUR 2.77 and return on tangible common equity of 28%. The performance of our business was strong with operating income of EUR 555 million, pre-provision profits of EUR 354 million and a cost-to-income ratio of 36%. Total risk costs were EUR 52 million, translating into a risk cost ratio of 37 basis points as we continue to see solid credit performance across our businesses.

In terms of our balance sheet and capital, average customer loans were up 1% and average customer deposits were down 2% quarter-over-quarter. We have a fortress balance sheet with EUR 13.5 billion of cash, an LCR of 201% and an overall strong asset quality with a low NPL ratio of 76 basis points. During the third quarter, we completed our EUR 175 million share buyback and canceled 1.6 million shares, leaving us with 77 million shares outstanding, which is down 23% from our IPO back in 2017. For the quarter, we landed at a CET1 ratio of 14.1% after deducting the dividend accrual.

The operating performance of the business across the group was solid, but we continue to be patient and disciplined with 19% of our balance sheet in cash in a market environment where we believe credit is still frothy. The integrations of Knab and Barclays Consumer Bank Europe are both going well with the growth of the cards business really standing out. The teams are focused on the blocking and tackling of integrations and executing on our road map. The gains you see are incremental but build up with each passing quarter. This is the first quarter where you see integration efforts start to materialize in terms of reduced operating expenses, and this will continue in the quarters ahead. As for key milestones, we are planning for the Knab Bank merger to be completed by the end of this year and have been working on testing key system migrations scheduled in 2026.

Our goal with both integrations is clear, fully integrate into the group operating framework and culture, work as one team and speak with one voice. Both integrations have also served as a catalyst for an organizational redesign as we grow into a pan-European and U.S. banking group. The foundation of this redesign is a digital-first approach to banking, complemented by a strong advisory-focused branch network. We are now able to realize the gains of technology investments made over the years in creating a common tech ops platform that can scale with the benefits increasing from various operational and AI initiatives. We plan to share more of what we've been working on with year-end results.

The recent stress in corporate lending does not come as a surprise. We have witnessed a blind focus on volume growth leading to lax underwriting and increased risk taking in various forms. In contrast, our approach has always been to remain patient and disciplined, prioritizing risk-adjusted returns over share of volume growth. Ultimately, increased stress and volatility in the market work to our advantage as they lead to a repricing of credit risk and a return to more rational and disciplined lending. We are on track to exceed all 2025 targets and are building momentum going into 2026. With strong earnings and capital generation, a fortress balance sheet and a long-term mindset geared to avoiding the latest fad or hype cycle.

Our focus is prudent capital allocation, making investments that drive long-term profitable growth and preparing the business for both the opportunities and challenges stemming from volatile markets, technological innovation and disruption and an ever-changing banking landscape.

Okay. Moving to Slide 4, capital development. At the end of the third quarter, our CET1 ratio was 14.1% after completing the EUR 175 million share buyback program and EUR 120 million dividend accrual for the quarter. For the quarter, we generated 114 basis points of gross capital, of which 94 basis points was through earnings. We executed the mortgage SRT during the third quarter, providing relief of approximately EUR 470 million of RWAs against mortgages that were under the standardized approach. We have excess capital of EUR 258 million, 110 basis points above our capital distribution target of 13% in 2025. In terms of any Basel IV output floor impacts, we have zero RWA inflation as we have a buffer of 20 points to our output floor level given 90% of our business is currently on the standardized approach. We will revisit any further capital distributions with year-end results after considering any new business and/or potential M&A opportunities.

On to Slide 5. Our retail and SME business delivered third quarter net profit of EUR 188 million, a very strong return on tangible common equity of 37% and a cost-income ratio of 35%. Pre-provision profits were EUR 311 million, up 57% compared to the prior year. The retail risk costs were EUR 56 million with a risk cost ratio of 58 basis points. We continue to see solid credit performance across the business with a low NPL ratio of 1.2%. We expect continued growth across the retail and SME franchise in the fourth quarter, driven by strong operating performance as we fully integrate the 2 acquisitions and solid growth in consumer and SME with mortgage originations starting to pick up.

On Slide 6, our corporates, real estate and public sector business delivered third quarter net profit of EUR 39 million and generating a strong return on tangible common equity of 31% and a cost-income ratio of 25%. Pre-provision profits were EUR 53 million, flat versus prior year. Risk costs were positive with a EUR 1 million release as we continue to see solid credit performance across the business with an NPL ratio of 10 basis points. As I mentioned earlier, we believe there will be increased stress across the corporate lending space more broadly. No different than U.S. office, when stress builds up, you begin to see the difference in underwriting and asset quality.

As far as our U.S. office exposure, this was down 17% during the quarter and 82% since 2022, with the remaining portfolio of EUR 118 million of performing loans equal to approximately 20 basis points of total assets and 2% of total real estate assets. We will stay patient and continue to focus on disciplined underwriting, risk-adjusted returns and not blindly chase volume growth.

With that, I'll hand it over to Enver.

Thank you, Anas. I will continue on Slide 8. Strong quarter with net profit of EUR 219 million and a return on tangible common equity of 28%. Core revenues were up 1% versus prior quarter, with net interest income up 1% and net commission income up 4%. Operating expenses were down 3% in the quarter and cost/income ratio stood at 36%. Risk costs were EUR 52 million or 37 basis points, broadly in line with the prior quarter. The tax rate in the second quarter was 26%, reflecting our more diversified geographic footprint in 2025.

On Slide 9, the key developments of our balance sheet. Overall, average customer loans were up 1% and average customer deposits down 2% quarter-over-quarter, resulting in a 2% decline in total assets. We maintain a strong cash position at roughly 20% of our balance sheet, ensuring enough liquidity for future market opportunities. However, with spreads remaining at current market levels, we'll stay patient and continue to focus on risk-adjusted returns.

Core revenue developments on Page 10. Net interest income was up by 1% in the third quarter. The average 3-month Euribor remained flat this quarter and is expected to remain at this level, so we will start to see more positive developments in the coming quarters. The group's deposit betas decreased by 10 percentage points to 38%, primarily due to a reduction of high-cost deposits.

In terms of outlook, we expect to see a continued positive trend for the rest of the year. Net commission income was up 4%, reflecting the ongoing positive trend in retail and SME as we have seen over the past quarters. We expect a stable development in the fourth quarter.

On Page 11, operating expenses were at EUR 200 million, down 3% in the quarter and in line with our expectations. The integration of the acquisitions is progressing in line with plan, and we see initial integration effects already materializing. We are also making progress on operational initiatives aimed at further streamlining our processes and unlocking long-term productivity gains across business lines. We will provide an update of our progress with full year results.

We expect integration effects to continue to develop positively in the fourth quarter, and we, therefore, reaffirm our full year guidance of approximately EUR 800 million in operating expenses for 2025 and operating expenses below EUR 200 million for the fourth quarter. Regulatory charges were EUR 10 million in the quarter and expected to be around EUR 40 million for the full year.

Moving to Page 12. Risk costs were EUR 52 million in the quarter, broadly in line with prior quarter and in line with our expectations. Asset quality remains solid with an NPL ratio of less than 80 basis points. We continue to see a robust credit performance and continue to see risk costs at approximately 40 basis points for the full year.

Let me close with the outlook and targets on Page 13. We expect to exceed our 2025 targets of a net profit of EUR 800 million and earnings per share of more than EUR 10.

And with that, let's open up for Q&A. Thank you.

[Operator Instructions]

We will take our first question and the question comes from the line of Gulnara Saitkulova from Morgan Stanley.

So my first question is on the use of excess capital. Can you walk us through your latest thinking on how you decide between deploying excess capital towards the dividends, share buybacks or M&A opportunities? And what are your key priorities in determining the optimal use of excess capital? And how should we think about the potential frequency and scale of the share buybacks going forward, given that your CET1 ratio at 14.1% remains well above 13% distribution target and your capital generation is strong.

And the second question, just on the asset quality, do you see any read across for BAWAG from the recent U.S. credit events and the broader concerns about the credit cycle? What are you seeing on the ground regarding your U.S. exposures within your portfolios? And if you can give your rough estimate of BAWAG's exposure to private credit.

Thank you, Gulnara. Let me just try to unpack. There's a couple of questions. I'll start with the excess capital. So Gulnara, just consistent with prior years in our capital allocation framework, we'll wait till the end of the year with year-end results, assess the excess capital situation. And then based on obviously, where new business development comes in, in the fourth quarter and then as well as any potential M&A portfolio opportunities, we'll make an assessment as far as capital distributions. But the framework is organic growth, new business opportunities, which we have a pretty decent pipeline in the fourth quarter. And then we have our 55% dividend accrual, which has been happening throughout the course of the year. And then we'll look at special dividends or buybacks in the absence of M&A. And all of that will be assessed.

As to where we stand today, buybacks have been a part of our capital distribution framework. If you kind of take a forward-looking view in terms of 2027 targets, our excess capital generation, kind of overall valuation, we still think share buybacks are a critical part of that distribution framework. It makes sense from a capital allocation standpoint. But look, we have to look at that at the end of the year and see what's on the offering.

As to your question on just overall corporate credit, as we went through the third quarter results, I made a comment around just our broad view to corporate lending. And no different than what we've seen in other asset classes in the past. You see this kind of this focus on volume growth really translate itself into aggressive lending. And that aggressive lending, you see that in eroding underwriting standards and this really kind of a singular pursuit of volume growth, and that leads to bad things. And I think what we've seen over the past few weeks in kind of the U.S. corporate lending space more broadly. People say private credit, but I think it's more broad than just private credit. I think you see some cracks there, and that's something that people should be aware of.

I brought to highlight or the example of U.S. office. I think when you have these periods of distress, you really see the differentiation in terms of underwriting quality between different lenders, be it banks, private credit or the like. So hopefully, people are familiar with how we underwrite over the years. I think U.S. office is a pretty good example of that in terms of differentiating our underwriting standards and our approach to lending. And I think this will be no different. So we'll see what happens. But I think, look, we have a very narrow view of the market, but it's hard not to say that there's been stress recently in this space.

Your next question comes from the line of Jeremy Sigee from BNP Paribas Exane.

These follow on a little bit from the previous questioning. Could you talk a bit more about loan growth? You've obviously seen some in the quarter. You had 1% Q-on-Q loan growth, and you mentioned the decent pipeline. Could you just talk about where the opportunities are? So where are you seeing demand and attractive pricing that you can take advantage of? So that's my first question, where you see the good loan demand.

And then secondly, just again following up, you talked about the year-end review of capital deployment and the question about M&A opportunities. What's your view on timing for how soon you could start more serious work on M&A projects? How much would we have to wait for that to be realistic?

Okay. Good questions, Jeremy. Let me start with the loan growth, and I'll address kind of just M&A framework more broadly. So loan growth, if I kind of take you through kind of a tour of just the different asset classes, I would say consumer and SME has been pretty robust across the board, if you kind of see quarter-over-quarter, but as well as on a year-to-date basis. And that's really driven by the credit card business. I mentioned it that the Barclays has really been a standout business, more so than we had underwritten to, to be honest. And the consumer loans in general across the different jurisdictions has performed well. And we see opportunities in secured lending starting to pick up.

On the corporate side, that's more idiosyncratic. That has been, I'd say, a bit more spotty in terms of quarter-over-quarter. We had 3% growth this quarter, but that's on the back of deleveraging from prior quarters, and that's going to be more idiosyncratic in terms of unique corporate lending opportunities. Real estate has picked up. That was up 2% this past quarter, and we see a pretty good pipeline. Hopefully, we get back to kind of where we were at year-end. So that's been a positive development. Housing has been a challenge, not so much from a market opportunity. Those are out there. It's just from a risk-adjusted return standpoint. The pricing has been pretty aggressive, and we try to be disciplined in terms of the margins that we anticipate on that side. But we're seeing a pickup in the third quarter, so hopefully, we'll see positive developments in the fourth quarter as well.

And I'd say the 2 areas that have been most challenged, public sector, that was down quarter-over-quarter. But the challenge in public sector is there's opportunities. But when you see public sector tenders, whereby municipalities or states pricing tighter than sovereign in the same country, that just seems a bit unusual in upside down. So that's something that we won't participate in. And that's more -- that's less a credit issue. That's just more from a yield and margin standpoint. And then the securities portfolio, you've seen continuous deleveraging. The reality is investment-grade corporate credit at all-time tights, whether it's bank paper, CLOs, sovereign across the board, across that whole construct, spreads are super tight at all-time lows. So we'll be patient. And that kind of takes you through a tour of all the different asset classes. So that's on the loan growth.

On M&A, I would say, Jeremy, 2 types of M&A. There's the bolt-on M&A, which is more kind of you're really kind of -- there's an installed customer base. There's a unique channel and then you kind of absorb it into your overall platform. By platform, I mean kind of your centralized functions and your technology and your operations framework. And then there's the strategic M&A. So as it relates to strategic M&A, that's going to take some time if there was anything on the offering. The bolt-on M&A are things that we can execute at any time. And I think by the end of the year, we'll have a better sense of where we stand on the bolt-on M&A. Those are the 2 long-winded answers to 2 questions.

Truly helpful.

Thanks Jeremy.

We will take our next question. Your next question comes from the line of Gabor Kemeny from Autonomous Research.

A few questions from me. First one is on NII, where you had very solid dynamics in the retail and SME segment and some more negative dynamics in Corporate Center. Can you elaborate a bit on that? And going forward, should we expect the customer business to drive your NII? Or is there any distortion we should model from the Corporate Center? That's the first one. Second one, NBFI, a big focus, obviously. Thank you for providing the additional disclosures on Page 21 in your presentation, very helpful. Any additional actions you have been taking on the back of the recent events, news flow? Or is it all business as usual for you, especially if you could comment on the U.S. part of this exposure, please?

And the final one is really a clarification on capital deployment. Just in terms of the sequence of events from here. So in the next 3, 4 months, you will see how the M&A pipeline develops. And let's say, at the Q4 stage, if you have nothing imminent, you would distribute what you have above a 13% CET1. Is it a fair way to think about it?

Yes. Thanks, Gabor. Let me just take the last one on the capital distribution because that's a fairly easy answer. Yes, that's the case. We'll come back in February with year-end results and be able to make an assessment in terms of where we see with capital distribution and lot of new business and then potential bolt-on M&A. And then I'll just take the NBFI or the kind of the lender finance more broadly. So we did provide additional disclosure, Gabor, on Slide 21. And the reason being is just to be able to differentiate between what you're seeing in the market as opposed to what does actually lender finance mean. And really, the takeaway here is this is -- these are senior financing facilities, warehouses, akin to kind of CLO, advance rate of up to 50% on average, kind of a look-through LTV of 2.5x across the host of corporate lending that takes place.

But I think the real thing to focus on is the granularity of pool. There's over 400 companies across 10 facilities. We get comfort from that granularity, that diversification and overall concentration limit. So that's performed very well, absent one idiosyncratic event, which I think Enver had mentioned in the first brands where we had an EUR 8 million exposure. Other than that, we're in a pretty good position. And as I said earlier, during these periods of increased stress and volatility, that's where you start to see opportunities where credit risk gets repriced. And hopefully, we're able to take advantage of some of the opportunities that there's more rational and pragmatic lending in the marketplace.

And I'll pass it to Enver for the NII.

Yes. So I think, Gabor, your question was on what is driving the NII growth in the future. Definitely, it's business driven. It's going to be all business. The elements that you see in the corporate center are reconciliation topics and also some technicalities around timing of repricing and interest rate changes. So I would expect that to be rather close to zero and in the future to see everything happening in the business segments.

We will take our next question. Your next question comes from the line of Amit Ranjan from JPMC.

The first one is on deposits. If you could talk about what is driving the quarter-on-quarter decline, please? And how should we think about the growth going forward? Also related to that, the net interest margin, should we think about the 3.25% in 3Q as being the trough and the trajectory should improve from here on? And the second question is on -- you talked about long-term productivity gains. What are your thoughts around productivity gains from AI? If you could talk about any projects that you are working on currently, please? And what's the outlook there?

Let me start with the OpEx and you can take that's more [indiscernible] Amit, I'd say the -- just on the OpEx, this is the first quarter -- 2Q was a peak as far as overall operating expenses. You saw the decline this quarter, and that will continue in subsequent quarters as we start to harvest the gains of the integration efforts and the productivity focus. AI is a bit of a catch-all. Everybody talks about it. It's a bit of a cliche and there's some hype to it. The reality is for us, and we'll talk about it at year-end in terms of some use cases. AI has just been an accelerant. We shouldn't lose focus that a lot has been done already in terms of machine learning, which I guess falls under AI, process reengineering and automation. That's been going on for years, and we've been making those investments for years. So I think AI is just an accelerant to that, but we'll provide more details at year-end.

Enver, do you want to take that?

Yes. So on the deposits, Amit, in Q3, what really happened was a reduction of high-priced deposits, both on the retail side, which were predominantly online deposits in Germany. And the other part was money market deposits on the corporate side. So high-priced deposits that we let go in Q3. I would not expect that to continue. So our assumption right now is for the rest of the year, stable deposit volumes and probably in the other years a bit of growth on the deposit side. In terms of net interest margin, we always said like 3.25% to 3.30% is kind of the guideline that we have for NIM, and that's going to be very stable also in Q4. That's the expectation.

We will take our next question. Your next question comes from the line of Borja Ramirez from Citi.

I have 2. Firstly is on the NII trajectory going forward. I understand business volumes are one of the main drivers. I would like to ask if there's any benefit from the structural hedge. Also, if you could please remind us on this? And then my second question would be, given the German fiscal stimulus, I would like to ask if you expect some benefit in your -- in the corporate loans going forward?

Yes. Let me take the NII question, Borja. So yes, so it's going to be business growth, is one of the main drivers for NII growth in the other years. But also, we will benefit obviously from the structural hedge. So that roll-off of the hedge of prior years is a net contributor in the next 2 years and is a part, obviously, of the NII guidance that we provided for '27. Ballpark, you can say it's probably 1/3 deposit driven, 2/3 asset driven, the NII uplift that we expect.

On the fiscal stimulus, it's not there yet, to be honest. So yes, we would expect maybe there is an uptick in public sector activity, but it still takes time, I think, till the transmission mechanism works.

We will take our next question. Your next question comes from the line of Tobias Lukesch from Kepler Cheuvreux.

Also 3 questions from my side, please. One on capital and 2 regarding the U.S. On the capital and the SRTs, maybe you could elaborate a bit what is in the pipeline for Q4. And in terms of the excess capital we might see by year-end, is it fair to assume roughly EUR 400 million on that side? On the U.S., with the exposure, I think the filing we have the EUR 6.7 billion by H1 gives the total exposure on balance sheet, you're around EUR 7.5 billion on total. You gave some splits in presentations and so on. We get to EUR 5.1 billion. Maybe you can elaborate a bit on the gap we don't see currently. You mentioned EUR 300 million nonbank financial institutions, but give a bit of a flavor what the rest is?

And thirdly, in general, it seems like you're a bit more upbeat on the expansion into the U.S. recently in the wording, at least what I'm reading. So maybe you can give us also a bit of a flavor like how your further actions over the next years in the plan, how they see this U.S. exposure basically moving from that kind of 12% on balance that we had currently with H1 results.

Great. Thanks, Tobias.

I'll take the first one. Capital and SRT. So pipeline. So we just did a mortgage SRT in Q3, and we are working on a smaller consumer SRT that is small in size than the one that we just did in Q3. And in terms of excess capital, Tobias, we don't provide the exact guidance, but probably you can see from our organic development, what we are doing in the quarter and extrapolate the numbers.

I'll take the U.S. question. So good question, Tobias. I would say let's start with the acquisition of Idaho First Bank, when we did that a few years ago, that was to be able to provide a banking license and raise deposits in the U.S. And at the time, the bank was EUR 0.5 billion or so in size, Fast forward a few years. What we've been able to do is complement what we've already done in terms of corporate and real estate lending in the States. And just to also not confuse the lender finance that you've mentioned, that is on the corporate side and that's part of that EUR 7 billion that you mentioned of real estate and corporates. And the retail and SME side is a mix of what we have in Idaho First Bank, what we acquired, what we've grown there as well as what we're doing on the retail and SME side in terms of asset origination platforms.

And that kind of runs the gamut. 80% of that is effectively secured lending in one form or another. And that's been part of our overall growth trajectory. I think you hit the nail on the head. The most important thing is if you look at the context of what we call the DACH now versus Western Europe and the States, that split will probably be 90-10, 85-15, 80-20, not at any given point in time, but that will kind of go through cycles. But I think those are kind of the bookends of how you should think about the overall asset exposure across the different jurisdictions.

Is there something else there?

Yes, that's it. Thank you, Anas.

Yes. I think that's quite interesting also. I guess you keep the kind of split with the retail SME, therefore, versus corporates, right? That's not going to be changed on that whether you have expansion. But maybe quickly on this EUR 300 million nonbank financial institution exposure, can you elaborate a bit on that? And maybe like are there other bigger blocks of asset exposure to one or the other address you might want to highlight?

No. I mean the reason we put that additional disclosure Tobias was just to kind of demystify when people talk about private credit or NBFIs or all these different topics, we wanted to be able to kind of highlight lender finance and what does that actually mean? But I would caution people there's a whole gamut of what exactly does NBFI lending entail. This is through the lens of follow-up and how we actually underwrite in the areas that we're focused on and what gives us comfort. But I think it's going to be different for every bank until there's consistency in terms of disclosure and also just operational definitions around these terms, to be honest.

We will take our next question and your next question comes from the line of [ Ben Meyer ] from KBW.

I've got 2 quick ones. Just a follow-up on SRTs. I was wondering do you see any constraints to using this tool just generally? And what kind of benefits do you see? Are you -- do you have a target in terms of basis points of capital uplift that you're seeking with these particular tools? And just my second question, you saw quite a decent increase in your total reserves Q-on-Q. I was wondering, should we expect that to continue into year-end and into next year?

You want to take that?

Yes, Ben, I'll take the SRT question. Can you just repeat the last question?

I think he said the increase in reserves. which is, by the way, Ben, that's reserves and I myself got confused on that.

So on the SRT, yes, good question. Are there any constraints? Yes, leverage is something that we look at. Maybe just to remind everyone why we are doing SRTs, the majority -- I mean, close to 100% of our balance sheet is under standardized approach. So we use it for 2 reasons. The one reason is that we applied for risk mitigation. So for especially consumer loans and the likes, it's a downturn protection more so than a capital relief transaction. And for the mortgages and high-quality assets or low-risk assets, it's really just to bridge the gap between like a standardized approach, risk weight and the true risk of the asset. So there is more potential and the real constraint is the leverage that we are looking at. Yes, I think that's how we would look at it. And on the total reserves, yes, it's both, as Anas said. So it's the LPs as well as the NPE backstop that builds up in that position.

And what you should know, Ben there is as you have consumer unsecured and cards, right? Those have the highest provisions. So that's the strongest correlation in terms of coverage, and that runs from 70% to 90%. So that's probably why you see this uptick. But don't forget the NPE or the Prudential Filter is in that number as well.

This concludes the question-and-answer session. I will hand back to the room for closing remarks.

Thank you, operator. Thank you, everyone, for attending the call today, and look forward to catching up with year-end results in February. Take care, and have a nice day.

This concludes today's conference call. Thank you for participating. You may now disconnect.