Vanquis Banking Group plc

Good morning, everyone. Thanks for joining us for 2026 half year results webcast and conference call. I'm Ian McLaughlin, the Chief Executive Officer of Bankless and I'm joined as usual by our Chief Financial Officer Dave Watts. Dave, good morning and welcome. Good morning, Ian. I'll start with an overview of our performance and the updates to our outlook that we've announced this morning. Dave will then take you through some more detail on our numbers and guidance and I'll come back to summarise and then of course, we'll be happy to take your questions. So if I can take you straight to slide four, the first half of 2026 represented another period of significant progress for Bankless. We continued to lay the foundations for sustainable, profitable growth and attractive returns over the medium term. Let me draw out a couple of key points here. Firstly, we delivered a further two quarters of profitable growth. Statutory profit before tax increased by 44% year-on-year to £8.9 million, so exceeding the profit that we delivered for the whole of 2025. Secondly, gross customer interest earning balances increased by 24% year-on-year to more than £3 billion, principally reflecting growth in second-charge mortgages and in credit cards, and this supported an 8% increase in income. Importantly, that growth was delivered while maintaining stable credit quality, reflecting our disciplined underwriting and the continued financial resilience of our customers. We also continue to improve our operational efficiency while still investing in the capabilities needed to support the future scalability of this business. Now Dave will take you through the key financial metrics on our capital position in more detail shortly but at the bottom of the slide you can see that our progress in transforming Banquis and serving customers who are underserved by mainstream banks was recognized through two Euromoney awards for excellence the best bank transformation in Europe and best for consumer lending in the UK on behalf of all our colleagues we were very pleased with that recognition we know we have more to do but we are growing with discipline improving efficiency and building a stronger foundation for sustainable profitability Let me now turn to some of the specifics that we delivered during the first half to support the medium term success of the business. And we've made significant progress operationally, delivering tangible improvements across all three pillars of our strategy to serve more, serve responsibly and scale profitably. Now, I won't cover every initiative on the slide, but I will talk to four areas that we believe are particularly important. First, you underserved more. We are broadening our proposition by developing an installment lending solution to reflect customer demand and the introduction of regulation in the buy now pay later market. We're also delivering an enhanced prime upgrade credit card proposition for customers whose financial resilience that we've helped to improve over time and who may otherwise be in a position to move away from us to a prime lender. These initiatives will allow us to build deeper and longer lasting customer relationships. Secondly, underserved responsibly, we continue to see strong evidence that the improvements we're making are translating into better customer experiences. Our customer satisfaction index score increased to 83.2, extending our outperformance against the industry benchmark, which stands now at 82. And for the first time, we achieved service mark accreditation from the Institute of Customer Service. This external recognition again is particularly important because it reflects not only the service that customers receive today, which has been through a period of significant change, but also shows that the standards, culture and processes that we are embedding across the organization are working. Thirdly, and perhaps the most significant operational milestone in the first half, we successfully migrated all our existing credit card customers to our new mobile banking app, which was built in-house and led by our Snoop engineering team as part of our gateway technology transformation program. This was a large and complex build and migration, completed while not just maintaining, but improving our customer service experience as I've just described. The app has also received external recognition as the market's best mobile app redesign, as you can see from the logo on the slide. Now the importance of this goes well beyond completing just a technology build and migration. This new app is one of the most important deliverables in Gateway. It gives us a single modern tech platform through which we can deepen customer engagement, increase self-service, launch new functionality more quickly and therefore reduce our cost to serve. This will help us build the operating leverage needed to reduce our cost income ratio over time. Finally, we continue to evolve and scale our use of AI across customer service, analytics, decisioning and colleague productivity. Another milestone was when our first customer facing agent went live in June, helping us to improve customer outcomes, make faster and more consistent decisions and operate more efficiently. Taking together everything on this slide demonstrates that we are translating our strategic goals into tangible operational delivery. Broadening our propositions, improving our customer experience and leveraging technology to build the modern, scalable infrastructure needed to support sustainable growth and stronger returns. Everything I've described so far provides an important foundation for the future success of this business. We are continuing to make progress. However, we have had to adapt to two emerging headwinds as we begin to see the impact of increasing economic uncertainty emerge, particularly during the second quarter. The first of these was lower than expected utilization by existing credit card customers. And secondly, an increased IFRS 9 impairment provision related to forecast UK unemployment. Taking each in turn, macro uncertainty has led to more cautious customer behaviour, with spending lower than we had anticipated. Customers are still increasing spending, just not by as much as we had originally planned. And to illustrate this, our spend per active customer has increased by 10% year on year, but the initiatives we had launched to support this carried an expectation of more than a 15% uplift. We do know, though, that on the same basis, spending among relevant competitors actually declined by 1% over the same period. So our customers are spending more on our cards, and we are outperforming the market, just not by as much as we had originally planned for. This resulted in credit card income in the first half being around £7 million lower than we had expected. So we are taking actions to address that, as you would expect. The second headwind I referenced was the additional impairment provision taken to reflect a forecast increase in UK unemployment. As you all know, IFRS 9 requires us to recognise potential impairment using forward-looking assumptions. We therefore have increased our provision by £8.5 million. The provision was based on the latest forecast published at the end of June which assumed that UK unemployment would rise to a peak of 5.7% from a forecast peak of 5.1% at the start of the year. Together, these two factors reduced our first half profitability by approximately £15 million relative to our expectations. However, credit card balances did increase by 2% during the half to 1.55 billion. But this growth was driven more by new customers, including 3.0% balance transfers and other promotional products, where balances are initially lower yielding than those of existing customers. And this change in mix shows in the reduction in asset yield from 26.5% in the second half of last year to 25.5% in the first half of this year. in total new customer balances added 127 million pounds but partially offset by a 98 million or six percent reduction in balances held by our existing customers so the benefits from our back book stimulation initiatives including prize draws and bankless rewards cashback helped to mitigate but did not fully offset the lower utilization by existing customers Then when we look at our other product lines vehicle finance balances were in line with our expectations and second charge mortgages continued to deliver strong growth as you can see on the slide. I will provide some more product detail in a moment because this is important but our overall message is that balance growth has remained resilient across the group though mix is moving. The two headwinds were therefore clear. Lower than expected balances amongst higher yielding existing credit card customers and the additional macroeconomic impairment provision for unemployment. We are obviously keeping these under very close review and will update on any further changes. Let me now take you through that further product detail that I mentioned to show why we remain confident in our outlook. And you can see the credit card detail on slide seven. The point at which new lending begins to contribute to earnings is central to understanding our medium term outlook for cards. Back in 2024, credit card balances reduced by 10% as we restructured the business, meaning there are fewer balances reaching maturity and then contributing to profitability in 2026 and beyond than would ordinarily be the case. In contrast, in 2025, we grew credit card balances by 19% and the income contribution from that 2025 growth builds over time. As balance transfers mature and promotional periods end, customers move onto representative APRs, driving our interest earning balances. And this is all progressing in line with our expectations. As a result, the 25 front book is expected to make a meaningful contribution to profitability from 2027. We intend to grow balances through the second half of this year at a similar rate to the second half of 2025, primarily through new customer acquisition. We then plan to deliver a similar full year rate of balance growth through 2027. We continue to price appropriately for risk and in line with consumer duty. You can see on this slide how these balances translate into profitability through the cumulative profit before tax generated by a typical credit builder customer and a typical balance transfer customer. And new credit builder customers typically become profitable after around three and a half years, whereas balance transfer customers become profitable in under two years once the promotional period has ended. In both cases, profitability then continues to build as the relationship develops. The chart on the right demonstrates the same effect across the portfolio. Newer vintages initially have lower asset yields, but those yields then improve progressively. We're planning on the basis that the more cautious spending behaviour that we've seen in the second quarter of this year continues. We will therefore focus on acquiring more new customers and building sustainable returns as those balances become interest earning over time. And this gives us confidence that the customer growth delivered since 2025 will make a more meaningful contribution to our profitability from 2027. If I move to slide eight and vehicle finance, this product was profitable in the first half. and performed in line with our expectations. Our priority during 2026, as I've said before, is to complete the build of the new onboarding and servicing technology platform for vehicle finance. We will maintain profitable lending in the meantime and balances remain broadly stable as planned at 707 million as of the end of June. As previously guided, we will increase balance growth in vehicle finance from 2027 supported by the new tech platform and that platform will provide better connectivity with our broker network, enhanced underwriting and pricing and faster service for brokers and customers and these improvements will support higher profitability from 2027. As the slide shows, vehicle finance customers become profitable relatively quickly, meaning that the growth we expect to originate from 2027 will begin contributing to earnings within the first year. By turn to second charge mortgages in slide 9, this business continued to deliver strong growth. Balances increased by 34% during the first half. reaching £800 million and this growth contributed to increased profitability. We expect balances here to continue growing at a similar rate, approximately £30 million per month. While competitive pressures are resulting in some yield compression, new lending continues to exceed our rooty hurdle and will support our further profit growth. As the chart shows, second charge mortgages contribute to profitability from the outset, making them an important driver of the group's medium term earnings as balances continue to build. Okay, so as a result of the second quarter headwinds I've described, we have updated our financial guidance through to 2027 and you can see this on slide 10. The guidance assumes that the more cautious spending behaviour seen in the second quarter continues at those current levels, and that balance growth is therefore increasingly driven by new customer acquisition. Doing this does moderate our returns in the near term, as I've just shown on the previous slide, but it strengthens the future earnings base as those new balances begin to contribute more income. We continue to expect gross customer interest earning balances to exceed 3.3 billion by the end of 2026 and exceed 3.7 billion by the end of 2027 Reflecting that lower than expected credit card utilization by existing customers and the greater proportion of newly originated balances, we now expect net interest margin to be approximately 14.5% in 2026 and more than 13% in 2027. Risk adjusted margin is also expected to exceed 8.5% in 2026 and 8% in 2027. and it's important to note that our revised margin guidance principally reflects the product and customer mix of our growth rather than any change in underlying credit quality. The lower near-term income outlook also affects our operating leverage. We therefore expect the cost of income ratio to be in the low 50s in 2026 and the mid to high 40s in 2027. As those recently originated balances mature and contribute more income and further transformation savings are delivered. Taken together, these factors mean that we now expect statutory return on tangible equity to be in single digits in 2026 compared with our previous expectation of low double digits. It's worth noting that the additional IFRS 9 impairment provision alone accounts for approximately 2.4 percentage points of this change in our ROTI guidance. This change also reflects the lower near-term income contribution from existing credit card customers and our increased lending to new customers to build future earnings. We did consider all of the options available to us as these headwinds emerged. Constraining new lending volumes could protect short term profitability, but it would just weaken the future earnings base and limit our ability to deliver sustainable returns over the medium and longer term. We therefore rejected that option. We now expect the growing earnings contribution from the 2025 and 2026 credit card vintages continued balance growth and further operating efficiencies to support low double-digit return on tangible equity in 2027 with mid-teens return on tangible equity now expected in 2028. On capital, our position remains strong and supports our growth plans. Dave will cover this in more detail shortly. The board's confidence in our medium term outlook together with the strength of our capital position supports our intention to re-establish a modest dividend with our full year 2026 results alongside the outline of our wider capital allocation framework and distribution policy. We will therefore continue to grow this business while delivering the transformation benefits and operating efficiencies needed to materially improve returns in 2027 and achieve mid-teens ROTI in 2028. And that approach is designed to create stronger, more sustainable profitability and long-term shareholder value. While the timing of profitability improvement has changed as a result of the headwinds I've described, the fundamentals of our medium-term investment case remain intact. And this confidence is underpinned by the points that you can see on slide 11. We continue to see significant growth potential in the large underserved UK retail market. Our plans are supported by the completion of our technology transformation, lower operating costs, increased capital capacity from 2027 and through continued delivery against our balanced growth ambitions. These strengths reinforce our confidence in the strategy and in our ability to build a higher quality, more profitable business. Our objective remains clear to deliver better outcomes for the customers we serve and stronger, more sustainable returns for our shareholders. With that, I'll now pause and hand you over to Dave to run you through the detail of the financials.

Thank you, Ian. Let me start with a summary of the Group's financial headlines for the first half of 2026 as set out on slide 12. As Ian highlighted, we generated a profit before tax of £8.9 million, up 44% year-on-year. Balances grew 8% in the six months to June and 24% year-on-year. Average balances grew at a similar rate, up 25% year-on-year. However the mix of this balance growth in credit cards and in lower risk low margin second charge mortgages has reduced net interest margin to 15%. Impairment charges increased 35% year-on-year driven by the growth in balances and £8.5 million increasing the IFS 9 provision for macroeconomic uncertainty. Despite this Impairment charges reduced 2% when compared to the second half of last year, reflecting the stable credit quality of our portfolio. Operating costs decreased 8% year-on-year, generating 16% positive cost-to-income cures and reducing the cost-to-income ratio by 9.4 percentage points to 53.1%. This delivered a rota of 2.5%. Slide 14 summarises the drivers of our growth in Gross Customer Interest Earning Balances which reached over £3 billion at the end of June. Ian went through the drivers of the balance movements by product earlier, so I will not cover this again. Our pricing discipline ensures that all new lending hurdles our mid-teens ROCE target. However, the mix of growth has been a meaningful impact on NIM as can be seen on slide 15. 1.4% of the group neem reduction was driven by product mix. Second-charge mortgages grew from 13% of average balances in 1.525 to 24% of average balances in 1.526, contributing a lower asset yield of 6.8%. At the same time, the proportion of credit card and vehicle finance average balances reduced 3% and 8% respectively. This has a dilutive effect on NIM given their asset yields of 25.5% and 17.4% respectively in 1.526. 1.2% of the Group NIM reduction was driven by asset yield. Credit card asset yield reduced 2.3% to 25.5% as growth of SKU tools initially, lower yielding new business, couple wheel reduction, higher yielding existing customer balances for the reasons described earlier. Second-charge mortgages yield reduced 0.8% to 6.8%, reflecting pricing pressure from increased competition. Conversely, vehicle finance asset yield increased 0.5% to 17.4%, driven by repricing initiatives. The combined credit card and vehicle finance name remained strong at 18.9%. Slide 16 summarises the impairment charge which increased 35% year-on-year. However, the charge reduced 2% half-on-half despite an 8% growth in balances. Group gross charge-offs increased 12% and within this, credit card gross charge-offs increased 17%. This was in line with the expectations given the increase in average balances year-on-year and the maturity of new customer business written in 2025. Importantly, the credit card gross charge-off rate remains stable at 13.7%. This is a key performance indicator which we monitor in our credit cards business. This increase in gross charge-off was partially offset by a small reduction in IFRS 9 Modelled Impairment. In summary, the underlying credit quality of our portfolio remains stable, with a group cost of risk of 7%. As shown on slide 17, total operating costs reduced 8% year-on-year, driven by the £11.5 million reduction in complaint costs. This reduction reflects the positive impact of the FOSS commencing charging of CMCs to submit claims from 1 April 2025. Transformation cost savings of £7.8 million has facilitated additional investment for growth in the business and has helped to offset inflation. This investment includes expanded use of AI across the business. This will be a key part of continuous IT improvement once the Gateway program concludes later this year. This investment will pay back in increased transformation savings which we now expect to be 30 to 35 million pounds out to 2028 compared to the previous guidance of 23 to 28 million pounds out to 2027. Investment in credit card and credit risk expertise go the 2% increase in headcount Slide 18 summarizes the segmental performance of the Group by product The key message here is that all three lending products were profitable in the first half with improving operational efficiency Let me now touch upon the performance of each of the lending products in turn starting with credit cards on slide 19 The business delivered a profit before tax of £12.8 million, marginally up year on year. This was driven by the 18% increase in average gross customer interest earning balances, which more than offset the decrease in asset yield and NIM that we have already talked about. A further increase in 0% balance transfer and promotional products to 17% of the portfolio driven by the new customer growth reduced the weighted average APR from 35.5% in June 2025 to 32.8% in June 2026 The cost of risk was 11% in the first half at the lower end of the guided range despite the majority of the increased macroeconomic impairment provision being attributed to credit cards Slide 20 covers vehicle finance. While balances remained stable, repricing initiatives improved the weighted average APR by 20 basis points to 29.3%. The 5.1% cost of risk was at the lower end of the guided range. The cost-income ratio improved 12 percentage points to 59%. However, the operational efficiency of the business still needs to improve. This will be delivered by both income growth and cost efficiency once we are using the new platform across our broker network in 2027. This will enable us to build both scale and to automate processes. As you can see on slide 21 and as Ian has mentioned, second charge mortgages continued their strong growth with profit before tax increasing to £7.1 million. The cost of risk remained low at 0.2%, with only one customer having defaulted in the last two years. Our portfolio has a weighted average loan-to-value of the combined first and second charge mortgages in the low 70s. This underpins our confidence in guiding to a cost of risk below 1%. In addition, as the product is secured, the growth is capital efficient as it attracts a lower risk weighting than credit cards and vehicle finance. Liquidity and funding remain a core strength as shown on slide 22. High quality liquid assets increased 22% in the first half to over £1.2 billion. This was proven by our first credit card asset backed security public issuance in June. We've also been more proactive in the investment of our HQLA with 34% now invested higher returning assets including UK gilts, T-bills and other sovereign equivalent instruments The liquidity coverage ratio reduced to 221% well above the 100% regulatory minimum This reduction was driven by upcoming fixed-term savings maturities and increased ISA balances Total funding increased 32% year-on-year and 13% in the first half reflecting the increased funding requirement for higher lending balances The increase in retail deposits, which represent circa 84% of the Group's funding, was driven by the growth in ISAs as we broadened the product range. ISAs are generally sticky balances which now account for over £1 billion of the nearly £3.2 billion of retail deposits that we now hold. Average deposit rates reduce year on year. However, given the increase in swap rates in recent months, we would expect industry deposit pricing to increase created a potential headwind for our future funding costs. We have factored this into our updated guidance. We continue to deploy capital for growth as set out on slide 23. As expected, the Group C21 capital ratio reduced by 90 basis points to 15.6% in the first half. and 9% growth in net receivables, translated to £108 million of RWA growth, accounting for 80 basis points of the ratios reduction. Continued investment in the technology transformation of the business via Gateway drove increased intangible spend, which also consumes capital. This was partially offset by the £4.4 million of statutory profit. The Group continues to maintain significant surplus CQ1 capital currently £93 million above the 11.3% disclosed regulatory minimum We further optimised our capital stack in 2Q26 as set out on slide 24 We tendered £100 million of outstanding Tier 2 capital by concurrently issuing the equivalent amount via new issuance at tighter spreads This transaction had no impact on the total capital ratio However, we have an additional £41.5 million of the original tier 2 instrument which is not effective for capital purposes based on our current business plans This is subject to call in October of this year which if called will reduce the total capital ratio by 1.9% Importantly, we have surplus capital at each of the CG1, Tier 1 and total capital levels to deliver our growth plans As you will be aware the group will be subject to a new regulatory capital framework from the start of next year when the Basel 3.1 rules come into effect and the group adopts the Small Domestic Deposit Takers or SDGT regime The impacts of this regulatory change are set out on slide 25 Under Basel 3.1 we expect RWs to increase by around 15% This is driven by a 10% risk weighting on undrawn credit card balances and an increased risk weighting on higher loan-to-value second-charge mortgages. There is also a new calculation method for operational risk that drives RWA inflation. Importantly, these regulatory changes also drive lower CP1 ratio requirements, with the disclosed requirement reducing from 11.3% to 9.9% on a pro forma basis. These are transitional capital requirements. A formal CCREP review of our final capital requirements is expected in 2027. However, given the currency now provided by the PRA, the Board are confident to reduce the target CT1 ratio from greater than 14.5% to greater than 12% from the start of 2027. This effectively creates £15 million of additional CT1 capital to support our balanced growth plans. Slide 26 provides further detail on the updated financial guidance that Ian summarised earlier. We remain confident in our balanced growth guidance and all our products are expected to grow by the end of next year, with the proportion of second-charge mortgages continuing to increase. As previously guided, the continued mixed shift towards this lower risk, lower margin for us is a key driver of our reducing net interest margin guidance. However, The main reason for the revision downwards is the source of growth in credit cards. We are now assuming that this growth continues to be driven by the initially lower yielding new customer business rather than higher yielding back book growth. This dynamic also drives the reduction in our risk adjusted margin expectations. Note that our cost of risk guidance for all three lending products which underpins our risk adjusted margin guidance remains unchanged. As a result of the reduced income expectation from the lower NIM, we have marginally increased our cost-income ratio guidance. Note that this reducing trend will be driven by both higher income and lower costs, with the expectation that year-on-year costs will be lower in each year of 2026 and 2027. Before handing you back to Ian, slide 27 lays out an illustrative updated structurally roti bridge for 2026 and 2027. The reduced income expectation in both years is driven by the lower than expected credit card utilization for higher yielding existing customers. This drives some offsetting reduction impairment on back book credit card customers. However, in 2026 this is expected to be broadly offset by the increase in the IFS 9 impairment provision the income growth next year although lower than originally expected will be driven by maturing new credit card customer balances alongside continued growth in second charge mortgages and vehicle finance which has a faster profitability payback with that I'll hand you back to Ian thanks Dave so to conclude

We demonstrated continued progress in the first half, though more cautious credit card spending than planned for, and the additional IFRS 9 provision on unemployment has affected our near-term performance and outlook. We are having to adapt to these headwinds, but must not lose sight of the progress being made. Our profitability is increasing, our first half PBT exceeding the profit delivered for the whole of 2025. We grew balances by 8% during the half. We maintained stable credit quality across the portfolio. Our net interest margin and risk-adjusted margin reflect the changing mix of growth in second charge mortgages and credit cards. And we maintained a clear focus on cost discipline, delivering transformation savings while continuing to invest in the business and to complete the gateway technology transformation. And as David just said, our capital funding and liquidity position also remains strong, providing capacity to support growth. The headwinds we've described today will slow returns in the near term, assuming that they persist. But we've made an active decision to drive more new credit card lending to compensate, and this will contribute more to income over time. together with continued balance growth and further efficiency benefits. This gives us confidence in a material improvement in profitability from 2027. That confidence together with our strong capital position supports the board's intention to re-establish a modest dividend with our full year 2026 results, assuming no further significant changes in the UK economy. In the meantime, we remain focused on delivering our strategy, serving more customers and building a more efficient and sustainably profitable Bankless. Thank you. We'll now be happy to take your questions.