H1 2026 earnings call transcript

Awards for Excellence

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 have more to do, but we are growing with discipline, improving efficiency and building a stronger foundation for sustainable profitability.

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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.

We have made significant progress operationally, delivering tangible improvements across all

three pillars of our strategy

To Serve More, Serve Responsibly and Scale Profitably.

I won’t cover every initiative on the slide, but I will talk to four areas that we believe are particularly important.

Firstly, under Serve More, we are broadening our proposition by developing an instalment lending solution to reflect customer demand, and the introduction of regulation in the Buy Now Pay Later market.

We are also delivering an enhanced Prime Upgrade Credit Card proposition for customers whose financial resilience we have 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, under Serve Responsibly, we continued to see strong evidence that the improvements we are making are translating into a better customer experiences.

Our Customer Satisfaction Index score increased to 83.2, extending our outperformance against the industry benchmark which now stands at 82. And, for the first time, we achieved ServiceMark accreditation from the Institute of Customer Service.

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This external recognition is particularly important because it reflects not only the service customers receive today, which has been through a period of significant change, but also shows the standards, culture and processes that we are embedding across the organisation are working.

Thirdly, and perhaps the most significant operational milestone in the 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 programme.

This was a large and complex build and migration, completed while not just maintaining but improving our customer service experience, as I have just described. The app has also received external recognition as the market’s best mobile app redesign, as you can see on the slide.

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 to 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.

Taken together, everything on this slide shows 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.

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Everything I have described so far provides an important foundation for the future success of the business. We are continuing to make progress, however, we have had to adapt to two emerging headwinds, as we began to see the impact of increasing economic uncertainty emerge particularly during the second quarter.

The first of these was lower than expected utilisation 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. 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 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, as you would expect.

This resulted in Credit Card income in the first half being around £7 million lower than we expected, so we are taking action to address that as you would expect.

The second headwind was the additional impairment provision taken to reflect a forecast increase in UK unemployment.

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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 first half profitability by approximately £15 million relative to our expectations.

However, Credit Cards balances did increase by 2% during the half, to £1.55 billion.

But this growth was driven more by new customers, including through 0% balance transfers and other promotional products, which 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, but partly offset by a £98 million, or 6%, reduction in balances held by our existing customers.

So, the benefits from our back book stimulation initiatives, including prize draws and Vanquis

Rewards cashback, helped to mitigate, but did not fully offset, the lower utilisation 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 among 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.

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Let me now take you through that further product detail to show why we remain confident in our outlook.

You can see the Credit Card detail on slide 7.

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%.

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. This is all progressing in line with our expectations.

As a result, the 2025 front book is expected to make a meaningful contribution to profitability from

2027.

We intend to grow balances during 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.

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Our objective remains clear

to deliver better outcomes for the customers we serve and stronger, more sustainable returns for our shareholders.

With that, I will now pause and hand you over to Dave to run you through the detail of the financials.

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Dave Watts, Chief Financial Officer

Thank you, Ian.

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Let me start with a summary of the Group’s financial headlines for the first half of 2026, as set out on slide 13.

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, lower-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 the £8.5 million increase in the IFRS9 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 JAWS, and reducing the cost-to-income ratio by 9.4 percentage points to 53.1%.

This delivered a ROTE of 2.5%.

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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.

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Our pricing discipline ensures that all new lending, hurdles our mid-teens ROTE target. However, the mix of growth has had a meaningful impact on NIM, as can be seen on slide 15.

1.4% of the Group NIM reduction was driven by product mix.

Second Charge Mortgages grew from 13% of average balances in 1H25 to 24% of average balances in 1H26, 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 were 25.5% and 17.4% respectively in 1H26.

1.2% of the Group NIM reduction was driven by asset yield.

Credit Card asset yield reduced 2.3% to 25.5%, as growth was skewed towards initially lower yielding new business coupled with a reduction in 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 NIM remains strong at 18.9%.

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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 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 remained stable at 13.7%. This is a key performance indicator which we monitor in our Credit Cards business.

This increase in gross charge-offs, was partly offset by a small reduction in IFRS9 modelled impairment.

In summary, the underlying credit quality of our portfolio remains stable, with a Group cost of risk of 7%.

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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 FOS commencing charging CMCs, to submit claims, from 1st 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 the expanded use of AI across the business. This will be a key part of continuous IT improvement once the Gateway programme concludes later this year.

This investment will pay back in increased transformation savings, which we now expect to be

£30 to £35 million out to 2028, compared to the previous guidance of £23 to £28 million out to

2027.

Investment in Credit Card and Credit Risk expertise drove the 2% increase in headcount.

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Slide 18 summarises 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.

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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.

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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.

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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.

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Liquidity and funding remain core strengths, as shown on slide 22.

High Quality Liquid Assets increased 22% in the first half to over £1.2 billion. This was driven by our first Credit Card Asset Backed Security public issuance in June.

We have also been more proactive in the investment of our HQLA, with 34% now invested in 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 reduced year-on-year. However, given the increase in swap rates in recent months, we would expect industry deposit pricing to increase, creating a potential headwind for our future funding costs. We have factored this into our updated guidance.

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We continued to deploy capital for growth as set out on slide 23.

As expected, the Group’s CET1 capital ratio reduced by 90 basis points to 15.6% in the first half.

A 9% growth in net receivables translated into £108 million of RWA growth, accounting for 80 basis points of the ratio’s 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 CET1 capital, currently £93 million above the

11.3% disclosed regulatory minimum.

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We further optimised our capital stack in 2Q26, as set out on slide 24.

We tendered £100 million of outstanding Tier 2 capital, while concurrently issuing the equivalent amount via a 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 for call in

October of this year, which if called would reduce the total capital ratio by 1.9%.

Importantly, we have surplus capital at each of the CET1, Tier 1 and Total Capital levels to deliver our growth plans.

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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 SDDT, regime. The impacts of this regulatory change are set out on slide 25.

Under Basel 3.1, we expect RWAs 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 CET1 ratio requirements, with the disclosed requirement reducing from 11.3% to 9.9% on a proforma basis.

These are transitional capital requirements. A formal CSREP review, of our final capital requirements, is expected in 2027.

However, given the clarity now provided by the PRA, the Board are confident to reduce the target

CET1 ratio, from ‘greater than 14.5%’, to ‘greater than 12%’, from the start of 2027.

This effectively creates £15 million of additional CET1 capital to support our balance growth plans.

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Slide 26 provides further detail on the updated financial guidance that Ian summarised earlier.

We remain confident in our balance growth guidance and all 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 mix shift towards this lower-risk, lower-margin product is a key driver of our reducing net interest margin guidance.

However, the main reason for the revision downwards from the previous NIM guidance 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 of 2026 and 2027.

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Finally, before I hand you back to Ian, slide 27 lays out an illustrative updated statutory ROTE bridge for 2026 and 2027.

The reduced income expectation in both years is driven by the lower-than-expected Credit Card utilization by higher yielding existing customers.

This drives some off-setting reduction in impairment on back-book Credit Card customers.

However, in 2026 this is expected to be broadly offset by the increase in the IFRS9 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 pay back.

With that, I will hand you back to Ian.

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Ian McLaughlin, Chief Executive Officer

Thanks, Dave.

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So to conclude, we demonstrated continued progress in the first half although 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 those 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 Dave just said, our capital, funding and liquidity position also remain strong, providing capacity to support growth.

The headwinds we have described today will slow returns in the near term, assuming they persist.

But we have made an active decision to drive more new Credit Card lending to compensate and this will contribute more income over time. Together with continued balance growth and further efficiency benefits, this gives us confidence in a material improvement in profitability from 2027.

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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 Vanquis.

Thank you.

We will now be happy to take your questions.