Vanquis Banking : Report (1 VBL stats 2024 FINAL)

About this update from Vanquis Banking Group Plc

VANQUIS BANK LIMITED (Company Number 2558509) ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2024 VANQUIS BANK LIMITED (Company Number 2558509) CONTENTS Page Directors' report 1 Strategic report 7 Statement of directors' responsibilities 19 Independent auditor's report 20 Income statement 29 Statement of comprehensive income 29 Statement of financial position 30 Statement of changes in shareholder's equity 31 Statement of cash flows 32 Statement of accounting policies 33 Financial and capital risk management 43 Notes to the financial statements 47 Alternative performance measures 79 DIRECTORS' REPORT Vanquis Bank Limited ('the Company') is a wholly-owned subsidiary of Provident Financial Holdings Limited, which is wholly-owned by Vanquis Banking Group plc, the ultimate parent. Vanquis Banking Group plc, together with its subsidiaries, forms the Vanquis Banking Group ('the Group'). Vanquis Banking Group plc is a public limited company, listed on the London Stock Exchange. The following provisions, which the directors are required to report in the Directors' Report, have been included in the Strategic Report: • How the directors have engaged with colleagues, how they have had regard to colleague interests and the effect of that regard, including on the principal decisions taken by the Company in the financial year (page 13); and • How the directors have had regard to the need to foster the Company's business relationship with suppliers, customers and others, and the effect of that regard, including on the principal decisions taken by the Company in the financial year (pages 9 to 18). Principal Activities The principal activity of the Company is to provide credit cards, second charge mortgages and personal unsecured loans to underserved consumers, funded by a combination of retail deposits, share capital and retained reserves. On 31 December 2024, the Company acquired the trade undertaking and the associated assets and liabilities of PFG Corporate Services Limited, a fellow subsidiary of the immediate parent undertaking. At the effective date, the respective assets and liabilities were transferred for an amount equal to their net book value. Net assets of £18.3m were transferred for a consideration of £18.3m comprising trade and other receivables (£4.2m), property, plant and equipment (£0.3m), right-of-use assets (£0.3m), other intangible assets (£15.0m), trade and other payables (£1.3m) and lease liabilities (£0.2m). On 31 December 2024, the Company acquired the trade undertaking and the associated assets and liabilities of Moneybarn Limited, a fellow subsidiary of the ultimate parent undertaking. At the effective date, the respective assets and liabilities were transferred for an amount equal to their net book value. Net assets of £0.8m were transferred for a consideration of £0.8m comprising trade and other receivables (£1.1m), property, plant and equipment (£0.5m), right-of-use assets (£0.6m), other intangible assets (£1.2m), trade and other payables (£1.4m) and lease liabilities (£1.2m). Profit The income statement for the year is set out on page 29. The profit after tax for the year of £7.5m (2023: £7.6m) has been added to retained earnings. The Company's profit before tax decreased by 39.8% to £6.7m in 2024 (2023: £11.1m) reflecting lower income and higher costs, partially offset by lower impairment charges. The results have been discussed on page 7. Dividends In 2024, an interim dividend of £10.0m (8.1p per share) was paid (2023: £nil). The directors are recommending a final dividend in respect of the financial year ended 31 December 2024 of 16.1p per share which will amount to an estimated dividend of £20.0m (2023: £30.0m). Directors A common Board structure operated during the year for Vanquis Banking Group plc and the Company. The directors of the Company during the year ended 31 December 2024, all of whom were directors for the whole year then ended and to the date of this report, except where stated, were: I McLaughlin Chief Executive Officer D Watts Chief Financial Officer (appointed 17 January 2024) P Estlin Chairman and Independent Non-executive Director M Greene Independent Non-executive Director and appointed Senior Independent Director (appointed 29 January 2025) G Lindsay Independent Non-executive Director K Briggs Independent Non-executive Director (appointed 27 March 2024) O Laird Independent Non-executive Director (appointed 27 March 2024) J Noakes Independent Non-executive Director (appointed 27 March 2024) M Mustard Company Secretary (appointed 6 November 2024) A Blance Independent Non-executive Director and Senior Independent Director (resigned 1 February 2024) A Knight Independent Non-executive Director and appointed Senior Independent Director (appointed 1 February 2024, resigned 29 January 2025) M James Independent Non-executive Director (resigned 15 May 2024) P Hewitt Independent Non-executive Director (resigned 29 January 2025) M Barnett Company Secretary (resigned 11 October 2024) E McClure Company Secretary (appointed 11 October 2024, resigned 6 November 2024) Principal risks and uncertainties and financial risk management The Company operates a 'three lines of defence' model to articulate key accountabilities and responsibilities for managing risk and to support effective embedding of risk management across the business. The 'first line' consists of line management across the Company, who are responsible for identifying, assessing, monitoring and reporting risk within their respective areas whilst ensuring that appropriate internal controls, processes and systems are in place to deliver against business strategy and objectives. The Risk function of the Company act as the 'second line', in which the Risk Management Framework is established. This function provides independent oversight of governance, risk management and controls to ensure risks are identified, measured, managed and reported appropriately. The 'third line' consists of the Internal Audit function, which provides independent and objective assurance on the design adequacy and operational effectiveness of internal controls and overall effectiveness of the Company and Group's risk governance and risk management practices. Credit risk Credit risk is the risk that the Company will suffer loss in the event of a default by a customer, the ultimate parent undertaking, a bank counterparty or the UK Government. A default occurs when the customer, ultimate parent undertaking, bank or the UK Government fails to honour repayments as they fall due. The Group Risk Committee is responsible for setting the credit policy. The CRO is responsible for ensuring that the approach to lending is within sound risk and financial parameters and that key metrics are reviewed to ensure compliance with policy. The CRO discharges and informs this decision making through the Credit Committee. The Credit Committee met 9 times in 2024. The Group and Company credit quality has remained broadly stable over the year, partly due to the strategy enhancements, improvements in credit decisioning and processes, and targeted credit tightening in response to market and regulatory changes. Further information on the management of specific credit risks facing the Company can be found on page 43. Principal risks and uncertainties and financial risk management (continued) Liquidity risk Liquidity risk is the risk that the Company will have insufficient liquid resources available to fulfil its operational plans and/or to meet its financial obligations as they fall due. The Company's Liquidity Policy is approved by the Board with day-to-day management delegated to the Treasury function which discharges and informs the decision-making through the Group and Company Assets and Liabilities Committee (ALCO). The ALCO meets at least 10 times per year and reports to the Board (via the Executive Committee). The ALCO is chaired by the Chief Financial Officer, the Chief Executive officer is a member and the Treasurer is deputy chair. Throughout the year, the Company has demonstrated that it continues to have access to the retail deposit market through fixed-rate deposits. The Company has worked closely with third-party provider, Newcastle Strategic Solutions Limited, to provide cost effective funding with an expanded product range of retail products that included 30/60-day notice accounts and easy access accounts. The Bank will continue to ensure it has sufficient and diverse access to retail deposit markets. Further information on the management of specific liquidity risks facing the Company can be found on page 44. Market risk Market risk is the risk of financial loss due to adverse market movements leading to a reduction in the Company's earnings or overall value. The Company's primary market risk exposure is to changes in interest rates. The Company uses interest rate sensitivity gap analysis to identify any significant unmatched positions. The interest rate risk position is reported on a monthly basis to the ALCO and includes risk appetite metrics set for both earnings at risk (EaR) and market value sensitivity (MVS). The Company monitors exposure to basis risk, with Bank of England base rate and SONIA the only external reference rates used. Capital risk The Company's objective in respect of capital risk management is to maintain an efficient and secure capital structure and maintain an adequate buffer over the regulatory capital requirements set by the PRA. The Company is subject to prudential regulation and supervision by the PRA. As part of this supervision, it is required to maintain a certain level of regulatory capital in order to mitigate against unexpected losses. Regulatory capital is monitored by the Board, its risk committee and the ALCO. The Company regularly forecasts regulatory capital requirements as part of its budgeting and strategic planning process and the Company and the Group are required to report quarterly to the PRA on their level of regulatory capital. The Company's 2024 Internal Capital Adequacy Assessment Process (ICAAP) demonstrated that the business is adequately capitalised. Further information on the management of specific financial risks is provided on pages 43 to 46. Corporate governance arrangements Information on corporate governance arrangements is provided in strategic reported on pages 14 to 18. Consolidation exemption The Company is not required to produce consolidated financial statements, as set out in note 31. Employee involvement The Company systematically provides employees with information on matters of concern to them, consulting with them or their representatives regularly, so that their views may be taken into account when making decisions that are likely to affect their interests. Employee involvement in the Company is encouraged as a common awareness amongst all employees of the financial and economic factors affecting the Company and Group plays a major role in maintaining its competitive position. The Company encourages the involvement of employees by means of live "stay connected" all colleague question and answer sessions, weekly CEO Video blogs, newsletters, performance updates and regular management team briefings. The Company also carries out regular employee engagement surveys and Save As You Earn (SAYE) (although no SAYE scheme was offered to employees in 2024) and Buy As You Earn (BAYE) share schemes are operated by the Group to reinforce staff involvement in the Group and to encourage an interest in its progress. These schemes are open to all permanent employees of the Company with more than six months' service. Equal opportunities Everyone at the Company is committed to removing all discrimination and encouraging diversity amongst the workforce. Open, honest and fair interaction is how we treat our people. We've worked hard and continue to work hard to create a positive, inclusive atmosphere, based on respect for people's differences. We're committed to equality of opportunity and treatment for all those who work for us. The Company is committed to employment policies, which follow best practice, based on equal opportunities for all employees, irrespective of gender, pregnancy, race, colour, nationality, ethnic or national origin, disability, sexual orientation, age, marital or civil partner status, gender reassignment or religion or belief. The Company gives full and fair consideration to applications for employment from disabled persons, having regard to their particular aptitudes and abilities. Appropriate arrangements are made for the continued employment and training, career development and promotion of disabled persons employed by the Company including making reasonable adjustments where required. If members of staff become disabled, every effort is made by the Company to ensure their continued employment, either in the same or an alternative position, with appropriate retraining being given if necessary. Social and community matters The Company's approach to community investment is aligned with the Group's Purpose to deliver caring banking so our customers can make the most of life's opportunities. Community investment activities are delivered through a Group-wide Social Impact Programme. The strategy of this programme is to invest in activities and initiatives which seek to address some of the key factors which, on their own or acting together, can reduce social and/or financial inclusion. This programme delivers community investment activities under the following three workstreams: • Customer and vulnerability - working with charities and specialist partners to provide support which addresses issues such as customer vulnerability, product accessibility and financial difficulties; • Education - supporting children, young people and adults to boost their education, skills and aspirations in order to participate in society and secure a brighter financial future; and • Community - supporting Community Foundations and other partners to address the wide range of social inclusion and social mobility issues that are relevant to our customers and the communities where the Group operates. Colleagues are encouraged to engage with the volunteering programme which encourages participation in company-led volunteering, as well as offering one day per year to volunteer for a voluntary organisation of their choice. Matched funding of up to £500 per annum towards colleagues' own fundraising activities is also available. Health and safety Health and safety standards and benchmarks have been established and compliance is monitored by the Board. An annual health & safety report is reviewed and approved by the Board each year. During 2024 management reported to the Board on the key measures that had been implemented to ensure the health and safety of employees. Climate change Disclosures are made in the Group's Annual Report and Financial Statements 2024 on pages 24 to 34 which includes: • Scope 1 and 2 greenhouse gas (GHG) emissions in tonnes of carbon dioxide equivalent; • GHG emissions which related to material scope 3 categories in tonnes of carbon dioxide equivalent; • Compliance with four recommendations and eleven recommended disclosures of the Taskforce on Climate related Financial Disclosures (TCFD); • A relevant intensity ratio (i.e. kilograms of carbon dioxide equivalent per customer); and • Information on underlying energy use for 2024 calendar year. The disclosures are produced in accordance with the UK Government's Streamlined Energy and Carbon Reporting (SECR) policy that has been implemented through the Companies (Directors' Report) and Limited Liability Partnership (Energy and Carbon Report) Regulations 2018. This disclosure covers the GHG emissions and energy use for the Group and its operating divisions incorporating the Company. In addition, by including a climate-related financial report in the Group's Annual Report and Financial Statements 2024 that is fully consistent with the four pillars and eleven recommended disclosures of the TCFD, the Group complies with the FCA's Listing Rule 9.8.6R(8) and meets the requirements of the Climate-related Financial Disclosure (CFD) Regulations 2022 and the UK Companies Act (that is, sections 414CB(2A)(a to h). Anti-bribery and corruption The Group's Anti-Bribery and Corruption Policy and supporting Gifts and Hospitality Policy reflects the requirements of the Bribery Act 2010 and a corporate hospitality register is maintained using a risk-based approach. Although the risks for the Company arising from the Bribery Act 2010 continue to be assessed as low, all employees are, nevertheless, required to undergo appropriate training and instruction to ensure that there is effective awareness of anti-bribery and corruption policies and procedures. Compliance is regularly monitored by the Group Risk Committee and is subject to periodic review by the Company's internal audit function. Supply chain responsibility In accordance with the requirements of the Modern Slavery Act 2015, the Group's most recent statement on modern slavery and human trafficking, dated March 2023, sets out the actions that the Group is taking to ensure instances of modern slavery or human trafficking are not occurring directly in its businesses as well as indirectly in the supply chains the Group uses to procure goods and services. The statement also communicates the measures the Group has taken to improve internal understanding and awareness around modern slavery and human trafficking. The statement can be found on the Company's website ( www.vanquisbankinggroup.com ). Key performance indicators Further disclosure of non-financial Key Performance Indicators (KPIs) can be found in the Strategic Report on pages 7 to 8 and the Group's Annual Report and Financial Statements 2024. Indemnities The Company has made qualifying third-party indemnity provisions for the benefit of its directors which were made during the year and remain in force at the date of this report. Post balance sheet events Post balance sheet events are disclosed in note 33. Auditor information Each of the persons who is a director at the date of approval of this report confirms that: • so far as the director is aware, there is no relevant audit information of which the Company's auditors are unaware; and • the director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. Approved by the Board and signed on its behalf by: I McLaughlin Chief Executive Officer 13 March 2025 STRATEGIC REPORT Review of business Credit cards The credit cards business is a leading player in the non-prime credit card market. In 2023 and 2024, Vanquis received the Moneyfacts Consumer Award for Best Credit Builder Card Provider of the Year. The business offers credit card products to a broad spectrum of customers but are focused particularly on providing access to credit card customers who may struggle to obtain one from a mainstream provider. Customers are offered four different credit card products - the Credit Builder Card, Balance Transfer Card, Purchase Card, or Balance Transfer and Purchase Card (Dual Card). Customers are supported through great service whether it be in app or via our customers service teams. From a service rating perspective, Vanquis Credit Cards is rated Great on Trustpilot, based on over 36k reviews. We aim to make our customer experience effortless, and these results demonstrate the progress we have made. Total customer numbers decreased 7.9% to 1,267.2k (2023: 1,375.5k) reflecting a comprehensive review of customer cohorts by risk profile, vintage and acquisition channel. This review drove proactive volume management and as a result, growth actions were measured to ensure the future sustainable profitability of the portfolio. Full-year credit card bookings of 100k were 167k lower than 2023. Period-end gross customer balances decreased 11.2% to £1,309.9m (2023: £1,474.8m) and period-end net receivables decreased 10.0% to £1,149.9m (2023: £1,277.7m). Second charge mortgages The second charge mortgages business offers this product to customers via origination partnership agreements with Interbridge Mortgage and Selina Finance. The expanded launch of these partnership arrangements occurred in May 2024. Second charge mortgages, sometimes referred to as a homeowner loan, is a way for customers to borrow additional money they already have a mortgage. They can then use the additional loan to make home improvements, consolidate debts, or to help complete a project. Total customer numbers increased to 3.7k (2023: 0.1k) following the successful launch of the forward flow agreement with Interbridge Mortgages and an expanded partnership with Selina Finance. Period-end gross customer balances were £225.5m (2023: £2.8m) and period-end net receivables were £225.3m (2023: £2.8m). Personal loans The unsecured personal loans business provide customers with a broader range of borrowing options, with a product tailored to the non-prime market. Most customers take out a personal loan to either consolidate other debts or to enable them to make home improvements, although the full range of reasons for borrowing includes a wide range of purposes. When selecting their loan, customers look for a loan with repayments over a period that make their monthly payment affordable, at the lowest possible price (APR). From extensive market research, Vanquis personal loan customers value repayment certainty and flexibility if circumstances change, so we offer fixed APRs for the period of the loan, no penalty fees for additional interest charged for missed or late payments and there is no retention of interest when customers pay off the loan early. At the Group's strategy update in March 2024, it was announced this business was under review and as such the portfolio has been in run-off in 2024. Total customer numbers decreased 44.8% to 24.1k (2023: 43.7k) driven by the run-off of the existing book. Full-year loans bookings of 2k were 27k lower than 2023. Period-end gross customer balances decreased 58.3% to £49.1m (2023: £117.5m) and period-end net receivables decreased 57.0% to £44.0m (2023: £102.4m). STRATEGIC REPORT (CONTINUED) Review of business (continued) Savings The Company has a strong funding base and access to liquid funds through the resilient retail deposits markets. The Company enhanced its ability to provide cost effective funding with an expanded product range that included 30/60-day notice accounts and easy access accounts. Deposit balances grew 24% to £2.4bn (2023: £2.0bn) by the end of 2024, representing over 92% (2023: 84%) of the Group's total funding, and enabled the Company to repay early all funds drawn under the Bank of England Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises (TFSME). The retail funding platform continues to provide a strategic cost advantage over wholesale alternatives, enabling the sustainable growth of our lending propositions. The Company's principal risks and uncertainties are detailed in the Directors' Report on pages 2 to 3. Financial performance An analysis of the Company's income statement result and KPIs for 2024 and 2023 is set out below. Certain alternative performance measures (APMs) have been used in this report. See page 79 for an explanation of relevance as well as their definition. The Company's profit before tax decreased by 39.8% to £6.7m in 2024 (2023: £11.1m) reflecting lower income and higher costs, partially offset by lower impairment charges. Interest income increased by 9.4% to £450.3m in 2024 (2023: £411.4m) predominantly due to: (i) £10.4m (2.8%) higher income from customer receivables of £385.9m (2023: £375.4m) driven mainly by the improvement in asset yield in the credit cards business from repricing initiatives, which increased 3.2% to 27.9%, more than offsetting the reduction in the credit cards receivable, and growth in the second charge mortgages business, partly offset by the reduction the personal loan receivable; (ii) additional £16.4m increase in Liquid Asset Buffer income; and (iii) additional £10.5m interest income recognised on higher loan balance from fellow subsidiary undertaking. Interest expense of £108.4m increased by 55.3% in 2024 (2023: £69.8m), reflecting 37.8% higher year-on-year average retail deposit balances in addition to the impact of rising Bank of England base rates impacting savings rates, and customers with maturing fixed-term products transferring onto higher yielding products. Net fee and commission income reduced by 17.4% in 2024 to £35.1m (2023: £42.5m), broadly in line with the 15.5% year-on-year reduction in average total credit card customers. Impairment charges reduced to £130.3m in 2024 (2023: £145.1m). In the credit cards business, impairment charges reduced marginally to £124.4m (2023: £125.5m) reflecting lower origination charges in line with reduced new business volumes. Underlying asset quality improved year-on-year. Impairments in 2023 benefited from a £17m release of post model adjustments following IFRS 9 model enhancements and the full release of the £10m cost of living post model adjustment. Cost of risk in the credit cards business increased to 9.4% (2023: 8.9%). Impairment charges within the personal loans business reduced by 70.9% to £5.7m (2023: £19.6m) in line with the lower average gross customer balances. Risk adjusted income was 3.2% higher in 2024 at £248.1m (2023: £240.3m) with an increased risk adjusted margin of 16.9% (2023: 15.6%). Costs (excluding exceptional items) of £234.1m in 2024 are 5.3% higher than the prior year (2023: £222.3m), driven by the significant increase in complaints costs driven by higher FOS fees due to an increase in unmerited claims from CMCs, the write-down of development costs for a now redundant mobile app, with transformation cost savings being partly offset by inflation and investment in the business. In 2024, exceptional costs of £7.3m have been recognised in relation to: redundancy, outsourcing and other staff exits of £5.8m; a £1.4m third party settlement; and impairment of property, plant and equipment of £0.1m. In 2023, £6.9m exceptional costs were recognised in relation to redundancy, outsourcing and other staff exit costs of £4.8m; property exit costs of £4.1m; and a credit of £2.0m in relation to the release of the repayment option plan provision no longer required. Overall costs have therefore increased from £229.2m in 2023 to £241.4m in 2024.

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