Central 1 reports 2020 second quarter financial results
VANCOUVER, BC (August 21, 2020) — Central 1 Credit Union (‘Central 1’ or ‘the organization’) reported a profit after tax of $72.0 million for the second quarter (Q2) ended June 30, 2020, compared to a profit after tax of $12.7 million in the same period in 2019.
Following the extreme widening of credit spreads in the first quarter of 2020, Central 1’s second-quarter financial performance was positively impacted by a significant narrowing of these spreads, which led to a $157.2 million increase in unrealized gains from the first quarter, and a $85.8 million increase compared to the same period last year. The reversal of credit spreads towards levels more consistent with historical norms occurred in parallel with the easing of COVID-19-related restrictions across Canada during Q2.
“Overall business performance was strong during the quarter and reinforces our ability to navigate the pandemic,” said Mark Blucher, Central 1 President and CEO. “Our members and clients are telling us they are feeling deep appreciation for the value, service and protection we bring to their organizations. We remain committed to adapting to their evolving needs, assisting them in responding to the significant disruptions to their organizations, and ensuring the system’s resilience and success, now and into the future.”
Treasury
Central 1 continues to provide its members and clients support to effectively navigate the current economic environment and access to various liquidity sources.
Digital & Payments Services
Central 1 is highly focused on onboarding clients to the Forge Digital Banking Platform as members and clients accelerate their digital transformation. The organization continues to collaborate with the Government of Canada and its representative federal agencies to facilitate the ability of credit unions in offering the Canada Emergency Business Account (CEBA) program to Canadian businesses and sole proprietors impacted by the COVID-19 pandemic.
Central 1 is making good progress in advancing its payments strategy to ensure best fit, cost-effective solutions are deployed for the credit union system and other financial institutions. The organization continues to meet all Payments Modernization milestones as outlined by Payments Canada, including being confirmed in Q2 as a day one participant in Lynx – Canada’s new high-value payments system which will replace the Large Value Transfer System in 2021.
Q2 2020 consolidated financial results compared to the same period last year
- Profit after tax of $72.0 million, compared to profit after tax of $12.7 million.
- Assets of $21.3 billion, up 19.0 per cent from $17.9 billion.
Excluding the results from the Mandatory Liquidity Pool (MLP), Central 1 reported a Q2 2020 profit after tax of $39.9 million, compared to a profit after tax of $5.0 million in the same period a year ago, driven by a $49.3 million increase in unrealized gains from significant credit spreads narrowing. Non-financial income and non-financial expenses remain stable. The deterioration in the economic outlook and lower economic activity resulting from measures to contain the spread of COVID-19, led to a $2.4 million increase in Central 1’s Q2 2020 expected credit loss (ECL) compared to the same period last year. The MLP reported a profit after tax of $32.1 million in Q2 2020, compared to a profit after tax of $7.7 million in the same period last year. The significant narrowing of credit spreads during the quarter led to a $36.5 million increase in unrealized gains from the same period last year.
Year-to-date consolidated financial results
The COVID-19 pandemic has adversely impacted Central 1’s consolidated results for the first six months of 2020. Credit spreads widened significantly in the first quarter of 2020. Although these spreads narrowed during the second quarter, they remained wider than their historical average and therefore continue to have a negative effect on our year-over-year profit after tax.
- Consolidated profit after tax was $5.0 million for the first half of 2020, down $32.8 million from the same period in 2019.
- MLP reported a profit after tax of $2.4 million for the first six months of 2020, down $14.0 million compared to the same period last year.
- Excluding the results from the MLP, Central 1’s year-to-date results saw a profit after tax of $2.6 million, down $18.8 million compared to the same period in 2019.
Statement of financial position
Total assets at June 30, 2020 increased by $3.4 billion from December 31, 2019, reflective of member credit unions depositing their excess liquidity with Central 1. Credit unions have actively increased their overall liquidity and the level of liquidity in the credit union system remains high relative to historical norms, reinforcing Central 1’s members’ ability to respond appropriately during challenging times.
Central 1 is currently well positioned to provide support to credit unions. In response to the current economic environment, the portfolio team increased the proportion of short term and cash assets to maximize flexibility and responsiveness to any increased liquidity needs.
Mandatory Liquidity Pool
The regulatory environment in recent years has shifted towards ensuring MLP assets are creditor proof and bankruptcy remote. This requires segregating the MLP from Central 1’s balance sheet to strengthen protection of the liquidity reserve fund managed by Central 1 on behalf of members. Consultation with credit unions is underway.
Central 1’s second quarter Management’s Discussion and Analysis and Financial Statements have been filed with SEDAR and posted at www.sedar.com and www.central1.com/investor-relations.
About Central 1 Credit Union
Central 1 cooperatively empowers credit unions and other financial institutions who deliver banking choice to Canadians. With assets of $10.9 billion as of September 30, 2023, Central 1 provides critical
services at scale to enable a thriving credit union system. We do this by collaborating with our clients, developing strategies, products, and services to support the financial well-being of their more than five million diverse customers in communities across Canada. For more information, visit www.central1.com.
Caution Regarding Forward-Looking Statements
This press release contains forward-looking statements based on assumptions, uncertainties and management’s best estimates of future events. These include, without limitation, statements relating to our financial performance objectives, vision and strategic goals, the economic, market and regulatory review and outlook for the Canadian economy and the provincial economies in which our member credit unions operate and the impacts of the COVID-19 pandemic, as well as statements that contain the words “may,” “will,” “intends” and “anticipates” and other similar words and expressions. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made. Actual results may differ materially from those currently anticipated. Securityholders are cautioned that such forward-looking statements involve risks and uncertainties. Certain important assumptions by Central 1 in making forward-looking statements include, but are not limited to, competitive conditions, economic conditions, regulatory considerations, the impacts of the COVID-19 pandemic and; Central 1 may not be able to obtain necessary regulatory and member approvals to complete implementation of the MLP segregation plan. Important risk factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include economic risks, regulatory risks, risks and uncertainty from the impact of the COVID-19 pandemic and other risks detailed from time to time in Central 1’s periodic reports filed with securities regulators. Given these risks, the reader is cautioned not to place undue reliance on forward-looking statements. Central 1 undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable laws.
