VANCOUVER, B.C., May 22, 2020 – Central 1 Credit Union (‘Central 1’ or ‘the organization’) reported a loss after tax of $67.0 million for the first quarter (Q1) ended March 31, 2020, compared to a profit after tax of $25.1 million in 2019.
Central 1’s Q1 financial performance has been adversely affected by the monetary actions taken by central banks globally and the resultant repricing of risk premiums. The concern with the economic slowdown inflicted by the COVID-19 pandemic has driven a marked divergence between interest rates and credit spreads. Interest rates are at cyclical lows while credit spreads are elevated to levels not seen since the credit crisis of 2008.
As a primary liquidity provider to the credit union system, Central 1 manages its portfolio to ensure appropriate levels of liquidity to support the system during times of stress and has not observed any unusual liquidity activities from the system to date.
“Central 1 is focused on supporting our members and clients through this unprecedented time, ensuring the system’s resilience and success now and through the months to come,” said Mark Blucher, Central 1 President and CEO. “In mid-March, Central 1 enacted multiple elements of our Pandemic Response plan. We are unwavering in our focus and resolve in delivering critical and essential services; and continuing to provide innovative digital banking and payments products as our members and clients accelerate their digital transformation faster than ever.”
The B.C. Financial Services Authority (BCFSA) relaxed regulatory constraints on borrowing to allow Central 1 greater flexibility to effectively respond and support credit unions during the COVID-19 pandemic. One of the measures, increasing Central 1’s Treasury (formerly, Wholesale Financial Services) borrowing multiple from 15:1 to 18:1 as at March 23, 2020, provides Central 1 with approximately $1.5 billion in additional borrowing capacity.
Digital & Payments Services
Central 1 is accelerating the development and implementation of our Forge Retail and Business suites. Central 1 designed new digital banking tools for 175 clients, including the Canada Revenue Agency Direct Deposits via Financial Institutions program, designed to enable individuals and businesses with faster access to payments of important government support programs.
Central 1 also continues to make 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.
Q1 2020 consolidated financial results compared to the same period last year
• Loss after tax of $67.0 million, compared to profit after tax of $25.1 million.
• Assets of $18.5 billion, up 5.0 per cent from $17.6 billion.
• Tier 1 capital ratio of 29.0 per cent, compared to 35.3 per cent.
Excluding the results from the Mandatory Liquidity Pool (MLP), Central 1’s first quarter results saw a loss after tax of $37.3 million, compared to a profit after tax of $16.4 million in the same period a year ago. The decline originated from a $42.2 million year-over-year increase in unrealized losses largely as a result of recent rate cuts by the Bank of Canada (BoC) and widening of credit spreads in relation to the COVID-19 pandemic. Non-financial income and non-financial expenses remain stable. Investments in strategic initiatives continued into the first quarter of 2020, consistent with last year and Central 1’s long-term strategic plan.
The MLP reported a loss after tax of $29.7 million for the first quarter of 2020, compared to a profit after tax of $8.7 million in the same period last year, reflective of a $32.1 million increase in unrealized losses generated from the significant widening of credit spreads due to the COVID-19 pandemic and from the mark-to-market revaluation of deposits as a result of the 150 basis points of rate cuts by the BoC in March 2020.
Statement of financial position
Total assets at March 31, 2020 saw an increase of $0.6 billion from December 31, 2019, supported by the strong growth in credit union deposits with Central 1. In March, $400.0 million medium-term notes matured. This maturity was largely funded in December 2019 by issuing $300.0 million in medium-term notes.
At the end of the first quarter, Central 1 took important steps to strengthen resilience for the credit union system. The organization accessed the capital markets on March 30, 2020 and raised $150.0 million in a re-opening of its recent senior deposit note. Commencing on April 2, 2020, Central 1 can employ the BoC’s recently launched Commercial Paper Purchase Program. On April 28, 2020, Central 1 completed a test to access the BoC’s newly launched Standing Term Liquidity Facility.
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. In 2019, the Central 1 Board of Directors approved the submission of a plan to the BCFSA to legally segregate the B.C. and Ontario MLP by December 31, 2020. Central 1’s extensive credit union consultation process began in December 2019 and the organization continues its focus to deliver on the various milestones.
Central 1’s first 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
Central 1 is a preferred partner for financial, digital banking and payment products and services – fuelling the success of businesses across Canada. With $18.5 billion in assets, we leverage our scale, strength and expertise to power progress for more than 250 credit unions and other financial institutions, enhancing the financial well-being of more than 5 million customers from coast to coast. 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 CVOID-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.
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