Central 1 reports third quarter 2019 financial results
VANCOUVER, B.C., November 22, 2019 – Central 1 Credit Union (Central 1) reported profit after tax of $5.7 million in the third quarter ended September 30, 2019, compared to a very strong third quarter 2018 profit after tax of $19.3 million. Net financial income was $17.8 million compared to $27.3 million in the same period a year ago.
Investments in our strategic initiatives continued throughout the third quarter, consistent with our long-term strategy. Wholesale Financial Services continues to deliver on its initiative to expand Central 1’s wholesale products and services across Canada.
Development of the Forge Digital Banking Platform (Forge) continues to accelerate. The full Forge retail suite comprising a public website, mobile app and online banking capabilities are now in active use across Canada. First West Credit Union was the first to debut all three channels and launches with credit unions have accelerated, with several slated in the coming months. Approximately 115 clients are now committed to using Forge and almost 2 million Canadians will have access to Forge through their financial institutions.
Central 1 now has 48 credit unions across Atlantic Canada using Central 1’s FX Notes Plus, a product that offers currency and drafts through home and branch delivery to enhance the cash services of these credit unions. The business launched its newest product, International Transfers, enabling Canadians to easily move money internationally any time through online banking with their credit union.
“Our third quarter results continue to demonstrate the strength and stability of our organization,” said Mark Blucher, President and CEO of Central 1. “We are seeing significant outcomes throughout the organization as we accelerate our strategic priorities and investments. Wholesale Financial Services continues to provide clients access to new and innovative products, and we are collaborating with credit unions across the country to transform the banking experience in Canada with our Forge Digital Banking Platform.”
Third quarter financial results
Central 1’s profit after tax for the third quarter of 2019 was $5.7 million, a decline of $13.6 million compared to the same period last year, led by lower net financial income and investments in our strategic initiatives.
Net financial income was $17.8 million, a decrease of $9.5 million from the same period last year. A shift in asset mix in the third quarter led to lower net realized and unrealized gains from the same period last year. Interest margin declined from a very strong third quarter in 2018, attributable to the inverted yield curve limiting the ability to earn margin on new securities. This decrease was partially offset by higher foreign exchange income and lending revenues.
Third quarter highlights compared to the same period last year
- Profit after tax of $5.7 million, compared to a very strong third quarter 2018 profit after tax of $19.3 million.
- Net financial income decreased from $17.8 million, down $9.5 million from $27.3 million.
- Return on average equity of 2.0 per cent, compared to 6.4 per cent.
- Assets of $18.4 billion, down 4.2 per cent from $19.2 billion.
Year-to-date financial highlights
Excluding one-time gains of $82.9 million relating to equity investments in 2018, year-to-date profit after tax was $43.5 million, $25.5 million higher than the same period last year, primarily due to higher net financial income in the earlier part of the year.
Net financial income increased to $82.4 million, up 54.9 per cent from $53.2 million in the same period last year. Decreasing market yields and narrowing credit spreads during the first half of 2019 drove up the fair value of our securities, resulting in higher net realized and unrealized gains of $25.2 million compared to the same period a year ago. The 2018 interest rate hikes continued to have a positive impact on interest margin in 2019, resulting in a year-over-year increase of $4.2 million, despite a softer third quarter in 2019. Investments in our strategic initiatives increased by $15.6 million compared to the same period last year.
Mandatory Liquidity Pool
On November 21, the Board of Directors of Central 1 approved the submission of an implementation plan to the BC Financial Services Authority (BCFSA) to legally segregate the BC and Ontario mandatory liquidity pools (MLPs) into contractual trusts by December 31, 2020.
Under the implementation plan, Central 1, as trustee and investment manager, will continue to hold and manage the funds exclusively for credit unions under terms established by the regulators and BC and Ontario member credit unions. The current MLP assets will be removed from Central 1’s balance sheet. Following segregation, Central 1 will target a minimum liquidity coverage ratio of 125%.
Central 1 will submit the implementation plan for review and acceptance by the BCFSA. Extensive member engagement is anticipated to commence in early 2020 which will include developing the specific framework of the contractual trusts. Members will also vote on the necessary rule changes at a special meeting of members expected to take place in early fall 2020.
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 $18.4 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 five million customers from coast to coast. For more information, visit www.central1.com.
Caution Regarding Forward Looking Statements
This news release contains forward-looking statements based on assumptions, uncertainties and management’s best estimates of future events. These include, without limitation, statements contain the words “may,” “will,” “intends” and “anticipates” and other similar words and expressions, including statements regarding: the timing for implementation of the segregation of the mandatory liquidity pools into contractual trust; segregation of the mandatory liquidity pools strengthening protection of the assets managed by Central 1; the timing for holding member engagement on the implementation plan; Central 1 targeting a liquidity coverage ratio of 125%; and the timing for holding a special meeting of members to approve rule changes necessary for the implementation plan. 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. Security holders 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 and Central 1 agreeing with BCFSA on a new financial structure that is acceptable to Central 1, and BCFSA; Central 1 may not be able to obtain necessary regulatory and member approvals and acceptances to complete implementation of the segregation plan; and Central 1 may not be able to maintain a liquidity coverage ratio of 125%. 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 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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