Central 1 reports 2023 second quarter financial results

Second quarter 2023 highlights (versus second quarter, 2022):

• Profit of $18.5 million, compared with loss of $26.2 million
• Net financial income of $42.2 million, compared with net financial expense of $25.3 million
• Return on average equity¹ of 5.1 per cent, compared with negative 7.3 per cent

Year-to-date 2023 highlights (versus year-to-date, 2022):

• Profit of $19.7 million, compared with loss of $61.6 million
• Net financial income of $48.5 million, compared with net financial expense of $74.6 million
• Return on average equity¹ of 2.8 per cent, compared with negative 9.4 per cent
• Total assets of $11.4 billion, compared with $11.9 billion at December 31, 2022

VANCOUVER, British Columbia, Aug. 29, 2023 (GLOBE NEWSWIRE) — Central 1 Credit Union (‘Central 1’ or ‘the organization’) today reported a profit of $18.5 million for its second quarter ended June 30, 2023, compared with loss of $26.2 million in the same quarter last year due to a decrease in the mark-to-market value of financial instruments of $36.5 million.

Central 1 had a well-balanced second quarter, despite ongoing market challenges. Credit spreads in Central 1’s investment portfolio narrowed, which resulted in a $27.2 million increase in the fair value of its financial instruments. Non-financial income, excluding strategic initiatives², was $37.6 million, up $1.9 million compared to the second quarter of 2022. This was primarily driven by higher transaction volumes in Central 1’s payments business.

Growth was offset by interest margin decreases of $5.7 million related to lower total assets in Central 1’s investment portfolio as interest rates continue to drive the repricing of financial liabilities. Non-financial expenses, excluding strategic initiatives², were up $7.2 million, driven by higher salaries, benefits and professional fees, reflecting inflationary pressures and the build of new capacity and capability.

Investment in strategic initiatives², such as Payments Modernization and digital banking projects, went as planned, coming in $3.2 million lower year-over-year.

“I am pleased with Central 1’s balanced performance in the quarter. Our results reflect our disciplined approach to risk and capital management as challenging market conditions persist. We remain well-positioned to support Canada’s credit unions and financial institutions with the wholesale financial products and services they need to bring essential banking choice to Canadians,” said Sheila Vokey, Central 1’s President and CEO. “Looking ahead, our strategic priorities will continue to guide our efforts, with a particular focus on operating reliably and effectively through capital and cost management as we enter the second half of 2023.”

Treasury

For the second quarter of 2023, Treasury reported a profit of $29.0 million, compared to a loss of $17.8 million in the same quarter last year. During the current quarter credit spreads narrowed, which largely contributed to the fair value increase of the Treasury portfolio by $27.2 million. Offsetting this was a $4.5 million year-over-year decrease in interest margin driven by increased market funding cost.

Treasury’s fee-based business, including mortgage servicing, commercial lending and asset management, continued to generate consistent non-financial income of $7.7 million in the second quarter. Investments in Treasury initiatives² started in 2023 and are consistent with Central 1’s strategic priorities. Non-financial expense, excluding strategic initiatives², was also broadly in line with the same period last year.

Payments & Digital Banking Platforms and Experiences (DBPX)

Payments & DBPX reported a loss of $6.7 million in the second quarter of 2023, broadly in line with the same quarter last year. Net financial expense increased $1.3 million from the same period last year, driven by higher funding costs relating to Central 1’s clearing function with the Bank of Canada.

Non-financial income, excluding strategic initiatives², was up by $2.5 million supported by higher transaction volumes in Central 1’s payments business and adoption of digital cybersecurity and digital solutions.

Investments in strategic initiatives², which included the Payments Modernization and digital banking projects, continued as planned with spending of $2.7 million lower compared to the same quarter last year. Offsetting this was a $3.1 million increase in non-financial expense, excluding strategic initiatives², driven by higher salaries and benefits and increased professional fees.

Central 1’s second quarter Management’s Discussion and Analysis and Financial Statements have been filed on Central 1’s SEDAR profile at www.sedar.com and are also available at central1.com/investor-relations.

About Central 1

Central 1 cooperatively empowers credit unions and other financial institutions who deliver banking choice to Canadians. With assets of $11.4 billion as of June 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.

Non-GAAP and Other Financial Measures

Management of Central 1 uses a number of financial measures and ratios to assess overall performance. Some of these measures do not have a standardized definition prescribed by Generally Accepted Accounting Principles (GAAP) and might not be comparable to similar measures presented by other companies. Presenting non-GAAP financial measures and ratios provides readers with an enhanced understanding of how management analyzes Central 1’s results and assesses the underlying business performance. The discussions of non-GAAP financial measures and ratios that Central 1 uses in evaluating its operating results are presented as footnotes in the respective sections of this MD&A together with the required disclosure below in accordance with National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure.

Non-GAAP Financial Measures

The following non-GAAP financial measures exclude certain items from our financial results prepared in accordance with International Financial Reporting Standards (IFRS). The tables below present reconciliations of these measures to their respective most directly comparable financial measures disclosed in Central 1’s Interim Consolidated Financial Statements.

Non-Financial Income, excluding Strategic Initiatives

Non-financial income, excluding strategic initiatives, presented in the overall performance section of this MD&A is derived by excluding Central 1’s income from investments in strategic initiatives. Excluding income from strategic initiatives allows readers to better understand Central 1’s recurring financial performance and related trends.

Non-Financial Expense, excluding Strategic Initiatives

Non-financial expense, excluding strategic initiatives presented in the overall performance section of this MD&A is derived by excluding Central 1’s investments in strategic initiatives to develop and deliver solutions to support the growth of the credit union system. Excluding strategic initiatives allows readers to better understand Central 1’s recurring financial performance and related trends.

Caution Regarding Forward Looking Statements
This press release and announcement contain historical and forward-looking statements. All statements other than statements of historical fact are or may be based on assumptions, uncertainties, and management’s best estimates of future events. Central 1 has based the forward-looking statements on current plans, information, data, estimates, expectations, and projections about, among other things, results of operations, financial, condition, prospects, strategies and future events, and therefore undue reliance should not be placed on them. These include, without limitation, statements relating to our financial and non-financial performance objectives, vision and strategic goals and priorities, including focus on capital and cost management, 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, and the impacts of a pandemic. Important risk factors that could cause actual results and the timing of such results to differ materially from those expressed or implied by such forward-looking statements include economic risks, regulatory risks (including legislative and regulatory developments), risks and uncertainty from the impact of rising or falling interest rates, international conflicts, natural disasters or pandemic, geopolitical uncertainty, information technology and cyber risks, environmental and social risk (including climate change), digital disruption and innovation, reputation risk, competitive risk, privacy, data and third-party related risks, risks related to business and operations, 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.

Footnotes:

¹This is a non-GAAP financial ratio. Refer to the “Non-GAAP and Other Financial Measures” section of Central 1 Credit Union’s Management’s Discussion & Analysis for the second quarter of 2023, available on www.sedar.com, for more information.

²This is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Financial Measures” section of Central 1 Credit Union’s Management’s Discussion & Analysis for the second quarter of 2023, available on www.sedar.com, for more information.

Contacts

Media
Tricia Weagant
Vice President, Communications & Marketing
Central 1
T 613.806.5168
E t.weagant@central1.com

Investors
Brent Clode
Chief Investment Officer
Central 1
T 905.282.8588 or 1.800.661.6813 ext. 8588
E bclode@central1.com