Central 1 reports 2023 third quarter financial results

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Published Nov 23, 2023 • 9 minute read

Third quarter 2023 highlights (compared with third quarter, 2022):

Net income of $3.9 million, compared with net income of $1.3 million Net interest income of $19.6 million, compared with net interest income of $21.5 million Return on average equity1 of 1.6 per cent, compared with 0.5 per cent

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Year-to-date 2023 compared with year-to-date 2022:

Net income of $23.6 million, compared with net loss of $60.3 million Net interest income of $41.3 million, compared with net interest income of $57.9 million Return on average equity1 of 3.3 per cent, compared with negative 8.4 per cent Total assets of $10.9 billion as at September 30, 2023, compared with $11.9 billion as at December 31, 2022

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VANCOUVER, British Columbia, Nov. 23, 2023 (GLOBE NEWSWIRE) — Central 1 Credit Union (‘Central 1’ or ‘the organization’) today reported a net income of $3.9 million for its third quarter, ended September 30, 2023, up $2.6 million from the same quarter last year.

These results reflect a stable and consistent quarter in most areas of Central 1’s business and a smaller fair value loss in its financial instruments.

While bond credit spreads continued to narrow into the third quarter of 2023, National Housing Act Mortgage-Backed Securities credit spreads widened, leading to a $2.0 million net fair value loss in Central 1’s financial instruments2 compared to a $13.3 million net fair value loss2 in the same quarter last year. Central 1 also recognized $1.9 million lower net interest income (previously reported as interest margin) year-over-year due to higher short-term funding costs and lower total assets in Central 1’s investment portfolio. Provision for credit losses reflected a charge of $1.0 million in the third quarter, up $0.6 million from the same quarter last year.

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Non-interest income (previously reported as non-financial income), excluding strategic initiatives2, which includes income generated from fee-for-service based business across Treasury, Payments and Digital Banking Platforms and Experiences, remained consistent year-over-year. Non-interest expense (previously reported as non-financial expense), excluding strategic initiatives2 , went up by $4.9 million from the same quarter last year to $41.2 million, primarily driven by higher salaries and benefits.

“Amid persistent market challenges, Central 1’s third quarter was stable. Inflation rates remained sticky through most of the third quarter and above target rates, inviting projections that high interest rates will persist longer than expected. Central 1 will remain focused on disciplined risk and cost management, the outcome of which is beginning to materialize in our financial results, and we will continue to deliver on our strategic priorities for our members and clients,” said Sheila Vokey, Central 1’s President and CEO.

Treasury

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Further highlights in Central 1’s Treasury business include a net income of $11.4 million in the third quarter, up $9.0 million year-over-year. Treasury’s fee-for-service based businesses, including mortgage servicing, commercial lending and asset management, continued to show stable performance during the quarter and improved marginally from the same quarter last year.

In the third quarter, Central 1 supported members and clients to prepare for Basel III’s capital and liquidity requirements and enhanced products and services, including the Standby Fee Reimbursement program, to support credit unions in reducing their operational costs and increasing their margins.

Payments & Digital Banking Platforms and Experiences (DBPX)

Payments & DBPX reported a net loss of $4.9 million in the third quarter of 2023, compared to a $3.7 million net loss in the same quarter last year.

This line of business saw a $1.4 million increase in non-interest income, excluding strategic initiatives2, driven by higher transaction volumes and the repricing of payments products and the adoption of digital cybersecurity and banking products.

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Non-interest expense, excluding strategic initiatives2, saw a $4.7 million increase year-over-year due to higher salaries and benefits.

Investments in strategic initiatives2, which included the Payments Modernization and digital banking initiatives, continued at a planned lower level and were consistent with Central 1’s strategic priorities with the spend in the current quarter being $1.9 million lower compared to the same quarter last year.

Central 1’s third quarter Management’s Discussion and Analysis and Financial Statements have been filed on Central 1’s SEDAR profile at www.sedarplus.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 $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.

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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.

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Net Fair Value Gain (Loss)

Net fair value gain (loss) is comprised of gain (loss) on disposal of financial instruments plus changes in fair value of financial instruments reported in the Interim Consolidated Statement of Net Income (Loss). Reporting them combined provides better information on the fair value movements of Central 1’s financial instruments to the readers.

For the nine months ended
September 30$ millionsQ3 2023Q3 2022Change 20232022 Change Gain (loss) on disposal of financial instruments as reported$0.8 $(4.2)$5.0 $17.1 $(25.5)$42.6Change in fair value of financial instruments as reported (2.8) (9.1) 6.3 7.1 (98.8) 105.9Net fair value gain (loss)$(2.0)$(13.3)$11.3 $24.2 $(124.3)$148.5

Non-Interest Income, excluding Strategic Initiatives

Non-interest income, excluding strategic initiatives 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.

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Overall Performance

For the nine months ended
September 30$ millionsQ3 2023Q3 2022Change 20232022Change Non-interest income as reported$39.4 $39.7$(0.3) $119.2 $113.7$5.5Less: strategic initiatives income 0.7 – 0.7 1.5 – 1.5Non-interest income, excluding strategic initiatives$38.7 $39.7$(1.0) $117.7 $113.7$4.0

Results by Segment

Payments & DBPX

For the nine months ended September 30$ millionsQ3 2023Q3 2022Change 20232022Change Non-interest income as reported$30.7 $28.6$2.1 $89.1 $81.3$7.8Less: strategic initiatives income 0.7 – 0.7 1.5 – 1.5Non-interest income, excluding strategic initiatives$30.0 $28.6$1.4 $87.6 $81.3$6.3

Non-Interest Expense, excluding Strategic Initiatives

Non-interest expense, excluding strategic initiatives 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.

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Overall Performance

For the nine months ended
September 30$ millionsQ3 2023Q3 2022Change 20232022Change Non-interest expense as reported$50.9 $45.9$5.0 $157.6 $141.8$15.8 Less: strategic initiatives spend 8.4 9.6 (1.2) 29.2 30.2 (1.0)Non-interest expense, excluding strategic initiatives$42.5 $36.3$6.2 $128.4 $111.6$16.8

Results by Segment

Treasury

For the nine months ended September 30$ millionsQ3 2023Q3 2022Change 20232022Change Non-interest expense as reported$9.7 $9.8$(0.1) $31.5 $29.7$1.8Less: strategic initiatives spend 0.2 0.0 0.2 1.6 0.0 1.6Non-interest expense, excluding strategic initiatives$9.5 $9.8$(0.3) $29.9 $29.7$0.2

Payments & DBPX

For the nine months ended September 30$ millionsQ3 2023Q3 2022Change 20232022Change Non-interest expense as reported$37.0 $33.5$3.5 $113.2 $103.4$9.8 Less: strategic initiatives spend 5.3 6.5 (1.2) 19.2 21.5 (2.3)Non-interest expense, excluding strategic initiatives$31.7 $27.0$4.7 $94.0 $81.9$12.1

System Affiliates & Other

For the nine months ended September 30$ millionsQ3 2023Q3 2022Change 20232022Change Non-interest expense as reported$4.2 $2.6 $1.6 $12.9 $8.7$4.2 Less: strategic initiatives spend 2.9 3.1 (0.1) 8.4 8.7 (0.3)Non-interest expense, excluding strategic initiatives$1.3 $(0.5)$1.7 $4.5 $0.0$4.5

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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.

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Footnotes:

1 This 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 third quarter of 2023, available on www.sedarplus.com, for more information.

2 This 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 third quarter of 2023, available on www.sedarplus.com, for more information.

Contacts

Media
Tricia Weagant
Vice President, Communications & Marketing
Central 1
T 613.806.5168
E [email protected]

Investors
Brent Clode
Chief Investment Officer
Central 1
T 905.282.8588 or 1.800.661.6813 ext. 8588
E [email protected]