DBRS Confirms Central 1 Credit Union at R-1 (middle), A (high) and “A”

DBRS has today confirmed the Short-Term Notes, Medium & Long-Term Senior Notes & Deposits and Subordinated Debt ratings of Central 1 Credit Union (Central) at R-1 (middle), A (high) and “A”, respectively. All trends are Stable. The primary considerations in determining the ratings are the low-risk business and strong asset quality and financial risk profiles of the British Columbia and Ontario credit unions that are members of Central.

The business combination of the former Credit Union Central of British Columbia (CUCBC) and Credit Union Central of Ontario (CUCO) to create Central had a number of benefits, including improved regional diversification, increased flexibility with a larger Central balance sheet compared to the larger credit union members, as well as the future potential for improved efficiencies through economies of scale.

The British Columbia system’s (B.C. System) earnings before patronage refunds improved by over 13% in 2009 versus 2008 while Ontario credit union member (Ontario Members) earnings declined by 5%. Central’s net income before unusual items increased to almost $100 million in 2009 from $34 million in 2008 (which included a contribution in only part of the year from CUCO). The unusually strong 2009 result was caused by declining interest rates and contracting bond spreads which resulted in higher net interest income and uncharacteristically large mark-to-market gains. Earnings are expected to revert to more typical levels in 2010.

Liquidity levels at the total System level (including both the B.C. System and Ontario Members) and Central have improved quite dramatically over the past several years as a result of lower growth in loans and higher levels of deposit growth at the System level, although this appears to be beginning to reverse thus far in 2010. There has been some deterioration in asset quality metrics, although it has been well within expectations for this point in the credit cycle. The future outlook for both earnings and asset quality is largely dependant on the economies of British Columbia and Ontario.

Management believes that the vast majority of the tasks required to integrate the former Credit Union Central of British Columbia (CUCBC) and Credit Union Central of Ontario (CUCO) have been completed.

On December 31, 2009, Central completed the acquisition of 27% of The CUMIS Group Ltd. for approximately $109 million in conjunction with The Co-operators Life Insurance Group Ltd. (and related entities), which acquired the other 73%

Under DBRS’s global rating methodology for banks and bank-like financial institutions, Central’s Medium & Long-Term Senior Notes & Deposits rating is composed of an intrinsic rating of “A” and a support assessment of SA2. The SA2 assessment, which reflects the anticipation of government support, through Central, for the B.C. System and the Ontario Members from the governments of British Columbia and Ontario respectively, results in a one notch rating benefit to the intrinsic assessment. This support situation is somewhat unusual in that two governments are the supporting entities.

Note:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Canadian Credit Union Methodology, which can be found on our website under Methodologies

This is a Corporate (Financial Institutions) rating.