Forward Together
Annual Report 2020
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
89.9
92.5
89.8
76.4
75.7
73.1
61.3
53.4
47.4
47.9
0 20 40 60 80 100
Shareholders’ Equity
(in millions of dollars)
Shareholders’ equity decreased to $89.9 million
at December 31, 2020. Book value per share
was $10.50 at December 31, 2020.
0.5
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
7.1
8.0
9.0
12.8
13.1
12.1
13.1
13.6
16.8
0 5 10 15 20
Return on Average Equity
(as a percent per annum of average equity)
Return on average equity (“ROE”) decreased
to 0.5% in 2020 from 7.1% in 2019 on Covid-19
impacted earnings.
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
10.07
9.09
9.20
8.99
9.60
9.35
6.70
7.86
7.00
6.87
0 2 4 6 8 10 12
Share Price
(at close on December 31)
Accord’s share price closed 2020 at $6.70.
Forward Together
Small- and medium-sized businesses are the engine of
the economy, supporting employment, driving innovation,
and sustaining economic growth. Through 2020 and into
2021, Accord Financial has brought every tool in its
arsenal to keep the engine running, while the economy
moves towards a recovery.
Each industry faces its own set of challenges, and every
business has its own unique path to success. Financial
support is never the end in itself; it paves the way for
investment – in supplies, inventory, equipment, working
capital – setting the stage for the next phase of growth.
With Accord’s unwavering support, our clients add value
to their clients, develop innovative products, provide
outstanding service, drive costs down, hire the next
generation of talent, and deliver the promise of progress.
Entrepreneurs, through their passion and commitment,
lead the way.
With forty-three years of experience, Accord knows what it
takes to navigate to a competitive advantage; to not only
survive, but ultimately to thrive. As the pace of change
accelerates, unlocking opportunity takes more than
ambition; it takes financial strength, deep insight, and a
relentless focus on the future. With the economy ready to
gear up, Accord holds the key.
Table of Contents
Inside front cover Forward Together
1 Three Year Financial Highlights Summary
2 Letter To Our Shareholders
4 Management’s Discussion and Analysis
28 Ten Year Financial Summary 2011-2020
29 Complete Spectrum of Financing Solutions
30 Management’s Report to the Shareholders
31 Independent Auditors’ Report to the Shareholders
36 Consolidated Statements of Financial Position
37 Consolidated Statements of Earnings
37 Consolidated Statements of Comprehensive (Loss) Income
38 Consolidated Statements of Changes in Equity
39 Consolidated Statements of Cash Flows
40 Notes to Consolidated Financial Statements
Inside back cover Corporate Information
Forward Together: Client Success Stories
Short-Term Need, Long-Term Relationship
“When looking for a lender, we knew we needed not only a company that can assist
with our short-term needs, but also a long-term relationship with a lender we can
trust. What separated Accord from the rest was not only the way they focused on the
future success of our company, but also their ability to work collaboratively as a
team, which in turn made it easy for us to work with them.”
~ Mike Frost, President & Owner
LTI Printing
Customer-Service Oriented
“SkinCure Oncology has appreciated working with the Accord team for a number of
years. We have found the Accord team to be professional, customer service oriented
and most importantly a team of integrity.”
~ Kerwin Brandt, CEO
SkinCure Oncology
New Equipment
“As a rapidly growing company, the need for new equipment doesn’t stop. Accord
saw an opportunity to assist and stepped up with great customer service to finance
capital assets that were critical in meeting our capacity needs. They continue to be
a great partner.”
~ Debra K Kessler, Chief Financial Officer
Stella & Chewy’s
Overcoming Challenges
“I was impressed by Accord’s ability to exceed all expectations I had in a lender.
Accord took the time to listen and understand our financial needs, providing
supportive solutions in a timely manner. The team was very straight forward from
the beginning, and I was very impressed with their ability to deliver exactly what
they committed to. By partnering with Accord, we were able to overcome challenges,
drive success and create a lasting relationship.”
~ Kevin Delaplane
Union Capital Associates, LP
Entrepreneurial Growth & Support
“Accord Financial has been a fundamental partner in our company's growth. Their
management team is very open to entrepreneurship and has helped us reach our
goals. We are very satisfied with their top-notch service and support!”
~ Ricky Singh, CEO
A2Z Wholesale and Distribution
Forward Together
“Since the beginning of the Covid crisis last year, my childcare business was hit
particularly hard because of the limited capacity measures that were implemented.
I knew I would need financial support for my business to survive. I’m so thankful that
I was referred to Accord – they made it easy for me to get the financing I desperately
needed to keep my doors open. And I won’t miss a beat when it comes time to reopen.”
~ Jeanine Halstead, Owner
Stardom Childcare
Three Year Financial Highlights Summary
2020 2019 2018
Operating Data
Years ended December 31
(in thousands of dollars except where indicated)
Revenue $ 48,501 $ 56,175 $ 46,927
Net earnings attributable to shareholders 417 6,444 10,356
Adjusted net earnings 2,032 4,939 10,840
Return on average equity 0.5% 7.1% 12.8%
Adjusted return on average equity 2.2% 5.4% 13.4%
Financial Position Data
At December 31 (in thousands of dollars)
Average funds employed (during the year) $ 347,493 $ 378,243 $ 270,900
Total assets 384,913 406,214 373,783
Shareholders' equity 89,850 92,515 89,81 8
Common Share Data
(per common share)
Earnings per share - basic and diluted $ 0.05 $ 0.76 $ 1.24
Adjusted earnings per share - basic and diluted 0.24 0.58 1.30
Dividends paid 0.24 0.36 0.36
Share price - high 10.15 10.42 10.45
- low 3.51 8.37 8.22
- close at December 31 6.70 10.07 9.09
Book value per share at December 31 10.50 10.77 10.66
The Company’s financial statements have been prepared in accordance with IFRS. The Company uses a number of other financial measures to monitor its performance and believes
that these measures may be useful to investors in evaluating the Company’s operating performance and financial position. These measures may not have standardized meanings or
computations as prescribed by IFRS that would ensure consistency between companies using these measures and are, therefore, considered to be non-IFRS measures. The non-IFRS
measures presented in the Three Year Financial Highlights Summary, Ten Year Financial Summary, Letter to Our Shareholders and in the Management’s Discussion and Analysis are
summarized on pages 4, 5, and 6 of this Annual Report. Such non-IFRS measures include adjusted net earnings, adjusted earnings per share, book value per share, return on average
equity, adjusted return on average equity, average funds employed etc. Please refer to pages 4, 5 and 6.
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
48.5
46.9
56.2
31.4
28.5
31.6
30.2
26.1
25.9
28.4
5
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
124
105
76
72
79
83
80
76
85
0.42
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
10.36
6.44
6.01
6.57
8.76
6.88
6.54
6.38
7.59
0 5 10 15 20 25 30 35 40 45 50 55 60
0 30 60 90 120 150
0 2 4 6 8 10 12
Revenue
(in millions of dollars)
Diluted Earnings per Share
(in cents)
Net Earnings
(in millions of dollars)
Revenue declined 14% to $48.5 million in
2020 from $56.2 million in 2019.
2020 diluted earnings per share were
5 cents, while adjusted diluted EPS
were 24 cents.
Net earnings decreased to $0.42 million in
2020 from $6.44 million in 2019. Adjusted
net earnings in 2020 were $2.0 million.
Annual Report 2020 1
Letter to Our Shareholders
In a recent virtual meeting with all Accord staff I
described 2020 as one of the best years in the Company’s
history. While you wouldn’t know it from the numbers,
let me explain.
Growth Interrupted
After three years of strong growth, Accord began 2020
with $373 million in total funds employed. As Covid-19
dragged the economy into a tailspin, we adopted a
cautious approach to onboarding new clients, and at the
same time, many of our asset-based lending clients reduced
their borrowings owing to reduced business activity
combined with generous government funding. Economic
activity in the United States and Canada plunged more
than 30% in the second quarter, while Accord’s portfolio
shrank by 14%, touching $317 million by June 30th.
In the early days of Covid-19 we focused on battling the
enormous headwinds shoulder to shoulder with our
clients – supporting many with innovative solutions, and
placing a number of hard-hit companies on our watch list.
As expected, many of these accounts were wound down
during the year, and we recorded appropriate credit and
loan losses. While we’ve now exited the weakest accounts,
given the persistent economic uncertainty, we continue
to carry a large allowance for credit and loan losses.
The allowance now stands at $6.9 million, up 50% from
$4.6 million at the end of 2019 (with a similar sized portfolio).
As we worked through the challenging environment, by
mid-summer we began to see “green shoots” of renewed
growth taking root all around Accord. The road to recovery
took shape as the second half unfolded, and by year end
Accord’s total funds employed reached $360 million, just
a shade below where the year began.
Back to the Starting Line
The long round trip, from peak to trough, and back to
our previous growth path, left us with little to show for
our efforts. Accord’s financial performance for the full
year 2020 was an outlier; after several years of top line
growth and operational retooling, profit was sideswiped
by the economic turmoil. Given the extreme economic
disruption, we take some solace in the fact that the
Company finished the year with a small profit, extending
our streak of annual profits to thirty-nine years. I’m proud
of the support we offered our clients, but I wish we could
have delivered better results for our shareholders.
The decline in average funds employed versus 2019
delivered lower revenue, which along with lower yields led
to weaker top line results in 2020. Credit and loan write-
offs, combined with the increase in allowance for losses,
were also major drivers of weak financial performance.
In addition, Accord incurred some one-time restructuring
charges, mainly severance costs related to our Canadian
operations, where we significantly downsized the parts of
the business that focus on the retail sector, which had
been in the works prior to Covid.
Accord closed out 2020 with a clean slate; the portfolio is
performing, our allowance for losses remains conservative,
and our team has been streamlined for success. And
growth is gathering steam again.
Accord’s Best Year
In an unexpected paradox, in a year when we were forced
to work apart, our team came together like never before.
Not only across our teams, in fact, we also got closer to
our clients and more in tune with our key markets.
In that regard, Accord’s deep connection with Canadian
small businesses led us to launch one of the most innovative
financing solutions in the country. In mid-December, after
several months of discussions with Export Development
Canada (EDC), we launched AccordExpress, a program
designed to bridge small businesses through to the
economic recovery. Supported by the EDC Business Credit
2 Accord Financial Corp.
Simon Hitzig
Ken Hitzig
Availability Program Guarantee, AccordExpress combines
industry-leading technology with a unique credit process
to approve loans up to $250,000 within two business days.
James Jang, President of Accord’s small business division,
described “Entrepreneurs are the engine of the Canadian
economy, supporting employment, driving innovation,
and sustaining economic growth. AccordExpress is designed
to keep the engine running, while the economy moves
towards a recovery.” Only from Accord.
While responding to our markets with unique solutions,
equally importantly, we accelerated our strategic plan,
bringing our Company onto a unified platform, stronger
together, and armed with a singular vision. Almost every
functional area of Accord is included in the plan, with a
commitment to raise the bar in how we operate, aiming
to integrate seamlessly with clients, referral networks
and financial partners. In 2020 Accord:
• Reorganized the executive team, bolstering and
formalizing an all-star team at the corporate level,
raising the bar in sales & marketing, operations, human
resources and finance
• Brought every employee from all six offices onto the
same communication platform, allowing us to collaborate
seamlessly, share knowledge in real time, and manage
data securely in the cloud
• Implemented a world class human resources platform,
which united every employee from coast to coast on a
single system designed to manage key HR functions
including recruiting, onboarding, employee engagement
and performance management
• Rolled out a leading financial planning and analysis
system to consolidate accounting data from multiple
platforms in real time, and facilitate dynamic modeling
and business forecasting
• Overhauled our portfolio management and oversight
processes, bringing together two cross-divisional teams
of experts to apply a 360-degree perspective to portfolio
risk management
As 2020 came to a close we added a new focus on
client-facing activities: business development, product
development, marketing, and service. The strategic plan
provides a road map for elevating performance in these
areas; we are now on the road to execution.
Capping off the year, in the fourth quarter we wrapped
our mission, vision, values and culture in an outstanding
new brand design. Accord’s very first logo was designed
by Don Watt, who was part of the team that designed the
Canadian flag. That logo perfectly captured the innovative
and ambitious spirit of the Company when it was founded.
The new design reignites that same spirit, and signals to
all our stakeholders that we remain dynamic, ready to
embrace change for another forty-three years.
Fiscal 2020 presented Accord’s toughest challenge since
the start-up years in the late 1970s. Despite the headwinds
we made significant progress in positioning Accord for the
next phase of growth. As the economy reopens, Accord is
ready to roll.
Simon Hitzig
President & CEO
March 10, 2021
Ken Hitzig
Chairman of the Board
Annual Report 2020
3
Management’s Discussion & Analysis of Results
of Operations and Financial Condition (“MD&A”)
Year ended December 31, 2020 compared with year ended December 31, 2019
FINANCIAL HIGHLIGHTS
Years ended December 31
(in thousands except average funds employed,
earnings per common share and book value per share)
$
Average funds employed (millions)
Revenue
(Loss) earnings before income tax
Net earnings attributable to shareholders
Adjusted net earnings
Earnings per common share (basic and diluted)
Adjusted earnings per common share (basic and diluted)
2020
347
48,501
(4,062)
417
2,032
0.05
0.24
Book value per share (December 31)
$
10.50
2019
$ 378
56,175
6,921
6,444
4,939
0.76
0.58
$ 10.77
OVERVIEW
The following discussion and analysis explains trends in
Accord Financial Corp.’s (“Accord” or the “Company”)
results of operations and financial condition for the
year ended December 31, 2020 compared with the year
ended December 31, 2019 and, where presented, the
year ended December 31, 2018. It is intended to help
shareholders and other readers understand the dynamics
of the Company’s business and the factors underlying
its financial results. Where possible, issues have been
identified that may impact future results.
This MD&A, which has been prepared as at March 10,
2021, should be read in conjunction with the Company’s
2020 audited consolidated financial statements (the
“Statements”) and notes thereto, the Ten Year Financial
Summary (see page 28) and the Letter to Our Shareholders
all of which form part of this 2020 Annual Report.
prepared in accordance with International Financial
Reporting Standards (“IFRS”). Please refer to the Critical
Accounting Policies and Estimates section below and
note 2 and 3 to the Statements regarding the Company’s
use of accounting estimates in the preparation of its
financial statements in accordance with IFRS. Additional
information pertaining to the Company, including its
Annual Information Form, is filed under the Company’s
profile with SEDAR at www.sedar.com.
The following discussion contains certain forward-looking
statements that are subject to significant risks and
uncertainties that could cause actual results to differ
materially from historical results and percentages.
Factors that may impact future results are discussed in
the Risks and Uncertainties section below.
NON-IFRS FINANCIAL MEASURES
All amounts discussed in this MD&A are expressed in
Canadian dollars unless otherwise stated and have been
In addition to the IFRS prepared results and balances
presented in the Statements and notes thereto, the
Company uses a number of other financial measures to
4 Accord Financial Corp.
Stuart Adair
monitor its performance and some of these are presented
in this MD&A. These measures may not have standardized
meanings or computations as prescribed by IFRS that
would ensure consistency and comparability between
companies using them and are, therefore, considered to
be non-IFRS measures. The Company primarily derives
these measures from amounts presented in its Statements,
which were prepared in accordance with IFRS. The
Company's focus continues to be on IFRS measures
and any other information presented herein is purely
supplemental to help the reader better understand the
key performance indicators used in monitoring its
operating performance and financial position. The non-
IFRS measures presented in this MD&A and elsewhere in
its 2020 Annual Report are defined as follows:
i) Return on average equity (“ROE”) – this is
a profitability measure that presents net earnings
attributable to shareholders (“shareholders’ net
earnings”) as an annualized percentage of the average
shareholders’ equity employed in the period to earn
the income. The Company includes all components of
shareholders’ equity to calculate the average thereof;
ii) Adjusted net earnings, adjusted earnings
per common share and adjusted ROE –
adjusted net earnings presents shareholders net
earnings before stock-based compensation, business
acquisition expenses (namely, business transaction
and integration costs and amortization of intangibles)
and restructuring expenses. The Company considers
these items to be non-operating expenses.
Management believes adjusted net earnings is a
more appropriate measure of ongoing operating
performance than shareholders’ net earnings as it
excludes items which do not directly relate to
ongoing operating activities. Adjusted (basic and
diluted) earnings per common share is adjusted net
earnings divided by the (basic and diluted) weighted
average number of common shares outstanding in the
period, while adjusted ROE is adjusted net earnings for
the period expressed as an annualized percentage of
average shareholders’ equity employed in the period;
iii) Book value per share – book value is defined
as shareholders’ equity and is the same as the net
asset value of the Company (calculated as total assets
minus total liabilities) less non-controlling interests
in subsidiaries. Book value per share is the book
value divided by the number of common shares
outstanding as of a particular date;
iv) Average funds employed – funds employed
is another name that the Company uses for its
finance receivables and loans (also referred to as
“Loans” in this MD&A), an IFRS measure. Average
funds employed are the average finance receivables
and loans calculated over a particular period.
v) Profitability, yield and efficiency ratios –
Table 1 on page 10 presents certain profitability
measures. In addition to ROE and adjusted ROE, the
return on average assets is also presented. This is
the net earnings expressed as a percentage of
average assets. Also presented is net revenue
(revenue minus interest expense) expressed as a
percentage of average assets, and general and
administrative expenses (“G&A”) expressed as a
percentage of average assets. These ratios are
presented over a three-year period, which enables
readers to see at a glance trends in the Company’s
profitability, yield and operating efficiency;
Annual Report 2020
5
RESULTS OF OPERATIONS
2020 2019
Years ended December 31 % of % of % change from
(in thousands unless otherwise stated) Revenue Revenue 2019 to 2020
Average funds employed (millions) $ 347 $ 378 -8%
Revenue
Interest income $ 42,705 88.0% $ 49,003 87.2% -13%
Other income 5,796 12.0% 7,172 12.8% -19%
48,501 100.0% 56,175 100.0% -14%
Expenses
Interest 14,596 30.1% 17,089 30.4% -15%
General and administrative 26,458 54.6% 26,151 46.6% 1%
Provision for credit and loan losses 9,403 19.4% 7,105 12.7% 32%
Impairment of assets held for sale 1,087 2.2% — — n/m
Depreciation 721 1.5% 727 1.3% -1%
Business acquisition expenses (recovery):
Transaction and integration costs — — (2,118) -3.8% -100%
Amortization of intangible assets 298 0.6% 300 0.5% -1%
52,563 108.4% 49,254 87.7% 7%
(Loss) earnings before income tax (4,062) -8.4% 6,921 12.3% -159%
Income tax (recovery) expense (4,670) -9.6% 1,579 2.8% -396%
Net earnings 608 1.2% 5,342 9.5% -89%
Net earnings (loss) attributable to
non-controlling interests in subsidiaries 191 0.4% (1,102) -2.0% n/m
Net earnings attributable to shareholders $ 417 0.8% $ 6,444 11.5% -94%
Adjusted net earnings $ 2,032 4.2% $ 4,939 8.8% -59%
Earnings per common share* $ 0.05 $ 0.76 -93%
Adjusted earnings per common share* $ 0.24 $ 0.58 -59%
* basic and diluted
n/m - not meaningful
vi) Financial condition and leverage ratios –
vii) Credit quality – Table 3 on page 15 presents
Table 2 on page 13 presents the following
percentages: (i) total equity expressed as a percentage
of total assets; (ii) tangible equity (total equity less
goodwill, intangible assets and deferred taxes)
expressed as a percentage of total assets; and
(iii) debt (bank indebtedness, loan payable, notes
payable and convertible debentures) expressed as
a percentage of total equity. These percentages
provide information on trends in the Company’s
financial condition and leverage; and
information on the quality of the Company's total
portfolio, namely, its finance receivables and loans
and managed receivables. It presents the Company’s
year-end allowances for losses as a percentage of
its total portfolio and its annual net write-offs. It
also presents net write-offs as a percentage of
revenue. The percentage of managed receivables
past due more than 60 days is also presented in
Table 3.
6 Accord Financial Corp.
ACCORD’S BUSINESS
SELECTED ANNUAL INFORMATION
Accord is one of North America's leading independent
finance companies serving clients throughout the United
States and Canada. Accord's flexible finance programs
cover the full spectrum of asset-based lending (“ABL”),
from receivables and inventory finance, to equipment
and trade finance, to film and media finance. Accord's
business also includes credit protection and receivables
management, as well as supply chain financing for
importers. Its clients operate in a wide variety of
industries, examples of which are set out in note 23(a)
to the Statements.
The Company, founded in 1978, operates six finance
companies in North America, namely, Accord Financial
Ltd. (“AFL”), Accord Financial Inc. (“AFIC”) and Accord
Small Business Finance (“ASBF”) in Canada, and Accord
Financial, Inc. (“AFIU”), BondIt Media Capital (“BondIt”)
and Accord CapX LLC (doing business as Accord Equipment
Finance (“AEF”)) in the United States.
The Company’s business principally involves: (i) asset-
based lending by AFIC and AFIU, which entails financing
or purchasing receivables on a recourse basis, as well as
financing other tangible assets, such as inventory and
equipment; (ii) equipment financing (leasing and
equipment loans) by AEF and ASBF. ASBF also provides
working capital financing to small businesses; (iii) film
and media production financing by BondIt; and (iv) credit
protection and receivables management services by AFL,
which principally involves providing credit guarantees
and collection services, generally without financing.
(audited, in thousands of dollars, except per share data)
2020 2019 2018
Revenue $ 48,501 $ 56,175 $ 46,927
Net earnings attributable
to shareholders 417 6,444 10,356
Basic and diluted
earnings per share 0.05 0.76 1.24
Dividends per share 0.24 0.36 0.36
Total assets 384,913 406,214 373,783
Long-term financial
liabilities $ 23,510 $ 35,077 $ 28,168
RESULTS OF OPERATIONS
Year ended December 31, 2020 compared with year
ended December 31, 2019
Shareholders’ net earnings in 2020 totalled $417,000
compared to $6,444,000 in 2019 and $10,356,000 in 2018.
Shareholders’ net earnings in 2020 declined compared
to 2019 mainly as a result of lower revenue, a higher
provision for losses and impairment of assets held for
sale, the absence of a recovery of business transaction
costs in 2020, and the incurrence of restructuring
expenses. Shareholders’ net earnings in 2020 declined
compared to 2018 on a higher provision for losses and
impairment of assets held for sale, and increased interest
and G&A, including restructuring expenses. Basic and
diluted earnings per common share (“EPS”) declined to
5 cents compared to the 76 cents earned last year and
the $1.24 earned in 2018. The Company’s ROE decreased
to 0.5% in 2020 compared to 7.1% last year and 12.8%
in 2018. It is noted the severe deterioration in economic
activity due to Covid-19 impacted 2020 financial
performance resulting in a higher provision for losses
and lower funds employed which, together with reduced
interest rates, also served to decrease revenue.
Adjusted net earnings decreased by 59% to $2,032,000
in 2020 compared to $4,939,000 in 2019 and were 81%
lower than 2018’s $10,840,000. Adjusted EPS were
24 cents in 2020, 59% lower than the 58 cents earned
in 2019 and 82% below the $1.30 earned in 2018.
Annual Report 2020
7
Adjusted ROE was 2.2% in 2020 compared to 5.4% in
2019 and 13.4% in 2018. The following table provides a
reconciliation of shareholders’ net earnings to adjusted
net earnings:
Years ended Dec. 31
(in thousands)
Shareholders’ net earnings
Adjustments, net of tax:
Restructuring expenses
Business acquisition
expenses (recovery)
Stock-based compensation
(recovery) expense
2020
2019 2018
$
417 $
6,444 $ 10,356
1,395
— —
220
(1,381) 251
—
(124) 233
Adjusted net earnings
$
2,032 $
4,939 $ 10,840
Revenue declined by 14% or $7,674,000 to $48,501,000
in 2020 compared to $56,175,000 in 2019 but was
$1,574,000 or 3% higher than the $46,927,000 in 2018.
Interest income declined by $6,298,000 or 13% to
$42,705,000 in 2020 compared to $49,003,000 in 2019
on an 8% decline in average funds employed and a 5%
decrease in average loan yields. Both funds employed
and yields were impacted by Covid-19 in 2020 as: (i)
client business activity declined; (ii) government assistance
received by clients, particularly in the U.S., was used to
pay down loans; and (iii) Canadian and U.S. prime rates
of interest, which impact interest income from our floating
rate loans to clients, were reduced. Interest income was
$4,862,000 or 13% higher compared to $37,843,000 in
2018 on a 28% rise in average funds employed, which
was partly offset by 12% lower average loan yields due
to reduced interest rates in 2020 and an increase in
non-earning loans. Other income in 2020 declined by
$1,376,000 to $5,796,000 compared to 2019 and by
$3,288,000 compared to 2018 as management fees
earned by AEF from managing a legacy equipment
finance fund ceased at the end of February 2020 and
receivables management fees declined. Average funds
employed in 2020 decreased to $347 million compared
to $378 million last year but were 28% higher than the
$271 million in 2018.
Total expenses increased by $3,309,000 or 7% to
$52,563,000 compared to $49,254,000 in 2019. The
provision for credit and loan losses, business acquisition
expenses, impairment of assets held for sale, and G&A
increased by $2,298,000, $2,116,000, $1,087,000 and
$307,000, respectively. Interest expense and depreciation
declined by $2,493,000 and $6,000, respectively.
19.4
12.7
9.3
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
4.3
3.4
1.2
2.1
1.7
0.8
3.1
9.4
7.10
2.02
2.90
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
0.96
0.37
0.64
0.44
0.21
0.89
0 4 8 12 16 20
0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
Provision for Credit and Loan
Losses
(as a percentage of revenue)
The provision rose to 19.4% of revenue in
2020 from 12.7% last year.
Provision for Credit and Loan
Losses
(in millions of dollars)
The provision increased to $9.4 million in
2020 from $7.1 million in 2019.
8 Accord Financial Corp.
Interest expense declined by 15% to $14,596,000 in
2020 from $17,089,000 last year on decreased interest
rates and 8% lower average borrowings. Interest rates
declined on the Company’s borrowings as a result of
reduced prime rates of interest in Canada and the U.S.
G&A comprise personnel costs, which represent the
majority of the Company’s costs, occupancy costs,
commissions to third parties, marketing expenses,
management fees, professional fees, data processing,
travel, telephone and general overheads. G&A increased
by $307,000 mainly on higher personnel costs, which
rose by $232,000 as a result of restructuring costs of
$1,890,000 (2019 – nil) incurred to downsize staff.
Personnel costs are net of $1,053,000 received under the
Canadian Emergency Wage Subsidy (“CEWS”) program,
while employee bonuses also declined by $659,000 in
2020. G&A costs are net of $37,000 received under the
Canadian Emergency Rent Subsidy (“CERS”) program in
2020. The Company continues to manage its controllable
expenses closely.
The provision for credit and loan losses increased by
$2,298,000 to $9,403,000 compared to $7,105,000 last year.
The provision comprised:
Years ended Dec. 31
(in thousands)
Net write-offs
Reserves expense related to increase
in total allowances for losses
2020
2019
$
6,872
$ 5,952
2,531
1,153
$
9,403
$ 7,105
The provision for credit and loan losses as a percentage
of revenue rose to 19.4% in 2020 from 12.7% in 2019.
Net write-offs increased by $920,000 to $6,872,000 in
2020 compared to $5,952,000 in the prior year. Net
write-offs in 2020 included four write-offs totalling
$8,286,000, which was partially offset by one account
recovery of $3,523,000. The level of 2020 write-offs was
affected by the impact of Covid-19 on the Company’s
portfolio. The non-cash reserves expense rose by
$1,378,000 to $2,531,000 as the Company increased its
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
56.1
47.9
50.7
54.5
55.7
61.6
52.6
53.5
53.1
48.2
0 10 20 30 40 50 60 70
Operating Expenses
(G&A and depreciation)
Operating expenses rose to 56.1% of revenue in
2020 from 47.9% last year.
allowances to build adverse current and forward-looking
economic conditions into its allowances for losses as
required by IFRS 9, Financial Instruments. The Company’s
allowances for losses and its portfolios are discussed in
detail below and also in the Statements. While the
Company manages its portfolio of Loans and managed
receivables closely, as noted in the Risks and Uncertainties
section below, financial results can be impacted by
significant insolvencies or one-off losses.
An impairment charge of $1,087,000 (2019 – nil) was
taken during 2020 against certain assets held for sale to
write them down to their net recoverable value, which
was based on actual realizations from the sale of the
assets. Realizations were likely adversely impacted by the
adverse economic conditions resulting from Covid-19.
See note 5 to the Statements.
Depreciation expense decreased by $6,000 to $721,000
in 2020. Depreciation of $439,000 (2019 – $436,000) was
charged on the right-of-use assets in 2020, with the
balance of the expense relating to capital assets.
Business acquisition expenses in 2020 totalled $298,000
(2019 – recovery $1,818,000) and comprised the
Annual Report 2020
9
amortization of intangible assets relating to ASBF and
AEF (2019 – $300,000). There were no transaction and
integration costs in 2020 (2019 – recovery of $2,118,000).
Transaction and integration costs in 2019 saw a recovery
of $2,118,000 resulting from a reduction in the fair value
of contingent consideration payable related to the AEF
acquisition in October 2017 (see note 8 to the statements).
Expenses increased by $2,075,000 to $30,351,000. The
provision for credit and loan losses rose by $4,809,000
to $5,673,000, while G&A increased by $955,000. Interest
expense, depreciation and business acquisition expenses
declined by $3,675,000, $11,000 and $3,000, respectively.
Income tax decreased by $1,620,000 to a recovery of
$2,040,000 on a $6,471,000 decrease in pre-tax earnings.
Income tax expense declined by $6,249,000 to a recovery
of $4,670,000 compared to an expense of $1,579,000 in
2019. Income tax decreased on a $11.0 million decline
in pre-tax earnings, a one-time tax recovery of $881,000
relating to a refund in respect of tax losses carried back by
AFIU pursuant to temporary Covid-19 relief changes, and
the benefits from a newly implemented tax structure.
TABLE 1 – PROFITABILITY, YIELD AND
EFFICIENCY RATIOS
(as a percentage) 2020 2019 2018
Return on average assets 0.1 1.6 3.5
Return on average equity 0.5 7.1 12.8
Adjusted return on average equity 2.2 5.4 13.4
Net revenue / average assets 8.8 9.6 12.6
Operating expenses / average assets 7.1 6.6 8.0
Operating expenses* / revenue
(efficiency ratio) 56.1 47.9 50.7
* G&A and depreciation
Table 1 highlights the Company’s profitability in terms
of returns on its average assets and equity. In 2020, the
return on average assets, ROE and adjusted ROE
expressed in percentages, declined to 0.1%, 0.5% and
2.2%, respectively, as earnings decreased. Net revenue
as a percentage of average assets declined to 8.8%
compared to 9.6% in 2019, while the ratio of G&A to
average assets increased to 7.1% in 2020 compared
with 6.6% last year.
Canadian operations reported a shareholders’ net loss
of $7,234,000 in 2020 compared to a net loss of
$1,328,000 last year (see note 21 to the Statements).
Revenue decreased by $4,396,000 or 17% to $21,077,000.
U.S. operations reported a small decrease in shareholders’
net earnings compared to 2019 (see note 21 to the
Statements). Shareholders’ net earnings declined by
$121,000 to $7,651,000 compared to $7,772,000 last year.
Revenue decreased by $4,069,000 to $27,903,000.
Expenses rose by $443,000 to $22,691,000. Business
acquisition expenses, impairment of assets held for sale,
interest expense and depreciation increased by $2,119,000,
$1,087,000, $391,000 and $5,000, respectively. The
provision for credit and loan losses declined by $2,511,000
to $3,730,000, while G&A decreased by $648,000 to
$13,714,000. Income tax decreased by $4,629,000 to a
recovery of $2,630,000. Net earnings attributable to
non-controlling interests in subsidiaries totalled $191,000
compared to a net loss of $1,102,000 in 2019.
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
10.50
10.77
10.66
9.20
9.11
8.79
7.38
6.50
5.76
5.49
0 2 4 6 8 10 12
Book Value per Share
(in dollars)
Book value per share was $10.50 at
December 31, 2020 compared to $10.77
last year-end.
1 0 Accord Financial Corp.
SUMMARY OF QUARTERLY RESULTS
Quarters ended 2020 2019
(in thousands unless otherwise stated) Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
Average funds employed (millions) $ 360 $ 327 $ 341 $ 362 $ 395 $ 383 $ 388 $ 347
Revenue $ 12,903 $ 12,312 $ 11,270 $ 12,015 $ 14,297 $ 15,299 $ 13,991 $ 12,588
Expenses
Interest 3,637 3,379 3,575 4,005 4,392 4,385 4,273 4,038
General and administrative 7,181 5,760 6,569 6,948 7,227 6,502 6,187 6,235
Provision for credit and loan losses 495 3,040 (2,955) 8,822 6,094 719 265 27
Impairment of assets held for sale 190 — — 897 — — — —
Depreciation 179 180 184 179 183 184 182 178
Business acquisition expenses 74 74 75 74 (1,609) (554) 172 174
11,756 12,433 7,448 20,925 16,287 11,236 11,079 10,652
Earnings (loss) before income tax 1,147 (121) 3,822 (8,910) (1,990) 4,063 2,912 1,936
Income tax (recovery) expense (222) (687) (905) (2,856) (688) 1,079 723 465
Net earnings (loss) 1,369 566 4,727 (6,054) (1,302) 2,984 2,189 1,471
Non-controlling interests in net earnings (loss) (15) — 384 (178) (644) (253) (33) (172)
Net earnings (loss) attributable to
shareholders $ 1,384 $ 566 $ 4,343 $ (5,876) $ (658) $ 3,237 $ 2,222 $ 1,643
Adjusted net earnings (loss) $ 2,095 $ 621 $ 4,730 $ (5,414) $ (2,136) $ 2,862 $ 2,397 $ 1,816
Earnings (loss) per common share ** (cents) 16 7 51 (69) (8) 38 26 19
Adjusted earnings (loss) per common
share** (cents) 24 7 55 (63) (25) 34 28 22
* Due to rounding the total of the four quarters may not agree with the reported total for a fiscal year.
** Basic and diluted
379
400
379
Fourth Quarter 2020
Quarter ended December 31, 2020 compared to quarter
ended December 31, 2019
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
274
195
206
218
173
197
193
0 50 100 150 200 250 300 350 400
Total Portfolio
Loans and managed
receivables
(in millions of dollars)
The Company’s total portfolio declined to
$379 million at December 31, 2020 from
$400 million last year-end.
Shareholders’ net earnings for the quarter ended
December 31, 2020 increased by $2,042,000 to $1,384,000
compared to a shareholder’s net loss of $658,000 last
year. Shareholders’ net earnings increased mainly as a
result of a lower provision for loan losses. Basic and
diluted EPS were 16 cents compared to a loss per common
share (“LPS”) of 8 cents in the fourth quarter of 2019. As
noted above, while financial performance improved
compared to 2019, financial results in the fourth quarter of
2020 continue to be adversely impacted by the economic
impact of the Covid-19 pandemic which resulted in
reduced average funds employed and lower revenue,
while there was also a significant write-off in the quarter.
Annual Report 2020
11
Adjusted net earnings were $2,095,000 in the fourth
quarter of 2020 compared to an adjusted net loss of
$2,136,000 last year. Adjusted EPS were 24 cents compared
to an adjusted LPS of 25 cents in 2019. The following
table provides a reconciliation of shareholders’ net
earnings to adjusted net earnings:
G&A decreased by $45,000 to $7,181,000 despite higher
personnel costs, which rose by $549,000 in the fourth
quarter mainly due to restructuring expenses of $894,000
(2019 – nil). Restructuring expenses were partly offset
by a $338,000 decline in employee bonuses and CEWS
received of $151,000.
Quarters ended Dec. 31
(in thousands)
Net earnings (loss)
Adjustments, net of tax:
Restructuring expenses
Business acquisition expenses (recovery)
Stock-based compensation (recovery)
2020
2019
$
1,384
$ (658)
657
54
—
—
(1,222)
(256)
Adjusted net earnings (loss)
$
2,095
$ (2,136)
Revenue declined by $1,394,000 or 10% to $12,903,000
in the current quarter compared to $14,297,000 in the
fourth quarter of 2019. Interest income declined by
$1,158,000 or 10% to $11,025,000 compared to $12,183,000
in the fourth quarter of 2019 mainly as a result of a 9%
decline in average funds employed. Other income declined
by $235,000 to $1,878,000 in the current quarter compared
to $2,113,000 in 2019 as no fees were earned for managing
a legacy equipment finance fund and receivables
management fees declined. Average funds employed in
the fourth quarter of 2020 decreased to $360 million
compared to $395 million last year.
The provision for credit and loan losses expenses declined
by $5,599,000 to $495,000 in the fourth quarter of 2020
compared to $6,094,000 last year. The provision comprised:
Quarters ended Dec. 31
(in thousands)
Net write-offs
Reserves (recovery) expense related to
change in total allowances for losses
2020
2019
$
1,965
$ 5,233
(1,470)
861
$
495
$ 6,094
There were net write-offs of $1,965,000 in the current
quarter compared to $5,233,000 last year, while the
non-cash reserves decreased to a recovery of $1,470,000.
Net write-offs in the current quarter included one account
write-off of $2,085,000, while in the fourth quarter of
2019 one account totalling $5,019,000 was written off.
The non-cash reserve recovery mainly related to a
$1,295,000 decrease in the allowance for losses on the
guarantee of managed receivables as at-risk managed
receivables declined.
Total expenses for the fourth quarter of 2020 declined
by $4,531,000 or 28% to $11,756,000 compared to
$16,287,000 last year. The provision for credit and loan
losses, interest expense, G&A and depreciation decreased
by $5,599,000, $756,000, $45,000 and $4,000, respectively,
while business acquisition expenses (transaction and
integration costs, and amortization of intangibles) and
impairment of assets held for sale rose by $1,683,000
and $190,000, respectively.
An impairment charge of $190,000 (2019 – nil) was
taken in the fourth quarter against certain assets held for
sale to write them down to their net recoverable value.
Depreciation expense decreased by $4,000 to $179,000
in the fourth quarter of 2020. Depreciation of $108,000
(2019 – $108,000) was charged on the right-of-use assets
in the current quarter, with the balance of depreciation
relating to capital assets.
Interest expense declined by 17% to $3,637,000 in the
current quarter from $4,393,000 last year on 11% lower
average borrowings and reduced interest rates.
Business acquisition expenses totalled $74,000 (2019 –
recovery $1,609,000) in the fourth quarter of 2020 and
solely comprised the amortization of intangible assets
relating to ASBF and AEF (2019 – $74,000). There were no
1 2 Accord Financial Corp.
transaction and integration costs in 2020 (2019 – recovery
of $1,683,000). Transaction and integration costs in 2019
saw a recovery resulting from a reduction in the fair
value of contingent consideration payable related to
the AEF acquisition.
Income tax recovery decreased to $222,000 in the current
quarter compared to a recovery of $688,000 in the fourth
quarter of 2019.
REVIEW OF FINANCIAL POSITION
Shareholders’ equity at December 31, 2020 was
$89,850,000, 3% lower than the $92,515,000 at
December 31, 2019. The decrease in shareholders’ equity
since December 31, 2019 resulted from reductions in
retained earnings, accumulated other comprehensive
income, contributed surplus and capital stock. Book
value per common share was $10.50 at December 31,
2020 compared to $10.77 at December 31, 2019. Please
see the consolidated statements of changes in equity
on page 38 of this Annual Report.
Total assets declined by 5% to $384,913,000 at
December 31, 2020 compared to $406,214,000 at
December 31, 2019. Total assets largely comprised Loans
(funds employed). Excluding inter-company loans,
identifiable assets located in the United States were 61%
of total assets at December 31, 2020 compared to 63%
at December 31, 2019 (see note 21 to the Statements).
TABLE 2 – FINANCIAL CONDITION AND
LEVERAGE
(as a percentage) 2020 2019 2018
Tangible equity / assets 20 20 20
Equity / assets 24 24 25
Debt* / total equity 291 307 276
(in thousands)
Receivables and loans
Loans $ 360,337 $ 373,157 $ 339,102
Managed receivables 18,523 27,338 40,145
Total Portfolio $ 378,860 $ 400,495 $ 379,247
* Bank indebtedness, loan payable, notes payable and convertible debentures
Gross finance receivables and loans (also referred to as
Loans or funds employed), before the allowance for
losses thereon, decreased by 3% to $360,337,000 at
December 31, 2020 compared to $373,157,000 at
December 31, 2019. As detailed in note 4 to the Statements,
the Company’s Loans comprised:
(in thousands) Dec. 31, 2020 Dec. 31, 2019
Receivable loans $ 100,858 $ 103,842
Other loans 149,734 167,978
Lease receivables 109,745 101,337
Finance receivables and loans, gross 360,337 373,157
Less allowance for losses 6,314 4,520
Finance receivables and loans, net $ 354,023 $ 368,637
The Company’s receivable loans decreased by 3% to
$100,858,000 at December 31, 2020 compared to
$103,842,000 at December 31, 2019. Other loans, which
primarily comprise advances against non-receivable
assets such as inventory and equipment, declined by
11% to $149,734,000 at December 31, 2020 compared to
$167,978,000 at December 31, 2019. Lease receivables,
representing ASBF’s and AEF’s net investment in
equipment leases, rose by 8% to $109,745,000 at
December 31, 2020 compared to $101,337,000 at
December 31, 2019. Net of the allowance for losses
thereon, Loans decreased by 4% to $354,023,000 at
December 31, 2020 compared to $368,637,000 at
December 31, 2019. The Company’s Loans principally
represent advances made by its asset-based lending
subsidiaries, AFIC and AFIU, to approximately 70 clients
in a wide variety of industries, as well as ASBF’s and
AEF’s lease receivables and equipment and working
capital loans to approximately 135 clients. The largest
client comprised 6% of gross Loans.
In its credit protection and receivables management
business, the Company contracts with clients to assume
the credit risk associated with respect to their receivables
without financing them. Since the Company does not
take title to these receivables, they do not appear on its
consolidated statements of financial position. These
managed receivables totalled $19 million at December 31,
Annual Report 2020
13
2020 compared to $27 million at December 31, 2019.
Managed receivables comprise the receivables of
approximately 50 clients at December 31, 2020. The 25
largest clients comprised 85% of total volume in 2020.
Most of the clients’ customers upon which the Company
assumes the credit risk are “big box”, apparel, home
furnishings and footwear retailers in Canada and the
United States. At December 31, 2020, the 20 largest
customers accounted for 74% of total managed receivables,
of which the largest five comprised 56%. The Company
monitors the retail industry and the credit risk related
to its managed receivables very closely. The managed
receivables are regularly reviewed and monitored.
The Company’s total portfolio, which comprises both
gross Loans and managed receivables, as detailed
above, declined by 5% to $379 million at December 31,
2020 compared to $400 million at December 31, 2019.
As described in note 23(a) to the Statements, the
Company’s business principally involves funding or
assuming the credit risk on the receivables offered to it
by its clients, as well as financing other assets such as
inventory and equipment. Credit in the Company’s six
operating businesses is approved by a staff of credit
officers, with larger amounts being authorized by
supervisory personnel and management. In the case of
credit in excess of $1.0 million (US$1.0 million in the case
of AFIU and AEF, and US$500,000 for BondIt), credit is
approved by the Company's Executive Credit Committee.
Credit in excess of $2.5 million (US$2.5 million in the case
of U.S. group companies) is also approved by the Credit
Committee of the Board of Directors, which comprises
three members of its Board. The Company monitors
and controls its risks and exposures through financial,
credit and legal systems and, accordingly, believes that
it has procedures in place for evaluating and limiting
the credit risks to which it is subject. Credit is subject to
ongoing management review. Nevertheless, for a variety
of reasons, there will inevitably be defaults by clients or
their customers.
In its asset-based lending operations, the Company’s
primary focus continues to be on the creditworthiness
and collectibility of its clients’ receivables. The clients’
customers have varying payment terms depending on
the industries in which they operate, although most
customers have payment terms of 30 to 60 days from
invoice date. ASBF’s and AEF’s lease receivables and
equipment and working capital loans are usually term
loans with payments spread out evenly over the term of
the lease or loan, which can be up to 60 months, although
ASBF has an innovative “revolving” equipment loan
product which has no fixed repayment terms and can
be repaid at any time. Of the total managed receivables
that the Company guarantees payment, 6.1% were past
due more than 60 days at December 31, 2020. In the
Company’s asset-based lending business, receivables
become “ineligible” for lending purposes when they
reach a certain pre-determined age, typically 75 to 90
days from invoice date, and are usually charged back to
clients, thereby limiting the Company’s credit risk on
such older receivables.
The Company employs client rating systems to assess
the credit risk in its asset-based lending and leasing
businesses, which review, amongst other things, the
financial strength of each client and the Company’s
underlying collateral security, while in its credit protection
business it employs a customer credit scoring system
to assess the credit risk associated with the managed
receivables that it guarantees. Please see note 4 to the
Statements which presents tables summarizing the
Company's finance receivables and loans, and managed
receivables, by their credit risk rating (low risk, medium
risk, high risk) and also by the three-stage credit criteria
of IFRS 9, as well as an aged analysis thereof. Credit risk
is primarily managed by ensuring that, as far as possible,
the receivables financed are of good quality and any
inventory, equipment or other assets securing loans are
appropriately appraised. Collateral is monitored and
managed on an on-going basis to mitigate credit risk.
In its asset-based lending operations, the Company
1 4 Accord Financial Corp.
assesses the financial strength of its clients’ customers
and the industries in which they operate on a regular
and on-going basis.
The Company also minimizes credit risk by limiting the
maximum amount that it will lend to any one client,
enforcing strict advance rates, disallowing certain types
of receivables and applying concentration limits, charging
back or making receivables ineligible for lending purposes
as they become older, and taking cash collateral in certain
cases. The Company will also confirm the validity of the
receivables that it purchases or lends against. In its
asset-based lending operations, the Company administers
and collects the majority of its clients’ receivables and
so is able to quickly identify problems as and when they
arise and act promptly to minimize credit and loan losses.
In the Company’s Canadian leasing operations, security
deposits are usually obtained in respect of equipment
leases or loans.
As detailed in note 4, the Company had past due finance
receivables and loans of $12,635,000 at December 31,
2020, of which $11,166,000 related to BondIt, the
Company's media finance subsidiary, while $1,329,000
related to ASBF. Repayment of BondIt's loans are often
delayed for non-credit related reasons such as production
delays. BondIt’s operations have not been particularly
impacted by Covid-19. Of the ASBF loans past due,
$219,000 are considered to be a SICR. While it is usual
at ASBF to have balances past due less than 30 days,
amounts totalling $1,057,000 were past due over 30 days
for which a SICR has been rebutted.
At December 31, 2020, the Company had impaired finance
receivables and loans of $2,539,000. The impaired loans,
which have been written down to net realizable value
(fair value less costs of realization) where necessary, are
mainly collateralized by receivables, inventory and
equipment, the estimated net realizable value of which
was $3,013,000 at December 31, 2020. As the vast majority
of the Company’s finance receivables and loans are
collateralized, past due or impaired accounts do not
necessarily lead to a significant expected credit loss (“ECL”)
depending on the net realizable value of the collateral
security, which often results in a low or no loss given
default (“LGD”) in respect of these accounts.
In the Company’s credit protection business, each
customer is provided with a credit limit up to which the
Company will guarantee that customer’s total receivables.
As noted above, all client and customer credit in excess
of $2.5 million is approved by the Credit Committee of
the Board on a case-by-case basis. Note 23(a) to the
Statements provides details of the Company’s credit
exposure by industrial sector.
TABLE 3 – CREDIT QUALITY
(as a percentage) 2020 2019 2018
Managed receivables past
due more than 60 days 6.1 3.5 3.6
Reserves* / portfolio 1.8 1.1 0.9
Reserves* / net write-offs 100 77 431
Net write-offs / revenue 14.2 10.6 1.7
*Reserves comprise the total of the allowance for losses on Loans and on the
guarantee of managed receivables.
Table 3 highlights the credit quality of the Company’s
total portfolio, both Loans and managed receivables.
Net write-offs of our managed receivables increased to
$1,705,000 in 2020 compared to $60,000 in 2019. Net
write-offs of managed receivables were 117 basis points
of volume in 2020 compared to 3 basis points in 2019.
Net write-offs in the Company’s asset-based lending
business decreased to $5,167,000 in 2020 compared to
$5,892,000 last year. Overall, the Company’s total net
write-offs in 2020, as set out in the Results of Operations
section above, rose to $6,872,000 compared with
$5,952,000 in 2019. After the customary detailed
period-end review of the Company’s portfolio by its
Risk Management Committee, it was determined that
all problem loans and accounts were identified and
provided for where necessary. The Company maintains
separate allowances for losses on both its Loans and its
Annual Report 2020
15
guarantee of managed receivables, at amounts which,
in management’s judgment, are sufficient to cover
losses thereon.
The Company’s allowance for losses on Loans, calculated
under the ECL criteria of IFRS 9, totalled $6,314,000 at
December 31, 2020 compared to $4,520,000 at
December 31, 2019. The significant increase in the
allowance for loan losses in 2020 resulted from the
incorporation of expected severe adverse economic
conditions on the Company’s clients as a result of
Covid-19 prevention measures into the forward-looking
indicators used in the Company’s expected credit loss
models. This involved the significant use of reasonable
and supportable judgment in the face of heightened
economic uncertainty and represents management’s
best estimate of its allowance for loan losses based on
information available at that date. Depending on how long
the economic impacts of Covid-19 last and the timing
and nature of any economic recovery, the measurement
of the allowance could fluctuate substantially in future
periods. See also discussion on loan modifications in
note 4. The modifications principally related to temporary
over advances or payment deferrals to accounts totalling
$18.1 million that were otherwise in good standing at
December 31, 2020. The allowance for losses on the
guarantee of managed receivables totalled $555,000 at
December 31, 2020 compared to $44,000 at December 31,
2019. This significant increase in the allowance for losses
on the guarantee of managed receivables at December
31, 2020 also resulted from the expected severe adverse
economic impact of Covid-19 on the managed receivables,
which are primarily due from retailers. This allowance
represents the fair value of estimated payments to clients
under the Company’s guarantees to them. This allowance
is included in the total of accounts payable and other
liabilities as the Company does not take title to the
managed receivables and they are not included on its
consolidated statements of financial position. The activity
in the allowance for losses accounts in 2020 and 2019 is
set out in note 4 to the Statements. The estimates of
both allowances for losses are judgmental. Management
considers them to be reasonable and supportable.
Assets held for sale at December 31, 2020 totalled
$1,514,000 (2019 – $6,971,000) and comprised certain
repossessed assets securing defaulted equipment leases
with a number of clients. The decrease compared to
December 31, 2019 resulted from asset disposals totalling
$7,238,000 and an impairment charge of $1,087,000.
Assets totalling $2,425,000 were repossessed during
2020. There was also a foreign exchange gain totalling
$443,000 on U.S. dollar denominated assets held for sale
due to the stronger U.S. dollar at the time the majority
of the assets were disposed of. The assets are currently
being actively marketed for sale and will be disposed
as market conditions permit. The assets are carried at
the lower of cost or estimated net realizable value at
December 31, 2020. Estimated net realizable values were
based upon appraisals of the assets and exceed the
carrying value of the defaulted finance receivables and
loans at December 31, 2020. See note 5 to the Statements.
Cash decreased to $5,546,000 at December 31, 2020
compared to $6,776,000 at December 31, 2019. The
Company endeavors to minimize cash balances as far
as possible when it has bank indebtedness outstanding.
Fluctuations in cash balances are normal.
Intangible assets, net of accumulated amortization,
totalled $3,278,000 at December 31, 2020 compared to
$3,639,000 at December 31, 2019. Intangible assets
totalling US$2,885,000 were acquired upon the acquisition
of AEF on October 27, 2017 and comprised customer
and referral relationships and brand name. These assets
are carried in the Company’s U.S. subsidiary and are
translated into Canadian dollars at the prevailing
period-end exchange rate; foreign exchange adjustments
usually arise on retranslation. Customer and referral
relationships are being amortized over a period of 15
years, while the acquired brand name is considered to
have an indefinite life and is not amortized. Intangible
1 6 Accord Financial Corp.
assets comprising existing customer contracts and broker
relationships were also acquired as part of the ASBF
acquisition on January 31, 2014. These are being amortized
over a period of 5 to 7 years. Please refer to note 8 to
the Statements.
Goodwill totalled $13,219,000 at December 31, 2020
compared to $13,455,000 at December 31, 2019. Goodwill
of US$2,409,000 and US$5,538,000 was acquired on
the acquisition of BondIt and AEF on July 1, 2017 and
October 27, 2017, respectively. BondIt and AEF goodwill
is carried in the Company’s U.S. operations, together
with US$962,000 from a much earlier acquisition.
Goodwill of $1,883,000 was also acquired as part of the
ASBF acquisition and is carried in the Company’s Canadian
operations. The goodwill in the Company’s U.S. operations
is translated into Canadian dollars at the prevailing
period-end exchange rate; foreign exchange adjustments
usually arise on retranslation. Please refer to note 7 to
the Statements for information regarding the Company’s
annual goodwill impairment reviews.
Other assets, income taxes receivable, net deferred tax
assets, and property and equipment at December 31,
2020 and 2019 were not significant.
Total liabilities decreased by $18,692,000 to $291,154,000
at December 31, 2020 compared to $309,846,000 at
December 31, 2019. The decrease mainly resulted from
lower bank indebtedness.
Amounts due to clients increased by $506,000 to
$2,910,000 at December 30, 2020 compared to $2,404,000
at December 31, 2019. Amounts due to clients principally
consist of collections of receivables not yet remitted to
clients. Contractually, the Company remits collections
within a week of receipt. Fluctuations in amounts due
to clients are not unusual.
$242,781,000 at December 31, 2019. Bank indebtedness
mainly decreased on lower funds employed. In July 2019,
the Company’s banking syndicate approved a $75 million
increase in the facility taking the Company’s credit limit
to $367 million. During 2020, the Company’s banking
syndicate reset its interest coverage ratios for the quarters
ended March 31, June 30, September 30 and December 31,
2020. The Company was in compliance with all loan
covenants in 2020. The Company did not meet its interest
coverage ratio covenant at December 31, 2019 and
received a waiver thereof. The Company was in compliance
with all other loan covenants under its bank line in 2019.
Bank indebtedness principally fluctuates with the
quantum of Loans outstanding.
Loan payable increased by $10,150,000 to $21,377,000
at December 31, 2020 compared to $11,227,000 at
December 31, 2019. A revolving line of credit was
established in 2018 with a non-bank lender, bearing
interest varying with the U.S. base rate. The line is used
to finance BondIt’s business. During 2020, the line was
increased to US$20,000,000 ($25,450,000). The line was
renewed in October 2020 and expires on May 31, 2022.
BondIt was in compliance with all loan covenants at
December 31, 2020. At December 31, 2019, BondIt failed
a specific covenant test which the lender subsequently
waived. See note 10 to the Statements.
Accounts payable and other liabilities increased by
$4,666,000 to $10,836,000 at December 31, 2020 compared
to $6,170,000 at December 31, 2019. The increase since
December 31, 2019 mainly resulted from a $2,406,000
rise in security deposits held as collateral for leases
and loans, $779,000 due to a vendor for a lease which
commenced in December, severance payments of
$771,000 and a $511,000 increase in the allowance for
losses on the guarantee of managed receivables, a
component of other liabilities, as discussed above.
Bank indebtedness decreased by $31,841,000 to
$210,940,000 at December 31, 2020 compared to
Notes payable decreased by $1,505,000 to $17,434,000
at December 31, 2020 compared to $18,939,000 at
Annual Report 2020
17
CONTRACTUAL OBLIGATIONS AND COMMITMENTS AT DECEMBER 31, 2020
Payments due in
Less than
(in thousands of dollars) 1 year 1 to 3 years 4 to 5 years Thereafter Total
Debt obligations $ 249,751 $ 23,509 $ — $ — $273,260
Operating lease obligations 501 575 184 115 1,375
Purchase obligations 36 38 — — 74
$ 250,288 $ 24,122 $
184 $
115 $274,709
December 31, 2019. The decrease in notes payable
resulted from redemptions thereof. Please see Related
Party Transactions section below and note 11(a) to
the Statements.
Convertible debentures with a face value of $18,400,000
were issued by the Company in December 2018. These
debentures are listed for trading on the Toronto Stock
Exchange (“TSX”). On January 18, 2019, the underwriters
of the convertible debenture issue exercised their
overallotment option and a further 1,090 debentures
were issued with a face value of $1,090,000. On July 23,
2019, the Company issued a further 1,160 convertible
debentures with a face value of $1,160,000 by way of
private placement, bringing the total face value of the
TSX listed debentures issued to $20,650,000, being the
maximum that could be issued under their trust indenture.
The debentures issued on July 23, 2019 were issued at a
$23,200 discount to face value and overall gross proceeds
of these TSX listed debentures was $20,626,800. On
September 13, 2019, under a supplemental trust indenture,
5,000 unlisted convertible debentures were issued with
similar terms to the TSX listed debentures, bringing the
total face value of debentures issued to $25,650,000. All
unsecured convertible debentures carry a coupon rate
of 7.0% with interest payable semi-annually on June 30
and December 31 each year. These debentures mature
on December 31, 2023 and are convertible at the option
of the holder into common shares at a conversion price
of $13.50 per common share. Net of transaction costs
and the above noted discount, a total of $23,781,000 was
raised. Please see note 12 to the Statements, which details
how the debt and equity components of the convertible
debentures were allocated. At December 31, 2020, the
debt component totalled $23,510,000 (December 31,
2019 – $22,928,000), while the equity component, net of
deferred taxes, totalled $1,005,000 (being the same as
at December 31, 2019).
Income taxes payable, lease liabilities, deferred income
and net deferred tax liabilities at December 31, 2020
and 2019 were not material.
Capital stock totalled $9,448,000 at December 31, 2020
compared to $9,481,000 at December 31, 2019. There were
8,558,913 common shares outstanding at December 31,
2020 (December 31, 2019 – 8,588,913). In 2020, the
Company repurchased and cancelled 30,000 common
shares acquired under its issuer bid at a cost of $264,000,
for an average price of $8.80 per common share, which
is below the Company’s book value per common share
of $10.50 at December 31, 2020. Of the $264,000 cost of
repurchase, $33,000 was applied to reduce capital stock,
while $231,000 was applied to reduce retained earnings.
There were no purchases under the Company’s issuer
bid during 2019. Please see the consolidated statements
of changes in equity on page 38 of this report for details
of changes in capital stock during 2020 and 2019.
Please see also note 14 to the Statements. At the date of
this MD&A, March 10, 2021, 8,558,913 common shares
remained outstanding.
Contributed surplus totalled $1,202,000 at December 30,
2020 compared to $1,323,000 at December 31, 2019.
The reduction of $121,000 in contributed surplus in 2020
resulted from the purchase of an additional 2% of the
1 8 Accord Financial Corp.
common units in AEF from a non-controlling interest
therein bringing the Company’s interest in AEF up to
92%. As noted above, included in contributed surplus at
December 31, 2020 and 2019 is the equity component
of the convertible debentures issued which totalled
$1,005,000, net of deferred tax. Please see the consolidated
statements of changes in equity on page 38 of this
report for details of changes in contributed surplus
during 2020 and 2019.
Retained earnings decreased by $1,869,000 to $73,125,000
at December 31, 2020 compared to $74,994,000 at
December 31, 2019. The decrease in 2020 comprised
dividends paid of $2,055,000 (24 cents per common
share) plus the $231,000 premium paid on the shares
repurchased and cancelled under the Company’s issuer
bid less shareholders’ net earnings of $417,000. Please
see the consolidated statements of changes in equity on
page 38 of this report for changes in retained earnings
during 2020 and 2019.
The Company’s accumulated other comprehensive income
(“AOCI”) account solely comprises the cumulative
unrealized foreign exchange income arising on the
translation of the assets and liabilities of the Company’s
foreign operations. The AOCI balance totalled $6,076,000
at December 31, 2020 compared to $6,717,000 at
December 31, 2019. The $641,000 decrease in AOCI
balance in 2020 resulted from a decline in the value of
the U.S. dollar against the Canadian dollar. The U.S.
dollar declined from $1.2990 at December 31, 2019 to
$1.2725 at December 31, 2020. This decreased the
Canadian dollar equivalent book value of the Company’s
net investment in its foreign subsidiaries by $641,000.
Please refer to the consolidated statements of changes
in equity on page 38 of this report for details of changes
in AOCI during 2020 and 2019. See also note 19 to
the Statements.
Non-controlling interests in subsidiaries totalled $3,909,000
at December 31, 2020 compared with $3,853,000 at
December 31, 2019. Please see the consolidated statements
of changes in equity on page 38 of this report, and
note 20 to the Statements, for details thereof.
LIQUIDITY AND CAPITAL RESOURCES
The Company considers its capital resources to include
equity and debt, namely, its bank indebtedness and notes
payable. The Company has no term debt outstanding.
The Company’s objectives when managing its capital
are to: (i) maintain financial flexibility in order to meet
financial obligations and continue as a going concern;
(ii) maintain a capital structure that allows the Company
to finance its growth using internally generated cash
flow and debt capacity; and (iii) optimize the use of its
capital to provide an appropriate investment return to
its shareholders commensurate with risk.
The Company manages its capital resources and makes
adjustments to them in light of changes in economic
conditions and the risk characteristics of its underlying
assets. To maintain or adjust its capital resources, the
Company may, from time to time, change the amount
of dividends paid to shareholders, return capital to
shareholders by way of normal course issuer bid, issue
new shares, or reduce liquid assets to repay debt.
Amongst other things, the Company monitors the ratio
of its debt to total equity and its total equity and tangible
equity to total assets. These ratios are presented for the
last three years as percentages in Table 2. As noted above,
the ratios at December 31, 2020 indicate the Company’s
continued financial strength.
The Company’s financing and capital requirements
generally increase with the level of Loans outstanding.
The collection period and resulting turnover of
outstanding receivables and loans also impact financing
needs. In addition to cash flow generated from operations,
the Company maintains lines of credit in Canada and
the United States. The Company can also raise funds
through its notes payable program or raise other forms
of debt, such as convertible debentures, or equity.
Annual Report 2020
19
The Company had credit lines totalling approximately
$392 million at December 31, 2020 and had borrowed
$232 million against these facilities. Funds generated
through operating activities and the issuance of notes
payable, convertible debentures or other forms of debt
or equity decrease the usage of, and dependence on, these
lines. Note 23(b) details the Company’s financial assets
and liabilities at December 31, 2020 by maturity date.
As noted in the Review of Financial Position section
above, the Company had cash balances of $5,546,000
at December 31, 2020 compared to $6,776,000 at
December 31, 2019. As far as possible, cash balances
are maintained at a minimum and surplus cash is used
to repay bank indebtedness.
Management believes that current cash balances and
existing credit lines, together with cash flow from
operations, will be sufficient to meet the cash
requirements of working capital, capital expenditures,
operating expenditures, interest and dividend payments
and will provide sufficient liquidity and capital resources
for future growth over the next twelve months.
Fiscal 2020 cash flows
Year ended December 31, 2020 compared with the year
ended December 31, 2019
Cash inflow from net earnings before changes in operating
assets and liabilities and income tax payments totalled
$1,107,000 in 2020 compared to $9,394,000 last year.
After changes in operating assets and liabilities and
income tax payments are taken into account, there was
a net cash inflow from operating activities of $23,371,000
in 2020 compared to an outflow of $47,560,000 last year.
The net cash inflow in 2020 largely resulted from
repayment of gross loans of $7,632,000 and the disposal
of assets held for sale for proceeds of $7,238,000. In 2019,
the net cash outflow largely resulted from financing gross
loans of $51,672,000. Changes in other operating assets
and liabilities are discussed above and are set out in the
Company’s consolidated statements of cash flows on
page 39 of this report.
Cash outflows from investing activities in 2020 totalled
$43,000 (2019 – $176,000) and comprised capital
assets additions.
Net cash outflow from financing activities totalled
$21,912,000 in 2020 compared to an inflow of $37,937,000
last year. The net cash outflow in 2020 resulted from a
decrease in bank indebtedness of $28,460,000, dividend
payments totalling $2,055,000, notes payable redeemed,
net, of $1,500,000, lease liabilities payments of $387,000,
repurchase of shares under the Company’s normal course
issuer bid for $264,000 and the purchase of an additional
2% of AEF from a non-controlling interests for $181,000.
Partially offsetting these outflows was an increase in loan
payable of $10,935,000. In 2019, the net cash inflow
resulted from an increase in bank indebtedness of
$27,626,000, the issue of convertible debentures totalling
$6,823,000, a rise in loan payable of $5,890,000, notes
payable issued, net, of $1,048,000, and common shares
issued of $160,000. Partially offsetting these inflows were
dividend payments totalling $3,052,000, lease liabilities
payments of $377,000 and a distribution paid to
non-controlling interests of $181,000.
The effect of exchange rate changes on cash comprised
a loss of $2,645,000 in 2020 compared to a gain of
$230,000 in 2019.
Overall, there was a net cash outflow of $1,230,000 in
2020 compared to $9,569,000 in 2019.
RELATED PARTY TRANSACTIONS
The Company has borrowed funds (notes payable) on
an unsecured basis from shareholders, management,
employees, other related individuals and third parties.
Notes payable comprise: (i) demand notes due on, or
within a week of, demand ($1,587,000), which bear
interest at rates that vary with bank prime rate or Libor;
20 Accord Financial Corp.
(ii) short-term BondIt notes ($2,418,000) which are
repayable at various dates the latest of which is
December 31, 2021 and which bear interest at rates
ranging from 8.5% to 11%; and (iii) term notes totalling
$13,429,000 which mature on July 31, 2021 and pay a
fixed interest rate of 7%.
Notes payable totalled $17,434,000 at December 31,
2020 compared to $18,939,000 at December 31, 2019. Of
these notes payable, $15,072,000 (December 31, 2019 –
$15,476,000) was owing to related parties and $2,362,000
(December 31, 2019 – $3,463,000) to third parties. Interest
expense on these notes in 2020 totalled $1,210,000 (2019 –
$1,305,000). Please refer to note 11(a) to the Statements.
The following related parties had notes payable with
the Company at December 31, 2020:
Hitzig Bros.,
Hargreaves & Co. Inc.* Directors C$ 4,850,000
Oakwest Corporation Inc.* Directors US$ 3,000,000
Ken Hitzig Director C$ 1,650,000
Hitzig Bros.,
Hargreaves & Co. LLC.* Directors US$ 700,000
*a director(s) of Accord has an ownership interest in the company
Accord pays a rate of interest related to Canadian prime
(currently it pays 1.95% or 2.45%) on its Canadian dollar
unsecured demand notes payable, while its U.S. dollar
unsecured demand notes pay a LIBOR based rate of
interest (currently 2.25%). These rates of interest are
below the rates that Accord pays on its main banking
facility with The Bank of Nova Scotia (“BNS”) resulting
in interest savings to the Company.
Upon renewal of the BNS facility in July 2018, the Company
entered into three-year unsecured notes payable maturing
July 31, 2021. These term notes are solely with related
parties. The renewed credit facility allows these notes
to be treated as “quasi equity” and be included in the
Company’s tangible net worth (TNW) for the purposes of
leveraging its bank line (up to 3.5 x TNW). This created
additional borrowing capacity that Accord can utilize at
lower credit facility rates of interest, which was the main
business purpose thereof.
FINANCIAL INSTRUMENTS
All financial assets and liabilities, with the exception of
derivative financial instruments, the guarantee of
managed receivables and the Company’s LTIP liability,
are recorded at amortized cost. The exceptions noted
are recorded at fair value. Financial assets and liabilities,
other than the lease receivables and loans to clients in our
equipment finance businesses and lease liabilities, are
short term in nature and, therefore, their carrying values
approximate fair values.
At December 31, 2020, the Company had entered into
forward foreign exchange contracts with a financial
institution which must be exercised by the Company
between January 29, 2021 and August 31, 2021 and which
oblige the Company to sell Canadian dollars and buy
US$744,000 at exchange rates between 1.2765 and
1.3593. These contracts were entered into by the Company
on behalf of a client and similar forward foreign exchange
contracts were entered into between the Company and the
client, whereby the Company will buy Canadian dollars
from and sell US$744,000 to the client. These contracts
are discussed further in note 18 to the Statements.
CRITICAL ACCOUNTING POLICIES AND
ESTIMATES
Critical accounting estimates represent those estimates
that are highly uncertain and for which changes in those
estimates could materially impact the Company’s financial
results. The following are accounting estimates that the
Company considers critical to the financial results of its
business segments:
i)
the allowance for losses on both its Loans and its
guarantee of managed receivables. The Company
maintains a separate allowance for losses on each of
the above items at amounts which, in management’s
Annual Report 2020
21
judgment, are sufficient to cover losses thereon.
The allowances are based upon several considerations
including current economic environment, condition
of the loan and receivable portfolios, typical industry
loss experience, macro-economic factors and
forward-looking information. These estimates are
particularly judgmental and operating results may
be adversely affected by significant unanticipated
credit or loan losses, such as occur in a bankruptcy
or insolvency, or may result from severe adverse
economic conditions as we are seeing as a result
of Covid-19.
The Company’s allowance for losses on its Loans and
its guarantee of managed receivables are provided
for under the three-stage criteria set out in IFRS 9,
where a Stage 1 allowance is established to reserve
against accounts which have not experienced a
significant increase in credit risk (“SICR”) and which
cannot be specifically identified as impaired on an
item-by-item or group basis at a particular point in
time. Stage 1 ECL results from default events on the
financial instrument that are possible within the
twelve-month period after the reporting date.
Stage 1 accounts are considered to be in good
standing. In establishing its Stage 1 allowances, the
Company applies percentage ECL formulae to its
Loans and managed receivables based on its credit
risk analysis. The Company’s Stage 2 allowances are
based on a review of the loan or managed receivable
and comprise an allowance for those financial
instruments which have experienced a SICR since
initial recognition. Lifetime ECL are recognized for
all Stage 2 financial instruments. Stage 3 financial
instruments are those that the Company has classified
as impaired. The Company classifies a financial
instrument as impaired when the future cash flows
of the financial instrument could be adversely
impacted by events after its initial recognition.
Evidence of impairment includes indications that the
borrower is experiencing significant financial
difficulties, or a default or delinquency has occurred.
The Company also refers to these accounts as
“workout” accounts. Lifetime ECL are recognized for
all Stage 3 financial instruments. In Stage 3, financial
instruments are written-off, either partially or in full,
against the related allowance for losses when the
Company judges that there is no realistic prospect
of future recovery in respect of those amounts after
the collateral has been realized or transferred at net
recoverable value. Any subsequent recoveries of
amounts previously written-off are credited to the
respective allowance for losses. Management believes
that its allowances for losses, which require a high
degree of reasonable and supportable expert credit
judgment, are sufficient and appropriate and does
not consider it reasonably likely that the Company’s
material assumptions will change. The Company’s
allowances are discussed above and in notes 3(d), 4
and 23(a) to the Statements.
ii) Goodwill is tested for impairment annually or more
frequently if impairment indicators arise. To determine
if goodwill is impaired, the Company estimates the
fair value (being the recoverable amount) of each of
its CGUs and compares this to the carrying value of
the CGU. In the Company’s case the estimated fair
value of each CGU is determined to be a multiple of
the expected earnings of the CGU, where expected
earnings are an estimate of future years’ earnings.
This provides a similar result to extrapolating and
discounting budgeted earnings for the CGUs. The
estimated fair value of each CGU is then compared
to the carrying value of the CGU, including goodwill,
to determine if the goodwill is impaired. The most
sensitive assumptions used in the impairment testing
is the multiple applied to the expected earnings of
each CGU in determining the fair value thereof, as
well as the expected earnings estimates themselves.
iii)
the extent of any provisions required for outstanding
claims. In the normal course of business there is
outstanding litigation, the results of which are not
normally expected to have a material effect upon
22 Accord Financial Corp.
the Company. However, the adverse resolution of a
particular claim could have a material impact on the
Company’s financial results. Management is not aware
of any claims currently outstanding the aggregate
liability from which would materially affect the
financial position of the Company.
Management’s annual report on internal
control over financial reporting
The following report is provided by the Company’s
management, including its President and Chief Financial
Officer, in respect of the Company’s internal control over
financial reporting (as defined in the rules of the CSA):
Control Environment
There have been no changes to the Company’s disclosure
controls and procedures (“DC&P”) and internal control
over financial reporting (“ICFR”) during 2020 that have
materially affected, or are reasonably likely to materially
affect, DC&P or ICFR.
Internal control systems, no matter how well designed,
have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable
assurance with respect to financial statement preparation
and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate and, as such,
there can be no assurance that any design will succeed
in achieving its stated goal under all potential conditions.
Disclosure controls and procedures
The Company’s management, including its President and
Chief Financial Officer, are responsible for establishing
and maintaining the Company’s disclosure controls and
procedures and has designed same to provide reasonable
assurance that material information relating to the
Company is made known to it by others within the
Company on a timely basis. The Company’s management
has evaluated the effectiveness of its disclosure controls
and procedures (as defined in the rules of the Canadian
Securities Administrators (“CSA”)) at December 31, 2020
and has concluded that such disclosure controls and
procedures are effective.
(i)
the Company’s management is responsible for
establishing and maintaining adequate internal
control over financial reporting within the Company.
All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide
only reasonable assurance with respect to financial
statement preparation and presentation;
(ii)
the Company’s management has used the Committee
of Sponsoring Organizations of the Treadway
Commission (COSO) 2013 framework to evaluate
the design of the Company’s internal control over
financial reporting and test its effectiveness; and
(iii) the Company’s management has designed and
tested the effectiveness of its internal control over
financial reporting at December 31, 2020 to provide
reasonable assurance regarding the reliability of
financial reporting and the preparation of the
Company’s financial statements for external purposes
in accordance with IFRS and advises that there are
no material weaknesses in the design of internal
control over financial reporting that have been
identified by management.
RISKS AND UNCERTAINTIES THAT
COULD AFFECT FUTURE RESULTS
Past performance is not a guarantee of future performance,
which is subject to substantial risks and uncertainties.
Management remains optimistic about the Company’s
long-term prospects. Factors that may impact the
Company’s results include, but are not limited to, the
factors discussed below. Please refer to note 23 to the
Annual Report 2020
23
Statements, which discuss the Company’s principal
financial risk management practices.
Deterioration in economic and business
conditions due to Covid-19
The results of the Company may be negatively impacted
by various economic factors and business conditions
including the level of economic activity in Canada and
U.S.A. To the extent that economic activity or business
conditions deteriorate, new business may decrease,
and loan and credit losses may increase. As the Company’s
operating subsidiaries extend credit primarily to small
businesses, many of our clients or their customers may
be particularly susceptible to economic slowdowns and
may be unable to make scheduled lease or loan payments
during these periods. Deterioration in the economic
environment may limit access to credit facilities, and
other capital markets or result in a decision by lenders
not to extend further credit.
Competition from alternative sources of
financing
The Company operates in an intensely competitive
environment and its results could be significantly
affected by the activities of other industry participants.
The Company expects this level of competition to persist
in the future as the markets for its services continue to
develop and as additional companies enter its markets.
There can be no assurance that the Company will be able
to compete effectively with current or future competitors.
If the Company’s competitors engage in aggressive pricing
policies with respect to services that compete with those
of the Company’s, the Company would likely lose some
clients or be forced to lower its rates, both of which could
have a material adverse effect on the Company’s business,
financial condition and results of operations. In addition,
some of the Company’s competitors may have higher
risk tolerances or different risk assessments, which could
allow them to establish more origination sources and
customer relationships to increase their market share.
Further, because there are fewer barriers to entry to the
markets in which the Company operates, new competitors
could enter these markets at any time. Because of all
these competitive factors, the Company may be unable
to sustain its operations at its current levels or generate
growth in revenues or operating income, either of which
could have a material adverse impact on the Company’s
business, financial condition and results of operations.
Credit risk, inability to underwrite finance
receivables and loan applications
The Company is in the business of financing its clients’
receivables and making asset-based loans, including
inventory and equipment financings, designed to serve
small- and medium-sized businesses, which are often
owner-operated and have limited access to traditional
financing. There is a high degree of risk associated with
providing financing to such parties as a result of their
lower creditworthiness. Even with an appropriately
diversified lending business, operating results can be
adversely affected by large bankruptcies and/or
insolvencies. Losses from client loans in excess of the
Company’s expectations could have a material adverse
impact on the Company’s business, financial condition
and results of operations. In addition, since defaulted
loans as well as certain delinquent loans cannot be
used as collateral under the Company’s credit facilities,
higher than anticipated defaults and delinquencies could
adversely affect the Company’s liquidity by reducing
the amount of funding available to the Company under
these financing arrangements. Furthermore, increased
rates of delinquencies or loss levels could cause the
Company to be in breach of its financial covenants under
its credit facilities, and could also result in adverse changes
to the terms of future financing arrangements available
to the Company, including increased interest rates
payable to lenders and the imposition of more
burdensome covenants and increased credit enhancement
requirements.
Interest rate risk
The Company has fixed rate borrowings, as well as
floating rate borrowings. The Company’s agreements
with its clients (affecting interest revenue) and lenders
24 Accord Financial Corp.
(affecting interest expense) usually provide for rate
adjustments in the event of interest rate changes.
However, as the Company’s floating rate funds employed
currently exceed its floating rate borrowings, the Company
is exposed to some degree to interest rate fluctuations.
Fluctuations in interest rates may have a material adverse
impact on the Company’s business, financial condition
and results of operations.
Foreign currency risk
The Company has international operations, primarily in
the United States. Accordingly, a significant portion of
its financial resources are held in currencies other than
the Canadian dollar. In recent years, the Company has
seen the fluctuations in the U.S. dollar against the
Canadian dollar affect its operating results when its
foreign subsidiaries results are translated into Canadian
dollars. It has also affected the value of the Company’s
net Canadian dollar investment in its foreign subsidiaries,
which had, in the past, reduced the accumulated other
comprehensive income component of equity to a loss
position, although it is now in a large gain position. No
assurances can be made that changes in foreign currency
rates will not have a significant adverse effect on the
Company’s business, financial condition or results
of operations.
External financing
The Company depends and will continue to depend on
the availability of credit from external financing sources,
to continue to, among other things, finance new and
refinance existing loans and satisfy the Company’s
other working capital needs. The Company believes that
current cash balances and existing credit lines, together
with cash flow from operations, will be sufficient to meet
its cash requirements with respect to investments in
working capital, operating expenditures and dividend
payments, and also provide sufficient liquidity and
capital resources for future growth over the next twelve
months. However, there is no guarantee that the Company
will continue to have financing available to it or if the
Company were to require additional financing that it
would be able to obtain it on acceptable terms or at all.
If any or all of the Company’s funding sources become
unavailable on terms acceptable to the Company or at
all, or if any of the Company’s credit facilities are not
renewed or re-negotiated upon expiration of their
terms, the Company may not have access to the financing
necessary to conduct its businesses, which would limit
the Company’s ability to finance its operations and
could have a material adverse impact on it’s business,
financial condition and results of operations. Please
also see comments regarding business conditions due
to Covid-19 on page 24.
Deterioration in economic or business
conditions; impact of significant events
and circumstances
The Company operates mainly in Canada and the
United States. The Company’s operating results may
be negatively affected by various economic factors and
business conditions, including the level of economic
activity in the markets in which it operates. To the extent
that economic activity or business conditions deteriorate,
delinquencies and credit losses may increase. As the
Company extends credit primarily to small- and medium-
sized businesses, many of its customers are particularly
susceptible to economic slowdowns or recessions, and
may be unable to make scheduled lease or loan payments
during these periods. Unfavorable economic conditions
may also make it more difficult for the Company to
maintain new origination volumes and the credit quality
of new loans at levels previously attained. Unfavorable
economic conditions could also increase funding costs
or operating cost structures, limit access to credit facilities
and other capital markets funding sources or result in a
decision by the Company’s lenders not to extend further
credit. Any of these events could have a material adverse
impact on the Company’s business, financial condition
and results of operations. Please also see comments
regarding business conditions due to Covid-19 on page 24.
Dependence on key personnel
Employees are a significant asset of the Company, and
Annual Report 2020
25
the Company depends to a large extent upon the abilities
and continued efforts of its key operating personnel and
senior management team. If any of these persons becomes
unavailable to continue in such capacity, or if the Company
is unable to attract and retain other qualified employees,
it could have a material adverse impact on the Company’s
businesses, financial condition and results of operations.
Market forces and competitive pressures may also
adversely affect the ability of the Company to recruit
and retain key qualified personnel.
Income tax matters
The income of the Company must be computed in
accordance with Canadian, U.S. and foreign tax laws, as
applicable, and the Company is subject to Canadian,
U.S. and foreign tax laws, all of which may be changed
in a manner that could adversely affect the Company’s
business, financial condition or results of operation.
Recent and future acquisitions and
investments
In recent years, the Company has acquired or invested
in businesses and may seek to acquire or invest in
additional businesses in the future that expand or
complement its current business. Recent acquisitions by
the Company have increased the size of the Company’s
operations and the amount of indebtedness that will
have to be serviced by the Company and any future
acquisitions by the Company, if they occur, may result
in further increases in the Company’s operations or
indebtedness. The successful integration and management
of any recently acquired businesses or businesses
acquired in the future involves numerous risks that
could adversely affect the Company’s business, financial
condition, or results of operations, including: (i) the risk
that management may not be able to successfully
manage the acquired businesses and that the integration
of such businesses may place significant demands on
management, diverting their attention from the
Company’s existing operations; (ii) the risk that the
Company’s existing operational, financial, management,
due diligence or underwriting systems and procedures
may be incompatible with the markets in which the
acquired business operates or inadequate to effectively
integrate and manage the acquired business; (iii) the
risk that acquisitions may require substantial financial
resources that otherwise could be used to develop other
aspects of the Company’s business; (iv) the risk that as
a result of acquiring a business, the Company may
become subject to additional liabilities or contingencies
(known and unknown); (v) the risk that the personnel of
any acquired business may not work effectively with
the Company’s existing personnel; (vi) the risk that the
Company fails to effectively deal with competitive
pressures or barriers to entry applicable to the acquired
business or the markets in which it operates or introduce
new products into such markets; and (vii) the risk that
the acquisition may not be accretive to the Company.
The Company may fail to successfully integrate such
acquired businesses or realize the anticipated benefits
of such acquisitions, and such failure could have a
material adverse impact on the Company’s business,
financial condition and results of operations.
Fraud by lessees, borrowers, vendors
or brokers
The Company may be a victim of fraud by lessees,
borrowers, vendors and brokers. In cases of fraud, it is
difficult and often unlikely that the Company will be able
to collect amounts owing under a lease/loan or repossess
any related collateral. Increased rates of fraud could have
a material adverse impact on the Company’s business,
financial condition and results of operations.
Risk of future legal proceedings
The Company is threatened from time to time with, or
is named as a defendant in, or may become subject to,
various legal proceedings, fines or penalties in the
ordinary course of conducting its businesses. A significant
judgment or the imposition of a significant fine or penalty
on the Company could have a material adverse impact
on the Company’s business, financial condition and
results of operation. Significant obligations may also be
imposed on the Company by reason of a settlement or
26 Accord Financial Corp.
judgment involving the Company, as well as risks pertinent
to financing facilities, including acceleration and/or loss
of funding availability. Publicity regarding involvement
in matters of this type, especially if there is an adverse
settlement or finding in the litigation, could result in
adverse consequences to the Company’s reputation that
could, among other things, impair its ability to retain
existing or attract further business. The continuing
expansion of class action litigation in U.S. and Canadian
court actions has the effect of increasing the scale of
potential judgments. Defending such a class action or
other major litigation could be costly, divert management’s
attention and resources and have a material adverse
impact on the Company’s business, financial condition
and results of operations.
OUTLOOK
The Company has had significant growth in funds
employed in recent years, a key indicator of where the
Company is heading, and entered 2020 firing on all
cylinders, focused on its strategic plan aimed at bringing
our distinct operating units onto a unified, streamlined
platform. From there we looked forward to accelerating
Accord’s growth trajectory. Then, as the world knows, the
United States and Canada chose to decrease economic
activity in the battle to tame Covid-19. Recently, although
the United States has begun to open up, the Canadian
economy is still greatly impacted by widespread shutdowns
and Covid-19 continues to be a significant threat to
economies and health worldwide. We’ve been through
many economic cycles, but very few that descended
with such speed and extent we have seen in terms of
unemployment and economic decline.
The adverse economic conditions resulting from Covid-19
prevention measures in North America severely impacted
the Company’s funds employed and revenue in 2020,
which declined, as well as led to a significantly increased
provision for losses. Overall, the Company was still
profitable in 2020 and fourth quarter 2020 adjusted net
earnings were reasonably strong. With this much economic
uncertainty stemming from Covid-19, it is difficult to
predict the future. All our operating companies were on
an upward trajectory in terms of growth in funds employed,
with the exception of our credit protection and receivables
management business, which is facing intense competition
from multinational credit insurers. Once Covid-19 passes,
it is expected the Company will see strong growth in
funds employed again from its equipment finance
businesses, AEF and ASBF, as well as at its media finance
business, BondIt, with more moderate growth coming
from the Company’s asset-based financing units, AFIC
and AFIU. The receivables management business, AFL,
is being downsized, however, its contribution is no
longer financially significant to the Accord group overall.
To support this growth, the Company increased its bank
facility limit to $367 million in 2019, which should provide
it with the majority of funding needed to support further
growth in the next twelve months. Today, in the wake
of Covid-19, our banking partners continue to be
very supportive.
With its substantial capital and borrowing capacity,
Accord is well positioned to capitalize on market conditions
when they start to improve. The Company knows from
experience that economic uncertainty creates tremendous
growth opportunities in commercial finance, as certain
competitors weaken and the major banks become even
more risk averse. Accord has the deepest and most
experienced management team that it has ever had,
which will enable it to meet increased competition and
develop new opportunities in a very competitive and
challenging environment.
Stuart Adair
Senior Vice President, Chief Financial Officer
March 10, 2021
Annual Report 2020
27
Ten Year Financial Summary 2011-2020
All figures are in thousands of dollars except earnings per common share, dividends per common share, book value
per share, share price history and return on average equity.
Consolidated Statements of Earnings 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue $ 28,408 25,891 26,074 30,235 31,577 28,522 31,409 46,927 56,175 48,501
Interest 2,047 1,911 1,913 2,523 2,258 2,281 3,847 9,407 17,089 14,596
General and administrative 13,558 13,615 13,845 16,154 17,484 17,427 16,945 23,524 26,151 26,458
Provision for credit and loan losses 886 213 438 639 375 963 2,898 2,025 7,105 9,403
Impairment of assets held for sale 462 — — — 50 44 24 25 — 1,087
Depreciation 130 126 112 125 136 154 161 279 727 721
Business acquisition expenses — — — 570 575 509 932 336 (1,818) 298
Total expenses 17,083 15,865 16,308 20,011 20,878 21,378 24,807 35,596 49,254 52,563
Earnings before income tax 11,325 10,026 9,766 10,224 10,699 7,144 6,602 11,331 6,921 (4,062)
Income tax expense (recovery) 3,740 3,649 3,228 3,345 1,940 578 391 104 1,579 (4,670)
Net earnings 7,585 6,377 6,538 6,879 8,759 6,566 6,211 11,227 5,342 608
Non-controlling interests — — — — — — 201 871 (1,102) 191
Net earnings attributable
to shareholders $ 7,585 6,377 6,538 6,879 8,759 6,566 6,010 10,356 6,444 417
Earnings per common share:
Basic and diluted 0.85 0.76 0.80 0.83 1.05 0.79 0.72 1.24 0.76 0.05
Dividends per common share $ 0.30 0.31 0.32 0.33 0.35 0.36 0.36 0.36 0.36 0.24
Consolidated Statements of Financial Position
Finance receivables and loans, net $ 89,124 108,477 109,775 136,346 134,259 138,115 217,975 335,652 368,637 354,023
Other assets 9,368 16,115 11,034 18,278 20,301 20,451 33,045 38,131 37,577 30,890
Total assets $ 98,492 124,592 120,809 154,624 154,560 158,566 251,020 373,783 406,214 384,913
Bank indebtedness $ 27,222 54,572 43,368 63,995 54,094 62,484 138,140 222,862 242,781 210,940
Loan payable — — — — — — — 5,696 11,227 21,376
Notes payable 14,611 14,492 14,809 16,808 13,201 11,370 15,862 18,079 18,939 17,434
Convertible debentures — — — — — — — 15,955 22,928 23,510
Other liabilities 8,804 8,132 9,201 12,489 14,199 9,030 16,885 16,006 13,971 17,894
Total liabilities 50,637 77,196 67,378 93,292 81,494 82,884 170,887 278,598 309,846 291,154
Shareholders' equity 47,855 47,396 53,431 61,332 73,066 75,682 76,449 89,818 92,515 89,850
Non-controlling interests in subsidiaries — — — — — — 3,684 5,367 3,853 3,909
Total equity 47,855 47,396 53,431 61,332 73,066 75,682 80,133 95,185 96,368 93,759
Total liabilities and equity $ 98,492 124,592 120,809 154,624 154,560 158,566 251,020 373,783 406,214 384,913
Shares outstanding at Dec. 31 # 8,719 8,221 8,221 8,308 8,308 8,308 8,308 8,429 8,589 8,559
Book value per share at Dec. 31 $ 5.49 5.76 6.50 7.38 8.79 9.11 9.20 10.66 10.77 10.50
Share price - high $ 8.25 7.15 9.25 10.75 12.05 9.95 9.55 10.45 10.42 10.15
- low 6.50 6.50 6.84 7.85 9.00 8.70 8.40 8.22 8.37 3.51
- close at Dec. 31 6.87 7.00 7.86 9.35 9.60 8.99 9.20 9.09 10.07 6.70
Return on average equity % 16.8 13.6 13.1 12.1 13.1 9.0 8.0 12.8 7.1 0.5
28 Accord Financial Corp.
Financing Solutions for Our Clients
Asset-based lending
Accord’s asset-based lending serves companies of all sizes across North America. Our flexible ABL
solutions allow clients to unlock working capital from their accounts receivable, inventory and
equipment. Accord also provides financing solutions to other lending companies, enabling them to
grow more quickly than they would with traditional funding. Over forty years of superior service
combined with exceptional financial strength makes us the most reliable finance partner for companies
positioning for their next phase of growth.
Equipment Financing
Accord finances equipment for small- and medium-sized businesses, serving a broad base of North
America’s most dynamic industries, from forestry and energy, to construction and manufacturing.
We’re equally comfortable financing incremental CapX or business expansion, or refinancing existing
assets to optimize balance sheet strength. Our success has been built on our commitment to supporting
private equity sponsors, finance professionals and SMEs directly.
Credit protection & receivables management
Accord is one of North America’s most experienced firms providing complete receivables management
services. For over forty years we’ve served small- and medium-sized businesses with flexible, cost-effective,
risk-free credit guarantees and collection services. With complete coverage of the U.S. and Canada,
and strong alliances worldwide, we have the knowledge, expertise and connections to deliver
superior results across all industries.
Supply Chain Finance
Since 1978, Accord has been a leader in cross-border trade, simplifying supply chain finance for
importers and exporters. Our unique AccordOctet program provides trade financing for North American
companies sourcing goods anywhere in the world, while our alliance with Factors Chain International
facilitates seamless credit and collection services through a network of close to 400 members and
trade firms in 90 countries worldwide.
Small Business Finance
AccordAccess is a flexible working capital solution aimed at financing growth for qualified small- and
medium-sized businesses. AccordAccess provides unsecured loans of up to $75,000, repaid in 18 months
or sooner with simple, fixed weekly payments. This innovative program is designed to help small
businesses take advantage of growth opportunities or manage through challenging times. AccordAccess
is an ideal supplement to the owners’ investment and to long-term financing, like leasing and bank credit.
Media finance
Accord provides media finance through affiliate BondIt Media Capital, a world renowned film, television
and media financier founded in 2014. Since inception, BondIt has participated in the debt financing of
over 300 feature film and television productions ranging from micro-budgets to studio level projects.
Based in Santa Monica, BondIt is a flexible financing partner for projects, producers and media
companies alike.
Annual Report 2020
29
Management’s Report to the Shareholders
consolidated financial statements and MD&A, and to
recommend approval of the consolidated financial statements
and MD&A to the Board.
KPMG LLP, independent auditors appointed by the
shareholders, expresses an opinion on the fair presentation
of the consolidated financial statements. They have full and
unrestricted access to the Audit Committee and management
to discuss matters arising from their audit, which includes
a review of the Company’s accounting records and
consideration of its internal controls.
Stuart Adair
March 10, 2021
Toronto, Canada
The management of Accord Financial Corp. is responsible
for the preparation, fair presentation and integrity of the
audited consolidated financial statements, financial
information and MD&A contained in this annual report.
This responsibility includes the selection of the Company’s
accounting policies in addition to judgments and estimates
in accordance with International Financial Reporting
Standards (IFRS). The accounting principles which form
the basis of the consolidated financial statements and the
more significant policies applied are described in note 3 to
the consolidated financial statements. The MD&A has been
prepared in accordance with the requirements of the CSA’s
National Instrument 51-102.
In order to meet its responsibility for the reliability and
timeliness of financial information, management maintains
systems of accounting and administrative controls that
assure, on a reasonable basis, the reliability of financial
information and the orderly and efficient conduct of the
Company’s business. A report on the design and effectiveness
of the Company’s disclosure controls and procedures and
the design and operating effectiveness of it internal control
over financial reporting is set out in the MD&A as required
by CSA’s National Instrument 52-109.
The Company’s Board of Directors is responsible for ensuring
that management fulfils its responsibilities for financial
reporting and internal control. The Board is assisted in
exercising its responsibilities through its Audit Committee,
which is composed of three independent directors. The
Committee meets at least quarterly with management and
periodically with the Company’s auditors to satisfy itself that
management’s responsibilities are properly discharged, to
review the Company’s financial reports, including
30 Accord Financial Corp.
Independent Auditors' Report to the Shareholders
TO THE SHAREHOLDERS OF ACCORD
FINANCIAL CORP.
BASIS FOR OPINION
OPINION
We have audited the consolidated financial statements of
Accord Financial Corp. (the Entity), which comprise:
• the consolidated statements of financial position as at
December 31, 2020 and December 31, 2019
• the consolidated statements of earnings for the years
then ended
We conducted our audit in accordance with Canadian
generally accepted auditing standards. Our responsibilities
under those standards are further described in the "Auditors'
Responsibilities for the Audit of the Financial Statements"
section of our auditors' report.
We are independent of the Entity in accordance with the
ethical requirements that are relevant to our audit of the
financial statements in Canada and we have fulfilled our
other ethical responsibilities in accordance with these
requirements.
• the consolidated statements of comprehensive income
for the years ended
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
• the consolidated statements of changes in equity for the
years then ended
KEY AUDIT MATTERS
• the consolidated statements of cash flows for the years
then ended
• and notes to the consolidated financial statements,
including a summary of significant accounting policies
(Hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements
present fairly, in all material respects, the consolidated
financial position of the Entity as at December 31, 2020
and December 31, 2019, and its consolidated financial
performance and its consolidated cash flows for the years
then ended in accordance with International Financial
Reporting Standards (IFRS).
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements for the year ended December 31, 2020.
These matters were addressed in the context of our audit
of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion
on these matters.
We have determined the matters described below to be the
key audit matters to be communicated in our auditors' report.
ASSESSMENT OF ALLOWANCE FOR LOSSES
Description of the matter
We draw attention to notes 2, 3(d), 4, and 23(a) of the
financial statements. The Entity has recorded an allowance
against its finance receivables and loans and its guarantee
Annual Report 2020
31
of managed receivables for an amount of $6,869,000
(finance receivables and loans $6,314,000, and managed
receivables $555,000).
The Entity maintains allowances for losses on its finance
receivables and loans and its guarantee of managed
receivables pursuant to the provisions of IFRS 9, Financial
Instruments, expected credit losses ("ECL") framework. The
key inputs in the measurement of ECL allowances are the
probability of default ("PD"), the loss given default ("LGD")
and the exposure at default ("EAD"). The Entity's ECL
allowances are measured at amounts equal to either:
(i) an allowance for financial instruments which have not
experienced a significant increase in credit risk ("SICR")
since initial recognition, which represents an allowance
for expected credit losses that result from default events
that are possible within 12 months; or
(ii) an allowance for financial instruments which have
experienced a SICR since initial recognition, which
represents a lifetime ECL.
In addition, for those financial instruments that the Entity
has classified as impaired, these are written down to its
estimated net realizable value ("NRV"), or for managed
receivables, expected payment under its guarantee.
Significant assumptions and sources of estimation
uncertainty in determining the allowance for credit losses
include:
• high degree of measurement uncertainty in the key
inputs (PD, LGD, EAD) and judgments (SICR), and their
resulting impact on the allowance.
Significant assumptions and sources of estimation
uncertainty in determining the valuation for impaired loans
include:
• high degree of measurement uncertainty in key inputs
in the valuation of NRV.
WHY THE MATTER IS A KEY AUDIT MATTER
We identified the assessment of allowance for losses as a
key audit matter. This matter represented an area of
significant risk of material misstatement given the magnitude
of the impact of the provision on net earnings and the
related high degree of estimation uncertainty in determining
the amounts recorded. Significant auditor judgment was
required due to the high degree of measurement uncertainty
in the key inputs (PD, LGD, EAD), and judgments (SICR) and
their resulting impact on the allowance. Assessing the
allowance also required significant auditor attention and
complex auditor judgment to evaluate the results of our
audit procedures. Further, specialized skills and knowledge,
including experience in the industry, were required to
apply audit procedures and evaluate the results of
such procedures.
HOW THE MATTER WAS ADDRESSED IN
THE AUDIT
The primary procedures we performed to address this key
audit matter included the following:
We evaluated the design, and tested the operating
effectiveness, of certain internal controls over the Entity's
process for calculating the allowance, as follows:
• management's review of the allowance estimate,
including key inputs;
• management's control to determine the NRV for
impaired loans; and
• approval by the Risk Management Committee, whose
function it is to monitor the credit losses and review and
approve the loss rates and other key inputs.
For a selection of loans, we evaluated the appropriateness
of the Entity's assigned risk ratings by independently
assessing relevant criteria against the Entity's risk rating
matrix for those loans. Through this process we evaluate the
32 Accord Financial Corp.
allowance and the key inputs, including drivers of the risk
rating which determines PD, and certain loan characteristics
and financial information to support LGD and EAD.
We evaluated the key inputs used to develop the recoverable
amount of the CGUs, including the following:
For a selection of impaired loans, we evaluated the
appropriateness of the value ascribed to the underlying
collateral used by management to determine the
ultimate NRV.
EVALUATION OF THE IMPAIRMENT
ASSESSMENT FOR GOODWILL
Description of the matter
We draw attention to notes 3(f) and 7 to the financial
statements. The Entity has goodwill of $13,218,843 recorded
in its statement of financial position. Goodwill is not
amortized, but an annual impairment test is performed by
comparing the carrying amount to the recoverable amount
for the cash generating unit ("CGU"). The estimated fair
value of each CGU is determined to be a multiple of the
expected earnings of the CGU, where expected earnings are
an estimate of future years’ earnings. The most sensitive
assumption used in the impairment testing was the
multiple applied to the expected earnings of each CGU in
determining the fair value.
Why the matter is a key audit matter
We identified the evaluation of the impairment assessment
of goodwill as a key audit matter. This matter represented
an area of significant risk of misstatement given the high
degree of subjectivity in determining the fair value. Minor
changes to the multiple applied to the expected earnings
had a significant effect on the estimated fair value. As a
result, significant auditor judgment requiring specialized
skills and knowledge was required in evaluating the results
of our procedures.
How the matter was addressed in the audit
The primary procedures we performed to address this key
audit matter included the following:
• compared the Entity's prior year expected earnings to
actual results to assess the Entity's budgeting process; and
• compared expected earnings to past performance, and
performed stress analysis over the assumptions made in
arriving at the future expected earnings.
We involved valuations professionals with specialized skills
and knowledge to assist in evaluating the appropriateness
of the multiple applied to develop the fair value of the CGUs.
They compared the multiple applied to the expected
earnings against an implied multiple that was independently
developed using publicly available information for
comparable entities.
OTHER INFORMATION
Management is responsible for the other information.
Other information comprises:
• the information included in Management's Discussion
and Analysis filed with the relevant Canadian Securities
Commissions; and
• the information, other than the financial statements and
the auditors' report thereon, included in a document
entitled "Annual Report 2020".
Our opinion on the financial statements does not cover the
other information and we do not and will not express any
form of assurance conclusion thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information identified
above and, in doing so, consider whether the other
information is materially inconsistent with the financial
statements or our knowledge obtained in the audit and
remain alert for indications that the other information
appears to be materially misstated.
Annual Report 2020
33
We obtained the information included in Management's
Discussion and Analysis to be filed with the relevant Canadian
Securities Commissions and the "Annual Report 2020" as
at the date of this auditors' report. If, based on the work
we have performed on this other information, we conclude
that there is a material misstatement of this other information,
we are required to report that fact in the auditors' report.
We have nothing to report in this regard.
The information, other than the financial statements and
the auditors' report thereon, included in a document likely
to be entitled "Glossy Annual Report" is expected to be made
available to us after the date of this auditors' report. If, based
on the work we will perform on this other information, we
conclude that there is a material misstatement of this other
information, we are required to report that fact to those
charged with governance.
RESPONSIBILITIES OF MANAGEMENT AND
THOSE CHARGED WITH GOVERNANCE FOR
THE FINANCIAL STATEMENTS
Management is responsible for the preparation and fair
presentation of the financial statements in accordance with
International Financial Reporting Standards (IFRS), and for
such internal control as management determines is necessary
to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is
responsible for assessing the Entity's ability to continue as
a going concern, disclosing as applicable, matters related
to going concern and using the going concern basis of
accounting unless management either intends to liquidate
the Entity or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for
overseeing the Entity's financial reporting process.
AUDITORS' RESPONSIBILITIES FOR THE
AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and
to issue an auditors' report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with Canadian generally accepted auditing standards will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of the
financial statements.
As part of an audit in accordance with Canadian generally
accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout
the audit.
We also:
• Identify and assess the risks of material misstatement of
the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the
Entity's internal control.
34 Accord Financial Corp.
We remain solely responsible for our audit opinion.
• Determine, from the matters communicated with those
charged with governance, those matters that were of
most significance in the audit of the financial statements
of the current period and are therefore the key audit
matters. We describe these matters in our auditors'
report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances,
we determine that a matter should not be communicated
in our auditors' report because the adverse consequences
of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
Chartered Professional Accountants, Licensed Public
Accountants
The engagement partner on the audit resulting in this
auditors' report is Paula Foster.
Toronto, Canada
March 10, 2021
• Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by management.
• Conclude on the appropriateness of management's use
of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may
cast significant doubt on the Entity's ability to continue
as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in
our auditors' report to the related disclosures in the
financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditors'
report. However, future events or conditions may cause
the Entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content
of the financial statements, including the disclosures,
and whether the financial statements represent the
underlying transactions and events in a manner that
achieves fair presentation.
• Communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including
any significant deficiencies in internal control that we
identify during our audit.
• Provide those charged with governance with a statement
that we have complied with relevant ethical requirements
regarding independence, and communicate with them
all relationships and other matters that may reasonably
be thought to bear on our independence, and where
applicable, related safeguards.
• Obtain sufficient appropriate audit evidence regarding
the financial information of the entities or business
activities within the group Entity to express an opinion
on the financial statements. We are responsible for the
direction, supervision and performance of the group audit.
Annual Report 2020
35
Consolidated Statements of Financial Position
December 31, 2020 December 31, 2019
Assets
Cash $ 5,545,951 $ 6,776,422
Finance receivables and loans, net (note 4) 354,023,167 368,637,083
Income taxes receivable 1,842,751 996,039
Other assets 1,833,242 2,426,949
Assets held for sale (note 5) 1,513,567 6,970,369
Deferred tax assets, net (note 15) 2,002,180 975,714
Property and equipment (note 6) 1,655,193 2,337,365
Intangible assets (note 8) 3,277,744 3,639,468
Goodwill (note 7) 13,218,843 13,454,926
$ 384,912,638 $ 406,214,335
Liabilities
Due to clients $ 2,909,880 $ 2,403,717
Bank indebtedness (note 9 ) 210,940,174 242,781,300
Loan payable (note 10) 21,376,479 11,226,897
Accounts payable and other liabilities 10,836,423 6,170,491
Income taxes payable 1,575,643 337,764
Notes payable (note 11(a)) 17,434,054 18,938,887
Convertible debentures (note 12) 23,509,573 22,927,941
Lease liabilities (note 13) 1,207,264 1,597,664
Deferred income 761,514 1,210,471
Deferred tax liabilities, net 602,510 2,251,060
291,153,514 309,846,192
Equity
Capital stock (note 14) 9,448,264 9,481,382
Contributed surplus (note 14(d)) 1,201,785 1,322,575
Retained earnings 73,124,659 74,994,381
Accumulated other comprehensive income (note 19) 6,075,665 6,716,581
Shareholders’ equity 89,850,373 92,514,919
Non-controlling interests in subsidiaries (note 20) 3,908,751 3,853,224
Total equity 93,759,124 96,368,143
$ 384,912,638 $ 406,214,335
Contingent liabilities (note 17)
See accompanying notes to consolidated financial statements.
On behalf of the Board
Ken Hitzig
Chairman of the Board
Simon Hitzig
President and Chief Executive Officer
36 Accord Financial Corp.
Consolidated Statements of Earnings
Years ended December 31 2020 2019
Revenue
Interest (note 4) $ 42,704,739 $ 49,002,838
Other income (note 4) 5,795,959 7,172,247
48,500,698 56,175,085
Operating expenses
Interest 14,595,782 17,089,579
General and administrative (note 25) 26,458,300 26,150,907
Provision for credit and loan losses (note 4) 9,402,659 7,105,154
Impairment of assets held for sale 1,086,812 —
Depreciation 721,333 726,618
Business acquisition expenses (recovery):
Transaction and integration costs — (2,117,768)
Amortization of intangible assets 298,037 300,117
52,562,923 49,254,607
(Loss) earnings before income tax (4,062,225) 6,920,478
Income tax (recovery) expense (note 15) (4,670,000) 1,579,000
Net earnings 607,775 5,341,478
Net earnings (loss) attributable to non-controlling
interests in subsidiaries 191,149 (1,102,241)
Net earnings attributable to shareholders $ 416,626 $ 6,443,719
Basic and diluted earnings per common share (note 16) $ 0.05 $ 0.76
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive (Loss)
Income
Years ended December 31 2020 2019
Net earnings attributable to shareholders
Other comprehensive loss:
$ 416,626 $ 6,443,719
Items that are or may be reclassified to profit or loss:
Unrealized foreign exchange loss on translation of
self-sustaining foreign operations (note 19)
Comprehensive (loss) income
(640,916) (2,355,080)
$ (224,290) $ 4,088,639
See accompanying notes to consolidated financial statements.
Annual Report 2020
37
Consolidated Statements of Changes in Equity
Capital stock Accumulated Non-controlling
Number of other interests
common shares Contributed Retained comprehensive in subsidiaries
outstanding Amount surplus earnings income (note 20) Total
Balance at January 1, 2019
Comprehensive income
Common shares issued
Equity component of convertible
debentures, net of tax
Net (loss) attributable to
non-controlling interests
in subsidiaries
Dividends paid
Distribution to non-controlling
interests
Translation adjustment on
non-controlling interests
Other comprehensive income
recognized on dissolution
of foreign subsidiary
Balance at December 31, 2019
Comprehensive loss
Dividends paid
Shares repurchased for cancellation
Purchase of additional 2% of
Accord CapX LLC from
non-controlling interest
Net earnings attributable to
non-controlling interests in
subsidiaries
Translation adjustments on
non-controlling interests
Balance at December 31, 2020
8,428,542 $ 8,114,733 $ 1,072,753 $71,558,552 $ 9,071,661 $ 5,367,272 $95,184,971
— — — 6,443,719 (2,355,080) — 4,088,639
1,366,649 — — — — 1,366,649
160,371
—
— 249,822 — — — 249,822
— — — — — (1,102,241) (1,102,241)
— — — (3,051,812) — — (3,051,812)
— — — — — (181,213) (181,213)
— — — — — (230,594) (230,594)
— — — 43,922 — — 43,922
8,588,913 $ 9,481,382 $ 1,322,575 $74,994,381 $ 6,716,581 $ 3,853,224 $96,368,143
— — — 416,626 (640,916) — (224,290)
— — — (2,055,417) — — (2,055,417)
(30,000) (33,118) — (230,931) — — (264,049)
— — (120,790) — — — (120,790)
— — — — — 191,149 191,149
— — — — — (135,622) (135,622)
8,558,913 $ 9,448,264 $ 1,201,785 $73,124,659 $ 6,075,665 $ 3,908,751 $ 93,759,124
See accompanying notes to consolidated financial statements.
38 Accord Financial Corp.
Consolidated Statements of Cash Flows
Years ended December 31 2020 2019
Cash provided by (used in):
Operating activities
Net earnings $ 607,775 $ 5,341,478
Items not affecting cash:
Allowances for losses, net of charge-offs and recoveries 2,530,516 1,152,676
Deferred income (49,526) (156,176)
Amortization of intangible assets 298,037 300,117
Depreciation of property and equipment 721,333 726,618
Gain on disposal of assets held for sale — (39,793)
Impairment of assets held for sale 1,086,812 —
Accretion of convertible debentures 581,632 490,345
Deferred tax (recovery) expense (2,636,033) 1,763,711
Current income tax recovery (2,033,967) (184,711)
1,106,579 9,394,265
Changes in operating assets and liabilities:
Finance receivables and loans, gross 7,631,729 (51,672,039)
Due to clients 490,872 (710,806)
Other assets 550,449 (1,346,667)
Accounts payable and other liabilities 4,018,250 (3,168,097)
Disposal of assets held for sale 7,238,095 86,675
Income tax refund (paid), net 2,334,679 (143,202)
23,370,653 (47,559,871)
Investing activities
Additions to capital assets, net (43,474) (176,364)
Financing activities
Bank indebtedness (28,459,967) 27,626,269
Loan payable 10,935,301 5,890,496
Notes payable (redeemed) issued, net (1,500,175) 1,047,589
Dividends paid (2,055,417) (3,051,812)
Issuance of common shares — 160,341
Repurchase and cancellation of shares (264,049) —
Purchase of 2% of Accord CapX LLC from a non-controlling interest (181,389) —
Convertible debentures issued, net of transaction costs — 6,822,847
Distribution paid to non-controlling interests in subsidiaries — (181,213)
Lease liabilities paid (386,509) (377,398)
(21,912,205) 37,937,119
Effect of exchange rate changes on cash (2,645,445) 229,690
Decrease in cash (1,230,471) (9,569,426)
Cash at January 1 6,776,422 16,345,848
Cash at December 31 $ 5,545,951 $ 6,776,422
Supplemental cash flow information
Net cash used in operating activities includes:
Interest paid $ 10,417,117 $ 14,529,344
See accompanying notes to consolidated financial statements.
Annual Report 2020
39
Notes to Consolidated Financial Statements
Years ended December 31, 2020 and 2019
1. Description of the business
Accord Financial Corp. (the “Company”) is
incorporated by way of Articles of Continuance under
the Ontario Business Corporations Act and, through
its subsidiaries, is engaged in providing asset-based
financing, including factoring, equipment and
inventory financing, leasing, credit investigation,
credit protection and receivables management, to
industrial and commercial enterprises, principally
in Canada and the United States. The Company's
registered office is at 40 Eglinton Avenue East,
Suite 602, Toronto, Ontario, Canada.
2. Basis of presentation and statement
of compliance
These consolidated financial statements are expressed
in Canadian dollars, the Company’s functional and
presentation currency, and are prepared in
compliance with International Financial Reporting
Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”).
The preparation of the consolidated financial
statements in conformity with IFRS requires
management to make judgments, estimates and
assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities,
revenue and expenses. Actual results may differ
from those estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis.
Changes to accounting estimates are recognized in
the year in which the estimates are revised and in
any future periods affected. Estimates that are
particularly judgmental relate to the determination
of the allowance for losses relating to finance
receivables and loans and to the guarantee of
managed receivables (notes 3(d) and 4), the carrying
value of assets held for sale (note 5), the determination
of goodwill on acquisition and the value of intangible
assets (notes 7 and 8), as well as the net realizable
value of deferred tax assets and liabilities.
In March 2020, the World Health Organization declared
a global pandemic related to the novel coronavirus
known as Covid-19. The rapid evolution of this
pandemic combined with the restrictions on the
movement of people and goods has led to a significant
contraction in economic activity. While some of these
restrictions are being lifted in stages, significant
economic uncertainties persist the expected impact
of which require increased judgment for many of
the Company’s estimates and assumptions and
carry a higher degree of measurement uncertainty,
variability and volatility. As events continue to
evolve and additional information becomes available,
the Company’s estimates may change materially in
the future. Examples of significant estimates include
the allowances for losses, the impairment of goodwill,
the determination of triggering events for the
impairment for non-financial assets, such as assets
held for sale and intangible assets, and fair value
measurements, including those related to financial
instruments. Management believes that its estimates
are reasonable, supportable and appropriate.
The audited consolidated financial statements of the
Company have been prepared on an historical cost
basis except for the following items which are
recorded at fair value:
• Derivative financial instruments (a component
of other assets and/or accounts payable and
other liabilities)
• Senior executive long-term incentive plan
(“LTIP”)*; and
• Guarantee of managed receivables*
* a component of accounts payable and other liabilities
These consolidated financial statements were
approved for issue by the Company’s Board of
Directors (“Board”) on March 10, 2021.
40 Accord Financial Corp.
3. Significant accounting policies
(a) Basis of consolidation
These financial statements consolidate the accounts
of the Company and its wholly owned subsidiaries;
namely, Accord Financial Ltd. (“AFL”), Accord Financial
Inc. (“AFIC”) and Varion Capital Corp. (doing business
as Accord Small Business Finance (“ASBF”)) in
Canada and Accord Financial, Inc. (“AFIU”) in the
United States. The Company exercises 100% control
over each of its subsidiaries. The accounting policies
of the Company's subsidiaries are aligned with IFRS.
Intercompany balances and transactions are
eliminated upon consolidation.
(b) Revenue recognition
Revenue principally comprises interest, including
discount fees, factoring commissions and other fees
from the Company’s asset-based financial services,
including factoring and leasing, and is measured at
the fair value of the consideration received. Interest
charged on finance receivables and loans is recognized
as revenue using the effective interest rate method.
For receivables purchased in its recourse factoring
business, discount fees are calculated as a discount
percentage of the gross amount of the factored
invoice and are recognized as revenue over the
initial discount period. Additional discount fees are
charged on a per diem basis if the invoice is not paid
by the end of the initial discount period. For managed
receivables, factoring commissions are charged up
front and a certain portion is deferred and recognized
over the period that costs are incurred collecting the
receivables. In the Company’s leasing business,
interest is recognized over the term of the lease
agreement or installment payment agreement using
the effective interest rate; the effective interest rate
is that rate which exactly discounts estimated
future cash receipts through the expected life of the
lease, installment payment or loan agreement.
Fees related to direct finance leases, installment
payment agreements and loan receivables of ASBF
and Accord CapX LLC (doing business as Accord
Equipment Finance (“AEF”)), a subsidiary of AFIU,
are considered an integral part of the yield earned
on the debtor balance and are accounted for using
the effective interest rate method. Other revenue,
such as management fees, due diligence fees,
documentation fees, commitment fees and service
fees, is recognized as revenue when earned.
(c) Finance receivables and loans
The Company finances its clients principally by
providing asset-based loans, including factoring
receivables and financing equipment leases.
Finance receivables and loans are non-derivative
financial assets with fixed or determinable payments
that are not quoted in an active market and that the
Company does not intend to sell immediately or in
the near term. Finance receivables and loans are
initially measured at fair value plus incremental
direct transaction costs and subsequently measured
at amortized cost using the effective interest rate
method. The Company’s finance receivables and
loans are financial assets that are measured at
amortized cost as the following conditions are met:
i) the asset is held within a business model whose
objective is to hold assets to collect contractual
cash flows; and
ii) the contractual terms of the financial asset give rise
on specified dates to cash flows that are solely
payments of principal and interest.
The Company's leasing operations have standard
lease contracts that are non-cancellable direct
financing leases and provide for monthly lease
payments, usually for periods of one to five years.
The present value of the minimum lease payments
and residual values expected to be received under
the lease terms is recorded at the commencement
of the lease. The difference between this total value,
Annual Report 2020
41
net of execution costs, and the cost of the leased
asset is unearned revenue, which is recorded as a
reduction in the asset value, with the net amount
being shown as the net investment in leases
(specifically, the Company's lease receivables). The
unearned revenue is then recognized over the life
of the lease using the effective interest rate method,
which provides a constant rate of return on the net
investment throughout the lease term.
(d) Allowances for losses
The Company maintains allowances for losses on
its finance receivables and loans and its guarantee
of managed receivables pursuant to the provisions
of IFRS 9, Financial Instruments, under which
allowances for expected credit losses (“ECL”) are
recognized on all financial assets that are classified
either at amortized cost or fair value through other
comprehensive income (“FVOCI”) and for all loan
commitments and financial guarantees that are not
measured at fair value through profit and loss
(“FVTPL”). ECL allowances represent credit losses
that reflect an unbiased and probability weighted
amount which is determined by evaluating a range
of possible outcomes, the time value of money and
reasonable and supportable information about
past events, current conditions and forecasts of
future economic conditions. Forward-looking
information is explicitly incorporated into the
estimation of ECL allowances, which involves
significant judgment. The estimation of ECL includes
a high degree of measurement uncertainty in the
key inputs such as probability of default (“PD”), loss
given default (“LGD”) and exposure at default (“EAD”)
and their resulting impact on the allowances.
The Company’s ECL allowances are measured at
amounts equal to either: (i) 12-month ECL (also
referred to as Stage 1 ECL) which comprises an
allowance for all non-impaired financial instruments
which have not experienced a significant increase
in credit risk (“SICR”) since initial recognition. Stage 1
ECL is the portion of lifetime expected credit losses
that represent the expected credit losses that result
from default events on the financial instrument
that are possible within the twelve-month period
after the reporting date; or (ii) lifetime ECL (also
referred to as Stage 2 ECL) which comprises
allowances for those financial instruments which
have experienced a SICR since initial recognition.
Significant judgment is required in the application
of SICR. The Company has established quantitative
as well as qualitative criteria to determine SICR.
The Company recognizes lifetime ECL for Stage 2
financial instruments compared to twelve months of
ECL for Stage 1 financial instruments. In subsequent
reporting periods, if the credit risk of the financial
instrument improves such that there is no longer a
SICR since initial recognition, then the Company
will revert back to recognizing twelve months of
ECL as the financial instrument has migrated back
to Stage 1.
The calculation of ECL is based on the expected
value of three probability-weighted scenarios to
measure the expected cash shortfalls, discounted
at the effective interest rate. A cash shortfall is the
difference between the contractual cash flows that
are due and the cash flows that the Company expects
to receive. The key inputs in the measurement of
ECL allowances are as follows: (i) PD which is an
estimate of the likelihood of default over a given
time horizon; (ii) LGD which is an estimate of the loss
arising in the case where a default occurs at a given
time; and (iii) EAD which is an estimate of the
exposure at a future default date. Lifetime ECL is the
expected credit losses that result from all possible
default events over the expected life of a financial
instrument. Stage 3 financial instruments are those
that the Company has classified as impaired. Lifetime
ECL are recognized for all Stage 3 financial instruments.
For Stage 3 finance receivables and loans, either an
allowance for ECL is provided thereon or, where the
Company intends to or has actively taken possession
of its collateral with a view to realizing on same as a
means of recovering some or all of the outstanding
account balance, the financial instrument is written
down to its estimated net recoverable value, or in
respect of the Company’s managed receivables, an
amount is accrued for the expected payment to
client(s) under its guarantee. The Company classifies
a financial instrument as impaired when the future
cash flows of the financial instrument could be
adversely impacted by events after its initial
recognition. Evidence of impairment includes
indications that the borrower is experiencing
42 Accord Financial Corp.
significant financial difficulties, or a default or
delinquency has occurred. The Company also refers
to these accounts as “workout” accounts. Accounts
are in “workout” as a result of one or more loss events
that occurred after the date of initial recognition of
the instrument and the loss event has a negative
impact on the estimated future cash flows of the
instrument that can be reliably estimated and could
include significant financial difficulty of the borrower,
default or delinquency in interest or principal
payments, a high probability of the borrower entering
a phase of bankruptcy or a financial reorganization,
or a measurable decrease in the estimated future
cash flows from the loan or the underlying assets
that back the loan. A financial instrument is no
longer considered impaired when all past due
amounts, including interest, have been recovered,
and it is determined that the principal and interest
are fully collectable in accordance with the original
contractual terms or revised market terms of the
financial instrument with all criteria for the impaired
classification having been remedied. Financial
instruments are written-off, either partially or in full,
against the related allowance for losses when we
judge that there is no realistic prospect of future
recovery in respect of those amounts after the
collateral has been realized or transferred at net
realizable value. Any subsequent recoveries of
amounts previously written-off are credited to the
respective allowance for losses.
(e) Capital assets
Capital assets are stated at cost. Depreciation is
provided over the estimated useful lives of the assets
using the following bases and annual rates:
Asset
Basis
Furniture and
equipment
Computer
equipment
Automobiles
Leasehold
improvements
Declining balance
Declining balance
Declining balance
Straight line
Right-of-use assets
Straight line
Rate
20%
30%
30%
Over remaining
lease term
Over lease term
Upon retirement or sale of an asset, its cost and
related accumulated depreciation are removed
from the accounts and any gain or loss is recorded
in income or expense. The Company reviews capital
assets on a regular basis to determine that their
carrying values have not been impaired.
(f) Goodwill
Goodwill arises upon the acquisition of subsidiaries
or loan portfolios. Goodwill is not amortized, but an
annual impairment test is performed by comparing
the carrying amount to the recoverable amount for
the cash generating unit (“CGU”). Goodwill is also
tested for impairment between annual assessments
when facts and other circumstances indicate that
impairment may have occurred. If the carrying value
of the goodwill exceeds its recoverable amount, the
excess is charged against earnings in the year in
which the impairment is determined.
(g) Intangible assets
Purchased intangible assets are recognized as
assets in accordance with IAS 38, Intangible Assets,
when it is probable that the use of the asset will
generate future economic benefits and where the
cost of the asset can be reliably determined.
Intangible assets acquired are initially recognized
at cost of purchase, which is also the fair value at
the date acquired, and are subsequently carried at
cost less accumulated amortization and, if applicable,
accumulated impairment losses. The Company's
intangible assets, with the exception of the acquired
brand name which is considered to have an indefinite
life and is not amortized, have a finite life and are
amortized over their useful economic life. Intangible
assets are also assessed for impairment each
reporting period. The amortization period and
method of amortization are reassessed annually.
Changes in the expected useful life are accounted
for by changing the amortization period or method,
as appropriate, and are treated as a change in
accounting estimates. The amortization expense is
recorded as a charge against earnings. The Company's
intangible assets comprise existing customer
contracts, customer relationships, broker relationships
and brand name in its leasing operations. With the
exception of the brand name, these are amortized
over a period of five to fifteen years.
Annual Report 2020
43
(h) Income taxes
The Company follows the balance sheet liability
method of accounting for income taxes, whereby
deferred tax assets and liabilities are recognized
based on temporary differences between the tax
and accounting bases of assets and liabilities, as
well as losses available to be carried forward to
future years for income tax purposes.
Income tax expense comprises current and deferred
taxes. Current tax and deferred tax are recognized
through the statement of earnings except to the
extent that it relates to a business combination, or
items recognized directly in equity or in other
comprehensive income.
Current tax is the expected tax payable or receivable
on the taxable income or loss for the year, using tax
rates enacted or substantively enacted at the
reporting dates, and any adjustment to taxes
payable in respect of previous years.
Deferred tax is recognized in respect of temporary
differences between the carrying amounts of assets
and liabilities for financial reporting purposes and
the amounts used for taxation purposes, as well as
the available losses carried forward to future years
for income tax purposes. Deferred tax is measured
at the tax rates that are expected to be applied to
the temporary differences when they reverse, based
on the laws that have been enacted or substantively
enacted by the reporting date. A deferred tax asset
is recognized for unused tax losses, tax credits and
deductible temporary differences to the extent that
it is probable that future taxable income will be
available against which they can be utilized.
Deferred tax assets are reviewed at each reporting
date and are reduced to the extent that it is no
longer probable that the related tax benefit will be
realized. Deferred tax liabilities are recognized in
respect of taxes payable in the future based on
taxable temporary differences.
Income taxes receivable and payable, and deferred
tax assets and liabilities, are offset if there is a legally
enforceable right of set off, they relate to income
taxes levied by the same taxation authority and the
Company intends to settle its current tax assets
and liabilities on a net basis, or their tax assets and
liabilities will be realized simultaneously.
(i) Foreign subsidiaries
The Company's foreign subsidiaries report in U.S.
dollars and their assets and liabilities are translated
into Canadian dollars at the exchange rate prevailing
at the period end. Revenue and expenses are
translated into Canadian dollars at the average
monthly exchange rate then prevailing. Resulting
translation gains and losses are credited or charged
to other comprehensive income or loss and
presented in the accumulated other comprehensive
income or loss component of equity.
(j) Foreign currency transactions
Monetary assets and liabilities denominated in
currencies other than the Canadian dollar are
translated into Canadian dollars at the exchange
rate prevailing at each reporting date. Any non-
monetary assets and liabilities denominated in
foreign currencies are translated at historical rates.
Revenue and expenses are translated into Canadian
dollars at the prevailing average monthly exchange
rate. Translation gains and losses are credited or
charged to earnings.
(k) Earning per common share
The Company presents basic and diluted earnings
per share ("EPS") for its common shares. Basic EPS
is calculated by dividing the net earnings attributable
to common shareholders of the Company by the
weighted average number of common shares
outstanding during the year. Diluted EPS is calculated
by dividing net earnings attributable to common
shareholders by the diluted weighted average number
of common shares outstanding in the year, which
comprises the weighted average number of common
shares outstanding plus the effects of all dilutive
common share equivalents.
(l) Stock-based compensation
The Company accounts for stock options issued to
directors and/or employees using fair value-based
methods. The Company utilizes the Black-Scholes
option-pricing model to calculate the fair value of
the stock options on the grant date. The fair value
of the stock options is recorded in general and
44 Accord Financial Corp.
administrative expenses over the awards vesting
period.
The Company's LTIP (note 14(g)) contemplates that
grants thereunder may be settled in common shares
and/or cash. Grants are determined as a percentage
of the participants' short-term annual bonus, up to
an annual LTIP pool maximum, and are then adjusted
up or down based on the Company's adjusted return
on average equity over the three-year vesting period
of an award. The fair value of the LTIP awards,
calculated at each reporting date, is recorded in
general and administrative expenses over the awards'
vesting period, with a corresponding liability
established.
(m) Derivative financial instruments
The Company records derivative financial instruments
on its consolidated statements of financial position
at their respective fair values. Changes in the fair
value of these instruments are reported in the
consolidated statements of earnings unless all of
the criteria for hedge accounting are met, in which
case, changes in fair value would be recorded in other
comprehensive income or loss. The Company has
employed only cash flow or economic hedges.
(n) Financial assets and liabilities
Financial assets and liabilities are recorded at
amortized cost, with the exception of derivative
financial instruments, and the guarantee of managed
receivables which are all recorded at fair value. Fair
value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly
manner between participants in an active (or in its
absence, the most advantageous) market to which
the Company has access at the transaction date.
The Company initially recognizes loans and
receivables on the date that they are originated. All
other financial assets are recognized initially on the
transaction date on which the Company becomes a
party to the contractual provisions. The Company
derecognizes a financial asset when the contractual
rights to the cash flows from the asset expire, or it
transfers the rights to receive the contractual cash
flows on the financial asset in a transaction in which
substantially all the risks and rewards of ownership
of the financial asset are transferred. Any interest in
transferred financial assets that is created or retained
by the Company is recognized as a separate asset
or liability. Financial assets and liabilities are offset
and the net amount presented in the consolidated
statements of financial position when, and only
when, the Company has a legal right to offset the
amounts and intends either to settle on a net basis
or to realize the asset and settle the liability
simultaneously. A financial asset or a group of
financial assets is impaired when objective evidence
demonstrates that a loss event has occurred after
the initial recognition of the asset(s) and that the
loss event has an impact on the future cash flows of
the asset(s) that can be reliably estimated.
(o) Convertible debentures
Convertible debentures include both a debt and
equity component due to the embedded financial
derivative associated with the conversion option.
The debt component of the debenture is initially
recognized at fair value determined by discounting
the future principal and interest payments at the
rate of interest prevailing on the issue date for
similar non-convertible debt instruments. The equity
component of the convertible debenture is initially
determined as the difference between the gross
proceeds of the debenture issue and the debt
component, net of any deferred tax liability that
arises from the temporary difference between the
carrying value of the debt and its tax basis. The
equity component is included in contributed surplus
within total equity. Directly attributable transaction
costs related to the issuance of convertible debentures
are allocated to the debt and equity components
on a pro-rata basis, reducing their fair value at the
time of initial recognition.
(p) Assets held for sale
Assets acquired or repossessed on realizing security
on defaulted finance receivables and loans are
held for sale and are stated at the lower of cost or
recoverable amount (also referred to as “net
realizable value”).
(q) Financial instruments - disclosures
The financial instruments presented on the
consolidated statements of financial position at fair
value are further classified according to a fair-value
Annual Report 2020
45
hierarchy that prioritizes the quality and reliability
of information used in estimating fair value. The fair
values for each of the three levels are based on:
• Level 1 - quoted prices in active markets;
• Level 2 - models using observable inputs other
than quoted market prices included within
Level 1; and
• Level 3 - models using inputs that are not based
on observable market data.
(r) Government grants
Government grants are recognized in the consolidated
statement of operations as a reduction in the related
expense, namely a reduction in general and
administrative expenses (“G&A”).
4. Finance receivables and loans and
managed receivables
As detailed in note 2, there is a high degree of
uncertainty relating to the severe adverse economic
impact of Covid-19 on the Company’s portfolio of
finance receivables and loans, and managed
receivables, and the requirement to build forward-
looking information or conditions into our expected
credit loss models under IFRS 9. This has resulted
in significant increases in the Company’s provision
for credit and loan losses and allowances for losses,
as well as downgrades in internal client credit risk
ratings as detailed in notes 4(a) and 4(b) below.
Certain payment modifications were also granted
as a means of avoiding credit and loan losses.
(a) Finance receivables and loans
Finance receivables and loans at December 31 were
as follows:
2020 2019
Receivable loans $ 100,858,076 $ 103,841,877
Other loans* 149,734,115 167,978,086
Lease receivables 109,744,976 101,337,120
Finance receivables
and loans, gross 360,337,167 373,157,083
Less allowance for losses 6,314,000 4,520,000
Finance receivables
and loans, net $ 354,023,167 $ 368,637,083
*Other loans primarily comprise inventory and equipment loans.
The Company's finance receivables and loans are
generally collateralized by a first charge on
substantially all the borrowers’ assets or are leased
assets or factored receivables which the Company
owns. Collateral securing the Company’s finance
receivables and loans primarily comprises receivables,
inventory and equipment, as well as other assets
such as real estate and guarantees.
Lease receivables comprise the net investment in
leases by ASBF and AEF as described in note 3(c).
Lease receivables at December 31, 2020 are expected
to be collected over a period of up to five years.
In certain cases where a borrower has experienced
financial difficulty due to the economic impact of
Covid-19, the Company has granted certain
modifications to the terms and conditions of a lease
or loan. Such modifications may include temporary
over advances, payment deferrals, minor extensions
of amortization periods, and other modifications
intended to minimize credit and loan losses where
it is expected the lifetime risk of default of a client
is not significant. Finance receivables and loans that
were modified as a direct result of Covid-19 at
December 31, 2020 totalled $18.1 million.
Interest income earned on finance receivables
and loans in 2020 totalled $42,704,739 (2019 –
$49,002,838).
Finance receivables and loans based on the
contractual repayment dates thereof can be
summarized as follows:
(in thousands) Dec. 31, 2020 Dec. 31, 2019
Less than 1 year $ 206,934 $ 201,259
1 to 2 years 78,362 54,357
2 to 3 years 57,992 44,838
3 to 4 years 15,038 57,631
4 to 5 years 2,011 15,071
Thereafter — 1
$ 360,337 $ 373,157
46 Accord Financial Corp.
The aged analysis of the Company’s finance
receivables and loans was as follows:
(in thousands) Dec. 31, 2020 Dec. 31, 2019
Current $ 345,163 $ 358,592
Past due but not impaired:
Past due less than 90 days 5,238 1,162
Past due 90 to 180 days 1,548 3,949
Past due 180 days or more 5,849 2,684
Impaired loans 2,539 6,770
$ 360,337 $ 373,157
The past due finance receivables and loans,
especially those past due over 90 days, do not
necessarily represent a SICR, which is based on
the lifetime risk of default of an account, or an
impairment, which may be rebutted where payments
are delayed for non-credit related reasons, such as
specific industry related reasons or practices as we
often see across certain of the Company’s lines of
business. Of the past due finance receivables at
December 31, 2020, $11,166,000 related to BondIt
Media Capital (“BondIt”), AFIU’s 51% controlled
media finance subsidiary, where media productions
are often delayed resulting in payment delays.
As the Company’s finance receivables and loans are
generally collateralized, past due or impaired
accounts do not necessarily lead to a significant
ECL allowance depending on the net realizable
value of the collateral security which may result in
a low or no LGD. At December 31, 2020, the estimated
net realizable value of the collateral securing the
impaired loans totalled $3,013,000 (December 31,
2019 – $8,034,000). During 2020, lease receivables
totalling $2,425,000 (2019 – $6,970,000) were
transferred to assets held for sale upon default of
the leases and recovery of the Company’s assets.
The Company maintains internal credit risk ratings
on its finance receivables and loans by client which
it uses for credit risk management purposes. The
Company’s internal credit risk ratings are defined
as follows:
Low risk: finance receivables and loans that exceed
the credit risk profile standard of the Company with
a below average expected credit loss.
Medium risk: finance receivables and loans that
are typical for the Company’s risk appetite and
credit standards and retain an average expected
credit loss.
High risk: finance receivables and loans within the
Company’s risk appetite and credit standards that
have an additional element of credit risk that could
result in an above average expected credit loss.
Typically, these finance receivables and loans are
expected to represent a small percentage of the
Company’s total finance receivables and loans.
Impaired: finance receivables and loans on which
the Company has commenced enforcement and/or
realization proceedings available to it under its
contractual agreements and/or where there is
objective evidence that there has been a deterioration
in credit quality to the extent that the Company no
longer has reasonable assurance as to the timely
collection of the full amount of principal and interest.
The following table summarizes the Company's
finance receivables and loans by their internal credit
risk rating:
(in thousands) Dec. 31, 2020 Dec. 31, 2019
Low risk $ 130,160 $ 139,684
Medium risk 189,225 180,670
High risk 38,413 46,033
Impaired 2,539 6,770
$ 360,337 $ 373,157
Finance receivables and loans classified under the
three-stage credit criteria of IFRS 9 were as follows:
(in thousands) Dec. 31, 2020 Dec. 31, 2019
Stage 1 $ 314,111 $ 341,093
Stage 2 (SICR) 43,687 25,294
Stage 3 (Impaired) 2,539 6,770
$ 360,337 $ 373,157
Stage 1 finance receivables and loans comprise
those accounts in good standing where there has
been no SICR since initial recognition. Stage 2 finance
receivables and loans comprise those accounts that
have experienced a SICR since initial recognition,
while Stage 3 finance receivables and loans comprise
those accounts which are impaired.
Annual Report 2020
47
Due to the adverse economic impact of Covid-19 the
Company has seen an increase in Stage 2 finance
receivables and loans at December 31, 2020 compared
to December 31, 2019.
The activity in the allowance for losses on finance
receivables and loans account during 2020 and
2019 was as follows:
2020 2019
Allowance for losses at
January 1 $ 4,520,000 $ 3,450,000
Provision for loan losses 7,186,183 7,075,574
Charge-offs (8,755,220) (6,311,397)
Recoveries 3,588,553 418,502
Foreign exchange
adjustment (225,516) (112,679)
Allowance for losses
at December 31 $ 6,314,000 $ 4,520,000
The activity in the allowance for losses on finance receivables and loans during 2020 by stage of allowance was
as follows:
Allowance for losses at January 1, 2020
Transfer between stages
Reserves expense (recovery)* related to
change in allowance for losses
Foreign exchange adjustment
Stage 1 Stage 2
Stage 3 Total
$ 2,911,016
(583,420)
$ 1,608,984
(429,367)
$ — $ 4,520,000
1,012,787 —
1,317,825 1,714,477 (1,012,787) 2,019,515
— (225,515)
(118,381)
(107,134)
Allowance for losses at December 31, 2020
$ 3,527,040
$ 2,786,960
$ — $ 6,314,000
* a component of the provision for loan losses
The activity in the allowance for losses on finance receivables and loans during 2019 by stage of allowance was
as follows:
Allowance for losses at January 1, 2019
Transfer between stages
Reserves expense* related to change in
allowance for losses
Foreign exchange adjustment
Stage 1 Stage 2
Stage 3 Total
$ 2,669,024
(114,956)
$ 780,976
114,956
$ — $ 3,450,000
—
—
433,199 749,480 — 1,182,679
— (112,679)
(76,251)
(36,428)
Allowance for losses at December 31, 2019
$ 2,911,016
$ 1,608,984
$ — $ 4,520,000
* a component of the provision for loan losses
There was no Stage 3 allowance for losses at
December 31, 2020 and 2019 as the impaired finance
receivables and loans were in respect of accounts
where the Company intended to or had actively
taken possession of its collateral and was currently
or will be liquidating same as a means of recovering
some or all of the outstanding account balance. In
such cases, the finance receivables and loans have
been written down to the present value of their
estimated net recoverable amounts and any
allowance for losses thereon reversed.
The nature of the Company's business involves
funding or assuming the credit risk on receivables
offered to it by its clients, as well as financing other
assets, such as inventory and equipment. These
transactions are conducted on terms that are usual
and customary to the Company's asset-based lending
activities. The Company controls the credit risk
associated with its finance receivables and loans, and
managed receivables as discussed below, in a variety
of ways. For details of the Company's policies and
procedures in this regard, please refer to note 23(a).
At December 31, 2020, the Company held cash
collateral of $5,142,539 (2019 – $2,736,397) to help
reduce the risk of loss on certain of the Company's
finance receivables and loans.
48 Accord Financial Corp.
(b) Managed receivables
The Company has entered into agreements with
clients, whereby it has assumed the credit risk with
respect to the majority of the clients' receivables.
At December 31, 2020, the gross amount of these
managed receivables was $18,522,441 (2019 –
$27,338,317). Fees from the Company’s receivables
management and credit protection business during
2020 totalled $1,412,705 (2019 – $2,222,537). This
amount is included in other income.
The aged analysis of the Company’s managed
receivables was as follows:
(in thousands) Dec. 31, 2020 Dec. 31, 2019
Current $ 12,350 $ 19,537
Past due but not impaired:
Past due less than 90 days 5,455 7,387
Past due more than 90 days 717 414
$ 18,522 $ 27,338
The past due managed receivables do not necessarily
represent a SICR or an impairment, which are
usually rebutted as the collection period in the
retail industry, the industry relating to the vast
majority of managed receivables, is often past due.
The following table summarizes the Company’s
managed receivables by their internal credit risk
rating:
(in thousands) Dec. 31, 2020 Dec. 31, 2019
Low risk $ 4,857 $ 4,059
Medium risk 11,308 21,910
High risk 2,357 1,369
$ 18,522 $ 27,338
The increase in high risk rated managed receivables
directly results from the adverse economic impact
of Covid-19 and the Company’s exposure to the
retail industry which has been significantly impacted
by Covid-19 prevention measures.
Managed receivables classified under the three
stage credit criteria of IFRS 9 were as follows:
(in thousands) Dec. 31, 2020 Dec. 31, 2019
Stage 1 $ 15,530 $ 27,162
Stage 2 (SICR) 2,992 176
Stage 3 (Impaired) — —
$ 18,522 $ 27,338
Stage 1 managed receivables comprise those
accounts in good standing where there has been no
SICR since initial recognition. Stage 2 managed
receivables comprise those accounts that have
experienced a SICR since initial recognition. The
Company refers to these managed receivables as
its “watchlist” accounts. There were no Stage 3
(impaired) managed receivables at the above dates
as any outstanding client claims for payment under
the Company’s guarantees are an actual liability
that is accrued for and included in accounts payable
and other liabilities. In this respect, at December 31,
2020 an amount of $128,000 (2019 – nil) had been
accrued to payout claims under these guarantees.
Management provides an allowance for losses on
the guarantee of these managed receivables, which
represents the estimated fair value of the guarantees
at that date. The fair value of these guarantees was
classified as Level 3 under IFRS 7. This allowance is
included in the total of accounts payable and other
liabilities as the Company does not take title to the
managed receivables and they are not included in
the consolidated statements of financial position.
The activity in the allowance for losses on the
guarantee of managed receivables account during
2020 and 2019 was as follows:
2020
2019
Allowance for losses
at January 1 $ 44,000 $ 74,000
Provision for loan losses 2,216,476 29,580
Write-offs (1,718,043) (77,330)
Recoveries 12,567 17,750
Allowance for losses
at December 31 $ 555,000 $ 44,000
Annual Report 2020
49
The activity in the allowance for losses on the guarantee of managed receivables during 2020 by stage of
allowance was follows:
Allowance for losses at January 1, 2020
Transfer between stages
Reserves expense (recovery)* related to
change in allowance for losses
Stage 1 Stage 2
Stage 3 Total
$
40,480
(7,116)
$
3,520
5,643
$ — $
1,473
44,000
—
234,036
278,437 (1,473) 511,000
Allowance for losses at December 31, 2020
$ 267,400
$ 287,600
$ — $
555,000
* a component of the provision for loan losses
The activity in the allowance for losses on the guarantee of managed receivables during 2019 by stage of
allowance was as follows:
Allowance for losses at January 1, 2019
Reserves expense (recovery)* related to
change in allowance for losses
Stage 1 Stage 2
Stage 3 Total
$ 31,943
$ 42,057
$ — $
74,000
8,537 (38,537) — (30,000)
Allowance for losses at December 31, 2019
$ 40,480
$ 3,520
$ — $
44,000
* a component of the provision for loan losses
There were no transfers between the three stages
of the allowance for losses on the guarantee of
managed receivables during 2019.
There was no Stage 3 allowance for impaired
managed receivables at December 31, 2020 and 2019
as an actual liability is accrued in respect of the
pending payout of the guarantees given to clients on
the impaired accounts which is included in accounts
payable and other liabilities.
being actively marketed for sale and will be disposed
of as market conditions permit. The estimated net
realizable value of the assets at the above dates was
based upon appraisals thereof.
During 2020 assets were disposed of for net proceeds
of $7,238,095 and an impairment charge of $1,086,812
was booked thereon, while during 2019 assets were
disposed of for net proceeds of $86,675 resulting in
a gain on sale of $39,793.
5. Assets held for sale
6. Property and equipment
Assets held for sale and movements therein during
2020 and 2019 were as follows:
(in thousands) Dec. 31, 2020 Dec. 31, 2019
Cost $ 4,103 $ 4,096
Accumulated depreciation (2,448) (1,759)
2020 2019
$ 1,655 $ 2,337
Assets held for sale
at January 1 $ 6,970,369 $ 46,882
Additions 2,424,867 6,970,369
Disposals (7,238,095) (46,882)
Impairment charge (1,086,812) —
Foreign exchange adjustment 443,238 —
Assets held for sale
at December 31 $ 1,513,567 $ 6,970,369
During 2020 and 2019, the Company obtained title
to or repossessed certain long-lived assets securing
defaulted finance receivables and loans from a
number of clients. These assets have been sold or are
Property and equipment include the Company’s
right-of-use assets, comprising four office leases.
The Company’s right-of-use assets and movements
therein during 2020 and 2019 were as follows:
(in thousands) 2020 2019
Right-of-use assets at
January 1 $ 1,544 $ 2,027
Depreciation expense (439) (436)
Foreign exchange adjustment (2) (47)
Right-of-use assets at
December 31 $ 1,103 $ 1,544
50 Accord Financial Corp.
7. Goodwill
2020 2019
January 1 $13,454,926 $ 14,031,320
Foreign exchange
adjustment (236,083) (576,394)
Goodwill at December 31 $13,218,843 $ 13,454,926
At December 31, 2020 and 2019 goodwill of
US$8,908,713 was carried in AFIU, the Company's
U.S. subsidiary. A foreign exchange adjustment is
recognized each period-end when this balance is
translated into Canadian dollars at a different
prevailing period-end exchange rate.
Goodwill was allocated to the following cash
generating units (“CGUs”) at December 31, 2020
and 2019:
2020 2019
U.S. operations $11,336,336 $ 11,572,419
Canadian operations 1,882,507 1,882,507
$13,218,843 $ 13,454,926
Goodwill is tested for impairment annually. During
2020 and 2019, the Company conducted annual
impairment reviews on each CGU and determined
that there was no impairment to the carrying value
of goodwill. The Company estimates the fair value
(being the recoverable amount) of each of its CGUs
and compares this to the carrying value of the CGU
to determine if there has been an impairment of
goodwill. In the Company’s case the estimated fair
value of each CGU is determined to be a multiple of
the expected earnings of the CGU, where expected
earnings are an estimate of future years’ earnings.
This provides a similar result to extrapolating and
discounting budgeted earnings for the CGUs. The
estimated fair value of each CGU is then compared
to the carrying value of the CGU, including goodwill,
to determine if the goodwill is impaired.
The most sensitive assumption used in the impairment
testing was the multiple applied to the expected
earnings of each CGU in determining the fair value
thereof. In 2020 and 2019 a multiple of 10 was used.
Management believes a reasonable decrease in the
multiple would not cause an impairment in the
goodwill of its CGUs.
8. Intangible assets
Intangible assets and movements therein during 2020 and 2019 were as follows:
Customer
and referral Broker Brand
2020 relationships relationships name Total
Cost
January 1, 2020 $ 1,978,377 $ 1,343,938 $ 1,769,238 $ 5,091,553
Foreign exchange adjustment (40,359) — (36,093) (76,452)
December 31, 2020 $ 1,938,018 $ 1,343,938 $ 1,733,145 $ 5,015,101
Accumulated amortization
January 1, 2020 $ (283,239) $ (1,168,846) $ — $ (1,452,085)
Amortization expense (136,401) (161,636) — (298,037)
Foreign exchange adjustment 12,765 — — 12,765
December 31, 2020 $ (406,875) $ (1,330,482) $ — $ (1,737,357)
Book value
January 1, 2020 $ 1,695,138 $ 175,092 $ 1,769,238 $ 3,639,468
December 31, 2020 $ 1,531,143 $ 13,456 $ 1,733,145 $ 3,277,744
Annual Report 2020
51
Customer
and referral Broker Brand
2019 relationships relationships name Total
Cost
January 1, 2019 $ 2,076,915 $ 1,343,938 $ 1,857,359 $ 5,278,212
Foreign exchange adjustment (98,538) — (88,121) (186,659)
December 31, 2019 $ 1,978,377 $ 1,343,938 $ 1,769,238 $ 5,091,553
Accumulated amortization
January 1, 2019 $ (158,658) $ (1,003,668) $ — $ (1,162,326)
Amortization expense (134,939) (165,178) — (300,117)
Foreign exchange adjustment 10,358 — — 10,358
December 31, 2019 $ (283,239) $ (1,168,846) $ — $ (1,452,085)
Book value
January 1, 2019 $ 1,918,257 $ 340,270 $ 1,857,359 $ 4,115,886
December 31, 2019 $ 1,695,138 $ 175,092 $ 1,769,238 $ 3,639,468
9. Bank Indebtedness
A revolving line of credit totalling approximately
$367 million has been established with a syndicate
of six banks, bearing interest varying with the bank
prime rate or Libor. The line is collateralized primarily
by the Company’s finance receivables and loans. At
December 31, 2020, the amount outstanding under
the line of credit totalled $210,940,174 (December 31,
2019 – $242,781,300). During 2020, the Company’s
banking syndicate reset its interest coverage ratios
for the quarters ended March 31, June 30,
September 30 and December 31, 2020. The Company
was in compliance with all loan covenants under its
bank line of credit during 2020. The Company did
not meet its interest coverage ratio covenant at
December 31, 2019 and received a waiver thereof.
The Company was in compliance with all other loan
covenants under its bank line during 2019.
10. Loan payable
A revolving line of credit totalling US$10,000,000
(C$13,319,000) was established by BondIt in April
2018 with a non-bank lender, which bears interest
varying with the U.S. base rate. This line, which is
collateralized by all of BondIt’s assets, was renewed
in 2019 and expires on May 31, 2022. During 2020, this
line was increased to US$20,000,000 (C$25,450,000).
At December 31, 2020, the amount outstanding
under this line of credit totalled $21,376,479
(December 31, 2019 – $11,226,897). BondIt was in
compliance with all loan covenants under this
facility at December 31, 2020, while at December 31,
2019 BondIt failed a specific covenant test, which the
lender subsequently waived.
11. Related parties
(a) Notes payable
Notes payable comprise: (i) unsecured demand notes
due on, or within a week of, demand ($1,587,272);
(ii) numerous BondIt notes ($2,417,750), which are
repayable on various dates the latest of which is
December 31, 2021; and (iii) term notes which mature
on July 31, 2021 ($13,429,032). Notes payable are
to individuals or entities and consist of advances
from shareholders, management, employees, other
related individuals and third parties.
Notes payable at December 31 were as follows:
2020 2019
Demand and term notes (due within one year):
Related parties $ 15,071,938 $ 3,326,849
Third parties 2,362,116 3,463,038
17,434,054 6,789,887
Term notes (due after one year):
Related parties — 12,149,000
$ 17,434,054 $ 18,938,887
Notes due on, or within a week thereof, bear
interest at rates that vary with bank prime rate or
Libor, while the BondIt notes bear interest at rates
which range from 8.5% to 11%. The term notes
maturing on July 31, 2021 carry an interest rate of
7% with interest payable each calendar quarter-end.
52 Accord Financial Corp.
Interest expense on the notes payable was as follows:
2020 2019
Related parties $ 1,032,655 $ 1,058,727
Third parties 177,747 245,793
$ 1,210,402 $ 1,304,520
(b) Compensation of directors and key
management personnel
The remuneration of directors and key management
personnel(1) during 2020 and 2019 was as follows:
2020 2019
Salaries and directors' fees $ 4,791,966 $ 4,013,883
Stock-based compensation(2) — (152,699)
$ 4,791,966 $ 3,861,184
(1) Key management personnel comprise the Chairman and Vice Chairman
of the Company's Board, the President of the Company, the Presidents
of its six operating subsidiaries, the Company’s Senior Vice-Presidents
and its Chief Financial Officer.
(2) Stock-based compensation comprises the expense (recovery) related
to the Company's stock option and LTIP grants. Please see note 14(g).
12. Convertible debentures
In December 2018, the Company issued 18,400
7.0% convertible unsecured debentures with a face
value of $1,000 each for proceeds of $18,400,000.
On January 17, 2019, the underwriters of the
debenture issue exercised their overallotment option
and a further 1,090 convertible debentures were
issued for proceeds of $1,090,000. On July 23, 2019,
the Company issued a further 1,160 convertible
debentures with a face value of $1,160,000 by way
of private placement, bringing the total face value
of the debentures issued to $20,650,000, which is
the maximum issuable under the original debenture
trust indenture. The debentures issued on July 23,
2019 were issued at a $23,200 discount to face value.
These 20,650 debentures are listed on the Toronto
Stock Exchange. On September 13, 2019, the
Company issued 5,000 7.0% unlisted convertible
unsecured debentures with a face value of $1,000
each under a supplemental trust indenture for
proceeds of $5,000,000. Interest on all the convertible
debentures is payable semi-annually on June 30 and
December 31 each year. The debentures mature on
December 31, 2023 and are convertible at the option
of the holder into common shares of the Company
at a conversion price of $13.50 per common share.
The debentures are not redeemable by the Company
prior to December 31, 2021 except in limited
circumstances following a change of control. On or
after December 31, 2021 and at any time prior to
December 31, 2022, the debentures may be redeemed
at the option of the Company at a redemption price
equal to 100% of their principal amount plus any
accrued and unpaid interest thereon provided that
the market price of the Company’s common shares
is at least 125% of the conversion price. On or after
December 31, 2022 and prior to the maturity date,
these debentures may be redeemed in whole or in
part at the option of the Company at a redemption
price equal to 100% of their principal amount plus
any accrued and unpaid interest thereon.
The Company used the residual method to calculate
the allocation between the debt and equity
components of the debentures. The gross proceeds
of $25,626,800 were allocated towards the debt
component of these debentures by discounting the
future principal and interest payments at the rate
of interest prevailing on the issue date for similar
non-convertible debentures. The equity component
is initially determined to be the difference between
the gross proceeds and the debt component.
Transaction costs were then allocated to the debt
and equity components on a pro-rata basis. The
equity component is carried net of deferred taxes
and is included in contributed surplus.
The allocation of the gross proceeds from the
convertible debentures issuance and the balances
outstanding on the debt and equity components at
December 31, 2020 were as follows:
Liability
Equity
component of component of
debentures
debentures
Total
Debentures issued $ 24,152,897 $ 1,473,903 $ 25,626,800
Transaction costs (1,739,323) (106,414) (1,845,737)
Net proceeds 22,413,574 1,367,489 23,781,063
Deferred taxes — (362,384) (362,384)
Accretion in carrying
value of debenture
liability 1,095,999 — 1,095,999
$ 23,509,573 $ 1,005,105 $ 24,514,678
The allocation of the gross proceeds from the
convertible debentures issuance and the balances
Annual Report 2020
53
outstanding on the debt and equity components at
December 31, 2019 were as follows:
Liability
Equity
component of component
debentures of debentures
Total
Debentures issued $ 24,152,897 $ 1,473,903 $ 25,626,800
(106,414) (1,845,737)
(1,739,323)
Transaction costs
Net proceeds
Deferred taxes
Accretion in carrying
value of debenture
liability
22,413,574
—
1,367,489 23,781,063
(362,384) (362,384)
514,367
— 514,367
$ 22,927,941 $ 1,005,105 $ 23,933,046
At December 31, 2020 all debentures remained
outstanding.
13. Lease liabilities
The following table presents the contractual
undiscounted cash flows for lease obligations at
December 31:
(in thousands)
Less than one year
One to five years
Thereafter
2020
2019
$ 501
759
115
$ 491
1,181
206
Total undiscounted lease
obligations
Less: short-term lease
commitments elected for
exemption under IFRS 16
Less: future interest
Lease liabilities at December 31
1,375
1,878
(17)
(151)
$ 1,207
(26)
(254)
$ 1,598
During 2020, principal and interest payments for
the four office leases recognized as right-of-use
assets under IFRS 16 totalled $386,509 and $104,952,
respectively, for total lease payments of $491,461.
No variable lease payments are included in the
measurement of the Company’s lease liabilities.
14. Capital stock, contributed surplus,
dividends, stock option plans, senior
executive long-term incentive plan,
and stock-based compensation
(a) Authorized capital stock
The authorized capital stock of the Company
consists of an unlimited number of first preferred
shares, issuable in series, and an unlimited number
of common shares with no par value. The first
preferred shares may be issued in one or more
series and rank in preference to the common shares.
Designations, preferences, rights, conditions or
prohibitions relating to each class of shares may be
fixed by the Board. At December 31, 2020 and 2019,
there were no first preferred shares outstanding.
(b) Issued and outstanding
The Company's issued and outstanding common
shares during 2020 and 2019 are set out in the
consolidated statements of changes in equity.
(c) Share repurchase program
On December 4, 2019, the Company received
approval from the TSX to commence a normal
course issuer bid (the "2019 Bid") for up to 429,445
of its common shares at prevailing market prices on
the TSX. The 2019 Bid commenced on December 9,
2019 and terminated on December 8, 2020. All
shares repurchased pursuant to the 2019 Bid were
cancelled. In 2020, under the 2019 Bid, the Company
repurchased and cancelled 30,000 (2019 – nil)
common shares at an average price of $8.80 per
common share for total consideration of $264,049.
This amount was applied to reduce share capital by
$33,118 and retained earnings by $230,931.
(d) Contributed surplus
The Company's contributed surplus and movements
therein during 2020 and 2019 are set out in the
consolidated statements of changes in equity.
(e) Dividends
Dividends in respect of the Company’s common
shares are declared in Canadian dollars. During 2020,
dividends totalling $2,055,417 (2019 – $3,051,812)
or $0.24 (2019 – $0.36) per common share were
declared and paid. On January 30, 2021, the
Company declared a quarterly dividend of $0.05 per
common share, payable March 1, 2021 to shareholders
of record at the close of business on February 14, 2021.
(f) Stock option plans
The Company has established an employee stock
option plan. Under the terms of the plan, an
aggregate of 1,000,000 common shares has been
reserved for issue upon the exercise of options
54 Accord Financial Corp.
granted to key managerial employees of the Company
and its subsidiaries. According to the terms of the
plan, these options vest over a period of three years
provided certain minimum earnings criteria are met.
Although the Company may still grant stock options
to employees, it has not done so since 2004.
The Company has also established a non-executive
directors' stock option plan (“NEDSOP”). Under the
terms of the plan, an aggregate of 500,000 common
shares has been reserved for issue upon the exercise
of options granted to non-executive directors of the
Company. Fifty percent of these options vest after
one year and fifty percent after two years. The
options have to be exercised within five years of the
grant date at which time they expire.
Options are granted to purchase common shares at
prices not less than the market price of such shares
on the grant date.
Outstanding options granted under the NEDSOP at
December 31, 2020 and 2019 were as follows:
Exercise
price
Grant date
Expiry date Dec. 31, 2020 Dec. 31, 2019
$9.56 Oct. 28, 2015 Oct. 27, 2020
$9.28 July 27, 2016 July 26, 2021
Outstanding, earned and exercisable
—
60,000
60,000
80,000
80,000
160,000
A director who did not stand for re-election on May 6,
2020 did not exercise his options within the required
sixty-day period after he ceased to be director.
Accordingly, his 40,000 options expired on July 5,
2020. On October 27, 2020, the remaining 60,000
options granted on October 28, 2015 expired
unexercised.
The fair value of the options granted on July 27,
2016 was determined using the Black-Scholes option
pricing model with the following assumptions on
the grant date:
July 27, 2016 October 28, 2015
grant grant
Risk free interest rate 0.65% 0.82%
Expected dividend yield 3.88% 3.77%
Expected share price volatility 23.78% 23.50%
Expected life of option 5.0 years 5.0 years
Fair value per option $1.35 $1.40
(g) Senior executive long-term incentive
plan
Under the LTIP, which was introduced in 2015, grants
may be made annually to the Company’s senior
executive management group and are measured
and assessed over a three-year performance period.
Grants are determined as a percentage of the
participants’ short-term annual bonus subject to
an annual LTIP pool maximum of 5% of adjusted
consolidated net earnings. Vesting of the LTIP is
subject to achievement over a three-year period of
a cumulative adjusted return on average equity and
may be adjusted up or down subject to achievement
of certain minimum and maximum return thresholds.
The Compensation Committee of the Board has the
discretion to determine whether payments are
settled through the issuance of shares and/or paid
in cash.
(h) Stock-based compensation
During 2020, the Company had no stock-based
compensation expense (2019 – recovery $174,597).
15. Income taxes
The Company's income tax (recovery) expense
comprises:
2020 2019
Current income tax (recovery) $ (2,033,967) $ (184,711)
Deferred tax (recovery) expense (2,636,033) 1,763,711
Income tax (recovery) expense $ (4,670,000) $ 1,579,000
During 2020 and 2019, the Company's statutory
income tax rate was 26.5%. The Company's income
tax expense varies from the amount that would be
computed using the Canadian statutory income tax
rate due to the following:
2020 %
Income tax expense computed
at statutory rates $ (1,076,490) 26.5
Decrease resulting from:
Lower effective tax rate on
income of subsidiaries (2,358,836) 58.1
Rate differential on loss
carryback (880,750) 21.7
Non-controlling interests in
subsidiaries (70,320) 1.7
Other (283,604) 7.0
Income tax (recovery) $ (4,670,000) 115.0
Annual Report 2020
5 5
2019 %
Income tax expense computed
at statutory rates $ 1,833,927 26.5
Decrease resulting from:
Lower effective tax rate on
income of subsidiaries (702,999) (10.2)
Non-controlling interests in
subsidiaries 232,190 3.4
Other 215,882 3.1
Income tax expense $ 1,579,000 22.8
The tax effects that give rise to the net deferred tax
assets at December 31 are as follows:
2020 2019
Deferred tax assets:
Unused tax losses $ 11,371,473 $ 6,296,351
580,113 419,079
Allowances for losses
15,000 24,000
Property and equipment
5,000 37,000
Leasing timing difference
42,813 22,545
Other
$ 12,014,399 $ 6,798,975
Deferred tax liabilities:
Basis differential on pass
through subsidiaries
Acquired intangibles
Property and equipment
Other
(9,676,090) (5,715,600)
(270,868) —
(7,000) (57,000)
(58,262) (50,661)
(10,012,220) (5,823,261)
$ 2,002,180
$ 975,714
The tax effects that give rise to the net deferred tax
liabilities at December 31 are as follows:
2020 2019
Deferred tax assets:
Allowances for losses $ (70,000)
Unused tax losses (67,000)
$ (39,000)
—
(137,000)
(39,000)
Deferred tax liabilities:
Basis differential on pass
through subsidiaries —
Convertible debentures
accretion 347,935
Acquired intangibles 3,575
Lease receivables 388,000
1,327,101
402,835
284,124
276,000
739,510
2,290,060
$ 602,510
$ 2,251,060
A deferred tax asset is recognized for unused tax
losses, tax credits and deductible temporary
differences to the extent that it is probable that
future taxable profits will be available against which
they can be utilized. Management's estimate of
future taxable profits and the recognition of deferred
tax assets are reviewed at each reporting date and
deferred tax assets are reduced to the extent that it
is no longer probable that the related tax benefit
will be realized.
At December 31, 2020 and 2019, deferred tax liabilities
for temporary differences associated with investments
in domestic and foreign subsidiaries were not
recognized as the Company is able to control the
timing of the reversal of the temporary differences,
and it is probable that the temporary differences
will not reverse in the foreseeable future.
16. Earnings per common share and
weighted average number of
common shares outstanding
Basic earnings per share have been calculated based
on the weighted average number of common shares
outstanding in the year without the inclusion of
dilutive effects. Diluted earnings per share are
calculated based on the weighted average number
of common shares plus dilutive common share
equivalents outstanding in the year, which in the
Company's case consist of stock options and
convertible debentures.
The following is a reconciliation of common shares
used in the calculation for the years ended
December 31:
2020 2019
Basic weighted average
number of common
shares outstanding 8,563,241 8,463,891
Effect of dilutive stock options — 3,254
Diluted weighted average
number of common shares
outstanding 8,563,241 8,467,145
All outstanding stock options were excluded from
the calculation of the diluted weighted number of
shares outstanding during 2020 because they were
considered to be anti-dilutive for earnings per
56 Accord Financial Corp.
common share purposes. Details of stock options
outstanding are set out in note 14(f). All convertible
debentures were similarly excluded from the
calculation during 2020 and 2019 because they were
anti-dilutive for earnings per common share purposes.
17. Contingent liabilities
(a) In the normal course of business there is outstanding
litigation, the results of which are not expected to
have a material effect upon the Company. Pending
litigation, or other contingent matters, represent
potential financial loss to the Company. The Company
accrues a potential loss if the Company believes the
loss is probable and it can be reasonably estimated.
The decision is based on information that is available
at the time. The Company estimates the amount of
the loss by consulting with the outside legal counsel
that is handling the defense. This involves analyzing
potential outcomes and assuming various litigation
and settlement strategies. At December 31, 2020 and
2019, the Company was not aware of any litigation
the aggregate liability from which would materially
affect the financial position of the Company, and
thus had not accrued a loss.
(b) At December 31, 2020, there were no letters of credit
issued on behalf of clients for which the Company
was contingently liable (December 31, 2019 –
$220,830). The Company was contingently liable with
respect to letters of guarantee issued on behalf of a
client in the amount of $648,975 (December 31, 2019
– $1,026,210). These amounts were considered in
determining the allowance for losses on finance
receivables and loans.
18. Derivative financial instruments
At December 31, 2020, the Company had entered
into forward foreign exchange contracts with a
financial institution which must be exercised by the
Company between January 29, 2021 and August 31,
2021 and which oblige the Company to sell Canadian
dollars and buy US$744,000 at exchange rates ranging
from 1.27650 to 1.35930. These contracts were
entered into by the Company on behalf of a client
and similar forward foreign exchange contracts were
entered into between the Company and the client,
whereby the Company will buy Canadian dollars from
and sell US$744,000 to the client. At December 31,
2019, the Company had entered into forward foreign
exchange contracts with a financial institution that
matured between January 31, 2020 and July 31, 2020
and obliged the Company to sell Canadian dollars
and buy US$650,000 at exchange rates ranging from
1.30900 to 1.3288. These contracts were entered
into by the Company on behalf of a client and similar
forward foreign exchange contracts were entered
into between the Company and the client, whereby
the Company bought Canadian dollars from and
sold US$650,000 to the client. The favorable and
unfavorable fair values of these contracts were
recorded on the Company's consolidated statements
of financial position in other assets and accounts
payable and other liabilities, respectively. The fair
value of the contracts was classified as Level 2
under IFRS 7. During 2020 and 2019 there was no
movement between the three-level fair value
hierarchy described in note 3(q).
19. Accumulated other comprehensive
income
Accumulated other comprehensive income ("AOCI")
solely comprises the unrealized foreign exchange
gain (commonly referred to as cumulative translation
adjustment) arising on translation of the assets and
liabilities of the Company's foreign subsidiaries
which report in U.S. dollars. Changes in the AOCI
balance during 2020 and 2019 are set out in the
consolidated statements of changes in equity.
20. Non-controlling interests in
subsidiaries
Non-controlling interests in subsidiaries at
December 31, 2020 comprised an effective 49%
(December 31, 2019 – 49%) interest in BondIt’s
common member units and an 8% (December 31,
2019 – 10%) interest in CapX’s common units. During
the first quarter of 2020, the Company acquired an
additional 2% of the common units in CapX from a
non-controlling interest at a cost of $181,389
(US$130,000). Please see the consolidated statements
of changes in equity for movements in non-controlling
interests during 2020 and 2019.
Annual Report 2020
57
21. Segmented information
The Company operates and manages its businesses in one dominant industry segment – providing asset-based
financial services to industrial and commercial enterprises, principally in Canada and the United States. An
operating segment is a component in the Company that engages in business activities from which it may earn
revenues and incur expenses, including revenues and expenses relating to transactions with any of the Company’s
other subsidiaries, whose operating results are regularly reviewed by the Company’s Chief Operating Decision
Makers (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance
and for which discrete financial information is available. Segment results that are reported to the CODM include
items that are directly attributable to a segment as well as those that can be allocated on a reasonable basis.
There were no significant changes to property and equipment and goodwill during the periods under review.
2020 (in thousands) Canada United States Intercompany Consolidated
Identifiable assets
Revenue
Interest income
Other income
Expenses
Interest
General and administrative
Provision for credit and loan losses
Impairment of assets held for sale
Depreciation
Business acquisition expenses
(Loss) earnings before income tax
Income tax (recovery)
Net (loss) earnings
Net earnings attributable to non-controlling interests
in subsidiaries
Net (loss) earnings attributable to shareholders
$ 151,112
$ 234,008
$ (207)
$ 384,913
$ 17,415
3,662
21,077
11,449
12,744
5,673
—
323
162
30,351
(9,274)
(2,040)
(7,234)
$ 25,769
2,134
27,903
3,626
13,714
3,730
1,087
398
136
22,691
5,212
(2,630)
7,842
$ (479)
—
(479)
$ 42,705
5,796
48,501
(479)
—
—
—
—
—
(479)
—
—
—
14,596
26,458
9,403
1,087
721
298
52,563
(4,062)
(4,670)
608
—
$ (7,234)
191
$ 7,651
—
$ —
191
$ 417
2019 (in thousands) Canada United States Intercompany Consolidated
Identifiable assets
Revenue
Interest income
Other income
Expenses
Interest
General and administrative
Provision for credit and loan losses
Impairment of assets held for sale
Depreciation
Business acquisition expenses (recovery)
(Loss) earnings before income tax
Income tax (recovery) expense
Net (loss) earnings
Net (loss) attributable to non-controlling interests
in subsidiaries
Net (loss) earnings attributable to shareholders
$ 184,198
$ 254,632
$ (32,616)
$ 406,214
$ 21,281
4,192
25,473
15,124
10,734
864
—
334
165
27,221
(1,748)
(420)
(1,328)
—
$ (1,328)
$ 28,992 $ (1,270)
—
2,980
(1,270)
31,972
3,235
15,417
6,241
—
393
(1,983)
23,303
8,669
1,999
6,670
(1,102)
$ 7,772
(1,270)
—
—
—
—
—
(1,270)
—
—
—
—
$ —
$ 49,003
7,172
56,175
17,089
26,151
7,105
—
727
(1,818)
49,254
6,921
1,579
5,342
(1,102)
$ 6,444
58 Accord Financial Corp.
22. Fair values of financial assets and
liabilities
Financial assets or liabilities, other than lease
receivables and loans to clients in our equipment
finance business, lease liabilities and convertible
debentures are short term in nature and, therefore,
their carrying values approximate fair values.
Changes in interest rates, credit spreads and liquidity
costs are the main cause of changes in the fair value
of the Company’s financial instruments resulting in
a favorable or unfavorable variance compared to
carrying value. For the Company’s financial
instruments carried at cost or amortized cost, the
carrying value is not adjusted to reflect increases or
decreases in fair value due to market fluctuations,
including those due to interest rate changes. Under
the fair value hierarchy, finance receivables and
loans would be classified as Level 3 in 2020 and 2019.
23. Financial risk management
The Company is exposed to credit, liquidity and
market risks related to the use of financial instruments
in its operations. The Board has overall responsibility
for the establishment and oversight of the Company's
risk management framework through its Audit
Committee. In this respect, the Audit Committee
meets with management and the Company's Risk
Management Committee at least quarterly. The
Company's risk management policies are established
to identify, analyze, limit, control and monitor the
risks faced by the Company. Risk management policies
and systems are reviewed regularly to reflect changes
in the risk environment faced by the Company.
(a) Credit risk
Credit risk is the risk of financial loss to the Company
if a client or counterparty to a financial instrument
fails to meet its contractual obligations. In the
Company's case, credit risk arises with respect to
its loans to and other financial transactions with
clients, its guarantee of managed receivables, and
any other financial transaction with a counterparty
that the Company deals with. The carrying amount
of these loans ($360 million) and managed receivables
($19 million) represents the Company's maximum
credit exposure and is the most significant measurable
risk that it faces. The nature of the Company's
asset-based lending business involves funding or
assuming the credit risk on the receivables offered
to it by its clients, as well as financing other assets,
such as inventory and equipment. The Company
will usually either: (i) own the factored receivables
or leased assets that it finances; or (ii) take collateral
security over the other assets that it lends against.
The Company also makes unsecured small business
loans; these totalled $243,894 at December 31, 2020.
The Company does not take title to the managed
receivables as it does not lend against them, but it
assumes the credit risk from the client in respect of
these receivables.
In its asset-based lending business, the Company
makes loans that are, in most cases, secured against
various forms of collateral. The collateral is generally
first ranking security on the client’s assets which
typically comprise receivables, inventory, equipment
and real estate. The Company provides a loss
allowance on all of its finance receivables and loans
based on the assessed credit risk. There were no
significant changes in the quality of collateral or
changes to the Company’s collateral policy during
2020 and 2019.
At December 31, 2020, the Company had impaired
loans of $2,539,000 (2019 – $6,770,000), while at that
date, it held collateral for these loans with an
estimated net realizable value of $3,013,000 (2019 –
$8,034,000). These impaired loans were mainly
secured by receivables, inventory and/or equipment.
The Company did not have any impaired managed
receivables at December 31, 2020 and 2019.
In its asset-based lending and equipment finance
businesses, and credit protection and receivables
management operations (AFL), credit is approved
by a staff of credit officers, with larger amounts
being authorized by supervisory personnel and
management. In the case of credit in excess of
$1.0 million (US$1.0 million in the case of AFIU and
CapX, and US$500,000 for BondIt) credit is approved
by the Company's Executive Credit Committee.
Credit in excess of $2.5 million (US$2.5 million in the
Annual Report 2020
59
of the highest quality and that any inventory,
equipment or other assets securing loans are
appropriately appraised. Collateral is monitored and
managed on an ongoing basis to mitigate credit risk.
In its asset-based lending operations, the Company
assesses the financial strength of its clients' customers
and the industries in which they operate on a regular
and ongoing basis.
The Company also minimizes credit risk by limiting
the maximum amount that it will lend to any one
client, enforcing strict advance rates, disallowing
certain types of receivables, charging back or making
receivables ineligible for lending purposes as they
become older, and taking cash collateral in certain
cases. The Company will also confirm the validity
of the receivables that it finances. In its asset-based
lending operations, the Company administers and
collects the majority of its clients' receivables and
so is able to quickly identify problems as and when
they arise and act promptly to minimize credit and
loan losses. Regular field examinations are conducted
to verify collateral such as inventory and equipment.
In the Company's Canadian leasing operations,
security deposits are also obtained as additional
collateral for its equipment leases or loans.
In the Company’s credit protection and receivables
management business, each customer is provided
with a credit limit up to which the Company will
guarantee that customer's total receivables. All
customer credit in excess of $2.5 million is approved
by the Credit Committee of the Board on a case-by-
case basis. At December 31, 2020, the Company had
not guaranteed accounts receivable in excess of
$5 million for any customer.
The Company's credit exposure relating to its finance
receivables and loans by industrial sector was
as follows:
case of U.S. group companies) is approved by the
Credit Committee of the Board of Directors, which
comprises three members of its Board. The Company
monitors and controls its risks and exposures through
financial, credit and legal systems and, accordingly,
believes that it has procedures in place for evaluating
and limiting the credit risks to which it is subject.
Credit is subject to ongoing management review.
Nevertheless, for a variety of reasons, there will
inevitably be defaults by clients or their customers.
In its asset-based lending operations, a primary
focus continues to be on the credit-worthiness and
collectability of its clients' receivables. The clients'
customers have varying payment terms depending
on the industries in which they operate, although
most customers have payment terms of 30 to 60
days from the invoice date. The Company's lease
receivables and equipment loans are mainly term
loans with payments usually spread out evenly over
the term of the lease or loan, which can typically be
up to 60 months. Of the total managed receivables
that the Company guarantees payment, 6.1% were
past due more than 60 days at December 31, 2020
(December 31, 2019 – 3.5%). In the Company's
asset-based lending business, trade receivables
become "ineligible" for lending purposes when they
reach a certain pre-determined age, usually 75 to 90
days from the invoice date, and are usually charged
back to clients, thereby eliminating the Company's
credit risk on such older receivables.
The Company employs an internal client credit risk
rating system to assess the credit risk in its asset-
based lending and equipment finance businesses,
which reviews, amongst other things, the financial
strength of each client and the Company's underlying
security, while in its credit protection and receivables
management business, it employs a customer credit
scoring system to assess the credit risk associated
with the managed receivables that it guarantees.
Please see note 4 which presents the Company’s
finance receivables and loans and managed
receivables by their internal credit risk rating (low
risk, medium risk, high risk) and by the three stage
credit criteria of IFRS 9, as well as an aged analysis
thereof. Credit risk is primarily managed by ensuring
that, as far as possible, the receivables financed are
60 Accord Financial Corp.
December 31, 2020
Gross finance
Industrial sector receivables % of
(in thousands) and loans total
Manufacturing $ 102,244 28
Professional services 77,968 22
Financial services 42,830 12
Media 36,915 10
Wholesale and distribution 24,666 7
Construction 22,509 6
Transportation 19,730 5
Retail 9,986 3
Other 23,489 7
$ 360,337 100
December 31, 2019
Gross finance
Industrial sector receivables % of
(in thousands) and loans total
Manufacturing $ 87,195 23
Professional services 70,416 19
Financial services 63,723 17
Wholesale and distribution 31,965 9
Retail 28,819 8
Media 24,561 6
Construction 17,875 5
Transportation 19,666 5
Other 28,937 8
$ 373,157 100
The Company’s credit exposure relating to its
managed receivables by industrial sector was
as follows:
December 31, 2020
Industrial sector Managed % of
(in thousands) receivables total
Retail $ 14,752 80
Wholesale and distribution 409 2
Other 3,361 18
$ 18,522 100
December 31, 2019
Industrial sector Managed % of
(in thousands) receivables total
Retail $ 22,698 83
Wholesale and distribution 1,567 6
Other 3,073 11
$ 27,338 100
As set out in notes 3(e) and 4, the Company maintains
an allowance for credit and loan losses on its
finance receivables and loans and its guarantee of
managed receivables in accordance with IFRS 9.
The Company maintains a separate allowance for
losses on each of the above items at amounts which,
in management's judgment, are sufficient to cover
losses thereon. The allowances are based upon
several considerations, including current economic
trends, condition of the loan and receivable
portfolios and typical industry loss experience.
(b) Liquidity risk
The Company’s financial assets and liabilities at December 31, 2020 by maturity date were as follows:
Less than
(in thousands) 1 year
1 to 2
years
2 to 3 3 to 4 4 to 5
years years years Thereafter Total
Financial assets
Cash
Finance receivables
and loans
All other assets
Financial liabilities
Due to clients
Bank indebtedness
Loan payable
Notes payable
Convertible debentures
All other liabilities
$ 5,546 $ — $
— $
— $
— $
— $
5,546
176,556 62,556 78,102 36,887 6,236 — 360,337
3,676 — — — — — 3,676
$ 78,102 $ 36,887 $ 6,236 $ — $ 369,559
$ 185,778 $ 62,556
$ 2,910
210,940
21,376
17,434
—
12,287
$ 264,947
$
— $
— $
2,910
— $
$ —
—
— — — — 210,940
— — — — — 21,376
—
— — — — 17,434
23,510 — — — 23,510
—
102 76 82 110 13,065
408
$ 23,612 $ 76 $ 82 $ 110 $ 289,235
$ 408
— $
Annual Report 2020
61
The Company’s financial assets and liabilities at December 31, 2019 by maturity date were as follows:
(in thousands)
Financial assets
Cash
Finance receivables
and loans
All other assets
Less than
1 to 2
1 year years
2 to 3 3 to 4 4 to 5
years years years Thereafter Total
$ 6,777 $
—
$
— $
— $
— $
— $ 6,777
201,259
3,422
54,357
—
44,838 57,631 15,071 1 373,517
— — — — 3,422
$ 211,458 $ 54,357
$ 44,838 $ 57,631 $ 15,071 $
1 $ 383,356
Financial liabilities
Due to clients
Bank indebtedness
Loan payable
Notes payable
Convertible debentures
All other liabilities
$
$ 2,404
—
242,781 —
—
12,149
—
—
11,227
6,790
—
6,464
$ — $ — $
— $
— $ 2,404
— — — — 242,781
— — — — 11,227
— — — — 18,939
— 22,938 — — 22,928
— — — — 6,464
$ 269,666
$ 12,149
$ — $ 22,938 $
— $
— $ 304,743
Liquidity risk is the risk that the Company will not
be able to meet its financial obligations as they fall
due. The Company's approach to managing liquidity
risk is to ensure that, as far as possible, it will always
have sufficient liquidity to meet its liabilities when
they fall due, under both normal and stressed
conditions, without incurring unacceptable losses
or risking damage to the Company's reputation.
The Company's principal obligations are its bank
indebtedness, loan payable, notes payable,
convertible debentures, due to clients, and accounts
payable and other liabilities. At December 31, 2020,
revolving credit lines totalling approximately
$392,000,000 have been established with a syndicate
of banks, as well as a non-bank lender, bearing
interest varying with the bank prime rate or Libor.
At December 31, 2020, the Company had borrowed
$232,316,653 (December 31, 2019 – $254,008,197)
against these facilities. These lines of credit are
collateralized primarily by finance receivables and
loans to clients. As detailed in note 9, the Company
was in compliance with all loan covenants under its
bank line of credit during 2020, while it received a
waiver for the breach of its interest coverage ratio
covenant at December 31, 2019 but otherwise was
in compliance with its loan covenants in 2019. At
December 31, 2020, BondIt was compliant with all
covenants under its line of credit with its non-bank
lender, while it had failed a specific covenant test at
December 31, 2019, which the lender subsequently
waived. See note 10.
Notes payable of $1,587,272 are due on, or within a
week of demand, while BondIt notes totalling
$2,417,750 are repayable at various dates the latest
of which is December 31, 2021. A further $13,429,032
of term notes payable mature on July 31, 2021 (see
note 11(a)). Notes payable are to individuals or
entities and consist of advances from shareholders,
directors, management, employees, other related
individuals and third parties. At December 31, 2020,
86% (December 31, 2019 – 82%) of these notes were
due to related parties and 14% (December 31, 2019 –
18%) to third parties. The Company’s convertible
debenture liability was $23,509,573 at December 31,
2020. These debentures mature on December 31, 2023.
Due to clients principally consist of collections of
receivables not yet remitted to the Company's clients.
Contractually, the Company remits collections within
a week of receipt. Accounts payable and other
liabilities comprise a number of different obligations,
the majority of which are payable within six months.
At December 31, 2020, the Company had gross
finance receivables and loans totalling $360,337,167
(December 31, 2019 – $373,157,083) which
substantially exceeded its total liabilities of
$291,153,514 at that date (December 31, 2019 –
$309,846,192). The Company's receivables normally
62 Accord Financial Corp.
have payment terms of 30 to 60 days from invoice
date. Together with its unused credit lines,
management believes that current cash balances
and liquid short-term assets are more than sufficient
to meet its financial obligations as they fall due.
(c) Market risk
Market risk is the risk that changes in market prices,
such as foreign exchange rates and interest rates,
will affect the Company's income or the value of its
financial instruments. The objective of managing
market risk is to control market risk exposures
within acceptable parameters, while optimizing the
return on risk.
(i) Currency risk
The Company's Canadian operations have some
assets and liabilities denominated in foreign
currencies, principally finance receivables and loans,
cash, bank indebtedness, due to clients and notes
payable. These assets and liabilities are usually
economically hedged, although the Company enters
into foreign exchange contracts from time to time
to hedge its currency risk when there is no economic
hedge. At December 31, 2020, the Company's
unhedged foreign currency positions in its Canadian
operations totalled $346,000 (December 31, 2019 –
$11,037,000). Of the unhedged position at
December 31, 2019, $10,677,000 resulted from the
dissolution of a foreign subsidiary on December 31,
2019. This position was subsequently closed in early
January 2020 resulting in a small foreign exchange
gain. The Company ensures that its net exposure is
kept to an acceptable level by buying or selling foreign
currencies on a spot or forward basis to address
short-term imbalances. The impact of a 1% change
in the value of the Company’s foreign currency
holdings against the Canadian dollar would not have
a material impact on the Company's net earnings.
(ii) Interest rate risk
Interest rate risk pertains to the risk of loss due to
the volatility of interest rates. The Company's lending
and borrowing rates are usually based on bank prime
rates of interest or Libor and are typically variable.
The Company actively manages its interest rate
exposure, where possible. The Company's agreements
with its clients (affecting interest revenue) and
lenders (affecting interest expense) usually provide
for rate adjustments in the event of interest rate
changes so that the Company's spreads are protected
to a large degree. As the Company's floating rate
finance receivables and loans are currently similar
to its floating and short-term fixed rate (usually 30
The following table summarizes the interest rate sensitivity gap at December 31, 2020:
Floating 0 to 12 1 to 3 4 to 5 Non-rate
(in thousands) rate months years years Thereafter sensitive Total
Assets
Cash
Finance receivables and loans, net
Assets held for sale
All other assets
Liabilities
Due to clients
Bank indebtedness
Loans payable
Notes payable
Convertible debentures
All other liabilities
Equity
$ 4,076 $
— $
5,546
211,845 19,214 116,159 13,119 — (6,314) 354,023
— 1,513 — — — — 1,513
— 1,843 — — — 21,988 23,831
— $ 1,470 $
— $
— $
215,921 22,570 116,159 13,119 — 17,144 384,913
— — — — 2,910 2,910
4,107 207,153 — — (320) 210,940
21,376 — — — — 21,376
1,587 15,847 — — — 17,434
— — 23,509 — — 23,509
— 2,006 510 158 110 12,201 14,985
— — — — 93,759 93,759
27,070 225,006 24,019 158 110 108,550 384,913
$ 188,851 $(202,436) $ 92,140 $ 12,961 $
(110) $ (91,406) $
—
Annual Report 2020
63
total equity and its total equity to total assets. At
December 31, 2020, as a percentage, these ratios
were 291% (December 31, 2019 – 307%) and 24%
(December 31, 2019 – 24%), respectively. The
Company's debt and leverage will usually rise with
an increase in finance receivables and loans and
vice-versa. The Company's share capital is not
subject to external restrictions. However, the
Company's credit facilities include debt to tangible
net worth ("TNW") covenants. Specifically, at
December 31, 2020, the Company is required to
maintain a senior debt to TNW ratio of less than 3.5
on its syndicated bank facility. BondIt, which has
entered into a loan facility with a non-bank lender,
is required to maintain a TNW of at least US$5,000,000.
There were no changes in the Company's approach
to capital management from previous periods.
25. Government grants
During 2020 the Company received $1,053,137
(2019 – nil) under the Canadian Emergency Wage
Subsidy program and $37,085 (2019 – nil) under the
Canadian Emergency Rent Subsidy program. These
grants were offset against their respective payroll
and rent expenses in G&A.
26. Subsequent events
At March 10, 2021, there were no subsequent
events occurring after December 31, 2020 that
required disclosure or adjustments to the financial
statements.
days) borrowings, the Company’s exposure to interest
rate risk is not significant. However, as the Company’s
equipment finance business continues to grow the
Company expects it may deploy interest rate hedges
in the near future where certain bank borrowings or
other debt is matched up with fixed rate term
maturities in our equipment finance businesses.
Based on the Company's interest rate positions as
at December 31, 2020, a sustained 100 basis point
rise in interest rates across all currencies and
maturities would reduce net earnings by
approximately $130,000 over a one-year period. A
decrease of 100 basis points in interest rates would
increase net earnings by a similar extent.
24. Capital disclosure
The Company considers its capital structure to include
equity and debt; namely, its bank indebtedness, loan
payable, notes payable and convertible debentures.
The Company's objectives when managing capital
are to: (a) maintain financial flexibility in order to
preserve its ability to meet financial obligations
and continue as a going concern; (b) maintain a
capital structure that allows the Company to
finance its growth using internally-generated cash
flow and debt capacity; and (c) optimize the use of
its capital to provide an appropriate investment
return to its shareholders commensurate with risk.
The Company's financial strategy is formulated and
adapted according to market conditions in order to
maintain a flexible capital structure that is consistent
with its objectives and the risk characteristics of its
underlying assets. The Company manages its capital
structure and makes adjustments to it in light of
changes in economic conditions and the risk
characteristics of its underlying assets. To maintain
or adjust its capital structure, the Company may,
from time to time, change the amount of dividends
paid to shareholders, return capital to shareholders
by way of normal course issuer bid, issue new shares
or debt, or reduce liquid assets to repay other debt.
The Company monitors the ratio of its debt to
64 Accord Financial Corp.
Corporate Information
Subsidiaries
Bankers
Accord Financial Ltd.
Jim Bates, President
Accord Financial Inc.
Jason Rosenfeld, President
Accord Financial, Inc.
Terry Keating, President
Accord Small Business Finance
James Jang, President
Accord Equipment Finance
Jeff Pfeffer, President
BondIt Media Capital
Matthew Helderman, President
Auditors
KPMG LLP
Legal Counsel
Stikeman Elliott
Bank of Montreal
The Bank of Nova Scotia
Truist Bank
Canadian Imperial Bank of Commerce
HSBC Bank Canada
M&T Bank
The Toronto-Dominion Bank
Stock Exchange Listings
Toronto Stock Exchange Symbols:
Common Shares: ACD
Convertible Debentures: ACD.DB
Registrar & Transfer
Agent
Computershare Trust Company
of Canada
Board of Directors
Ken Hitzig, Toronto, Ontario 2, 3
Simon Hitzig, Toronto, Ontario
David Beutel, Toronto, Ontario 1, 3
Jean Holley, Alpharetta, Georgia 2
Gary Prager, Wake Forest, North Carolina1, 3
Stephen D. Warden, Oakville, Ontario 1, 2
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Credit Committee
Officers
Ken Hitzig, Chairman of the Board
Simon Hitzig, President & CEO
Stuart Adair, Senior Vice President,
Chief Financial Officer
Barrett Carlson, Senior Vice President,
Corporate Development
Irene Eddy, Senior Vice President,
Capital Markets
Cathy Osborne, Senior Vice President,
Human Resources
Eric Starr, Senior Vice President, Program
Operations and Risk
Jim Bates, Secretary
Annual Meeting
A Virtual Annual Meeting of Shareholders will be held on
Wednesday, May 5, 2021 at 4:15 pm
602-40 Eglinton Avenue East • Toronto • Ontario • Canada M4P 3A2
Tel (800) 967-0015 • Fax (416) 961-9443
www.accordfinancial.com
IN CANADA
Toronto (800) 967-0015
Montreal (800) 231-2977
Vancouver (844) 982-3010
IN THE U.S.
(800) 231-2757
www.accordfinancial.com