Unlocking Potential
Annual Report 2021
Unlocking Potential
Small- and medium-sized businesses are the engine of the economy, supporting employment, driving
innovation, and sustaining economic growth. Throughout this challenging period, Accord Financial has
brought every tool in its arsenal to keep the engine running, while the economy moves into 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-four years of experience, Accord knows what it takes to navigate to a competitive advantage; to not only
survive, but 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 gearing up, Accord holds
the key.
Table of Contents
Inside front cover Unlocking Potential
1 Three Year Financial Highlights Summary
2 Letter To Our Shareholders
4 Management’s Discussion and Analysis
28 Appendix to MD&A: Non-IFRS Measures and Ratios
31 Ten Year Financial Summary 2012-2021
32 Management’s Report to the Shareholders
33 Independent Auditors’ Report to the Shareholders
38 Consolidated Statements of Financial Position
39 Consolidated Statements of Earnings
39 Consolidated Statements of Comprehensive Income (Loss)
40 Consolidated Statements of Changes in Equity
41 Consolidated Statements of Cash Flows
42 Notes to Consolidated Financial Statements
Inside back cover Corporate Information
Financing Solutions for Unlocking Client Potential
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.
Factoring
Accord has been factoring small- and medium-sized
companies for more than forty years. Factoring – buying
clients’ accounts receivable – accelerates cash flow by
unlocking the value of receivables for cash. In addition
to improving liquidity, factoring also saves management
time often tied up with cash flow planning, credit
analysis and collections. Our experienced team has
worked with companies in virtually every industry,
which allows us to provide quick credit approvals for
companies in transition or shifting into growth mode.
Small Business Finance
Accord provides a variety of financing solutions for
Canadian small businesses, including equipment
leasing and flexible working capital facilities. Under the
AccordExpress banner, we offer a range of innovative
programs designed with a streamlined approval process
and fast funding. These programs deliver up to $250,000
of working capital, and up to $1 million when backed by
receivables or equipment collateral, all with flexible
terms designed to spur growth in 2022.
Equipment Financing
Accord finances equipment for small and middle market
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 capex 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.
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 provided debt financing to nearly 400 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.
International Trade Services
Since 1978, Accord has been a leader in cross-border trade
services. Our alliance with Factors Chain International
provides North American credit and collection services
to a network of more than 265 banks and trade firms in
75 countries worldwide. Our expert knowledge of U.S.
and Canadian buyers allows foreign banks to finance
clients’ export receivables while minimizing collection risk.
Ten Year Financial Highlights
70
60
50
40
30
20
0
4
.
1
3
7
1
0
2
9
.
6
4
8
1
0
2
2
.
6
5
9
1
0
2
5
.
8
4
0
2
0
2
5
.
3
6
1
2
0
2
150
120
90
60
30
0
2
7
7
1
0
2
4
2
1
8
1
0
2
6 5
7
9
1
0
2
0
2
0
2
9
3
1
1
2
0
2
12
10
8
6
4
2
0
1
0
.
6
7
1
0
2
6
3
.
0
1
8
1
0
2
4
4
.
6
9
1
0
2
2
4
.
0
0
2
0
2
9
8
.
1
1
1
2
0
2
Revenue
(in millions of dollars)
Revenue rose by 31% to a
record $63.5 million in 2021
from $48.5 million in 2020.
Diluted Earnings per
Share
2021 diluted earnings per share
were a record $1.39 compared
to 5 cents in 2020. 2021 adjusted
diluted EPS were a record $1.53
compared to 24 cents in 2020.
Net Earnings
(in millions of dollars)
Net earnings increased to a
record $11.89 million in 2021
from $0.42 million in 2020.
Adjusted net earnings in 2021
were a record $13.1 million.
100
80
60
40
20
0
4
.
6
7
7
1
0
2
9
.
9
8
8
1
0
2
5
.
2
9
9
1
0
2
9
.
9
8
0
2
0
2
0
.
0
0
1
1
2
0
2
12
10
8
6
4
2
0
0
2
.
9
7
1
0
2
9
0
.
9
8
1
0
2
7
0
.
0
1
9
1
0
2
0
7
.
6
0
2
0
2
0
4
.
8
1
2
0
2
16
14
12
10
8
6
4
2
0
0
.
8
7
1
0
2
8
.
2
1
8
1
0
2
1
.
7
9
1
0
2
5
.
0
0
2
0
2
6
.
2
1
1
2
0
2
Shareholders’ Equity
(in millions of dollars)
Shareholders’ equity increased
to a record $100 million at
December 31, 2021. Book value
per share was also a record
$11.68 at December 31, 2021.
Share Price
(at close on December 31)
Accord’s share price (TSX: ACD)
closed 2021 at $8.40.
Return on Average
Equity
(as a percent per annum of average
equity)
Return on average equity
increased to 12.6% in 2021
from 0.5% in 2020.
Three Year Financial Highlights Summary
Operating Data
Years ended December 31
(in thousands of dollars except where indicated) 2021 2020 2019
Revenue $ 63,480 $ 48,501 $ 56,175
Net earnings attributable to shareholders 11,887 417 6,444
Adjusted net earnings 13,068 2,032 4,939
Return on average equity 12.6% 0.5% 7.1%
Adjusted return on average equity 13.8% 2.2% 5.4%
Financial Position Data
At December 31
(in thousands of dollars)
Average funds employed (during the year) $ 402,015 $ 347,493 $ 378,243
Total assets 520,109 384,913 406,214
Shareholders' equity 99,967 89,850 92,515
Common Share Data
(per common share)
Earnings per share - basic and diluted $ 1.39 $ 0.05 $ 0.76
Adjusted earnings per share - basic and diluted 1.53 0.24 0.58
Dividends paid 0.20 0.24 0.36
Share price - high 9.20 10.15 10.42
- low 6.23 3.51 8.37
- close at December 31 8.40 6.70 10.07
Book value per share at December 31 11.68 10.50 10.77
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, Management’s Discussion and Analysis and elsewhere in this annual report are summarized on pages 4, 5 and 6 of
this Annual Report, as well as set out in detail on pages 28 to 30. 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 the above noted pages.
Annual Report 2021 1
Letter to Our Shareholders
Accord turned in a record performance in 2021 across every key metric, putting the Company squarely
back on its pre-pandemic growth and earnings trajectory. Driven by loan portfolio growth, improving
yields and non-interest income, revenue for the year hit an all-time high of $63.5 million, up 31% over
2020. Net earnings, which were slightly above breakeven in 2020, surged to $11.9 million. Earnings per
share (“EPS”) of $1.39 was also a record, exceeding Accord’s previous best of $1.24 in 2018. Adjusted
net earnings, which comprises net earnings attributable to shareholders before non-operating stock-
based compensation, restructuring expenses and business acquisition expenses (namely business
transaction costs and amortization of intangibles), increased to a record $13.1 million in 2021 compared
to last year’s $2.0 million. Adjusted EPS were a record $1.53 in 2021, substantially higher than the
$0.24 earned in 2020. With the economy rebounding, we continue to capitalize on innovative product
development, deep market presence and financial strength, and look forward to accelerating into 2022.
Strong net earnings were driven by continued growth of
wave of demand for streaming video entertainment.
Accord’s overall loan portfolio. Total funds employed
While these divisions are seeing unprecedented success,
(finance receivables and loans) at December 31, 2021
the new business pipelines across our asset-based and
reached an all time high of $478 million, up 33% from
equipment finance divisions are starting to build. As the
$360 million last year-end. Average funds employed for
economy continues to strengthen in select sectors,
the year were $402 million compared with $347 million
we’re ready to shift gears as necessary to maintain
last year. Shareholders’ equity reached $100 million at
the momentum.
December 31, 2021 compared to $90 million at December 31,
2020. Book value per share continues to climb, reaching
Portfolio growth and earnings are benefiting from a shift
$11.68 versus $10.50 a year ago.
in Accord’s portfolio mix, which over the past year has
favored higher yielding segments, including small business
Portfolio growth this year was led by the outstanding
and media finance. In Canada, Accord’s unique Export
performance of two of Accord’s divisions: Accord Small
Development Canada-supported loan program continues
Business Finance in Canada and BondIt Media Capital
to shine, supporting small businesses as they invest in
(“BondIt”) in the U.S. Accord’s diversification across five
reopening and a return to growth. In the U.S., BondIt
core lending divisions means that we’re positioned to steer
continues to grow market share, as we are perfectly
financing to wherever in the economy it’s needed most.
positioned to profit from the long-term secular growth
In the past year we’ve boosted support to the small business
of video on demand, supplied to blue chip buyers like
sector, and successfully financed content serving the tidal
Lion’s Gate and Netflix.
2 Accord Financial Corp.
Simon Hitzig
Accord’s “headline” metrics – portfolio growth, revenue,
compared to 1.8% at the same time last year. This reduction
earnings – are easy to track, and clearly headed in the
in the allowance reflects the improvement in credit
right direction. Just below the surface, several other key
standing across the loan portfolio as well as the more
metrics are forming an inflection point.
stable business environment we’re now operating in.
First is operating efficiency. Accord’s general and
Accord’s record funds employed at year-end set us up for
administrative expenses, as a percentage of total revenues,
a strong start to 2022. And steady improvement of operating
provides a measure of how efficient we are at managing
efficiency, diversification and credit quality underpin the
a growing business. Better operating efficiency means we
foundation, adding an element of strength and stability as
convert a greater percentage of revenue to shareholder
we look forward to continued success in the coming years.
earnings as the portfolio grows. Five years ago, in 2016,
we spent 62% of revenue on overhead. In 2021 that number
Since emerging from the economic shutdown in the
dropped to 51%. With a robust platform in place, the
summer of 2020, Accord has reported six straight quarters
next phase of growth will become increasingly profitable.
of strong financial performance. With earnings now well
Second is portfolio diversification. At the end of the year,
Company paid a dividend of $0.075 per common share,
Accord’s portfolio represented hundreds of small and
representing a 50% increase from the $0.05 per share
medium-sized clients, well diversified by:
paid in recent quarters.
above pre-pandemic levels, on March 1, 2022, the
• geography: 51% Canada, 49% U.S.
• industry: every sector represented, with manufacturing
the highest allocation at 21%
• product: 23% working capital loans, 33% ABL (incl.
Simon Hitzig
factoring), 27% equipment finance, 17% media finance
President and Chief Executive Officer
March 21, 2022
Third is portfolio quality. With the worst of the economic
crisis behind us, Accord’s allowance for expected losses
(an estimate of potential future loan losses), has returned
to more normal levels. The allowance at December 31,
2021 was $5.3 million, compared to $6.3 million at the
same time last year (even with a larger portfolio). In
percentage terms this stands at 1.1% of the portfolio,
Annual Report 2021
3
Management’s Discussion & Analysis of Results
of Operations and Financial Condition (“MD&A”)
Year ended December 31, 2021 compared with year ended December 31, 2020
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
Earnings (loss) 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)
2021
402
63,480
14,949
11,887
13,068
1.39
1.53
2020
$ 347
48,501
(4,062)
417
2,032
0.05
0.24
Book value per share (December 31)
$
11.68
$ 10.50
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, 2021
compared with the year ended December 31, 2020 and, where presented, the year ended December 31,
2019. 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 21,
2022, should be read in conjunction with the Company’s
2021 audited consolidated financial statements (the
“Statements”) and notes thereto, the Ten Year Financial
Summary (see page 31) and the Letter to Our Shareholders,
all of which form part of this 2021 Annual Report.
All amounts discussed in this MD&A are expressed in
Canadian dollars unless otherwise stated and have been
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.
4 Accord Financial Corp.
NON-IFRS FINANCIAL MEASURES AND
RATIOS
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
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 2021 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, as shown on the Company’s
balance sheet, calculated on a month-by-month
basis 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
Stuart Adair
costs and amortization of intangibles) and
restructuring expenses. The Company considers these
terms 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 (see note 17 to the
Statements), 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, as shown on the Company’s
balance sheet, 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, or shareholders’ equity, 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 on a month-by-month basis,
over a particular period.
v) Profitability, yield and efficiency ratios –
Table 1 on page 9 presents certain profitability
measures. In addition to ROE and adjusted ROE,
net revenue (revenue minus interest expense)
Annual Report 2021
5
RESULTS OF OPERATIONS
2021 2020
Years ended December 31 % of % of % change from
(in thousands unless otherwise stated) Actual Revenue Actual Revenue 2020 to 2021
Average funds employed (millions) $ 402 $ 347 16%
Revenue
Interest income $ 51,897 81.8% $ 42,705 88.0% 22%
Other income 11,583 18.2% 5,796 12.0% 100%
63,480 100.0% 48,501 100.0% 31%
Expenses
Interest 15,887 25.0% 14,596 30.1% 9%
General and administrative 31,455 49.6% 26,458 54.6% 19%
(Recovery of) provision for credit and
loan losses (614) -1.0% 9,403 19.4% -107%
Impairment of assets held for sale 873 1.4% 1,087 2.2% -20%
Depreciation 695 1.2% 721 1.5% —
Business acquisition expenses:
Transaction and integration costs 94 0.1% — — n/m
Amortization of intangible assets 141 0.2% 298 0.6% -53%
48,531 76.5% 52,563 108.4% -8%
Earnings (loss) before income taxes 14,949 23.5% (4,062) -8.4% 368%
Income tax expense (recovery) 1,727 2.7% (4,670) -9.6% 137%
Net earnings 13,222 20.8% 608 1.2% 2,075%
Net earnings attributable to non-controlling
interests in subsidiaries 1,335 2.1% 191 0.4% 599%
Net earnings attributable to shareholders $ 11,887 18.7% $ 417 0.8% 2,751%
Adjusted net earnings $ 13,068 20.6% $ 2,032 4.2% 543%
Earnings per common share* $ 1.39 $ 0.05 2,680%
Adjusted earnings per common share* $ 1.53 $ 0.24 538%
* basic and diluted
n/m - not meaningful
expressed as a percentage of average assets, and
operating expenses comprising and administrative
expenses (“G&A”) and depreciation expressed as a
percentage of average assets is shown, as is operating
expenses as a percentage of revenue, which is also
referred to as the efficiency ratio. 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;
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, loans 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
vi) Financial condition and leverage ratios –
Table 2 on page 13 presents the following percentages:
(i) total equity expressed as a percentage of total
information on the quality of the Company's total
portfolio, namely, its finance receivables and loans
and managed receivables. It presents the Company’s
vii) Credit quality – Table 3 on page 15 presents
6 Accord Financial Corp.
year-end allowances for expected 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 calculations of the above noted non-IFRS
financial measures and ratios for the last 5 years are
set out in the Appendix to this MD&A on pages 28
to 30 of this 2021 Annual Report.
ACCORD’S BUSINESS
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, equipment and
trade finance, working capital finance, as well as 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 24(a) to the Statements.
The Company, founded in 1978, operates six finance
businesses in North America, namely, Accord Financial
Inc. (“AFIC”), Accord Financial Canada Corp. (“AFCC”)
and Accord Financial Ltd. (“AFL”) 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 AFCC. AFCC also provides
working capital financing to small businesses through
its Accord Small Business Finance (“ASBF”) subsidiary;
(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.
SELECTED ANNUAL INFORMATION
(audited, in thousands of dollars, except per share data)
2021 2020 2019
Revenue $ 63,480 $ 48,501 $ 56,175
Net earnings attributable
to shareholders 11,887 417 6,444
Basic and diluted
earnings per share 1.39 0.05 0.76
Dividends per share 0.20 0.24 0.36
Total assets 520,109 384,913 406,214
Long-term financial
liabilities 86,496 23,510 35,077
RESULTS OF OPERATIONS
Year ended December 31, 2021 compared with year
ended December 31, 2020
Shareholders’ net earnings in 2021 were a record
$11,887,000 compared to the $417,000 earned in 2020 and
the $6,444,000 earned in 2019. Shareholders’ net earnings
compared to 2020 and 2019 rose mainly as a result of
higher revenue and a lower provision for losses. Basic
and diluted earnings per common share (“EPS”) rose to
a record $1.39 compared to the 5 cents earned last year
and the 76 cents earned in 2019. The Company’s ROE
increased to 12.6% in 2021 compared to 0.5% last year
and 7.1% in 2019.
Adjusted net earnings increased to a record $13,068,000
in 2021 compared to last year’s $2,032,000 and were
significantly higher than 2019’s $4,939,000. Adjusted EPS
were a record $1.53 in 2021, substantially higher than
the 24 cents earned in 2020 and the 58 cents earned in
2019. Adjusted ROE was 13.8% in 2021 compared to 2.2%
in 2020 and 5.4% in 2019. Please refer to the Appendix
to the MD&A regarding these non-IFRS measures.
Revenue rose by 31% or $14,979,000 to a record
$63,480,000 in 2021 compared to $48,501,000 in 2020
and was $7,305,000 or 13% higher than the $56,175,000
in 2019. Interest income rose by $9,192,000 or 22% to
$51,897,000 in 2021 compared to $42,705,000 in 2020
Annual Report 2021
7
on a 16% increase in average funds employed and a 5%
rise in average loan yields. Yields rose on an increased
proportion of higher yielding funds employed at AFCC
and BondIt. Other income rose by $5,787,000 or 100%
to $11,583,000 compared to 2020 mainly due to increased
origination and set up fees. Average funds employed in
2021 increased to $402 million compared to $347 million
last year and were 6% higher than the $378 million in 2019.
Total expenses decreased by $4,032,000 or 8% to
$48,531,000 compared to $52,563,000 in 2020. The
provision for credit and loan losses, impairment of
assets held for sale, business acquisition expenses and
depreciation declined by $10,017,000, $214,000, $63,000
and $26,000, respectively. G&A and interest expense
increased by $4,997,000 and $1,291,000, respectively.
Interest expense rose by 9% to $15,887,000 in 2021 from
$14,596,000 last year on 14% higher average borrowings
partly offset by reduced average interest rates and
bank fees.
G&A comprise personnel costs, which represent the
majority of the Company’s costs, occupancy costs,
commissions to third parties, marketing expenses,
professional fees, data processing, information technology
expenses and general overheads. G&A increased by
$4,997,000 mainly due to higher information technology
expenses resulting from the Company’s digital
transformation and costs associated with the generation
of new business related to the substantial growth of
the Company’s recently introduced working capital loan
program, AccordExpress, which was successfully rolled
out at the end of 2020. In 2021, restructuring expenses
totalling $1,253,000 (2020 – $1,890,000) were incurred
relating to staff terminations. However, personnel costs
overall remained unchanged in 2021. In 2021, the
Company received $250,000 (2020 – $1,053,000) under
the Canadian Emergency Wage Subsidy (“CEWS”) and
$75,000 (2020 – $37,000) under the Canadian Emergency
Rent Subsidy (“CERS”) programs (see note 26 to the
Statements). The Company did not claim any government
20
16
12
8
4
0
-1.0
3
.
9
3
.
4
7
1
0
2
8
1
0
2
7
.
2
1
9
1
0
2
4
.
9
1
0
2
0
2
0
.
1
–
1
2
0
2
(Recovery of) Provision for
Credit and Loan Losses
(as a percentage of revenue)
There was a recovery of credit and loan
losses equivalent to 1% of revenue in 2021
compared to a provision of 19% last year.
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
-1.0
0
9
.
2
7
1
0
2
2
0
.
2
8
1
0
2
0
1
.
7
9
1
0
2
0
4
.
9
0
2
0
2
1
6
.
0
–
1
2
0
2
(Recovery of) Provision for
Credit and Loan Losses
(in millions of dollars)
There was a recovery of credit and loan
losses of $0.6 million in 2021 compared to
a provision of $9.4 million in 2020.
8 Accord Financial Corp.
subsidies after June 5, 2021. The Company continues to
manage its controllable expenses closely.
There was a recovery of credit and loan losses of
$614,000 in 2021 compared to a provision of $9,403,000
last year. The recovery/provision comprised:
Years ended Dec. 31
(in thousands)
Net write-offs
Reserves (recovery) expense related to
change in total allowances for losses
2021
2020
$
938
$ 6,872
(1,552)
2,531
$ (614) $ 9,403
The recovery of credit and loan losses as a percentage of
revenue declined to negative 1.0% in 2021 from a provision
for credit and loan losses of 19.4% of revenue in 2020.
Net write-offs decreased by $5,934,000 to $938,000 in
2021 compared to $6,872,000 in the prior year. Last year’s
significant provision for losses in large part resulted
from the adverse economic impact of Covid-19. The
non-cash reserves decreased by $4,083,000 to a recovery
of $1,552,000 in 2021 compared to an expense of
$2,531,000 last year mainly as a result of the improved
economic environment in both Canada and U.S. which
resulted in the release of certain allowances for expected
losses despite funds employed growing by $118 million
in 2021. The Company’s allowances for expected losses
and its portfolio 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 and/or one-off losses.
Impairment charges of $873,000 (2020 - $1,087,000)
were taken during 2021 against certain assets held for
sale to write them down to their estimated net recoverable
value, which was based on actual realizations from the
sale of the assets. Realizations were likely adversely
impacted by the severe economic conditions resulting
from Covid-19. See note 6 to the Statements.
Depreciation expense decreased by $26,000 to $695,000
in 2021. Depreciation of $466,000 (2020 – $448,000) was
70
60
50
40
30
20
10
0
5
.
4
5
7
1
0
2
7
.
0
5
8
1
0
2
9
.
7
4
9
1
0
2
1
.
6
5
0
2
0
2
6
.
0
5
1
2
0
2
Operating Expenses
(Efficiency Ratio)
(G&A and depreciation as a percentage of revenue)
The efficiency ratio declined to 50.6% of
revenue in 2021 from 56.1% last year.
charged against the right-of-use assets in 2021, while
the balance related to capital assets.
Business acquisition expenses in 2021 totalled $235,000
(2020 – $298,000). Transaction costs of $94,000 (2020 – $nil)
were incurred, while the amortization of intangible assets
related to AFCC and AEF totalled $141,000 (2020 – $298,000).
Income tax rose by $6,397,000 to an expense of $1,727,000
compared to a recovery of $4,670,000 in 2020. Income
tax rose on a $18 million increase in the Company’s
share of pre-tax earnings. The Company’s effective tax
rate was 12.7%.
TABLE 1 – PROFITABILITY, YIELD AND
EFFICIENCY RATIOS
(as a percentage) 2021 2020 2019
Return on average equity 12.6 0.5 7.1
Adjusted return on average equity 13.8 2.2 5.4
Net revenue / average assets 11.0 8.8 9.6
Operating expenses* / average assets 7.5 7.1 6.6
Operating expenses* / revenue 50.6 56.1 47.9
* G&A and depreciation
Annual Report 2021
9
Table 1 highlights the Company’s profitability in terms
of returns on its average assets and equity. In 2021,
the return on average assets, ROE and adjusted ROE,
expressed in percentages, rose to 2.8%, 12.6% and 13.8%,
respectively, as earnings increased. Net revenue as a
percentage of average assets rose to 11.0% compared
to 8.8% in 2020. G&A as a percentage of average assets
increased to 7.5% in 2021 compared with 7.1% last year,
while operating expenses as a percentage of revenue,
the efficiency ratio, declined to 50.6% in 2021.
Canadian operations reported a substantial increase in
shareholders’ net earnings in 2021 compared to 2020
(see note 22 to the Statements). Shareholders’ net earnings
rose by $10,911,000 to $3,677,000 compared to a net
loss of $7,234,000 last year. Revenue increased by
$11,933,000 or 57% to $33,010,000. Expenses decreased
by $2,237,000 to $28,114,000. The provision for credit
and loan losses declined by $5,439,000 to $234,000,
while interest expense, business acquisition expenses
and depreciation declined by $1,078,000, $148,000 and
$1,000, respectively. G&A increased by $4,288,000, while
the impairment of assets held for sale rose by $141,000.
Income tax increased by $3,259,000 to an expense of
$1,219,000 on a $14,170,000 increase in pre-tax earnings.
U.S. operations reported a 7% increase in shareholders’
net earnings compared to 2020 (see note 22 to the
Statements). Shareholders’ net earnings rose by
$559,000 to $8,210,000 compared to $7,651,000 last year.
Revenue increased by $3,029,000 or 11% to $30,932,000.
Expenses decreased by $1,812,000 to $20,879,000. The
provision for credit and loan losses declined by $4,578,000
to a recovery of $848,000, while the impairment of assets
held for sale and depreciation decreased by $355,000
and $25,000, respectively. Interest expense, G&A and
business acquisition expenses increased by $2,352,000,
$709,000 and $85,000, respectively. Income tax increased
by $3,138,000 to an expense of $508,000. Net earnings
attributable to non-controlling interests in subsidiaries
totalled $1,335,000 compared to $191,000 in 2020.
Fourth Quarter 2021
Quarter ended December 31, 2021 compared to quarter
ended December 31, 2020
Shareholders’ net earnings for the quarter ended
December 31, 2021 increased by 158% or $2,189,000 to
$3,573,000 compared to $1,384,000 last year. Shareholders’
net earnings increased mainly as a result of higher
revenue and a lower provision for loan losses. Basic and
diluted EPS were 42 cents compared to 16 cents in the
fourth quarter of 2020.
Adjusted net earnings rose 111% to $4,423,000 in the
fourth quarter of 2021 compared to $2,095,000 last year.
Adjusted EPS were 52 cents compared to 24 cents in
2020. Please refer to the Appendix to the MD&A regarding
these non-IFRS measures.
Revenue rose by $5,562,000 or 43% to $18,465,000 in
the current quarter compared to $12,903,000 in the
fourth quarter of 2020. Interest income rose by $3,196,000
or 29% to $14,221,000 compared to $11,025,000 in the
fourth quarter of 2020 on a 28% increase in average
funds employed and a small rise in average loan yields.
Other income rose by $2,366,000 to $4,244,000 in the
current quarter compared to $1,878,000 in 2020 for reasons
stated above. Average funds employed in the fourth
quarter of 2021 increased to $460 million compared to
$360 million last year.
Total expenses in the fourth quarter of 2021 rose by
$1,842,000 to $13,598,000 compared to $11,756,000 last
year. G&A and interest expense increased by $1,714,000
and $1,142,000, respectively. The provision for credit
and loan losses, impairment of assets held for sale,
business acquisition expenses (transaction costs and
amortization of intangibles) and depreciation declined
by $770,000, $190,000, $41,000 and $13,000, respectively.
Interest expense rose by 31% to $4,780,000 in the fourth
quarter of 2021 from $3,637,000 last year on 34% higher
average borrowings.
1 0 Accord Financial Corp.
SUMMARY OF QUARTERLY RESULTS
Quarters ended 2021 2020
(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) $ 460 $ 414 $ 376 $ 358 $ 360 $ 327 $ 341 $ 362
Revenue
Interest and other income $ 18,465 $ 16,119 $ 15,416 $ 13,480 $ 12,903 $ 12,312 $ 11,270 $ 12,015
Expenses
Interest 4,779 4,216 3,605 3,286 3,637 3,379 3,575 4,005
General and administrative 8,895 8,197 7,294 7,069 7,181 5,760 6,569 6,948
(Recovery of) provision for credit and
loan losses (274) 336 220 (896) 495 3,040 (2,955) 8,822
Impairment of assets held for sale — 21 — 852 190 — — 897
Depreciation 166 185 178 166 179 180 184 179
Business acquisition expenses 32 32 102 69 74 74 75 74
13,598 12,987 11,399 10,546 11,756 12,433 7,448 20,925
Earnings (loss) before income tax 4,867 3,132 4,017 2,934 1,147 (121) 3,822 (8,910)
Income tax expense (recovery) 946 273 426 82 (222) (687) (905) (2,856)
Net earnings (loss) 3,921 2,859 3,591 2,852 1,369 566 4,727 (6,054)
Non-controlling interests in net earnings (loss) 348 216 506 267 (15) — 384 (178)
Net earnings (loss) attributable to
shareholders $ 3,573 $ 2,643 $ 3,085 $ 2,585 $ 1,384 $ 566 $ 4,343 $ (5,876)
Adjusted net earnings (loss) $ 4,423 $ 2,801 $ 3,161 $ 2,683 $ 2,095 $ 621 $ 4,730 $ (5,414)
Earnings (loss) per common share ** (cents) 42 31 36 30 16 7 51 (69)
Adjusted net earnings (loss) per common
share** (cents) 52 33 37 31 24 7 55 (63)
* Due to rounding the total of the four quarters may not agree with the reported total for a fiscal year.
** Basic and diluted
G&A increased by $1,714,000 to $8,895,000. As noted
above, G&A increased mainly due to higher information
technology expenses and increased costs related to the
substantial growth of the AccordExpress product. In the
fourth quarter of 2021, restructuring expenses totalling
$968,000 (2020 – $894,000) were incurred relating to
staff terminations. The Company did not receive any
government subsidies during the fourth quarter of 2021.
In the fourth quarter of 2020, the Company received
CEWS of $151,000 and CERS of $37,000. The Company
continues to manage its controllable expenses closely.
Quarters ended Dec. 31
(in thousands)
Net write-offs
Reserves recovery related to decrease in
total allowances for expected losses
2021
2020
337
$ 1,965
(611)
(1,470)
(274) $ 495
$
$
There were net write-offs of $337,000 in the current
quarter compared to $1,965,000 last year, while there was
a non-cash reserves recovery of $611,000 compared
to a recovery of $1,470,000 last year. The Company’s
allowances for expected losses and its portfolio are
discussed in detail below and also in the Statements.
There was a recovery of credit and loan losses of
$274,000 in the fourth quarter of 2021 compared to an
expense of $495,000 last year. The provision comprised:
There was no impairment charge taken in the fourth
quarter of 2021. In 2020, an impairment charge of $190,000
Annual Report 2021
11
was taken against certain assets held for sale to write
them down to their estimated net recoverable value.
REVIEW OF FINANCIAL POSITION
Depreciation expense decreased by $13,000 to $166,000
in the fourth quarter of 2021. Depreciation of $124,000
(2020 – $108,000) was charged on the right-of-use assets
in the current quarter, with the balance relating to
capital assets.
Business acquisition expenses totalled $32,000 (2020 –
$74,000) in the fourth quarter and solely comprised the
amortization of intangible assets relating to AEF.
Income tax rose by $1,168,000 to an expense of $946,000
in the current quarter compared to a recovery of $222,000
in the fourth quarter of 2020 as the Company’s share of
pre-tax earnings increased by $3,357,000. The Company’s
effective tax rate was 20.9%.
Shareholders’ equity at December 31, 2021 was
$99,967,000, 11% higher than the $89,850,000 at
December 31, 2020. The increase in shareholders’ equity
in 2021 mainly resulted from increased retained earnings.
Book value per common share was at a record $11.68 at
December 31, 2021 compared to $10.50 at December 31,
2020. Please see the consolidated statements of changes
in equity on page 40 of this Annual Report.
Total assets rose by 35% to $520,109,000 at December 31,
2021 compared to $384,913,000 at December 31, 2020.
Total assets largely comprised Loans (funds employed).
Excluding inter-company loans, identifiable assets
located in the United States were 49% of total assets at
December 31, 2021 compared to 61% at December 31,
2020 (see note 22 to the Statements).
12
10
8
6
4
2
0
0
2
.
9
7
1
0
2
6
6
.
0
1
8
1
0
2
7
7
.
0
1
9
1
0
2
0
5
.
0
1
0
2
0
2
8
6
.
1
1
1
2
0
2
500
400
350
300
250
200
150
100
50
0
4
7
2
7
1
0
2
9
7
3
8
1
0
2
0
0
4
9
1
0
2
9
7
3
0
2
0
2
9
8
4
1
2
0
2
Book Value per Share
(in dollars)
Book value per share was a record high
$11.68 at December 31, 2021 compared to
$10.50 at December 30, 2020.
Total Portfolio
Loans and managed receivables
(in millions of dollars)
The Company's total portfolio rose to a
record $490 million at December 31, 2021
from $379 million last year-end.
1 2 Accord Financial Corp.
TABLE 2 – FINANCIAL CONDITION AND
LEVERAGE
(as a percentage) 2021 2020 2019
Tangible equity / assets 16 20 20
Equity / assets 20 24 24
Debt* / total equity 382 291 307
(in thousands)
Receivables and loans
Loans $ 478,150 $ 360,337 $ 373,157
Managed receivables 11,441 18,523 27,338
Total Portfolio $ 489,591 $ 378,860 $ 400,495
* Bank indebtedness, loans payable, notes payable and convertible debentures
Gross finance receivables and loans (also referred to as
Loans or funds employed), before the allowance for
expected losses thereon, increased by 33% to a record
high $478,150,000 at December 31, 2021 compared to
$360,337,000 at December 31, 2020. As detailed in the
Statements, the Company’s Loans comprised:
(in thousands) Dec. 31, 2021 Dec. 31, 2020
Working capital loans $ 109,518 $ 7,495
Receivable loans 105,550 100,858
Other loans* 101,811 105,324
Media loans 81,497 36,915
Lease receivables 79,774 109,745
Finance receivables and loans,
gross 478,150 360,337
Less allowance for expected losses 5,251 6,314
Finance receivables and loans, net $ 472,899 $ 354,023
* Other loans principally comprise inventory and equipment loans
$79,774,000 at December 31, 2021 compared to
$109,745,000 at December 31, 2020. Net of the allowance
for expected losses thereon, Loans increased by 34% to
$472,899,000 at December 31, 2021 compared to
$354,023,000 at December 31, 2020. 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
AFCC’s and AEF’s lease receivables and equipment and
working capital loans to approximately 820 clients and
BondIt’s media finance loans to approximately 65 media
productions. The largest client in a well diversified loan
portfolio comprised 4% 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 $11 million at December 31,
2021 compared to $19 million at December 31, 2020.
The Company made the decision to downsize its credit
protection and receivables management operations in
the past year. Most of the clients’ customers for which
the Company assumes the credit risk are from the
wholesale and distribution, and retail industries in
North America. The Company monitors the credit risk
related to its managed receivables very closely.
Working capital loans, primarily AccordExpress loans,
increased significantly to $109,518,000 at December 31,
2021 (2020 – $7,495,000) as AccordExpress rolled out
successfully in 2021. The Company’s receivable loans
increased by 5% to $105,550,000 at December 31, 2021
compared to $100,858,000 at December 31, 2020. Other
loans, which primarily comprise advances against
assets such as inventory and equipment, declined to
$101,811,000 at December 31, 2021 compared to
$105,324,000 at December 31, 2020. Media finance loans
by BondIt rose 121% to $81,497,000 (2020 – $36,915,000).
Lease receivables, representing AFCC’s and AEF’s net
investment in equipment leases, declined by 27% to
The Company’s total portfolio, which comprises both
gross Loans and managed receivables, as detailed
above, rose by 29% to $490 million at December 31,
2021 compared to $379 million at December 31, 2020.
As described in note 24(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, equipment and media productions. The
Company, through ASBF, a subsidiary of AFCC, also
provides working capital term loans. Credit in the
Company’s six operating businesses is approved by a
Annual Report 2021
13
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 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 on-
going 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. AFCC’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
AFCC has a “revolving” equipment loan product which
has no fixed repayment terms and can be repaid at any
time. None of the managed receivables that the Company
guarantees payment were past due more than 60 days at
December 31, 2021. 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 uses a credit risk rating system for assessing
obligor and transaction risk for finance receivables and
loan exposures. Risk rating models use internal and
external data to assess and rate borrowers, predict future
performance and manage limits for existing loans and
collection activities. The credit rating of the borrower is
used to assess the predicted credit risk for each initial
credit approval or significant account management action.
In case of the Company’s 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 5 to the Statements which
presents tables summarizing the Company's finance
receivables and loans, and managed receivables, by
their internal credit risk rating (low risk, medium risk,
high risk) and also by the three stage credit criteria of
IFRS 9, Financial Instruments (“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 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, 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 small business finance operations, AFCC,
security deposits are usually obtained in respect of
equipment leases or loans, while AccordExpress working
capital loans have a very strong financial guarantor
backing them.
As detailed in note 5 to the Statements, the Company
had past due finance receivables and loans of $23,879,000
1 4 Accord Financial Corp.
at December 31, 2021, of which $13,815,000 related to
BondIt, the Company's media finance subsidiary,
$9,962,000 related to AFCC and $102,000 to AEF.
Repayment of BondIt's loans are often delayed for
non-credit related reasons such as production delays.
Of the AFCC loans past due, $61,000 are considered to
have had a SICR, while the balance is less than 30 days
past due and not considered to have had a SICR.
At December 31, 2021, the Company had impaired finance
receivables and loans of $1,696,000 which represented
0.4% of total funds employed. 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
$1,639,000 at December 31, 2021. 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 24(a) to the
Statements provides details of the Company’s credit
exposure by industrial sector.
TABLE 3 – CREDIT QUALITY
(as a percentage) 2021 2020 2019
Reserves* / portfolio 1.1 1.7 1.1
Reserves* / net write-offs and
impairment charges** 241 73 77
Net write-offs and impairment
charges / revenue 3.5 13.1 10.6
*Reserves comprise the total of the allowance for expected losses on Loans
and on the guarantee of managed receivables.
** Net write-offs against Loans and impairment charges on assets held
for sale.
Table 3 highlights the credit quality of the Company’s
total portfolio, both Loans and managed receivables.
In 2021 there was a net recovery of $15,000 on the
Company’s managed receivables compared to net
write-offs of $1,705,000 in 2020. Net write-offs in the
Company’s lending businesses decreased to $953,000
in 2021 compared to $5,167,000 last year. In addition,
impairment charges against assets held for sale in 2021
totalled $873,000 (2020 – $1,087,000). Overall, the
Company’s total net write-offs and impairment charges
in 2021, as set out in the Results of Operations section
above, declined to $1,811,000 compared with $7,959,000
in 2020. 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 expected losses on both its Loans and its guarantee of
managed receivables, at amounts which, in management’s
judgment, are sufficient to cover expected losses thereon.
The Company’s allowance for expected losses on Loans,
calculated under the ECL criteria of IFRS 9, totalled
$5,251,000 at December 31, 2021 compared to $6,314,000
at December 31, 2020. This represents management’s
best estimate of its allowance for expected loan losses
based on information available at those dates. The
economic impacts of Covid-19 continue to affect the
Company’s loan portfolio to varying degrees and the
measurement of the allowance could fluctuate
substantially in future periods. See also discussion
on loan modifications in note 5 to the Statements. The
modifications principally related to temporary over
advances or payment deferrals to accounts totalling
$5.3 million that were otherwise in good standing at
December 31, 2021. The allowance for expected losses on
the guarantee of managed receivables totalled $31,000 at
December 31, 2021 compared to $555,000 at December 31,
2020. The significant decrease in the allowance for
expected losses on the guarantee of managed receivables
at December 31, 2021 resulted from the reduction in the
managed receivables and significant improvement in
their risk profile. This allowance represents the fair value
Annual Report 2021
15
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
expected losses accounts in 2021 and 2020 is set out in
note 5 to the Statements. Management considers the
estimates of both allowances for expected losses to be
reasonable and supportable.
Assets held for sale, stated at their NRV, totalled $160,000
at December 31, 2021 (2020 - $1,514,000) and comprised
certain assets securing defaulted finance receivables
and loans from a number of clients and repossessed
long-lived assets. The decrease compared to December 31,
2020 resulted from asset disposals totalling $623,000
and impairment charges of $873,000. Assets totalling
$160,000 were repossessed and included in assets held
for sale during 2021. These assets are currently being
marketed for sale and will be disposed of as market
conditions permit. See note 6 to the Statements.
Cash increased to $13,839,000 at December 31, 2021
compared to $5,546,000 at December 31, 2020. The rise in
cash this year-end is temporary. The Company endeavors
to minimize cash balances as far as possible when it has
bank indebtedness outstanding. Fluctuations in cash
balances are normal.
Restricted cash comprises cash held as security for
non-recourse borrowings provided by a lender. Restricted
cash totalling 5% of the outstanding loan balance from
the lender is required to be held by it in a cash reserve
account and is partly released as the loan balance is repaid.
Further, cash receipts from the loan collateral securing
the non-recourse borrowings are deposited in a cash
collection account and can only be used to repay that
debt. As at December 31, 2021, the restricted cash
totalled $10,309,097 (2020 – $nil). Please refer to note 4
to the Statements.
Intangible assets, net of accumulated amortization,
totalled $3,113,000 at December 31, 2021 compared to
$3,278,000 at December 31, 2020. 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 assets comprising
existing customer contracts and broker relationships
were also acquired as part of the AFCC acquisition on
January 31, 2014. These were being amortized over a
period of 5 to 7 years and were fully amortized in 2021.
Please refer to note 9 to the Statements.
Goodwill totalled $13,140,000 at December 31, 2021
compared to $13,219,000 at December 31, 2020. 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 AFCC
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 8 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,
2021 and 2020 were not significant.
Total liabilities increased by 43% or $124,995,000 to
$416,149,000 at December 31, 2021 compared to
$291,154,000 at December 31, 2020. The increase
mainly resulted from higher loans payable.
1 6 Accord Financial Corp.
Amounts due to clients increased by $378,000 to
$3,288,000 at December 30, 2021 compared to $2,910,000
at December 31, 2020. 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.
Bank indebtedness decreased by $3,558,000 to
$207,382,000 at December 31, 2021 compared to
$210,940,000 at December 31, 2020. Bank indebtedness
decreased despite the substantial increase in funds
employed due to the $89 million term loan received
from another lender (see note 11(b)) to fund ASBF’s
AccordExpress working capital loans, which term loan
was used to pay down bank indebtedness. The Company
was in compliance with all loan covenants under its bank
facility in 2021 and 2020. Subject to other debt borrowings,
bank indebtedness principally fluctuates with the
quantum of Loans outstanding.
Loans payable increased by $128,060,000 to $149,437,000
at December 31, 2021 compared to $21,377,000 at
December 31, 2020. During 2021, ASBF entered into a
non-recourse loan and security agreement with a life
insurance company to finance its AccordExpress working
capital loans receivable. This non-recourse loan is
collateralized by all of ASBF’s assets and bears a fixed
rate of interest. At December 31, 2021, the amount
outstanding under this loan facility totalled $89,388,000
(2020 – $nil). ASBF has been in compliance with all loan
covenants under this facility since receiving same in
December 2021 (see note 11(b) to the Statements).
During 2021, the revolving loan facility used to finance
BondIt’s media loans was increased to US$47,000,000
($59,394,000). Borrowings under the facility, which expires
on May 6, 2023, rose to $60,049,000 at December 31, 2021
(2020 – $21,376,000). BondIt was in compliance with all
loan covenants thereunder in 2021 and 2020. See note
11(a) to the Statements.
Accounts payable and other liabilities increased by
$1,027,000 to $11,863,000 at December 31, 2021 compared
to $10,836,000 at December 31, 2020. The increase since
December 31, 2020 mainly resulted from higher short-term
incentives and severances payable.
Notes payable decreased by $1,442,000 to $15,992,000
at December 31, 2021 compared to $17,434,000 at
December 31, 2020. The decrease in notes payable
resulted from redemptions thereof. Please see Related
Party Transactions section below and note 12(a) to
the Statements.
Convertible debentures with a face value of $25,650,000
(25,650 convertible debentures of $1,000 each) were
issued by the Company in 2018 and 2019. Of these,
20,650 debentures are listed for trading on the Toronto
Stock Exchange (“TSX”), while 5,000 are unlisted. All
convertible debentures are unsecured and 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 a $23,200 discount on the issue of
certain debentures, a total of $23,781,000 was raised.
Please see note 13 to the Statements, which details how
the debt and equity components of the convertible
debentures were allocated. At December 31, 2021, the
debt component totalled $24,153,000 (December 31,
2020 – $23,510,000), while the equity component totalled
$1,005,000 (December 31, 2020 – $1,005,000), net of
deferred taxes.
Income taxes payable, lease liabilities, deferred income
and net deferred tax liabilities at December 31, 2021
and 2020 were not material.
Capital stock totalled $9,448,000 at December 31, 2021
and 2020. There were 8,558,913 common shares
outstanding at those dates. Please see the consolidated
statements of changes in equity on page 40 of this report
for details of changes in capital stock during 2021 and
2020. In 2020, the Company repurchased and cancelled
30,000 common shares acquired under its issuer bid at
Annual Report 2021
17
a cost of $264,000, for an average price of $8.80 per
common share. See note 15(c) to the Statements. At the
date of this MD&A, March 21, 2022, 8,558,913 common
shares remained outstanding.
Contributed surplus totalled $1,088,000 at December 31,
2021 (2020 – $1,202,000). The decrease in 2021 relates
to the acquisition of an additional 10% interest in BondIt
from two non-controlling interests at a cost of $1,369,000,
of which $201,000 was debited to contributed surplus.
As noted above, included in contributed surplus at
December 31, 2021 and 2020 is the equity component
of the convertible debentures issued which totalled
$1,005,000, net of deferred tax. Also included in
contributed surplus at December 31, 2021 is the 2021
stock-based compensation expense relating to stock
options granted of $88,000 (2020 – $nil). Please see the
consolidated statements of changes in equity on page 40
of this report for details of changes in contributed surplus
during 2021 and 2020.
Retained earnings increased by $10,175,000 to $83,300,000
at December 31, 2021 compared to $73,125,000 at
December 31, 2020. The increase in 2021 comprised
shareholders’ net earnings of $11,887,000 less dividends
paid of $1,712,000 (20 cents per common share). Please
see the consolidated statements of changes in equity on
page 40 of this report for changes in retained earnings
during 2021 and 2020.
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 increased by
$55,000 to $6,131,000 at December 31, 2021 compared
to $6,076,000 at December 31, 2020. Please refer to the
consolidated statements of changes in equity on page 40
of this report for details of changes in AOCI during 2021
and 2020. Please see also note 20 to the Statements.
Non-controlling interests in subsidiaries totalled $3,992,000
at December 31, 2021 compared with $3,909,000 at
December 31, 2020. Please see the consolidated statements
of changes in equity on page 40 of this report, and
note 21 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,
convertible debentures, loans and notes payable. 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, 2021 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 loans payable, or equity.
1 8 Accord Financial Corp.
The Company had credit lines and loans payable totalling
approximately $526 million at December 31, 2021 and
had borrowed $357 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 24(b) details the
Company’s financial assets and liabilities at December 31,
2021 by their maturity date.
As noted in the Review of Financial Position section
above, the Company had cash balances of $13,839,000
at December 31, 2021 compared to $5,546,000 at
December 31, 2020. At December 31, 2021, the Company
also had restricted cash, which is held as collateral by a
lender, totalling $10,309,097. 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.
above and are set out in the Company’s consolidated
statements of cash flows on page 41 of this report.
Cash outflows from investing activities in 2021 totalled
$83,000 (2020 – $43,000) and comprised additions to
property and equipment.
Net cash inflow from financing activities totalled
$120,375,000 in 2021 compared to an outflow of
$21,912,000 last year. The net cash inflow in 2021 largely
resulted from an increase in loans payable of $127,828,000.
Partly offsetting this inflow was a decrease in bank
indebtedness of $2,412,000, dividend payments totalling
$1,712,000, notes payable redeemed, net, of $1,438,000,
the purchase of an additional 10% in BondIt LLC from
non-controlling interests for $1,369,000, lease liabilities
payments of $464,000 and a distribution paid to
non-controlling interests of $58,000. In 2020 the net cash
outflow resulted from a repayment of 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 normal course issuer bid for $264,000 and the
purchase of an additional 2% in AEF from a non-controlling
interest for $181,000. Partially offsetting this outflow
was an increase in loans payable of $10,935,000.
Fiscal 2021 cash flows
Year ended December 31, 2021 compared with the year
ended December 31, 2020
The effect of exchange rate changes on cash comprised
a decrease of $42,000 in 2021 compared to a decrease
of $2,645,000 in 2020.
Cash inflow from net earnings before changes in operating
assets and liabilities and income tax payments increased
to $15,799,000 in 2021 compared to $1,107,000 last year.
After changes in operating assets and liabilities and
income tax paid there was a net cash outflow of
$101,647,000 in 2021 compared to an inflow of $23,371,000
last year. The net cash outflow in 2021 largely resulted
from funding gross loans of $118,831,000. In 2020, 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. Changes in
other operating assets and liabilities are discussed
Overall, there was a net cash inflow of $18,602,000 in
2021 compared to a net cashflow of $1,230,000 in 2020.
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 totalled $15,992,000 at December 31, 2021
compared to $17,434,000 at December 31, 2020. Notes
payable comprise: (i) unsecured demand notes due on,
Annual Report 2021
19
CONTRACTUAL OBLIGATIONS AND COMMITMENTS AT DECEMBER 31, 2021
Payments due in
Less than
(in thousands of dollars) 1 year 1 to 3 years 4 to 5 years Thereafter Total
Debt obligations $ 310,469 $ 72,062 $ 14,433 $ — $ 396,964
Operating lease obligations 525 354 184 23 1,086
Purchase obligations 38 — — — 38
$ 311,032 $ 72,416 $ 14,617 $ 23 $ 398,088
or within a week of, demand of $2,333,000 (December 31,
2020 – $1,587,000); (ii) term notes totalling $13,659,000
(December 31, 2020 – $15,848,000), which are repayable
on various dates the latest of which is January 31, 2023.
Notes due on, or within a week of demand, bear interest
at rates that vary with the bank prime rate or Libor, while
the term notes bear interest at rates between 7% and 11%.
Of the notes payable, $13,843,000 (December 31, 2020 –
$15,072,000) was owing to related parties and $2,149,000
(December 31, 2020 – $2,362,000) to third parties. Interest
expense on these notes in 2021 totalled $1,177,000
(2020 – $1,210,000). Please refer to note 12(a) to the
Statements.
The following related parties had notes payable with
the Company at December 31, 2021:
Demand notes payable
Hitzig Bros.,
Hargreaves & Co. Inc.* Directors $1,500,000
Hitzig Bros.,
Hargreaves & Co. LLC.* Directors US$1,000,000
Ken Hitzig Director $500,000
Term notes payable (due July 31, 2022)
Hitzig Bros.,
Hargreaves & Co. Inc.* Directors $4,000,000
Oakwest Corporation Inc. Director $3,000,000
Ken Hitzig Director $2,500,000
*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 2.60%). 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 2021, the
Company renewed certain unsecured three-year term
notes payable which had matured on July 31, 2021 for a
further one-year term, expiring on July 31, 2022. These
term notes, which pay a 7% rate of interest, 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
cash, derivative financial instruments, and the guarantee
of managed receivables, are recorded at 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 and small business
finance operations, term loan payable and lease liabilities,
are short-term in nature and, therefore, their carrying
values approximate fair values.
At December 31, 2021, there were no outstanding foreign
exchange contracts entered into by the Company. At
December 31, 2020, the Company had entered into
20 Accord Financial Corp.
forward foreign exchange contracts with a financial
institution which had to be exercised by the Company
between January 29, 2021 and August 31, 2021 and
obliged 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 19 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 expected losses on both its Loans
and its guarantee of managed receivables. The
Company maintains a separate allowance for expected
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
environment, condition of the loan and receivable
portfolios, typical industry loss experience, macro-
economic factors and forward-looking information
(“FLI”). The key inputs in the measurement of ECL
allowances for each loan are as follows: (i) the
probability of default (PD) which is an estimate of
the likelihood of default over a given time horizon;
(ii) the loss given default (LGD) which is an estimate
of the loss arising in the case where a default occurs
at a given time; and (iii) the exposure at default (EAD)
which is an estimate of the exposure at a future
default date. These key inputs associated with each
loan are sensitized to future market and macro-
economic conditions through the incorporation of
FLI. 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
have and are seeing as a result of Covid-19.
The Company’s allowance for expected 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. The Company’s Stage 2 allowances are
based on a review of the loan or managed receivable
and comprises 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.
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 expected 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 expected losses.
Annual Report 2021
21
Management believes that its allowances for expected
losses, which require a high degree of reasonable
and supportable 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), 5 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.
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 2021 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”)) as at December 31,
2021 and has concluded that such disclosure controls
and procedures are effective.
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):
(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 as at December 31, 2021 to
provide reasonable assurance regarding the
22 Accord Financial Corp.
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 24 to the
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
Annual Report 2021
23
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
(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 23.
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
24 Accord Financial Corp.
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 23.
Dependence on key personnel
Employees are a significant asset of the Company, and
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
Annual Report 2021
25
fraud could have a material adverse impact on the
Company’s business, financial condition and results
of operations.
Technology and cyber security
The Company remains focused on the confidentiality,
integrity and availability of the information and cyber
security controls that protect its network, data and
infrastructure. The cyber security risk landscape includes
numerous cyber threats such as hacking threats, identity
theft, denial of service, and advanced persistent threats.
These and other cyber threats continue to become more
sophisticated, complex, and potentially damaging. Third
party service providers that the Company uses may
also be subject to these risks which can increase our
risk of potential attack. The Company establishes the
requirements and sets out the overall framework for
managing cyber and information security related risks.
These include developing and implementing the
appropriate activities to detect, respond to and contain the
impact of cyber security threats, along with implementing
the appropriate safeguards to ensure the delivery of
critical infrastructure services.
The Company is continuously improving the strength of
its practices and capabilities. It works closely with our
critical cyber security and software suppliers to ensure
that its technology capabilities remain cyber resilient
and effective in the event of any unforeseen cyber attack.
The Company has not experienced any material cyber
security breaches and has not incurred any material
expenses with respect to the remediation of such cyber
events. Security risks continue to be actively monitored
and reviewed, leveraging the expertise of the Company’s
service providers and vendors, reviewing industry best
practices and regularly re-assessing controls in place to
acknowledge, address and mitigate the risks identified.
The Company’s maintains a cyber security insurance policy
to provide coverage in the event of cyber security incidents.
Data management and privacy risk
Data management and its governance are becoming
increasingly important as the Company continues to
invest in digital solutions and innovation and the ongoing
expansion of business activities. Furthermore, there
are regulatory compliance risks associated with data
management and privacy. The Company establishes
the requirements and sets out the overall framework for
data management and managing privacy related risks.
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
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 had significant growth in funds employed
in the three years through 2019 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, economic activity was severely impacted
in the battle to tame Covid-19. The adverse economic
26 Accord Financial Corp.
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 as
the economy continues 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 21, 2022
conditions resulting from Covid-19 prevention measures
in North America served to reduce the Company’s funds
employed and revenue in 2020, as well as led to a
significantly increased provision for losses. At the time
the pandemic arose, all our lending businesses were on an
upward trajectory in terms of growth in funds employed,
although our receivables management business was,
after facing intense competition from multinational
credit insurers, downsizing.
From the pandemic induced low-point of $317 million
of funds employed (June 30, 2020), funds employed
have grown 51% to reach a record high $478 million at
December 31, 2021. Revenue in 2021 ($63.5 million),
shareholders’ net earnings ($11.9 million) and adjusted
net earnings ($13.1 million) were also record highs. The
Company has seen strong growth from its Canadian
equipment and small business finance division, AFCC, as
well as at BondIt. AFCC’s subsidiary, ASBF, in particular,
has seen strong take up of its Export Development
Canada (“EDC”) backed AccordExpress product. Medium
to strong growth is expected to continue at these divisions.
More moderate growth is expected to come from the
Company’s asset-based financing units, AFIC and AFIU,
as well as AEF, the Company’s U.S. equipment finance
division. As noted above, the Company’s receivables
management business, AFL, has been downsized in the
past year. That business provides credit risk management
services primarily related to the wholesale and retail
industries in Canada. Given the long-term headwinds in
those sectors, the Company made the decision to reduce
the size of AFL’s operations. In recent years, AFL’s
contribution was not financially significant to the Accord
group overall.
To support the anticipated increase in funds employed,
the Company is supported by a $367 million bank facility,
which was renewed for a further year in July 2021 and
should provide it with the majority of funding needed to
support further growth over the next twelve months, as
well as the non-bank loan facilities to BondIt (US$47
million) and ASBF ($100 million) noted above. Today, in
Annual Report 2021
27
Appendix to MD&A: Non-IFRS Measures and Ratios
($000s, except percentages, earnings per share and book value per share)
Fiscal Year Non-IFRS Calculations
Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017
Return on Equity
Net earnings attributable to common
shareholders 11,887 417 6,444 10,356 6,010
Weighted average shareholders'
equity (note) 94,432 90,339 91,358 80,723 75,480
Return on equity (Table 1) 12.6% 0.5% 7.1% 12.8% 8.0%
Note: weighted average shareholders' equity is the average shareholder's equity calculated for each month of the fiscal year, then totalled up and divided by 12
2021 2020 2019 2018 2017
Adjusted net earnings
Net earnings attributable to shareholders 11,887 417 6,444 10,356 6,010
Adjustments, net of tax:
Stock-based compensation expense 88 — (124) 233 188
Restructuring expenses 920 1,395 — — 122
Business acquisition expenses (recovery) 173 220 (1,381) 251 685
Adjusted net earnings attributable
to shareholders 13,068 2,032 4,939 10,840 7,005
2021 2020 2019 2018 2017
Adjusted earnings per share
Adjusted net earnings 13,068 2,032 4,939 10,840 7,005
Weighted average number of common
shares outstanding in the year 8,559 8,563 8,467 8,329 8,308
Adjusted earnings per share 1.53 0.24 0.58 1.30 0.84
2021 2020 2019 2018 2017
Adjusted return on equity
Adjusted net earnings 13,068 2,032 4,939 10,840 7,005
Weighted average shareholders' equity 94,432 90,339 91,358 80,723 75,480
Adjusted return on equity (Table 1) 13.8% 2.2% 5.4% 13.4% 9.3%
Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017
Book value per share
Shareholders' equity 99,967 89,850 92,515 89,818 76,448
Common shares outstanding 8,559 8,559 8,589 8,429 8,308
Book value per share 11.68 10.50 10.77 10.66 9.20
2021 2020 2019 2018 2017
Average funds employed (note)
Fiscal year 402,015 347,493 378,243 270,900 181,052
Quarter 1 358,091 362,300 346,834 228,778 142,653
Quarter 2 375,593 340,740 387,875 254,765 166,643
Quarter 3 414,199 326,854 383,480 283,216 189,338
Quarter 4 460,179 360,078 394,783 316,842 225,574
Note: average funds employed is average finance receivable and loans calculated for each month of the year or quarter and divided by the number of months
in the period.
2021 2020 2019 2018 2017
Return on average assets
Net earnings attributable to shareholders 11,887 417 6,444 10,356 6,010
Average assets (note) 431,523 383,908 408,708 298,492 199,390
Return on average assets (Table 1) 2.8% 0.1% 1.6% 3.5% 3.0%
Note: average assets is calculated as the average of the opening and closing assets for the fiscal year as taken from the Company's Consolidated Balance Sheets.
28 Accord Financial Corp.
2021 2020 2019 2018 2017
Net revenue / average assets
Net revenue (note) 47,594 33,906 39,086 37,520 27,562
Average assets 431,523 383,908 408,708 298,492 199,390
Net revenue / average assets (Table 1) 11.0% 8.8% 9.6% 12.6% 13.8%
Note: net revenue is revenue less interest expense as taken from the Company’s Statements of Earnings for the year.
2021 2020 2019 2018 2017
Operating expenses / average assets
Operating expenses 32,151 27,226 26,878 23,803 17,106
Average assets 431,523 383,908 408,708 298,492 199,390
Operating expenses / average assets (Table 1) 7.5% 7.1% 6.6% 8.0% 8.6%
2021 2020 2019 2018 2017
Operating expenses / revenue
Operating expenses (note) 32,151 27,226 26,878 23,803 17,106
Revenue 63,480 48,501 56,175 46,927 31,409
Operating expenses / revenue (Table 1) 50.6% 56.1% 47.9% 50.7% 54.5%
Note: operating expenses in the total of general & administrative expenses and depreciations as taken from the Company’s Statement of Earnings for the year
This is also referred to as the efficiency ratio.
Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017
Equity / assets
Total equity 103,960 93,759 96,368 95,185 79,770
Assets 520,109 384,913 406,214 373,783 247,309
Equity / assets (Table 2) 20% 24% 24% 25% 32%
Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017
Tangible equity
Total equity 103,960 93,759 96,368 95,185 79,770
Less: Intangible assets 3,113 3,278 3,639 4,116 3,865
Less: goodwill 13,140 13,219 13,455 14,031 13,082
Less: deferred tax assets 3,416 2,002 976 1,208 640
Add: deferred tax liabilities (277) (603) (2,251) (515) (164)
Tangible equity 84,568 75,863 80,549 76,345 62,348
2021 2020 2019 2018 2017
Tangible equity / assets
Tangible equity 84,568 75,863 80,549 76,345 62,348
Assets 520,109 384,913 406,214 373,783 247,309
Tangible equity / assets (Table 2) 16% 20% 20% 20% 25%
Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017
Debt / equity
Debt (note) 396,964 273,260 295,875 262,591 154,002
Total equity 103,960 93,759 96,368 95,185 79,770
Debt / equity (Table 3) (as a percentage) 382% 291% 307% 276% 193%
Note: debt comprises the total of bank indebtedness, loans payable, convertible debentures and notes payable as taken from the Company's Consolidated
Balance Sheets.
Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017
Reserves
Allowance for expected losses on loans 5,251 5,853 4,520 3,450 2,129
Allowance for expected losses on managed
receivables 31 555 44 74 130
Reserves 5,282 6,408 4,564 3,524 2,259
Annual Report 2021
29
Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017
Portfolio
Finance receivables and loans 478,150 360,337 373,157 339,102 220,104
Managed receivables (note) 11,441 18,523 27,338 40,145 53,478
Portfolio 489,591 378,860 400,495 379,247 273,582
Note: managed receivables represent those off-balance sheet receivables on which the Company has assumed the credit risk and/or collection responsibilities
(see note 5(b) to the Statements).
Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017
Reserves / portfolio
Reserves 5,282 6,408 4,564 3,524 2,259
Portfolio 489,591 378,860 400,495 379,247 273,582
Reserves / portfolio (Table 3) 1.1% 1.7% 1.1% 0.9% 0.8%
2021 2020 2019 2018 2017
Net write-offs & impairment of assets held
for sale
Net write-offs (note) 938 6,872 5,952 818 2,348
Impairment of assets held for sale
("impairment charges") 1,253 1,890 — 25 24
Net write-offs and impairment charges 2,191 8,762 5,952 843 2,372
Note: net write-offs are write-offs less recoveries of finance receivables and loans and the guarantee of managed receivables. Impairment charges are shown
in the Consolidated Statements of Earnings for the year.
Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2017
Reserves / net write-offs and impairment
charges (Table 3)
Reserves 5,282 6,408 4,564 3,524 2,259
Net write-offs and impairment charges 2,191 8,762 5,952 843 2,372
Reserves / net write-offs and impairment
charges (Table 3) 241% 73% 77% 418% 95%
2021 2020 2019 2018 2017
Net write-offs and impairment charges /
revenue
Net write-offs and impairment charges 2,191 8,762 5,952 843 2,372
Revenue 63,480 48,501 56,175 46,927 31,409
Net write-offs and impairment charges /
revenue (Table 3) 3.5% 18.1% 10.6% 1.8% 7.6%
Quarterly Non-IFRS Calculations
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
Quarters ending 2021 2021 2021 2021 2020 2020 2020 2020
Adjusted net earnings
Net earnings (loss) attributable
to shareholders 3,573 2,643 3,085 2,585 1,384 566 4,343 (5,876)
Adjustments, net of tax:
Stock-based compensation expense 75 13 — — — — — —
Restructuring expenses 735 138 — 47 657 — 331 407
Business acquisition expenses 40 6 76 51 54 55 56 55
Adjusted net earnings (loss)
attributable to shareholders 4,423 2,800 3,161 2,683 2,095 621 4,730 (5,414)
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
Quarters ending 2021 2021 2021 2021 2020 2020 2020 2020
Adjusted earnings per share
Adjusted net earnings attributable to
shareholder 4,423 2,800 3,161 2,683 2,095 621 4,730 (5,414)
Weighted average number of common
shares outstanding in the quarter 8,559 8,559 8,559 8,559 8,559 8,559 8,559 8,571
Adjusted earnings per share 0.52 0.33 0.37 0.31 0.24 0.07 0.55 (0.63)
30 Accord Financial Corp.
Ten Year Financial Summary 2012-2021
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.
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Revenue $ 25,891 26,074 30,235 31,577 28,522 31,409 46,927 56,175 48,501 63,480
Interest 1,911 1,913 2,523 2,258 2,281 3,847 9,407 17,089 14,596 15,887
General and administrative 13,615 13,845 16,154 17,484 17,427 16,945 23,524 26,151 26,458 31,455
Provision for credit and loan losses 213 438 639 375 963 2,898 2,025 7,105 9,403 (614)
Impairment of assets held for sale — — — 50 44 24 25 — 1,087 873
Depreciation 126 112 125 136 154 161 279 727 721 695
Business acquisition expenses — — 570 575 509 932 336 (1,818) 298 235
Total expenses 15,865 16,308 20,011 20,878 21,378 24,807 35,596 49,254 52,563 48,531
Earnings (loss) before income tax 10,026 9,766 10,224 10,699 7,144 6,602 11,331 6,921 (4,062) 14,949
Income tax expense (recovery) 3,649 3,228 3,345 1,940 578 391 104 1,579 (4,670) 1,727
Net earnings 6,377 6,538 6,879 8,759 6,566 6,211 11,227 5,342 608 13,222
Non-controlling interests — — — — — 201 871 (1,102) 191 1,355
Net earnings attributable
to shareholders $ 6,377 6,538 6,879 8,759 6,566 6,010 10,356 6,444 417 11,887
Earnings per common share:
Basic and diluted 0.76 0.80 0.83 1.05 0.79 0.72 1.24 0.76 0.05 1.39
Dividends per common share $ 0.31 0.32 0.33 0.35 0.36 0.36 0.36 0.36 0.24 0.20
Finance receivables and loans, net $ 108,477 109,775 136,346 134,259 138,115 217,975 335,652 368,637 354,023 472,899
Other assets 16,115 11,034 18,278 20,301 20,451 33,045 38,131 37,577 30,890 47,210
Total assets $ 124,592 120,809 154,624 154,560 158,566 251,020 373,783 406,214 384,913 520,109
Bank indebtedness $ 54,572 43,368 63,995 54,094 62,484 138,140 222,862 242,781 210,940 207,382
Loans payable — — — — — — 5,696 11,227 21,376 149,437
Notes payable 14,492 14,809 16,808 13,201 11,370 15,862 18,079 18,939 17,434 15,992
Convertible debentures — — — — — — 15,955 22,928 23,510 24,153
Other liabilities 8,132 9,201 12,489 14,199 9,030 16,885 16,006 13,971 17,894 19,185
Total liabilities 77,196 67,378 93,292 81,494 82,884 170,887 278,598 309,846 291,154 416,149
Shareholders' equity 47,396 53,431 61,332 73,066 75,682 76,449 89,818 92,515 89,850 99,967
Non-controlling interests in subsidiaries — — — — — 3,684 5,367 3,853 3,909 3,992
Total equity 47,396 53,431 61,332 73,066 75,682 80,133 95,185 96,368 93,759 103,960
Total liabilities and equity $ 124,592 120,809 154,624 154,560 158,566 251,020 373,783 406,214 384,913 520,109
Shares outstanding at Dec. 31 # 8,221 8,221 8,308 8,308 8,308 8,308 8,429 8,589 8,559 8,559
Share price - high $ 7.15 9.25 10.75 12.05 9.95 9.55 10.45 10.42 10.15 9.20
- low 6.50 6.84 7.85 9.00 8.70 8.40 8.22 8.37 3.51 6.23
- close at Dec. 31 7.00 7.86 9.35 9.60 8.99 9.20 9.09 10.07 6.70 8.40
Annual Report 2021
31
Management’s Report to the Shareholders
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
KPMG LLP, independent auditors appointed by the
timeliness of financial information, management maintains
shareholders, expresses an opinion on the fair presentation
systems of accounting and administrative controls that
of the consolidated financial statements. They have full and
assure, on a reasonable basis, the reliability of financial
unrestricted access to the Audit Committee and management
information and the orderly and efficient conduct of the
to discuss matters arising from their audit, which includes
Company’s business. A report on the design and effectiveness
a review of the Company’s accounting records and
of the Company’s disclosure controls and procedures and
consideration of its internal controls.
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
consolidated financial statements and MD&A, and to
recommend approval of the consolidated financial statements
and MD&A to the Board.
Stuart Adair
Senior Vice President, Chief Financial Officer
March 21, 2022
Toronto, Canada
32 Accord Financial Corp.
Independent Auditors' Report to the Shareholders
TO THE SHAREHOLDERS OF ACCORD FINANCIAL CORP.
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, 2021 and December 31, 2020
• the consolidated statements of earnings for the years then ended
• the consolidated statements of comprehensive income for the years then ended
• the consolidated statements of changes in equity for the years then ended
• 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, 2021
and December 31, 2020, and its consolidated financial
performance and its consolidated cash flows for the years
then ended in accordance with International Financial
Reporting Standards (IFRS).
BASIS FOR OPINION
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.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
KEY AUDIT MATTERS
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, 2021.
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 matter to be communicated in our auditors' report.
Annual Report 2021
33
ASSESSMENT OF ALLOWANCE FOR LOSSES
resulting impact on the allowance; and
Description of the matter
We draw attention to Notes 2, 3 (d), 5, and 24 (a) of the
financial statements. The Entity has recorded an allowance
against its finance receivables and loans and its guarantee
of managed receivables for an amount of $5,282,000
(finance receivables and loans $5,251,000, and managed
receivables $31,000).
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”) associated with
each loan, sensitized to future market and macroeconomic
conditions through the incorporation of forward-looking
information (“FLI”). 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:
• Selecting relevant forward- looking information.
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 judgement was
required due to the high degree of measurement uncertainty
in the key inputs (PD, LGD, EAD) and judgements (SICR)
and their resulting impact on the allowance. Assessing the
allowance also required significant auditor attention and
complex auditor judgement 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:
— the qualitative and quantitative factors used to identify
whether there has been SICR
• High degree of measurement uncertainty in the key
inputs (PD, LGD, EAD) and judgements (SICR), and their
— management's review of the ECL which includes their
34 Accord Financial Corp.
review of forward-looking information and the
application of expert credit judgement
skills and knowledge was required in evaluating the results
of our procedures.
We involved credit risk professionals with specialized skills
and industry knowledge who assisted in assessing:
How the matter was addressed in the audit
The primary procedures we performed to address this key
audit matter included the following:
— the PDs and LGDs by comparing to industry data
— the appropriateness of FLI applied by comparing to
external macroeconomic data
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 8 to the financial
statements. The Entity has goodwill of $13,140,447 recorded
in its consolidated 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
We evaluated the key inputs used to develop the recoverable
amount of the CGUs, including 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 2021".
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.
Annual Report 2021
35
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.
We obtained the information included in Management's
Discussion and Analysis to be filed with the relevant
Canadian Securities Commissions and the "Annual Report
2021" 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.
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.
In preparing the financial statements, management is
responsible for assessing the Entity's ability to continue as
The risk of not detecting a material misstatement resulting
36 Accord Financial Corp.
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. 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 21, 2022
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.
• 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
Annual Report 2021
37
Consolidated Statementsof Financial Position
December 31, 2021 December 31, 2020
Assets
Cash $ 13,839,291 $ 5,545,951
Restricted cash (note 4) 10,309,097 —
Finance receivables and loans, net (note 5) 472,898,716 354,023,167
Income taxes receivable 104,860 1,842,751
Other assets 1,853,864 1,833,242
Assets held for sale (note 6) 160,274 1,513,567
Deferred tax assets, net (note 16) 3,415,590 2,002,180
Property and equipment (note 7) 1,273,381 1,655,193
Intangible assets (note 9) 3,113,196 3,277,744
Goodwill (note 8) 13,140,447 13,218,843
$ 520,108,716 $ 384,912,638
Liabilities
Due to clients $ 3,287,532 $ 2,909,880
Bank indebtedness (note 10) 207,382,279 210,940,174
Loans payable (note 11) 149,436,971 21,376,479
Accounts payable and other liabilities 11,863,049 10,836,423
Income taxes payable 2,285,055 1,575,643
Notes payable (note 12(a)) 15,992,357 17,434,054
Convertible debentures (note 13) 24,152,681 23,509,573
Lease liabilities (note 14) 979,416 1,207,264
Deferred income 493,007 761,514
Deferred tax liabilities, net (note 16) 276,720 602,510
416,149,067 291,153,514
Equity
Capital stock (note 15) 9,448,264 9,448,264
Contributed surplus (note 15(d)) 1,088,263 1,201,785
Retained earnings 83,299,791 73,124,659
Accumulated other comprehensive income (note 20) 6,131,180 6,075,665
Shareholders’ equity 99,967,498 89,850,373
Non-controlling interests in subsidiaries (note 21) 3,992,151 3,908,751
Total equity 103,959,649 93,759,124
$ 520,108,716 $ 384,912,638
Contingent liabilities (note 18)
See accompanying notes to consolidated financial statements.
On behalf of the Board
David Beutel
Chairman of the Board
Simon Hitzig
President and Chief Executive Officer
38 Accord Financial Corp.
Consolidated Statements of Earnings
Years ended December 31 2021 2020
Revenue
Interest (note 5) $ 51,897,688 $ 42,704,739
Other income (note 5) 11,582,754 5,795,959
63,480,442 48,500,698
Operating expenses
Interest 15,886,687 14,595,782
General and administrative 31,455,505 26,458,300
(Recovery of) provision for credit and loan losses (note 5) (614,359) 9,402,659
Impairment of assets held for sale (note 6) 872,948 1,086,812
Depreciation 695,385 721,333
Business acquisition expenses:
Transaction costs 93,958 —
Amortization of intangible assets 140,955 298,037
48,531,079 52,562,923
Earnings (loss) before income tax 14,949,363 (4,062,225)
Income tax expense (recovery) (note 16) 1,727,000 (4,670,000)
Net earnings 13,222,363 607,775
Net earnings attributable to non-controlling interests
in subsidiaries 1,335,448 191,149
Net earnings attributable to shareholders $ 11,886,915 $ 416,626
Basic and diluted earnings per common share (note 17) $ 1.39 $ 0.05
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income
(Loss)
Years ended December 31 2021 2020
Net earnings attributable to shareholders
Other comprehensive income (loss):
$ 11,886,915 $ 416,626
Items that are or may be reclassified to profit or loss:
Unrealized foreign exchange gain (loss) on translation
of self-sustaining foreign operations (note 19) 55,515 (640,916)
$ 11,942,430 $ (224,290)
Comprehensive income (loss)
See accompanying notes to consolidated financial statements.
Annual Report 2021
39
Consolidated Statements of Changes in Equity
Capital stock Accumulated Non-controlling
Number of other interests
common shares Contributed Retained comprehensive in subsidiaries Total
outstanding Amount surplus earnings income (note 21) equity
Balance at January 1, 2020
Comprehensive loss
Dividends paid
Shares repurchased for cancellation
Purchase of additional 2% of
Accord CapX LLC from a
non-controlling interest
Net earnings attributable to
non-controlling interests in
subsidiaries
Translation adjustments on
non-controlling interests
Balance at December 31, 2020
Comprehensive income
Dividends paid
Stock-based compensation expense
related to stock option grants
Distribution to non-controlling
interests
Purchase of additional 10% of
BondIt LLC from non-controlling
interests
Net earnings attributable to
non-controlling interests in
subsidiaries
Translation adjustments on
non-controlling interests
Balance at December 31, 2021
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
— — — 11,886,915 55,515 — 11,942,430
— — — (1,711,783) — — (1,711,783)
— — 87,884 — — — 87,884
— — — — — (58,518) (58,518)
— — (201,406) — — (1,167,825) (1,369,231)
— — — — — 1,335,448 1,335,448
— — — — — (25,705) (25,705)
8,558,913 $ 9,448,264 $ 1,088,263 $83,299,791 $ 6,131,180 $ 3,992,151 $103,959,649
See accompanying notes to consolidated financial statements.
40 Accord Financial Corp.
Consolidated Statements of Cash Flows
Years ended December 31 2021 2020
Cash provided by (used in):
Operating activities
Net earnings $ 13,222,363 $ 607,775
Items not affecting cash:
Allowances for expected losses, net of write-offs and recoveries (1,552,666) 2,530,516
Deferred income (42,435) (49,526)
Amortization of intangible assets 140,955 298,037
Depreciation of property and equipment 695,385 721,333
Loss on disposal of property and equipment 4,041 —
Impairment of assets held for sale 872,948 1,086,812
Accretion of convertible debentures 643,108 581,632
Stock-based compensation expense related to stock option grants 87,884 —
Deferred tax recovery (1,702,726) (2,636,033)
Current income tax expense (recovery) 3,429,726 (2,033,967)
15,798,583 1,106,579
Changes in operating assets and liabilities:
Finance receivables and loans, gross (118,831,391) 7,631,729
Due to clients 373,103 490,872
Other assets 22,006 550,449
Accounts payable and other liabilities 1,354,700 4,018,250
Disposal of assets held for sale 623,433 7,238,095
Income tax (paid) refund, net (987,168) 2,334,679
(101,646,734) 23,370,653
Investing activities
Additions to property and equipment, net (83,249) (43,474)
Financing activities
Bank indebtedness (2,412,331) (28,459,967)
Loans payable 127,827,900 10,935,301
Notes payable redeemed, net (1,437,503) (1,500,175)
Dividends paid (1,711,783) (2,055,417)
Purchase of 10% of BondIt LLC from non-controlling interests (1,369,231) —
Purchase of 2% of Accord CapX LLC from a non-controlling interest — (181,389)
Lease liabilities paid (464,013) (386,509)
Distribution paid to non-controlling interests in subsidiaries (58,518) —
Repurchase and cancellation of shares — (264,049)
120,374,521
(21,912,205)
Effect of exchange rate changes on cash (42,101) (2,645,445)
Increase (decrease) in cash 18,602,437 (1,230,471)
Cash and restricted cash at January 1 5,545,951 6,776,422
Cash and restricted cash at December 31 $ 24,148,388 $ 5,545,951
Supplemental cash flow information
Net cash used in operating activities includes:
Interest paid $ 10,246,819 $ 10,417,117
See accompanying notes to consolidated financial statements.
Annual Report 2021
41
Notes to Consolidated Financial Statements
Years ended December 31, 2021 and 2020
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, working capital,
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 expected losses relating to
finance receivables and loans and to the guarantee
of managed receivables (notes 3(d) and 5), the
carrying value of assets held for sale (note 6), the
determination of goodwill on acquisition and the
value of intangible assets (notes 8 and 9), as well as
the net realizable value of deferred tax assets
and liabilities (note 16).
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 led to a significant
contraction in economic activity. With the resurgence
of a mutated variant of Covid-19, some of the
restrictions that were lifted during 2021 were
subsequently put back in place. Significant economic
uncertainty still persists, the expected impact of
which requires 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 expected losses, the determination
of triggering events for the impairment of non-
financial assets, such as goodwill 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 a 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);
42 Accord Financial Corp.
• Stock option grants (a component of contributed
surplus); 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 21, 2022.
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 Accord Financial Canada
Corp. (“AFCC”) (formerly known as Varion Capital
Corp.) 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 to the initial
cost or loan amount of the asset. Fees related to
direct finance leases, installment payment agreements
and loan receivables of AFCC and Accord CapX LLC
(doing business as Accord Equipment Finance
(“AEF”)), a 92% owned 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, setup 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, as well
as providing guarantee backed working capital loans.
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:
Annual Report 2021
43
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,
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 expected credit losses
The Company maintains allowances for expected
credit losses (“ECL”) 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 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
(“FLI”) is explicitly incorporated into the estimation of
ECL allowances, which involves significant judgment.
The Company’s allowances for ECL 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) the probability of
default (PD) which is an estimate of the likelihood
of default over a given time horizon; (ii) the loss given
default (LGD) which is an estimate of the loss arising
in the case where a default occurs at a given time;
and (iii) the exposure at default (EAD) which is an
estimate of the exposure at a future default date.
These key inputs associated with each loan are
44 Accord Financial Corp.
sensitized to future market and macroeconomic
conditions through the incorporation of FLI. 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
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 expected
credit 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 expected
credit losses.
(e) Property and equipment
Property and equipment is 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 property
and equipment on a regular basis to determine
that its carrying value has 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.
Annual Report 2021
45
(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
and small business finance operations. With the
exception of the brand name, these are amortized
over a period of five to fifteen years.
(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
46 Accord Financial Corp.
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
administrative expenses over the awards
vesting period.
The Company's LTIP (note 15(f)) originally
contemplated that grants thereunder may be settled
in common shares and/or cash. However, this was
subsequently amended so that settlement will be
in the form of cash only. 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 cash, 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
Annual Report 2021
47
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.
value are further classified according to a fair-value
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. Restricted cash
Restricted cash represents cash held as security for
non-recourse borrowings provided by a lender. A
cash reserve account held by the lender is required
to be maintained at an amount equal to 5% of the
loan principal outstanding. Additionally, cash
collections related to certain financial assets securing
the non-recourse borrowing can only be used to
repay that debt on certain specified dates. As at
December 31, 2021, the restricted cash totalled
$10,309,097 (2020 – $nil) against an amount due to
the lender of $89,387,586.
5. Finance receivables and loans and
managed receivables
(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
(a) Finance receivables and loans
As detailed in note 2, there is a high degree of
uncertainty relating to the ongoing adverse
economic impact of Covid-19 on the Company’s
portfolio of finance receivables and loans, and
managed receivables, and the requirement to build
FLI into our expected credit loss models under
IFRS 9. Since the first quarter of 2020, this uncertainty
resulted in significant increases in the Company’s
provision for expected credit and loan losses and
48 Accord Financial Corp.
allowance for expected losses, as well as downgrades
in internal client credit risk ratings as detailed below.
We have recently seen certain revisions to the
allowance for expected loss estimates that have
resulted in a fairly significant recovery of the increased
allowances that were initially set up at the onset of
Covid-19. Certain payment modifications were also
granted at the onset of Covid-19 as a means of
avoiding credit and loan losses. This is discussed
below.
Finance receivables and loans at December 31 were
as follows:
2021 2020
Working capital loans $ 109,518,045 $ 7,390,996
Receivable loans 105,550,028 100,858,076
Other loans* 101,810,633 105,428,510
Media loans 81,496,778 36,914,609
Lease receivables 79,774,232 109,744,976
Finance receivables
and loans, gross 478,149,716 360,337,167
Less allowance for
expected losses 5,251,000 6,314,000
Finance receivables
and loans, net $ 472,898,716 $ 354,023,167
*Other loans primarily comprise inventory and equipment loans.
The Company's finance receivables and loans are
generally either: (i) collateralized by a charge on
substantially all the borrowers’ assets; or (ii) leased
assets or factored receivables which the Company
owns; or (iii) guaranteed by a credit worthy party.
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 AFCC and AEF as described in note 3(c).
Lease receivables at December 31, 2021 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, 2021 totalled $5.3 million
(December 31, 2020 – $18.1 million).
Interest income earned on finance receivables and
loans in 2021 totalled $51,897,688 (2020 – $42,704,739).
Finance receivables and loans based on the
contractual repayment dates thereof can be
summarized as follows:
(in thousands) Dec. 31, 2021 Dec. 31, 2020
Less than 1 year $ 259,737 $ 206,934
1 to 2 years 99,209 78,362
2 to 3 years 81,500 57,992
3 to 4 years 33,234 15,038
4 to 5 years 4,470 2,011
$ 478,150 $ 360,337
The aged analysis of the Company’s finance
receivables and loans was as follows:
(in thousands) Dec. 31, 2021 Dec. 31, 2020
Current $ 452,575 $ 345,163
Past due but not impaired:
Past due less than 90 days 15,214 5,238
Past due 90 to 180 days 1,942 1,548
Past due 180 days or more 6,723 5,849
Impaired loans 1,696 2,539
$ 478,150 $ 360,337
The past due finance receivables and loans,
especially those past due over 90 days, do not
necessarily represent a SICR, which is based on
changes in the lifetime risk of default of an account
since initial recognition, 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, 2021,
$13,815,000 related to BondIt Media Capital
Annual Report 2021
49
(“BondIt”), AFIU’s 61% controlled media finance
subsidiary, where media productions are often
delayed resulting in payment delays, while $9,962,000
related to AFCC and $102,000 to AEF.
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, 2021, the estimated net realizable
value of the collateral securing the impaired loans
totalled $1,639,000 (December 31, 2020 – $3,013,000).
During 2021, lease receivables totalling $160,000
(2020 – $2,425,000) were transferred to assets held
for sale upon default of the leases and recovery of
the Company’s assets.
The Company uses a credit risk rating system for
assessing obligor and transaction risk for finance
receivables and loan exposures. Risk rating models
use internal and external data to assess and rate
borrowers, predict future performance and manage
limits for existing loans and collection activities.
The credit rating of the borrower is used to assess the
predicted credit risk for each initial credit approval
or significant account management action. Credit
ratings improve credit decision quality, adjudication
time frames and consistency in the credit decision
process and facilitates risk-based pricing.
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 probability of default.
Medium risk: finance receivables and loans that
are typical for the Company’s risk appetite and
credit standards and retain an average probability
of default.
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 probability of default.
Typically, these finance receivables and loans are
expected to represent a smaller 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.
As detailed in note 3(d), the following table maps
PD bands to various summarized risk levels for
exposures:
PD Band Risk Category
0.00% - 2.48% Low Risk
2.49% - 8.35% Medium Risk
8.36% - 99.99% High Risk
100% Impaired
The following table summarizes the Company's
finance receivables and loans by their internal credit
risk rating:
(in thousands) Dec. 31, 2021 Dec. 31, 2020
Low risk $ 199,726 $ 130,160
Medium risk 202,852 189,225
High risk 73,876 38,413
Impaired 1,696 2,539
$ 478,150 $ 360,337
Finance receivables and loans classified under the
three stage credit criteria of IFRS 9 were as follows:
(in thousands) Dec. 31, 2021 Dec. 31, 2020
Stage 1 $ 436,592 $ 314,111
Stage 2 (SICR) 39,862 43,687
Stage 3 (Impaired) 1,696 2,539
$ 478,150 $ 360,337
Stage 1 finance receivables and loans comprise
those accounts in good standing where there has
been no SICR since initial recognition. Stage 2 finance
50 Accord Financial Corp.
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.
The activity in the allowance for expected losses on
finance receivables and loans account during 2021
and 2020 was as follows:
2021 2020
Allowance for expected
losses at January 1 $ 6,314,000 $ 4,520,000
(Recovery of) provision
for loan losses (53,132) 7,186,183
Write-offs (1,057,071) (8,755,220)
Recoveries 81,536 3,588,553
Foreign exchange
adjustment (34,333) (225,516)
Allowance for expected
losses at December 31 $ 5,251,000 $ 6,314,000
The activity in the allowance for expected losses on finance receivables and loans during 2021 by stage of
allowance was as follows:
Allowance for expected losses at January 1, 2021
Transfer between stages
Reserves expense (recovery)* related to
change in allowance for expected losses
Foreign exchange adjustment
Stage 1 Stage 2
Stage 3 Total
$ 3,527,040
179,435
$ 2,786,960
(180,202)
$ — $ 6,314,000
767 —
(352,663) (736,583) 60,581 (1,028,665)
(1,954) (34,335)
(33,902)
1,521
Allowance for expected losses at December 31, 2021
$ 3,319,910
$ 1,871,696
$
59,394 $ 5,251,000
* a component of the provision for loan losses
The activity in the allowance for expected losses on finance receivables and loans during 2020 by stage of
allowance was as follows:
Allowance for expected losses at January 1, 2020
Transfer between stages
Reserves expense (recovery)* related to change
in allowance for expected 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 expected losses at December 31, 2020
$ 3,527,040
$ 2,786,960
$ — $ 6,314,000
* a component of the provision for loan losses
The Stage 3 allowance for expected losses is typically
not significant, or even zero, as the impaired finance
receivables and loans are generally 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 expected losses thereon reversed.
and assumptions. The key drivers of changes in the
Company’s allowance for expected losses include
the following:
• Changes in PD and LGD due to significant changes
in credit risk, including transfers between stages;
• Changes in forward-looking macroeconomic
variables, specifically the macroeconomic
variables to which the allowance for expected
losses models are calibrated; and
• Changes to the probability weights assigned to
each macroeconomic scenario.
The Company’s allowance for expected losses on
finance receivables and loans is estimated using
statistical models that involve a number of inputs
The Company incorporates the impact of FLI into
the estimation of its allowance for expected losses.
Annual Report 2021
51
The Company utilizes credit risk modeling systems
and forecast macroeconomic scenario data from
Moody’s Analytics, a third-party service provider for
the purpose of computing forward-looking credit
risk parameters under multiple macroeconomic
scenarios that consider both market-wide and
idiosyncratic factors and influences.
The Company employs macroeconomic indicator
data derived from multiple macroeconomic scenarios
in order to mitigate volatility in the estimation of its
allowance for expected losses, as well as to satisfy the
IFRS 9 requirement that future economic conditions
are to be based on an unbiased, probability-weighted
assessment of possible future outcomes. The
macroeconomic indicator data utilized by the
Company for the purpose of sensitizing PD and LGD
term structure data to forward-looking economic
conditions include, but are not limited to: monetary
policy, fiscal policy, energy prices, Covid-19 trends,
business investment, housing, employment, and
supply chain amongst others.
Currently, the Company considers several
macroeconomic forecast scenarios, and assigns
discrete weights to each for use in the estimation
of its reported allowance for expected losses. The
Company has also applied expert credit judgment,
where appropriate, to reflect, amongst other items,
uncertainty in the U.S. and Canadian macroeconomic
environment attributable to the continued impact
of Covid-19.
The assignment of probability weightings for the
various forecast scenarios involves expert credit
judgment through an internal review and analysis
to arrive at the likelihood and appropriateness of each
forecast scenario for the portfolio. If management
were to assign 100% probability to the most
pessimistic downside scenario forecast considered,
the allowance for expected losses would have been
$1.62 million higher than the reported estimate for
the allowance for expected losses on finance
receivables and loans as at December 31, 2021.
Alternatively, the assignment of a 100% probability
to the most optimistic upside scenario forecast
considered would have resulted in the estimate for
the allowance for expected losses on finance
receivables and loans being $2.23 million lower
than that reported.
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 24(a).
At December 31, 2021, the Company held cash
collateral of $3,590,923 (2020 – $5,142,539) to help
reduce the risk of loss on certain of the Company's
finance receivables and loans.
(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, 2021, the gross amount of these
managed receivables was $11,440,848 (2020 –
$18,522,441). Fees from the Company’s receivables
management and credit protection business during
2021 totalled $535,345 (2020 – $1,412,705). This
amount is included in other income.
The aged analysis of the Company’s managed
receivables was as follows:
(in thousands) Dec. 31, 2021 Dec. 31, 2020
Current $ 11,066 $ 12,350
Past due but not impaired:
Past due less than 90 days 375 5,455
Past due more than 90 days — 717
$ 11,441 $ 18,522
Of the past due managed receivables at December 31,
2021, only $19,000 was over 30 days past due.
The following table summarizes the Company’s
managed receivables by their internal credit risk rating:
52 Accord Financial Corp.
(in thousands) Dec. 31, 2021 Dec. 31, 2020
Low risk $ 9,768 $ 4,857
Medium risk 1,673 11,308
High risk — 2,357
$ 11,441 $ 18,522
Outstanding client claims in respect of impaired
managed receivables are an actual liability that is
accrued for and included in the accounts payable
and other liabilities. There were no Stage 3 (impaired)
managed receivables at the above dates.
The high risk managed receivables at December 31,
2020 directly resulted from the adverse economic
impact of Covid-19 and the Company’s exposure at
the time to the retail industry which was significantly
impacted by Covid-19. The Company’s exposure to
the retail industry has since been substantially
reduced.
Managed receivables classified under the three
stage credit criteria of IFRS 9 were as follows:
(in thousands) Dec. 31, 2021 Dec. 31, 2020
Stage 1 $ 11,441 $ 15,530
Stage 2 (SICR) — 2,992
Stage 3 (Impaired) — —
$ 11,441 $ 18,522
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.
Management provides an allowance for expected
losses on the guarantee of these managed
receivables, which represents the estimated fair
value of the guarantees. 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 expected losses on
the guarantee of managed receivables account
during 2021 and 2020 was as follows:
Allowance for expected
losses at January 1 $
(Recovery of) provision
for credit losses
Write-offs
Recoveries
Allowance for expected
losses at December 31 $
2021
2020
555,000
$
44,000
(561,227)
(853)
38,080
2,216,476
(1,718,043)
12,567
31,000 $
555,000
The activity in the allowance for expected losses on the guarantee of managed receivables during 2021 by stage
of allowance was follows:
Stage 1 Stage 2
Stage 3 Total
Allowance for expected losses at January 1, 2021 $
Reserves recovery* related to decrease in allowance
for expected losses
267,400
$ 287,600
(236,400)
(287,600)
Allowance for expected losses at December 31, 2021 $
31,000
$
—
$
$
—
—
$ 555,000
(524,000)
$ 31,000
* a component of the provision for loan losses
There were no transfers between the three stages of the allowance for expected losses on the guarantee of
managed receivables during 2021.
The activity in the allowance for expected losses on the guarantee of managed receivables during 2020 by stage
of allowance was follows:
Stage 1 Stage 2 Stage 3 Total
Allowance for expected losses at January 1, 2020 $
40,480 $ 3,520 $ — $ 44,000
Transfer between stages
Reserves expense (recovery)* related to
change in allowance for expected losses
(7,116) 5,643 1,473 —
234,036 278,437 (1,473) 511,000
Allowance for expected losses at December 31, 2020 $
267,400 $ 287,600 $ — $ 555,000
* a component of the provision for loan losses
Annual Report 2021
53
6. Assets held for sale
8. Goodwill
Assets held for sale and movements therein during
2021 and 2020 were as follows:
2021 2020
Assets held for sale
at January 1 $ 1,513,567 $ 6,970,369
Additions 160,274 2,424,867
Disposals (623,433) (7,238,095)
Impairment charge (872,948) (1,086,812)
Foreign exchange adjustment (17,186) 443,238
Assets held for sale
at December 31 $ 160,274 $ 1,513,567
During 2021 and 2020, the Company obtained title
to or repossessed certain long-lived assets securing
defaulted finance receivables and loans from a number
of clients. These assets are actively marketed for sale
and are disposed of as market conditions permit.
The estimated net realizable value of the assets at
the above dates was based upon appraisals thereof.
During 2021 assets totalling $160,274 (2020 –
$2,424,867) were repossessed, while assets were
disposed of for net proceeds of $623,433 (2020 –
$7,238,095). Impairment charges of $872,948
(2020 – $1,086,812) were booked against the assets
to write them down to NRV.
7. Property and equipment
(in thousands) Dec. 31, 2021 Dec. 31, 2020
Cost $ 4,732 $ 4,103
Accumulated depreciation (3,459) (2,448)
Net book value $ 1,273 $ 1,655
Property and equipment includes the Company’s
right-of-use assets, comprising five office leases at
December 31, 2021. The Company’s right-of-use
assets and movements therein during 2021 and
2020 were as follows:
(in thousands) 2021 2020
Right-of-use assets at
January 1 $ 1,103 $ 1,544
Additions 242 —
Depreciation (466) (439)
Foreign exchange
adjustment (4) (2)
Right-of-use assets at
December 31 $ 875 $ 1,103
2021 2020
Goodwill at January 1 $ 13,218,843 $ 13,454,926
Foreign exchange
adjustment (78,396) (236,083)
Goodwill at December 31 $ 13,140,447 $ 13,218,843
At December 31, 2021 and 2020, 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, 2021
and 2020:
2021 2020
U.S. operations $ 11,257,940 $ 11,336,336
Canadian operations 1,882,507 1,882,507
$ 13,140,447 $ 13,218,843
Goodwill is tested for impairment annually. During
2021 and 2020, 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 fair
value estimate would be considered Level 3 under
the fair value hierarchy as defined in note 3(q).
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 2021 a multiple of 9.8
(2020 – 10.0) was used. Management believes a
reasonable decrease in the multiple would not cause
an impairment in the goodwill of its CGUs.
54 Accord Financial Corp.
9. Intangible assets
Intangible assets and movements therein during 2021 and 2020 were as follows:
Customer
and referral Broker Brand
2021 relationships relationships name Total
Cost
January 1, 2021 $ 1,938,018 $ 1,343,938 $ 1,733,145 $ 5,015,101
Foreign exchange adjustment (13,402) — (11,986) (25,388)
December 31, 2021 $ 1,924,616 $ 1,343,938 $ 1,721,159 $ 4,989,713
Accumulated amortization
January 1, 2021 $ (406,875) $ (1,330,482) $ — $ (1,737,357)
Amortization expense (127,499)
(13,456) — (140,955)
Foreign exchange adjustment 1,795 — — 1,795
December 31, 2021 $ (532,579) $ (1,343,938) $ — $ (1,876,517)
Book value
January 1, 2021 $ 1,531,143 $ 13,456 $ 1,733,145 $ 3,277,744
December 31, 2021 $ 1,392,037 $ — $ 1,721,159 $ 3,113,196
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
10. Bank indebtedness
11. Loans payable
A revolving line of credit approximating $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
finance receivables and loans of a number of the
Company’s subsidiaries. At December 31, 2021, the
amount outstanding under the line of credit totalled
$207,382,279 (December 31, 2020 – $210,940,174).
The Company was in compliance with all loan
covenants under its bank line of credit during 2021
and 2020. On July 26, 2021, the line was renewed
for a further one-year period.
(a) BondIt loan
A revolving line of credit has been established by
BondIt 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 increased
to US$47,000,000 ($59,394,000) in October 2021 and
extended to May 6, 2023. At December 31, 2021, the
amount outstanding under this line of credit totalled
$60,049,385 (2020 – $21,376,479); the amount
borrowed exceeded the credit limit as a result of
fees and interest due to the non-bank lender.
BondIt was in compliance with all loan covenants
under this facility during 2021 and 2020.
Annual Report 2021
55
(b) ASBF loan
On December 2, 2021, ASBF, a subsidiary of AFCC,
entered into a non-recourse loan and security
agreement with a life insurance company. This loan
is collateralized by all of ASBF’s assets and bears a
fixed rate of interest. At December 31, 2021, the
amount outstanding under this loan facility totalled
$89,387,586 (2020 – $nil), of which $27,676,686 is
expected to be paid within one year and $61,710,900
thereafter.
12. Related parties
(a) Notes payable
Notes payable comprise: (i) unsecured demand notes
due on, or within a week of, demand of $2,333,107
(2020 – $1,587,272); (ii) term notes totalling
$13,659,250 (2020 – $15,846,782), which are repayable
on various dates the latest of which is January 31,
2023. 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:
2021 2020
Demand and term notes
(due within one year):
Related parties $ 13,843,707 $ 15,071,938
Third parties 1,516,800 2,362,116
15,360,507 17,434,054
Term note due after one year:
Third parties 631,850 —
$ 15,992,357 $ 17,434,054
Notes due on, or within a week of, demand bear
interest at rates that vary with the bank prime rate
or Libor, while the term notes bear interest at
rates between 7% and 11%.
Interest expense on the notes payable was as follows:
2021 2020
Related parties $ 957,806 $ 1,032,655
Third parties 219,151 177,747
$ 1,176,957 $ 1,210,402
(b) Compensation of directors and key
management personnel
The remuneration of directors and key management
personnel(1) during 2021 and 2020 was as follows:
2021 2020
Salaries and directors' fees $ 5,672,276 $ 4,791,966
Stock-based compensation(2) 87,884 —
$ 5,760,160 $ 4,791,966
(1) Key management personnel comprise the President and CEO of the
Company, the Presidents of its six operating businesses, and the
Company’s Senior Vice Presidents, including its Chief Financial Officer.
(2) Stock-based compensation comprises the expense related to the
Company's stock option grants. Please see note 15.
(c) BondIt participations
BondIt utilizes loan participations to provide capital
for and reduce the risk of loss on certain client loans,
as well as reduce its overall cost of capital. A number
of related parties have participated in the BondIt
client loans. At December 31, 2021, participations
in BondIt client loans totalled US$40,704,000
(December 31, 2020 – US$14,765,000), of which
US$1,562,000 (December 31, 2020 – US$2,405,000)
was provided by related parties. These participations
are not included in the Company’s Statements of
Financial Position.
13. Convertible debentures
Convertible debentures with a face value of
$25,650,000 (25,650 convertible debentures) carrying
a 7% coupon rate were issued by the Company in
2018 and 2019. Of these, 20,650 debentures are
listed for trading on the Toronto Stock Exchange
(“TSX”), while 5,000 are unlisted. 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 were 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
56 Accord Financial Corp.
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
from the debentures issued 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, 2021 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 1,739,107 — 1,739,107
$ 24,152,681 $ 1,005,105 $ 25,157,786
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
(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)
1,095,999
— 1,095,999
$ 23,509,573 $ 1,005,105 $ 24,514,678
At December 31, 2021 all debentures remained
outstanding.
14. 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
2021
2020
$ 525
538
23
$ 501
759
115
Total undiscounted lease
obligations
Less: short-term lease
commitments elected for
exemption under IFRS 16
Less: future interest
Lease liabilities at December 31
1,086
1,375
(7)
(100)
$ 979
(17)
(151)
$ 1,207
During 2021, principal and interest payments for
the five office leases recognized as right-of-use assets
under IFRS 16 totalled $464,013 (2020 – $385,509)
and $67,393 (2020 – $104,952) respectively, for
total lease payments of $531,406 (2020 – $491,461).
No variable lease payments are included in the
measurement of the Company’s lease liabilities.
Annual Report 2021
57
15. Capital stock, share repurchase
program, 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, 2021 and 2020, there were no first
preferred shares outstanding.
(b) Issued and outstanding
The Company's issued and outstanding common
shares during 2021 and 2020 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.
On termination of the 2019 Bid, the Company did
not renew its normal course issuer bid. In 2020,
under the 2019 Bid, the Company repurchased and
cancelled 30,000 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 2021 and 2020 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 2021,
dividends totalling $1,711,783 (2020 – $2,055,417),
or $0.20 (2020 – $0.24) per common share, were
declared and paid. On March 1, 2022, the Company
paid a quarterly dividend of $0.075 per common
share to shareholders for a total dividend payment
of $641,919.
(f) Stock option plans
The Company has established a new stock option
plan (the “2021 SOP”) for employees and directors.
Under the terms of the plan, an aggregate of 850,000
common shares, representing 9.9% of the Company’s
issued and outstanding common shares, have been
reserved for issue upon the exercise of stock options
granted. The number of common shares issued
within a one-year period shall not exceed 10% of the
Company’s issued and outstanding common shares.
The options granted will vest one-third on the date
of the grant, and one-third on each of the first two
anniversaries of the date of grant or over such other
period as the Board may decide. The options shall
be exercisable for a period established by the Board
which shall in any event be no later than seven
years after the date of grant. The exercise price of
all options granted under the 2021 SOP shall not be
lower than the volume-adjusted average trading
price of the Company’s common share on the
Toronto Stock Exchange during the ten days
immediately preceding the date of grant.
The Company’s former key employee stock option
plan (“KESOP”) and non-executive directors' stock
option plan (“NEDSOP”) under which an aggregate
of 1,000,000 and 500,000 common shares, respectively,
had been reserved for issue upon the exercise of
options granted to key managerial employees of the
Company and its subsidiaries and non-executive
directors of the Company were terminated on
March 10, 2021. At December 31, 2020, no options
were outstanding under the KESOP, while 60,000
vested options, granted on July 27, 2016, were
outstanding under the NEDSOP. These had an
58 Accord Financial Corp.
exercise price of $9.28 and expired unexercised on
July 26, 2021.
On August 4, 2021, the Company granted 80,100 stock
options to senior employees at an exercise price $8.83.
On October 12, 2021, the Company also granted
12,000 stock options to its President at an exercise
price of $8.83.
At December 31, 2021, outstanding options granted
under the 2021 SOP were as follows:
The Company’s Board terminated the LTIP on
March 10, 2021. Any payouts in respect of the
outstanding LTIP awards will be settled in cash.
The payout value of outstanding vested and
unvested LTIP awards at December 31, 2021 was
$nil (December 31, 2020 – $nil)
(h) Stock-based compensation
During 2021, the Company recorded a stock-based
compensation expense totalling $87,884 (2020 – $nil),
all of which related to stock option grants.
Exercise
price
Grant date
Expiry date Dec. 31, 2021 Dec. 31, 2020
16. Income taxes
Aug. 4, 2021
$8.83
$8.83 Oct. 12, 2021
Aug. 3, 2028
Aug. 3, 2028
80,100
12,000
92,100
—
—
—
Of the outstanding options, 30,700 were vested at
December 31, 2021.
The fair value of the options granted in 2021 was
determined using the Black-Scholes option pricing
model with the following assumptions on the
grant date:
Aug. 4, 2021 Oct. 12, 2021
grant grant
Risk free interest rate
Expected dividend yield
Expected share price volatility
Expected life of option
Fair value per option
0.92% 1.35%
2.24% 2.48%
24.30% 24.60%
7.0 years 6.8 years
$1.85 $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 Company's income tax expense (recovery)
comprises:
2021 2020
Current income tax expense
(recovery) $ 3,429,726 $ (2,033,967)
Deferred tax (recovery) (1,702,726) (2,636,033)
Income tax expense (recovery) $ 1,727,000 $ (4,670,000)
During 2021 and 2020, the Company's statutory
income tax rate was 26.5%. The Company's income
tax expense (recovery) varies from the amount that
would be computed using the Canadian statutory
income tax rate due to the following:
2021 %
Income tax expense computed
at statutory rates $ 3,961,581 26.5
Decrease resulting from:
Lower effective tax rate on
income of subsidiaries (2,037,126) (13.6)
Non-controlling interests in
subsidiaries (285,457) (1.9)
Other 88,002 0.6
Income tax expense $ 1,727,000 11.6
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 2021
59
The tax effects that give rise to the net deferred tax
assets at December 31 were as follows:
2021 2020
Deferred tax assets:
Unused tax losses $ 11,659,373 $ 11,371,473
Allowances for expected
losses
Property and equipment
Leasing timing difference
Other
613,096 580,113
— 15,000
22,000 —
31,802 42,813
$ 12,326,271 $ 12,014,399
Deferred tax liabilities:
Basis differential on pass
through subsidiaries (8,246,906) (9,676,090)
(231,257) (270,867)
Acquired intangibles
(396,000) 5,000
Leasing timing difference
(7,000) (7,000)
Property and equipment
(29,518) (58,262)
Other
(8,910,681) (10,012,219)
$ 3,415,590 $ 2,002,180
The tax effects that give rise to the net deferred tax
liabilities at December 31 were as follows:
2021 2020
Deferred tax assets:
Allowances for expected
losses $ — $ (70,000)
Unused tax losses — (67,000)
— (137,000)
Deferred tax liabilities:
Convertible debentures
accretion 276,720
347,935
Lease receivables — 388,000
Acquired intangibles — 3,575
276,720
739,510
$ 276,720
$ 602,510
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, 2021 and 2020, 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.
17. 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, specifically 8,558,913, 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.
All outstanding stock options were excluded from
the calculation of the diluted weighted number of
shares outstanding during 2021 and 2020 because
they were considered to be anti-dilutive for earnings
per common share purposes. Details of stock options
outstanding are set out in note 15(f). All convertible
debentures were similarly excluded from the
calculation during 2021 and 2020 because they
were anti-dilutive for earnings per common share
purposes.
18. 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
60 Accord Financial Corp.
20. 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 2021 and 2020 are set out in the
consolidated statements of changes in equity.
21. Non-controlling interests in
subsidiaries
Non-controlling interests in subsidiaries at December
31, 2021 comprised an effective 39% (December 31,
2020 – 49%) interest in BondIt’s common member
units and an 8% (December 31, 2020 – 8%) interest
in AEF’s common units (also see note 27). On August 1,
2021, the Company acquired an additional 10% of
the common member units in BondIt from a non-
controlling interest at a cost of $1,369,231
(US$1,098,725) increasing its share of common
member units to 61%. Please see the consolidated
statements of changes in equity for movements in
non-controlling interests during 2021 and 2020.
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, 2021 and 2020, 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, 2021 and 2020, the Company
was contingently liable with respect to letters of
guarantee issued on behalf of a client in the amount
of $644,487 (2020 – $648,975). There were no letters
of credit issued on behalf of clients for which the
Company was contingently liable at those dates.
These amounts were considered in determining the
allowance for expected losses on finance receivables
and loans.
19. Derivative financial instruments
At December 31, 2021, the Company had no
outstanding foreign exchange contracts. At December
31, 2020, the Company had entered into forward
foreign exchange contracts with a financial institution
that matured between January 29, 2021 and
August 31, 2021 and obliged 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. 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
were classified as Level 2 under IFRS 7. During 2021
and 2020 there was no movement between the
three-level fair value hierarchy described in note 3(q).
Annual Report 2021
61
22. 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.
2021 (in thousands) Canada United States Intercompany Consolidated
Identifiable assets
Revenue
Interest income
Other income
Expenses
Interest
General and administrative
Provision for (recovery of) credit and loan losses
Impairment of assets held for sale
Depreciation
Business acquisition expenses
Earnings before income tax
Income tax expense
Net earnings
Net earnings attributable to non-controlling interests
in subsidiaries
Net earnings attributable to shareholders
$ 266,426
$ 256,393
$ (2,710)
$ 520,109
$ 28,153
4,857
33,010
10,371
17,032
234
141
322
14
28,114
4,896
1,219
3,677
—
$ 3,677
$ 24,206
6,726
30,932
5,978
14,423
(848)
732
373
221
20,879
10,053
508
9,545
$ (462)
—
(462)
(462)
—
—
—
—
—
(462)
—
—
—
$ 51,897
11,583
63,480
15,887
31,455
(614)
873
695
235
48,531
14,949
1,727
13,222
1,335
$ 8,210
—
$ —
1,335
$ 11,887
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)
(479)
—
—
—
—
—
(479)
—
—
—
$ 42,705
5,796
48,501
14,596
26,458
9,403
1,087
721
298
52,563
(4,062)
(4,670)
608
—
$ (7,234)
191
$ 7,651
—
$ —
191
$ 417
62 Accord Financial Corp.
23. Fair values of financial assets and
liabilities
Financial assets or liabilities, other than lease
receivables and loans to clients in our equipment
and small business finance operations, lease liabilities,
term loan payable, 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 2021 and 2020.
24. 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.
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. In respect of its
finance receivables and loans, 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;
or (iii) hold the guarantee of a credit worthy party.
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 an allowance
for expected losses on all 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
2021 and 2020.
At December 31, 2021, the Company had impaired
loans of $1,696,000 (2020 – $2,539,000), while at
that date, it held collateral for these loans with an
estimated net realizable value of $1,639,000 (2020 –
$3,013,000). These impaired loans were mainly
secured by receivables, inventory, equipment
and/or strong guarantees. The Company did not
have any impaired managed receivables at
December 31, 2021 and 2020.
(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 ($478 million) and managed receivables
($11 million) represent the Company's maximum
credit exposure and is the most significant measurable
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
case of U.S. group companies) is approved by the
Credit Committee of the Board of Directors, which
Annual Report 2021
63
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, equipment and AccordExpress working
capital loans are mainly term loans with payments
usually spread out evenly over the term of the lease
or loan, which can be up to 60 months. Of the total
managed receivables that the Company guarantees
payment, none were past due more than 60 days at
December 31, 2021 (December 31, 2020 – 4.6%). 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 5 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
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, 2021, the Company
had guaranteed accounts receivable in excess of
$5 million for one customer.
The Company's credit exposure relating to its
finance receivables and loans by industrial sector
was as follows:
December 31, 2021
Gross finance
Industrial sector receivables % of
(in thousands) and loans total
Manufacturing $ 101,727 21
Media 81,497 17
Professional services 78,798 16
Financial services 59,278 13
Transportation 51,501 11
Wholesale and distribution 31,070 7
Construction 28,845 6
Retail 20,041 4
Other 25,393 5
$ 478,150 100
64 Accord Financial Corp.
December 31, 2020
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
The Company’s credit exposure relating to its managed
receivables by industrial sector was as follows:
December 31, 2021
Industrial sector Managed % of
(in thousands) receivables total
Wholesale and distribution $ 9,768 85
Retail 1,673 15
Other — —
$ 11,441 100
Industrial sector Managed % of
(in thousands) receivables total
Retail $ 14,752 80
Wholesale and distribution 409 2
Other 3,361 18
$ 18,522 100
As set out in notes 3(d) and 5, the Company maintains
an allowance for expected 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
expected 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, 2021 by maturity date were as follows:
(in thousands)
Less than
1 to 2
1 year years
2 to 3 3 to 4 4 to 5
years years years Thereafter Total
Financial assets
Cash and restricted cash $ 21,062 $ 1,091 $
Finance receivables
1,273 $ 722 $ — $ — $ 24,148
and loans
All other assets
234,602 105,332 89,868 43,419 4,928 — 478,149
— — — — 1,377
1,377 —
$ 257,041 $ 106,423 $ 91,141 $ 44,141 $ 4,928 $ — $ 503,674
Financial liabilities
Due to clients
Bank indebtedness
Loan payable
Notes payable
Convertible debentures
All other liabilities
$
3,287
207,382
87,726
15,360
—
14,594
$
—
—
21,809
632
—
242
$
—
—
25,468
—
24,153
124
$ — $ — $ — $ 3,287
— — — 207,382
14,434 — — 149,437
— — — 15,992
— — — 24,153
88 87 23 15,158
$ 328,349
$ 22,683
$ 49,745
$ 14,522 $ 87 $ 23 $ 415,409
Annual Report 2021
65
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
— $ 369,559
$ 78,102 $ 36,887 $
$ 185,778 $ 62,556
6,236 $
$ 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
110 $ 289,235
408
$ 23,612 $
76 $
82 $
— $
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, loans payable, notes payable,
convertible debentures, due to clients, and accounts
payable and other liabilities. At December 31, 2021,
revolving credit lines and a term facility totalling
approximately $526 million (December 31, 2020 –
$392 million) had been established with a syndicate
of banks, as well as non-bank lenders, bearing
interest varying with the bank prime rate or Libor.
At December 31, 2021, the Company had borrowed
$356,819,250 (December 31, 2020 – $232,316,653)
against these facilities. These facilities are
collateralized primarily by finance receivables and
loans to clients. As detailed in note 10, the Company
was in compliance with all loan covenants under
its bank line of credit during 2021 and 2020, while
BondIt was compliant with all covenants under its
line of credit (see note 11(a)) with its non-bank
lender. ASBF was compliant with its term loan facility
(see note 11(b)) with a life insurance company at
December 31, 2021.
Notes payable of $2,333,107 are due on, or within
a week of demand, while term notes totalling
$13,659,250 are repayable at various dates the latest
of which is January 31, 2023 (see note 12(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, 2021, 87% (2020 – 86%) of these
notes were due to related parties and 13% (2020 –
14%) to third parties. The Company’s convertible
debenture liability was $24,152,681 at December 31,
2021. 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, 2021, the Company had gross
finance receivables and loans totalling $478,149,717
(December 31, 2020 – $360,337,167) which
substantially exceeded its total liabilities of
$416,149,067 at that date (December 31, 2020 –
$291,153,514). The Company's receivables normally
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.
66 Accord Financial Corp.
(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, 2021, the
Company's unhedged foreign currency positions in
its Canadian operations totalled $558,000 (2020 –
$346,000). 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 floating
rate 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 days) borrowings, the Company’s
exposure to interest rate risk is not significant.
However, as the Company’s equipment and small
business finance operations continue 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 and working capital
finance businesses. Based on the Company's interest
rate positions at December 31, 2021, a sustained
100 basis point change in interest rates across all
currencies and maturities would not have a significant
impact on net earnings over a one-year period.
The following table shows the interest rate sensitivity gap at December 31, 2021:
Floating 0 to 12 1 to 3 4 to 5 Non-rate
(in thousands) rate months years years Thereafter sensitive Total
Assets
Cash and restricted cash
Finance receivables and loans, net
All other assets
Liabilities
Due to clients
Bank indebtedness
Loans payable
Notes payable
Convertible debentures
All other liabilities
Equity
$ 19,068 $
— $ 5,080 $ 24,148
250,633 40,049 153,257 34,210 — (5,251) 472,898
— 265 — — — 22,798 23,063
— $
— $
— $
269,701 40,314 153,257 34,210 — 22,627 520,109
— — — — 3,288 3,288
9,574 197,699 — — 109 207,382
60,049 27,677 47,277 14,434 — 149,437
2,333 13,027 632 — — 15,992
— — 24,153 — — 24,153
— 2,762 304 175 23 12,633 15,897
— — — — — 103,960 103,960
71,956 241,165 72,366 14,609 23 119,990 520,109
$ 197,745 $(200,851) $ 80,891 $ 19,601 $
(23) $ (97,363) $
—
Annual Report 2021
67
25. Capital disclosure
Company's approach to capital management from
previous periods.
26. Government grants
During 2021, the Company received $249,481 (2020
– $1,053,137) under the Canadian Emergency Wage
Subsidy program and $75,474 (2020 – $37,085)
under the Canadian Emergency Rent Subsidy
program. These grants were credited against their
respective payroll and rent expenses in G&A.
27. Subsequent events
On January 1, 2022, AFIU acquired an additional
8% of AEF common units from non-controlling
interests at a cost of $537,073 (US$425,000) bringing
its ownership in AEF up to 100%. At March 21, 2022,
there were no other subsequent events occurring
after December 31, 2021 that required disclosure or
adjustments to the financial statements.
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 total
equity and its total equity to total assets. At
December 31, 2021, as a percentage, these ratios
were 382% (2020 – 291%) and 20% (2020 – 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, 2021, 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
68 Accord Financial Corp.
Corporate Information
Auditors
KPMG LLP
Legal Counsel
Stikeman Elliott
Stock Exchange Listings
Toronto Stock Exchange Symbols:
Common Shares: ACD
Convertible Debentures: ACD.DB
Bankers
Bank of Montreal
The Bank of Nova Scotia
Truist Bank
Canadian Imperial Bank
of Commerce
HSBC Bank Canada
M&T Bank
Annual Meeting
The Annual Meeting of
Shareholders will be held at
Toronto Board of Trade,
3rd Floor,
First Canadian Place,
Toronto, Ontario
on Wednesday, May 4, 2022
at 4:15 pm
The Toronto-Dominion Bank
602-40 Eglinton Avenue East
Registrar & Transfer
Agent
Computershare Trust Company
of Canada
Toronto, Ontario
Canada M4P 3A2
Tel (800) 967-0015
Fax (416) 961-9443
www.accordfinancial.com
Board of Directors
David Beutel, Toronto, Ontario 1, 3, 4
Simon Hitzig, Toronto, Ontario
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
(4) Chairman of the Board
Officers
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
Subsidiaries
Accord Financial Ltd.
Simon Hitzig, President
Accord Financial Inc.
Jason Rosenfeld, President
Accord Financial, Inc.
Jim Hogan, President
Accord Small Business Finance
James Jang, President
Accord Equipment Finance
Barrett Carlson, President
BondIt Media Capital
Matthew Helderman, President
IN CANADA
(800) 967-0015
IN THE U.S.
(800) 231-2757
www.accordfinancial.com