Strength | Stability | Continuity
Annual Report | 2022
Strength | Stability | Continuity
In times of economic uncertainty, Accord’s stakeholders – investors, clients, employees – can rely on
our time-tested strength and stability. For forty-five years the Company has successfully navigated
through multiple economic cycles, giving us valuable perspective as the current environment unfolds.
Small- and medium-sized businesses are facing a myriad of challenges: rapid inflation, supply chain problems, rising
interest rates, and more. Throughout this period, Accord has brought every tool in our arsenal to keep businesses
liquid, while the economy works to find its footing.
With Accord’s unwavering support, our clients develop innovative products, provide outstanding service, hire the
next generation of talent, and deliver the promise of progress. We know what it takes to navigate to a competitive
advantage; to not only survive, but to thrive.
As always, Accord is here to help our clients and referral partners weather the storm and position themselves for
growth ahead. With equal ambition, deep market presence and financial strength, Accord is similarly poised to
unlock potential for our investors in the year ahead.
Table of Contents
1 Three Year Financial Highlights Summary
38 Consolidated Statements of Financial Position
2 Letter To Our Shareholders
39 Consolidated Statements of Earnings
4 Management’s Discussion and Analysis
39 Consolidated Statements of Comprehensive Income
28 Appendix to MD&A: Non-IFRS Measures and Ratios
40 Consolidated Statements of Changes in Equity
31 Ten Year Financial Summary 2013-2022
41 Consolidated Statements of Cash Flows
32 Management’s Report to the Shareholders
33 Independent Auditor’s Report to the Shareholders
42 Notes to Consolidated Financial Statements
Inside back cover Corporate Information
Strong & Stable Financing Solutions from Accord
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. Forty-five 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 2023.
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 more than 500 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.
Five Year Financial Highlights
2022
67.5
2021
63.5
2020
48.5
2019
56.2
2018
46.9
2022
1.43
2021
11.89
2020
0.42
2019
6.44
2018
10.36
0 10 20 30 40 50 60 70 80
0 2 4 6 8 10 12
Revenue
(in millions of dollars)
Revenue rose by 6% to $67.5 million in 2022
from $63.5 million in 2021.
Net Earnings
(in millions of dollars)
Net earnings decreased to $1.43 million in
2022 from $11.89 million in 2021. Adjusted
net earnings in 2022 were $2.1 million.
2022
7.70
2021
8.40
2020
6.70
2019
10.07
2018
9.09
2022
17
2021
139
2020
2019
5
76
2018
124
0 2 4 6 8 10 12
0 30 60
90
120 150
Share Price
(at close on December 31)
Accord’s share price (TSX: ACD) closed 2022
at $7.70.
Diluted Earnings per Share
2022 diluted earnings per share were
17 cents compared to $1.39 in 2021.
2022 adjusted diluted EPS were 24 cents
compared to $1.53 in 2021.
2022
101.0
2021
100.0
2020
89.9
2019
92.5
2018
89.9
2022
1.40
2021
12.60
2020
0.50
2019
7.10
2018
12.80
0 20 40 60 80 100 120
0 3 6
9 12 15
Shareholders’ Equity
(in millions of dollars)
Shareholders’ equity increased to $101 million
at December 31, 2022. Book value per share
was $11.80 at December 31, 2022.
Return on Average Equity
(as a percent per annum of average equity)
Return on average equity decreased to
1.4% in 2022 from 12.6% in 2021.
Three Year Financial Highlights Summary
Operating Data
Years ended December 31
(in thousands of dollars except where indicated) 2022 2021 2020
Revenue $ $67,491 $ 63,480 $ 48,501
Net earnings attributable to shareholders 1,427 11,887 417
Adjusted net earnings 2,079 13,068 2,032
Return on average equity 1.40% 12.60% 0.50%
Adjusted return on average equity 2.04% 13.80% 2.20%
Financial Position Data
At December 31
(in thousands of dollars)
Average funds employed (during the year) $ 449,830 $ 402,015 $ 347,493
Total assets 491,761 520,109 384,913
Shareholders' equity 100,972 99,967 89,850
Common Share Data
(per common share)
Earnings per share - basic and diluted $ 0.17 $ 1.39 $ 0.05
Adjusted earnings per share - basic and diluted 0.24 1.53 0.24
Dividends paid 0.30 0.20 0.24
Share price - high 9.50 9.20 10.15
- low 7.50 6.23 3.51
- close at December 31 7.70 8.40 6.70
Book value per share at December 31 11.80 11.68 10.50
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 2022 | 1
Letter to Our Shareholders
Following Accord’s record performance in 2021, the economic environment deteriorated in 2022,
creating challenges within our core markets and headwinds to growth and earnings. Inflation and
rising interest rates hampered financial performance for small- and medium-sized businesses across
many industries, and Accord’s operating companies faced related challenges, including a weaker credit
environment, and in many sectors, weaker deal flow as middle market companies took a more cautious
approach to incurring incremental debt to buy equipment, expand operations, or make acquisitions.
Against this backdrop Accord maintained a conservative
approach to adding new business; the Company’s finance
receivables and loans declined 5% over the year to
$453 million at December 31, 2022. Other metrics, however,
remained strong, including average funds employed,
which reached $450 million in 2022 up from $402 million
in 2021. Revenue followed suit, achieving a record of
$67.5 million compared to $63.5 million last year.
Reflecting the economic headwinds and their impact on
certain businesses within the portfolio, the Company’s
2022 net earnings were hampered by a $8.3 million
provision for credit losses, compared to a recovery of
$614,000 in 2021. The Company anticipates that inflation
and rising interest rates may weaken the payment
performance of some of its existing clients. To gauge credit
quality against this backdrop, the Company employs a
comprehensive process, incorporating third-party economic
forecasts, quantitative credit evaluation of each company
in the portfolio, and expert judgment refined over multiple
economic cycles. In this context the Company continues
to carry a robust allowance for expected credit losses on
the balance sheet: $8.2 million at December 31, 2022
compared to $5.3 million a year earlier.
At year end the Company also recognized an impairment
of goodwill, reflected as a $1,883,000 non-cash expense,
which decreased the Company’s shareholders’ equity.
Tangible equity, which represents net assets deployed
for growth, was unaffected by the expense.
Affected by the provision for credit losses and the non-cash
goodwill charge, net earnings attributable to shareholders
were $1.4 million in 2022 compared to $11.9 million in
2021, resulting in earnings per common share (“EPS”) of
$0.17 compared to $1.39 last year. Book value per common
share rose to $11.80 at year end, up from $11.68 at the
start of the year.
Heading into 2023 the economic environment is beginning
to provide the ingredients for increasing growth and
earnings. Economic uncertainty often leads the major
banks to restrict their lending appetite, which provides
opportunities for Accord as our lending expertise, and
reliance on strong collateral, allows us to finance companies
that may no longer meet the banks’ criteria. As the new
business pipeline grows, improving economic visibility
will allow Accord to underwrite with confidence.
Accord is well positioned to perform in this environment.
Over the past two years we’ve strengthened the
management team, built a world class sales & marketing
platform, rejuvenated the product lineup, and diversified
our funding sources to support the next stage of growth.
Turning our attention to client-facing activities, we’re now
advancing our strategy to maximize sales & marketing
2 | Accord Financial Corp.
performance by leveraging our ability to deliver multiple
product solutions through our integrated sales channels.
Announcement
Simon Hitzig
Accord’s founders and investors have shown strong
support throughout this period. The Company maintains
a solid investor base, with more than $100 million of equity.
The Company also enjoys support from a syndicate of six
major banks, which recently increased its credit facility
commitment to $437 million with a new maturity date of
July 2025. In anticipation of renewed growth, the Company
is evaluating a range of options to increase its available
capital, including both private and private channels. This
is consistent with other similar companies, whereby funds
are raised publicly, privately, through forward-flow and/or
asset management structures, or a combination of these
and other strategies.
While 2022 fell short of our growth and earnings
expectations, Accord’s renowned strength and stability
allowed our clients and referral partners to weather the
storm and position themselves for growth ahead. With
equal ambition, deep market presence and financial
strength, Accord is similarly poised to unlock potential
for our investors in the year ahead.
Simon Hitzig
President & Chief Executive Officer
March 22, 2023
Irene Eddy
Senior Vice President,
Chief Financial Officer
In May 2022, after several years of stellar work
strengthening Accord’s capital base, Irene Eddy was
promoted to Chief Financial Officer. She quickly
rallied the finance teams across Accord’s operating
companies, and together they set to work streamlining
a number of key processes, capped off by successfully
implementing a new enterprise accounting system
at year end.
Since joining Accord in 2019 as SVP of capital markets,
she broadened our network of financing relationships,
negotiated key funding deals, and diversified Accord’s
capital base. She now heads Accord’s entire finance
organization, providing leadership in all areas of
planning, finance, reporting and strategy.
“Joining Accord meant embracing change,” Eddy
says. “In today’s economy, managing the ups and
downs successfully as an organization is as important
to us as it is to our clients. Adapting over time is our
hallmark of success.”
Eddy’s impressive resume includes more than twenty
years at GE Capital, playing a crucial role in structuring
more than $23 billion in asset securitization and
alternative funding solutions.
2023 and beyond will bring new challenges – we
couldn’t be more pleased to have Irene navigate
those challenges from the CFO chair.
Annual Report 2022 | 3
Management’s Discussion & Analysis of Results
of Operations and Financial Condition (“MD&A”)
Year ended December 31, 2022 compared with year ended December 31, 2021
FINANCIAL HIGHLIGHTS
Years ended December 31
(in thousands except average funds employed, earnings per common share,
adjusted earnings per common share, and book value per share)
$
Average funds employed (millions)
Revenue
Earnings before income tax
Net earnings attributable to shareholders
Adjusted net earnings
Earnings per common share (basic and diluted)
Adjusted earnings per common share (basic and diluted)
2022
450
67,491
2,646
1,427
2,079
0.17
0.24
Book value per share (December 31)
$
11.80
2021
$ 402
63,480
14,949
11,887
13,068
1.39
1.53
$ 11.68
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, 2022
compared with the year ended December 31, 2021 and, where presented, the year ended December 31,
2020. 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 22,
2023, should be read in conjunction with the Company’s
2022 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 2022 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 2022 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
Irene Eddy
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 18 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 2022 | 5
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;
vi) Financial condition and leverage ratios –
Table 2 on page 11 presents the following percentages:
(i) total equity expressed as a percentage of total
assets; (ii) tangible equity (total equity less goodwill,
intangible assets and deferred taxes) expressed as
a percentage of total assets; and (iii) debt (bank in
debtedness, 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
vii) Credit quality – Table 3 on page 14 presents
information on the quality of the Company's total
portfolio, namely, its finance receivables and loans
and managed receivables. It presents the Company’s
year-end allowances for expected credit 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 2022 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. 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. Some sections of
this report present Accord's businesses as cash-generating
units ("CGUs"), which is simply an aggregation of
subsidiaries according to their country of operation.
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)
2022 2021 2020
Revenue $ 67,491 $ 63,480 $ 48,501
Net earnings attributable
to shareholders 1,427 11,887 417
Basic and diluted
earnings per share 0.17 1.39 0.05
Dividends per share 0.30 0.20 0.24
Total assets 491,761 520,109 384,913
Long-term financial
liabilities 102,185 86,496 23,510
6 | Accord Financial Corp.
RESULTS OF OPERATIONS
2022 2021
Years ended December 31 % of % of % change from
(in thousands unless otherwise stated) Actual Revenue Actual Revenue 2021 to 2022
Revenue
Interest income $ 60,212 89.2% $ 51,898 81.8% 16.0%
Other income 7,278 10.8% 11,583 18.2% (37.2%)
67,491 100.0% 63,480 100.0% 6.3%
Expenses
Interest 24,087 35.7% 15,887 25.0% 51.6%
General and administrative 29,599 43.9% 31,455 49.6% (5.9%)
Provision for (recovery of) credit and
loan losses 8,293 12.3% (614) (1.0%) 1,449.8%
Impairment of goodwill 1,883 2.8% — — n/m
Impairment of assets held for sale 148 0.2% 873 1.4% (83.0%)
Depreciation 702 1.0% 695 1.1% 0.9%
Business acquisition expenses:
Transaction costs — — 94 — n/m
Amortization of intangible assets 132 0.2% 141 0.2% (6.4%)
Earnings before income taxes 2,646 3.9% 14,949 23.5% (82.3%)
Income tax expense 1,001 1.5% 1,727 2.7% (42.0%)
Net earnings 1,645 2.4% 13,222 20.8% (87.6%)
Net earnings attributable to non-controlling
interests in subsidiaries 218 0.3% 1,335 2.1% (83.7%)
Net earnings attributable to shareholders $ 1,427 2.1% $ 11,887 18.7% (88.0%)
Adjusted net earnings $ 2,079 3.1% $ 13,068 20.6% (84.1%)
Earnings per common share (basic & diluted) $ 0.17 $ 1.39 (88.0%)
Adjusted earnings per common share
basic & diluted) $ 0.24 $ 1.53 (84.1%)
n/m - not meaningful
RESULTS OF OPERATIONS
Year ended December 31, 2022 compared with year
ended December 31, 2021
Shareholders’ net earnings in 2022 were $1,427,000
compared to the $11,887,000 earned in 2021. Shareholders’
net earnings decreased mainly as a result of higher
interest costs and a significant increase in provision for
credit losses and a goodwill impairment charge. Basic
and diluted earnings per common share (“EPS”) were
17 cents compared to the $1.39 earned last year and the
5 cents earned in 2020. The Company’s ROE was 1.4% in
2022 compared to 12.6% last year and 0.5% in 2020.
Adjusted net earnings decreased to $2,079,000 in 2022
compared to last year’s $13,068,000 and were higher
than 2020’s $2,032,000. Adjusted EPS were 24 cents in
2022, compared to $1.53 earned in 2021 and 24 cents
earned in 2020. Adjusted ROE was 2.0% in 2022 compared
to 13.8% in 2021 and 2.2% in 2020. Please refer to the
Appendix to the MD&A regarding these non-IFRS measures.
Revenue rose by 6.3% to a record $67,491,000 in 2022
compared to $63,480,000 in 2021 and was 39.2% higher
than the $48,501,000 in 2020. Interest income rose by
16.0% to $60,212,000 in 2022 compared to $51,898,000
in 2021 on a 11.9% increase in average funds employed
Annual Report 2022 | 7
2022
2021
2020
2019
2018
12.30
-1.00
19.40
12.70
4.30
-1.0 0 5 10 15 20
Provision for (Recovery of)
Credit Losses
(as a percentage of revenue)
The provision for credit losses was 12.3% of
revenue in 2022 compared to a recovery of
1% last year.
2022
2021
2020
2019
2018
8.30
-0.61
9.40
7.10
2.02
-0.6 0 2 4 6 8 10
Provision for (Recovery of)
Credit Losses
(in millions of dollars)
The provision for credit losses was
$8.3 million in 2022 compared to a recovery
of $0.6 million in 2021.
2022
44.9
2021
50.6
2020
56.1
2019
47.8
2018
50.7
0
10
20 30 40 50 60
Operating Expenses
(Efficiency Ratio)
(G&A and depreciation as a percentage of revenue)
The efficiency ratio improved to 44.9% of
revenue in 2022 compared to 50.6% in 2021.
8 | Accord Financial Corp.
and higher yields on floating rate finance receivables and
loans. Other income decreased by 37.2% to $7,278,000
compared to $11,583,000 2021 mainly due to lower
termination fees, and a change in the recognition of
origination fees at AFCC to recognize revenue over the
term of related loan rather than at loan closing.
Average funds employed in 2022 increased to $450 million
compared to $402 million last year and were 29.5%
higher than the $347 million in 2020.
Total expenses increased by 33.6% to $64,844,000
compared to 48,531,000 in 2021. Interest expense rose
51.6% to $24,087,000 from $15,887,000 last year due
to a significant increase in average interest rates for
borrowing and to a lesser extent on higher average
borrowings. The provision for credit losses increased
significantly to $8,293,000, while impairment of assets
held for sale decreased by 83.0% to $148,000 and
depreciation increased by 1.0%
G&A is comprised of personnel costs, which represent
the majority of the Company’s costs, occupancy costs,
commissions to third parties, marketing expenses,
professional fees, information technology expenses and
general overhead. G&A decreased 5.9% to $29,599,000
mainly due to a reduction in personnel costs, including
salary and employee incentives. The Company continues
to manage its controllable expenses closely.
The provision for credit losses increased by $8,907,000
to $8,293,000 compared to a recovery of credit losses of
$614,000 in 2021. The provision (recovery) for losses is
comprised of:
Years ended Dec. 31
(in thousands)
Net write-offs
Increase (decrease) in reserves for
expected loan losses
Total provision (recovery) $
$
2022
2021
5,355
$ 938
2,938
(1,552)
8,293 $ (614)
Net write-offs increased by $4,417,000 to $5,355,000 in
2022 compared to $938,000 in the prior year.
The provision for credit losses as a percentage of revenue
increased to 12.3% in 2022 from a recovery of 1.0% of
revenue in 2021. This year’s significant provision for
credit losses reflects the impact of economic headwinds
affecting our client base, including inflation and higher
interest rates, and also considers third party economic
forecasts and other forward-looking information. The
Company’s allowances for expected credit 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. An expense related to the
impairment of goodwill of $1,883,000 was recognized in
2022 (2021 – $nil) related to goodwill at the Company's
Canadian operations.
Impairment charges of $148,000 (2021 – $873,000) were
taken during 2022 against certain assets held for sale to
write them down to their estimated net recoverable
value. See note 7 to the Statements.
Depreciation expense increased by $7,000 to $702,000
in 2022. Depreciation of $522,000 (2021 – $466,000) was
charged against the right-of-use assets in 2022, while
the balance related to capital assets.
Business acquisition expenses in 2022 totalled $132,000
(2021 – $235,000). Transaction costs of $nil (2021 –
$94,000) were incurred, while the amortization of
intangible assets related to AFCC and AEF totalled
$132,000 (2021 – $141,000).
Income tax declined by $726,000 to an expense of
$1,001,000 compared to an expense of $1,727,000 in
2021. Income tax declined on a $12.3 million decrease
in the Company’s share of pre-tax earnings. Income tax
expense was also impacted by a limitation on the amount
of a net operating loss deduction that may be used in any
given year to 80% of U.S. taxable income. The Company’s
effective tax rate was 37.8%.
TABLE 1 – PROFITABILITY, YIELD AND
EFFICIENCY RATIOS
(as a percentage) 2022 2021 2020
Return on average equity 1.4 12.6 0.5
Adjusted return on average equity 2.0 13.8 2.2
Net revenue / average assets 8.8 11.0 8.8
Operating expenses* / average assets 6.2 7.5 7.1
Operating expenses* / revenue 44.9 50.6 56.1
* G&A and depreciation
Table 1 highlights the Company’s profitability in terms
of returns on its average assets and equity.
Canadian operations reported a decrease in shareholders’
net earnings of $6,751,000 to a net loss of ($3,074,000)
compared to a net earnings of $3,677,000 last year.
(see note 23 to the Statements). Revenue increased by
$6,028,000 or 18% to $39,038,000. Expenses increased
by $14,993,000 to $43,107,000. The provision for credit
losses increased by $6,247,000 to $6,481,000 and interest
expense increased by $6,388,000. Income tax decreased
by $2,214,000 to a recovery of $995,000 on a $8,965,000
decrease in pre-tax earnings. An impairment charge of
$1,883,000 related to goodwill was recorded compared
to $0 in 2021.
U.S. operations reported a $3,709,000 or 45% decrease
in shareholders’ net earnings to $4,501,000 compared to
$8,210,000 in 2021 (see note 2 to the Statements). Revenue
decreased by $1,773,000 or 6% to $29,159,000. Expenses
increased by $1,565,000 to $22,444,000. The provision
for credit losses increased by $2,660,000 to $1,812,000
while impairment of assets held for sale decreased by
$732,000. Interest expense increased by $2,056,000,
while G&A expenses decreased by $2,244,000. Income
tax increased by 1,488,000 to $1,996,000. Net earnings
attributable to non-controlling interests in subsidiaries
totalled $218,000 compared to $1,335,000 in 2021.
Annual Report 2022 | 9
Fourth Quarter 2022
Quarter ended December 31, 2022 compared to quarter
ended December 31, 2021
The provision for credit losses increased by $3,397,000
to $3,123,000 in the fourth quarter compared to a
recovery of $274,000 in the fourth quarter of 2021.
Quarters ended Dec. 31
(in thousands)
Net write-offs
Reserves expense (recovery) related to
increase (decrease) in total allowances
for expected losses.
Total provision (recovery) $
$
2022
2021
1,843
$ 337
1,280
(611)
3,123 $ (274)
Interest expense increased by 53% or $2,519,000 to
$7,298,000 for the quarter, due to a significant increase
in average interest rates for borrowing, compared to
$4,779,000 in the fourth quarter of 2021.
Additionally, there was an impairment loss of $1,883,000
related to goodwill at the Company’s Canadian operations
in the fourth quarter of 2022 (2021 – $nil). G&A decreased
by 9% or $837,000 mainly due to a reduction in personnel
costs, including salary and employee incentives. In the
fourth quarter of 2022, restructuring expenses totalling
$524,000 (2021 – $968,000) were incurred relating to
staff terminations. The Company continues to manage
its controllable expenses closely.
An impairment of $111,000 was recorded against
certain assets held for sale in the fourth quarter of 2022
(2021 – $nil) to write them down to their estimated NRV.
The Company did not receive any government subsidies
during the fourth quarter of 2022 or 2021.
Income tax increased by $392,000 to an expense of
$1,338,000 in the current quarter compared to an
expense of $946,000 in the fourth quarter of 2021 as
pre-tax earnings (losses) decreased by $7,172,000. The
Company’s effective tax rate was 37.8%. See note 17 to
the Statements.
Shareholders’ net earnings for the quarter ended
December 31, 2022, decreased $7,237,000 to a net loss
of $3,664,000 compared to net earnings of $3,573,000
last year. Shareholders’ net earnings decreased mainly
as a result of higher interest costs, an increase in the
provision for credit losses and impairment of goodwill.
Basic and diluted loss per share were 43 cents compared
to earnings per share of 42 cents in the fourth quarter
of 2021.
Adjusted net earnings decreased to a net loss of
$3,213,000 in the fourth quarter of 2022 compared to
adjusted net earnings of $4,423,000 last year. Adjusted
net loss per share was 37 cents compared to adjusted
EPS of 52 cents in 2021. Please refer to the Appendix to
the MD&A regarding these non-IFRS measures.
Revenue decreased by $94,000 or 1% to $18,371,000
in the current quarter compared to $18,465,000 in the
fourth quarter of 2021. Interest income increased by
$2,259,000 or 16% to $16,480,000 compared to
$14,221,000 in the fourth quarter of 2021 on a 4%
decrease in average funds employed and an increase
in average loan yields. Other income decreased by
$2,353,000 to $1,891,000 in the current quarter compared
to $4,244,000 in the fourth quarter of 2021, mainly due
to lower termination fees, and a change in the recognition
of origination fees at AFCC to recognize revenue over
the term of related loan rather than at loan closing.
Average funds employed in the fourth quarter of 2022
decreased to $443 million compared to $460 million
last year.
Total expenses in the fourth quarter of 2022 rose by
52% or $7,079,000 to $20,677,000 compared to
$13,598,000 last year. The primary drivers were the
provision for credit losses and interest expense.
1 0 | Accord Financial Corp.
SUMMARY OF QUARTERLY RESULTS
Quarters ended 2022 2021
(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) $ 443 $ 445 $ 454 $ 457 $ 460 $ 414 $ 376 $ 358
Revenue
Interest and other income $ 18,371 $ 16,452 $ 16,490 $ 16,178 $ 18,465 $ 16,119 $ 15,416 $ 13,480
Expenses
Interest 7,298 6,356 5,446 4,987 4,779 4,216 3,605 3,286
General and administrative 8,058 6,937 7,310 7,294 8,895 8,197 7,294 7,069
Provision for (recovery of) credit and
loan losses 3,122 1,069 4,009 93 (274) 336 220 (896)
Impairment of goodwill 1,883 — — — — — — —
Impairment of assets held for sale 111 — 38 — — 21 — 852
Depreciation 171 201 173 158 166 185 178 166
Business acquisition expenses 35 33 32 32 32 32 102 69
20,677 14,596 17,008 12,564 13,598 12,987 11,399 10,546
Earnings (loss) before income tax (2,305) 1,856 (518) 3,614 4,867 3,132 4,017 2,934
Income tax expense (recovery) 1,338 (17) (768) 448 946 273 426 82
Net (loss) earnings (3,644) 1,873 250 3,166 3,921 2,859 3,591 2,852
Net earnings attributable to non-controlling
interests in subsidiaries 20 42 127 28 348 216 506 267
Net (loss) earnings attributable to
shareholders $ (3,664) $ $1,831 $ 123 $ 3,138 $ 3,573 $ 2,643 $ 3,085 $ 2,585
Adjusted net (loss) earnings $ (3,213) $ 1,926 $ 171 $ 3,195 $ 4,423 $ 2,801 $ 3,161 $ 2,683
(Loss) earnings per common share ** $ (0.43) $ 0.21 $ 0.01 $ 0.37 $ 0.42 $ 0.31 $ 0.36 $ 0.30
Adjusted net (loss) earnings per common
share** $ (0.37) $ 0.22 $ 0.02 $ 0.37 $ 0.52 $ 0.33 $ 0.37 $ 0.31
* Due to rounding the total of the four quarters may not agree with the reported total for a fiscal year.
** Basic and diluted
REVIEW OF FINANCIAL POSITION
Shareholders’ equity at December 31, 2022 was
$100,972,000 or 1% higher than the $99,967,000 at
December 31, 2021. Book value per common share was
$11.80 at December 31, 2022 compared to $11.68 at
December 31, 2021. Please see the consolidated statements
of changes in equity on page 40 of this Annual Report.
Total assets decreased by 5.5% to $491,761,000 at
December 31, 2022 compared to $520,109,000 at
December 31, 2021. Total assets largely comprised Loans
(funds employed). Excluding inter-company loans,
identifiable assets located in the United States were 48%
of total assets at December 31, 2022 compared to 49%
at December 31, 2021 (see note 23 to the Statements).
TABLE 2 – FINANCIAL CONDITION AND
LEVERAGE
(as a percentage) 2022 2021 2020
Tangible equity / assets 17 16 20
Equity / assets 22 20 24
Debt* / total equity 3.44x 3.82x 2.91x
(in thousands)
Receivables and loans $ 452,678 $ 478,150 $ 360,337
Managed receivable 5,309 11,441 18,523
Total portfolio $ 457,987 $ 489,591 $ 378,860
* Bank indebtedness, loans payable, notes payable and convertible debentures
Annual Report 2022 | 11
2022
11.80
2021
11.68
2020
10.50
2019
10.77
2018
10.66
0
2
4
6 8 10 12
Book Value per Share
(in dollars)
Book value per share was $11.80 at
December 31, 2022 compared to $11.68 at
December 31, 2021.
2022
458
2021
490
2020
379
2019
400
2018
379
0 100 200 300 400 500
Total Portfolio
Loans and managed receivables
(in millions of dollars)
The Company's total portfolio declined to
$458 million at December 31, 2022 from
$490 million at last year-end.
1 2 | Accord Financial Corp.
Gross finance receivables and loans (also referred to as
Loans or funds employed), before the allowance for
expected credit losses thereon, decreased 5.3% to
$452,678,000 at December 31, 2022 compared to
$478,150,000 at December 31, 2021. As detailed in the
Statements, the Company’s Loans comprised:
(in thousands) Dec. 31, 2022 Dec. 31, 2021
Working capital loans $ 121,979 $ 109,518
Receivable loans 86,788 105,550
Other loans* 90,970 101,811
Media loans 87,770 81,497
Lease receivables 65,171 79,774
Finance receivables and loans,
gross 452,678 478,150
Less allowance for expected losses** 8,220 5,251
Finance receivables and loans, net $ 444,458 $ 472,899
* other loans principally comprise inventory and equipment loans
** includes $31,000 related to managed receivables in 2022
Net of the allowance for expected credit losses thereon,
Loans decreased by 6% to $444,458,000 at December 31,
2022 compared to $472,899,000 at December 31, 2021.
The Company’s Loans principally represent advances
made by its asset-based lending subsidiaries, AFIC and
AFIU, to approximately 46 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
996 clients and BondIt’s media finance loans to
approximately 75 media productions. The largest client
in a well diversified loan portfolio comprised 4% of 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 $5 million at December 31,
2022 compared to $11 million at December 31, 2021.
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 industries in North America.
The Company monitors the credit risk related to its
managed receivables very closely.
The Company’s total portfolio, which comprises both
Loans and managed receivables, as detailed above,
decreased by 7% to $458 million at December 31, 2022
compared to $490 million at December 31, 2021.
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 it’s subsidiary AFCC, also provides
working capital term loans.
Credit approval for transactions supported by
management in the Company’s six operating businesses
is delegated to a staff of senior credit officers within
each business. Transactions in excess of $1.0 million
(US$1.0 million for U.S. Group companies), are approved
by the Company's SVP, Underwriting and Portfolio Risk
in consultation with the Corporate Credit Committee.
Transactions in excess of $2.5 million (US$2.5 million
in the case of U.S. group companies) are 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 risk is subject to ongoing management review.
Nevertheless, for a variety of reasons, there will inevitably
be defaults by clients or their customers.
For its factoring products, the Company’s primary focus
continues to be on the creditworthiness 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 invoice date.
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 older receivables. Asset-based lending products
additionally require focus on the performance of other
collateral types (inventory, equipment and in certain
cases real estate) as well as the underlying cash flows
of the borrower. AFCC’s and AEF’s lease receivables
and equipment and working capital loans are usually
structured as term loans with payments spread out
evenly over the term of the lease or loan, with terms up
to 60 months. AFCC also has a revolving equipment
loan product which has no fixed repayment terms and
can be repaid at any time.
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 assign credit ratings to
borrowers, predict future performance and manage
limits for existing loans and collection activities. The
credit rating of the borrower is used (in addition to other
criteria) 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 facilitate risk-based pricing. In 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 the
three-stage credit criteria of IFRS 9, Financial Instruments
(“IFRS 9”), as well as an aged analysis thereof. Credit
risk is 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 and equipment finance
Annual Report 2022 | 13
operations, the Company assesses the financial strength
of its clients and its clients’ customers and the industries
in which they operate on a regular and ongoing basis.
Cash flows from a client’s ongoing business operations
represent the primary source of repayment.
The Company also manages 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 factoring operations, the Company administers and
collects the majority of its clients’ receivables allowing
it 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 a majority
of ASBF’s working capital loans have the benefit of a
strong financial guarantor guaranteeing up to 80% of
the loan balance in the event of a loss.
As detailed in note 5 to the Statements, the Company
had past due finance receivables and loans of $48,872
at December 31, 2022, of which $26,140 related to BondIt,
the Company's media finance subsidiary, $12,948 related
to AFCC and $7,599 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, $5,094
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, 2022, the Company had impaired finance
receivables and loans of $18,969 which represented 4%
of total funds employed. The impaired loans, most of
which have been written down to net realizable value
(“NRV”) (being fair value less costs of realization), are
mainly secured by receivables, inventory and equipment,
the estimated NRV of which was $17,817 at December 31,
2022. As the vast majority of the Company’s finance
receivables and loans are secured, past due or impaired
accounts do not necessarily lead to a significant expected
credit loss (“ECL”) based on the NRV of the 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.
While these guarantees do not involve loans, as with the
Company’s lending businesses, 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) 2022 2021 2020
Reserves* / portfolio 1.8 1.1 1.7
Reserves* / net write-offs and
impairment charges** 149 241 73
Net write-offs and impairment
charges / revenue 8.2 3.5 18.1
*Reserves comprise the total of the allowance for expected credit 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 2022 there was a net recovery of $41,000 on the
Company’s managed receivables compared to a net
recovery of $15,000 in 2021. Net write-offs in the
Company’s lending businesses increased to $5,986,000
in 2022 compared to $953,000 last year. In addition,
impairment charges against assets held for sale in 2022
totalled $148,000 (2021 – $873,000). Overall, the Company’s
total net write-offs and impairment charges in 2022,
as set out in the Results of Operations section above,
increased to $5,504,000 compared with $1,811,000 in
2021. After the customary detailed period-end review
of the Company’s portfolio by its Risk Management
Committee, it was determined that all problem loans
1 4 | Accord Financial Corp.
and accounts were identified and provided for where
necessary. The Company maintains separate allowances
for expected credit losses on both its Loans and its
guarantee of managed receivables, at amounts which,
in management’s judgment, are sufficient to cover
expected credit losses thereon.
The Company’s allowance for expected credit losses on
Loans, calculated under the ECL criteria of IFRS 9, totalled
$8,188,873 at December 31, 2022 compared to $5,251,000
at December 31, 2021. This represents management’s
best estimate of expected credit 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. The allowance for expected credit losses on
the guarantee of managed receivables totalled $31,000
at December 31, 2022 and December 31, 2021.
The activity in the allowance for expected credit losses
in 2022 and 2021 is set out in note 5 to the Statements.
The estimates of the allowances for expected credit
losses involve judgement which management considers
to be reasonable and supportable.
Assets held for sale, stated at their NRV, totalled
$108,000 at December 31, 2022 (2021 – $160,000) 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, 2021 resulted from asset disposals
totalling $1,334,000 and impairment charges of $148,000.
Assets totalling $1,431,000 were repossessed and included
in assets held for sale during 2022. These assets are
currently being marketed for sale and will be disposed of
as market conditions permit. See note 6 to the Statements.
Cash decreased to $11,630,000 at December 31, 2022
compared to $13,839,000 at December 31, 2021. 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, 2022, the restricted cash
totalled $6,625,000 (2021 – $10,309,000). Please refer to
note 4 to the Statements.
Intangible assets, net of accumulated amortization,
totalled $3,201,000 at December 31, 2022 compared to
$3,113,000 at December 31, 2021. 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 2022.
Please refer to note 10 to the Statements.
Goodwill totalled $12,075,000 at December 31, 2022
compared to $13,140,000 at December 31, 2021. The
decrease is related to a $1,883,000 impairment loss
against goodwill at the Company’s Canadian operations.
The goodwill was acquired as part of the AFCC acquisition
in 2014. The Company performs an annual goodwill
impairment test by estimating the fair value of each CGU
based primarily on a multiple of recent actual, and
Annual Report 2022 | 15
expected future, earnings. The significant variability
in earnings over the last three years combined with a
significant increase in funding costs over the same period,
makes the timeline to a return to pre-pandemic earnings
difficult to predict. As a result, the Company took the
prudent step to recognize an impairment loss and reduce
goodwill to $0 at the Canadian CGU as of December 31,
2022. 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.
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. The Company performed a
goodwill impairment test for its U.S. CGU using the same
methodology as that applied at the Canada CGU. The
results of that test provides a clear basis for the value of
goodwill recorded. Please refer to note 9 to the Statements
for information regarding the Company’s annual goodwill
impairment reviews.
Other assets increased $3,203,000 to $5,057,000 compared
to $1,854,000 at December 31, 2021. The increase is due
to a higher balance of prepaid expenses, $2,723,000
(2021 – $1,366,000) and an increase in amounts due
from Export Development Canada of $827,000. The
balance at December 31, 2022 is $1,315,000 (2021 –
$488,000). Income taxes receivable, and property and
equipment at December 31, 2022 and 2021 were
not significant.
clients or security deposits held on account. Contractually,
the Company remits collections within a week of receipt.
Fluctuations in amounts due to clients are not unusual.
Bank indebtedness increased by $6,673,000 to
$214,055,000 at December 31, 2022 compared to
$207,382,000 at December 31, 2021. Bank indebtedness
increased due to an increase in funds employed. The
Company’s revolving credit facility was amended in
July to increase the commitment from $367 million to
$436.5 million and extend the contractual maturity for
three years to July 2025. Pricing for drawn amounts under
the revolving credit facility are primarily based on bankers
acceptances plus a margin for Canadian dollar borrowings
or SOFR plus a margin for U.S. dollar borrowings. The
margin is based on a measure of leverage at each quarter
end. The Company was not in compliance with one
covenant under its revolving credit facility at December 31,
2022 and has subsequently received a waiver thereof
from its banking syndicate. Note 24(b) to the Statements
which discusses liquidity risk presents the amount due
of $214,055,000 under the revolving credit facility as
current, despite a contractual maturity date of July 26,
2025, due to a requirement under IFRS 7, Financial
Instruments: Disclosures. The Company has taken the
necessary steps to be in compliance with all loan
covenants at March 31, 2023. The Company was in
compliance with all other loan covenants under its
revolving credit facility during 2022 and was in compliance
with all loan covenants in 2021. Subject to other debt
borrowings, bank indebtedness principally fluctuates
with the quantum of Loans outstanding.
Total liabilities decreased by 7.4% or $31,000,000 to
$385,149,000 at December 31, 2022 compared to
$416,149,000 at December 31, 2021. The decrease mainly
resulted from lower loans payable.
Amounts due to clients decreased by $1,461,000 to
$1,827,000 at December 30, 2022 compared to $3,288,000
at December 31, 2021. Amounts due to clients principally
consist of collections of receivables not yet remitted to
Loans payable decreased by $40,398,000 to $109,039,000
at December 31, 2022 compared to $149,437,000 at
December 31, 2021. In December 2021, ASBF entered
into a non-recourse loan and security agreement with
a life insurance company to finance a portion of its
AccordExpress working capital loans. This non-recourse
loan is collateralized by the majority of ASBF’s assets and
bears a fixed rate of interest of 3.55%. At December 31,
2022, the amount outstanding under this loan facility
1 6 | Accord Financial Corp.
totalled $44,368,000 (2021 – $89,388,000). ASBF
experienced a trigger event as a result of the breached
covenant under the Company’s revolving credit facility,
as noted above. The lender has provided a waiver
subsequent to December 31, 2022. The Company expects
to be in compliance with all covenants at March 31, 2023.
the Statements, which details how the debt and equity
components of the convertible debentures were allocated.
At December 31, 2022, the debt component totalled
$24,864,000 (December 31, 2021 – $24,153,000), while
the equity component totalled $1,005,000 (December 31,
2021 – $1,005,000), net of deferred taxes.
The revolving loan facility used to finance BondIt’s
media loans is secured by all of BondIt’s assets and has
a total commitment of US$47,000,000 ($63,704,000).
Borrowings under the facility, which expires on May 31,
2024, rose to $64,671,000, inclusive of accrued interest
at December 31, 2022 (2021 – $60,049,000). BondIt was
in compliance with all loan covenants thereunder in
2022 and 2021. See note 12(a) to the Statements.
Accounts payable and other liabilities decreased by
5% or $639,000 to $11,224,000 at December 31, 2022
compared to $11,863,000 at December 31, 2021. The
decrease since December 31, 2022 mainly resulted from
lower short-term incentives and severances payable.
Notes payable increased by $2,613,000 to $18,605,000
at December 31, 2022 compared to $15,992,000 at
December 31, 2021. The increase in notes payable resulted
from an increase in demand notes from related parties.
Please see Related Party Transactions section below
and note 13(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 14 to
Income taxes payable, lease liabilities, deferred income
and net deferred tax liabilities at December 31, 2022
and 2021 were not material.
Capital stock totalled $9,448,000 at December 31, 2022 and
2021. 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 2022 and 2021.
Contributed surplus totalled $1,705,000 at December 31,
2022 (2021 – $1,088,000). The increase in 2022 relates
to the increase of 1% in non-controlling interests on
additional capital raised in Bondlt at a cost of $2,039,000
offset by the purchase of the remaining 8% of AEF’s
common units from non-controlling interests at a cost
of $1,612,000. As noted above, included in contributed
surplus at December 31, 2022 and 2021 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, 2022 is the 2022
stock-based compensation expense relating to stock
options granted of $189,000 (2021 – $88,000). Please see
the consolidated statements of changes in equity on
page 40 of this report for details of changes in contributed
surplus during 2022 and 2021.
Retained earnings decreased by $1,141,000 to $82,159,000
at December 31, 2022 compared to $83,300,000 at
December 31, 2021. The decrease in 2022 comprised
shareholders’ net earnings of $1,427,000 less dividends
paid of $2,568,000 (30 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 2022 and 2021.
Annual Report 2022 | 17
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
$1,528,000 to $7,659,000 at December 31, 2022 compared
to $6,131,000 at December 31, 2021. Please refer to the
consolidated statements of changes in equity on page 40
of this report for details of changes in AOCI during 2022
and 2021. Please see also note 20 to the Statements.
Non-controlling interests in subsidiaries totalled $5,640,000
at December 31, 2022 compared with $3,992,000 at
December 31, 2021. 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 in Table 2. As noted above, the ratios at
December 31, 2022 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.
The Company had credit lines and loans payable totalling
approximately $545 million at December 31, 2022 and
had borrowed $323 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, 2022 by their
maturity date.
As noted in the Review of Financial Position section
above, the Company had cash balances of $11,630,000
at December 31, 2022 compared to $13,839,000 at
December 31, 2021. At December 31, 2022, the Company
also had restricted cash, which is held as collateral by a
lender, totalling $6,625,000 compared to $10,309,000 at
December 31, 2021 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.
As components of capital mature over the next 12
1 8 | Accord Financial Corp.
dividends payments totalling $1,712,000, notes payable
redeemed, net, of $1,438,000, the purchase of an
additional 10% in Bondlt 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.
The effect of exchange rate changes on cash comprised
an increase of $47,000 in 2022 compared to a decrease
of $42,000 in 2021.
Overall, there was a net cash outflow of $5,893,000 in 2022
compared to a net cash inflow of $18,602,000 in 2021.
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 $18,605,000 at December 31, 2022
compared to $15,992,000 at December 31, 2021. Notes
payable comprise: (i) unsecured demand notes due on,
or within a week of, demand of $4,717,000 (December 31,
2021 – $2,333,000); (ii) term notes totalling $13,888,000
(December 31, 2021 – $13,659,000), which are repayable
on various dates the latest of which is July 31, 2025.
Notes due on, or within a week of demand, bear interest
at rates that vary with the bank prime rate, while the
term notes bear interest at rates between 7.25% and 11%.
Of the notes payable, $16,411,000 (December 31, 2021 –
$13,843,000) was owing to related parties and $2,194,000
(December 31, 2021 – $2,149,000) to third parties. Interest
expense on these notes in 2022 totalled $1,318,000 (2021
– $1,177,000). Please refer to note 13(a) to the Statements.
months, the Company will make changes to its capital
structure designed to accommodate requirements for
future liquidity and growth, which may in turn impact
the Company’s cost of capital.
Fiscal 2022 cash flows
Year ended December 31, 2022 compared with the year
ended December 31, 2021
Cash inflow from net earnings before changes in operating
assets and liabilities and income tax payments decreased
to $14,662,000 in 2022 compared to $15,799,000 last
year. After changes in operating assets and liabilities and
income tax paid there was a net cash inflow of $31,507,000
in 2022 compared to an outflow of $101,647,000 last year.
The net cash inflow in 2022 largely resulted repayment
of Loans of $36,481,000. In 2021, the net cash outflow
in 2021 largely resulted from funding gross loans of
$118,831,000. Changes in other operating assets and
liabilities are discussed above and are set out in the
Company’s consolidated statements of cash flows on
page 41 of this report.
Cash outflows from investing activities in 2022 totalled
$175,000 (2021 – $83,000) and comprised additions to
property and equipment.
Net cash outflow from financing activities totalled
$37,272,000 in 2022 compared to an inflow of $120,375,000
last year. The net cash outflow in 2022 largely resulted
from repayment of loans payable of $44,756,000, dividend
payments of $2,568,000, the purchase of the remaining
8% of AEF’s common units from non-controlling interest
of $537,000, lease liabilities payments of $479,000 and
the distribution paid to non-controlling interests of
$149,000. Partly offsetting this outflow was an increase
in bank indebtedness of $6,683,000, notes payable issued
of $2,365,000, the increase of 1% non-controlling interest
on additional capital raised by Bondlt of $2,170,000.
In 2021 the net cash inflow resulted from the increase in
loans payable of $127,828,000. Partly offsetting this inflow
was a decrease in bank indebtedness of $2,412,000,
Annual Report 2022 | 19
CONTRACTUAL OBLIGATIONS AND COMMITMENTS AT DECEMBER 31, 2022
Payments due in
Less than
(in thousands of dollars) 1 year 1 to 3 years 3 to 5 years Thereafter Total
Debt obligations $ 266,429 $ 101,960 $ — $ — $ 368,389
Operating lease obligations 446 737 525 — 1,708
Purchase obligations 41 138 — — 179
$ 266,916 $ 102,835 $ 525 $ — $ 370,276
The following related parties had notes payable with
the Company at December 31, 2022:
Demand notes payable
Hitzig Bros.,
Hargreaves & Co. Inc.* Directors $4,000,000
Hitzig Bros.,
Hargreaves & Co. LLC.* Directors US$1,000,000
Ken Hitzig Director $500,000
Term notes payable (due July 31, 2025)
Hitzig Bros.,
Hargreaves & Co. Inc.* Directors $4,000,000
Oakwest Corporation Inc. Director $3,000,000
Ken Hitzig Director $2,500,000
Keewatin House inc. $1,000,000
*a director(s) of Accord has an ownership interest in the company
Accord pays a rate of interest related to Canadian prime
(as of December 31 the rates paid range from 5.95% to
6.45%) on its Canadian dollar unsecured demand notes
payable. This interest rate is typically below the interest
rate the Company pays on its primary revolving credit
facility, agented by The Bank of Nova Scotia (“BNS”)
resulting in interest savings to the Company.
Upon renewal of the BNS facility in July 2022 the Company
renewed certain unsecured three-year term notes payable
which had matured on July 31, 2022 for a further three-
year term, expiring on July 31, 2025. These term notes,
which pay a 7.25% rate of interest, are solely with related
parties. The renewed revolving 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 4.0 x TNW). This created
additional borrowing capacity for the Company.
FINANCIAL INSTRUMENTS
Financial assets and liabilities are recorded at amortized
cost, with the exception of derivative financial instruments,
and the guarantee of managed receivables which are all
recorded at fair value. 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, 2022 and 2021, there were no outstanding
foreign exchange contracts entered into by the Company.
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 credit losses on both its
Loans and its guarantee of managed receivables.
The Company maintains a separate allowance for
expected credit losses on each of the above items
at amounts which, in management’s judgment,
are sufficient to cover credit losses thereon. The
allowances are based upon several considerations
including current economic environment, condition
20 | Accord Financial Corp.
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 credit 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 credit 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 credit losses.
Management believes that its allowances for expected
credit 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
Annual Report 2022 | 21
each CGU in determining the fair value thereof, as
well as the expected earnings estimates themselves.
(i)
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 2022 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,
2022 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):
22 | Accord Financial Corp.
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, 2022 to
provide reasonable assurance regarding the reliability
of financial reporting and the preparation of the
Company’s financial statements for external purposes
in accordance with IFRS and advises that there are
no material weaknesses in the design of internal
control over financial reporting that have been
identified by management.
RISKS AND UNCERTAINTIES THAT COULD
AFFECT FUTURE RESULTS
Past performance is not a guarantee of future performance,
which is subject to substantial risks and uncertainties.
Management remains optimistic about the Company’s
long-term prospects. Factors that may impact the
Company’s results include, but are not limited to, the
factors discussed below. Please refer to note 24 to the
Statements, which discuss the Company’s principal
financial risk management practices.
Deterioration in economic and business
uncertainties
The Company’s operating results may be negatively
affected by various economic factors and business
conditions, including the level of economic activity in
Canada and the United States, in the markets in which
it operates. To the extent that economic activity or
business conditions deteriorate, delinquencies and
credit losses may increase. Negative conditions and/or
significant events can include the effects of public health
emergencies including pandemics, geo-political or
military conflicts, sanctions and other trade disruptions,
and unexpected changes in inflation and borrowing costs.
As the Company extends credit primarily to small- and
medium-sized businesses, many of its customers are
particularly susceptible to economic slowdowns or
recessions and may be unable to make scheduled lease
or loan payments during these periods. Unfavorable
economic conditions may also make it more difficult
for the Company to maintain new origination volumes
and the credit quality of new loans at levels previously
attained. Unfavorable economic conditions could also
increase funding costs or operating cost structures, limit
access to credit facilities and other capital markets
funding sources or result in a decision by the Company’s
lenders not to extend further credit. Any of these events
could have a material adverse impact on the Company’s
business, financial condition and results of operations.
Competition from alternative sources of
financing
The Company operates in an intensely competitive
environment and its results could be significantly
affected by the activities of other industry participants.
The Company expects this level of competition to persist
in the future as the markets for its services continue to
develop and as additional companies enter its markets.
There can be no assurance that the Company will be able
to compete effectively with current or future competitors.
If the Company’s competitors engage in aggressive
pricing policies with respect to services that compete
with those of the Company’s, the Company would likely
lose some clients or be forced to lower its rates, both of
which could have a material adverse effect on the
Company’s business, financial condition and results
of operations. In addition, some of the Company’s
competitors may have higher risk tolerances or different
risk assessments, which could allow them to establish
more origination sources and customer relationships to
increase their market share. Further, because there are
fewer barriers to entry to the markets in which the
Company operates, new competitors could enter these
markets at any time. Because of all these competitive
factors, the Company may be unable to sustain its
operations at its current levels or generate growth in
revenues or operating income, either of which could
have a material adverse impact on the Company’s
business, financial condition and results of operations.
Credit risk, inability to underwrite finance
receivables and loan applications
The Company is in the business of financing its clients’
receivables and making asset-based loans, including
inventory and equipment financings, designed to serve
small- and medium-sized businesses, which are often
owner-operated and have limited access to traditional
financing. There is a high degree of risk associated with
providing financing to such parties as a result of their
lower creditworthiness. Even with an appropriately
diversified lending business, operating results can be
adversely affected by large bankruptcies and/or
insolvencies. Losses from client loans in excess of the
Company’s expectations could have a material adverse
impact on the Company’s business, financial condition
and results of operations. In addition, since defaulted
loans as well as certain delinquent loans cannot be used
as collateral under the Company’s credit facilities, higher
than anticipated defaults and delinquencies could
adversely affect the Company’s liquidity by reducing the
amount of funding available to the Company under these
financing arrangements. Furthermore, increased rates of
delinquencies or loss levels could cause the Company to
be in breach of its financial covenants under its credit
facilities and could also result in adverse changes to the
terms of future financing arrangements available to the
Company, including increased interest rates payable to
lenders and the imposition of more burdensome covenants
and increased credit enhancement requirements.
Annual Report 2022 | 23
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 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
24 | Accord Financial Corp.
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 borrowers, lessees, vendors or
brokers
The Company may be a victim of fraud by lessees,
borrowers, vendors and brokers. In cases of fraud, it is
difficult and often unlikely that the Company will be able
to collect amounts owing under a lease/loan or repossess
any related collateral. Increased rates of fraud could
have a material adverse impact on the Company’s
business, financial condition and results of operations.
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
Annual Report 2022 | 25
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 economic environment is beginning to provide the
ingredients for increasing growth and earnings for Accord
Financial. While 2022 presented significant headwinds
for growth in several of our operating companies,
continuing stress in the business sector is likely to drive
more companies to non-bank lenders, providing Accord
opportunities to refill the new business pipeline. This is
consistent with previous business cycles when commercial
banks tighten lending standards in response to
economic uncertainty.
Inflation and rising interest rates have created headwinds
for small- and medium-sized businesses and Accord’s
operating companies are facing related challenges,
including a generally conservative approach by many
of our clients (and prospective clients) to incurring
incremental debt to buy equipment, expand operations,
or make acquisitions. In keeping with this backdrop
Accord continues to maintain a conservative approach
to adding new business. The Company’s funds employed
declined to $453 million at December 31, 2022, with
modest declines experienced at AFCC, AFIU and AEF;
AFIC and BondIt held relatively steady.
AFCC, the Company’s Canadian small business finance
division, experienced a decline in originations primarily
due to the end of a pandemic-era small business loan
program (“AccordExpress”), developed in partnership with
Export Development Canada (“EDC”). AFCC continues to
work with EDC to develop new AccordExpress products
and expects growth to resume in mid-2023 as a result
of this and other new product initiatives. BondIt Media
Capital faced a more competitive landscape in 2022 as
it adjusted pricing in the face of higher interest rates,
which could create pressure on growth and profit margins
in the coming year.
The economic conditions for the Company’s two
ABL/factoring units, AFIC and AFIU, are becoming more
conducive to growth. Notably, rapid inflation, supply
26 | Accord Financial Corp.
support the anticipated growth in funds employed, in
July 2022 the Company increased its primary bank facility
to $437 million and extended the maturity date to July
2025, which should provide adequate growth capital
for the Company in 2023 and beyond. The Company
also maintains non-bank loan facilities for BondIt
(US$47 million) and AFCC ($44 million) as noted above.
The Company is evaluating a range of options to increase
available capital from both private and public capital
providers, as the Company plans for future growth and
its convertible debentures reach maturity in 2023. This
is consistent with other similar companies, whereby
funds are raised publicly, privately, through forward-flow
and/or asset management structures, or a combination
of these and other strategies.
With its substantial capital and borrowing capacity,
Accord is positioned to capitalize on market conditions
as they evolve. For more than four decades the Company
has successfully navigated through multiple economic
cycles, giving us valuable perspective as the current
environment unfolds. The Company also knows from
experience that economic uncertainty creates growth
opportunities, as capital providers become more selective,
some competitors weaken, and the major banks become
even more risk averse.
Irene Eddy
Senior Vice President, Chief Financial Officer
March 22, 2023
chain problems, and rising interest rates tend to make
banks more conservative in their lending, which provides
opportunities for Accord as our lending expertise, and
reliance on strong collateral, allows us to finance
companies that may no longer meet the banks’ criteria.
As the new business pipelines in these two divisions
builds, we anticipate growth in funds employed, with
revenue and earnings to follow.
More moderate growth is expected to come from AEF,
the Company’s U.S. equipment finance division. For the
middle market companies AEF typically finances, ramping
up investment in equipment is most comfortable when
the economic forecast is more certain. For now, the
economic environment continues to shift, though
2023 could see a turning point in market sentiment.
Supporting modest growth, AEF continues to see deal
flow from its capital markets desk and is developing
several promising new channel partnerships.
AFL continues to generate steady revenue providing
non-lending services to its network of reliable foreign
banks seeking credit guarantees for shipments to North
American buyers. In recent years, AFL’s contribution
has not been financially significant to the Accord
group overall.
As reported in our financial statements, the challenging
economic environment is likely to weaken the payment
performance of some of the Company’s existing clients,
in particular in the small business portfolio. While this
quarter’s allowance for expected loan losses fully reflects
our expert credit judgement and third-party economic
forecasts, it is possible that the economy underperforms
expectations. And finally, in the current environment,
the Company is favoring financially stronger clients,
which has the effect of lowering average yields.
Overall, the Company anticipates a return to growth of
funds employed in 2023 and beyond, and while there are
economic challenges to navigate, revenue and earnings
growth is expected to follow as the portfolio grows. To
Annual Report 2022 | 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, 2022 Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018
Return on Equity
Net earnings attributable to common shareholders 1,427 11,887 417 6,444 10,356
Weighted average shareholders' equity (note) 101,981 94,432 90,339 91,358 80,723
Return on equity 1.4% 12.6% 0.5% 7.1% 12.8%
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
2022 2021 2020 2019 2018
Adjusted net earnings
Net earnings attributable to shareholders 1,427 11,887 417 6,444 10,356
Adjustments, net of tax:
Stock-based compensation expense 174 88 — (124) 233
Restructuring expenses 397 920 1,395 — —
Business acquisition expenses (recovery) 81 173 220 (1,381) 251
Adjusted net earnings attributable to shareholders 2,079 13,068 2,032 4,939 10,840
2022 2021 2020 2019 2018
Adjusted earnings per share
Adjusted net earnings 2,079 13,068 2,032 4,939 10,840
Weighted average number of common
shares outstanding in the year 8,559 8,559 8,563 8,467 8,329
Adjusted earnings per share 0.24 1.53 0.24 0.58 1.30
2022 2021 2020 2019 2018
Adjusted return on equity
Adjusted net earnings 2,079 13,068 2,032 4,939 10,840
Weighted average shareholders' equity 101,981 94,432 90,339 91,358 80,723
Adjusted return on equity 2.04% 13.8% 2.2% 5.4% 13.4%
Dec. 31, 2022 Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018
Book value per share
Shareholders' equity 100,972 99,967 89,850 92,515 89,818
Common shares outstanding 8,559 8,559 8,559 8,589 8,429
Book value per share 11.80 11.68 10.50 10.77 10.66
2022 2021 2020 2019 2018
Average funds employed (note)
Fiscal year 449,830 402,015 347,493 378,243 270,900
Quarter 1 457,395 358,091 362,300 346,834 228,778
Quarter 2 454,011 375,593 340,740 387,875 254,765
Quarter 3 444,603 414,199 326,854 383,480 283,216
Quarter 4 443,310 460,179 360,078 394,783 316,842
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.
2022 2021 2020 2019 2018
Return on average assets
Net earnings attributable to shareholders 1,427 11,887 417 6,444 10,356
Average assets (note) 492,386 431,523 383,908 408,708 298,492
Return on average assets 0.3% 2.8% 0.1% 1.6% 3.5%
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.
2022 2021 2020 2019 2018
Net revenue / average assets
Net revenue (note) 43,404 47,594 33,906 39,086 37,520
Average assets 492,386 431,523 383,908 408,708 298,492
Net revenue / average assets 8.8% 11.0% 8.8% 9.6% 12.6%
Note: net revenue is revenue less interest expense as taken from the Company’s Statements of Earnings for the year.
2022 2021 2020 2019 2018
Operating expenses / average assets
Operating expenses 30,301 32,151 27,226 26,878 23,803
Average assets 492,386 431,523 383,908 408,708 298,492
Operating expenses / average assets 6.2% 7.5% 7.1% 6.6% 8.0%
Note: operating expenses is the total of general & administrative expenses and depreciation as taken from the Company's Statement of Earnings for the year.
2022 2021 2020 2019 2018
Operating expenses / revenue
Operating expenses 30,301 32,151 27,226 26,878 23,803
Revenue 67,491 63,480 48,501 56,175 46,927
Operating expenses / revenue 44.9% 50.6% 56.1% 47.8% 50.7%
Dec. 31, 2022 Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018
Equity / assets
Total equity 106,612 103,960 93,759 96,368 95,185
Assets 491,761 520,109 384,913 406,214 373,783
Equity / assets 0.22% 20% 24% 24% 25%
Dec. 31, 2022 Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018
Tangible equity
Equity 106,612 103,960 93,759 96,368 95,185
Less: Intangible assets 3,201 3,113 3,278 3,639 4,116
Less: goodwill 12,075 13,140 13,219 13,455 14,031
Less: deferred tax assets 6,265 3,416 2,002 976 1,208
Add: deferred tax liabilities 141 277 603 2,251 515
Tangible equity 85,213 84,567 75,863 80,549 76,345
2022 2021 2020 2019 2018
Tangible equity / assets
Assets 491,761 520,109 384,913 406,214 373,783
Tangible equity 85,213 84,567 75,863 80,549 76,345
Tangible equity / assets 17% 16% 20% 20% 20%
Dec. 31, 2022 Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018
Debt / equity
Debt (note) 366,562 396,964 273,260 295,875 262,591
Equity 106,612 103,960 93,759 96,368 95,185
Debt / equity 3.44x 3.82x 2.91x 3.07x 2.76x
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, 2022 Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018
Reserves
Allowance for expected losses on loans 8,189 5,251 5,853 4,520 3,450
Allowance for expected losses on managed
receivables 31 31 555 44 74
Reserves 8,220 5,282 6,408 4,564 3,524
Annual Report 2022 | 29
Dec. 31, 2022 Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018
Portfolio
Finance receivables and loans 452,678 478,150 360,337 373,157 339,102
Managed receivables (note) 5,309 11,441 18,523 27,338 40,145
Portfolio 457,987 489,591 378,860 400,495 379,247
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, 2022 Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018
Reserves / portfolio
Reserves 8,220 5,282 6,408 4,564 3,524
Portfolio 457,987 489,591 378,860 400,495 379,247
Reserves / portfolio 1.8% 1.1% 1.7% 1.1% 0.9%
2022 2021 2020 2019 2018
Net write-offs & impairment of assets held
for sale
Net write-offs (note) 5,355 938 6,872 5,952 818
Impairment of assets held for sale
("impairment charges") 148 1,253 1,890 — 25
Net write-offs and impairment charges 5,503 2,191 8,762 5,952 843
Note: net write-offs are write-offs less recoveries of finance receivables and loans and the guarantee of managed receivables.
Dec. 31, 2022 Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2018
Reserves / net write-offs and impairment
charges
Reserves 8,220 5,282 6,408 4,564 3,524
Net write-offs and impairment charges 5,503 2,191 8,762 5,952 843
Reserves / net write-offs and impairment
charges 149% 241% 73% 77% 418%
2022 2021 2020 2019 2018
Net write-offs and impairment charges / revenue
Net write-offs and impairment charges 5,503 2,191 8,762 5,952 843
Revenue 67,491 63,480 48,501 56,175 46,927
Net write-offs and impairment charges /
revenue 8.2% 3.5% 18.1% 10.6% 1.8%
Quarterly Non-IFRS Calculations
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
Quarters ending 2022 2022 2022 2022 2021 2021 2021 2021
Adjusted net earnings
Net earnings (loss) attributable
to shareholders (3,664) 1,831 122 3,138 3,573 2,643 3,085 2,585
Adjustments, net of tax:
Stock-based compensation expense 47 73 28 26 75 13 — —
Restructuring expenses 387 — — 10 735 138 — 47
Business acquisition expenses 17 22 21 21 40 6 76 51
Adjusted net (loss) earnings
attributable to shareholders (3,213) 1,926 171 3,195 4,423 2,800 3,161 2,683
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
Quarters ending 2022 2022 2022 2022 2021 2021 2021 2021
Adjusted earnings per share
Adjusted net (loss) earnings (3,213) 1,926 171 3,195 4,423 2,800 3,161 2,683
Weighted average number of common
shares outstanding in the quarter 8,559 8,559 8,559 8,559 8,559 8,559 8,559 8,559
Adjusted (loss) earnings per share (0.37) 0.22 0.02 0.37 0.52 0.33 0.37 0.31
30 | Accord Financial Corp.
Ten Year Financial Summary 2013-2022
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.
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Revenue $ 26,074 30,235 31,577 28,523 31,409 46,927 56,175 48,501 63,481 67,491
Interest 1,913 2,523 2,258 2,281 3,847 9,407 17,089 14,596 15,887 24,087
General and administrative 13,845 16,154 17,484 17,427 16,945 23,524 26,151 26,458 31,456 29,599
Provision for credit and loan losses 438 639 374 964 2,898 2,025 7,105 9,403 (614) 8,293
Impairment of goodwill — — — — — — — — — 1,883
Impairment of assets held for sale — — 51 44 24 25 — 1,087 873 148
Depreciation 112 125 136 154 161 279 727 721 695 702
Business acquisition expenses — 570 575 510 932 336 (1,818) 298 235 132
Total expenses 16,308 20,011 20,878 21,379 24,807 35,596 49,254 52,563 48,532 64,844
Earnings (loss) before income tax 9,766 10,224 10,699 7,144 6,602 11,331 6,921 (4,062) 14,949 2,646
Income tax expense (recovery) 3,228 3,345 1,940 578 391 104 1,579 (4,670) 1,727 1,001
Net earnings 6,538 6,879 8,759 6,566 6,211 11,227 5,342 608 13,222 1,645
Non-controlling interests — — — — 201 871 (1,102) 191 1,355 218
Net earnings attributable
to shareholders $ 6,538 6,879 8,759 6,566 6,010 10,356 6,444 417 11,887 1,427
Earnings per common share:
Basic and diluted 0.80 0.83 1.05 0.79 0.72 1.24 0.76 0.05 1.39 0.17
Dividends per common share $ 0.32 0.33 0.35 0.36 0.36 0.36 0.36 0.24 0.20 0.30
Finance receivables and loans, net $ 109,775 136,346 134,259 138,115 217,975 335,652 368,637 354,023 472,899 444,458
Other assets 11,034 18,278 20,301 20,450 33,045 38,131 37,577 30,890 47,210 47,303
Total assets $ 120,809 154,624 154,560 158,566 251,020 373,783 406,214 384,913 520,109 491,761
Bank indebtedness $ 43,368 63,995 54,094 62,483 138,140 222,862 242,781 210,940 207,382 214,055
Loans payable — — — — — 5,696 11,227 21,376 149,437 109,039
Notes payable 14,809 16,808 13,201 11,370 15,862 18,079 18,939 17,434 15,992 18,605
Convertible debentures — — — — — 15,955 22,928 23,510 24,153 24,864
Other liabilities 9,201 12,489 14,199 9,031 16,885 16,006 13,971 17,894 19,185 18,587
Total liabilities 67,378 93,292 81,494 82,884 170,887 278,598 309,846 291,154 416,149 385,149
Shareholders' equity 53,431 61,332 73,066 75,682 76,449 89,818 92,515 89,850 99,967 100,972
Non-controlling interests in subsidiaries — — — — 3,684 5,367 3,853 3,909 3,992 5,640
Total equity 53,431 61,332 73,066 75,682 80,133 95,185 96,368 93,759 103,960 106,612
Total liabilities and equity $ 120,809 154,624 154,560 158,566 251,020 373,783 406,214 384,913 520,109 491,761
Shares outstanding at Dec. 31 # 8,221 8,308 8,308 8,308 8,308 8,429 8,589 8,559 8,559 8,559
Share price - high $ 9.25 10.75 12.05 9.95 9.55 10.45 10.42 10.15 9.20 9.50
- low 6.84 7.85 9.00 8.70 8.40 8.22 8.37 3.51 6.23 7.50
- close at Dec. 31 7.86 9.35 9.60 8.99 9.20 9.09 10.07 6.70 8.40 7.70
Annual Report 2022 | 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.
Irene Eddy
Chief Financial Officer
March 22, 2023
Toronto, Canada
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.
32 | Accord Financial Corp.
Independent Auditor’s 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, 2022 and December 31, 2021
• 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, 2022
and December 31, 2021, and its consolidated financial
performance and its consolidated cash flows for the years
then ended in accordance with International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB).
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
"Auditor's Responsibilities for the Audit of the Financial
Statements" section of our auditor's 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, 2022.
These matters were addressed in the context of our audit
of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion
on these matters.
We have determined the matters described below to be
the key audit matters to be communicated in our
auditor's report.
Annual Report 2022 | 33
ASSESSMENT OF ALLOWANCE FOR LOSSES
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 $8,219,873
(finance receivables and loans $8,188,873, 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
• High degree of measurement uncertainty in the key
inputs (PD, LGD, EAD) and judgments (SICR), and their
resulting impact on the allowance; and
• 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 judgment was
required due to the high degree of measurement uncertainty
in the key inputs (PD, LGD, EAD) and judgments (SICR) and
their resulting impact on the allowance. Assessing the
allowance also required significant auditor attention and
complex auditor judgment to evaluate the results of our
audit procedures. Further, specialized skills and knowledge,
including experience in the industry, were required to apply
audit procedures and evaluate the results of such procedures.
(ii) an allowance for financial instruments which have
experienced a SICR since initial recognition, which
represents a lifetime ECL.
HOW THE MATTER WAS ADDRESSED IN
THE AUDIT
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:
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;
34 | Accord Financial Corp.
• management's review of the ECL which includes their
review of forward-looking information and the application
of expert credit judgment; and
• management's control to determine the NRV for impaired
loans.
changes to the multiple applied to the expected earnings
had a significant effect on the estimated fair value. As a
result, significant auditor judgment requiring specialized
skills and knowledge was required in evaluating the results
of our procedures.
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 PD and LGD by comparing to industry data; and
• 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 9 to the financial
statements. The Entity has goodwill of $12,074,869
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
We evaluated the key inputs used to develop the recoverable
amount of the CGU, 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 CGU.
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.
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 2022 | 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 have nothing to report in this regard.
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)
as issued by the International Accounting Standards Board
(IASB), and for such internal control as management
determines is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, management is
responsible for assessing the Entity's ability to continue as
a going concern, disclosing as applicable, matters related
to going concern and using the going concern basis of
accounting unless management either intends to liquidate
the Entity or to cease operations, or has no realistic alternative
but to do so.
material misstatement, whether due to fraud or error, and
to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with Canadian generally accepted auditing standards will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of the
financial statements.
As part of an audit in accordance with Canadian generally
accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout
the audit.
We also:
• Identify and assess the risks of material misstatement of
the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Those charged with governance are responsible for
overseeing the Entity's financial reporting process.
Those charged with governance are responsible for
overseeing the Entity's financial reporting process.
• 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.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT
OF THE FINANCIAL STATEMENTS
• Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by management.
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
36 | Accord Financial Corp.
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 auditor's
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 auditor's 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
auditor’s report is Paula Foster.
Toronto, Canada
March 22, 2023
• 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 auditor's 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 auditor's
report. However, future events or conditions may cause
the Entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content
of the financial statements, including the disclosures,
and whether the financial statements represent the
underlying transactions and events in a manner that
achieves fair presentation.
• Communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including
any significant deficiencies in internal control that we
identify during our audit.
• Provide those charged with governance with a statement
that we have complied with relevant ethical requirements
regarding independence, and communicate with them
all relationships and other matters that may reasonably
be thought to bear on our independence, and where
applicable, related safeguards.
• Obtain sufficient appropriate audit evidence regarding
the financial information of the entities or business
activities within the group Entity to express an opinion
on the financial statements. We are responsible for the
direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
• Determine, from the matters communicated with those
charged with governance, those matters that were of
Annual Report 2022 | 37
Consolidated Statements of Financial Position
December 31, 2022 December 31, 2021
Assets
Cash $ 11,630,331 $ 13,839,291
Restricted cash (note 4) 6,624,848 10,309,097
Finance receivables and loans, net (note 5) 444,457,886 472,898,716
Income taxes receivable 597,031 104,860
Other assets (note 6) 5,056,561 1,853,864
Assets held for sale (note 7) 107,750 160,274
Deferred tax assets, net (note 17) 6,264,534 3,415,590
Property and equipment (note 8) 1,746,160 1,273,381
Intangible assets (note 10) 3,201,260 3,113,196
Goodwill (note 9) 12,074,869 13,140,447
$ 491,761,230 $ 520,108,716
Liabilities
Due to clients $ 1,827,151 $ 3,287,532
Bank indebtedness (note 11) 214,054,518 207,382,279
Loans payable (note 12) 109,038,957 149,436,971
Accounts payable and other liabilities 11,223,791 11,863,049
Income taxes payable 2,615,829 2,285,055
Notes payable (note 13(a)) 18,605,161 15,992,357
Convertible debentures (note 14) 24,863,761 24,152,681
Lease liabilities (note 15) 1,496,491 979,416
Deferred income 1,282,260 493,007
Deferred tax liabilities, net (note 17) 141,171 276,720
385,149,090 416,149,067
Equity
Capital stock (note 16) 9,448,264 9,448,264
Contributed surplus (note 16(c)) 1,705,205 1,088,263
Retained earnings 82,158,850 83,299,791
Accumulated other comprehensive income (note 20) 7,659,438 6,131,180
Shareholders’ equity 100,971,757 99,967,498
Non-controlling interests in subsidiaries (note 21) 5,640,383 3,992,151
Total equity 106,612,140 103,959,649
$ 491,761,230 $ 520,108,716
Contingent liabilities (note 19)
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 2022 2021
Revenue
Interest (note 5) $ 60,212,488 $ 51,897,688
Other income (note 5) 7,278,186 11,582,754
67,490,674 63,480,442
Operating expenses
Interest 24,087,047 15,886,687
General and administrative 29,599,303 31,455,505
Provision for (recovery of) credit and loan losses (note 5) 8,292,656 (614,359)
Impairment of goodwill (note 9) 1,882,507 —
Impairment of assets held for sale (note 7) 148,481 872,948
Depreciation 702,088 695,385
Business acquisition expenses:
Transaction costs — 93,958
Amortization of intangible assets 132,386 140,955
64,844,468 48,531,079
Earnings before income tax 2,646,206 14,949,363
Income tax expense (note 17) 1,001,318 1,727,000
Net earnings 1,644,888 13,222,363
Net earnings attributable to non-controlling interests
in subsidiaries 218,014 1,335,448
Net earnings attributable to shareholders $ 1,426,874 $ 11,886,915
Basic and diluted earnings per common share (note 18) $ 0.17 $ 1.39
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive
Income
Years ended December 31 2022 2021
Net earnings attributable to shareholders
Other comprehensive income:
$ 1,426,874 $ 11,886,915
Items that are or may be reclassified to profit or loss:
Unrealized foreign exchange gain on translation of
self-sustaining foreign operations
Comprehensive income
1,528,258 55,515
$ 2,955,132 $ 11,942,430
See accompanying notes to consolidated financial statements.
Annual Report 2022 | 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, 2021 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
Comprehensive income
Dividends paid (note 16(d))
— — — (1,711,783) — — (1,711,783)
Stock-based compensation expense
related to stock option grants
(note 16(e))
Distribution to non-controlling
interests
Purchase of additional 10% of
Bondlt from non-controlling
interests (note 21)
Net earnings attributable to
non-controlling interests in
subsidiaries
Translation adjustments on
non-controlling interests
Balance at December 31, 2021
Comprehensive income
Dividends paid (note 16(d))
Stock-based compensation expense
related to stock option grants
and DSUs (note 16(e))
Distribution to non-controlling
interests
Purchase of additional 8% of Accord
CapX LLC from non-controlling
interests (note 21)
Increase of 1% in non-controlling
interest on additional capital
raised in Bondlt (note 21)
Net earnings attributable to
non-controlling interests in
subsidiaries
Translation adjustments on
non-controlling interests
Balance at December 31, 2022
— — 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
— — — 1,426,874 1,528,258 — 2,955,132
— — — (2,567,815) — — (2,567,815)
— — 189,760 — — — 189,760
— — — — — (149,358) (149,358)
— — (1,612,273) — — 1,075,200 (537,073)
— — 2,039,455 — — 130,270 2,169,725
— — — — — 218,014 218,014
— — — — — 374,106 374,106
8,558,913 $ 9,448,264 $ 1,705,205 $82,158,850 $ 7,659,438 $ 5,640,383 $106,612,140
See accompanying notes to consolidated financial statements.
40 | Accord Financial Corp.
Consolidated Statements of Cash Flows
Years ended December 31 2022 2021
Cash provided by (used in):
Operating activities
Net earnings $ 1,644,888 $ 13,222,363
Items not affecting cash:
Provision for (recovery of) credit and loan losses (note 5) 8,292,656 (1,552,666)
Deferred income (36,000) (42,435)
Amortization of intangible assets (note 10) 132,386 140,955
Depreciation of property and equipment (note 8) 702,088 695,385
Loss on disposal of property and equipment 1,373 4,041
Gain on disposal of right to use assets (8,121) —
Impairment of goodwill (note 9) 1,882,507 —
Impairment of assets held for sale (note 7) 148,481 872,948
Accretion of convertible debentures (note 14) 711,080 643,108
Stock-based compensation expense related to stock option
grants (note 16(e)) 189,760 87,884
Deferred tax recovery (note 17) (2,901,180) (1,702,726)
Current income tax expense (note 17) 3,902,498 3,429,726
14,662,416 15,798,583
Changes in operating assets and liabilities:
Finance receivables and loans, gross (note 5) 36,480,914 (118,831,391)
Due to clients (1,705,917) 373,103
Other assets (3,164,381) 22,006
Accounts payable and other liabilities (12,072,925) 1,354,700
Disposal of assets held for sale (note 7) 1,342,288 623,433
Income tax paid, net (4,035,138) (987,168)
31,507,257 (101,646,734)
Investing activities
Additions to property and equipment, net (175,222) (83,249)
Financing activities
Bank indebtedness (note 11) 6,682,698 (2,412,331)
Loans payable (note 12) (44,755,479) 127,827,900
Notes payable redeemed, net (13 (a)) 2,364,825 (1,437,503)
Dividends paid (note 16(d)) (2,567,815) (1,711,783)
Purchase of 10% of BondIt from non-controlling interests (note 21) — (1,369,231)
Increase of 1% non-controlling interest on additional capital raised
by Bondlt (note 21) 2,169,725 —
Purchase of 8% of Accord CapX LLC from a non-controlling interest (537,073) —
Lease liabilities paid (note 15) (479,287) (464,013)
Distribution paid to non-controlling interests in subsidiaries (149,358) (58,518)
(37,271,764) 120,374,521
Effect of exchange rate changes on cash 46,520 (42,101)
Increase (decrease) in cash (5,893,209) 18,602,437
Cash and restricted cash at January 1 24,148,388 5,545,951
Cash and restricted cash at December 31 $ 18,255,179 $ 24,148,388
Supplemental cash flow information
Net cash used in operating activities includes:
Interest paid $ 22,884,116 $ 10,246,819
See accompanying notes to consolidated financial statements.
Annual Report 2022 | 41
Notes to Consolidated Financial Statements
Years ended December 31, 2022 and 2021
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, media
financing, 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 credit 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 7), the
determination of goodwill on acquisition and the
value of intangible assets (notes 9 and 10), as well
as the net realizable value of deferred tax assets
and liabilities (note 17).
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. While Covid-19 is
no longer considered a pandemic, several follow-on
effects have emerged, including supply chain
disruptions, high inflation, and rapidly increasing
interest rates. As a result, 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 credit 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:
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 22, 2023.
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 wholly 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
Annual Report 2022 | 43
loans are financial assets that are measured at
amortized cost as the following conditions are met:
i) the asset is held within a business model whose
objective is to hold assets to collect contractual
cash flows; and
ii) the contractual terms of the financial asset give rise
on specified dates to cash flows that are solely
payments of principal and interest.
The Company's leasing operations have standard
lease contracts that are non-cancellable direct
financing leases and provide for monthly lease
payments, usually for periods of one to five years.
The present value of the minimum lease payments
and residual values expected to be received under
the lease terms is recorded at the commencement
of the lease. The difference between this total value,
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 ("IFRS 9"), 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 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. 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
44 | Accord Financial Corp.
estimate of the exposure at a future default date.
These key inputs associated with each loan are
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
Right-of-use assets
Declining balance
Declining balance
Declining balance
Straight line
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
Annual Report 2022 | 45
excess is charged against earnings in the year in
which the impairment is determined.
(g) Intangible assets
Purchased intangible assets are recognized as assets
in accordance with IAS 38, Intangible Assets, when
it is probable that the use of the asset will generate
future economic benefits and where the cost of the
asset can be reliably determined. Intangible assets
acquired are initially recognized at cost of purchase,
which is also the fair value at the date acquired,
and are subsequently carried at cost less accumulated
amortization and, if applicable, accumulated
impairment losses. The Company's intangible assets,
with the exception of the acquired brand name
which is considered to have an indefinite life and is
not amortized, have a finite life and are amortized
over their useful economic life. Intangible assets are
also assessed for impairment each reporting period.
The amortization period and method of amortization
are reassessed annually. Changes in the expected
useful life are accounted for by changing the
amortization period or method, as appropriate, and
are treated as a change in accounting estimates. The
amortization expense is recorded as a charge against
earnings. The Company's intangible assets comprise
existing customer contracts, customer relationships,
broker relationships and brand name in its leasing
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
46 | Accord Financial Corp.
monthly exchange rate then prevailing. Resulting
translation gains and losses are credited or charged
to other comprehensive income and presented in
the accumulated other comprehensive income
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 and
deferred share units (DSUs) 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. DSUs
vest at the award date and the fair value thereof is
recorded as an expense. Subsequent adjustments
are recorded in general and administrative expense,
based on the difference between the fair value of
the DSUs at the end of a reporting period and the
fair value at the grant date.
The Company's LTIP (note 16) 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) Financial assets and liabilities
Financial assets and liabilities are recorded at
amortized cost, with the exception of derivative
financial instruments, and the guarantee of managed
receivables which are all recorded at fair value. Fair
value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly
manner between participants in an active (or in its
absence, the most advantageous) market to which
the Company has access at the transaction date.
The Company initially recognizes loans and
receivables on the date that they are originated.
All other financial assets are recognized initially on
the transaction date on which the Company becomes
a party to the contractual provisions. The Company
derecognizes a financial asset when the contractual
rights to the cash flows from the asset expire, or it
transfers the rights to receive the contractual cash
flows on the financial asset in a transaction in which
substantially all the risks and rewards of ownership
of the financial asset are transferred. Any interest in
transferred financial assets that is created or retained
by the Company is recognized as a separate asset or
liability. Financial assets and liabilities are offset and
the net amount presented in the consolidated
Annual Report 2022 | 47
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, 2022, the restricted cash totalled
$6,624,848 (2021 – $10,309,097) against an amount
due to the lender of $44,367,587 (2021– $89,387,586).
5. Finance receivables and loans and
managed receivables
(a) Finance receivables and loans
As detailed in note 2, there is a high degree of
uncertainty relating to the adverse economic impact
caused by the current geo-political environment 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.
Since the beginning of Covid-19 in the first quarter
of 2020, this economic uncertainty resulted in
downgrades in internal risk ratings for some clients,
and an increase in delinquencies. This, together
with a weaker economic environment reflected in
the FLI, led to significant increases in the Company’s
provision for credit and loan losses and allowances
for expected credit losses, as discussed below.
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.
(n) 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.
(o) 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”).
(p) Government grants
Government grants are recognized in the consolidated
statement of operations as a reduction in the
48 | Accord Financial Corp.
Finance receivables and loans at December 31 were
as follows:
a direct result of Covid-19 was $nil at December 31,
2022 (2021 – $5.3 million).
(in thousands) 2022 2021
Working capital loans $ 121,979 $ 109,518
Receivable loans 86,788 105,550
Other loans* 90,970 101,811
Media loans 87,770 81,497
Lease receivables 65,171 79,774
Finance receivables
and loans, gross 452,678 478,150
Less allowance for
expected losses 8,189 5,251
Finance receivables
and loans, net $ 444,489 $ 472,899
*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 is primarily comprised of 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, 2022 are expected
to be collected over a period of up to five years.
Interest income earned on finance receivables and
loans in 2022 totalled $60,212,488 (2021 – $51,897,688).
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. The outstanding balance of finance
receivables and loans that were modified in 2020 as
Finance receivables and loans based on the
contractual repayment dates thereof can be
summarized as follows:
(in thousands) Dec. 31, 2022 Dec. 31, 2021
Less than 1 year $ 217,844 $ 259,737
1 to 2 years 117,623 99,209
2 to 3 years 65,879 81,500
3 to 4 years 33,279 33,234
4 to 5 years 18,053 4,470
$ 452,678 $ 478,150
The aged analysis of the Company’s finance
receivables and loans was as follows:
(in thousands) Dec. 31, 2022 Dec. 31, 2021
Current $ 403,807 $ 452,575
Past due but not impaired:
Past due less than 90 days 23,302 15,214
Past due 90 to 180 days 1,755 1,942
Past due 180 days or more 4,845 6,723
Impaired loans 18,969 1,696
$ 452,678 $ 478,150
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, 2022,
$26,140,000 (2021 – $13,815,000) related to BondIt
Media Capital (“BondIt”), AFIU’s 60% controlled
media finance subsidiary, where media productions
and the sale thereof are often delayed resulting in
payment delays, while $12,948,000 (2021 – $9,962,000)
related to AFCC (of which $8,071,000 benefits from a
guarantee from Export Development Canada (“EDC”)
of up to 80% of the loan balance), and $7,599,000
(2021 – $102,000) to AEF.
Annual Report 2022 | 49
since initial recognition, a loss allowance is
recognized equal to the net credit losses
expected over the remaining life of the lease or
loan; and
• Stage 3 - for leases or loans that are considered
credit-impaired, a loss allowance is recognized
equal to full lifetime expected net credit losses.
Finance receivables and loans classified under the
three stage credit criteria of IFRS 9 were as follows:
(in thousands) Dec. 31, 2022 Dec. 31, 2021
Stage 1 $ 370,463 $ 436,592
Stage 2 (SICR) 63,246 39,862
Stage 3 (Impaired) 18,969 1,696
$ 452,678 $ 478,150
The activity in the allowance for expected losses on
finance receivables and loans during 2022 and 2021
was as follows:
2022 2021
Allowance for expected
losses at January 1 $ 5,251,000 $ 6,314,000
Provision for (recovery of)
provision for loan losses 8,333,256 (53,132)
Write-offs (5,986,425) (1,057,071)
Recoveries 423,126 81,536
Foreign exchange
adjustment 167,916 (34,333)
Allowance for expected
losses at December 31 $ 8,188,873 $ 5,251,000
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 based on the net realizable value of
the collateral security which may result in a low or
no LGD.
At December 31, 2022, the estimated net realizable
value of the collateral securing the impaired loans
totalled $17,817,000 (December 31, 2021 – $1,639,000).
During 2022, lease receivables totalling $1,430,000
(2021 – $160,000) were transferred to assets held
for sale upon default of the leases and repossession
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
assign credit ratings to 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
facilitate risk-based pricing.
As detailed in note 3(d), the Company assigns credit
ratings to its finance receivables and loans. The
credit ratings, along with other factors, are used for
the determination of Staging based on a SICR
(Significant Increase in Credit Risk) analysis. The
Staging segmentation influences estimated
allowances as described below:
• Stage 1 - for leases and loans that have not
experienced a significant increase in credit risk
since initial recognition, a loss allowance is
recognized equal to the net credit losses
expected to result from defaults occurring in
the next 12 months;
• Stage 2 - for those leases or loans that have
experienced a significant increase in credit risk
50 | Accord Financial Corp.
The activity in the allowance for expected losses on finance receivables and loans during 2022 by stage of
allowance was as follows:
Allowance for expected losses at January 1, 2022
Transfer between stages
Reserves expense (recovery)* related to change
in allowance for expected losses
Foreign exchange adjustment
Stage 1 Stage 2
Stage 3 Total
$ 3,319,022
(327,315)
$ 1,872,584
163,146
$ 59,394 $ 5,251,000
164,169 —
(191,432) 729,526 2,231,863 2,769,957
27,451 167,916
102,675
37,790
Allowance for expected losses at December 31, 2022
$ 2,902,950
$ 2,803,046
$ 2,482,877 $ 8,188,873
* a component of the provision for loan losses
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
$ 3,527,040
179,435
$ 2,786,960
(180,202)
Stage 3 Total
$ — $ 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 allowance for expected losses for some Stage 3
accounts can be minimal, as the impaired finance
receivables and loans are in respect of accounts
where the Company intends to or has actively taken
possession of its collateral and is currently or will be
liquidating the 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 prior allowance
for expected losses thereon reversed.
The Company’s allowance for expected losses on
finance receivables and loans is estimated using
statistical models that involve a number of inputs
and assumptions. The key drivers of changes in the
allowance for expected losses include the following:
• Increase or decrease in the amount of finance
receivables and loans;
• Transfers between stages due to significant
changes in credit risk, as reflected by changes
in PD and LGD; and
• Changes in forward-looking macroeconomic
variables, used in the expected losses models.
The Company incorporates the impact of FLI into
its allowance for expected losses. The Company
sources 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
to mitigate volatility in the estimation of its
allowance for expected losses, and 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
to forward-looking economic conditions includes,
but are not limited to monetary policy, fiscal
Annual Report 2022 | 51
policy, energy prices, public health emergencies,
including an epidemic or pandemic, business
investment, housing, employment, and supply
chain amongst others.
Currently, the Company assigns discrete weights to
several macroeconomic forecast scenarios for use
in the estimation of its allowance for expected
losses. The Company also applies experienced credit
judgment in circumstances where the assumptions
or models may not capture all the relevant risk
factors. The Company has applied experienced
credit judgement to consider uncertainty in the
U.S. and Canadian macroeconomic environment
attributable to rising interest rates, supply chain
disruption, energy prices and labor/supply costs.
The Company tracks forward estimates of the
following indices in order to sensitize allowances
for expected losses: Producer Price Index (PPI); WTI
Crude; Global Supply Chain Stress Index (GSCP); and
U.S. and Canadian Prime Rates, as these factors have
a pronounced impact on the Company’s portfolio.
The Company uses experienced credit judgment
to review and analyze the various forecast scenarios
and assign probability weightings. If management
were to assign a 100% probability to the most
pessimistic downside scenario forecast considered,
the allowance for expected losses would have been
$1.46 million higher than the reported estimate of
the allowance for expected losses as at December 31,
2022. Alternatively, the assignment of a 100%
probability to the most optimistic upside scenario
forecast considered would have resulted in the
allowance for expected losses being $2.37 million
lower than that reported.
The nature of the Company's business involves
funding or assuming the credit risk on the receivables
of its clients, and the financing of other assets, such
as inventory and equipment. The Company controls
the credit risk associated with its finance receivables
and loans, and managed receivables in a variety of
ways, as discussed below. For details of the Company's
policies and procedures in this regard, please refer
to note 24(a).
At December 31, 2022, the Company held cash
collateral of $3,533,000 (2021 – $3,591,000) 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 clients' receivables. At December 31,
2022, the gross amount of these managed receivables
was $5,309,289 (2021 – $11,440,848). Fees from the
Company’s receivables management and credit
protection business during 2022 totalled $359,424
(2021 – $535,345). These fees are included in
other income.
The aged analysis of the Company’s managed
receivables was as follows:
(in thousands) Dec. 31, 2022 Dec. 31, 2021
Current $ 5,309 $ 11,066
Past due but not impaired:
Past due less than 90 days — 375
Past due more than 90 days — —
$ 5,309 $ 11,441
Managed receivables classified under the three stage
credit criteria of IFRS 9 were as follows:
(in thousands) Dec. 31, 2022 Dec. 31, 2021
Stage 1 $ 5,309 $ 11,441
Stage 2 (SICR) — —
Stage 3 (Impaired) — —
$ 5,309 $ 11,441
Outstanding client claims in respect of impaired
managed receivables are an actual liability that is
accrued for and included in accounts payable and
other liabilities.
Management provides an allowance for expected
losses on the guarantee of these managed
receivables, which represents the estimated fair
value of the guarantees at that date. This allowance
52 | Accord Financial Corp.
is included in the allowance for losses at December
2022, whereas at December 2021 this balance was
included in accounts payable and other liabilities.
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 2022 and 2021 was as follows:
Allowance for expected
losses at January 1 $
Provision for (recovery of)
credit losses
Write-offs
Recoveries
Allowance for expected
losses at December 31 $
2022
2021
31,000 $
555,000
(40,600)
—
40,600
(561,227)
(853)
38,080
31,000 $
31,000
The activity in the allowance for expected losses on the guarantee of managed receivables during 2022 by stage
of allowance was as follows:
Stage 1 Stage 2
Stage 3 Total
Allowance for expected losses at January 1, 2022 $
Reserves recovery* related to decrease in allowance
for expected losses
Allowance for expected losses at December 31, 2022 $
31,000
—
31,000
$
$
—
—
—
$
$
—
—
—
$ 31,000
—
$ 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 2022.
The activity in the allowance for expected losses on the guarantee of managed receivables during 2021 by stage
of allowance was as follows:
Allowance for expected losses at January 1, 2021 $
Reserves expense (recovery)* related to
change in allowance for expected losses
Stage 1 Stage 2 Stage 3 Total
267,400 $ 287,600 $ — $ 555,000
(236,400) (287,600) — (524,000)
Allowance for expected losses at December 31, 2021 $
31,000 $ — $ — $ 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.
6. Other Assets
7. Assets held for sale
Other Assets at December 31, 2022 were $5,057,000
(2021 – $1,854,000) and were primarily comprised of
prepaid expenses of $2,723,000 (2021 – $1,366,000)
and amounts due from EDC of $1,315,000 (2021 –
$488,000) pursuant to guarantees provided on
AccordExpress loans.
Assets held for sale and movements therein during
2022 and 2021 were as follows:
2022 2021
Assets held for sale
at January 1 $ 160,274 $ 1,513,567
Additions 1,430,124 160,274
Disposals (1,334,167) (623,433)
Impairment charge (148,481) (872,948)
Foreign exchange adjustment — (17,186)
Assets held for sale
at December 31 $ 107,750 $ 160,274
Annual Report 2022 | 53
At December 31, 2022 and 2021, 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, 2022
and 2021:
2022 2021
U.S. operations $ 12,074,869 $ 11,257,940
Canadian operations — 1,882,507
Goodwill at December 31 $ 12,074,869 $ 13,140,447
Goodwill is tested for impairment annually. During
2022, the Company conducted an annual impairment
review on each CGU and determined that there was
an impairment to the carrying value of goodwill of
the Canadian CGU, while there was no impairment
to the carrying value of goodwill of the U.S. CGU.
During 2021 the annual impairment review on each
CGU determined that there was no impairment to
the carrying value of goodwill. The Company
estimates the fair value (being the recoverable
amount) of each of its CGUs and compares this to
the carrying value of the CGU to determine if there
has been an impairment of goodwill. In the
Company’s case the estimated fair value of each
CGU is determined to be a multiple of the expected
earnings of the CGU, where expected earnings are
an estimate of future years’ earnings. This provides
a similar result to extrapolating and discounting
budgeted earnings for the CGUs. The estimated fair
value of each CGU is then compared to the carrying
value of the CGU, including goodwill, to determine if
the goodwill is impaired.
The most sensitive assumption used in the
impairment testing was the multiple applied to the
expected earnings of each CGU in determining the
fair value thereof. In 2022 a multiple of 9.8 (2021 – 9.8)
was used. Management believes a reasonable
decrease in the multiple would not cause an
impairment in the goodwill of its CGUs.
During 2022 and 2021, the Company obtained title
to or repossessed certain long-lived assets securing
defaulted finance receivables and loans from one
or more clients. These assets have been sold or are
being actively marketed for sale and will be disposed
of as market conditions permit. Additions to the
assets held for sale during 2022 were $1,430,124
(2021 – $160,274) while assets disposed of produced
net proceeds of $1,334,167 (2021 – $623,433) for a
gain of $8,527. An impairment charge of $148,481
(2021 – $872,948 ) was recorded to write the assets
down to the net realizable value (“NRV”). The
estimated NRV of the assets at the above dates was
based upon external appraisals.
8. Property and equipment
(in thousands) Dec. 31, 2022 Dec. 31, 2021
Cost $ 4,619 $ 4,732
Accumulated depreciation (2,873) (3,459)
Net book value $ 1,746 $ 1,273
Property and equipment includes the Company’s
right-of-use assets, comprising five office leases at
December 31, 2022. The Company’s right-of-use
assets and movements therein during 2022 and
2021 were as follows:
(in thousands) 2022 2021
Right-of-use assets at
January 1 $ 875 $ 1,103
Additions 1,052 242
Modifications / completions (82) —
Depreciation (522) (466)
Foreign exchange
adjustment 19 (4)
Right-of-use assets at
December 31 $ 1,342 $ 875
9. Goodwill
2022 2021
Goodwill at January 1 $ 13,140,447 $ 13,218,843
Impairment (1,882,507) —
Foreign exchange
translation 816,929 (78,396)
Goodwill at December 31 $ 12,074,869 $ 13,140,447
Goodwill totalled $12,074,869 at December 31, 2022
compared to $13,140,447 at December 31, 2021. The
decrease is related to a $1,882,507 impairment loss
against goodwill at the Company’s Canadian CGU.
54 | Accord Financial Corp.
10. Intangible assets
Intangible assets and movements therein during 2022 and 2021 were as follows:
Customer
and referral Broker Brand
2022 relationships relationships name Total
Cost
January 1, 2022 $ 1,924,616 $ 1,343,938 $ 1,721,159 $ 4,989,713
Foreign exchange adjustment 139,659 97,522 124,896 362,077
December 31, 2022 $ 2,064,275 $ 1,441,460 $ 1,846,055 $ 5,351,790
Accumulated amortization
January 1, 2022 $ (532,579) $ (1,343,938) $ — $ (1,876,517)
Amortization expense (132,386) — — (132,386)
Foreign exchange adjustment (44,105) (97,522) — (141,627)
December 31, 2022 $ (709,070) $ (1,441,460) $ — $ (2,150,530)
Book value
January 1, 2022 $ 1,392,037 $ — $ 1,721,159 $ 3,113,196
December 31, 2022 $ 1,355,205 $ — $ 1,846,055 $ 3,201,260
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
11. Bank indebtedness
A revolving credit facility with total commitments of
approximately $367 million provided by a syndicate
of six banks which matured on July 26, 2022 was
amended and extended for a three-year period to a
maturity date of July 26, 2025. Pursuant to the
amendment the total commitments increased to
$436.5 million and the secured overnight financing
rate (SOFR) replaced LIBOR as the floating rate index.
The index for the interest rate is either SOFR or the
bank prime rate. The credit facility is secured by the
Company’s finance receivables and loans, except for
finance receivables and loans that secure the BondIt
loan and the ASBF loan. At December 31, 2022, the
amount outstanding under the credit facility totalled
$214,055,000 (December 31, 2021 – ($207,382,000)).
The Company did not meet its interest coverage
ratio covenant under its revolving credit facility at
December 31, 2022, but has received a waiver from
the lender subsequent to December 31, 2022. The
Company was in compliance with all other loan
covenants under its revolving credit facility during
2022 and 2021.
12. Loans payable
(a) BondIt loan
A revolving line of credit has been established by
BondIt with a non-bank lender, which bears interest
varying with a base rate, generally the higher of the
U.S. Prime Rate or the effective Federal Funds Rate.
Annual Report 2022 | 55
This revolving line, which is secured by all of BondIt’s
assets, has a total commitment of US$47,000,000
($63,704,000) and a maturity date of May 31, 2024.
At December 31, 2022, the amount outstanding
under this line of credit totalled $64,671,000
inclusive of accrued interest and fees (2021 –
$60,049,000). BondIt was in compliance with all loan
covenants under this facility during 2022 and 2021.
while the term notes bear interest at rates between
7.25% and 11%.
Interest expense on the notes payable was as follows:
2022 2021
Related parties $ 1,076,270 $ 957,806
Third parties 241,876 219,151
$ 1,318,146 $ 1,176,957
(b) ASBF loan
During the fourth quarter of 2021, ASBF, a subsidiary
of AFCC, entered into a non-recourse loan and
security agreement with a life insurance company.
This loan is secured by the majority of ASBF’s
assets and bears a fixed rate of interest of 3.55%.
The amount outstanding under this loan facility at
December 31, 2022 was $44,368,000 (December 31,
2021 – $89,388,000) of which $16,824,000 is expected
to be paid within one year and $27,544,000
thereafter. ASBF experienced a trigger event as of
December 31, 2022 as a result of the breached
covenant under the Company’s revolving credit line.
The lender has provided a waiver subsequent to
December 31, 2022.
13. Related parties
(a) Notes payable
Notes payable comprise: (i) unsecured demand notes
due on, or within a week of demand and (ii) term
notes which are repayable on various dates the
latest of which is July 31, 2025. Notes payable are to
individuals or entities and consist of advances from
shareholders, management, employees, other
related individuals and third parties.
(b) Compensation of directors and key
management personnel
The remuneration of directors and key management
personnel(1) during 2022 and 2021 was as follows:
2022 2021
Salaries and directors' fees $ 4,793,253 $ 5,672,276
Stock-based compensation (2) 186,955 87,884
Termination payments 524,398 765,012
$ 5,504,606 $ 6,525,172
(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 and DSUs. Please see note 16.
(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, 2022, participations in
BondIt client loans totalled US$28,132,000 (December
31, 2021 – US$40,704,000), of which US$ 11,844,000
(December 31, 2021 – US$1,562,000) was provided
by related parties. These participations are not
included in the Company’s Consolidated Statements
of Financial Position.
Notes payable at December 31 were as follows:
14. Convertible debentures
2022 2021
Demand and term notes
(due within one year):
Related parties $ 5,910,996 $ 13,843,707
Third parties 2,194,165 1,516,800
8,105,161 15,360,507
Term notes due after one year:
Related parties 10,500,000 —
Third parties — 631,850
$ 18,605,161 $ 15,992,357
Notes due on, or within a week of, demand bear
interest at rates that vary with the bank prime rate,
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.
56 | Accord Financial Corp.
The debentures were not redeemable by the
Company prior to December 31, 2022. On or after
December 31, 2022 and at any time prior to the
maturity date, 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.
The Company used the residual method to calculate
the allocation between the debt and equity
components of the debentures. Gross proceeds
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 was 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, 2022 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 2,450,187 — 2,450,187
$ 24,863,761 $ 1,005,105 $ 25,868,866
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
At December 31, 2022 all debentures remained
outstanding.
15. 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
2022
$ 443
1,245
—
2021
$ 525
538
23
Total undiscounted lease
obligations
Less: short-term lease
commitments elected for
exemption under IFRS 16
Less: future interest
Lease liabilities at December 31
1,688
1,086
—
(192)
$ 1,496
(7)
(100)
$ 979
During 2022, principal and interest payments for the
five office leases recognized as right-of-use assets
under IFRS 16 totalled $479,287 (2021 – $464,013)
and $62,333 (2021 – $67,393) respectively, for total
lease payments of $541,620 (2021 – $531,406). No
variable lease payments are included in the
measurement of the Company’s lease liabilities.
16. 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, 2022 and 2021, there were no first
preferred shares outstanding.
(b) Issued and outstanding
The Company's issued and outstanding common
shares during 2022 and 2021 are set out in the
consolidated statements of changes in equity.
Annual Report 2022 | 57
(c) Contributed surplus
The Company's contributed surplus and movements
therein during 2022 and 2021 are set out in the
consolidated statements of changes in equity.
(d) Dividends
Dividends in respect of the Company’s common
shares are declared in Canadian dollars. During 2022,
dividends totalling $2,567,815 (2021 – $1,711,783),
or $0.30 (2021 – $0.20) per common share, were
declared and paid. On March 1, 2023, the Company
paid a quarterly dividend of $0.075 per common
share to shareholders for a total dividend payment
of $641,918.
(e) Stock option plans
The Company has a 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 issuance upon the exercise of stock options
granted. The options granted vest one-third on the
date of the grant, and one-third on each of the first
two anniversaries of the date of grant. The options
shall be exercisable for a period of seven years after
the date of grant. The exercise price of all options
granted under the 2021 SOP is not lower than the
volume-adjusted average trading price of the
Company’s common shares on the Toronto Stock
Exchange during the ten days immediately preceding
the date of grant. The Board reserves the right to
change the terms of the options.
Details of the stock options granted and outstanding
are shown in the table below. On September 19, 2022,
the Company granted stock options to its President
and senior employees. In 2021, the Company granted
stock options to senior employees on August 4, 2021,
while 12,000 stock options were granted to its
President on October 12, 2021.
Number
Grant of options Exercise
price
date granted
Outstanding
Options as of:
Expiry date
Dec. 31, Dec. 31,
2021
2022
Aug. 4, 2021 80,100
Oct. 12, 2021 12,000
Sep. 19, 2022 72,000
164,100
$8.83
$8.83
$8.34 Sep. 18, 2029 72,000
Aug. 3, 2028 54,000 80,100
Aug. 3, 2028 12,000 12,000
—
138,000 92,100
Of the outstanding options 67,000 were vested at
December 31, 2022. The decrease in outstanding
options issued in 2021 relates to the cancellation
of options granted to certain employees that left
the Company.
The fair value of the options granted was determined
using the Black-Scholes option pricing model with
the following assumptions on the grant date:
Option Grant Date
Risk free interest rate
Expected dividend yield
Expected share price volatility
Expected life of option (years)
Fair value per option
Sep. 19, Oct. 12, Aug. 12,
2022 2021 2021
3.17% 1.35% 0.92%
3.29% 2.48% 2.24%
27.51% 29.53% 29.36%
7.0 6.8 7.0
$1.87 $1.67 $1.97
Deferred share unit (“DSU”) plan:
The Company introduced a DSU plan effective
January 1, 2022 for its board of directors. DSUs are
issued quarterly at fair market value at the date of
grant and vest immediately. During 2022, the
Company granted 7,944 DSUs (2021 – nil).
Stock-based compensation:
During 2022, the Company recorded stock-based
compensation expense of $189,760 (2021 – $87,884),
of which $129, 398 (2021 – $87,884) related to stock
option grants and $60,362 (2021 – nil) related to DSUs.
Senior executive long-term incentive plan:
The Company’s Board terminated the LTIP on
March 10, 2021. Any payouts in respect of the
outstanding LTIP awards after that date will be
settled in cash. The payout value of outstanding
vested and unvested LTIP awards at December 31,
2022 and December 31, 2021 was $nil.
17. Income taxes
The Company's income tax expense comprises:
2022 2021
Current income tax expense $ 3,902,498 $ 3,429,726
Deferred tax recovery (2,901,180) (1,702,726)
Income tax expense $ 1,001,318 $ 1,727,000
During 2022 and 2021, the Company's statutory
income tax rate was 26.5%. The Company's income
58 | Accord Financial Corp.
tax expense varies from the amount that would be
computed using the Canadian statutory income tax
rate due to the following:
2022 %
Income tax expense computed
at statutory rates $ 701,245 26.5
Increase (decrease) resulting from:
Higher effective tax rate on
income of subsidiaries 312,067 11.8
Non-controlling interests in
subsidiaries (11,991) (0.5)
Other (3) —
Income tax expense $ 1,001,318 37.8
2021 %
Income tax expense computed
at statutory rates $ 3,961,581 26.5
Increase (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 recovery $ 1,727,000 11.6
The tax effects that give rise to the net deferred tax
assets at December 31 were as follows:
2022 2021
Deferred tax assets:
Unused tax losses $ 12,684,180 $ 11,659,373
Allowances for expected
credit losses 1,782,689 613,096
Property and equipment 2,805,607 —
Leasing timing difference 11,581,573 22,000
322,081 31,802
Other
$ 29,176,130 $ 12,326,271
Deferred tax liabilities:
Basis differential on pass
(22,871,596) (8,246,906)
through subsidiaries
— (231,257)
Acquired intangibles
(40,000) (396,000)
Leasing timing difference
— (7,000)
Property and equipment
— (29,518)
Other
(22,911,596) (8,910,681)
$ 6,264,534 $ 3,415,590
The tax effects that give rise to the net deferred tax
liabilities at December 31 were as follows:
2022 2021
Deferred tax liabilities:
Convertible debentures
accretion 187,493
Accrued Expenses (46,322)
141,171
276,720
—
276,720
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, 2022 and 2021, 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.
18. Earnings per common share and
weighted average number of
common shares outstanding
The following is a reconciliation of common shares
used in the calculation for the 12 months ended
December 31, 2022 and 2021:
2022 2021
Basic weighted average number
of common shares outstanding 8,558,913 8,558,913
Effect of dilutive stock options 949
—
Dilutive weighted average number
of common shares outstanding 8,559,862 8,558,913
Certain outstanding options were excluded from
the calculation of diluted shares outstanding in the
twelve months ended December 31, 2022 because
they were considered to be anti-dilutive for earnings
per common share purposes, while for the twelve
months ended December 31, 2021 all outstanding
options were excluded for the same reason. Details
of outstanding options are set out in note 16(e).
Annual Report 2022 | 59
balance during 2022 and 2021 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, 2022, comprised an effective 40% (December 31,
2021 – 39%) interest in BondIt’s common member
units and a nil % (December 31, 2021 – 8%) interest
in AEF’s common units. On January 1, 2022, the
Company acquired the remaining 8% of AEF’s
common units from non-controlling interests at a
cost of $537,073 (US$425,000) which brought its
ownership in AEF up to 100%. On September 16, 2022,
Bondlt raised additional capital and as a result the
Company reduced its ownership of the common
member units by 1% which amounted to a reduction
in non-controlling interests of $130,270 (US$98,213).
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
2022 and 2021.
22. 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.
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.
19. Contingent liabilities
(a) In the normal course of business there is outstanding
litigation, the results of which are not expected to
have a material effect upon the Company. Pending
litigation, or other contingent matters, represent
potential financial loss to the Company. The Company
accrues a potential loss if the Company believes the
loss is probable and it can be reasonably estimated.
The decision is based on information that is available
at the time. The Company estimates the amount of
the loss by consulting with the outside legal counsel
that is handling the defense. This involves analyzing
potential outcomes and assuming various litigation
and settlement strategies. At December 31, 2022 and
2021, 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, 2022 and 2021, the Company was
contingently liable with respect to letters of
guarantee issued on behalf of a client in the amount
of $759,024 (2021 – $644,487). 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.
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
60 | Accord Financial Corp.
23. 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 during the periods under review.
2022 (in thousands) Canada United States Intercompany Consolidated
$ 491,761
$ 258,840
Identifiable assets
$ (2,059)
$ 234,980
Revenue
Interest income
Other income
Expenses
Interest
General and administrative
Provision for credit and loan losses
Impairment of goodwill
Impairment of assets held for sale
Depreciation
Business acquisition expenses
(Loss) earnings before income tax expense
Income tax expense (recovery)
(Loss) earnings
Net earnings attributable to non-controlling interest
in subsidiaries
Net (loss) earnings attributable to shareholders
$ 36,817
2,221
$ 39,038
16,759
17,420
6,481
1,883
148
283
132
43,107
(4,069)
(995)
$ (3,074)
—
$ (3,074)
$ $24,101
5,058
$ 29,159
8,034
12,179
1,812
—
—
419
—
22,444
6,715
1,996
$ 4,719
$ 218
$ 4,501
$ (706)
—
$ (706)
(706)
—
—
—
—
—
—
(706)
—
—
$ —
—
$ —
$ 60,212
7,279
$ 67,491
24,087
29,599
8,293
1,883
148
702
132
64,845
2,646
1,001
$ 1,645
218
$ 1,427
2021 (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 goodwill
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
1,335
$ 8,210
$ (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
$ 11,887
Annual Report 2022 | 61
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.
(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. Credit risk
arises with respect to loans to and other financial
transactions with clients, the guarantee of managed
receivables, and any other financial transaction with
a counterparty that the Company deals with. The
gross amount of loans ($453 million) and managed
receivables ($5 million) represents the Company's
maximum credit exposure as of the reporting dates
and is the most significant measurable risk that it
faces. The nature of the Company's asset-based
lending business involves funding or assuming the
credit risk on the receivables offered to it by its clients,
as well as financing other assets, such as inventory
and equipment. The Company often owns the
factored receivables that it finances. 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 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, or a guarantee from a counterparty. The
Company provides an expected loss allowance on
its finance receivables and loans based on the
estimated credit risk. There were no significant
changes in the quality of collateral or changes to the
Company’s collateral policy during 2022 and 2021.
At December 31, 2022, the Company had impaired
loans of $18,969,000 (2021 – $1,696,000), while at
that date, it held collateral for these loans with an
estimated net realizable value of $17,817,000 (2021
– $1,639,000). These impaired loans were mainly
secured by receivables, inventory, and/or equipment.
There were no Stage 3 (impaired) managed
receivables at December 31, 2022 and 2021.
Credit approval for transactions supported by
management in the Company’s six operating
businesses is delegated to a staff of senior credit
officers within each business. Transactions in excess
of $1.0 million (US$1.0 million U.S. Group companies),
are approved by the Company's SVP, Underwriting
and Portfolio Risk in consultation with the
Corporate Credit Committee. Transactions in excess
of $2.5 million (US$2.5 million in the case of U.S. group
companies) are 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
risk is subject to ongoing management review.
Nevertheless, for a variety of reasons, there will
inevitably be defaults by clients or their customers.
For its factoring products, the Company’s primary
focus continues to be on the creditworthiness 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. Receivables become ineligible
for lending purposes when they reach a certain
pre-determined age, typically 75 to 90 days from
62 | Accord Financial Corp.
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 allowing it 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 small
business finance operations, AFCC, security deposits
are usually obtained in respect of equipment leases
or loans, while a majority of ASBF’s working capital
loans have the benefit of a strong financial guarantor
guaranteeing up to 80% of the loan balance in the
event of a loss.
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, 2022, the
Company had guaranteed one customer’s accounts
receivable in excess of $5 million.
invoice date, and are usually charged back to clients,
thereby limiting the Company’s credit risk on older
receivables. Asset-based lending products additionally
require focus on the performance of other collateral
types (inventory, equipment and in certain cases
real estate) as well as the underlying cash flows of
the borrower. AFCC’s and AEF’s lease receivables
and equipment and working capital loans are
usually structured as term loans with payments
spread out evenly over the term of the lease or loan,
with terms up to 60 months. AFCC also has a
revolving equipment loan product which has no
fixed repayment terms and can be repaid at any time.
The Company uses an internal 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 assign credit ratings to borrowers,
predict future performance and manage limits for
existing loans and collection activities. In its credit
protection and receivables management business,
the Company 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
the three stage credit criteria of IFRS 9, as well as
an aged analysis thereof. Credit risk is 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 and
equipment finance operations, the Company
assesses the financial strength of its clients and its
clients' customers and the industries in which they
operate on an ongoing basis. Cash flows from a
client’s ongoing business operations represent the
primary source of repayment.
The Company also manages credit risk by limiting
the maximum amount that it will lend to any one
Annual Report 2022 | 63
The Company's credit exposure relating to its
finance receivables and loans by industrial sector
was as follows:
December 31, 2022
Gross finance
Industrial sector receivables % of
(in thousands) and loans total
Media $ 93,622 20.68
Manufacturing 76,995 17.01
Wholesale trade 48,938 10.81
Finance and insurance 40,282 8.90
Waste management and
remediation services 33,356 7.37
Transportation and warehousing 30,570 6.75
Construction 29,193 6.45
Mining 28,134 6.21
Retail Trade 19,947 4.41
Professional, scientific, and
technical services 10,049 2.22
Real estate rental and leasing 8,351 1.84
Agriculture, forestry, fishing
and hunting 8,283 1.83
Accommodation and food services 8,050 1.78
Health care and social assistance 6,822 1.51
Other services (except public
administration) 6,343 1.40
Educational services 1,970 0.44
Arts, entertainment, and recreation 986 0.22
Management of companies
and enterprises 471 0.10
Utilities 206 0.05
Public administration 110 0.02
$ 452,678 100.00
December 31, 2021
Gross finance
Industrial sector receivables % of
(in thousands) and loans total
Media $ 80,754 16.89
Manufacturing 92,434 19.33
Wholesale trade 45,414 9.50
Finance and insurance 49,441 10.34
Waste management and
remediation services 24,025 5.02
Transportation and warehousing 36,074 7.54
Construction 25,327 5.30
Mining 30,137 6.30
Retail Trade 14,915 3.12
Professional, scientific, and
technical services 19,943 4.17
Real estate rental and leasing 13,172 2.75
Agriculture, forestry, fishing
and hunting 15,329 3.21
Accommodation and food services 7,074 1.48
Health care and social assistance 17,455 3.65
Other services (except public
administration) 1,761 0.37
Educational services 1,178 0.25
Arts, entertainment, and recreation 1,610 0.34
Management of companies
and enterprises 1,064 0.22
Utilities 1,041 0.22
Public administration — 0.00
$ 478,150 100.00
The Company’s credit exposure relating to its managed
receivables by industrial sector was as follows:
December 31, 2022
Industrial sector Managed % of
(in thousands) receivables total
Wholesale and distribution $ 5,309 100%
$ 5,309 100%
December 31, 2021
Industrial sector Managed % of
(in thousands) receivables total
Wholesale and distribution $ 9,768 85
Retail 1,673 15
$ 11,441 100
As set out in notes 3(d) and 5, the Company maintains
separate allowances for expected losses on both
Loans and loans and its guarantee of managed
receivables in accordance with IFRS 9. The
allowances for expected losses are based on
64 | Accord Financial Corp.
statistical models, including the impact of FLI based
on several macroeconomic forecast scenarios. The
allowances for expected losses is deemed sufficient
based on the results of the expected loss modeling
and experienced credit judgment.
(b) Liquidity risk
The Company’s financial assets and liabilities at December 31, 2022 by contractual maturity date were as follows:
(in thousands)
0 to 12
1 to 2
months years
2 to 3 3 to 4 4 to 5
years years years Thereafter Total
Financial assets
Cash and restricted cash $ 16,879 $ 931 $
Finance receivables
and loans
All other assets
217,844 117,623
7,122 1,007
445 $ — $ — $ — $ 18,255
65,879 33,279 18,053 — 452,678
497 — — — 8,626
$ 241,845 $ 119,561 $ 66,821 $ 33,279 $ 18,053 $ — $ 479,559
Financial liabilities
Due to clients
Bank indebtedness (1)
Loans payable (2)
Notes payable
Convertible debentures
All other liabilities
$
1,827
214,055
17,579
8,105
24,864
14,606
$
—
—
82,536
—
—
50
$
—
—
8,924
10,500
—
33
$ 281,036
$ 82,586
$ 19,457
$ — $ — $ — $ 1,827
— — — 214,055
— — — 109,039
— — — 18,605
— — — 24,864
— — 141 14,830
$ — $ — $ 141 $ 383,220
(1) Included in Bank indebtedness maturing within 12 months is $214,055,000 of debt which has been classified as current as the Company was in breach of one of its
debt covenants at December 31, 2022. The Company has obtained a waiver from the lender subsequent to December 31, 2022.
(2) Loans payable of $16,824 maturing within 12 months, of $18,620 maturing in 1 to 2 years, and of $8,924 maturing in 2 to 3 years are estimated amounts, as the
loans do not have a contractual maturity date.
The Company’s financial assets and liabilities at December 31, 2021 by contractual 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 and restricted cash $ 21,062 $ 1,091 $
Finance receivables
and loans
All other assets
234,602 105,332
1,377 —
1,273 $ 722 $ — $ — $ 24,148
89,868 43,419 4,928 — 478,149
— — — — 1,377
$ 257,041 $ 106,423 $ 91,141 $ 44,141 $ 4,928 $ — $ 503,674
Financial liabilities
Due to clients
Bank indebtedness
Loans payable (1)
Notes payable
Convertible debentures
All other liabilities
$
3,287
207,382
87,726
15,360
—
14,594
$ 328,349
$
—
—
21,809
632
—
242
$ 22,683
$
—
—
25,468
—
24,153
124
$ 49,745
$ — $ — $ — $ 3,287
— — — 207,382
14,434 — — 149,437
— — — 15,992
— — — 24,153
88 87 23 15,158
$ 14,522 $ 87 $ 23 $ 415,409
(1) Loans payable of $27,677 maturing in 0 to 12 months, $21,809 maturing in 1 to 2 years, $25,468 maturing in 2 to 3 years and $14,434 maturing in 4 to 5 years are
estimated amounts, as there is no contractual maturity date.
Annual Report 2022 | 65
Liquidity risk is the risk that the Company will not be
able to meet its financial obligations and support
business growth. 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 come 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,
accounts payable and other liabilities. At December
31, 2022, revolving credit lines and a term facility
totalling approximately $545 million (December 31,
2021 – $526 million) had been established with a
syndicate of banks, as well as non-bank lenders.
The revolving facilities bear interest varying with
the Canadian or U.S. prime rate or SOFR while the
term loan carries a fixed interest rate of 3.55%.
At December 31, 2022, the Company had borrowed
$323,093,475 (December 31, 2021 – $356,819,250)
against these facilities. These facilities are
collateralized primarily by finance receivables and
loans to clients. As detailed in note 11, the Company
was in compliance with all loan covenants under its
revolving credit line during 2022 and 2021, except
for an interest ratio covenant at December 31, 2022,
for which the lender provided a waiver subsequent
to December 31, 2022. IFRS 7, Financial Instruments:
Disclosures requires the bank indebtedness under the
revolving credit line of $214,054,518 to be categorized
as current because the lender has the right to call
the loan due to the breached covenant. The lender
has provided a waiver subsequent to December 31,
2022. BondIt was compliant with all covenants
under its line of credit (see note 12(a)) with its
non-bank lender. ASBF experienced a trigger event
under its non-recourse loan agreement as a result
of the breached covenant under the Company’s
revolving credit line. The lender has provided a
waiver subsequent to December 31, 2022.
Notes payable of $8,105,161 are due on, or within
a week of demand, while term notes totalling
$10,500,000 are repayable at various dates the
latest of which is July 31, 2025 (see note 13(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, 2022, 88% (2021
– 87%) of these notes were due to related parties
and 12% (2021 – 13%) to third parties. The Company’s
convertible debenture liability at December 31, 2022
was $24,863,761. These debentures mature on
December 31, 2023. Due to clients principally
consists 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, 2022, the Company had gross
finance receivables and loans totalling $452,677,759
(December 31, 2021 – $478,149,717) which
substantially exceeded its total liabilities of
$385,149,090 at that date (December 31, 2021 –
$416,149,067). 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.
(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
66 | Accord Financial Corp.
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, 2022, the Company's
unhedged foreign currency positions in its Canadian
operations totalled $12,000 (2021 – $558,000). 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 include both fixed
rates and floating rates. The Company manages its
interest rate exposure where possible, through
the use of securitization or other match funding
strategies. If the Company’s floating rate borrowings
exceed its floating rate finance receivables and loans,
the Company could be exposed to fluctuations in
interest rates, such that an increase in floating
interest rates could increase the Company’s interest
expense beyond its ability to pass the increase on
to its clients.
The following table shows the interest rate sensitivity gap at December 31, 2022:
Floating 0 to 12 1 to 3 3 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
Shareholders' equity
Total interest rate sensitivity gap
$ 17,209 $ — $ — $ — $ — $ 1,046 $ 18,255
156,055 116,033 137,669 42,921 — (8,220) 444,458
40 3,579 — — — 25,429 29,048
173,304 119,612 137,669 42,921 — 18,255 491,761
— — — — — 1,827 1,827
13,244 200,811 — — — — 214,055
64,672 16,823 27,544 — — — 109,039
4,716 3,389 10,500 — — — 18,605
— 24,864 — — — — 24,864
— 4,552 144 144 — 11,919 16,759
— — — — — 106,612 106,612
82,632 250,438 38,188 144 — 120,358 491,761
$ 90,672 $(130,826) $ 99,481 $ 42,777 $ — $(102,103) $ —
At December 31, 2022, the Company's floating rate and short-term liabilities (primarily bank indebtedness), net
of unrestricted cash, exceed the Company’s floating rate assets by $97 million. Additional assets maturing in less
than twelve months, if not redeployed in new loans, would be used to pay down bank indebtedness, thus
narrowing the sensitivity gap over the year. Furthermore, a portion of BondIt’s interest rate exposure is attributable
to its minority shareholders. Based on the Company’s interest rate positions at December 31, a 100 basis point
rise in interest rates would decrease pre-tax earnings by approximately $909,000 over a twelve month period.
A 100 basis point decrease in interest rates would add a similar amount to pre-tax earnings.
Annual Report 2022 | 67
25. Capital disclosure
26. Government grants
During 2022, the Company did not receive any
government grants. During 2021, the Company
received $249,481 under the Canadian Emergency
Wage Subsidy program and $75,474 under the
Canadian Emergency Rent Subsidy program. These
grants were credited against their respective payroll
and rent expenses in G&A.
27. Subsequent events
At March 22, 2023, there were no subsequent
events occurring after December 31, 2022 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. To manage 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 a 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, 2022, these ratios
were 3.44x (2021 – 3.82x) and 0.22 (2021 – 0.20),
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. At December
31, 2022, the Company is required to maintain a
senior debt to TNW ratio of less than 4.0 on its
syndicated bank facility. BondIt, which has entered
into a loan facility with a non-bank lender, is
required to maintain a TNW of at least US$5,000,000.
There were no changes in the Company's approach
to capital management from previous periods.
68 | Accord Financial Corp.
Corporate Information
Board of Directors
David Beutel, Toronto, Ontario 1, 3, 4
Burt Feinberg, New York, New York 3
Simon Hitzig, Toronto, Ontario
Jean Holley, Alpharetta, Georgia 2
Gary Prager, Wake Forest, North Carolina1, 3
David Spivak, Vancouver, British Columbia 1
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
Irene Eddy, Senior Vice President,
Chief Financial Officer
Cathy Osborne, Senior Vice President,
Human Resources
Todd Eubanks, Senior Vice President,
Underwriting and Portfolio Risk
Subsidiaries
Stock Exchange Listings
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
Jim Hogan, President
BondIt Media Capital
Matthew Helderman, President
Auditors
KPMG LLP
Legal Counsel
Stikeman Elliott
Toronto Stock Exchange Symbols:
Common Shares: ACD
Convertible Debentures: ACD.DB
Bankers
Bank of Montreal
The Bank of Nova Scotia
Canadian Imperial Bank
of Commerce
HSBC Bank Canada
Regions Bank
M&T Bank
The Toronto-Dominion Bank
Registrar & Transfer
Agent
Computershare Trust Company
of Canada
602-40 Eglinton Avenue East
Toronto, Ontario
Canada M4P 3A2
Tel (800) 967-0015
Fax (416) 961-9443
Annual Meeting
The Annual Meeting of
Shareholders will be held at
Toronto Board of Trade,
3rd Floor,
First Canadian Place,
Toronto, Ontario
on Thursday, May 25, 2023
www.accordfinancial.com
at 4:15 pm
www.accordfinancial.com | Canada (800) 967-0015 | United States (800) 231-2757