Annual Report 2023
Positioning for Success
Positioning for Success
Small- and middle-market businesses are the engine
of the economy, creating employment, driving
innovation, and sustaining economic growth.
Each industry faces its own set of challenges, and every
business navigates its own unique path to success. Financial
support is never the end in itself; it paves the way for investment
– in supplies, inventory, equipment, working capital – the
keys to unlocking value.
Fueled by Accord’s commitment and capital, our clients
develop innovative products, drive costs down, nurture the
next generation of talent, and deliver the promise of progress.
With forty-six years of experience, Accord knows what it
takes to weather the storm, compete, and to thrive.
As the pace of change accelerates, positioning for success
takes more than ambition; it takes passion, creativity, and a
drive to challenge the status quo.
Table of Contents
1 Flexible Financing Solutions from Accord
2 Letter To Our Shareholders
4 Management’s Discussion and Analysis
28 Appendix to MD&A: Non-IFRS Measures and Ratios
31 Ten Year Financial Summary 2014-2023
32 Management’s Report to the Shareholders
33 Independent Auditor’s Report to the Shareholders
37 Consolidated Statements of Financial Position
38 Consolidated Statements of Earnings
38 Consolidated Statements of Comprehensive Income
39 Consolidated Statements of Changes in Equity
40 Consolidated Statements of Cash Flows
41 Notes to Consolidated Financial Statements
Inside back cover Corporate Information
Flexible Financing Solutions from Accord
Asset-based Lending
Accord’s asset-based lending serves companies of all sizes
Factoring
Accord has been factoring small- and medium-sized
across North America. Our flexible ABL solutions allow
companies for more than forty years. Factoring – buying
clients to unlock working capital from their accounts
clients’ accounts receivable – accelerates cash flow by
receivable, inventory and equipment. Accord also provides
unlocking the value of receivables for cash. In addition
financing solutions to other lending companies, enabling
to improving liquidity, factoring also saves management
them to grow more quickly than they would with
time often tied up with cash flow planning, credit
traditional funding. Forty-five years of superior service
analysis and collections. Our experienced team has
combined with exceptional financial strength makes
worked with companies in virtually every industry,
us the most reliable finance partner for companies
which allows us to provide quick credit approvals for
positioning for their next phase of growth.
companies in transition or shifting into growth mode.
Small Business Finance
Accord provides a variety of financing solutions for
Equipment Financing
Accord finances equipment for small- and middle-market
Canadian small businesses, including equipment
businesses, serving a broad base of North America’s
leasing and flexible working capital facilities. Under the
most dynamic industries, from forestry and energy,
AccordExpress banner, we offer a range of innovative
to construction and manufacturing. We’re equally
programs designed with a streamlined approval process
comfortable financing incremental capex or business
and fast funding. These programs deliver up to $250,000
expansion, or refinancing existing assets to optimize
of working capital, and up to $3 million when backed by
balance sheet strength. Our success has been built on
receivables or equipment collateral, all with flexible
our commitment to supporting private equity sponsors,
terms designed to spur growth in 2024.
finance professionals and SMEs directly.
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 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 2023 | 1
Letter to Our Shareholders
Simon Hitzig
The story of Accord’s year was written in November when, as disclosed in our third quarter report,
one of our teams uncovered significant irregularities in collateral reporting by a borrower related to
a $14.4 million loan. In December, the borrower filed an assignment in bankruptcy and the bankruptcy
trustee confirmed that the borrower had been perpetrating a carefully concealed fraud, leading the
Company to write off $13.1 million by year end. This write-off marked a significant reduction in the
Company’s equity position. Given the reduction in equity, and the Company’s efforts to reduce leverage
in keeping with the revised equity position, the portfolio gave up some of the growth we had generated
in the first nine months of the year.
Looking back over Accord’s forty-six years of successfully
While we’re enjoying a steady increase in new applications,
financing SMEs, this significant write-off is an exception
we remain attuned to the challenging credit environment,
to a history of sound underwriting performance. Loan
and highly selective in onboarding new clients. With the
losses are inherent in a non-bank lending business and
additional challenge of managing with reduced capital
part of the business model, generally covered by interest
in the fourth quarter, the portfolio settled back to $476.7
income and the Company’s allowance for losses across
million by year end. Despite the fourth quarter headwinds,
a diversified portfolio. Against this backdrop, over the
the Company’s average funds employed reached $472
years Accord has grown capital and returned capital to
million over the year, up from $450 million in 2022.
investors via dividends.
Driven by portfolio growth and higher average yields,
revenue reached a record of $79.7 million compared to
Prior to the single account loss, Accord’s finance receivables
$67.5 million last year.
and loans (“portfolio”) grew 9% from January 1, 2023 to
$493.6 million as of September 30th, as business conditions
While the top line reflected strong performance from our
shifted in favor of non-bank lenders, and Accord’s product
operating companies, net earnings were driven down by
mix specifically. As we’ve written before, economic
several significant non-recurring items. In addition to the
uncertainty often leads the major banks to restrict their
$13.1 million fraud-related loss, the Company wrote off
lending appetite, which provides opportunities for Accord
the remaining $11.9 million of goodwill on the balance
as our expertise, and reliance on strong collateral, allows
sheet, most of it related to U.S. acquisitions completed
us to finance companies that may no longer meet the
in 2017. The significant variability in earnings of the U.S.
banks’ criteria. As a result, we continue to see steady
subsidiaries over the last three years, combined with an
deal opportunities in all our operating companies.
increase in funding costs, make the return to earnings
2 | Accord Financial Corp.
growth by these U.S. subsidiaries difficult to predict.
to the fraud, goodwill write-off, and restructuring expenses
Given this lack of visibility, the Company took the prudent
related to extending the public debentures, results in
step to recognize an impairment loss at the end of the
adjusted net earnings of $5.8 million in 2023, up from
fourth quarter. These non-recurring items contributed
$3.5 million in 2022, or 68 cents per common share
to a net loss attributable to shareholders of $14.6 million
versus 40 cents last year. Book value per share closed
in 2023.
the year at $9.80.
As described in more detail in the MD&A, in March 2024
For forty-six years Accord has successfully navigated
the Company renegotiated and amended its primary
business and economic challenges. With our excellent
banking facility given recent events and the reduced
management team, compelling product mix, and deep
equity base. Reductions in equity and bank financing are
industry relationships, the Company continues to deliver
expected to limit the Company’s growth opportunities
much-needed capital to businesses from coast to coast,
until additional capital is secured. The amendment terms
helping clients realize their ambitions.
provide time and flexibility for Accord to evaluate alternate
funding sources to augment the core bank facility.
Alternatives include various private market financing
arrangements to support, replace or add to current debt
facilities, as Accord has undertaken in the past.
Simon Hitzig
In addition, the Company is evaluating a number of
March 22, 2024
President & Chief Executive Officer
strategic initiatives to generate additional cash and capital
to support portfolio growth and unlock shareholder
value. This strategic analysis may result in decisions to
change product mix, and/or divest one or more non-core
subsidiaries. During this period of constrained growth
capital, the board of directors has suspended the
Company’s regular quarterly dividend.
While the non-recurring items are the headline story for
2023, a quick look at adjusted earnings provides some
additional context. Adding back one-time items relating
Annual Report 2023 | 3
Management’s Discussion &
Analysis of Results of Operations
& Financial Condition (“MD&A”)
Irene Eddy
Year ended December 31, 2023 compared with year ended December 31, 2022
FINANCIAL HIGHLIGHTS
(in thousands of Canadian dollars, except values per share, or otherwise noted)
Years ended December 31
$
Average funds employed (millions)
Revenue
Earnings (loss) before income tax
Net earnings (loss) attributable to shareholders
Goodwill impairment
Net single account write-off and associated costs
Restructuring and other expenses
Tax impact from adjustments
Adjusted net earnings
Earnings (loss) per common share (basic and diluted)
Adjusted earnings per common share (basic and diluted)
Book value per share
$
2023
472
79,705
(27,191)
(14,625)
11,876
14,913
1,023
(7,370)
5,817
(1.71)
0.68
9.80
2022
$ 450
67,490
2,646
1,427
1,883
—
887
(734)
3,463
0.17
0.40
$ 11.80
OVERVIEW
The following discussion and analysis explain trends in Accord Financial Corp.’s (“Accord” or the
“Company”) results of operations and financial condition for the year ended December 31, 2023
compared with the year ended December 31, 2022. 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 Management’s Discussion and Analysis (“MD&A”),
which has been prepared as at March 22, 2024, should
be read in conjunction with the Company’s 2023 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 2023 Annual Report.
All amounts discussed in this MD&A are expressed in
thousands of Canadian dollars except per share amounts
and as otherwise stated and have been prepared in
accordance with IFRS Accounting Standards (“IFRS”) as
issued by the International Accounting Standards Board
(“IASB”). Please refer to the Critical Accounting Policies
and Estimates section below and note 2 and 3 to the
4 | Accord Financial Corp.
Statements regarding the Company’s use of accounting
estimates in the preparation of its 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.sedarplus.ca.
The following discussion contains certain forward-looking
statements that are subject to significant risks and
uncertainties that could cause actual results to differ
materially from historical results and percentages.
Factors that may impact future results are discussed in
the Risks and Uncertainties section below.
NON-IFRS FINANCIAL MEASURES 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 2023 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 goodwill impairment, net single
account write off and associated costs, stock-based
compensation, business acquisition expenses
(namely, business transaction and amortization of
intangibles) and restructuring expenses (which
includes non-recurring expenses associated with
recent debenture amendments). The Company
considers these terms to be non-operating expenses.
Management believes adjusted net earnings is a
more appropriate measure of ongoing operating
performance than shareholders’ net earnings as it
excludes items which do not directly relate to ongoing
operating activities. Adjusted (basic and diluted)
earnings per common share is adjusted net earnings
divided by the (basic and diluted) weighted average
number of common shares outstanding in the period
(see note 17 to the Statements), while adjusted ROE
is adjusted net earnings for the period expressed as an
annualized percentage of the 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
Annual Report 2023 | 5
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) expressed
as a percentage of average assets, and operating
expenses comprising general 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 10 presents the following percentages:
(i) total equity expressed as a percentage of total
assets; (ii) tangible equity (total equity less goodwill,
intangible assets) expressed as a percentage of total
assets; (as of March 31, 2023 the Company no longer
deducts deferred taxes from tangible equity, as they
are not considered intangible assets or liabilities.
Prior periods in the table have been adjusted for
comparability) and (iii) debt (bank indebtedness,
loans payable, notes payable and convertible
debentures) expressed as a percentage of total
equity. These percentages provide information on
trends in the Company’s financial condition and
leverage; and
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 3 years are set out in
the Appendix to this MD&A on pages 28 to 30 of this
2023 Annual Report.
ACCORD’S BUSINESS
Accord is one of North America's leading independent
finance companies serving clients throughout the United
States and Canada. Accord's flexible finance programs
cover the full spectrum of asset-based lending (“ABL”),
from receivables and inventory finance, equipment and
trade finance, working capital finance, as well as film and
media finance. Accord's business also includes credit
protection and receivables management, as well as
supply chain financing for importers. Its clients operate
in a wide variety of industries, examples of which are
set out in note 23(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
6 | Accord Financial Corp.
RESULTS OF OPERATIONS
% of % of
Years ended December 31 2023 revenue 2022 revenue
Revenue
Interest $ 68,740 86.2% $ 60,212 89.2%
Other income 10,965 13.8% 7,278 10.8%
79,705 100.0% 67,490 100.0%
Operating expenses
Interest expense 35,299 44.3% 24,087 35.7%
General and administrative 34,545 43.3% 29,599 43.9%
Provision for credit losses 24,476 30.7% 8,293 12.3%
Impairment of goodwill 11,876 14.9% 1,883 2.8%
Impairment of assets held for sale — 0.0% 148 0.2%
Depreciation 563 0.7% 702 1.0%
Amortization of intangible assets 137 0.2% 132 0.2%
106,896 134.1% 64,844 96.1%
Earnings (loss) before income tax (27,191) (34.1%) 2,646 3.9%
Income tax expense (recovery) (11,798) (14.8%) 1,001 1.5%
Net earnings (loss) (15,393) (19.3%) 1,645 2.4%
Net earnings (loss) attributable to non-controlling
interests in subsidiaries (768) (1.0%) 218 0.3%
Net earnings (loss) attributable to shareholders $ (14,625) (18.3%) $ 1,427 2.1%
Goodwill impairment 11,876 14.9% 1,883 2.8%
Net single account write off and associated costs 14,913 18.7% — 0.0%
Restructuring and other expenses 1,023 1.3% 887 1.3%
Tax impact from adjustments (7,370) (9.2%) (734) (1.1%)
Adjusted net earnings $ 5,817 7.3% $ 3,463 5.1%
Basic and diluted earnings (loss) per common share $ (1.71) $ 0.17
Adjusted basic and diluted earnings per common share $ 0.68 $ 0.40
units (“CGUs”), which is simply an aggregation of
subsidiaries according to their country of operation.
credit guarantees and collection services, generally
without financing.
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
RESULTS OF OPERATIONS
Year ended December 31, 2023 compared with year
ended December 31, 2022
Shareholders’ net loss in 2023 was $14,625 compared to
net income of $1,427 earned in 2022. Shareholders’ net
earnings decreased mainly as a result of (i) a significant
loss on a single account, (ii) a goodwill impairment related
to the Company’s U.S. operations and (iii) higher interest
costs. In November 2023, the Company uncovered
significant irregularities in collateral reporting by a
Annual Report 2023 | 7
borrower related to their revolving loan. After a thorough
investigation, the Company wrote down $13.1 million of
the borrower’s $15.1 million balance, inclusive of accrued
interest. Of the remaining $2.0 million balance, the
Company has recorded an additional provision of
$1.0 million in the fourth quarter. The borrower filed an
assignment in bankruptcy in December and the Company
is pursuing all remedies including legal action in an
effort to recover proceeds from all available sources.
Basic and diluted loss per common share (“LPS”) was
$1.71 compared to basic and diluted earnings per
common share (“EPS”) of $0.17 last year. The Company’s
ROE was -14.8% in 2023 compared to 1.4% in 2022.
Adjusted net earnings increased to $5,817 in 2023
compared to last year’s adjusted net earnings of $3,463.
Adjusted EPS was $0.68 in 2023 compared to $0.40 in
2022. Adjusted ROE was 5.9% in 2023 compared to 3.4%
in 2022. Please refer to the Appendix to the MD&A
regarding these non-IFRS measures.
Revenue rose by 18.1% or $12,215 to a record $79,705
in 2023 compared to $67,490 in 2022. Interest income
rose by 14.2% or $8,528 to $68,740 in 2023 compared to
$60,212 in 2022 on a 4.9% increase in average funds
employed and higher yields on floating rate finance
receivables and loans. Other income increased by
50.7% or $3,687 to $10,965 compared to $7,278 in 2022
mainly due to higher termination fees. Average funds
employed in 2023 increased to $471.7 million compared
to $449.8 million in 2022.
Total expenses increased by 64.9% or $42,052 to $106,896
compared to 64,844 in 2022. Interest expense rose 46.5%
or $11,212 to $35,299 from $24,087 in 2022 due to an
increase in average interest rates and higher average
bank indebtedness. The provision for credit losses
increased by $16,183 to $24,476, due to a significant
single account loss, compared to a provision of credit
losses of $8,293 in 2022. G&A increased by 16.7% or
$4,946 from 2022 due to additional personnel hired in
business development and portfolio servicing during
the latter half of 2022 and early 2023, in addition to a
significant increase in professional fees incurred arising
from the work related to investigating and enforcing
rights against the borrower responsible for the single
account loss and the subsequent effects on the Company.
G&A expenses are comprised of personnel costs, which
represent the majority of the Company’s G&A costs, as
well as information technology expenses, professional
fees, and portfolio servicing costs, among others.
The Company continues to manage its controllable
expenses closely.
The provision for credit losses increased by $16,183 to
$24,476 compared to $8,293 in 2022. $14,125 of the
increased provision is attributable to the write-off of a
single account. The provision for losses is comprised of:
Twelve months ended December 31
Net write-offs
Increase in allowance for expected
credit losses
Net single accounting write-off
2023
2022
$
8,941
$ 5,523
1,410
14,125
2,770
—
Total provision for expected credit losses $ 24,476 $ 8,293
Total net write-offs excluding the single account loss
increased by $3,418 to $8,941 in 2023 compared to
$5,523 in the prior year and the non-cash allowance for
expected credit loss decreased by $1,360, which is in
line with management expectations. The Company’s
allowance for expected credit losses and its portfolio of
Loans and managed receivables are discussed in detail
below and 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 individually
significant insolvencies or losses.
An expense related to the impairment of goodwill of
$11,876 was recognized in 2023 related to goodwill at the
Company's U.S. operations compared to the impairment
of goodwill of $1,883 in 2022 at the Company’s
Canadian operations.
8 | Accord Financial Corp.
There were no impairment charges taken in 2023 (2022 –
$148) related to assets held for sale. Depreciation
expense decreased by $139 to $563 (2022 – $702) in 2023.
Depreciation of $409 (2022 – $502) was charged on the
Company’s right-of-use assets in 2023, while the balance
of the expense related to capital assets. Business
acquisition expenses in 2023 totalled $137 (2022 – $132).
Income tax expense declined by $12,799 to a recovery
of $11,798 compared to an expense of $1,001 in 2022.
Income tax declined on a $29.8 million decrease in the
Company’s share of pre-tax earnings. The Company’s
effective tax rate was 43.4%.
TABLE 1 – PROFITABILITY, YIELD AND
EFFICIENCY RATIOS
(as a percentage) 2023 2022
Return on average equity (14.8%) 1.4%
Adjusted return on average equity 5.9% 3.4%
Net revenue / average assets 8.7% 8.8%
Operating expenses* / average assets 6.9% 6.2%
Operating expenses* / revenue 44.0% 44.9%
* 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 shareholders’ net loss
of $13,832 compared to net loss of $3,074 last year. The
2023 net loss is primarily attributable to the write off of
a single account. Revenue increased by $10,385 or
26.6% to $49,422. Total expenses increased by $25,364
to $68,470. The primary components of the increase
in expenses are the provision for credit losses which
increased by $14,325 to $20,806 and interest expense,
which increased by $8,500. Income tax decreased by
$4,221 to a recovery of $5,216 on a $14,979 decrease in
pre-tax loss. No impairment charge related to Canadian
goodwill was recorded compared to $1,883 in 2022.
U.S. operations reported a shareholders’ net loss of $793
compared to net earnings of $4,501 in 2022. The 2023 net
loss is largely attributable to the write off of goodwill.
Revenue increased by $1,639 or 5.6% to $30,798. Expenses
increased by $16,497 to $38,941. The largest driver of the
increase in expenses results from an impairment charge
of $11,876 related to goodwill ($nil in 2022). The provision
for credit losses increased by $1,858 to $3,670. Interest
expense increased by $2,521, and G&A expenses increased
by $251. Income tax decreased by $8,578 to a recovery of
$6,582. Net loss attributable to non-controlling interests
in subsidiaries totalled $768 compared to net earnings
of $218 in 2022.
Fourth Quarter 2023
Quarter ended December 31, 2023 compared to quarter
ended December 31, 2022
Shareholders’ net loss for the quarter ended December 31,
2023 was $7,575 compared to a net loss of $3,663 last
year. Shareholders’ net loss increased mainly as a result
of (i) a significant loss on a single account, (ii) a goodwill
impairment related to the Company’s U.S. operations
and (iii) higher interest costs. Basic and diluted LPS were
$0.89 compared to $0.43 in the fourth quarter of 2022.
Adjusted net earnings was $3,698 in the fourth quarter
of 2023 compared to adjusted net loss of $1,828 last
year. Adjusted net EPS was $0.43 compared to adjusted
net LPS of $0.21 in 2022. Please refer to the Appendix to
the MD&A regarding these non-IFRS measures.
Revenue increased by $5,528 or 30.1% to $23,898 in the
current quarter compared to $18,370 in the fourth quarter
of 2022. Interest income increased by $3,099 or 18.8%
to $19,581 compared to $16,479 in the fourth quarter of
2022 on a 13.4% increase in average funds employed
and to a lesser extent an increase in average loan yields.
Other income increased by $2,429 to $4,320 in the current
quarter compared to $1,891 in 2022, mainly due to
higher termination fees. Average funds employed in
the fourth quarter of 2022 increased to $502.7 million
compared to $443.3 million last year.
Annual Report 2023 | 9
Total expenses in the fourth quarter of 2023 increased by
$19,097 to $39,772 compared to $20,675 last year. The
primary drivers of the increase were the impairment of
goodwill of $11,876, the provision for credit losses and
interest expense.
The provision for credit losses increased by $5,183 to
$8,306 in the fourth quarter compared to a provision of
$3,123 in the fourth quarter of 2022.
Three months ended December 31
2023
2022
them down to their estimated net realizable value (“NRV”)
(being fair value less costs of realization).
Income tax expense declined by $9,319 to a recovery of
$7,981 in the current quarter compared to an expense
of $1,338 in the fourth quarter of 2022 as pre-tax losses
increased by $13,569. The Company’s effective tax rate
was 43.4%.
REVIEW OF FINANCIAL POSITION
Net write-offs
Increase (decrease) in allowance for
expected credit losses
Total provision for expected credit losses $
8,306
$ 17,744
$ 1,843
(9,438)
1,280
$ 3,123
Interest expense increased by 36.7% or $2,682 to $9,980
for the quarter, due to an increase in average interest
rates for borrowing, compared to $7,298 in the fourth
quarter of 2022. A portion of the increase is attributable
to the increased margin charged on the Company’s
outstanding bank indebtedness, due to the decrease in
tangible net worth (“TNW”) from the single account loss,
as calculated under the Company’s credit agreement,
which has tiered pricing based on TNW.
Additionally, there was an impairment loss of $11,876
related to goodwill at the Company’s U.S. operations in
the fourth quarter of 2023, compared to an impairment
loss of $1,883 related to goodwill at the Company’s
Canadian operations in 2022. G&A increased by 17.0%
or $1,366 mainly due to costs related to debenture
amendments and professional fees associated with the
work relating to investigating and enforcing rights
against the borrower responsible for the single account
loss and the subsequent effects on the Company.
The Company continues to manage its controllable
expenses closely.
Shareholders’ equity at December 31, 2023 was $83.9
million compared to $101.0 at December 31, 2022.
The significant decline in shareholders’ equity is primarily
attributed to the write-off associated with a single account
and the write down of goodwill as previously discussed.
Book value per common share was $9.80 at December 31,
2023 compared to $11.80 at December 31, 2022.
Total assets were $513.5 million at December 31, 2023,
4.4% higher than the $491.8 million at December 31,
2022. Total assets are largely comprised of Loans (funds
employed). Excluding inter-company loans, identifiable
assets located in the United States were 43.4% of total
assets at December 31, 2023 compared to 47.4% at
December 31, 2022 (see note 22 to the Statements).
TABLE 2 – FINANCIAL CONDITION AND
LEVERAGE
(as a percentage) 2023 2022
Tangible equity / assets 16.7% 18.6%
Equity / assets 17.3% 21.7%
Debt* / total equity 4.65x 3.44x
(in thousands)
Receivables and loans $ 476,674 $ 452,678
Managed receivables — 5,309
Total portfolio $ 476,674 $ 457,987
* Bank indebtedness, loans payable, notes payable and convertible debentures
No impairment was recorded against assets held for
sale in the fourth quarter of 2023 (2022 – $110) to write
Gross finance receivables and loans (also referred to as
Loans or funds employed), before the allowance for
expected credit losses thereon, increased 5.3% to
1 0 | Accord Financial Corp.
SUMMARY OF QUARTERLY RESULTS
Quarters ended 2023 2022
(in thousands unless otherwise stated) Dec. 31 Sep. 30 June 30 Mar. 31 Dec. 31 Sep. 30 June 30 Mar. 31
Average funds employed (millions) $ 503 $ 478 $ 455 $ 451 $ 443 $ 445 $ 454 $ 457
Revenue
Interest and other income $ 23,898 $ 19,430 $ 17,933 $ 18,444 $ 18,370 $ 16,452 $ 16,490 $ 16,178
Expenses
Interest 9,980 9,131 8,275 7,913 7,298 6,356 5,446 4,987
General and administrative 9,423 8,051 8,557 8,514 8,057 6,938 7,310 7,294
Provision for credit and loan losses 8,306 14,435 1,269 466 3,123 1,068 4,009 93
Impairment of goodwill 11,876 — — — 1,883 — — —
Impairment of assets held for sale — — — — 110 — 38 —
Depreciation 153 138 119 153 170 201 173 158
Business acquisition expenses 34 34 35 34 34 34 32 32
39,772 31,789 18,225 17,080 20,675 14,597 17,008 12,564
Earnings (loss) before income tax (15,874) (12,359) (322) 1,364 (2,305) 1,855 (518) 3,614
Income tax expense (recovery) (7,981) (3,342) 72 (547) 1,338 (17) (768) 448
Net earnings (loss) (7,893) (9,017) (394) 1,911 (3,643) 1,872 250 3,166
Non-controlling interests in net earnings (loss) (318) (211) (131) (108) 20 43 127 28
Net earnings (loss) attributable to
shareholders $ (7,575) $ (8,806) $ (263) $ 2,019 $ (3,663) $ 1,829 $ 123 $ 3,138
Adjusted net earnings (loss) $ 3,698 $ 127 $ (166) $ 2,156 $ (1,829) $ 1,926 $ 171 $ 3,195
Earnings (loss) per common share **(cents) (89) (103) (3) 24 (42) 21 1 37
Adjusted net earnings (loss) per common
share**(cents) 43 1 (2) 25 (21) 22 2 37
* Due to rounding the total of the four quarters may not agree with the reported total for a fiscal year.
** Basic and diluted
$476.7 million at December 31, 2023 compared to
$452.7 million at December 31, 2022. As detailed in the
Statements, the Company’s Loans comprised:
Dec. 31, 2023 Dec. 31, 2022
Working capital loans $ 116,128 $ 121,979
Receivable loans 90,128 86,788
Inventory & equipment loans 113,287 90,970
Media loans 85,246 87,770
Lease receivables 71,885 65,171
Finance receivables and loans, gross 476,674 452,678
Less allowance for expected credit losses 10,551 8,220
Finance receivables and loans, net $ 466,123 $ 444,458
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
1,082 clients and BondIt’s media finance loans to
approximately 57 media productions. The largest client
in a well-diversified loan portfolio comprised 4.0% of
gross Loans.
In its credit protection and receivables management
business, the Company contracted with clients to assume
the credit risk associated with 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. The Company downsized
this line of business in 2023 and as of December 31, 2023
there were $0 managed receivables compared to
$5.3 million at December 31, 2022.
Annual Report 2023 | 11
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 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 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
1 2 | Accord Financial Corp.
The Company's credit exposure relating to its finance
receivables and loans by industrial sector was as follows:
December 31, 2023
Gross finance
receivables % of
Industrial sector and loans total
Media $ 92,693 19.4
Manufacturing 68,481 14.4
Construction 57,920 12.2
Wholesale Trade 53,408 11.2
Finance and Insurance 40,839 8.6
Retail Trade 29,826 6.3
Transportation and Warehousing 23,938 5.0
Waste Management and
Remediation Services 20,894 4.4
Real Estate Rental and Leasing 20,652 4.3
Mining 15,861 3.3
Health Care and Social Assistance 14,930 3.1
Professional, Scientific, and
Technical Services 13,922 2.9
Accommodation and Food Services 9,617 2.0
Other Services (except Public
Administration) 6,618 1.4
Agriculture, Forestry, Fishing
and Hunting 3.401 0.7
Educational Services 1,772 0.4
Arts, Entertainment, and Recreation 1,223 0.3
Management of Companies
and Enterprises 418 0.1
Utilities 152 0.0
Public Administration 109 0.0
$476,674 100.0
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 between 75%
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 $49,043
at December 31, 2023, of which $26,975 related to BondIt,
the Company's media finance subsidiary, $19,427 related
to AFCC and $16 to AEF. As of December 31, 2023, 17.3%
or $82,579 of total finance receivables and loans were
considered to have had a significant increase in credit
risk (“SICR”).
At December 31, 2023, the Company had impaired finance
receivables and loans of $11,562 which represented 2.4%
of total funds employed. The impaired loans, most of
which have been written down to NRV, are mainly secured
by receivables, inventory and equipment, the estimated
NRV of which was $9,839 at December 31, 2023. 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.
Annual Report 2023 | 13
December 31, 2022
Gross finance
receivables % of
Industrial sector and loans total
Media $ 93,622 20.7
Manufacturing 76,995 17.0
Construction 29,193 6.5
Wholesale Trade 48,938 10.8
Finance and Insurance 40,282 8.9
Retail Trade 19,947 4.4
Transportation and Warehousing 30,570 6.8
Waste Management and
Remediation Services 33,356 7.4
Real Estate Rental and Leasing 8,351 1.8
Mining 28,134 6.2
Health Care and Social Assistance 6,822 1.5
Professional, Scientific, and
Technical Services 10,049 2.2
Accommodation and Food Services 8,050 1.8
Other Services (except Public
Administration) 6,343 1.4
Agriculture, Forestry, Fishing
and Hunting 8,283 1.8
Educational Services 1,970 0.4
Arts, Entertainment, and Recreation 986 0.2
Management of Companies
and Enterprises 471 0.1
Utilities 206 —
Public Administration 110 —
$ 452,678 100.0
The Company’s credit exposure relating to its managed
receivables by industrial sector was as follows:
December 31, 2023
Managed % of
Industrial sector receivables total
Wholesale and distribution $ — —
$ — —
December 31, 2022
Managed % of
Industrial sector receivables total
Wholesale and distribution $ 5,309 100.0
$ 5,309 100.0
TABLE 3 – CREDIT QUALITY
2023***
(as a percentage) 2023 adjusted 2022
Reserves* / portfolio 2.2% 2.2% 1.8%
Reserves* / net write-offs and
impairment charges** 47.8% 118.0% 144.9%
Net write-offs and impairment
charges / revenue 27.7% 11.2% 8.4%
*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.
***Adjusted net write-offs excluding the single account loss.
Table 3 highlights the credit quality of the Company’s
total portfolio, both Loans and managed receivables.
Net write-offs in the Company’s lending businesses
increased to $22,073 (or $8,948 net of the single account
loss) in 2023 compared to $5,564 last year. There were
no impairment charges against assets held for sale in
2023 (2022 – $148). The Company’s total net write-offs
and impairment charges in 2023, as set out in the
Results of Operations section above, increased to
$22,066 (or $8,941 excluding the single account loss)
compared with $5,523 in 2022. After the customary
detailed period-end review of the Company’s portfolio
by its Risk Management Committee, it was determined
that all problem loans and accounts were identified and
provided for where necessary. The Company maintains
separate allowances for expected 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
$10,551 at December 31, 2023 compared to $8,189 at
December 31, 2022. This represents management’s best
estimate of expected credit losses based on information
available at those dates. The economic impacts of the high
interest rate environment 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
1 4 | Accord Financial Corp.
the guarantee of managed receivables was $nil at
December 31, 2023 and $31 in December 31, 2022.
The activity in the allowance for expected credit losses
in 2023 and 2022 is set out in note 5 to the Statements.
The estimates of the allowances for expected credit
losses involve judgment which management considers
to be reasonable and supportable.
Assets held for sale, stated at their NRV, totalled $440 at
December 31, 2023 (2022 – $108) and comprised certain
assets securing defaulted finance receivables and loans
from a number of clients and repossessed long-lived assets.
Cash decreased to $5,914 at December 31, 2023 compared
to $11,630 at December 31, 2022. 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. Restricted cash totalling 5%
of the outstanding loan balance is held in a cash reserve
account and is partially 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, 2023, the restricted cash
balance totalled $3,782 (2022 – $6,625).
Intangible assets, net of accumulated amortization,
totalled $2,996 at December 31, 2023 compared to
$3,201 at December 31, 2022. Intangible assets totalling
US$2,885 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.
The goodwill balance at December 31, 2023 is $nil,
compared to $12,075 at December 31, 2022. The decrease
results from a $11,876 write-off of goodwill (and foreign
exchange impact of $199) associated with the Company’s
U.S. operations, which represents the entire goodwill
balance. Goodwill of US$2,409 and US$5,538 was
acquired on the acquisition of BondIt and AEF on July 1,
2017, and October 27, 2017, respectively. In addition,
there was US$962 from a much earlier acquisition. The
Company performs an annual goodwill impairment test
by estimating the fair value of U.S. CGU based primarily
on a multiple of recent actuals and future earnings. The
significant variability in earnings of the U.S. operations
over the last three years, combined with a significant
increase in funding costs over the same period, makes
the timeline to a return to earnings growth difficult to
predict. As a result, the Company took the prudent step
to recognize an impairment loss.
Other assets increased by $7,235 to $12,292 at December
31, 2023 compared to $5,057 at December 31, 2022. The
increase is due to a higher balance of prepaid expenses,
$4,587 (2022 – $2,723) and a higher balance of amounts
due from Export Development Canada (“EDC”) of $7,372
(2022 – $1,315). Income taxes receivable, and property
and equipment at December 31, 2023 and 2022 were
not significant.
Deferred tax assets increased by $12,357 to $18,622 at
December 31, 2023 compared to $6,265 at December 31,
2022. The increase is due to higher pre-tax losses in 2023,
which resulted in a significant loss carryforward. The
Company expects to generate future earnings to utilize the
deferred tax asset balance to reduce income taxes payable.
Annual Report 2023 | 15
Total liabilities increased by $39.7 million to $424.8 million
at December 31, 2023 compared to $385.2 million at
December 31, 2022. The increase is mainly due to an
increase in bank indebtedness, partially offset by
repayments of loans payable.
Amounts due to clients decreased by $1,683 to $144 at
December 31, 2023 compared to $1,827 at December 31,
2022. Amounts due to clients principally consist of
collections of receivables not yet remitted to 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 $67,069 to $281,124 at
December 31, 2023 compared to $214,055 at December 31,
2022 due to an increase in funds employed. The Company’s
revolving credit facility was amended in July 2023
reducing the maximum commitment from $436.5 million
to $375.0 million in an effort to reduce the amount of
unused line fees being incurred by the Company. Pricing
for drawn amounts under the revolving credit facility
are primarily based on bankers’ acceptances plus a
margin for Canadian dollar borrowings or the secured
overnight financing rate (“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 in its revolving credit
facility at December 31, 2023, (December 31, 2022 – one
covenant). In addition to receiving a waiver from its
banking syndicate for both 2023 and 2022, certain terms
and covenants of the credit agreement were amended.
Subject to other debt borrowings, bank indebtedness
principally fluctuates with the amount of funds employed.
As discussed below under "Liquidity and Capital
Resources", subsequent to year end the Company
amended its primary credit facility which reset the total
facility limit as well as certain covenants providing a
longer-term more stable operating scenario.
Loans payable decreased by $26,627 to $82,412 at
December 31, 2023 compared to $109,039 at December 31,
2022. 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, 2023, the amount outstanding
under this loan facility totalled $22,465 (2022 – $44,368).
ASBF experienced a trigger event as a result of the
breached covenant under the Company’s revolving
credit facility at December 31, 2023 and 2022. The lender
has provided waivers subsequent to December 31, 2023,
and 2022, respectively.
Accounts payable and other liabilities decreased by
$3,169 to $8,057 at December 31, 2023 compared to
$11,226 at December 31, 2023.
Notes payable increased by $4,310 to $22,915 at
December 31, 2023 compared to $18,605 at December 31,
2022. The increase in notes payable resulted from an
increase in demand notes from related parties.
Convertible debentures with a face value of $25,650
(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 (“Listed Debentures”)
on the Toronto Stock Exchange (“TSX”), while 5,000
(“Unlisted Debentures”) are unlisted. All debentures are
unsecured and pay interest semi-annually on June 30
and December 31 each year. On August 10, 2023,
debentureholders approved amendments to extend the
maturity date of the Listed Debentures to January 31, 2026,
increase the interest rate to 10.0%, remove the conversion
feature and remove the right of the Company to repay
the debentures in common shares. All debentureholders
who voted in favor of the amendments received a consent
fee equal to $20 for every $1,000 voted. The total amount
of consent fees paid was $330. As of December 31, 2023,
the Company agreed with the holders of Unlisted
Debentures to extend the maturity date of the Unlisted
Debentures to July 15, 2024, increase the interest rate to
10.0%, remove the conversion feature and remove the
1 6 | Accord Financial Corp.
right of the Company to repay the debentures in common
shares. The Company incurred an extension fee of $25.
The Company performed an assessment in accordance
with the requirements of IFRS 9 and determined that
removing the conversion feature represents a substantial
modification, triggering a derecognition of the original
Listed Debentures and Unlisted Debentures, and
recognition of new liabilities. At December 31, 2023, the
debt component of all debentures totalled $25,717
compared to $24,864 at December 31, 2022, while the
equity component totalled $1,005 at December 31, 2023
and December 31, 2022, net of deferred tax.
Income taxes payable, lease liabilities, deferred income
and net deferred tax liabilities at December 31, 2023 and
2022 were not material.
Capital stock totalled $9,448 at December 31, 2023 and
2022. There were 8,558,913 common shares outstanding
at those dates.
Contributed surplus totalled $1,774 at December 31,
2023 (2022 – $1,705).
Retained earnings decreased by $16,551 to $65,608 at
December 31, 2023 compared to $82,159 at December 31,
2022. The decrease in 2023 comprised shareholders’ net
loss of $14,625 less dividends paid of $1,926 (22.5 cents
per common share).
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 decreased to
$7,074 at December 31, 2023 compared to $7,659 at
December 31, 2022.
Non-controlling interests in subsidiaries totalled
$4,759 at December 31, 2023 compared with $5,640 at
December 31, 2022.
LIQUIDITY AND CAPITAL RESOURCES
As disclosed in our third quarter report, Accord’s net
earnings were impacted by a significant provision for
losses related to a single account. In December 2023, an
assignment in bankruptcy was filed by the borrower in
question and the trustee in bankruptcy confirmed that
the borrower had been perpetrating fraud through
the creation of falsified documents for many years. The
bankruptcy process is still underway, but Accord expects
to recover less than $1 million on that account and took
a $13.1 million write-off in the fourth quarter. Since the
fourth quarter the Company has been exploring various
options to address the reduction in equity created by
the loss.
On March 15, 2024, Accord finalized an amendment to
its primary credit facility which matures in July 2025
(the “facility agreement”). Following the single account
loss, the Company was operating under a series of facility
agreement waivers, which provided temporary relief from
a technical default caused by a reduction in permitted
borrowings as a result of the loss. Since November, the
Company undertook several balance sheet-related
initiatives to successfully cure the technical default.
The March 15 amendment modifies certain key elements
of the facility agreement, providing a longer-term, more
stable operating scenario.
The March amendment resets the total facility limit to
be more appropriate to the Company’s current tangible
equity (post single account loss) and current level of
borrowings, and at the same time allow the Company
to reduce its standby fees for the unused portion of the
facility. The facility limit has been reduced from $375
million to $300 million and will be reduced further to
$260 million by January 2025. In addition, a minimum
availability requirement was amended and will be
measured as the difference between eligible collateral
and the outstanding bank loan balance. While the
Company has historically carried excess collateral as a
matter of course, the amendment provides for specific
Annual Report 2023 | 17
levels starting at $15 million and rising to $25 million
by January 2025. This provides for more conservative
leverage overall, which we consider prudent in the
current economic climate.
Further, the amendment resets the interest coverage ratio
covenant (“ICR covenant”) and adds a new leading EBITDA
performance metric, both of which are more consistent
with the Company’s 2024 and 2025 operating plans. The
amendment also includes an increase in the margin
added to the applicable index rate for drawn amounts
under the revolving facility of 100bps. Immediately
prior to the amendment, Accord’s average interest rate
for SOFR-based borrowings was approximately 8.2%
and for borrowings based on Banker’s Acceptances the
average interest rate was approximately 8.1%.
While the amendment provides adequate time and
flexibility for Accord to manage its level of borrowings,
for the immediate future, the Company has limited
growth capital to invest in new business opportunities.
In response, the Company is evaluating a number of
strategic initiatives to generate additional cash and
capital to maximize shareholder value. Initiatives under
consideration include alternative financing arrangements
to support, replace or add to current debt facilities in the
private market. Additionally, a review of the fundamental
core businesses may result in decisions to change product
mix, and/or divest one or more non-core subsidiaries.
The March 15 amendment contains milestones related
to initiating discovery for certain strategic initiatives in
the coming months.
for portfolio growth over the next twelve months.
Fiscal 2023 cash flows
Year ended December 31, 2023 compared with the year
ended December 31, 2022
Cash inflow from net earnings before changes in operating
assets and liabilities and income tax payments decreased
to $10,750 in 2023 compared to $14,662 last year. After
changes in operating assets and liabilities and income
tax paid there was a net cash outflow of $51,116 in 2023
compared to an inflow of $31,508 last year. The net cash
outflow in 2023 largely resulted from funding of Loans
of $51,566. The net cash inflow in 2022 largely resulted
repayment of Loans of $36,481.
Cash outflows from investing activities in 2023 totalled
$236 (2022 – $175) and comprised additions to property
and equipment.
Net cash inflow from financing activities totalled $43,192
in 2023 compared to an outflow of $32,272 last year. The
net cash inflow in 2023 primarily resulted from increase
in bank indebtedness of $66,470, partially offset by a
repayment of loans payable of $25,221. In 2022 the net
cash outflow primarily resulted from repayment of loans
payable of $44,756, partially offset by an increase in bank
indebtedness of $6,683.
The effect of foreign exchange rate changes on cash
comprised a decrease of $399 in 2023 compared to an
increase of $46 in 2022.
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, and interest payments over the
next twelve months. The Company suspended dividend
payments in the fourth quarter, which conserves cash
as it explores options to increase liquidity and capital
Overall, there was a net cash outflow of $8,559 in 2023
compared to a net cash outflow of $5,893 in 2022.
RELATED PARTY TRANSACTIONS
The Company has borrowed funds (notes payable) on
an unsecured basis from shareholders, management,
employees, other related individuals and third parties.
1 8 | Accord Financial Corp.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS AT DECEMBER 31, 2023
Payments due in
Less than
1 year 1 to 3 years 3 to 5 years Thereafter Total
Debt obligations $ 373,013 $ 39,299 $ — $ — $ 412,312
Operating lease obligations 506 912 456 461 2,335
Purchase obligations — 75 — — 75
$ 373,519 $ 40,286 $ 456 $ 461 $ 414,722
Notes payable totalled $22,915 at December 31, 2023
compared to $18,605 at December 31, 2022. Notes payable
comprise: (i) unsecured demand notes due on, or within
a week of, demand of $4,565 (December 31, 2022 – $4,717);
(ii) term notes totalling $18,350 (December 31, 2022 –
$13,888), 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, $20,494 (December 31, 2022 –
$16,411) was owing to related parties and $2,421
(December 31, 2022 – $2,194) to third parties. Interest
expense on these notes in 2023 totalled $1,523 (2022 –
$1,318). Please refer to note 13(a) to the Statements.
The following related parties had notes payable with
the Company at December 31, 2023.
Demand notes payable Relationship
Hitzig Bros.,
Hargreaves & Co. Inc.* Director $4,000,000
Hitzig Bros.,
Hargreaves & Co. LLC.* Director US$1,000,000
Ken Hitzig $500,000
Term notes payable
Hitzig Bros.,
Hargreaves & Co. Inc.* Director $4,000,000
Hitzig Bros.,
Hargreaves & Co. LLC.* Director US$3,000,000
Oakwest Corporation Inc.* Director $3,000,000
Ken Hitzig $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, 2023, the rate was 7.20%) 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.
The US$3.0 million related-party term note is from
BondIt and pays a 10.5% interest rate.
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,
accrued interest at a rate of 7.25% through December 31,
2023 and accrue interest at 10.00% from January 1, 2024,
and 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 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,
Annual Report 2023 | 19
are short term in nature and, therefore, their carrying
values approximate fair values.
from severe adverse economic conditions as we have
and are seeing as a result of Covid-19 pandemic.
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 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.
At December 31, 2023 and 2022, 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
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 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
20 | Accord Financial Corp.
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
each CGU in determining the fair value thereof, as
well as the expected earnings estimates themselves.
Control environment
There have been no changes to the Company’s disclosure
controls and procedures (“DC&P”) and internal control
over financial reporting (“ICFR”) during 2023 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,
2023 and has concluded that such disclosure controls
and procedures are effective.
Management’s annual report on internal
control over financial reporting
The following report is provided by the Company’s
management, including its President and Chief Financial
Officer, in respect of the Company’s internal control over
financial reporting (as defined in the rules of the CSA):
(i)
the Company’s management is responsible for
establishing and maintaining adequate internal
control over financial reporting within the Company.
All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide
only reasonable assurance with respect to financial
statement preparation and presentation;
(ii)
the Company’s management has used the Committee
of Sponsoring Organizations of the Treadway
Commission (“COSO”) 2013 framework to evaluate
the design of the Company’s internal control over
financial reporting and test its effectiveness; and
Annual Report 2023 | 21
(iii) the Company’s management has designed and
tested the effectiveness of its internal control over
financial reporting as at December 31, 2023 to provide
reasonable assurance regarding the reliability of
financial reporting and the preparation of the
Company’s financial statements for external purposes
in accordance with IFRS and advises that there are
no material weaknesses in the design of internal
control over financial reporting that have been
identified by management.
RISKS AND UNCERTAINTIES THAT
COULD AFFECT FUTURE RESULTS
Past performance is not a guarantee of future performance,
which is subject to substantial risks and uncertainties.
Management remains optimistic about the Company’s
long-term prospects. Factors that may impact the
Company’s results include, but are not limited to, the
factors discussed below. Please refer to note 23 to the
Statements, which discuss the Company’s principal
financial risk management practices.
The Company’s business is dependent on its
capital resources
The Company’s ability to operate is dependent on
future profitable operations and the future availability of
equity and/or debt financing. The Company will require
additional financing from debt, equity, and/or other
alternatives in order to grow the portfolio and to
refinance its existing debt obligations. The Company is
evaluating a number of strategic initiatives to generate
additional capital, including alternative financing
arrangements to support, replace or add to current debt
facilities in the private market. Additionally, a review of
the fundamental core businesses may result in decisions
to change product mix or undertake divestures of business
lines or assets. There is no assurance that any of these
initiatives will be successful, timely or sufficient.
Deterioration in economic and business
uncertainty
The Company’s operating results may be negatively
impacted 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 conditions 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.
22 | Accord Financial Corp.
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
greater access to capital or have higher risk tolerances
or different risk assessments, which could allow them
to establish more origination sources and customer
relationships to increase their market share. Further,
because there are fewer barriers to entry to the markets
in which the Company operates, new competitors could
enter these markets at any time. Because of all these
competitive factors, the Company may be unable to
sustain its operations at its current levels or generate
growth in revenues or operating income, either of which
could have a material adverse impact on the Company’s
business, financial condition and results of operations.
Credit risk, inability to underwrite finance
receivables and loan applications
The Company is in the business of financing its clients’
receivables and making asset-based loans, including
inventory and equipment financings, designed to serve
small- and medium-sized businesses, which are often
owner-operated and have limited access to traditional
financing. There is a high degree of risk associated with
providing financing to such parties as a result of their
lower creditworthiness. Even with an appropriately
diversified lending business, operating results can be
adversely affected by large bankruptcies and/or
insolvencies. Losses from client loans in excess of the
Company’s expectations could have a material adverse
impact on the Company’s business, financial condition
and results of operations. In addition, since defaulted
loans as well as certain delinquent loans cannot be used
as collateral under the Company’s credit facilities, higher
than anticipated defaults and delinquencies could
adversely affect the Company’s liquidity by reducing
the amount of funding available to the Company under
these financing arrangements. Furthermore, increased
rates of delinquencies or loss levels could cause the
Company to be in breach of its financial covenants under
its credit facilities, and could also result in adverse
changes to the terms of future financing arrangements
available to the Company, including increased interest
rates payable to lenders and the imposition of more
burdensome covenants and increased credit
enhancement requirements.
Interest rate risk
The Company has fixed rate borrowings, as well as
floating rate borrowings. The Company’s agreements
with its clients (affecting interest revenue) and lenders
(affecting interest expense) usually provide for rate
adjustments in the event of interest rate changes.
However, as the Company’s floating rate borrowings
currently exceed its floating rate assets, 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 AOCI 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.
Annual Report 2023 | 23
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. Following significant loan loss
provisions in the third quarter, which reduced permitted
bank borrowings, the Company was operating under a
series of waivers, which provided temporary relief from
a technical default under its primary credit facility. In
March 2024, the Company entered an amendment to its
credit facility which, among other things, reduced the
total facility limit and modified certain operating and
financial covenants. The Company believes that with
this amendment, current cash balances and existing
credit lines, together with cash flow from operations,
will be sufficient to meet its cash requirements for
working capital and operating expenditures but expects
that for the immediate future the Company will have
limited growth capital to invest in new business
opportunities. 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.
The Company’s primary credit facility matures in July
2025 and it has unsecured subordinated debentures
outstanding that mature in July 2024 and January 2026.
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 its business, financial
condition and results of operations. Please also see
comments regarding business conditions on page 23
and Liquidity and Capital Resources on page 17.
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 (including its ability to originate
new business opportunities), 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 tax 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 prior years, the Company has acquired or invested
in businesses and may seek to acquire or invest in
additional businesses in the future that expand or
complement its current business. Prior 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
24 | Accord Financial Corp.
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 or 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
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.
Annual Report 2023 | 25
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.
Dividends
The Company pays dividends if, as and when declared
by the board of directors. The Company suspended
dividend payments in the fourth quarter of 2023 as a
prudent measure to conserve cash and strengthen the
Company’s capital base. While the board will reassess
the Company’s dividend policy in the normal course,
there is no assurance that the dividend will be reinstated
at the same rate or at all.
OUTLOOK
lenders including Accord Financial. However, inflation
and relatively high interest rates have created challenges
for small- and medium-sized businesses, which elevate
overall credit risk in the market, and generally lead to a
more conservative approach by many of our clients
(and prospective clients) to incur incremental debt to
buy equipment, expand operations, or make acquisitions.
In keeping with this backdrop Accord will maintain a
conservative approach to adding new business. The
Company’s funds employed increased modestly over
the year to $476.7 million at December 31, 2023.
As we enter 2024, the Company is exploring a number
of strategic initiatives. Initiatives under consideration
include arranging private debt financing to add to or
replace current debt facilities, as well as a review of the
fundamental core businesses, which might result in
changes to product mix, and/or a sale of one or more
non-core subsidiaries. Strategic initiatives will be
undertaken for the purpose of strengthening the
Company’s capital position and increasing value for
shareholders, however, there is no assurance that the
Company will be successful in completing any strategic
initiative in the near term or at all.
The Company’s outlook is also affected by the reduced
tangible equity in the wake of the 2023 write-offs, and
the March amendment to the Company’s primary credit
facility. While the amendment reduces the overall facility
limit to be more appropriate for the Company’s current
portfolio size, and tangible equity, future portfolio
growth is expected to be constrained if the Company is
unable to secure alternative funding sources and/or
effectively execute other potential strategic initiatives
over the course of 2024 and into 2025. Our lending
teams continue to manage the operating businesses,
maximizing opportunities within the Company’s current
funding capacity.
The economic environment continues to cause stress in
the business sector, which provides the ingredients for
increasing new business opportunities for non-bank
AFCC, the Company’s Canadian small business finance
division, recently launched a new program in partnership
26 | Accord Financial Corp.
recent years, AFL’s contribution has not been financially
significant to the Accord group overall.
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 the current allowance for expected loan
losses fully reflects our expert credit judgment 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 could have the effect
of lowering average yields.
While there are economic and business challenges to
navigate, the Company is positioning for success
through both strategic initiatives and stronger operating
results in 2024. For more than four decades the Company
has successfully navigated through multiple economic
cycles, giving us valuable perspective as the current
environment unfolds.
Irene Eddy
Senior Vice President, Chief Financial Officer
March 22, 2024
with Export Development Canada (“EDC”); the Accord|EDC
Trade Expansion Lending Program (“TELP”) builds on
Accord’s success in tailoring EDC programs specifically
for the small business sector. Accord|EDC TELP supports
companies engaged in the export supply chain (including
companies supporting exporters with goods and services),
offering working capital from $250,000 to $3 million
through revolving or term loan structures. The program
is expected to grow in 2024.
The current economic conditions, including an
increasingly risk averse banking sector, are conducive
to growth of the Company’s two ABL/factoring units,
AFIC and AFIU. We are seeing increasing new business
opportunities in both divisions, however, given the
general increase in credit risk across numerous sectors,
we intend to remain highly selective in closing new
transactions, and as a result, expect modest growth.
AEF, the Company’s U.S. equipment finance division, is
coming off a strong year, and we anticipate continued
growth in 2024. As the interest rate cycle appears to be
topping out, the middle market companies AEF typically
finances appear to be more comfortable ramping up
new investment in equipment.
BondIt Media Capital continues to operate with its own
dedicated senior credit facility, which has proven to fall
short of the flexibility, pricing and size needed to capitalize
on the market potential in the media finance space.
In addition, BondIt is facing an increasingly competitive
landscape in 2024, creating additional pressure on growth
and pricing. The credit facility matures in the second
quarter of 2024. Discussions are underway to replace it
with a new lender on more competitive terms, which if
successful, will lead to more favorable operating metrics.
AFL, having wound down it’s international credit
guarantee and collections business in 2023, is in the
process of developing a new program aimed at providing
guarantee-related services to Canadian exporters. In
Annual Report 2023 | 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
Year ended Dec. 31
2023 2022 2021
Return on Equity
Net earnings (loss) attributable to common shareholders $ (14,625) $ 1,427 $ 11,887
Weighted average shareholders' equity (note) 98,545 101,981 94,432
Return on equity (annualized) (14.8%) 1.4% 12.6%
Note: weighted average shareholders' equity is the average shareholder's equity calculated for each month of the fiscal year and divided by the number of
months in the period.
Year ended Dec. 31
2023 2022 2021
Adjusted net earnings (loss)
Net earnings (loss) attributable to shareholders $ (14,625) $ 1,427 $ 11,887
Adjustments, net of tax:
Goodwill impairment 8,729 1,384 —
Net single account write-off and associated costs 10,961 — —
Restructuring and other expenses 752 652 1,181
Adjusted net earnings (loss) attributable to shareholders $ 5,817 $ 3,463 $ 13,068
Year ended Dec. 31
2023 2022 2021
Adjusted earnings (loss) per share
Adjusted net earnings $ 5,817 $ 3,463 $ 13,068
Weighted average number of common shares outstanding
in the period 8,559 8,559 8,559
Adjusted earnings (loss) per share $ 0.68 $ 0.40 $ 1.53
Year ended Dec. 31
2023 2022 2021
Adjusted return on equity
Adjusted net earnings (loss) $ 5,817 $ 3,463 $ 13,068
Weighted average shareholders' equity (note) 98,545 101,981 94,432
Adjusted return on equity (annualized) 5.9% 3.4% 13.8%
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
the months in the period.
Year ended Dec. 31
2023 2022 2021
Average funds employed (note)
Fiscal year $ 471,713 $ 449,830 $ 402,015
Quarter 1 $ 451,419 $ 457,395 $ 358,091
Quarter 2 $ 455,204 $ 454,011 $ 375,593
Quarter 3 $ 477,524 $ 444,603 $ 414,199
Quarter 4 $ 502,705 $ 443,310 $ 460,179
Note: average funds employed is average finance receivables and loans for each month of the year or quarter divided by the number of months in the related period.
2023 2022 2021
Return on average assets
Net earnings (loss) attributable to shareholders $ (14,625) $ 1,427 $ 11,887
Average assets (note) $ 512,238 $ 492,386 $ 431,523
Return on average assets (2.9%) 0.3% 2.8%
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.
Year ended Dec. 31
2023 2022 2021
Net revenue / average assets
Net revenue $ 44,406 $ 43,403 $ 47,594
Average assets $ 512,238 $ 492,386 $ 431,523
Net revenue / average assets 8.7% 8.8% 11.0%
Note: net revenue is revenue less interest expense as taken from the Company’s Statements of Earnings for the year.
28 | Accord Financial Corp.
Year ended Dec. 31
2023 2022 2021
Operating expenses / average assets
Operating expenses $ 35,108 $ 30,301 $ 32,151
Average assets $ 512,238 $ 492,386 $ 431,523
Operating expenses / average assets 6.9% 6.2% 7.5%
Note: operating expenses is the total of general & administrative expenses and depreciation as taken from the Company's Statement of Earnings for the year.
Year ended Dec. 31
2023 2022 2021
Operating expenses / revenue
Operating expenses $ 35,108 $ 30,301 $ 32,151
Revenue $ 79,705 $ 67,490 $ 63,480
Operating expenses / revenue (Table 1) 44.0% 44.9% 50.6%
Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2021
Book value per share
Shareholders' equity $ 83,904 $ 100,971 $ 99,967
Common shares outstanding 8,559 8,559 8,559
Book value per share $ 9.80 $ 11.80 $ 11.68
Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2021
Tangible equity (note)
Equity $ 88,663 $ 106,611 $ 103,960
Less: Intangible assets 2,996 3,201 3,113
Less: goodwill — 12,075 13,140
Tangible equity $ 85,667 $ 91,335 $ 87,707
Note: As of March 31, 2023, the Company no longer deducts deferred taxes from tangible equity, as they are not considered intangible assets or liabilities. Prior
periods in the table above have been adjusted for comparability.
Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2021
Tangible equity / assets
Assets $ 513,480 $ 491,762 $ 520,109
Tangible equity 85,667 91,335 87,707
Tangible equity / assets 16.7% 18.6% 16.9%
Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2021
Equity / assets
Total equity $ 88,663 $ 106,611 $ 103,960
Assets 513,480 491,762 520,109
Equity / assets 17.3% 21.7% 20.0%
Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2021
Debt / equity
Debt (note) $ 412,168 $ 366,563 $ 396,964
Equity 88,663 106,611 103,960
Debt / equity 4.65x 3.44x 3.82x
Note: debt comprises the total of bank indebtedness, loans payable, convertible debentures and notes payable as taken from the Company's Financial Position.
Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2021
Portfolio
Finance receivables and loans $ 476,674 $ 452,678 $ 478,150
Managed receivables (note) — 5,309 11,441
Portfolio $ 476,674 $ 457,987 $ 489,591
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).
Annual Report 2023 | 29
Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2021
Reserves
Allowance for expected losses on loans $ 10,551 $ 8,189 $ 5,251
Allowance for expected losses on managed receivables — 31 31
Reserves $ 10,551 $ 8,220 $ 5,282
Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2021
Reserves / portfolio
Reserves $ 10,551 $ 8,220 $ 5,282
Portfolio 476,674 457,987 489,591
Reserves / portfolio 2.2% 1.8% 1.1%
2023 2022 2021
Net write-offs & impairment of assets held for sale
Net write-offs (note) $ 22,066 $ 5,523 $ 938
Impairment of assets held for sale ("impairment charges") — 148 1,253
Net write-offs and impairment charges $ 22,066 $ 5,671 $ 2,191
Note: net write-offs are write-offs less recoveries of finance receivables and loans and the guarantee of managed receivables.
Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2021
Reserves / net write-offs and impairment charges
Reserves $ 10,551 $ 8,220 $ 5,282
Net write-offs and impairment charges 22,066 5,671 2,191
Reserves / net write-offs and impairment charges (Table 3) 47.8% 144.9% 241.1%
Dec. 31, 2023 Dec. 31, 2022 Dec. 31, 2021
Net write-offs and impairment charges / revenue
Net write-offs and impairment charges $ 22,066 $ 5,671 $ 2,191
Revenue 79,705 67,490 63,480
Net write-offs and impairment charges / revenue (Table 3) 27.7% 8.4% 3.5%
Quarterly Non-IFRS Calculations
Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 1,
2023 2023 2023 2023 2022 2022 2022 2022
Adjusted net earnings (loss)
Net earnings (loss) attributable
to shareholders $ (7,575) $ (8,806) $ (263) $ 2,019 $ (3,663) $ 1,813 $ 122 $ 3,138
Adjustments, net of tax:
Goodwill impairment 8,729 — — — 1,384 — — —
Net single account write-off and
associated costs 2,563 8,398 — — — — — —
Restructuring and other expenses (19) 535 97 139 451 95 49 57
Adjusted net earnings (loss)
attributable to shareholders $ 3,698 $ 127 $ (166) $ 2,158 $ (1,828) $ 1,926 $ 171 $ 3,195
Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2023 2023 2023 2023 2022 2022 2022 2022
Adjusted earnings (loss) per share
Adjusted net earnings (loss) $ 3,698 $ 127 $ (166) $ 2,158 $ (1,828) $ 1,926 $ 171 $ 3,195
Weighted average number of common
shares outstanding in the period 8,559 8,559 8,559 8,559 8,559 8,559 8,559 8,559
Adjusted earnings (loss) per share $ 0.43 $ 0.01 $ (0.02) $ 0.25 $ (0.21) $ 0.22 $ 0.02 $ 0.37
30 | Accord Financial Corp.
Ten Year Financial Summary 2014-2023
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.
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
$ $ $ $ $ $ $ $ $ $
Revenue 30,235 31,577 28,523 31,409 46,927 56,175 48,501 63,481 67,490 79,705
Interest 2,523 2,258 2,281 3,847 9,407 17,089 14,596 15,887 24,087 35,299
General and administrative 16,154 17,484 17,427 16,945 23,524 26,151 26,458 31,456 29,599 34,545
Provision for credit and loan losses 638 374 964 2,898 2,025 7,105 9,403 (614) 8,293 24,476
Impairment of goodwill — — — — — — — — 1,883 11,876
Impairment of assets held for sale — 51 44 24 25 — 1,087 873 148 —
Depreciation 126 136 153 161 279 727 721 695 702 563
Business acquisition expenses 570 575 510 932 336 (1,818) 298 235 132 137
Total expenses 20,011 20,878 21,379 24,807 35,596 49,254 52,563 48,532 64,844 106,896
Earnings (loss) before income tax expense 10,224 10,699 7,144 6,602 11,331 6,921 (4,062) 14,949 2,646 (27,191)
Income tax expense (recovery) 3,345 1,940 578 391 104 1,579 (4,670) 1,727 1,001 (11,798)
Net earnings (loss) 6,879 8,759 6,566 6,211 11,227 5,342 608 13,222 1,645 (15,393)
Net earnings (loss) attributable to
non-controlling interests — — — 201 871 (1,102) 191 1,335 218 (768)
Net earnings (loss) attributable
to shareholders $ 6,879 8,759 6,566 6,010 10,356 6,444 417 11,887 1,427 (14,625)
Earnings (loss) per share
(basic and diluted) 0.83 1.05 0.79 0.72 1.24 0.76 0.05 1.39 0.17 (1.71)
Dividends per share $ 0.33 0.35 0.36 0.36 0.36 0.36 0.24 0.20 0.30 0.23
Finance receivables and loans, net $ 136,346 134,259 138,115 217,975 335,652 368,637 354,023 472,899 444,458 466,123
Other assets 18,278 20,301 20,450 33,045 38,131 37,577 30,889 47,210 47,304 47,357
Total assets $ 154,624 154,560 158,566 251,020 373,783 406,214 384,913 520,109 491,762 513,480
Bank indebtedness $ 63,995 54,094 62,483 138,140 222,862 242,781 210,940 207,382 214,055 281,124
Loans payable — — — — 5,696 11,227 21,376 149,437 109,039 82,412
Notes payable 16,808 13,201 11,370 15,862 18,079 18,939 17,434 15,992 18,605 22,915
Debentures — — — — 15,955 22,928 23,510 24,153 24,864 25,717
Other liabilities 12,489 14,199 9,031 16,885 16,006 13,971 17,894 19,185 18,589 12,649
Total liabilities 93,292 81,494 82,884 170,887 278,598 309,846 291,154 416,149 385,151 424,817
Shareholders' equity 61,332 73,066 75,682 76,449 89,818 92,515 89,850 99,967 100,971 83,904
Non-controlling interests in subsidiaries — — — 3,684 5,367 3,853 3,909 3,992 5,640 4,759
Total equity 61,332 73,066 75,682 80,133 95,185 96,368 93,759 103,960 106,611 88,663
Total liabilities and equity $ 154,624 154,560 158,566 251,020 373,783 406,214 384,913 520,109 491,762 513,480
Shares outstanding at Dec. 31 # 8,308 8,308 8,308 8,308 8,429 8,589 8,559 8,559 8,559 8,559
Share price - high $ 10.75 12.05 9.95 9.55 10.45 10.42 10.15 9.20 9.50 8.09
- low 7.85 9.00 8.70 8.40 8.22 8.37 3.51 6.23 7.50 4.00
- close at Dec. 31 9.35 9.60 8.99 9.20 9.09 10.07 6.70 8.40 7.70 4.61
Annual Report 2023 | 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 its 2023 annual report. This responsibility includes the selection of the Company’s accounting policies
in addition to judgments and estimates in accordance with IFRS Accounting 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
assure, on a reasonable basis, the reliability of financial
and unrestricted access to the Audit Committee and
information and the orderly and efficient conduct of
management to discuss matters arising from their audit,
the Company’s business. A report on the design and
which includes a review of the Company’s accounting
effectiveness of the Company’s disclosure controls and
records and consideration of its internal controls.
procedures and the design and operating effectiveness of
its 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
Irene Eddy
that management fulfils its responsibilities for financial
Chief Financial Officer
reporting and internal control. The Board is assisted in
March 22, 2024
exercising its responsibilities through its Audit Committee,
Toronto, Canada
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, 2023 and December 31, 2022
• the consolidated statements of earnings (loss) for the years then ended
• the consolidated statements of comprehensive income (loss) 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 material accounting policy
information
(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, 2023 and
December 31, 2022, its consolidated financial performance
and its consolidated cash flows for the years then ended in
accordance with IFRS Accounting Standards as issued by
the International Accounting Standards Board.
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, 2023.
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 2023 | 33
ASSESSMENT OF ALLOWANCE FOR LOSSES
• Selecting relevant forward-looking information.
Description of the matter
We draw attention to Notes 2, 3(d), 5, and 23(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
$10,551 (finance receivables and loans $10,551, and
managed receivables $nil).
The Entity maintains allowances for losses on its finance
receivables and loans and its guarantee of managed
receivables pursuant to the provisions of IFRS 9, Financial
Instruments, expected credit losses ("ECL") framework.
The key inputs in the measurement of ECL allowances are
the probability of default (“PD”), the loss given default
(“LGD”) and the exposure at default (“EAD”) associated with
each loan, sensitized to future market and macroeconomic
conditions through the incorporation of forward-looking
information (“FLI”). The Entity's ECL allowances are
measured at amounts equal to either:
(i) an allowance for financial instruments which have
not experienced a significant increase in credit risk
("SICR") since initial recognition, which represents an
allowance for expected credit losses that result from
default events that are possible within 12 months; or
(ii) an allowance for financial instruments which have
experienced a SICR since initial recognition, which
represents a lifetime ECL.
In addition, for those financial instruments that the Entity
has classified as impaired, these are written down to its
estimated net realizable value ("NRV"), or for managed
receivables, expected payment under its guarantee.
Significant assumptions and sources of estimation
uncertainty in determining the allowance for credit losses
include:
• High degree of measurement uncertainty in the key
inputs (PD, LGD, EAD) and judgments (SICR), and their
resulting impact on the allowance; and
Significant assumptions and sources of estimation
uncertainty in determining the valuation for impaired
loans include:
• High degree of measurement uncertainty in key inputs
in the valuation of NRV.
Why the matter is a key audit matter
We identified the assessment of allowance for losses as a
key audit matter. This matter represented an area of
significant risk of material misstatement given the magnitude
of the impact of the provision on net earnings and the
related high degree of estimation uncertainty in determining
the amounts recorded. Significant auditor judgment was
required due to the high degree of measurement uncertainty
in the key inputs (PD, LGD, EAD) and judgments (SICR)
and their resulting impact on the allowance. Assessing the
allowance also required significant auditor attention and
complex auditor judgment to evaluate the results of our
audit procedures. Further, specialized skills and knowledge,
including experience in the industry, were required to apply
audit procedures and evaluate the results of such procedures.
How the matter was addressed in the audit
The primary procedures we performed to address this key
audit matter included the following:
We evaluated the design and tested the operating
effectiveness, of certain internal controls over the Entity's
process for calculating the allowance, as follows:
• the qualitative and quantitative factors used to identify
whether there has been SICR
• management's review of the ECL which includes their
review of forward-looking information and the
application of expert credit judgment
• management's control to determine the NRV for
impaired loans
We involved credit risk professionals with specialized skills
and industry knowledge who assisted in assessing:
34 | Accord Financial Corp.
• the PDs and LGDs by comparing to industry data
• the appropriateness of FLI applied by comparing to
external macroeconomic data
For a selection of impaired loans, we evaluated the
appropriateness of the value ascribed to the underlying
collateral used by management to determine the
ultimate NRV.
OTHER INFORMATION
Management is responsible for the other information.
Other information comprises:
• the information included in Management’s Discussion
and Analysis (“MD&A”) filed with the relevant Canadian
Securities Commissions.
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
IFRS Accounting Standards as issued by the International
Accounting Standards Board, 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.
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.
Those charged with governance are responsible for
overseeing the Entity's financial reporting process.
In connection with our audit of the financial statements,
our responsibility is to read the other information identified
above and, in doing so, consider whether the other
information is materially inconsistent with the financial
statements or our knowledge obtained in the audit and
remain alert for indications that the other information
appears to be materially misstated.
We obtained the information, other than the financial
statements and the auditor’s report thereon, included in
the MD&A as at the date of this auditor’s report.
If, based on the work we have performed on this other
information, we conclude that there is a material
misstatement of this other information, we are required
to report that fact in the auditor’s report.
We have nothing to report in this regard.
AUDITOR’S RESPONSIBILITIES FOR THE
AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and
to issue an 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.
Annual Report 2023 | 35
• 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
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.
The engagement partner on the audit resulting in this
auditor’s report is Paula M. Foster.
Toronto, Canada
March 22, 2024
We also:
• Identify and assess the risks of material misstatement of
the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion.
• The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of
internal control.
• Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the
Entity's internal control.
• Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by management.
• Conclude on the appropriateness of management's
use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that
may cast significant doubt on the Entity's ability to
continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw
attention in our 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.
36 | Accord Financial Corp.
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars, except share price and as otherwise indicated)
Note December 31, 2023 December 31, 2022
Assets
Cash $ 5,914 $ 11,630
Restricted cash 4 3,782 6,625
Finance receivables and loans, net 5 466,123 444,458
Income taxes receivable 1,196 597
Other assets 6 12,292 5,057
Assets held for sale 7 440 108
Deferred tax assets, net 17 18,622 6,265
Property and equipment 8 2,115 1,746
Intangible assets 10 2,996 3,201
Goodwill 9 — 12,075
$ 513,480 $ 491,762
Liabilities
Due to clients $ 144 $ 1,827
Bank indebtedness 11 281,124 214,055
Loans payable 12 82,412 109,039
Accounts payable and other liabilities 8,057 11,226
Income taxes payable 234 2,616
Notes payable 13 22,915 18,605
Debentures 14 25,717 24,864
Lease liabilities 15 1,877 1,496
Deferred income 2,337 1,282
Deferred tax liabilities, net 17 — 141
$ 424,817 $ 385,151
Equity
Capital stock 16 9,448 9,448
Contributed surplus 16 1,774 1,705
Retained earnings 65,608 82,159
Accumulated other comprehensive income 7,074 7,659
Shareholders’ equity 83,904 100,971
Non-controlling interests in subsidiaries 4,759 5,640
Total equity 88,663 106,611
$ 513,480 $ 491,762
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
Annual Report 2023 | 37
Consolidated Statements of Earnings (Loss)
(Expressed in thousands of Canadian dollars, except per share amounts and as otherwise indicated)
Years ended December 31 Note 2023 2022
Revenue
Interest $ 68,740 $ 60,212
Other income 10,965 7,278
79,705 67,490
Operating expenses
Interest expense 35,299 24,087
General and administrative 34,545 29,599
Provision for credit losses 5 24,476 8,293
Impairment of goodwill 9 11,876 1,883
Impairment of assets held for sale — 148
Depreciation 563 702
Business acquisition expenses:
Amortization of intangible assets 137 132
106,896 64,844
Earnings (loss) before income tax (27,191) 2,646
Income tax expense (recovery) 17 (11,798) 1,001
Net earnings (loss) (15,393) 1,645
Net earnings (loss) attributable to non-controlling
interests in subsidiaries (768) 218
Net earnings (loss) attributable to shareholders $ (14,625) $ 1,427
Basic and diluted earnings (loss) per common share 18 $ (1.71) $ 0.17
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive
Income (Loss)
(Expressed in thousands of Canadian dollars, except per share amounts and as otherwise indicated)
Years ended December 31 2023 2022
Net earnings (loss)
Other comprehensive income:
$ (14,625) $ 1,427
Items that are or may be reclassified to profit or loss:
Exchange differences on translation of foreign operations (585) 1,528
Comprehensive income (loss)
$ (15,210) $ 2,955
See accompanying notes to consolidated financial statements.
38 | Accord Financial Corp.
Consolidated Statements of Changes in Equity
(Expressed in thousands of Canadian dollars, except per share amounts and as otherwise indicated)
Capital stock Accumulated Non-
Number of other controlling
common shares Contributed Retained comprehensive interests in Total
Note outstanding Amount surplus earnings income subsidiaries equity
8,558,913 $ 9,448 $ 1,088 $ 83,300 $ 6,131 $ 3,992 $ 103,959
— — — 1,427 1,528 — 2,955
16 — — — (2,568) — — (2,568)
— — — — — (149) (149)
16 — — 190 — — — 190
Balance at January 1, 2022
Comprehensive income
Dividends paid
Distribution to non-controlling
interests
Stock-based compensation expense
related to stock option grants
Purchase of additional 8% of Accord
CapX LLC from non-controlling
interests
20 — — (1,613) — — 1,075 (538)
Increase in 1% in non-controlling
interest on additional capital
raised in BondIt
Net earnings attributable to
non-controlling interests
in subsidiaries
Translation adjustments on
non-controlling interests
Balance at December 31, 2022
Comprehensive income (loss)
Dividends paid
Stock-based compensation expense
related to stock option grants
Net loss earnings attributable to
non-controlling interests in
subsidiaries
Translation adjustments on
non-controlling interests
20 — — 2,040 — — 130 2,170
— — — — — 218 218
— — — — — 374 374
8,558,913 $ 9,448 $ 1,705 $ 82,159 $ 7,659 $ 5,640 $106,611
— — — (14,625) (585) — (15,210)
16 — — — (1,926) — — (1,926)
16 — — 69 — — — 69
— — — — — (768) (768)
— — — — — (113) (113)
Balance at December 31, 2023
8,558,913 $ 9,448 $ 1,774 $ 65,608 $ 7,074 $ 4,759 $ 88,663
Annual Report 2023 | 39
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars, except per share amounts and as otherwise indicated)
Note 2023 2022
Cash provided by (used in):
Operating activities
Net earnings (loss) $ (15,393) $ 1,645
Items not affecting cash:
Provision for credit losses 5 24,476 8,293
Deferred income — (36)
Amortization of intangible assets 10 137 132
Depreciation of property and equipment 8 563 702
Loss on disposal of property and equipment 26 1
Impairment of assets held for sale — 148
Accretion of debentures 14 602 711
Loss from modification of debentures 14 96 —
Impairment of goodwill 9 11,876 1,883
Gain on disposal of right to use assets — (8)
Stock-based compensation expense 16 165 190
Deferred tax recovery 17 (12,133) (2,901)
Current income tax expense 17 335 3,902
10,750 14,662
Changes in operating assets and liabilities
Finance receivables and loans, gross 5 (51,566) 36,481
Due to clients (1,685) (1,706)
Other assets (6,658) (3,164)
Accounts payable and other liabilities 1,350 (12,072)
Disposal of assets held for sale 7 352 1,342
Income tax paid, net (3,659) (4,035)
(51,116) 31,508
Investing activities
Additions to property and equipment (236) (175)
Financing activities
Bank indebtedness 11 66,470 6,683
Loans payable 12 (25,221) (44,756)
Notes payable issued, net 13 4,234 2,365
Dividends paid 16 (1,926) (2,568)
Distribution of non-controlling interest — (149)
Increase of 1% non-controlling interest on additional
capital raised by Bondlt 20 — 2,170
Purchase of 8% of Accord CapX LLC from
non-controlling interests 20 — (538)
Lease liabilities principal paid 15 (365) (479)
43,192 (37,272)
Effect of exchange rate changes on cash (399) 46
Decrease in cash and restricted cash (8,559) (5,893)
Cash and restricted cash at January 1 18,255 24,148
Cash and restricted cash at December 31 $ 9,696 $ 18,255
Supplemental cash flow information
Net cash used in operating activities includes:
Interest paid $ 32,995 $ 22,884
See accompanying notes to consolidated financial statements.
40 | Accord Financial Corp.
Notes to Consolidated Financial Statements
(Expressed in thousands of Canadian dollars, except per share amount and as otherwise indicated)
Years ended December 31, 2023 and 2022
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 and receivables
financing, equipment and inventory financing,
leasing, working capital financing, credit investigation,
credit protection and receivables management,
media financing, 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 thousands of Canadian dollars, except per share
amounts and as otherwise noted, the Company’s
functional and presentation currency, and are
prepared in compliance with IFRS Accounting
Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”). Certain
comparative amounts have been restated to conform
with the presentation in the current period.
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 (note 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 (“NRV”) of deferred tax assets and liabilities
(note 17).
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:
• 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, 2024.
3. Material accounting policy information
(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.
Annual Report 2023 | 41
(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
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
42 | Accord Financial Corp.
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 and 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 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 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. 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
Annual Report 2023 | 43
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.
test is performed by comparing the carrying amount
to the recoverable amount for the cash generating
unit (“CGU”). Goodwill is also tested for impairment
between annual assessments when facts and other
circumstances indicate that impairment may have
occurred. If the carrying value of the goodwill exceeds
its recoverable amount, the excess is charged
against earnings in the year in which the impairment
is determined.
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 NRV. 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 are stated at cost.
Depreciation is provided over the estimated useful
lives of the assets using the following bases and
annual rates:
Asset
Basis
Furniture and
equipment
Computer
equipment
Automobiles
Leasehold
improvements
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.
(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.
(f) Goodwill
Goodwill arises upon the acquisition of subsidiaries.
Goodwill is not amortized, but an annual impairment
(h) Income taxes
The Company follows the balance sheet liability
method of accounting for income taxes, whereby
deferred tax assets and liabilities are recognized
44 | Accord Financial Corp.
based on temporary differences between the tax
and accounting bases of assets and liabilities, as
well as losses available to be carried forward to
future years for income tax purposes.
Income tax expense comprises current and deferred
taxes. Current tax and deferred tax are recognized
through the statement of earnings except to the
extent that it relates to a business combination, or
items recognized directly in equity or in other
comprehensive income.
Current tax is the expected tax payable or receivable
on the taxable income or loss for the year, using
tax rates enacted or substantively enacted at the
reporting dates, and any adjustment to taxes
payable in respect of previous years.
Deferred tax is recognized in respect of temporary
differences between the carrying amounts of assets
and liabilities for financial reporting purposes and
the amounts used for taxation purposes, as well as
the available losses carried forward to future years
for income tax purposes. Deferred tax is measured
at the tax rates that are expected to be applied to
the temporary differences when they reverse, based
on the laws that have been enacted or substantively
enacted by the reporting date. A deferred tax asset
is recognized for unused tax losses, tax credits and
deductible temporary differences to the extent that
it is probable that future taxable income will be
available against which they can be utilized. Deferred
tax assets are reviewed at each reporting date and
are reduced to the extent that it is no longer probable
that the related tax benefit will be realized. Deferred
tax liabilities are recognized in respect of taxes
payable in the future based on taxable temporary
differences.
Income taxes receivable and payable, and deferred
tax assets and liabilities, are offset if there is a legally
enforceable right of set off, they relate to income
taxes levied by the same taxation authority and the
Company intends to settle its current tax assets
and liabilities on a net basis, or their tax assets and
liabilities will be realized simultaneously.
(i) Foreign subsidiaries
The Company's foreign subsidiaries report in U.S.
dollars and their assets and liabilities are translated
into Canadian dollars at the exchange rate prevailing
at the period end. Revenue and expenses are
translated into Canadian dollars at the average
monthly exchange rate then prevailing. Resulting
translation gains and losses are credited or charged
to other comprehensive income 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.
Annual Report 2023 | 45
(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 long-term incentive plan (“LTIP”)
(note 16) 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 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 consolidate
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.
46 | Accord Financial Corp.
(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 NRV).
(p) Changes in accounting policies
The Company adopted Disclosure of Accounting
Policies (Amendments to IAS 1 and IFRS Practice
Statements 2) from January 1, 2023. Although the
amendments did not result in any changes to the
accounting policies themselves, they impacted the
accounting policy information disclosed in the
financial statements.
The amendments require the disclosure of 'material'
rather than 'significant' accounting policies. The
amendments also provide guidance on the
application of materiality to disclosure of accounting
policies, assisting entities to provide useful, entity-
specific accounting policy information that users
need to understand other information in the
financial statements.
The Company has reviewed the accounting policies
and made updates to the information disclosed
in Note 3 in certain instances in line with the
amendments.
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.
5. Finance receivables and loans and
managed receivables
(a) Finance receivables and loans
Finance receivables and loans at December 31 were
as follows:
Dec. 31, 2023 Dec. 31, 2022
Working capital loans $ 116,128 $ 121,979
Receivable loans 90,128 86,788
Inventory & equipment
loans 113,287 90,970
Media loans 85,246 87,770
Lease receivables 71,885 65,171
Finance receivables
and loans 476,674 452,678
Less allowance for
expected credit losses 10,551 8,189
Finance receivables
and loans, net $ 466,123 $ 444,489
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, 2023 are expected
to be collected over a period of up to five years.
Finance receivables and loans based on the
contractual repayment dates thereof can be
summarized as follows:
Dec. 31, 2023 Dec. 31, 2022
Less than 1 year $ 241,114 $ 217,844
1 to 2 years 114,593 117,623
2 to 3 years 69,913 65,879
3 to 4 years 35,776 33,279
4 to 5 years 15,278 18,053
$ 476,674 $ 452,678
Annual Report 2023 | 47
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 analysis.
The Staging segmentation influences estimated
allowances as described below:
• Stage 1 - for leases and loans that have not
experienced a SICR 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 SICR since initial recognition,
a loss allowance is recognized equal to the
expected lifetime net credit losses 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:
Dec. 31, 2023 Dec. 31, 2022
Stage 1 $ 382,533 $ 370,463
Stage 2 (SICR) 82,579 63,246
Stage 3 (Impaired) 11,562 18,969
$ 476,674 $ 452,678
The aged analysis of the Company’s finance
receivables and loans was as follows:
Dec. 31, 2023 Dec. 31, 2022
Current $ 427,631 $ 403,807
Past due but not impaired:
Past due less than 90 days 17,541 23,302
Past due 90 to 180 days 6,253 1,755
Past due 180 days or more 13,687 4,845
Impaired loans 11,562 18,969
$ 476,674 $ 452,678
Past due finance receivables and loans, including
those past due over 90 days, do not necessarily
represent a SICR, or an impairment, due to
circumstances where payments are delayed for
non-credit related reasons. These may include
specific industry related behaviors or practices as
we often see across certain of the Company’s lines
of business. Of the past due and impaired finance
receivables at December 31, 2023, $26,975 (2022 –
$26,140) related to BondIt Media Capital (“BondIt”),
AFIU’s 60% controlled media finance subsidiary,
while $19,427 (2022 – $12,948) related to AFCC,
(of which $19,150 benefits from a guarantee from
Export Development Canada (“EDC”) of up to 80%
of the loan balance), and $16 (2022 – $7,599) to AEF.
As the Company’s finance receivables and loans are
generally secured by collateral, past due or impaired
accounts do not necessarily lead to a significant ECL
allowance or write-off, as the NRV of the collateral
is evaluated and may result in a low or no LGD.
At December 31, 2023, the estimated NRV of the
collateral securing the impaired loans totalled
$9,839 (2022 – $17,817). During 2023, lease receivables
totalling $684 (2022 – $1,430) were transferred to
assets held for sale upon default of the leases and
repossession of the collateral.
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
48 | Accord Financial Corp.
The activity in the allowance for expected losses on finance receivables and loans during 2023 by stage of
allowance was as follows:
Year ended at December 31, 2023
Stage 1 Stage 2
Stage 3 Total
$ 2,483 $ 8,189
Allowance for expected losses at January 1
99 —
Transfer between stages
Provision related to change in allowance for expected losses 1,032 2,263 21,219 24,514
(296) (324) (21,690) (22,310)
Write-offs
— 61 176 237
Recoveries
Foreign exchange adjustment
(124) (79)
$ 2,903
(326)
$ 2,803
227
(20)
65
Allowance for expected losses at December 31
$ 3,293
$ 5,095
$ 2,163 $ 10,551
The activity in the allowance for expected losses on finance receivables and loans during 2022 by stage of
allowance was as follows:
Year ended at December 31, 2022
Stage 1 Stage 2
Stage 3 Total
$ 3,319
(327)
$ 1,872
163
$ 59 $ 5,250
164 —
Allowance for expected losses at January 1
Transfer between stages
Provision (recovery) related to change in allowance
for expected losses
Write-offs
Recoveries
Foreign exchange adjustment
(191)
2,223
6,302 8,334
— (1,503) (4,484) (5,987)
— 9 414 423
30 169
101
38
Allowance for expected losses at December 31
$ 2,902
$ 2,802
$ 2,485 $ 8,189
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 NRV and any 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 SICRs, 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
in order 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 policy,
Annual Report 2023 | 49
of ways, as discussed below. For details of the
Company's policies and procedures in this regard,
please refer to note 23(a).
At December 31, 2023, the Company held cash
collateral of $2,675 (2022 – $3,533) 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.
The aged analysis of the Company’s managed
receivables was as follows:
(in thousands) Dec. 31, 2023 Dec. 31, 2022
Current $ — $ 5,309
Past due but not impaired:
Past due less than 90 days — —
Past due more than 90 days — —
$ — $ 5,309
Managed receivables classified under the three-stage
credit criteria of IFRS 9 were as follows:
Dec. 31, 2023 Dec. 31, 2022
Stage 1 $ — $ 5,309
Stage 2 (SICR) — —
Stage 3 (Impaired) — —
$ — $ 5,309
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 is included
in the allowance for losses at December 31, 2023
and 2022. The Company does not take title to the
managed receivables, and they are not included in
the consolidated statements of financial position.
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
credit 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 judgment 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
$2.3 million higher than the reported estimate of the
allowance for expected losses as at December 31,
2023. 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 $3.6 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
50 | Accord Financial Corp.
The activity in the allowance for expected losses on the guarantee of managed receivables during 2023 by stage
of allowance was as follows:
Year ended at December 31, 2023
Stage 1 Stage 2
Stage 3 Total
Allowance for expected losses at January 1 $
Recovery related to change in allowance for expected losses
Recoveries
31 $
(38)
7
Allowance for expected losses at December 31 $
— $
— $
—
—
— $
— $ 31
— (38)
— 7
— $ —
The activity in the allowance for expected losses on the guarantee of managed receivables during 2022 by stage
of allowance was as follows:
Year ended at December 31, 2022
Stage 1 Stage 2
Stage 3 Total
Allowance for expected losses at January 1 $
Recovery related to change in allowance for expected losses
Recoveries
31 $
(41)
41
Allowance for expected losses at December 31 $
31 $
— $
—
—
— $
— $ 31
— (41)
— 41
— $ 31
6. Other assets
Other Assets at December 31, 2023 were $12,292 (2022
– $5,057) and were primarily comprised of prepaid
expenses of $4,587 (2022 – $2,723) and amounts
due from EDC of $7,372 (2022 – $1,315) pursuant to
guarantees provided on AccordExpress loans.
7. Assets held for sale
During 2023 and 2022, 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. The estimated NRV
of the assets at the above dates was based upon
external appraisals.
8. Property and equipment
Dec. 31, 2023 Dec. 31, 2022
Cost $ 4,279 $ 4,619
Accumulated depreciation (2,164) (2,873)
Net book value $ 2,115 $ 1,746
Property and equipment include the Company’s
right-of-use assets, comprising five office leases at
December 31, 2023. The Company’s right-of-use
assets and movements therein during 2023 and 2022
were as follows:
Dec. 31, 2023 Dec. 31, 2022
Right-of-use assets at
January 1 $ 1,342 $ 875
Additions 754 1,052
Modifications / completions — (82)
Depreciation (409) (522)
Foreign exchange adjustment (25) 19
Net book value at December 31 $ 1,662 $ 1,342
9. Goodwill
Dec. 31, 2023 Dec. 31, 2022
Goodwill at January 1 $ 12,075 $ 13,141
Impairment (11,876) (1,883)
Foreign exchange translation (199) 817
Goodwill at December 31 $ — $ 12,075
At December 31, 2023, goodwill was zero. At
December 31, 2022, $12,075 of goodwill was related
to the U.S. CGU. Goodwill is tested for impairment
annually. During 2023 the result of the annual
impairment review of the U.S. CGU resulted in a
write off of the entire goodwill balance. 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
Annual Report 2023 | 51
the Canadian CGU, while there was no impairment
to the carrying value of goodwill of the U.S. CGU.
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 2023 a multiple of 8.5 (2022 – 9.8) was used.
10. Intangible assets
Intangible assets and movements therein during 2023 and 2022 were as follows:
Customer
and referral Broker Brand
2023 relationships relationships name Total
Cost
January 1, 2023 $ 2,064 $ 1,344 $ 1,846 $ 5,254
Foreign exchange adjustment (46) — (40) (86)
December 31, 2023 $ 2,018 $ 1,344 $ 1,806 $ 5,168
Accumulated amortization
January 1, 2023 $ (709) $ (1,344) $ — $ (2,053)
Amortization expense (137) — — (137)
Foreign exchange adjustment 18 — — 18
December 31, 2023 $ (828) $ (1,344) $ — $ (2,172)
Carrying value
January 1, 2023 $ 1,355 $ — $ 1,846 $ 3,201
December 31, 2023 $ 1,190 $ — $ 1,806 $ 2,996
Customer
and referral Broker Brand
2022 relationships relationships name Total
Cost
January 1, 2022 $ 1,925 $ 1,344 $ 1,721 $ 4,990
Foreign exchange adjustment 139 — 125 264
December 31, 2022 $ 2,064 $ 1,344 $ 1,846 $ 5,254
Accumulated amortization
January 1, 2022 $ (533) $ (1,344) $ — $ (1,877)
Amortization expense (132) — — (132)
Foreign exchange adjustment (44) — — (44)
December 31, 2022 $ (709) $ (1,344) $ — $ (2,053)
Carrying value
January 1, 2022 $ 1,392 $ — $ 1,721 $ 3,113
December 31, 2022 $ 1,355 $ — $ 1,846 $ 3,201
52 | Accord Financial Corp.
11. Bank indebtedness
The Company has a revolving credit facility with a
maximum commitment of $375.0 million and a
contractual maturity date of July 26, 2025, provided
by a syndicate of six banks. Floating rate indices for
drawn amounts under the revolving credit facility
are primarily based on bankers’ acceptances, the
secured overnight financing rate (“SOFR”) or 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. The Company amended its
revolving credit facility as of July 28, 2023 to reduce
the maximum commitment to $375.0 million from
$436.5 million, increase the accordion from $50.0
million to $75.0 million, increase the flexibility of
certain terms relating to eligible collateral and
update certain covenants. There is no impact to the
financial statements as a result of this amendment.
The Company was not in compliance with one
covenant at December 31, 2023 (December 31, 2022
– one covenant). All lenders waived the breach of
the covenant in 2023 and 2022 subsequent to the
related year end. (See Subsequent Event note for
more information.)
12. Loans payable
Dec. 31, 2023 Dec. 31, 2022
BondIt loan (a) $ 59,947 $ 64,671
ASBF loan (b) 22,465 44,368
$ 82,412 $ 109,039
(a) BondIt loan
BondIt has a revolving line of credit 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. This revolving line,
which is secured by all of BondIt’s assets, has a total
commitment of US$50.0 million ($59.9 million) and
a maturity date of December 2, 2024. At December 31,
2023, the amount outstanding under this line of credit
totalled $66.3 million inclusive of accrued interest
and fees (2022 – $64.7 million). BondIt was not in
compliance with multiple loan covenants under this
facility as at December 31, 2023, but has received a
waiver from the lender subsequent to December 31,
2023. The Company was in compliance with all loan
covenants under this facility as at December 31, 2022.
(b) ASBF loan
ASBF, a subsidiary of AFCC, entered into a non-recourse
loan with a life insurance company. This loan is
secured by the majority of ASBF’s assets and bears
a fixed rate of interest. The amount outstanding
under this loan facility at December 31, 2023 was
$22.5 million (December 31, 2022 – $44.4 million).
ASBF experienced a trigger event as of December 31,
2023 and 2022 as a result of the breached covenant
under the Company’s revolving credit line. The lender
provided a waiver subsequent to December 31, 2023
and December 31, 2022 for the related trigger event.
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.
Notes payable at December 31 were as follows:
Dec. 31, 2023 Dec. 31, 2022
Demand and term notes
due within one year:
Related parties $ 5,826 $ 5,911
Third parties 2,421 2,194
8,247 8,105
Term notes due after one year:
Related parties 14,668 10,500
$ 22,915 $ 18,605
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%.
Annual Report 2023 | 53
Interest expense on the notes payable was as follows:
2023 2022
Related parties $ 1,253 $ 1,076
Third parties 270 242
$ 1,523 $ 1,318
(b) Compensation of directors and key
management personnel
The remuneration of directors and key management
personnel(1) during 2023 and 2022 was as follows:
2023 2022
Salaries and directors' fees $ 3,754 $ 4,793
Stock-based compensation (2) 165 190
Termination payments — 524
$ 3,919 $ 5,507
(1) Key management personnel comprise the President and CEO of the
Company, the Presidents of its five 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, 2023, participations
in BondIt client loans totalled US$22.6 million
(December 31, 2022 – US$28.1 million), of which
US$ 8.6 million (December 31, 2022 – US$11.8 million)
was provided by related parties. These participations
are not included in the Company’s Consolidated
Statements of Financial Position.
14. Debentures
Convertible debentures with a face value of $25.7
million (25,650 convertible debentures) carrying a
7.0% coupon rate were issued by the Company in
2018 and 2019. Of these, 20,650 debentures are
listed for trading (“Listed Debentures”) on the
Toronto Stock Exchange (“TSX”), while 5,000
(“Unlisted Debentures”) are unlisted. Interest on all
the convertible debentures is payable semi-annually
on June 30 and December 31 each year.
Prior to the amendments to the Listed Debentures
described below, the maturity date of all debentures
was December 31, 2023 and they were convertible
at the option of the holder into common shares of
the Company at a conversion price of $13.50 per
common share. The original maturity date and
conversion feature now apply only to the
Unlisted Debentures.
The Company used the residual method to calculate
the allocation between the debt and equity
components of the debentures. Gross proceeds were
allocated to the debt component of the 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.
At a meeting held on August 10, 2023, the Company
announced that holders of $20.7 million of 7.0%
Listed Debentures, due on December 31, 2023, passed
an extraordinary resolution approving certain
amendments to the debentures. The amendments
include (i) an extension of the maturity date to
January 31, 2026, (ii) an increased interest rate of
10% effective January 2, 2024, (iii) removal of the
conversion feature and (iv) removal of the Company’s
right to repay the debentures with common shares.
The Company performed an assessment in
accordance with the requirements of IFRS 9 and
determined that removing the conversion feature
represents a substantial modification, triggering a
derecognition of the original Listed Debentures and
recognition of a new liability.
On December 31, 2023, the unit holders of $5.0 million
of 7.0% Unlisted Debentures, due on December 31,
2023 agreed to amend those debentures. The
amendments include (i) an extension of the maturity
54 | Accord Financial Corp.
date to July 15, 2024, (ii) an increased interest rate
of 10.0% effective January 1, 2024, (iii) removal of
the conversion feature and (iv) removal of the
Company’s right to repay the debentures with
common shares. The Company performed an
assessment in accordance with the requirements of
IFRS 9 and determined that removing the conversion
feature represents a substantial modification,
triggering a derecognition of the original Series B
Debentures and recognition of a new liability.
As a result of the amendments, the amortized cost of
the original Debentures of $25,553 was extinguished
and the amended Listed Debentures and Unlisted
Debentures with a nominal value of $25,650 were
recognized on the balance sheet at the date of
modification. A loss of $604, arising as a result of
the substantial modification, is comprised of $508
of transaction costs, including $330 of consent fees
paid to Listed unit holders that voted in favor of the
amendment, $25 of extension fees paid to Unlisted
unit holders and $95 as the difference between the
carrying value of the extinguished original Listed
Debentures and Unlisted Debentures and the fair
value of the amended Listed Debentures and
Unlisted Debentures.
The allocation of gross proceeds from the original issuance of the convertible debentures and the impact on the
related debt and equity components resulting from the modification of the debentures at December 31, 2023 is
presented below:
Liability Equity
component of component of
debentures debentures Total
Debentures issued $ 24,153 $ 1,474 $ 25,627
Transaction costs (1,739) (107) (1,846)
Net proceeds 22,414 1,367 23,781
Deferred taxes — (362) (362)
Extinguishment of listed debentures on August 10, 2023 (17,976) — (17,976)
Extinguishment of listed debentures on December 31, 2023 (4,438) — (4,438)
Recognition of new debentures 25,650 — 25,650
Balance (net of accretion balance) 25,650 1,005 26,655
Accretion in carrying value of debenture liability through 3,103 — 3,103
August 9, 2023
Extinguishment of listed debentures on August 10, 2023 (2,575) — (2,575)
Accretion in carrying value of debenture liability from August 10
to September 30, 2023 401 — 401
Extinguishment of listed debentures on December 13, 2023 (565) — (565)
Accretion in carrying value of debenture liability from October 1
to December 31, 2023 (297) — (297)
Accretion in carrying value of debenture liability 67 — 67
$ 25,717 $ 1,005 $ 26,722
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 $ 24,153 $ 1,474 $ 25,627
Transaction costs (1,739) (107) (1,846)
Net proceeds 22,414 1,367 23,781
Deferred taxes — (362) (362)
Accretion in carrying value of debenture liability 2,450 — 2,450
$ 24,864 $ 1,005 $ 25,869
Annual Report 2023 | 55
(b) 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
are 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 TSX during the ten days
immediately preceding the date of grant. The Board
reserves the right to change the terms of the options.
Outstanding options granted under the 2021 SOP
were as follows:
Number
Grant of options Exercise
price
date granted
Expiry Dec. 31, Dec. 31,
2023
2022
date
Aug. 4, 2021 80,100
Oct. 12, 2021 12,000
Sep. 19, 2022 72,000
Sep. 25, 2023 127,500
291,600
$8.83
Aug. 3, 2028 45,000 54,000
Aug. 3, 2028 12,000 12,000
$8.83
$8.34 Sep. 18, 2029 72,000 72,000
$5.69 Sep. 24, 2030 127,500
—
256,500 138,000
On September 25, 2023 the Company granted 127,500
stock options at an exercise price of $5.69 to its
President and senior employees. On September 19,
2022, the Company granted 72,000 stock options to
its President and senior employees.
Of the outstanding options 147,500 were vested at
December 31, 2023. The decrease in outstanding
options for the grant date of August 4, 2021 is due
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:
15. Lease liabilities
The following table presents the contractual
undiscounted cash flows for lease obligations at
December 31:
Dec. 31, 2023 Dec. 31, 2022
Less than one year $ 481
1,413
One to five years
348
Thereafter
$ 443
1,245
—
Total undiscounted lease
obligations
Less: future interest
2,242
(365)
1,688
(192)
$ 1,877
$ 1,496
During 2023, principal and interest payments for the
five office leases recognized as right-of-use assets
under IFRS 16 totalled $365 (2022 – $479) and $97
(2022 – $62) respectively, for total lease payments
of $405 (2022 – $541). No variable lease payments
are included in the measurement of the Company’s
lease liabilities.
16. Capital stock 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, 2023 and 2022, there were
no first preferred shares outstanding.
The Company's issued and outstanding common
shares during 2023 and 2022 are set out in the
consolidated statements of changes in equity.
Dividends in respect of the Company’s common
shares are declared in Canadian dollars. During
2023, dividends totalling $1,926 (2022 – $2,568),
or $0.23 (2022 – $0.30) per common share, were
declared and paid.
56 | Accord Financial Corp.
4.02%
Risk free interest rate
Expected dividend yield 5.29%
Expected share price
volatility
Expected life of option
(years)
Fair value per option
7.0
$0.98
Sep. 25,
2023
Sep. 19, Oct. 12, Aug. 4,
2022 2021 2021
3.17% 1.35% 0.92%
3.29% 2.48% 2.24%
27.48% 27.51% 29.53% 29.36%
7.0 6.8 7.0
$1.87 $1.67 $1.97
(c) Deferred share unit (“DSU”) plan
The Company introduced a DSU plan effective
January 1, 2022 for its board of directors. During
2023, the Company granted 13,002 DSUs (2022 –
7,944). DSUs are issued quarterly at fair market
value at the date of grant and vest immediately.
(d) Stock-based compensation
During 2023, the Company recorded stock-based
compensation expense of $165 (2022 – $190), of
which $129 (2022 – $129) related to stock option
grants under the 2021 SOP and $36 (2022 – $60)
related to DSUs. DSU grants of $60 previously
expensed and classified as equity has been
reclassified as a liability.
17. Income taxes
The Company's income tax expense comprises:
2023 2022
Current income tax expense $ 335 $ 3,902
Deferred tax recovery (12,133) (2,901)
Income tax expense (recovery) $ (11,798) $ 1,001
During 2023 and 2022, the Company's statutory
income tax rate was 26.5%. The Company's income
tax expense varies from the amount that would be
computed using the Canadian statutory income tax
rate due to the following:
Dec. 31, 2023 %
Income tax expense (recovery)
computed at statutory rates $ (7,206) 26.5%
Increase (decrease) resulting from:
Effective tax rate on income
of subsidiaries (4,550) 16.7%
Non-controlling interests
in subsidiaries (42) 0.2%
$ (11,798) 43.4%
Dec. 31, 2022 %
Income tax expense (recovery)
computed at statutory rates $ 701 26.5%
Increase (decrease) resulting from:
Effective tax rate on income
of subsidiaries 312 11.8%
Non-controlling interests
in subsidiaries (12) (0.5%)
$ 1,001 37.8%
The tax effects that give rise to the net deferred tax
assets at December 31 were as follows:
Dec. 31, 2023 Dec. 31, 2022
Deferred tax assets:
Unused tax losses $ 18,072 $ 12,684
Allowances for expected
2,461 1,783
credit losses
108 —
Debenture accretion
— 2,806
Property and equipment
355 11,778
Leasing timing difference
919 303
Other
$ 21,915 $ 29,354
Deferred tax liabilities:
Basis differential on pass
through subsidiaries $
Leasing timing difference
Property and equipment
(1,655) $ (22,872)
(1,592) (217)
(46) —
$
(3,293) $ (23,089)
$ 18,622 $ 6,265
The tax effects that give rise to the net deferred tax
liabilities at December 31 were as follows:
Dec. 31, 2023 Dec. 31, 2022
Deferred tax liabilities:
Debentures accretion $ — $ 187
Accrued Expenses — (46)
$ —
$ 141
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.
Annual Report 2023 | 57
liable at those dates. These amounts were considered
in determining the allowance for expected losses
on finance receivables and loans.
20. Non-controlling interests in
subsidiaries
Non-controlling interests in subsidiaries at
December 31, 2023 comprised an effective 40%
(December 31, 2022 – 40%) interest in BondIt’s
common member 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 (US$425) 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 (US$98).
21. 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.
At December 31, 2023 and 2022, 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
The following is a reconciliation of common shares
used in the calculation for the 12 months ended
December 31:
2023 2022
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 8,558,913 8,559,862
All outstanding options were excluded from the
calculation of diluted shares outstanding in the
twelve months ended December 31, 2023 because
they were considered to be anti-dilutive for earnings
per common share purposes, while for the twelve
months ended December 31, 2022 certain outstanding
options were excluded for the same reason. Details
of outstanding options are set out in note 16(b).
Basic earnings per share have been calculated based
on the weighted average number of common shares
outstanding in the year, without the inclusion of
dilutive effects. Diluted earnings per share are
calculated based on the weighted average number
of common shares plus dilutive common share
equivalents outstanding in the year, which in the
Company's case consist of stock options.
19. Contingent liabilities
At December 31, 2023, the Company was contingently
liable with respect to letters of guarantee issued on
behalf of a client in the amount of $742 (2022 – $759).
There were no letters of credit issued on behalf of
clients for which the Company was contingently
58 | Accord Financial Corp.
22. Segmented information
The Company operates and manages its businesses in one dominant industry segment – providing asset-based
financial services to industrial and commercial enterprises, principally in Canada and the United States. An operating
segment is a component in the Company that engages in business activities from which it may earn revenues
and incur expenses, including revenues and expenses relating to transactions with any of the Company’s other
subsidiaries, whose operating results are regularly reviewed by the Company’s Chief Operating Decision Makers
(“COMD”) 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 COMD 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.
Year ended December 31, 2023 Canada United States Intercompany Total
Identifiable assets
Revenue
Interest income
Other income
Expenses
Interest
General and administrative
Provision for credit losses
Impairment of goodwill
Impairment of assets held for sale
Depreciation
Business acquisition expenses
Earnings (loss) before income tax expense
Income tax expense (recovery)
Net earnings (loss)
Net earnings (loss) attributable to non-controlling interest
in subsidiaries
Net earnings (loss) attributable to shareholders
$ 290,694
$ 381,494
$ (158,708)
$ 513,480
$ 45,031 $ 24,224 $ (515)
—
6,574
4,391
(515)
30,798
49,422
$ 68,740
10,965
79,705
25,259
22,115
20,806
—
—
290
—
68,470
(19,048)
(5,216)
(13,832)
10,555
12,430
3,670
11,876
—
273
137
38,941
(8,143)
(6,582)
(1,561)
—
(768)
$ (13,832) $ (793)
(515)
—
—
—
—
—
—
(515)
—
—
—
35,299
34,545
24,476
11,876
—
563
137
106,896
(27,191)
(11,798)
(15,393)
—
$ —
(768)
$ (14,625)
Year ended December 31, 2022 Canada United States Intercompany Total
Identifiable assets
Revenue
Interest income
Other income
Expenses
Interest
General and administrative
Provision for credit 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) net earnings
Net earnings attributable to non-controlling interest
in subsidiaries
(Loss) net earnings attributable to shareholders
$ 258,840
$ 234,980
$ (2,059)
$ 491,761
$ 36,817
2,220
$ 39,037
16,759
17,420
6,481
1,883
148
283
132
43,106
(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
7,278
$ 67,490
24,087
29,599
8,293
1,883
148
702
132
64,844
2,646
1,001
$ 1,645
218
$ 1,427
Annual Report 2023 | 59
23. Financial risk management
The Company is exposed to credit, liquidity and
market risks related to the use of financial
instruments in its operations. The Board has overall
responsibility for the establishment and oversight
of the Company's risk management framework
through its Audit Committee. In this respect, the
Audit Committee meets with management and the
Company's Risk Management Committee at least
quarterly. The Company's risk management policies
are established to identify, analyze, limit, control
and monitor the risks faced by the Company. Risk
management policies and systems are reviewed
regularly to reflect changes in the risk environment
faced by the Company.
(a) Credit risk
Credit risk is the risk of financial loss to the Company
if a client or counterparty to a financial instrument
fails to meet its contractual obligations. 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 ($476.7 million) and managed
receivables ($nil) 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 2023 and 2022.
At December 31, 2023, the Company had impaired
loans of $11,562 (2022 – $18,969), while at that date,
it held collateral for these loans with an estimated
NRV of $9,839 (2022 – $17,817). These impaired loans
were mainly secured by receivables, inventory,
and/or equipment. There were no Stage 3 (impaired)
managed receivables at December 31, 2023 and 2022.
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
invoice date, and are usually charged back to clients,
60 | Accord Financial Corp.
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
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, 2023, the Company had
no customer’s accounts receivable in excess of
$5.0 million.
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 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.
Annual Report 2023 | 61
(b) Liquidity risk
The Company’s financial assets and liabilities at December 31, 2023 by contractual maturity date were as follows:
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 $
Finance receivables
and loans
All other assets
Total
9,301 $ 380 $
15 $ — $ — $ — $ 9,696
241,114 114,593 69,913 35,776 14,227 1,051 476,674
— — — — 20,636
$ 271,051 $ 114,973 $ 69,928 $ 35,776 $ 14,227 $ 1,051 $ 507,006
20,636 —
Financial liabilities
Due to clients
Bank indebtedness (1)
Loans payable (2)
Notes payable
Debentures
All other liabilities
Total
$
144
281,124
74,522
12,223
5,000
10,168
$ 383,181
$
—
—
7,595
10,692
—
—
$ 18,287
$
—
—
295
—
20,717
—
$ 21,012
$ — $ — $ — $ 144
— — — 281,124
— — — 82,412
— — — 22,915
— — — 25,717
— — — 10,168
$ — $ — $ — $ 422,480
(1) Bank indebtedness maturing within 12 months is debt which has been classified as current as the Company was in breach of one of its debt covenants at
December 31, 2023. In addition to receiving a waiver from its lenders for December 31, 2023, certain terms and covenants of the credit facility agreement
were amended after December 31, 2023. The amendment also contains milestones that the Company must achieve related to initiating discovery for certain
strategic initiatives to improve liquidity.
(2) Loans payable of $14,575 maturing within 12 months, of $7,595 maturing in 1 to 2 years, and of $295 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, 2022 by contractual maturity date were as follows:
0 to 12 1 to 2 2 to 3 3 to 4 4 to 5
months years
years years years Thereafter Total
Financial assets
Cash and restricted cash $ 16,879 $ 931 $
Finance receivables
and loans
All other assets
Total
217,844 117,623
7,122 1,007
65,879 33,279 18,053 — 452,678
497 — — — 8,626
$ 241,845 $ 119,561 $ 66,821 $ 33,279 $ 18,053 $ — $ 479,559
445 $ — $ — $ — $ 18,255
Financial liabilities
Due to clients
Bank indebtedness (1)
Loans payable (2)
Notes payable
Convertible debentures
All other liabilities
Total
$
1,827
214,055
17,579
8,105
24,864
14,606
$ 281,036
$
—
—
82,536
—
—
50
$ 82,586
$
—
—
8,924
10,500
—
33
$ 19,457
$ — $ — $ — $ 1,827
— — — 214,055
— — — 109,039
— — — 18,605
— — — 24,864
— — 141 14,830
$ — $ — $ 141 $ 383,220
(1)
Included in Bank indebtedness is 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.
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.
62 | Accord Financial Corp.
(c) Market risk
Market risk is the risk that changes in market prices,
such as foreign exchange rates and interest rates,
will affect the Company's income or the value of its
financial instruments. The objective of managing
market risk is to control market risk exposures
within acceptable parameters, while optimizing the
return on risk.
(d) Currency risk
The Company's Canadian operations have some
assets and liabilities denominated in foreign
currencies, principally finance receivables and loans,
cash, bank indebtedness, due to clients and notes
payable. These assets and liabilities are usually
economically hedged, although the Company
enters into foreign exchange contracts from time to
time to hedge its currency risk when there is no
economic hedge. At December 31, 2023, the
Company's unhedged foreign currency positions in
its Canadian operations totalled $2,703 (2022 – $12).
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.
(e) 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, 2023:
Floating Fixed Non-rate
rate rate sensitive Total
Assets
Cash and restricted cash $ 7,794 $ — $ 1,902 $ 9,696
Finance receivables and loans, net 163,533 313,141 (10,551) 466,123
All other assets — — 37,661 37,661
$ 171,327 $ 313,141 $ 29,012 $ 513,480
Liabilities
Due to clients $ 8 $ — $ 136 $ 144
Bank indebtedness 281,124 — — 281,124
Loans payable 59,947 22,465 — 82,412
Notes payable 4,565 18,350 — 22,915
Debentures — 25,717 — 25,717
All other liabilities — — 12,505 12,505
Equity — — 88,663 88,663
$ 345,644 $ 66,532 $ 101,304 $ 513,480
Interest rate sensitivity gap $ (174,317) $ 246,609 $ (72,292) $ —
Annual Report 2023 | 63
were 4.65x (2022 – 3.44x) and 0.17 (2022 – 0.22),
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, 2023,
the Company is required to maintain a senior debt
to TNW ratio of less than 4.0 to 1.0 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. There were no changes
in the Company's approach to capital management
from previous periods.
25. Subsequent events
(i) On March 15, 2024, the Company finalized an
amendment to its primary credit facility which
matures in July 2025.
The amendment reduces the facility limit from
$375 million to $300 million with a further reduction
to $260 million by January 2025. In addition to new
covenants, the amendment increases the borrowing
rate by 100 basis points and includes milestones
related to the initiation of discovery for certain
strategic initiatives.
(ii) Subsequent to December 31, 2023, BondIt’s revolving
line of credit has been extended with a new maturity
date of April 30, 2025 and a total commitment of
US$50,000 ($66,275).
The Company's floating rate debt, net of unrestricted
cash, exceed the Company’s floating rate assets by
$96.4 million. Incorporated into that calculation is
the assumption that fixed rate assets maturing in
less than twelve months, if not redeployed in new
loans, would be used to pay down bank indebtedness.
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
$862 over a twelve month period. A 100 basis point
decrease in interest rates would add a similar
amount to pre-tax earnings. The analysis is a static
measurement of interest rates at a specific point in
time, and there is the potential for these gaps to
change significantly over a short time period.
24. Capital disclosure
The Company considers its capital structure to include
equity and debt; namely, its bank indebtedness,
loan payable, notes payable and convertible
debentures. The Company's objectives when
managing capital are to: (a) maintain financial
flexibility in order to preserve its ability to meet
financial obligations and continue as a going concern;
(b) maintain a capital structure that allows the
Company to finance its growth using internally-
generated cash flow and debt capacity; and
(c) optimize the use of its capital to provide an
appropriate investment return to its shareholders
commensurate with risk.
The Company's financial strategy is formulated and
adapted according to market conditions in order to
maintain a flexible capital structure that is consistent
with its objectives and the risk characteristics of its
underlying assets. 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
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, 2023, these ratios
64 | 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 Carolina2, 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
Subsidiaries
Accord Financial Ltd.
Simon Hitzig, President
Accord Financial Inc.
Jason Rosenfeld, President
Accord Financial, Inc.
Jim Hogan, President
Accord Financial Canada Corp.
James Jang, President
Accord Equipment Finance
Jim Hogan, President
BondIt Media Capital
Matthew Helderman, President
Auditors
KPMG LLP
Legal Counsel
Stikeman Elliott
Stock Exchange
Listings
Toronto Stock Exchange Symbols:
Common Shares: ACD
Convertible Debentures: ACD.DB
Bankers
Bank of Montreal
The Bank of Nova Scotia
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
Annual Meeting
The Annual Meeting of
Shareholders will be held at
The Ridout Room
3rd Floor of
Lennox Hall
located in First Canadian Place
Suite 350 at 77 Adelaide St. West,
Toronto, Ontario
on Tuesday, May 14, 2024
at 4:15 pm.
• • •
602-40 Eglinton Avenue East
Toronto, Ontario
Canada M4P 3A2
Tel (800) 967-0015
Fax (416) 961-9443
www.accordfinancial.com
www.accordfinancial.com | Canada (800) 967-0015 | United States (800) 231-2757