Accord Announces Second Quarter Earnings and Quarterly Dividend
Accord Financial Corp. (TSX: ACD) today released its financial results for the three and six months ended June 30, 2020. The financial figures presented in this release are reported in Canadian dollars and have been prepared in accordance with International Financial Reporting Standards.
Summary of Financial Results
|Three Months Ended June 30||Six Months Ended June 30|
|Average funds employed (millions)||341||388||352||367|
|Earnings before income tax (000’s)||3,822||2,912||(5,089)||4,848|
|Net earnings (loss) attributable to shareholders (000’s)||4,343||2,222||(1,534)||3,865|
|Adjusted net earnings (loss) (000’s) (note)||4,730||2,397||(684)||4,213|
|Earnings (loss) per common share (basic and diluted)||0.51||0.26||(0.18)||0.46|
|Adjusted earnings (loss) per common share (basic and diluted)||0.55||0.28||(0.08)||0.50|
|Book value per share (June 30)||$ 10.61||$ 10.70|
Net earnings attributable to shareholders (“shareholders’ net earnings”) rose by $2,121,000 to a quarterly record $4,343,000 in the second quarter of 2020 compared to the $2,222,000 earned last year. Shareholders’ net earnings rose mainly as a result of a $2,955,000 recovery of credit and loan losses, a one-time $881,000 income tax recovery and lower interest expense in the quarter. Earnings per common share (“EPS”) were a quarterly record 51 cents compared to 26 cents last year. Adjusted net earnings rose to a quarterly record $4,730,000 from the $2,397,000 earned in the second quarter of 2019. Adjusted EPS increased to 55 cents compared to 28 cents in last year’s second quarter.
Revenue decreased to $11,270,000 in the second quarter compared to $13,991,000 last year primarily driven by a 12% decline in average funds employed and lower yields on the Company’s floating rate loans to clients, which declined somewhat due to lower Canadian and U.S. rates of interest. Average funds employed were $341 million in the current quarter compared to $388 million last year. Funds employed at June 30, 2020 were $317 million. Funds employed and revenue were impacted by the economic effects of COVID-19 on the Company’s clients, including government relief efforts.
Shareholders’ net loss in the first half of 2020 was $1,534,000 compared to shareholders’ net earnings of $3,865,000 in 2019. The net loss primarily resulted from a $6.8 million provision for losses and impairment expense, lower revenue, higher general and administrative expenses and non-recurring restructuring expenses of $996,000. The provision for losses, which comprised net write-offs of $2.1 million and a $3.8 million increase in the Company’s allowances for losses, were in large part driven by the potential economic impact of COVID-19 on the Company’s portfolio of loans and managed receivables. Loss per common share was 18 cents compared to EPS of 46 cents last year. First half adjusted net loss was $684,000 (8 cents per share) compared to the adjusted net earnings of $4,213,000 (50 cents per share) in the first half of 2019.
Revenue declined to $23,285,000 in the first half of 2020 compared to $26,579,000 last year as a result of declining yields, for reasons noted above, and a 4% decline in average funds employed. Average funds employed in the first half of 2020 were $352 million compared to $367 million last year.
Commenting on the results, the Company’s President and CEO, Mr. Simon Hitzig, stated: “Accord’s second quarter net earnings marked an all-time record quarterly high. But a look below the surface reveals some contributing factors that will likely not be repeated. One of our U.S. subsidiaries successfully worked out of a troubled account, notching a multi-million dollar loan loss recovery. We also took advantage of Covid-relief changes to U.S. tax rules, which led to a significant income tax recovery. These positive developments bolstered Accord’s net earnings and equity. As anticipated, Accord’s total funds employed shrank during the quarter. We took a cautious approach to new business, while, many of our existing factoring and ABL clients recorded dramatically lower sales, which translated into fewer receivables available for Accord to finance. While very few clients have left us in recent months, many are borrowing less than they were earlier in the year. We view these factors to be temporary and expect a steady increase in funds employed over the second half of the year.”
Mr. Hitzig added: “Accord also recently launched its participation in the Export Development Canada (EDC) Business Credit Availability Program (BCAP) Guarantee. The EDC BCAP Guarantee provides eligible small and medium sized Canadian companies with loans of up to $6.25 million. This partnership with EDC supports Accord’s commitment to entrepreneurs from coast to coast, and bolsters the Company’s growth path as the economy reopens. This program is a terrific tool to help companies weather the storm, and keep our economy moving forward. We’re proud to offer it.”
The Company’s Board of Directors has declared a quarterly dividend of 5 cents per common share, payable September 1, 2020 to shareholders of record August 14, 2020.
About Accord Financial Corp.
Accord Financial Corp. is a leading North American finance company providing distinctive working capital solutions to companies from coast-to-coast. Accord’s flexible finance programs cover the full spectrum of asset-based lending, from factoring and inventory finance, to equipment leasing and trade finance, to film and media finance. For 42 years, Accord has helped businesses manage their cash flows and maximize financial opportunities.
Note: Non-IFRS Measures
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 this press release are as follows:
1) Adjusted net earnings and adjusted EPS. The Company derives these measures from amounts presented in its IFRS prepared financial statements. Adjusted net earnings comprise shareholders’ net earnings before stock-based compensation, business acquisition expenses (transaction and integration costs and amortization of intangible assets) and restructuring expenses. Adjusted EPS (basic and diluted) is adjusted net earnings divided by the weighted average number of common shares outstanding (basic and diluted) in the period. Management believes adjusted net earnings is a more appropriate measure of operating performance as it excludes items which do not relate to ongoing operating activities. The following table provides a reconciliation of the Company’s net earnings to adjusted net earnings:
|Three Months Ended June 30||Six Months Ended June 30|
|Shareholders’ net earnings:||4,343||2,222||(1,534)||3,865|
|Adjustments, net of tax:|
|Business acquisition expenses||56||133||111||264|
|Adjusted net earnings||4,730||2,397||(684)||4,213|
2) Book value per share – book value is shareholders’ equity and is the same as the net asset value (calculated as total assets minus total liabilities) of the Company less non-controlling interests. Book value per share is the book value divided by the number of common shares outstanding as of a particular date.
3) Funds employed are the Company’s finance receivables and loans, an IFRS measure. Average funds employed are the average finance receivables and loans calculated over a particular period.