Stuart Adair
Chief Financial Officer

Overview

The following discussion and analysis explains trends in Accord Financial Corp.'s ("Accord" or the "Company") results of operations and financial condition for the year ended December 31, 2008 compared with the year ended December 31, 2007. It is intended to help shareholders and other readers understand the dynamics of the Company's business and the factors underlying its financial results. Where possible, issues have been identified that may impact future results.

This MD&A should be read in conjunction with the Company's 2008 audited consolidated financial statements (the "Statements") and notes thereto, the Ten Year Financial Summary (see page 19) and the President's Letter to the Shareholders, all of which form part of this 2008 Annual Report. Additional information pertaining to the Company, including its Annual Information Form, is filed under the Company's profile with SEDAR at www.sedar.com.

All amounts discussed in this MD&A are expressed in Canadian dollars unless otherwise stated and have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). Please refer to note 3(c) to the Statements regarding the Company’s use of accounting estimates in the preparation of its financial statements in accordance with GAAP.

The following discussion contains certain forwardlooking 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.

Accord’s Business

Accord is a leading North American provider of factoring and other asset-based financial services to businesses, including financing, collection services, credit investigation and guarantees. The Company’s financial services and operations are also discussed earlier in this Annual Report. Its clients operate in many industries, including apparel, financial and professional services, engineering, chemicals, electronics, oilfield services, temporary staffing, telecommunications, textiles, food products, furniture, sporting goods, leisure products, footwear, plastics, and industrial products.

The Company, founded in 1978, operates three factoring companies in North America, namely, Accord Business Credit Inc. ("ABC") and Montcap Financial Corporation ("MFC") in Canada and Accord Financial, Inc. ("AFI") in the United States.

The Company’s business principally involves: (i) recourse factoring by MFC and AFI, which entails financing or purchasing receivables on a recourse basis, as well as asset-based lending, namely, financing tangible assets, such as inventory, equipment and real estate; and (ii) non-recourse factoring by ABC, which principally involves providing credit guarantees and collection services on a non-recourse basis, generally without financing.

Results of Operations

Fiscal 2008

Year ended December 31, 2008 compared with year ended December 31, 2007

The Company’s net earnings totalled $5,041,000 in 2008, 20% below 2007’s net earnings of $6,287,000. Net earnings decreased principally as a result of a significantly higher provision for credit and loan losses, although increased general and administrative ("G&A") expenses and lower revenue contributed somewhat to the decline. These items are discussed below. Diluted earnings per common share for 2008 also decreased by 20% to 53 cents compared with 66 cents last year. The Company’s return on average shareholders' equity declined to 11.7% in 2008 compared to 16.0% last year.

Results of Operations

Years ended December 31	2008			2007
(in thousands unless otherwise stated)		Actual	% of Revenue		Actual	% of Revenue	% change from 2007 to 2008
Factoring volume (millions)	$	1,596		$	1,497		6.6%
Revenue                Factoring commissions, discounts, interest and other income	$	28,060	100.0%	$	28,346	100.0%	-1.0%
Expenses Interest General and administrative		2,871 13,491	10.2% 48.1%		2,992 13,143	10.5% 46.4%	-4.0% 2.6%
Provision for credit and loan losses		3,849	13.7%		2,402	8.5%	60.2%
Depreciation		195	0.7%		209	0.7%	-6.7%
		20,406	72.7%		18,746	66.1%	8.9%
Earnings before income tax expense		7,654	27.3%		9,600	33.9%	-20.3%
Income tax expense		2,613	9.3%		3,313	11.7%	-21.1%
Net earnings	$	5,041	18.0%	$	6,287	22.2%	-19.8%
Earnings per common share Basic Diluted	$ $	0.53 0.53		$ $	0.66 0.66		-19.7% -19.7%

The volume of receivables factored by the Company rose by 7% to a record $1.596 billion in 2008 from $1.497 billion last year. Volume represents total client sales invoices factored by the Company and is the basis of the majority of its revenue. Recourse factoring volume rose by 7%, while non-recourse volume rose by 6%. International volume, mostly cross-border business between the U.S. and Canada, rose by 11% to $374 million compared to $336 million in 2007. International volume comprised 23% of the Company's total in 2008 compared to 22% in 2007. The volume increase in 2008 was low-rate, and low risk, international or non-lending business and, consequently, did not result in a similar percentage increase in factoring fees.

Revenue declined by $286,000 or 1% to $28,060,000 in 2008 compared to $28,346,000 last year. Revenue declined despite the rise in volume principally as a result of reduced factoring commissions due to a decline in average factoring yields. Average yields declined in 2008 largely as a result of an increase in the proportion of low rate, and low risk, business, reduced interest rates and significant competitive pressures. Interest revenue on asset-based loans rose by 16% in 2008 on higher average loans to clients.

Interest expense declined by $121,000 or 4% to $2,871,000 in 2008 from $2,992,000 last year. The decrease resulted from lower interest rates which more than offset a 23% rise in average borrowings (bank indebtedness and notes payable) in 2008. Average borrowings rose in the first seven months of 2008 compared to the prior year, after which, borrowings declined when compared to 2007. The Company's borrowing rates were lower in 2008 as the average Canadian prime rate of interest declined to 4.8% per annum from 6.1% in 2007, while the average U.S. prime rate of interest declined to 5.1% from 8.1% in 2007.

G&A expenses comprise personnel costs, representing the major portion of G&A, as well as occupancy costs, marketing expenses, commissions to third parties, professional fees, data processing, travel, telephone and general overheads. G&A expenses increased by $348,000 or 3% to $13,491,000 in 2008 from $13,143,000 last year. G&A expenses increased by $331,000 or 11% in our U.S. operations. The Company continues to manage its controllable expenses closely. G&A expenses totalled 48% of revenue in 2008, up from 46% in 2007.

Selected Annual Information
(audited, in thousands of dollars, except per share data)

		2008		2007		2006
Revenue	$	28,060	$	28,346	$	28,864
Net earnings		5,041		6,287		7,117
Earnings per share
Basic	$	0.53	$	0.66	$	0.73
Diluted		0.53		0.66		0.72
Dividends per share		0.24		0.22		0.20
Total assets	$	103,498	$	107,133	$	84,679

The provision for credit and loan losses, a combination of net charge-offs and charges or recoveries related to changes in the Company"s allowances for losses, rose by 60% to $3,848,000 in 2008 from $2,401,000 last year. Net charge-offs increased by 63% to $2,950,000 compared with $1,815,000 in 2007. There was a charge of $898,000 in 2008 related to the increase in the Company's allowances for losses compared to a charge of $586,000 last year. The Company"s allowances are discussed below. The provision for credit and loan losses, as a percentage of revenue, increased to 13.7% in 2008 and was the second highest percentage in the last ten years, compared to 8.5% in 2007. Net charge-offs increased to 10.5% of revenue in 2008 compared to 6.4% last year. The 63% rise in net charge-offs in 2008 was due to a number of significant insolvencies in the latter part of 2008 in our Canadian recourse factoring operations. Our U.S. operations had no charge-offs in 2008. The Company increased the allowance for losses on its factored receivables and loans ("FR&L") significantly in 2008 despite a small decline in them as it determined a higher allowance was required in light of current economic conditions and their impact on FR&L. While the Company manages its portfolio of FR&L and managed receivables closely, as noted in the Risks and Uncertainties section below, financial results can be impacted by significant insolvencies. The Company continues to employ a conservative approach to determining its allowances for losses and providing for charge-offs.

Income tax expense declined by 21% to $2,613,000 in 2008 compared to $3,313,000 last year on a similar percentage decline in pre-tax earnings. The Company’s effective corporate income tax rate in 2008 was 34.1%, slightly below the 34.5% in 2007 as the Canadian federal income tax rate declined this year.

Table 1 highlights the Company’s profitability in terms of returns on its average assets and shareholders' equity. In 2008, on lower net earnings and higher shareholders' equity, these percentages declined to 4.8% and 11.7%, respectively.

Net revenue as a percentage of average assets declined to 23.9% compared to 26.4% in 2007. It has decreased over the past ten years as the increase in assets, principally FR&L, rose at a faster rate than net revenue due to growth in the Company's recourse factoring and asset-based lending business. In 2008 the percentage was also impacted by lower revenue. The ratio of operating expenses to average assets has also declined substantially over the last ten years for similar reasons. This ratio declined to 13.0% in 2008 compared with 13.9% last year.

Canadian operations

Net earnings from Canadian operations declined by $1,931,000 or 45% to $2,372,000 in 2008 compared to $4,303,000 last year principally as a result of a higher provision for credit and loan losses and lower revenue. Please see note 21 to the Statements, which sets out detailed segment information.

Revenue decreased by $1,821,000 or 8% to $20,264,000 in 2008 compared to $22,085,000 last year as average factoring yields declined for reasons noted above offsetting the impact of a 3% rise in Canadian factoring volume. Interest expense declined by $629,000 or 19% to $2,666,000 as a result of lower interest rates this year. G&A expenses rose by $17,000 to $10,042,000. The provision for credit and loan losses rose by $1,709,000 or 79% to $3,878,000. As noted above, the increase resulted from a number of insolvencies and the requirement for additional allowances. Canadian income tax expense decreased by 47% to $1,137,000 in 2008 on a similar percentage decline in pre-tax earnings.

U.S. operations

The Company’s U.S. operations saw a significant rise in earnings in 2008 as it benefitted from the adverse economic conditions and a deteriorating credit environment around it by increasing its business as new lending opportunities arose. Net earnings from U.S. operations rose by 35% to $2,669,000 in 2008 compared to $1,984,000 in 2007. In U.S. dollars, net income increased by 34% to US$2,518,000. Revenue rose by $1,040,000 or 15% to $7,836,000 principally as a result of higher volume and a $470,000 rise in interest on asset-based loans. Interest expense rose slightly to $245,000 compared with $232,000 last year as higher borrowings outweighed the impact of lower interest rates. G&A expenses rose by $331,000 to $3,449,000 principally as a result of higher personnel expenses and professional fees. In 2008 there was a recovery of loan losses of $29,000 compared to a provision of $233,000 last year. AFI’s income tax expense rose to $1,476,000 in 2008 on a 31% increase in pre-tax earnings.

Table 1—Profitability Ratios

(as a percentage)	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008
Return on Average Assets	11.4	10.4	3.9	6.6	7.9	10.2	7.6	8.1	6.6	4.8
Return on Average Equity	21.2	21.1	7.0	10.6	13.2	19.1	16.8	18.3	16.0	11.7
Net Revenue /Average Assets	45.2	39.8	36.0	36.4	34.5	35.0	29.8	30.3	26.4	23.9
Operating Expenses /    Average Assets	24.1	20.7	20.0	21.1	19.8	19.0	18.6	15.6	13.9	13.0

Fourth quarter 2008

Quarter ended December 31, 2008 compared with quarter ended December 31, 2007

Net earnings for the quarter ended December 31, 2008 declined by $1,597,000 or 78% to $462,000 from $2,059,000 in the fourth quarter of 2007. Net earnings principally decreased due to a higher provision for credit and loan losses and lower revenue. The stronger U.S. dollar compared to the fourth quarter of 2007 helped increase net earnings by approximately $120,000. Diluted earnings per common share declined to 5 cents compared to 22 cents last year.

Factoring volume rose by 14% to a fourth quarter record of $429 million from $376 million in the fourth quarter of 2007. Volume in the Company’s recourse factoring business rose by 11%, while volume in its non-recourse business increased by 18%. The increase in volume was low-rate international or non-lending business.

Revenue declined by $1,018,000 or 13% to $6,753,000 in the fourth quarter compared to $7,771,000 last year mainly as a result of a decrease in average factoring yields for reasons noted above. Continuing reductions in interest rates had a more profound impact on revenue in the fourth quarter, although this was partly offset by lower interest expense. The stronger U.S. dollar compared to last year’s fourth quarter helped increase revenue by approximately $335,000.

Interest expense declined by 40% to $574,000 in the fourth quarter compared to $959,000 last year on lower interest rates and an 8% decrease in average borrowings. G&A expenses for the quarter rose by $179,000 or 6% to $3,388,000 compared to $3,209,000 last year. The stronger U.S. dollar compared to the fourth quarter of 2007 was responsible for increasing the Canadian dollar equivalent of AFI’s expenses by approximately $190,000.

The provision for credit and loan losses increased by $1,597,000 to $2,005,000 in the fourth quarter of 2008 from $408,000 last year. The provision comprised net charge-offs of $1,224,000 compared to $506,000 last year, while there was a charge of $781,000 related to an increase in the Company’s total allowances for losses compared to a $98,000 recovery last year. As noted above, the substantial increase in the provision of credit and loan losses resulted from a number of significant insolvencies in the Company’s Canadian operations in the quarter and the requirement for additional allowances as the credit and economic environment deteriorated adversely impacting the Company's FR&L.

Income tax expense decreased by 76% to $273,000 compared to $1,121,000 last year on a similar decline in pre-tax earnings.

Review of Balance Sheet

Shareholders’ equity at December 31, 2008 was a record $48,179,000, an increase of $8,982,000 or 23% from $39,197,000 last year-end. Book value per share rose to $5.10 at December 31, 2008 compared to $4.15 a year earlier. The increase in shareholders' equity in 2008 principally resulted from a $6,717,000 improvement in the accumulated other comprehensive loss account and a $1,863,000 increase in retained earnings. These are discussed below.

Total assets declined by 3% to $103,498,000 at December 31, 2008 compared to $107,133,000 last year-end. Total assets largely comprised FR&L. As detailed in the Ten Year Financial Summary, total assets have grown significantly in the last ten years in line with the growth in the Company’s recourse factoring and asset-based lending business.

Summary of Quarterly Financial Results*

	2008								2007
Quarters ended (in thousands unless otherwise stated)	Dec. 31		Sept. 30		June 30		Mar. 31			Dec. 31		Sept. 30		June 30		Mar. 31
Factoring volume (millions)	$	429	$	419	$	365	$	383	$	376	$	413	$	341	$	366
Revenue
Factoring commissions,
discounts, interest and other income	$	6,753	$	6,785	$	7,094	$	7,427	$	7,771	$	7,174	$	6,785	$	6,617
Expenses
Interest		574		628		789		880		960		836		657		540
General and administrative		3,388		3,342		3,340		3,421		3,209		3,286		3,280		3,368
Provision for credit and
loan losses		2,005		760		248		835		408		1,210		243		540
Depreciation		51		47		50		47		14		65		65		66
		6,018		4,777		4,427		5,183		4,591		5,397		4,245		4,514
Earnings before income taxes Income tax expense		735 273		2,088 676		2,667 908		2,244 756		3,180 1,121		1,777 614		2,540 869		2,103 709
Net earnings	$	462	$	1,332	$	1,759	$	1,488	$	2,059	$	1,163	$	1,671	$	1,394
Earnings per common share
Basic	$	0.05	$	0.14	$	0.19	$	0.16	$	0.22	$	0.12	$	0.18	$	0.15
Diluted		0.05		0.14		0.18		0.16		0.22		0.12		0.17		0.15

Table 2 highlights the composition of the Company’s balance sheet. The first two ratios in the table (45% and 47%), detailing equity as a percentage of assets, improved in 2008 with the rise in shareholders equity. The Company’s debt (bank indebtedness and notes payable) to equity ratio is currently less than one and historically has been low. These ratios are better than those of most financial companies and indicate the Company’s continued financial strength and overall low degree of leverage.

Excluding inter-company balances, 54% of identifiable assets were located in Canada at December 31, 2008 and 46% in the United States compared to 69% and 31%, respectively, at December 31, 2007. Please see note 21 to the Statements.

The Company’s total portfolio, which comprises both gross FR&L and managed receivables, rose by 15% to $237 million at December 31, 2008 compared to $206 million last year-end as a result of an increase in managed receivables. Please see Table 2 for a ten year history.

Gross FR&L declined by $2,905,000 or 3% to $102,977,000 at December 31, 2008 compared with $105,882,000 a year earlier. Please see note 4 to the Statements. Net of the allowance for losses thereon, FR&L declined by $3,950,000 to $99,990,000 at December 31, 2008 from $103,940,000 last year-end. FR&L principally represent advances made by our recourse factoring and asset-based lending subsidiaries, MFC and AFI, to clients in a wide variety of industries. Due to the deteriorating credit and capital markets currently existing, particularly in the United States, the Company is seeing a larger number of prospective deals than previously as larger industry players have trouble securing sufficient funding and smaller finance companies exit the industry. The Company's recourse factoring and asset-based lending businesses had 145 clients at December 31, 2008. Five clients comprised over 5% of gross FR&L at December 31, 2008, of which the largest client comprised 8%.

In its non-recourse factoring business, the Company contracts with clients to assume the credit risk associated with respect to their receivables without financing them. Since the Company does not take title to these receivables, they do not appear on its balance sheet. These non-recourse or managed receivables totalled $134 million at December 31, 2008 compared to $100 million last year-end. The increase largely pertains to one customer which is discussed below. Managed receivables comprise the receivables of approximately 160 clients principally in the apparel, engineering, home furnishings, industrial products and footwear industries. The 25 largest clients generated 59% of non-recourse volume in 2008. Most of the clients' customers are retailers in Canada and the United States. At December 31, 2008, the 25 largest customers accounted for 62% of total managed receivables. One substantial new customer, in the engineering business, comprised 22% of year-end managed receivables. This customer is considered to be of the highest credit quality. Although the retail environment is suffering as a result of the current economic downturn, these accounts continue to be well rated and the Company's credit risk is being closely monitored.

Table 2—Balance Sheet Composition

(as a percentage)	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008
Tangible Equity / Assets	47	47	61	61	58	46	42	46	36	45
Equity / Assets	50	49	63	63	59	47	43	47	37	47
Debt (bank indebtedness & notes payable) / Equity	68	82	33	28	50	78	103	90	147	97
Receivables and loans ($000)
Owned	60,528	77,298	64,036	65,893	70,561	72,249	85,730	81,284	105,882	102,977
Managed	127,306	101,233	93,298	134,879	124,120	113,894	113,947	105,339	100,189	133,754
Total	187,834	178,531	157,334	200,772	194,681	186,143	199,677	186,623	206,071	236,731

The nature of the Company’s factoring and asset-based lending business requires it to fund or assume credit risk on the receivables offered to it by its clients, as well as to fund other assets such as inventory, equipment and real estate. All credit is approved by a staff of credit officers, with larger amounts being authorized by supervisory personnel, management and, in the case of credit in excess of $1,000,000, the Company's Board of Directors. The Company monitors and controls its risks and exposures through financial, credit and legal reporting systems and, accordingly, believes that it has in place procedures for evaluating and limiting the credit risks to which it is subject. The Company's credit risk management practices are also discussed in note 18(a) to the Statements.

All credit is subject to ongoing management review. Nevertheless, for a variety of reasons, there will inevitably be defaults by customers and clients. The Company’s primary focus continues to be on the creditworthiness and collectibility of its clients’ receivables. Monitoring and communicating with its clients’ customers is measured by, amongst other things, an analysis which indicates the amount of receivables current and past due. The clients' customers have varying payment terms depending on the industries in which they operate, although most customers have invoice due dates ranging from 30 to 60 days from original shipping or invoice date. Of the total managed receivables for which the Company guarantees payment, 9.3% were past due more than 60 days at December 31, 2008 compared to 9.5% last year-end. In the Company’s recourse factoring business, receivables become "ineligible" when they reach a certain predetermined age, usually 90 days past due, and are charged back to clients limiting the Company’s credit risk thereon.

ABC employs a customer credit scoring system to assess the credit risk associated with the managed receivables that it guarantees. MFC and AFI employ a client rating system to assess credit risk, which reviews, among other things, the financial strength of each client, its management and the Company’s underlying security, principally its clients’ receivables, inventory, equipment and real estate. Credit risk is primarily managed by ensuring that, as far as possible, the receivables factored are of the highest quality and that any inventory, equipment, real estate or other assets securing loans are professionally appraised. The Company assesses the financial strength of its clients' customers and the industries in which they operate. Examples of the clients’ industries are set out on page 6. For a factoring company, the financial strength of its clients’ customers is often more important than the financial strength of the clients themselves. The Company also reduces its credit risk by limiting to $10 million the maximum amount it will lend to any client, enforcing strict advance rates and disallowing certain types of receivables. It also charges back receivables as they become older and employs concentration limits on a customer and industry specific basis. The Company also confirms the validity of the majority of the receivables that it purchases. As a factoring company which administers and collects the majority of its clients’ receivables, the Company is able to quickly identify problems as and when they arise and act promptly to minimize credit and loan losses, which is particularly important in today’s adverse economic environment. Note 18(a) to the Statements provides details of the Company’s credit exposure by industrial sector.

Table 3 highlights the credit quality of the Company’s portfolio, both owned and managed. Net charge-offs of our managed receivables declined slightly to $715,000 in 2008 compared to $766,000 last year.

Table 3—Credit Quality

(as a percentage)	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008
Portfolio Turnover (days)	50	53	54	52	51	48	50	50	49	50
Managed Receivables past due more than 60 days	10.1	9.7	9.8	7.6	5.6	6.5	7.6	9.9	9.5	9.3
Reserves* / Portfolio	0.9	1.0	1.0	0.9	1.0	1.0	1.1	1.1	1.3	1.6
Reserves* / Net Charge-offs	183	143	21	207	171	482	317	103	147	125
Net Charge-Offs / Factored
(Non-recourse) Volume	0.07	0.09	0.56	0.06	0.08	0.03	0.05	0.15	0.12	0.18

Net charge-offs in the Company’s recourse factoring business more than doubled to $2,235,000 in 2008 compared to $1,049,000 last year. Overall, the Company’s total net charge-offs, as discussed in the Results of Operations section above, rose by 63% to $2,950,000 in 2008 compared with $1,815,000 last year as the economic environment worsened and the Company suffered from of a number of insolvencies as a result thereof. Total net charge-offs, the second highest in the last ten years, were 18 basis points of volume in 2008 compared to 12 basis points last year.

After the customary detailed year-end review of the Company’s $237 million portfolio, all problem accounts were identified and provided for. The Company maintains separate allowances for credit and loan losses on both its FR&L and its guarantee of managed receivables, at amounts, which, in management’s judgment, are sufficient to cover the fair value of losses thereon. The allowance for losses on FR&L increased by $1,045,000 or 54% to $2,987,000 at December 31, 2008 from $1,942,000 last year-end despite a small decline in the Company’s FR&L. It was determined a higher allowance was required in light of the charge-offs incurred in 2008 and current economic conditions. The allowance for losses on the guarantee of managed receivables declined slightly to $686,000 at December 31, 2008 compared to $725,000 last year-end. This allowance represents the fair value of estimated payments to clients under the Company’s guarantees to them. As these managed receivables are off-balance sheet, this allowance is included in the total of accounts payable and other liabilities. The activity in both allowance for losses accounts for 2008 and 2007 is set out in note 4 to the Statements. The estimates of both allowance for losses are judgmental. Management considers them to be adequate.

Cash declined to $994,000 at December 31, 2008 compared to $1,148,000 at the end of 2007. The Company endeavors to minimize cash balances when it has bank indebtedness outstanding. However, due to the large volume of cash being processed daily it is necessary that a certain amount of cash be held to fund daily requirements. Fluctuations in cash balances are normal.

Income taxes receivable totalled $267,000 at December 31, 2008 compared to income taxes payable of $1,012,000 last year-end. The large income tax payable balance last year-end arose because one of the Company’s subsidiaries was not required to pay instalments in 2007 and had an income tax payable balance of $878,000 at December 31, 2007.

Capital assets increased by $38,000 to $635,000 at December 31, 2008 compared to $597,000 last yearend. Capital assets acquired during the year, net of disposals, totalled $221,000 compared to $86,000 in 2007 and principally comprised leasehold improvements, and computer and office equipment.

Goodwill, net of accumulated amortization, totalled $1,171,000 at December 31, 2008 compared to $953,000 at December 31, 2007. In accordance with GAAP, goodwill is subject to an impairment test at least annually or more frequently if impairment indicators arise. In 2008 and 2007, the Company determined there was no impairment to the carrying value of goodwill. The increase in goodwill in 2008 relates to the translation of AFI’s goodwill balance of US$962,000 into Canadian dollars at a higher year-end U.S. dollar exchange rate than at December 31, 2007.

Total liabilities at December 31, 2008 declined by $12,618,000 to $55,318,000 from $67,936,000 last year-end. The decrease principally resulted from a decline in bank indebtedness.

Bank indebtedness declined by $12,330,000 or 26% to $35,877,000 at December 31, 2008 compared with $48,207,000 at December 31, 2007. Bank indebtedness decreased in 2008 as a result of cash generated from operating activities, principally from net earnings and FR&L collections. Please refer to the Company’s 2008 Cash Flow Statement on page 25 of this Annual Report.

Bank indebtedness is secured primarily by FR&L. The Company has approved credit lines totalling approximately $100 million at December 31, 2008 and was in compliance with all loan covenants thereunder. The Company has no term debt outstanding.

Amounts due to clients decreased by $309,000 to $4,588,000 at December 31, 2008 compared to $4,897,000 at the end of 2007. Amounts due to clients principally consist of collections of receivables not yet remitted to clients. Contractually, the Company remits collections within a week of receipt. Fluctuations in amounts due to clients are not unusual.

Accounts payable and other liabilities declined by $366,000 to $3,080,000 at December 31, 2008 compared to $3,446,000 last year-end. As noted above, accounts payable and other liabilities include the allowance for losses on the guarantee of managed receivables.

Deferred income, which comprises the deferral of a portion of factoring commissions and discounts until collection of the underlying receivables, rose slightly to $829,000 at December 31, 2008 compared to $806,000 last year-end.

Notes payable increased by $1,377,000 to $10,944,000 at December 31, 2008 compared to $9,567,000 last year-end. Please see Related Party Transactions section below and note 8 to the Statements. The increase in 2008 represents notes issued, net of redemptions, and accrued interest.

Capital stock increased by $516,000 to $6,732,000 at December 31, 2008 from $6,216,000 a year earlier. There were 9,438,171 common shares outstanding at December 31, 2008 compared with 9,454,171 a year earlier. Note 9(b) to the Statements provides details of changes in the Company’s issued and outstanding common shares and capital stock. During 2008, 138,000 stock options were exercised by directors and key managerial employees for proceeds of $510,000, while $114,000 was transferred to capital stock from contributed surplus upon the exercise of these stock options. Offsetting these increases was a $108,000 reduction in capital stock in respect of shares repurchased and cancelled by the Company pursuant to the terms of its Normal Course Issuer Bids ("Bids"). Note 9(c) to the Statements provides details of the Company’s Bids. During 2008, 154,000 common shares were repurchased and cancelled under the Company’s Bids at a cost of $1,005,000 (an average price of $6.53 per common share). This amount was applied to reduce capital stock and retained earnings by $108,000 and $897,000, respectively.

Details of the Company’s stock option plans and options outstanding at December 31, 2008 are set out in note 9(e) to the Statements. The Company has not issued any options to employees or directors since 2004 and currently does not plan to do so. In 2007 the Company established a share appreciation rights ("SARs") plan whereby SARs are granted to directors and key managerial employees of the Company and its subsidiaries. Details of the SARs plan are set out in note 9(f) to the Statements. In 2008, 95,000 SARs were granted by the Company at a strike price of $7.25. These are the only SARs granted to date. As at December 31, 2008, the outstandings SARs had no intrinsic value.

Contributed surplus totalled $82,000 at December 31, 2008 compared to $196,000 at December 31, 2007. The decrease in 2008 comprised the $114,000 that was transferred to capital stock. Please refer to note 9(d) to the Statements. This balance will decline when any remaining stock options are exercised and their fair value is transferred to capital stock.

Retained earnings increased by $1,863,000 to $43,543,000 at December 31, 2008 compared to $41,680,000 at December 31, 2007. The increase in 2008 comprised net earnings of $5,041,000 less dividends paid of $2,281,000 (24 cents per common share) and the $897,000 premium paid over stated capital value per share on the shares repurchased under the Bids. Please refer to the Consolidated Statements of Retained Earnings on page 24 of this Annual Report.

Accumulated other comprehensive loss comprises the unrealized foreign exchange loss arising on the translation of the assets and liabilities of the Company’s self-sustaining U.S. subsidiary. This was negative $2,178,000 at December 31, 2008 compared to negative $8,895,000 at December 31, 2007. Please refer to note 16 to the Statements. The improvement in 2008 resulted from the 23% rise in the value of the U.S. dollar against the Canadian dollar during the year. The U.S. dollar rose from $0.991 at December 31, 2007 to $1.218 at December 31, 2008. This increased the Canadian dollar equivalent of the Company’s net investment in its U.S. subsidiary of approximately US$30 million by $6,717,000 in 2008.

Contractual Obligations and Commitments at December 31, 2008

Payments due in

(in thousands of dollars)	Less than one year		Two and three years		Four and five years		After five years		Total
Operating lease obligations	$	333	$	676	$	367	$	374	$	1,750
Purchase obligations		37		—		—		—		37
	$	370	$	676	$	367	$	374	$	1,787

Liquidity and Capital Resources

The Company’s financing and capital requirements generally increase with the total FR&L outstanding. The collection period and resulting turnover of outstanding receivables also impact financing needs. In addition to cash flow generated from operations, the Company maintains bank lines of credit in Canada and the United States. The Company can also raise funds through its notes payable program.

The Company had bank credit lines totalling approximately $100 million at December 31, 2008 and had borrowed approximately $36 million against these facilities. Bank borrowings are usually margined as a percentage of outstanding FR&L. As noted above, the Company was in compliance with all loan covenants under its lines of credit at December 31, 2008. Funds generated through operating activities, notes payable and share issuances decrease the usage of, and dependence on, these lines.

As noted in the Review of Balance Sheet section above, the Company had cash balances of $994,000 at December 31, 2008, a decrease of $154,000 compared to the $1,148,000 at December 31, 2007. As far as possible, cash balances are maintained at a minimum and surplus cash is used to repay bank indebtedness.

Cash inflow from net earnings before changes in operating assets and liabilities totalled $6,114,000 in 2008, a decrease of 17% compared with $7,349,000 last year. After changes in operating assets and liabilities are taken into account, there was a net cash inflow from operating activities of $14,011,000 in 2008 compared with a net cash outflow of $20,271,000 last year. Changes in operating assets and liabilities in 2008 are discussed in the Review of Balance Sheet section above and detailed in the Company's Consolidated Statements of Cash Flows on page 25 of this Annual Report.

Net cash outflows from financing activities totalled $14,831,000 in 2008 compared to net cash inflows of $20,185,000 last year. In 2008 bank indebtedness of $13,331,000 was repaid, while dividends totalling $2,281,000 were paid and $1,005,000 was expended on the repurchase of common shares under the Bids. Offsetting these cash outflows was $1,276,000 raised from the issue of notes payable and $510,000 received from the issuance of shares pursuant to the exercise of stock options. In 2007, bank indebtedness increased by $21,915,000, while $439,000 was raised from the issue of notes payable and $245,000 was received from the issuance of shares pursuant to the exercise of stock options. Offsetting these cash inflows were dividend payments of $2,081,000 and the repurchase of common shares under the Bids at the cost of $333,000.

The effect of exchange rate changes on cash in 2008 comprised an $886,000 increase compared to an $830,000 decrease last year. The increase in 2008 resulted from the rise in the value of the U.S. dollar against the Canadian dollar during the year.

Overall, there was a net cash outflow of $154,000 in 2008 compared to $1,002,000 in 2007.

Management believes that current cash balances, existing credit lines and cash flow from operations will be sufficient to meet the cash requirements of working capital, capital expenditures, operating expenditures, dividend payments and share repurchases and provide sufficient liquidity and capital resources for future growth.

Related Party Transactions

The Company has borrowed funds (notes payable) on an unsecured basis from shareholders, management, employees, other related individuals and third parties. These notes are repayable on demand and bear interest at the bank prime rate less one half of one percent per annum, which is below the rate of interest charged by the Company’s banks. Notes payable at December 31, 2008 increased by $1,377,000 to $10,944,000 from $9,567,000 at December 31, 2007. Of these notes payable, $9,665,000 (2007 - $8,335,000) or 88% was owing to related parties and $1,279,000 (2007 - $1,232,000) was owing to third parties. Interest expense on these notes totalled $437,000 in 2008 compared to $534,000 last year. Please refer to note 8 to the Statements.

Financial Instruments

All financial assets, including derivatives, are measured at fair value on the consolidated balance sheet with the exception of factored receivables and loans, which are recorded at cost; as these are short term in nature their carrying values approximate fair values. Financial liabilities that are held for trading or are derivatives or guarantees are measured at fair value on the consolidated balance sheet. Non-trading financial liabilities, such as bank indebtedness and notes payable, are measured at amortized cost.

The Company has entered into a forward foreign exchange contract with a financial institution that is exercisable between January 2, 2009 and January 30, 2009 and obliges the Company to sell Canadian dollars and buy US$400,000 at an exchange rate of 1.1545. The contract was entered into by the Company on behalf of one of its clients and a similar forward foreign exchange contract was entered into between the Company and the client thereby offsetting the foreign exchange risks to the Company. The favorable and unfavorable fair values of these contracts are not significant and there has been no foreign exchange gain or loss to the Company as a result of entering into these contracts.

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 to be critical to the financial results of its business segments:

i) the allowance for credit and loan losses on both its FR&L and its guarantee of managed receivables. The Company maintains a separate allowance for losses on each of the above items at amounts which, in management's judgment, are sufficient to cover the estimated fair value of losses thereon. The allowances are based upon several considerations including current economic trends, condition of the loan and receivable portfolios and typical industry loss experience. 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. Management believes that its allowances for losses 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 set out in note 4 to the Statements.

ii) the extent of any provisions required for outstanding claims. In the normal course of business there is outstanding litigation, the results of which are not normally expected to have a material effect upon the Company. However, the adverse resolution of a particular claim could have a material impact on the Company's financial results. Management is not aware of any significant claims currently outstanding.

Adoption of New Accounting Policies

Effective January 1, 2008 the Company adopted two new accounting standards issued by The Canadian Institute of Chartered Accountants ("CICA") on financial instruments comprising Handbook Sections 3862 Financial Instruments - Disclosures and 3863 Financial Instruments - Presentation, which apply to interim and annual financial statements. These sections revise and enhance the current disclosure requirements but do not change the existing presentation requirements for financial instruments. The new disclosures provide additional information on the nature and extent of risks arising from the financial instruments to which the Company is exposed and how it manages those risks. Please refer to note 18 to the Statements. The Company also adopted CICA Handbook Section 1535 Capital Disclosures which requires the Company to disclose qualitative and quantitative information relating to its objectives, policies and processes for managing its capital. Please refer to note 19 to the Statements.

Future Changes in Accounting Policies

Transition to International Financial Reporting Standards

Canadian public companies will be required to prepare their financial statements in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"), for financial years beginning on or after January 1, 2011. Effective January 1, 2011, the Company will adopt IFRS as the basis for preparing its consolidated financial statements and will issue its financial results for the quarter ended March 31, 2011 prepared on an IFRS basis. The Company will also provide comparative financial information on an IFRS basis, including an opening balance sheet as at January 1, 2010.

The Company commenced its IFRS transition project in 2008, which includes four key phases:

• Project awareness and engagement - this includes identifying the members for the Company’s IFRS transition team, and other representatives as required. In addition, this phase includes communicating the key project requirements with timelines and objectives to the Company’s senior management, Board of Directors and Audit Committee.
• Diagnostic - this phase includes an assessment of the differences between current GAAP and IFRS, focusing on the areas which will have the most significant impact to the Company.
• Design, planning and solution development - this phase focuses on determining the specific impacts to the Company based on the application of IFRS requirements. This includes the development of detailed solutions and work plans to address implementation requirements. Accounting policies will be finalized, first-time adoption exemptions will be considered, draft financial statements and disclosures will be prepared and a detailed implementation plan with timeline will be developed.
• Implementation - this phase includes implementing the required changes necessary for IFRS compliance. The focus is the finalization of the Company's IFRS conversion plan, approval and implementation of accounting and tax policies, implementation and testing of new processes, systems and controls, and preparation of opening IFRS balances.

A transition team is in place and is responsible for recommendations and implementation of IFRS to the Audit Committee and Board of Directors. The Company has completed the diagnostic assessment phase by performing comparisons of the differences between GAAP and IFRS. At this time, the impact on the Company’s financial position and results of operations is not reasonably determinable or estimable for any of the IFRS conversion impacts identified.

The Company is currently working on the design, planning and solution development phase. We are evaluating the specific impacts of IFRS conversion to the Company and will develop recommendations and accounting policies accordingly. Communication, training and education are a essential to the success of this conversion project. In addition, the Company is monitoring the IASB’s active projects and all changes to IFRS prior to January 1, 2011 will be incorporated as required.

Controls and Procedures

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 them 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, 2008 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 ("ICFR") (as defined in the rules of the CSA):

(i)  the Company’s management is responsible for establishing and maintaining adequate ICFR 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) framework to evaluate the design of the Company’s ICFR and test its operating effectiveness;

(iii)  the Company’s management has designed and tested the operating effectiveness of its ICFR as at December 31, 2008 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 GAAP. Management advises that such ICFR is effective and that there are no material weaknesses in the design and operating effectiveness of ICFR that have been identified by it. The operating effectiveness of the Company’s ICFR has been verified by an independent consultant who confirmed no material weaknesses were identified as at December 31, 2008.

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 also refer to note 18 to the Statements, which discusses the Company’s financial risk management practices.

Competition

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 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 and future competitors. If these or other competitors were to engage in aggressive pricing policies with respect to competing services, 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, operating results and financial condition. The Company will not, however, compromise its credit standards.

Economic slowdown

The Company operates in Canada and the United States. Economic weakness in either of the Company’s markets can affect its ability to do new business as quality prospects become limited. Further, the Company’s clients and their customers are often adversely affected by economic slowdowns or weak credit conditions and this can lead to increases in credit and loan losses.

Credit risk

The Company is in the business of factoring its clients’ receivables and making asset-based loans. The Company’s factoring volume rose to $1.6 billion in 2008, while its portfolio was approximately $237 million at December 31, 2008. Operating results may be adversely affected by large bankruptcies and/or insolvencies. Please refer to note 18(a) to the Statements.

Interest rate risk

The Company’s agreements with its clients (interest revenue) and lenders (interest expense) usually provide for rate adjustments in the event of interest rate changes so that the Company’s spreads are protected to some degree. However, as the Company's floating rate FR&L substantially exceed its interest sensitive borrowings, the Company is exposed to interest rate fluctuations. Please refer to note 18(c)(ii) to the Statements.

Foreign currency risk

The Company operates internationally. Accordingly, a portion of its financial resources are held in currencies other than the Canadian dollar. The Company’s policy is to manage financial exposure to foreign exchange fluctuations and to attempt to neutralize the impact of foreign exchange movements on its operating results where possible. In recent years, the Company has seen the weakening of the U.S. dollar against the Canadian dollar adversely impact its operating results upon the translation of its U.S. subsidiary’s results into Canadian dollars. It has also caused a significant decrease in the value of the Company’s net Canadian dollar investment in its U.S. subsidiary, which has reduced the accumulated other comprehensive income component of shareholders’ equity to a loss position, although, the accumulated other comprehensive loss balance improved significantly in the second half of 2008 as the U.S. dollar strengthened. Please refer to note 18(c)(i) to the Statements.

Potential acquisitions and investments

The Company seeks to acquire or invest in businesses that expand or complement its current business. Such acquisitions or investments may involve significant commitments of financial or other resources of the Company. There can be no assurance that any such acquisitions or investments will generate additional earnings or other returns for the Company, or that financial or other resources committed to such activities will not be lost. Such activities could also place additional strains on the Company’s administrative and operational resources and its ability to manage growth.

Personnel significance

Employees are a significant asset of the Company. Market forces and competitive pressures may adversely affect the ability of the Company to recruit and retain key qualified personnel. The Company mitigates this risk by providing a competitive compensation package, which includes profit sharing, SARs and medical benefits, as it continuously seeks to align the interests of employees and shareholders.

Outlook

The Company’s principal objective is managed growth - putting quality new business on the books while maintaining high standards of credit. Marketing initiatives and alliances are continuing to bear fruit. Among initiatives, MFC has long-standing referral programs with Bank of Nova Scotia and Liquid Capital Corp., a franchisor of small factoring companies in Canada and the U.S. Our U.S. operation, which is active within the turnaround management industry, is seeing accelerated deal flow as the credit and capital markets in the U.S. worsen and its profile is increasing. This has resulted in a substantially improved performance by our U.S. subsidiary. Lower interest rates are starting to adversely impact revenues, while weak economic conditions have increased the Company’s credit risk and credit and loan losses related thereto in 2008. The Company expects that the same quantum of credit and loan losses will not be repeated in 2009 as it further tightens its credit policies. Many large industry players are currently having trouble securing funding and smaller finance companies are exiting the industry as the economic and credit environment worsens. Accord, with its substantial capital and borrowing capacity, is well positioned to capitalize on market opportunities.

Through experienced management and staff, coupled with its financial resources, the Company is well positioned to meet increased competition and develop new opportunities. It continues to look to introduce new financial and credit services to fuel growth in a very competitive and challenging environment.

Stuart Adair
Chief Financial Officer
March 2, 2009

Five Key Benchmarks

One of our primary functions at Accord is to manage risk and to assess credit quality. As detailed in Table 3, there are five key benchmarks which tell us how well we are doing.

1. Portfolio turnover

We try to minimize risk by turning our portfolio in as few days as possible. The turnover in 2008 was 50 days.

2. Past due receivables

We also try to keep our past due receivables as low as possible. Over the past ten years, the percentage of managed receivables past due more than 60 days has ranged from a low of 5.6% to a high of 10.1%. At Dec. 31, 2008, the percentage was 9.3%.

3. Reserves to portfolio

In an effort to minimize financial risk, we try to maximize this measure. Over the past ten years, it has ranged between 0.9% and 1.6%. The percentage at Dec. 31, 2008 was the ten-year-high of 1.6%.

4. Reserves to net charge-offs

Ideally, this percentage should be greater than 50%, which is to say that the year-end reserves would absorb about six months of charge-offs. This number has been consistently over 100% since 1999, except for the 21% at Dec. 31, 2001. At Dec. 31, 2008, it was 125%.

5. Net charge-offs to volume

This is an important benchmark in our business. The long term industry average ranges from 15 to 20 basis points. Our record has been very good since 1999. The figure in 2008 was 18 basis points as net charge-offs rose significantly this year.