Element Fleet Management Corp. — Annual Report 2022

Jun 21, 2023

Consolidated Financial Statements

Element Fleet Management Corp.

December 31, 2022

NOTICE TO READER

Element Fleet Management Corp. (the "Company") is re-filing its annual audited financial statements for the years ended December 31, 2022 and 2021, to correct a manifest typographical error with respect to the date on the auditor's report on the annual financial statements originally filed on SEDAR on March 6, 2023. Other than the updated date to reflect March 6, 2023, the annual audited financial statements of the Company for the years ended December 31, 2022 and 2021, as set forth below, do not contain any other changes.

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of

Element Fleet Management Corp.

Opinion

We have audited the consolidated financial statements of Element Fleet Management Corp. and its subsidiaries (the Company), which comprise the consolidated statements of financial position as at December 31, 2022 and 2021, and the consolidated statements of operations, consolidated statements of comprehensive income, consolidated statements of changes in shareholders' equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2022 and 2021, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRSs).

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 consolidated financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated 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 the audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor's opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

Valuation of deferred tax assets

Key audit matter

As described in Notes 3 and 14 to the consolidated financial statements, the Company has deferred tax assets of $365,430 thousand as at December 31, 2022. Deferred tax assets are recognized to the extent that it is probable that they can be utilized to offset future taxable profit. The Company's ability to recognize deferred tax assets on tax losses carried forward is assessed by management at the end of each reporting period, considering forecasts of future taxable profits and the interpretation of taxation legislation for tax planning strategies.

Auditing the valuation of the deferred tax assets required significant judgment in the interpretation of complex tax legislation and jurisprudence as well as the evaluation of management's tax planning strategies and projections of future taxable profits. The application of these judgments impacts the evaluation of the timeline to realize deferred tax assets.

How our audit addressed the key audit matter

To test the valuation of deferred tax assets, we performed the following audit procedures, among others, with the involvement of our tax specialists:

• a. Obtained an understanding of the Company's overall tax strategies and components of income taxrelated account balances by jurisdiction;
• b. Evaluated tax utilization strategies for recognized deferred tax assets in jurisdictions where tax planning is required to support utilization, including consideration of the technical merits of management's tax planning strategies and the amount of expected taxable income/loss using our knowledge of, and experience with, the application of income tax laws by the relevant income tax authorities;
• c. Evaluated the reasonableness of significant assumptions and inputs in management's forecast, including the growth rate of revenues and expenses, by comparing to historical cash flow trends, assessing the historical accuracy of management's previous forecasts, considering the manner in which changes to the company's business model, customer base, or revenue streams were incorporated into the forecasts and, comparing to current industry and economic trends; and
• d. Assessed the adequacy of the disclosures related to income taxes.

Other information

Management is responsible for the other information. The other information comprises the Management Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

We obtained the Management Discussion and Analysis prior to the date of this auditor's report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company'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 Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated 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 these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• a. Identify and assess the risks of material misstatement of the consolidated 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.
• b. 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 Company's internal control.
• c. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• d. 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 Company'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 consolidated 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 Company to cease to continue as a going concern.
• e. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• f. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We 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.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated 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 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 independent auditor's report is Andrew Morgan.

Toronto, Canada March 6, 2023

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands of Canadian dollars)

	As at	As at
	December 31,2022	December 31,2021
	$	$
ASSETS
Cash	68,876	45,271
Restricted funds (note 9)	433,327	400,930
Finance receivables (notes 4 and 24)	8,069,386	7,436,275
Equipment under operating leases (note 5)	2,806,841	2,297,182
Accounts receivable and other assets	215,817	204,873
Derivative financial instruments (notes 18 and 24)	131,943	26,302
Property, equipment and leasehold improvements, net (note 6)	80,899	93,872
Intangible assets, net (note 7)	864,611	830,013
Deferred tax assets (note 14)	365,430	417,708
Goodwill (note 8)	1,295,088	1,220,986
	14,332,218	12,973,412
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities	1,465,198	1,206,550
Derivative financial instruments (notes 18 and 24)	81,730	28,575
Borrowings (note 9)	8,807,859	8,038,963
Convertible debentures (notes 10 and 24)	163,933	159,072
Deferred tax liabilities (note 14)	132,525	89,303
	10,651,245	9,522,463
Shareholders' equity (note 11)	3,680,973	3,450,949
	14,332,218	12,973,412

See accompanying notes

On behalf of the Board:

Director Director

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands of Canadian dollars, except for per share amounts)

	Year endedDecember 31,2022	Year endedDecember 31,2021
	$	$
NET REVENUE
Interest income, net (note 13)	441,807	372,110
Rental revenue and other (note 13)	826,672	707,960
Depreciation of equipment under operating leases (note 5)	(506,903)	(450,256)
	761,576	629,814
Interest expense	272,835	192,869
Net financing revenue	488,741	436,945
Fleet service revenue (note 13)	629,049	518,004
Direct costs of fixed rate service contracts (note 13)	(48,031)	(45,539)
Servicing income, net	581,018	472,465
Syndication revenue, net (note 13)	62,290	64,412
Net revenue	1,132,049	973,822
OPERATING EXPENSES
Salaries, wages and benefits	322,886	306,884
General and administrative expenses	124,848	104,401
Depreciation and amortization (notes 6, 7 and 21)	59,799	50,537
Amortization of convertible debenture discount (note 10)	3,831	3,580
Share-based compensation (note 12)	31,303	24,120
	542,667	489,522
OTHER EXPENSES
Amortization of intangible assets from acquisitions (note 7)	36,477	35,313
Loss/(gain) on investments	3,352	(8,689)
Income before income taxes from operations	549,553	457,676
Provision for income taxes (note 14)	139,910	101,670
Net income for the year	409,643	356,006
Basic earnings per share (note 17)	$0.96	$0.76
Diluted earnings per share (note 17)	$0.94	$0.75

See accompanying notes

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of Canadian dollars)

	Year endedDecember 31,2022	Year endedDecember 31,2021
	$	$
Net income for the year	409,643	356,006
OTHER COMPREHENSIVE INCOME (LOSS)
Items that may be reclassified subsequently to profit or loss:
Cash flow and foreign exchange hedges gain (note 18)	63,677	33,297
Net unrealized foreign exchange gain (loss)	262,016	(72,840)
	325,693	(39,543)
Provision for income taxes	17,191	8,801
Total other comprehensive income (loss)	308,502	(48,344)
Comprehensive income for the year	718,145	307,662

See accompanying notes

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(in thousands of Canadian dollars)

	Common sharecapital	Preferred sharecapital	Equity componentof convertibledebentures	Contributedsurplus	Retained earnings(deficit)	Accumulated othercomprehensiveincome (loss)	Total shareholders'equity
	$	$	$	$	$	$	$
Balance, December 31, 2021	2,951,596	511,869	13,829	—	(22,536)	(3,809)	3,450,949
Comprehensive income for the year	—	—	—	—	409,643	308,502	718,145
Dividends - Preferred shares (note 11)	—	—	—	—	(28,074)	—	(28,074)
Dividends - Common shares (note 11)	—	—	—	—	(131,632)	—	(131,632)
Redemption of preferred shares (note 11)	—	(146,756)	—	—	(3,244)	—	(150,000)
Issuance of shares (note 10)	287	—	(30)	—	—	—	257
Options exercised (notes 11 and 12)	19,462	—	—	—	(5,224)	—	14,238
Shares repurchased for cancellation (note 11)	(103,267)	—	—	—	(89,643)	—	(192,910)
Balance, December 31, 2022	2,868,078	365,113	13,799	—	129,290	304,693	3,680,973
Balance, December 31, 2020	3,180,379	511,869	59,603	51,788	(64,057)	44,535	3,784,117
Comprehensive income (loss) for the year	—	—	—	—	356,006	(48,344)	307,662
Dividends - Preferred shares (note 11)	—	—	—	—	(32,412)	—	(32,412)
Dividends - Common shares (note 11)	—	—	—	—	(113,940)	—	(113,940)
Options exercised (notes 11 and 12)	55,298	—	—	(16,927)	—	—	38,371
Matured convertible debenture (note 10 )	—	—	(45,774)	45,774	—	—	—
Shares repurchased for cancellation (note 11)	(284,081)	—	—	(80,867)	(168,133)	—	(533,081)
Employee stock option expense (note 12)	—	—	—	232	—	—	232
Balance, December 31, 2021	2,951,596	511,869	13,829	—	(22,536)	(3,809)	3,450,949

See accompanying notes

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of Canadian dollars)

	Year ended
	December 31,2022	December 31,2021
	$	$
OPERATING ACTIVITIES
Net income for the year	409,643	356,006
Items not affecting cash
Share-based compensation (note 12)	—	232
Depreciation of property, equipment and leasehold improvements (note 6)	20,377	24,277
Amortization of intangible assets, including from acquisitions (note 7)	75,899	61,573
Amortization of deferred lease costs	31,583	26,740
Amortization of deferred financing costs	15,028	22,218
Depreciation of equipment under operating leases (note 5)	506,903	450,256
Amortization of convertible debenture discount and deferred costs (note 10)	5,118	4,805
Loss/(gain) on investments	3,352	(8,689)
Provision for credit losses	(25)	(5,535)
	1,067,878	931,883
Changes in non-cash operating assets and liabilities
Investment in finance receivables	(5,973,269)	(3,921,658)
Repayments of finance receivables	2,888,526	3,551,135
Investment in equipment under operating leases	(1,151,126)	(974,532)
Proceeds on disposal of equipment under operating leases	280,596	285,453
Syndications of finance receivables	2,844,153	2,715,474
Cash payments for interest portion of lease liability	(1,946)	(2,260)
Other non-cash operating assets and liabilities	274,819	(73,393)
Cash provided by operating activities	229,631	2,512,102
INVESTING ACTIVITIES
Investments	938	(553)
Purchase of property, equipment and leasehold improvements (note 6)	(3,866)	(6,036)
Proceeds on disposals of property, equipment and leasehold improvements and intangible assets	1,933	761
Purchase of intangible assets, including computer software (note 7)	(64,999)	(80,231)
Decrease in notes receivable	384	110
Cash used in investing activities	(65,610)	(85,949)
FINANCING ACTIVITIES
Cash payments for principal portion of lease liability	(9,825)	(8,671)
Decrease in restricted funds	(5,967)	(14,213)
Increase in deferred financing costs	(6,898)	(19,529)
Issuance of share capital, net	14,238	38,371
Shares repurchased (note 11)	(196,170)	(532,336)
Issuance of term facilities (note 9)	375,334	—
Repayments of borrowings, net	123,587	(2,339,031)
Dividends paid (note 11)	(151,893)	(143,569)
Issuance of senior notes (note 9)	—	628,750
Redemption of preferred shares (note 11)	(150,000)	—
Cash used in financing activities	(7,594)	(2,390,228)
Effects of foreign exchange rates on cash	(132,822)	557
Net increase in cash during the year	23,605	36,482
Cash, beginning of the year	45,271	8,789
Cash, end of the year	68,876	45,271
Supplemental cash flow information:
Cash taxes paid	58,003	48,432
Cash interest paid	267,503	170,984
See accompanying notes

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

1. CORPORATE INFORMATION

Element Fleet Management Corp. ("Element" or the "Company"), was incorporated under the Business Corporations Act (Ontario) on May 11, 2007 and commenced operations on that date. The registered office of the Company is 161 Bay Street, Suite 3600, Toronto, Ontario. The Company is a public corporation traded on the Toronto Stock Exchange (the "TSX") under the symbol "EFN".

Element is a publicly traded fleet management company with $14.3 billion in assets and operations in the United States ("US"), Canada, Mexico, Australia and New Zealand. Element is a leading global fleet management company, providing services and financings for commercial vehicle and equipment fleets, reaching 55 countries worldwide through the Element-Arval Global Alliance. Element provides a comprehensive range of fleet services that span the total lifecycle, from vehicle acquisition and financing to program management and remarketing with approximately 1.5 million fleet vehicles under management which include all leased vehicles, including syndicated leases and interim funding.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

These consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

These consolidated financial statements were authorized for issuance by the Board of Directors of the Company (the "Board") on March 6, 2023.

Basis of consolidation

Subsidiaries

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries from the dates of their acquisition. Transactions and balances amongst these entities have been eliminated upon consolidation.

Subsidiaries, which include certain private partnerships and structured entities, are entities over which the Company has control. The Company controls an entity when (1) it has the power over the entity; (2) it has exposure, or rights, to variable returns from its involvement with the entity, and (3) it has the ability to use its power over the entity to affect the amount of its returns.

Significant accounting policies

Finance receivables

The Company determines the classification of a lease at its lease inception date.

The Company primarily provides financing to clients through direct financing leases. Direct financing leases transfer substantially all the benefits and risks of equipment ownership to the lessee. These leases are recorded at (i) the aggregate minimum payments plus residual values accruing to the Company, less (ii)

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

unearned finance income, which includes origination fees. These leases are carried at amortized cost using the effective interest rate method (i.e. interest income is allocated over the expected term of the lease by applying the effective interest rate to the carrying amount of the lease).

In certain circumstances, the Company may provide financing to clients through loans. Loans are recorded and carried at amortized cost using the effective interest rate method (i.e. interest income is allocated over the expected term of the loan by applying the effective interest rate to the carrying amount of the loan). Unearned finance income includes loan origination fees. The Company does not retain title to the vehicles that are subject to these loans.

Initial direct costs that relate to the origination of the finance receivables are deferred and recognized as yield adjustments using the effective interest rate method over the term of the related financial asset. These costs are incremental to individual leases or loans and comprise certain specific activities related to processing requests for financing, such as the costs to underwrite the transaction and commission payments.

Direct financing leases and loans are recognized as being impaired when the Company is no longer reasonably assured of the timely collection of the full amount of principal and interest. As a matter of practice, a direct financing lease or a loan is deemed to be impaired when timely collection is not assured or when it has been in arrears for 120 days or more. When amounts receivable are considered impaired, their book value is adjusted to their estimated realizable value based on the fair value of any collateral underlying the receivable, net of any costs of realization, by totally or partially writing off the loan and/or establishing an allowance for credit losses.

Also included in finance receivables are secondary receivables, including interim funding (vehicles paid for by the Company but not yet delivered to clients) and fleet management receivables (amounts receivable from lease billings and ancillary fleet service revenues, including fuel cards, accident management services and maintenance). The outstanding receivables are evaluated for recoverability at the end of each reporting period and appropriate reserves are recorded based on the Company's analysis of collectability.

Equipment under operating leases

An operating lease is one that does not transfer substantially all of the risks and rewards of ownership to the lessee.

Operating leases entered into by the Company are reported as "Equipment under operating leases" and are carried at cost less accumulated depreciation and are being depreciated to their estimated residual values using the straight-line method over the lease term or estimated useful life of the asset up to 10 years from the date of manufacture, with an average term of approximately 45 months. The Company retains the residual value risk on certain equipment under operating leases and finance receivables for which there is an unguaranteed residual value and, as a result, manages this risk through a combination of its credit policies and the determination of residual value at the inception of the lease. The Company maintains a strict credit review process and over time, has transitioned a large portion of its portfolio to investment-grade clients, reducing potential exposure to non-payment. Additionally, the process of setting the residual value at the inception of the lease is a highly structured, data driven methodology that includes multiple data points including model life, deflation forecast, and trade price to calculate the residual value.

Rental revenue on operating leases is recognized on a straight-line basis over the lease term.

Equipment under operating leases is reviewed for impairment when events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. An impairment loss is recognized

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

for the amount by which the asset's carrying amount exceeds the higher of the asset's fair value less costs to sell and its value in use.

Revenue recognition

The Company recognizes interest income that relates to finance receivables as described above. This income is recognized on an accrual basis using the effective interest rate method for leases and loans that are not considered impaired. The Company also recognizes rental income that relates to equipment under operating leases described above. This revenue is recognized on a straight-line basis over the lease term.

Service and other revenue is recognized when such services are provided to the client, at a point in time or over time. These services include fuel cards, accident management services and maintenance services. Certain fixed-fee service revenues are recognized over time, on a straight-line basis, as the Company performs the related service and costs are recognized as incurred.

Syndication

The Company periodically syndicates certain finance lease receivables, either through transferring ownership of the syndicated lease receivables to the third-party investor or through the transfer of an interest in interest bearing notes to third-party investors with the finance lease receivables as a security against the issued note, as well as all contractual rights to future cash flow, interest rate risk, credit risk and tax benefits, if applicable, related to the syndicated lease receivables. In the event the lessee terminates its lease agreement prior to the lease term, the Company is required to pay the third-party investor the foregone interest it would have earned if there was no early lease termination. For each syndication transaction, the Company evaluates the extent to which the risks and rewards of ownership have been transferred.

When substantially all the risks and rewards of ownership have been transferred, the Company derecognizes the lease receivables. When the Company has neither transferred nor retained substantially all the risk and rewards of ownership, a continuing involvement asset and associated liability are recognized to the extent of the Company's maximum continuing involvement. Element's continuing involvement is the amount of syndication fees earned that would be required to be returned to third-party investors if all vehicle leases, not meeting full derecognition criteria, are terminated as of the balance sheet date. The Company accounts for the likelihood of such early terminations separately from its continuing involvement.

When a syndication either qualifies for derecognition or is transferred with continuing involvement, the resulting gain from the syndication is recorded in the consolidated statements of operations in Syndication revenue, net, and the Company recognizes its estimated obligation for early lease terminations as a liability.

The Company continues to perform certain administrative tasks related to the lease receivables after assets are syndicated including billing and cash collections and remits such cash collections directly to the third-party investor. As a result, the Company retains the management fee billed to its clients to cover charges for the performance of these tasks in the majority of syndications.

The Company will continue to provide fleet management services (including, for example, accident management services, maintenance services, and fuel cards) regardless of whether or not the lease receivable is syndicated.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Allowance for credit losses

The Company assesses its portfolio of leases and loans separately at each consolidated statement of financial position date. The Company segments its lease portfolio into one of two classifications:

• Leases are performing and are not credit impaired. Full lifetime expected credit losses ("ECL") are recognized immediately at a reporting date (Performing); and
• Credit-impaired (Impaired).

The Company has elected, as an accounting policy choice, to apply the simplified approach to its lease receivables to apply lifetime ECL at all times (Performing or Impaired).

Under this approach:

• Leases begin in Performing.
• Leases enter Impaired when there is an event of default. Contractual delinquencies over 120 days are automatically considered defaulted accounts (Impaired) and are fully provisioned (net of any anticipated recoveries) and presented at their net realizable value on the consolidated statements of financial position. Accounts are also considered for transfer to Impaired when internal or external credit ratings indicate a default or when they are under repossession, or when the borrower has filed for bankruptcy or creditor protection. A borrower is generally considered cured and moved out of Impaired when none of these conditions are present for six consecutive months.
• Leases are charged-off when the Company has stopped pursuing the recovery.

The Company segments its loan portfolio into one of three classifications at each consolidated statement of financial position date:

• Financially healthy with no sign of increased credit risk (Stage 1);
• Increased credit risk when compared to origination but not credit impaired. Full lifetime ECL are recognized immediately at a reporting date (Stage 2); and
• Credit-impaired (Stage 3).

Stage 1 and 2 are disclosed as Performing and Stage 3 is disclosed as Impaired in Note 4. Internal risk rating changes and delinquencies are used by the Company to determine when there has been a significant increase or decrease in credit risk of a loan.

Under this approach:

• Loans begin in Stage 1 unless they are initiated or acquired in an impaired state. ECL within the next 12 months are recognized immediately at a reporting date.
• Loans move to Stage 2 when it is determined that a significant increase in credit risk has occurred. ECL over the expected life of the lease or loan are recognized immediately. Loans may return to Stage 1 if a significant decrease in credit risk has occurred.
• Loans enter Stage 3 when there is an event of default. Contractual delinquencies over 120 days are automatically considered defaulted accounts (Stage 3) and are fully provisioned (net of any anticipated recoveries) and presented at their net realizable value on the consolidated statements of financial position. Accounts are also considered for transfer to Stage 3 when internal or external credit ratings indicate a default, or when they are under repossession, or when the borrower has filed for bankruptcy or creditor protection. A borrower is generally considered cured and moved out of Stage 3 when none of these conditions are present for six consecutive months.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

• Loans are charged-off when the Company has stopped pursuing the recovery.

ECLs are calculated based on a range of scenarios (with a base case, an upside, and a downside) and corresponding probability weights. The scenarios take into consideration forward-looking macroeconomic information including changes in forecasted default rates and the impact on probability of default ("PD") and changes in the used vehicle price index and the corresponding impact on loss given default ("LGD"). Local and global macroeconomic factors are considered within each geography.

Restricted funds

Restricted funds represent cash reserve accounts that are held in trust as security for borrowings and cash collection accounts required by the lenders of certain financial assets that can only be used to repay these debts.

Restricted funds also include amounts posted as collateral for derivative contracts.

Derivative financial instruments and hedge accounting

The Company utilizes derivatives to manage interest rate risk and foreign currency exposure, as well as equity price risk exposure related to the Company's stock compensation plans that are accounted for as liabilities. Derivatives are carried at fair value and are reported as assets if they have a positive fair value and as liabilities if they have a negative fair value.

In order to qualify for hedge accounting, a hedge relationship must be designated and formally documented in accordance with IFRS 9, Financial Instruments. The Company's documentation, in accordance with the requirements, includes the specific risk management objective and strategy being applied, the specific financial asset or liability or cash flow being hedged and how hedge effectiveness is assessed. Hedge effectiveness is assessed at the inception of the hedge and on an ongoing basis, which is at least quarterly. Hedge ineffectiveness is recognized immediately in income.

Cash flow hedges

The effective portion of the change in fair value of the derivative instrument is recognized in other comprehensive income ("OCI") until the forecasted cash flows being hedged are recognized in income in future accounting periods. When forecasted cash flows are recognized in income, an appropriate amount of fair value changes of the derivative instrument in accumulated other comprehensive income ("AOCI") is reclassified to income. Any hedge ineffectiveness is immediately recognized in income.

The Company uses interest rate swaps to hedge its exposure to changes in future cash flows due to interest rate risk.

The Company also uses interest rate derivatives, mainly interest rate swap agreements, to hedge its exposure to changes in future cash flows due to interest rate risk on its floating rate debt and assets.

The Company also uses total return swap agreements to hedge its exposure to changes in future cash flows due to changes in the Company's share price on its stock compensation plans that are accounted for as liabilities.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Fair value hedges

The Company designates fair value hedges as part of interest rate risk management strategies that use derivatives to hedge changes in the fair value of financial instruments with fixed interest rates. Changes in fair value attributed to the hedged interest rate risk are accounted for as basis adjustments to the hedged financial instruments and are included in net income. Changes in fair value from the hedging derivatives are also included in net income. Any differences between the two represent hedge ineffectiveness that is included in other income. If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated and the basis adjustment applied to the hedged item is amortized over the remaining term of the hedged item. If the hedged item is derecognized, the unamortized basis adjustment is recognized immediately in the consolidated statement of operations.

Hedges of a net investment

Hedges of a net investment in a foreign operation ("NIFO") are accounted for in a way similar to cash flow hedges. Gains or losses on a hedging instrument relating to the effective portion of the hedge are recognized in OCI while any gains or losses relating to the ineffective portion are recognized in income. On disposal of the foreign operation, the cumulative value of any such gains or losses recorded in AOCI is transferred to income.

Interest Rate Benchmark Reform

The Company adopted amendments ("Amendments") to IFRS 9, Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7, Financial Instruments: Disclosures (Amendments), applicable from November 1, 2019. These Amendments modify certain hedge accounting requirements to provide relief from the effect of uncertainty caused by interbank offered rate ("IBOR") reform ("the IBOR Reform") prior to the transition to alternative interest rates. The adoption of the Amendments had no impact to our consolidated financial statements.

The Company adopted Interest Rate Benchmark Reform - Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16 ("Phase 2 Amendments") effective January 1, 2021. The Phase 2 Amendments include additional disclosure requirements for financial instruments that have yet to transition to an alternative interest rate at the end of the reporting period.

The Company will cease to apply the Amendments and Phase 2 Amendments as IBOR based cash flows transition to new alternative interest rates or when the hedging relationships to which the relief is applied to are discontinued.

Effective December 31, 2021, the publication of LIBOR settings has ceased for the 1-week and 2-month US LIBOR setting. The overnight, one-month, three-month, six-month and 12-month US LIBOR settings are expected to be terminated on June 30, 2023. To manage the IBOR transition, the Company has established a cross functional initiative with dedicated work streams to evaluate and address the key areas of impact on the Company's leases, services, systems, documents, processes, models, funding and liquidity planning, risk management frameworks, and financial reporting with the intention of managing the impact through appropriate mitigating actions. The Company has amended leases with significant clients from US LIBOR to SOFR, and will continue to work on this transition with other clients, as well as the transition of its derivatives tied to LIBOR.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

On December 15, 2021, the Canadian Alternative Reference Rate Working Group (CARR) published a whitepaper on the future of CDOR, which recommended the cessation of CDOR after June 30, 2024. On January 31, 2022, Refinitiv Benchmark Services (UK) Ltd. (RBSL) published a public consultation regarding the potential cessation of Canadian Dollar Offered Rate (CDOR). It is expected that the Canadian market will migrate to using the Canadian Overnight Repo Rate Average (CORRA) as a reference rate in the future.

Hedge accounting

The Company applies hedge accounting when designated hedging instruments are highly effective in offsetting changes in the fair value or cash flows of the hedged items at inception and on an ongoing basis. Retrospective assessments are performed to demonstrate that the relationship has been effective since designation of the hedge and prospective assessments to evaluate whether the hedge is expected to be effective over the remaining term of the hedge. While uncertainty due to the IBOR Reform exists, the Company's prospective effectiveness testing is based on existing hedged cash flows or hedged risks. Any ineffectiveness arising from retrospective testing is recognized in net income.

In addition to potential sources of ineffectiveness outlined in Note 18, the Reform may result in ineffectiveness as the transition of hedged items and related hedging instruments from IBORs to new risk-free rates may occur at different times. This may result in different impacts on the valuation or cash flow variability of hedged items and related hedging instruments.

Cash flow hedges

The Company applies hedge accounting for cash flow hedges when the cash flows giving rise to the risk being hedged have a high probability of occurring. While uncertainty due to the IBOR Reform exists, the Company applies the relief provided by the Amendments that the IBOR benchmarks, on which the highly probable hedged cash flows are based, are not altered as a result of the Reform. In addition, associated cash flow hedge reserves are not recycled into net income solely due to changes related to the transition from IBOR to new risk-free rates.

Fair value hedges

The Company also applies hedge accounting for interest rate swaps used to hedge our exposure to changes in a fixed interest rate instrument's fair value caused by changes in interest rates. While uncertainty due to the IBOR Reform exists, as a result of adopting the Amendments, the Company applies hedge accounting to IBOR rates which may not be contractually specified when that rate is separately identifiable and reliably measurable at inception of the hedge relationship.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Interest rate benchmark reform exposure

The following tables show the Company's exposure for financial assets and liabilities at December 31, 2022 and December 31, 2021 subject to IBOR Reform that have yet to transition to Secured Overnight Financing Rates. These exposures are expected to remain outstanding as of June 30, 2023 until IBOR ceases and will therefore transition in the future:

	As at December 31, 2022
	Non-derivative financialassets - carrying value	Non-derivative financialliabilities - carrying value	DerivativeNotional/Principal amount(1)
	$	$	$
USD LIBOR (1 month)	1,154,829	—	3,687,647
USD LIBOR (3 month)	542,600	—	—
	1,697,429	—	3,687,647
		As at December 31, 2021
	Non-derivative financialassets - carrying value	Non-derivative financialliabilities - carrying value	DerivativeNotional/Principal amount(1)
	$	$	$
USD LIBOR (1 month)	2,128,654	—	2,619,091
USD LIBOR (3 month)	669,833	—	—
	2,798,487	—	2,619,091

1. Excludes interest rate contracts and non-derivative instruments which reference rates to multi-rate jurisdictions, including the Australian Bank Bill Swap Rates ("BBSW"), New Zealand Bank Bill Rates ("BBR"), and MXN-TIIE-Banxico ("MXIBTIIE"). Element's exposure to the Canadian Dollar Offered Rate ("CDOR") is immaterial.

Borrowings

The Company periodically transfers pools of finance receivables to third parties, including structured entities. Transfers of pools of finance receivables under certain arrangements, including transfers where a security interest or legal ownership is transferred, do not result in derecognition of the finance receivables from the Company's consolidated statements of financial position and continue to be recognized on the Company's consolidated statements of financial position and accounted for as finance receivables, as described above.

As such, these transactions result in the recognition of borrowings when cash is received from the third party or structured entity.

The borrowings are recorded at amortized cost using the effective interest rate method. Interest expense is allocated over the expected term of the borrowing by applying the effective interest rate to the carrying amount of the liability. The effective interest rate is the rate that exactly discounts estimated future cash outflows over the expected life of the liability.

Deferred financing costs are presented as a reduction of borrowings and relate to costs incurred to establish and maintain the Company's funding facilities. These amounts are accreted to income over a period matching the repayment terms of the borrowing obtained during the commitment period.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Convertible debentures

The convertible debentures are accounted for as a compound financial instrument with a debt component and a separate equity component. The debt component of this compound financial instrument is measured at fair value on initial recognition by discounting the stream of future interest and principal payments at the rate of interest prevailing at the date of issue for instruments of similar term and risk. The debt component is subsequently deducted from the total carrying value of the compound instrument to derive the equity component. The debt component is subsequently measured at amortized cost using the effective interest rate method. Interest expense based on the coupon rate of the debenture and the accretion of the liability component to the amount that will be payable on redemption are recognized through income as finance costs.

Property, equipment and leasehold improvements

Property, equipment and leasehold improvements are recorded at cost. The Company provides for depreciation using the straight-line method over the estimated useful life of the asset. Land is not depreciated.

The rates of amortization are as follows:
Office equipment	5 years
Computer equipment	3 - 5 years
Leasehold Improvements	Lesser of remaining lease term per the right-of-use asset or 20 years
Vehicles	5 years
Buildings	25 years
Right-of-use assets	Remaining lease term

Impairment is recognized when a fixed asset's estimated recoverable amount is less than the carrying amount.

Business combinations and goodwill

Business combinations are accounted for using the purchase method of accounting. This involves recognizing identifiable assets, including previously unrecognized intangible assets and liabilities, including contingent liabilities but excluding future restructuring of the acquired business, at fair value.

Goodwill is initially measured at cost and is calculated as the excess of the purchase price for an acquired business over the fair value of acquired net identifiable assets and liabilities and is allocated to the cashgenerating units ("CGUs") to which it relates. Goodwill is not amortized but is evaluated for impairment against the carrying amount of the CGU annually or more often if events or circumstances indicate that there may be an impairment. The carrying amount of a CGU includes the carrying amount of assets, liabilities and goodwill allocated to the CGU. If the recoverable amount is less than the carrying value, the impairment loss is first allocated to reduce the carrying amount of any goodwill allocated to the CGU and then to the other non-financial assets of the CGU proportionately based on the carrying amount of each asset. Any impairment loss is charged to income in the period in which the impairment is identified. Goodwill is stated at cost less accumulated impairment losses. Subsequent reversals of goodwill impairment are prohibited.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Intangible assets

The Company's intangible assets, which include computer software and customer relationships acquired in business combinations, are measured at cost. Examples of costs that are capitalized related to computer software include internal payroll-related costs directly related to the capital project, internal and external costs of materials and services, and the cost of related software to bring the asset to its intended use. All of the Company's intangible assets have a finite life, are amortized over their useful economic lives, and are assessed for impairment at each reporting period. Changes in the expected useful life are accounted for by changing the amortization period or method, as appropriate, and they are treated as changes in accounting estimates. The amortization expense is recognized in the consolidated statements of operations.

The rates of amortization are as follows:

Computer software	Straight line over 3 to 15 years depending on the software application
Customer relationships	Straight line over 25 years from the date of acquisition

Share-based compensation

The Company issues share-based awards to certain employees and directors.

Stock options

The Company previously established a stock option plan for employees of the Company whereby the Board awarded stock options as compensation for services rendered. The awards consisted of equity-settled stock options and the related cost was measured based on the estimated fair value on the date the awards were granted. The fair value of the stock options was estimated using the Black-Scholes option valuation model. The cost of the stock options issued to employees is recognized on a proportionate basis consistent with the vesting features of each tranche of the grant. The Company subsequently did not seek re-approval of the stock option plan from shareholders as the granting of stock options was no longer part of the Company's compensation strategy. As a result, the Company is not currently eligible to grant stock options and would need to seek re-approval of the stock option plan in order to do so.

Deferred share unit plan

The Company has established a Deferred Share Unit ("DSU") plan whereby the Board may award DSUs as compensation for services rendered by Company directors Further, DSUs can be issued to executives, pursuant to their advanced election, in lieu of cash payment of their annual short-term incentive payments. The plan is intended to promote a greater alignment of long-term interests between executives and directors and the shareholders of the Company. The Board determines the amount, timing, and vesting conditions associated with each award of DSUs. Additionally, directors may elect to receive up to 100% of their annual remuneration in DSUs. DSUs granted pursuant to such an election are fully vested on the date of grant.

Each DSU has a value that depends on the fair market value of one common share of the Company and, in the event dividends are paid on the Company's common shares, accrues dividend equivalents in the form of additional DSUs based on the amount of the dividend paid on a common share. DSUs mature upon termination of employment or directorship, whereupon the holder is entitled to receive a cash payment that reflects the fair market value of the equivalent number of common shares.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

DSUs are recognized on the consolidated statements of financial position as a liability in accounts payable and accrued liabilities and are measured at fair value. Fair value is a function of the number of DSUs outstanding, the value of the Company's common shares and, if applicable, the portion of the associated vesting period that has elapsed.

Performance share unit plan

The Company has established a Performance Share Unit ("PSU") plan for employees of the Company and its subsidiaries, whereby the Board may award PSUs as compensation for services rendered. The Board determines the amount, timing, and vesting conditions associated with each award of PSUs.

The plan is intended to promote a greater alignment of long-term interests between employees and the shareholders of the Company. Each PSU has a value that depends on the fair market value of one common share of the Company and, in the event dividends are paid on the Company's common shares, accrues dividend equivalents in the form of additional PSUs based on the amount of the dividend paid on a common share.

PSUs are recognized on the consolidated statements of financial position as a liability and are measured at fair value. Fair value is a function of the number of PSUs outstanding, the value of the Company's common shares, and, if applicable, the portion of the associated vesting period that has elapsed or expectations with respect to performance criteria as calculated based on the relative total shareholder return compared to the S&P TSX Composite Index. Until the PSUs are settled, the liability is remeasured with any change in the fair value recorded in the consolidated statements of operations as an expense in the relevant financial reporting period.

Restricted share unit plan

The Company has established a Restricted Share Unit ("RSU") plan for employees of the Company and its subsidiaries, whereby the Board may award RSUs as compensation for services rendered. The Board determines the amount, timing, and vesting conditions associated with each award of RSUs.

The plan is intended to promote a greater alignment of long-term interests between employees and the shareholders of the Company. Each RSU has a value that depends on the fair market value of one common share of the Company and, in the event dividends are paid on the Company's common shares, accrues dividend equivalents in the form of additional RSUs based on the amount of the dividend paid on a common share.

RSUs are recognized on the consolidated statements of financial position as a liability and are measured at fair value. Fair value is a function of the number of RSUs outstanding, the value of the Company's common shares, and, if applicable, the portion of the associated vesting period that has elapsed. Until the RSUs are settled in cash, the liability is remeasured with any change in the fair value recorded in the consolidated statements of operations as an expense in the relevant financial reporting period.

Earnings per share

Basic earnings per share are calculated by dividing the net income or loss for the year attributed to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share are calculated using the same method as for basic earnings per share and adjusted for the weighted average number of common shares outstanding during the year to reflect the dilutive impact, if any, of options and warrants assuming they were exercised for that number of common shares calculated by

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

applying the treasury stock method. The treasury stock method assumes that all proceeds received by the Company when options and warrants are exercised will be used to purchase common shares at the average market price during the reporting period.

Financial assets and liabilities

The Company initially recognizes financial assets and liabilities at fair value and subsequently measures at either fair value or amortized cost based on their classification under IFRS 9 as described below.

Fair value through profit or loss ("FVTPL")

Financial assets and financial liabilities that the Company purchases or incurs, respectively, with the intention of generating earnings in the near term are classified as FVTPL. Such assets and liabilities are carried on the consolidated statements of financial position at fair value, with any subsequent changes to fair value recognized through the consolidated statements of operations. Transaction costs are recognized in the consolidated statements of operations as incurred. The Company accounts for certain investments that it holds under FVTPL.

Amortized cost

Financial assets held to collect contractual cash flows (in the form of payment of principal and interest earned on the principal outstanding) are carried at amortized cost. The assets are initially recognized at fair value plus directly attributable transaction costs, and subsequently measured at amortized cost using the effective interest rate method. The Company accounts for its finance receivables under amortized cost.

Other financial instruments

Other financial instruments held or issued by the Company include cash, restricted funds, finance receivables, accounts receivable, notes receivable, accounts payable and accrued liabilities, and borrowings. All of these financial instruments are initially recorded at cost and subsequently measured at amortized cost.

Translation of foreign currencies

The consolidated financial statements of the Company are presented in Canadian dollars, which is the Company's functional and presentation currency. Foreign currency denominated monetary assets and liabilities of the Company and its subsidiaries that have the same functional currency are translated using the closing rate and non-monetary assets and liabilities measured at fair value are translated at the rate of exchange prevailing at the date when the fair value was determined. Revenue and expense items are measured at average exchange rates during the year. Realized and unrealized gains and losses arising from translation into the functional currency are included in the consolidated statements of operations. Foreign currency denominated non-monetary assets and liabilities, measured at historical cost, are translated at the rate of exchange in effect at the transaction date.

Assets and liabilities of foreign operations with a functional currency other than the Canadian dollar, including goodwill and fair value adjustments arising on acquisition, are translated into Canadian dollars at the exchange rates prevailing at the year end, while revenue and expenses of these foreign operations are translated into Canadian dollars at the average exchange rates for the year. Exchange gains and losses arising from the translation of these foreign operations and from the results of hedging the net investment in these foreign operations, net of applicable taxes, are included in net foreign currency translation adjustments, which is included in AOCI. A deferred tax asset or liability is not recognized in respect of a translation gain or loss

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

arising from the Company's investment in its foreign operations as it is not expected that such a gain or loss would be realized for tax purposes in the foreseeable future.

Upon disposition of a foreign operation, any cumulative translation adjustment gain or loss, including the impact of hedging, will be reclassified from OCI to the consolidated statements of operations, and included as part of the gain or loss recognized on disposition of the foreign operations.

Income taxes

The Company follows the liability method to provide for income taxes on all transactions recorded in its consolidated financial statements. The liability method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are determined for each temporary difference and for unused losses, as applicable, at rates expected to be in effect when the asset is realized or the liability is settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income or equity in the period that includes the substantive enactment date. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered.

Leases

The Company applies a single recognition and measurement approach for all leases that it is the lessee, except for short-term leases and leases of low-value assets. The Company recognizes right-of-use assets representing the right to use the underlying assets and lease liabilities to make lease payments.

Right-of-use assets

The Company recognizes right-of-use ("ROU") assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.

Lease liabilities

At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term, including options to renew if the Company considers it highly likely it will exercise the renewal options. In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made.

3. CRITICAL ACCOUNTING ESTIMATES AND USE OF JUDGMENTS

The preparation of consolidated financial statements in accordance with IFRS requires management to make estimates and exercise judgments that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The estimates and judgments are made based on information available as at the date the consolidated financial statements are issued. Accordingly, actual results may differ from those recorded amounts. Areas of financial reporting that require management's estimates and judgments are discussed below.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Recent events impacting the Company's business include global economic conditions, inflationary cost environment, disruption in the OEM supply chain, the COVID-19 pandemic, and the ongoing conflict between Russia and Ukraine. While we expect the impacts of COVID-19 on the business to moderate, there still remains uncertainty around the pandemic and its effect on labor or other macroeconomic factors. The ongoing conflict between Russia and Ukraine, and the sanctions imposed in response to this conflict, have also increased global economic and political uncertainty. In the preparation of these consolidated financial statements, the Company has incorporated the potential impact of these events into its estimates and assumptions that affect the carrying amounts of assets and liabilities and the reported amount of earnings for the reporting periods using the best available information as at December 31, 2022. Actual results could differ from those estimates. The estimates and assumptions that the Company considers critical and/or could be impacted by these events include those underlying the estimate of any expected credit losses on its net investment in finance receivables, other receivables, and determining the values of financial instruments for disclosure purposes.

Allowance for credit losses

Judgment is required as to the timing of establishing an allowance for credit losses and the amount of the required allowance taking into consideration counterparty creditworthiness, the fair value of underlying collateral, current economic trends, the expected residual value of the underlying leased assets and past experience.

Deferred tax assets

Deferred tax assets are recognized for unused income tax losses to the extent that it is probable that taxable income will be available against which the losses can be utilized. Judgment is required to determine the amount of deferred tax assets that can be recognized based upon the likely timing and level of future taxable profits together with future tax-planning strategies.

Stock option expense

Compensation expense relating to stock option awards granted by the Company to employees in exchange for services rendered is based on the fair value of the option. The stock option fair value is determined using the Black-Scholes option valuation model, which requires the use of assumptions and is, by its nature, subject to measurement uncertainty.

Useful lives and residual values of equipment under operating leases

The Company's equipment under operating leases are recorded at cost and depreciated over their estimated useful lives to an estimated residual value using the straight-line method. The Company determines the economic useful life based on management's estimate of the period which the asset will generate revenue. The residual values are based on historical experience and economic factors. Management will periodically review the appropriateness of the estimated useful lives and residual values based on changes in economic circumstances and other factors. Changes in these estimates would result in a change in future depreciation expense.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Intangible assets valuation - customer relationships

The Company's customer relationships require management to use judgment in estimating the fair value of this intangible asset acquired in a business combination and uses internally developed valuation models that consider various factors and assumptions including forecasted cash earnings, growth rates and discount rates. Management also uses judgment in estimating customer attrition rates to determine the appropriate amortization period for the customer relationship intangible asset.

Goodwill valuation

Goodwill is reviewed annually for impairment, or more frequently when there are indicators that impairment may have occurred, by comparing the carrying value to its recoverable amount. Management uses judgment in estimating the recoverable values of the Company's cash generating units ("CGUs") and uses internally developed valuation models that consider various factors and assumptions including forecasted cash earnings, growth rates and discount rates. The use of different assumptions and estimates could influence the determination of the existence of impairment and the valuation of goodwill.

4. FINANCE RECEIVABLES

The following tables present finance receivables based on the ultimate obligor's location:

	As at December 31, 2022
	US andCanada	Australia andNew Zealand	Mexico	Total
	$	$	$	$
Minimum lease payments	5,296,256	245,716	703,992	6,245,964
Unguaranteed residual values	—	67,915	—	67,915
Gross investment	5,296,256	313,631	703,992	6,313,879
Unearned income	(585,459)	(38,982)	(102,022)	(726,463)
Net investment	4,710,797	274,649	601,970	5,587,416
Net realizable value of impaired receivables	2,432	4,173	—	6,605
Unamortized deferred costs and subsidies	(38,294)	—	—	(38,294)
Prepaid lease payments and security deposits	(19,502)	—	(35,458)	(54,960)
Interim funding	962,274	—	222,588	1,184,862
Fleet management receivables	729,701	49,302	23,806	802,809
Other receivables	329,370	89,352	118,422	537,144
Continuing involvement asset	54,173	—	—	54,173
Allowance for credit losses (Subsection B)	(6,837)	(1,934)	(1,598)	(10,369)
Total finance receivables	6,724,114	415,542	929,730	8,069,386

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

	As at December 31, 2021
	US andAustralia andCanadaNew Zealand		Mexico	Total
	$	$	$	$
Minimum lease payments	5,527,923	248,720	477,520	6,254,163
Unguaranteed residual values	—	61,692	—	61,692
Gross investment	5,527,923	310,412	477,520	6,315,855
Unearned income	(307,650)	(34,792)	(67,436)	(409,878)
Net investment	5,220,273	275,620	410,084	5,905,977
Net realizable value of impaired receivables	2,477	288	—	2,765
Unamortized deferred costs and subsidies	(40,729)	—	—	(40,729)
Prepaid lease payments and security deposits	(34,564)	—	(26,415)	(60,979)
Interim funding	468,512	—	181,643	650,155
Fleet management receivables	546,692	40,232	22,526	609,450
Other receivables	226,572	76,694	76,616	379,882
Allowance for credit losses (Subsection B)	(7,551)	(1,468)	(1,227)	(10,246)
Total finance receivables	6,381,682	391,366	663,227	7,436,275

A) Interest rate characteristics of net investment in finance lease receivables and loan receivables

	As at December 31, 2022	As at December 31, 2021
	Leases	Loans	Leases	Loans
Net investment	$ 5,284,600$	302,816	$ 5,724,951$	181,026
Weighted average fixed interest rate	5.42 %	9.35 %	4.74 %	8.39 %
Weighted average floating interest rate	6.92 %	6.84 %	2.74 %	3.32 %
Percentage of portfolio with fixedinterest rate	49.33 %	99.98 %	41.05 %	99.97 %

B) Allowance for credit losses

The Company continues to monitor its inputs to the ECL model to ensure it appropriately reflects current market conditions in light of a potential recession, current inflationary environment, rising interest rates, supply chain disruptions, the ongoing COVID-19 pandemic, and information available to the Company as at December 31, 2022.

The Company evaluates its credit risk exposure broadly in line with Standard & Poor's and Moody's ratings outlined below and will adjust internal classifications based on additional information the Company has available to it at the time of the assessment. In conjunction with the Company's evaluation of the PD as at December 31, 2022, and consistent with the ECL model, the Company reviewed its classifications and updated its internal assessment of PD based on current information.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

The Company's lease and loan portfolio is secured by the underlying assets and, in the event of an obligor bankruptcy, leases are typically affirmed, resulting in continued collection of lease payments. Further, all the vehicles in a client portfolio are cross-collateralized, such that the surplus collateral on (usually older) vehicles can be used to offset under-collateralized positions (usually newer vehicles), such that the net full value of the lease and loan would be recovered. As a result, the Company is often able to recover 100% of the net investment.

Although used vehicle prices have declined throughout the second half of 2022 (attributable to a shift in consumer confidence, along with rising interest rates leading to lower levels of vehicle affordability), prices remain elevated from a historical basis leading to continued low LGD levels as at December 31, 2022. The Company expects higher-than-normal used vehicle prices throughout 2023 due to a continuing imbalance in supply and demand. While Automotive OEM production is gradually improving, we continue to see a significant imbalance in supply and demand. Further, under a recessionary scenario, we would expect an increasing number of drivers to keep their vehicles for longer periods of time (or purchase used, instead of new, vehicles) which would likely lead to higher used vehicle demand and prices.

In determining the appropriate allowance for credit losses, the Company considered forward-looking macroeconomic information, pointing to an increasing possibility of an economic recession given the inflationary environment, rising rates, and continued normalization from COVID-19, namely the impact that potential upward or downward trends in GDP and default rates might have on the Company's lease and loan portfolio. The Company has also evaluated multiple scenarios related to this environment, including how it is expected to affect markets and as it pertains to specific industries or clients most susceptible to be impacted by recession and the continuing pandemic situation. Despite unfavorable forward-looking macroeconomic expectations, the creditworthiness of our clients and the favorable evolution of our portfolio allowed Element to maintain the Company's allowance for credit losses largely unchanged at $10,369 as at December 31, 2022.

Finance receivables	Performing	Impaired	Total
	$	$	$
Balance as at January 1, 2022	10,218	28	10,246
Transfer to Performing	4	(4)	—
Transfer to Impaired	(46)	46	—
Lease originations	14,239	—	14,239
Changes in models and inputs, derecognition, and repayments	(14,695)	431	(14,264)
Total	9,720	501	10,221
Charge-offs, net of recoveries	—	(431)	(431)
Foreign exchange	582	(3)	579
Balance as at December 31, 2022	10,302	67	10,369

An analysis of the Company's allowance for credit losses under IFRS 9 is as follows:

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Finance receivables	Performing	Impaired	Total
	$	$	$
Balance as at January 1, 2021	17,457	261	17,718
Transfer to Performing	184	(184)	—
Transfer to Impaired	(3)	3	—
Lease originations	10,383	—	10,383
Changes in models and inputs, derecognition, and repayments	(17,538)	1,620	(15,918)
Total	10,483	1,700	12,183
Charge-offs, net of recoveries	—	(1,639)	(1,639)
Foreign exchange	(265)	(33)	(298)
Balance as at December 31, 2021	10,218	28	10,246

A summary view of the Company's allowance for credit losses is as follows:

	Year ended	Year ended
Allowance for credit losses	December 31, 2022	December 31, 2021
	$	$
Allowance for credit losses, beginning of the year	10,246	17,718
Recovery of credit losses	(25)	(5,535)
Charge-offs, net of recoveries	(431)	(1,639)
Impact of foreign exchange rates	579	(298)
Allowance for credit losses, end of the year	10,369	10,246
Allowance as a percentage of total finance receivables before allowance	0.13 %	0.14 %

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

C) Credit risk exposure

The following table sets out the credit risk exposure for finance receivables, fleet management service receivables, and the impaired values and allowances for credit losses recorded.

	As at December 31, 2022
Finance receivables	Performing	Impaired	Total
	$	$	$
Internal risk rating grade (1)
Low	3,375,906	—	3,375,906
Medium	2,064,243	—	2,064,243
High	147,267	—	147,267
Fleet management receivables	802,050	759	802,809
Other finance receivables	537,144	—	537,144
Impaired	—	6,605	6,605
	6,926,610	7,364	6,933,974
Allowance for credit losses	(10,302)	(67)	(10,369)
Net carrying value	6,916,308	7,297	6,923,605

1. Loan balances of $15,670, $287,142 and $4 are included in the Performing category in internal risk rating grade low, medium, and high, respectively, and nil in Impaired.

	As at December 31, 2021
Finance receivables	Performing	Impaired	Total
	$	$	$
Internal risk rating grade (2)
Low	3,102,417	—	3,102,417
Medium	2,525,526	—	2,525,526
High	278,034	—	278,034
Fleet management receivables	609,108	342	609,450
Other finance receivables	379,882	—	379,882
Impaired	—	2,765	2,765
	6,894,967	3,107	6,898,074
Allowance for credit losses	(10,218)	(28)	(10,246)
Net carrying value	6,884,749	3,079	6,887,828

1. Loan balances of $8,265, $172,642 and $120 are included in the Performing category in internal risk rating grade low, medium, and high, respectively, and nil in Impaired.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

The Company's internal risk rating grades broadly align to external ratings as follows:

Internal risk rating grade	Standard & Poor's	Moody's
Low risk	AAA to BBB-	Aaa to Baa3
Medium risk	BB+ to B-	Ba1 to B3
High risk	CCC+ and below	Caa1 and below
Impaired receivables	Default	Default

D) Contract maturities

The contractual maturity of the portfolio outstanding as of December 31, excluding impaired receivables and assuming no prepayments, is as follows:

		2022			2021
	Grossinvestment	Unearnedincome	Net investment	Grossinvestment	Unearnedincome	Net investment
	$	$	$	$	$	$
Maturity
Year 1	2,578,679	(246,299)	2,332,380	2,766,805	(147,689)	2,619,116
Year 2	1,667,457	(212,859)	1,454,598	1,811,535	(115,666)	1,695,869
Year 3	1,304,235	(154,823)	1,149,412	1,120,800	(74,894)	1,045,906
Year 4	513,153	(62,509)	450,644	399,368	(37,722)	361,646
Year 5	164,988	(31,080)	133,908	126,844	(19,721)	107,123
Thereafter	85,367	(18,893)	66,474	90,503	(14,186)	76,317
	6,313,879	(726,463)	5,587,416	6,315,855	(409,878)	5,905,977

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

5. EQUIPMENT UNDER OPERATING LEASES

The Company acts as a lessor in connection with operating leases and recognizes the leased assets in its consolidated statements of financial position. The lease payments received are recognized in income as rental revenue. Leased assets under operating leases were as follows:

	As at December31, 2022	As at December31, 2021
	$	$
COST
At the beginning of the year	3,271,322	3,067,363
Additions	1,151,126	974,532
Transfers	(1,210)	253
Disposals	(562,465)	(631,600)
Foreign exchange rate adjustments	219,474	(139,226)
Cost	4,078,247	3,271,322
ACCUMULATED DEPRECIATION
At the beginning of the year	974,140	910,136
Depreciation charge for the year	506,903	450,256
Transfers	—	2,817
Disposals	(281,869)	(346,147)
Foreign exchange rate adjustments	72,232	(42,922)
Accumulated depreciation	1,271,406	974,140
Net carrying amount	2,806,841	2,297,182

The future minimum lease payments arising from non-cancellable operating leases as at December 31 are as follows:

	2022	2021$
	$
Year 1	857,360	636,322
Year 2	574,652	437,739
Year 3	361,176	271,524
Year 4	185,646	126,755
Year 5	80,030	51,059
Thereafter	31,665	26,810
	2,090,529	1,550,209

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

6. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

	2022
	Leaseholdimprovements	Computerequipment	Officeequipment	Right-of-useassets -Buildings	Vehicles	Total
	$	$	$	$	$	$
Cost
As at January 1, 2022	17,114	59,195	13,375	105,949	5,904	201,537
Additions	—	1,122	137	190	2,607	4,056
Disposals	(1,446)	(3)	(509)	(1,288)	(1,944)	(5,190)
Foreign exchange rate adjustments	639	3,213	693	5,221	545	10,311
As at December 31, 2022	16,307	63,527	13,696	110,072	7,112	210,714
Accumulated depreciation
As at January 1, 2022	7,117	47,718	8,766	41,761	2,303	107,665
Disposals	(1,246)	(3)	(459)	(1,288)	(1,111)	(4,107)
Depreciation charge for the year	1,527	4,996	1,170	11,523	1,161	20,377
Foreign exchange rate adjustments	197	2,731	454	2,328	170	5,880
As at December 31, 2022	7,595	55,442	9,931	54,324	2,523	129,815
Net carrying amount	8,712	8,085	3,765	55,748	4,589	80,899

	2021
	Leaseholdimprovements	Computerequipment	Right-of-useOfficeequipment		Vehicles	Total
	$	$	$	$	$	$
Cost
As at January 1, 2021	17,421	57,420	16,235	107,741	2,713	201,530
Additions	659	3,889	—	41	1,488	6,077
Disposals	(763)	(1,444)	(2,689)	(280)	(1,065)	(6,241)
Other	—	—	—	—	2,878	2,878
Foreign exchange rate adjustments	(203)	(670)	(171)	(1,553)	(110)	(2,707)
As at December 31, 2021	17,114	59,195	13,375	105,949	5,904	201,537
Accumulated depreciation
As at January 1, 2021	6,255	41,264	9,516	31,134	1,009	89,178
Disposals	(763)	(2,218)	(1,915)	(280)	(304)	(5,480)
Depreciation charge for the year	1,708	9,104	1,237	11,443	785	24,277
Other	—	—	—	—	844	844
Foreign exchange rate adjustments	(83)	(432)	(72)	(536)	(31)	(1,154)
As at December 31, 2021	7,117	47,718	8,766	41,761	2,303	107,665
Net carrying amount	9,997	11,477	4,609	64,188	3,601	93,872

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

7. INTANGIBLE ASSETS

		Computer software		Customer relationships	Total
	Cost	Accumulatedamortization	Net bookvalue	Cost	Accumulatedamortization	Net bookvalue	Net bookvalue
	$	$	$	$	$	$	$
As at January 1, 2022	372,680	(99,524)	273,156	848,418	(291,561)	556,857	830,013
Additions	64,999	—	64,999	—	—	—	64,999
Amortization	—	(44,310)	(44,310)	—	(31,589)	(31,589)	(75,899)
Disposals/write-offs	(3,574)	2,724	(850)	—	—	—	(850)
Foreign exchange rateadjustments	21,506	(6,163)	15,343	49,074	(18,069)	31,005	46,348
As at December 31, 2022	455,611	(147,273)	308,338	897,492	(341,219)	556,273	864,611
As at January 1, 2021	297,952	(72,444)	225,508	849,975	(261,105)	588,870	814,378
Additions	80,231	—	80,231	—	—	—	80,231
Amortization	—	(30,972)	(30,972)	—	(30,601)	(30,601)	(61,573)
Other	(2,908)	2,908	—	—	—	—	—
Foreign exchange rateadjustments	(2,595)	984	(1,611)	(1,557)	145	(1,412)	(3,023)
As at December 31, 2021	372,680	(99,524)	273,156	848,418	(291,561)	556,857	830,013

8. GOODWILL

	2022	2021
	$	$
Balance, beginning of year	1,220,986	1,223,341
Foreign exchange rate adjustments	74,102	(2,355)
Balance, end of year	1,295,088	1,220,986

For the purpose of impairment testing, the recoverable amount of the CGU has been determined based on its value in use. The value in use method is based on estimated future cash flows over a five-year period referenced to the most recent financial forecasts approved by management and actual historic results, discounted to a present value. Beyond the initial five-year period, cash flows were estimated to grow at perpetual annual rates of up to 4%. The discount rate the Company applied in determining the recoverable amount was 12.88% (December 31, 2021 - 12.10%), which comprised a risk-free rate, equity risk premium, size premium and company specific premium. These components were based on data from external sources.

In considering the sensitivity of the key assumptions discussed above, management determined that there is no plausible change in any of the above that would result in the carrying value of the Fleet Management CGU to exceed its recoverable value.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

9 . BORROWINGS

The Company's outstanding borrowings were as follows:

		As at December 31, 2022
	Balanceoutstanding	Pledged financeWeightedreceivables andaverageequipment underinterest rate(1)operating leases
	$	%	$	$
Revolving term notes in amortization	1,115,459	1.50	1,353,553	18,448
Variable funding notes	4,120,361	5.04	4,737,687	29,379
Other	83,639	4.08	82,483	—
Vehicle management asset-backed debt	5,319,459	4.29	6,173,723	47,827
Revolving senior credit facilities	1,893,323	6.61	—	—
Senior notes	1,219,032	2.60	—	—
Term facilities	387,034	5.30	—	—
	8,818,848	4.60	6,173,723	47,827
Deferred financing costs	(19,227)
Hedge accounting fair value adjustments	(45,935)
Continuing involvement liability	54,173
Total borrowings	8,807,859

			As at December 31, 2021
	Balanceoutstanding	Weightedaverageinterest rate(1)	Pledged financereceivables andequipment underoperating leases	Cash reserves
	$	%	$	$
Revolving term notes in amortization	2,154,974	1.38	2,278,618	22,506
Variable funding notes	3,605,799	1.03	3,911,834	25,519
Other	61,693	3.05	62,096	—
Vehicle management asset-backed debt	5,822,466	1.19	6,252,548	48,025
Revolving senior credit facilities	1,106,629	2.19	—	—
Senior notes	1,143,015	2.60	—	—
	8,072,110	1.53	6,252,548	48,025
Deferred financing costs	(27,023)
Hedge accounting fair value adjustments	(6,124)
Total borrowings	8,038,963

1. Represents the weighted average stated interest rate of outstanding debt at period-end, and excludes amortization of deferred financing costs, premiums or discounts, stand-by fees and the effects of hedging.

The Company was in compliance with all financial and reporting covenants with all of its lenders at December 31, 2022.

Vehicle management asset-backed debt

Vehicle management asset-backed debt includes term notes and variable funding notes.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Term notes provide a fixed funding amount at the time of issuance.

For term notes, in amortization period, the monthly collection of lease payments allocable to the series is used in the repayment of principal until the notes are paid in full. The amortization period will continue through the earlier of: (i) 139 to 144 months following the commencement of the amortization period; or (ii) when the respective series of notes are paid in full. As at December 31, 2022, term notes, in amortization period, had a weighted average interest rate of 1.50%, which ranged from 0.47% to 5.04% with expected maturities in 2023 to 2024 (December 31, 2021 - the weighted average interest was 1.38% which ranged from 0.33% to 4.21%).

Variable funding notes provide a committed capacity that may be drawn upon as needed during a commitment period, which is primarily one to two years in duration. Similar to revolving term notes, the monthly collections in respect of pledged assets create availability to fund the acquisition of vehicles and/or equipment to be leased to clients. Available committed capacity under variable funding notes may be used to fund growth in net investment in fleet assets during the term of the commitment. Upon expiration of the commitment period, variable funding notes begin amortizing. As at December 31, 2022, variable funding notes had a weighted average floating interest rate of 5.04%, which ranged from 3.96% to 5.68% with expected maturities in 2023 to 2024 (December 31, 2021 - the weighted average interest was 1.03%, which ranged from 0.84% to 1.64%). As of December 31, 2022, the US variable funding notes have converted from LIBOR to SOFR.

The notes are secured by either a security interest and/or legal ownership in fleet assets and the Company is also required to maintain certain cash reserves as credit enhancements.

As at December 31, 2022, the Company had available capacity in variable funding notes of $1,462,068 (December 31, 2021 – $1,073,472) under its vehicle management asset-backed debt facilities.

Revolving senior credit facilities

The aggregate capacity under the senior credit facilities is $2,505,788, composed of (i) a $1,693,100 committed revolving facility with a maturity date of November 2, 2024, syndicated to a diverse group of Canadian, US and international banks (the "Syndicated Senior Credit Facility") and (ii) a $812,688, committed revolving facility (the "Committed Revolving Facility") with a maturity date of September 30, 2027. Borrowings under the Syndicated Senior Credit Facility are available in Canadian dollars, U.S. dollars, Australian dollars and New Zealand dollars, and are subject to an applicable benchmark based on the currency plus an applicable margin determined in accordance with a debt ratings-based pricing grid. The Syndicated Senior Credit Facility was amended in January 2023, at which time the available capacity was increased by $677,240. The Committed Revolving Facility allows for borrowings in U.S. dollars, New Zealand dollars, and Mexican Pesos, with pricing based on an applicable benchmark plus margin determined in accordance with a debt ratings-based pricing grid. This facility was amended in September 2022, with the revolving facility extended until September 29, 2023, and a non-revolving term-out period that has a current final maturity date of September 30, 2027. As at December 31, 2022, $1,893,323 was drawn on these senior credit facilities (December 31, 2021 - 1,106,629). As at December 31, 2022, the Company had access to $612,465 (December 31, 2021 - $1,242,903) of available financing under the revolving senior credit facilities.

Senior notes

As at December 31, 2022, the Company had $1,219,032 (US $900,000) in outstanding senior unsecured notes (December 31, 2021 - $1,143,015 (US $900,000)).

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Term facilities

During the second quarter of 2022, the Company issued $150,000 and $237,034 (USD $175,000) term facilities, expiring in May 2023 and June 2023, respectively. As at December 31, 2022, the Company had $387,034 in outstanding term facilities (December 31, 2021 - nil).

Restricted funds

As at December 31, 2022, restricted funds include (i) cash reserves of $47,827 (December 31, 2021 - $48,025), which represent collateral for secured borrowing arrangements; (ii) cash accumulated in the collection accounts or other segregated cash accounts of $385,500 (December 31, 2021 - $347,148), which represents repayments received on assets financed pursuant to the secured borrowing facilities, which are subsequently utilized in accordance with applicable provisions and other payments received that are due back to clients in accordance with their contracts; and (iii) cash of nil (December 31, 2021 - $5,757) provided to counter-parties as collateral against derivative liabilities.

Contractual maturity of borrowings

The contractual maturity of the secured borrowings gross of interest costs outstanding as at December 31, compared to the maturity of the gross investment in finance receivables and future minimum payments received on equipment under operating leases, is as follows:

	2022			2021
	Borrowings grossof interest costs(1)	Finance receivablesand equipment underoperating leases(2)		Borrowings grossof interest costs(1)	Finance receivables andequipment underoperating leases(2)
Maturity	$	$	%	$	$	%
Within 1 year	2,503,853	4,013,318	62.4 %	2,768,842	3,827,568	72.3 %
In 1 to 3 years	2,750,515	3,907,520	70.4 %	2,749,762	3,641,598	75.5 %
In 3 to 5 years	273,063	943,817	28.9 %	376,284	704,026	53.4 %
After 5 years	4,383	117,032	3.7 %	5,672	117,313	4.8 %
	5,531,814	8,981,687	61.6 %	5,900,560	8,290,505	71.2 %
Interest costs	(212,355)			(78,094)
Net of interest costs	5,319,459			5,822,466
Revolving seniorcredit facility	1,893,323			1,106,629
Senior notes	1,219,032			1,143,015
Term facilities	387,034
	8,818,848			8,072,110

1. Maturity schedule for borrowings gross of interest costs has been calculated based on interest expense rates as at the respective year ends and excludes the impact of hedging, and assumes the interest rate remains unchanged for the remaining life of the debt, including floating rate credit facilities.

2. Maturity schedule for finance receivables is based on the gross investment balance, certain fleet management service receivables, and certain interim funding balances. For equipment under operating leases, the schedule is based on the existing contractual future minimum lease payments.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

10. CONVERTIBLE DEBENTURES

Convertible debentures consist of:

				As at December 31, 2022
Issue Date	Finalmaturity date	Conversion priceper share(1)	Interestrate(2)	Facevalue	Deferredcosts	Discount	Net carryingvalue
		$	%	$	$	$	$
April 5, 2019	June 30, 2024	11.91	4.250	172,232	(2,055)	(6,244)	163,933
				As at December 31, 2021
Issue Date	Final maturitydate	Conversion priceper share	Interestrate(2)	Facevalue	Deferredcosts	Discount	Net carryingvalue
		$	%	$	$	$	$
April 5, 2019	June 30, 2024	12.05	4.250	172,500	(3,342)	(10,086)	159,072

1. The conversion price was adjusted on March 31, 2022, the ex-dividend date for dividends to be paid on April 14, 2022, to $11.9084 for the April 5, 2019 issuance.

2. Stated interest rate on principal face value.

Conversions

During December 2022, holders of the April 2019 Convertible Debentures ("2019 Debentures") redeemed $106 at a conversion price equal to $11.90841 per share, representing a conversion ratio of approximately 83.97427 shares per $1,000 principal amount of the 2019 Debentures. As a result of the conversion, holders of the 2019 Debentures received an interest payment of $2 and 8,899 common shares.

During September 2022, holders of the 2019 Debentures redeemed $162 at a conversion price equal to $11.90841 per share, representing a conversion ratio of approximately 83.97427 shares per $1,000 principal amount of the 2019 Debentures. As a result of the conversion, holders of the 2019 Debentures received an interest payment of $1 and 13,603 common shares.

April 5, 2019 Issuance

On April 5, 2019, the Company closed on its offering of $150,000, 4.25% aggregate principal amount of convertible unsecured subordinated debentures (the "2019 Debentures"). On April 8, 2019, the underwriters exercised in full their over-allotment option to purchase an additional $22,500 aggregate principal amount of the 2019 Debentures. With the exercise of the over-allotment, the Company has issued a total of $172,500 aggregate principal amount of 2019 Debentures pursuant to the offering.

To determine the initial amount of the respective debt and equity components of the 2019 Debentures issued, the carrying amount of the financial liability was first calculated by discounting the stream of future principal and interest payments at the rate of 6.80%, which represents the rate of interest prevailing at the date of issue for instruments of similar terms and risks. The debt component was assigned a value of $146,553 (net of transaction costs of $6,572) and the equity component was assigned a value of $18,544 (net of after-tax transaction costs of $831, and before the impact of deferred taxes).

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

The 2019 Debentures bear interest at an annual coupon rate of 4.25% payable semi-annually on the last day of June and December in each year, commencing on December 31, 2019. The maturity date for the 2019 Debentures is June 30, 2024.

Each 2019 Debenture is convertible into common shares at the option of the holder of a Debenture at any time prior to 5:00 p.m. (Toronto time) on June 30, 2024, initially at a conversion price of $12.05 per common share (the "2019 Conversion Price"), subject to adjustment in accordance with the indenture agreement. Holders converting their 2019 Debentures will be entitled to receive, in addition to the applicable number of common shares to be received on conversion, accrued and unpaid interest thereon in cash for the period from the last interest payment date on their 2019 Debentures to, but excluding, the date of conversion.

The Company may redeem, subject to specified conditions and notice, on or after June 30, 2022 and prior to June 30, 2023, the 2019 Debentures in whole or in part from time to time, at a redemption price equal to the principal amount plus accrued and unpaid interest, provided that the volume weighted trading price of the common shares on the TSX for the 20 consecutive days preceding the date on which notice of redemption is given is not less than 125% of the 2019 Conversion Price.

Subject to required regulatory approvals and provided that there is not a current 2019 Debentures event of default, the Company may, at its option and with notice, elect to repay, in whole or in part, the principal amount of the 2019 Debentures that are to be redeemed or that have matured by issuing common shares to the holders of the 2019 Debentures. Payment would be satisfied by delivering that number of common shares obtained by dividing the principal amount of the 2019 Debentures to be redeemed or that have matured, by 95% of the current market price of the common shares on the redemption date or maturity date. Any accrued and unpaid interest will be paid in cash.

11. SHARE CAPITAL

The Company is currently authorized to issue (i) an unlimited number of common shares without nominal or par value and (ii) an unlimited number of preferred shares, issuable in series.

	Common shares
	Shares	Amount
	#	$
Balance, December 31, 2020	440,275,293	3,180,379
Share repurchase	(39,002,033)	(284,081)
Exercise of options	3,803,967	55,298
Balance, December 31, 2021	405,077,227	2,951,596
Convertible debenture	22,502	287
Share repurchase	(13,906,200)	(103,267)
Exercise of options	1,301,758	19,462
Balance, December 31, 2022	392,495,287	2,868,078

Share repurchase

On November 10, 2021, the TSX approved the Company's notice of intention to renew its Normal Course Issuer Bid ("NCIB"). The renewal allows the Company to repurchase on the open market (or as otherwise

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

permitted), at its discretion during the period commencing on November 15, 2021 and ending on the earlier of November 14, 2022 or the completion of purchases under the NCIB, up to 40,968,811 common shares of the Company, subject to the normal terms and limitations of such bids, which include the number of common shares purchased in any 12 month period being limited to 10% of the common shares outstanding at the commencement of such period. On November 11, 2022, the TSX approved the Company's notice of intention to renew its NCIB. The renewal allows the Company to repurchase on the open market (or as otherwise permitted), at its discretion during the period commencing on November 15, 2022 and ending on the earlier of November 14, 2023 or the completion of purchases under the NCIB, up to 39,228,719 common shares of the Company, subject to the normal terms and limitations of such bids, which include the number of common shares purchased in any 12 month period being limited to 10% of the common shares outstanding at the commencement of such period.

For the year ended December 31, 2022, 13,906,200 common shares have been repurchased for cancellation for $192,910, including commission, at a volume weighted average price of $13.87, per common share. For the year ended December 31, 2021, 39,002,033 common shares have been repurchased for cancellation for $533,081, including commission, at a volume weighted average price of $13.67 per common share. The Company applies trade date accounting in determining the date on which the share repurchase is reflected in the consolidated financial statements. The trade date is the date on which the Company commits itself to purchase the shares.

Common share dividends

For the year ended December 31, 2022, the Company declared $131,632 in common share dividends or $0.333 per common share (December 31, 2021 - $113,940 or $0.273 per common share).

As at December 31, 2022, the accrued common share dividends were $39,252 (December 31, 2021 – $31,415).

Increase in common share dividend

On November 8, 2022, the Board approved an increase in the quarterly common share dividend from $.0775 to $0.10 per share.

On November 10, 2021, the Board approved an increase in the quarterly common share dividend from $.065 to $.0775 per share.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Preferred shares

The Company's cumulative 5-Year rate reset Preferred Shares series as at December 31, 2022 consist of the following:

Series	Issue date	Interest rate	Gross	After tax transaction costs	Net proceeds	Shares
		%	$	$	$	#
A	December 17, 2013	6.931	115,000	4,625	110,375	4,600,000
C	March 7, 2014	6.212	128,160	3,416	124,744	5,126,400
E	June 18, 2014	5.9033	133,048	3,054	129,994	5,321,900

1. On December, 20, 2018, Preferred Shares Series A dividend rate was reset from 6.60% to 6.93%.

2. On June 21, 2019, Preferred Shares Series C dividend rate was reset from 6.50% to 6.21%.

3. On September 19, 2019, Preferred Shares Series E dividend rate was reset from 6.40% to 5.903%.

For each five-year period, holders of the respective Series are entitled to receive a fixed, cumulative, preferential cash dividend, if, as and when declared by the Board, payable quarterly on the last business day of March, June, September and December in each year.

Preferred Shares, Series E

The annual dividend rate will reset at each five-year period to the non-callable Government of Canada bond yield with a term to maturity of five years plus 4.72%. The Company will have the right to redeem the Series E shares on September 30, 2024, and on September 30 every five years thereafter for $25 per Series E share, plus accrued and unpaid dividends. Subject to the right of the Company to redeem the Series E shares, the holders of the Series E shares will have the right on September 30, 2020, and on September 30 every five years thereafter, to convert all or any of the Series E shares into Series F shares, on the basis of one Series F share for each Series E share converted. Holders of Series F shares are entitled to receive floating rate cumulative preferential cash dividends, if, as and when declared by the Board, payable quarterly on the last business day of March, June, September and December in each year. The annualized floating quarterly dividend rate will equal the sum of the average three-month Government of Canada Treasury Bill rate plus 4.72%.

Preferred Shares, Series C

The annual dividend rate will reset at each five year period to the non-callable Government of Canada bond yield with a term to maturity of five years plus 4.81%. The Company will have the right to redeem the Series C shares on June 30, 2024, and on June 30 every five years thereafter for $25 per Series C share, plus accrued and unpaid dividends. Subject to the right of the Company to redeem the Series C shares, the holders of the Series C shares will have the right on June 30, 2024, and on June 30 every five years thereafter, to convert all or any of the Series C shares into Series D shares, on the basis of one Series D share for each Series C share converted. Holders of Series D shares are entitled to receive floating rate cumulative preferential cash dividends, if, as and when declared by the Board, payable quarterly on the last business day of March, June, September and December in each year. The annualized floating quarterly dividend rate will equal the sum of the average three-month Government of Canada Treasury Bill rate plus 4.81%.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Preferred Shares, Series A

The annual dividend rate will reset at each five-year period to the non-callable Government of Canada bond yield with a term to maturity of five years plus 4.71%. The Company will have the right to redeem the Series A shares on December 31, 2023, and on December 31 every five years thereafter for $25 per Series A share, plus accrued and unpaid dividends. Subject to the right of the Company to redeem the Series A shares, the holders of the Series A shares will have the right on December 31, 2023, and on December 31 every five years thereafter, to convert all or any of the Series A shares into Series B shares, on the basis of one Series B share for each Series A share converted. Holders of Series B shares are entitled to receive floating rate cumulative preferential cash dividends, if, as and when declared by the Board, payable quarterly on the last business day of March, June, September and December in each year. The annualized floating quarterly dividend rate will equal the sum of the average three-month Government of Canada Treasury Bill rate plus 4.71%.

Series I Preferred Shares Redemption

On June 30, 2022, the Company redeemed all of its 6,000,000 Series I Preferred Shares for a redemption price equal to $25.00 per share for a total of $150,000 together with all accrued and unpaid dividends.

Preferred share dividends

For the year ended December 31, 2022, the Company declared $28,074 in preferred share dividends (December 31, 2021 – $32,412, respectively).

As at December 31, 2022, the accrued preferred share dividends were $65 (December 31, 2021 – $89).

12. SHARE-BASED COMPENSATION

Share-based compensation expense consists of the following:

		Year ended
	December 31,	December 31,
	2022	2021
	$	$
(a) Stock options	—	232
(b) Deferred share units	2,003	1,295
(c) Performance share units	19,057	12,582
(d) Restricted share units	10,243	10,011
	31,303	24,120

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

(a) Stock options

The changes in the number of stock options during the periods were as follows:

	Number ofoptions	Weightedaverageexercise price
	#	$
Outstanding, December 31, 2020	11,022,659	10.01
Forfeited	(20,434)	10.21
Expired	(928,221)	12.79
Exercised(1)	(4,549,219)	10.79
Outstanding, December 31, 2021	5,524,785	8.45
Forfeited	(1,667)	12.65
Expired	(411,412)	12.49
Exercised(1)	(1,301,758)	10.94
Outstanding, December 31, 2022	3,809,948	7.17

1. Weighted average share price of options exercised during the year ended December 31, 2022 was $14.92 (year ended December 31, 2021 – $13.67).

As at December 31, 2022, the following employee and director stock options to purchase common shares were outstanding:

	Weighted avg remaining life	Options Outstanding1
Range of exercise prices	(in years)	#
$0.00 to $5.00	—	—
$5.01 to $10.00	2.43	3,125,710
$10.01 to $15.00	0.92	684,238
$15.01 and over	—	—
	2.15	3,809,948

1. All options have vested as at December 31, 2022.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

(b) Deferred share units, performance share units and restricted share units

	Deferred shareunits	Performanceshare units	Restrictedshare units
	#	#	#
Outstanding, December 31, 2020	633,971	1,881,250	1,510,207
Granted	137,482	807,642	904,146
Forfeited	—	—	(105,908)
Redeemed	—	(569,552)	(776,521)
Outstanding, December 31, 2021	771,453	2,119,340	1,531,924
Granted	136,526	1,863,612	928,360
Forfeited	—	(95,050)	(162,909)
Redeemed	(119,797)	(2,135,422)	(521,461)
Outstanding, December 31, 2022	788,182	1,752,480	1,775,914

(i) Deferred share units ("DSUs")

As at December 31, 2022, the fair value of DSUs recorded on the consolidated statements of financial position as accounts payable and accrued liabilities was $14,542 (December 31, 2021 – $9,936).

(ii) Performance share units ("PSUs")

As at December 31, 2022, 1,752,480 PSUs remain unvested and outstanding, and the amortized fair value of PSUs recorded on the consolidated statements of financial position as accounts payable and accrued liabilities was $29,822 (December 31, 2021 – 2,119,340 PSUs and $33,236 of liabilities). Certain PSUs issued during 2022, 2021, and 2020 contain a multiplier factor and the final number of PSUs that will vest will range from 50% to 200% of the initial number awarded based on certain performance targets. The PSUs outstanding will vest on achievement of specific performance conditions over 2022, 2023 and 2024.

(iii) Restricted share units ("RSUs")

As at December 31, 2022, 1,775,914 RSUs remain unvested and outstanding, and the amortized fair value of RSUs recorded on the consolidated statements of financial position as accounts payable and accrued liabilities was $19,577 (December 31, 2021 – 1,531,924 RSUs and $10,810 of liabilities). The RSUs outstanding will vest over one, two and three years.

(iv) Hedging of DSUs, PSUs and RSUs

As at December 31, 2022, the Company has hedged 2,679,270 referenced share units with net derivative assets of $21,940 which will be applied to the settlement of PSU, RSU and DSU awards (December 31, 2021 – 2,619,300 referenced share units hedged and net derivative assets of $6,244). For the year ended December 31, 2022, derivative mark to market adjustments were netted against share-based compensation expense of $15,696 (December 31, 2021 - $112).

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

13. REVENUE

Set out below is the disaggregation of the Company's revenue before interest expense.

	Year ended
	December 31,	December 31,
	2022	2021
	$	$
Major service lines
Interest income, net	441,807	372,110
Rental revenue	714,957	627,515
Gain on sale of equipment under operating leases	111,715	80,445
Depreciation of equipment under operating leases	(506,903)	(450,256)
Financing revenue before interest expense	761,576	629,814
Service revenue, net	481,509	380,013
Vehicle sales and end of contract fees	99,509	92,452
Servicing income, net	581,018	472,465
Syndication revenue, net	62,290	64,412
Net revenue before interest expense	1,404,884	1,166,691
Primary geographical markets
US and Canada	951,567	791,014
Australia and New Zealand	241,763	221,402
Mexico	211,554	154,275
Net revenue before interest expense	1,404,884	1,166,691
Timing of revenue recognition
Revenue earned at a point in time	533,747	368,234
Revenue earned over time	871,137	798,457
Net revenue before interest expense	1,404,884	1,166,691

Revenue earned at a point in time includes gain on sale of equipment under operating leases, commissions from repairs due to accidents, fuel, title and registration fees, syndication revenue, and vendor commissions. Revenue earned over time includes interest income and rental revenue, fleet maintenance and accident management fees, and telematics fees.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

A) Contract balances

	As at December31, 2022	As at December 31,2021
	$	$
Contract assets	21,574	12,619

Contract assets represent the costs the Company incurs to enter into service contracts with clients including certain commissions. Contract assets are recorded in the unamortized deferred costs and subsidies line within note 4. For the year ended December 31, 2022, the Company has recorded $9,844 of amortization on its service contract assets (December 31, 2021 - $9,450).

B) Performance obligations

Fixed-fee Service Contracts. The Company provides separately priced and contracted service contracts to its fleet clients that include fuel cards, accident management services, and maintenance services. These service contracts generally have open-ended terms and can be in place as long as the client uses the underlying vehicle that is being serviced. Fees are billed monthly and revenue is recognized over the term of the agreement proportionally over the passage of time.

14. INCOME TAXES

The major components of the provision for income taxes for the years ended December 31 are as follows:

	2022	2021
	$	$
Consolidated statements of operations
Current income tax expense	49,410	45,915
Foreign withholding tax expense	8,247	5,928
Origination and reversal of temporary differences	82,253	49,827
Income tax expense reported in the consolidated statements of operations	139,910	101,670

Reconciliation of the effective tax rate for the years ended December 31:

	2022	2021
	$	$
Income before income taxes	549,553	457,676
Combined statutory Canadian federal and provincial tax rate	25.95 %	25.95 %
Income tax expense based on statutory rate	142,609	118,767
Income taxes adjusted for the effect of:
Non-deductible and non-taxable items	(19,613)	(17,233)
Foreign rate differential	2,785	698
Change in unrecognized tax losses	15,223	—
Adjustments of prior year taxes and other	(1,094)	(562)
Income tax expense	139,910	101,670

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Deferred taxes as at December 31 relate to the following:

	2022	2021
	$	$
Deferred tax assets
Share and convertible debentures issuance costs	43	900
Tax loss carryforwards	759,295	1,121,493
Transaction and integration costs	25,837	25,978
Capital assets, intangibles, and other	2,681	64,595
Deferred share units	15,992	19,903
	803,848	1,232,869
Deferred tax liabilities
Finance receivables	498,388	862,130
Intangible assets arising from acquisitions	12,384	12,118
Convertible debentures	1,621	2,618
Unrealized gain or loss on foreign exchange and derivatives	58,550	27,598
	570,943	904,464
Net deferred tax asset position	232,905	328,405

Deferred tax assets and liabilities are assessed by the Company for presentation in the consolidated statement of financial position. As a result, as at December 31, the deferred tax assets and liabilities are reported as:

	2022	2021
	$	$
Deferred tax assets	365,430	417,708
Deferred tax liabilities	132,525	89,303
Net deferred tax asset position	232,905	328,405

Reconciliation of the net deferred tax asset for the years ended December 31 is as follows:

	2022	2021
	$	$
Balance, beginning of the year	328,405	386,344
Tax expense recognized in profit or loss	(82,253)	(49,827)
Tax expense recognized through shareholders' equity	(856)	(1,086)
Tax expense recognized through OCI	(12,391)	(7,026)
Balance, end of the year	232,905	328,405

Management has concluded the deferred tax asset of $365,430 meets the relevant recognition criteria under IFRS. Management's conclusion is supported by forecasted taxable profits, embedded profits in existing finance receivables and the future reversal of existing taxable temporary differences which are expected to produce sufficient taxable income to realize the deferred tax asset.

The Company has incurred capital losses for tax purposes of $316,551 (2021 - $271,529), which are available to reduce future capital gains. A deferred income tax asset of nil (2021 - $13,648) has been recognized in respect of capital loss carryforwards.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

15. SUBSIDIARIES

(a) List of significant subsidiaries

The table below provides details of the significant subsidiaries of the Company, all of which are wholly owned:

	Principal place of business
Element Fleet Management (US) Corp.	US
Element Fleet Management (US) Holdings Inc.	US
Element Vehicle Management Services Group LLC	US
Element Fleet Corporation	US
Chesapeake Finance Holdings II LLC	US
Element Technology LLC	US
Element Fleet Management Inc.	Canada
Element Fleet Lease Receivable LP	Canada
FLR LP Inc.	Canada
EFN (Netherlands) International B.V.	Netherlands
EFN (Netherlands) B.V.	Netherlands
EFN (Netherlands) 2 B.V.	Netherlands
Element Fleet Services Australia Pty Ltd.	Australia
EFN (Australia) Pty Limited	Australia
Element Financial (Australia) Pty Limited	Australia
Custom Fleet Pty Limited	Australia
EFN (New Zealand) Limited	New Zealand
Custom Fleet NZ	New Zealand
Element Fleet Management Corporation Mexico S.A. de C.V.	Mexico

(b) Subsidiaries with restrictions

The Company's operations have restrictions on its ability to access or use its assets and settle its liabilities in Chesapeake Finance Holdings II LLC, Chesapeake Funding II LLC, and Element Fleet Lease Receivable LP. These subsidiaries facilitate the transfer of financial assets and related property or interests, in connection with funding facilities, and the activities of these entities are governed by their constituting agreements and debt agreements. Assets held as collateral by these subsidiaries for such funding facilities are not available to satisfy the claims of creditors of the Company. The carrying amounts of assets and liabilities in these subsidiaries as at December 31, 2022 were $4,867,246 and $3,849,525, respectively (December 31, 2021 - $5,162,212 and $4,509,666, respectively).

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

16. RELATED PARTY

Compensation of directors and key management

The remuneration of directors and key management personnel of the Company were as follows for the years ended December 31 excluding retirement payments of nil (2021 - $2,225):

	2022	2021
	$	$
Salaries, bonuses and benefits	12,051	11,487
Share-based compensation	13,526	12,396
	25,577	23,883

17. EARNINGS PER SHARE

Basic earnings per share is as follows:

	Year ended
	December 31,2022		December 31,2021
Net income attributable to shareholders	$409,643 $		356,006
Cumulative dividends on preferred shares	(28,074)		(32,412)
Net income available to common shareholders	$381,569 $		323,594
Weighted average number of common shares outstanding – basic (number)	396,907,113		423,070,096
Basic earnings per share	$0.96 $		0.76

Diluted earnings per share is as follows:

	Year ended
	December 31,2022		December 31,2021
Net income available to common shareholders adjusted for the effects of dilution	$	387,989 $		330,073
Weighted average number of common shares outstanding – basic (number)Convertible debentures (number)		396,907,11314,463,056		423,070,09614,315,353
Dilutive stock options and warrants (number)Weighted average number of common shares outstanding – diluted (number)		1,964,788413,334,957		2,102,948439,488,397
Diluted earnings per share	$	0.94 $		0.75

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Instruments outstanding as at December 31, 2022 that could potentially dilute basic earnings per share in the future, but were not included in the calculation of diluted earnings per share because they were anti-dilutive, included nil stock options for the year ended December 31, 2022 (December 31, 2021 - 608,162 stock options).

18. DERIVATIVE AND HEDGING INSTRUMENTS

Hedge accounting

In the normal course of business and consistent with its risk management program, the Company enters into interest rate derivatives to manage interest rate risk, foreign exchange forward agreements to manage foreign currency exposure, and total return swaps to manage exposure to share-based compensation.

Interest rate risk

The majority of the Company's derivative contracts used to hedge certain exposures to benchmark interest rate risk are interest rate swaps. For cash flow hedges, the Company converts certain exposures to cash flow variability from its variable rate instruments to fixed interest rate exposures. The Company also has a smaller number of outstanding interest rate caps to manage these variable interest rate exposures. For fair value hedges, the Company converts fixed interest rate exposures from the hedged financial instruments to floating interest rate exposures.

Foreign currency risk

For cash flow hedges, the Company may use foreign exchange forwards to hedge and manage anticipated foreign currency obligations. For NIFO hedges, the Company uses foreign currency denominated debt to manage the foreign currency exposure of our NIFOs with a functional currency other than the Canadian dollar.

Equity price risk

The Company uses cash settled total return swaps in designated cash flow hedge relationships to hedge changes in Element's share price in respect of certain cash-settled share-based compensation awards. Note 12 provides details on cash-settled share-based compensation plans. The average share price of the outstanding hedging derivatives as at December 31, 2022 was $10.26 (December 31, 2021 - $10.50).

For the hedge relationships above, hedge effectiveness is assessed at the inception of the hedge relationship and on an ongoing basis, primarily using the dollar offset method. The sources of hedge ineffectiveness may be attributed to the following:

• Differences in fixed rates, when contractual coupons of the fixed rate hedged items are designated;
• Differences in the discounting factors between the hedged item and the hedging instruments arising from different rate reset frequencies and timing of cash flows; and
• Employee forfeitures and quarterly interest payments on the equity swaps.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Designated hedging instruments

The following table provides a summary of financial instruments designated as hedging instruments:

	Notionalamount of the		Maturity range		Fair value of the hedgederivatives		Gain (losses) onchanges in fair value
As at December 31, 2022	hedginginstrument	Less than 1year	1-5 years	Over 5 years	Assets	Liabilities	used for calculatinghedge ineffectiveness
	$	$	$	$	$	$	$
Cash flow hedges
Interest rate risk
Interest rate swaps	4,324,316	854,912	2,670,851	798,553	86,936	36,322	57,067
Interest rate caps	15,123	1,560	13,563	—	170	—	(170)
Equity share price risk
Equity swaps	49,433	49,433	—	—	21,940	—	—
	4,388,872	905,905	2,684,414	798,553	109,046	36,322	56,897
Fair value hedges
Interest rate swaps	2,433,866	827,398	1,376,330	230,138	22,897	45,408	(20,107)
	2,433,866	827,398	1,376,330	230,138	22,897	45,408	(20,107)
NIFO hedges
Borrowings	3,076,784	1,857,752	1,219,032	—	n/a	n/a	(130,226)
	3,076,784	1,857,752	1,219,032	—	n/a	n/a	(130,226)

	Notionalamount of the	Maturity range		Fair value of the hedgederivatives		Gain (losses) onchanges in fair value
As at December 31, 2021	hedginginstrument	Less than 1year	1-5 years	Over 5 years	Assets	Liabilities	used for calculatinghedge ineffectiveness
	$	$	$	$	$	$	$
Cash flow hedges
Interest rate risk
Interest rate swaps	4,942,080	1,324,392	2,417,376	1,200,312	12,273	19,041	30,428
Interest rate caps	50,338	49	42,114	8,175	17	—	(17)
Equity share price risk
Equity swaps	33,737	33,737	—	—	6,244	—	763
	5,026,155	1,358,178	2,459,490	1,208,487	18,534	19,041	31,174
Fair value hedges
Interest rate swaps	2,114,758	486,573	1,597,017	31,168	7,768	9,534	(17,381)
	2,114,758	486,573	1,597,017	31,168	7,768	9,534	(17,381)
NIFO hedges
Borrowings	2,109,783	966,765	1,143,018	—	n/a	n/a	11,591
	2,109,783	966,765	1,143,018	—	n/a	n/a	11,591

n/a Not applicable

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

The following table provides the average rate or price of the hedging derivatives:

As at December 31, 2022		Average fixedinterest rate
Cash flow hedges
Interest rate risk
Interest rate swaps	CAN	2.06 %
	USD	1.51 %
	NZD	3.23 %
	AUD	1.24 %
	MXN	7.34 %
Interest rate caps	USD	3.36 %
Fair value hedges
Interest rate risk
Interest rate swaps	USD	1.85 %
		Average fixed
As at December 31, 2021Cash flow hedges		interest rate
Interest rate risk
Interest rate swaps	CAN	1.36 %
	USD	0.99 %
	NZD	1.98 %
	AUD	0.82 %
	MXN	7.34 %
Interest rate caps	USD	3.20 %
Fair value hedges
Interest rate risk

n/a Not applicable

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Designated hedged items

The following table provides information on designated hedged items:

	Carrying amount of the hedged item		Gain (losses) on changes in fair value
As at December 31, 2022	Assets	Liabilities	used for calculating hedgeineffectiveness
	$	$	$
Cash flow hedges
Interest rate risk
Floating Rate Leases	1,259,802	—	(26,813)
Borrowings	—	3,079,637	(30,084)
Equity share price risk
Share-based payment	—	49,433	—
	1,259,802	3,129,070	(56,897)
Fair value hedges
Interest rate risk
Unsecured borrowings	—	646,949	30,291
Secured borrowings	—	304,059	8,815
Fixed rate lease assets	1,462,751	—	(18,999)
	1,462,751	951,008	20,107
NIFO hedges
Net investment in foreign subsidiaries	3,076,784	—	130,226
	3,076,784	—	130,226

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

	Carrying amount of the hedged item		Gain (losses) on changes in fair value
As at December 31, 2021	Assets	Liabilities	used for calculating hedgeineffectiveness
	$	$	$
Cash flow hedges
Interest rate risk
Floating Rate Leases	1,730,725	—	(4,620)
Borrowings	—	3,261,693	(25,791)
Equity share price risk
Share-based payment	—	33,737	(763)
	1,730,725	3,295,430	(31,174)
Fair value hedges
Interest rate risk
Unsecured Borrowings	—	627,933	7,077
Secured Borrowings	—	802,438	13,672
Fair value for fixed rate lease assets	667,006	—	(3,368)
	667,006	1,430,371	17,381
NIFO hedges
Net investment in foreign subsidiaries	2,109,783	—	(11,591)
	2,109,783	—	(11,591)

Hedge accounting gains (losses) on the consolidated statement of operations and consolidated statement of comprehensive income

Year Ended December 31, 2022	Beginningbalance ofAOCI -hedgereserve(after-tax)	Change inthe value ofthe hedginginstrumentrecognizedin OCI(before-tax)	AmountreclassifiedfromaccumulatedOCI toincome(before-tax)	Tax benefit(expense)	Endingbalance ofAOCI hedgereserve(after-tax)	Hedgeineffectivenessgains (losses)recognized inincome
	$	$	$	$	$	$
Cash flow hedges
Foreign exchange risk	7,974	—	(2,264)	—	5,710	—
Interest rate risk	(9,431)	(56,897)	(4,516)	17,191	(53,653)	—
Equity share price risk	—	—	—	—	—	—
	(1,457)	(56,897)	(6,780)	17,191	(47,943)	—
NIFO hedges
Net investment in foreignsubsidiaries	(198,950)	130,226	—	—	(68,724)	—
	(198,950)	130,226	—	—	(68,724)	—

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

Year Ended December 31, 2021	Beginningbalance ofAOCI -hedgereserve(after-tax)	Change inthe value ofthe hedginginstrumentrecognizedin OCI(before-tax)	AmountreclassifiedfromaccumulatedOCI toincome(before-tax)	Tax benefit(expense)	Endingbalance ofAOCI hedgereserve(after-tax)	Hedgeineffectivenessgains (losses)recognized inincome
	$	$	$	$	$	$
Cash flow hedges
Foreign exchange risk	10,262	—	(2,288)	—	7,974	—
Interest rate risk	12,284	(30,411)	165	8,531	(9,431)	—
Equity share price risk	493	(763)	—	270	—	—
	23,039	(31,174)	(2,123)	8,801	(1,457)	—
NIFO hedges
Net investment in foreignsubsidiaries	(187,359)	(11,591)	—	—	(198,950)	—
	(187,359)	(11,591)	—	—	(198,950)	—

Offsetting of derivative assets and liabilities

The following table presents a summary of the Company's derivative portfolio, which includes the gross amounts of recognized financial assets and liabilities; the amounts offset in the consolidated statements of financial position; the net amounts presented in the consolidated statements of financial position; the amounts subject to an enforceable master netting arrangement or similar agreement that were not included in the offset amount mentioned above; and the amount of cash collateral received or pledged.

				Amounts subject to an enforceablemaster netting arrangement orsimilar agreement that are not setoff in the Consolidated Statementsof Financial Position
	Gross amountsof recognizedfinancialinstrumentsbeforenetting on theConsolidatedStatements ofFinancial Position	Gross amountsof recognizedfinancialinstrumentsset-off in theConsolidatedStatements ofFinancial Position	Net amountof financialinstrumentspresented in theConsolidatedStatements ofFinancialPosition	Amountssubject to anenforceablemaster nettingagreement	Collateral	Net amount
	$	$	$	$	$	$
As at December 31, 2022
Derivative financialinstrument assets	131,943	—	131,943	61,065	—	70,878
Derivative financialinstrument liabilities	81,730	—	81,730	61,065	—	20,665
As at December 31, 2021
Derivative financialinstrument assets	26,302	—	26,302	13,880	—	12,422
Derivative financialinstrument liabilities	28,575	—	28,575	13,880	5,757	8,938

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

19. CAPITALIZATION

The Company's objectives when managing capital are to ensure sufficient liquidity to support its financial objectives and strategic plans, to ensure its financial covenants are met and to maximize shareholder value. Element's funding activities are well diversified by facility, geography, investor, and lender and include both secured and unsecured sources.

The Company's capitalization is as follows, as at:

As at	December 31,2022	December 31,2021
	$	$
Cash	68,876	45,271
Unsecured debt
Revolving senior credit facilities	1,893,323	1,106,629
4.250% Convertible Debentures due 2024	163,933	159,072
3.850% Senior Notes due 2025	541,792	508,007
1.600% Senior Notes due 2024	677,240	635,008
Term facilities	387,034	—
Vehicle Management Asset-Backed Debt
Revolving term notes in amortization	1,115,459	2,154,974
Variable funding notes	4,120,361	3,605,799
Other	83,639	61,693
Deferred financing costs	(19,227)	(27,023)
Continuing involvement liability	54,173	—
Hedge accounting fair value adjustments	(45,935)	(6,124)
Total debt	8,971,792	8,198,035
Shareholders' equity
Common share capital	2,868,078	2,951,596
Preferred share capital	365,113	511,869
Other	447,782	(12,516)
Total Shareholders' Equity	3,680,973	3,450,949
Total Capitalization	12,652,765	11,648,984

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

20. GEOGRAPHIC INFORMATION

The Company primarily operates in the US and Canada, Australia and New Zealand, and Mexico.

Selected geographic assets are as follows:

	As at December 31, 2022			As at December 31, 2021
	US andCanada	Australiaand NewZealand	Mexico	Total	US andCanada	Australiaand NewZealand	Mexico	Total
	$	$	$	$	$	$	$	$
Select assets
Finance receivables	6,724,114	415,542	929,730	8,069,386	6,381,682	391,366	663,227	7,436,275
Equipment under operating leases	35,329	1,318,913	1,452,599	2,806,841	30,697	1,295,034	971,451	2,297,182
Goodwill and intangible assets	2,118,822	30,307	10,570	2,159,699	2,013,326	30,412	7,261	2,050,999
Property, equipment and leaseholdimprovements	57,341	10,391	13,167	80,899	68,273	13,255	12,344	93,872
	8,935,606	1,775,153	2,406,066	13,116,825	8,493,978	1,730,067	1,654,283	11,878,328

Geographic selected assets are based on the location of the assets.

21. LEASES

The Company leases its office space and certain office equipment. The Company accounts for the lease components (fixed payments including rent and variable payments that depend on an index or rate) separately from the non-lease components (e.g. common-area maintenance costs).

Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years or more. The exercise of lease renewal options is at the sole discretion of the Company and is included in determining the lease liability and right-of-use asset if the Company assesses it is highly likely to exercise the lease renewal options at the inception of the lease. Subsequent to the inception of the lease, management continues to evaluate the likelihood of exercising the lease renewal options to ensure it aligns with the Company's business strategy. Adjustments to the lease liability and right-of-use asset as a result of a modification to the expected lease term are made in accordance with IFRS 16.

The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of the Company's leases include rental payments adjusted periodically for inflation. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Management evaluates all facilities to ensure the Company's footprint continues to support business activities, employees and client needs. In support of this and to align with the Company's growth strategy, the Company closed certain facilities in the US, Canada, Australia and New Zealand during the year ended December 31, 2020. The remaining lease liability for the closed facilities is $2,135 as at December 31, 2022 (December 31, 2021 - $2,772).

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

		As at December31, 2022$	As at December31, 2021$
Assets	Classification
Right-of-use assets	Buildings, net of accumulated depreciation(1)	55,748	64,188
Liabilities	Classification
Lease liabilities	Accounts payable and accrued liabilities	64,272	73,059

1. As at December 31, 2022, right-of-use assets are recorded net of accumulated amortization of $54,324 (December 31, 2021 - $41,761).

			Year ended
		December 31,2022	December 31,2021
Lease cost	Classification	$	$
Amortization of leased assets	Depreciation and amortization	11,523	11,443
Interest on lease liabilities	Interest expense	1,946	2,260
Net lease cost		13,469	13,703
Maturity of lease liabilities		As at December 31, 2022$
2023			10,955
2024			6,265
2025			4,631
2026			4,461
2027			4,693
Thereafter			33,267
Lease Term and Discount Rate		As at December31, 2022	As at December31, 2021
Weighted-average remaining lease term (years)		11.7	11.5
Weighted-average discount rate		2.91 %	2.94 %

22. COMMITMENTS

The Company enters into commitments to extend credit and provide lease or loan financing to its clients in the ordinary course of business, or commits to purchase equipment for leases. The funding of these commitments is subject to the client satisfying various conditions and contractual requirements prior to funding. As a result, the total commitments outstanding do not necessarily reflect actual future cash flow requirements. As at December 31, 2022, the Company had $3,045,806 of commitments outstanding to provide financing or purchase equipment, and expire or settle on various dates through to December 31, 2023.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

23. FINANCIAL INSTRUMENT RISKS

Credit risk

Credit risk is the risk that the Company will incur a loss because its clients and counterparties fail to discharge their contractual obligations. The Company manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties on direct financing leases and loans. Counterparty limits are established by the use of both external and internal credit risk classification systems, which assign each counterparty a risk rating. The Company also manages credit risk through the existence of asset collateral held against both direct financing leases and loans. The Company maintains insurance coverage over these assets to further mitigate risk of loss. In situations where the Company takes possession of collateral under the terms of the direct finance lease or loan agreement, the asset is sold and a gain or loss on disposal is recognized.

The Company also monitors the diversification of its lending across asset class, geography and transaction size. As a result of transaction sizes and collateral arrangements, no individual client represents a significant credit risk to the Company.

The Company's maximum exposure to credit risk for components of the consolidated statements of financial position as at December 31, 2022 and 2021 is the carrying amounts as disclosed on the consolidated statements of financial position.

Liquidity risk

Liquidity risk is the risk that the Company cannot meet a demand for cash or fund its obligations as they come due. The Company's management oversees the Company's liquidity to ensure the Company has access to enough readily available funds to cover its financial obligations as they come due and sustain and grow its assets and operations under both normal and stress conditions.

The most significant exposure to liquidity risk relates to the repayment of borrowings (Note 9). This exposure is managed as the cash flows generated by the Company's net investment in leases and loans, syndication, and future minimum payments on equipment under operating leases are term matched to meet the repayment requirements, and its capacity to expand its existing secured and unsecured borrowings facilities and its access to bank term funding.

Interest rate risk

Interest rate risk relates to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. In order to mitigate interest rate risk, the Company structures its borrowing arrangements to maintain a fixed interest rate spread between the interest paid on both the term funding facilities and the revolving loan facilities and the interest received on the underlying finance receivables. This fixed interest rate spread is achieved by match funding transactions on both a duration and interest rate basis. In some instances, the Company enters into interest rate swaps in order to align the interest rate variability.

The Company does experience short-term interest rate risk on these finance receivables during the period between fixing the contractual rate under the finance contracts with its clients and the locking of the interest rate under its funding facilities. During this time, an upward movement in benchmark rates can negatively impact the spread on the transaction. In order to mitigate this risk, the Company carefully monitors its

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

borrowing costs to ensure its rates reflect appropriate spreads to insulate against sudden unexpected interest rate movements. In order to further mitigate risk, the Company undertakes regular securitizations under its borrowing arrangements to ensure its finance contracts are appropriately match-funded by its borrowings, which reduces the warehouse period and the likelihood that a significant movement in bond rates will negatively impact the spreads on such transactions.

After considering the fixed interest rate spread on the borrowing programs and exposure to fixed rate finance receivables described above, the Company's interest rate risk is generally limited to cash and restricted cash, floating-rate finance receivables that are neither hedged nor part of a match-funded borrowing arrangement, senior revolving credit facility, and floating-rate finance receivables that are hedged with interest rate caps and these interest rate caps are out-of-the-money. Based on its exposure as at December 31, 2022, the Company estimates that a 100 basis point increase would decrease net income before taxes by approximately $4,415 and a 100 basis point decrease in interest rates would increase net income before taxes by approximately by the same amount.

Foreign currency risk

Foreign currency risk is the risk of exposure to foreign currency movements on the Company's lending and/or net investment in foreign subsidiaries, whereby there is a risk the exchange rates will be materially different when a loan or finance receivable is remeasured for accounting purposes, matures or when a foreign subsidiary is divested. The Company mitigates and manages this risk on the Company's lending portfolio by matching the currency of debt financing and where prudent entering into foreign exchange forward contracts to reduce or hedge its exposure to foreign currency risk. The Company currently partially hedges its net investment in foreign subsidiaries. As at December 31, 2022, the Company did not have a significant unhedged exposure to this type of foreign currency risk, which would have a material impact to net income.

The Company is also exposed to foreign currency risk related to net income generated from foreign currency denominated assets and operations. This risk represents the impact of fluctuations to the average Canadian and foreign currency exchange rate used to translate the Company's foreign currency denominated net income into Canadian dollar equivalent during each year. The Company may mitigate and manage this type of foreign currency risk by entering into foreign currency forward contracts to reduce or hedge this exposure to foreign currency risk. If future net income before income taxes is consistent with results generated in 2022, each $0.01 of depreciation (appreciation) in the value of the Canadian dollar against all of the U.S. dollar, Mexican peso, Australian dollar, and New Zealand dollar simultaneously would be expected to increase (decrease) net income before transformation costs and income taxes for the year by approximately $27,716 in the absence of hedging transactions.

24. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, between market participants in an orderly transaction in the principal market at the measurement date under current market conditions (i.e., the exit price). The determination of fair value requires judgment and is based on market information, where available and appropriate. Fair value measurements are categorized into three levels within a fair value hierarchy (Level 1, 2, or 3) based on the valuation inputs used in measuring the fair value, as outlined below.

• Level 1 – Unadjusted quoted market prices in active markets for identical assets or liabilities the Company can access at the measurement date. Bid prices, ask prices or prices within the bid and ask, which are the most representative of the fair value, are used as appropriate to measure fair value. Fair

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

value is best evidenced by an independent quoted market price for the same instrument in an active market. An active market is one where transactions are occurring with sufficient frequency and volume to provide quoted prices on an ongoing basis.

• Level 2 Quoted prices for identical assets or liabilities in markets that are inactive or observable market quotes for similar instruments, or use of valuation techniques where all significant inputs are observable. Inactive markets may be characterized by a significant decline in the volume and level of observed trading activity or through large or erratic bid/offer spreads. In instances where traded markets do not exist or are not considered sufficiently active, we measure fair value using valuation models.
• Level 3 Non-observable or indicative prices or use of valuation techniques where one or more significant inputs are non-observable.

Valuation methods and assumptions

Finance lease receivables, finance loan receivables, and borrowings on finance receivables

The assertion that the carrying value of the finance receivables and borrowings approximates fair value requires the use of estimates and significant judgment. The finance receivables securing the borrowings were credit scored based on an internal model that is not used in market transactions. They comprise a large number of transactions with commercial clients in different businesses, are secured by liens on various types of equipment and may be guaranteed by third parties and cross collateralized. The fair value of any receivable would be affected by a potential buyer's assessment of the transaction's credit quality, collateral value, guarantees, payment history, yield, term, documents and other legal matters, and other subjective considerations. Value received in a fair market sale transaction would be based on the terms of the sale, the buyer's views of the economic and industry conditions, the Company's and the buyer's tax considerations, and other factors.

Convertible debentures

The debt component of convertible debentures is recorded at fair value on initial recognition and subsequently carried at amortized cost. The fair market value of the debt component is calculated by discounting the stream of remaining payments at 5.50%, which represents the rate of interest prevailing for instruments of similar terms and risks without the conversion feature.

Derivatives

The fair values of derivatives are determined by the derivative counterparty using the related interest rate swap curves, foreign exchange forward values, intrinsic values and/or the Company's stock price for the total return swaps.

Investments

The FVTPL investments are valued based on bids received in the private market or using valuation techniques and/or inputs that are based on unobservable market data.

Accounts receivable, accounts payable, and accrued liabilities

The carrying value of the accounts receivable, accounts payable, and accrued liabilities approximates their fair value.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

The tables below summarize the Company's fair value measurement hierarchy for its financial assets and financial liabilities. There were no transfers between Level 2 and Level 3 for the years presented and there were no significant changes in valuation techniques or the range of significant non-observable inputs used in measuring the Company's Level 3 financial assets and liabilities during the year.

			As at December 31, 2022
		Level 1	Level 2	Level 3
	Carryingvalue	Quotedmarketprice	Observablemarketinputs	Nonobservablemarket inputs	Total
	$	$	$	$	$
Financial assets
Assets not carried at fair value
Cash	68,876	68,876	—	—	68,876
Finance lease receivables1	7,712,397	—	—	7,712,397	7,712,397
Finance loans receivables	302,816	—	—	302,816	302,816
Accounts receivable and other assets	206,267	—	—	206,267	206,267
Assets held at fair value
Derivative financial assets
Interest rate swaps	109,833	—	109,833	—	109,833
Interest rate caps	170	—	170	—	170
Equity swaps	21,940	—	21,940	—	21,940
Investments classified as FVTPL	9,550	—	—	9,550	9,550
Total financial assets	8,431,849	68,876	131,943	8,231,030	8,431,849
Financial liabilities
Liabilities not carried at fair value
Accounts payable and accruedliabilities	1,465,198	—	—	1,465,198	1,465,198
Borrowings on finance receivables1	8,753,686	—	—	8,753,686	8,753,686
Convertible debentures	163,933	—	168,432	—	168,432
Liabilities held at fair value
Derivative financial liabilities
Interest rate swaps	81,730	—	81,730	—	81,730
Total financial liabilities	10,464,547	—	250,162	10,218,884	10,469,046

1. As at December 31, 2022, the finance lease receivables and borrowings on finance receivables exclude the continuing involvement asset and liability, respectively, of $54,173.

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

			As at December 31, 2021
		Level 1	Level 2	Level 3
	Carryingvalue	Quotedmarketprice	Observablemarketinputs	Nonobservablemarket inputs	Total
	$	$	$	$	$
Financial assets
Assets not carried at fair value
Cash	45,271	45,271	—	—	45,271
Finance lease receivables	7,255,249	—	—	7,255,249	7,255,249
Finance loans receivables	181,026	—	—	181,026	181,026
Accounts receivable and other assets	191,819	—	—	191,819	191,819
Assets held at fair value
Derivative financial assets
Interest rate swaps	20,041	—	20,041	—	20,041
Interest rate caps	17	—	17	—	17
Equity Swaps	6,244	—	6,244	—	6,244
Investments classified as FVTPL	13,054	—	—	13,054	13,054
Total financial assets	7,712,721	45,271	26,302	7,641,148	7,712,721
Financial liabilities
Liabilities not carried at fair value
Accounts payable and accruedliabilities	1,206,550	—	—	1,206,550	1,206,550
Borrowings on finance receivables	8,038,963	—	—	8,038,963	8,038,963
Convertible debentures	159,072	—	166,788	—	166,788
Liabilities held at fair value
Derivative financial liabilities
Interest rate swaps	28,575	—	28,575	—	28,575
Total financial liabilities	9,433,160	—	195,363	9,245,513	9,440,876

(in thousands of Canadian dollars, except where otherwise noted and per share amounts)

December 31, 2022

25. SYNDICATIONS

The following represents the detail of the Company's syndicated assets that qualify for full derecognition:

		As at December31, 2022	As at December31, 2021
	Classification	$	$
Allowance for early termination	Accounts payable and accrued liabilities	7,518	21,497
Deferred servicing fee	Finance receivables	323	512

The following represents the detail of the Company's syndicated assets subject to continuing involvement:

		As at December31, 2022	As at December31, 2021
	Classification	$	$
Continuing involvement in syndicatedassets	Finance receivables	54,173	—
Liabilities associated with continuinginvolvement in syndicated assets	Secured borrowings	54,173	—
Allowance for early termination	Accounts payable and accrued liabilities	9,181	—
Net book value of assets related to dealsremaining in continuing involvement	N/A	2,339,900	—

The following represents the detail of the Company's syndicated assets for the:

		Year ended
		December 31,2022	December 31,2021
	Classification	$	$
Syndication revenue, net	Syndication revenue, net	62,290	64,412
Net book value of assets syndicated	n/a	2,796,428	2,651,967

26. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the current years' presentation.