Element Fleet Management Corp. — Interim / Quarterly Report 2021

Nov 10, 2021

Interim Condensed Consolidated Financial Statements

Element Fleet Management Corp.

September 30, 2021

Element Fleet Management Corp.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(unaudited, in thousands of Canadian dollars)

ASSETS Cash Restricted funds (note 6) Finance receivables (note 3 and 16) Equipment under operating leases (note 4) Accounts receivable and other assets Derivative financial instruments (note 16) Property, equipment and leasehold improvements, net Intangible assets, net Deferred tax assets Goodwill LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Accounts payable and accrued liabilities Derivative financial instruments (note 16) Borrowings (note 6) Convertible debentures (note 7 and 16) Deferred tax liabilities Shareholders' equity (note 8)	As at September 30, 2021 $ 103,771 344,120 7,680,976 2,224,870 173,119 21,196 97,623 822,457 415,351 1,221,995 13,105,478 1,003,874 30,590 8,335,704 157,842 77,238 9,605,248 3,500,230 13,105,478	As at December 31, 2020 $
		8,789 388,978 9,561,622 2,157,227 226,952 53,629 112,352 814,378 444,120 1,223,341
		14,991,388
		1,062,610 68,282 9,864,336 154,267 57,776
		11,207,271 3,784,117
		14,991,388

See accompanying notes

On behalf of the Board:

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Director

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Director

Element Fleet Management Corp.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

NET REVENUE Interest income, net (note 10) Rental revenue and other (note 10) Depreciation of equipment under operating leases (notes 4 and 10) Interest expense Net financing revenue Fleet service revenue (note 10) Direct costs of fixed rate service contracts (note 10) Servicing income, net Syndication revenue, net (note 10 and 18) Net revenue OPERATING EXPENSES Salaries, wages and benefits General and administrative expenses Depreciation and amortization (note 15) Amortization of convertible debenture discount (note 7) Share-based compensation (note 9) OTHER EXPENSES Amortization of intangible assets from acquisitions Restructuring and transformation costs (note 17) (Gain) loss on investments Income before income taxes from operations Provision for income taxes (note 11) Net income for the period Basic earnings per share (note 12) Diluted earnings per share (note 12)	Three-month period ended September 30, 2021 $ 91,119 175,044 (110,230) 155,933 46,605 109,328 133,042 (11,967) 121,075 13,937 244,340 78,493 24,355 15,866 903 5,086 124,703 8,862 — (2,776) 113,551 28,610 84,941 $ 0.18 $ 0.18	Three-month period ended September 30, 2020 $
		122,100 159,381 (104,908)
		176,573 73,301
		103,272 135,488 (10,754)
		124,734 15,246
		243,252
		74,910 28,789 10,568 843 5,591
		120,701
		9,338 24,213 710
		88,290 17,512
		70,778
		$ 0.14
		$ 0.14

See accompanying notes

Element Fleet Management Corp.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

NET REVENUE Interest income, net (note 10) Rental revenue and other (note 10) Depreciation of equipment under operating leases (notes 4 and 10) Interest expense Net financing revenue Fleet service revenue (note 10) Direct costs of fixed rate service contracts (note 10) Servicing income, net Syndication revenue, net (note 10) Net revenue OPERATING EXPENSES Salaries, wages and benefits General and administrative expenses Depreciation and amortization (note 15 ) Amortization of convertible debenture discount (note 7) Share-based compensation (note 9) DISPOSITION OF 19TH CAPITAL Gain on settlement of debt (note 5) Loss on sale of assets (note 5) Net loss on disposition OTHER EXPENSES Amortization of intangible assets from acquisitions Restructuring and transformation costs (note 17) (Gain) loss on investments Income before income taxes from operations Provision for income taxes (note 11) Net income for the period Basic earnings per share (note 12) Diluted earnings per share (note 12)	Nine-month period ended September 30, 2021 $ 288,330 521,469 (331,775) 478,024 148,324 329,700 381,531 (32,782) 348,749 49,891 728,340 224,772 77,327 36,802 2,662 17,837 359,400 — — — 26,442 — (6,214) 348,712 87,370 261,342 $ 0.55 $ 0.54	Nine-month period ended September 30, 2020 $
		403,490 481,833 (319,099)
		566,224 266,992
		299,232 396,227 (31,131)
		365,096 51,666
		715,994
		225,239 89,170 32,134 5,401 15,455
		367,399
		38,580 (52,442)
		(13,862)
		29,221 57,871 764
		246,877 38,147
		208,730
		$ 0.40
		$ 0.40

See accompanying notes

Element Fleet Management Corp.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands of Canadian dollars)

Net income for the period OTHER COMPREHENSIVE INCOME (LOSS) Items that may be reclassified subsequently to profit or loss: Cash flow and foreign exchange hedges gain (loss) Net unrealized foreign exchange gain (loss) Provision for income taxes Total other comprehensive gain (loss) Comprehensive income for the period	Three-month period ended September 30, 2021 $	Three-month period ended September 30, 2020 $
	84,941	70,778
	5,705 20,159	(1,654) (21,699)
	25,864 1,404	(23,353) 1,739
	24,460	(25,092)
	109,401	45,686

See accompanying notes

Element Fleet Management Corp.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands of Canadian dollars)

Net income for the period OTHER COMPREHENSIVE INCOME (LOSS) Items that may be reclassified subsequently to profit or loss: Cash flow and foreign exchange hedges gain (loss) Net unrealized foreign exchange loss Provision for (recovery of) income taxes Total other comprehensive loss Comprehensive income for the period	Nine-month period ended September 30, 2021 $ 261,342 17,329 (63,733) (46,404) 4,464 (50,868) 210,474	Nine-month period ended September 30, 2020 $
		208,730
		(43,292) (14,574)
		(57,866) (9,373)
		(48,493)
		160,237

See accompanying notes

Element Fleet Management Corp.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(unaudited, in thousands of Canadian dollars)

Balance, December 31, 2020 Comprehensive income (loss) for the period Dividends - Preferred shares (note 8) Dividends - Common shares (note 8) Options exercised (notes 8 and 9) Shares repurchased for cancellation (note 8) Employee stock option expense (note 9) Balance, September 30, 2021 Balance, December 31, 2019 Comprehensive income (loss) for the period Dividends - Preferred shares (note 8) Dividends - Common shares (note 8) Redemption for preferred shares (note 8) Options exercised (notes 8 and 9) Issuance of shares, net of share issue costs (note 8) Employee stock option expense (note 9) Balance, September 30, 2020	Common share capital Preferred share capital Equity component of convertible debentures Contributed surplus Retained earnings (deficit) Accumulated other comprehensive income (loss) Total shareholders' equity $ $ $ $ $ $ $
	3,180,379 511,869 59,603 51,788 (64,057) 44,535 3,784,117 — — — — 261,342 (50,868) 210,474 — — — — (24,309) — (24,309) — — — — (82,526) — (82,526) 42,797 — — (14,160) — — 28,637 (218,506) — — (37,860) (160,029) — (416,395) — — — 232 — — 232
	3,004,670 511,869 59,603 — (69,579) (6,333) 3,500,230
	3,127,714 680,412 59,603 68,754 (217,900) 94,062 3,812,645 — — — — 208,730 (48,493) 160,237 — — — — (32,717) — (32,717) — — — — (59,729) — (59,729) — (168,543) — — (3,957) — (172,500) 21,050 — — (7,225) — — 13,825 12,171 — — — — — 12,171 — — — 625 — — 625
	3,160,935 511,869 59,603 62,154 (105,573) 45,569 3,734,557

See accompanying notes

Element Fleet Management Corp.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands of Canadian dollars)

OPERATING ACTIVITIES Net income for the period Items not affecting cash Share-based compensation (note 9) Depreciation of property, equipment and leasehold improvements Amortization of intangible assets, including from acquisitions Amortization of deferred lease costs Amortization of deferred financing costs Depreciation of equipment under operating leases (note 4) Amortization of convertible debenture discount and deferred costs (note 7) Disposal of intangible assets (Gain) loss on investments Loss on disposal of 19thCapital, excluding fees Impairment of fixed assets (note 15) Provision for credit losses Changes in non-cash operating assets and liabilities Investment in finance receivables Repayments of finance receivables Investment in equipment under operating leases Proceeds on disposal of equipment under operating leases Syndications of finance receivables Cash payments for interest portion of lease liability Other non-cash operating assets and liabilities Cash provided by operating activities INVESTING ACTIVITIES Investments Sale of 19thCapital Group LLC (note 5) Purchase of property, equipment and leasehold improvements Proceeds on disposals of property, equipment and leasehold improvements and intangible assets Purchase of intangible assets, including computer software Decrease in notes receivable Cash (used in) provided by investing activities FINANCING ACTIVITIES Cash payments for principal portion of lease liability Decrease (increase) in restricted funds Increase in deferred financing costs Issuance of share capital, net Shares repurchased (note 8) Repayments of borrowings, net Settlement of 19thCapital Group LLC debt (note 5) Dividends paid (note 8) Issuance of senior notes (note 6) Repayment of 2015 convertible debenture Redemption of preferred shares (note 8) Cash used in financing activities Effects of foreign exchange rates on cash Net increase in cash during the period Cash, beginning of the period Cash, end of the period Supplemental cash flow information: Cash taxes paid Cash interest paid See accompanying notes	Nine-month period ended September 30, 2021 September 30, 2020 $ $ 261,342 208,730 232 625 18,354 21,362 44,890 39,993 19,949 19,607 17,113 28,873 331,775 319,099 3,575 8,522 — 1,089 (6,214) 764 — 7,504 — 4,113 (6,945) 12,236 684,071 672,517 (2,932,761) (3,959,822) 2,770,856 3,703,971 (712,120) (647,178) 214,973 219,174 2,198,846 2,236,910 (1,722) (2,197) (162,047) (69,125) 2,060,096 2,154,250 (270) (201) — 63,283 (5,684) (5,594) 692 814 (55,964) (43,587) 102 1,063 (61,124) 15,778 (6,423) (5,361) 41,082 (42,069) (13,948) (17,626) 28,637 13,825 (417,770) — (2,053,472) (1,741,867) — (59,479) (108,622) (79,925) 628,750 550,520 — (567,200) — (172,500) (1,901,766) (2,121,682) (2,224) 3,063 94,982 51,409 8,789 24,224 103,771 75,633 43,306 33,983 132,597 242,761	Nine-month period ended September 30, 2021 September 30, 2020 $ $ 261,342 208,730 232 625 18,354 21,362 44,890 39,993 19,949 19,607 17,113 28,873 331,775 319,099 3,575 8,522 — 1,089 (6,214) 764 — 7,504 — 4,113 (6,945) 12,236 684,071 672,517 (2,932,761) (3,959,822) 2,770,856 3,703,971 (712,120) (647,178) 214,973 219,174 2,198,846 2,236,910 (1,722) (2,197) (162,047) (69,125) 2,060,096 2,154,250 (270) (201) — 63,283 (5,684) (5,594) 692 814 (55,964) (43,587) 102 1,063 (61,124) 15,778 (6,423) (5,361) 41,082 (42,069) (13,948) (17,626) 28,637 13,825 (417,770) — (2,053,472) (1,741,867) — (59,479) (108,622) (79,925) 628,750 550,520 — (567,200) — (172,500) (1,901,766) (2,121,682) (2,224) 3,063 94,982 51,409 8,789 24,224 103,771 75,633 43,306 33,983 132,597 242,761
		208,730 625 21,362 39,993 19,607 28,873 319,099 8,522 1,089 764 7,504 4,113 12,236
		672,517 (3,959,822) 3,703,971 (647,178) 219,174 2,236,910 (2,197) (69,125)
		2,154,250
		(201) 63,283 (5,594) 814 (43,587) 1,063
		15,778
		(5,361) (42,069) (17,626) 13,825 — (1,741,867) (59,479) (79,925) 550,520 (567,200) (172,500)
		(2,121,682)
		3,063 51,409 24,224
		75,633
		33,983 242,761

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

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 $13.1 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 world-class services and financings for commercial vehicle and equipment fleets, reaching over 50 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 helping more than 5,500 clients optimize their fleet performance and productivity.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

These unaudited interim condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"), International Accounting Standard 34, Interim Financial Reporting ("IAS 34") , as issued by the International Accounting Standards Board ("IASB").

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company as at and for the year ended December 31, 2020, which include information necessary or useful in understanding the Company's business and financial statement presentation. The results reported in these unaudited interim condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year.

These unaudited interim condensed consolidated financial statements were authorized for issuance by the Board of Directors of the Company on November 10, 2021.

Accounting policies

These unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting polices disclosed in the consolidated financial statements for the year ended December 31, 2020, except as discussed below.

COVID-19

The extent and duration of the impact of COVID-19 on communities and the economy continues to remain unclear. In the preparation of these unaudited interim condensed consolidated financial statements, the Company has incorporated the potential impact of COVID-19 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 September 30, 2021. Actual results could differ from those estimates. The estimates and assumptions that the Company considers critical and/or could be impacted by COVID-19 include those underlying the estimate of any expected credit losses on its net investment in

1

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

finance receivables, other receivables, and determining the values of financial instruments for disclosure purposes.

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 unaudited interim condensed 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.

On March 5, 2021, the Financial Conduct Authority, LIBOR's regulator and administrator, announced that publication of the one-week and two-month USD LIBOR rates will cease after December 31, 2021, and the remaining USD LIBOR rates, including the 1-month and 3-month USD LIBOR rates, will cease after June 30, 2023, finalizing the end dates of USD LIBOR rates.

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 is progressing on its transition plan and incorporating market developments as they arise.

Hedge accounting

The Company's accounting policies relating to hedge accounting are described in note 2 and note 20 of the Company's consolidated financial statements for the year ended December 31, 2020. 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 19 of the Company's consolidated financial statements for the year ended December 31, 2020, 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.

2

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

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.

Interest rate benchmark reform exposure

The following table shows the Company's exposure at September 30, 2021 to IBOR subject to reform that have yet to transition to Secured Overnight Financing Rates. These exposures will remain outstanding as of June 30, 2023 until IBOR ceases and will therefore transition in the future:

USD LIBOR (1 month) USD LIBOR (3 month)	Non-derivative financial assets - carrying value Non-derivative financial liabilities - carrying value Derivative Notional/Principal amount(1) $ $ $
	2,258,337 — 2,777,563 716,177 — —
	2,974,514 — 2,777,563

1. Excludes interest rate contracts and non-derivative instruments which reference rates to multi-rate jurisdictions, including the Canadian Dollar Offered Rate ("CDOR"), Australian Bank Bill Swap Rates ("BBSW"), and New Zealand Bank Bill Rates ("BBR").

3

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

3. FINANCE RECEIVABLES

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

Minimum lease payments Unguaranteed residual values Gross investment Unearned income Net investment Net realizable value of impaired receivables Unamortized deferred costs and subsidies Prepaid lease payments and security deposits Interim funding Fleet management receivables Other receivables Allowance for credit losses (Subsection B) Total finance receivables	As at September 30, 2021
	US and Canada Australia and New Zealand Mexico Total $ $ $ $
	6,179,001 251,511 412,497 6,843,009 — 60,090 — 60,090
	6,179,001 311,601 412,497 6,903,099 (349,135) (35,196) (55,922) (440,253)
	5,829,866 276,405 356,575 6,462,846 2,155 172 — 2,327 (45,687) — — (45,687) (17,011) — (26,154) (43,165) 453,707 — 27,009 480,716 477,491 38,854 22,046 538,391 151,649 77,091 65,421 294,161 (6,252) (1,258) (1,103) (8,613)
	6,845,918 391,264 443,794 7,680,976

Minimum lease payments Unguaranteed residual values Gross investment Unearned income Net investment Net realizable value of impaired receivables Unamortized deferred costs and subsidies Prepaid lease payments and security deposits Interim funding Fleet management receivables Other receivables Allowance for credit losses (Subsection B) Total finance receivables	As at December 31, 2020
	US and Canada Australia and New Zealand Mexico Total $ $ $ $
	8,223,841 268,465 376,170 8,868,476 3,178 61,964 — 65,142
	8,227,019 330,429 376,170 8,933,618 (529,040) (39,082) (56,740) (624,862)
	7,697,979 291,347 319,430 8,308,756 19,116 6,347 — 25,463 (78,396) — — (78,396) (62,475) — (22,550) (85,025) 512,381 — 113,397 625,778 447,089 38,872 19,545 505,506 153,014 76,140 48,104 277,258 (13,007) (2,438) (2,273) (17,718)
	8,675,701 410,268 475,653 9,561,622

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Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

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

Net investment Weighted average fixed interest rate Weighted average floating interest rate Percentage of portfolio with fixed interest rate	As at September 30, 2021 As at December 31, 2020 Leases Loans Leases Loans $ 6,347,513 $ 115,333 $ 8,207,238 $ 101,518 4.54 % 9.21 % 4.68 % 8.93 % 2.71 % 3.30 % 2.75 % 4.68 % 43.28 % 99.94 % 45.64 % 99.97 %

B) Allowance for credit losses

The Company continues to monitor its inputs to the expected credit loss ("ECL") model to ensure it appropriately reflects current market conditions in light of the global COVID-19 pandemic and information available to the Company as at September 30, 2021.

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 probability of default ("PD") as at September 30, 2021, and consistent with the ECL model, the Company reviewed its classifications and updated its internal assessment of PD based on current information.

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. Additionally, used vehicle pricing remained strong throughout the third quarter of 2021, maintaining continued low loss given default ("LGD") levels as at September 30, 2021. The Company expects the used vehicle market will remain strong through the balance of the year due to supply/demand imbalance. An increasing number of drivers of vehicles keep their cars for longer periods of time (or purchase used vehicles instead of new vehicles) as a consequence of the pandemic, reducing the supply in the used car market and increasing prices. The microchip shortage remains a vehicle manufacturing industry challenge which continues to impact most OEMs as they are being forced to either slow down or suspend new vehicle production. This impacts new vehicle deliveries, and some of the consumer demand has shifted towards the used vehicle market, further increasing demand and price for used vehicles.

In determining the appropriate allowance for credit losses, the Company considered forward-looking macroeconomic information in light of COVID-19 such as the impact that potential upward or downward trends in Gross Domestic Product ("GDP") and default rates might have on the Company’s lease and loan portfolio. The Company has also evaluated multiple scenarios related to COVID-19, including expected time periods of market slow-down and recovery as a whole and as it pertains to specific industries hit hardest by the pandemic. Despite the continued uncertainty of the pandemic, namely as it relates to new strains of the virus and the pace of vaccinations, the resilience of our clients, the favorable evolution of our portfolio, and improved forward-looking macroeconomic expectations resulted in a reduction of the Company's allowance for credit losses to $8,613 as at September 30, 2021.

5

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

The Company’s evaluation of the above inputs to its model resulted in a benefit of $1,933 and $6,945 in the provision for credit losses through the unaudited interim condensed consolidated statement of operations for the three- and nine-month periods ended September 30, 2021, respectively.

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

Finance receivables	Performing	Impaired	Total
	$	$	$
Balance as at January 1, 2021	17,457	261	17,718
Transfer to Performing	184	(184)	—
Transfer to Impaired	(2)	2	—
Lease originations	6,423	—	6,423
Changes in models and inputs,derecognition,and repayments	(13,351)	(17)	(13,368)
Total	10,711	62	10,773
Charge-offs, net of recoveries	(1,853)	(8)	(1,861)
Foreign exchange	(268)	(31)	(299)
Balance as at September 30, 2021	8,590	23	8,613
Finance receivables	Performing	Impaired	Total
	$	$	$
Balance as at January 1, 2020	7,857	575	8,432
Transfer to Performing	495	(495)	—
Transfer to Impaired	(225)	225	—
Lease originations	16,575	—	16,575
Changes in models and inputs,derecognition,and repayments	(4,933)	10	(4,923)
Total	19,769	315	20,084
Charge-offs, net of recoveries	(1,581)	(48)	(1,629)
Foreign exchange	(731)	(6)	(737)
Balance as at December 31,2020	17,457	261	17,718

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Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

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

Allowance for credit losses Allowance for credit losses, beginning of the period (Recovery of) provision for credit losses Charge-offs, net of recoveries Impact of foreign exchange rates Allowance for credit losses, end of the period Allowance as a percentage of total finance receivables before allowance	Nine-month period ended Year ended September 30, 2021 December 31, 2020 $ $
	17,718 8,432 (6,945) 11,652 (1,861) (1,629) (299) (737)
	8,613 17,718
	0.11 % 0.18 %

7

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

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	September 30, 2021
Finance receivables	Performing	Impaired	Total
	$	$	$
Internal risk rating grade(1)
Low	4,073,715	—	4,073,715
Medium	2,205,472	—	2,205,472
High	183,659	—	183,659
Fleet management receivables	538,089	302	538,391
Other finance receivables	294,161	—	294,161
Impaired	—	2,327	2,327
	7,295,096	2,629	7,297,725
Allowance for credit losses	(8,590)	(23)	(8,613)
Net carryingvalue	7,286,506	2,606	7,289,112

1. Loan balances of $7,774, $107,423 and $136 are included in the Performing category in internal risk rating grade low, medium, and high, respectively, and nil in Impaired.

	As at	December 31,2020
Finance receivables	Performing	Impaired	Total
	$	$	$
Internal risk rating grade(2)
Low	4,964,294	—	4,964,294
Medium	3,028,747	—	3,028,747
High	315,715	—	315,715
Fleet management receivables	504,005	1,501	505,506
Other finance receivables	277,258	—	277,258
Impaired	—	25,463	25,463
	9,090,019	26,964	9,116,983
Allowance for credit losses	(17,457)	(261)	(17,718)
Net carryingvalue	9,072,562	26,703	9,099,265

1. Loan balances of $14,098, $86,612 and $809 are included in the Performing category in internal risk rating grade low, medium, and high, respectively, and $25 in Impaired.

8

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

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

4. EQUIPMENT UNDER OPERATING LEASES

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

Cost Accumulated depreciation Net carrying amount	As at September 30, 2021 As at December 31, 2020 $ $
	3,202,978 3,067,363 978,108 910,136
	2,224,870 2,157,227

5. 19[TH] CAPITAL

During the second quarter of 2020, the Company continued to shift its efforts to accelerate the run-off of 19[th] Capital, including ramping-up the pace of liquidation of the entity's assets, immediately reducing the scale of 19[th] Capital operations. On May 1, 2020, the Company sold the equipment under operating leases and certain other assets of 19[th] Capital and will have no continuing involvement in the operations, results or cash flows of 19[th] Capital.

9

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

6 . BORROWINGS

The Company's outstanding borrowings were as follows:

Revolving term notes in amortization Variable funding notes Other Vehicle management asset-backed debt Revolving senior credit facilities Senior notes Deferred financing costs Hedge accounting fair value adjustments Total borrowings		As at September 30, 2021
	Balance outstanding $	Weighted average interest rate(1) Pledged finance receivables and equipment under operating leases Cash reserves % $ $
	2,827,550 3,339,713 38,560	1.60 2,915,710 29,883 1.06 3,628,606 22,916 4.49 38,104 —
	6,205,823 1,007,628 1,144,051	1.33 6,582,420 52,799 1.44 — — 2.60 — —
	8,357,502 1.52 6,582,420 52,799 (26,599) 4,801 8,335,704	1.52 6,582,420 52,799

Revolving term notes in amortization Variable funding notes Other Vehicle management asset-backed debt Revolving senior credit facilities Senior notes Deferred financing costs Hedge accounting fair value adjustments Total borrowings		As at December 31,2020
	Balance outstanding $	Weighted average interest rate(1) Pledged finance receivables and equipment under operating leases Cash reserves % $ $
	4,005,371 3,768,395 44,841	2.25 4,097,274 48,365 1.25 3,974,534 27,667 4.50 44,406 —
	7,818,607 1,551,939 509,080	1.78 8,116,214 76,032 1.41 — — 3.85 — —
	9,879,626 1.83 8,116,214 76,032 (29,911) 14,621 9,864,336	1.83 8,116,214 76,032

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 September 30, 2021.

Vehicle management asset-backed debt

As at September 30, 2021, the Company had available capacity in variable funding notes and other of $1,336,601 (December 31, 2020 – $1,910,587) under its vehicle management asset-backed debt facilities.

10

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

On March 23, 2021, the Company issued $944,470 (US $750,004) of amortizing term notes at an initial weighted average interest rate of 0.51%. The proceeds from this issuance were used to pay down variable funding notes.

Revolving senior credit facilities

As at September 30, 2021, the Company had access to $1,979,617 (December 31, 2020 - $1,120,731) of available financing under the revolving senior credit facilities.

Senior notes

As at September 30, 2021, the Company had $1,144,051 (US $900,000) in outstanding senior unsecured notes (December 31, 2020 - $509,080 (US $400,000)).

On April 6, 2021, the Company issued $629,644 (US $500,000) in aggregate principal amount of 1.60% senior unsecured notes due April 6, 2024. The senior unsecured notes were priced at $99.883 per $100 principal amount for an effective yield of 1.64%. Interest is paid semi-annually in arrears on April 6 and October 6, commencing on October 6, 2021. The proceeds received at the time of closing will be used for working capital and general corporate purposes.

Restricted funds

As at September 30, 2021, restricted funds include (i) cash reserves of $52,799 (December 31, 2020 - $76,032), which represent collateral for secured borrowing arrangements; (ii) cash accumulated in the collection account of $288,652 (December 31, 2020 - $297,373), which represents repayments received on assets financed pursuant to the secured borrowing facilities, which are subsequently utilized in accordance with applicable provisions; and (iii) cash of $2,669 (December 31, 2020 - $15,573) provided to counterparties as collateral against derivative liabilities.

11

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

7. CONVERTIBLE DEBENTURES

Convertible debentures consist of:

Issue Date April 5, 2019 Issue Date April 5, 2019	As at September 30, 2021
	Final maturity date Conversion price per share(1) Interest rate(2) Face value Deferred costs Discount Net carrying value $ % $ $ $ $
	June 30, 2024 12.05 4.250 172,500 (3,654) (11,004) 157,842
	As at December 31, 2020
	Final maturity date Conversion price per share Interest rate(2) Face value Deferred costs Discount Net carrying value $ % $ $ $ $
	June 30,2024 12.05 4.250 172,500 (4,567) (13,666) 154,267

1. There was no change to the conversion price from the date of issuance for the April 5, 2019 issuance.

2. Stated interest rate on principal face value.

May 29, 2015 Issuance

On June 30, 2020, the $567,200 4.25% extendible convertible unsecured subordinated debentures matured and were repaid in full, including accrued interest, by the Company, on June 29, 2020, in accordance with the Trust Indenture.

8. 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.

Balance, December 31, 2019 Share issuance Share repurchase Exercise of options Balance, December 31, 2020 Share repurchase Exercise of options Balance, September 30, 2021	Common shares
	Shares Amount # $
	436,509,117 3,127,714 1,677,274 18,140 (762,100) (5,500) 2,851,002 40,025
	440,275,293 3,180,379 (30,085,733) (218,506) 2,690,238 42,797
	412,879,798 3,004,670

12

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

Share Repurchase

On November 4, 2020, the TSX approved the Company's notice of intention to commence a Normal Course Issuer Bid (the "NCIB"). The NCIB allows the Company to repurchase on the open market (or as otherwise permitted), at its discretion during the period commencing on November 10, 2020 and ending on the earlier of November 9, 2021 or the completion of purchases under the NCIB, up to 43,929,594 common shares of the Company, subject to the normal terms and limitations of such bids. Under this bid for the three- and ninemonth periods ended September 30, 2021, 8,725,688 and 30,085,733, respectively, common shares have been repurchased for cancellation for $122,464 and $416,395, respectively, including commission, at a volume weighted average price of $14.03 and $13.84 per common share, respectively. The Company applies trade date accounting in determining the date on which the share repurchase is reflected in the consolidated financial statements. Trade date accounting is the date on which the Company commits itself to purchase the shares.

Issuance of common shares

On October 27, 2020, the Board approved the termination of the dividend reinvestment plan ("DRIP") which was originally announced on October 1, 2018. The DRIP provided eligible shareholders the opportunity to reinvest their eligible cash dividends for additional common shares at a discount of 2% to the prevailing market price of the common shares on the TSX. Eligible shareholders were required to reside in Canada. Dividends declared after October 27, 2020 are not eligible for the DRIP.

For the three- and nine-month periods ended September 30, 2021, the Company issued nil common shares under the DRIP (September 30, 2020 - 601,483 and 1,164,435 common shares, respectively).

Common share dividends

For the three- and nine-month periods ended September 30, 2021, the Company declared $26,846 and $82,526, respectively, in common share dividends or $0.065 and $0.195, respectively, per common share (September 30, 2020 - $19,882 and $59,427 , respectively, or $0.045 and $0.136, respectively, per common share).

As at September 30, 2021, the accrued common share dividends were $26,846 (December 31, 2020 – $28,623).

Increase in Common Share Dividend

On October 27, 2020, the Board approved the increase in the quarterly common share dividend from $0.045 to $0.065 per share.

13

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

Preferred shares

The Company's cumulative 5-Year rate reset Preferred Shares series as at September 30, 2021 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
I	May 5, 2017	5.75	150,000	3,244	146,756	6,000,000

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%.

Series G Preferred Shares Redemption

On September 30, 2020, the Company redeemed all of its 6,900,000 Series G Preferred Shares for a redemption price equal to $25.00 per share for a total of $172,500 together with all accrued and unpaid dividends.

Preferred share dividends

For the three- and nine-month periods ended September 30, 2021, the Company declared $8,103 and $24,309, respectively, in preferred share dividends (September 30, 2020 – $10,906 and $32,717, respectively).

As at September 30, 2021, the accrued preferred share dividends were $89 (December 31, 2020 – $89).

9. SHARE-BASED COMPENSATION

Share-based compensation expense consists of the following:

(a) Stock options (b) Deferred share units (c) Performance share units (d) Restricted share units	Three-month period ended September 30, September 30, 2021 2020 $ $	Nine-month period ended September 30, September 30, 2021 2020 $ $
	10 3 318 511 2,881 2,249 1,877 2,828	232 625 969 1,387 8,725 6,805 7,911 6,638
	5,086 5,591	17,837 15,455

14

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

(a) Stock options

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

Outstanding, December 31, 2019 Forfeited Expired Exercised(1) Outstanding, December 31, 2020 Forfeited Expired Exercised(1) Outstanding, September 30, 2021	Number of options Weighted average exercise price # $
	16,412,433 10.26 (62,984) 8.69 (1,565,163) 12.13 (3,761,627) 10.22
	11,022,659 10.01 (20,434) 10.21 (810,630) 12.78 (3,435,490) 11.46
	6,756,105 8.58

1. Weighted average share price of options exercised during the nine-month period ended September 30, 2021 was $13.82 (year-ended December 31, 2020 – $12.45).

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

Outstanding, December 31, 2019 Granted Forfeited Redeemed Outstanding, December 31, 2020 Granted Forfeited Redeemed Outstanding, September 30, 2021	Deferred share units Performance share units Restricted share units # # #
	682,703 1,507,806 1,896,940 176,534 578,018 786,848 — (1,388) (102,527) (225,266) (203,186) (1,071,054)
	633,971 1,881,250 1,510,207 101,078 797,283 872,085 — — (69,276) — (569,552) (727,638)
	735,049 2,108,981 1,585,378

15

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

10. REVENUE

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

Major service lines Interest income, net Rental revenue Gain on sale of equipment under operating leases Depreciation of equipment under operating leases Financing revenue before interest expense Service revenue, net Vehicle sales and end of contract fees Servicing income, net Syndication revenue, net Net revenue before interest expense Primary geographical markets US and Canada Australia and New Zealand Mexico Net revenue before interest expense Timing of revenue recognition Revenue earned at a point in time Revenue earned over time Net revenue before interest expense	Three-month period ended September 30, September 30, 2021 2020 $ $	Nine-month period ended September 30, September 30, 2021 2020 $ $
	91,119 122,100 155,302 143,139 19,742 16,242 (110,230) (104,908)	288,330 403,490 461,633 445,891 59,836 35,942 (331,775) (319,099)
	155,933 176,573 99,713 98,119 21,362 26,615	478,024 566,224 279,494 287,601 69,255 77,495
	121,075 124,734 13,937 15,246	348,749 365,096 49,891 51,666
	290,945 316,553	876,664 982,986
	197,515 235,476 53,574 50,000 39,856 31,077	595,595 758,939 167,988 135,207 113,081 88,840
	290,945 316,553	876,664 982,986
	112,876 110,417 178,069 206,136	316,661 313,214 560,003 669,772
	290,945 316,553	876,664 982,986

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.

(A) Contract balances

Contract assets

	As at September	As at December 31,
	30, 2021	2020
	$	$
	14,242	15,214

16

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

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 3. For the three- and nine-month periods ended September 30, 2021, the Company has recorded $2,101 and $7,015, respectively, of amortization on its service contract assets (September 30, 2020 - $2,268 and $7,156, respectively).

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.

11. INCOME TAXES

The Company calculates the period income tax expense using the tax rate that would be applicable to the expected total annual earnings. IAS 34 requires this annual tax rate to be reviewed each quarter and applied to the profits earned to date.

The effective income tax rate was 25.2% and 25.1% for the three- and nine-month periods ended September 30, 2021, respectively (three- and nine-month periods ended September 30, 2020 - 19.8% and 15.4%, respectively). The effective tax rate is higher than prior years reflecting a number of adjustments in the prior year that temporarily reduced the tax rate during the three- and nine-month periods ended September 30, 2020.

12. EARNINGS PER SHARE

Basic earnings per share is as follows:

Net income attributable to shareholders Cumulative dividends on preferred shares Net income available to common shareholders Weighted average number of common shares outstanding – basic (number) Basic earnings per share	Three-month period ended September 30, September 30, 2021 2020 $ $ 84,941 70,778 (8,103) (10,875) 76,838 59,903 416,353,081 438,853,873 $ 0.18$ 0.14	Nine-month period ended September 30, September 30, 2021 2020 $ $
		261,342 208,730 (24,309) (32,687)
		237,033 176,043
		427,752,829 438,006,373
		$ 0.55$ 0.40

17

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

Diluted earnings per share is as follows:

Diluted earnings per share is as follows:
Net income available to common shareholders adjusted for the effects of dilution Weighted average number of common shares outstanding – basic (number)(1) Convertible debentures (number) Dilutive stock options and warrants (number) Weighted average number of common shares outstanding – diluted (number) Diluted earnings per share	Three-month period ended Nine-month period ended September 30, September 30, September 30, September 30, 2021 2020 2021 2020 $ $ $ $
	78,444 61,608 241,863 181,430 416,353,081 438,853,873 427,752,829 438,006,373 14,315,353 14,315,353 14,315,353 14,315,353 2,564,280 1,497,772 2,495,828 1,487,215
	433,232,714 454,666,998 444,564,010 453,808,941
	$ 0.18$ 0.14 $ 0.54$ 0.40

1. Prior year weighted average number of common shares outstanding has been adjusted for the impact of the issuance of shares under the DRIP by 12,014 and 9,511 shares for the three- and nine-month periods ended September 30, 2020, respectively.

Instruments outstanding as at September 30, 2021 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 701,143 and 701,143 stock options for the three- and nine-month periods ended September 30, 2021, respectively (September 30, 2020 - 7,534,573 and 7,534,573 stock options, respectively).

18

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

13. 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:

The Company's capitalization is as follows, as at:
	September 30,	December 31,
As at	2021	2020
	$	$
Cash	103,771	8,789
Unsecured debt
Senior credit facilities	1,007,628	1,551,939
4.250% Convertible Debentures due 2024	157,842	154,267
3.850% Senior Notes due 2025	508,467	509,080
1.600% Senior Notes due 2024	635,584	—
Vehicle Management Asset-Backed Debt
Revolving term notes in amortization	2,827,550	4,005,371
Variable funding notes	3,339,713	3,768,395
Other	38,560	44,841
Deferred financingcosts	**(26,599) **	(29,911)
Hedge accountingfair value adjustments	4,801	14,621
Total debt	8,493,546	10,018,603
Shareholders' equity
Common share capital	3,004,670	3,180,379
Preferred share capital	511,869	511,869
Other	**(16,309) **	91,869
Total Shareholders’ Equity	3,500,230	3,784,117
Total Capitalization	11,993,776	13,802,720

19

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

14. GEOGRAPHIC INFORMATION

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

Selected geographic assets are as follows:

Select assets Finance receivables Equipment under operating leases Goodwill and intangible assets Property, equipment and leasehold improvements	As at September 30, 2021	As at December 31, 2020
	US and Canada Australia and New Zealand Mexico Total $ $ $ $	US and Canada Australia and New Zealand Mexico Total $ $ $ $
	6,845,918 391,264 443,794 7,680,976 32,990 1,278,906 912,974 2,224,870 2,008,761 29,737 5,954 2,044,452 71,389 13,393 12,841 97,623	8,675,701 410,268 475,653 9,561,622 43,255 1,334,370 779,602 2,157,227 2,002,565 32,090 3,064 2,037,719 82,572 17,478 12,302 112,352
	8,959,058 1,713,300 1,375,563 12,047,921	10,804,093 1,794,206 1,270,621 13,868,920

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

15. 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. As a result, the Company recorded an impairment charge of $4,113 through Transformation on the right of use, property, plant, and equipment assets at the closed facilities. The remaining lease liability for the closed facilities was $2,941 as at September 30, 2021 (December 31, 2020 - $3,580).

20

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

Assets Classification Right-of-use assets Buildings, net of accumulated depreciation(1) Liabilities Classification Lease liabilities Accounts payable and accrued liabilities	As at September 30, 2021 As at December 31, 2020 $ $
	67,045 76,607
	75,272 84,970

1. As at September 30, 2021, right-of-use assets are recorded net of accumulated amortization of $38,948 (December 31, 2020 - $31,134).

Lease cost Classification Amortization of leased assets Depreciation and amortization Interest on lease liabilities Interest expense Net lease cost Maturity of lease liabilities 2021 2022 2023 2024 2025 Thereafter Lease Term and Discount Rate Weighted-average remaining lease term (years) Weighted-average discount rate	Three-month period ended Nine-month period ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 $ $ $ $	Three-month period ended Nine-month period ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 $ $ $ $	Three-month period ended Nine-month period ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 $ $ $ $
	2,817 3,255 8,640 10,466 560 712 1,722 2,197
	3,377 3,967 10,362 12,663
			As at September 30, 2021 $
			2,795 11,653 10,400 5,975 4,445 40,004 As at September 30, 2021 As at December 31,2020
			11.5 11.6 2.95 % 2.95 %

16. 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.

21

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

• 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 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 fair value through profit and loss ("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.

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Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

Accounts receivable, accounts payable, and accrued liabilities

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

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.

Financial assets Assets not carried at fair value Cash Finance lease receivables Finance loans receivables Accounts receivable and other assets Assets held at fair value Derivative financial assets Interest rate swaps Interest rate caps Equity swaps Investments classified as FVTPL Total financial assets Financial liabilities Liabilities not carried at fair value Accounts payable and accrued liabilities Borrowings on finance receivables Convertible debentures Liabilities held at fair value Derivative financial liabilities Interest rate swaps Total financial liabilities	As at September 30, 2021 Level 1 Level 2 Level 3 Carrying value Quoted market price Observable market inputs Non- observable market inputs Total $ $ $ $ $
	103,771 103,771 — — 103,771 7,565,643 — — 7,565,643 7,565,643 115,333 — — 115,333 115,333 160,427 — — 160,427 160,427 14,532 — 14,532 — 14,532 13 — 13 — 13 6,651 — 6,651 — 6,651 12,692 — — 12,692 12,692
	7,979,062 103,771 21,196 7,854,095 7,979,062
	1,003,874 — — 1,003,874 1,003,874 8,335,704 — — 8,335,704 8,335,704 157,842 — 166,332 — 166,332 30,590 — 30,590 — 30,590
	9,528,010 — 196,922 9,339,578 9,536,500

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Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

Financial assets Assets not carried at fair value Cash Finance lease receivables Finance loans receivables Accounts receivable and other assets Assets held at fair value Derivative financial assets Interest rate swaps Interest rate caps Equity Swaps Investments classified as FVTPL Total financial assets Financial liabilities Liabilities not carried at fair value Accounts payable and accrued liabilities Borrowings on finance receivables Convertible debentures Liabilities held at fair value Derivative financial liabilities Interest rate swaps Total financial liabilities	As at December 31, 2020 Level 1 Level 2 Level 3 Carrying value Quoted market price Observable market inputs Non- observable market inputs Total $ $ $ $ $
	8,789 8,789 — — 8,789 9,460,104 — — 9,460,104 9,460,104 101,518 — — 101,518 101,518 221,129 — — 221,129 221,129 46,655 — 46,655 — 46,655 80 — 80 — 80 6,894 — 6,894 — 6,894 5,823 — — 5,823 5,823
	9,850,992 8,789 53,629 9,788,574 9,850,992
	1,062,610 — — 1,062,610 1,062,610 9,864,336 — — 9,864,336 9,864,336 154,267 — 165,000 — 165,000 68,282 — 68,282 — 68,282
	11,149,495 — 233,282 10,926,946 11,160,228

17. RESTRUCTURING AND TRANSFORMATION

For the three- and nine-month periods ended September 30, 2021, the Company recorded transformation expenses of nil, (three- and nine-month periods ended September 30, 2020 - $24,213 and $57,871, respectively). All amounts have been paid or expect to be paid by the end of 2021 with the exception of accrued operating expenses on closed facilities for $1,978, included in Other, which will be paid out over the remaining term of the lease.

24

Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

Transformation and restructuring expenses for the three- and nine-month periods ended:

Nature of expenses Severance Professional fees and other Total	September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 $ $ $ $
	— 8,576 — 14,347 — 15,637 — 43,524
	— 24,213 — 57,871

Remaining unpaid liabilities related to transformation expenses.

Nature of expenses Severance Professional fees Other Total	As at September 30, 2021 As at December 31, 2020 $ $
	1,879 9,136 660 22,884 1,978 2,881
	4,517 34,901

18. SYNDICATIONS

The following represents the detail of the Company's syndicated assets.

Classification Allowance for early termination Accounts payable and accrued liabilities Deferred servicing fee Finance receivables	As at September 30, 2021 As at December 31, 2020 $ $
	20,637 12,835 578 814

Classification Syndication revenue, net Syndication revenue, net Net book value of assets syndicated n/a	Three-month period ended Nine-month period ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 $ $ $ $
	13,937 15,246 49,891 51,666 521,306 600,442 2,147,622 2,192,614

19. COMPARATIVE FIGURES

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

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Element Fleet Management Corp.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2021

20. SUBSEQUENT EVENTS

Share Repurchase

On November 10, 2021, the TSX approved Element's notice of intention to renew its NCIB. The NCIB allows the Company to repurchase on the open market (or as otherwise permitted), at it's 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 c ommon shares, 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. Shareholders may obtain a copy of the NCIB notice, without charge, by contacting Element.

Increase in Common Share Dividend

On November 10, 2021, the Board approved the increase in the quarterly common share dividend from $0.065 to $0.0775 per share.

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