UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 FOR THE PERIOD ENDED JUNE 30, 2003
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to _________.
Commission file number: 0-26680
NICHOLAS FINANCIAL, INC.
(Exact name of registrant as specified in its Charter)
British Columbia, Canada 8736-3354
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2454 McMullen Booth Road, Building C
Clearwater, Florida 33759
(Address of Principal Executive Offices) (Zip Code)
(727) 726-0763
(Registrant's telephone number, Including area code)
Not applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 and 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter periods that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____.
As of July 31st, 2003 there were 5,043,488 shares of common stock
outstanding
2
Nicholas Financial, Inc.
Form 10-QSB
Index
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet as of
June 30, 2003........................................3
Condensed Consolidated Statements of Income for
the three months ended June 30, 2003 and 2002........4
Condensed Consolidated Statements of Cash Flows for
the three months ended June 30, 2003 and 2002........5
Notes to the Condensed Consolidated Financial
Statements...........................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................12
Item 3. Controls & Procedures...............................23
Part II. Other Information
Item 1. Legal Proceedings...................................24
Item 2. Changes in Securities...............................24
Item 3. Defaults upon Senior Securities.....................24
Item 4. Submission of Matters to a Vote of
Security Holders....................................24
Item 5. Other Information...................................24
Item 6. Exhibits and Reports on Form 8-K....................24
Signatures..........................................25
Exhibit Index.......................................26
3
Part I. Item 1
Nicholas Financial, Inc.
Condensed Consolidated Balance Sheet
(Unaudited)
June 30,
2003
-----------------
Assets
Cash $ 733,285
Finance receivables, net 89,699,998
Accounts receivable 13,150
Assets held for resale 421,987
Prepaid expenses and other assets 339,036
Property and equipment, net 510,078
Deferred income taxes 3,135,787
-------------
Total assets $94,853,321
=============
Liabilities
Line of Credit $61,960,238
Drafts Payable 691,560
Notes payable - related party 807,468
Accounts payable and accrued liabilities 3,349,529
Derivatives 2,623,825
Income taxes payable 1,511,906
Deferred revenues 909,168
------------
Total liabilities 71,853,694
Shareholders' equity
Preferred stock, no par: 5,000,000 shares
authorized;none issued and outstanding -
Common stock, no par: 50,000,000 shares
authorized; 5,010,421 shares issued and
outstanding 4,460,173
Other comprehensive loss (1,666,614)
Retained earnings 20,206,068
------------
22,999,627
------------
Total liabilities and shareholders' equity $94,853,321
============
See accompanying notes.
4
Nicholas Financial, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three months ended
June 30
2003 2002
------------------------
Revenue:
Interest income on
finance receivables $5,988,473 $5,233,349
Sales 71,558 82,376
-------------------------
6,060,031 5,315,725
Expenses:
Cost of sales 17,074 17,168
Marketing 211,232 153,481
Administrative 2,315,877 1,981,858
Provision for credit losses 579,999 547,066
Depreciation and amortization 69,718 37,000
Interest expense 987,328 964,063
--------------------------
4,181,228 3,700,636
Operating income before
income taxes 1,878,803 1,615,089
Income tax expense:
Current 1,592,107 820,121
Deferred (879,279) (218,197)
-------------------------
712,828 601,924
-------------------------
Net income $1,165,975 $1,013,165
=========================
Earnings per share - basic $0.23 $0.20
=========================
Earnings per share - diluted $0.22 $0.19
=========================
See accompanying notes.
5
Nicholas Financial, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three months ended June 30
2003 2002
-----------------------------
Operating activities
Net income $ 1,165,975 $ 1,013,165
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 69,718 37,000
Provision for credit losses 579,999 547,066
Deferred income taxes (879,279) 28,675
Changes in operating assets and
liabilities:
Accounts receivable 3,078 2,174
Prepaid expenses and other assets (21,551) (251,305)
Accounts payable and accrued liabilities 278,653 (284,879)
Drafts payable 27,040 (71,648)
Income taxes payable 1,406,031 552,061
Deferred revenues (7,721) 114,325
---------------------------
Net cash provided by
operating activities 2,621,943 1,686,634
Investing activities
Purchase and origination of
finance contracts (17,619,385) (15,312,018)
Principal payments received 13,555,378 12,430,856
Purchase of property and
equipment, net of disposals (112,200) (49,630)
---------------------------
Net cash used in investing
activities (4,176,207) (2,930,792)
Financing activities
(Repayment) issuance of
notes payable - related party (1,142) 6,458
Net proceeds from line of credit 1,800,000 1,860,000
Sale of common stock 7,480 30,448
--------------------------
Net cash provided by
financing activities 1,806,338 1,896,906
--------------------------
Net increase in cash 252,074 652,748
Cash, beginning of period 481,211 51,239
Cash, end of period $ 733,285 $ 703,987
See accompanying notes.
6
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
June 30, 2003
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of Nicholas Financial, Inc. (the "Company") have been
prepared in accordance with accounting principles generally
accepted in the United States for interim financial information
and with the instructions to Form 10-QSB pursuant to the
Securities and Exchange Act of 1934, as amended in Article 10 of
Regulation SB, as amended. Accordingly, they do not include all
of the information and footnotes required by accounting
principles generally accepted in the United States for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three months ended June 30, 2003 are not
necessarily indicative of the results that may be expected for
the year ending March 31, 2004. For further information, refer to
the condensed consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 2003.
2. Revenue Recognition
Interest income on finance receivables is recognized using the
interest method. Accrual of interest income on finance
receivables is suspended when a loan is contractually delinquent
for 60 days or more or the collateral is repossessed, whichever
is earlier.
The Company attributes all of its dealer discount and a portion
of unearned income to a reserve for credit losses. Such amounts
reduce the interest recognized over the life of the contract. The
Company receives a commission for selling add-on services to
consumer borrowers and amortizes the commission, net of the
related costs, over the term of the loan using the interest
method. The Company's net fees charged for processing a loan are
recognized as an adjustment to the yield and are amortized over
the life of the loan using the interest method.
The amount of future unearned income represents the amount of
finance charges the Company expects to fully earn over the life
of the current portfolio, and is computed as the product of the
contract rate, the contract term, and the contract amount. The
Company aggregates the contracts purchased during a three-month
period for all of its branch locations. After the analysis of
purchase date accounting is complete, any uncollectable amounts
would be contemplated in the allowance for credit losses.
3. Earnings Per Share
Basic earnings per share excludes any dilutive effects of common
stock equivalents such as options, warrants, and convertible
securities. Diluted earnings per share includes the effects of
dilutive options, warrants, and convertible securities. Basic and
diluted earnings per share have been computed as follows:
7
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
3. Earnings Per Share (continued)
Three months ended
June 30,
2003 2002
------------------------
Numerator:
Numerator for basic and dilutive
earnings per share available to
common stockholders $1,165,975 $1,013,165
========================
Denominator:
Denominator for basic earnings per
share - weighted average shares 5,006,926 4,998,364
Effect of dilutive securities:
Employee stock options 293,531 343,819
------------------------
Denominator for diluted earnings
per share - adjusted weighted-
average shares and
assumed conversions 5,300,458 5,342,183
========================
Earnings per share - basic $0.23 $0.20
========================
Earnings per share - diluted $0.22 $0.19
========================
8
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
4. Finance Receivables
The Company charges-off receivables when an individual account
has become more than 120 days contractually delinquent. In the
event of a repossession the charge-off will occur in the month in
which the vehicle was repossessed.
Costs associated with repossession, transport and auction
preparation expenses are charges reported under operating
expenses in the period in which they were incurred. The Company
maintains full responsibility for repossessions. There is no
relationship between the Company and the dealer with respect to a
given contract once the assignment of that contract is complete.
The dealer has no vested interest in the performance of any
installment contract the Company purchases.
Finance receivables consist of automobile finance installment
contracts and direct consumer loans and are detailed as follows:
Finance receivables, gross contract $143,170,416
Less:
Unearned interest (34,174,937)
-------------
108,995,479
Dealer discounts (13,358,345)
Allowance for credit losses (5,937,136)
-------------
Finance receivables, net $ 89,699,998
=============
The terms of the receivables range from 12 to 66 months and bear
a weighted average effective interest rate of 24%.
5. Line of Credit
The Company has a $75 million Line of Credit facility (the Line)
which expires on November 30, 2004. Borrowings under the Line
bear interest at the prime rate plus twenty-five basis points.
The Company also has several LIBOR pricing options available. If
the outstanding balance falls below $10 million the Line bears
interest at the prime rate plus 2.00%. Pledged as collateral for
this credit facility are all of the assets of Nicholas Financial,
Inc. and its subsidiaries. As of June 30, 2003 the outstanding
amount of the credit facility was $61,960,238, the amount
available under the line of credit was $13,039,762. As of June
30, 2003 the Company was in full compliance of all debt
covenants.
6. Notes Payable - Related Party
The Company has unsecured notes totaling $807,468. The notes bear
an interest rate of 8.87% and are due upon 30-day demand.
9
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
7. Derivatives and Hedging
The Company is party to interest rate swap agreements which are
derivative instruments. For derivative instruments that are
designated and qualify as a cash flow hedge (i.e., hedging the
exposure to variability in expected future cash flows that is
attributable to a particular risk, such as interest rate risk),
the effective portion of the gain or loss on the derivative
instrument is reported as a component of comprehensive income and
reclassified into earnings in the same period or periods during
which the hedged transaction affects earnings. The remaining gain
or loss on the derivative instrument in excess of the cumulative
change in the present value of the future cash flows of the
hedged item, if any, is recognized in current earnings during the
period of change.
The Company has entered into interest rate swap agreements that
effectively convert a portion of its floating-rate debt to a
fixed-rate basis, thus reducing the impact of interest rate
changes on future interest expense. At June 30, 2003,
approximately $50,000,000 of the Company's borrowings have been
designated as the hedged items to interest rate swap agreements.
Under the swap agreements, the Company received an average
variable rate of 3.56% and paid an average fixed rate of 6.35%
during the three months ended June 30, 2003. A loss of $1,666,614
related to the fair value of the swaps at June 30, 2003 has been
recorded in the caption derivatives on the balance sheet. Amounts
of net losses on derivative instruments expected to be
reclassified from comprehensive income to earnings in the next 12
months are not expected to be material. The Company has also
entered into three forward locking swaps disclosed in the table
below.
The Company has entered into the following cash-flow hedges:
Date Effective Notional Fixed Rate Maturity
Entered Date Amount Of Interest Date
=========================================================================
August 19,1999 August 19, 1999 $10,000,000 5.80% August 1,2003
May 17, 2000 May 17, 2000 10,000,000 6.87% May 17, 2004
October 5, 2001 October 5, 2001 10,000,000 3.85% October 5, 2004
June 28, 2002 June 28, 2002 10,000,000 3.83% July 2, 2005
January 6, 2003 April 2, 2003 10,000,000 3.35% April 2, 2007
January 31, 2003 August 1, 2003 10,000,000 3.20% August 2, 2006
February 26, 2003 May 17, 2004 10,000,000 3.91% May 19, 2008
The Company has also entered into various interest rate option
agreements with maturities through May 17, 2004.
The Company utilizes the above noted interest rate swaps to
manage its interest rate exposure. The swaps effectively convert
a portion of the Company's floating rate debt to a fixed rate,
more closely matching the interest rate characteristics of the
Company's finance receivables. There has historically been no
ineffectiveness associated with the Company's hedges.
10
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
8. Stock Options
In December 2002, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
(SFAS) No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" which amends FASB
Statement No. 123. SFAS 148 provides alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based-employee compensation. SFAS 148
also amends the disclosure requirements of SFAS 123 to require
more prominent and more frequent disclosures in financial
statements concerning the effects of stock-based compensation.
The effective date of SFAS 148 is for fiscal years ending after
December 15, 2002.
The Company has an employee stock incentive plan (the SIP) for
officers, directors and key employees under which 585,866 shares
of common stock were reserved for issuance as of June 30, 2003.
Options currently granted by the Company generally vest over a
five-year period.
Previous to FAS 148 the Company had elected to follow APB 25, and
related Interpretations in accounting for its employee stock
options because the alternative, fair value method, provided for
under FAS 123 requires use of option valuation models that were
not developed for use in valuing employee stock options. Under
APB 25, if the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
The following table contains the pro forma net income and basic
and fully diluted earnings per share under the fair value method.
The fair value method uses the Black-Scholes option-pricing model
to determine compensation expense associated with the Company's
options.
Three Months Ended June 30
2003 2002
----------------------------
Net income $1,165,975 $1,013,165
Basic earnings per share $0.23 $0.20
Fully diluted earnings
per share $0.22 $0.19
Stock based employee
compensation cost under
the Fair Value Method $12,012 $24,209
Pro forma net income $1,153,963 $988,956
Pro forma basic
earnings per share $.23 $.20
Pro forma fully diluted
earnings per share $.22 $.19
11
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
9. Comprehensive Income
The Company is party to interest rate swap agreements which are
derivative instruments. For derivative instruments that are
designated and qualify as a cash flow hedge (i.e., hedging the
exposure to variability in expected future cash flows that is
attributable to a particular risk, such as interest rate risk),
the effective portion of the gain or loss on the derivative
instrument is reported as a component of comprehensive income and
reclassified into earnings in the same period or periods during
which the hedged transaction affects earnings.
The following table reconciles net income with comprehensive
income for the three months ended June 30, 2003 and 2002,
respectively.
June 30, 2003 June 30, 2002
-----------------------------------
Net Income $1,165,975 $1,013,165
Mark to market
interest rate swaps (264,269) (246,872)
------------------------------
Comprehensive income $901,706 $766,293
==============================
10. Subsequent events
On August 11th, 2003 the Company announced its Board of Directors
has approved a $.10 per share cash dividend payable semi-annual
at the rate of $.05 per share. The record date has been set for
September 8, 2003 and the payment date is September 22, 2003.
12
Part I. Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
Consolidated net income increased for the three-month period
ended June 30, 2003 to $1,165,975 from $1,013,165 for the three-
month period ended June 30, 2002. Earnings were favorably
impacted by an increase in the outstanding loan portfolio. The
Company's NDS subsidiary did not contribute significantly to
consolidated operations in the three-month periods ended June 30,
2003 or 2002.
Three months ended June 30,
Select Portfolio Information 2003 2002
----------------------------
Average Net Finance Receivables(1) $107,212,467 $93,781,204
Average Indebtedness(2) 62,239,301 55,581,193
Total Finance Revenue(3) 5,988,473 5,233,349
Interest Expense 987,328 964,063
Net Finance Revenue 5,001,145 4,269,286
Weighted average Contractual rate(5) 23.90% 23.93%
Gross Portfolio Yield (4) 22.34% 22.32%
Average Cost of Borrowed Funds(2) 6.35% 6.94%
Provision for Credit Losses
as a Percentage of Average Net
Finance Receivables 2.16% 2.33%
Net Portfolio Yield(4) 16.49% 15.88%
Operating Expenses as a Percentage
of Average Net Finance Receivables(6) 9.43% 8.85%
Pre-tax Yield as a Percentage
of Average Net Finance Receivables(7) 7.06% 7.03%
Write-off to Liquidation (8) 7.76% 7.90%
Net Charge-Off Percentage (9) 6.64% 6.95%
13
(1) Average net finance receivables represent the average of net
finance receivables throughout the period. Net finance
receivables represents gross finance receivables less any
unearned finance charges related to those receivables.
(2) Average indebtedness represents the average outstanding
borrowings under the Line of Credit and notes payable-
related party. Average cost of borrowed funds represents
interest expense as a percentage of average indebtedness.
(3) Does not include revenue of $71,558 and $82,376 associated
with the Company's software subsidiary "NDS for the three
months ended June 30, 2003 and 2002, respectively.
(4) Gross portfolio yield represents total finance revenues as a
percentage of average net finance receivables. Net
portfolio yield represents net finance revenue income minus
the provision for credit losses as a percentage of average
net finance receivables.
(5) Weighted average contractual rate represents the weighted
average Annual percentage rate (APR) of all Contracts in the
portfolio during the period.
(6) Does not include operating expenses of $86,555 and $113,875
associated with the Company's software subsidiary "NDS for
the three months ended June 30, 2003 and 2002, respectively.
(7) Pre-tax yield represents net portfolio yield minus operating
expenses as a percentage of interest earning assets.
(8) Liquidation is defined as beginning receivable balance plus
current period purchases minus voids and refinances minus
ending receivable balance.
(9) Net charge-off percentage represents net charge-offs divided
by average net finance receivables outstanding during the
period.
14
Three months ended June 30, 2003 compared to three months ended
June 30, 2002
Interest Income and Loan Portfolio
Interest revenue increased 14% to $6.0 million for the
period ended June 30, 2003, from $5.2 million for the period
ended June 30, 2002. The net finance receivable balance totaled
$89.7 million at June 30, 2003, an increase of 14% from the $78.4
million at June 30, 2002. The primary reason net finance
receivables increased was the increase in the receivable base of
several existing branches and the opening of five additional
branches. The gross finance receivable balance increased 15% to
$143.2 million at June 30, 2003 from $124.6 million at June 30,
2002. The primary reason interest revenue increased was the
increase in the outstanding loan portfolio. The gross portfolio
yield increased from 22.32% for the period ended June 30, 2002 to
22.34% for the period ended June 30, 2003.
Computer Software Business
Sales for the period ended June 30, 2003 were $71,558 compared
to $82,376 for the period ended June 30, 2002, a decrease of 13%.
This decrease was primarily due to lower revenue from the
existing customer base and the continued emphasis on the finance
subsidiary.
Operating Expenses
Operating expenses, excluding provision for credit losses
and interest expense, increased to $2.6 million for the period
ended June 30, 2003 from $2.2 million for the period ended June
30, 2002. This increase of 19% was primarily attributable to the
additional staffing of several existing branches, the opening of
five additional branches and increased general operating
expenses.
Interest Expense
Interest expense increased to $987,328 for the period ended
June 30, 2003 as compared to $964,063 for the period ended June
30, 2002. This increase was due to the increase in the amount of
average indebtedness from $55.6 million for the three months
ended June 30, 2002 to $62.2 million for the three months ended
June 30, 2003. This increase was offset in part due to a
reduction in the average cost of outstanding borrowings from
6.94% for the three months ended June 30, 2002 to 6.35% for the
three months ended June 30, 2003.
15
Contract Procurement
The Company purchases contracts in the states listed below. The
amounts shown in the table below represent the total face value
of contracts acquired. The Company has fifteen branch locations
in Florida and does not have any immediate plans for additional
expansion in Florida. The Company has been expanding its contract
procurement in North Carolina, South Carolina, Ohio and Michigan.
Please see Future Expansion.
The Contracts purchased by the Company are predominately for used
vehicles, less than 3% were new. The average model year
collateralizing the portfolio is a 1998 vehicle. Contracts
purchased and originated are shown at face value.
Maximum
allowable
Interest Three Months Ended
State rate (1) 6/30/03 6/30/02
--------------------------------------------------
FL 30% $10,148,495 $9,616,464
GA 29% 2,331,056 1,805,361
NC 29% 1,998,035 2,008,000
SC 29% 760,698 520,762
OH 25% 3,125,301 1,574,553
MI 25% 455,534 -
VA 29% 17,040 46,642
-------------------------
Total $18,836,159 $15,571,782
(1) The allowable maximum interest rates by State is subject
to change and are governed by the individual states the
Company conducts business in.
Indirect
Contracts Three Months Ended
Purchased 6/30/03 6/30/02
--------------------------------------------------
Purchases $18,836,159 $15,571,782
Weighted APR 24.00% 24.62%
Average Discount 8.96% 8.83%
Weighted average
Term (months) 44 44
Average Loan $8,186 $8,110
Number of Contracts 2,301 1,920
Direct
Loans Three Months Ended
Originated 6/30/03 6/30/02
---------------------------------------------
Originations $941,223 $1,115,092
Weighted APR 26.50% 25.78%
Weighted average
Term(months) 27 30
Average Loan $2,878 $3,195
Number of Loans 327 349
16
Analysis of Credit Losses
Because of the nature of the borrowers under the Contracts and
its direct consumer loan program, the Company considers the
establishment of adequate reserves for credit losses to be
imperative. The Company segregates its Contracts into pools for
purposes of establishing reserves for losses. Each such pool
consists of the loans purchased by a Company branch office during
a three-month period. The average pool consists of 74 Contracts
with an aggregate initial principal amount of approximately
$600,000. As of June 30, 2003, the Company had 442 active pools.
The Company pools Contracts according to branch location
because the branches purchase contracts in different markets
located in Florida, Georgia, North Carolina, South Carolina, Ohio
and Michigan. All Contracts purchased by a branch during a fiscal
quarter comprise a pool. This method of pooling by branch and
quarter allows the Company to evaluate the different markets
where the branches operate. The pools also allow the Company to
evaluate the different levels of customer income, stability,
credit history, and the types of vehicles purchased in each
market.
Contracts are purchased from many different dealers and are all
purchased on an individual contract by contract basis. Individual
contract pricing is determined by the automobile dealerships and
is generally the lesser of State maximum interest rates or the
maximum interest rate at which the customer will accept. In
certain markets, competitive forces will drive down contract
rates from the maximum rate to a level where an individual
competitor is willing to buy an individual contract. The Company
only buys contracts on an individual basis and never purchases
contracts in batches.
Dealer discount represents the difference between the face
value of an installment contract and the amount of money the
Company actually pays for the contract. The discount negotiated
by the Company is a function of the credit quality of the
customer and the wholesale value of the vehicle. The automotive
dealer accepts these terms by executing a dealer agreement with
the Company. The entire amount of discount relates to credit
quality, and is therefore considered to be part of the credit
loss reserve. The Company utilizes a static pool approach to
track portfolio performance. A static pool retains an amount
equal to 100% of the discount into a reserve for credit losses.
In situations where, at the date of purchase, the discount is
determined to be insufficient to absorb all potential losses
associated with the pool, a portion of future unearned income
associated with that specific pool will be added to the reserves
for credit losses until total reserves have reached the
appropriate level. Subsequent to the purchase, if the reserve for
credit losses is determined to be inadequate for a pool which is
not fully liquidated, then a charge to income through the
provision is used to reestablish adequate reserves. If a pool is
fully liquidated and has any remaining reserves, the excess
reserves are immediately recognized into income. For pools not
fully liquidated, that are determined to have excess reserves,
such excess amounts are accreted into income over the remaining
life of the pool. Reserves accreted into income for the period
ended June 30, 2003 were $524,125 compared to $581,051 in the
period ended June 30, 2002.
The Company has definitive underwriting guidelines it utilizes
to determine which contracts to purchase. These guidelines are
very specific and result in all loan purchases having common risk
characteristics. The Company utilizes its District Managers to
evaluate their respective branch locations for adherence to these
underwriting guidelines. The Company also utilizes an internal
audit department to assure adherence to its underwriting
guidelines. The Company utilizes the branch model which allows
for contract purchasing to be done on the branch level. Each
Branch Manager will interpret the guidelines differently and as a
result the common risk characteristics will be the same on an
individual branch level but not necessarily compared to another
branch.
In analyzing a pool, the Company considers the performance of
prior pools originated by the branch office, the performance of
prior Contracts purchased from the dealers whose Contracts are
included in the current pool, the credit rating of the borrowers
under the Contracts in the pool, and current market and economic
conditions. Each pool is analyzed monthly to determine if the
loss reserves are adequate, and adjustments are made if they are
determined to be necessary. As of June 30, 2003, the Company had
established reserves for losses on Contracts of $19,094,465 or
13.75% of gross outstanding receivables under the Contracts.
17
The Company has experienced higher losses in the last twelve
months, however, not to the extent it had anticipated. This
resulted in more mature static pools having reserves in excess of
current estimates needed to liquidate these pools. The Company is
in the process of accreting these excess reserves over the
remaining life of the pools. The Company's overall reserve
percentage has increased from 13.17% of gross receivables as of
March 31, 2003 to 13.48% of gross receivables as of June 30,
2003. Management has concluded that the reserve level remains
adequate.
18
The following table sets forth a reconciliation of the changes in
dealer discount on Contracts.
Three months ended June 30,
2003 2002
-----------------------------
Balance at beginning of period $12,394,089 $11,259,898
Discounts acquired on new volume 3,067,849 2,542,434
Losses absorbed (1,856,531) (1,789,251)
Recoveries 277,063 249,029
Reserves accreted (524,125) (575,716)
----------------------------
Balance at end of period $13,358,345 $11,686,394
============================
Reserves as a percent of gross
Finance receivables 9.62% 9.76%
The following table sets forth a reconciliation of the changes in
the allowance for credit losses on Contracts.
Three months ended June 30,
2003 2002
----------------------------
Balance at beginning of period $5,428,681 $4,105,174
Current period provision 519,454 491,464
Losses absorbed (212,015) (143,892)
Balance at end of period $5,736,120 $4,452,746
-------------------------
Reserves as a percent
of gross Finance receivables 4.13% 3.72%
=========================
The following table sets forth a reconciliation of the changes in
the allowance for credit losses on Direct loans.
Three months ended June 30,
2003 2002
----------------------------
Balance at beginning of period $176,126 $200,612
Current period provision 60,545 55,602
Losses absorbed (41,250) (30,596)
Recoveries 5,595 6,464
Reserves accreted - (5,335)
--------------------------
Balance at end of period $201,016 $226,747
==========================
Reserves as a percent
of gross Finance receivables 4.62% 4.62%
===========================
Total reserves at end of period $19,295,481 $16,365,887
============================
Reserves as a percent of gross
Finance receivables 13.48% 13.13%
============================
19
The average dealer discount associated with new volume for the
three months ended June 30, 2003 was 8.96% compared to 8.83% for
the three months ended June 30, 2002. The Company does not
consider these changes to be material and such changes are not
the result of any change in buying philosophy or competition.
The provision for credit losses increased for the three months
ended June 30, 2003 to $579,999 compared to $547,066 for the
three months ended June 30, 2002. This increase is attributed to
an increase in the Net Finance Receivable balance from $78.4
million at June 30, 2002 to $89.7 million at June 30, 2003. To a
lesser extent, the provision for credit losses increased as a
result of an increase in the charge off rate of certain static
pools. These pools were reaching reserve levels below Company
estimates to absorb future credit losses. In these instances, the
Company increased reserves related to specific static pools
through a direct charge to income through the provision.
The Company's losses as a percentage of liquidation decreased
from 7.90% for the three months ended June 30, 2002 to 7.76% for
the three months ended June 30, 2003. The Company believes
portfolio performance will weaken if the labor market continues
to produce further loss of jobs as evidenced by the July 2003
unemployment numbers released by the federal government. The
Company does not believe there have been any significant changes
in loan concentrations, terms or quality of contracts purchased
during the three months ended that would have contributed to a
change in the percentage of losses. The delinquency percentage
for contracts more than thirty days past due for the three months
ended June 30, 2003 increased to 2.66% from 2.42% for the three
months ended June 30, 2002. The delinquency percentage for direct
loans more than thirty days past due for the three months ended
June 30, 2003 increased to 2.32% from 0.95% for the three months
ended June 30, 2002. The Company does not give significant
consideration to short-term trends in delinquency when evaluating
reserve levels. Delinquency percentages tend to be very volatile
and often are not necessarily an indication of future losses. The
Company utilizes a static pool approach to analyze portfolio
performance and looks at specific pool performance and recent
trends as leading indicators to future performance of the
portfolio.
Recoveries as a percentage of current year losses were 13.40% for
the three months ended June 30, 2003 compared to 13.01% for the
three months ended June 30, 2002. Recoveries as a percent of
losses increased during the comparable quarters, however as the
Company continues to expand, it expects recoveries as a percent
of losses to decline. The Company anticipates difficulty in
implementing its loss recovery model in geographic areas further
away from the Company's origin.
Reserves accreted into income for the three months ended June 30,
2003 were $524,125 compared to $581,051 for the three months
ended June 30, 2002. The amount and timing of reserves accreted
into income is a function of individual static pool performance.
The Company has seen some deterioration in the performance of the
portfolio, more specifically; static pools more than fifty
percent liquidated have seen an increase in the default rate when
compared to prior year pool performance during their same
liquidation cycle. The Company attributes this increase to
overall general economic conditions and more specifically to the
increased unemployment rate in the Company's markets.
20
The current unemployment rate compared to last year has
risen. The Company believes there is a correlation between the
unemployment rate and future portfolio performance. The number of
voluntary repossessions has increased slightly for the three
months ended June 30, 2003 as compared to the three months ended
June 30, 2002. The number of bankruptcy filings has also risen
slightly during the three months ended June 30, 2003 as compared
to the three months ended June 30, 2002. As a result of the
above, the Company has raised its current reserve level to
anticipate a modest decline in portfolio performance.
The amount of future unearned income represents the amount of
finance charges the Company expects to fully earn over the life
of the current portfolio, and is computed as the product of the
contract rate, the contract term, and the contract amount. The
Company aggregates the contracts purchased during a three-month
period for all of its branch locations. After the analysis of
purchase date accounting is complete, any uncollectable amounts
would be contemplated in the allowance for credit losses.
21
The following tables present certain information regarding the
delinquency rates experienced by the Company with respect to
Contracts and under its direct consumer loan program:
Three Months Ended Three Months Ended
June 30, 2003 June 30, 2002
-----------------------------------------------
Contracts
Gross Balance
Outstanding $138,823,707 $119,737,365
Dollar Dollar
Delinquencies Amount Percent* Amount Percent *
30 to 59 days $ 2,647,022 1.91% $ 1,896,347 1.59%
60 to 89 days 736,415 0.53% 827,527 0.69%
90 + days 307,405 0.22% 173,315 0.14%
----------- ------ ------------ ------
Total
Delinquencies $3,690,842 $2,897,189
*Total Delinquencies
as percent of
outstanding balance 2.66% 2.42%
Direct Loans
Gross Balance
Outstanding $ 4,346,709 $ 4,906,633
Delinquencies
30 to 59 days $ 49,582 1.14% $ 27,245 0.56%
60 to 89 days 12,760 0.29% 14,427 0.29%
90 + days 38,609 0.89% 5,042 0.10%
-------- ----- -------- ------
Total
Delinquencies $ 100,951 $ 46,714
*Total Delinquencies
as a percent of
outstanding balance 2.32% 0.95%
The delinquency percentage for contracts more than thirty days
past due for the three months ended June 30, 2003 was 2.66%
compared to 2.42% for the three months ended June 30, 2002. The
delinquency percentage for direct loans more than thirty days
past due for the three months ended June 30, 2003 was 2.32%
compared to 0.95% for the three months ended June 30, 2002.
The Company does not give much consideration to short-term
trends in delinquency percentages when evaluating reserve levels.
Delinquency percentages tend to be very volatile and often are
not necessarily an indication of future losses. The Company
estimates future portfolio performance by considering several
factors. The most significant factors are described as follows.
The Company analyzes historical static pool performance for each
branch location when determining appropriate reserve levels. The
Company utilizes internal branch audits as an indication to
future static pool performance. (See pg.7 of the Company's March
31, 2003 10-KSB "Underwriting Guidelines" for more information on
branch location audits) The Company also considers such things as
the current unemployment rate in markets the Company operates in,
the percentage of voluntary repossessions as compared to prior
periods, the percentage of bankruptcy filings as compared to
prior periods and other leading economic indicators.
22
Income Taxes
The Company's effective tax rate increased from 37.27% for the
three months ended June 30, 2002 compared to 37.94% for the three
months ended June 30, 2003. This increase is primarily attributed
to higher state income tax rates in the state of Ohio.
Liquidity and Capital Resources
The Company's cash flows for the three months ended June 30, 2002
and June 30, 2001 are summarized as follows:
Three months ended Three months ended
June 30, 2003 June 30, 2002
--------------------------------------------
Cash provided by (used in):
Operating Activities - $ 2,621,943 $ 1,686,634
Investing Activities -
(primarily purchase
of Contracts) (4,176,207) (2,930,792)
Financing Activities 1,806,338 1,896,906
Net increase in cash 252,074 652,748
The Company's primary use of working capital during the
three months ended June 30, 2003 was the funding of the purchase
of Contracts. The Contracts were financed substantially through
borrowings on the Company's Line of Credit. The Line of Credit is
secured primarily by Contracts, and available borrowings are
based on a percentage of qualifying Contracts. As of June 30,
2003 the Company had approximately $13.0 million available under
the Line of Credit. Since inception, the Company has also funded
a portion of its working capital needs through cash flows from
operating activities.
The self-liquidating nature of installment Contracts and
other loans enables the Company to assume a higher debt-to-equity
ratio than in most businesses. The amount of debt the Company
incurs from time to time under these financing mechanisms depends
on the Company's need for cash and it's ability to borrow under
the terms of its Line of Credit. The Company believes that
borrowings available under the Line of Credit as well as cash
flow from operations and, if necessary, the issuance of
additional subordinated debt and, or the sale of additional
securities in the capital markets, will be sufficient to meet its
short term funding needs.
The Company renewed its credit facility on June 28, 2002. The
loan agreement expires November 30, 2004 and bears interest at
the prime rate and offers several LIBOR pricing options. The new
loan agreement released Bank One as a secondary bank and added
First Tennessee Bank. The Company is pleased with its new banking
relationship and believes it will be beneficial for future
expansion.
23
Future Expansion
The Company currently operates twenty-seven branch
locations, fifteen in the State of Florida, three in the State of
Georgia, three in the State of North Carolina, one in the state
of South Carolina and five in the state of Ohio. Each office is
budgeted (size of branch, number of employees and location) to
handle up to 1,000 accounts and up to $7,500,000 in outstanding
receivables. To date none of our branches have reached this
capacity.
The Company intends to continue its expansion through the
purchase of additional Contracts and the expansion of its direct
consumer loan program. As the branches continue to add customers,
the size of the loan portfolio will continue to grow. With the
added volume in each branch and as the company adds new branches,
it will be necessary for the Company to increase the size of its
Line of Credit.
The Company currently intends to continue its expansion through
the purchase of additional Contracts and the expansion of its
direct consumer loan program. In order to increase the size of
the Company's portfolio of Contracts, it will be necessary for
the Company to open additional branch offices and increase the
size of its revolving Line of Credit arrangement, either with
its current lender or another lender. The Company, from time to
time, has and will meet with private investors and financial
institutions that specialize in investing in subordinated debt.
The Company also intends to continue its policy of using
earnings from operations to purchase Contracts or make direct
consumer loans. The Company believes that opportunity for growth
continues to exist in Florida, Georgia, North Carolina, South
Carolina and Ohio and intends to continue its expansion
activities in those states. The Company is currently expanding
its automobile financing program in the State of Michigan. The
Company has targeted its first geographic locations within the
State of Michigan where it believes there is a sufficient market
for its automobile financing program. The Company is currently
purchasing Contracts in the State of Michigan utilizing an
employee who resides in the State of Michigan. This employee is
developing their respective market in Michigan and the Company
is utilizing its Central Buying Office at its Corporate
Headquarters to purchase, process and service these Contracts.
The Company's strategy is to monitor these new markets and
ultimately decide where and when to open actual branch
locations. No assurances can be given, however, that any further
such expansion will occur. The Company is also analyzing other
markets in States the Company does not currently operate in,
however no assurance can be given that any expansion will occur
in these new markets.
Forward-Looking Information
This 10-QSB contains various forward-looking statements and
information that are based on management's beliefs and
assumptions, as well as information currently available to
management. When used in this document, the words "anticipate",
"estimate", "expect", and similar expressions are intended to
identify forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may
vary materially from those anticipated, estimated or expected.
Among the key factors that may have a direct bearing on the
Company's operating results are fluctuations in the economy, the
degree and nature of competition, demand for consumer financing
in the markets served by the Company, the Company's products and
services, increases in the default rates experienced on
Contracts, adverse regulatory changes in the Company's existing
and future markets, the Company's ability to expand its business,
including its ability to complete acquisitions and integrate the
operations of acquired businesses, to recruit and retain
qualified employees, to expand into new markets and to maintain
profit margins in the face of increased pricing competition.
Part 1. Item 3 Controls and Procedures
Within the 90-day period prior to the filing of this report, an
evaluation was carried out under the supervision and with the
participation of the Company's management, including the
Company's Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rule 13a-14(c)
under the Securities Exchange Act of 1934). Based upon the
evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the design and operation of these
disclosure controls and procedures were effective. No
significant changes were made in the Company's internal controls
or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
24
Part II - Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security
Holders - None
Item 5. Other Information - On August 11th, 2003 the Company
announced its Board of Directors has approved a $.10
per share cash dividend payable semi-annual at the
rate of $.05 per share. The record date has been set
for September 8, 2003 and the payment date is
September 22, 2003.
Item 6. (a) Exhibits - See exhibit index following the
signature page.
(b) Reports on Form 8-K - None
25
SIGNATURES
In accordance with the requirements of the Securities Act of
1934, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
10-QSB and authorized this Report to be signed on its behalf by
the undersigned, in the City of Clearwater, State of Florida, on
August 14, 2003.
NICHOLAS FINANCIAL, INC.
(Registrant)
Date: August 14, 2003 /s/Peter L. Vosotas
---------------------------
Peter L. Vosotas
Chairman, President, Chief
Executive Officer
(Principal Executive
Officer)
Date: August 14, 2003 /s/Ralph T. Finkenbrink
--------------------------
Ralph T. Finkenbrink
(Principal Accounting Officer)
26
EXHIBIT INDEX
Item 13. Exhibits and Reports on Form 8-K
3.1 Articles of Incorporation and By-Laws of Nicholas Financial,
Inc.
Incorporated by reference to the Company's Form 10-SB (File
No. 0-26680) filed on March 13, 1996
4.1 Stock Certificate
Incorporated by reference to Exhibit 4.1 to the Company's
Form 10-SB (File No. 0-26680) filed on March 13, 1996
10.1.1 Loan and Security Agreement dated March 31, 1993 between
BA Business Credit, Inc. and Nicholas Financial, Inc.
Incorporated by reference to Exhibit 10.1.1 to the
Company's Form 10-SB (File No. 0-26680) filed on
March 13, 1996
10.1.2 Amendment No. 1 to Loan Agreement dated January 14, 1994
Incorporated by reference to Exhibit 10.1.2 to the
Company's Form 10-SB (File No. 0-26680) filed on
March 13, 1996
10.1.3 Temporary Line Increase Agreement dated Mach 28, 1994
Incorporated by reference to Exhibit 10.1.3 to the
Company's Form 10-SB (File No. 0-26680) filed on
March 13, 1996
10.1.4 Amendment No. 2 to Loan Agreement dated June 3, 1994
Incorporated by reference to Exhibit 10.1.4 to the
Company's Form 10-SB (File No. 0-26680) filed on
March 13, 1996
10.1.5 Amendment No. 3 to Loan Agreement dated July 5, 1994
Incorporated by reference to Exhibit 10.1.5 to the
Company's Form 10-SB (File No. 0-26680) filed on
March 13, 1996
10.1.6 Amendment No. 4 to Loan Agreement dated March 31, 1995
Incorporated by reference to Exhibit 10.1.6 to the
Company's Form 10-SB (File No. 0-26680) filed on
March 13, 1996
10.1.7 Amendment No. 5 to Loan Agreement dated July 13, 1995
Incorporated by reference to Exhibit 10.1.7 to the
Company's Form 10-KSB for the fiscal year ended March
31, 1996
10.1.8 Amendment No. 6 to Loan Agreement dated May 13, 1996
Incorporated by reference to Exhibit 10.1.8 to the
Company's Form 10-QSB for the three months ended
June 30, 1996
10.1.9 Amendment No. 7 to Loan Agreement dated July 5, 1997
Incorporated by reference to Exhibit 10.1.9 to the
Company's Form 10-QSB for the three months ended
September 30, 1997
27
10.1.10 Amendment No. 8 to Loan Agreement dated September 18,
1998
Incorporated by reference to Exhibit 10.2.0 to the
Company's Form 10-QSB for the three months ended
September 30, 1998
10.1.11 Amendment No. 9 to Loan Agreement dated November 25,
1998
Incorporated by reference to Exhibit 10.2.1 to the
Company's Form 10-QSB for the three months ended
December 31, 1998
10.1.12 Amendment No. 10 to Loan Agreement dated November 24,
1999
Incorporated by reference to Exhibit 10.2.2 to the
Company's Form 10-QSB for the three months ended
December 31, 1999
10.1.13 Amendment No. 11 to Loan Agreement dated
August 1, 2000
Incorporated by reference to Exhibit 10.1.13 to the
Company's Form 10-KSB for the year ended
March 31, 2001
10.1.14 Amendment No. 12 to Loan Agreement dated March 16, 2001
Incorporated by reference to Exhibit 10.1.14 to the
Company's Form 10-KSB for the year ended March 31, 2001
10.3.1 Employee Stock Option Plan
Incorporated by reference to the Company's 1999
Annual proxy statement dated June 29, 1999
10.3.2 Non-Employee Stock Option Plan
Incorporated by reference to the Company's 1999
Annual proxy statement dated June 29, 1999
10.4.1 Employment Contract, dated November 22, 1999, between
Nicholas Financial, Inc. and Ralph Finkenbrink, Senior
Vice President of Finance.
Incorporated by reference to Exhibit 10.2.1 to the
Company's Form 10-QSB for the three months ended
December 31, 1999
10.4.2 Employment Contract, dated March 16, 2001, between
Nicholas Financial, Inc. and Peter L. Vosotas President
& Chief Executive Officer.
Incorporated by reference to the Company's 2001 Annual proxy
statement dated July 2, 2001
21 Subsidiaries of Nicholas Financial, Inc.
Incorporated by reference to the Company's Form 10-SB (File
No. 0-26680) filed on March 13, 1996
24 Powers of Attorney (included on signature page hereto)
99.1 Written Statement of the Chief Executive Officer Pursuant to 18
U.S.C. 1350
99.2 Written Statement of the Chief Financial Officer Pursuant to 18
U.S.C. 1350
28
CERTIFICATION
I, Peter L. Vosotas, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB
of Nicholas Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for
the registrant and have:
a)Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures as of the end of the period covered by this report
based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons
performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b)Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls over financial reporting.
Date: August 14, 2003 /s/Peter L. Vosotas
----------------------------
President & Chief Executive
Officer
29
CERTIFICATION
I, Ralph T. Finkenbrink, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB
of Nicholas Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for
the registrant and have:
a)Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures as of the end of the period covered by this report
based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons
performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b)Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls over financial reporting.
Dated: August 14, 2003 /s/Ralph T. Finkenbrink
---------------------------
Senior Vice President
30
Exhibit 99.1
Written Statement of the Chief Executive Officer
Pursuant to 18 U.S.C. 1350
Solely for the purposes of complying with 19 U.S.C. 1350, I ,
the undersigned Chief Executive Officer of Nicholas Financial,
Inc. (the "Company"), hereby certify, based on my knowledge, that
the Quarterly Report on Form 10-Qsb of the Company for the
quarter ended June 30, 2003 (the "Report") fully complies with
the requirements of Section 13(a) of the Securities Exchange Act
of 1934 and that information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Company.
/s/Peter L. Vosotas
--------------------------
Peter L. Vosotas
Chief Executive Officer
August 14, 2003
Exhibit 99.2
Written Statement of the Chief Financial Officer
Pursuant to 18 U.S.C. 1350
Solely for the purposes of complying with 19 U.S.C. 1350, I ,
the undersigned Chief Financial Officer of Nicholas Financial,
Inc. (the "Company"), hereby certify, based on my knowledge, that
the Quarterly Report on Form 10-Qsb of the Company for the
quarter ended June 30, 2003 (the "Report") fully complies with
the requirements of Section 13(a) of the Securities Exchange Act
of 1934 and that information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Company.
/s/Ralph Finkenbrink
-------------------------
Ralph Finkenbrink
Chief Financial Officer
August 14, 2003