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 DECEMBER 31, 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 January 31, 2004 there were 5,080,288 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 December 31, 2003.................................3
Condensed Consolidated Statements of Income
for the three and nine months ended
December 31, 2003 and 2002...........................4
Condensed Consolidated Statements of Cash
Flows for the nine months ended
December 31, 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 and Procedures..............................23
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.....................24
Signatures...........................................25
Exhibit Index........................................28
3
Part I. Item 1
Nicholas Financial, Inc.
Condensed Consolidated Balance Sheet
(Unaudited)
December 31,
2003
----------------
Assets
Cash $ 2,161,193
Finance receivables, net 92,835,072
Accounts receivable 32,395
Assets held for resale 676,635
Prepaid expenses and other assets 361,104
Property and equipment, net 561,127
Deferred income taxes 3,049,950
------------
Total assets $99,677,476
============
Liabilities
Line of credit $66,010,290
Drafts payable 473,587
Notes payable - related party 981,530
Accounts payable 3,453,175
Dividends payable 253,354
Derivatives 1,351,076
Deferred revenues 1,045,207
------------
Total liabilities 73,568,219
Shareholders' equity
Preferred stock, no par: 5,000,000 shares
authorized; none issued and outstanding -
Common stock, no par: 50,000,000 shares
authorized; 5,069,688 shares issued
and outstanding 4,696,014
Accumulated other comprehensive loss (841,045)
Retained earnings 22,254,288
-----------
Total shareholders' equity 26,109,257
-----------
Total liabilities and shareholders' equity $99,677,476
============
See accompanying notes.
4
Nicholas Financial, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three months ended Nine months ended
December 31, December 31,
2003 2002 2003 2002
---------------------------------------------------
Revenue:
Interest income on
finance receivables $6,334,652 $5,350,248 $18,397,452 $16,075,736
Sales 50,447 78,850 192,755 254,165
---------------------------------------------------
6,385,099 5,429,098 18,590,207 16,329,901
Expenses:
Cost of sales 10,456 19,865 39,145 62,685
Marketing 221,459 172,388 653,282 481,729
Administrative 2,437,986 2,012,342 7,235,719 6,108,890
Provision for credit losses 632,873 548,554 1,617,028 1,677,758
Depreciation 30,000 51,000 162,218 130,000
Interest expense 950,109 1,023,976 2,905,747 2,955,671
--------------------------------------------------
4,282,883 3,828,125 12,613,139 11,416,733
--------------------------------------------------
Operating income
before income taxes 2,102,216 1,600,973 5,977,068 4,913,168
Income tax expense:
Current 1,060,332 1,585,769 3,356,708 2,667,527
Deferred (264,155) (993,962) (1,100,546) (832,845)
--------------------------------------------------
796,177 591,807 2,256,162 1,834,682
--------------------------------------------------
Net income $1,306,039 $1,009,166 $3,720,906 $3,078,486
===================================================
Earnings per share - basic $0.26 $0.20 $0.74 $0.62
===================================================
Earnings per share - diluted $0.24 $0.19 $0.69 $0.58
===================================================
Dividends declared - - $0.10 -
===================================================
See accompanying notes.
5
Nicholas Financial, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended December 31,
2003 2002
-----------------------------------
Operating activities
Net income $ 3,720,906 $ 3,078,486
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 162,218 130,000
Provision for credit losses 1,617,028 1,677,758
Deferred income taxes (1,100,546) (832,845)
Changes in operating
assets and liabilities:
Accounts receivable (16,167) (5,098)
Prepaid expenses, other assets
and assets held for resale (400,466) (350,677)
Accounts payable and
other liabilities 477,803 (805,737)
Drafts payable (190,933) (109,392)
Income taxes payable (201,379) 921,902
Deferred revenues 128,318 294,402
----------------------------
Net cash provided by
operating activities 4,196,782 3,998,799
Investing activities
Purchase and origination
of finance contracts (48,982,384) (43,112,044)
Principal payments received 40,708,394 35,754,549
Purchase of property and
equipment, net of disposals (255,749) (165,969)
----------------------------
Net cash used in investing
activities (8,529,739) (7,523,464)
Financing activities
Issuance of notes payable -
related party 172,920 112,094
Net proceeds from line of credit 5,850,052 4,060,000
Payment of dividend (253,359) -
Sale of common stock 243,321 40,173
---------------------------
Net cash provided by
financing activities 6,012,939 4,212,267
---------------------------
Net increase in cash 1,679,982 687,602
Cash, beginning of period 481,211 51,239
---------------------------
Cash, end of period $ 2,161,193 $ 738,841
===========================
See accompanying notes.
6
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
December 31, 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. 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
interim periods are not necessarily indicative of the results
that may be expected for the fiscal 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 year ended March
31, 2003, as filed with the Securities and Exchange Commission on
June 30, 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.
7
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(continued)
(Unaudited)
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:
Three months ended Nine months ended
December 31, December 31,
2003 2002 2003 2002
------------------------------------------------
Numerator for earnings
per share - net income $1,306,039 $1,009,166 $3,720,906 $3,078,486
================================================
Denominator:
Denominator for basic
earnings per share -
weighted average shares 5,064,623 5,003,592 5,036,730 5,004,470
Effect of dilutive securities:
Employee stock options 374,366 274,025 359,085 307,607
------------------------------------------------
Denominator for diluted
earnings per share 5,438,989 5,277,617 5,395,815 5,312,077
================================================
Earnings per share - basic $0.26 $0.20 $0.74 $0.62
================================================
Earnings per share - diluted $0.24 $0.19 $0.69 $0.58
================================================
8
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(continued)
(Unaudited)
4. Finance Receivables
Finance receivables consist of automobile finance installment
contracts and direct consumer loans and are detailed as follows:
Finance receivables, gross contract $147,649,215
Less: Unearned interest (34,935,642)
--------------
Finance receivables, net
of unearned interest 112,713,573
Dealer discounts (13,593,218)
Allowance for credit losses (6,285,283)
--------------
Finance receivables, net $ 92,835,072
==============
The terms of the receivables range from 12 to 60 months and bear
a weighted average effective interest rate of approximately 24%.
5. Line of Credit
The Company has a $75 million Line of Credit facility (the Line)
which expires on November 30, 2004. The Company may borrow the
lesser of the $75 million or amounts based upon formulas
principally related to a percentage of eligible finance
receivables, as defined. Borrowings under the Line may be under
various LIBOR pricing options or at the prime rate plus twenty-
five basis points. Prime rate based borrowings are generally less
than $5 million. Pledged as collateral for this credit facility
are all of the assets of Nicholas Financial, Inc. As of December
31, 2003 the outstanding amount of the credit facility was
approximately $66 million and the amount available under the line
of credit was approximately $9 million. As of December 31, 2003
the Company was in full compliance with all debt covenants.
6. Notes Payable - Related Party
The Company's notes payable consist of unsecured notes bearing
interest at 6.29% with principal and interest due within 30-days
upon demand. The notes totaled $981,530 at December 31, 2003 and
are held by a related party.
9
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(continued)
(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 December 31, 2003
$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
3.35% and 4.08% and paid an average fixed rate of 5.73% and 7.07%
during the three months ended December 31, 2003 and 2002,
respectively. Under the swap agreements, the Company received an
average variable rate of 3.45% and 3.98% and paid an average
fixed rate of 6.03% and 6.93% during the nine months ended
December 31, 2003 and 2002, respectively. A loss of $1,351,076
related to the fair value of the swaps at December 31, 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 one forward locking swap included 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
------------------------------------------------------------------------
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
(continued)
(Unaudited)
8. Stock Options
The Company has an employee stock incentive plan for officers,
directors and key employees under which 548,066 shares of common
stock were reserved for issuance as of December 31, 2003. Options
currently granted by the Company generally vest over a five-year
period.
As permitted under Statement of Financial Accounting Standards
(SFAS) No. 148, "Accounting for Stock-Based Compensation -
Transaction and Disclosure"' which amended SFAS 123, "Accounting
for Stock-Based Compensation", the Company has elected to
continue to follow the intrinsic value method in accounting for
its stock-based employee compensation arrangements as defined by
Accounting Principles Board Opinion (APB) No. 25, "Accounting for
Stock Issued to Employees", and related interpretations including
FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation", an interpretation of APB. 25. No
stock-based employee compensation cost is reflected in
operations, as all options granted under those plans have an
exercise price equal to or above the market value of the
underlying common stock on the date of grant.
The fair value method uses the Black-Scholes option-pricing model
to determine compensation expense associated with the Company's
options. The follow table illustrates the effect on net income
and net income per share if the Company had applied the fair
value recognition provisions of SFAS 123 to stock-based employee
compensation:
Three months ended Nine months ended
December 31, December 31,
2003 2002 2003 2002
-------------------------------------------------
Net Income $1,306,039 $1,009,166 $3,720,906 $3,078,486
Basic earnings
per share $0.26 $0.20 $0.74 $0.62
Fully diluted
earnings per share $0.24 $0.19 $0.69 $0.58
Stock based employee
compensation cost under
the Fair Value Method $10,509 $15,282 $32,535 $59,594
Pro forma net income $1,295,530 $993,884 $3,688,371 $3,018,892
Pro forma basic
earnings per share $0.26 $0.19 $0.73 $0.60
Pro forma diluted
earnings per share $0.24 $0.18 $0.68 $0.57
11
Nicholas Financial, Inc.
Notes to the Condensed Consolidated Financial Statements
(continued)
(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 and nine months ended December 31, 2003 and
2002.
Three months ended Nine months ended
December 31, December 31,
2003 2002 2003 2002
------------------------------------------------
Net income $1,306,039 $1,009,166 $3,720,906 $3,078,486
Mark to market
- interest rate
swaps(net of tax) 361,673 80,676 561,300 (573,911)
------------------------------------------------
Comprehensive
income $1,667,712 $1,089,842 $4,282,206 $2,504,575
================================================
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 and nine month
periods ended December 31, 2003 to $1,306,039 and $3,720,906,
respectively, compared to $1,009,166 and $3,078,486 for the three
and nine month periods ended December 31, 2002, respectively.
Earnings were favorably impacted by an increase in the
outstanding loan portfolio, a reduction in the average cost of
borrowed funds and a reduction in the charge-off rate. The
Company's software subsidiary, Nicholas Data Services (NDS),did
not contribute significantly to consolidated operations in the
three or nine month periods ended December 31, 2003 or 2002.
Portfolio Summary
-----------------
Three months ended Nine months ended
December 31, December 31,
2003 2002 2003 2002
-------------------------------------------------
Average finance
receivables, net of
unearned interest(1) $112,338,303 $98,504,403 $110,248,781 $96,554,714
====================================================
Average
indebtedness (2) $66,328,452 $57,952,802 $64,243,278 $56,899,973
====================================================
Total finance
revenue(3) $6,334,652 $5,350,248 $18,397,452 $16,075,736
Interest expense 950,109 1,023,976 2,905,747 2,955,671
Net finance revenue $5,384,543 $4,326,272 $15,491,705 $13,120,065
====================================================
Weighted average
contractual rate(5) 23.85% 23.79% 24.02% 24.21%
=================================================
Average cost of
borrowed funds (2) 5.73% 7.07% 6.03% 6.93%
=================================================
Gross portfolio yield(4) 22.56% 21.73% 22.25% 22.20%
Interest expense as a
percentage of average
finance receivables,
net of unearned interest 3.38% 4.16% 3.51% 4.08%
Provision for credit
losses as a percentage
of average finance
receivables, net of
unearned interest 2.25% 2.23% 1.96% 2.32%
Net portfolio yield(4) 16.93% 15.34% 16.78% 15.80%
Expenses as a percentage
of average finance
receivables, net of
unearned interest (6) 9.39% 8.69% 9.51% 8.88%
Pre-tax yield as a
percentage of average
finance receivables,
net of unearned interest(7) 7.54% 6.65% 7.27% 6.92%
================================================
Write-off to
liquidation(8) 9.64% 11.97% 9.12% 9.88%
Net charge-off
percentage (9) 8.11% 10.50% 7.79% 8.62%
13
(1) Average finance receivables, net of unearned interest
represents the average of gross finance receivables, less
unearned interest throughout the period.
(2) Average indebtedness represents the average outstanding
borrowings under the Line and notes payable-related party.
Average cost of borrowed funds represents interest expense
as a percentage of average indebtedness.
(3) Total finance revenue does not include revenue generated by
NDS. See page 14 for detail on NDS revenue for the three
months ended December 31, 2003 and 2002, respectively. See
page 15 for detail on NDS revenue for the nine months ended
December 31, 2003 and 2002, respectively.
(4) Gross portfolio yield represents total finance revenues as a
percentage of average finance receivables, net of unearned
interest. Net portfolio yield represents net finance revenue
minus the provision for credit losses as a percentage of
average finance receivables, net of unearned interest.
(5) Weighted average contractual rate represents the weighted
average annual percentage rate (APR) of all contracts
purchased during the three and nine months ended December
31, 2003 and 2002, respectively.
(6) Operating expenses do not include interest expense, the
provision for credit losses or operating expenses associated
with NDS. See page 14 for detail on NDS operating expenses
for the three months ended December 31, 2003 and 2002,
respectively. See page 15 for detail on NDS operating
expenses for the nine months ended December 31, 2003 and
2002, respectively.
(7) Pre-tax yield represents net portfolio yield minus operating
expenses as a percentage of average finance receivables, net
of unearned interest.
(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 finance receivables, net of unearned interest
outstanding during the period.
Note:For comparability purposes, all three and nine month key
performance indicators expressed as percentages have been
annualized.
14
Three months ended December 31, 2003 compared to three months ended
December 31, 2002
Interest Income and Loan Portfolio
Interest income increased 18% to $6.3 million for the
period ended December 31, 2003, from $5.4 million for the period
ended December 31, 2002. The average finance receivables, net of
unearned interest equaled $112.3 million for the period ended
December 31, 2003, an increase of 14% from the $98.5 million for
the period ended December 31, 2002. The primary reason average
finance receivables, net of unearned interest increased was the
increase in the receivable base of several existing branches and
the opening of two additional branch locations. The gross finance
receivable balance increased 15% to $148 million at December 31,
2003 from $129 million at December 31, 2002. The primary reason
interest income increased was the increase in the outstanding
loan portfolio. The gross portfolio yield increased from 21.73%
for the period ended December 31, 2002 to 22.56% for the period
ended December 31, 2003. The net portfolio yield increased from
15.34% for the period ended December 31, 2002 to 16.92% for the
period ended December 31, 2003. The primary reasons for the
increase in the net portfolio yield was a decrease in charge-offs
and a reduction in the cost of borrowed funds for the period
ended December 31, 2003. The net charge-off percentage for the
period ended December 31, 2003 was 8.11% compared to 10.50% for
the period ended December 31, 2002.
Computer Software Business
Sales for the period ended December 31, 2003 were $50,447
compared to $78,850 for the period ended December 31, 2002, a
decrease of 36%. This decrease was primarily due to lower revenue
from the existing customer base during the period ended December
31, 2003. Cost of sales and operating expenses decreased from
$115,073 for the period ended December 31, 2002 to $65,754 for
the period ended December 31, 2003.
Expenses
Operating expenses, excluding provision for credit losses
and interest expense, increased to $2.6 million for the period
ended December 31, 2003 from $2.2 million for the period ended
December 31, 2002. This increase of 18% was primarily
attributable to the additional staffing of several existing
branches, increased general operating expenses and the opening of
two additional branch offices. Operating expenses as a percentage
of finance receivables, net of unearned interest increased from
8.69% for the period ended December 31, 2002 to 9.38% for the
period ended December 31, 2003.
Interest Expense
Interest expense decreased to $950,109 for the period ended
December 31, 2003 as compared to $1,023,976 for the period ended
December 31, 2002. The average indebtedness for the period ended
December 31, 2003 increased to $66.3 million compared to $58.0
million for the period ended December 31, 2002. This increase was
offset by a decrease in the average cost of borrowed funds from
7.07% during the three months ended December 31, 2002 to 5.73%
during the three months ended December 31, 2003.
15
Nine months ended December 31, 2003 compared to nine months ended
December 31, 2002
Interest Income and Loan Portfolio
Interest income increased 14% to $18.4 million for the
period ended December 31, 2003, from $16.1 million for the period
ended December 31, 2002. The average finance receivables, net of
unearned interest equaled $110.2 million for the period ended
December 31, 2003, an increase of 14% from the $96.6 million for
the period ended December 31, 2002. The primary reason average
finance receivables, net of unearned interest increased was the
increase in the receivable base of several existing branches and
the opening of two additional branch locations. The gross finance
receivable balance increased 15% to $148 million at December 31,
2003 from $129 million at December 31, 2002. The primary reason
interest income increased was the increase in the outstanding
loan portfolio. The gross portfolio yield increased from 22.20%
for the period ended December 31, 2002 to 22.25% for the period
ended December 31, 2003. The net portfolio yield increased from
15.80% for the period ended December 31, 2002 to 16.78% for the
period ended December 31, 2003. The primary reasons for the
increase in the net portfolio yield was a decrease in charge-
offs, a reduction in the provision for credit losses and a
reduction in the cost of borrowed funds for the period ended
December 31, 2003. The net charge off percentage for the period
ended December 31, 2003 was 7.79% compared to 8.62% for the
period ended December 31, 2002.
Computer Software Business
Sales for the period ended December 31, 2003 were $192,755
compared to $254,165 for the period ended December 31, 2002, a
decrease of 24%. This decrease was primarily due to lower revenue
from the existing customer base during the nine month period.
Cost of sales and operating expenses decreased from $351,059 for
the period ended December 31, 2002 to $230,509 for the period
ended December 31, 2003.
Expenses
Operating expenses, excluding provision for credit losses
and interest expense, increased to $7.9 million for the period
ended December 31, 2003 from $6.7 million for the period ended
December 31, 2002. This increase of 18% was primarily
attributable to the additional staffing of several existing
branches, increased general operating expenses and the opening of
two additional branch offices. Operating expenses as a percentage
of finance receivables, net of unearned interest increased from
8.88% for the period ended December 31, 2002 to 9.51% for the
period ended December 31, 2003.
Interest Expense
Interest expense was $2.9 million for the period ended
December 31, 2003 as compared to $3.0 million for the period
ended December 31, 2002. The average indebtedness for the period
ended December 31, 2003 increased to $64.2 million compared to
$56.9 million for the period ended December 31, 2002. This
increase was offset by a decrease in the average cost of borrowed
funds from 6.93% during the nine months ended December 31, 2002
to 6.03% during the nine months ended December 31, 2003.
16
Contract Procurement
The Company purchases contracts in the states listed below. The
Company has been expanding its contract procurement in South
Carolina, Ohio, Michigan and Virginia. 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.
The amounts shown in the table below represent the finance
receivables, net of unearned interest of indirect contracts
purchased.
Maximum
allowable
Interest 3 Months Ended 9 Months Ended
State rate (1) 12/31/03 12/31/02 12/31/03 12/31/02
=============================================================================
FL 30% $8,226,294 $7,667,048 $27,210,545 $26,790,694
GA 29% 1,802,773 1,844,048 6,384,776 5,679,668
NC 29% 1,581,909 1,755,160 5,548,857 5,694,837
SC 29% 664,595 568,994 2,144,234 1,667,627
OH 25% 2,267,575 1,714,623 8,453,317 5,373,214
VA 29% 438,850 10,432 611,901 65,475
MI 29% 597,254 - 1,665,511 -
------------------------------------------------------
Total $15,579,250 $13,560,305 $52,019,141 $45,271,515
======================================================
(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 Purchased
---------------------------------
3 Months Ended 9 Months Ended
12/31/03 12/31/02 12/31/03 12/31/02
-------------------------------------------------------------------
Purchases $15,579,250 $13,560,305 $52,019,141 $45,271,515
Weighted APR 23.66% 23.66% 23.88% 24.11%
Average Discount 8.80% 9.00% 8.91% 8.87%
Average Term(mnths) 43 40 43 41
Average Loan $8,110 $8,091 $8,128 $8,157
Number of Contracts 1,921 1,676 6,400 5,550
Loan Origination
The following table represents information on direct loans
originated by the Company, net of unearned interest.
Direct Loans Originated
-------------------------
3 Months Ended 9 Months Ended
12/31/03 12/31/02 12/31/03 12/31/02
---------------------------------------------------------------
Originations $1,047,014 $935,909 $2,940,870 $2,982,344
Weighted APR 26.64% 26.60% 26.52% 26.07%
Average Term(mnths) 24 20 26 21
Average Loan $2,755 $2,713 $2,844 $2,988
Number of Loans 380 345 1,034 998
17
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 68 Contracts
with an aggregate finance receivables, net of unearned interest
of approximately $554,000. As of December 31, 2003, the Company
had 469 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,
Virginia, Michigan and Ohio. 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 discounts represent the difference between finance
receivables, net of unearned interest 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 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 three
month period ended December 31, 2003 were $442,665 compared to
$301,326 in the period ended December 31, 2002. Reserves accreted
into income for the nine months ended December 31, 2003 were
$1,439,542 compared to $1,415,651 for the period ended December
31, 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.
18
The following table sets forth a reconciliation of the changes in
dealer discounts on indirect contracts.
Three months ended Nine months ended
December 31, December 31,
2003 2002 2003 2002
----------------------------------------------
Balance at beginning
of period $13,693,963 $11,850,964 $12,394,089 $11,098,758
Discounts acquired
on new volume 2,504,121 2,160,225 8,468,596 7,378,298
Losses absorbed (2,420,384) (2,748,703) (6,668,320) (6,625,413)
Recoveries 258,184 280,002 838,396 805,170
Discounts accreted (442,665) (301,326) (1,439,542) (1,415,651)
---------------------------------------------------
Balance at end of
period $13,593,219 $11,241,162 $13,593,219 $11,241,162
===================================================
Dealer discounts
as a percent of
gross indirect
contracts 9.50% 9.05% 9.50% 9.05%
The following table sets forth a reconciliation of the changes in
the allowance for credit losses on indirect contracts.
Three months ended Nine months ended
December 31, December 31,
2003 2002 2003 2002
------------------------------------------------------
Balance at beginning
of period $5,774,119 $4,980,530 $5,428,681 $4,266,314
Current period
provision 467,085 447,398 1,331,193 1,457,387
Losses absorbed (129,872) (97,300) (648,542) (393,073)
----------------------------------------------------
Balance at end
of period $6,111,332 $5,330,628 $6,111,332 $5,330,628
====================================================
Allowance as a percent
of gross indirect
contracts 4.27% 4.29% 4.27% 4.29%
The following table sets forth a reconciliation of the changes in
the allowance for credit losses on direct loans.
Three months ended Nine months ended
December 31, December 31,
2003 2002 2003 2002
-------------------------------------------------------
Balance at beginning
of period $201,349 $202,310 $176,126 $200,612
Current period
provision 87,660 101,156 207,707 220,371
Losses absorbed (55,235) (57,929) (138,974) (156,982)
Recoveries 9,638 8,921 22,627 24,052
Discounts accreted (69,461) (36,763) (93,535) (70,358)
----------------------------------------------------
Balance at end
of period $173,951 $217,695 $173,951 $217,695
====================================================
Allowance as a percent
of gross direct loan
receivables 3.83% 4.58% 3.83% 4.58%
Total Discounts and
Allowances at end
of period $19,878,501 $16,789,485 $19,878,501 $16,789,485
====================================================
Discounts and
Allowances as a
percent of gross
receivables 13.46% 13.02% 13.46% 13.02%
19
The average dealer discount associated with new volume
remained consistent with last year. For the three and nine months
ended December 31, 2003 the average discount was 8.80% and 8.91%
respectively, as compared to 8.98% and 8.87% for the three and
nine months ended December 31, 2002, respectively. The Company
does not consider these changes to be material and is not the
result of any change in buying philosophy or competition.
The provision for credit losses increased to $632,873 for the
three months ended December 31, 2003 from $548,554 for the three
months ended December 31, 2002. For the nine months ended
December 31, 2003 the provision for credit losses decreased to
$1,617,028 compared to $1,677,758 for the nine months ended
December 31, 2002.
The Company's write-offs as a percentage of liquidation
decreased from 11.97% and 9.88% for the three and nine-month
periods ended December 31, 2002, respectively, to 9.64% and 9.12%
for the three and nine-month periods ended December 31, 2003,
respectively. The Company anticipates portfolio performance will
stabilize in the near term but will continue to be higher in
relation to past years when the overall economic conditions and
unemployment rate was better. In response to current conditions
the Company has raised its initial target reserve percentage on
new static pools to 12.4% from 11.8%. The Company does not
believe there have been any significant changes in loan
concentrations, terms or quality of contracts purchased during
the current fiscal year that would have contributed to the rise
in losses. The delinquency percentage for contracts more than
thirty days past due for the nine month period ended December 31,
2003 decreased to 2.71% from 3.07% for the period ended December
31, 2002. The delinquency percentage for direct loans more than
thirty days past due for the period ended December 31, 2003
decreased to 2.24% from 2.52% for the nine month period ended
December 31, 2002. The Company does not give much 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 analyzing 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 write-offs were 10.28% and
11.55% for the three and nine-month periods ended December 31,
2003, respectively, as compared to 10.00% and 11.56% for the
three and nine-month periods ended December 31, 2002,
respectively. Recoveries are seasonally lower in the December
quarter and the current year results are consistent with prior
reporting periods.
Reserves accreted into income for the three and nine-month
periods ended December 31, 2003 were $512,126 and $1,533,077,
respectively, as compared to $338,089 and $1,486,009 for the
three and nine-month periods ended December 31, 2002,
respectively. The amount and timing of reserves accreted into
income is a function of individual static pool performance. The
Company has seen deterioration in the performance of the
portfolio for static pools more than eighty percent liquidated
when compared to historical pool performance during the same
liquidation cycle. The Company attributes this increase to the
gradual shift in recent years towards purchasing "simple interest
contracts" as opposed to "pre-compute contracts". This shift
towards simple interest contracts has been dictated by the
marketplace and not by the Company. The difference between the
two types of contracts is as follows: pre-compute contracts have
a stated total interest and cannot be effected by the timeliness
or amount of payments received. In contrast, simple interest
contracts charge interest based on the timeliness and amount of
payments received. Two identical contracts relative to the amount
financed, term and annual percentage rate of interest charged
"APR" will result in different amounts of interest being charged
to an individual based on the amount and timing of payments made
under the contract. The Company knows there is a correlation
between delinquency and losses as a result simple interest
contracts will have greater principal balances at the time of
loss compared to a pre-compute contract. This greater principal
balance at the time of repossession will result in a greater loss
subsequent to the sale of the repossessed vehicle.
20
The following tables present certain information regarding the
delinquency rates experienced by the Company with respect to
Indirect contracts purchased and Direct loans originated:
December 31, 2003 December 31, 2002
---------------------- ----------------------
Indirect contracts
Gross balance
outstanding $143,113,043 $124,238,870
Dollar Dollar
Delinquencies Amount Percent* Amount Percent*
-------- -------- -------- --------
30 to 59 days $2,836,531 1.98% $2,595,883 2.09%
60 to 89 days 805,643 0.56% 852,351 0.69%
90 + days 247,261 0.17% 363,195 0.29%
---------- ------ ---------- -----
Total delinquencies $3,889,435 2.71% $3,811,429 3.07%
Direct Loans
Gross balance
outstanding $4,536,172 $4,753,330
Delinquencies
30 to 59 days $ 37,451 0.83% $ 52,074 1.10%
60 to 89 days 33,612 0.74% 46,896 0.99%
90 + days 30,354 0.67% 20,869 0.43%
-------- ----- -------- ------
Total delinquencies $101,417 2.24% $119,839 2.52%
*Delinquencies as a
percent of outstanding balance
The delinquency percentage for indirect contracts more than
thirty days past due for the period ended December 31, 2003
decreased to 2.71% from 3.07% for the period ended December 31,
2002. The delinquency percentage for direct loans more than
thirty days past due for the period ended December 31, 2003
decreased to 2.24% from 2.52% for the period ended December 31,
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
utilizes a static pool approach to analyzing portfolio
performance and looks at specific pool performance and recent
trends as leading indicators to future performance of the
portfolio.
Income Taxes
The Company's effective tax rate remained relatively consistent
at 37.87% and 37.75% for the three and nine month periods ended
December 31, 2003, respectively, compared to 36.97% and 37.34%
for the three and nine months ended December 31, 2002,
respectively.
21
Liquidity and Capital Resources
The Company's cash flows for the nine month periods ended
December 31, 2003 and December 31, 2002 are summarized as
follows:
Nine months ended Nine months ended
December 31, 2003 December 31, 2002
-------------------------------------
Cash provided by (used in):
Operating Activities - $4,196,782 $3,998,799
Investing Activities -
(primarily purchase of
Contracts) (8,529,739) (7,523,464)
Financing Activities 6,012,939 4,212,267
Net increase in cash 1,679,982 687,602
The Company's primary use of working capital during the nine
months ended December 31, 2003 was the funding of the purchase of
Contracts. The Contracts were financed substantially through
borrowings on the Line. The Line is secured primarily by
Contracts, and available borrowings are based on a percentage of
qualifying Contracts. As of December 31, 2003 the Company had
approximately $9 million available under the Line. 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 its ability to borrow under
the terms of the Line. The Company believes that borrowings
available under the Line 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 is currently negotiating an amendment to the Line.
The amendment is to increase the amount of the Line and extend
the maturity date. The Company believes it will have this
amendment completed prior to March 31, 2004, but no assurances
can be given that this amendment will be completed.
On August 11, 2003 the Company announced a $0.10 per share
annual cash dividend, payable semi-annual. The Company intends to
continue its cash dividend program for the foreseeable, provided
that future earnings meet expectations. The Company must also
receive waivers from its current lenders in order to pay cash
dividends. The ability for the Company to receive the necessary
waivers is largely dependent upon portfolio performance. No
assurance can be given that these waivers will be granted.
22
Future Expansion
The Company currently operates twenty-nine branch locations,
sixteen in Florida, three in Georgia, three in North Carolina,
five in Ohio and one branch location in both Michigan and South
Carolina. Each office is budgeted (size of branch, number of
employees and location) to handle up to 1,000 accounts and up to
$7.5 million in outstanding receivables. To date none of our
branches have reached this capacity.
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, either with its current
lender or another lender. The Company, from time to time, has
and will meet with investment bankers and financial institutions
discussing various strategies to meet the future needs of the
Company. The Company believes opportunity for growth continues
to exist in South Carolina, Ohio and Michigan and intends to
continue its expansion activities in those states. The Company
has expanded its automobile financing program in Virginia and
has opened its first branch location as of February 10, 2004.
The Company is currently developing additional markets in
Pensacola, FL, Greenville, SC, Greensboro, NC, and Newport News,
VA. The Company is developing these respective markets by
utilizing its Central Buying Office in its Corporate
Headquarters in Clearwater FL 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.
Recently Issued Accounting Standards
In October 2003, the AICPA issued SOP 03-3, "Accounting for
Loans or Certain Debt Securities Acquired in a Transfer." SOP 03-
3 applies to a loan with evidence of deterioration in credit
quality subsequent to its origination that is acquired by
completion of a transfer (as defined in SOP 03-3), for which it
is probable at acquisition of such loan, that the acquirer will
be unable to collect all contractually required payments
receivable. SOP 03-3 requires that the acquirer recognize the
excess of all cash flows expected at acquisition over the
investor's initial investment in the loan as interest income on a
level-yield basis over the life of the loan as the accretable
yield. The loan's contractual required payments receivable in
excess of the amount of its cash flows expected at acquisition
(nonaccretable difference) should not be recognized as an
adjustment to yield, a loss accrual or a valuation allowance for
credit risk. Subsequent increases in cash flows expected to be
collected generally would be recognized prospectively through
adjustment of the loan's yield over its remaining life. Decreases
in cash flows expected to be collected would be recognized as
impairment. SOP 03-3 is effective for loans acquired in fiscal
years beginning after December 31, 2004. Management is currently
evaluating the provisions of SOP 03-3.
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.
23
Part I. Item 3
CONTROLS AND PROCEDURES
The Company maintains controls and procedures designed to
ensure that information required to be disclosed in the reports
that the Company files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Based upon their evaluation
of those controls and procedures performed as of the end of the
period covered by this quarterly report, the chief executive
officer and the chief financial officer of the Company concluded
that the Company's disclosure controls and procedures were
adequate.
The Company's Chief Executive Officer and Chief Financial
Officer have evaluated the change to the Company's internal
control over financial reporting that occurred during our fiscal
quarter ended December 31, 2003, as required by paragraph (d) of
Rules 13a-15 and 15d-15 under the Securities Exchange Act of
1934, as amended, and have concluded that there were no such
changes that materially affected, or are reasonably likely to
material affect, the Company's internal control over financial
reporting.
24
Part II - Other Information
Item 6. (a)
Exhibits - See exhibit index following the signature page.
(b) Reports on Form 8-K -
On October 3, 2003, we filed a current report on Form 8-K
announcing that on September 30, 2003, Ernst & Young LLP advised
the Company's audit committee it would resign as the Company's
independent auditors. Ernst & Young's reports on the Company's
financial statements for the years ended March 31, 2003 and 2002
did not contain an adverse opinion or a disclaimer of opinion,
and were not qualified or modified as to uncertainty, audit
scope, or accounting principles. During the fiscal years ended
March 31, 2003 and 2002, and the subsequent interim period ended
September 30, 2003, there were no disagreements between the
Company and Ernst & Young on any matter of accounting principles
or practices, financial statement disclosures, or auditing scope
or procedure, which disagreements, if not resolved to the
satisfaction of Ernst & Young, would have caused it to make
reference to the subject matter of the disagreements in
connection with its reports.
On December 4, 2003, we filed a current report on Form 8-
K announcing that the Company's audit committee chairman
announced that effective December 3, 2003, the Company engaged
the accounting firm of Crisp Hughes Evans LLP as its new
independent auditors
25
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NICHOLAS FINANCIAL, INC.
(Registrant)
Date: February 13, 2004 /s/Peter L Vosotas
-------------------------
Peter L. Vosotas
Chairman, President,
Chief Executive Officer
(Principal Executive Officer)
Date: February 13, 2004 /s/Ralph T Finkenbrink
--------------------------
Ralph T. Finkenbrink
(Principal Accounting Officer)
26
EXHIBIT INDEX
Item 6. 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
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
27
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)
31.1 Written Certification of the Chief Executive Officer
31.2 Written Certification of the Chief Financial Officer
32.1
Written Statement of the Chief Executive Officer Pursuant to 18
U.S.C. 1350
32.2
Written Statement of the Chief Financial Officer Pursuant to 18
U.S.C. 1350
28
Exhibit 31.1
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)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such
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)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
c)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 officer 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 in the design or operation of
internal control 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 control over financial reporting.
Date: February 13, 2004 /s/Peter L Vosotas
-----------------------
Peter L. Vosotas
President & CEO
29
Exhibit 31.2
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)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such
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)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
c)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 officer 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 in the design or operation of
internal control 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 control over financial reporting.
Date: February 13, 2004 /s/Ralph T Finkenbrink
---------------------------
Ralph T. Finkenbrink
Senior Vice-President
30
Exhibit 32.1
Written Statement of the Chief Executive Officer
Pursuant to 18 U.S.C. 1350
Solely for the purposes of complying with 18 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 December 31, 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
February 13, 2004
31
Exhibit 32.2
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 December 31, 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
February 13, 2004