Nicholas Financial, Inc.
2454 McMullen Booth Road
Building C
Clearwater, Florida 33759 USA
Telephone
Fax
- (727) 726-0763
- (727) 726-2140
www.NicholasFinancial.com
F R O M T H E P R E S I D E N T
This year marked our 30th year in business and our 28th year as a publicly
traded company. We are extremely proud of the performance that our employees
delivered during the past fiscal year and are optimistic about the future of
our organization.
During fiscal year 2015, we opened one branch location outside of Chicago
and now operate sixty-seven branch locations in sixteen states. We have been
developing new markets in the state of Texas and will open our first
branch location in Houston during the second quarter which ends on
September 30, 2015. We hope to be able to add more locations through-
out Texas during
the year, as we continue
to develop additional
markets. We are also continuing to evaluate markets in states where
we are already conducting business to determine if there are additional
opportunities to expand our established footprint.
Ralph T. Finkenbrink
CEO & President
In March of 2015, we successfully completed a $70 million modified Dutch Auction which resulted in a share
buy-back of approximately 4.7 million shares. Simultaneously, we increased our credit line from $150 million to
$225 million and extended the maturity date to January 2018. We have now positioned our Balance Sheet to ref lect
a leverage ratio which allows for an increased return on equity and earnings per share without creating liquidity
concerns or undue risk to accessing our credit line.
The competitive forces in the marketplace remained elevated and as a result we continue to experience increased
pressure on margins. As of the date of this report, we continue to see new and existing competition attempting to buy
market share, with little to no regard of executing a business plan that is sustainable. We remain cautiously optimistic
that some of this irrational lending will have to be eliminated and/or re-priced to adequately adjust for the risk associated
with the acquisition of given installment contracts. The longer term risk associated with intense competition is such
that some or many of these competitors may be willing to accept margins that will allow continued profitability, albeit
at lower margins than typically customary in the auto financing segment. We continue to evaluate our alternatives,
in the event this strategy is adopted by several of our competitors.
We expect that additional regulation emanating from the Dodd-Frank Act will drive operating expenses higher as
a result of implementing additional compliance programs. Such programs entail the need for additional personnel
and the acquisition of software and systems. It is difficult at this time to measure the potential dollar affect as the
company is still evaluating the recently issued rules by the Consumer Financial Protection Board.
We remain committed to executing our business plan in order to achieve long-term sustainable value for
our shareholders.
Ralph T. Finkenbrink
President & Chief Executive Officer
June, 2015
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the fiscal year ended March 31, 2015
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
(State or Other Jurisdiction of
Incorporation or Organization)
8736-3354
(I.R.S. Employer
Identification No.)
2454 McMullen Booth Road, Building C
Clearwater, Florida 33759
(Address of Principal Executive Offices, Including Zip Code)
(727) 726-0763
(Registrant’s Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class
Common shares, no par value
Name of Each Exchange on Which Registered
NASDAQ Global Select Market
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the Registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
At September 30, 2014, the aggregate market value of the Registrant’s Common Shares held by non-affiliates of the Registrant was
approximately $106,322,627.
As of June 4, 2015, 12,422,085 shares, no par value, of the Registrant were outstanding (of which 4,713,804 shares were held by the
Registrant’s principal operating subsidiary and, pursuant to applicable law, not entitled to vote).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy Statement and Information Circular for the 2015 Annual General Meeting of
Shareholders currently scheduled to be held on August 13, 2015, expected to be filed with the Commission pursuant to Regulation
14A on or about July 6, 2015, are incorporated by reference in Part III, Items 10 through 14, of this Annual Report on Form 10-K.
NICHOLAS FINANCIAL, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Forward-Looking Information
Page No.
2
10
17
17
17
17
17
20
21
28
29
49
49
51
51
51
51
51
51
52
This Annual Report on Form 10-K (“Report”) contains various forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements 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 Nicholas Financial, Inc.,
including its subsidiaries (collectively 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, including but not limited to the risk factors discussed herein under “Item 1A – Risk Factors.” 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 cause actual results to differ materially from
those projected in forward-looking statements include fluctuations in the economy, the degree and nature of competition, fluctuations
in interest rates, the availability of capital at acceptable rates and terms, demand for consumer financing in the markets served by the
Company, the Company’s products and services, increases in the default rates experienced on retail installment sales contracts
(“Contracts”), regulatory changes in the Company’s existing and future markets, the Company’s intentions regarding strategic
alternatives, and the Company’s ability to expand its business, including its ability to identify and 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. All forward-looking statements included in this Report are based on information
available to the Company as of the date of filing of this Report, and the Company assumes no obligation to update any such forward-
looking statement. Prospective investors should also consult the risk factors described from time to time in the Company’s filings
made with the US Securities and Exchange Commission (“SEC”), including its reports on Forms 10-Q, 8-K and 10-K and annual
reports to shareholders.
1
Business
Item 1.
General
PART I
Nicholas Financial, Inc. (“Nicholas Financial-Canada”) is a Canadian holding company incorporated under the laws of British
Columbia in 1986. The business activities of Nicholas Financial-Canada are currently conducted exclusively through its wholly-
owned indirect subsidiary, Nicholas Financial, Inc., a Florida corporation (“Nicholas Financial”). Nicholas Financial is a specialized
consumer finance company engaged primarily in acquiring and servicing automobile finance installment contracts (“Contracts”) for
purchases of new and used automobiles and light trucks. To a lesser extent, Nicholas Financial also originates direct consumer loans
(“Direct Loans”) and sells consumer-finance related products. Nicholas Financial’s financing activities accounted for more than 99%
of the Company’s consolidated revenues for each of the fiscal years ended March 31, 2015, 2014 and 2013, respectively.
A second Florida subsidiary, Nicholas Data Services, Inc. (“NDS”), historically was engaged in supporting and updating industry-
specific computer application software for small businesses located primarily in the Southeastern United States. NDS’s activities
accounted for less than 1% of the Company’s consolidated revenues for each of the fiscal years ended March 31, 2015, 2014 and
2013, respectively. NDS has ceased its operations; however it continues as the interim holding company for Nicholas Financial.
Nicholas Financial-Canada, Nicholas Financial and NDS are hereafter collectively referred to as the “Company”. All financial
information herein is designated in United States dollars.
The Company’s principal executive offices are located at 2454 McMullen Booth Road, Building C, Clearwater, Florida 33759, and its
telephone number is (727) 726-0763.
Available Information
The Company’s filings with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, definitive proxy
statements on Schedule 14A, current reports on Form 8-K, and any amendments to those reports filed pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, are made available free of charge through the Investor Relations section of the Company’s
Internet website at http://www.nicholasfinancial.com as soon as reasonably practicable after the Company electronically files such
material with, or furnishes it to, the SEC. Copies of any materials the Company files with the SEC can also be obtained free of charge
through the SEC’s website at http://www.sec.gov or at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549. Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
Growth Strategy
The Company’s principal goals are to increase its profitability and its long-term shareholder value through greater penetration in its
current markets and controlled geographic expansion into new markets. The Company seeks to expand its automobile financing
program in the sixteen states — Alabama, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland, Michigan, Missouri, North
Carolina, Ohio, South Carolina, Tennessee, Texas and Virginia — in which it currently operates by increasing the business generated
at its existing branch locations and by targeting certain geographic locations within some of these states where it believes there is a
sufficient market for its automobile financing program. The Company has been acquiring Contracts in the state of Texas with the
intention of opening a branch location during the second quarter of fiscal 2016; however no assurances can be given as to whether the
Company will be able to open this branch office by such time. The Company’s strategy is to monitor these markets and ultimately
decide if and where it will open additional branch locations. During fiscal 2015, the Company opened one new branch office near
Chicago, Illinois. The Company did not close any branch offices during fiscal 2015. The Company will continue to evaluate any
branch locations that do not meet its minimum profitability targets and may elect to close one or more of these branches in the future.
As of the date of this Report, the Company is contemplating consolidating two of its existing branches into one location within the
state of Alabama during the fiscal year ending March 31, 2016, although no assurances can be given that it will do so. The Company
also continues to analyze other markets in states in which it does not currently operate for expansion opportunities. Although the
Company has not made any bulk purchases of Contracts in over two decades, if the opportunity arises, the Company may consider
possible acquisitions of portfolios of seasoned Contracts from dealers in bulk transactions as a means of further penetrating its existing
markets or expanding its presence in targeted geographic locations. The Company cannot provide any assurances, however, that it will
be able to further expand in either its current markets or any targeted new markets.
The Company is currently licensed to provide direct consumer loans in Florida and North Carolina. The Company does not have any
current plans to expand its strategy of soliciting current customers and expects total Direct Loans to remain less than 5% of its total
portfolio for the foreseeable future.
2
Automobile Finance Business – Contracts
The Company is engaged in the business of providing financing programs, primarily on behalf of purchasers of new and used cars and
light trucks who meet the Company’s credit standards but who do not meet the credit standards of traditional lenders, such as banks
and credit unions because of the age of the vehicle being financed or the customer’s job instability or credit history. Unlike traditional
lenders, which look primarily to the credit history of the borrower in making lending decisions and typically finance new automobiles,
the Company is willing to purchase Contracts for purchases made by borrowers who do not have a good credit history and for older
model and high mileage automobiles. In making decisions regarding the purchase of a particular Contract, the Company considers the
following factors related to the borrower: place and length of residence; current and prior job status; history in making installment
payments for automobiles; current income; and credit history. In addition, the Company examines its prior experience with Contracts
purchased from the dealer from which the Company is purchasing the Contract, and the value of the automobile in relation to the
purchase price and the term of the Contract.
The Company’s automobile finance programs are currently, as of the date of this report, conducted in sixteen states through a total of
67 branch offices, consisting of twenty-one in Florida, eight in Ohio, six in each of North Carolina and Georgia, three in each of
Alabama, Kentucky, Illinois, Indiana, Missouri, Michigan, two in each of South Carolina, Tennessee and Virginia, and one in each of
Maryland, and Kansas. The Company intends to open its first branch location in Texas during the second quarter of 2016, although no
assurances can be given that it will do so. As of March 31, 2015 the Company had non-exclusive agreements with approximately
4,000 dealers, of which approximately 2,300 are active, for the purchase of individual Contracts that meet the Company’s financing
criteria. The Company considers a dealer agreement to be active if the Company has purchased a Contract thereunder in the last six
months. Each dealer agreement requires the dealer to originate Contracts in accordance with the Company’s guidelines. Once a
Contract is purchased by the Company the dealer is no longer involved in the relationship between the Company and the borrower,
other than through the existence of limited representations and warranties of the dealer in favor of the Company.
A customer under a Contract typically makes a down payment, in the form of cash or trade-in, ranging from 5% to 35% of the sale
price of the vehicle financed. The balance of the purchase price of the vehicle plus taxes, title fees and, if applicable, premiums for
extended service contracts, gap insurance, roadside assistance plans, credit disability insurance and/or credit life insurance, and are
generally financed over a period of 12 to 72 months.
At approximately the time of origination, the Company purchases a Contract from an automobile dealer at a negotiated price that is
less than the original principal amount being financed (the dealer discount) by the purchaser of the automobile. The amount of the
dealer discount depends upon factors such as the age and value of the automobile, creditworthiness of the customer and competition in
any given market. The Company will pay more (i.e., purchase the Contract at a smaller discount from the original principal amount)
for Contracts as the credit risk of the customer improves. In certain markets, competition more significantly impacts the discount that
the Company can charge. To date, the Contracts purchased by the Company have been purchased at discounts that range from 1% to
15% of the original principal amount of each Contract. Also, the Company charges the dealer a processing fee of $75 per Contract
purchased and pay certain fees to dealers, which are both part of the net dealer discount. As of March 31, 2015, the Company’s loan
portfolio consisted exclusively of Contracts purchased without recourse to the dealer. Although all of the Contracts in the Company’s
loan portfolio were acquired without recourse, each dealer remains potentially liable to the Company for breaches of certain
representations and warranties made by the dealer with respect to compliance with applicable federal and state laws and valid title to
the vehicle.
The Company’s policy is to only purchase a Contract after the dealer has provided the Company with the requisite proof that the
Company has a first priority lien on the financed vehicle (or the Company has, in fact, perfected such first priority lien), that the
customer has obtained the required collision insurance naming the Company as loss payee and that the Contract has been fully and
accurately completed and validly executed. Once the Company has received and approved all required documents, it pays the dealer
for the Contract and commences servicing the Contract. The Company requires the owner of the vehicle to obtain and maintain
collision insurance, naming the Company as the loss payee, with a deductible of not more than $1,000.
3
Contract Procurement
The Company currently purchases Contracts in the states listed in the table below. The Contracts purchased by the Company are
predominately for used vehicles; for the periods shown below, less than 1% were for new vehicles. The average model year
collateralizing the portfolio as of March 31, 2015 was a 2007 vehicle. The dollar amounts shown in the table below represent the
Company’s finance receivables, net of unearned interest on Contracts purchased:
State
Alabama
Florida
Georgia
Illinois
Indiana
Kansas
Kentucky
Maryland
Michigan
Missouri
North Carolina
Ohio
South Carolina
Tennessee
Texas
Virginia
Total
Maximum
allowable
interest rate (1)
(2)
18-30%(3)
18-30%(3)
(2)
25%
(2)
18-25%(3)
24%
25%
(2)
18-29%(3)
25%
(2)
(2)
18-28%(3)
(2)
Fiscal year ended March 31,
2015
2014
2013
$ 6,288,716
54,652,861
18,710,341
6,456,777
7,654,292
2,165,305
9,767,855
4,081,144
7,355,473
7,553,770
15,077,533
24,245,014
3,965,935
5,205,922
820,851
4,366,553
$ 6,040,540
51,841,066
17,423,334
3,904,937
6,982,627
1,539,181
8,757,666
3,080,969
6,345,063
5,650,626
15,752,982
24,681,643
4,965,463
6,270,407
—
6,007,632
$ 5,232,553
46,553,346
15,982,075
3,598,494
8,382,587
1,455,404
8,670,180
2,017,568
4,626,532
4,582,994
14,955,884
21,423,125
3,739,387
5,300,795
—
5,219,885
$ 178,368,342
$ 169,244,136
$ 151,740,809
(1) The maximum allowable interest rates by state are subject to change and are governed by the individual states the Company
conducts business in.
(2) None of these states currently imposes a maximum allowable interest rate with respect to the types and sizes of Contracts the
Company purchases. The maximum rate which the Company will typically charge any customer in each of these states is
30% per annum.
(3) The maximum allowable interest rate in each of these states varies depending upon the model year of the vehicle being financed.
In addition, Georgia does not currently impose a maximum allowable interest rate with respect to Contracts over $5,000.
The following table presents selected information on Contracts purchased by the Company, net of unearned interest:
Contracts
Purchases
Weighted APR
Average dealer discount
Weighted average term (months)
Average loan
Number of Contracts
Direct Loans
Fiscal year ended March 31,
2015
2014
2013
$ 178,368,342
22.90%
8.08%
55
10,967
16,264
$
$ 169,244,136
23.00%
8.44%
52
10,612
15,949
$
$ 151,740,809
23.28%
8.54%
50
10,260
14,789
$
The Company currently originates Direct Loans in Florida and North Carolina. Direct Loans are loans originated directly between the
Company and the consumer. These loans are typically for amounts ranging from $1,000 to $12,000 and are generally secured by a lien
on an automobile, watercraft or other permissible tangible personal property. The average loan made to date by the Company had an
initial principal balance of approximately $3,500. The Company does not expect the average loan size to increase significantly within
the foreseeable future. The majority of Direct Loans are originated with current or former customers under the Company’s automobile
financing program. The typical Direct Loan represents a significantly better credit risk than our typical Contract due to the customer’s
historical payment history with the Company. The Company does not have a Direct Loan license in Alabama, Illinois, Indiana,
4
Kansas, Kentucky, Maryland, Michigan, Missouri, Ohio, South Carolina, Tennessee, Texas or Virginia, and none is presently required
in Georgia (as long as the Direct Loan is greater than $3,000). The Company is currently not pursuing Direct Loans in Georgia. The
Company does not expect to pursue a Direct Loan license in any other state during the fiscal year ending March 31, 2016. The size of
the loan and maximum interest rate that can be charged vary from state to state. In deciding whether or not to make a loan, the
Company considers the individual’s credit history, job stability, income and the value of the collateral offered by the borrower to
secure the loan. Additionally, because most of the Direct Loans made by the Company to date have been made to borrowers under
Contracts previously purchased by the Company, the payment history of the borrower under the Contract is a significant factor in
making the loan decision. The Company’s Direct Loan program was implemented in April 1995 and currently accounts for
approximately 2.6% of the Company’s annual consolidated revenues.
In connection with its Direct Loan program, the Company also makes available credit disability, credit life insurance, and involuntary
unemployment insurance coverage to customers through an unaffiliated third-party insurance carrier. Customers in approximately
76% of the approximate 3,000 Direct Loan transactions outstanding as of March 31, 2015 had elected to purchase third-party
insurance coverage made available by the Company. The cost of this insurance is included in the amount financed by the customer.
The following table presents selected information on Direct Loans originated by the Company, net of unearned interest:
Direct loan originations
Originations
Weighted APR
Weighted average term (months)
Average loan
Number of contracts
Underwriting Guidelines
Fiscal year ended March 31,
2015
2014
2013
$ 9,525,031
26.47%
29
3,536
2,694
$
$ 9,786,804
26.72%
29
3,427
2,856
$
$ 8,336,903
26.27%
28
3,319
2,512
$
The Company’s typical customer has a credit history that fails to meet the lending standards of most banks and credit unions. Among
the credit problems experienced by the Company’s customers that resulted in a poor credit history are: unpaid revolving credit card
obligations; unpaid medical bills; unpaid student loans; prior bankruptcy; and evictions for nonpayment of rent. The Company
believes that its customer profile is similar to that of its direct competitors.
Prior to its approval of the purchase of a Contract, the Company is provided with a standardized credit application completed by the
consumer which contains information relating to the consumer’s background, employment, and credit history. The Company also
obtains credit reports from Equifax, Experian and/or TransUnion, which are independent credit reporting services. The Company
verifies the consumer’s employment history, income and residence. In most cases, consumers are interviewed via telephone by a
Company application processor. The Company also considers the customer’s prior payment history with the Company, if any, as well
as the collateral value of the vehicle being financed.
The Company has established internal buying guidelines to be used by its Branch Managers and internal underwriters when
purchasing Contracts. Any Contract that does not meet these guidelines must be approved by the senior management of the Company.
The Company currently has District Managers charged with managing the specific branches in a defined geographic area. In addition
to a variety of administrative duties, the District Managers are responsible for monitoring their assigned branches’ compliance with
the Company’s underwriting standards.
The Company uses essentially the same criteria in analyzing a Direct Loan as it does in analyzing the purchase of a Contract. Lending
decisions regarding Direct Loans are made based upon a review of the customer’s loan application, credit history, job stability,
income, and the value of the collateral offered by the borrower to secure the loan. To date, since the majority of the Company’s Direct
Loans have been made to individuals whose automobiles have been financed by the Company, the customer’s payment history under
his or her existing or past Contract is a significant factor in the lending decision.
After reviewing the information included in the Contract or Direct Loan application and taking the other factors into account, a
Company employee categorizes the customer using internally developed credit classifications of “1,” indicating higher
creditworthiness, through “6,” indicating lower creditworthiness. Contracts are financed for individuals who fall within all six
acceptable rating categories utilized, “1” through “6”. Usually a customer who falls within the two highest categories (i.e., “1” or “2”)
is purchasing a two to four-year old, low mileage used automobile from the inventory of a new car or franchise dealer, while a
customer in any of the three lowest categories (i.e., “4,” “5,” or “6”) is purchasing an older, high mileage automobile from an
independent used automobile dealer.
5
The Company utilizes its Loss Prevention and Recovery Department (the “LPR”) to perform on-site audits of branch compliance with
Company underwriting guidelines. LPR audits Company branches on a schedule that is variable depending on the size of the branch,
length of time a branch has been open, current tenure of the Branch Manager, previous branch audit score and current and historical
branch profitability. LPR reports directly to the Accounting and Administrative Management of the Company. The Company believes
that an independent review and audit of its branches that is not tied to the sales function of the Company is imperative in order to
assure the information obtained is impartial.
Monitoring and Enforcement of Contracts
The Company requires each customer under a Contract to obtain and maintain collision insurance covering damage to the vehicle.
Failure to maintain such insurance constitutes a default under the Contract, and the Company may, at its discretion, repossess the
vehicle. To reduce potential loss due to insurance lapse, the Company has the contractual right to force place collateral protection
insurance through a third-party, which covers loss due to physical damage to a vehicle not covered by any insurance policy of the
customer.
The Company’s Management Information Services personnel maintain a number of reports to monitor compliance by customers with
their obligations under Contracts and Direct Loans made by the Company. These reports may be accessed on a real-time basis
throughout the Company by management personnel, including Branch Managers and staff, at computer terminals located in the main
office and each branch office. These reports include delinquency aging reports, customer promises reports, vehicle information
reports, purchase reports, dealer analysis reports, static pool reports, and repossession reports.
A delinquency report is an aging report that provides basic information regarding each account and indicates accounts that are past
due. The report includes information such as the account number, address of the customer, phone numbers of the customer, original
term of the Contract, number of remaining payments, outstanding balance, due dates, date of last payment, number of days past due,
scheduled payment amount, amount of last payment, total past due, and special payment arrangements or agreements.
Any account that is less than 120 days old is included on the delinquency report on the first day that the Contract is contractually past
due. Once an account becomes 30 days past due, repossession proceedings are implemented unless the customer provides the
Company with an acceptable explanation for the delinquency and displays a willingness and the ability to make the payment, and
commits to a plan to return the account to current status. When an account is 60 days past due, the Company ceases recognition of
income on the Contract and repossession proceedings are initiated. At 120 days delinquent, if the vehicle has not yet been repossessed,
the account is written off. Once a vehicle has been repossessed, the related loan balance no longer appears on the delinquency report.
Instead, the vehicle appears on the Company’s repossession report and is sold, either at auction or to an automobile dealer.
When an account becomes delinquent, the Company immediately contacts the customer to determine the reason for the delinquency
and to determine if appropriate arrangements for payment can be made. If payment arrangements acceptable to the Company can be
made, the information is entered in its database and is used to generate a “Promises Report,” which is utilized by the Company’s
collection staff for account follow up.
The Company prepares a repossession report that provides information regarding repossessed vehicles and aids the Company in
disposing of repossessed vehicles. In addition to information regarding the customer, this report provides information regarding the
date of repossession, date the vehicle was sold, number of days it was held in inventory prior to sale, year, make and model of the
vehicle, mileage, payoff amount on the Contract, NADA book value, Black Book value, suggested sale price, location of the vehicle,
original dealer and condition of the vehicle, as well as notes other information that may be helpful to the Company.
The Company also prepares a dealer analysis report that provides information regarding each dealer from which it purchases
Contracts. This report allows the Company to analyze the volume of business done with each dealer and the terms on which it has
purchased Contracts from such dealer.
The Company’s policy is to aggressively pursue legal remedies to collect deficiencies from customers. Oral requests for payment are
made beginning when an account becomes 11 days delinquent. When an account becomes 30 days delinquent and the customer has
not made payment arrangements acceptable to the Company or has failed to respond to the requests for payment, a repossession
request form is prepared by the responsible branch office employee for approval by the Branch Manager for the vicinity in which the
borrower lives. Once the repossession request has been approved, first by the Branch Manager and second by the applicable District
Manager, it must then be approved by the Director of Loss Recovery. The repossessor delivers the vehicle to a secure location
specified by the Company. The Company maintains relationships with several licensed repossession firms that repossess vehicles for
fees that range from $250 to $500 for each vehicle repossessed. As required by Alabama, Florida, Georgia, Illinois, Indiana, Kansas,
Kentucky, Maryland, Michigan, Missouri, North Carolina, Ohio, South Carolina, Tennessee, Texas, and Virginia law, the customer is
notified by certified letter that the vehicle has been repossessed and what the customer needs to do in order to regain their vehicle.
6
Generally, the minimum requirement for return of the vehicle is payment of all past due amounts under the Contract and all expenses
associated with the repossession incurred by the Company. If satisfactory arrangements for return of the vehicle are not made within
the statutory period, the Company then sends title to the vehicle to the applicable state title transfer department, which then registers
the vehicle in the name of the Company. The Company then either sells the vehicle to a dealer or has it transported to an automobile
auction for sale. On average, approximately 30 days lapse between the time the Company takes possession of a vehicle and the time it
is sold to a dealer or at auction. When the Company determines that there is a reasonable likelihood of recovering part or all of any
deficiency against the customer under the Contract, it pursues legal remedies available to it, including lawsuits, judgment liens and
wage garnishments. Historically, the Company has recovered approximately 10-18% of deficiencies from such customers. Proceeds
from the disposition of the vehicles are not included in calculating the foregoing percentage range.
Marketing and Advertising
The Company’s Contract marketing efforts currently are directed exclusively toward automobile dealers. The Company attempts to
meet dealers’ needs by offering highly-responsive, cost-competitive and service-oriented financing programs. The Company relies on
its District and Branch Managers to solicit agreements for the purchase of Contracts with automobile dealers located within a 25-mile
radius of each branch office. The Branch Manager provides dealers with information regarding the Company and the general terms
upon which the Company is willing to purchase Contracts. The Company presently has no plans to implement any other forms of
advertising, such as radio or newspaper advertisements, for the purchase of Contracts.
The Company solicits customers under its Direct Loan program primarily through direct mailings, followed by telephone calls to
individuals who have a good credit history with the Company in connection with Contracts purchased by the Company.
Computerized Information System
The Company utilizes integrated computer systems developed by NDS to assist in responding to customer inquiries and to monitor the
performance of its Contract and Direct Loan portfolio and the performance of individual customers under Contracts. All Company
personnel are provided with real-time access to information from a single shared database. The Company has created specialized
programs to automate the tracking of Contracts and Direct Loans from inception. The Company’s computer network encompasses
both its corporate headquarters and its branch office locations. See “Monitoring and Enforcement of Contracts” above for a summary
of the different reports prepared by the Company.
Competition
The consumer finance industry is highly fragmented and highly competitive. Due to various factors, including the existing low interest
rate environment, the competitiveness of the industry continues to increase as new competitors continue to enter the market and
certain existing competitors continue to expand their operations. There are numerous financial service companies that provide
consumer credit in the markets served by the Company, including banks, credit unions, other consumer finance companies, and
captive finance companies owned by automobile manufacturers and retailers. Many of these companies have significantly greater
resources than the Company. Increased competition for the purchase of Contracts has caused a reduction in the interest rates payable
by many individual purchasers of automobiles, and the Company believes that continued increased competition could materially
reduce such interest rates in the foreseeable future. In addition, increased competition for the purchase of Contracts has enabled
automobile dealers to shop for the best price, thereby giving rise to an erosion in the dealer discounts from the initial principal
amounts at which the Company is willing to purchase Contracts and higher advance rates. Further, increased competition has resulted
in the purchase of lower credit quality Contracts, though these Contracts are still acceptable under the Company’s underwriting
guidelines.
The Company’s target market consists of persons who are generally unable to obtain traditional used car financing because of their
credit history or the vehicle’s mileage or age. The Company has been able to expand its automobile finance business in the non-prime
credit market by offering to purchase Contracts on terms that are competitive with those of other companies which purchase
automobile receivables in that market segment. Because of the daily contact that many of its employees have with automobile dealers
located throughout the market areas served by it, the Company is generally aware of the terms upon which its competitors are offering
to purchase Contracts. The Company’s policy is to modify its terms, if necessary, to remain competitive. However, the Company
generally will not sacrifice its purchasing criteria or prudent business practices in order to meet the competition.
The Company’s ability to compete effectively with other companies offering similar financing arrangements depends upon the
Company maintaining close business relationships with dealers of new and used vehicles. No single dealer out of the approximately
2,300 dealers that the Company currently has active Contractual relationships accounted for over 1% of its business volume for any of
the fiscal years ended March 31, 2015, 2014 or 2013.
7
Regulation
The Company’s financing operations are subject to regulation, supervision and licensing under various federal, state and local statutes,
regulations and ordinances. Additionally, the procedures that the Company must follow in connection with the repossession of
vehicles securing Contracts are regulated by each of the states in which the Company does business. To date, the Company’s
operations have been conducted exclusively in the states of Alabama, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland,
Michigan, Missouri, North Carolina, Ohio, South Carolina, Tennessee, Texas and Virginia. Accordingly, the laws of such states, as
well as applicable federal law, govern the Company’s operations. The following constitute certain of the existing federal, state and
local statutes, regulations and ordinances with which the Company must comply:
•
•
•
State consumer regulatory agency requirements. Pursuant to state regulations, on-site audits are conducted of each of the
Company’s branches located within Florida, Alabama, Illinois, Indiana, Michigan and Missouri to monitor compliance
with applicable regulations. These regulations include, but are not limited to: licensure requirements; requirements for
maintenance of proper records; payment of required fees; maximum interest rates that may be charged on loans to finance
used vehicles; and proper disclosure to customers regarding financing terms. Pursuant to North Carolina law, the
Company’s Direct Loan activities in that state are subject to similar periodic on-site audits by the North Carolina Office of
the Commissioner of Banks.
State licensing requirements. The Company maintains a Sales Finance Company License with the Florida Department of
Banking and Finance, as well as consumer loan licenses in Florida and North Carolina. In addition, each of the dealers
that the Company does business with is required to maintain a Retail Installment Seller’s License with each state in which
it operates.
Fair Debt Collection Practices Act. The Fair Debt Collection Practices Act (“FDCPA”) and applicable state law
counterparts prohibit the Company from contacting customers during certain times and at certain places, from using
certain threatening practices and from making false implications when attempting to collect a debt.
• Truth in Lending Act. The Truth in Lending Act (“TILA”) requires the Company and the dealers it does business with to
make certain disclosures to customers, including the terms of repayment, the total finance charge and the annual
percentage rate charged on each Contract or Direct Loan.
• Equal Credit Opportunity Act. The Equal Credit Opportunity Act (“ECOA”) prohibits creditors from discriminating
against loan applicants on the basis of race, color, sex, age or marital status. Pursuant to Regulation B promulgated under
the ECOA, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose
credit applications are not approved of the reasons for the rejection.
•
Fair Credit Reporting Act. The Fair Credit Reporting Act (“FCRA”) requires the Company to provide certain information
to consumers whose credit applications are not approved on the basis of a report obtained from a consumer-reporting
agency.
• Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act (“GLBA”) requires the Company to maintain privacy with
respect to certain consumer data in its possession and to periodically communicate with consumers on privacy matters.
• Soldiers’ and Sailors’ Civil Relief Act. The Soldiers’ and Sailors’ Civil Relief Act requires the Company to reduce the
interest rate charged on each loan to customers who have subsequently joined, enlisted, been inducted or called to active
military duty.
• Electronic Funds Transfer Act. The Electronic Funds Transfer Act (“EFTA”) prohibits the Company from requiring its
customers to repay a loan or other credit by electronic funds transfer (“EFT”), except in limited situations which do not
apply to the Company. The Company is also required to provide certain documentation to its customers when an EFT is
initiated and to provide certain notifications to its customers with regard to preauthorized payments.
• Telephone Consumer Protection Act. The Telephone Consumer Protection Act prohibits telephone solicitation calls to a
customer’s home before 8 a.m. or after 9 p.m. In addition, if the Company makes a telephone solicitation call to a
customer’s home, the representative making the call must provide his or her name, the Company’s name, and a telephone
number or address at which the Company’s representative may be contacted. The Telephone Consumer Protection Act
also requires that the Company maintain a record of any requests by customers not to receive future telephone
solicitations, which must be maintained for five years.
•
Bankruptcy. Federal bankruptcy and related state laws may interfere with or affect the Company’s ability to recover
collateral or enforce a deficiency judgment.
• Dodd-Frank Wall Street Reform and Consumer Protection Act 0f 2010 (“Dodd-Frank Act”). Title X of the Dodd-Frank
Act created the Consumer Financial Protection Bureau (“CFPB”), which, effective as of July 21, 2011, has the authority to
issue and enforce regulations under the federal “enumerated consumer laws,” including (subject to certain statutory
limitations) FDCPA, TILA, ECOA, FCRA, GLBA and EFTA. The CFPB has rulemaking and enforcement authority over
8
certain non-depository institutions, including us. The CFPB is specifically authorized, among other things, to take actions
to prevent companies providing consumer financial products or services and their service providers from engaging in
unfair, deceptive or abusive acts or practices in connection with consumer financial products and services, and to issue
rules requiring enhanced disclosures for consumer financial products or services. Under the Dodd-Frank Act, the CFPB
also may restrict the use of pre-dispute mandatory arbitration clauses in contracts between covered persons and consumers
for a consumer financial product or service. The CFPB also has authority to interpret, enforce, and issue regulations
implementing enumerated consumer laws, including certain laws that apply to our business. The CFPB recently issued
rules regarding the supervision and examination of non-depository “larger participants” in the automobile finance
business. Since we are deemed a larger participant, we are subject to supervision and examination by the CFPB.
Failure to comply with these laws or regulations could have a material adverse effect on us by, among other things, limiting the
jurisdictions in which we may operate, restricting our ability to realize the value of the collateral securing the Contracts, making it
more costly or burdensome to do business or resulting in potential liability. The volume of new or modified laws and regulations has
increased in recent years in response to issues arising with respect to consumer lending. From time to time, legislation and regulations
are enacted which increase the cost of doing business, limit or expand permissible activities or affect the competitive balance among
financial services providers. Proposals to change the laws and regulations governing the operations and taxation of financial
institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures and by various
regulatory agencies. This legislation may change our operating environment in substantial and unpredictable ways and may have a
material adverse effect on our business.
In particular, the Dodd-Frank Act and regulations promulgated thereunder, including the rules regarding supervision and examination
recently issued by the CFPB, are likely to affect our cost of doing business, may limit or expand our permissible activities, may affect
the competitive balance within our industry and market areas and could have a material adverse effect on us. Our management
continues to assess the Dodd-Frank Act’s probable impact on our business, financial condition and results of operations, and to
monitor developments involving the entities charged with promulgating regulations thereunder. However, the ultimate effect of the
Dodd-Frank Act on the financial services industry in general, and on us in particular, is uncertain at this time.
In addition to the CFPB, other state and federal agencies have the ability to regulate aspects of our business. For example, the Dodd-
Frank Act provides a mechanism for state Attorneys General to investigate us. In addition, the Federal Trade Commission has
jurisdiction to investigate aspects of our business. We expect that regulatory investigation by both state and federal agencies will
continue and that the results of these investigations could have a material adverse impact on us.
Dealers with which we do business must also comply with credit and trade practice statutes and regulations. Failure of these dealers to
comply with such statutes and regulations could result in customers having rights of rescission and other remedies that could have a
material adverse effect on us.
The sale of vehicle service contracts and other ancillary products by dealers in connection with Contracts assigned to us from dealers
is also subject to state laws and regulations. As we are the holder of the Contracts that may, in part, finance these products, some of
these state laws and regulations may apply to our servicing and collection of the Contracts. Although these laws and regulations may
not significantly affect our business, there can be no assurance that insurance or other regulatory authorities in the jurisdictions in
which these products are offered by dealers will not seek to regulate or restrict the operation of our business in these jurisdictions. Any
regulation or restriction of our business in these jurisdictions could materially adversely affect the income received from these
products.
The Company’s management believes that the Company maintains all requisite licenses and permits and is in material compliance
with applicable local, state and federal laws and regulations. The Company periodically reviews its branch office practices in an effort
to ensure such compliance. In addition, the Company continues to increase the size of its compliance department in response to the
increasing complexity of the regulatory environment. Although compliance with existing laws and regulations has not had a material
adverse effect on the Company’s operations to date, given the increasingly complex regulatory environment, the increasing costs of
complying with such laws and regulations, and the increasing risk of penalties, fines or other liabilities associated therewith, no
assurances can be given that we are in material compliance with all of such laws or regulations or that the costs of such compliance, or
the failure to be in such compliance, will not have a material adverse effect on our business, financial condition or results of
operations.
Employees
The Company’s management and various support functions are centralized at the Company’s Corporate Headquarters in Clearwater,
Florida. As of March 31, 2015 the Company employed a total of 334 persons, of which 41 persons were employed at the Company’s
Corporate Headquarters. None of the Company’s employees are subject to a collective bargaining agreement, and the Company
considers its relations with its employees generally to be good.
9
Item 1A. Risk Factors
The following factors, as well as other factors not set forth below, may adversely affect the business, operations, financial
condition or results of operations of the Company (sometimes referred to in this section as “we” “us” or “our”).
We operate in an increasingly competitive market.
The non-prime consumer-finance industry is highly competitive, and the competitiveness of the market continues to increase as new
competitors continue to enter the market and certain existing competitors continue to expand their operations. There are numerous
financial service companies that provide consumer credit in the markets served by us, including banks, credit unions, other consumer
finance companies and captive finance companies owned by automobile manufacturers and retailers. Many of these competitors have
substantially greater financial resources than us. In addition, our competitors often provide financing on terms more favorable to
automobile purchasers or dealers than we offer. Many of these competitors also have long-standing relationships with automobile
dealerships and may offer dealerships or their customers other forms of financing, including dealer floor-plan financing and leasing,
which are not provided by us. Providers of non-prime consumer financing have traditionally competed primarily on the basis of:
•
•
•
•
•
•
interest rates charged;
the quality of credit accepted;
dealer discount;
amount paid to dealers relative to the wholesale book value;
the flexibility of loan terms offered; and
the quality of service provided.
Our ability to compete effectively with other companies offering similar financing arrangements depends on our ability to maintain
close relationships with dealers of new and used vehicles. We may not be able to compete successfully in this market or against these
competitors.
We have focused on a segment of the market composed of consumers who typically do not meet the more stringent credit
requirements of traditional consumer financing sources and whose needs, as a result, have not been addressed consistently by such
financing sources. As new and existing providers of consumer financing have undertaken to penetrate our targeted market segment,
we have experienced increasing pressure to reduce our interest rates, fees and dealer discounts in order to maintain our market share.
Further reductions in our interest rates, fees or dealer discount rates could have a material adverse impact on our profitability or
financial condition.
The Dodd-Frank Act authorizes the CFPB to adopt rules that could potentially have a material adverse effect on our
operations and financial performance.
Title X of the Dodd-Frank Act established the CFPB, which became operational on July 21, 2011. Under the Dodd-Frank Act, the
CFPB has regulatory, supervisory and enforcement powers over providers of consumer financial products, such as Contracts and the
Direct Loans that we offer, including explicit supervisory authority to examine and require registration of installment lenders such as
ourselves. Included among the powers afforded to the CFPB is the authority to adopt rules describing specified acts and practices as
being “unfair,” “deceptive” or “abusive,” and hence unlawful. Although the Dodd-Frank Act expressly provides that the CFPB has no
authority to establish usury limits, some consumer advocacy groups have suggested that certain forms of alternative consumer finance
products, such as installment loans, should be a regulatory priority and it is possible that at some time in the future the CFPB could
propose and adopt rules making such lending or other products that we may offer materially less profitable or impractical. Further, the
CFPB may target specific features of loans by rulemaking that could cause us to cease offering certain products. Any such rules could
have a material adverse effect on our business, results of operation and financial condition. The CFPB could also adopt rules imposing
new and potentially burdensome requirements and limitations with respect to any of our current or future lines of business, which
could have a material adverse effect on our operations and financial performance.
In addition to the Dodd-Frank Act’s grant of regulatory powers to the CFPB, the Dodd-Frank Act gives the CFPB authority to pursue
administrative proceedings or litigation for violations of federal consumer financial laws. In these proceedings, the CFPB can obtain
cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief)
and monetary penalties ranging from $5,000 per day for minor violations of federal consumer financial laws (including the CFPB’s
own rules) to $25,000 per day for reckless violations and $1 million per day for knowing violations. If we are subject to such
administrative proceedings, litigation, orders or monetary penalties in the future, this could have a material adverse effect on our
operations and financial performance. Also, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations under
10
Title X, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions for the kind of cease and
desist orders available to the CFPB (but not for civil penalties). If the CFPB or one or more state officials believe we have violated the
foregoing laws, they could exercise their enforcement powers in ways that would have a material adverse effect on us. See “Item 1.
Business – Regulation” for additional information.
Pursuant to the authority granted to it under the Dodd-Frank Act, the CFPB recently adopted rules that subject larger
nonbank automobile finance companies such as us to supervision and examination by the CFPB. Any such examination by the
CFPB likely would have a material adverse effect on our operations and financial performance.
The CFPB recently issued rules regarding the supervision and examination of non-depository “larger participants” in the automobile
finance business, including us. Since we are deemed a larger participant, we are subject to supervision and examination by the CFPB.
The CFPB’s stated objectives of such examinations are: to assess the quality of a larger participant’s compliance management systems
for preventing violations of federal consumer financial laws; to identify acts or practices that materially increase the risk of violations
of federal consumer finance laws and associated harm to consumers; and to gather facts that help determine whether the larger
participant engages in acts or practices that are likely to violate federal consumer financial laws in connection with its automobile
finance business. Thus, as a larger participant, we will be subject to examination by the CFPB for, among other things, ECOA
compliance; unfair, deceptive or abusive acts or practices (“UDAAP”) compliance; and the adequacy of our compliance management
systems.
We are in the process of evaluating our existing compliance management systems with the objective of updating, improving and/or
replacing such systems. Given the time and effort needed to establish and implement adequate compliance management systems and
the resources and costs associated with being examined by the CFPB, such an examination would likely have a material adverse effect
on our business, financial condition and profitability. Moreover, any such examination by the CFPB could result in the assessment of
penalties, including fines, and other remedies which could, in turn, have a material effect on our business, financial condition and
profitability.
We are subject to many other laws and governmental regulations, and any material violations of or changes in these laws or
regulations could have a material adverse effect on our financial condition and business operations.
Our financing operations are subject to regulation, supervision and licensing under various other federal, state and local statutes and
ordinances. Additionally, the procedures that we must follow in connection with the repossession of vehicles securing Contracts are
regulated by each of the states in which we do business. The various federal, state and local statutes, regulations, and ordinances
applicable to our business govern, among other things:
•
licensing requirements;
requirements for maintenance of proper records;
•
• payment of required fees to certain states;
• maximum interest rates that may be charged on loans to finance new and used vehicles;
• debt collection practices;
•
proper disclosure to customers regarding financing terms;
•
• privacy regarding certain customer data;
interest rates on loans to customers;
late fees and insufficient fees charged;
telephone solicitation of Direct Loan customers; and
collection of debts from loan customers who have filed bankruptcy.
•
•
•
We believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance
with all applicable local, state and federal regulations. Our failure, or the failure by dealers who originate the Contracts we purchase,
to maintain all requisite licenses and permits, and to comply with other regulatory requirements, could result in consumers having
rights of rescission and other remedies that could have a material adverse effect on our financial condition. Furthermore, any changes
in applicable laws, rules and regulations, such as the passage of the Dodd-Frank Act and the creation of the CFPB, may make our
compliance therewith more difficult or expensive or otherwise materially adversely affect our business and financial condition.
11
We are subject to risks associated with litigation.
As a consumer finance company, we are subject to various consumer claims and litigation seeking damages and statutory penalties,
based upon, among other things:
• usury laws;
disclosure inaccuracies;
•
• wrongful repossession;
•
•
violations of bankruptcy stay provisions;
certificate of title disputes;
fraud;
•
• breach of contract; and
•
discriminatory treatment of credit applicants.
Some litigation against us could take the form of class action complaints by consumers. As the assignee of Contracts originated by
dealers, we may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and
penalties claimed by consumers in these types of actions can be substantial. The relief requested by the plaintiffs varies but may
include requests for compensatory, statutory and punitive damages. We also are periodically subject to other kinds of litigation
typically experienced by businesses such as ours, including employment disputes and breach of contract claims. No assurances can be
given that we will not experience material financial losses in the future as a result of litigation or other legal proceedings.
Our profitability and future growth depend on our continued access to bank financing.
The profitability and growth of our business currently depend on our ability to access bank debt at competitive rates. We currently
depend on a $225.0 million line of credit facility with a financial institution to finance a large portion of our purchases of Contracts
and fund our Direct Loans. This line of credit currently has a maturity date of January 30, 2018 and is secured by substantially all our
assets. At March 31, 2015, we had approximately $199.0 million outstanding under the line of credit and approximately $26.0 million
available for additional borrowing.
The availability of our credit facility depends, in part, on factors outside of our control, including regulatory capital treatment for
unfunded bank lines of credit and the availability of bank loans in general. Therefore, we cannot guarantee that this credit facility will
continue to be available beyond the current maturity date on reasonable terms or at all. If we are unable to renew or replace our credit
facility or find alternative financing at reasonable rates or upon reasonable terms, we may be forced to liquidate. We will continue to
depend on the availability of our line of credit, together with cash from operations, to finance our future operations.
The terms of our indebtedness impose significant restrictions on us.
Our existing outstanding indebtedness restricts our ability to, among other things:
•
•
sell or transfer assets;
incur additional debt;
repay other debt;
•
•
• make certain investments or acquisitions;
repurchase or redeem capital stock;
engage in mergers or consolidations; and
engage in certain transactions with subsidiaries and affiliates.
•
•
12
In addition, our line of credit facility requires us to comply with certain financial ratios and covenants and to satisfy specified financial
tests, including maintenance of asset quality and portfolio performance tests. The need to comply with such covenants and other
provisions could impact our ability to pay dividends to our shareholders. Moreover, our ability to continue to meet those financial
ratios and tests could be affected by events beyond our control. Failure to meet any of these covenants, financial ratios or financial
tests could result in an event of default under our line of credit facility. If an event of default occurs under this credit facility, our
lenders may take one or more of the following actions:
increase our borrowing costs;
restrict our ability to obtain additional borrowings under the facility;
accelerate all amounts outstanding under the facility; or
enforce their interest against collateral pledged under the facility.
•
•
•
•
If our lender accelerates our debt payments, our assets may not be sufficient to fully repay the debt.
We will require a significant amount of cash to service our indebtedness and meet our other liquidity needs.
Our ability to make payments on or to refinance our indebtedness and to fund our operations and planned capital expenditures depends
on our future operating performance. Our primary cash requirements include the funding of:
• Contract purchases and Direct Loans;
•
•
interest payments under our line of credit facility and other indebtedness;
capital expenditures for technology and facilities;
ongoing operating expenses;
•
• planned expansions by opening additional branch offices; and
•
any required income tax payments.
In addition, because we expect to continue to require substantial amounts of cash for the foreseeable future, we may seek additional
debt or equity financing. The type, timing and terms of the financing we select will be dependent upon our cash needs, the availability
of other financing sources and the prevailing conditions in the financial markets. There is no assurance that any of these sources will
be available to us at any given time or that the terms on which these sources may be available will be favorable. Our inability to obtain
such additional financing on reasonable terms could adversely impact our ability to grow.
Our high level of indebtedness could have important consequences for our business. For example,
• we may be unable to satisfy our obligations under our outstanding indebtedness;
• we may find it more difficult to fund future working capital, capital expenditures, acquisitions, and general corporate
needs;
• we may have to dedicate a substantial portion of our cash resources to the payments on our outstanding indebtedness,
thereby reducing the funds available for operations and future business opportunities; and
• we may be more vulnerable to adverse general economic and industry conditions.
Our ability to make payments on, or to refinance, our indebtedness will depend on our future operating performance, including our
ability to access additional debt and equity financing, which to a certain extent, is subject to economic, financial, competitive and
other factors beyond our control. If new debt is added to our current levels, the risks described above could intensify.
We may experience high delinquency and loss rates in our loan portfolios, which could reduce our profitability.
Our profitability depends, to a material extent, on the performance of Contracts that we purchase. Historically, we have experienced
higher delinquency rates than traditional financial institutions because a large portion of our loans are to non-prime borrowers, who
are unable to obtain financing from traditional sources due to their credit history. Although we attempt to mitigate these high credit
risks with our underwriting standards and collection procedures, these standards and procedures may not offer adequate protection
against the risk of default, especially in periods of economic uncertainty and high unemployment such as have existed over much of
the past few years. In the event of a default, the collateral value of the financed vehicle usually does not cover the outstanding loan
balance and costs of recovery. Higher than anticipated delinquencies and defaults on our Contracts would reduce our profitability.
13
In addition, in the event we were to make any bulk purchases of seasoned Contracts, we may experience higher than normal
delinquency rates with respect to these loan portfolios due to our inability to apply our underwriting standards to each loan comprising
the acquired portfolios. We would similarly attempt to mitigate the high credit risks associated with these loans, although no
assurances can be given that we would be able to do so.
We depend upon our relationships with our dealers.
Our business depends in large part upon our ability to establish and maintain relationships with reputable dealers who originate the
Contracts we purchase. Although we believe we have been successful in developing and maintaining such relationships, such
relationships are not exclusive, and many of them are not longstanding. There can be no assurances that we will be successful in
maintaining such relationships or increasing the number of dealers with whom we do business, or that our existing dealer base will
continue to generate a volume of Contracts comparable to the volume of such Contracts historically generated by such dealers.
Our success depends upon our ability to implement our business strategy.
Our financial position depends on management’s ability to execute our business strategy. Key factors involved in the execution of our
business strategy include achievement of the desired Contract purchase volume, the use of effective risk management techniques and
collection methods, continued investment in technology to support operating efficiency, and continued access to significant funding
and liquidity sources. Our failure or inability to execute any element of our business strategy could a have a material adverse effect on
our business and financial condition.
Our business is highly dependent upon general economic conditions.
We are subject to changes in general economic conditions that are beyond our control. During periods of economic slowdown or
sluggish employment, such as has existed for much of the past few years, delinquencies, defaults, repossessions and losses generally
increase, absent offsetting factors. These periods also may be accompanied by decreased consumer demand for automobiles and
declining values of automobiles securing outstanding loans, which weakens collateral coverage on our loans and increases the amount
of a loss we would experience in the event of default. Because we focus on non-prime borrowers, the actual rates of delinquencies,
defaults, repossessions and losses on these loans are higher than those experienced in the general automobile finance industry and
could be more dramatically affected by a general economic downturn. In addition, during an economic slowdown or recession, our
servicing costs may increase without a corresponding increase in our servicing income. While we seek to manage the higher risk
inherent in loans made to non-prime borrowers through our underwriting criteria and collection methods, no assurances can be given
that these criteria or methods will afford adequate protection against these risks. Any sustained period of increased delinquencies,
defaults, repossessions or losses or increased servicing costs could have a material adverse effect on our business and financial
condition.
Furthermore, in a low interest-rate environment such as has existed in the United States in recent years, the level of competition
increases in the non-prime consumer-finance industry as new competitors enter the market and many existing competitors expand
their operations. Such increased competition, in turn, exerts increasing pressure on us to reduce our interest rates, fees and dealer
discount rates in order to maintain our market share. Reductions in our interest rates, fees or dealer discount rates could have a
material adverse impact on our profitability or financial condition.
Recent economic developments may adversely affect our business and financial condition.
Over the past several years, the United States has experienced a period of economic uncertainty, sluggish employment and wage
stagnation that has adversely affected our business and financial condition. Stagnant wages and a continued lack of available credit
have contributed to higher delinquencies and losses than we would otherwise experience.
Additionally, stagnant wages, fluctuating gasoline prices, unstable real estate values, food inflation, resets of adjustable rate mortgages
and other factors have adversely impacted consumer confidence and disposable income. These conditions have increased loss
frequency, decreased consumer demand for automobiles and weakened collateral values on certain types of vehicles. Because we
focus predominately on non-prime borrowers, the actual rates of delinquencies, defaults, repossessions and losses on Contracts are
higher than those experienced in the general automobile finance industry and have been materially affected by recent economic
conditions. If economic and credit conditions, including wage conditions, do not continue to improve, our business and financial
condition could be further adversely affected.
14
The auction proceeds we receive from the sale of repossessed vehicles and other recoveries are subject to fluctuation due to
economic and other factors beyond our control.
If we repossess a vehicle securing a Contract, we typically have it transported to an automobile auction for sale. Auction proceeds
from the sale of repossessed vehicles and other recoveries are usually not sufficient to cover the outstanding balance of the Contract,
and the resulting deficiency is charged off. In addition, there is, on average, approximately a 30-day lapse between the time we
repossess a vehicle and the time it is sold. The proceeds we receive from such sales depend upon various factors, including the supply
of, and demand for, used vehicles at the time of sale. Such supply and demand are dependent on many factors. For example, during
periods of economic uncertainty, the demand for used cars may soften, resulting in decreased auction proceeds to us from the sale of
repossessed automobiles. Furthermore, depressed wholesale prices for used automobiles may result from significant liquidations of
rental or fleet inventories, and from increased volume of trade-ins due to promotional financing programs offered by new vehicle
manufacturers. We have experienced declining auction proceeds in the recent past and we expect this trend to continue for the
foreseeable future. Decreased auction proceeds to us resulting from sales of used automobiles at depressed prices will result in losses
and, in turn, reduced profitability.
An increase in market interest rates may reduce our profitability.
Our long-term profitability may be directly affected by the level of and fluctuations in interest rates. Sustained, significant increases in
interest rates may adversely affect our liquidity and profitability by reducing the interest rate spread between the rate of interest we
receive on our Contracts and interest rates that we pay under our outstanding line of credit facility. As interest rates increase, our gross
interest rate spread on new originations will generally decline since the rates charged on the Contracts originated or purchased from
dealers generally are limited by statutory maximums, restricting our opportunity to pass on increased interest costs. We monitor the
interest rate environment and, on occasion, enter into interest rate swap agreements relating to a portion of our outstanding debt. Such
agreements effectively convert a portion of our floating-rate debt to a fixed-rate, thus reducing the impact of interest rate changes on
our interest expense. On June 4, 2013 and July 30, 2013, the Company entered into interest rate swap agreements to convert a portion
of its floating rate debt to a fixed rate, more closely matching the interest rate characteristics of finance receivables. The June 4, 2013
agreement provides for a five-year interest rate swap in which the Company pays a fixed rate of 1% and receives payments from the
counterparty on the 1-month LIBOR rate. This swap has an effective date of June 13, 2013 and a notional amount of $25 million. The
July 30, 2013 agreement provides for a five-year interest rate swap in which the Company pays a fixed rate of 0.87% and receives
payments from the counterparty on the 1-month LIBOR rate. This swap has an effective date of August 13, 2013 and a notional
amount of $25 million. The changes in the fair value of the interest rate swap agreements (unrealized gains and losses) are recorded in
earnings. We will continue to evaluate interest rate swap pricing and we may or may not enter into additional interest rate swap
agreements in the future.
We may experience problems with our integrated computer systems or be unable to keep pace with developments in
technology.
We use various technologies in our business, including telecommunication, data processing, and integrated computer systems.
Technology changes rapidly. Our ability to compete successfully with other financing companies may depend on our ability to
efficiently and cost-effectively implement technological changes. Moreover, to keep pace with our competitors, we may be required to
invest in technological changes that do not necessarily improve our profitability. We are currently in the early stages of replacing our
existing computer systems. Difficulties experienced in the implementation of new computer systems could have a material adverse
effect on our ability to originate new Contracts and Direct Loans and service existing Contracts and Direct Loans and, thus, on our
business and financial condition.
We utilize our integrated computer systems to respond to customer inquiries and to monitor the performance of our Contract and
Direct Loan portfolios and the performance of individual customers under our Contracts and Direct Loans. Problems with our
systems’ operations could adversely impact our ability to monitor our portfolios or collect amounts due under our Contracts and Direct
Loans, which could have a material adverse effect on our financial condition and results of operations.
Failure to properly safeguard confidential customer information could subject us to liability, decrease our profitability and
damage our reputation.
In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and
personally identifiable information of our customers, on our computer networks. The secure processing, maintenance and transmission
of this information is critical to our operations and business strategy.
15
If third parties are able to breach our network security, the network security of a third party that we share information with or
otherwise misappropriate our customers’ personal information, or if we give third parties improper access to our customers’ personal
information, we could be subject to liability. This liability could include identity theft or other similar fraud-related claims. This
liability could also include claims for other misuses or losses or personal information, including for unauthorized marketing purposes.
Other liabilities could include claims alleging misrepresentation of our privacy and data security practices.
We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary
to secure online transmission of confidential customer information. Advances in computer capabilities, new discoveries in the field of
cryptography or other events or developments may result in a compromise or breach of the algorithms that we use to protect sensitive
customer data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause
interruptions in our operations. We may be required to expend capital and other resources to protect against, or alleviate problems
caused by, security breaches or other cybersecurity incidents. Although we have not experienced any material cybersecurity incidents
to dates, there can be no assurance that a cyber attack, security breach or other cybersecurity incident will not have a material adverse
effect on our business, financial condition or results of operations in the future. Our security measures are designed to protect against
security breaches, but our failure to prevent security breaches could subject us to liability, decrease our profitability and damage our
reputation.
Our growth depends upon our ability to retain and attract a sufficient number of qualified employees.
To a large extent, our growth strategy depends on the opening of new offices that focus primarily on purchasing Contracts and making
Direct Loans in markets we have not previously served. Future expansion of our branch office network depends, in part, upon our
ability to attract and retain qualified and experienced office managers and the ability of such managers to develop relationships with
dealers that serve those markets. We generally do not open a new office until we have located and hired a qualified and experienced
individual to manage the office. Typically, this individual will be familiar with local market conditions and have existing relationships
with dealers in the area to be served. Although we believe that we can attract and retain qualified and experienced personnel as we
proceed with planned expansion into new markets, no assurance can be given that we will be successful in doing so. Competition to
hire personnel possessing the skills and experience required by us could contribute to an increase in our employee turnover rate. High
turnover or an inability to attract and retain qualified personnel could have an adverse effect on our origination, delinquency, default
and net loss rates and, ultimately, our business and financial condition.
The loss of one of our key executives could have a material adverse effect on our business.
Our future growth and development to date will be largely dependent upon the services of Ralph T. Finkenbrink, our President and
Chief Executive Officer, Kevin D. Bates, our Senior Vice President of Branch Operations, and Katie L. MacGillivary, our Chief
Financial Officer and Vice President of Finance. We do not maintain key-man life insurance policies on these executives. Although
we believe that we have sufficient experienced management personnel to accommodate the loss of any key executive, the loss of
services of one or more of these executives could have a material adverse effect on our business and financial condition.
Our stock is thinly traded, which may limit your ability to resell your shares.
The average daily trading volume of our Common shares on the NASDAQ Global Select Market for the fiscal year ended March 31,
2015 was approximately 54,810 shares. Moreover, on March 19, 2015, our Nicholas Financial subsidiary purchased an aggregate of
4,713,804 of our Common shares pursuant to a modified “Dutch auction” tender offer, thereby reducing the number of shares
potentially available in the public market. Thus, our Common shares are thinly traded. Thinly traded stock can be more volatile than
stock trading in an active public market. Factors such as our financial results, the introduction of new products and services by us or
our competitors, and various factors affecting the consumer-finance industry generally may have a significant impact on the market
price of our Common shares. In recent years, the stock market has experienced a high level of price and volume volatility, and market
prices for the stocks of many companies, including ours, have experienced wide price fluctuations that have not necessarily been
related to their operating performance. Therefore, our shareholders may not be able to sell their shares at the volumes, prices, or times
that they desire.
Natural disasters, acts of war, terrorist attacks and threats or the escalation of military activity in response to these attacks or
otherwise may negatively affect our business, financial condition and results of operations.
Natural disasters (such as hurricanes), acts of war, terrorist attacks and the escalation of military activity in response to these attacks or
otherwise may have negative and significant effects, such as disruptions in our operations, imposition of increased security measures,
changes in applicable laws, market disruptions and job losses. These events may have an adverse effect on the economy in general.
Moreover, the potential for future terrorist attacks and the national and international responses to these threats could affect the
16
business in ways that cannot be predicted. The effect of any of these events or threats could have a material adverse effect on our
business, financial condition and results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
The Company leases its Corporate Headquarters and branch office facilities. The Company’s Headquarters, located at 2454 McMullen
Booth Road, Building C, in Clearwater, Florida, consist of approximately 15,000 square feet of office space leased at an annual rate of
approximately $18.00 per square foot. The current lease relating to this space was entered into effective April 1, 2015 and expires on
March 31, 2020.
Each of the Company’s 67 branch offices located in Alabama, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland,
Michigan, Missouri, North Carolina, Ohio, South Carolina, Tennessee and Virginia consists of approximately 1,400 square feet of
office space. These offices are located in office parks, shopping centers or strip malls and are occupied pursuant to leases with an
initial term of one to five years at annual rates ranging from approximately $12.00 to $35.00 per square foot. The Company believes
that these facilities and additional or alternate space available to it are adequate to meet its needs for the foreseeable future.
Item 3.
Legal Proceedings
The Company currently is not a party to any pending legal proceedings other than ordinary routine litigation incidental to its business,
none of which, if decided adversely to the Company, would, in the opinion of management, have a material adverse effect on the
Company’s financial condition or results of operations.
Item 4. Mine Safety Disclosures
Not Applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s Common shares are traded on the NASDAQ Global Select Market under the symbol “NICK.”
The following table sets forth the high and low sales prices of the Company’s Common shares for the fiscal years ended March 31,
2015 and 2014, respectively.
Fiscal year ended March 31, 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal year ended March 31, 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$ 15.85
$ 14.49
$ 14.95
$ 15.47
$ 14.27
$ 10.64
$ 10.90
$ 13.38
High
Low
$16.96
$16.79
$17.20
$15.90
$13.60
$14.82
$15.01
$15.63
As of May 29, 2015, there were approximately 1,600 holders of record of the Company’s Common shares.
17
No cash dividends were declared or paid during the fiscal year ended March 31, 2015. The following cash dividends were declared
and paid during the fiscal year ended March 31, 2014.
Date Declared
May 7, 2013
August 13, 2013
Record Date
June 21, 2013
September 20, 2013
Date Paid
June 28, 2013
September 27, 2013
Amount of
Dividend
$ 0.12
0.12
$ 0.24
Although the Company has declared and paid cash dividends on its Common shares in the past, we have no current plans to declare or
pay any cash dividends in the foreseeable future. The payment of future dividends, if any, is reviewed periodically by the Company’s
directors and management and will depend upon, among other things, existing conditions, including earnings, financial condition and
capital requirements, restrictions in financing agreements, business opportunities, tax considerations and other conditions and factors,
including prospects.
There are no Canadian foreign exchange controls or laws that would affect the remittance of dividends or other payments to the
Company’s non-Canadian resident shareholders. There are no Canadian laws that restrict the export or import of capital, other than the
Investment Canada Act (Canada), which requires the notification or review of certain investments by non-Canadians to establish or
acquire control of a Canadian business. The Company is not a Canadian business as defined under the Investment Canada Act because
it has no place of business in Canada, has no individuals employed in Canada in connection with its business, and has no assets in
Canada used in carrying on its business.
Canada and the United States of America are signatories to the Convention Between the United States of America and Canada With
Respect to Taxes on Income and on Capital (the “Tax Treaty”). The Tax Treaty contains provisions governing the tax treatment of
interest, dividends, gains and royalties paid to or received by a person residing in the United States. The Tax Treaty also contains
provisions to prevent the occurrence of double taxation, essentially by permitting the taxpayer to claim a tax credit for taxes paid in
the foreign jurisdiction.
Dividends paid to the Company from its U.S. subsidiaries’ current and accumulated earnings and profits will be subject to a U.S.
withholding tax of 5%. The gross dividends (i.e., before payment of the withholding tax) must be included in the Company’s net
income. However, under certain circumstances, the Company may be allowed to deduct the dividends in the calculation of its
Canadian taxable income. If the Company has no other foreign (i.e., non-Canadian) non-business income, no relief is available in that
case to recover the withholding taxes previously paid.
A 15% Canadian withholding tax applies to dividends paid by the Company to a U.S. shareholder that is an individual. The U.S.
shareholder must include the gross amount of the dividends in his net income to be taxed at the regular rates. In general, a U.S.
shareholder can obtain a foreign tax credit for U.S. federal income tax purposes with respect to the Canadian withholding tax on such
dividends, but the amount of such credit is subject to a limitation that depends, in part, on the amount of the shareholder’s income and
losses from other sources. A U.S. shareholder that is an individual also can elect to claim a deduction (rather than a foreign tax credit)
for all non-U.S. income taxes paid by the shareholder during the particular year. U.S. shareholders are urged to consult their own tax
advisors regarding the U.S. federal income tax treatment of any Canadian withholding tax imposed on dividends from the Company.
Dividends paid to a corporate U.S. shareholder that owns less than 10% of the Company’s voting shares are also subject to a Canadian
withholding tax of 15%.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table sets forth certain information with respect to the purchase of Common shares by our Nicholas Financial subsidiary
pursuant to a modified “Dutch auction” tender offer for up to $70.0 million (but not less than $50.0 million) in aggregate value of
Common shares. The tender offer commenced on February 10, 2015 and expired on March 13, 2015. The tender offer was completed
on March 19, 2015.
ISSUER PURCHASES OF EQUITY SECURITIES
Period
March 1, 2015 through March
31, 2015
Total Number of
Common shares
Purchased
Average Price Paid
per Common share
Total Number of Common
Shares Purchased As Part of
Publicly Announced
Plans or Programs
Maximum Number of
Common shares that May Yet
Be Purchased Under the
Plans or Programs
4,713,804 $
14.85
4,713,804
—
18
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information, as of March 31, 2015, with respect to compensation plans under which equity
securities of the Company were authorized for issuance:
EQUITY COMPENSATION PLAN INFORMATION
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
Weighted – Average
Exercise Price of
Outstanding Options,
Warrants and Rights
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
(a)
(b)
(c)
363,490
$
9.86
None
Not Applicable
363,490
$
9.86
8,615
None
8,615
Plan Category
Equity Compensation Plans Approved
by Security Holders
Equity Compensation Plans Not
Approved by Security Holders
TOTAL
Performance Graph
Set forth below is a graph comparing the cumulative total return on the Company’s Common shares for the five-year period ended
March 31, 2015, with that of an overall stock market (NASDAQ Composite) and the Company’s peer group index (Dow Jones US
General Financial Index). The stock performance graph assumes that the value of the investment in each of the Company’s Common
shares, the NASDAQ Composite Index and the Dow Jones US General Financial Index was $100 on April 1, 2010 and that all
dividends were reinvested.
The graph displayed below is presented in accordance with SEC requirements. Shareholders are cautioned against drawing any
conclusions from the data contained therein, as past results are not necessarily indicative of future performance. This graph in no way
reflects the Company’s forecast of future financial performance.
Total Return Performance
Nicholas Financial, Inc.
NASDAQ Composite
Dow Jones US General
Financial Index
l
e
u
a
V
x
e
d
n
I
275
225
175
125
75
4/01/2010
3/31/2011
3/31/2012
3/31/2013
3/31/2014
3/31/2015
Nicholas Financial, Inc.
NASDAQ Composite
Dow Jones US General Financial Index
04/01/2010
03/31/2011
03/31/2012
03/31/2013
03/31/2014
03/31/2015
$ 100.00
100.00
100.00
$ 161.16
115.98
103.67
$ 178.20
128.93
105.31
$ 226.68
136.26
128.02
$ 210.96
175.11
164.00
$ 185.07
204.38
181.35
19
Item 6.
Selected Financial Data
The following tables present selected consolidated financial data of the Company as of and for the fiscal years ended March 31, 2015,
2014, 2013, 2012, and 2011. The selected consolidated financial data have been derived from our consolidated financial statements.
You should read the selected consolidated financial data below in conjunction with “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and our audited consolidated financial statements and notes thereto that are
included elsewhere in this Report.
2015
2014
2013
2012
2011
Fiscal Year ended March 31,
Statement of Operations Data
Interest income on finance receivables $ 86,789,958
Interest expense
5,970,434
Provision for credit losses
20,370,530
Salaries and employee benefits
20,834,783
Change in fair value of interest rate
$ 82,628,943
5,678,188
14,979,216
19,634,202
$ 82,110,446
5,120,827
13,391,875
18,325,945
$ 80,515,050
4,891,854
12,367,593
17,582,967
$ 73,715,079
5,599,951
15,611,544
16,430,763
swaps
Other expenses
Operating income before income taxes
Income tax expense
Net income
364,378
13,153,462
60,693,587
26,096,371
9,240,479
$ 16,855,892
(688,455 )
14,509,062
54,112,213
28,516,730
11,813,378
$ 16,703,352
504,852
12,280,792
49,624,291
32,486,155
12,545,209
$ 19,940,946
—
9,524,361
44,366,775
36,148,275
13,926,516
$ 22,221,759
(495,136 )
9,280,923
46,428,045
27,287,034
10,518,740
$ 16,768,294
Earnings per share – basic:
$
1.40
$
1.38
$
1.66
$
1.89
$
1.44
Weighted average shares
outstanding
12,013,000
12,096,000
11,977,174
11,747,160
11,607,341
Earnings per share – diluted:
$
1.38
$
1.36
$
1.63
$
1.85
$
1.41
Weighted average shares
outstanding
12,192,000
12,325,000
12,218,416
12,033,131
11,893,518
2015
2014
2013
2012
2011
As of and for the Fiscal Year ended March 31,
$ 302,528,591
288,904,060
199,000,000
89,887,942
$ 283,429,579
269,343,595
127,900,000
141,937,555
$ 263,835,468
249,825,801
125,500,000
126,965,096
$ 256,560,144
241,253,430
112,000,000
135,263,161
$ 242,975,768
229,082,589
118,000,000
114,546,111
5.75%
14.54%
28.00%
8.54%
6.10%
12.42%
28.44%
9.65%
7.66%
15.21%
29.22%
11.82%
8.90%
17.79%
29.48%
13.31%
4.11%
8.13%
7.04%
4.00%
7.17%
6.22%
3.68%
6.81%
5.88%
2.99%
5.66%
4.59%
7.35%
15.85%
29.35%
10.75%
2.15%
6.18%
4.65%
Balance Sheet Data
Total assets
Finance receivables, net
Line of credit
Shareholders’ equity
Operating Data
Return on average assets
Return on average equity
Gross portfolio yield (1)
Pre-tax yield (1)
Total delinquencies over 30 days,
excluding Chapter 13 bankrupt
accounts
Write-off to liquidation (1)
Net charge-off percentage (1)
Automobile Finance Data & Direct
Loan Origination
Contracts purchased/Direct Loans
originated
$ 187,893,373
$ 179,030,939
$ 160,077,713
$ 152,315,679
$ 151,874,846
Average dealer discount on Contracts
purchased
Weighted average contractual rate (1)
Number of branch locations
8.08%
23.08%
66
8.44%
23.20%
65
8.54%
23.43%
64
9.23%
23.93%
60
9.55%
23.66%
56
(1) See the definitions set forth in the notes to the Portfolio Summary table on page 21 under “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Overview.”
20
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Nicholas Financial-Canada is a Canadian holding company incorporated under the laws of British Columbia in 1986. Nicholas
Financial-Canada currently conducts its business activities exclusively through a wholly-owned indirect Florida subsidiary, Nicholas
Financial, which purchases and services Contracts, makes Direct Loans and sells consumer-finance related products. Nicholas
Financial accounted for more than 99% of the Company’s consolidated revenue for each of the fiscal years ended March 31, 2015,
2014, and 2013. A second Florida subsidiary, NDS, which historically provided limited computer software support and updated
services to small businesses, has ceased such operations; however it continues as the intermediate holding company for Nicholas
Financial. Nicholas Financial-Canada, Nicholas Financial and NDS are collectively referred to herein as the “Company”.
Introduction
The Company’s consolidated revenues increased for the fiscal year ended March 31, 2015 to $86.8 million as compared to
$82.6 million and $82.1 million for the fiscal years ended March 31, 2014 and 2013, respectively. The Company’s operating income
before taxes for the fiscal year ended March 31, 2015 decreased to $26.1 million as compared to $28.5 million and $32.5 million for
the fiscal year years ended March 31, 2014 and 2013, respectively. This was a result of a decrease in the gross portfolio yield, an
increase in the provision for credit losses, and the change in fair value of interest rate swaps. The effective income tax rate for the
fiscal year ended March 31, 2014 was higher than normal due to non-deductible professional fees relating to an agreement providing
for the acquisition of the Company by an unaffiliated third party. The effective income tax rate for the fiscal year ended March 31,
2015 was lower than normal due to the same non-deductible expenses becoming deductible when such agreement was terminated. The
Company’s consolidated net income for the fiscal years ended March 31, 2015, 2014, 2013 were $16.9 million, $16.7 million and
$19.9 million, respectively. The Company believes the increase in losses each successive year was primarily attributable to an increase
in competition which has driven higher advance rates for Contracts acquired. In addition, competition generally results in the purchase
of lower credit quality Contracts, though these Contracts are still acceptable under the Company’s underwriting guidelines.
Historically, when competition has increased, the Company has experienced higher losses, decreased Contract origination and as a
result reduced profits. While it is difficult to predict the level of competition long-term, the Company believes that the current highly
competitive environment will prevail for the foreseeable future. The average dealer discounts as a percent of gross finance receivables
associated with new volume for the fiscal years ended March 31, 2015, 2014, and 2013 were 8.08%, 8.44%, 8.54%, respectively.
Portfolio Summary
Fiscal Year ended March 31,
2015
2014
2013
Average finance receivables, net of unearned interest (1)
$ 309,994,611
$ 290,502,494
$ 280,916,731
Average indebtedness (2)
$ 135,600,000
$ 127,093,220
$ 115,157,810
Interest and fee income on finance receivables
Interest expense
$ 86,785,042
$ 5,970,434
$ 82,609,859
$ 5,678,188
$ 82,072,643
$ 5,120,827
Net interest and fee income on finance receivables
$ 80,814,608
$ 76,931,671
$ 76,951,816
Weighted average contractual rate (3)
Average cost of borrowed funds (2)
Gross portfolio yield (4)
Interest expense as a percentage of average finance
receivables, net of unearned interest
Provision for credit losses as a percentage of average
finance receivables, net of unearned interest
Net portfolio yield (4)
Marketing, salaries, employee benefits, depreciation,
administrative and professional fee expenses and
dividend taxes as a percentage of average finance
receivables, net of unearned interest (5)
Pre-tax yield as a percentage of average finance
receivables, net of unearned interest (6)
Write-off to liquidation (7)
Net charge-off percentage (8)
22.93%
4.47%
28.00%
1.93%
6.57%
19.50%
23.20%
4.47%
28.44%
1.95%
5.16%
21.33%
10.96%
11.68%
8.54%
8.13%
7.04%
9.65%
7.17%
6.22%
23.43%
4.45%
29.22%
1.82%
4.77%
22.63%
10.81%
11.82%
6.81%
5.88%
21
(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. Average cost of borrowed funds represents
interest expense as a percentage of average indebtedness.
(3) Weighted average contractual rate represents the weighted average annual percentage rate (“APR”) of all Contracts and Direct
Loans as of the period ending date.
(4) Gross portfolio yield represents interest and fee income on finance receivables as a percentage of average finance receivables,
net of unearned interest. Net portfolio yield represents interest and fee income on finance receivables minus (a) interest expense
and (b) the provision for credit losses as a percentage of average finance receivables, net of unearned interest.
(5) The numerators include expenses associated with the abandoned sale of the Company and include taxes associated with the
payments of cash dividends. Absent these expenses, the percentages would have been 10.85% and 10.83% for the fiscal years
March 31, 2015 and 2014, respectively.
(6) Pre-tax yield represents net portfolio yield minus operating expenses as a percentage of average finance receivables, net of
unearned interest.
(7) Write-off to liquidation percentage is defined as net charge-offs divided by liquidation. Liquidation is defined as beginning
receivable balance plus current period purchases minus voids and refinances minus ending receivable balance.
(8) Net charge-off percentage represents net charge-offs divided by average finance receivables, net of unearned interest,
outstanding during the period.
Critical Accounting Policy
The Company’s critical accounting policy relates to the allowance for credit losses. It is based on management’s opinion of an amount
that is adequate to absorb losses incurred in the existing portfolio. The allowance for credit losses is established through a provision
for credit losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the portfolio, specific
impaired loans and current economic conditions. Such evaluation considers, among other matters, the estimated net realizable value or
the fair value of the underlying collateral, economic conditions, historical loan loss experience, management’s estimate of probable
credit losses and other factors that warrant recognition in providing for an adequate credit loss allowance.
Because of the nature of the customers under the Company’s Contracts and its Direct Loan program, the Company considers the
establishment of adequate reserves for credit losses to be imperative. The Company segregates its Contracts into static pools for
purposes of establishing reserves for losses. All Contracts purchased by a branch during a fiscal quarter comprise a static pool. The
Company pools Contracts according to branch location because the branches purchase Contracts in different geographic markets. 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 and credit history, and the types of vehicles
purchased in each market. Each such static pool consists of the Contracts purchased by a branch office during a fiscal quarter.
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 the applicable state maximum interest rate,
if any, or the maximum interest rate 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
purchases Contracts on an individual basis, although the Company may consider portfolio acquisitions as part of its growth strategy.
See “Item 1. Business – Growth Strategy.”
The Company has detailed underwriting guidelines it utilizes to determine which Contracts to purchase. These guidelines are specific
and are designed to cause all of the Contracts that the Company purchases to have 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 LPR 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 may interpret the guidelines differently, and as a result, the common
risk characteristics tend to be the same on an individual branch level but not necessarily compared to another branch.
The allowance for credit losses is established through charges to earnings through the provision for credit losses. The allowance for
credit losses is maintained at an amount that reduces the net carrying amount of finance receivables for incurred losses.
In analyzing a static pool, the Company considers the performance of prior static pools originated by the branch office, the
performance of prior Contracts purchased from the dealers whose Contracts are included in the current static pool, the credit rating of
the customers under the Contracts in the static pool, and current market and economic conditions. Each static pool is analyzed monthly
to determine if the loss reserves are adequate, and adjustments are made if they are determined to be necessary.
22
Fiscal 2015 Compared to Fiscal 2014
Interest and Fee Income on Finance Receivables
Interest income on finance receivables, predominantly finance charge income, increased 5% to $86.8 million in fiscal 2015 from $82.6
million in fiscal 2014. The average finance receivables, net of unearned interest, totaled $310.0 million for the fiscal year ended
March 31, 2015, an increase of 7% from $290.5 million for the fiscal year ended March 31, 2014. The primary reason average finance
receivables, net of unearned interest, increased was the opening of one additional branch office and the increase of the portfolio size in
certain existing branches during fiscal 2015 (see “Item 1. Business - Contract Procurement”). The gross finance receivable balance
increased 8% to $458.0 million for the fiscal year ended March 31, 2015 from $424.3 million for the fiscal year ended March 31,
2014. The primary reasons gross finance receivables increased were an increase in Contracts purchased and an increase in the
weighted-average term of Contracts purchased. The primary reason interest income increased was the increase in the outstanding loan
portfolio. The gross portfolio yield decreased to 28.00% for the fiscal year ended March 31, 2015 from 28.44% for the fiscal year
ended March 31, 2014. The net portfolio yield decreased to 19.50% for the fiscal year ended March 31, 2015 from 21.33% for the
fiscal year ended March 31, 2014. The gross portfolio yield decreased primarily as the result of a lower weighted APR and a reduction
of the average dealer discount on Contracts purchased due to increased competition. The net portfolio yield decreased primarily due to
the decrease in the gross portfolio yield and an increase in the provision for credit losses (see Analysis for Credit Losses below).
Marketing, Salaries and Employee Benefits, Depreciation, Administrative, Professional Fee Expenses and Dividend Taxes
Marketing, salaries and employee benefits, depreciation, administrative, professional fee expenses and dividend taxes remained
relatively flat at $34.0 million for the fiscal year ended March 31, 2015 compared to $34.1 million for the fiscal year ended March 31,
2014. The Company opened one new branch location during the fiscal year ended March 31, 2015. The Company increased the
average headcount to 330 for the fiscal year ended March 31, 2015 from 325 for the fiscal year ended March 31, 2014. Marketing,
salaries and employee benefits, depreciation, administrative expenses, professional fee expenses and dividend taxes as a percentage of
average finance receivables, net of unearned interest, decreased to 10.96% for the fiscal year ended March 31, 2015 from 11.68% for
the fiscal year ended March 31, 2014. Absent the professional expenses associated with the abandoned sale of the Company and taxes
associated with the payment of cash dividends, the percentages would have been 10.85% and 10.83% for the fiscal years ended
March 31, 2015 and 2014, respectively.
Interest Expense
Interest expense increased to $6.0 million for the fiscal year ended March 31, 2015 as compared to $5.7 million for the fiscal year
ended March 31, 2014. The following table summarizes the Company’s average cost of borrowed funds for the fiscal years ended
March 31:
Variable interest under the line of credit facility
Settlements under interest rate swap agreements
Credit spread under the line of credit facility
Average cost of borrowed funds
2015
0.34%
0.29%
3.84%
4.47%
2014
0.35%
0.30%
3.82%
4.47%
The Company’s average cost of funds for the fiscal year ended March 31, 2015 remained unchanged from the preceding fiscal year.
For a further discussion regarding the Company’s line of credit, see “— Liquidity and Capital Resources” below and Note 5 (“Line of
Credit”) to our audited consolidated financial statements included elsewhere in this Report.
The weighted average notional amount of interest rate swaps was $50.0 million at a weighted average fixed rate of 0.94% for each of
the fiscal years ended March 31, 2015 and 2014. For a further discussion regarding the effect of our interest rate swap agreements, see
Note 6 (“Interest Rate Swap Agreements”) to our audited consolidated financial statements included elsewhere in this Report.
23
Analysis of Credit Losses
As of March 31, 2015, the Company had 1,431 active static pools. The average pool upon inception consisted of 69 Contracts with
aggregate finance receivables, net of unearned interest, of approximately $649,000.
The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts for the fiscal years ended
March 31:
Balance at beginning of year
Current year provision
Losses absorbed
Recoveries
Balance at end of year
2015
$ 12,889,082
20,008,166
(25,041,833)
3,469,807
$ 11,325,222
2014
$ 16,090,652
14,693,841
(21,690,010)
3,794,599
$ 12,889,082
The following table sets forth a reconciliation of the changes in the allowance for credit losses on Direct Loans for the fiscal years
ended March 31:
Balance at beginning of year
Current year provision
Losses absorbed
Recoveries
Balance at end of year
2015
$ 590,278
362,364
(278,333)
28,481
$ 702,790
2014
$ 467,917
285,375
(192,156)
29,142
$ 590,278
The provision for credit losses increased to $20.4 million for the fiscal year ended March 31, 2015 from $15.0 million for the fiscal year
ended March 31, 2014, primarily as a result of an increase in the average finance receivables and an increase in the net charge-off percentage.
The Company’s losses as a percentage of liquidation increased to 8.13% for the fiscal year ended March 31, 2015 as compared to
7.17% for the fiscal year ended March 31, 2014. This increase was primarily the result of increased competition in all markets that the
Company presently operates in and higher advance rates on Contracts purchased during the fiscal year ended March 31, 2015. The
Company has experienced favorable variances between projected write-offs and actual write-offs on many seasoned pools, which
resulted in an increase in expected future cash flows and favorable impact on the allowance for credit losses. However, increased
competition has led to a higher percentage of loans acquired that are categorized in the lower tiers of the Company’s guidelines. Static
pools originated during fiscal 2015, 2014 and 2013, while still performing at acceptable net charge-off levels, have experienced losses
higher than static pools originated in previous years. The Company also experienced a decrease in auction prices from fiscal year 2014
to fiscal year 2015. Decreased auction proceeds from repossessed vehicles increased the amount of write-offs which, in turn, increased
the write-off to liquidation percentage. During the fiscal years ended March 31, 2015 and 2014, auction proceeds from the sale of
repossessed vehicles averaged approximately 46% and 48%, respectively, of the related principal balance. Recoveries as a percentage
of charge-offs were approximately 13.82% and 17.46% for the fiscal years ended March 31, 2015 and 2014, respectively. Historically,
recoveries as a percentage of charge-offs have fluctuated from period to period, and the Company does not attribute this decrease to
any particular change in operational strategy or economic events.
The delinquency percentage for Contracts more than thirty days past due, excluding Chapter 13 Bankrupt accounts, as of
March 31, 2015 increased to 4.17% from 4.03% as of March 31, 2014. The delinquency percentage for Direct Loans more than thirty
days past-due as of March 31, 2015 decreased to 1.64% from 1.78% as of March 31, 2014. The delinquency percentage increase for
Contracts reflects portfolio weakness that generally manifests itself in increased future losses. The Company utilizes a static pool
approach to analyzing portfolio performance and looks at specific static pool performance and recent trends as leading indicators of
the future performance of its portfolio.
The Company also considers the following factors to assist in determining the appropriate loss reserve levels: unemployment rates;
competition; the number of bankruptcy filings; the results of internal branch audits; consumer sentiment; consumer spending;
economic growth (i.e., changes in GDP); the condition of the housing sector; and other leading economic indicators. The Company
continues to evaluate reserve levels on a pool-by-pool basis during each reporting period. While unemployment rates have stabilized
somewhat, they remain elevated, which will make it difficult for improvement in loss rates. The longer-term outlook for portfolio
performance will depend on overall economic conditions, the unemployment rate, the rationale or irrational behavior of the
Company’s competitors, and the Company’s ability to monitor, manage and implement its underwriting philosophy in additional
geographic areas as it strives to continue its expansion.
24
Income Taxes
The provision for income taxes decreased to approximately $9.2 million in fiscal 2015 from approximately $11.8 million in fiscal
2014. The Company’s effective tax rate decreased to 35.41% in fiscal 2015 from 41.43% in fiscal 2014. The Company had
approximately $2.1 million of non-deductible expenses associated with the potential sale of the Company in 2014 (see Note 12). Since
the sale of the Company was not consummated, the $2.1 million became deductible in 2015 creating a favorable effective tax rate.
Fiscal 2014 Compared to Fiscal 2013
Interest and Fee Income on Finance Receivables
Interest income on finance receivables, predominantly finance charge income, increased 1% to $82.6 million in fiscal 2014 from $82.1
million in fiscal 2013. The average finance receivables, net of unearned interest, totaled $290.5 million for the fiscal year ended
March 31, 2014, an increase of 3% from $280.9 million for the fiscal year ended March 31, 2013. The primary reason average finance
receivables, net of unearned interest, increased was the opening of one additional branch office and the increase of the portfolio size at
our existing branches during fiscal 2014 (see “Item 1. Business - Contract Procurement”). The gross finance receivable balance
increased 7% to $424.3 million for the fiscal year ended March 31, 2014 from $395.7 million for the fiscal year ended March 31,
2013. The primary reasons gross finance receivables increased were an increase in Contracts purchased and an increase in the
weighted-average term of Contracts purchased. The primary reason interest income increased was the increase in the outstanding loan
portfolio. The gross portfolio yield decreased to 28.44% for the fiscal year ended March 31, 2014 from 29.22% for the fiscal year
ended March 31, 2013. The net portfolio yield decreased to 21.33% for the fiscal year ended March 31, 2014 from 22.63% for the
fiscal year ended March 31, 2013. The gross portfolio yield decreased primarily as the result of a lower weighted APR and a reduction
of the average dealer discount on Contracts purchased. The net portfolio yield decreased primarily due to the decrease in the gross
portfolio yield and an increase in the provision for credit losses.
Marketing, Salaries and Employee Benefits, Depreciation, Administrative, Professional Fee Expenses and Dividend Taxes
Marketing, salaries and employee benefits, depreciation, administrative, professional fee expenses and dividend taxes increased to
$34.1 million for the fiscal year ended March 31, 2014 from $30.6 million for the fiscal year ended March 31, 2013. The increase of
11% was partially attributable to $2.3 million of expenses associated with the potential sale of the Company which were partially
offset by the dividend tax of $1.2 million related to the $2.00 per Common share special cash dividend paid in the fiscal year ended
March 31, 2013. The remaining increase was primarily attributable to additional legal, regulatory and general operating expenses.
Also, the Company opened one new branch location during the fiscal year. The Company increased the average headcount to 325 for
the fiscal year ended March 31, 2014 from 309 for the fiscal year ended March 31, 2013. Marketing, salaries and employee benefits,
depreciation, and administrative expenses as a percentage of average finance receivables, net of unearned interest, increased to
11.68% for the fiscal year ended March 31, 2014 from 10.81% for the fiscal year ended March 31, 2013. Absent the expenses
associated with the potential sale of the Company and taxes associated with the payment of cash dividends, the percentages would
have been 10.84% and 10.26% for the fiscal years ended March 31, 2014 and 2013, respectively.
Interest Expense
Interest expense increased to $5.7 million for the fiscal year ended March 31, 2014 as compared to $5.1 million for the fiscal year
ended March 31, 2013. The following table summarizes the Company’s average cost of borrowed funds for the fiscal years ended
March 31:
Variable interest under the line of credit facility
Settlements under interest rate swap agreements
Credit spread under the line of credit facility
Average cost of borrowed funds
2014
0.35%
0.30%
3.82%
4.47%
2013
0.47%
0.24%
3.74%
4.45%
The primary reason that the Company’s average cost of funds increased for the fiscal year ended March 31, 2014 as compared to the
preceding fiscal year was the increase of costs associated with settlements under the interest rate swap agreements, which were
partially offset by a reduction in the unused line fee during fiscal 2014.
For a further discussion regarding the Company’s line of credit, see “— Liquidity and Capital Resources” below and Note 5 (“Line of
Credit”) to our audited consolidated financial statements included elsewhere in this Report.
25
The weighted average notional amount of interest rate swaps was $50.0 million at a weighted average fixed rate of 0.94% during the
fiscal year ended March 31, 2014. The weighted average notional amount of interest rate swaps was $35.8 million at a weighted
average fixed rate of 0.94% during the fiscal year ended March 31, 2013. For a further discussion regarding the effect of our interest
rate swap agreements, see Note 6 (“Interest Rate Swap Agreements”) to our audited consolidated financial statements included
elsewhere in this Report.
Analysis of Credit Losses
As of March 31, 2014, the Company had 1,406 active static pools. The average pool upon inception consisted of 59 Contracts with
aggregate finance receivables, net of unearned interest, of approximately $615,000.
The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts for the fiscal years ended
March 31:
Balance at beginning of year
Current year provision
Losses absorbed
Recoveries
Balance at end of year
2014
2013
$ 16,090,652
14,693,841
(21,690,010)
3,794,599
$ 19,499,208
13,252,382
(19,851,080)
3,190,142
$ 12,889,082
$ 16,090,652
The following table sets forth a reconciliation of the changes in the allowance for credit losses on Direct Loans for the fiscal years
ended March 31:
Balance at beginning of year
Current year provision
Losses absorbed
Recoveries
Balance at end of year
2014
2013
$ 467,917
285,375
(192,156)
29,142
$ 492,184
139,493
(190,871)
27,111
$ 590,278
$ 467,917
The provision for credit losses increased to $15.0 million for the fiscal year ended March 31, 2014 from $13.4 million for the fiscal
year ended March 31, 2013, primarily as a result of an increase in the average finance receivables and an increase in the net charge-off
percentage.
The Company’s losses as a percentage of liquidation increased to 7.17% for the fiscal year ended March 31, 2014 as compared to
6.81% for the fiscal year ended March 31, 2013. This increase was primarily the result of increased competition in all markets that the
Company presently operates in and higher advance rates on Contracts purchased during the fiscal year ended March 31, 2014. The
increased competition has led to a higher percentage of loans acquired that are categorized in the lower tiers of the Company’s
guidelines. Static pools originated during fiscal 2014 and 2013, while still performing at acceptable net charge-off levels, have
experienced losses higher than static pools originated in previous years. The Company also experienced a decrease in auction prices
from fiscal year 2013 to fiscal year 2014. Decreased auction proceeds from repossessed vehicles increased the amount of write-offs
which, in turn, increased the write-off to liquidation percentage. During the fiscal years ended March 31, 2014 and 2013, auction
proceeds from the sale of repossessed vehicles averaged approximately 49% and 52%, respectively, of the related principal balance.
Recoveries as a percentage of charge-offs were approximately 17.46% and 17.62% for the fiscal years ended March 31, 2014 and
2013, respectively. Historically, recoveries as a percentage of charge-offs have fluctuated from period to period, and the Company
does not attribute this decrease to any particular change in operational strategy or economic events.
The delinquency percentage for Contracts more than thirty days past due, excluding Chapter 13 Bankrupt accounts, as of March 31,
2014 increased to 4.03% from 3.69% as of March 31, 2013. The delinquency percentage for Direct Loans more than thirty days past
due as of March 31, 2014 increased to 1.78% from 1.23% as of March 31, 2013. The delinquency percentage increases reflect
portfolio weakness that generally manifests itself in increased future losses. The Company utilizes a static pool approach to analyzing
portfolio performance and looks at specific static pool performance and recent trends as leading indicators of the future performance
of its portfolio.
26
The Company also considers the following factors to assist in determining the appropriate loss reserve levels: unemployment rates;
competition; the number of bankruptcy filings; the results of internal branch audits; consumer sentiment; consumer spending;
economic growth (i.e., changes in GDP); the condition of the housing sector; and other leading economic indicators. The Company
continues to evaluate reserve levels on a pool-by-pool basis during each reporting period. While unemployment rates have stabilized
somewhat, they remain elevated, which will make it difficult for improvement in loss rates. The longer-term outlook for portfolio
performance will depend on overall economic conditions, the unemployment rate, the rationale or irrational behavior of the
Company’s competitors, and the Company’s ability to monitor, manage and implement its underwriting philosophy in additional
geographic areas as it strives to continue its expansion.
Income Taxes
The provision for income taxes decreased to approximately $11.8 million in fiscal 2014 from approximately $12.5 million in fiscal
2013. The decrease was a result of lower pretax income offset by the fact that the Company had $2.1 million of non-deductible
expenses associated with the potential sale of the Company. As a result of the non-deductible expense, the Company’s effective tax
rate increased to 41.43% in fiscal 2014 from 38.61% in fiscal 2013. Since the sale of the Company was not consummated, the
$2.1 million became deductible in fiscal 2015, resulting in a favorable impact on our effective tax rate and net income in such fiscal
year.
Liquidity and Capital Resources
The Company’s cash flows are summarized as follows:
Fiscal Year ended March 31,
2015
2014
2013
Cash provided by (used in):
Operations
Investing activities - (primarily purchases of
Contracts)
Financing activities
$ 25,758,753
$ 21,366,394
$ 25,645,155
(26,504,247)
1,498,651
(21,880,361)
351,287
(10,568,710)
(15,081,783)
Net increase (decrease) in cash
$
753,157
$
(162,680)
$
(5,338)
The Company’s primary use of working capital for the fiscal year ended March 31, 2015 was the funding of the purchase of Contracts,
which are financed substantially through cash from principal payments received, cash from operations and our line of credit (the
“Line”). The Line is secured by all of the assets of the Company and has a maturity date of January 30, 2018. The Company may
borrow up to $225.0 million. Borrowings under the Line may be under various LIBOR pricing options plus 300 basis points with a 1%
floor on LIBOR. As of March 31, 2015, the amount outstanding under the Line was $199.0 million, and the amount available under
the Line was $26.0 million.
The Company will continue to depend on the availability of the Line, together with cash from operations, to finance future operations.
Amounts outstanding under the Line increased by $71.1 million as of March 31, 2015 as compared to March 31, 2014 and increased
by approximately $2.4 million as of March 31, 2014 as compared to March 31, 2013. The increase in the amount outstanding under
the Line as of March 31, 2015 was principally related to the $70.0 million tender offer completed on March 19, 2015. The increase in
the amount outstanding under the Line as of March 31, 2014 was principally related to the growth in finance receivables. The amount
of debt the Company incurs from time to time under these financing mechanisms depends on the Company’s need for cash and 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 will be sufficient to meet its short-term funding needs.
Pursuant to a modified “Dutch auction” tender offer completed on March 19, 2015, Nicholas Financial purchased an aggregate of
4,713,804 Common shares of the Company, at a final purchase price of $14.85 per Common share, for an aggregate cost of
approximately $70.0 million, excluding fees and expenses relating to the tender offer. As indicated above, the purchase of such shares
was financed through borrowing under the Line.
The Line requires compliance with certain debt covenants including financial ratios, asset quality and other performance tests. The
Company is currently in compliance with all of its debt covenants.
27
No cash dividends were declared or paid during the fiscal year ended March 31, 2015. The following cash dividends were declared
and paid during the fiscal years ended March 31, 2014 and 2013:
Fiscal Year
2014
2013
Date Declared
May 7, 2013
August 13, 2013
Record Date
June 21, 2013
Date Paid
June 28, 2013
September 20, 2013 September 27, 2013
May 2, 2012
August 8, 2012
June 6, 2012
May 30, 2012
September 6, 2012
August 30, 2012
November 9, 2012 November 30, 2012 December 6, 2012
December 11, 2012 December 21, 2012 December 28, 2012
March 29, 2013
March 22, 2013
February 19, 2013
Amount of
Dividend
0.12
$
0.12
0.24
$
$
$
0.10
0.12
0.12
2.00
0.12
2.46
Although the Company has declared and paid cash dividends on its Common shares in the past, we have no current plans to declare or
pay any cash dividends in the foreseeable future. The payment of future dividends, if any, is reviewed periodically by the Company’s
directors and management and will depend upon, among other things, existing conditions, including earnings, financial condition and
capital requirements, restrictions in financing agreements, business opportunities, tax considerations and other conditions and factors,
including prospects.
Impact of Inflation
The Company is affected by inflation primarily through increased operating costs and expenses including increases in interest rates.
Inflationary pressures on operating costs and expenses historically have been largely offset by the Company’s continued emphasis on
stringent operating and cost controls, although no assurances can be given regarding the Company’s ability to offset the effects of
inflation in the future.
Contractual Obligations
The following table summarizes the Company’s material obligations as of March 31, 2015.
Operating leases
Line of credit1
Interest on line of credit1
Total
Total
$ 5,149,015
199,000,000
25,203,350
$229,352,365
Payments Due by Period
Less than
1 year
$ 1,936,435
—
8,895,300
$10,831,735
1 to 3
years
$ 2,191,608
199,000,000
16,308,050
$ 217,499,658
3 to 5
years
$1,020,972
—
—
$1,020,972
More than
5 years
$ —
—
—
$ —
1
The Company’s current Line matures on January 30, 2018. Interest on outstanding borrowings under the Line as of March 31,
2015 is based on an effective interest rate of 4.47%. The effective interest rate used in the above table does not contemplate the
possibility of entering into additional interest rate swap agreements in the future.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Market risks relating to the Company’s operations result primarily from changes in interest rates. The Company does not engage in
speculative or leveraged transactions, nor does it hold or issue financial instruments for trading purposes.
Interest Rate Risk
Management’s objective is to minimize the cost of borrowing through an appropriate mix of fixed and floating rate debt. Derivative
financial instruments, such as interest rate swap agreements, may be used for the purpose of managing fluctuating interest rate
exposures that exist from ongoing business operations. The Company does not use interest rate swap agreements for speculative
purposes. At March 31, 2015, $149.0 million, or approximately 75% of our total debt, was subject to floating interest rates; however,
due to a 1% floor on the debt these rates are effectively fixed until the variable rates exceed this threshold. As a result, a hypothetical
increase in the variable interest rates of 1% or 100 basis points (an increase to 1.18% as of March 31, 2015) as of March 31, 2015
applicable to this floating rate debt would have an annual after-tax benefit of approximately $87,000.
28
Financial Statements and Supplementary Data
Item 8.
The following financial statements are filed as part of this Report (see pages 30-48)
Report of Independent Registered Public Accounting Firm ............................................................................................................
30
Audited Consolidated Financial Statements .....................................................................................................................................
Consolidated Balance Sheets ............................................................................................................................................................
Consolidated Statements of Income ..................................................................................................................................................
Consolidated Statements of Shareholders’ Equity ............................................................................................................................
Consolidated Statements of Cash Flows ...........................................................................................................................................
Notes to Consolidated Financial Statements .....................................................................................................................................
31
32
33
34
35
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Nicholas Financial, Inc.
We have audited the accompanying consolidated balance sheets of Nicholas Financial, Inc. and subsidiaries (the “Company”) as of
March 31, 2015 and 2014 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years
in the three-year period ended March 31, 2015. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of March 31, 2015 and 2014 and the results of its operations and its cash flows for each of the years in the three-year
period ended March 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of March 31, 2015, based on criteria established in the Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our
report dated June 15, 2015 expressed an unqualified opinion.
/s/ Dixon Hughes Goodman LLP
Atlanta, Georgia
June 15, 2015
30
Nicholas Financial, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
Cash
Finance receivables, net
Assets held for resale
Prepaid expenses and other assets
Income taxes receivable
Property and equipment, net
Interest rate swap agreements
Deferred income taxes
Total assets
Liabilities and shareholders’ equity
Line of credit
Drafts payable
Accounts payable and accrued expenses
Deferred revenues
Interest rate swap agreements
Total liabilities
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par: 5,000,000 shares authorized; none issued
Common stock, no par: 50,000,000 shares authorized; 12,415,785 and 12,220,874 shares
issued respectively; 7,701,981 and 12,220,874 shares outstanding, respectively
Treasury stock: 4,713,804 common shares, at cost
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
March 31,
2015
2014
$ 3,388,193
288,904,060
1,746,887
1,143,754
112,984
872,134
—
6,360,579
$ 2,635,036
269,343,595
1,696,330
891,044
1,093,682
869,693
183,603
6,716,596
$302,528,591
$283,429,579
$199,000,000
2,475,573
7,841,070
3,143,231
180,775
$127,900,000
2,338,561
8,924,919
2,328,544
—
212,640,649
141,492,024
—
—
32,655,130
(70,408,854)
127,641,666
31,151,781
—
110,785,774
89,887,942
141,937,555
$302,528,591
$283,429,579
See accompanying notes.
31
Nicholas Financial, Inc. and Subsidiaries
Consolidated Statements of Income
Interest and fee income on finance receivables
Expenses:
Marketing
Salaries and employee benefits
Professional fees
Administrative
Dividend tax
Provision for credit losses
Depreciation
Interest expense
Change in fair value of interest rate swap agreements
Operating income before income taxes
Income tax expense
Net income
Earnings per share:
Basic
Diluted
Dividends declared per share
Fiscal Year ended March 31,
2015
2014
2013
$86,789,958
$82,628,943
$82,110,446
1,562,226
20,834,783
1,383,094
9,841,867
—
20,370,530
366,275
5,970,434
364,378
1,491,216
19,634,202
3,659,429
8,898,356
142,557
14,979,216
317,504
5,678,188
(688,455)
1,452,659
18,325,945
893,044
8,158,268
1,492,227
13,391,875
284,594
5,120,827
504,852
60,693,587
54,112,213
49,624,291
26,096,371
9,240,479
28,516,730
11,813,378
32,486,155
12,545,209
$16,855,892
$16,703,352
$19,940,946
$
$
$
1.40
1.38
—
$
$
$
1.38
1.36
0.24
$
$
$
1.66
1.63
2.46
See accompanying notes.
32
Nicholas Financial, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
Common Stock
Shares
Amount
Treasury
Stock
Retained
Earnings
Total
Shareholders’
Equity
Balance at March 31, 2012
11,960,975
$28,426,043
$
Net income
Issuance of common stock under stock
options
Grants of restricted share awards, net of
forfeitures
Vested performance share awards
Excess tax benefit on share awards
Share-based compensation
Cash dividend
—
—
97,594
612,465
85,000
10,500
—
—
—
—
—
181,036
812,004
—
Balance at March 31, 2013
12,154,069
$30,031,548
$
Net income
Issuance of common stock under stock
options
Excess tax benefit on share awards
Share-based compensation
Cash dividend
—
66,805
—
—
—
—
328,913
256,250
535,070
—
Balance at March 31, 2014
12,220,874
$31,151,781
$
Net income
Issuance of common stock under stock
options
Grants of restricted share awards, net of
forfeitures
Excess tax benefit on share awards
Share-based compensation
Common shares purchased
—
—
150,911
388,608
44,000
—
—
(4,713,804)
—
600,278
514,463
—
—
—
—
(70,408,854)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 106,837,118
$135,263,161
19,940,946
19,940,946
—
612,465
—
—
—
—
(29,844,516)
—
—
181,036
812,004
(29,844,516)
$ 96,933,548
$126,965,096
16,703,352
16,703,352
—
—
—
(2,851,126)
328,913
256,250
535,070
(2,851,126)
$ 110,785,774
$141,937,555
16,855,892
16,855,892
—
—
—
—
—
388,608
—
600,278
514,463
(70,408,854)
Balance at March 31, 2015
7,701,981
$32,655,130
$ (70,408,854)
$ 127,641,666
$ 89,887,942
See accompanying notes.
33
Nicholas Financial, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation
Loss (gain) on sale of property and equipment
Provision for credit losses
Amortization of dealer discounts
Deferred income taxes
Share-based compensation
Change in fair value of interest rate swap agreements
Changes in operating assets and liabilities:
Prepaid expenses and other assets
Accounts payable and accrued expenses
Income taxes receivable
Deferred revenues
Net cash provided by operating activities
Cash flows from investing activities:
Purchase and origination of finance contracts
Principal payments received
(Increase) decrease in assets held for resale
Purchase of property and equipment
Proceeds from sale of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from line of credit
Payment of cash dividend
Increase in drafts payable
Payment of debt origination costs
Proceeds from exercise of stock options
Excess tax benefits on share awards
Purchase of common shares
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
Fiscal Year ended March 31,
2015
2014
2013
$ 16,855,892
$ 16,703,352
$ 19,940,946
366,275
6,284
20,370,530
(13,852,305)
356,017
514,463
364,378
65,683
(1,083,849)
980,698
814,687
317,504
(64,039)
14,979,216
(13,490,892)
1,710,365
535,070
(688,455)
284,594
(11,339)
13,391,875
(11,482,251)
696,339
812,004
504,852
(129,298)
1,519,340
(990,683)
964,914
39,294
793,150
394,536
281,155
25,758,753
21,366,394
25,645,155
(164,830,469)
138,751,779
(50,557)
(442,758)
67,758
(156,997,870)
135,991,752
(492,666)
(464,598)
83,021
(141,562,259)
131,080,264
169,337
(271,003)
14,951
(26,504,247)
(21,880,361)
(10,568,710)
71,100,000
—
137,012
(318,393)
388,608
600,278
(70,408,854)
1,498,651
753,157
2,635,036
2,400,000
(2,851,126)
242,250
(25,000)
328,913
256,250
—
13,500,000
(29,844,516)
494,232
(25,000)
612,465
181,036
—
351,287
(15,081,783)
(162,680)
2,797,716
(5,338)
2,803,054
$ 3,388,193
$ 2,635,036
$ 2,797,716
See accompanying notes.
34
Nicholas Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation
Nicholas Financial, Inc. (“Nicholas Financial – Canada”) is a Canadian holding company incorporated under the laws of British
Columbia with two wholly owned United States subsidiaries, Nicholas Data Services, Inc. (“NDS”) and Nicholas Financial, Inc.
(“NFI”). NDS is engaged principally in the development, marketing and support of computer application software. NFI is a
specialized consumer finance company engaged primarily in acquiring and servicing automobile finance installment contracts
(“Contracts”) for purchases of new and used automobiles and light trucks. To a lesser extent, NFI also offers Direct Loans and sells
consumer-finance related products. Both NDS and NFI are based in Florida, U.S.A. The accompanying consolidated financial
statements are stated in U.S. dollars and are presented in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”).
The Company has one reportable segment, which is the consumer finance company.
The Company reclassified certain amounts in 2013 and 2014 to conform to the 2015 presentation including the reclassification of a
reduction in the Company’s operating cash flows to financing cash flows for payments of debt origination costs in the Consolidated
Cash Flows.
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of Nicholas Financial – Canada and its wholly owned subsidiaries, NDS
and NFI, collectively referred to as (the “Company”). All intercompany transactions and balances have been eliminated.
Dividends
The following cash dividends were declared during fiscal years ended March 31, 2014 and 2013. No dividends were declared during
the fiscal year ended March 31, 2015.
Fiscal Year
2014
2013
Date Declared
May 7, 2013
Record Date
June 21, 2013
August 13, 2013 September 20, 2013 September 27, 2013
Date Paid
June 28, 2013
May 2, 2012
August 8, 2012
June 6, 2012
May 30, 2012
September 6, 2012
August 30, 2012
November 9, 2012 November 30, 2012 December 6, 2012
December 11, 2012 December 21, 2012 December 28, 2012
February 19, 2013 March 22, 2013
March 29, 2013
Amount of
Dividend
0.12
$
0.12
0.24
$
$
$
0.10
0.12
0.12
2.00
0.12
2.46
Payment of cash dividends results in a 5% withholding tax payable by the Company under the Canada-United States Income Tax
Convention which is included in earnings under the caption of dividend tax.
Tender Offer
On March 19, 2015, the Company announced the final results of the modified “Dutch auction” tender offer for the purchase of
approximately 4.7 million shares of the Company’s common shares by its principal operating subsidiary. The tender offer expired on
March 13, 2015. Total payments for common shares, including costs were approximately $70,409,000. Such costs were recorded as an
increase to treasury stock, reducing shareholders’ equity.
The aggregate number of common shares purchased in the tender offer by Nicholas represented approximately 38.0% of the
Company’s outstanding common shares as of March 17, 2015. Following settlement of the tender offer, the Company had
approximately 7,701,981 common shares outstanding.
35
2. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the
allowance for credit losses on finance receivables and the fair value of interest rate swap agreements.
Finance Receivables
Finance receivables are recorded at cost, net of unearned interest, unearned dealer discounts and the allowance for credit losses. The
amount of unearned interest, dealer discounts and allowance for credit losses as of March 31, 2015 and March 31, 2014 are
approximately $169,071,000 and $155,001,000, respectively (See Note 3).
Allowance for Credit Losses
The allowance for credit losses is increased by charges against earnings and decreased by charge-offs (net of recoveries). The
Company aggregates Contracts into static pools consisting of Contracts purchased during a three-month period for each branch
location as management considers these pools to have similar risk characteristics. Management’s periodic evaluation of the adequacy
of the allowance is based on the Company’s past loan experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrowers’ ability to repay, the estimated value of any underlying collateral, and current economic conditions. As
conditions change, the Company’s level of provisioning and allowance may change as well.
Assets Held for Resale
Assets held for resale are stated at net realizable value and consist primarily of automobiles that have been repossessed by the
Company and are awaiting final disposition. Costs associated with repossession, transport and auction preparation expenses are
reported under operating expenses in the period in which they are incurred.
Property and Equipment
Property and equipment are recorded at cost, net of accumulated depreciation. Expenditures for repairs and maintenance are charged
to expense as incurred. Depreciation of property and equipment is computed using the straight-line method over the estimated useful
lives of the assets as follows:
Automobiles
Equipment
Furniture and fixtures
Leasehold improvements
3 years
5 years
7 years
Lesser of lease term or useful life (generally 6 - 7 years)
Drafts Payable
Drafts payable represent checks disbursed for loan purchases which have not yet been funded. Amounts generally clear within two
business days of period end and then increase the line of credit or reduce cash.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and
liabilities and their respective tax bases along with operating loss and tax credit carryforwards, if any. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income
in the period that includes the enactment date.
36
2. Summary of Significant Accounting Policies (continued)
The Company recognizes tax benefits from an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the
consolidated financial statements from any such position would be measured based on the largest benefit that has a greater than fifty
percent likelihood of being realized upon ultimate settlement. It is the Company’s policy to recognize interest and penalties accrued on
any uncertain tax benefits as a component of income tax expense. The Company does not have any accrued interest or penalties
associated with any unrecognized tax benefits, nor has the Company recognized any related interest or penalties during the three years
ended March 31, 2015.
The Company files income tax returns in the U.S. Federal jurisdiction and various State jurisdictions. The Company is no longer
subject to U.S. Federal tax examinations for years before 2011. State jurisdictions that remain subject to examination range from 2010
to 2014. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months.
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, or when
the account is Chapter 13 bankrupt. Chapter 13 bankrupt accounts are accounted for under the cost-recovery method. Interest income
on Chapter 13 bankrupt accounts does not resume until all principal amounts are recovered (see Note 3).
A dealer discount represents the difference between the finance receivable, net of unearned interest, of a Contract, and the amount of
money the Company actually pays for the Contract. The discount negotiated by the Company is a function of the lender, the wholesale
value of the vehicle, and competition in any given market. In making decisions regarding the purchase of a particular Contract the
Company considers the following factors related to the borrower: place and length of residence; current and prior job status; history in
making installment payments for automobiles; current income; and credit history. In addition, the Company examines its prior
experience with Contracts purchased from the dealer from which the Company is purchasing the Contract, and the value of the
automobile in relation to the purchase price and the term of the Contract. The dealer discount is amortized as an adjustment to yield
using the interest method over the life of the loan. The average dealer discount, as a percent of the amount financed, associated with
new volume for the fiscal years ended March 31, 2015, 2014, and 2013 was 8.08%, 8.44%, and 8.54%, respectively.
The amount of future unearned income is computed as the product of the Contract rate, the Contract term and the Contract amount.
Deferred revenues consist primarily of commissions received from the sale of ancillary products. These products include automobile
warranties, roadside assistance programs, accident and health insurance, credit life insurance and forced placed automobile insurance.
These commissions are amortized over the life of the contract using the interest method.
The Company’s net costs for originating direct consumer loans (“Direct Loans”) are recognized as an adjustment to the yield and are
amortized over the life of the loan using the interest method.
Sales relate principally to telephone support agreements and the sale of business forms to the Company’s customer base. The
aforementioned sales of NDS represent less than 1% of the Company’s consolidated revenues.
37
2. Summary of Significant Accounting Policies (continued)
Earnings Per Share
Basic earnings per share is calculated by dividing the reported net income for the period by the weighted average number of shares of
common stock outstanding. Diluted earnings per share includes the effect of dilutive options and other share awards. Basic and diluted
earnings per share have been computed as follows:
Numerator for earnings per share – net income
$16,855,892
$16,703,352
$19,940,946
Fiscal Year ended March 31,
2015
2014
2013
Denominator:
Denominator for basic earnings per share –
weighted average shares
Effect of dilutive securities:
12,012,765
12,096,372
11,977,174
Stock options and other share awards
178,991
228,873
241,242
Denominator for diluted earnings per share
12,191,756
12,325,245
12,218,416
Earnings per share – basic
Earnings per share – diluted
$
$
1.40
1.38
$
$
1.38
1.36
$
$
1.66
1.63
Diluted earnings per share do not include the effect of certain stock options as their impact would be anti-dilutive. Approximately
155,000, 10,000 and 120,200 stock options were not included in the computation of diluted earnings per share for the years ended
March 31, 2015, 2014 and 2013 respectively, because their effect would have been anti-dilutive.
Share-Based Payments
The grant date fair value of share awards is recognized in earnings over the requisite service period (presumptively the vesting period).
The Company estimates the fair value of option awards using the Black-Scholes option pricing model. The risk-free interest rate is
based upon a U.S. Treasury instrument with a life that is similar to the expected term of the options. Expected volatility is based upon
the historical volatility for the previous period equal to the expected term of the options. The expected term is based upon the average
life of previously issued options. The expected dividend yield is based upon the yield expected on date of grant to occur over the term
of the option. The fair value of non-vested restricted and performance shares are measured at the market price of a share on a grant
date.
The pool of excess tax benefits available to absorb future tax deficiencies is based on increases to shareholders’ equity related to tax
benefits from share-based compensation, combined with the tax on the cumulative incremental compensation costs previously
included in pro forma net income disclosures as if the Company had applied the fair-value method to all awards.
Fair Value Measurements
The Company measures specific assets and liabilities at fair value, which is an exit price, representing the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When
applicable, the Company utilizes market data or assumptions that market participants would use in pricing the asset or liability under a
three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are
either directly or indirectly observable; and Level 3, defined as unobservable inputs about which little or no market data exists,
therefore requiring an entity to develop its own assumptions (see Note 7).
Financial Instruments and Concentrations
The Company’s financial instruments consist of cash, finance receivables, accrued interest, the line of credit and, interest rate swap
agreements. Financial instruments that are exposed to concentrations of credit risk are primarily finance receivables and cash.
38
2. Summary of Significant Accounting Policies (continued)
As of March 31, 2015, the Company operated in sixteen states through sixty-six branch locations. Florida represented 32% of the
finance receivables total as of March 31, 2015. Ohio represented 14%, Georgia represented 10% and North Carolina represented 9%
of the finance receivables total as of March 31, 2015. Of the remaining twelve states, no one state represented more than 5% of the
total finance receivables. The Company provides credit during the normal course of business and performs ongoing credit evaluations
of its customers.
The Company maintains reserves for potential credit losses which, when realized, have been within the range of management’s
expectations. The Company perfects a primary security interest in all vehicles financed as a form of collateral.
The combined account balances the Company maintains at financial institutions typically exceed federally insured limits, and there is
a concentration of credit risk related to accounts on deposit in excess of federally insured limits. The Company has not experienced
any losses in such accounts and believes this risk of loss is not significant.
Interest Rate Swap Agreements
Interest rate swap agreements are reported as either assets or liabilities in the consolidated balance sheet at fair value. Interest rate
swap agreements are not designated as cash-flow hedges, and accordingly the changes in the fair value are recorded in earnings. The
Company does not use interest rate swap agreements for speculative purposes (see Note 6).
Statements of Cash Flows
Cash paid for income taxes for the years ended March 31, 2015, 2014 and 2013 was approximately $7,304,000, $10,837,000 and
$11,273,000, respectively. Cash paid for interest, including debt origination costs for the years ended March 31, 2015, 2014 and 2013
was approximately $6,124,000, $5,673,000 and $5,043,000, respectively.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The ASU requires an
entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is
effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early
application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The
Company has not yet selected a transition method. The Company will be evaluating the effect that the ASU will have on the
consolidated financial statements and related disclosures.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The guidance requires an entity to evaluate
whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going
concern within one year after the date that the financial statements are issued and to provide related footnote disclosures in certain
circumstances. The guidance is effective for the annual period ending after December 15, 2016, and for annual and interim periods
thereafter. Early application is permitted. The Company does not believe the adoption of this ASU will have a significant impact on
the consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs.” The amendments in this ASU require that debt issuance costs related to a recognized debt liability be
presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The
recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments are
effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal
years. Early adoption of the amendments is permitted. The Company does not believe the adoption of this ASU will have a significant
impact on the consolidated financial statements.
The Company does not believe there are any other recently issued accounting standards that have not yet been adopted that will have a
material impact on the Company’s consolidated financial statements.
39
3. Finance Receivables
Finance receivables consist of Contracts and Direct Loans, each of which comprise a portfolio segment. Each portfolio segment
consists of smaller balance homogeneous loans which are collectively evaluated for impairment.
The Company purchases individual Contracts from new and used automobile dealers in its markets. 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 Contract the Company purchases. The Company charges-off receivables when an individual
account has become more than 120 days contractually delinquent. In the event of repossession, the charge-off will occur in the month
in which the vehicle was repossessed.
Contracts included in finance receivables are detailed as follows as of fiscal years ended March 31:
Indirect finance receivables, gross contract
Unearned interest
$ 447,042,854
(136,895,592)
$ 413,613,292
(121,996,483)
$ 386,940,093
(111,121,493)
2015
2014
2013
Indirect finance receivables, net of unearned
interest
Unearned dealer discounts
Indirect finance receivables, net of unearned
interest and unearned dealer discounts
Allowance for credit losses
310,147,262
(17,779,690)
291,616,809
(17,214,269)
275,818,600
(16,415,169)
292,367,572
(11,325,222)
274,402,540
(12,889,082)
259,403,431
(16,090,652)
Indirect finance receivables, net
$ 281,042,350
$ 261,513,458
$ 243,312,779
The terms of the Contracts range from 12 to 72 months and bear a weighted average contractual interest rate of 22.86% and 23.08% as
of March 31, 2015 and 2014, respectively.
The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts for the fiscal years ended
March 31:
Balance at beginning of year
Provision for credit losses
Losses absorbed
Recoveries
Balance at end of year
2015
2014
2013
$ 12,889,082
20,008,166
(25,041,833)
3,469,807
$ 16,090,652
14,693,841
(21,690,010)
3,794,599
$ 19,499,208
13,252,382
(19,851,080)
3,190,142
$ 11,325,222
$ 12,889,082
$ 16,090,652
The Company purchases Contracts from automobile dealers at a negotiated price that is less than the original principal amount being
financed by the purchaser of the automobile. The Contracts are predominately for used vehicles. As of March 31, 2015, the average
model year of vehicles collateralizing the portfolio was 2007. The average loan to value ratio, which expresses the amount of the
Contract as a percentage of the value of the automobile, is approximately 96%. The Company utilizes a static pool approach to track
portfolio performance. If the allowance for credit losses is determined to be inadequate for a static pool, then an additional charge to
income through the provision is used to maintain adequate reserves based on management’s evaluation of the risk inherent in the loan
portfolio, the composition of the portfolio, and current economic conditions. Such evaluation, considers among other matters, the
estimated net realizable value of the underlying collateral, economic conditions, historical loan loss experience, management’s
estimate of probable credit losses and other factors that warrant recognition in providing for an adequate allowance for credit losses.
40
3. Finance Receivables (continued)
Direct Loans are also included in finance receivables and are detailed as follows as of fiscal years ended March 31:
Direct finance receivables, gross contract
Unearned interest
Direct finance receivables, net of unearned interest
Allowance for credit losses
2015
2014
2013
$10,931,904
(2,367,404)
8,564,500
(702,790)
$10,730,901
(2,310,486)
8,420,415
(590,278)
$ 8,781,637
(1,800,698)
6,980,939
(467,917)
Direct finance receivables, net
$ 7,861,710
$ 7,830,137
$ 6,513,022
The terms of the Direct Loans range from 6 to 48 months and bear a weighted average contractual interest rate of 26.14% and 26.32%
as of March 31, 2015 and 2014, respectively.
The following table sets forth a reconciliation of the changes in the allowance for credit losses on Direct Loans for the fiscal years
ended March 31:
Balance at beginning of year
Provision for credit losses
Losses absorbed
Recoveries
Balance at end of year
2015
2014
2013
$ 590,278
362,364
(278,333)
28,481
$ 467,917
285,375
(192,156)
29,142
$ 492,184
139,493
(190,871)
27,111
$ 702,790
$ 590,278
$ 467,917
Direct Loans are loans originated directly between the Company and the consumer. These loans are typically for amounts ranging
from $1,000 to $9,000 and are generally secured by a lien on an automobile, watercraft or other permissible tangible personal
property. The majority of Direct Loans are originated with current or former customers under the Company’s automobile financing
program. The typical Direct Loan represents a significantly better credit risk than Contracts due to the customer’s historical payment
history with the Company; however, the underlying collateral is less valuable. In deciding whether or not to make a loan, the
Company considers the individual’s credit history, job stability, income and impressions created during a personal interview with a
Company loan officer. Additionally, because most of the Direct Loans made by the Company to date have been made to borrowers
under Contracts previously purchased by the Company, the payment history of the borrower under the Contract is a significant factor
in making the loan decision. As of March 31, 2015, loans made by the Company pursuant to its Direct Loan program constituted
approximately 2% of the aggregate principal amount of the Company’s loan portfolio.
Changes in the allowance for credit losses for both Contracts and Direct Loans were driven by current economic conditions and credit
loss trends over several reporting periods which are useful in estimating future losses and overall portfolio performance.
A performing account is defined as an account that is less than 61 days past due. A non-performing account is defined as an account
that is contractually delinquent for 61 days or more or is a Chapter 13 bankrupt account, and the accrual of interest income is
suspended. When an account is 120 days contractually delinquent, the account is written off. Upon notification of a bankruptcy, an
account is monitored for collection with other Chapter 13 bankrupt accounts. In the event the debtors balance has been reduced by the
bankruptcy court, the Company will record a loss equal to the amount of principal balance reduction. The remaining balance will be
reduced as payments are received by the bankruptcy court. In the event an account is dismissed from bankruptcy, the Company will
decide, based on several factors, to begin repossession proceedings or to allow the customer to begin making regularly scheduled
payments.
41
3. Finance Receivables (continued)
The following table is an assessment of the credit quality by creditworthiness as of March 31, and excludes Chapter 13 Bankrupt
accounts.
Performing accounts
Non-performing accounts
Total
Chapter 13 bankrupt accounts, net of unearned
interest
2015
2014
Contracts
Direct Loans
Contracts
Direct Loans
$ 438,317,584
4,765,425
$ 10,855,209
56,636
$ 405,691,402
4,840,819
$ 10,656,685
47,860
$ 443,083,009
$ 10,911,845
$ 410,532,221
$ 10,704,545
3,959,845
20,059
3,081,071
26,356
Finance receivables, gross contract
$ 447,042,854
$ 10,931,904
$ 413,613,292
$ 10,730,901
The following tables present certain information regarding the delinquency rates experienced by the Company with respect to
Contracts and Direct Loans, excluding any Chapter 13 bankrupt accounts:
Contracts
March 31, 2015
March 31, 2014
March 31, 2013
Direct Loans
March 31, 2015
March 31, 2014
March 31, 2013
Gross Balance
Outstanding
30 – 59 days
60 – 89 days
90 + days
Total
$443,083,009
$ 13,694,370
$ 3,435,332
$ 1,330,093
$ 18,459,795
$410,532,221
$386,324,595
Gross Balance
Outstanding
$ 10,911,845
$ 10,704,545
$ 8,781,637
3.09%
0.78%
0.30%
4.17%
$ 11,713,021
2.85%
$ 10,421,500
2.70%
$ 2,944,228
0.72%
$ 2,631,617
0.68%
$ 1,896,591
0.46%
$ 1,188,160
0.31%
$ 16,553,840
4.03%
$ 14,241,277
3.69%
30 – 59 days
60 – 89 days
90 + days
Total
$
$
$
122,718
$
1.12%
$
41,984
$
0.39%
$
14,652
$
0.13%
$
25,345
0.23%
21,509
0.25%
22,515
0.21%
13,790
0.16%
$
$
$
143,624
1.34%
72,364
0.82%
179,354
1.64%
191,484
1.78%
107,663
1.23%
4. Property and Equipment
Property and equipment as of March 31, 2015 and 2014 is summarized as follows:
2015
Automobiles
Equipment
Furniture and fixtures
Leasehold improvements
2014
Automobiles
Equipment
Furniture and fixtures
Leasehold improvements
Cost
Accumulated
Depreciation
Net Book
Value
$ 613,222
906,406
485,696
1,103,259
$ 364,685
515,922
390,864
964,978
$ 3,108,583
$2,236,449
$ 616,512
914,347
463,395
1,118,142
$ 289,419
625,310
364,634
963,340
$ 3,112,396
$2,242,703
$ 248,537
390,484
94,832
138,281
$ 872,134
$ 327,093
289,037
98,761
154,802
$ 869,693
42
5. Line of Credit
On January 31, 2015 the Company executed an amendment with its consortium of lenders. Included in the amendment was an increase
in the size of the credit facility (the “Line”) from $150,000,000 to $225,000,000 once the tender offer (see Note 1) became effective
which was executed on March 13, 2015. The pricing of the Line, which did not change, expires on January 30, 2018, is 300 basis
points above 1-month LIBOR with a 1% floor on LIBOR (4.00% at March 31, 2015 and March 31, 2014). Pledged as collateral for
this Line are all of the assets of the Company. The outstanding amount of the Line was $199,000,000 and $127,900,000 as of
March 31, 2015 and March 31, 2014, respectively. The amount available under the Line was approximately $26,000,000 and
$22,100,000 as of March 31, 2015 and March 31, 2014, respectively.
The Line requires compliance with certain financial ratios and covenants and satisfaction of specified financial tests, including
maintenance of asset quality and performance tests. Dividends do not require consent in writing by the agent and majority lenders
under the new Line as long as the Company is in compliance with a net income covenant. As of March 31, 2015, the Company was in
full compliance with all debt covenants.
6. Interest Rate Swap Agreements
The Company utilizes interest rate swap agreements to manage exposure to variability in expected cash flows attributable to interest
rate risk. The interest rate swap agreements 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. As of the twelve months ended March 31, 2015 and
2014, no new contracts were initiated and no contracts matured.
The Company currently has two interest rate swap agreements. A June 4, 2012 interest rate swap agreement provides for a five-year
term in which the Company pays a fixed rate of 1% and receives payments from the counterparty on the 1-month LIBOR rate. This
interest rate swap agreement has an effective date of June 13, 2012 and a notional amount of $25,000,000. A July 30, 2012 agreement
provides for a five-year term in which the Company pays a fixed rate of 0.87% and receives payments from the counterparty on the 1-
month LIBOR rate. This interest rate swap agreement has an effective date of August 13, 2012 and a notional amount of $25,000,000.
The locations and amounts of (losses) gains recognized in income are detailed as follows for the fiscal years ended March 31:
Periodic change in fair value of interest rate swap agreements
Periodic settlement differentials included in interest expense
(Loss) gain recognized in income
2015
$ (364,378)
(392,797)
$ (757,175)
2014
$ 688,455
(383,028)
$ 305,427
Net realized losses and gains from the interest rate swap agreements were recorded in the interest expense line item of the
consolidated statements of income.
The following table summarizes the average variable rates received and average fixed rates paid under the interest rate swap
agreements as of March 31:
Average variable rate received
Average fixed rate paid
7. Fair Value Disclosures
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
2015
0.16%
0.94%
2014
0.18%
0.94%
The Company estimates the fair value of interest rate swap agreements based on the estimated net present value of the future cash
flows using a forward interest rate yield curve in effect as of the measurement period, adjusted for nonperformance risk, if any,
including a quantitative and qualitative evaluation of both the Company’s credit risk and the counterparty’s credit risk. Accordingly,
the Company classifies interest rate swap agreements as Level 2.
Description
Interest rate swap agreements:
March 31, 2015 – liability:
March 31, 2014 – asset:
Fair Value Measurement Using
Level 1
Level 2
Level 3
Fair
Value
$ —
$ —
$ (180,775)
$ 183,603
$ —
$ —
$ (180,775)
$ 183,603
43
7. Fair Value Disclosures (continued)
Financial Instruments Not Measured at Fair Value
The Company’s financial instruments consist of finance receivables and the Line. For each of these financial instruments the carrying
value approximates fair value.
Finance receivables, net approximates fair value based on the price paid to acquire Contracts. The price paid reflects competitive
market interest rates and purchase discounts for the Company’s chosen credit grade in the economic environment. This market is
highly liquid as the Company acquires individual loans on a daily basis from dealers. The initial terms of the Contracts range from 12
to 72 months. The initial terms of the Direct Loans range from 6 to 48 months. In addition, there have been minimal decreases in
interest rates and purchase discounts related to these types of loans due to the competitive nature of the current market. If liquidated
outside of the normal course of business, the amount received may not be the carrying value.
Based on current market conditions, any new or renewed credit facility would contain pricing that approximates the Company’s
current Line. Based on these market conditions, the fair value of the Line as of March 31, 2015 was estimated to be equal to the book
value. The interest rate for the Line is a variable rate based on LIBOR pricing options.
Description
Cash:
March 31, 2015
March 31, 2014
Finance receivables:
March 31, 2015
March 31, 2014
Line of credit:
March 31, 2015
March 31, 2014
Fair Value Measurement Using
Level 1
Level 2
Level 3
Fair
Value
$ 3,388,193
$ 2,635,036
$
$
$
$
—
—
—
—
$
$
$
$
—
—
—
—
$
$
—
—
$ 3,388,193
$ 2,635,036
$ 288,904,000
$ 269,344,000
$ 288,904,000
$ 269,344,000
$ 199,000,000
$ 127,900,000
$
$
—
—
$ 199,000,000
$ 127,900,000
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis. The
Company did not have any assets or liabilities measured at fair value on a nonrecurring basis as of March 31, 2015 and 2014.
8. Income Taxes
The provision for income taxes consists of the following for the years ended March 31:
Current:
Federal
State
2015
2014
2013
$7,688,428
1,196,034
$ 8,709,338
1,393,675
$10,187,010
1,661,860
Total current
8,884,462
10,103,013
11,848,870
Deferred:
Federal
State
Total deferred
Income tax expense
308,090
47,927
1,474,425
235,940
356,017
1,710,365
598,674
97,665
696,339
$9,240,479
$11,813,378
$12,545,209
44
8. Income Taxes (continued)
The net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes are reflected in deferred income taxes. Significant components of the Company’s deferred
tax assets consist of the following as of March 31:
Allowance for credit losses not currently deductible for tax
purposes
Share-based compensation
Interest rate swap agreements
Other items
Deferred income taxes
2015
2014
$5,552,437
514,259
69,201
224,682
$6,106,725
443,623
(70,283)
236,531
$6,360,579
$6,716,596
The provision for income taxes reflects an effective U.S tax rate, which differs from the corporate tax rate for the following reasons:
Provision for income taxes at Federal statutory rate
Increase (decrease) resulting from:
State income taxes, net of Federal benefit
Transaction costs
Other
Income tax expense
2015
2014
2013
$9,133,730
$ 9,980,855
$11,370,154
808,574
(733,689)
31,864
1,059,249
733,689
39,585
1,143,692
—
31,363
$9,240,479
$11,813,378
$12,545,209
The Company’s effective tax rate decreased to 35.41% in fiscal 2015 from 41.43% in fiscal 2014 and 38.61% in fiscal 2013. The
Company had approximately $2,096,000 of previously non-deductible expenses associated with the potential sale of the Company in
2014 (see Note 12). Since the sale of the Company was not consummated, the $2,096,000 became deductible in 2015 creating a
favorable effective tax rate.
9. Share-Based Payments
The Company has share awards outstanding under three share-based compensation plans (the “Equity Plans”). The Company believes
that such awards better align the interests of its employees with those of its shareholders. Under the shareholder-approved 1998
Employee Stock Option Plan and Non-Employee Director Stock Option Plan (collectively the “1998 Plans”) the Board of Directors
was authorized to grant option awards for up to 1,551,000 common shares to employees and directors. On August 9, 2006, the
Company’s shareholders approved the Nicholas Financial, Inc. Equity Incentive Plan (the “2006 Plan”) for employees and non-
employee directors. Under the 2006 Plan, the Board of Directors is authorized to grant total share awards for up to 1,072,500 common
shares. The 2006 Plan replaced the 1998 Plans; accordingly no additional option awards may be granted under the 1998 Plans. In
addition to option awards, the 2006 Plan provides for restricted stock and performance share awards.
Option awards previously granted to employees and directors under the 1998 Plans generally vest ratably based on service over a five-
and three-year period, respectively, and generally have a contractual term of ten years. Vesting and contractual terms for option
awards under the 2006 Plan are essentially the same as those of the 1998 Plans. Restricted stock awards generally cliff vest over a
three-year period based on service conditions. The annual vesting of performance share awards is contingent upon the attainment of
company-wide performance goals including annual revenue growth and operating income targets. There are no post-vesting
restrictions for share awards.
The Company funds share awards from authorized but unissued shares and does not purchase shares to fulfill the obligations of the
plans. Cash dividends, if any, are not paid on unvested performance shares or unexercised options, but are paid on unvested restricted
stock awards.
45
9. Share-Based Payments (continued)
The Company did not grant any options during the year ended March 31, 2014. The fair value of each option granted was estimated on
the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Risk-free interest rate
Weighted average expected original term
Expected volatility
Expected dividend yield
2015
1.68%
5 years
23%
3.65%
2013
0.71%
5 years
48%
3.20%
A summary of option activity under the Equity Plans as of March 31, 2015, and changes during the year are presented below.
Options
Outstanding at March 31, 2014
Granted
Exercised
Forfeited
Outstanding at March 31, 2015
Exercisable at March 31, 2015
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Weighted
Average
Exercise
Price
$ 5.45
$ 13.62
$ 2.58
$ 9.49
Shares
372,881
145,000
(150,911)
(3,480)
363,490
$ 9.86
166,957
$ 6.27
6.53
3.95
$1,537,174
$1,292,143
The Company granted 145,000 options with a weighted average fair value of $1.88 during the year ended March 31, 2015. The total
intrinsic value of options exercised during the years ended March 31, 2015, 2014 and 2013 was approximately $1,829,000, $699,000
and $685,000 respectively.
During the fiscal year ended March 31, 2015, 150,911 options were exercised at exercise prices ranging from $0.35 to $10.96 per
share. During the same period 3,480 options were forfeited at exercise prices ranging from $3.60 to $10.87 per share.
Cash received from options exercised during the fiscal years ended March 31, 2015, 2014 and 2013 totaled approximately $389,000,
$329,000 and $612,000, respectively. Related income tax benefits during the same periods totaled approximately $700,000, $267,000
and $262,000, respectively. Such amounts are included in proceeds from exercise of stock options and excess tax benefit on share
awards under cash flows from financing activities in the consolidated statements of cash flows. As of March 31, 2015, there was
approximately $374,000 of total unrecognized compensation cost related to options granted. That cost is expected to be recognized
over a weighted-average period of approximately 3.3 years.
A summary of the status of the Company’s non-vested restricted shares under the 2006 Plan as of March 31, 2015, and changes during
the year then ended is presented below.
Restricted Share Awards
Non-vested at March 31, 2014
Granted
Vested
Forfeited
Non-vested at March 31, 2015
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Weighted
Average
Grant Date
Fair Value
12.92
$
14.22
$
$
12.87
$ —
Shares
50,000
44,000
(5,000)
—
89,000
$
13.56
1.64
$1,246,890
The Company awarded 44,000 restricted shares during the fiscal year ended March 31, 2015. During the same period no restricted
shares were forfeited.
46
9. Share-Based Payments (continued)
As of March 31, 2015, there was approximately $581,000 of total unrecognized compensation cost related to non-vested restricted
share awards granted under the 2006 Plan. That cost is expected to be recognized over a weighted-average period of approximately
1.64 years.
The Company did not award any performance shares during the fiscal year ended March 31, 2015 or March 31, 2014 and none are
non-vested.
As of March 31, 2015, there was no unrecognized compensation cost related to non-vested performance share awards granted under
the 2006 Plan.
10. Employee Benefit Plans
The Company has a 401(k) retirement plan under which all employees are eligible to participate. Employee contributions are
voluntary and subject to Internal Revenue Service limitations. The Company matches, based on annually determined factors,
employee contributions provided the employee completes certain levels of service annually. For the plan (calendar) years 2015, 2014
and 2013, the Board of Directors suspended the Company’s matching. The Board will re-evaluate the Company’s matching policy for
plan year 2016 later this year. For the fiscal years ended March 31, 2015, 2014 and 2013, the Company recorded expenses of
approximately $7,000, $7,000, and $6,500, respectively, related to this plan.
11. Commitments and Contingencies
The Company leases corporate and branch offices under operating lease agreements which provide for annual minimum rental
payments as follows:
Fiscal Year ending March 31:
2016
2017
2018
2019
2020
$1,936,435
1,290,195
901,413
622,110
398,862
$5,149,015
Rent expense for the fiscal years ended March 31, 2015, 2014, and 2013 was approximately $2,128,000, $1,995,000 and $1,933,000
respectively. The Company recognizes rent expense on a straight-line basis over the term of the lease, taking into account, when
applicable, lessor incentives for tenant improvements, periods where no rent payment is required and escalations in rent payments over
the term of the lease.
The Company currently is not a party to any pending legal proceedings other than ordinary routine litigation incidental to its business,
none of which, if decided adversely to the Company, would, in the opinion of management, have a material adverse effect on the
Company’s financial condition or results of operations.
12. Arrangement Agreement
On December 17, 2013, the Company entered into an arrangement agreement (the “Arrangement Agreement”), whereby the Company
agreed to sell all of its issued and outstanding Common Shares to an indirect wholly-owned subsidiary of Prospect Capital
Corporation (“Prospect”), pursuant to a plan of arrangement (the “Arrangement”) under the Business Corporation Act (British
Columbia).
The termination deadline for completion of the Arrangement was June 12, 2014. On June 11, 2014, the Company’s Board of Directors
determined to terminate the Arrangement Agreement effective immediately on the basis that certain conditions requisite to
consummation of the Arrangement could not be satisfied by the termination deadline. The Board of Directors further determined to
continue to retain Janney Montgomery Scott LLC as its independent financial advisor to assist the Board in evaluating strategic
alternatives for the Company, including, but not limited to, the possible sale of the Company to Prospect or another third party,
potential acquisition and expansion opportunities, and/or a possible debt or equity financing.
47
13. Quarterly Results of Operations (Unaudited)
Total revenue
Interest expense
Provision for credit losses
Non-interest expense
Operating income before income taxes
Income tax expense
Net income
Earnings per share:
Basic
Diluted
Dividends per share
Total revenue
Interest expense
Provision for credit losses
Non-interest expense
Operating income before income taxes
Income tax expense
Net income
Earnings per share:
Basic
Diluted
Dividends per share
First
Quarter
$ 21,332,514
1,448,585
4,231,815
8,920,889
6,731,225
1,822,037
Fiscal Year ended March 31, 2015
Second
Quarter
$ 21,723,072
1,485,193
5,154,235
8,088,886
6,994,758
2,665,057
Third
Quarter
$ 21,800,765
1,457,919
5,796,648
8,407,719
6,138,479
2,368,923
Fourth
Quarter
$ 21,933,607
1,578,737
5,187,832
8,935,129
6,231,909
2,384,462
$ 4,909,188
$ 4,329,701
$ 3,769,556
$ 3,847,447
$
$
$
0.40
0.40
—
$
$
$
0.36
0.35
—
$
$
$
0.31
0.30
—
$
$
$
0.34
0.33
—
Fiscal Year ended March 31, 2014
First
Quarter
$ 20,475,735
1,404,906
2,641,791
7,163,565
9,265,473
3,564,980
Second
Quarter
$ 20,948,924
1,442,898
3,973,104
8,329,886
7,203,036
2,886,484
Third
Quarter
$ 20,761,230
1,441,175
4,183,035
8,477,233
6,659,787
2,833,019
Fourth
Quarter
$ 20,443,054
1,389,209
4,181,286
9,484,125
5,388,434
2,528,895
$ 5,700,493
$ 4,316,552
$ 3,826,768
$ 2,859,539
$
$
$
0.47
0.46
0.12
$
$
$
0.36
0.35
0.12
$
$
$
0.32
0.31
—
$
$
$
0.24
0.23
—
48
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Controls and Procedures
Item 9A.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure information required to be disclosed in its reports filed
pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms. Such information is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required
disclosure. The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that the
Company’s disclosure controls and procedures or internal controls will prevent all possible error and fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
The Company’s management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the
effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of
March 31, 2015. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the
Company’s disclosure controls and procedures were effective as of March 31, 2015.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of
financial statements in accordance with generally accepted accounting principles. The Company’s management, including our Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial
reporting as of March 31, 2015, the end of the fiscal year covered by this Report, based on the criteria set forth in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework). Based
on management’s evaluation under the framework in Internal Control-Integrated Framework, management has concluded that the
Company’s internal control over financial reporting was effective as of March 31, 2015.
Dixon Hughes Goodman LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control
over financial reporting as of March 31, 2015, as stated in their report, which is included below.
June 15, 2015
Ralph T. Finkenbrink
President and
Chief Executive Officer
Katie L. MacGillivary
Vice President-Finance
and Chief Financial Officer
Changes in Internal Control Over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the Company’s last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Nicholas Financial, Inc.
We have audited Nicholas Financial, Inc. and subsidiaries (the “Company”) internal control over financial reporting as of March 31,
2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (1992 framework) (“ the COSO criteria”). The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31,
2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements of Nicholas Financial, Inc. as of and for the year ended March 31, 2015, and our report dated
June 15, 2015, expressed an unqualified opinion.
/s/ Dixon Hughes Goodman LLP
Atlanta, Georgia
June 15, 2015
50
Item 9B. Other Information
None.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The information to be set forth under the captions “Proposal 1: Election of Directors,” “Board of Directors,” “Executive Officers and
Compensation” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement and Information
Circular for the 2015 Annual General Meeting of Shareholders of the Company, which will be filed with the SEC on or about July 6,
2015 (the “Proxy Statement”), is incorporated herein by reference.
The Company has adopted a written code of ethics applicable to its chief executive officer, chief financial officer, principal accounting
officer and persons performing similar functions. The text of this code of ethics is filed as Exhibit 14 to this Report. A copy of the
code of ethics is also posted on the Company’s web site at www.nicholasfinancial.com. The Company intends to satisfy the disclosure
requirements under Item 5.05 of the SEC’s Current Report on Form 8-K regarding amendments to, or waivers from, the code of ethics
by posting such information on the Company’s web site at www.nicholasfinancial.com. The Company is not including the information
contained on or available through its web site as a part of, or incorporating such information by reference into, this Report.
Item 11.
Executive Compensation, Compensation Interlocks and Insider Participation
The information to be set forth under the captions “Executive Officers and Compensation” and “Board of Directors” in the Proxy
Statement is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information to be set forth under the caption “Voting Shares and Ownership of Management and Principal Holders” in the Proxy
Statement is incorporated herein by reference. See also “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities – Securities Authorized for Issuance Under Equity Compensation Plans” on page 18 of this
Report for certain information relating to the Company’s equity compensation plans.
Item 13.
Certain Relationships and Related Transactions, Director Independence and Board of Directors
The information to be set forth under the captions “Board of Directors” and “Certain Relationships and Related Transactions” in the
Proxy Statement is incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The information to be set forth under the caption “Proposal 2: Ratification of Appointment of Independent Auditors” in the Proxy
Statement is incorporated herein by reference.
51
Item 15.
Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Report:
PART IV
(1) Financial Statements
See Part II, Item 8, of this Report.
(2) Financial Statement Schedules
All financial schedules are omitted as the required information is not applicable or the information is presented in
the consolidated financial statements or related notes.
(3) Exhibits
Description
Articles of Nicholas Financial, Inc. (1)
Notice of Articles of Nicholas Financial, Inc. (2)
Form of Common Stock Certificate (3)
Second Amended and Restated Loan and Security Agreement, dated as of January 12, 2010, by and among Nicholas
Financial Inc., a Florida corporation, Bank of America, N.A., as agent, and each of the Lenders parties thereto (4)
Amendment No. 1, dated as of September 1, 2011, to Second Amended and Restated Loan and Security Agreement, dated
as of January 12, 2010, by and among Nicholas Financial Inc., a Florida corporation, Bank of America, N.A., as agent,
and each of the Lenders parties thereto (5)
Amendment No. 2, dated as of December 21, 2012, to Second Amended and Restated Loan and Security Agreement,
dated as of January 12, 2010, by and among Nicholas Financial Inc., a Florida corporation, Bank of America, N.A., as
agent, and each of the Lenders parties thereto (6)
Amendment No. 3, dated as of November 14, 2014, to Second Amended and Restated Loan and Security Agreement,
dated as of January 12, 2010, by and among Nicholas Financial, Inc., a Florida corporation, Bank of America, N.A., as
agent, and each of the Lenders parties thereto (7)
Amendment No. 4, dated as of January 30, 2015, to Second Amended and Restated Loan and Security Agreement, dated
as of January 12, 2010, by and among Nicholas Financial, Inc., a Florida corporation, Bank of America, N.A., as agent,
and each of the Lenders parties thereto (8)
Nicholas Financial, Inc. Employee Stock Option Plan (9)*
Nicholas Financial, Inc. Non-Employee Director Stock Option Plan (10)*
Employment Agreement (as Amended and Restated), dated June 30, 2014, between Nicholas Financial, Inc. and Ralph T.
Finkenbrink, President and Chief Executive Officer (11)*
Employment Agreement, dated June 30, 2014, between Nicholas Financial, Inc. and Kevin D. Bates, Senior Vice
President-Branch Operations (12)*
Exhibit
No.
3.1
3.2
4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
Summary of Fiscal 2014/2015/2016 Annual Incentive Programs*
10.11
Nicholas Financial, Inc. Equity Incentive Plan (13)*
10.12
Form of Nicholas Financial, Inc. Equity Incentive Plan Stock Option Award (14)*
10.13
10.14
Form of Nicholas Financial, Inc. Equity Incentive Plan Restricted Stock Award (15)*
Form of Nicholas Financial, Inc. Equity Incentive Plan Performance Share Award (16)*
10.15
ISDA Master Agreement, dated as of March 30, 1999, between Bank of America, N.A. and Nicholas Financial, Inc. (17)
10.16
10.17
Letter Agreement, dated June 4, 2012, and effective June 13, 2012, by and between Nicholas Financial, Inc. and Bank of
America, N.A. relating to interest-rate swap transaction (18)
Letter Agreement, dated June 30, 2012, and effective August 13, 2012, by and between Nicholas Financial, Inc. and Bank
of America, N.A. relating to interest-rate swap transaction (19)
52
10.18
Form of Dealer Agreement and Schedule thereto listing dealers that are parties to such agreements
14
21
23
24
31.1
31.2
32.1
32.2
Code of Ethics for Chief Executive Officer and Senior Financial Officers
Subsidiaries of Nicholas Financial, Inc. (20)
Consent of Dixon Hughes Goodman LLP
Powers of Attorney (included on signature page hereto)
Certification of President and Chief Executive Officer
Certification of Vice President and Chief Financial Officer
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. § 1350
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. § 1350
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Documen
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive
officer of the Company participated.
Incorporated by reference to Appendix B to the Company’s Proxy Statement and Information Circular for the 2006 Annual
General Meeting of Shareholders filed with the SEC on June 30, 2006 (File No. 0-26680).
Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 filed with the SEC on May 24,
2007 (SEC File No. 0-26680).
Incorporated by reference to Exhibit 4 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended March 31,
2004, as filed with the SEC on June 29, 2004.
Incorporated by reference to Exhibit 10.1 to the Company’s Amendment No. 1 to Quarterly Report on Form 10-Q/A for the
fiscal quarter ended December 31, 2009, as filed with the SEC on March 23, 2010.
Incorporated by reference to Exhibit 10.1.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2011, as filed with the SEC on November 9, 2011.
Incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31,
2013, as filed with the SEC on June 14, 2013.
Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated November 14, 2014, as filed
with the SEC on November 18, 2014.
Incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on From 10-Q for the fiscal quarter ended
December 31, 2014, as filed with the SEC on February 9, 2015.
Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8 filed with the SEC on June 30,
1999 (SEC File No. 333-81967).
Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8 filed with the SEC on June 30,
1999 (SEC File No. 333-81961).
Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated June 25, 2014, as filed with
the SEC on July 1, 2014.
Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated June 25, 2014, as filed with
the SEC on July 1, 2014.
Incorporated by reference to Appendix A to the Company’s Proxy Statement and Information Circular for the 2006 Annual
General Meeting of Shareholders, as filed with the SEC on June 30, 2006.
Incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31,
2013, as filed with the SEC on June 14, 2013.
Incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31,
2013, as filed with the SEC on June 14, 2013.
Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31,
2013, as filed with the SEC on June 14, 2013.
Incorporated by reference to Exhibit 10.10 to Amendment No. 2 to the Company’s Registration Statement on Form S-2 (Reg.
No. 333-113215), as filed with the SEC on April 7, 2004
53
(18)
(19)
(20)
Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31,
2013, as filed with the SEC on June 14, 2013.
Incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31,
2013, as filed with the SEC on June 14, 2013.
Incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended March 31,
2004, as filed with the SEC on June 29, 2004.
54
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: June 15, 2015
NICHOLAS FINANCIAL, INC.
By: /s/ Ralph T. Finkenbrink
Ralph Finkenbrink
Chief Executive Officer and President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Ralph T.
Finkenbrink and Katie L. MacGillivary, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all
amendments to this Report, and to file the same, with all exhibits thereto, and any other documents in connection therewith, with the
U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority
to perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or either of
them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Ralph T. Finkenbrink
Ralph T. Finkenbrink
/s/ Katie L. MacGillivary
Katie L. MacGillivary
/s/ Kevin D. Bates
Kevin D. Bates
/s/ Stephen Bragin
Stephen Bragin
/s/ Alton R. Neal
Alton R. Neal
/s/ Scott Fink
Scott Fink
Chief Executive Officer, President and Director
June 15, 2015
Chief Financial Officer, Vice President - Finance
June 15, 2015
Sr. Vice President-Branch Operations and Director
June 15, 2015
June 15, 2015
June 15, 2015
June 15, 2015
Director
Director
Director
55
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
Exhibit
No.
3.1
3.2
4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
EXHIBIT INDEX
Description
Articles of Nicholas Financial, Inc.*
Notice of Articles of Nicholas Financial, Inc.*
Form of Common Stock Certificate*
Second Amended and Restated Loan and Security Agreement, dated as of January 12, 2010, by and among Nicholas
Financial Inc., a Florida corporation, Bank of America, N.A., as agent, and each of the Lenders parties thereto*
Amendment No. 1, dated as of September 1, 2011, to Second Amended and Restated Loan and Security Agreement, dated
as of January 12, 2010, by and among Nicholas Financial Inc., a Florida corporation, Bank of America, N.A., as agent,
and each of the Lenders parties thereto*
Amendment No. 2, dated as of December 21, 2012, to Second Amended and Restated Loan and Security Agreement,
dated as of January 12, 2010, by and among Nicholas Financial Inc., a Florida corporation, Bank of America, N.A., as
agent, and each of the Lenders parties thereto*
Amendment No. 3, dated as of November 14, 2014, to Second Amended and Restated Loan and Security Agreement,
dated as of January 12, 2010, by and among Nicholas Financial, Inc., a Florida corporation, Bank of America, N.A., as
agent, and each of the Lenders parties thereto*
Amendment No. 4, dated as of January 30, 2015, to Second Amended and Restated Loan and Security Agreement, dated
as of January 12, 2010, by and among Nicholas Financial, Inc., a Florida corporation, Bank of America, N.A., as agent,
and each of the Lenders parties thereto*
Nicholas Financial, Inc. Employee Stock Option Plan*
Nicholas Financial, Inc. Non-Employee Director Stock Option Plan*
Employment Agreement (as Amended and Restated), dated June 30, 2014, between Nicholas Financial, Inc. and Ralph
T. Finkenbrink, President and Chief Executive Officer*
Employment Agreement, dated June 30, 2014, between Nicholas Financial, Inc. and Kevin D. Bates, Senior Vice
President-Branch Operations*
10.10
Summary of Fiscal 2014/2015/2016 Annual Incentive Bonus Programs
10.11
Nicholas Financial, Inc. Equity Incentive Plan*
10.12
Form of Nicholas Financial, Inc. Equity Incentive Plan Stock Option Award*
10.13
Form of Nicholas Financial, Inc. Equity Incentive Plan Restricted Stock Award*
10.14
Form of Nicholas Financial, Inc. Equity Incentive Plan Performance Share Award*
10.15
ISDA Master Agreement, dated as of March 30, 1999, between Bank of America, N.A. and Nicholas Financial, Inc.*
10.16
10.17
Letter Agreement, dated June 4, 2012, and effective June 13, 2012, by and between Nicholas Financial, Inc. and Bank of
America, N.A. relating to interest-rate swap transaction*
Letter Agreement, dated July 30, 2012, and effective August 13, 2012, by and between Nicholas Financial, Inc. and Bank
of America, N.A. relating to interest-rate swap transaction*
10.18
Form of Dealer Agreement and Schedule thereto listing dealers that are parties to such agreements
14
21
23
24
31.1
31.2
32.1
Code of Ethics for Chief Executive Officer and Senior Financial Officers
Subsidiaries of Nicholas Financial, Inc.*
Consent of Dixon Hughes Goodman LLP
Powers of Attorney (included on signature page hereto)
Certification of President and Chief Executive Officer
Certification of Senior Vice President and Chief Financial Officer
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. § 1350
32.2
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. § 1350
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
* Incorporated by reference.
S H A R E H O L D E R
I N F O R M A T I O N
Corporate Offices:
Transfer Agent & Registrar:
Nicholas Financial, Inc.
2454 McMullen Booth Road
Clearwater, Florida 33759
Directors:
Ralph T. Finkenbrink
Chairman, CEO & President
Kevin Bates
Senior Vice President - Operations
Stephen Bragin
Audit Committee Member
Compensation Committee Member
Former Owner, Florida Produce Co.
Scott Fink
Audit Committee Member
Compensation Committee Member
Owner,
Multiple Franchise Auto Dealerships
Alton R. “Charlie” Neal
Audit Committee Chairman
Compensation Committee Member
Former Partner,
Johnson, Blakely, Pope, Bokor,
Ruppel & Burns
Independent Auditors:
Dixon Hughes Goodman
Atlanta, Georgia
General Counsel:
Foley & Lardner
Chicago, Illinois
Computershare Investor Services
Vancouver, BC, Canada V6C 3B9
Stock Information:
Listed on the NASDAQ National
Market System
Trading Symbol: NICK
Corporate Officers:
Kevin Bates
Senior Vice President
Ralph T. Finkenbrink
CEO & President
Katie MacGillivary
Vice President - Finance & CFO
Corporate Secretary
Notice To Shareholders:
The Company will supply to any
owner of Common Stock, upon
written request to the Company
at the above address and without
charge, a copy of the Annual
Report on Form 10-K for the year
ended March 31, 2015, which has
been filed with the Securities and
Exchange Commission.
The Annual Report and Form 10-K
are also available on the Company's
internet website at:
www.nicholasfinancial.com
Nicholas Financial, Inc.
2454 McMullen-Booth Road N.
Building C
Clearwater, FL 33759
(727) 726-0763
Nicholas Financial, Inc.
2454 McMullen Booth Road
Building C
Clearwater, Florida 33759 USA
- (727) 726-0763
Telephone
Fax
- (727) 726-2140
www.NicholasFinancial.com