Nicholas Financial, Inc.
2023 Annual Report
(cid:4) (cid:69)(cid:4)(cid:94)(cid:24)(cid:4)(cid:89) (cid:410)(cid:396)(cid:258)(cid:282)(cid:286)(cid:282) (cid:272)(cid:381)(cid:373)(cid:393)(cid:258)(cid:374)(cid:455)
(cid:449)(cid:449)(cid:449)(cid:856)(cid:69)(cid:349)(cid:272)(cid:346)(cid:381)(cid:367)(cid:258)(cid:400)(cid:38)(cid:349)(cid:374)(cid:258)(cid:374)(cid:272)(cid:349)(cid:258)(cid:367)(cid:856)(cid:272)(cid:381)(cid:373)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:3)(cid:3)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiff scal year ended March 31, 2023
OR
(cid:4)(cid:4)
TRARR NSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRARR NSITION PERIOD FROM
Commission File Number 0-26680
TO
NICHOLAS FINANCIAL, INC.
(Exact name of Registrant as specififf ed in its Charter)
British Columbia, Canada
( State or other jurisdiction of
incorporation or organization)
26133 US Hwy 19 North, Suite 300
Clearwater, Florida
(Address of principal executive offff iff ces)
59-2506879
(I.R.S. Employer
Identififf cation No.)
33763
(Zip Code)
Registrant’s telephone number, including area code: (727) 726-0763
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common shares, no par value
Trading
Symbol(s)
NICK
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defiff ned in RulRR e 405 of the Securities Act. YES (cid:4) NO (cid:3)
Indicate by check mark if the Registrant is not required to fiff le reports pursuant to Section 13 or 15(d) of the Act. YES (cid:4) NO (cid:3)
Indicate by check mark whether the Registrant: (1) has fiff led all reports required to be fiff led by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or forff
days. YES (cid:3) NO (cid:4)
Indicate by check mark whether the Registrant has submitted electronically everyrr
(§232.405 of this chapta er) during the preceding 12 months (or forff
Indicate by check mark whether the registrant is a large accelerated fiff ler, an accelerated fiff ler, a non-accelerated fiff ler, a smaller reporting company, or an emerging
growth company. See the defiff nitions of “large accelerated fiff ler,” “accelerated fiff ler,” “smaller reporting company,” and “emerging growth company” in RulRR e 12b-2 of
the Exchange Act.
such shorter period that the Registrant was required to fiff le such reports), and (2) has been subject to such fiff ling requirements forff
such shorter period that the Registrant was required to submit such fiff les). YES (cid:3) NO (cid:4)
Interactive Data File required to be submitted pursuant to RulRR e 405 of Regulation S-T
the past 90
(cid:4)
(cid:3)
(cid:4)
Accelerated fiff ler
Smaller reporting company
Large accelerated fiff ler
Non-accelerated fiff ler
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period forff
fiff nancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:4)
Indicate by check mark whether the Registrant has fiff led a report on and attestation to its management's assessment of the effff eff ctiveness of its internal control over
fiff nancial reporting under Section 404(b) of the Sarbar nes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting fiff rm that prepared or issued its audit report.
(cid:4)
Indicate by check mark whether the Registrant is a shell company (as defiff ned in RulRR e 12b-2 of the Exchange Act).
YES (cid:4) NO (cid:3)
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the fiff nancial statements of the registrant included in the fiff ling reflff ect the
correction of an error to previously issued fiff nancial statements. (cid:4)
Indicate by check mark whether any of those error corrections are statements that required a recoveryrr analysis of incentive-based compensation received by any of the
registrant's executive offff iff cers during the relevant recoveryrr period pursuant to §240.10D-1(b). (cid:4)
The aggregate market value of the voting and non-voting common equity held by non-affff iff liates of the Registrant, based on the closing price of the shares of common
stock on The NASDAQ Stock Market on September 30, 2022, was appr
oximately $41.6 million.
The number of shares of Registrant’s Common Stock outstanding as of March 31, 2023 was appr
5.4 million shares were held by the Registrant’s principal operating subsidiaryrr and pursuant to appl
a
were entitled to vote).
oximately 12.7 million shares, no par value (of which appr
a
oximately 7.3 million shares
icabla e law, not entitled to vote and appr
complying with any new or revised
oximately
(cid:4)
(cid:3)
a
a
a
Portions of the Registrant’s defiff nitive Proxy Statement and Inforff mation Circular forff
into Part III, Items 10 through 14, of this Annual Report on Form 10-K.
the 2023 Annual General Meeting of Shareholders are incorpor
rr
ated by refeff rence
DOCUMENTS INCORPORAR TED BY REFERENCE
Forward-Looking Inforff mation
This Annual Report on Form 10-K (this “Report” or “Annual Report”) contains various forff ward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements are based on management’s current beliefsff and assumptions, as
well as inforff mation currently availabla e to management. When used in this document, the words “anticipate,”
“estimate,” “expect,” “will,” “may,” “plan,” “believe,” “intend” and similar expressions are intended to identifyff
forff ward-looking statements. Although Nicholas Financial, Inc. and its subsidiaries (collectively the “Company,”
“we,” “us,” or “our”) believes that the expectations reflff ected or implied in such forff ward-looking statements are
reasonabla e, we can give no assurance that such expectations will prove to be correct. As a result, actuat
diffff eff r materially frff om those indicated in these forff ward-looking statements. Forward-looking statements in this
Annual Report may include, without limitation: (1) the projected impact of the novel coronavirusrr
disease (“COVID-
19”) outbrt eak on our customers and our business, (2) projections of revenue, income, and other items relating to our
fiff nancial position and results of operations, (3) statements of our capia tal allocation plans, particularly alternatives forff
futff urt e use of excess equity capia tal, (4) statements of other plans, objectives, strategies, goals and intentions, (5)
statements regarding the capaa bia lities, capaa
operations, and (6) statements of expected industryrr and general economic trends. These statements are subject to
certain risks, uncertainties and assumptions that may cause results to diffff eff r materially frff om those expressed or
implied in forff ward-looking statements, including without limitation:
cities, market position and expected development of our business
l results could
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legal and tax complexities surrounding our corpor
primarily U.S. shareholders and exclusively U.S. operations;
ate strucr
r
turt e as a British Columbia company with
futff urt e impacts of the COVID-19 outbrt eak and measures taken in response thereto, including without
limitation the successfulff
futff urt e developments are highly uncertain and diffff iff cult to predict;
deliveryrr of vaccines effff eff ctive against the diffff eff rent variants of the virusr
, forff which
availabia lity of capia tal (including the abia lity to access bank fiff nancing);
recently enacted, proposed or futff urt e legislation and the manner in which it is implemented, including tax
legislation initiatives or challenges to our tax positions and/or interprr etations, and state sales tax rulr es and
regulations;
flff uctuat
tions in the economy;
the degree and naturt e of competition and its effff eff cts on the Company’s fiff nancial results;
flff uctuat
tions in interest rates;
effff eff ctiveness of our risk management processes and procedures, including the effff eff ctiveness of the
Company’s internal control over fiff nancial reporting and disclosure controls and procedures;
demand forff
consumer fiff nancing in the markets served by the Company;
our abia lity to successfulff
ly develop and commercialize new or enhanced products and services;
the suffff iff ciency of our allowance forff
preparing our fiff nancial statements;
credit losses and the accuracy of the assumptions or estimates used in
increases in the defaff ult rates experienced on automobile fiff nance installment contracts (“Contracts”);
higher borrowing costs and adverse fiff nancial market conditions impacting our fundi
ff
ng and liquidity;
our abia lity to securitize our loan receivabla es, occurrence of an early amortization of our securitization
faff cilities, loss of the right to service or subservice our securitized loan receivabla es, and lower payment rates
on our securitized loan receivabla es;
regulation, supervision, examination and enforff cement of our business by governmental authorities, and
adverse regulatoryrr changes in the Company’s existing and futff urt e markets, including the impact of the
Dodd-Frank Wall Street Reforff m and Consumer Protection Act (the “Dodd-Frank Act”) and other
legislative and regulatoryrr developments, including regulations relating to privacy, inforff mation security and
data protection and the impact of the Consumer Financial Protection Bureau's (the “CFPB”) regulation of
our business
frff audulent activity;
faff ilure of third parties to provide various services that are important to our operations, including without
limitation the collection services being provided by a new third-party service provider;
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alleged infrff ingement of intellectuat
property;
litigation and regulatoryrr actions;
l property rights of others and our abia lity to protect our intellectuat
l
our abia lity to attract, retain and motivate key offff iff cers and employees;
use of third-party vendors and ongoing third-party business relationships;
cyber-attacks or other security breaches;
r
disrupt
ions in the operations of our computer systems and data centers;
our abia lity to realize our intentions regarding strategic alternatives; and
the risk faff ctors discussed herein under “Item 1A – Risk Factors.”
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect,
l results may varyrr materially frff om those anticipated, estimated or expected. All forff ward-looking statements
actuat
included in this Report are based on inforff mation availabla e to the Company as the date of fiff ling of this Annual
Report, and the Company assumes no obligation to update any such forff ward-looking statement. Prospective
investors should also consult the risk faff ctors described frff om time to time in the Company’s other fiff lings made with
the U.S. Securities and Exchange Commission (“SEC”), including its reports on Forms 10-Q, 8-K and annual
reports to shareholders.
Item 1. Business
General
PART I
Nicholas Financial, Inc. (“Nicholas Financial-Canada”) is a Canadian holding company incorpor
of British Columbia in 1986. The business activities of Nicholas Financial-Canada are currently conducted
exclusively through its wholly-owned indirect subsidiary,rr Nicholas Financial, Inc., a Florida corpor
Financial”). Nicholas Financial is a specialized consumer fiff nance company engaged primarily in acquiring and
purchases of used and new automobiles and
servicing automobile fiff nance installment contracts (“Contracts”) forff
light trucr ks. Additionally, Nicholas Financial sells consumer-fiff nance related products and, prior to the end of the
third fiff scal quarter of the fiff scal year ended March 31, 2023, Nicholas Financial originated direct consumer loans
(“Direct Loans”). Nicholas Data Services, Inc. (“NDS”), is a second Florida subsidiaryrr of Nicholas Financial-
Canada and it serves as the intermediate holding company forff Nicholas Financial. NF Funding I, LLC (“NF Funding
I”), was a wholly-owned, special purpos
served any purpos
e and, as a result, it was dissolved prior to the end of the fiff scal year ended March 31, 2023.
e fiff nancing subsidiaryrr of Nicholas Financial, but that subsidiaryrr no longer
ated under the laws
ation (“Nicholas
rr
r
r
rr
Nicholas Financial-Canada, Nicholas Financial, and NDS are hereaftff er collectively refeff rred to as the “Company”.
All fiff nancial inforff mation herein is designated in United States dollars. Refeff rences to “fiff scal 2023” are to the fiff scal
year ended March 31, 2023 and refeff rences to “fiff scal 2022” are to the fiff scal year ended March 31, 2022.
The Company’s principal executive offff iff ces are located at 26133 US HWY 19 North, Suite 300, Clearwater, Florida
33763, and its telephone number is (727) 726-0763.
Available Inforff mation
The Company’s fiff lings with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q,
defiff nitive proxy statements on Schedule 14A, current reports on Form 8-K, and any amendments to those reports
fiff led pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, are made availabla e frff ee of charge
through the Investor Center section of the Company’s Internet website at http:t
p
//// www.nicholasfiff nancial.com as soon
as reasonabla y practicabla e aftff er the Company electronically fiff les such material with, or furff nishes it to, the SEC. The
Company is not including the inforff mation contained on or availabla e through its website as a part of,ff or incorpor
ating
such inforff mation by refeff rence into, this Report. Copies of any materials the Company fiff les with the SEC can also be
p
obtained frff ee of charge through the SEC’s website at http:t
//// www.sec.gov.
g
r
p
turt
ing plan with the goal of reducing operating expenses and frff eeing up capia tal. As part of this plan, the
Operating Strategy
gy
g
The Company announced on Form 8-K fiff led on November 3, 2022 a change in its operating strategy and
restrucrr
Company has shiftff ed frff om a decentralized to a regionalized business model in which each of its originators focff uses
on a specififf c region in the Company’s smaller target market foot
servicing agreement with Westlake Portfolff
Westlake Capia tal Finance, LLC, “Westlake”). An affff iff liate of Westlake, Westlake Services, LLC, is the benefiff cial
owner of appr
io Management, LLC (“WPM”, and, collectively with its affff iff liate,
oximately 6.8% of the Company’s common stock.
int, and the Company has entered into a loan
prt
a
ff
While the Company intends to continue Contract purchase and origination activities, albeit on a much smaller scale,
its servicing, collections and recoveryrr operations have been outsourced to Westlake. The Company has ceased all
originations of Direct Loans.
The Company anticipates that execution of its evolving restrucrr
ios or
Company to allocate excess capia tal to increase shareholder returt ns, whether by acquiring loan portfolff
businesses or by investing outside of the Company’s traditional business. The overall timefrff ame and strucr
Company’s restrucr
tut ring plan will frff ee up capa ital and permit the
ing remains uncertain.
turt
turt e of the
Although the Company no longer employs the branch-based model, it remains committed to its core product of
fiff nancing primaryrr
automobile dealership. The Company's strategy includes risk-based pricing (rate, yield, advance, term, collateral
value) and a commitment to the underwriting discipline required forff
the subprime borrower through the local independent
transportation to and frff om work forff
io perforff mance. The Company’s
optimal portfolff
1
principal goals are to increase its profiff tabia lity and its long-term shareholder value. During fiff scal 2023, the Company
focff used on the folff
lowing items:
•
•
•
•
•
restrucr
turt
expenses;
ing the Company’s business by downsizing and streamlining operations and reducing
outsourcing servicing, collections and recoveryrr operations;
discontinuing our local branch model in faff vor of a regionalized business model;
optimizing our technology to better fiff t the Company’s restrucr
turt ed operations; and
terminating our live checks program forff
prospective new customers
turt ed and consolidated its operations by closing all of its brick and mortar
In fiff scal 2023, the Company also restrucrr
branch locations in 18 states — Alabaa ma, Florida, Georgia, Idaho, Illinois, Indiana, Kentuct ky, Michigan, Missouri,
North Carolina, Nevada, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Utah, and Wisconsin. As a
result, as of March 31, 2023, the Company only had two offff iff ces in two states – its headquarters in Florida and its
central business operations hub in North Carolina, and the Company expects to focff us its business operations in the
forff eseeabla e futff urt e in seven states — Florida, Georgia, Ohio, Kentuct ky, Indiana, North Carolina, and South Carolina.
During fiff scal 2023, the Company did not have any completed bulk portfolff
not complete any bulk portfolff
bulk portfolff
io purchases if and when any faff vorabla e opportuni
t
ties present themselves.
io purchases during fiff scal 2023, the Company would consider pursuing one or more
io purchases. Although the Company did
During fiff scal 2022, the Company completed bulk portfolff
the fiff rst quarter, $0.6 million in the second quarter, $1.1 million in the third quarter, and $0.2 million in the four
quarter.
a total of $3.1 million, with $1.2 million in
io purchases forff
th
ff
Although the Company had been licensed to provide Direct Loans in 14 states — Alabaa ma, Florida, Georgia (over
$3,000), Illinois, Indiana, Kansas, Kentuct ky, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, South
Carolina, and Tennessee during fiff scal 2023 the Company has cancelled, not renewed, or otherwise terminated all of
such Direct Loan licenses.
Consequently, the Company has not originated any new Direct Loans since the end of the third quarter of fiff scal
2023 and the Company does not intend to originate any new Direct Loans going forff ward. However, the Company
expects its third-party service provider to continue to service the Company’s existing Direct Loans. The Company’s
total Direct Loans portfolff
Direct Loans portfolff
are no Direct Loans in the Company’s portfolff
sometime during the fiff scal year ending March 31, 2027.
io, which at the current rate of such activity is expected to occur
io to be reduced over time as such Direct Loans are paid offff forff
io, and the Company expects its total
oximately 27% of its total portfolff
otherwise liquidated until there
io comprises appr
a
Following the restrucr
in either its current markets or any new markets.
turt
ing and consolidation of the Company’s operations, the Company does not expect to expand
Automobile Finance Business – Contracts
The Company is engaged in the business of providing fiff nancing programs, primarily to purchasers of used cars and
light trucr ks 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 customer’s credit history,rr
vehicle being fiff nanced, or some other faff ctor(s). Unlike lenders that look primarily to the credit historyrr of the
borrower in making lending decisions, typically fiff nancing new automobiles, the Company is willing to purchase
Contracts forff
older model and high-
mileage automobiles. In making decisions regarding the purchase of a particular Contract, the Company considers
in making installment payments
historyrr
the folff
forff
; and place and length of residence. In addition, the Company examines
its prior experience with Contracts purchased frff om the dealer frff om 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.
purchases made by borrowers who do not have a good credit historyrr and forff
lowing faff ctors related to the borrower: current income; credit history;rr
automobiles; current and prior job statust
job instabia lity, the age of the
As of the date of this Annual Report, the number of states in which the Company’s automobile fiff nance programs
have been conducted has been reduced frff om 19 states during fiff scal 2023 - Alabaa ma, Arizona, Florida, Georgia,
Idaho, Illinois, Indiana, Kentuct ky, Michigan, Missouri, North Carolina, Nevada, Ohio, Pennsylvania, South
Carolina, Tennessee, Texas, Utah, and Wisconsin - to just six of such states continuing - Florida, Indiana, Kentuct ky,
2
oximately 586 were active, forff
North Carolina, Ohio, and South Carolina. The Company acquires Contracts in these states through its originators
who work frff om home in the states of Florida, Indiana, Kentuct ky, North Carolina, Ohio and South Carolina. As of
March 31, 2023, the Company had non-exclusive agreements with appr
appr
a
The Company considers a dealer agreement to be active if the contract is complete and executed. 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 faff vor of the
Company.
the purchase of individual Contracts that meet the Company’s fiff nancing criteria.
oximately 3000 dealers, of which
a
a
icabla e, premiums forff
insurance are generally fiff nanced over a period of 12 to 60 months. At
A customer under a Contract typically makes a down payment, in the forff m of cash and/or trade-in, ranging frff om 5%
to 35% of the sale price of the vehicle fiff nanced. The balance of the purchase price of the vehicle plus taxes, title feff es
and, if appl
extended service contracts, GAP waiver coverage, roadside assistance plans, credit
disabia lity insurance and/or credit lifeff
appr
oximately the time of origination, the Company purchases a Contract frff om an automobile dealer at a negotiated
a
price that is less than the original principal amount being fiff nanced by the purchaser of the automobile. The Company
refeff rs to the diffff eff rence between the negotiated price and the original principal amount being fiff nanced as the dealer
discount. The amount of the dealer discount depends upon faff ctors such as the age and value of the automobile and
the creditworthiness of the customer. The Company has recommitted to maintaining pricing discipline and thereforff e
places less emphasis on competition when pricing the discount. Generally, the Company will pay more (i.e.,
purchase the Contract at a smaller discount frff om the original principal amount) forff Contracts as the credit risk of the
customer improves. To date, the Contracts purchased by the Company have been purchased at discounts that range
frff om 1% to 15% of the original principal amount of each Contract, with the typical average discount being between
6% and 8%. As of March 31, 2023, the Company’s indirect loan portfolff
io consisted of Contracts purchased frff om a
dealer or acquired through a bulk acquisition. Such Contracts are purchased without recourse to the dealer, however
each dealer remains potentially liabla e to the Company forff
by the dealer with respect to compliance with appl
Company’s policy is to only purchase a Contract aftff er the dealer has provided the Company with the requisite proof
that (a) the Company has a fiff rst priority lien on the fiff nanced vehicle (or the Company has, in faff ct, perfeff cted such
fiff rst priority lien), (b) the customer has obtained the required collision insurance naming the Company as loss payee
ly and accurately completed and validly
with a deductible of not more than $1,000 and (c) the Contract has been fulff
executed. Once the Company has received and appr
the Contract
and servicing of the Contract commences.
icabla e feff deral and state laws and valid title to the vehicle. The
breaches of certain representations and warranties made
oved all required documents, it pays the dealer forff
a
a
3
Contract Procurement
The Company purchased Contracts in the states listed in the tabla e below during the periods indicated. The Contracts
purchased by the Company are predominantly forff
the periods shown below, less than 1% were forff
used vehicles; forff
new vehicles. The average model year collateralizing the portfolff
dollar amounts shown in the tabla e below represent the Company’s fiff nance receivabla es on Contracts purchased
within the respective fiff scal year:
io as of March 31, 2023 was a 2012 vehicle. The
State
Alabaa ma
Arizona
Florida
Georgia
Idaho
Illinois
Indiana
Kansas
Kentuct ky
Michigan
Missouri
Nevada
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Texas
Utah
Wisconsin
Total
Maximum
allowable
interest
rate (1)
18-36%(2)
(2)
18-30%(3)
18-30%(3)
(2)
(2)
25%
(2)
18-25%(3)
25%
(2)
(2)
18-29%(3)
25%
18-21%(3)
(2)
(2)
18-23%(3)
(2)
(2)
Number of
Branches on
March 31, 2023
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
Fiscal year ended March 31, (In
thousands)
2023
2022
2,919
128
10,410
5,103
343
1,109
2,363
75
2,887
549
2,841
1,150
3,989
7,345
1,139
2,932
1,203
594
102
344
47,526
$
$
4,121
343
13,886
11,007
828
1,632
4,878
-
5,458
2,947
5,459
2,434
6,997
12,495
2,441
5,432
2,046
1,762
460
1,178
85,804
(1)
(2)
(3)
The maximum allowabla e interest rates are subject to change and varyrr based on the laws of the individual
states.
None of these states currently impose a maximum allowabla e 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 36% per annum.
The maximum allowabla e interest rate in each of these states varies depending upon the model year of the
vehicle being fiff nanced. In addition, Georgia does not currently impose a maximum allowabla e interest rate
with respect to Contracts over $5,000.
The folff
lowing tabla e presents selected inforff mation on Contracts purchased by the Company:
Contracts
Purchases
Average APR
Average dealer discount
Average term (months)
Average loan
Number of Contracts purchased
Fiscal year ended March 31,
(Purchases in thousands)
2022
2023
$
$
47,526
$
22.5%
6.5%
48
11,932
4,040
$
85,804
23.1%
6.9%
47
11,002
7,793
4
Direct Loans
a
oximately $4,300. Most of the Direct Loans were originated with current or forff mer
Effff eff ctive during the third quarter of fiff scal 2023, the Company no longer originates any Direct Loans. Previous to
that time, the Company originated Direct Loans in Alabaa ma, Florida, Georgia (over $3,000), Illinois, Indiana,
Kansas, Kentuct ky, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, and Tennessee. Direct
Loans were loans originated directly between the Company and the consumer. These loans were typically forff
amounts ranging frff om $500 to $11,000 and are generally secured by a lien on an automobile, watercraftff or other
permissible tangible personal property. The average loan made during fiff scal 2023 by the Company had an initial
principal balance of appr
customers under the Company’s automobile fiff nancing program. The typical Direct Loan represented a better credit
risk than our typical Contract due to the customer’s payment historyrr with the Company, as well as their establa ished
relationship with the local branch staffff .ff The size of the loan and maximum interest rate that may be (and is) charged
varies frff om state to state. The Company considered the individual’s income, credit history,rr
value of the collateral offff eff red by the borrower to secure the loan as the primaryrr
a
appl
Company to date have been made to borrowers under Contracts previously purchased by the Company, the
collection experience of the borrower under the Contract was a signififf cant faff ctor in making the underwriting
decision. The Company’s Direct Loan program was implemented in April 1995 and accounted forff
13% of the Company’s annual consolidated revenues during the fiff scal 2023.
such loan. Additionally, because most of the Direct Loans made by the
faff ctors in determining whether an
icant would receive an appr
job stabia lity, and the
oximately
oval forff
a
appr
a
In connection with its Direct Loan program, the Company also made availabla e credit disabia lity insurance, credit lifeff
insurance, and involuntaryrr unemployment insurance coverage to customers through unaffff iff liated third-party
insurance carriers. Approximately 63% of the Direct Loans outstanding as of March 31, 2023 elected to purchase
third-party insurance coverage made availabla e by the Company. The cost of this insurance to the customer, which
included a commission forff
the Company, was included in the amount fiff nanced by the customer.
The folff
lowing tabla e presents selected inforff mation on Direct Loans originated by the Company:
Direct Loans
Originations
Average APR
Average term (months)
Average loan
Number of contracts originated
g
Underwriting Guidelines
Fiscal year ended March 31,
(Originations in thousands)
2023
2022
15,822
$
28,740
30.4%
26
4,277
3,662
$
30.5%
26
4,307
6,770
$
$
The Company’s typical customer has a credit historyrr
credit unions. Some of the credit problems experienced by the Company’s customers that resulted in a poor credit
include but are not limited to: prior automobile account repossessions, unpaid revolving credit card
historyrr
obligations, unpaid medical bills, unpaid stude
nt loans, prior bankrupt
t
Company believes that its customer profiff le is similar to that of its direct competitors.
that faff ils to meet the lending standards of most banks and
cy, and evictions forff
nonpayment of rent. The
rr
a
a
The Company’s process to appr
ove the purchase of a Contract begins with the Company receiving a standardized
ication completed by the consumer which contains inforff mation relating to the consumer’s background,
credit appl
employment, and credit history.rr The Company also obtains credit reports frff om Equifaff x and/or TransUnion, which
are independent credit reporting services. The Company verififf es the consumer’s employment history,rr
income, and
residence. In most cases, consumers are interviewed via telephone by a Company appl
Branch Manager or Assistant Branch Manager when the Company employed its branch-based model, and the
originators in the Company's regionalized business model aftff er the branches were closed). The Company also
considers the customer’s prior payment historyrr with the Company, if any, as well as the collateral value of the
vehicle being fiff nanced.
ication processor (usually the
a
The Company has establa ished internal underwriting guidelines that were used by its Branch Managers and internal
underwriters when Contracts were purchased by the Company prior to the restrucr
Company has adopted updated guidelines consistent with its post-restrucrr
be used by the Company’s originators and internal underwriters when purchasing Contracts in the Company’s
ing operations, which guidelines are to
ing of its operations. The
turt
turt
5
oved by the senior
regionalized business model. Any Contract that does not meet these guidelines must be appr
management of the Company. In addition to a variety of administrative duties, the Company's management is
responsible forff monitoring compliance with the Company’s underwriting guidelines as well as appr
underwriting exceptions.
oving
a
a
When the Company was originating Direct Loans, the Company used similar criteria in analyzing a Direct Loan as it
did in analyzing the purchase of a Contract. Lending decisions regarding Direct Loans were made based upon a
review of the customer’s loan appl
by the borrower to secure the loan. To date, since the maja ority of the Company’s Direct Loans have been made to
individuals whose automobiles have been fiff nanced by the Company, the customer’s payment historyrr under his or
her existing or past Contract was a signififf cant faff ctor in the lending decision.
job stabia lity, and the value of the collateral offff eff red
ication, income, credit history,rr
a
Aftff er reviewing the inforff mation included in the Contract or, when appl
other faff ctors into account, the Company’s loan origination system categorizes the customer using internally
developed credit classififf cations frff om “1,” indicating higher creditworthiness, through “4,” indicating lower
creditworthiness. Contracts are fiff nanced forff
acceptabla e rating categories utilized,
“1” through “4”. Usually a customer who faff lls within the two highest categories (i.e., “1” or “2”) is purchasing a two
to fiff ve-year old, lower mileage used automobile, while a customer in any of the two lowest categories (i.e., “3,” or
“4”) usually is purchasing an older, higher mileage automobile frff om an independent used automobile dealer.
individuals who faff ll within all four
icabla e, Direct Loan appl
ication and taking the
a
a
ff
Prior to the closure of the Company’s branches, the Company perforff med audits of its branches’ compliance with
Company underwriting guidelines. The Company audited branches on a schedule that was variabla e depending on the
size of the branch, length of time a branch had been open, then current tenure of the Branch Manager, previous
branch audit score, and then current and historical branch profiff tabia lity. Additionally, fiff eld supervisions and audits
were conducted by District Managers, Divisional Vice Presidents and Divisional Administrative Assistants to tryrr
ensure operational and underwriting compliance throughout the forff mer branch network.
to
g
Monitoring and Enforff
cement of Contracts
On November 3, 2022, the Company entered into a loan servicing agreement with Westlake (the “Servicing
Agreement”). Under the Servicing Agreement, the Company will originate and acquire receivabla es and Westlake
will perforff m the servicing duties with respect to such receivabla es, including without limitation that Westlake shall
manage, service, administer and make collections on the receivabla es, including with respect to any repossession of
any fiff nanced vehicle securing a receivabla e under which it is determined that payments thereunder are not likely to be
resumed. Unless earlier terminated in accordance with its provisions, the Servicing Agreement shall expire upon the
earliest to occur of (i) the date on which the Company sells, transfeff rs or assigns all outstanding receivabla es to a third
party (including Westlake), (ii) the date on which the last receivabla e is repaid or otherwise terminated, or (iii) three
years frff om the closing date of the Servicing Agreement.
The Company requires each customer under a Contract to obtain and maintain collision insurance covering damage
to the vehicle. Failure to maintain such insurance constitutt es a defaff ult under the Contract, that would permit the
repossession of the vehicle. To reduce potential loss due to insurance lapsa
obtain 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.
e, the Company has the contractuat
l right to
The servicer monitors compliance by the Company's customers with their obligations under Contracts and Direct
Loans made by the Company and the servicer provides reports to the Company on such activity. These reports may
be accessed throughout the Company by management personnel at computer terminals located in the Company's
offff iff ces. These reports include delinquency reports, customer promise reports, vehicle inforff mation reports, purchase
reports, dealer analysis reports, static pool reports, and repossession reports.
A delinquency report is an aging report that provides basic inforff mation regarding each customer account and
indicates accounts that are past due. The report includes inforff mation 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.
When an account becomes delinquent, the customer is promptly contacted to determine the reason forff
delinquency and to determine if appr
payment can be made. If acceptabla e payment
opriate arrangements forff
the
a
6
arrangements can be made, the inforff mation is entered into a databaa
account folff
report, which is utilized forff
low up.
se and is used to generate a customer promises
The servicer prepares a repossession report that provides inforff mation regarding repossessed vehicles and aids in
disposing of repossessed vehicles. In addition to inforff mation regarding the customer, this report provides
inforff mation regarding the date of repossession, date the vehicle was sold, number of days it was held in inventoryrr
prior to sale, year, make and model of the vehicle, mileage, payoffff 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 and other inforff mation that may be helpfulff
.
If an account is 121 days delinquent and the related vehicle has not yet been repossessed, the account is charged-offff
and transfeff rred to the servicer's loss prevention and recoveryrr department. Once a vehicle has been repossessed, the
related loan balance no longer appe
repossession report and is generally sold at auction.
ars on the delinquency report. Instead, the vehicle appe
ars on the servicer's
a
a
The servicer also prepares a dealer report that provides inforff mation regarding each dealer frff om which the Company
purchases Contracts. This report allows the Company to analyze the volume of business done with each dealer, the
terms on which it has purchased Contracts frff om such dealer, as well as the overall portfolff
Contracts purchased frff om the dealer.
io perforff mance of
The Company is subject to seasonal variations within the subprime marketplt ace. While the APR, discount, and term
remain consistent across quarters, write-offff sff and delinquencies tend to be lower while purchases tend to be higher in
the four
ff
write-offff sff and delinquencies, and a lower level of purchases. Despite the forff egoing, during fiff scal 2023 the four
quarter had the most write-offff sff and delinquencies.
th and fiff rst quarters of the fiff scal year. The second and third quarters of the fiff scal year tend to have higher
th
ff
g
Marketing and Advertising
g
ts currently are directed primarily toward automobile dealers. The
The Company’s Contract marketing effff orff
Company attempts to meet dealers’ needs by offff eff ring highly responsive, cost-competitive, and service-oriented
fiff nancing programs. The Company relies on its staffff of originators to solicit agreements forff
Contracts with automobile dealers based within the regions located in the seven states in which the Company
conducts operations as of the date of this Annual Report. The Company provides dealers with inforff mation regarding
itself and the general terms upon which the Company is willing to purchase Contracts. The Company uses web
advertising, social media and print ads in dealer association publications forff marketing purpos
member and corpor
state-level associations. Its representatives attend confeff rences and events forff
market its products directly to dealers in attendance.
es. The Company is a
ate sponsor of the National Independent Auto Dealers Association, which also gives it access to
both state and national associations to
the purchase of
r
r
When the Company was originating Direct Loans, the Company solicited customers under its Direct Loan program
primarily through direct mailings, folff
lowed by telephone calls to individuals who had a good credit historyrr with the
Company in connection with Contracts purchased by the Company. It also relied on other forff ms of electronic
messaging and in-store advertising.
Computerized Inforff mation System
p
y
All Company personnel are provided with real-time access to inforff mation. The Company has purchased or
otherwise has access through its servicer to the specialized programs to monitor the Contracts and Direct Loans frff om
inception. The Company’s computer network encompasses both its corpor
r
forff
operations hub. See “Monitoring and Enforff cement of Contracts” above
availabla e to the Company.
ate headquarters and its central business
a summaryrr of the diffff eff rent reports
a
p
Competition
The consumer fiff nance industryrr
competitiveness of the industryrr continues to increase as new competitors continue to enter the market and certain
existing competitors continue to expand their operations. There are numerous fiff nancial service companies that
is highly frff agmented and highly competitive. Due to various faff ctors, the
7
the purchase of Contracts enabla es automobile dealers to shop forff
provide consumer credit in the markets served by the Company, including banks, credit unions, other consumer
fiff nance companies, and capta ive fiff nance companies owned by automobile manufaff cturt ers and retailers. Increased
competition forff
an erosion in the dealer discounts frff om the initial principal amounts at which the Company is willing to purchase
Contracts and higher advance rates. However, the Company instead focff uses on purchasing Contracts that are priced
to reflff ect the inherent risk level of the Contract, and sacrififf ces loan volume, if necessary,rr
discipline. For the fiff scal year ended March 31, 2023, the Company’s average dealer discount on Contracts purchased
decreased to 6.5%, compared to 6.9% forff
the fiff scal year ended March 31, 2022. The tabla e below shows the number
the best price, which can result in
to maintain that pricing
8
and principal amount of Contracts purchased, average amount fiff nanced, average term, and average APR and
discount forff
the periods presented:
Key Perforff mance Indicators on Contracts Purchased
(Purchases in thousands)
Average
Amount
Financed*^
Average
APR*
Principal Amount
Purchased#
Average
Discount%*
Average
Term*
Fiscal Year
/Quarter
Number of
Contracts
Purchased
2023
4
3
2
1
2022
4
3
2
1
2021
4
3
2
1
2020
4
3
2
1
$
$
$
$
4,040
127
383
1,595
1,935
7,793
2,404
1,735
1,707
1,947
7,307
2,429
1,483
1,709
1,686
7,647
1,991
1,753
2,011
1,892
47,526 $
1,579
4,511
19,082
22,354
85,804 $
27,139
19,480
18,880
20,305
74,025 $
24,637
15,285
17,307
16,796
76,696 $
19,658
17,880
20,104
19,054
11,932
12,433
11,778
11,964
11,552
11,002
11,289
11,228
11,061
10,429
10,135
10,143
10,307
10,127
9,962
10,035
9,873
10,200
9,997
10,071
22.5 %
22.2 %
22.4 %
22.7 %
22.9 %
23.1 %
22.9 %
23.1 %
23.0 %
23.2 %
23.4 %
23.2 %
23.4 %
23.5 %
23.5 %
23.4 %
23.5 %
23.3 %
23.5 %
23.4 %
Key Perforff mance Indicators on Direct Loans Originated
(Originations in thousands)
Fiscal Year
/Quarter
Number of
Contracts
Originated
Principal Amount
Originated#
Average
Amount
Financed*^
Average
APR*
Average
Term*
2023
4
3
2
1
2022
4
3
2
1
2021
4
3
2
1
2020
4
3
2
1
$
$
$
$
3,662
0
245
1,427
1,990
6,770
1,584
2,282
1,588
1,316
3,497
753
1,265
924
555
3,142
720
1,137
739
546
15,822 $
0
1,080
6,527
8,215
28,740 $
7,458
8,505
7,040
5,737
14,148 $
3,284
4,605
3,832
2,427
12,638 $
3,104
4,490
2,988
2,056
4,277
0
4,128
4,574
4,128
4,307
4,708
3,727
4,433
4,359
4,131
4,362
3,641
4,147
4,373
4,017
4,310
3,949
4,043
3,765
30.4 %
0.0 %
29.6 %
30.3 %
31.2 %
30.5 %
30.0 %
31.8 %
30.0 %
30.1 %
29.6075 %
29.6 %
30.9 %
29.23 %
28.7 %
28.2 %
28.6 %
28.4 %
27.4 %
28.2 %
*Each average included in the tabla es is calculated as a simple average.
^Average amount fiff nanced is calculated as a single loan amount.
#Bulk portfolff
io purchase excluded forff
period-over-period comparabia lity.
9
48
49
48
48
48
47
47
47
47
46
46
46
46
46
46
47
46
47
46
47
6.5 %
6.2 %
6.8 %
6.4 %
6.6 %
6.9 %
6.9 %
6.8 %
6.7 %
7.0 %
7.5 %
7.5 %
7.5 %
6.8 %
8.0 %
7.9 %
7.9 %
7.6 %
7.9 %
8.3 %
26
0
27
25
25
26
27
24
26
25
25
25
22
25
26
25
25
24
25
24
The Company’s abia lity to compete effff eff ctively with other companies offff eff ring similar fiff nancing arrangements
depends in part upon the Company maintaining close business relationships with dealers of used and new vehicles.
No single dealer out of the appr
relationships represents a signififf cant amount of the Company’s business volume forff
March 31, 2023 or 2022.
oximately 586 dealers with which the Company currently has active contractuat
any of the fiff scal years ended
a
l
t
g
Regulation
Numerous feff deral and state consumer protection laws and related regulations impose substantial requirements upon
creditors and servicers involved in consumer fiff nance. These laws include the Trutrr h-in-Lending Act, the Equal Credit
ty Act, the Federal Trade Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection
Opportuni
Practices Act, the Gramm-Leach-Bliley Act, the Servicemembers Civil Relief Act, the Telephone Consumer
Protection Act, state adapta ations of the National Consumer Act and of the Uniforff m Consumer Credit Code and state
lending acts, motor vehicle retail installment acts and other similar laws. Also, the laws of certain states impose
fiff nance charge ceilings and other restrictions on consumer transactions and require contract disclosures in addition
to those required under feff deral law. These requirements impose specififf c statutt oryrr
liabia lities upon creditors who faff il
to comply with their provisions. In some cases, this liabia lity could affff eff ct the abia lity of an assignee such as the
Company to enforff ce consumer fiff nance contracts such as the Contracts.
The Company’s fiff nancing operations are subject to regulation, supervision and licensing under many feff deral, state
and local statutt es, regulations and ordinances. In addition, the Company and its service providers must comply with
certain feff deral and state requirements in connection with the servicing and collection on Direct Loans and Contracts,
and the repossession of vehicles securing Direct Loans and Contracts in the states in which the Company does
business. The Company and its third-party service providers must comply with feff deral, state and local regulatoryrr
icabla e to consumer credit transactions. In particular, the Company may be subject to
regimes, including those appl
laws such as:
a
•
•
•
•
•
e
atoryr requirementstt . Pursuant to state laws and regulations, on-site or
any of our locations. Examinations monitor compliance with
icabla e regulations. These laws and regulations include, but are not limited to: licensure requirements,
State consumer statutoryr and regul
offff -ff site examinations can be conducted forff
a
appl
requirements forff maintenance of proper records, feff e requirements, maximum interest rates that may be
charged on loans to fiff nance used vehicles, and proper disclosure to customers regarding fiff nancing terms.
These may also include state laws and regulations that impose requirements related to data privacy, credit
discrimination, credit reporting, debt servicing and collection, and unfaff ir or deceptive business practices.
State licensing requirementstt . The Company must comply with state licensing requirements and varyirr ng
compliance requirements in all the states in which it operates. The Company fiff les a notififf cation or obtains a
license to acquire Contracts in each state in which it acquires Contracts. Furthermore, some states require
dealers to maintain a Retail Installment Seller’s License, and where appl
business with dealers who hold such a license. For Direct Loan activities, the Company obtained licenses,
where required, frff om each state in which it offff eff red consumer loans.
icabla e, the Company only conducts
a
FaiFF r Debt ColCC lection Practices Act. The feff deral Fair Debt Collection Practices Act (“FDCPA”) provides
guidelines and limitations on the conduct of third-party debt collectors and debt buyers when collecting
consumer debt. While the FDCPA generally does not appl
y to fiff rst-party creditors collecting their own
debts or to servicers when collecting debts that were current when servicing began, the Company uses the
FDCPA as a guideline forff
providers that provide collection services on the Company’s behalf to comply with the FDCPA to the
extent appl
guidance and limitations similar to the FDCPA.
all collections. The Company requires all vendors and third-party service
icabla e. The Company also complies with state and local laws that appl
y to creditors and provide
a
a
a
TrTT uth in Lending Act. The Trutr h 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 fiff nance
charge and the annual percentage rate charged on each Contract or Direct Loan.
O
tunitytt Act. The Equal Credit Opportuni
Equal CrCC edit Oppor
discriminating against loan appl
Regulation B promulgated under the ECOA, creditors are required to make certain disclosures regarding
the
a
consumer rights and advise consumers whose credit appl
reje ection.
icants on the basis of race, color, sex, age or marital statust
ty Act (“ECOA”) prohibits creditors frff om
oved of the reasons forff
ications are not appr
. Pursuant to
a
a
t
10
•
•
i
ures in Global and NatNN ional ComCC merce Act. The Electronic Signaturt es in Global and
Electronic Signat
National Commerce Act requires the Company to provide consumers with clear and conspicuous
disclosures beforff e the consumer gives consent to authorize the use of electronic signaturt es, electronic
contracts, and electronic records.
e
ting Act. The Fair Credit Reporting Act (“FCRARR ”) and similar state laws regulate the use
FaiFF r CrCC edit Repor
of consumer reports and the reporting of inforff mation to credit reporting agencies. Specififf cally, the FCRARR
establa ishes requirements that appl
notififf cations to consumers, including when an adverse action, such as a loan declination, is based on
inforff mation contained in a consumer report.
y to the use of “consumer reports” and similar data, including certain
a
• Gramm-Leach-Blileye 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.
•
•
Federal Trade Commission Act. Section 5 of the Federal Trade Commission Act (the “FTC Act”) prohibits
unfaff ir and deceptive acts or practices in or affff eff cting commerce.
Servicemembersrr Civil Reliefe Act. The Servicemembers Civil Relief Act (“SCRARR ”) 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 militaryrr duty and places limitations on collection and repossession activity.
Under the terms of the SCRARR , an obligor who enters the militaryrr service aftff er the origination of that
obligor’s Direct Loan or Contract (including an obligor who is a member of the National Guard or is in
reserve statust
at the time of the origination of the obligor’s Direct Loan or Contract and is later called to
the duration of the
active duty) is entitled to have the interest rate reduced and cappe
militaryrr service, may be entitled to a stay of proceedings on forff eclosures and similar actions and may have
the maturt
payment schedule adjusted. In addition, pursuant to the laws of various states, under certain circumstances
residents thereof called into active duty with the National Guard or the reserves can appl
y to a court to
delay payments on loans or retail installment sale contracts such as the Direct Loans and the Contracts.
ity of the loan or retail installment sale contract extended or the payments lowered and the
d at 6% per annum forff
a
a
• MiMM litaryr Lending Act. The Militaryrr Lending Act requires the Company to limit the militaryrr annual
percentage rate that the Company may charge to a maximum of 36 percent, requires certain disclosures to
militaryrr consumers, and provides other substantive consumer protections on credit extended to
Servicemembers and their faff milies.
•
•
•
FF
TrTT ansfs eff r Act. The Electronic Funds Transfeff r Act (“EFTA”) prohibits the Company frff om
Electronic Funds
requiring its customers to repay a loan or other credit by electronic funds
limited situat
documentation to its customers when an EFT is initiated and to provide certain notififf cations to its
customers with regard to preauthorized payments.
y to the Company. The Company is also required to provide certain
transfeff r (“EFT”), except in
tions which do not appl
a
ff
e
ConsCC
umer Protection Act. The Telephone Consumer Protection Act governs the Company’s
TeTT lephone
practice of contacting customers by certain means (i.e., auto-dialers, pre-recorded or artififf cial voice calls on
customers’ land lines, faff x machines and cell phones, including text messages).
r
cy and related state laws may interfeff re with or affff eff ct the Company’s abia lity to
Bankrkk uptcyc . Federal bankrupt
recover collateral or enforff ce a defiff ciency judgment. For example, in a Chapta er 13 proceeding under the
Bankrupt
cy Code, a court may prevent a creditor frff om repossessing a motor vehicle and, as part of the
r
rehabia litation plan, reduce the amount of the secured indebtedness to the market value of the motor vehicle
at the time of bankrupt
unsecured creditor forff
payments due under the related contract or change the rate of interest and time of repayment of the
indebtedness.
cy, as determined by the court, leaving the party providing fiff nancing as a general
the remainder of the indebtedness. A bankrupt
cy court may also reduce the monthly
rr
rr
• Dodd-FrFF ank WalWW l Street Refe orff m and ConsCC
umer Protection Act of 2010 (“D“ odd-FrFF ank Act”)” . Title X of the
Dodd-Frank Act created the Consumer Financial Protection Bureau (“CFPB”), which has the authority to
issue and enforff ce regulations under the feff deral “enumerated consumer laws,” including (subject to certain
statutt oryrr
enforff cement authority over certain non-depositoryrr
ions, including the Company. The CFPB is
specififf cally authorized, among other things, to take actions to prevent companies providing consumer
fiff nancial products or services and their service providers frff om engaging in unfaff ir, deceptive or abus
limitations) FDCPA, TILA, ECOA, FCRARR , GLBA and EFTA. The CFPB has rulr emaking and
institutt
a
ive acts
11
consumer fiff nancial products or services. Under the Dodd-Frank Act, the CFPB
or practices in connection with consumer fiff nancial products and services, and to issue rulr es requiring
enhanced disclosures forff
also may restrict the use of pre-dispute mandatoryrr arbir
a consumer fiff nancial product or service. The CFPB also has authority to interprr et,
and consumers forff
enforff ce, and issue regulations implementing enumerated consumer laws, including certain laws that appl
a
to the Company’s business. The CFPB issued rulr es regarding the supervision and examination of non-
depositoryrr “larger participants” in the automobile fiff nance business. At this time, the Company is not
deemed a larger participant.
tration clauses in contracts between covered persons
y
• Holder RulRR e. The Federal Trade Commission’s (the “FTC”) so-called “Holder-in-Due-Course RulRR e” (the
“Holder RulRR e”), and equivalent state laws, make the Company or any other holder of a consumer credit
contract include the required notice and become subject to all claims and defeff nses that a borrower could
assert against the seller of goods or services.
Failure to comply with these laws or regulations could have a material adverse effff eff ct on the Company by, among
other things, limiting the jurisdictions in which the Company may operate, restricting the Company’s or its service
provider's abia lity to realize the value of the collateral securing the Contracts, and making it more costly or
burdensome to do business or resulting in potential liabia lity. The volume of new or modififf ed laws and regulations
and the activity of agencies enforff cing such law have 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 affff eff ct the competitive balance among fiff nancial services
providers. Proposals to change the laws and regulations governing the operations and taxation of fiff nancial
institutt
various regulatoryrr agencies. This legislation may change the Company’s operating environment in substantial and
unpredictabla e ways and may have a material adverse effff eff ct on the Company’s business.
ions and fiff nancial services providers are frff equently made in the U.S. Congress, in the state legislaturt es and by
In particular, the Dodd-Frank Act and regulations promulgated thereunder, are likely to affff eff ct the Company’s cost of
doing business, may limit or expand the Company’s permissible activities, may affff eff ct the competitive balance
within the Company’s industryrr and market areas and could have a material adverse effff eff ct on the Company. The
Company’s management continues to assess the Dodd-Frank Act’s probabla e impact on the Company’s business,
fiff nancial condition and results of operations, and to monitor developments involving the entities charged with
promulgating regulations thereunder. However, the ultimate effff eff ct of the Dodd-Frank Act on the fiff nancial services
industryrr
in general, and on the Company in particular, is uncertain at this time.
In addition to the CFPB, other state and feff deral agencies have the abia lity to regulate aspects of the Company’s
business. For example, the Dodd-Frank Act provides a mechanism forff
Company. Additionally, the FTC has jurisdiction to investigate aspects of the Company’s business. The Company
expects that regulatoryrr
investigations could have a material adverse impact on the Company.
investigation by both state and feff deral agencies will continue and that the results of these
state Attorneys General to investigate the
The Holder RulRR e of the FTC has the effff eff ct of subjecting a seller, and certain related lenders and their assignees, in a
consumer credit transaction to all claims and defeff nses which the obligor in the transaction could assert against the
seller of the goods. Liabia lity under the Holder RulRR e is limited to the amounts paid by the obligor under the contract,
and the holder of the contract may also be unabla e to collect any balance remaining due thereunder frff om the obligor.
The Holder RulRR e is generally duplicated by the Uniforff m Consumer Credit Code, other state statutt es or the common
law in certain states. Most of the Contracts will be subject to the requirements of the Holder RulRR e. Accordingly, the
Company, as holder of the Contracts, will be subject to any claims or defeff nses that the purchaser of a fiff nanced
vehicle may assert against the seller of the fiff nanced vehicle. Such claims are limited to a maximum liabia lity equal to
the amounts paid by the obligor on the Contract.
Dealers with which the Company does business must also comply with credit and trade practice statutt es and
regulations. Failure of these dealers to comply with such statutt es and regulations could result in customers having
rights of rescission and other remedies that could have a material adverse effff eff ct on the Company.
The sale of vehicle service contracts and other ancillaryrr products by dealers in connection with Contracts assigned to
the Company frff om dealers is also subject to state laws and regulations. As the Company is the holder of the
Contracts that may, in part, fiff nance these products, some of these state laws and regulations may appl
Company’s servicing and collection of the Contracts. Although these laws and regulations may not signififf cantly
affff eff ct the Company’s business, there can be no assurance that insurance or other regulatoryrr authorities in the
y to the
a
12
jurisdictions in which these products are offff eff red by dealers will not seek to regulate or restrict the operation of the
Company’s business in these jurisdictions. Any regulation or restriction of the Company’s business in these
jurisdictions could materially adversely affff eff ct the income received frff om these products.
a
The Company’s management believes that the Company maintains all requisite licenses and permits and is in
icabla e local, state and feff deral laws and regulations. The Company periodically
material compliance with appl
reviews its practices in an effff orff
t to ensure such compliance. Although compliance with existing laws and regulations
has not had a material adverse effff eff ct on the Company’s operations to date, given the increasingly complex
regulatoryrr environment, the increasing costs of complying with such laws and regulations, and the increasing risk of
penalties, fiff nes or other liabia lities associated therewith, no assurances can be given that the Company is in material
compliance with all of such laws or regulations or that the costs of such compliance, or the faff ilure to be in such
compliance, will not have a material adverse effff eff ct on the Company’s business, fiff nancial condition or results of
operations.
reforff m could have an adverse
For more inforff mation, please refeff r to the risk faff ctors titled “Federal or state regulatoryrr
impact on the Company”, “On October 5, 2017, the CFPB released the fiff nal rulr e Payday, Vehicle Title and Certain
High-Cost Installment Loans under the Dodd Frank Act, which as adopted could potentially have a material adverse
effff eff ct on our operations and fiff nancial perforff mance”, “The CFPB has broad authority to pursue administrative
proceedings and litigation forff
under the Dodd-Frank Act, the CFPB adopted rulrr es that subject larger nonbank automobile fiff nance companies to
supervision and examination by the CFPB”. Any such examination by the CFPB likely would have a material
adverse effff eff ct on our operations and fiff nancial perforff mance”, “Our use of vendors and our other ongoing third-party
business relationships is subject to increasing regulatoryrr
requirements and attention”, and “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 effff eff ct on our fiff nancial condition and business operations”, all of which are
r
incorpor
violations of feff deral consumer fiff nancing laws”, “Pursuant to the authority granted to it
ated herein by refeff rence.
In July 2020, the CFPB rescinded provisions of the Payday, Vehicle Title, and Certain High-Cost Installment Loans
rulr e (the "RulRR e") governing the abia lity to repay requirements. The payment requirements took effff eff ct in June 2022.
Any regulatoryrr changes could have effff eff cts beyond those currently contemplated that could furff
ther materially and
adversely impact our business and operations. Unless rescinded or otherwise amended, the Company will have to
comply with the RulRR e’s payment requirements if it continues to allow consumers to set up futff urt e recurring payments
certain covered loans such that it meets the defiff nition of having a “leveraged payment mechanism” under
online forff
the RulRR e. If the payment provisions of the RulRR e appl
its loan payment procedures
to comply with the required notices and mandated timefrff ames set forff
y, the Company will have to modifyff
th in the fiff nal rulr e.
a
Human Capital Resources
The Company’s management and various support func
in Clearwater, Florida. In connection with the closure of all of the Company’s brick and mortar branch locations in
18 states, the Company’s staffff was signififf cantly downsized during fiff scal 2023, both as a result of layoffff sff and other
voluntaryrr and involuntaryrr
persons, of which six persons were employed at the Company’s Clearwater Corpor
Company’s employees are subject to a collective bargaining agreement, and the Company considers its relations
with its employees generally to be good.
terminations. As a result, as of March 31, 2023, the Company employed a total of sixteen
tions are centralized at the Company’s corpor
ate offff iff ce. None of the
ate headquarters
r
rr
ff
tering, cultivating, and preserving a culturt e of diversity, equity, and inclusion
We are also committed to fosff
(“DE&I”). We believe that the collective sum of the individual diffff eff rences, lifeff experiences, knowledge,
inventiveness, self-ff expression, unique capaa bia lities, and talent that our employees invest in their work represent a
signififf cant part of our culturt e, reputation, and achievement. We believe that an emphasis on DE&I drives value forff
our employees, customers, and shareholders, and that our DE&I commitment enabla es us to better serve our
communities.
In fiff scal 2023, the Company continued focff using on and invested in maintaining the health and safeff ty of our
employees in the midst of the COVID-19 pandemic.
We also offff eff r our employees a variety of training and development opportuni
comprehensive training curriculum that focff uses on the Company- and position-specififf c competencies needed to be
ties. New employees complete a
t
13
. The training includes a blended appr
successfulff
assessments. Training content is focff used on our operating policies and procedures, as well as several key
compliance areas.
oach utilizing eLearning modules, hands-on exercises, webinars, and
a
14
Item 1A. Risk Factors
folff
lowing facff
TheTT
torsrr , as well as other facff
fiff nancial condition or resultstt of operations of the ComCC pany
“our”)” .
torsrr not set forff
m
th below,w may adversrr elyll affff eff ct the business, operations,
(s(( ometimes refe eff rred to in thisii section as “we” “us” or
Risks Related to COVID-19
ThTT e extee ett nt tott which COC VIVV DII -19 and measures take
operatitt ons and fiff nii ancial conditii itt on wilii lll contitt nii ue tott depeee nd on facff
and isii
heighi
lill keii
tett ns manyn of our known risii ks.
respons
n inii
lyll
tt
se thtt eretott
tortt
tott contitt nii ue tott have a matett rial imii pacm t on our resultll stt of operatitt ons and fiff nii ancial conditii itt on and
imii pacm t our businii ess,s resultll stt of
srr outstt ide of our contrtt ol.ll COC VIVV DII -19 has had
The outbrt eak of the global pandemic of COVID-19 and resultant economic effff eff cts of preventative measures taken
across the United States and worldwide have been weighing on the macroeconomic environment, negatively
impacting consumer confiff dence, employment rates and other economic indicators that contribute to consumer
spending behavior and demand forff
operations and fiff nancial condition will continue to depend on faff ctors outside of our control, which are highly
uncertain and diffff iff cult to predict, including, but not limited to, the duration and spread of the outbrt eak in light of
diffff eff rent levels of vaccination across the globe and new variants of the virusr
severity, actions to contain the virusrr
pandemic economic and operating conditions in the United States can continue in light of inflff ationaryrr pressure and
higher insurance costs. For more inforff mation, see “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
or treat its impact, and whether the recently observabla e resumption of pre-
credit. The extent to which COVID-19 impacts our business, results of
or additional waves of cases, its
In addition, the spread of COVID-19 has caused us to modifyff our business practices (including restricting employee
travel, developing social distancing plans forff
our employees and cancelling physical participation in meetings,
ther actions as may be required by government authorities or as we
events and confeff rences), and we may take furff
determine is in the best interests of our employees, partners and customers. The outbrt eak has adversely impacted
and may furff
suppliers and third-party vendors, throughout the time period during which the spread of COVID-19 continues and
related restrictions remain in place, and even aftff er the COVID-19 outbrt eak has subsided.
ther adversely impact our workforff ce and operations and the operations of our partners, customers,
Even aftff er the COVID-19 outbrt eak has subsided and despite the forff mal declaration of the end of the COVID-19
global health emergency by the World Health Organization in May 2023, our business may continue to experience
materially adverse impacts as a result of the virusr
ng
and any recession that has occurred or may occur in the futff urt e. There are no comparabla e recent events that provide
guidance as to the effff eff ct COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the
outbrt eak is highly uncertain and subject to change.
’s economic impact, including the availabia lity and cost of fundi
ff
Additionally, many of the other risk faff ctors described below are heightened by the effff eff cts of the COVID-19
pandemic and related economic conditions, which in turt n could materially adversely affff eff ct our business, fiff nancial
condition, results of operations, access to fiff nancing and liquidity.
Risks Related to Our Business and Industry
Our success isii depeee ndent on our abilii ill tii ytt
Loans.
tott
forff
ecast thtt e perfr orff mrr ance ofo our ConCC trtt actstt and remainii
inii g Diri ect
We have in the past experienced and may in the futff urt e experience high delinquency and loss rates in our portfolff
This has in the past reduced and may continue to reduce our profiff tabia lity. In addition, our inabia lity to accurately
forff ecast and estimate the amount and timing of futff urt e collections could have a material adverse effff eff ct on our
fiff nancial position, liquidity and results of operations.
ios.
Our consolidated net loss forff
million forff
attributabla e to our previously announced change in operating strategy and restrucr
the year ended March 31, 2022. Although our signififf cant net loss during fiff scal 2023 was largely
the year ended March 31, 2023 was $34.1 million as compared to net income of $3.0
ing plan, our profiff tabia lity usually
turt
15
depends, to a material extent, on the perforff mance of Contracts that we purchase. Historically, we have experienced
higher delinquency rates than traditional fiff nancial institutt
remaining Direct Loans are to non-prime borrowers, who are unabla e to obtain fiff nancing frff om traditional sources due
primarily to their credit history.rr Contracts and Direct Loans made to these individuals generally entail a higher risk
of delinquency, defaff ult, repossession, and higher losses than loans made to consumers with better credit.
ions because substantially all of our Contracts and
Our underwriting standards and collection procedures may not offff eff r adequate protection against the risk of defaff ult,
especially in periods of economic uncertainty. In the event of a defaff ult, the collateral value of the fiff nanced vehicle
usually does not cover the outstanding Contract or Direct Loan balance and costs of recovery.rr
Our abia lity to accurately forff ecast perforff mance and determine an appr
losses is critical to our business and fiff nancial results. The allowance forff
provision forff
io, specififf c impaired Contracts and Direct Loans, and current economic conditions. Please see
the portfolff
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting
Estimates” in Item 7 of this Form 10-K, which is incorpor
credit losses based on management’s evaluation of the risk inherent in the portfolff
credit losses is establa ished through a
opriate provision and allowance forff
ated herein by refeff rence.
credit
a
r
io, the composition of
credit losses is an estimate, and if actuat
There can be no assurance that our perforff mance forff ecasts will be accurate. In periods with changing economic
conditions, such as is the case currently, accurately forff ecasting the perforff mance of Contract and Direct Loans is
more diffff iff cult. Our allowance forff
materially greater than our allowance forff
fiff nancial position, liquidity and results of operations could be materially adversely affff eff cted. For example,
uncertainty surrounding the continuing economic impact of COVID-19 and the indirect effff eff cts of the conflff ict
between RusRR sia and Ukraine, whether through increases in the price of gasoline and other consumer goods or
otherwise, on our customers has made historical inforff mation on credit losses slightly less reliabla e in the current
environment, and there can be no assurances that we have accurately estimated loan losses.
l Contract and Direct Loan losses are
credit losses, or more generally, if our forff ecasts are not accurate, our
Other than limited representations and warranties made by dealers in faff vor of the Company, Contracts are purchased
frff om the dealers without recourse, and we are thereforff e only abla e to look to the borrowers forff
repayment.
ions and other organizations will now use forff ward-looking inforff mation to better inforff m
ied today will still be permitted, although the
In June 2016, the Financial Accounting Standards Board (“FASB”) issued the ASU 2016-13 Financial
ents—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrumrr
Instrumr
things, the amendments in this ASU require the measurement of all expected credit losses forff
held at the reporting date based on historical experience, current conditions and reasonabla e and supportabla e
forff ecasts. Financial institutt
their credit loss estimates. Many of the loss estimation techniques appl
inputs to those techniques will change to reflff ect the fulff
l amount of expected credit losses. The ASU also requires
additional disclosures related to estimates and judgments used to measure all expected credit losses. For smaller
reporting companies like us, the new guidance is effff eff ctive forff
years, beginning aftff er December 15, 2022, and early adoption is permitted. The Company is evaluating the impact of
the adoption of this ASU on the consolidated fiff nancial statements by collecting and analyzing data that will be
needed to produce historical inputs, evaluating current conditions and reasonabla e and supportabla e forff ecasts, which
are inputs into models created as a result of adopting this ASU. The Company believes the adoption of this ASU will
likely result in an increase of between $0.9 million and $1.9 million to its allowance forff
fiff scal years, and interim periods within those fiff scal
ents. Among other
fiff nancial instrumr
credit losses.
ents
a
We operate in an increasingly competitive market.
is highly competitive, and the competitiveness of the market continues to
The non-prime consumer-fiff nance industryrr
increase as new competitors continue to enter the market and certain existing competitors continue to expand their
operations and become more aggressive in offff eff ring competitive terms. There are numerous fiff nancial service
companies that provide consumer credit in the markets served by us, including banks, credit unions, other consumer
fiff nance companies and capta ive fiff nance companies owned by automobile manufaff cturt ers and retailers. Many of these
competitors have substantially greater fiff nancial resources than us. In addition, some of our competitors oftff en provide
fiff nancing on terms more faff vorabla e to automobile purchasers or dealers than we offff eff r. Many of these competitors
also have long-standing relationships with automobile dealerships and may offff eff r dealerships, or their customers,
16
other forff ms of fiff nancing including dealer flff oor-plan fiff nancing and leasing, which are not provided by us. Providers
of non-prime consumer fiff nancing have traditionally competed primarily on the basis of:ff
•
•
•
•
•
•
interest rates charged;
the quality of credit accepted;
dealer discount;
amount paid to dealers relative to the wholesale book value;
the flff exibility of Contract and Direct Loan terms offff eff red; and
the quality of service provided.
Our abia lity to compete effff eff ctively with other companies offff eff ring similar fiff nancing arrangements depends in part on
our abia lity to maintain close relationships with dealers of used and new vehicles. We may not be abla e to compete
successfulff
Company to match or exceed pricing of its competitors, which has generally resulted in declining Contract
acquisition rates during the 2022 and 2023 fiff scal years.
ly in this market or against these competitors. In recent years, it has become increasingly diffff iff cult forff
the
We have focff used on a segment of the market composed of consumers who typically do not meet the more stringent
credit requirements of traditional consumer fiff nancing sources and whose needs, as a result, have not been addressed
consistently by such fiff nancing sources. As new and existing providers of consumer fiff nancing have undertaken to
penetrate our targeted market segment, we have experienced increasing pressure to reduce our interest rates, feff es
and dealer discounts. The Company’s average dealer discount on Contracts purchased forff
the fiff scal years ended
March 31, 2023 and 2022 was 6.5% and 6.9%, respectively. The Company’s average APR on Contracts purchased
forff
continue to exist and may impact our abia lity to secure quality loans on our prefeff rred terms in signififf cant quantities.
the fiff scal years ended March 31, 2023 and 2022, were 22.5% and 23.1%, respectively. These competitive faff ctors
We are particularly vulnerabla e to the effff eff cts of these practices because of our focff us on providing fiff nancing with
respect to used vehicles.
Our business depends on our continued access to bank fiff nancing on acceptable terms.
On Januaryrr 18, 2023, we entered into a new senior secured revolving credit faff cility (the “Credit Facility”) with
Westlake Capia tal Finance, LLC (the “Lender”), who is an affff iff liate of Westlake, the servicer of substantially all of
our receivabla es. Our abia lity to access capia tal through our Credit Facility, or undertake a futff urt e faff cility, or other debt
or equity transactions on economically faff vorabla e terms or at all, depends in large part on faff ctors that are beyond our
control, including:
•
Conditions in the securities and fiff nance markets generally;
• A negative bias toward our industry;rr
• General economic conditions and the economic health of our earnings, cash flff ows and balance sheet;
•
•
•
Security or collateral requirements;
The credit quality and perforff mance of our customer receivabla es;
Regulatoryrr
restrictions appl
a
icabla e to us;
• Our overall business and industryrr prospects;
• Our overall sales perforff mance, profiff tabia lity, cash flff ow, balance sheet quality, and regulatoryrr
restrictions;
• Our abia lity to provide or obtain fiff nancial support forff
required credit enhancement;
• Our abia lity to adequately service our fiff nancial instrumrr
ents;
17
• Our abia lity to meet debt covenant requirements; and
•
Prevailing interest rates.
Our Credit Facility is subject to certain defauff
lts and negative covenants.
The Credit Facility’s loan documents contain customaryrr events of defaff ult and negative covenants, including but not
limited to those governing indebtedness, liens, funda
documents also restrict the Company’s abia lity to make distributions to its shareholders or enter into certain
mental transactions. If an event of defaff ult occurs, the lender could increase borrowing costs, restrict our
ff
funda
abia lity to obtain additional advances under the Credit Facility, accelerate all amounts outstanding under the Credit
Facility, enforff ce their interest against collateral pledged under the Credit Facility or enforff ce such other rights and
remedies as they have under the loan documents or appl
mental changes, investments, and sales of assets. Such loan
icabla e law as secured lenders.
a
ff
ity date, then we would be obligated to pay
If we prepay the loan and terminate the Credit Facility prior to its maturt
the Lender a termination feff e in an amount equal to a percentage of the average outstanding principal balance of the
Credit Facility during the immediately preceding 90 days. If we were to sell our accounts receivabla e to a third party
prior to the maturt
percentage of the proceeds of such sale.
ity date, then we would be obligated to pay the Lender a feff e in an amount equal to a specififf ed
Our existing and fuff ture levels of indebtedness could adversely affff eff ct our fiff nancial health, ability to obtain
fiff nancing in the fuff ture, ability to react to changes in our business and ability to fuff lfiff ll our obligations under
such indebtedness.
As of March 31, 2023, we had aggregate outstanding indebtedness under our Credit Facility of $29.1 million
compared to $55.0 million under our predecessor faff cility as of March 31, 2022. This level of indebtedness could:
• Make it more diffff iff cult forff
us to satisfyff our obligations with respect to our outstanding notes and other
indebtedness, resulting in possible defaff ults on and acceleration of such indebtedness;
•
•
•
•
•
Require us to dedicate a substantial portion of our cash flff ow frff om operations to the payment of principal
and interest on our indebtedness, thereby reducing the availabia lity of such cash flff ows to fund
capia tal, acquisitions, capia tal expenditurt es and other general corpor
ate purpos
working
es;
rr
ff
r
Limit our abia lity to obtain additional fiff nancing forff working capia tal, acquisitions, capia tal expenditurt es, debt
r
service requirements and other general corpor
ate purpos
es;
r
Limit our abia lity to refiff nance indebtedness or cause the associated costs of such refiff nancing to increase;
Increase our vulnerabia lity to general adverse economic and industryrr conditions, including interest rate
flff uctuat
tions (because our borrowings are at variabla e rates of interest); and
Place us at a competitive disadvantage compared to our competitors with proportionately less debt or
comparabla e debt at more faff voraba le interest rates which, as a result, may be better positioned to withstand
economic downturt ns.
its payroll costs and other expenses in accordance with the requirements of the Paycheck
On May 27, 2020, the Company obtained a loan in the amount of $3.2 million frff om a bank in connection with the
U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (the “PPP Loan”). Pursuant to the
Paycheck Protection Program, all or a portion of the PPP Loan may be forff given if the Company used the proceeds of
the PPP Loan forff
payroll costs and other covered expenses
Protection Program. The Company used the proceeds of the PPP Loan forff
and sought fulff
ication to Fiftff h Third Bank,
the lender, on December 7, 2020 and submitted supplemental documentation on Januaryrr 16, 2021. On December 27,
2021 SBA inforff med the Company that no forff giveness was granted. The Company fiff led an appe
Januaryrr 5, 2022. On May 6, 2022 the Offff iff ce of Hearing and Appeals SBA (OHA) rendered a decision to deny the
a
appe
of $65 thousand on May 23, 2022.
al. The Company subsequently repaid the outstanding principal of $3.2 million plus accruer d and unpaid interest
l forff giveness of the PPP Loan. The Company submitted a forff giveness appl
al with SBA on
a
a
18
Any of the forff egoing impacts of our level of indebtedness could have a material adverse effff eff ct on us.
An increase in market interest rates may reduce our profiff tability.
Our long-term profiff tabia lity may be directly affff eff cted by the level of and flff uctuat
signififf cant increases in interest rates may adversely affff eff ct our liquidity and profiff tabia lity by reducing the interest rate
spread between the rate of interest we receive on our Contracts and interest rates that we pay under our 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 frff om dealers generally are limited by statutt oryrr maximums,
restricting our opportuni
ty to pass on increased interest costs.
tions in interest rates. Sustained,
t
Currently, due to a number of faff ctors including the ongoing conflff ict between RusRR sia and Ukraine and supply chain
problems caused in part by the COVID-19 pandemic, the global economy is experiencing inflff ationaryrr pressures not
seen in a signififf cant period of time. We cannot predict the timing or the duration of any inflff ation. More specififf cally,
we cannot predict whether the inflff ationaryrr pressure will reduce our interest rate spread and thereforff e our
profiff tabia lity.
We monitor the interest rate environment and, on occasion, enter into interest rate swapa agreements relating to a
portion of our outstanding debt. Such agreements effff eff ctively convert a portion of our flff oating-rate debt to a fiff xed-
rate, thus reducing the impact of interest rate changes on our interest expense. However, we have not recently
entered into new arrangements. We will continue to evaluate interest rate swapa pricing and we may or may not enter
into interest rate swapa agreements in the futff urt e.
We have recently experienced turnover in our senior management. The loss of our key executives could have
a material adverse effff eff ct on our business.
On May 6, 2022, the President and Chief Executive Offff iff cer of Nicholas Financial, Inc. (the “Company”) inforff med
the Board of Directors of the Company (the “Board”) of his intention to resign his position as President and Chief
Executive Offff iff cer, and to retire frff om the Board, in each case, effff eff ctive as of May 9, 2022.
On May 10, 2022, the Company entered into a separation and release of claims agreement with the previous CEO.
Pursuant to the agreement, the previous CEO’s resignation was effff eff ctive as of May 9, 2022. In addition to unpaid
salaryrr and accruer d vacation pay through May 9, 2022, the previous CEO was entitled to receive a severance
payment of $131,250 and continuation of COBRARR benefiff ts forff
be governed by the award agreements forff
release of claims agreement contains a one year non-compete provision that has elapsa
CEO frff om soliciting customers forff
continues through May 10, 2024.
each award, with all unvested restricted stock forff
4.5 months. His restricted stock awards continue to
ed, and Company employees forff
ed, and prohibits the previous
one year, which has elapsa
two years, which
feff ited. The separation and
a
On August 30, 2022 the Board appoi
nted Michael Rost as the Chief Executive Offff iff cer, effff eff ctive immediately. On
September 14, 2022 the Company and Mr. Rost entered into an employment agreement with a term that continues
until August 29, 2023, subject to automatic renewal forff
Company forff more than 20 years. Prior to his appoi
Vice President of Branch Operations forff
President frff om June 2018 until April 2021, as District Manager frff om December 2010 until June 2018, and as Branch
Manager frff om December 2001 until December 2010.
the Company frff om April 2021 until May 2022, as Divisional Vice
ntment, Mr. Rost served as Interim CEO since May 2022, as
successive one-year terms. Mr. Rost has worked at the
a
We are subject to risks associated with litigation.
As a consumer fiff nance company, we are subject to various consumer claims and litigation seeking damages and
statutt oryrr penalties, based upon, among other things:
•
•
usuryrr
laws;
disclosure inaccuracies;
• wrongfulff
repossession;
•
•
violations of bankrupt
r
cy stay provisions;
certififf cate of title disputes;
19
•
•
•
frff aud;
breach of contract; and
discriminatoryrr
treatment of credit appl
a
icants.
Some litigation against us could take the forff m of class action complaints by consumers. As the assignee of Contracts
originated by dealers, we may also be named as a co-defeff ndant in lawsuits fiff led 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 plaintiffff sff varies but may include requests forff
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
fiff nancial losses in the futff urt e as a result of litigation or other legal proceedings.
compensatory,rr
statutt ory,rr
We depend upon our relationships with our dealers.
Our business depends in large part upon our abia lity to establa ish and maintain relationships with reputabla e dealers
who originate the Contracts we purchase. Although we believe we have been successfulff
maintaining such relationships in the markets that we continue to service aftff er the closing of all of our brick and
mortar branches, such relationships are not exclusive, and many of them are not longstanding. There can be no
assurances that we will be successfulff
in maintaining such relationships or increasing the number of dealers with
whom we do business, or that our existing smaller dealer base will continue to generate a volume of Contracts
comparabla e to the volume of such Contracts historically generated by such dealers.
in developing and
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
uncertainty, such as has existed forff much of the past years, delinquencies, defaff ults, repossessions, and losses
ent offff sff etting faff ctors. These periods also may be accompanied by decreased consumer
generally increase, absa
demand forff
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 defaff ult. Because we
focff us on non-prime borrowers, the actuat
l rates of delinquencies, defaff ults, repossessions, and losses on these loans
are higher than those experienced in the general automobile fiff nance industryrr and could be more dramatically
affff eff cted by a general economic downturt n. In addition, during an economic slowdown or recession, our servicing
costs may increase without a corresponding increase in our servicing income. No assurances can be given that our
underwriting criteria and collection methods to manage the higher risk inherent in loans made to non-prime
borrowers will affff orff d adequate protection against these risks. Any sustained period of increased delinquencies,
defaff ults, repossessions, or losses, or increased servicing costs could have a material adverse effff eff ct on our business
and fiff nancial condition.
Furthermore, in a low interest-rate environment such as has existed in the United States until recent years, the level
of competition increases in the non-prime consumer-fiff nance industryrr as new competitors enter the market and many
existing competitors expand their operations. Such increased competition, in turt n, has exerted increased pressure on
us to reduce our interest rates, feff es, and dealer discount rates in order to maintain our market share. Any furff
reductions in our interest rates, feff es or dealer discount rates could have a material adverse impact on our profiff tabia lity
or fiff nancial condition.
ther
The auction proceeds received frff om the sale of repossessed vehicles and other recoveries are subject to
flff uctuation due to economic and other facff
tors beyond our control.
If a vehicle securing a Contract, is repossessed, it will typically be transported to an automobile auction forff
Auction proceeds frff om the sale of repossessed vehicles and other recoveries are usually not suffff iff cient to cover the
outstanding balance of the Contract, and the resulting defiff ciency is charged offff .ff In addition, there is, on average,
appr
a
receive frff om such sales under our servicing agreement depend upon
demand forff
during periods of economic uncertainty, the demand forff
u
, used vehicles at the time of sale. Such supply and demand are dependent on many faff ctors. For example,
e between the time of repossession of a vehicle and the time it is sold. The proceeds we
used cars may softff en, resulting in decreased auction
various faff ctors, including the supply of,ff and
oximately a 30-day lapsa
sale.
20
proceeds to us frff om the sale of repossessed automobiles. Furthermore, depressed wholesale prices forff
automobiles may result frff om signififf cant liquidations of rental or flff eet inventories, and frff om increased volume of
trade-ins due to promotional fiff nancing programs offff eff red by new vehicle manufaff cturt ers. Newer, more expensive
vehicles securing our larger dollar loans are more susceptible to wholesale pricing flff uctuat
vehicles and also experience depreciation at a much greater rate. Until the Company’s portfolff
successfulff
subprime borrower), the Company expects to be affff eff cted by softff er auction activity and reduced vehicle values.
ly converted to primarily consisting of our target vehicle (primaryrr
tions than are older
io has been
transportation to and frff om work forff
used
the
We partially rely on third parties to deliver services, and faiff
lure by those parties to provide these services or
meet contractual requirements could have a material adverse effff eff ct on our business, fiff nancial condition and
results of operations.
We depend on third-party service providers forff many aspects of our business operations, including loan origination,
loan servicing, title processing, and online payments, which increases our operational complexity and decreases our
control. We rely on these service providers to provide a high level of service and support, which subjects us to risks
associated with inadequate or untimely service. If a service provider faff ils to provide the services that we require or
expect, or faff ils to meet contractuat
could negatively impact our business by adversely affff eff cting our abia lity to process customers’ transactions in a
timely and accurate manner, otherwise hampering our abia lity to service our customers, or subjecting us to litigation
or regulatoryrr
poor vendor oversight. We may be unabla e to replace or be delayed in replacing these sources
and there is a risk that we would be unabla e to enter into a similar agreement with an alternate provider on terms that
we consider faff vorabla e or in a timely manner. Such a faff ilure could have a material and adverse effff eff ct on our
business, fiff nancial condition, and results of operations.
l requirements, such as service levels or compliance with appl
icabla e laws, a faff ilure
risk forff
a
The success of our business depends upon our ability to retain and attract a suffff iff cient number of qualififf ed
employees.
Although we believe that we can attract and retain qualififf ed and experienced personnel needed to conduct our
business operations, no assurance can be given that we will be successfulff
possessing the skills and experience required by us could contribute to an increase in our employee turt nover rate.
High turt nover or an inabia lity to attract and retain qualififf ed personnel could have an adverse effff eff ct on our origination,
delinquency, defaff ult, and net loss rates and, ultimately, our business and fiff nancial condition.
in doing so. Competition to hire personnel
Natural disasters, acts of war, terrorist attacks and threats, or the escalation of military activity in response
to these attacks or otherwise may negatively affff eff ct our business, fiff nancial condition, and results of operations.
Naturt al disasters (such as hurricanes), acts of war, terrorist attacks and the escalation of militaryrr activity in response
to these attacks or otherwise may have negative and signififf cant effff eff cts, such as disrupt
imposition of increased security measures, changes in appl
icabla e laws, market disrupt
headquarters are located in Clearwater, Florida and much of our revenue is generated in Florida. Florida is
particularly susceptible to hurricanes. These events may have an adverse effff eff ct on the economy in general.
Moreover, the potential forff
affff eff ct the business in ways that cannot be predicted. The effff eff ct of any of these events or threats could have a
material adverse effff eff ct on our business, fiff nancial condition and results of operations.
futff urt e terrorist attacks and the national and international responses to these threats could
ions in our operations,
ions and job losses. Our
rr
r
a
Risks Related to Regulation
reforff m could have an adverse impact on the Company. The Dodd-Frank Act is extensive
Federal or state regulatoryrr
legislation that impacts fiff nancial institutt
addition, the Dodd-Frank Act impacts the offff eff ring, marketing and regulation of consumer fiff nancial products and
services. Many of the implementing regulations have been fiff nalized, but in some cases, additional rulr emaking has
not yet been fiff nalized. Until all of the implementing regulations have been issued, there can be no assurance that any
new requirements will not have an adverse impact on the servicing of the Direct Loans and the Contracts or on the
regulation and supervision of the Company.
ions and other non-bank fiff nancial companies, such as the Company. In
21
The Dodd-Frank Act establa ished the CFPB with broad authority over feff deral consumer fiff nancial laws and
regulations (“Consumer Financial Laws”). In December 2020, the CFPB issued a fiff nal rulr e governing the activities
of third-party debt collectors. The fiff nal rulr e was effff eff ctive on November 30, 2021. While the fiff nal rulrr e did not
address fiff rst-party debt collectors, the CFPB has previously indicated that it would address this activity in a later
rulr emaking. It is unclear what effff eff ct, if any, the fiff nal rulrr e or any subsequent changes may have on Direct Loans and
Contracts or the servicer’s practices, procedures and other servicing activities relating to Direct Loans and Contracts
in ways that could reduce the associated recoveries.
a
ryrr 2022 stating its position that automobile loan holders and
The CFPB also issued a Compliance Bulletin in Februar
ensuring that their repossession-related practices, and the practices of their service
servicers are responsible forff
icabla e law, and the CFPB also described its intention to hold loan holders and servicers
providers do not violate appl
liabla e forff
unfaff ir, deceptive, or aba usive acts or practices related to the repossession of automobiles. In its Supervisoryrr
Highlights forff Spring and Fall of 2022, the CFPB also identififf ed certain auto loan servicing concerns, including the
faff ilure to ensure customers received add-on product refunds
aftff er events such as repossession or early payoffff of the
account. It is possible that the CFPB may bring enforff cement actions against holders of automobile loans, such as the
Company, and servicers, such as Westlake, in the futff urt e.
ff
In addition, the FTC and state attorneys general have recently increased their scrutrr
iny of motor vehicle dealers and
auto lending, particularly with respect to antidiscrimination and deception concerns related to the prices of and feff es
charged in connection with automobile fiff nancing, including add-on products such as GAP insurance and extended
warranties. Also, on June 23, 2022 the FTC issued a proposed rulr e that would (i) prohibit motor vehicle dealers frff om
making certain misrepresentations in the course of selling, leasing, or arranging fiff nancing forff motor vehicles, (ii)
require accurate pricing disclosures in dealers’ advertising and sales discussions, (iii) require dealers to obtain
charges, (iv) prohibit the sale of any add-on product or service that
consumers’ express, inforff med consent forff
confeff rs no benefiff t to the consumer, and (v) require dealers to keep records of advertisements and customer
transactions. At this stage, it is unknown whether a fiff nal rulr e will be issued, the exact requirements of any fiff nal rulrr e
if issued or if any fiff nal rulrr e would have a broader potential impact on auto lending practices, including the auto
lending practices of the Company.
frff amework in which the Company operates, including, forff
Further, changes to the regulatoryrr
regulations enacted to address the potential impacts of climate change (including laws which may adversely impact
the auto industryrr
regulations, executive orders or other guidance enacted in response to the COVID-19 pandemic, increased inflff ation
or a recession or period of economic contraction or volatility could have a signififf cant impact on the Company. See
“Item 1. Business – Regulation” forff
ts to mitigate the faff ctors contributing to climate change) or laws,
in particular as a result of effff orff
additional inforff mation.
example, laws or
On October 5, 2017, the CFPB released the fiff nal rule Payday, Vehicle Title and Certain High-Cost
Installment Loans under the Dodd Frank Act, which as adopted could potentially have a material adverse
effff eff ct on our operations and fiff nancial perforff mance.
a
lenders to folff
icabla e to payday, title and certain high cost installment loans. The rulrr es address
In 2017, the CFPB adopted rulr es appl
the underwriting of covered short-term loans and longer-term balloon-payment loans, including payday and vehicle
title loans, as well as related reporting and recordkeeping provisions. These provisions have become known as the
“mandatoryrr underwriting provisions” and include rulrr es forff
low to determine whether or not consumers
have the abia lity to repay the loans according to their terms. On July 7, 2020, the CFPB released a new fiff nal rulrr e that
revoked the underwriting provisions of the rulr e but retained and ratififf ed the payment provisions. Implementation of
such loans,
the rulr e’s payment requirements may require changes to the Company’s practices and procedures forff
which could materially and adversely affff eff ct the Company’s abia lity to make such loans, the cost of making such
loans, the Company’s abia lity to, or frff equency with which it could, refiff nance any such loans, and the profiff tabia lity of
such loans. Additionally, the CFPB may target specififf c feff aturt es of loans by rulr emaking that could cause us to cease
offff eff ring certain products, or adopt rulrr es imposing new and potentially burdensome requirements and limitations
with respect to any of our current or futff urt e lines of business, which could have a material adverse effff eff ct on our
operations and fiff nancial perforff mance. The CFPB could also implement rulr es that limit our abia lity to continue
servicing our fiff nancial products and services.
The CFPB has broad authority to pursue administrative proceedings and litigation forff
consumer fiff nancing laws.
violations of feff deral
22
The CFPB has the authority to obtain cease and desist orders (which can include orders forff
of contracts, as well as other kinds of affff iff rmative relief)ff and monetaryrr penalties ranging frff om $6,323 per day forff
minor violations of Consumer Financial Laws (including the CFPB’s own rulrr es) to $31,616 per day forff
reckless
violations and $1,264,622 per day forff
knowing violations. If we are subject to such administrative proceedings,
litigation, orders or monetaryrr penalties in the futff urt e, this could have a material adverse effff eff ct on our operations and
fiff nancial perforff mance. Also, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations
under Title X, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions forff
the kind of cease and desist orders availabla e to the CFPB (but not forff
civil penalties). If the CFPB or one or more
state offff iff cials believe we have violated the forff egoing laws, they could exercise their enforff cement powers in ways
additional inforff mation.
that would have a material adverse effff eff ct on us. See “Item 1. Business – Regulation” forff
ion or rescission
restitutt
Pursuant to the authority granted to it under the Dodd-Frank Act, the CFPB adopted rules that subject
larger nonbank automobile fiff nance companies to supervision and examination by the CFPB. Any such
examination by the CFPB likely would have a material adverse effff eff ct on our operations and fiff nancial
perforff mance.
The CFPB’s “larger participant” rulr e extends supervision and examination to any nonbank auto fiff nance company
that makes, acquires, or refiff nances 10,000 or more loans or leases in a year. Under the rulr e, those companies will be
considered “larger participants,” and the CFPB may oversee their activity to ensure they are complying with
Consumer Financial Laws. The Company does not meet the threshold of at least 10,000 aggregate annual direct loan
originations, and thereforff e does not faff ll under the CFPB’s supervisoryrr authority. The CFPB issued rulr es regarding
the supervision and examination of non-depositoryrr “larger participants” in the automobile fiff nance business. The
CFPB’s stated objectives of such examinations are: to assess the quality of a larger participant’s compliance
management systems forff
preventing violations of Consumer Financial Laws; to identifyff acts or practices that
materially increase the risk of violations of Consumer Financial Laws and associated harm to consumers; and to
gather faff cts that help determine whether the larger participant engages in acts or practices that are likely to violate
Consumer Financial Laws in connection with its automobile fiff nance business. If we become a “larger participant”,
we will be subject to examination by the CFPB forff
, among other things, ECOA compliance, TILA compliance,
Consumer Leasing Act compliance, compliance with the Dodd-Frank Act’s prohibition on unfaff ir, deceptive or
a
abus
ive acts or practices, and the adequacy of our compliance management systems.
We have continued to evaluate our existing compliance management systems. We expect this process to continue as
the CFPB promulgates new and evolving rulr es and interprrr etations. Given the time and effff orff
t needed to establa ish,
implement and maintain adequate compliance management systems and the resources and costs associated with
being examined by the CFPB, such an examination could likely have a material adverse effff eff ct on our business,
fiff nancial condition and profiff tabia lity. Moreover, any such examination by the CFPB could result in the assessment of
penalties, including fiff nes, and other remedies which could, in tut rn, have a material effff eff ct on our business, fiff nancial
condition, and profiff tabia lity.
Our use of vendors and our other ongoing third-party business relationships are subject to increasing
regulatory requirements and attention.
We regularly use vendors and subcontractors as part of our business. We also depend on our substantial ongoing
business relationships with our dealers, merchants, and other third parties. These types of third-party relationships,
particularly with our dealer partners and our third-party servicing and collection vendors, are subject to increasingly
demanding regulatoryrr
requirements and oversight by regulators. Regulators may expect certain non-bank entities to
maintain an effff eff ctive process forff managing risks associated with vendor relationships, including compliance-related
risks. In connection with this vendor risk management process, we may be expected to perforff m due diligence
reviews of potential vendors, review their policies and procedures and internal training materials to confiff rm
compliance-related focff us, include enforff ceabla e consequences in contracts with vendors regarding faff ilure to comply
with consumer protection requirements, and take prompt action, including terminating the relationship, in the event
that vendors faff il to meet our expectations.
Regulators may hold us responsible forff
the perforff mance of the parties with which we have these relationships. As a result, if our regulators conclude that we
have not exercised adequate oversight and control over vendors and subcontractors or other ongoing third-party
business relationships or that such third parties have not perforff med appr
enforff cement actions, including civil money penalties or other administrative or judicial penalties or fiff nes, as well as
requirements forff
defiff ciencies in our oversight and control of third-party relationships and in
opriately, we could be subject to
consumer remediation.
a
23
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 effff eff ct on our fiff nancial condition and business
operations.
As a provider of consumer fiff nancial services, the Company operates in a highly regulated environment. The
Company is subject to state licensing requirements and state and feff deral laws and regulations. In addition, the
Company may be subject to governmental and regulatoryrr examinations, inforff mation gathering requests, and
investigations frff om time to time at the state and feff deral levels. Compliance with appl
affff eff ct the Company’s results of operations. Compliance requires forff ms, processes, procedures, controls and the
turt e to support these requirements. Compliance may create operational constraints and place limits on
infrff astrucr
the protection of
pricing, as the laws and regulations in the fiff nancial services industryrr are designed primarily forff
consumers. Changes in laws and regulations could restrict the Company’s abia lity to operate its business as currently
operated, could impose substantial additional costs or require it to implement new processes, which could adversely
affff eff ct the Company’s business, prospects, fiff nancial perforff mance or fiff nancial condition. The faff ilure to comply with
icabla e laws and regulations could result in signififf cant statutt oryrr civil and criminal fiff nes, penalties, monetaryrr
a
appl
damages, attorney or legal feff es and costs, restrictions on the Company’s abia lity to operate its business, possible
revocation of licenses and damage to the Company’s reputation, brand and valued customer relationships. Any such
costs, restrictions, revocations or damage could adversely affff eff ct the Company’s business, prospects, results of
operations or fiff nancial condition. See “Item 1. Business – Regulation” forff
icabla e law is costly and can
additional inforff mation.
a
The CFPB and the FTC may investigate the products, services and operations of credit providers, including banks
and other fiff nance companies engaged in auto fiff nance activities. As a result of such investigations, the CFPB and the
FTC have announced various enforff cement actions against lenders in the past feff w years involving signififf cant
penalties, consent orders, cease and desist orders and similar remedies that, if appl
products, services and operations the Company offff eff rs, may require the Company to cease or alter certain business
practices, which could have a material adverse effff eff ct on the Company’s results of operations, fiff nancial condition,
and liquidity. Supervision and investigations by these agencies may result in monetaryrr penalties, increase the
Company’s compliance costs, require changes in its business practices, affff eff ct its competitiveness, impair its
profiff tabia lity, harm its reputation or otherwise adversely affff eff ct its business.
icabla e to the Company or the
a
Our fiff nancing operations are subject to regulation, supervision, and licensing under various other feff deral, state and
local statutt es and ordinances. In addition, the Company and its service providers must comply with certain feff deral
and state requirements in connection with the servicing and collection on Direct Loans and Contracts, and the
repossession of vehicles securing Direct Loans and Contracts in the states the Company does business. The various
icabla e to our business govern, among other things:
feff deral, state and local statutt es, regulations, and ordinances appl
a
•
•
•
licensing requirements;
requirements forff maintenance of proper records;
payment of required feff es to certain states;
• maximum interest rates that may be charged on loans to fiff nance used and new vehicles;
•
•
•
•
•
•
•
debt collection practices;
proper disclosure to customers regarding fiff nancing terms;
privacy regarding certain customer data;
interest rates on loans to customers;
late feff es and insuffff iff cient feff es charged;
telephone solicitation of Direct Loan customers; and
collection of debts frff om loan customers who have fiff led bankrupt
r
cy.
We believe that we maintain all material licenses and permits required forff
icabla e local, state and feff deral regulations. Our faff ilure, or the faff ilure by dealers
substantial compliance with all appl
who originate the Contracts we purchase, or the faff ilure by our service providers, to maintain all requisite licenses
and permits, and to comply with other regulatoryrr
requirements, could result in consumers having rights of rescission
and other remedies that could have a material adverse effff eff ct on our fiff nancial condition. Furthermore, any changes in
our current operations and are in
a
24
icabla e laws, rulr es and regulations, such as the passage of the Dodd-Frank Act and the creation of the CFPB, may
a
appl
make our compliance therewith more diffff iff cult or expensive or otherwise materially adversely affff eff ct our business and
fiff nancial condition.
Some litigation against us could take the forff m of class action complaints by consumers. As the assignee of contracts
originated by dealers, we may also be named as a co-defeff ndant in lawsuits fiff led 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 plaintiffff sff varies but may include requests forff
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
fiff nancial losses in the futff urt e as a result of litigation or other legal proceedings.
compensatory,rr
statutt ory,rr
Risks Related to Privacy and Cybersecurity
FaiFF lii ure tott properlyll safeff gue
tt
profiff tii abi
lii ill tii ytt ,yy and damage our repuee
ard confn iff dentitt al customtt
itt on.
tattt
er inii fn orff mrr atitt on couldll subject us tott
lill abilii ill tii ytt ,yy decrease our
In the ordinaryrr course of our business, we collect and store sensitive data, including our proprietaryrr business
inforff mation and personally identififf abla e inforff mation of our customers, on our computer networks, and share such
data with third parties, including our service providers. The secure processing, maintenance and transmission of this
inforff mation is critical to our operations and business strategy.
r
r
iny, or expose us to lawsuits by customers forff
ion, or breach in our cyber security, including through employee misconduct or any faff ilure of
Any faff ilure, interrupt
our back-up systems or faff ilure to maintain adequate security surrounding customer inforff mation, could result in
reputational harm, disrupt
ion in the management of our customer relationships, or the inabia lity to originate, process
and service our products. Further, any of these cyber security and operational risks could result in a loss of customer
business, subject us to additional regulatoryrr scrutrr
identity theftff or other
damages resulting frff om the misuse of their personal inforff mation and possible fiff nancial liabia lity, any of which could
have a material adverse effff eff ct on our results of operations, fiff nancial condition and liquidity. In addition, regulators
may impose penalties or require remedial action if they identifyff weaknesses in our security systems, and we may be
required to incur signififf cant costs to increase our cyber security to address any vulnerabia lities that may be
discovered or to remediate the harm caused by any security breaches. As part of our business, we may share
confiff dential customer inforff mation and proprietaryrr
partners. The inforff mation systems of these third parties may be vulnerabla e to security breaches and we may not be
abla e to ensure that these third parties have appr
opriate security controls in place to protect the inforff mation we share
with them. If our confiff dential inforff mation is intercepted, stolen, misused, or mishandled while in possession of a
third party, it could result in reputational harm to us, loss of customer business, and additional regulatoryrr scrutr
iny,
and it could expose us to civil litigation and possible fiff nancial liabia lity, any of which could have a material adverse
effff eff ct on our results of operations, fiff nancial condition, and liquidity. If any vendor faff ils to provide the services we
require, faff ils to meet contractuat
icabla e laws and regulations), faff ils to
maintain adequate data privacy controls and electronic security systems, or suffff eff rs a cyber-attack or other security
breach, we could be subject to CFPB, FTC and other regulatoryrr enforff cement actions, claims frff om third parties,
including our consumers, and suffff eff r economic and reputational harm that could have an adverse effff eff ct on our
business. Further, we may incur signififf cant costs to resolve any such disrupt
affff eff ct our business.
inforff mation with clients, vendors, service providers, and business
l requirements (including compliance with appl
ions in service, which could adversely
a
a
r
Providers of consumer fiff nancial services are subject to specififf c requirements to protect consumer data. In 2021, the
FTC updated its Safeff guards RulRR e implementing Section 501(b) of GLBA, to set forff
th specififf c criteria relating to the
safeff guards that certain nonbank fiff nancial institutt
programs. These safeff guards, among other things, limit who can access customer inforff mation, require the use of
encrypt
ion to secure such inforff mation, and require the designation of a single qualififf ed individual to oversee an
rr
ion’s inforff mation security program and report at least annually to the institutt
institutt
equivalent governing body. The CFPB recently issued Consumer Financial Protection Circular 2022-04, which
warned that data security shortcomings could subject fiff nancial services companies to unfaff irness claims under the
Consumer Financial Protection Act—e
security regulation forff
ven if those fiff rms comply with the GLBA Safeff guards RulRR e, the primaryrr data
ions must implement as a part of their inforff mation security
tt
non-bank fiff nancial institutt
ion’s board of directors or
ions.
We rely on encrypt
authentication necessaryrr
rr
ion and authentication technology licensed frff om third parties to provide the security and
to secure online transmission of confiff dential customer inforff mation. Advances in computer
25
rr
a
ography
or other events or developments may result in a
capaa bia lities, new discoveries in the fiff eld of crypt
compromise or breach of the algorithms that we use to protect sensitive customer data. A party who is abla e to
circumvent our security measures could misappr
ions in our
operations. We may be required to expend capia tal 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 effff eff ct on our business, fiff nancial condition or results of operations in the
futff urt e. Our security measures are designed to protect against security breaches, but our faff ilure to prevent security
breaches could subject us to liabia lity, decrease our profiff tabia lity and damage our reputation.
inforff mation or cause interrupt
opriate proprietaryrr
a
r
Risks Related to our Common Stock
Our stoctt k isii
thtt
inii
lyll
trtt aded, which may lill mii
itii your abilii ill tii ytt
tott resellll your shares.
oximately 6,800 shares, which makes ours a thinly traded stock. Thinly traded
The average daily trading volume of our common shares on the NASDAQ Global Select Market forff
a
ended March 31, 2023 was appr
stocks pose several risks forff
investors because they have wider spreads and less displayed size than other stocks that
trade in higher volumes or an active trading market. Other risks posed by thinly traded stocks include diffff iff culty
selling the stock, challenges attracting market makers to make markets in the stock, and diffff iff culty with fiff nancings.
Our fiff nancial results, the introduction of new products and services by us or our competitors, and various faff ctors
affff eff cting the consumer-fiff nance industryrr generally may also have a signififf cant 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 forff
not necessarily been related to their operating perforff mance. These risks could affff eff ct a shareholder’s abia lity to sell
their shares at the volumes, prices, or times that they desire.
the stocks of many companies, including ours, have experienced wide price flff uctuat
tions that have
the fiff scal year
WeWW currentltt yll do not have anyn analyll ststt coverinii g our stoctt k which couldll negat
trtt adinii g volume of our stoctt k.
e
itt velyll
imii pacm t bothtt
thtt e stoctt k price and
a
us, our business, our market or our competitors. We do not currently have, and
our common stock will likely be inflff uenced by the research and reports that industryrr or
The trading market forff
securities analysts may publish about
may never obtain, research coverage by fiff nancial analysts. If no or feff w analysts commence coverage of us, the
trading price of our stock may not increase. Even if we do obtain analyst coverage, if one or more of the analysts
covering our business downgrade their evaluation of our stock, the price of our stock could decline. If one or more
of these analysts cease to cover our stock, we could lose visibility in the market forff
our stock, which in turt n could
cause our stock price to decline. Furthermore, if our operating results faff il to meet analysts’ expectations our stock
price would likely decline.
26
e provisii ions of our Artitt clell s may detett r thtt
SomSS
stoctt k.
Our Articles provide forff
, among other things:
iri d partitt es frff om acquirii inii g us and dimii
inii
isii h thtt e value of our common
•
•
•
division of our board of directors into three classes of directors serving staggered three-year terms;
our abia lity to issue additional shares of common stock and to issue prefeff rred stock with terms that our
board of directors may determine, in each case without shareholder appr
oval (unless required by law); and
a
the absa
ence of cumulative voting in the election of directors.
These provisions may discourage, delay or prevent a transaction involving a change in control of our Company that
is in the best interest of our shareholders. Even in the absa
provisions may adversely affff eff ct the prevailing market price of our common stock if they are viewed as discouraging
futff urt e takeover attempts. These provisions could also make it more diffff iff cult forff
forff
election to our board of directors and take other corpor
ence of a takeover attempt, the existence of these
shareholders to nominate directors
ate actions.
rr
WeWW are a “smallll ell r repor
ee
applill cablell
tott smallll ell r repor
titt nii g companm yn ” as defe iff nii ed inii SESS C regue
latll
ies may make our common stoctt k lell ss atttt rtt actitt ve tott
titt nii g companm
ee
itt ons,s and thtt e reduced disii closll ure requirii ementstt
inii vestortt
srr .
We are a “smaller reporting company” as defiff ned under SEC regulations and we may take advantage of certain
exemptions frff om various reporting requirements that are appl
reporting companies including, among other things, reduced fiff nancial disclosure requirements including being
permitted to provide only two years of audited fiff nancial statements and reduced disclosure obligations regarding
executive compensation. As a result, our shareholders may not have access to certain inforff mation that they may
deem important. We could remain a smaller reporting company indefiff nitely. As a smaller reporting company,
investors may deem our stock less attractive and, as a result, there may be less active trading of our common stock,
and our stock price may be more volatile.
icabla e to other public companies that are not smaller
a
General Risk Factors
We have in the past had material weaknesses in our internal control over fiff nancial reporting. Failure to
maintain an effff eff ctive system of internal control over fiff nancial reporting and disclosure controls and
procedures could lead to a loss of investor confiff dence in our fiff nancial statements and have an adverse effff eff ct
on our stock price.
We may in the futff urt e discover areas of our internal fiff nancial and accounting controls and procedures that need
improvement. Our internal control over fiff nancial reporting will not prevent or detect all errors and all frff aud. A
control system, regardless of how well designed and operated, can provide only reasonabla e, not absa olute, assurance
that the control system's objectives will be met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absa olute assurance that misstatements due to error or frff aud will not occur or that
all control issues and instances of frff aud will be detected.
If we are not abla e to comply with the requirements of Section 404 of the Sarbar nes-Oxley Act in a timely manner, or
if we are unabla e to maintain proper and effff eff ctive internal controls, we may not be abla e to produce timely and
n, investors could lose confiff dence in our reported fiff nancial
accurate fiff nancial statements. If that were to happe
inforff mation, which could lead to a decline in the market price of our common stock and we could be subject to
sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatoryrr
authorities.
a
Additionally, the existence of any material weakness could require management to devote signififf cant time and incur
signififf cant expense to remediate any such material weakness and management may not be abla e to remediate any
such material weakness in a timely manner. The existence of any material weakness in our internal control over
fiff nancial reporting could also result in errors in our fiff nancial statements that could require us to restate our fiff nancial
statements, cause us to faff il to meet our reporting obligations and cause the holders of our common stock to lose
confiff dence in our reported fiff nancial inforff mation, all of which could materially adversely affff eff ct our business and
share price.
27
We may experience problems with integrated computer systems or be unable to keep pace with developments
in technology or conversion to new integrated computer systems.
We use various technologies in our business, including telecommunication, data processing, and integrated
computer systems. Technology changes rapia dly. Our abia lity to compete successfulff
may depend on our abia lity to effff iff ciently and cost-effff eff ctively 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 profiff tabia lity.
ly with other fiff nancing companies
Item 1B. Unresolved Staffff Comments
None.
Item 2. Properties
rr
ate headquarters and branch offff iff ce faff cilities. The Company’s headquarters, located at
a
oximately 1,769 square feff et of offff iff ce
The Company leases its corpor
26133 US HWY 19 North, Suite 300, in Clearwater, Florida, consist of appr
space leased at an annual rate of appr
entered into effff eff ctive Februar
hub, located at 452 Lakeshore Parkway, Suite 115, Rock Hill, South Carolina consists of appr
square feff et of offff iff ce space leased at an annual rate of appr
relating to this space was entered into effff eff ctive March 20, 2023 and expires on March 19, 2026.
a
oximately $16.08 per square foot
oximately $18.50 per square foot
ryrr 1, 2023 and expires on Januaryrr 31, 2026. The Company’s central business operations
. The current lease relating to this space was
oximately 1,990
. The current lease
a
a
ff
ff
As of March 31, 2023, the Company has closed each of its 47 branch offff iff ces located in Alabaa ma, Florida, Georgia,
Idaho, Illinois, Indiana, Kentuct ky, Michigan, Missouri, Nevada, North Carolina, Ohio, Pennsylvania, South
Carolina, Tennessee, Texas, Utah, and Wisconsin. The Company previously acquired Contracts in Idaho and Texas
through its virtuat
Company believes that its two remaining offff iff ce faff cilities in Clearwater, Florida and Rock Hill, South Carolina and
additional or alternate space availabla e to it are adequate to meet its needs forff
l expansion offff iff ce operations based in the Charlotte, North Carolina corpor
the forff eseeabla e futff urt e.
ate location. The
r
Item 3. Legal Proceedings
In the ordinaryrr course of its business operations, the Company is involved, frff om time to time, in ordinaryrr
litigation and other legal proceedings incidental to its business. No such current litigation or proceedings,
individually or in the aggregate, are expected to have a material effff eff ct on the business or fiff nancial condition of the
Company, other than the specififf c litigation involving Jeremiah Gross, which is disclosed as part of Note 11,
Commitments and Contingencies, to the Company’s consolidated fiff nancial statements. For a summaryrr of such
litigation, see Note 11, Commitments and Contingencies, to the Company’s consolidated fiff nancial statements.
routine
Item 4. Mine Safeff ty Disclosures
Not Applicabla e.
28
PART II
Item 5. Market forff Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market forff Common Stock
The Company’s common shares are traded on the NASDAQ Global Select Market under the symbol “NICK.”
Holders of Record of Common Stock
As of June 10, 2023, there were appr
a
oximately 114 holders of record of the Company’s common shares.
Dividends
The Company has not declared and paid cash dividends on its common shares in the recent past and has no current
plans to declare or pay any cash dividends in the forff eseeabla e futff urt e. There are no Canadian forff eign exchange
controls or laws that would affff eff ct 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 capia tal, other than the
Investment Canada Act (Canada), which requires the notififf cation or review of certain investments by non-Canadians
to establa ish or acquire control of a Canadian business. The Company is not a Canadian business as defiff ned 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 carryirr ng 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 Capia tal (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 forff
taxes paid in the forff eign jurisdiction.
Earnings frff om U.S. subsidiaries are permanently invested in the U.S. The Company has not provided any Canadian
income tax or U.S. withholding tax on unremitted earnings. If a dividend was paid to the Company frff om the current
or accumulated earnings and profiff ts of the U.S. subsidiary,rr
the dividend would be subject to a U.S. withholding tax
of 5%. The gross dividend (i.e., beforff e payment of the withholding tax) would generally be included in the
Company's Canadian taxabla e income. However, under certain circumstances, the Company may be allowed to
deduct the dividends in the calculation of its Canadian taxabla e income. If the Company has no other forff eign (i.e.,
non-Canadian) non-business income, no relief is availabla e in that case to recover the withholding taxes previously
paid.
a
ies to dividends paid by the Company to a U.S. shareholder (including those
A 15% Canadian withholding tax appl
that own less than 10% of the Company’s voting shares) that is an individual. The U.S. shareholder must include the
gross amount of the dividends in the shareholder’s net income to be taxed at the regular rates. In general, a U.S.
shareholder can obtain a forff eign tax credit forff U.S. feff deral income tax purpos
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 frff om other sources. A U.S. shareholder that is an individual also
all non-U.S. income taxes paid by the shareholder
can elect to claim a deduction (rather than a forff eign tax credit) forff
forff eign taxes may be negatively impacted by the overall
during the particular year. The benefiff t of any deduction forff
limitation on deducting income and other taxes. U.S. shareholders are urged to consult their own tax advisors
regarding the U.S. feff deral income tax treatment of any Canadian withholding tax imposed on dividends frff om the
Company.
es with respect to the Canadian
rr
Purchases of Equity Securities by the Company and Affff iff liated Purchasers
p y
q
y
y
In May 2019, the Company’s Board of Directors (“Board”) authorized a stock repurchase program allowing forff
the
repurchase of up to $8.0 million of the Company’s outstanding shares of common stock in open market purchases,
icabla e feff deral securities laws.
privately negotiated transactions, or through other strucrr
The authorization was effff eff ctive immediately.
turt es in accordance with appl
a
29
The timing and actuat
regulatoryrr
be suspended or discontinued at any time.
l number of sharers will depend on a variety of faff ctors, including stock price, corpor
requirements and other market and economic conditions. The Company’s stock repurchase program may
ate and
r
In August 2019, the Company’s Board authorized additional repurchase of up to $1.0 million of the Company’s
outstanding shares.
There were no shares of our Common Stock repurchased by or on behalf of the Company or any “affff iff liated
purchaser” (as defiff ned in RulRR e 10b-18(a)(3) under the Exchange Act) during the fiff nal three months of the fiff scal year
ended March 31, 2023.
Item 6. [Reserved]
30
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
rr
Nicholas Financial-Canada is a Canadian holding company incorpor
ated under the laws of British Columbia in
1986. Nicholas Financial-Canada currently conducts its business activities exclusively through a wholly-owned
indirect Florida subsidiary,rr Nicholas Financial. Nicholas Financial is a specialized consumer fiff nance company
engaged primarily in acquiring and servicing automobile fiff nance installment contracts (“Contracts”) forff
purchases of
used and new automobiles and light trucr ks. To a lesser extent, prior to the end of the third fiff scal quarter of the fiff scal
year ended March 31, 2023, Nicholas Financial also originated direct consumer loans (“Direct Loans”) and sold
consumer-fiff nance related products. Nicholas Financial’s fiff nancing activities represent a primaryrr source of
consolidated revenue forff
as an intermediate holding company forff Nicholas Financial.
the fiff scal years ended March 31, 2023 and 2022. A second Florida subsidiary,rr NDS, serves
Nicholas Financial-Canada, Nicholas Financial, and NDS are collectively refeff rred to herein as the “Company”.
Introduction
the fiff scal year ended March 31, 2023. The Company’s diluted earnings per share decreased frff om
the fiff scal year ended March 31, 2022 to a net loss of $4.65 per share forff
The Company’s consolidated revenues decreased frff om $49.8 million forff
$44.3 million forff
$0.39 per share forff
March 31, 2023. The Company’s operating income beforff e income taxes decreased frff om $4.0 million forff
ended March 31, 2022 to a loss beforff e income tax of $32.7 million forff
in profiff tabia lity was primarily driven by an increase in the provision forff
million and a decrease in average fiff nance receivabla es frff om $178.7 million to $165.4 million forff
March 31, 2022 and 2023, respectively.
the year ended March 31, 2023. The decrease
credit losses frff om $6.0 million to $40.7
the years ended
the fiff scal year ended
the year
the fiff scal year ended March 31, 2022 to
The Company’s consolidated net income decreased frff om $3.0 million forff
net loss of $34.1 million forff
the fiff scal year ended March 31, 2023.
the fiff scal year ended March 31, 2022 to
io forff
io yield of the portfolff
The gross portfolff
27.86%, respectively. For the fiff scal years ended March 31, 2023 and 2022, the average dealer discount decreased
frff om 6.9% to 6.5% primarily as a result of market conditions in the 2023 fiff scal year. The APR (and thereforff e overall
yield) on new purchases declined in fiff scal 2023 and fiff scal 2022 to 22.2% frff om 22.9%, which was primarily driven
by the Company’s continuing commitment to its core principles of disciplined underwriting and risk-based pricing.
the twelve months ended March 31,
Operating expenses as presented include restrucr
the fiff scal years ended March 31, 2023 and 2022 was 26.76% and
ing costs of $4.8 million forff
turt
31
2023. Operating expenses net of restrucr
16.7% forff
the twelve months ended March 31, 2023.
turt
ing costs as a percentage of average fiff nance receivabla es would have been
Portfolff
io Summary
Average fiff nance receivabla es (1)
Average indebtedness (2)
Interest and feff e income on fiff nance receivabla es
Interest expense
Net interest and feff e income on fiff nance receivabla es
Gross portfolff
Interest expense as a percentage of average fiff nance
io yield (3)
receivabla es
Provision forff
credit losses as a percentage of average
fiff nance receivabla es
io yield (3)
Net portfolff
Operating expenses as a percentage of average fiff nance
receivabla es
Pre-tax yield as a percentage of average fiff nance
receivabla es(4)
Net charge-offff percentage (5)
Finance receivabla es
Allowance percentage (6)
Total reserves percentage (7)
Fiscal Year ended March 31,
(In thousands)
2023
165,412
54,214
44,270
3,931
40,339
26.76%
$
$
$
2022
178,686
67,684
49,779
5,366
44,413
27.86%
$
$
$
2.38%
3.00%
24.58%
(0.20)%
3.34%
21.52%
19.62%
19.25%
(19.82)%
15.86%
2.27%
5.13%
$
128,170
$
178,786
13.57%
16.98%
1.61%
5.62%
(1)
(2)
(3)
(4)
(5)
(6)
(7)
io yield represents interest and feff e income on fiff nance receivabla es as a percentage of average
Average fiff nance receivabla es represent the average of fiff nance receivabla es throughout the period.
Average indebtedness represents the average outstanding borrowings under the Credit Facility throughout
the period. Average indebtedness does not include the PPP loan.
Gross portfolff
fiff nance receivabla es. Net portfolff
(b) interest expense minus (c) the provision forff
Pre-tax yield represents net portfolff
depreciation, and administrative), as a percentage of average fiff nance receivabla es.
Net charge-offff percentage represents net charge-offff sff (charge-offff sff less recoveries) divided by average fiff nance
receivabla es, outstanding during the period.
Allowance percentage represents the allowance forff
as of ending balance sheet date.
Total reserves percentage represents the allowance forff
unearned dealer discounts divided by fiff nance receivabla es outstanding as of ending balance sheet date.
io yield represents (a) interest and feff e income on fiff nance receivabla es minus
credit losses, as a percentage of average fiff nance receivabla es.
io yield minus operating expenses (marketing, salaries, employee benefiff ts,
credit losses divided by fiff nance receivabla es outstanding
credit losses, unearned purchase price discount, and
Critical Accounting Estimates
g
A critical accounting estimate is an estimate that: (i) is made in accordance with generally accepted accounting
principles, (ii) involves a signififf cant level of estimation uncertainty and (iii) has had or is reasonabla y likely to have a
material impact on the Company’s fiff nancial condition or results of operations.
credit losses. It is based on management’s
The Company’s critical accounting estimate relates to the allowance forff
judgement of an amount that is adequate to absa orbr
io. Because of the naturt e of
the customers under the Company’s Contracts and Direct Loan program, the Company considers the establa ishment
of adequate reserves forff
losses incurred in the existing portfolff
credit losses to be imperative.
io, current economic conditions, the estimated
The Company takes into consideration the composition of the portfolff
net realizabla e value of the underlying collateral, historical loan loss experience, delinquency, non-perforff ming assets,
and bankrupt
accounts when determining management’s estimate of probabla e credit losses and the adequacy of the
r
32
a
oach aligns with the Company’s lending policies and
io. Management believes that estimating the allowance forff
credit losses. Management utilizes signififf cant judgment in determining probabla e incurred losses and in
allowance forff
identifyiff ng and evaluating qualitative faff ctors. This appr
underwriting standards. If the allowance forff
credit losses is determined to be inadequate, then an additional charge to
the provision is recorded to maintain adequate reserves based on management’s evaluation of the risk inherent in the
loan portfolff
credit losses using the trailing twelve-month
seasonality and encompasses historical
charge-offff analysis accurately reflff ects portfolff
collection practices. Under the current methodology the management continues to evaluate qualitative faff ctors to
support its allowance forff
over-year inflff ation, as well as portfolff
collateral, level of nonperforff ming accounts, delinquency trends, and accounts with extended terms. As a result, the
Company incorpor
adequate reserves.
ated an additional $1.4 million as a qualitative component amount to its current estimate of
credit losses. The Company examines the impact of macro-economic faff ctors, such as year-
io perforff mance characteristics, such as changes in the value of underlying
io perforff mance adjusted forff
rr
icabla e state maximum interest rate, if any, or the maximum interest rate which the customer will accept. In most
Contracts are purchased frff om many diffff eff rent 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
appl
a
markets, competitive forff ces will drive down Contract rates frff om the maximum rate to a level where an individual
competitor is willing to buy an individual Contract. The Company generally purchases Contracts on an individual
basis. The Company has establa ished internal underwriting guidelines that were used by its Branch Managers and
internal underwriters when Contracts were purchased by the Company prior to the restrucr
ing of its operations.
The Company has adopted updated guidelines consistent with its post-restrucr
to be used by the Company’s originators and internal underwriters when purchasing Contracts in the Company’s
regionalized business model. Any Contract that does not meet these guidelines must be appr
management of the Company. In addition to a variety of administrative duties, the Company’s management is
responsible forff monitoring compliance with the Company’s underwriting guidelines as well as appr
underwriting exceptions.
ing operations, which guidelines are
oved by senior
oving
turt
turt
a
a
p
Fiscal 2023 Compared to Fiscal 2022
Interest and Fee Income on Finance Receivables
Interest and feff e income on fiff nance receivabla es, predominantly fiff nance charge income, decreased to $44.3 million in
fiff scal 2023 as compared to $49.8 million in fiff scal 2022. The average fiff nance receivabla es totaled $165.4 million forff
the fiff scal year ended March 31, 2023, a decrease of 7.4% frff om $178.7 million forff
the fiff scal year ended March 31,
2022. Purchasing volume decreased to $47.5 million in fiff scal 2023 frff om $85.8 million in fiff scal 2022. Purchasing
volume decreased frff om fiff scal 2022 primarily as a result of our focff us on restrucr
ing to a remote purchasing model.
turt
Competition continued to affff eff ct the Company’s abia lity to acquire Contracts at desired yields. The average APR on
fiff scal 2022. Concurrently, the dealer discount on
new Contract purchases was 22.5% forff
new Contract purchases decreased frff om 6.9% forff
fiff scal 2023, primarily as a result of
competitive pressures. Overall, the Company maintains its strategy focff used on risk-based pricing (rate, yield,
advance, term, etc.) and a commitment to the underwriting discipline required forff
fiff scal 2023 and 23.1% forff
fiff scal 2022 to 6.5% forff
io perforff mance.
optimal portfolff
io yield decreased to 26.76% forff
The gross portfolff
the fiff scal year ended March 31, 2022. The gross portfolff
average fiff nance receivabla es year over year.
the fiff scal year ended March 31, 2023 as compared to 27.86% forff
io yield decreased primarily as a result of the decrease in
io yield decreased to (0.2)% forff
The net portfolff
ended March 31, 2022. The net portfolff
losses as a percentage of fiff nance receivabla es, as described under “Analysis of Credit Losses” below.
the fiff scal year ended March 31, 2023 frff om 21.5% forff
io yield decreased primarily due to an increase in the provision forff
the fiff scal year
credit
Operating Expenses
Our operating expenses consisted primarily of servicing and administrative expenses, payroll and employee benefiff ts,
and marketing expenses. Operating expenses decreased to $32.5 million forff
compared to $34.4 million forff
by the Company.
the fiff scal year ended March 31, 2022 as a result of restrucrr
the fiff scal year ended March 31, 2023
ing initiatives undertaken
turt
33
Interest Expense
Interest expense decreased to $3.9 million forff
the fiff scal year ended March 31, 2022, due to a decrease in average outstanding debt, which was partly offff sff et by a
higher interest rate. The average outstanding debt during the year ended March 31, 2023 decreased to $54.2 million
lowing tabla e summarizes the Company’s average
frff om $67.7 million during the year ended March 31, 2022. The folff
cost of borrowed funds
the fiff scal year ended March 31, 2023, as compared to $5.4 million forff
the fiff scal years ended March 31:
forff
ff
Variabla e interest under the line of credit and credit
faff cility
Credit spread under the line of credit and credit
faff cility
Average cost of borrowed funds
ff
2023
2022
2.70%
0.63%
3.27%
5.97%
3.15%
3.78%
Analysis of Credit Losses
lowing tabla e sets forff
th a reconciliation of the changes in the allowance forff
credit losses on Contracts and
The folff
Direct Loans forff
the fiff scal years ended March 31:
credit losses
Balance at beginning of year
Provision forff
Charge-offff sff
Recoveries
Balance at end of year
credit losses
Balance at beginning of year
Provision forff
Charge-offff sff
Recoveries
Balance at end of year
For the year ended March 31, 2023
(In thousands)
Direct
Total
Indirect
1,961
37,125
(28,391)
5,570
16,265
$
$
988
3,533
(3,621)
231
1,131
$
$
2,949
40,658
(32,012)
5,801
17,396
For the year ended March 31, 2022
(In thousands)
Direct
Total
Indirect
6,001
4,210
(13,515)
5,265
1,961
$
$
153
1,755
(980)
60
988
$
$
6,154
5,965
(14,495)
5,325
2,949
$
$
$
$
r
The Company defiff nes non-perfoff rming assets as accounts that are contractuat
due or Chapta er 13 bankrupt
cy accounts. For these accounts, the accruarr
previously accruerr d interest is reversed. Upon notififf cation of a bankrupt
with other Chapta er 13 accounts. In the event the debtors’ balance is reduced by the bankrupt
will record a loss equal to the amount of principal balance reduction. The remaining balance will be reduced as
payments are received by the bankrupt
will decide based on several faff ctors, whether to begin repossession proceedings or allow the customer to begin
making regularly scheduled payments.
l of interest income is suspended, and any
collection
cy, an account is monitored forff
cy court. In the event an account is dismissed frff om bankrupt
lly delinquent forff
cy court, the Company
60 or more days past
cy, the Company
rr
rr
r
rr
The Company defiff nes a Chapta er 13 bankrupt
records a specififf c reserve forff Chapta er 13 bankrupt
allowance forff
balance of the Chapta er 13 Bankrupt
was $241 thousand and $138 thousand, respectively.
rr
rr
cy account as a Troubled Debt Restrucrr
r
cy accounts which is considered a qualitative reserve to the
turt
ing (“TDR”). The Company
credit losses. The Company records the reserve based on the expected collectabia lity of the principal
cy and the specififf c reserves recorded as of March 31, 2023 and March 31, 2022
The provision forff
forff
credit losses increased to $40.7 million forff
the fiff scal year ended March 31, 2023 frff om $6.0 million
the fiff scal year ended March 31, 2022, due to an increase in net charge-offff percentage frff om 5.13% to 15.86%.
34
The Company’s allowance forff
assets, and bankrupt
the portfolff
r
cy. The Company believes that this appr
ates recent trends such as delinquency, non-perforff ming
credit losses also incorpor
a
oach reflff ects the current trends of incurred losses within
rr
io and better aligns the allowance forff
credit losses with the portfolff
io’s perforff mance indicators.
Net charge-offff sff as a percentage of average fiff nance receivabla es increased to 15.9% forff
31, 2023 frff om 5.1% forff
portfolff
io its perforff mance trends.
the fiff scal year ended March 31, 2022, primarily reflff ecting the Company's analysis of
the fiff scal year ended March
The delinquency percentage forff Contracts more than thirty days past due, excluding Chapta er 13 bankrupt
cy
accounts, as of March 31, 2023 was 15.7%, an increase frff om 7.3% as of March 31, 2022. The delinquency
percentage forff Direct Loans more than thirty days past due, excluding Chapta er 13 bankrupt
31, 2023 was 17.0%, an increase frff om 3.6% as of March 31, 2022. The delinquency percentage forff
and Direct Loans increased as enhanced unemployment benefiff ts and stimulus programs came to an end.
rr
r
cy accounts, as of March
both Contracts
In accordance with Company policies and procedures, certain borrowers qualifyff
month principal payment defeff rrals on Contracts and Direct Loans. For the fiff scal years ended March 31, 2023 and
March 31, 2022 the Company granted defeff rrals to appr
oximately 37.3% and 11.8%, respectively, of total Contracts
and Direct Loans. The increase in the total number of defeff rrals in fiff scal 2023 compared to fiff scal 2022 was primarily
inflff uenced by portfolff
competition at the time of Contract acquisition, and general economic conditions.
io perforff mance, including but not limited to, inflff ation, credit quality of loans purchased,
, and the Company offff eff rs, one-
forff
a
Income Taxes
The Company recorded a tax expense of appr
appr
a
compared to (4.3)% in fiff scal 2023. For furff
a
oximately $1.4 million during fiff scal 2023. The Company’s effff eff ctive tax rate in fiff scal 2022 was 25.9%
ther discussion regarding income taxes see “N“ otNN e 7 – IncII ome TaxTT es”.
oximately $1.0 million during fiff scal 2022 compared to a tax expense of
Liquidity and Capital Resources
q
p
y
The Company’s cash flff ows are summarized as folff
lows:
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash
Fiscal Year ended March 31,
(In thousands)
2023
2022
$
$
(2,182) $
29,894
(32,033)
(4,321) $
3,487
3,862
(35,551)
(28,202)
Our maja or source of liquidity and capia tal is cash generated frff om our ongoing operations and our borrowing capaa
under our Credit Facility.
city
We believe that our current cash balance, together with the futff urt e cash generated frff om operations and our borrowing
capaa
city under our Credit Facility, will be suffff iff cient to satisfyff our requirements and plans forff
months. We also believe that futff urt e cash generated frff om operations and our borrowing capaa
Facility, will be suffff iff cient to satisfyff our requirements and plans forff
and the availabia lity of,ff fiff nancing on acceptabla e terms in the futff urt e will be affff eff cted by many faff ctors including overall
liquidity in the capia tal or credit markets, the state of the economy and our credit strength as viewed by potential
lenders. We cannot provide assurances that we will have futff urt e access to the capia tal or credit markets on acceptabla e
terms.
cash beyond the next 12 months. Our access to,
the next 12
city under our Credit
cash forff
On Januaryrr 18, 2023, Nicholas Financial and NDS (collectively, the “Borrowers”), two wholly-owned subsidiaries
of Nicholas Financial-Canada, entered into a Loan and Security Agreement (the “Loan Agreement”) forff
senior secured revolving credit faff cility (the “Credit Facility”) with Westlake Capia tal Finance, LLC (the “Lender”),
a new
35
who is an affff iff liate of Westlake, the servicer of substantially all of the Company's receivabla es, pursuant to which the
Lender is providing the Borrowers with a senior secured revolving credit faff cility in the principal amount of up to
$50 million.
ff
under the Credit Facility is generally limited to an advance rate of between 70% and 85%
The availabia lity of funds
of the value of the Borrowers’ eligible receivabla es. Outstanding advances under the Credit Facility will accruer
interest at a rate equal to the secured overnight fiff nancing rate (SOFR) plus a specififf ed margin, subject to a specififf ed
flff oor interest rate. Unused availabia lity under the Credit Facility will accruerr
commitment period forff
ity Date.”
as the “Maturt
advances under the Credit Facility is two years. We refeff r to the expiration of that time period
interest at a rate of 0.25% . The
ff
mental changes, and sales of assets. The Loan Agreement also requires
The Loan Agreement contains customaryrr events of defaff ult and negative covenants, including but not limited to
those governing indebtedness, liens, funda
the Borrowers to maintain (i) a minimum tangible net worth equal to the lower of $40 million and an amount equal
to 60% of the outstanding balance of the Credit Facility and (ii) an excess spread ratio of less than 8.0%. Pursuant
to the Loan Agreement, the Borrowers granted a security interest in substantially all of their assets as collateral forff
their obligations under the Credit Facility. If an event of defaff ult occurs, the Lender could increase borrowing costs,
restrict the Borrowers’ abia lity to obtain additional advances under the Credit Facility, accelerate all amounts
outstanding under the Credit Facility, enforff ce their interest against collateral pledged under the Loan Agreement or
icabla e law as secured lenders.
enforff ce such other rights and remedies as they have under the loan documents or appl
a
If the Borrowers prepay the loan and terminate the Credit Facility prior to the Maturt
would be obligated to pay the Lender a termination feff e in an amount equal to a percentage of the average
outstanding principal balance of the Credit Facility during the 90-day period immediately preceding such
termination. If the Borrowers were to sell their accounts receivabla e to a third-party prior to the Maturt
the Borrowers would be obligated to pay the Lender a feff e in an amount equal to a specififf ed percentage of the
proceeds of such sale.
ity Date, then the Borrowers
ity Date, then
The proceeds of the Credit Facility were used in part to refiff nance the Company’s existing indebtedness under the
Loan and Security Agreement dated as of November 5, 2021 by and among the Borrowers, the lenders party thereto,
and Wells Fargo Bank, N.A., as agent forff
lenders.
its payroll costs and other expenses in accordance with the requirements of the Paycheck
On May 27, 2020, the Company obtained a loan in the amount of $3.2 million frff om a bank in connection with the
U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (the “PPP Loan”). Pursuant to the
Paycheck Protection Program, all or a portion of the PPP Loan may be forff given if the Company used the proceeds of
the PPP Loan forff
payroll costs and other covered expenses
Protection Program. The Company used the proceeds of the PPP Loan forff
ication to Fiftff h Third Bank,
and sought fulff
the lender, on December 7, 2020 and submitted supplemental documentation on Januaryrr 16, 2021. On December 27,
2021 SBA inforff med the Company that no forff giveness was granted. The Company fiff led an appe
Januaryrr 5, 2022. On May 6, 2022 the Offff iff ce of Hearing and Appeals SBA (OHA) rendered a decision to deny the
appe
a
of $65 thousand on May 23, 2022.
al. The Company subsequently repaid the outstanding principal of $3.2 million plus accruer d and unpaid interest
l forff giveness of the PPP Loan. The Company submitted a forff giveness appl
al with SBA on
a
a
t to achieve a higher dollar value of receivabla es forff
The Company is currently evaluating its capia tal allocation goals and may in the futff urt e decide to change its mix of
capia tal resources in an effff orff
invested. To do so, the Company may, if so agreed with its lender, distribute futff urt e excess profiff ts generated at its
U.S. subsidiaries to the Company, or reinvest excess equity capia tal into its U.S. subsidiaries when opportuni
warrant. In addition, the Company may determine to continue its share repurchases at a higher volume than
previously and/or acquire businesses or assets that are related or unrelated to its current business, including
securities in publicly-held companies. However, the Company is not limited to these alternatives. In addition, the
Company may determine not to pursue these or any other alternatives to change its capia tal allocation, forff
example
because it determines that such path is not prude
a British Columbia company listed in the United States with primarily United States shareholders and, through its
U.S. subsidiaries, exclusively United States operations.
nt in light of legal and tax requirements appl
everyrr dollar of equity capia tal
ties
ying to the Company as
a
r
t
36
Impact of Inflff ation
p
The Company is affff eff cted by inflff ation primarily through increased operating costs and expenses including increases
in interest rates. Inflff ationaryrr pressures on operating costs and expenses historically have been largely offff sff et by the
Company’s continued emphasis on stringent operating and cost controls, although no assurances can be given
regarding the Company’s abia lity to offff sff et the effff eff cts of inflff ation in the futff urt e. Management believes the rise in
inflff ation can impact the subprime borrower due to rising cost of housing, consumer goods, gas prices, etc. and
believes it could have an impact on the perforff mance and collectabia lity of the portfolff
io.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
a
Not appl
icabla e.
37
Item 8. Financial Statements and Supplementary Data
The folff
lowing fiff nancial statements are fiff led as part of this Report:
Report of Independent Registered Public Accounting Firm (FORVIS, LLP, Atlanta, GA,
PCAOB Firm No. 686)
Report of Independent Registered Public Accounting Firm (RSM US LLP, Raleigh, NC,
PCAOB ID: 49)
Audited Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
38
40
41
42
43
44
45
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
Nicholas Financial, Inc.
OpiOO nii ion on thtt e ConCC solill datett d FiFF nii ancial StSS attt ett mentstt
We have audited the accompanying consolidated balance sheet of Nicholas Financial, Inc. and Subsidiaries (the
“Company”) as of March 31, 2023, the related consolidated statements of income, shareholders’ equity, and cash
the year ended March 31, 2023, and the related notes (collectively refeff rred to as the “fiff nancial statements”).
flff ows forff
present faff irly, in all material respects, the fiff nancial position
In our opinion, the fiff nancial statements refeff rred to above
the year ended March
of the Company as of March 31, 2023, and the results of its operations and its cash flff ows forff
31, 2023, in conforff mity with accounting principles generally accepted in the United States of America.
a
Basisii forff OpiOO nii
ion
These fiff nancial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s fiff nancial statements based on our audit.
We are a public accounting fiff rm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. feff deral
icabla e rulr es and regulations of the Securities and Exchange Commission and the PCAOB.
securities laws and the appl
a
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perforff m the audit to obtain reasonabla e assurance about
whether the fiff nancial statements are frff ee of material
misstatement, whether due to error or frff aud. The Company is not required to have, nor were we engaged to perforff m,
an audit of its internal control over fiff nancial reporting. As part of our audit, we are required to obtain an understanding
of internal control over fiff nancial reporting but not forff
e of expressing an opinion on the effff eff ctiveness of the
the purpos
Company’s internal control over fiff nancial reporting. Accordingly, we express no such opinion.
a
r
Our audit included perforff ming procedures to assess the risks of material misstatement of the fiff nancial statements,
whether due to error or frff aud, and perforff ming procedures that respond to those risks. Such procedures include
examining, on a test basis, evidence regarding the amounts and disclosures in the fiff nancial statements. Our audit also
included evaluating the accounting principles used and signififf cant estimates made by management, as well as
evaluating the overall presentation of the fiff nancial statements. We believe that our audit provides a reasonabla e basis
forff
our opinion.
38
CrCC itii itt cal Auditii MatMM ttt ett r
The critical audit matter communicated below is a matter arising frff om the current-period audit of the fiff nancial
statements that was communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the fiff nancial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the fiff nancial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance forff CrCC edit Losses
losses incurred in the existing fiff nance receivabla e portfolff
credit losses (the “Allowance”) on fiff nance receivabla es is based on management’s judgment of an
The allowance forff
amount that is adequate to absa orbr
ther described in
Notes 2 and 3 to the fiff nancial statements, the Company estimates the Allowance using a trailing twelve-month net
ying this percentage to ending fiff nance receivabla es
charge-offff sff as a percentage of average fiff nance receivabla es and appl
to estimate incurred credit losses. Management takes into consideration the composition of the portfolff
io, current
economic conditions, the estimated net realizabla e value of the underlying collateral, historical loan loss experience,
delinquency, non-perforff ming assets, and bankrupt
accounts when determining probabla e incurred credit losses and the
adequacy of the Allowance. Management also evaluates qualitative faff ctors to support the Allowance.
io. As furff
a
rr
We identififf ed the Company’s estimate of the Allowance as a critical audit matter. The principal considerations forff
that determination were the degree of subjectivity in evaluating management’s estimate and the qualitative faff ctor
pertaining to customer accounts with extended terms which increased the level of audit effff orff
t. This required a higher
degree of auditor effff orff
t and judgment.
The primaryrr procedures we perforff med to address this critical audit matter included the folff
lowing:
•
•
•
•
•
•
We obtained an understanding of the Company’s process forff
identififf cation and basis forff
qualitative faff ctor components of the Allowance.
establa ishing the Allowance, including the
We tested the completeness and accuracy of the data used by the Company to calculate the historical
trailing twelve-month net charge-offff rate.
We recomputed the mathematical accuracy of the quantitative and qualitative calculations used by the
Company.
We evaluated the reasonabla eness of the Company’s calculations of estimated incurred credit losses by
comparing historical estimates with actuat
l loss experience in subsequent periods.
We evaluated management’s delinquency and past-due calculations of estimated incurred credit losses forff
fiff nance receivabla es by re-perforff ming the Company’s loan system’s calculations on a sample of fiff nance
receivabla es and perforff ming analytical review procedures over the Company’s historical and current
delinquency trends and historical losses.
We evaluated key assumptions and qualitative faff ctors and assessed management’s conclusions regarding
the appr
and directional
a
consistency with external sources forff
qualitative faff ctors, including the magnitude
opriateness of the adjustments forff
the consumer fiff nance industry,rr
and subsequent events.
t
/s/ FORVIS, LLP
We have served as the Company’s auditor since 2022.
Atlanta, Georgia
June 27, 2023
39
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Nicholas Financial, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Nicholas Financial, Inc. and Subsidiaries (the
Company) as of March 31, 2022, the related consolidated statements of income, stockholders’ equity and cash flff ows
the year then ended, and the related notes to the consolidated fiff nancial statements (collectively, the fiff nancial
forff
statements). In our opinion, the fiff nancial statements present faff irly, in all material respects, the fiff nancial position of
the Company as of March 31, 2022, and the results of its operations and its cash flff ows forff
conforff mity with accounting principles generally accepted in the United States of America.
the year then ended, in
Basis forff Opinion
These fiff nancial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s fiff nancial statements based on our audit. We are a public accounting fiff rm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with U.S. feff deral securities laws and the appl
the Securities and Exchange Commission and the PCAOB.
icabla e rulr es and regulations of
a
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perforff m the audit to obtain reasonabla e assurance about
misstatement, whether due to error or frff aud. The Company is not required to have, nor were we engaged to perforff m,
an audit of its internal control over fiff nancial reporting. As part of our audit we are required to obtain an
understanding of internal control over fiff nancial reporting but not forff
effff eff ctiveness of the Company’s internal control over fiff nancial reporting. Accordingly, we express no such opinion.
whether the fiff nancial statements are frff ee of material
e of expressing an opinion on the
the purpos
a
rr
Our audit included perforff ming procedures to assess the risks of material misstatement of the fiff nancial statements,
whether due to error or frff aud, and perforff ming procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the fiff nancial statements. Our audit
also included evaluating the accounting principles used and signififf cant estimates made by management, as well as
evaluating the overall presentation of the fiff nancial statements. We believe that our audit provides a reasonabla e basis
forff
our opinion.
/s/ RSM US LLP
We served as the Company's auditor frff om 2018 through 2022.
Raleigh, North Carolina
June 24, 2022
40
Nicholas Financial, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
Assets
Cash
Finance receivabla es, net
Repossessed assets
Operating lease right-of-ff use assets
Prepaid expenses and other assets
Income taxes receivabla e
Property and equipment, net
Defeff rred income taxes
Total assets
Liabilities and shareholders’ equity
Credit faff cility, net of debt issuance costs
Note payabla e
Net long-term debt
Operating lease liabia lities
Accounts payabla e and accruer d expenses
Total liabia lities
Commitments and contingencies (see Note 11)
Shareholders’ equity:
Prefeff rred stock, no par: 5,000 shares authorized; none issued
Common stock, no par: 50,000 shares authorized; 12,658 and 12,673
shares issued respectively; 7,290 and 7,546 shares outstanding,
respectively
Treasuryrr stock: 5,368 and 5,127 common shares, at cost, respectively
Retained earnings
Total shareholders’ equity
Total liabia lities and shareholders’ equity
March 31,
2023
2022
$
$
$
454
106,919
1,491
176
140
946
222
-
110,348
28,936
-
28,936
176
1,427
30,539
4,775
168,600
658
4,277
1,103
989
1,783
1,385
183,570
54,813
3,244
58,057
4,410
4,717
67,184
—
—
35,223
(76,794)
121,380
79,809
110,348
$
35,292
(74,405)
155,499
116,386
183,570
$
$
$
$
See accompany
m
ing notes to the ConsCC
olidated FiFF nancial Statementstt .
41
Nicholas Financial, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share amounts)
Revenue:
Interest and feff e income on fiff nance receivabla es
Net gain on equity investments
Total revenue
Expenses:
Marketing
Administrative
Provision forff
Depreciation and amortization of intangibles
Interest expense
credit losses
Total expenses
Operating (loss) income beforff e income taxes
Income tax expense
Net (loss) income
(Loss) earnings per share:
Basic
Diluted
Fiscal Year ended March 31,
2022
2023
$
$
$
$
$
44,270
66
44,336
1,166
30,880
40,658
403
3,931
77,038
(32,702)
1,417
(34,119) $
(4.65) $
(4.65) $
49,779
-
49,779
1,831
32,170
5,965
401
5,366
45,733
4,046
1,048
2,998
0.39
0.39
See accompany
m
ing notes to the ConsCC
olidated FiFF nancial Statementstt .
42
Nicholas Financial, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
(In thousands)
Common Stock
Shares
Amount
Treasury
Stock
Retained
Earnings
7,708 $ 35,064 $ (72,343) $ 152,501 $
—
18
2
(182)
-
—
—
28
—
200
—
—
—
(2,062)
—
2,998
—
—
—
—
7,546 $ 35,292 $ (74,405) $ 155,499 $
—
11
(27)
(241)
—
—
—
(175)
—
106
— (34,119)
—
—
—
—
—
(2,389)
—
—
7,289 $ 35,223 $ (76,794) $ 121,380 $
Total
Shareholders'
Equity
115,222
2,998
—
28
(2,062)
200
116,386
(34,119)
—
(175)
(2,389)
106
79,809
Balance at March 31, 2021
Net income
Issuance of restricted stock awards
Exercise of stock options
Treasuryrr stock repurchases
Share-based compensation
Balance at March 31, 2022
Net loss
Issuance of restricted stock awards
Restricted stock cancellations
Treasuryrr stock repurchases
Share-based compensation
Balance at March 31, 2023
See accompany
m
ing notes to the ConsCC
olidated FiFF nancial Statementstt .
43
Nicholas Financial, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Cash flff ows frff om operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Fiscal Year ended March 31,
2022
2023
$
(34,119)
$
Depreciation and amortization of intangibles
Amortization of debt issuance costs
Change in operating right of use assets
Realized gains on equity investments
(Gain) on termination of leases
Loss (gain) on sale of property and equipment
Provision forff
Amortization of dealer discounts
Amortization of insurance and feff e commissions
Accretion of purchase price discount
Defeff rred income taxes
Change in operating lease liabia lities
Cancellations of restricted stock awards
Share-based compensation
credit losses
Changes in operating assets and liabia lities:
Repossessed assets
Accruerr d interest receivabla e
Prepaid expenses and other assets
Accounts payabla e and accruerr d expenses
Income taxes receivabla e
Net cash (used in) provided by operating activities
Cash flff ows frff om investing activities:
Purchase and origination of fiff nance receivabla es
Principal payments received on fiff nance receivabla es and proceeds frff om repossessed assets sales
Purchase of property and equipment
Purchases of equity investments
Proceeds frff om sales of equity investments
Proceeds frff om sale of property and equipment
Net cash provided by investing activities
Cash flff ows frff om fiff nancing activities:
Repayments on credit faff cilities
Proceeds frff om the credit faff cilities
Payment of debt issuance costs
Repayment of PPP Loan
Proceeds frff om exercise of stock options
Repurchases of treasuryrr stock
Net cash used in fiff nancing activities
Net (decrease) increase in cash
Cash, beginning of year
Cash, end of year
Supplemental Disclosures:
Interest paid, including debt originations cost
Income taxes paid
Leased assets obtained in exchange forff
new operating lease liabia lities
$
$
390
523
1,763
(66)
(131)
1,090
40,658
(5,902)
(3,512)
(130)
1,385
(1,663)
(175)
106
-
(12)
860
(3,290)
43
(2,182)
(63,348)
93,095
(59)
(7,237)
7,303
140
29,894
(43,700)
17,800
(500)
(3,244)
-
(2,389)
(32,033)
(4,321)
4,775
454
3,351
27
183
$
$
2,998
401
2,176
1,388
-
-
(20)
5,965
(6,411)
(2,821)
(152)
898
(1,591)
-
200
27
(30)
168
627
(336)
3,487
(114,544)
119,711
(1,312)
-
-
7
3,862
(105,830)
72,530
(217)
-
28
(2,062)
(35,551)
(28,202)
32,977
4,775
3,415
541
2,504
See accompany
m
ing notes to the ConsCC
olidated FiFF nancial Statementstt .
44
Nicholas Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation
a
ication softff ware forff
Nicholas Financial, Inc. (“Nicholas Financial – Canada”) is a Canadian holding company incorpor
laws of British Columbia with two wholly owned United States subsidiaries, Nicholas Data Services, Inc. (“NDS”)
and Nicholas Financial, Inc. (“NFI”). NDS historically was engaged in supporting and updating industry-rr
computer appl
ceased its operations; however, it continues as the interim holding company forff Nicholas Financial. NFI is a
specialized consumer fiff nance company engaged primarily in acquiring and servicing automobile fiff nance installment
contracts (“Contracts”) forff
consumer loans (“Direct Loans”) and sells consumer-fiff nance related products. NFI has and NDS are based in
Florida, U.S.A.
specififf c
small businesses located primarily in the Southeastern United States. NDS has
purchases of used and new automobiles and light trucr ks. NFI has also offff eff red direct
ated under the
rr
During the year ended March 31, 2023, the Company shiftff ed frff om a decentralized business model to a regionalized
business model in which each of its originators focff uses on a specififf c region in the Company’s smaller target market
foot
int with an expectation that Contract purchase and origination activities will proceed on a much smaller scale.
ff
As part of a restrucr
activities and ceased originations of Direct Loans.
ing plan (see note 12) the Company has outsourced servicing, collections and recoveryrr
prt
turt
turt
ing is to frff ee up capia tal and permit the Company to allocate excess
The goal of the strategy and related restrucr
capia tal to increase shareholder returt ns, whether by acquiring loan portfolff
the Company’s traditional business. While the overall timefrff ame and fiff nal strucr
uncertain, the Company is committed to its core product of fiff nancing primaryrr
the subprime borrower through the local independent automobile dealership which includes risk-based pricing (rate,
yield, advance, term, collateral value) and a commitment to the underwriting discipline required forff
portfolff
ios or businesses or by investing outside of
turt e of the Company remains
transportation to and frff om work forff
io perforff mance.
optimal
The accompanying consolidated fiff nancial 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”). Canadian income taxes
are not reported as they are immaterial.
2. Summary of Signififf cant Accounting Policies
Consolidation
The consolidated fiff nancial statements include the accounts of Nicholas Financial – Canada and its wholly owned
subsidiaries, NDS, and NFI, collectively refeff rred to as the “Company”. All intercompany transactions and balances
have been eliminated.
Segment Reporting
The Company reports operating segments in accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Codififf cation (“ASC”) Topic 280, Segme
an enterprr
operating decision maker in deciding how to allocate resources and assesses perforff mance. FASB ASC Topic 280
requires that a public enterprr
items, segment assets, inforff mation about
which separate fiff nancial inforff mation is availabla e that is evaluated regularly by the chief
ise report a measure of segment profiff t or loss, certain specififf c revenue and expense
the way the operating segments where determined and other items.
ting. Operating segments are components of
e
ent Repor
a
ise about
a
The Company has one reportabla e segment, which is the consumer fiff nance company.
Use of Estimates
The preparation of consolidated fiff nancial statements in conforff mity with U.S. GAAP requires management to make
estimates and assumptions that affff eff ct the reported amounts of assets and liabia lities and disclosure of contingent
assets and liabia lities at the date of the consolidated fiff nancial statements and the reported amounts of revenues and
45
expenses during the reporting period. Actuat
particularly susceptible to signififf cant change relate to the determination of the allowance forff
receivabla es.
l results could diffff eff r frff om those estimates. Material estimates that are
credit losses on fiff nance
Finance Receivables
Finance receivabla es are recorded at cost, net of unearned dealer discounts, unearned insurance and commissions (see
“Revenue Recognition”), and the allowance forff
credit losses (see Note 3).
Allowance forff Credit Losses
r
accounts when determining management’s estimate of probabla e credit losses and the adequacy of the
credit losses. Management utilizes signififf cant judgment in determining probabla e incurred losses and in
The Company takes into consideration the composition of the portfolff
io, current economic conditions, the estimated
net realizabla e value of the underlying collateral, historical loan loss experience, delinquency, non-perforff ming assets,
and bankrupt
allowance forff
identifyiff ng and evaluating qualitative faff ctors. This appr
credit losses is determined to be inadequate, then an additional charge to
underwriting standards. If the allowance forff
the provision is recorded to maintain adequate reserves based on management’s evaluation of the risk inherent in the
loan portfolff
oach aligns with the Company’s lending policies and
io.
a
io’s perforff mance indicators. Estimating the allowance forff
ies this percentage to ending fiff nance receivabla es to estimate probabla e credit losses. This appr
The Company uses a trailing twelve-month net charge-offff as a percentage of average fiff nance receivabla es, and
appl
a
current trends of incurred losses within the portfolff
portfolff
charge-offff analysis reflff ects portfolff
to support its allowance forff
year-over-year inflff ation, as well as portfolff
collateral, level of nonperforff ming accounts, delinquency trends, and accounts with extended terms. As a result, the
Company incorpor
adequate reserves.
credit losses with the
credit losses using the trailing twelve-month
ated an additional $1.4 million as a qualitative component amount to its current estimate of
credit losses. The Company examines the impact of macro-economic faff ctors, such as
io perforff mance characteristics, such as changes in the value of underlying
seasonality. Management evaluates qualitative faff ctors
io and closely aligns the allowance forff
io perforff mance adjusted forff
oach reflff ects the
a
rr
Repossessed Assets
Repossessed assets are stated at net realizabla e value and consist primarily of automobiles that have been repossessed
by the Company and are awaiting fiff nal disposition. Costs associated with repossession, transport, and auction
preparation expenses are reported as expenses in the period in which they are incurred.
Property and Equipment
Property and equipment is recorded at cost, net of accumulated depreciation. Expenditurt es forff
maintenance are charged to expense as incurred. Depreciation of property and equipment is computed using the
straight-line method over the estimated usefulff
lives of the assets as folff
repairs and
lows:
Automobiles
Equipment
Furniturt e and fiff xturt es
Softff ware
Leasehold improvements
3 years
5 years
7 years
7 years
Lesser of lease term or usefulff
lifeff
(generally 6 - 7 years)
46
Income Taxes
under the asset and liabia lity method. Defeff rred tax assets and liabia lities are
the futff urt e tax consequences attributabla e to diffff eff rences between the consolidated fiff nancial statement
Income taxes are accounted forff
recognized forff
carryirr ng amounts of existing assets and liabia lities and their respective tax bases along with operating loss and tax
credit carryfrr orff wards, if any. Defeff rred tax assets and liabia lities are measured using enacted tax rates expected to
appl
a
The effff eff ct on defeff rred tax assets and liabia lities of a change in tax rate is recognized in income in the period that
includes the enactment date.
y to taxabla e income in the years in which those temporaryrr diffff eff rences are expected to be recovered or settled.
The Company recognizes tax benefiff ts frff om 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
benefiff ts recognized in the consolidated fiff nancial statements frff om any such position would be measured based on the
largest benefiff t that has a greater than fiff ftff y percent likelihood of being realized upon ultimate settlement. It is the
Company’s policy to recognize interest and penalties accruer d on any uncertain tax benefiff ts as a component of
income tax expense. There were no uncertain tax positions as of March 31, 2023 or 2022.
The Company fiff les income tax returt ns in the U.S. feff deral jurisdiction, various state jurisdictions, and Canada.
The effff eff ct on defeff rred taxes of a change in tax rates is recognized in income tax expense in the period that includes
the enactment date.
Revenue Recognition
Interest income on fiff nance receivabla es is recognized using the interest method. Accruarr
fiff nance receivabla es is suspended when a loan is contractuat
repossessed, whichever is earlier. The Company reverses the accruarr
contractuat
lly delinquent 61 days or more.
lly delinquent forff
l of interest income on
61 days or more, or the collateral is
l of interest income when the loan is
r
The Company defiff nes a non-perforff ming asset as one that is 60 or more days past due, a Chapta er 7 bankrupt
account, or a Chapta er 13 bankrupt
cy account that has not been confiff rmed by the courts, forff which the accruar
interest income is suspended. Upon receiving notice that a Chapta er 13 bankrupt
confiff rmed, the account is immediately charged-offff .ff Upon notififf cation of a Chapta er 7 bankrupt
monitored forff
records a loss equal to the amount of principal balance reduction. The remaining balance is reduced as payments are
received. In the event an account is dismissed frff om bankrupt
r
repossession proceedings or to allow the customer to make regularly scheduled payments (see Note 3).
cy
l of
tee’s plan (BK13) was not
collectabia lity. In the event the debtors’ balance is reduced by the bankrupt
cy, an account is
cy court, the Company
cy, the Company will decide whether to begin
cy trusrr
r
r
r
rr
lly pays forff
the Contract. The discount negotiated by the Company is a func
A dealer discount represents the diffff eff rence between the fiff nance receivabla e of a Contract, and the amount of money
the Company actuat
tion 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 folff
in making installment payments forff
residence; current and prior job statust
credit history.rr
In addition, the Company examines its prior experience with Contracts purchased frff om the dealer
frff om 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 lifeff of the loan. The average dealer discount, as a percent of the amount fiff nanced, associated with
new volume forff
the fiff scal years ended March 31, 2023 and 2022, were 6.5% and 6.9%, respectively.
lowing faff ctors related to the borrower: place and length of
automobiles; current income; and
; historyrr
ff
Unearned insurance and feff e commissions consist primarily of commissions received frff om the sale of ancillaryrr
products. These products include automobile warranties, roadside assistance programs, accident and health
insurance, credit lifeff
These commissions are amortized over the lifeff of the Contract using the interest method.
insurance, involuntaryrr unemployment insurance, and forff ced placed automobile insurance.
47
Origination and processing feff es are an upfrff ont feff e charged by the Company to process a new loan appl
are recognized over the lifeff of the loan using the interest method.
a
ication. These
Non-suffff iff cient funds
ff
feff es and late feff es are recognized when collected.
Earnings Per Share
feff itabla e dividend rights which are considered
The Company has granted stock compensation awards with nonforff
participating securities. Earnings per share is calculated using the two-class method, as such awards are more
dilutive under this method than the treasuryrr stock method. Ordinarily, basic earnings per share is calculated by
dividing net income allocated to common shareholders by the weighted average number of common shares
outstanding during the period, which excludes the participating securities. The Company's participating securities
are non-vested restricted shares which are not required to share losses, and accordingly, are not allocated losses in
periods of net loss. Dilutive earnings per share are calculated by dividing net income allocated to common
shareholders by the weighted average number of common shares outstanding during the period which includes the
dilutive effff eff ct of additional potential common shares frff om stock compensation awards. For the years ended March
31, 2023 and 2022, the Company experienced net loss and net income, respectively. In a period of loss, the
weighted-average number of common shares outstanding excludes common stock equivalents, because their
inclusion would be anti-dilutive. For the year ended March 31, 2023, potentially dilutive securities that were not
included in the diluted per share calculation because they would be anti-dilutive comprise 10,000 shares frff om
options to purchase common shares and 12,010 unvested restricted shares. Loss and income per share has been
computed based on the folff
lowing weighted average number of common shares outstanding:
Numerator:
Net (loss) income per consolidated statements of income
Percentage allocated to shareholders *
Numerator forff
basic and diluted earnings (loss) per share
basic earnings (loss) per share - weighted-
Denominator:
Denominator forff
average shares outstanding
Dilutive effff eff ct of stock options
Denominator forff
diluted earnings (loss) per share
Fiscal Year ended March 31,
(In thousands, except earnings
per share numbers)
2023
2022
$
(34,119) $
100.0%
(34,119)
2,998
99.5%
2,983
7,330
—
7,330
7,572
—
7,572
Per share (loss) income frff om continuing operations
Basic
Diluted
$
$
(4.65) $
(4.65) $
0.39
0.39
i
*Basic weight
Basic weight
stock unitstt exee pex
i
cted to vest
ed-average shares outstt tanding
ed-average shares outstt tanding and unvested restricted
Percentage allocated to shareholdel
rsrr
Share-Based Payments
7,330
7,572
7,330
100.0%
7,612
99.5%
The grant date faff ir value of share awards is recognized in earnings over the requisite service period (presumptively,
the vesting period). The Company estimates the faff ir value of option awards using the Black-Scholes option pricing
model. The risk-frff ee interest rate is based upon a U.S. Treasuryrr
that is similar to the expected
the previous period equal to the
term of the options. Expected volatility is based upon the historical volatility forff
expected term of the options. The expected term is based upon the average lifeff of previously issued options. The
expected dividend yield is based upon the yield expected on the date of grant to occur over the term of the option.
ent with a lifeff
instrumr
48
The faff ir value of non-vested restricted shares and perforff mance units are measured at the market price of a share on a
grant date. Restricted shares have a three-year service period. Perforff mance units include a perforff mance period
(generally ending at the end of the fiff scal year in which the units were granted) folff
lowed by a two-year service
period. At the end of the perforff mance period, these units effff eff ctively become restricted shares forff
year service period at which time they become vested.
the remaining two-
Fair Value Measurements
The Company measures specififf c assets and liabia lities at faff ir value, which is an exit price, representing the price that
would be received to sell an asset, or paid to transfeff r a liabia lity, in an orderly transaction between market
participants at the measurement date. When appl
market participants would use in pricing the asset or liabia lity under a three-tier faff ir value hierarchy, which prioritizes
the inputs used in measuring faff ir value. These tiers include: Level 1, defiff ned as observabla e inputs such as quoted
prices in active markets; Level 2, defiff ned as inputs other than quoted prices in active markets that are either directly
or indirectly observabla e; and Level 3, defiff ned as unobservabla e inputs about
thereforff e requiring an entity to develop its own assumptions (see Note 6).
icabla e, the Company utilizes market data or assumptions that
which little or no market data exists,
a
a
Financial Instruments and Concentrations
The Company’s fiff nancial instrumr
fiff nance receivabla es), a note payabla e, and a Credit Facility. Financial instrumrr
of credit risk are primarily fiff nance receivabla es and cash.
ents consist of cash, fiff nance receivabla es (accruer d interest receivabla e is a part of
ents that are exposed to concentrations
During the year ended, March 31, 2023, the Company operated in 19 states through its branch locations. Of the
aggregate fiff nance receivabla es as of March 31, 2023, Florida represented 22%, Ohio represented 15%, Georgia
represented 11%, and North Carolina represented 8%. Each of Kentuct ky, Missouri, and South Carolina represented
6%, and Indiana represented 5%. Of the remaining states, no one state represented more than 5% of the total fiff nance
receivabla es. The Company provides credit during the normal course of business and perforff ms ongoing credit
evaluations of its customers.
The Company maintains reserves forff
management’s expectations. The Company perfeff cts a primaryrr security interest in all vehicles fiff nanced as a forff m of
collateral.
potential credit losses which, when realized, have been within the range of
The combined account balances that the Company maintains at fiff nancial institutt
insured limits, and there is a concentration of credit risk related to accounts on deposit in excess of feff derally insured
limits. The Company has not experienced any losses in such accounts and believes this risk of loss is not signififf cant.
ions typically exceed feff derally
Reclassififf cations
Certain prior-period amounts have been reclassififf ed to conforff m to the current presentation. Such reclassififf cations
had no impact on previously reported net income or shareholders’ equity.
Recent Accounting Pronouncements
trumentstt —CrCC edit
trtt umentstt . Among other things, the amendments
ents held at the reporting date
In June 2016, the FASB issued the Accounting Standards Update ("ASU") 2016-13, FiFF nancial InsII
Losses (T(( opiTT
c 326): MeMM asurement of CrCC edit Losses on FiFF nancial InsII
in this ASU require the measurement of all expected credit losses forff
based on historical experience, current conditions and reasonabla e and supportabla e forff ecasts. Financial institutt
and other organizations will now use forff ward-looking inforff mation to better inforff m their credit loss estimates. Many
ied today will still be permitted, although the inputs to those techniques will
of the loss estimation techniques appl
change to reflff ect the fulff
l amount of expected credit losses. The ASU also requires additional disclosures related to
estimates and judgments used to measure all expected credit losses. The new guidance was originally effff eff ctive forff
fiff scal years, and interim periods within those fiff scal years, beginning aftff er December 15, 2020, however, the FASB
voted to delay the implementation date forff
this accounting standard, forff
effff eff ctive date is forff
fiff scal years beginning aftff er December 15, 2022, and early adoption is permitted. The Company
smaller reporting companies, the new
fiff nancial instrumr
ions
a
49
is evaluating the impact of the adoption of this ASU on the consolidated fiff nancial statements by collecting and
analyzing data that will be needed to produce historical inputs, evaluating current conditions and reasonabla e and
supportabla e forff ecasts, which are inputs into models created as a result of adopting this ASU. The Company believes
the adoption of this ASU will likely result in an increase of between $0.9 million and $1.9 million to our allowance
forff
credit losses.
trumentstt —CrCC edit Losses (T(( opiTT
c 326). The amendments in this ASU eliminate the TDR
In March 2022, the FASB issued ASU 2022-02, TrTT oubled Debt Restructurings (“TDTT RDD s”)” and ViVV ntage Disii closures
as an update to FiFF nancial InsII
recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting
other loan modififf cations) whether the modififf cation represents a new loan or a continuation of an existing loan.
forff
The amendments enhance existing disclosure requirements and introduce new requirements related to certain
modififf cations of receivabla es made to borrowers experiencing fiff nancial diffff iff culty. In addition, ASU 2022-02 requires
that an entity disclose current-period gross write-offff sff by year of origination forff
scope of Subtopic 326-20, FiFF nancial InsII
ASU 2022-02 will be effff eff ctive forff
adoption of this ASU will not have a material impact on the Company's consolidated fiff nancial statements.
the Company with its adoption of ASU 2016-13. The Company believes the
trumentstt —CrCC edit Losses—M— eMM asured at Amortizii ed CosCC t. The amendments in
fiff nancing receivabla es within the
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 fiff nancial statements.
3. Finance Receivables
Finance receivabla es consist of Contracts and Direct Loans, each of which comprise a portfolff
portfolff
io segment consists of smaller balance homogeneous loans which are collectively evaluated forff
io segment. Each
impairment.
The Company purchases individuad l Contracts frff om used and new 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 perforff mance of any Contract the Company purchases.
The Company’s charge offff policy is 121 days past due. In addition, Chapta er 13 Bankrupt
cies, once the Company is
notififf ed of such, is notated on the customer's account of the bankrupt
. When the Company receives notice
that a Chapta er 13 Bankrupt
charged offff .ff This policy is in line with industryrr standards, considering the sub-prime naturt e of our customers. In the
event of repossession, the charge-offff will occur aftff er standard collection practices by the Company, as determined
by the residency state of a customer. This practice is consistent with the sub-prime industry.rr
cy plan is not confiff rmed by the courts or the loan is 121 days past due, the loan is
cy statust
rr
rr
rr
Contracts and Direct Loans included in fiff nance receivabla es are detailed as folff
31:
lows as of fiff scal years ended March
Finance receivabla es
Accruer d interest receivabla e
Unearned dealer discounts
Unearned purchase price discounts
Unearned insurance and feff e commissions
Finance receivabla es, net of unearned
Allowance forff
Finance receivabla es, net
credit losses
Contracts
(In thousands)
2023
128,170 $
1,932
(4,286)
(82)
(1,419)
124,315
(17,396)
106,919 $
2022
178,786
2,315
(6,894)
(212)
(2,446)
171,549
(2,949)
168,600
$
$
The Company purchases Contracts frff om automobile dealers at a negotiated price that is less than the original
principal amount being fiff nanced by the purchaser of the automobile. The Contracts are predominantly forff
vehicles. As of March 31, 2023, the average model year of vehicles collateralizing the portfolff
The terms of the Contracts range frff om 12 to 84 months and bear an average contractuat
22.9% as of March 31, 2023 and 2022, respectively.
l interest rate of 22.2% and
io was a 2012 vehicle.
used
50
Direct Loans
Direct Loans are typically forff
amounts ranging frff om $1 thousand to $15 thousands and are generally secured by a
lien on an automobile, watercraftff or other permissible tangible personal property. The maja ority of Direct Loans are
originated with current or forff mer customers under the Company’s automobile fiff nancing program. The typical Direct
Loan represents a better credit risk than Contracts due to the customer’s historical payment historyrr with the
Company; however, the underlying collateral is less valuabla e. In deciding whether or not to make a loan, the
Company considers the individual’s credit history,rr
interview with a Company loan offff iff cer. 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 historyrr of
the borrower under the Contract is a signififf cant faff ctor in making the loan decision.
job stabia lity, income, and impressions created during a personal
During fiff scal 2023, the Company has cancelled, not renewed, or otherwise terminated all of such Direct Loan
licenses. Consequently, the Company has not originated any new Direct Loans since the end of the third quarter of
fiff scal 2023 and the Company does not intend to originate any new Direct Loans going forff ward. However, the
Company expects its third-party service provider to continue to service the Company’s existing Direct Loans. Direct
Loans constitutt ed appr
March 31, 2023, and 14% of the aggregate principal amount of the Company’s loan portfolff
The terms of the Direct Loans range frff om 6 to 72 months and bear an average contractuat
29.8% as of March 31, 2023 and 2022, respectively. The Company expects its total Direct Loans portfolff
io to be
reduced over time as such Direct Loans are paid offff or otherwise liquidated until there are no Direct Loans in the
Company’s portfolff
ending March 31, 2027.
io, which at the current rate of such activity, is expected to occur sometime during the fiff scal year
oximately 15% of the aggregate principal amount of the Company’s loan portfolff
io as of March 31, 2022.
l interest rate of 30.4% and
io as of
a
Allowance forff Credit Losses
The folff
lowing presents the activity in our allowance forff
credit losses:
credit losses
Balance at beginning of year
Provision forff
Charge-offff sff
Recoveries
Balance at end of year
credit losses
Balance at beginning of year
Provision forff
Charge-offff sff
Recoveries
Balance at end of year
$
$
$
$
For the year ended March 31, 2023
(In thousands)
Direct
Total
Indirect
1,961 $
37,125
(28,391)
5,570
16,265 $
988 $
3,533
(3,621)
231
1,131 $
2,949
40,658
(32,012)
5,801
17,396
For the year ended March 31, 2022
(In thousands)
Direct
Total
Indirect
6,001 $
4,210
(13,515)
5,265
1,961 $
153 $
1,755
(980)
60
988 $
6,154
5,965
(14,495)
5,325
2,949
A perforff ming account is defiff ned as an account that is less than 60 days past due. The Company defiff nes an
automobile contract as delinquent when more than 25% of payments contractuat
paid by the immediately folff
servicing agreements or as a result of a defeff rral. The period of delinquency is based on the number of days payments
are contractuat
lowing due date, which date may have been extended within limits specififf ed in the
lly due by a certain date has not been
lly past due, as extended where appl
icabla e.
a
51
In certain circumstances, the Company will grant obligors one-month payment extensions. The only modififf cation of
terms in those circumstances is to advance the obligor’s next due date by one month and extend the maturt
ity date of
the receivabla e. There are no other concessions, such as a reduction in interest rate, forff giveness of principal or of
accruer d interest. Accordingly, the Company considers such extensions to be insignififf cant delays in payments rather
than troubled debt restrucr
ings.
turt
A non-perforff ming account is defiff ned as an account that is contractuat
Chapta er 13 bankrupt
cy account, and the accruar
forff
auto fiff nancing segment.
contractuat
r
l of interest income is suspended. The Company’s charge-offff policy
lly delinquent forff
60 days or more or is a
lly delinquent is 121 days. The Company’s charge-offff policy aligns with practices within the subprime
In the event an account is dismissed frff om bankrupt
repossession proceedings or to allow the customer to begin making regularly scheduled payments.
cy, the Company will decide, based on several faff ctors, to begin
r
The folff
lowing tabla e is an assessment of the credit quality by creditworthiness as of March 31:
Perforff ming accounts
Non-perforff ming accounts
Total
Chapta er 13 bankrupt
Finance receivabla es
cy
r
Contracts
$
$
101,856 $
6,972
108,828
590
109,418 $
2023
Direct
Loans
16,926
1,728
18,654
98
18,752
$
$
(In thousands)
Total
118,782 $
8,700
127,482
688
128,170 $
Contracts
149,976 $
4,167
154,143
254
154,397 $
2022
Direct
Loans
24,102 $
274
24,376
13
24,389 $
Total
174,078
4,441
178,519
267
178,786
lowing tabla es present certain inforff mation regarding the delinquency rates experienced by the Company with
The folff
respect to Contracts and Direct Loans, excluding any Chapta er 13 bankrupt
cy accounts:
r
Balance
Outstanding
(In thousands)
30 – 59 days
60 –89 days
90-119 days
120+ days
Total
Contracts
March 31, 2023 $
108,828 $
10,083
March 31, 2022 $
154,143 $
9.27%
7,097
4.60%
$
$
$
$
3,274
3.01%
2,936
1.90%
3,698
3.40%
1,183
0.77%
$
$
$
$
-
0.00%
48
0.03%
17,055
15.67%
11,264
7.31%
Direct Loans
March 31, 2023 $
Balance
Outstanding
18,654 $
March 31, 2022 $
24,376 $
30 – 59 days
60 –89 days
90-119 days
120+ days
Total
$
$
1,448
7.76%
607
2.49%
$
$
654
3.51%
197
0.81%
1,074
5.76%
77
0.32%
$
$
$
$
-
0.00%
-
0.00%
3,176
17.03%
881
3.61%
52
4. Property and Equipment
Property and equipment as of March 31, 2023 and 2022 is summarized as folff
lows:
2023
Automobiles
Softff ware
Equipment
Furniturt e and fiff xturt es
Leasehold improvements
2022
Automobiles
Softff ware
Equipment
Furniturt e and fiff xturt es
Leasehold improvements
Cost
(In thousands)
Accumulated
Depreciation
Net Carrying
Value
$
$
$
$
- $
113
323
9
2
447 $
230 $
246
1,735
728
1,297
4,236 $
-
36
183
6
-
225
195
74
664
477
1,043
2,453
$
$
$
$
-
77
140
3
2
222
35
172
1,071
251
254
1,783
5. Credit Facility
Westlake Credit Facilityy
On Januaryrr 18, 2023, NFI and NDS (collectively, the “Borrowers”), two wholly-owned subsidiaries of Nicholas
Financial-Canada, entered into a Loan and Security Agreement (the "Loan Agreement") forff
a new senior secured
revolving credit faff cility (the “Credit Facility”) with Westlake Capia tal Finance, LLC (the “Lender”), who is an
affff iff liate of Westlake, the servicer of substantially all of the Company's receivabla es, pursuant to which the Lender is
providing the Borrowers with a senior secured revolving credit faff cility in the principal amount of up to $50 million.
ff
under the Credit Facility is generally limited to an advance rate of between 70% and 85%
The availabia lity of funds
of the value of the Borrowers’ eligible receivabla es. Outstanding advances under the Credit Facility will accruer
interest at a rate equal to the secured overnight fiff nancing rate (SOFR) plus a specififf ed margin, subject to a specififf ed
flff oor interest rate. Unused availabia lity under the Credit Agreement will accruer
commitment period forff
to as the “Maturt
advances under the Credit Facility is two years. The expiration of that time period is refeff rred
interest at a rate of 0.25%. The
ity Date.”
ff
mental changes, and sales of assets. The Loan Agreement also requires
The Loan Agreement contains customaryrr events of defaff ult and negative covenants, including but not limited to
those governing indebtedness, liens, funda
the Borrowers to maintain (i) a minimum tangible net worth equal to the lower of $40 million and an amount equal
to 60% of the outstanding balance of the Credit Facility and (ii) an excess spread ratio of less than 8.0%. Pursuant
to the Loan Agreement, the Borrowers granted a security interest in substantially all of their assets as collateral forff
their obligations under the Credit Facility. If an event of defaff ult occurs, the Lender could increase borrowing costs,
restrict the Borrowers’ abia lity to obtain additional advances under the Credit Facility, accelerate all amounts
outstanding under the Credit Facility, enforff ce their interest against collateral pledged under the Loan Agreement or
icabla e law as secured lenders.
enforff ce such other rights and remedies as they have under the loan documents or appl
a
If the Borrowers prepay the loan and terminate the Credit Facility prior to the Maturt
would be obligated to pay the Lender a termination feff e in an amount equal to a percentage of the average
outstanding principal balance of the Credit Facility during the 90-day period immediately preceding such
termination. If the Borrowers were to sell their accounts receivabla e to a third-party prior to the Maturt
ity Date, then the Borrowers
ity Date, then
53
the Borrowers would be obligated to pay the Lender a feff e in an amount equal to a specififf ed percentage of the
proceeds of such sale.
The proceeds of the Credit Facility were used in part to refiff nance $50 million of the Company’s existing
indebtedness under the Loan and Security Agreement dated as of November 5, 2021 by and among the Borrowers,
the lenders party thereto, and Wells Fargo Bank, N.A., as agent forff
lenders.
The Credit Agreement contains customaryrr events of defaff ult and covenants, including but not limited to fiff nancial and
operating results around tangible net worth, collateral perforff mance indicator, excess spread ratio. Subject to
Company’s compliance with certain terms and conditions, the lender waived its rights and remedies under the
Agreement appl
date March 31, 2023 and continuing through September 30, 2024.
icabla e to the excess spread ratio covenant and collateral perforff mance indicator effff eff ctive as of the
a
y
Wells Fargo Credit Facility
g
On November 5, 2021, NFI and NDS entered into a senior secured credit faff cility (the “Wells Fargo Credit Facility”)
pursuant to a loan and security agreement by and among the Borrowers, Wells Fargo Bank, N.A., as agent, and the
lenders that are party thereto (the “Credit Agreement”). The prior credit faff cility (the "Ares Credit Facility") pursuant
to a credit agreement among the Company’s subsidiaryrr NF Funding I, Ares Agent Services, L.P. and the lenders
party thereto was paid offff in connection with entering into the Wells Fargo Credit Facility. As a result, the Company
recognized an acceleration of unamortized debt issuance costs (non-cash interest expense) related to the
extinguishment of the Ares Credit Facility in the amount of $1.9 million as interest expense within the Consolidated
Statements of Income.
Pursuant to the Credit Agreement, the lenders agreed to extend to the Borrowers a line of credit of up to
$175 million. The availabia lity of funds
under the Wells Fargo Credit Facility was generally limited to an advance
rate of between 80% and 85% of the value of eligible receivabla es, and outstanding advances under the Wells Fargo
advances under
Credit Facility accruer d interest at a rate equal to the SOFR plus 2.25%. The commitment period forff
the Credit Facility was three years.
ff
Pursuant to the Credit Agreement, the Borrowers granted a security interest in substantially all of the Company's
assets as collateral forff
their obligations under the Wells Fargo Credit Facility. Furthermore, pursuant to a separate
collateral pledge agreement, NDS pledged its equity interest in NFI as additional collateral.
The Credit Agreement and the other loan documents contained customaryrr events of defaff ult and negative covenants,
including but not limited to those governing indebtedness, liens, funda
assets. If an event of defaff ult occurred, the lenders could have increased borrowing costs, restricted the Borrowers’
abia lity to obtain additional advances under the Wells Fargo Credit Facility, accelerated all amounts outstanding
under the Credit Facility, enforff ced their interest against collateral pledged under the Wells Fargo Credit Facility or
icabla e law as secured lenders.
enforff ced such other rights and remedies as they had under the loan documents or appl
mental changes, investments, and sales of
a
ff
As previously announced on Form 8-K fiff led on October 27, 2022, the Company received a letter frff om the agent of
its lenders, notifyiff ng the Company that it was in defaff ult and institutt
August 31, 2022. In the letter, the lenders expressly reserved all rights and remedies availabla e under the credit
agreement. Among those rights and remedies was the abia lity of the lenders to accelerate all of the Company’s
obligations under the loan. The Company subsequently announced on Form 8-K fiff led on December 12, 2022 that it
entered into an amendment to the Wells Fargo Credit Agreement. Pursuant to the amendment, the lenders waived
the event of defaff ult and the defaff ult rate of interest ceased being appl
ing the defaff ult rate of interest effff eff ctive as of
icabla e as of December 6, 2022.
a
thermore reducd ed the maximum amount availabla e under the Wells Fargo Credit Facility frff om
The amendment furff
$175 million to $60 million, and also reduced the availabia lity of funds
of between 80% and 85% of the value of eligible receivabla es to an advance rate of 50% of the value of eligible
receivabla es, and changed the maturt
2023. The Company incurred overall costs associated with the restrucr
ity date of the Wells Fargo Credit Facility frff om November 5, 2024 to May 31,
ing in the amount of $0.3 million.
under the credit faff cility frff om an advance rate
turt
ff
54
As of March 31, 2023, the Company had aggregate outstanding indebtedness, net of debt issuance costs, under the
Credit Facility of $29.1 million, compared to $54.8 million outstanding under the Wells Fargo Credit Facility as of
March 31, 2022.
Futurt e maturt
ities of debt as of March 31, 2023 are as folff
lows:
(in thousands)
Year Ended March 31,
2024
2025
$
$
-
29,100
29,100
its payroll costs and other expenses in accordance with the requirements of the Paycheck
On May 27, 2020, the Company obtained a loan in the amount of $3.2 million frff om a bank in connection with the
U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (the “PPP Loan”). Pursuant to the
Paycheck Protection Program, all or a portion of the PPP Loan may be forff given if the Company used the proceeds of
the PPP Loan forff
Protection Program. The Company used the proceeds of the PPP Loan forff
payroll costs and other covered expenses
ication to Fiftff h Third Bank,
and sought fulff
the lender, on December 7, 2020 and submitted supplemental documentation on Januaryrr 16, 2021. On December 27,
2021 SBA inforff med the Company that no forff giveness was granted. The Company fiff led an appe
Januaryrr 5, 2022. On May 6, 2022 the Offff iff ce of Hearing and Appeals SBA (OHA) rendered a decision to deny the
a
appe
of $65 thousand on May 23, 2022.
al. The Company subsequently repaid the outstanding principal of $3.2 million plus accruer d and unpaid interest
l forff giveness of the PPP Loan. The Company submitted a forff giveness appl
al with SBA on
a
a
6. Fair Value Disclosures
In fiff scal year 2023 the Company initiated certain equity investments. The Company defiff ned these equity
investments as trading securities forff which the changes in faff ir value were immediately recognized through net
income in each quarter, respectively. The Company sold all equity investments as of March 31, 2023, all gains were
recognized in the Consolidated Statements of Income, forff
the year ended March 31, 2023.
The carryirr ng value of cash, repossessed assets, the Credit Facility, and note payabla e appr
a
oximates faff ir value.
Based on current market conditions, any new or renewed credit faff cility would contain pricing that appr
Company’s current Credit Facility. Based on these market conditions, the faff ir value of the Credit Facility as of
March 31, 2023 was estimated to be equal to the book value. The interest rate forff
rate based on SOFR pricing options. Similarly, the faff ir value forff
the book value. The interest rate forff
the note payabla e was 1%.
the Credit Facility is a variabla e
the note payabla e as of March 31, 2023 was equal to
oximates the
a
Level 1 is used forff
value. These assets are considered to have readily observabla e, transparent prices and thereforff e a reliabla e, faff ir market
a
value. Management has determined this level to be most appr
assets and liabia lities that have a regular mark to market mechanism forff
cash and the note payabla e.
setting a faff ir market
opriate forff
Level 2 is used forff
determined based on other data values or market pricing. Management has determined that this level is not
a
appr
assets and liabia lities that do not have regular market pricing, but whose faff ir value can be
any of the Company's assets and liabia lities.
opriate forff
55
The Company may be required, frff om time to time, to measure certain assets and liabia lities at faff ir value on a
nonrecurring basis. At each reporting period, all assets and liabia lities forff which the faff ir value measurement is based
on signififf cant unobservabla e inputs are classififf ed as Level 3. Management has determined that this level to be most
a
appr
fiff nance receivabla es, repossessed assets, and the Credit Facility shown in the tabla e below.
opriate forff
Fair Value Measurement Using
(In thousands)
Level 2
Level 3
Level 1
Fair
Value
Carrying
Value
$
$
$
$
$
$
$
$
$
$
454 $
4,775 $
— $
— $
— $
— $
454 $
4,775 $
454
4,775
— $
— $
— $
— $
— $
— $
— $ 105,971 $ 105,971 $ 106,919
— $ 168,600 $ 168,600 $ 168,600
— $
— $
1,491 $
658 $
1,491 $
658 $
1,491
658
— $ 29,100 $ 29,100 $ 29,100
— $ 55,000 $ 55,000 $ 55,000
— $
3,244 $
— $
— $
— $
— $
— $
3,244 $
—
3,244
Description
Cash:
March 31, 2023
March 31, 2022
Finance receivabla es:
March 31, 2023
March 31, 2022
Repossessed assets:
March 31, 2023
March 31, 2022
Credit faff cility:
March 31, 2023
March 31, 2022
Note payabla e:
March 31, 2023
March 31, 2022
7. Income Taxes
Income tax expense consists of the folff
lowing forff
the years ended March 31:
Current:
Federal
State
Total current
Defeff rred:
Federal
State
Total defeff rred
Income tax expense
(In thousands)
2023
2022
$
$
22 $
10
32
708
677
1,385
1,417 $
116
35
151
800
97
897
1,048
56
The net tax effff eff cts of temporaryrr diffff eff rences between the carryirr ng amounts of assets and liabia lities forff
reporting purpos
components of the Company’s defeff rred tax assets consist of the folff
es and the amounts used forff
lowing as of March 31:
income tax purpos
es are reflff ected in defeff rred income taxes. Signififf cant
fiff nancial
r
rr
Defeff rred Tax Assets
Allowance forff
forff
tax purpos
r
credit losses not currently deductible
es
Share-based compensation
Federal and state net operating loss carryfrr orff wards
Right of use liabia lity
Other items
Valuation Allowance
Total defeff rred tax assets
Defeff rred tax liabia lities
Right of use asset
Other items
Total defeff rred tax liabia lities
Defeff rred income taxes
(In thousands)
2023
2022
$
4,538 $
20
4,812
43
87
(9,457)
43
43
-
43
$
- $
900
79
507
1,094
175
-
2,755
1,062
308
1,370
1,385
Income tax expense reflff ects an effff eff ctive U.S. tax rate, which diffff eff rs frff om the corpor
reasons:
r
ate tax rate forff
the folff
lowing
Income tax (benefiff t) expense at Federal statutt oryrr
Increase (decrease) resulting frff om:
Change in Valuation Allowance
State income taxes, net of Federal benefiff t
Other
Income tax expense
(In thousands)
2023
2022
rate
$
(6,838) $
855
9,457
(1,207)
5
1,417 $
-
142
51
1,048
$
Management assesses the availabla e positive and negative evidence to estimate whether suffff iff cient futff urt e taxabla e
income will be generated to permit use of the existing defeff rred tax assets. A signififf cant piece of negative evidence
evaluated was the cumulative pre-tax loss over the three-year period ended March 31, 2023. As of March 31, 2023,
l valuation allowance was recorded against the Company’s net defeff rred tax asset. The feff deral net operating loss
a fulff
("NOL") generated forff
the year ended March 31, 2023 will carryfrr orff ward indefiff nitely. Generally, state NOLs begin
to expire March 31, 2039.
The Company considers the earnings of the Company’s U.S. subsidiaries to be indefiff nitely invested outside Canada
on the basis of estimates that futff urt e domestic cash generation will be suffff iff cient to meet futff urt e domestic cash needs
and the Company’s specififf c plans forff
reinvestment of those subsidiaryrr earnings. The Company has not recorded a
oximately $121.0
defeff rred tax liabia lity related to the Canadian income taxes and U.S. withholding taxes on appr
million of undistributed earnings of the U.S. subsidiaries indefiff nitely invested outside Canada. If the Company
decided to repatriate the U.S. earnings, it would need to adjust its income tax provision in the period the Company
determined that the earnings will no longer be indefiff nitely invested outside of Canada.
a
8. Leases
rr
ate headquarters and branch offff iff ce faff cilities. The Company’s headquarter is located
The Company leases its corpor
in Clearwater, Florida. The current lease relating to this space was entered into effff eff ctive Februarr
expires on Januaryrr 31, 2026. The Company’s central business operations hub is located in Rock Hill, South
Carolina. The current lease relating to this space was entered into effff eff ctive March 20, 2023 and expires on March
19, 2026. All of the Company’s lease agreements are considered operating leases. None of the Company’s lease
ryrr 1, 2023 and
57
payments are dependent on a rate or index that may change aftff er the commencement date, other than the passage of
time.
As of March 31, 2023, the Company has closed each of its 47 branch offff iff ces located in Alabaa ma, Florida, Georgia,
Idaho, Illinois, Indiana, Kentuct ky, Michigan, Missouri, Nevada, North Carolina, Ohio, Pennsylvania, South
Carolina, Tennessee, Texas, Utah, and Wisconsin.
The Company’s lease liabia lity was $0.2 million as of March 31, 2023 and $4.4 million as of March 31, 2022. The
liabia lity is based on the present value of the remaining minimum rental payments using a discount rate that is
determined based on the Company’s incremental borrowing rate. The right of use asset was $0.2 million as of March
31, 2023 and $4.3 million as of March 31, 2022.
The Company combines lease and non-lease components forff
the fiff xed payments. Futurt e minimum lease payments under non-cancellabla e operating leases in effff eff ct as of March
31, 2023, are as folff
its real estate leases in calculating the present value of
lows:
in thousands
2024
2025
2026
Thereaftff er
Total futff urt e minimum lease payments
Present value adjustment
Operating lease liabia lity
$
$
65
67
61
—
193
(17)
176
The folff
lowing tabla e reports inforff mation about
a
the Company’s lease cost forff
the twelve months ended March 31:
Lease cost:
Operating lease cost
Variabla e lease cost
Total lease cost
(In thousands)
2023
2022
$
$
1,425
297
1,722
$
$
1,736
347
2,083
The folff
lowing tabla e reports other inforff mation about
a
the Company’s leases forff
the twelve months ended March 31:
(In thousands)
2023
2022
Other Lease Inforff mation
Operating Lease - Operating Cash Flows (Fixed Payments)
Operating Lease - Operating Cash Flows (Liabia lity Reduction)
$
$
1,663
1,763
$
$
1,591
1,388
The folff
lowing tabla e reports other inforff mation about
a
the Company’s leases as of March 31:
Weighted Average Lease Term - Operating Leases
Weighted Average Discount Rate - Operating Leases
2023
3.0 years
6.50%
2022
3.9 years
6.50%
the fiff scal years ended March 31, 2023 and 2022 was appr
Rent expense forff
respectively. For any new or modififf ed lease, the Company, at the inception of the contract, determines whether a
contract is or contains a lease. The Company records right-of-ff use ("ROU") assets and lease obligations forff
operating leases, which are initially recognized based on the discounted futff urt e lease payments over the term of the
lease. The Company uses its effff eff ctive annual interest rate as the discount rate when evaluating leases under Topic
842.
oximately $1.8 million and $2.1 million,
its
a
58
Lease term is defiff ned as the non-cancelabla e period of the lease plus any options to extend or terminate the lease
when it is reasonabla y certain that the Company will exercise the option. Further, the Company has elected to not
separate lease frff om non-lease components. Variabla e lease costs include expenses such as common area maintenance,
utilities, and repairs and maintenance.
9. Share-Based Payments
a
oved 2006 Equity Incentive Plan (the “2006 Plan”) the Board of Directors was
The Company has share awards outstanding under two share-based compensation plans (the “Equity Plans”). The
Company believes that such awards generally align the interests of its employees with those of its shareholders.
Under the shareholder-appr
authorized to grant option awards forff
Company’s shareholders appr
employees and non-employee directors. Under the 2015 Plan, the Board of Directors is authorized to grant total
share awards forff
terms of that plan. The 2015 Plan replaced the 2006 Plan; accordingly, no additional option awards may be granted
under the 2006 Plan. In addition to option awards, the 2015 Plan provides forff
restricted stock, restricted stock units,
perforff mance shares, perforff mance units, and other equity-based compensation.
up to 750,000 common shares. Awards under the 2006 Plan will continue to be governed by the
oved the Nicholas Financial, Inc. Omnibus Incentive Plan (the “2015 Plan”) forff
oximately 1.1 million common shares. On August 13, 2015, the
a
up to appr
a
Option awards previously granted to employees and directors under the 2006 Plan generally vested ratabla y based on
service over a fiff ve- and three-year period, respectively, and generally have a contractuat
and contractuat
Restricted stock awards generally cliffff vest over a three-year period based on service conditions. Vesting of
perforff mance units generally does not commence until the attainment of Company-wide perforff mance goals including
annual revenue growth and operating income targets. There are no post-vesting restrictions forff
option awards under the 2015 Plan are essentially the same as those of the 2006 Plan.
l term of ten years. Vesting
share awards.
l terms forff
ff
The Company funds
share awards frff om authorized but unissued shares and does not purchase shares to fulff
obligations under the Equity Plans. Cash dividends, if any, are not paid on unvested perforff mance units or
unexercised options but are paid on unvested restricted stock awards.
fiff ll its
The Company did not grant any options during the years ended March 31, 2023 or 2022.
A summaryrr of option activity under the Equity Plans as of March 31, 2023, and changes during the year, are
presented below.
Options
Outstanding at March 31, 2022
Granted
Exercised
Forfeff ited
Outstanding at March 31, 2023
Exercisabla e at March 31, 2023
(Shares and Aggregate Intrinsic Value in thousands)
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Shares
37 $
—
—
(27)
10 $
10 $
11.85
—
—
11.54
12.68
12.68
1.45 $
0.80 $
0.80 $
-
-
-
During the fiff scal year ended March 31, 2023, no options were exercised. During the same period, options to
purchase appr
feff ited at an exercise price of $11.54 per share.
oximately 27 thousand shares were forff
a
59
During the fiff scal year ended March 31, 2022, options to purchase appr
During the same period, options to purchase appr
frff om $10.96 to $12.95 per share.
a
oximately 16,100 shares were forff
a
oximately 2,500 shares were exercised.
feff ited at exercise prices ranging
Cash received frff om options exercised during the fiff scal years ended March 31, 2023 and 2022 totaled appr
oximately
$0 and $0, respectively. As of March 31, 2023, the Company had no unrecognized compensation related to options
grants. For the fiff scal years ended, March 31, 2023 and March 31, 2022, the Company had appr
oximately $0 and $0,
respectively, of total unrecognized compensation cost related to options granted.
a
a
A summaryrr of the statust
and changes during the year then ended is presented below.
of the Company’s non-vested restricted shares under the Equity Plan as of March 31, 2023,
(Shares and Aggregate Intrinsic Value in thousands)
Restricted Share Awards
Non-vested at March 31, 2022
Granted
Vested
Forfeff ited
Non-vested at March 31, 2023
Shares
Weighted
Average
Grant Date
Fair Value
10.26
8.84
12.01
9.75
8.97
37 $
11
(8)
(28)
12 $
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
0.92 $
377
0.51 $
74
a
oximately 11,000 restricted shares during the fiff scal year ended March 31, 2023. There
The Company awarded appr
are no perforff mance shares included within the 11,000 restricted shares granted that resulted frff om the Company
meeting a perforff mance threshold. During the same period there were appr
forff
cumulative amount of compensation cost recognized is at least equal to the portion of the grant-date value of the
award tranche that is actuat
feff iturt es when they occur. For any vesting tranche of an award, the
oximately 28,000 restricted shares
feff ited. The Company accounts forff
lly vested at that date.
forff
a
As of March 31, 2023, there was appr
vested restricted share awards granted under the Equity Plans. That cost is expected to be recognized over a
weighted-average period of appr
oximately $0.1 million of total unrecognized compensation cost related to non-
oximately 0.51 years.
a
a
10. Employee Benefiff t Plan
The Company has a 401(k)-retirement plan under which all employees are eligible to participate. Employee
contributions are voluntaryrr and subject to Internal Revenue Service limitations. The Company made a discretionaryrr
matching employee contribution forff
the year ended March 31, 2023.
$88 thousand forff
11. Commitments and Contingencies
The Company is involved in certain claims and legal proceedings in the normal course of business of which one, if
decided adversely to the Company, would, in the opinion of management, have a material adverse effff eff ct on the
Company’s fiff nancial condition or results of operations.
Specififf cally, the Company has been sued together with several other defeff ndants, in a lawsuit styled: Nicholas
Financial, Inc. v. Jeremiah Gross, No. 21CY-CV02148-01, 7th Judicial Circuit, Clay County, Missouri. On March 9,
lowing the
2021 the Company fiff led suit against Jeremiah Gross forff
2018 surrender and sale of his motor vehicle which secured a loan frff om the Company. On April 22, 2021 a defaff ult
judgment forff
the defaff ult judgment. The Court granted his motion on March 23, 2022. In his answer he asserted a class-action
counterclaim against the Company seeking to represent a nationwide class of the Company’s customers who
received allegedly defiff cient notices regarding the sale of their vehicles and whose vehicles were recovered and sold
by the Company, and on behalf of Missouri customers who received allegedly defiff cient notices frff om the Company
regarding the sale of their recovered vehicles and the calculation of the defiff ciency owed the Company. The
$7,984.18 was entered against Mr. Gross. On December 22, 2021 Mr. Gross fiff led a motion to set aside
a defiff ciency balance owed to the Company folff
60
summaryrr
ryrr 16, 2023. On March 27, 2023 the Court entered an order granting the motion in part and
Company fiff led its answer to the counterclaim on May 13, 2022. On September 9, 2022 the Company fiff led a motion
forff
judgment as to all counts of the counterclaim and the Company's claim against Mr. Gross. The motion
was argued on Februar
denying the motion in part. The Court found
notices and preje udgment interest, and in Mr. Gross’s faff vor forff
denied the Company’s motion foff r summaryrr
remaining claim relates to post-sale notices sent to Missouri customers. The Company’s insurer has accepted the
defeff nse of this litigation under a reservation of rights.
in faff vor of the Company as to the counterclaim regarding presale
the counterclaim as to post-sale notices. The Court
a defiff ciency against Mr. Gross. The
judgment as to its claim forff
ff
12. Restructuring Activities
On July 18, 2022, the Company announced its plan to close eleven branches and a consolidate its workforff ce,
impacting appr
oximately 44 employees.
a
turt
The Company then announced on a Form 8-K fiff led on November 3, 2022 a change in its operating strategy and
restrucrr
ing plan with the goal of reducing operating expenses and frff eeing up capia tal. As part of this plan, the
Company shiftff ed frff om a decentralized business model to a regionalized business model and entered into a loan
servicing agreement with Westlake Portfolff
io Management, LLC ("WPM").
While the Company intends to continue Contract purchase and origination activities, albeit on a much smaller scale,
its servicing, collections and recoveryrr operations will be outsourced to WPM. The Company has ceased originations
of Direct Loans.
ing plan, the Company announced the closure of its branches and will continue operating
ate headquarters in Clearwater, Florida and its central business operational hub in Charlotte, North
turt
As part of this restrucr
frff om its corpor
r
Carolina. Consistent with this signififf cant reduction in foot
oximately 16 employees as of March 31, 2023.
a
appr
ff
prt
int, the Company reduced its workforff ce to
The Company anticipates that execution of its evolving restrucrr
Company to allocate excess capia tal to increase shareholder returt ns, whether by acquiring loan portfolff
ios or
businesses or by investing outside of the Company’s traditional business. The overall timefrff ame and strucr
Company’s restrucr
tut ring plan will frff ee up capa ital and permit the
ing remains uncertain.
turt
turt e of the
Costs related to the restrucr
turt
ing plan are summarized as folff
lows:
Branch Closures
Severance
Cease-use of contractuat
Profeff ssional feff es
Other
Total restrucr
ing cost
turt
l services
Total Cost
Estimated
(In thousands)
Incurred to
Date
$
$
3,203
570
749
260
26
4,808
$
$
3,203
570
749
260
17
4,799
Remaining cost
-
$
-
-
-
9
9
$
13. Stock Plans
In May 2019, the Company’s Board of Directors (“Board”) authorized a stock repurchase program allowing forff
the
repurchase of up to $8.0 million of the Company’s outstanding shares of common stock in open market purchases,
privately negotiated transactions, or through other strucrr
icabla e feff deral securities laws.
The authorization was effff eff ctive immediately.
turt es in accordance with appl
a
The timing and actuat
regulatoryrr
be suspended or discontinued at any time.
l number of shares will depend on a variety of faff ctors, including stock price, corpor
requirements and other market and economic conditions. The Company’s stock repurchase program may
ate and
r
61
In August 2019, the Company’s Board authorized an additional repurchase of up to $1.0 million of the Company’s
outstanding shares.
The tabla e below summarizes treasuryrr share transactions under the Company’s stock repurchase program.
Treasuryrr shares at the beginning of period
Treasuryrr shares purchased
Treasuryrr shares at the end of period
Twelve months ended March 31,
(In thousands)
2023
2022
Number of
Shares
Amount
Number of
Shares
5,127
241
5,368
$
$
(74,405)
(2,389)
(76,794)
4,945
182
5,127
$
$
Amount
(72,343)
(2,062)
(74,405)
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
62
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
a
opriate, to allow timely decisions regarding required disclosure. The Company’s management,
The Company maintains disclosure controls and procedures designed to ensure inforff mation required to be disclosed
in its reports fiff led or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is (i)
recorded, processed, summarized and reported within the time periods specififf ed in the SEC’s rulr es and forff ms and
(ii) accumulated and communicated to management, including the Chief Executive Offff iff cer and Chief Financial
Offff iff cer as appr
including its Chief Executive Offff iff cer and Chief Financial Offff iff cer, does not expect that the Company’s disclosure
controls and procedures or internal controls will prevent all possible error and frff aud. A control system, no matter
how well conceived and operated, can provide only reasonabla e, not absa olute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflff ect the faff ct there are resource constraints,
and the benefiff ts of controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absa olute assurance that all control issues and instances of
frff aud, if any, within the Company have been detected.
The Company’s management, including its Chief Executive Offff iff cer and Chief Financial Offff iff cer, conducted an
evaluation of the effff eff ctiveness of the Company’s disclosure controls and procedures (as defiff ned in RulRR e 13a-15(e)
under the Exchange Act) as of March 31, 2023. Based upon this evaluation, the Chief Executive Offff iff cer and Chief
Financial Offff iff cer have concluded that the Company’s disclosure controls and procedures were effff eff ctive as of March
31, 2023.
g
Management’s Report on Internal Control over Financial Reporting
p
p
g
establa ishing and maintaining adequate internal control over fiff nancial
The Company’s management is responsible forff
reporting, as such term is defiff ned in RulRR e 13a-15(f)ff under the Exchange Act. The Company’s internal control over
fiff nancial reporting is a process designed to provide reasonabla e assurance regarding the reliabia lity of fiff nancial
reporting and the preparation of fiff nancial statements forff
accounting principles. The Company’s management, including its Chief Executive Offff iff cer and Chief Financial
Offff iff cer, conducted an evaluation of the effff eff ctiveness of the Company’s internal control over fiff nancial reporting as of
March 31, 2023, the end of the fiff scal year covered by this Report, based on the criteria set forff
th in IntII ernal ContCC rol-
IntII egre ated FrFF ameworkrr (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, management has concluded that the Company’s internal control over fiff nancial reporting
was effff eff ctive as of March 31, 2023.
es in accordance with generally accepted
external purpos
rr
No Attestation Report of the Independent Registered Public Accounting Firm
This Annual Report does not include an attestation report of the Company’s independent registered public
accounting fiff rm regarding internal control over fiff nancial reporting. Management’s report was not subject to
attestation by the Company’s independent registered public accounting fiff rm pursuant to the rulr es of the Securities
and Exchange Commission.
g
Changes in Internal Control Over Financial Reporting
p
g
No change in the Company’s internal control over fiff nancial reporting occurred during the Company’s fiff scal year
ended March 31, 2023 that has materially affff eff cted, or is reasonabla y likely to materially affff eff ct, the Company’s
internal control over fiff nancial reporting, other than the folff
lowing:
turt
ing and change in operating strategy, the Company has outsourced its servicing,
In connection with its restrucrr
collection and recoveryrr operations to a third party (Westlake) and has reduced its fulff
accounting, compliance, and clerical personnel frff om 23 to 3 employees, including its Chief Financial Offff iff cer. The
outsourcing of servicing, collection and recoveryrr operations affff eff cts the initiation, authorization, recording,
processing and/or reporting of transactions in the Company’s fiff nancial statements.
l-time fiff nancial reporting,
63
Item 9B. Other Inforff mation
None
64
Item 10. Directors, Executive Offff iff cers and Corporate Governance
PART III
The relevant inforff mation to be set forff
Annual General Meeting of Shareholders of the Company (the “Proxy Statement”), is incorpor
refeff rence.
th in the defiff nitive Proxy Statement and Inforff mation Circular forff
r
ated herein by
the 2023
a
of Ethics - The Company has adopted a written code of ethics appl
CodeCC
Financial Offff iff cer, principal accounting offff iff cer and persons perforff ming similar func
ethics is posted on the Company’s web site at www.nicholasfiff nancial.com. Anyone who wishes to receive a written
copy of the code of ethics may receive one without charge by submitting a request in writing to Corpor
ate Secretary,rr
Nicholas Financial, Inc., 26133 US HWY 19 North, Suite 300, Clearwater, Florida 33763. The Company intends to
satisfyff
code of ethics by posting such inforff mation on the Company’s web site at www.nicholasfiff nancial.com. The
Company is not including the inforff mation contained on or availabla e through its web site as a part of,ff or
r
incorpor
the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers frff om, the
ating such inforff mation by refeff rence into, this Report.
icabla e to its Chief Executive Offff iff cer, Chief
tions. A copy of the code of
r
ff
Item 11. Executive Compensation, Compensation Interlocks and Insider Participation
The relevant inforff mation to be set forff
th in the Proxy Statement is incorpor
r
ated herein by refeff rence.
Item 12. Security Ownership of Certain Benefiff cial Owners and Management and Related Stockholder
Matters
Securities Authorized forff
Issuance under Equity Compensation Plans
lowing tabla e sets forff
The folff
which equity securities of the Company were authorized forff
issuance:
th certain inforff mation, as of March 31, 2023, with respect to compensation plans under
EQUITY COMPENSATION PLAN INFORMATION
(In thousands, except exercise price)
Number of
Securities to
be Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
(a)
Weighted –
Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
(b)
Number of Securities
Remaining Available
forff Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflff ected in Column (a))
(c)
10$
12.68
- Not Applicabla e
12.68
10$
662
-
662
Plan Category
Equity Compensation Plans
Approved by Security Holders
Equity Compensation Plans
Not Approved by Security Holders
TOTAL
The relevant inforff mation to be set forff
th in the Proxy Statement is incorpor
r
ated herein by refeff rence.
Item 13. Certain Relationships and Related Transactions, Director Independence and Board of Directors
The relevant inforff mation to be set forff
th in the Proxy Statement is incorpor
r
ated herein by refeff rence.
Item 14. Principal Accountant Fees and Services
The relevant inforff mation to be set forff
th in the Proxy Statement is incorpor
r
ated herein by refeff rence.
65
Item 15. Exhibits and Financial Statement Schedules
(a)
The folff
lowing documents are fiff led as part of this Report:
PART IV
(1)
Financial Statements
See Part II, Item 8, of this Report.
(2)
Financial Statement Schedules
All fiff nancial schedules are omitted as the required inforff mation is not appl
presented in the consolidated fiff nancial statements or related notes.
a
icabla e or the inforff mation is
(3)
Exhibits
Exhibit No.
Description
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Articles of Nicholas Financial, Inc. (1)
Notice of Articles of Nicholas Financial, Inc. (2)
Form of Common Stock Certificate (3)
Description of the Registrant’s Securities (4)
Loan and Security Agreement, dated as of January 18, 2023, by and between Westlake Capital Finance,
LLC, as lender, and Nicholas Financial, Inc. and Nicholas Data Services, Inc., as borrowers (5)
Purchase and Sale Agreement, dated December 11, 2019, by and between Platinum Auto Finance of
Tampa Bay, LLC (6)
Purchase and Sale Agreement, dated January 30, 2020, by and between Platinum Auto Finance of
Tampa Bay, LLC (7)
Purchase and Sale Agreement, dated February 20, 2020, by and between Platinum Auto Finance of
Tampa Bay, LLC (8)
Nicholas Financial, Inc. 2015 Omnibus Incentive Plan (9) *
Form of Nicholas Financial, Inc. 2015 Omnibus Incentive Plan Stock Option Award (10) *
Form of Nicholas Financial, Inc. 2015 Omnibus Incentive Plan Restricted Stock Award (11) *
Form of Nicholas Financial, Inc 2015 Omnibus Incentive Plan Performance Share Award (12) *
Employment Agreement between the Company and Michael Rost, dated as of September 14, 2022 (13)
*
Employment Agreement between the Company and Irina Nashtatik, dated as of July 21, 2022 (14) *
Separation and General Release Agreement between the Company and Douglas W. Marohn, dated as
of May 9, 2022 (16)*
10.12
Form of Dealer Agreement and Schedule thereto listing dealers that are parties to such agreements (17)
21
23.1
23.2
Subsidiaries of Nicholas Financial, Inc.
Consent of FORVIS, LLP
Consent of RSM, LLP
66
24
31.1
32.1
32.2
Powers of Attorney (included on signature page hereto)
Certification of President and Chief Executive Officer
Certification of 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 Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Defiff nition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Labea
ls Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104.The cover page frff om the Company’s Annual Report on forff m 10-K forff
the year ended March 31, 2022, has been
forff matted in Inline XBRL.
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
the
the fiff scal
ryrr 14, 2023.
the fiff scal year
the fiff scal year
ated by refeff rence to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 fiff led with the
ated by refeff rence to Appendix B to the Company’s Proxy Statement and Inforff mation Circular forff
ated by refeff rence to Exhibit 4.2 to the Company’s Annual Report on Form 10-K forff
ated by refeff rence to Exhibit 4 to the Company’s Annual Report on Form 10-KSB forff
ated by refeff rence to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q forff
ated by refeff rence to Exhibit 10.22.2 to the Company’s Annual Report on Form 10-K forff
ated by refeff rence to Exhibit 10.22.1 to the Company’s Annual Report on Form 10-K forff
Represents a management contract or compensatoryrr plan, contract or arrangement in which a director or
named executive offff iff cer of the Company participated.
Incorpor
rr
2006 Annual General Meeting of Shareholders fiff led with the SEC on June 30, 2006.
rr
Incorpor
SEC on May 24, 2007.
Incorpor
rr
ended March 31, 2004, as fiff led with the SEC on June 29, 2004.
rr
Incorpor
ended March 31, 2020, as fiff led with the SEC on June 22, 2020.
Incorpor
rr
quarter ended December 31, 2022, as fiff led with the SEC on Februar
rr
Incorpor
year ended March 31, 2020, as fiff led with the SEC on June 22, 2020.
Incorpor
rr
year ended March 31, 2020, as fiff led with the SEC on June 22, 2020.
rr
Incorpor
year ended March 31, 2020, as fiff led with the SEC on June 22, 2020.
Incorpor
rr
2015 Annual General Meeting of Shareholders, as fiff led with the SEC on July 6, 2015.
rr
Incorpor
ended March 31, 2016, as fiff led with the SEC on June 14, 2016.
Incorpor
rr
ended March 31, 2016, as fiff led with the SEC on June 14, 2016.
rr
Incorpor
ended March 31, 2016, as fiff led with the SEC on June 14, 2016.
Incorpor
rr
14, 2022, as fiff led with the SEC on July 22, 2016.
rr
Incorpor
as fiff led with the SEC on July 9, 2020.
Incorpor
rr
2022, as fiff led with the SEC on May 10, 2022.
ated by refeff rence to Exhibit 10.22.3 to the Company’s Annual Report on Form 10-K forff
ated by refeff rence to Exhibit 10.15 to the Company’s Annual Report on Form 10-K forff
ated by refeff rence to Exhibit 10.13 to the Company’s Annual Report on Form 10-K forff
ated by refeff rence to Exhibit 10.14 to the Company’s Annual Report on Form 10-K forff
ated by refeff rence to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated May 10,
ated by refeff rence to Appendix A to the Company’s Proxy Statement and Inforff mation Circular forff
ated by refeff rence to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated September
ated by refeff rence to Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated July 7, 2020,
the fiff scal
the fiff scal
the fiff scal
the fiff scal year
the fiff scal year
the fiff scal year
the
67
ated by refeff rence to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated July 7, 2020,
(16)
(17)
rr
Incorpor
as fiff led with the SEC on July 9, 2020.
Incorpor
rr
ended March 31, 2017, as fiff led with the SEC on June 14, 2017.
ated by refeff rence to Exhibit 10.20 to the Company’s Annual Report on Form 10-K forff
the fiff scal year
Item16. Form 10-K Summary
None.
68
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 27, 2023
NICHOLAS FINANCIAL, INC.
By: /s/ Michael Rost
Michael Rost
Chief Executive Offff iff cer
ion and re-substitutt
nts Jeffff rff ey C. Royal and Michael Rost, his or her truer
KNOW ALL MEN BY THESE PRESENTS that each person whose signaturt e appe
a
appoi
power of substitutt
any and all amendments to this Report, and to fiff le the same, with all exhibits thereto, and any other documents in
connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-faff ct and
agent fulff
about
ly to all intents and purpos
a
confiff rming all that said attorney-in-faff ct and agent, or his substitutt e, may lawfulff
hereof.ff
ars below constitutt es and
l
attorney-in-faff ct and agent, each with fulff
l power and authority to perforff m each and everyrr act and thing requisite and necessaryrr
es as he might or could do in person, hereby ratifyiff ng and
him and in his name, place and stead, in any and all capaa
ly do or cause to be done by virtuet
the premises, as fulff
to be done in and
and lawfulff
ion, forff
a
r
cities, to sign
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
folff
lowing persons on behalf of the Registrant and in the capaa
cities and on the dates indicated.
Signature
Title
Date
/s/ Michael Rost
Michael Rost
/s/ Irina Nashtatik
Irina Nashtatik
/s/ Jeffff rff ey C. Royal
Jeffff rff ey C. Royal
/s/ Mark Hutchins
Mark Hutchins
/s/ Adam K. Peterson
Adam K. Peterson
/s/ Jeremy Q. Zhu
Jeremy Q. Zhu
/s/ Brendan Keating
Brendan Keating
Chief Executive Offff iff cer (Principal Executive Offff iff cer)
June 27, 2023
Chief Financial Offff iff cer (Principal Financial and
Accounting Offff iff cer)
June 27, 2023
Chairman of the Board of Directors
June 27, 2023
June 27, 2023
June 27, 2023
June 27, 2023
June 27, 2023
Director
Director
Director
Director
69
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(cid:41)(cid:50)(cid:53)(cid:57)(cid:44)(cid:54)(cid:15) (cid:47)(cid:47)(cid:51)
(cid:36)(cid:87)(cid:79)(cid:68)(cid:81)(cid:87)(cid:68)(cid:15) (cid:42)(cid:72)(cid:82)(cid:85)(cid:74)(cid:76)(cid:68)
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(cid:46)(cid:88)(cid:87)(cid:68)(cid:78) (cid:53)(cid:82)(cid:70)(cid:78) (cid:47)(cid:47)(cid:51)
(cid:50)(cid:80)(cid:68)(cid:75)(cid:68)(cid:15) (cid:49)(cid:72)(cid:69)(cid:85)(cid:68)(cid:86)(cid:78)(cid:68)
(cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:72)(cid:73)(cid:73) (cid:85) (cid:36)(cid:74)(cid:72)(cid:81)(cid:87) (cid:9) (cid:53)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:85)(cid:29)
(cid:38)(cid:82)(cid:80)(cid:83)(cid:88)(cid:87)(cid:72)(cid:85)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72) (cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85) (cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)
(cid:57)(cid:68)(cid:81)(cid:70)(cid:82)(cid:88)(cid:89)(cid:72)(cid:85)(cid:15) (cid:37)(cid:38)(cid:15) (cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:68) (cid:57)(cid:25)(cid:38) (cid:22)(cid:37)(cid:28)
(cid:54)(cid:87)(cid:82)(cid:70)(cid:78) (cid:44)(cid:81)(cid:73)(cid:82)(cid:73)(cid:73) (cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:29)
(cid:47)(cid:76)(cid:86)(cid:87)(cid:72)(cid:71) (cid:82)(cid:81) (cid:87)(cid:75)(cid:72) (cid:49)(cid:36)(cid:54)(cid:39)(cid:36)(cid:52) (cid:42)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)
(cid:54)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87) (cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87) (cid:54)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)
(cid:55)(cid:85)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74) (cid:54)(cid:92)(cid:80)(cid:69)(cid:82)(cid:79)(cid:29) (cid:49)(cid:44)(cid:38)(cid:46)
(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72) (cid:50)(cid:3813)(cid:70)(cid:72)(cid:86)(cid:29)
(cid:49)(cid:76)(cid:70)(cid:75)(cid:82)(cid:79)(cid:68)(cid:86) (cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:15) (cid:44)(cid:81)(cid:70)(cid:17)
(cid:21)(cid:25)(cid:20)(cid:22)(cid:22) (cid:56)(cid:54) (cid:43)(cid:76)(cid:74)(cid:75)(cid:90)(cid:68)(cid:92) (cid:20)(cid:28) (cid:49)(cid:82)(cid:85)(cid:87)(cid:75)
(cid:54)(cid:88)(cid:76)(cid:87)(cid:72) (cid:22)(cid:19)(cid:19)
(cid:38)(cid:79)(cid:72)(cid:68)(cid:85)(cid:90)(cid:68)(cid:87)(cid:72)(cid:85)(cid:15) (cid:41)(cid:79)(cid:82)(cid:85)(cid:76)(cid:71)(cid:68) (cid:22)(cid:22)(cid:26)(cid:25)(cid:22)
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:29)
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(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81) (cid:82)(cid:73) (cid:87)(cid:75)(cid:72) (cid:37)(cid:82)(cid:68)(cid:85)(cid:71) (cid:82)(cid:73) (cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)
(cid:39)(cid:88)(cid:81)(cid:71)(cid:72)(cid:72) (cid:37)(cid:68)(cid:81)(cid:78)
(cid:48)(cid:68)(cid:85)(cid:78) (cid:43)(cid:88)(cid:87)(cid:70)(cid:75)(cid:76)(cid:81)(cid:86)
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