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CLEARWATER, Fla., Jan. 29 /PRNewswire-FirstCall/ -- Nicholas Financial,Inc. (Nasdaq: NICK) announced that for the three months ended December 31,2008, net earnings, excluding non-cash unrealized mark-to-market loss ofinterest rate swaps, decreased 43% to $1,267,000 compared to $2,236,000 forthe three months ended December 31, 2007. Per share diluted net earnings,excluding non-cash unrealized mark-to-market loss of interest rate swaps,decreased 45% to $0.12 for the three months ended December 31, 2008 ascompared to $0.22 for the three months ended December 31, 2007. Seereconciliations of the Non-GAAP measures on page 3. Revenue increased 5% to$13,254,000 for the three months ended December 31, 2008 as compared to$12,614,000 for the three months ended December 31, 2007. For the nine months ended December 31, 2008, net earnings, excludingnon-cash unrealized mark-to-market loss of interest rate swaps, decreased 53%to $3,616,000 as compared to $7,617,000 for the nine months ended December 31,2007. Per share diluted net earnings, excluding non-cash unrealizedmark-to-market loss of interest rate swaps, decreased 53% to $0.35 for thenine months ended December 31, 2008 as compared to $0.74 for the nine monthsended December 31, 2007. See reconciliations of the Non-GAAP measures on page3. Revenue increased 7% to $39,878,000 for the nine months ended December 31,2008 as compared to $37,362,000 for the nine months ended December 31, 2007. According to Peter L. Vosotas, Chairman and CEO, "The business climateremains challenging, auto sales are still well below historical levels and theemployment outlook continues to weaken. We expect to see some seasonalimprovement in our business during the fourth quarter but remain very cautiousabout the coming year, as we believe the recessionary pressures embedded inthe economy will not subside in the near-term. During the last two quarters wehave been tightening our credit underwriting guidelines in response to marketconditions. We continue to evaluate markets in which we operate and we do notanticipate any significant change from our branch-based methodology. Due to acombination of tighter underwriting guidelines and a significant slow down inauto sales during the three months ended December 31, 2008, we have reducedthe size of our loan portfolio by approximately $2.6 million and alsodecreased our credit line outstanding by approximately $4.6 million." Historically, the Company utilized interest rate swaps to protect theincome statement from variability due to interest rate risk. Borrowings underthe Company's line of credit facility may be under various LIBOR or primepricing options. Prior to October 2008, prime rate based borrowings weregenerally less than $5.0 million. These interest rate swaps were previouslydesignated as cash flow hedges in accordance with SFAS No. 133, "DerivativeInstruments and Hedging Activities, as amended." Based on credit market eventsthat transpired in October 2008, the Company made an economic decision toelect the prime rate pricing option available under its credit line agreementfor the month of October 2008. This resulted in decreasing interest expense byapproximately $100,000 for the three months ended December 31, 2008. As aresult, the critical terms of the interest rate swaps and hedged interestpayments were no longer identical and the Company undesignated its interestrate swaps as cash flow hedges. Consequently, beginning in October 2008changes in the mark-to-market value of interest rate swaps are recorded inearnings. Unrealized losses previously recorded in accumulated othercomprehensive loss are now reclassified into earnings as interest paymentsaffect earnings over the remaining term of the respective swap agreements. TheCompany does not use interest rate swaps for speculative purposes. Suchinstruments continue to be intended for use as economic hedges. Net income and diluted earnings per share (which include a non-cashpre-tax charge related to the above described interest rate swaps ofapproximately $1.7 million for the three months ended December 31, 2008) were$235,000 and $0.02, respectively. Net income and diluted earnings per share(which also include a non-cash pre-tax charge related to the above describedinterest rate swaps of approximately $1.7 million for the nine months endedDecember 31, 2008) were $2,584,000 and $0.25, respectively. As noted above,net income and diluted earnings per share for the three months ended December31, 2007 were $2,236,000 and $0.22, respectively. Net income and dilutedearnings per share for the nine months ended December 31, 2007 were $7,617,000and $0.74, respectively. Nicholas Financial, Inc. is one of the largest publicly traded specialtyconsumer finance companies based in the Southeast. The Company presentlyoperates out of 48 branch locations in both the Southeast and the Mid-WestStates. The Company has approximately 10,400,000 shares of common stockoutstanding. For an index of Nicholas Financial Inc.'s news releases or toobtain a specific release, visit our web site at www.nicholasfinancial.com. Except for the historical information contained herein, the mattersdiscussed in this news release include forward-looking statements that involverisks and uncertainties including general economic conditions, access to bankfinancing, and other risks detailed from time to time in the Company's filingsand reports with the Securities and Exchange Commission including theCompany's Annual Report on Form 10-K for the year ended March 31, 2008. Suchstatements are based on the beliefs of the Company's management as well asassumptions made by and information currently available to Company management.Actual events or results may differ materially. All forward looking statementsand cautionary statements included in this document are made as of the datehereby based on information available to the Company as of the date hereof,and the Company assumes no obligation to update any forward looking statementor cautionary statement. This press release contains disclosures of non-GAAP financial measuresincluding: net earnings, excluding non-cash unrealized mark-to-market loss ofinterest rate swaps and share diluted net earnings, excluding non-cashunrealized mark-to-market loss of interest rate swaps. These measures utilizethe GAAP terms "net income" and "diluted earnings per share" and adjust theGAAP terms to exclude the effect of mark to market adjustments andreclassifications of previously recorded accumulated comprehensive lossesassociated with interest rate swaps. Management believes this presentationprovides additional and meaningful measures for the assessment of theCompany's ongoing results and performance. Because the Company hashistorically reported mark-to-market (interest rate swaps) through othercomprehensive income under hedge accounting, management believes that theinclusion of this non-GAAP measure provides consistency in its financialreporting and facilitates investors' understanding of the Company's historicoperating trends by providing an additional basis for comparisons to priorperiods. Management recognizes that the use of non-GAAP measures haslimitations, including the fact that they may not be directly comparable withsimilar non-GAAP financial measures used by other companies. All non-GAAPfinancial measures are intended to supplement the applicable GAAP disclosuresand should not be considered in isolation from, or as substitute for,financial information prepared in accordance with GAAP. For a reconciliationof non-GAAP measures from GAAP reported amounts, please see the supplementalinformation included with this press release.
Nicholas Financial, Inc.
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
The following tables include reconciliations of GAAP reported net incometo the non-GAAP measure, net earnings, excluding non-cash unrealizedmark-to-market loss of interest rate swaps as well as GAAP reported dilutedearnings per share to the non-GAAP measure, per share diluted net earnings,excluding non-cash unrealized mark-to-market loss of interest rate swaps. Thenon-GAAP measures exclude the effect of mark-to-market adjustments andreclassifications of previously recorded accumulated comprehensive lossesassociated with interest rate swaps.
Three months ended Nine months ended
December 31, December 31,
2008 2007 2008 2007
Net income, GAAP $234,905 $2,236,424 $2,584,441 $7,616,930
Mark-to-market of
interest rate swaps
(net of tax of
$632,316) 1,031,904 - 1,031,904 -
Net earnings,
excluding
non-cash
unrealized
mark-to-market
loss of interest
rate swaps (a) $1,266,809 $2,236,424 $3,616,345 $7,616,930
Three months ended Nine months ended
December 31, December 31,
2008 2007 2008 2007
Diluted earnings
per share, GAAP $0.02 $0.22 $0.25 $0.74
Per diluted share
mark-to-market of
interest rate swaps $0.10 - $0.10 -
Per share diluted
net earnings,
excluding non-cash
unrealized
mark-to-market
loss of interest
rate swaps (a) $0.12 $0.22 $0.35 $0.74
(a) Represents a non-GAAP financial measure. See information on non-GAAP
financial measures above.
Nicholas Financial, Inc.
Condensed Consolidated Statements of Income
(Unaudited, Dollars in Thousands, Except Share and Per Share Amounts)
Three months ended Nine months ended
December 31, December 31,
2008 2007 2008 2007
Revenue:
Interest income
on finance
receivables $13,239 $12,593 $39,830 $37,301
Sales 15 21 48 61
13,254 12,614 39,878 37,362
Expenses:
Operating 5,374 4,982 16,815 14,983
Provision for
credit losses 4,568 2,467 13,115 5,281
Interest expense 1,269 1,611 4,110 4,843
Mark to market -
interest rate swaps 1,664 - 1,664 -
12,875 9,060 35,704 25,107
Operating income
before income taxes 379 3,554 4,174 12,255
Income tax expense 144 1,318 1,590 4,638
Net income $235 $2,236 $2,584 $7,617
Earnings per share:
Basic $0.02 $0.22 $0.25 $0.76
Diluted $0.02 $0.22 $0.25 $0.74
Weighted average
shares 10,259,000 10,045,000 10,231,000 10,028,000
Weighted average
shares and
assumed
dilution 10,378,000 10,298,000 10,368,000 10,346,000
Condensed Consolidated Balance Sheets
(Unaudited, In Thousands)
December 31, March 31,
2008 2008
Cash $1,895 $2,298
Finance receivables, net 183,502 179,043
Other assets 9,746 8,497
Total assets $195,143 $189,838
Line of credit $101,530 $99,937
Derivatives 3,181 2,610
Other liabilities 7,699 8,715
Total liabilities 112,410 111,262
Shareholders' equity 82,733 78,576
Total liabilities and
shareholders' equity $195,143 $189,838
Three months ended Nine months ended
December 31, December 31,
Portfolio Summary 2008 2007 2008 2007
Average finance
receivables, net
of unearned
interest (1) $208,438,920 $192,408,861 $206,814,055 $189,618,834
Average
indebtedness (2) $104,109,909 $98,899,680 $103,705,519 $96,177,013
Finance revenue (3) $13,239,373 $12,593,397 $39,830,500 $37,301,655
Interest expense 1,268,669 1,610,758 4,109,682 4,842,628
Net finance
revenue $11,970,704 $10,982,639 $35,720,818 $32,459,027
Weighted average
contractual rate (4) 23.90% 24.14% 24.17% 24.25%
Average cost of
borrowed funds (2) 4.87% 6.51% 5.28% 6.71%
Gross portfolio yield(5) 25.41% 26.18% 25.68% 26.23%
Interest expense as a
percentage of average
finance receivables,
net of unearned
interest 2.43% 3.35% 2.65% 3.41%
Provision for credit
losses as a percentage
of average finance
receivables, net of
unearned interest 8.77% 5.09% 8.46% 3.67%
Net portfolio yield (5) 14.21% 17.74% 14.57% 19.15%
Operating expenses as
a percentage of average
finance receivables,
net of unearned
interest (6) 10.22% 10.27% 10.67% 10.46%
Pre-tax yield as a
percentage of average
finance receivables,
net of unearned
interest (7) 3.99% 7.47% 3.90% 8.69%
Write-off to
liquidation (8) 14.62% 10.35% 12.90% 8.77%
Net charge-off
percentage (9) 11.15% 9.51% 10.27% 7.98%
Note: All three and nine-month month key performance indicators expressed
as percentages have been annualized.
(1) Average finance receivables, net of unearned interest, represents the
average of gross finance receivables, less unearned interest
throughout the period.
(2) Average indebtedness represents the average outstanding borrowings
under the Line. Average cost of borrowed funds represents interest
expense as a percentage of average indebtedness.
(3) Finance revenue does not include revenue generated by Nicholas Data
Services, Inc., ("NDS") the wholly-owned software subsidiary of
Nicholas Financial, Inc.
(4) Weighted average contractual rate represents the weighted average
annual percentage rate (APR) of all Contracts purchased and direct
loans originated during the period.
(5) Gross portfolio yield represents finance revenue as a percentage of
average finance receivables, net of unearned interest. Net portfolio
yield represents finance revenue minus (a) interest expense and (b)
the provision for credit losses as a percentage of average
finance receivables, net of unearned interest.
(6) Operating expenses represent total expenses, less interest expense,
the provision for credit losses, non-cash unrealized mark-to-market
loss of interest rate swaps and operating costs associated with NDS.
(7) Pre-tax yield represents net portfolio yield minus operating expenses
as a percentage of average finance receivables, net of unearned
interest.
(8) Write-off to liquidation percentage is defined as net charge-offs
divided by liquidation. Liquidation is defined as beginning receivable
balance plus current period purchases minus voids and refinances minus
ending receivable balance.
(9) Net charge-off percentage represents net charge-offs divided by
average finance receivables, net of unearned interest, outstanding
during the period.
The following tables present certain information regarding the delinquency
rates experienced by the Company with respect to Contracts and under its
direct loan program:
December 31,
2008 2007
Contracts
Gross balance
outstanding $283,571,200 $256,278,730
Delinquencies
30 to 59 days $12,454,035 4.39% $8,908,945 3.48%
60 to 89 days 5,022,847 1.78% 2,933,134 1.14%
90+ days 1,777,122 0.62% 1,402,143 0.55%
Total delinquencies $19,254,004 6.79% $13,244,222 5.17%
Direct Loans
Gross balance
outstanding $7,894,781 $10,989,625
Delinquencies
30 to 59 days $234,606 2.97% $212,084 1.93%
60 to 89 days 124,840 1.58% 77,503 0.71%
90+ days 97,807 1.24% 91,271 0.83%
Total delinquencies $457,253 5.79% $380,858 3.47%
The following table presents selected information on Contracts purchasedby the Company, net of unearned interest:
Three months ended Nine months ended
December 31, December 31,
2008 2007 2008 2007
Contracts
Purchases $21,725,431 $25,469,763 $82,712,700 $83,498,826
Weighted APR 23.73% 24.08% 24.05% 24.13%
Average discount 9.23% 8.34% 9.03% 8.18%
Weighted average term
(months) 49 48 48 48
Average loan $9,377 $9,316 $9,455 $9,369
Number of contracts 2,317 2,734 8,748 8,912
The following table presents selected information on Contracts purchasedby the Company, net of unearned interest:
Source: PRNewsWire
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