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Nicholas Financial Reports Results for the 3rd Quarter Ended December 31, 2008

January 29, 2009 | About:

Press Release: Nicholas Financial Reports Results for the 3rd Quarter Ended December 31, 2008

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 delinquencyrates experienced by the Company with respect to Contracts and under itsdirect 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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