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Nicholas Financial Inc. Reports Operating Results (10-Q)

August 13, 2009 | About:
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Nicholas Financial Inc. (NICK) filed Quarterly Report for the period ended 2009-06-30.

Nicholas Financial provides specialty consumer finance products through its 31 branch offices located throughout the eastern United States. Nicholas Financial Inc. has a market cap of $69.1 million; its shares were traded at around $6.5809 with a P/E ratio of 12.7 and P/S ratio of 1.3. Nicholas Financial Inc. had an annual average earning growth of 11.3% over the past 10 years. GuruFocus rated Nicholas Financial Inc. the business predictability rank of 5-star.

Highlight of Business Operations:

Consolidated net income increased to approximately $2.3 million for the three-month period ended June 30, 2009 as compared to $1.6 million for the corresponding period ended June 30, 2008. Net income for the three months ended June 30, 2009 includes a pre-tax gain of approximately $297,000 related to the change in fair value of interest rate swaps. Earnings were favorably impacted primarily by an increase in the average net receivables, a decrease in operating expenses as a percentage of average finance receivables, net of unearned interest and a decrease in the average cost of borrowed funds. The Companys software subsidiary, Nicholas Data Services (NDS), did not contribute significantly to consolidated operations in the three months ended June 30, 2009 or 2008, respectively.

For the three months ended June 30, 2009, net earnings, excluding changes in fair value of interest rate swaps, increased 31% to $2.1 million compared to $1.6 million for the three months ended June 30, 2008. Per share diluted net earnings, excluding changes in fair value of interest rate swaps, increased 33% to $0.20 for the three months ended June 30, 2009 as compared to $0.15 for the three months ended June 30, 2008. See reconciliations of the non-GAAP measures on the following page.

Interest income on finance receivables, predominately finance charge income, increased 5% to approximately $13.7 million for the three-month period ended June 30, 2009, from $13.1 million for the corresponding period ended June 30, 2008. Average finance receivables, net of unearned interest equaled approximately $215.7 million for the three-month period ended June 30, 2009, an increase of 6% from $203.3 million for the corresponding period ended June 30, 2008. The primary reason average finance receivables, net of unearned interest, increased was the increase in the receivable base of several existing branches in younger markets during fiscal 2009 and the first three months of fiscal 2010. The gross finance receivable balance increased 5% to approximately $307.9 million as of June 30, 2009, from $292.1 million as of June 30, 2008. The primary reason interest income increased was the increase in the outstanding loan portfolio. The gross portfolio yield decreased from 25.78% for the three-month period ended June 30, 2008 to 25.35% for the three-month period ended June 30, 2009. The net portfolio yield increased from 16.32% for the three-month period ended June 30, 2008 to 16.83% for the corresponding period ended June 30, 2009. The gross portfolio yield decreased primarily due to a lower weighted annual percentage rate (APR) earned on finance receivables. The net portfolio yield increased due to a decrease in the average cost of borrowed funds and a reduction in the provision for credit losses.

Marketing, salaries, employee benefits, depreciation and administrative expenses decreased to approximately $5.7 million for the three-month period ended June 30, 2009 from approximately $5.8 million for the corresponding period ended June 30, 2008. Marketing, salaries, employee benefits, depreciation, and administrative expenses as a percentage of finance receivables, net of unearned interest, decreased to 10.49% for the three-month period ended June 30, 2009 from 11.10% for the three-month period ended June 30, 2008.

Interest expense decreased to approximately $1.3 million for the three-month period ended June 30, 2009 from $1.4 million for the three-month period ended June 30, 2008. The average indebtedness for the three-month period ended June 30, 2009 increased to approximately $104.0 million as compared to $101.9 million for the corresponding period ended June 30, 2008. The Companys average cost of borrowed funds decreased to 4.94% for the three-month period ended June 30, 2009 as compared to 5.53% for the corresponding period ended June 30, 2008. The primary reasons the Companys average cost of funds decreased is the weighted-average 30-day LIBOR rate decreased from 2.65% for the three months ended June 30, 2008 as compared to 0.41% for the three months ended June 30, 2009. The reduction in 30-day LIBOR rates was offset in part by the Companys interest rate swap agreements, which convert a majority of the Companys floating rate debt to fixed rate debt. For further discussions regarding the Companys cost of funds and the effect of interest rate swap agreements see note 6 Interest Rate Swap Agreements.

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