Nicholas Financial (NICK)

Overview

Nicholas Financial-Canada is a Canadian holding company incorporated under the laws of British Columbia in 1986. Nicholas Financial-Canada conducts its business activities through two wholly-owned Florida corporations: Nicholas Financial, which purchases and services Contracts, makes direct loans and sells consumer-finance related products; and NDS, which supports and updates certain computer application software. Nicholas Financial accounted for more than 99% of the Company’s consolidated revenue for the fiscal years ended March 31, 2009, 2008 and 2007, respectively. Nicholas Financial-Canada, Nicholas Financial and Nicholas Data Services are collectively referred to herein as the “Company”.

The Company’s consolidated revenues increased for the fiscal year ended March 31, 2009 to $53.1 million as compared to $50.1 million and $46.7 million for the fiscal years ended March 31, 2008 and 2007, respectively. The Company’s consolidated net income decreased for the fiscal year ended March 31, 2009 to $4.7 million as compared to $9.7 million and $11.6 million for the fiscal years ended March 31, 2008 and 2007, respectively. The Company’s earnings were negatively impacted by an increase in the net charge-off percentage from 8.24% for the year ended March 31, 2008 to 9.93% for the year ended March 31, 2009. The Company believes the primary reason for the increase in the charge-off percentage is primarily attributable to the increase in the unemployment rate. To a lesser extent, other factors such as higher gasoline prices, adjustable rate mortgages and increases in the cost of food and other cost of living expenses has contributed to increased losses.

As discussed in note 6 “Interest Rate Swap Agreements”, the Company made an economic decision which resulted in undesignating the interest rate swaps as cash flow hedges. Under accounting rules this has introduced volatility to the statement of income for changes in the fair value of interest rate swaps that historically have been captured in accumulated comprehensive income or loss in the statement of shareholders’ equity. The Company intends to hold interest rate swaps through there entire term. Accordingly, over the term of each interest rate swap agreement, the unrealized gains and losses from changes in the fair value of interest rate swaps, which are now recorded in the unrealized mark-to-market loss on interest rate swaps line item of the statement of income, will net or offset to $0 and cumulatively have no impact on retained earnings.

For the fiscal year ended March 31, 2009, net earnings, excluding non-cash unrealized mark-to-market loss on interest rate swaps, decreased to $5.7 million as compared to $9.7 million and $11.6 million for the fiscal years ended March 31, 2008 and 2007, respectively. Per share diluted net earnings, excluding non-cash unrealized mark-to-market loss on interest rate swaps, decreased to $0.55 for the fiscal year ended March 31, 2009 as compared to $0.94 and $1.13 for the fiscal years ended March 31, 2008 and 2007, respectively. See reconciliations of the non-GAAP measures on the following page.

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Table of Contents

Overview

The Company is a Canadian holding company incorporated under the laws of British Columbia in 1986. The Company conducts its business activities through two wholly-owned Florida corporations: Nicholas Financial, which purchases and services Contracts, makes direct loans and sells consumer-finance related products; and NDS, which supports and updates certain computer application software. Nicholas Financial accounted for more than 99% of the Company’s consolidated revenue for the fiscal years ended March 31, 2008, 2007 and 2006, respectively.

The Company’s consolidated revenues increased for the fiscal year ended March 31, 2008 to $50.1 million as compared to $46.7 million and $42.7 million for the fiscal years ended March 31, 2007 and 2006, respectively. The Company’s consolidated net income decreased for the fiscal year ended March 31, 2008 to $9.7 million compared to $11.6 million and $10.6 million for the fiscal years ended March 31, 2007 and 2006, respectively. The Company’s earnings were negatively impacted by an increase in the net charge-off percentage from 6.30% for the year ended March 31, 2007 to 8.24% for the year ended March 31, 2008.

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Table of Contents

Overview

FACE="Times New Roman" SIZE="2">The Company is a Canadian holding company incorporated under the laws of British Columbia in 1986. The Company conducts its business activities through two wholly-owned Florida corporations: Nicholas Financial, which
purchases and services Contracts, makes direct loans and sells consumer-finance related products; and NDS, which supports and updates certain computer application software. Nicholas Financial accounted for more than 99% of the Company’s
consolidated revenue for the fiscal years ended March 31, 2008, 2007 and 2006, respectively.

The Company’s consolidated revenues
increased for the fiscal year ended March 31, 2008 to $50.1 million as compared to $46.7 million and $42.7 million for the fiscal years ended March 31, 2007 and 2006, respectively. The Company’s consolidated net income decreased
for the fiscal year ended March 31, 2008 to $9.7 million compared to $11.6 million and $10.6 million for the fiscal years ended March 31, 2007 and 2006, respectively. The Company’s earnings were negatively impacted by an increase in
the net charge-off percentage from 6.30% for the year ended March 31, 2007 to 8.24% for the year ended March 31, 2008.

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Table of Contents

Overview

During the fiscal year ended March 31, 2006, the Compensation Committee of the Company’s Board of Directors was comprised of Messrs. Neal (Chair), Fink and Bragin. The Compensation Committee is responsible for evaluating the performance and approving the compensation of the Company’s executive officers, including the Chief Executive Officer, and overseeing the Company’s compensation and benefit plans for key employees.

The Compensation Committee reviews and approves corporate goals and objectives relevant to the Company’s Chief Executive Officer’s compensation, evaluates the Chief Executive Officer’s performance in light of these goals and objectives and establishes his compensation levels based on its evaluation. This Committee is also responsible for administration of the Company’s Employee Plan, Director Plan and, subject to and effective upon the approval of the Company’s shareholders, the Equity Plan.

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It is a goal of the Compensation Committee to implement executive officer compensation programs that further the Company’s business objectives and that attract, retain and motivate the highest qualified executive officers. In fiscal 2006, the Board of Directors and Compensation Committee engaged an independent compensation consulting firm to perform a compensation analysis for the Company’s two executive officers and its Non-Employee Directors. This analysis consisted of (1) assessing the competitive position of the Company’s base salaries and annual bonus opportunities for its Chief Executive Officer and its Senior Vice-President-Finance and Chief Financial Officer and (2) advising the Board on Non-Employee Director compensation. This analysis was presented to the Board and Compensation Committee on March 7, 2006. Based in part upon this analysis, the Compensation Committee determined that changes in the Company’s executive compensation programs were required in order to meet the Company’s objectives. These changes are described below.