8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) February 1, 2019

NICHOLAS FINANCIAL, INC.

(Exact name of registrant as specified in its Charter)

British Columbia, Canada	0-26680	8736-3354
(State or Other Jurisdiction of Incorporation or Organization)	(Commission File Number)	(I.R.S. Employer Identification No.)
2454 McMullen Booth Road, Building C Clearwater, Florida		33759
(Address of Principal Executive Offices)		(Zip Code)

(727) 726-0763

(Registrant’s telephone number, Including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Item 2.02 Results of Operations and Financial Condition

On February 1, 2019 Nicholas Financial, Inc. (the “Company”) issued a press release announcing the Company’s financial results for its quarter ended December 31, 2018. A copy of this press release is attached hereto as Exhibit 99.1.

The information included in this Current Report on Form 8-K (including Exhibit 99.1 hereto) is furnished pursuant to this Item 2.02 and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. In addition, the information included in this Current Report on Form 8-K (including Exhibit 99.1 hereto) shall not be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference into such filing.

Item 9.01 Financial Statements and Exhibits

Exhibit Index

Exhibit	Description
99.1	Press release dated February 1, 2019.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.

	NICHOLAS FINANCIAL, INC.
		(Registrant)
Date: February 1, 2019		/s/ Kelly M. Malson
		Kelly M. Malson
		Chief Financial Officer (Principal Financial Officer)

EX-99.1

Exhibit 99.1

	Contact: Kelly Malson         CFO	FOR IMMEDIATE RELEASE NASDAQ: NICK Web site:  nicholasfinancial.com
Nicholas Financial, Inc. Corporate Headquarters 2454 McMullen-Booth Rd. Building C, Suite 501 Clearwater, FL 33759	www.nicholasfinancial.com         Ph # (727) 726-0763

Nicholas Financial Reports

3^rd Quarter Results

• Accounts 61+ days delinquent decreased to 5.38% year-over-year from 5.93%, excluding Chapter 13 bankruptcy accounts

• Provision for credit losses saw a 12.4% improvement from prior year third quarter

• Average APR on new contracts purchased during the quarter increased to 23.5% compared to 21.7% during the prior year third quarter

• Interest and fee income on financed receivables decreased 18.4% due to an 18.9% decrease in average finance receivables, compared to prior year third quarter

February 1, 2019 – Clearwater, Florida - Nicholas Financial, Inc. (NASDAQ: NICK) announced a net loss for the three months ended December 31, 2018 of $0.9 million compared to a net loss of $2.9 million for the three months ended December 31, 2017. Diluted net loss per share decreased to $0.12 for the three months ended December 31, 2018 as compared to $0.37 for the three months ended December 31, 2017. Revenue decreased 18.4% to $16.7 million for the three months ended December 31, 2018 as compared to $20.5 million for the three months ended December 31, 2017. The Company reported an operating loss before income taxes for the three months ended December 31, 2018 of $1.3 million compared to operating income of $0.8 million for the three months ended December 31, 2017. The Company recorded an income tax benefit of approximately $0.4 million during the current quarter compared to $3.7 million income tax provision during the three months ending December 31, 2017. This change was attributed to the Tax Cuts and Jobs Act enacted in the prior year.

“Whereas it is always disappointing to have a negative earnings quarter, we remain pleased with our continuing efforts to improve the overall health of the Company and with our subsequent positive results related to our last 12 months of purchases and operations,” commented Doug Marohn, President and CEO of Nicholas Financial. “As we have reported over the last 4 quarters, the legacy portfolios from purchases in 2015, 2016 and 2017 have difficult pools in terms of underwriting quality and subsequent portfolio performance/losses. Our focus over the last year has been to manage through these existing receivables as best we can, but more importantly to substantially improve our underwriting and operations in an effort to improve the strength and stability of the Company going forward.”

Net income for the nine months ended December 31, 2018 was $1.1 million compared to a net loss of $1.7 million for the nine months ended December 31, 2017. Diluted net earnings per share increased to $0.14 for the nine months ended December 31, 2018 as compared to a $0.22 loss for the nine months ended December 31, 2017. Revenue decreased 14.3% to $54.9 million for the nine months ended December 31, 2018 as compared to $64.1 million for the nine months ended December 31, 2017. The Company’s operating income before income taxes decreased for the nine months ended December 31, 2018 to $1.4 million compared to $2.7 million for the nine months ended December 31, 2017. The provision for income taxes decreased to $0.3 million compared to $4.4 million in the prior year. This change was attributed to the Tax Cuts and Jobs Act enacted in the prior year.

“Over the last year we have been able to improve all significant Key Performance Indicators (KPIs) on new purchases resulting significantly increased yields on the new purchases and a lower exposure for potential losses,” continued Marohn.

Fiscal Year /Quarter	Number of Contracts purchased		Principal Amount purchased		Average Amount Financed		Average APR*			Average Discount%*			Average Term*
2019		5,533	$	56,265,636	$	10,169		23.6	%		8.3	%		47
3		1,625		16,475,956		10,139		23.5	%		8.1	%		47
2		1,761		17,844,587		10,133		23.5	%		8.4	%		47
1		2,147		21,945,093		10,221		23.7	%		8.3	%		48
2018		9,767		109,575,099		11,219		22.4	%		7.4	%		54
4		2,814		29,253,725		10,396		23.3	%		7.9	%		50
3		2,365		27,378,449		11,577		21.7	%		6.9	%		54
2		2,239		25,782,056		11,515		22.0	%		7.3	%		55
1		2,349		27,160,869		11,563		22.3	%		7.6	%		55
2017		14,619		170,941,206		11,693		22.2	%		7.1	%		57
4		3,677		42,629,274		11,593		22.3	%		7.3	%		56
3		3,846		45,941,459		11,945		22.0	%		6.9	%		57
2		3,592		41,540,401		11,565		22.3	%		7.0	%		57
1		3,504		40,830,072		11,609		22.4	%		7.2	%		57

* The averages included in the table are calculated as a simple average.

“This focus on improving our loan metrics also came with a deliberate reduction in our new loan purchases to allow for retraining of our field employees, redevelopment of our dealer relationships and remarketing of our brand. Now that we have been successful in correcting the type of contracts we purchase, we intend to focus more efforts on increasing the quantity of purchases, as well.” The Company began modifying its underwriting guidelines half way through fiscal 2018 to improve the quality of Contracts being purchased. These changes led to a decrease in the dollar amount of Contracts purchased by approximately $24.1 million, or 29.9%, during the 9 months ended December 31, 2018, as compared to the nine months ended December 31, 2017. However, the number of Contracts purchased only decreased by 1,420, or 20.4%, over the same period of time, as illustrated in the table above. The revenue decrease during the nine months ended December 31, 2018, as compared to the nine months ended December 31, 2017, was a result of this reduction in the dollar amount of Contracts purchased partially offset by an increase in the average APR. With tighter underwriting guidelines and a decreasing portfolio, the Company’s provision for credit losses saw a 12.4% improvement for the three months ended December 31, 2018 compared to the three months ended December 31, 2017 and a 25.0% improvement for the nine months ended December 31, 2018 compared to the nine months ended December 31, 2017.

Marohn continued, “We are also very excited about the progress we are making with our Direct Loan / Consumer Loan product. What was once primarily a Florida-specific product is now an active product in Florida, North Carolina, Georgia and Ohio. As a result, we have increased our Direct Loan portfolio by over 13% in this past quarter. We are in the process of licensing Tennessee, Kentucky and Indiana and expect those markets to be operational by the end of our 4^th quarter. It is our strategy to eventually have the Direct Loan product in each of our markets where we have a branch office.”

Nicholas Financial, Inc. is a publicly-traded specialty consumer finance company, operating branch locations in both Southeastern and Midwestern U.S. states. The Company has approximately 7.9 million shares of voting common stock outstanding. For an index of Nicholas Financial, Inc.’s news releases or to obtain a specific release, visit our web site at www.nicholasfinancial.com.

Cautionary Note regarding Forward-Looking Statements

Except for the historical information contained herein, the matters discussed in this news release include forward-looking statements that involve risks and uncertainties including risk relating to competition and our ability to increase and maintain yield and profitability at desirable levels, as well as risks relating to general economic conditions, access to bank financing, and other risks detailed from time to time in the Company’s filings and reports with the Securities and Exchange Commission including the Company’s Annual Report on Form 10-K for the year ended March 31, 2018. When used in this document, the words “anticipate”, “estimate”, “expect”, “will”, “may”, “plan,” “believe”, “intend” and similar expressions are intended to identify forward-looking statements. Such statements are based on the beliefs of Company management as well as assumptions made by and information currently available to Company management. Actual events or results may differ materially from those anticipated, estimated or expect. All forward-looking statements and cautionary statements included in this document are made as of the date hereof based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statement or cautionary statement.

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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,
	2018			2017			2018		2017
Revenue:
Interest and fee income on finance receivables	$	16,740		$	20,526		$	54,903	$	64,062
Expenses:
Operating expenses		7,848			8,138			24,615		24,984
Provision for credit losses		7,870			8,989			21,670		28,887
Interest expense		2,303			2,585			7,228		7,500
Total expenses		18,021			19,712			53,513		61,371
Operating (loss) income before income taxes		(1,281	)		814			1,390		2,691
Income tax expense (benefit)		(376	)		3,712			293		4,432
Net (loss) income	$	(905	)	$	(2,898	)	$	1,097	$	(1,741	)
Earnings (loss) per share:
Basic	$	(0.12	)	$	(0.37	)	$	0.14	$	(0.22	)
Diluted	$	(0.12	)	$	(0.37	)	$	0.14	$	(0.22	)

Condensed Consolidated Balance Sheets

(Unaudited, In Thousands)

	December 31,		March 31,
	2018		2018
Cash	$	4,252	$	2,626
Finance receivables, net		219,210		266,573
Other assets		11,084		11,660
Total assets	$	234,546	$	280,859
Line of credit	$	120,000	$	165,750
Other liabilities		4,955		6,672
Total liabilities		124,955		172,422
Shareholders’ equity		109,591		108,437
Total liabilities and shareholders’ equity	$	234,546	$	280,859
Book value per share	$	13.86	$	13.73

	Three months ended December 31, (In thousands)						Nine months ended December 31, (In thousands)
Portfolio Summary	2018			2017			2018			2017
Average finance receivables (1)	$	261,036		$	321,742		$	279,023		$	333,660
Average indebtedness (2)	$	127,332		$	183,615		$	143,693		$	196,619
Interest and fee income on finance receivables	$	16,740		$	20,526		$	54,903		$	64,062
Interest expense		2,303			2,585			7,228			7,500
Net interest and fee income on finance receivables	$	14,437		$	17,941		$	47,675		$	56,562
Portfolio yield (3)		25.65	%		25.52	%		26.24	%		25.60	%
Interest expense as a percentage of average finance receivables		3.53	%		3.21	%		3.45	%		3.00	%
Provision for credit losses as a percentage of average finance receivables		12.06	%		11.18	%		10.36	%		11.54	%
Net portfolio yield (3)		10.06	%		11.13	%		12.43	%		11.06	%
Operating expenses as a percentage of average finance receivables		12.03	%		10.12	%		11.76	%		9.98	%
Pre-tax yield as a percentage of average finance receivables (4)		(1.96	)%		1.01	%		0.66	%		1.08	%
Write-off to liquidation (5)		12.59	%		13.66	%		12.35	%		13.00	%
Net charge-off percentage (6)		10.84	%		10.63	%		10.49	%		10.13	%
Allowance percentage (7)		7.65	%		6.59	%		7.16	%		6.35	%

Note: All three-month and six-month statement of income performance indicators expressed as percentages have been annualized.

(1) Average finance receivables represents the average of finance receivables throughout the period.

(2) Average indebtedness represents the average outstanding borrowings under the Line.

(3) Portfolio yield represents interest and fee income on finance receivables as a percentage of average finance receivables. Net portfolio yield represents (a) interest and fee income on finance receivables minus (b) interest expense minus (c) the provision for credit losses, as a percentage of average finance receivables.

(4) Pre-tax yield represents net portfolio yield minus operating expenses, as a percentage of average finance receivables.

(5) 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 and originations minus ending receivable balance.

(6) Net charge-off percentage represents net charge-offs (charge-offs less recoveries) divided by average finance receivables, outstanding during the period.

(7) Allowance percentage represents the allowance for credit losses divided by average finance receivables outstanding during the period.

The following tables present certain information regarding the delinquency rates experienced by the Company with respect to automobile finance installment contracts (“Contracts”) and direct consumer loans (“Direct Loans”), excluding any Chapter 13 bankruptcy accounts:

(In thousands, except percentages)
Contracts	Balance Outstanding		31 – 60 days			61 – 90 days			91 – 120 days			Over 120			Total
December 31, 2018	$	238,183	$	18,229		$	6,897		$	3,760		$	2,416		$	31,302
				7.65	%		2.90	%		1.58	%		1.01	%		13.14	%
December 31, 2017	$	301,544	$	22,583		$	9,413		$	5,320		$	3,471		$	40,787
				7.49	%		3.12	%		1.76	%		1.15	%		13.53	%

Direct Loans	Balance Outstanding		31 – 60 days			61 – 90 days			91 – 120 days			Over 120			Total
December 31, 2018	$	8,470	$	188		$	88		$	30		$	68		$	374
				2.22	%		1.04	%		0.35	%		0.80	%		4.42	%
December 31, 2017	$	8,204	$	204		$	81		$	26		$	67		$	378
				2.49	%		0.99	%		0.32	%		0.82	%		4.61	%

The following table presents selected information on Contracts purchased by the Company (1):

	Three months ended December 31, (Purchases in thousands)						Nine months ended December 31, (Purchases in thousands)
Contracts	2018			2017			2018			2017
Purchases	$	16,476		$	27,378		$	56,266		$	80,321
Average APR		23.45	%		21.68	%		23.56	%		21.99	%
Average discount		8.13	%		6.89	%		8.29	%		7.23	%
Average term (months)		47			54			47			55
Average loan	$	10,139		$	11,577		$	10,169		$	11,552
Number of contracts		1,625			2,365			5,533			6,953

The following table presents selected information on the entire Contract portfolio of the Company (1):

	As of December 31,
Portfolio	2018			2017
Average APR		22.68	%		22.21	%
Average discount		7.46	%		7.25	%
Average term (months)		53			57
Number of active contracts		29,061			33,993

(1) The table does not include any selected information on Direct Loans; which only accounts for approximately 3% of the Company’s total receivable portfolio.

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