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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Nicholas Financial-Canada is a Canadian holding company incorporated under the laws of British Columbia in 1986. Nicholas Financial-Canada currently conducts its business activities exclusively through a wholly-owned indirect Florida subsidiary, Nicholas Financial. Nicholas Financial is a specialized consumer finance company engaged primarily in acquiring and servicing automobile finance installment contracts (“Contracts”) for purchases of used and new automobiles and light trucks. To a lesser extent, Nicholas Financial also originates direct consumer loans (“Direct Loans”) and sells consumer-finance related products. Nicholas Financial’s financing activities represent a primary source of consolidated revenue for the fiscal years ended March 31, 2022 and 2021. A second Florida subsidiary, Nicholas Data Services, Inc. (“NDS”), serves as an intermediate holding company for Nicholas Financial. In addition, NF Funding I, LLC (“NF Funding I”) is a wholly-owned, special purpose financing subsidiary of Nicholas Financial.

Nicholas Financial-Canada, Nicholas Financial, NDS, and NF Funding I are collectively referred to herein as the “Company”.

Introduction

The Company’s consolidated revenues decreased from $54.2 million for the fiscal year ended March 31, 2021 to $49.8 million for the fiscal year ended March 31, 2022. The Company’s diluted earnings per share decreased from $1.09 per share for the fiscal year ended March 31, 2021 to $0.39 per share for the fiscal year ended March 31, 2022. The Company’s operating income before income taxes decreased from $10.9 million for the year ended March 31, 2021 to $4.0 million for the year ended March 31, 2022. The $6.9 million decrease in profitability was primarily driven by a decrease in average finance receivables from $199.1 million to $178.7 million for the year ended March 31, 2021 and 2022, respectively, and the acceleration of unamortized debt issuance costs from the ARES facility (non-cash interest expense) in the amount of $1.9 million.

The Company’s consolidated net income decreased from $8.4 million for the fiscal year ended March 31, 2021 to $3.0 million for the fiscal year ended March 31, 2022.

The gross portfolio yield of the portfolio for the fiscal years ended March 31, 2022 and 2021 was 27.82% and 27.23%, respectively. For the years ended March 31, 2022 and 2021, the average dealer discount decreased from 7.5% to 6.9% primarily as a result of market conditions in the 2022 fiscal year. The APR (and therefore overall

yield) on new purchases was consistent in fiscal 2022 and fiscal 2021, which was primarily driven by the Company’s continuing commitment to its core principles of disciplined underwriting and risk-based pricing.

Portfolio Summary Fiscal Year ended March 31,(In thousands)

Interest and fee income on finance receivables 49,779 54,211

Net interest and fee income on finance receivables $ 44,348 $ 48,231

Interest expense as a percentage of average finance receivables 3.00 % 3.00 %

Pre-tax yield as a percentage of average finance receivables(4) 2.27 % 4.60 %

Net charge-off percentage (5) 5.13 % 6.16 %

Allowance percentage (6) 1.61 % 3.34 %

Total reserves percentage (7) 5.62 % 7.49 %

(1)

Average finance receivables represent the average of finance receivables throughout the period.

(2)

Average indebtedness represents the average outstanding borrowings under the Credit Facility throughout the period. Average indebtedness does not include the PPP loan.

(3)

Gross 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 (marketing, salaries, employee benefits, depreciation, and administrative), as a percentage of average finance receivables.

(5)

Net charge-off percentage represents net charge-offs (charge-offs less recoveries) divided by average finance receivables, outstanding during the period, annualized for 12 months.

(6)

Allowance percentage represents the allowance for credit losses divided by finance receivables outstanding as of ending balance sheet date.

(7)

Total reserves percentage represents the allowance for credit losses, unearned purchase price discount, and unearned dealer discounts divided by finance receivables outstanding as of ending balance sheet date

COVID-19

The expansion of unemployment benefits by the CARES Act, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 and the American Rescue Plan Act of 2021 to eligible individuals collectively had a beneficial effect on the Company. While pandemic unemployment assistance has been extended through September 6, 2021, the beneficial impact these benefits have had on the Company largely disappeared once its customers no longer qualified for such benefits. The Company continued to experience strong cash collections and experienced positive trending on gross charge-off balances for the twelve months ended March 31, 2021.

In accordance with our policies and procedures, certain borrowers qualify for, and the Company offers, one-month principal payment deferrals on Contracts and Direct Loans. Due to COVID-19, the Company allowed an additional deferment during fiscal year 2021, as a result the number of deferments increased at the beginning of the pandemic. For the years ended March 31, 2022 and 2021 the Company experienced an average monthly number of deferments of 255 and 696, respectively, which would represent approximately 1.0% and 2.6% of total Contracts and Direct

Loans, as of March 31, 2022 and 2021, respectively. The number of deferrals is also influenced by portfolio performance, including but not limited to, inflation, credit quality of loans purchased, competition at the time of Contract acquisition, and general economic conditions.

The Company believes the number of one-month principal payments deferrals is now largely consistent with pre-pandemic levels.

However, the extent to which the COVID-19 pandemic eventually impacts our business, financial condition, results of operations or cash flows will depend on numerous evolving factors that we are unable to accurately predict at this time. The length and scope of the restrictions imposed by various governments, success of vaccination efforts, and scope and duration of special government benefits to be unemployed, among other factors, will determine the ultimate severity of the COVID-19 impact on our business. It is likely that prolonged periods of difficult market conditions could have material adverse impacts on our business, financial condition, results of operations and cash flows.

Critical Accounting Estimates

A critical accounting estimate is an estimate that: (i) is made in accordance with generally accepted accounting principles, (ii) involves a significant level of estimation uncertainty and (iii) has had or is reasonably likely to have a material impact on the Company’s financial condition or results of operations.

The Company’s critical accounting estimate relates to the allowance for credit losses. It is based on management’s opinion of an amount that is adequate to absorb losses incurred in the existing portfolio. Because of the nature of the customers under the Company’s Contracts and Direct Loan program, the Company considers the establishment of adequate reserves for credit losses to be imperative.

The Company takes into consideration the composition of the portfolio, current economic conditions, the estimated net realizable value of the underlying collateral, historical loan loss experience, delinquency, non-performing assets, and bankrupt accounts when determining management’s estimate of probable credit losses and the adequacy of the allowance for credit losses. Management utilizes significant judgment in determining probable incurred losses and in identifying and evaluating qualitative factors. This approach aligns with the Company’s lending policies and underwriting standards. If the allowance for credit losses is determined to be inadequate, then an additional charge to the provision is recorded to maintain adequate reserves based on management’s evaluation of the risk inherent in the loan portfolio. During the fourth quarter of the fiscal year ended March 31, 2022, the Company made a change in the accounting estimate and began using a trailing twelve-month net charge-offs as a percentage of average finance receivables, and applying this percentage to ending finance receivables to estimate future probable credit losses. This approach better reflects the current trends of incurred losses within the portfolio and more closely aligns the allowance for credit losses with the portfolio’s performance indicators. Prior to the fourth quarter of the fiscal year ended March 31, 2022, the Company used a trailing six-month net charge-offs as a percentage of average finance receivables, annualized, and applied this percentage to ending finance receivables to estimate future probable losses for purposes of determining the allowance for credit losses. Using the prior methodology for estimating the allowance for credit losses would have resulted in higher provision expense of approximately $1.7 million. Management believes that estimating the allowance for credit losses using the trailing twelve-month charge-off analysis more accurately reflects portfolio performance adjusted for seasonality and encompasses historical collection practices. Under the current methodology the management continues to evaluate qualitative factors to support its allowance for credit losses. The Company examines the impact of macro-economic factors, such as year-over-year inflation, and changes in the value of underlying collateral and as a result incorporated an additional $0.9 million as a qualitative component amount to its current estimate of adequate reserves.

Contracts are purchased from many different dealers and are all purchased on an individual Contract-by-Contract basis. Individual Contract pricing is determined by the automobile dealerships and is generally the lesser of the applicable state maximum interest rate, if any, or the maximum interest rate which the customer will accept. In most markets, competitive forces will drive down Contract rates from the maximum rate to a level where an individual

competitor is willing to buy an individual Contract. The Company generally purchases Contracts on an individual basis.

The Company utilizes the branch model, which allows for Contract purchasing to be done at the branch level. The Company has detailed underwriting guidelines it utilizes to determine which Contracts to purchase. These guidelines are specific and are designed to provide reasonable assurance that the Contracts that the Company purchases have common risk characteristics. The Company utilizes its District Managers to evaluate their respective branch locations for adherence to these underwriting guidelines, as well as approve underwriting exceptions. Any Contract that does not meet the Company’s underwriting guidelines can be submitted by a branch manager for approval from the Company’s District Managers or senior management.

Fiscal 2022 Compared to Fiscal 2021

Interest and Fee Income on Finance Receivables

Interest and fee income on finance receivables, predominantly finance charge income, decreased to $49.8 million in fiscal 2022 as compared to $54.2 million in fiscal 2021. The average finance receivables totaled $178.7 million for the fiscal year ended March 31, 2022, a decrease of 10.2% from $199.1 million for the fiscal year ended March 31, 2021. Purchasing volume increased to $85.8 million in fiscal 2022 from $74.0 million in fiscal 2021. Purchasing volume increased from fiscal 2021 primarily as a result of our focus on training, developing, retaining good talent, while continuing to apply disciplined underwriting and risk-based pricing.

Competition continued to affect the Company’s ability to acquire Contracts at desired yields. The average APR on new Contract purchases was 23.1% for the fiscal year 2022 and 23.4% for the fiscal year 2021. Concurrently, the dealer discount on new Contract purchases decreased from 7.5% for fiscal year 2021 to 6.9% for fiscal year 2022, primarily as a result of competitive pressures. Overall, the Company maintains its strategy focused on risk-based pricing (rate, yield, advance, term, etc.) and a commitment to the underwriting discipline required for optimal portfolio performance.

The gross portfolio yield increased to 27.9% for the fiscal year ended March 31, 2022 as compared to 27.2% for the fiscal year ended March 31, 2021. The gross portfolio yield increased primarily because the percentage decrease in average finance receivables exceeded the percentage decrease in interest and fee income on finance receivables.

The net portfolio yield increased to 21.5% for the fiscal year ended March 31, 2022 from 20.6% for the fiscal year ended March 31, 2021. The net portfolio yield increased primarily due to a decrease in the provision for credit losses as a percentage of finance receivables, as described under “Analysis of Credit Losses” below (although the provision for credit losses increased in absolute terms). Additionally, the Company recorded lower interest expenses for the fiscal year 2022, which also increased net portfolio yield.

Operating Expenses

Operating expenses increased to $34.4 million for the fiscal year ended March 31, 2022 compared to $31.8 million for the fiscal year ended March 31, 2021 as a result of increases across expense accounts, including but not limited to, professional/consulting fees, marketing, rent, and other identified expenses as a result of expansion efforts into new markets, the opening and staffing of our second corporate location, and a re-focusing on training and development of staff.

Interest Expense

Interest expense decreased to $5.4 million for the fiscal year ended March 31, 2022, as compared to $6.0 million for the fiscal year ended March 31, 2021, due to a decrease in average outstanding debt and lower interest rate. During third quarter of the fiscal year ended March 31, 2021 the Company recognized an acceleration of unamortized debt issuance costs (non-cash interest expense) related to the extinguishment of the ARES credit facility in the amount of $1.9 million as interest expense within the Consolidated Statements of Income. The average outstanding debt during the year ended March 31, 2022 decreased to $67.7 million from $107.6 million during the year ended March 31,

2021. The following table summarizes the Company’s average cost of borrowed funds for the fiscal years ended March 31:

Variable interest under the line of credit and credit facility 0.63 % 1.81 %

Credit spread under the line of credit and credit facility 3.15 % 3.75 %

Average cost of borrowed funds 3.78 % 5.56 %

Analysis of Credit Losses

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts and Direct Loans for the fiscal years ended March 31:

For the year ended March 31, 2022

(In thousands)

Indirect Direct Total

For the year ended March 31, 2021

(In thousands)

Indirect Direct Total

Provision for credit losses 7,250 - 7,250

year-over-year inflation, and changes in the value of underlying collateral and as a result incorporated an additional $0.9 million as a qualitative component amount to its current estimate of adequate reserves.

The Company defines non-performing assets as accounts that are contractually delinquent for 60 or more days past due or Chapter 13 bankruptcy accounts. For these accounts, the accrual of interest income is suspended, and any previously accrued interest is reversed. Upon notification of a bankruptcy, an account is monitored for collection with other Chapter 13 accounts. In the event the debtors’ balance is reduced by the bankruptcy court, the Company will record a loss equal to the amount of principal balance reduction. The remaining balance will be reduced as payments are received by the bankruptcy court. In the event an account is dismissed from bankruptcy, the Company will decide based on several factors, whether to begin repossession proceedings or allow the customer to begin making regularly scheduled payments.

The Company defines a Chapter 13 bankruptcy account as a Troubled Debt Restructuring (“TDR”). The Company records a specific reserve for Chapter 13 bankruptcy accounts which is considered a qualitative reserve to the allowance for credit losses. The Company records the reserve based on the expected collectability of the principal balance of the Chapter 13 Bankruptcy and the specific reserve recorded as of March 31, 2022 and March 31, 2021 was $138,000 and $68,000, respectively.

The provision for credit losses decreased to $6.0 million for the fiscal year ended March 31, 2022 from $7.3 million for the fiscal year ended March 31, 2021, due to decrease in net charge-off percentage. The Company’s allowance for credit losses also incorporates recent trends such as delinquency, non-performing assets, and bankruptcy. The Company believes that this approach reflects the current trends of incurred losses within the portfolio and better aligns the allowance for credit losses with the portfolio’s performance indicators.

Net charge-offs decreased to 5.1% for the fiscal year ended March 31, 2022 from 6.2% for the fiscal year ended March 31, 2021, primarily resulting from the Company‘s active management of the portfolio. (See note 5 in the Portfolio Summary table in the “Introduction” above for the definition of net charge-off percentage.)

The delinquency percentage for Contracts more than thirty days past due, excluding Chapter 13 bankruptcy accounts, as of March 31, 2022 was 7.3%, an increase from 5.7% as of March 31, 2021. The delinquency percentage for Direct Loans more than thirty days past due, excluding Chapter 13 bankruptcy accounts, as of March 31, 2022 was 3.6%, an increase from 3.2% as of March 31, 2021. The delinquency percentage for both Contracts and Direct Loans increased as enhanced unemployment benefits and stimulus programs came to an end.

In accordance with Company policies and procedures, certain borrowers qualify for, and the Company offers, one-month principal payment deferrals on Contracts and Direct Loans. For the fiscal years ended March 31, 2022 and March 31, 2021 the Company granted deferrals to approximately 11.8% and 31.2%, respectively, of total Contracts and Direct Loans. The decrease in the total number of deferrals in fiscal 2022 compared to fiscal 2021 was primarily the result of a spike in April 30, 2021, and a change in company policy during fiscal 2021 that allowed an additional deferment. The number of deferrals is also influenced by portfolio performance, including but not limited to, inflation, credit quality of loans purchased, competition at the time of Contract acquisition, and general economic conditions. For further information on deferrals, please see the disclosure under “COVID-19” above.

Income Taxes

The Company recorded a tax expense of approximately $2.6 million during fiscal 2021 compared to a tax expenses of approximately $1.0 million during fiscal 2022. The Company’s effective tax rate in fiscal 2021 was 23.7% compared to 25.9% in fiscal 2022. For further discussion regarding income taxes see “Note 7 – Income Taxes”.

Liquidity and Capital Resources

The Company’s cash flows are summarized as follows:

Fiscal Year ended March 31,(In thousands)

Cash provided by (used in):

Net increase (decrease) in cash $ (28,202 ) $ 8,293

Our major source of liquidity and capital is cash generated from our ongoing operations and our borrowing capacity under our Credit Facility.

We believe that our current cash balance, together with the future cash generated from operations and our borrowing capacity under our Credit Facility, will be sufficient to satisfy our requirements and plans for cash for the next 12 months. We also believe that future cash generated from operations and our borrowing capacity under our Credit Facility, will be sufficient to satisfy our requirements and plans for cash beyond the next 12 months. Our access to, and the availability of, financing on acceptable terms in the future will be affected by many factors including overall liquidity in the capital or credit markets, the state of the economy and our credit strength as viewed by potential lenders. We cannot provide assurances that we will have future access to the capital or credit markets on acceptable terms.

On November 5, 2021, NFI and Nicholas Data Services, Inc., a Florida corporation (“NDS” and collectively with NFI, the “Borrowers”), two wholly-owned subsidiaries of Nicholas Financial, Inc. (the “Company”) entered into a senior secured credit facility (the “Credit Facility”) pursuant to a loan and security agreement by and among the Borrowers, Wells Fargo Bank, N.A., as agent, and the lenders that are party thereto (the “Credit Agreement”). The prior credit facility (the "Ares Credit Facility") pursuant to a credit agreement among the Company’s subsidiary NF Funding I, LLC, Ares Agent Services, L.P. and the lenders party thereto was paid off in connection with entering into the Credit Facility.

Pursuant to the Credit Agreement, the lenders agreed to extend to the Borrowers a line of credit of up to $175,000,000. The availability of funds under the Credit Facility is generally limited to an advance rate of between 80% and 85% of the value of eligible receivables, and outstanding advances under the Credit Facility will accrue interest at a rate equal to the Secured Overnight Financing Rate (SOFR) plus 2.25%. The commitment period for advances under the Credit Facility is three years (the expiration of that time period, the “Maturity Date”).

Pursuant to the Credit Agreement, the Borrowers granted a security interest in substantially all of their assets as collateral for their obligations under the Credit Facility. Furthermore, pursuant to a separate collateral pledge agreement, NDS pledged its equity interest in NFI as additional collateral.

The Credit Agreement and the other loan documents contain customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, and sales of assets. Such documents also restrict the Company’s ability to make distributions to its shareholders, enter into certain fundamental transactions or make bulk purchases of receivables. If an event of default occurs, the lenders could increase borrowing costs, restrict the Borrowers’ ability to obtain additional advances under the Credit Facility, accelerate all amounts outstanding under the Credit Facility, enforce their interest against collateral pledged under the Credit Facility or enforce such other rights and remedies as they have under the loan documents or applicable law as secured lenders.

percentage of $175,000,000, calculated as 2% if the termination or prepayment occurs during year one, 1% if the termination or repayment occurs during year two, and 0.5% if the termination or prepayment occurs thereafter.

On May 27, 2020, the Company obtained a loan in the amount of $3,243,900 from a bank in connection with the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (the “PPP Loan”). Pursuant to the Paycheck Protection Program, all or a portion of the PPP Loan may be forgiven if the Company uses the proceeds of the PPP Loan for its payroll costs and other expenses in accordance with the requirements of the Paycheck Protection Program. The Company used the proceeds of the PPP Loan for payroll costs and other covered expenses and sought full forgiveness of the PPP Loan. The Company submitted a forgiveness application to Fifth Third Bank, the lender, on December 7, 2020 and submitted supplemental documentation on January 16, 2021. On December 27, 2021 SBA informed the Company that no forgiveness was granted. The Company filed an appeal with SBA on January 5, 2022. On May 6, 2022 the Office of Hearing and Appeals SBA (OHA) rendered a decision to deny the appeal. The Company subsequently repaid the outstanding principal of $3,243,900 plus accrued and unpaid interest of $64,518 on May 23, 2022.

The Company is currently evaluating its capital allocation goals and may in the future decide to change its mix of capital resources in an effort to achieve a higher dollar value of receivables for every dollar of equity capital invested. To do so, the Company may, if so agreed with its lender, distribute future excess profits generated at its U.S. subsidiaries to the Company, or reinvest excess equity capital into its U.S. subsidiaries when opportunities warrant. In addition, the Company may determine to continue its share repurchases at a higher volume than previously and/or acquire businesses or assets that are related or unrelated to its current business, including securities in publicly-held companies. However, the Company is not limited to these alternatives. In addition, the Company may determine not to pursue these or any other alternatives to change its capital allocation, for example because it determines that such path is not prudent in light of legal and tax requirements applying to the Company as a British Columbia company listed in the United States with primarily United States shareholders and, through its U.S. subsidiaries, exclusively United States operations.

Impact of Inflation

The Company is affected by inflation primarily through increased operating costs and expenses including increases in interest rates. Inflationary pressures on operating costs and expenses historically have been largely offset by the Company’s continued emphasis on stringent operating and cost controls, although no assurances can be given regarding the Company’s ability to offset the effects of inflation in the future. Management believes the rise in inflation can impact the subprime borrower due to rising cost of housing, consumer goods, gas prices, etc. and believes it could have an impact on the performance and collectability of the portfolio.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data

The following financial statements are filed as part of this Report:

Report of Independent Registered Public Accounting Firm (PCAOB ID: 49) 36

Audited Consolidated Financial Statements

Consolidated Balance Sheets 38

Consolidated Statements of Income 39

Consolidated Statements of Shareholders’ Equity 40

Consolidated Statements of Cash Flows 41

Notes to the Consolidated Financial Statements 42

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Nicholas Financial, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Nicholas Financial, Inc. and Subsidiaries (the Company) as of March 31, 2022, and 2021, the related consolidated statements of income, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022, and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for credit losses

As described in Notes 2 and 3 to the consolidated financial statements, the Company’s allowance for credit losses was $2.9 million at March 31, 2022. The Company calculates the allowance using their trailing twelve-month net charge-offs as a percentage of average finance receivables and applies this calculated percentage to ending finance receivables and adjusts for qualitative factors, as necessary, such as the composition of its portfolio, current economic conditions, estimated net realizable value of the underlying collateral, delinquency, non-performing assets, and bankrupt accounts. Management utilizes significant judgment in determining probable incurred losses and in identifying and evaluating qualitative factors.

We identified the Company’s method of calculating the allowance for credit losses, specifically the reasonableness of the qualitative factors utilized and the use of the trailing twelve-month net charge-offs as a percentage of average finance receivables and applying this calculated percentage to ending finance receivables, as a critical audit matter, as auditing management’s assumptions for the adequacy of the allowance for credit losses required a high degree of subjectivity, auditor judgment and increased extent of audit effort in evaluating these assumptions.

Our audit procedures related to the Company’s allowance for credit losses included the following procedures, among others:

We tested the completeness and accuracy of the data inputs utilized by the Company to calculate the historical trailing twelve-month net charge-off calculations.

We recomputed the mathematical accuracy of the quantitative calculations used by the Company.

We evaluated the reasonableness of the Company's calculations of probable losses by comparing past historical estimates with actual loss experience in subsequent periods.

We evaluated management's delinquency and past-due calculations of probable losses for finance receivables by re-performing the Company’s loan system calculations on a sample of finance receivables and performed analytical review procedures over the Company’s historical and current delinquency trends and historical losses.

We evaluated key assumptions and qualitative factors identified by the Company and tested management’s conclusions regarding the appropriateness of the adjustments for qualitative factors, including the magnitude and directional consistency by comparing them to internal and external sources for the consumer finance industry.

/s/ RSM US LLP

We have served as the Company's auditor since 2018.

Raleigh, North Carolina

June 24, 2022

Nicholas Financial, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

Assets

Operating lease right-of-use assets 4,277 3,392

Prepaid expenses and other assets 1,103 1,271

Income taxes receivable 989 653

Property and equipment, net 1,783 859

Liabilities and shareholders’ equity

Credit facility, net of debt issuance costs $ 54,813 $ 86,154

Accounts payable and accrued expenses 4,717 4,451

Shareholders’ equity:

Preferred stock, no par: 5,000 shares authorized; none issued — —

Total liabilities and shareholders’ equity $ 183,570 $ 212,438

Restricted cash $ - $ 10,955

Finance receivables, net 150,706

Repossessed assets 631

Liabilities

Credit facility, net of debt issuance costs $ 86,154

Accounts payable and accrued expenses 405

Total liabilities $ - $ 86,559

See accompanying notes to the Consolidated Financial Statements.

Nicholas Financial, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share amounts)

Fiscal Year ended March 31,

Revenue:

Interest and fee income on finance receivables $ 49,779 $ 54,211

Realized gain on equity investments - 1,809

Expenses:

Depreciation and amortization of intangibles 401 244

Operating income before income taxes 4,046 10,946

Earnings per share:

See accompanying notes to the Consolidated Financial Statements.

Nicholas Financial, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(In thousands)

Common Stock Total

Shares Amount TreasuryStock RetainedEarnings Shareholders'Equity

Issuance of restricted stock awards 14 — — — —

Treasury stock repurchases (112 ) — (905 ) — (905 )

Share-based compensation — 197 — — 197

Issuance of restricted stock awards 18 — — — —

Exercise of stock options 2 28 — — 28

Share-based compensation — 200 — — 200

See accompanying notes to the Consolidated Financial Statements.

Nicholas Financial, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

Fiscal Year ended March 31,

Cash flows from operating activities:

Depreciation and amortization of intangibles 401 244

Amortization of debt issuance costs 2,176 429

Amortization of operating of lease right-of-use assets 1,388 1,593

Gain on sale of property and equipment (20 ) (13 )

Purchases of equity investments - (4,142 )

Proceeds from equity investments - 5,951

Realized gains on equity investments - (1,809 )

Amortization of dealer discounts (6,411 ) (6,421 )

Amortization of insurance and fee commissions (2,821 ) (2,370 )

Accretion of purchase price discount (152 ) (551 )

Principal reduction on operating lease liabilities (1,591 ) (1,193 )

Share-based compensation 200 197

Changes in operating assets and liabilities:

Accrued interest receivable (30 ) 879

Prepaid expenses and other assets 168 (145 )

Accounts payable and accrued expenses 627 (373 )

Income taxes receivable (336 ) 4,245

Net cash provided by operating activities 3,487 14,403

Cash flows from investing activities:

Purchase and origination of finance receivables (114,544 ) (88,173 )

Purchase of property and equipment (1,312 ) (615 )

Proceeds from sale of property and equipment 7 20

Net cash provided by investing activities 3,862 30,081

Cash flows from financing activities:

Proceeds from the credit facilities 72,530 -

Payment of debt issuance costs (217 ) -

Proceeds from PPP Loan - 3,244

Proceeds from exercise of stock options 28 -

Repurchases of treasury stock (2,062 ) (905 )

Net cash used in financing activities (35,551 ) (36,191 )

Net (decrease) increase in cash (28,202 ) 8,293

Cash and restricted cash, beginning of year 32,977 24,684

Cash and restricted cash, end of year $ 4,775 $ 32,977

Supplemental Disclosures:

Interest paid, including debt originations cost, during the year $ 3,415 $ 5,714

Income taxes paid during the year 541 1,357

Fiscal Year ended March 31,

Total cash and restricted cash $ 4,775 $ 32,977

See accompanying notes to the Consolidated Financial Statements.

Nicholas Financial, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Organization and Basis of Presentation

Nicholas Financial, Inc. (“Nicholas Financial – Canada”) is a Canadian holding company incorporated under the laws of British Columbia with two wholly owned United States subsidiaries, Nicholas Data Services, Inc. (“NDS”) and Nicholas Financial, Inc. (“NFI”). NDS historically was engaged in supporting and updating industry-specific computer application software for small businesses located primarily in the Southeastern United States. NDS has ceased its operations; however, it continues as the interim holding company for Nicholas Financial. NFI is a specialized consumer finance company engaged primarily in acquiring and servicing automobile finance installment contracts (“Contracts”) for purchases of used and new automobiles and light trucks. NFI also offers direct consumer loans (“Direct Loans”) and sells consumer-finance related products. In addition, NF Funding I, LLC (“NF Funding I”), is a wholly-owned, special purpose financing subsidiary of NFI. All three companies are based in Florida, U.S.A. The accompanying consolidated financial statements are stated in U.S. dollars and are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Canadian income taxes are not reported as they are immaterial.

2. Summary of Significant Accounting Policies

Consolidation

The consolidated financial statements include the accounts of Nicholas Financial – Canada and its wholly owned subsidiaries, NDS, NFI, and NF Funding I, collectively referred to as the “Company”. All intercompany transactions and balances have been eliminated.

Segment Reporting

The Company reports operating segments in accordance with FASB Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assesses performance. FASB ASC Topic 280 requires that a public enterprise report a measure of segment profit or loss, certain specific revenue and expense items, segment assets, information about the way the operating segments where determined and other items.

The Company has one reportable segment, which is the consumer finance company.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses on finance receivables.

Restricted Cash

Restricted cash includes cash and cash equivalents for which the Company’s ability to withdraw funds is contractually limited. The Company’s restricted cash consist of cash restricted for debt servicing of the Company’s variable interest entity.

Finance Receivables

Finance receivables are recorded at cost, net of unearned dealer discounts, unearned insurance and commissions (see “Revenue Recognition”), and the allowance for credit losses (See Note 3).

Allowance for Credit Losses

During the fourth quarter of the fiscal year ended March 31, 2022, the Company made a change in the accounting estimate and began using a trailing twelve-month net charge-offs as a percentage of average finance receivables, and applying this percentage to ending finance receivables to estimate future probable credit losses. This approach better reflects the current trends of incurred losses within the portfolio and more closely aligns the allowance for credit losses with the portfolio’s performance indicators. Prior to the fourth quarter of the fiscal year ended March 31, 2022, the Company used a trailing six-month net charge-offs as a percentage of average finance receivables, annualized, and applied this percentage to ending finance receivables to estimate future probable losses for purposes of determining the allowance for credit losses. Using the prior methodology for estimating the allowance for credit losses would have resulted in higher provision expense of approximately $1.7 million. Management believes that estimating the allowance for credit losses using the trailing twelve-month charge-off analysis more accurately reflects portfolio performance adjusted for seasonality and encompasses historical collection practices. Under the current methodology the management continues to evaluate qualitative factors to support its allowance for credit losses. The Company examines the impact of macro-economic factors, such as year-over-year inflation, and changes in the value of underlying collateral and as a result incorporated an additional $0.9 million as a qualitative component amount to its current estimate of adequate reserves.

Repossessed Assets

Repossessed assets are stated at net realizable value and consist primarily of automobiles that have been repossessed by the Company and are awaiting final disposition. Most costs associated with repossession, transport, and auction preparation expenses are reported under operating expenses in the period in which they are incurred.

Property and Equipment

Property and equipment is recorded at cost, net of accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets as follows:

Automobiles 3 years

Equipment 5 years

Furniture and fixtures 7 years

Software 7 years

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases along with operating loss and tax credit carryforwards, if any. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date.

The Company recognizes tax benefits from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from any such position would be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. It is the Company’s policy to recognize interest and penalties accrued on any uncertain tax benefits as a component of income tax expense. There were no uncertain tax positions as of March 31, 2022 or 2021.

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and Canada. With few exceptions, the Company is no longer subject to U.S. federal and state tax examinations for fiscal years prior to 2017.

We are subject to taxation at the federal, state, and local levels in the United States and Canada. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). The changes included in TCJA are broad and complex. The final transition impacts of TCJA may differ from the estimates provided elsewhere in this Annual Report, possibly materially, due to, among other things, changes in interpretations of TCJA, any legislative action to address questions that arise because of TCJA, any changes in accounting standards for income taxes or related interpretations in response to TCJA, or any updates or changes to estimates the Company has utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates. The estimated impact of the new law is based on management’s current knowledge and assumptions and recognized impacts could be materially different from current estimates.

The effect on deferred taxes of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

Revenue Recognition

Interest income on finance receivables is recognized using the interest method. Accrual of interest income on finance receivables is suspended when a loan is contractually delinquent for 61 days or more, or the collateral is repossessed, whichever is earlier. The Company reverses the accrual of interest income when the loan is contractually delinquent 61 days or more.

The Company defines a non-performing asset as one that is 60 or more days past due, a Chapter 7 bankruptcy account, or a Chapter 13 bankruptcy account that has not been confirmed by the courts, for which the accrual of interest income is suspended. Upon receiving notice that a Chapter 13 bankruptcy trustee’s plan (BK13) was not confirmed, the account is immediately charged-off. Upon notification of a Chapter 7 bankruptcy, an account is monitored for collectability. In the event the debtors’ balance is reduced by the bankruptcy court, the Company records a loss equal to the amount of principal balance reduction. The remaining balance is reduced as payments are received. In the event an account is dismissed from bankruptcy, the Company will decide whether to begin repossession proceedings or to allow the customer to make regularly scheduled payments. (see Note 3).

A dealer discount represents the difference between the finance receivable of a Contract, and the amount of money the Company actually pays for the Contract. The discount negotiated by the Company is a function of the lender, the wholesale value of the vehicle, and competition in any given market. In making decisions regarding the purchase of a particular Contract, the Company considers the following factors related to the borrower: place and length of

residence; current and prior job status; history in making installment payments for automobiles; current income; and credit history. In addition, the Company examines its prior experience with Contracts purchased from the dealer from which the Company is purchasing the Contract, and the value of the automobile in relation to the purchase price and the term of the Contract. The dealer discount is amortized as an adjustment to yield using the interest method over the life of the loan. The average dealer discount, as a percent of the amount financed, associated with new volume for the fiscal years ended March 31, 2022 and 2021, were 6.9% and 7.5%, respectively.

Unearned insurance and fee commissions consist primarily of commissions received from the sale of ancillary products. These products include automobile warranties, roadside assistance programs, accident and health insurance, credit life insurance, involuntary unemployment insurance, and forced placed automobile insurance. These commissions are amortized over the life of the Contract using the interest method.

Origination & processing fees are an upfront fee charged by the Company to process a new loan application. These are recognized over the life of the loan using the interest method.

NSF and late fees are recognized when collected.

Earnings Per Share

The Company has granted stock compensation awards with nonforfeitable dividend rights which are considered participating securities. Earnings per share is calculated using the two-class method, as such awards are more dilutive under this method than the treasury stock method. Ordinarily, basic earnings per share is calculated by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period, which excludes the participating securities. Dilutive earnings per share are calculated by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period which includes the dilutive effect of additional potential common shares from stock compensation awards. For the years ended March 31, 2022 and 2021, Company experienced net income. Income per share has been computed based on the following weighted average number of common shares outstanding:

Fiscal Year ended March 31,(In thousands, except earnings per share numbers)

Numerator:

Net income per consolidated statements of income $ 2,998 $ 8,351

Percentage allocated to shareholders * 99.5 % 99.5 %

Numerator for basic and diluted earnings per share 2,983 8,307

Denominator:

Dilutive effect of stock options - —

Denominator for diluted earnings per share 7,572 7,626

Per share income from continuing operations

*Basic weighted-average shares outstanding 7,572 7,626

Percentage allocated to shareholders 99.5 % 99.5 %

Share-Based Payments

The grant date fair value of share awards is recognized in earnings over the requisite service period (presumptively, the vesting period), net of estimated forfeitures. The Company estimates the fair value of option awards using the Black-Scholes option pricing model. The risk-free interest rate is based upon a U.S. Treasury instrument with a life that is similar to the expected term of the options. Expected volatility is based upon the historical volatility for the previous period equal to the expected term of the options. The expected term is based upon the average life of previously issued options. The expected dividend yield is based upon the yield expected on date of grant to occur over the term of the option.

The fair value of non-vested restricted shares and performance units are measured at the market price of a share on a grant date. Restricted shares have a three-year service period. Performance units include a performance period (generally ending at the end of the fiscal year in which the units were granted) followed by a two-year service period. At the end of the performance period, these units effectively become restricted shares for the remaining two-year service period at which time they become vested.

Fair Value Measurements

The Company measures specific assets and liabilities at fair value, which is an exit price, representing the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. When applicable, the Company utilizes market data or assumptions that market participants would use in pricing the asset or liability under a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions (see Note 6).

Financial Instruments and Concentrations

The Company’s financial instruments consist of cash, finance receivables (accrued interest receivable is a part of finance receivables), repossessed assets, note payable, and a Credit Facility. Financial instruments that are exposed to concentrations of credit risk are primarily finance receivables and cash.

For the year ended, March 31, 2022, the Company operated in 18 states through 47 branch locations. Of the aggregate finance receivables as of March 31, 2022, Florida represented 23%, Ohio represented 14%, Georgia represented 12%, and North Carolina represented 9%. Each of Kentucky, Missouri, and South Carolina represented 6%, and Indiana represented 5%. Of the remaining states, no one state represented more than 5% of the total finance receivables. The Company provides credit during the normal course of business and performs ongoing credit evaluations of its customers.

The Company maintains reserves for potential credit losses which, when realized, have been within the range of management’s expectations. The Company perfects a primary security interest in all vehicles financed as a form of collateral.

The combined account balances the Company maintains at financial institutions typically exceed federally insured limits, and there is a concentration of credit risk related to accounts on deposit in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes this risk of loss is not significant.

Variable Interest Entity

VIE, retained certain credit insurance income together with certain recoveries related to credit insurance and on charge-offs of the financed receivables, which would continue to be reflected as a reduction of net charge-offs on a consolidated basis for as long as the Company consolidated the VIE.

On November 5, 2021 the Company entered into new senior secured credit facility (the "Credit Facility") pursuant to a loan and security agreement by and among the Company, Wells Fargo Bank, N.A., as agent, and the lenders that are party thereto (the “Credit Agreement”). The Company granted a security interest in substantially all assets as collateral for their obligations under the Credit Facility. The prior credit facility (the "Ares Credit Facility") pursuant to a credit agreement among the Company’s subsidiary NF Funding I, LLC, Ares Agent Services, L.P. and the lenders party thereto was paid off in connection with entering into the Credit Facility, therefore the VIE assets and liabilities are zero as of March 31, 2022.

Reclassifications

Certain prior-period amounts have been reclassified to conform to the current presentation. Such reclassifications had no impact on previously reported net loss or shareholders’ equity.

Recent Accounting Pronouncements

In June 2016, the FASB issued the ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Among other things, the amendments in this ASU require the measurement of all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The ASU also requires additional disclosures related to estimates and judgments used to measure all expected credit losses. The new guidance was originally effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Recently, the FASB voted to delay the implementation date for this accounting standard, for smaller reporting companies, the new effective date is for fiscal years beginning after December 15, 2022, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of this ASU on the consolidated financial statements and is collecting and analyzing data that will be needed to produce historical inputs into any models created as a result of adopting this ASU. At this time, the Company believes the adoption of this ASU will likely have a material effect and is expected to increase the overall allowance for credit losses.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitating of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions in which the reference LIBOR or another reference rate is expected to be discontinued as a result of the Reference Rate Reform. This ASU is intended to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The new guidance was effective immediately and through December 31, 2022. At this time, the Company believes that the adoption of this ASU is immaterial.

In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures as an update to Financial Instruments—Credit Losses (Topic 326). The amendments in this ASU eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. The amendments in ASU 2022-02 will be effective for the Company with its adoption of ASU 2016-13.

The Company does not believe there are any other recently issued accounting standards that have not yet been adopted that will have a material impact on the Company’s consolidated financial statements.

3. Finance Receivables

Finance receivables consist of Contracts and Direct Loans, each of which comprise a portfolio segment. Each portfolio segment consists of smaller balance homogeneous loans which are collectively evaluated for impairment.

The Company purchases individual Contracts from used and new automobile dealers in its markets. There is no relationship between the Company and the dealer with respect to a given Contract once the assignment of that Contract is complete. The dealer has no vested interest in the performance of any Contract the Company purchases. The Company’s charge off policy is 121 days past due. In addition, Chapter 13 Bankruptcies, once the Company is notified of such, is notated on the customer's account of the bankruptcy status. When the Company receives notice that a Chapter 13 Bankruptcy plan is not confirmed by the courts or the loan is 121 days past due, the loan is charged off. This policy is in line with industry standards, considering the sub-prime nature of our customers. In the event of repossession, the charge-off will occur after standard collection practices by the Company, as determined by the residency state of a customer. This practice is consistent with the sub-prime industry.

Contracts and Direct Loans included in finance receivables are detailed as follows as of fiscal years ended March 31:

(In thousands)

Unearned dealer discounts (6,894 ) (7,290 )

Unearned purchase price discounts (212 ) (364 )

Unearned insurance and fee commissions (2,446 ) (2,396 )

Allowance for credit losses (2,949 ) (6,154 )

Contracts

The Company purchases Contracts from automobile dealers at a negotiated price that is less than the original principal amount being financed by the purchaser of the automobile. The Contracts are predominantly for used vehicles. As of March 31, 2022, the average model year of vehicles collateralizing the portfolio was a 2012 vehicle. The terms of the Contracts range from 12 to 84 months and bear an average contractual interest rate of 22.9% and 23.4% as of March 31, 2022 and 2021, respectively.

Direct Loans

Direct Loans are typically for amounts ranging from $1,000 to $15,000 and are generally secured by a lien on an automobile, watercraft or other permissible tangible personal property. The majority of Direct Loans are originated with current or former customers under the Company’s automobile financing program. The typical Direct Loan represents a better credit risk than Contracts due to the customer’s historical payment history with the Company; however, the underlying collateral is less valuable. In deciding whether or not to make a loan, the Company considers the individual’s credit history, job stability, income, and impressions created during a personal interview with a Company loan officer. Additionally, because most of the Direct Loans made by the Company to date have been made to borrowers under Contracts previously purchased by the Company, the payment history of the borrower under the Contract is a significant factor in making the loan decision. Direct Loans constituted approximately 14% of the aggregate principal amount of the Company’s loan portfolio as of March 31, 2022, and 8% of the aggregate principal amount of the Company’s loan portfolio as of March 31, 2021. The terms of the Direct Loans range from 6 to 72 months and bear an average contractual interest rate of 29.8% and 29.7% as of March 31, 2022 and 2021, respectively.

Allowance for Credit Losses

The following presents the activity in our allowance for credit losses:

For the year ended March 31, 2022

(In thousands)

Indirect Direct Total

For the year ended March 31, 2021

(In thousands)

Indirect Direct Total

Provision for credit losses 7,250 - 7,250

A performing account is defined as an account that is less than 60 days past due. The Company defines an automobile contract as delinquent when more than 25% of payments contractually due by a certain date has not been paid by the immediately following due date, which date may have been extended within limits specified in the servicing agreements or as a result of a deferral. The period of delinquency is based on the number of days payments are contractually past due, as extended where applicable.

In certain circumstances, the Company will grant obligors one-month payment extensions. The only modification of terms in those circumstances is to advance the obligor’s next due date by one month and extend the maturity date of the receivable. There are no other concessions, such as a reduction in interest rate, forgiveness of principal or of accrued interest. Accordingly, the Company considers such extensions to be insignificant delays in payments rather than troubled debt restructurings.

A non-performing account is defined as an account that is contractually delinquent for 60 days or more or is a Chapter 13 bankruptcy account, and the accrual of interest income is suspended. The Company’s charge-off policy for contractually delinquent is 121 days. The Company’s charge-off policy aligns with practices within the subprime auto financing segment. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more details.

In the event an account is dismissed from bankruptcy, the Company will decide, based on several factors, to begin repossession proceedings or to allow the customer to begin making regularly scheduled payments.

The following table is an assessment of the credit quality by creditworthiness as of March 31:

(In thousands)

Contracts DirectLoans Total Contracts DirectLoans Total

The following tables present certain information regarding the delinquency rates experienced by the Company with respect to Contracts and Direct Loans, excluding any Chapter 13 bankruptcy accounts:

(In thousands)

4. Property and Equipment

Property and equipment as of March 31, 2022 and 2021 is summarized as follows:

(In thousands)

Cost AccumulatedDepreciation Net CarryingValue

5. Credit Facility

Wells Fargo Credit Facility

On November 5, 2021, NFI and Nicholas Data Services, Inc., a Florida corporation (“NDS” and collectively with NFI, the “Borrowers”), two wholly-owned subsidiaries of Nicholas Financial, Inc. (the “Company”) entered into a senior secured credit facility (the “Credit Facility”) pursuant to a loan and security agreement by and among the Borrowers, Wells Fargo Bank, N.A., as agent, and the lenders that are party thereto (the “Credit Agreement”). The prior credit facility (the "Ares Credit Facility") pursuant to a credit agreement among the Company’s subsidiary NF Funding I, Ares Agent Services, L.P. and the lenders party thereto was paid off in connection with entering into the Credit Facility. As a result, the Company recognized an acceleration of unamortized debt issuance costs (non-cash interest expense) related to the extinguishment of the ARES credit facility in the amount of $1.9 million as interest expense within the Consolidated Statements of Income.

Pursuant to the Credit Agreement, the Borrowers granted a security interest in substantially all of the Company's assets as collateral for their obligations under the Credit Facility. Furthermore, pursuant to a separate collateral pledge agreement, NDS pledged its equity interest in NFI as additional collateral.

The Credit Agreement and the other loan documents contain customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, and sales of assets. If an event of default occurs, the lenders could increase borrowing costs, restrict the Borrowers’ ability to obtain additional advances under the Credit Facility, accelerate all amounts outstanding under the Credit Facility, enforce their interest against collateral pledged under the Credit Facility or enforce such other rights and remedies as they have under the loan documents or applicable law as secured lenders.

If the lenders terminate the Credit Facility following the occurrence of an event of default under the loan documents, or the Borrowers prepay the loan and terminate the Credit Facility prior to the Maturity Date, then the Borrowers are obligated to pay a termination or prepayment fee in an amount equal to a percentage of $175,000,000, calculated as 2% if the termination or prepayment occurs during year one, 1% if the termination or repayment occurs during year two, and 0.5% if the termination or prepayment occurs thereafter.

As of March 31, 2022, the Company had aggregate outstanding indebtedness, net of debt issuance costs, under the Credit Facility of $54.8 million, compared to $86.2 million outstanding under the Ares Credit Facility as of March 31, 2021.

Future maturities of debt as of March 31, 2022 are as follows:

(in thousands)

Year Ended March 31,

6. Fair Value Disclosures

Financial Instruments Measured at Fair Value

In fiscal year 2021 the Company initiated certain equity investments. The Company defined these equity investments as trading securities for which the changes in fair value were immediately recognized through net income in each quarter, respectively. The Company sold all equity investments as of March 31, 2021, all gains were recognized in the Consolidated Statements of Income, for the year ended March 31, 2021.

Financial Instruments Not Measured at Fair Value

The Company’s financial instruments consist of cash and restricted cash, finance receivables, repossessed assets, and the Credit Facility. For the cash, finance receivables, the credit facility, and note payable, the carrying value approximates fair value.

Based on current market conditions, any new or renewed credit facility would contain pricing that approximates the Company’s current Credit Facility. Based on these market conditions, the fair value of the Credit Facility as of March 31, 2022 was estimated to be equal to the book value. The interest rate for the Credit Facility is a variable rate based on SOFR pricing options. Similarly, the fair value for the note payable as of March 31, 2022 was equal to the book value. The interest rate for the note payable was 1%.

Fair Value Measurement Using(In thousands) Fair Carrying

Description Level 1 Level 2 Level 3 Value Value

Cash and restricted cash:

Finance receivables:

Repossessed assets:

Credit facility:

Note payable:

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. Management has determined that this level to be most appropriate for finance receivables, repossessed assets, and the Credit Facility shown in the table above.

Level 2 assets are financial assets and liabilities that do not have regular market pricing, but whose fair value can be determined based on other data values or market pricing. Management has determined that this level to be most appropriate for the credit facility shown in the table above.

Level 1 assets are financial assets that have a regular mark to market mechanism for setting a fair market value. These assets are considered to have readily observable, transparent prices and therefore a reliable, fair market value. Management has determined that this level to be most appropriate for cash, restricted cash, note payable, and equity investments.

7. Income Taxes

Income tax expense consists of the following for the years ended March 31:

(In thousands)

Current:

Deferred:

The net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes are reflected in deferred income taxes. Significant components of the Company’s deferred tax assets consist of the following as of March 31:

(In thousands)

Share-based compensation 79 125

State net operating loss carryforwards 507 496

Deferred tax liabilities

Total deferred tax liabilities 1,370 969

Income tax expense reflects an effective U.S tax rate, which differs from the corporate tax rate for the following reasons:

(In thousands)

Income tax expense at Federal statutory rate $ 855 $ 2,303

Increase (decrease) resulting from:

State income taxes, net of Federal benefit 142 378

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of positive evidence evaluated was the cumulative pre-tax income over the three-year period ended March 31, 2022, cumulative projected pre-tax income for the next three years, previously noted. As of March 31, 2022, a valuation allowance was not required. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income are reduced. Generally, state NOL’s begin to expire March 31, 2039.

The Company considers the earnings of the Company’s U.S. subsidiaries to be indefinitely invested outside Canada on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and the Company’s specific plans for reinvestment of those subsidiary earnings. The Company has not recorded a deferred tax liability related to the Canadian income taxes and U.S. withholding taxes on approximately $155.5 million of undistributed earnings of the U.S. subsidiaries indefinitely invested outside Canada. If the Company decided to repatriate the U.S. earnings, it would need to adjust its income tax provision in the period the Company determined that the earnings will no longer be indefinitely invested outside of Canada.

8. Leases

The Company maintains lease agreements related to its branch network and for its corporate headquarters. The branch lease agreements range from one to five years and generally contain options to extend from one to three years. The corporate headquarters lease agreement expires in April 2023 and the Company is in the process of negotiating a new lease agreement. All of the Company’s lease agreements are considered operating leases. None of the Company’s lease payments are dependent on a rate or index that may change after the commencement date, other than the passage of time.

The Company’s lease liability was $4.4 million as of March 31, 2022 and $3.4 million as of March 31, 2021. The liability is based on the present value of the remaining minimum rental payments using a discount rate that is determined based on the Company’s incremental borrowing rate on its senior revolving credit facility. The right of use asset was $4.3 million as of March 31, 2022 and $3.4 million as of March 31, 2021.

The Company has made several policy elections related to lease assets and liabilities. The Company elected to utilize the package of transition practical expedients, which includes not reassessing the following at adoption: (i) whether existing contracts contained leases, (ii) the existing classification of leases as operating or financing, or (iii) the initial direct costs of leases. In addition, the Company did not use hindsight to determine the lease term or include options to extend for leases existing at the transition date.

The Company had elected the practical expedient of combining lease and non-lease components for its real estate leases in calculating the present value of the fixed payments without having to perform an allocation between the types of lease components. Future minimum lease payments under non-cancellable operating leases in effect as of March 31, 2022, are as follows:

in thousands

Total future minimum lease payments 4,998

Present value adjustment (588 )

Operating lease liability $ 4,410

The following table reports information about the Company’s lease cost for the twelve months ended March 31:

(In thousands)

Lease cost:

The following table reports other information about the Company’s leases for the twelve months ended March 31:

(In thousands)

Other Lease Information

Operating Lease - Operating Cash Flows (Fixed Payments) $ 1,591 $ 1,593

Operating Lease - Operating Cash Flows (Liability Reduction) $ 1,388 $ 1,193

Weighted Average Lease Term - Operating Leases 3.9 years 2.8 years

Weighted Average Discount Rate - Operating Leases 6.50 % 6.50 %

Rent expense for the fiscal years ended March 31, 2022 and 2021 was approximately $2.1 million and $1.9 million, respectively. For any new or modified lease, the Company, at the inception of the contract, determines whether a contract is or contains a lease. The Company records right-of-use ("ROU") assets and lease obligations for its operating leases, which are initially recognized based on the discounted future lease payments over the term of the lease. The Company uses its effective annual interest rate as the discount rate when evaluating leases under Topic 842.

Lease term is defined as the non-cancelable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. Further, the Company has elected to not separate lease from non-lease components. Variable lease costs include expenses such as common area maintenance, utilities, and repairs and maintenance.

9. Share-Based Payments

The Company has share awards outstanding under two share-based compensation plans (the “Equity Plans”). The Company believes that such awards generally align the interests of its employees with those of its shareholders. Under the shareholder-approved 2006 Equity Incentive Plan (the “2006 Plan”) the Board of Directors was authorized to grant option awards for up to approximately 1.1 million common shares. On August 13, 2015, the Company’s shareholders approved the Nicholas Financial, Inc. Omnibus Incentive Plan (the “2015 Plan”) for employees and non-employee directors. Under the 2015 Plan, the Board of Directors is authorized to grant total share awards for up to 750,000 common shares. Awards under the 2006 Plan will continue to be governed by the terms of that plan. The 2015 Plan replaced the 2006 Plan; accordingly, no additional option awards may be granted under the 2006 Plan. In addition to option awards, the 2015 Plan provides for restricted stock, restricted stock units, performance shares, performance units, and other equity-based compensation.

Option awards previously granted to employees and directors under the 2006 Plan generally vest ratably based on service over a five- and three-year period, respectively, and generally have a contractual term of ten years. Vesting and contractual terms for option awards under the 2015 Plan are essentially the same as those of the 2006 Plan. Restricted stock awards generally cliff vest over a three-year period based on service conditions. Vesting of performance units generally does not commence until the attainment of Company-wide performance goals including annual revenue growth and operating income targets. There are no post-vesting restrictions for share awards.

The Company funds share awards from authorized but unissued shares and does not purchase shares to fulfill its obligations under the Equity Plans. Cash dividends, if any, are not paid on unvested performance units or unexercised options but are paid on unvested restricted stock awards.

The Company did not grant any options during the years ended March 31, 2022 or 2021.

A summary of option activity under the Equity Plans as of March 31, 2022, and changes during the year are presented below.

(Shares and Aggregate Intrinsic Value in thousands)

Granted — —

During the fiscal year ended March 31, 2022, approximately 2,500 options were exercised. During the same period, approximately 16,100 options were forfeited at exercise prices ranging from $10.96 to $12.95 per share.

During the fiscal year ended March 31, 2021, no options were exercised. During the same period, approximately 7,000 options were forfeited at exercise prices ranging from $7.00 to $12.68 per share.

Cash received from options exercised during the fiscal years ended March 31, 2022 and 2021 totaled approximately $0 and $0, respectively. As of March 31, 2022, the Company had no unrecognized compensation related to options grants. For the year ended, March 31, 2022 and March 31, 2021, respectively, the Company had approximately $0 and $0 of total unrecognized compensation cost related to options granted.

A summary of the status of the Company’s non-vested restricted shares under the Equity Plan as of March 31, 2022, and changes during the year then ended is presented below.

(Shares and Aggregate Intrinsic Value in thousands)

The Company awarded approximately 18,000 restricted shares during the fiscal year ended March 31, 2022. There are no performance shares included within the 18,000 restricted shares granted that resulted from the Company meeting a performance threshold. During the same period there were approximately 2,000 restricted shares forfeited. With the adoption of ASU 2016-09 on January 1, 2017, the Company no longer reduces stock-based compensation by estimated forfeitures. Instead the Company accounts for forfeitures when they occur. For any vesting tranche of an award, the cumulative amount of compensation cost recognized is at least equal to the portion of the grant‐date value of the award tranche that is actually vested at that date.

As of March 31, 2022, there was approximately $139,000 of total unrecognized compensation cost related to non-vested restricted share awards granted under the Equity Plans. That cost is expected to be recognized over a weighted-average period of approximately 0.92 years.

10. Employee Benefit Plan

The Company has a 401(k)-retirement plan under which all employees are eligible to participate. Employee contributions are voluntary and subject to Internal Revenue Service limitations. The Company did not make a discretionary matching employee contribution for the years ended March 31, 2022 and 2021. The Board will re-evaluate the Company’s matching policy for plan year 2022 later in fiscal year 2023.

11. Commitments and Contingencies

The Company currently is not a party to any pending legal proceedings other than ordinary routine litigation incidental to its business, none of which, if decided adversely to the Company, would, in the opinion of management, have a material adverse effect on the Company’s financial condition or results of operations.

12. Variable Interest Entity

In March 2019, the Company entered into a senior secured credit facility collateralized by consumer finance receivables by transferring the receivables into a bankruptcy-remote variable interest entity (VIE). Under the terms of the transaction, all cash collections and other cash proceeds of the customer receivables went first to the servicer and the holders of the asset-backed notes, and then to the residual equity holder. The Company retained the servicing of the portfolio and received a monthly fee of 2.5% (annualized) based on the outstanding balance of the financed receivables, and the Company held all of the residual equity. In addition, the Company, rather than the VIE, retained certain credit insurance income together with certain recoveries related to credit insurance and on charge-offs of the financed receivables, which would continue to be reflected as a reduction of net charge-offs on a consolidated basis for as long as the Company consolidated the VIE.

On November 5, 2021 the Company entered into new senior secured credit facility (the "Credit Facility") pursuant to a loan and security agreement by and among the Borrowers, Wells Fargo Bank, N.A., as agent, and the lenders that are party thereto (the “Credit Agreement”). The Borrowers granted a security interest in substantially all of their assets as collateral for their obligations under the Credit Facility. The prior credit facility (the "Ares Credit Facility") pursuant to a credit agreement among the Company’s subsidiary NF Funding I, LLC, Ares Agent Services, L.P. and the lenders party thereto was paid off in connection with entering into the Credit Facility, therefore the VIE assets and liabilities are now zero. See "Note 5. Credit Facility" for more details.

The following table presents the assets and liabilities held by the VIE (for legal purposes, the assets and the liabilities of the VIE will remain distinct from the Company):

Assets

Restricted cash $ - $ 10,955

Finance receivables, net - 150,706

Repossessed assets - 631

Liabilities

Credit facility, net of debt issuance costs $ - $ 86,154

Accounts payable and accrued expenses - 405

Total liabilities $ - $ 86,559

13. Stock Plans

In May 2019, the Company’s Board of Directors (“Board”) authorized a new stock repurchase program allowing for the repurchase of up to $8.0 million of the Company’s outstanding shares of common stock in open market purchases, privately negotiated transactions, or through other structures in accordance with applicable federal securities laws. The authorization was effective immediately.

The timing and actual number of sharers will depend on a variety of factors, including stock price, corporate and regulatory requirements and other market and economic conditions. The Company’s stock repurchase program may be suspended or discontinued at any time.

In August 2019, the Company’s Board authorized additional repurchase of up to $1.0 million of the Company’s outstanding shares.

The table below summarizes treasury share transactions under the Company’s stock repurchase program.

Twelve months ended March 31,(In thousands)

Number of Shares Amount Number of Shares Amount

14. Subsequent Events

On May 6, 2022 the Office of Hearing and Appeals SBA (OHA) rendered a decision to deny the appeal. The Company subsequently repaid the outstanding principal of $3,243,900 plus accrued and unpaid interest of $64,518 on May 23, 2022.

Share Repurchases: For the period April 1, 2022 through June 24, 2022, the Company repurchased an additional 204,032 shares of our common stock for $2.1 million at an average price of $10.00 per share.

Marketable Securities: For the period April 1, 2022 through June 24, 2022, the Company purchased certain marketable securities in the amount of $7.2 million. Holding such marketable securities may involve significant risk of loss for the Company and these marketable securities will be accounted for as trading securities.

COVID-19: The Company has discussed COVID-19 throughout the 10-K, including but not limited, to forward-looking information, Item 1. Business, Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Notes to the Consolidated Financial Statements.

On May 10, 2022, the Company entered into a separation and release of claims agreement with the previous CEO. Pursuant to the agreement, the previous CEO’s resignation was effective as of May 9, 2022. In addition to unpaid salary and accrued vacation pay through May 9, 2022, the previous CEO is entitled to receive a severance payment of $131,250 and continuation of COBRA benefits for 4.5 months. His restricted stock awards continue to be governed by the award agreements for each award, with all unvested restricted stock forfeited. The separation and release of claims agreement contains a one year non-compete provision, and prohibits the previous CEO from soliciting customers for one year and Company employees for two years.

On May 9, 2022, the Board appointed a new Interim Chief Executive Officer, effective immediately. The Interim CEO has worked at the Company for more than 20 years. Prior to his appointment, the Interim CEO served as Vice President of Branch Operations for the Company since April 2021, as Divisional Vice President from June 2018 until April 2021, as District Manager from December 2010 until June 2018, and as Branch Manager from December 2001 until December 2010.

15. Quarterly Results of Operations (Unaudited)

FirstQuarter SecondQuarter ThirdQuarter FourthQuarter

Earnings per share:

FirstQuarter SecondQuarter ThirdQuarter FourthQuarter

Earnings per share:

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure information required to be disclosed in its reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including the Interim Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, including its Interim Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or internal controls will prevent all possible error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

The Company’s management, including its Interim Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2022. Based upon this evaluation, the Interim Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2022.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s management, including its Interim Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of March 31, 2022, the end of the fiscal year covered by this Report, based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of March 31, 2022.

No Attestation Report of the Independent Registered Public Accounting Firm

This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission.

Changes in Internal Control Over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the Company’s fiscal year ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting, except as disclosed above.

Item 9B. Other Information

None

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The relevant information to be set forth in the definitive Proxy Statement and Information Circular for the 2022 Annual General Meeting of Shareholders of the Company (the “Proxy Statement”), is incorporated herein by reference.

The Company has adopted a written code of ethics applicable to its Interim Chief Executive Officer, Chief Financial Officer, principal accounting officer and persons performing similar functions. A copy of the code of ethics is posted on the Company’s web site at www.nicholasfinancial.com. Anyone who wishes to receive a written copy of the code of ethics may receive one without charge by submitting a request in writing to Corporate Secretary, Nicholas Financial, Inc., 2454 McMullen Booth Road, Building C, Clearwater, Florida 33759. The Company intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, the code of ethics by posting such information on the Company’s web site at www.nicholasfinancial.com. The Company is not including the information contained on or available through its web site as a part of, or incorporating such information by reference into, this Report.

Item 11. Executive Compensation, Compensation Interlocks and Insider Participation

The relevant information to be set forth in the Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth certain information, as of March 31, 2022, with respect to compensation plans under which equity securities of the Company were authorized for issuance:

EQUITY COMPENSATION PLAN INFORMATION

(In thousands, except exercise price)

(a) (b) (c)

Equity Compensation Plans Approved by Security Holders 37 $ 11.85 662

The relevant information to be set forth in the Proxy Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, Director Independence and Board of Directors

The relevant information to be set forth in the Proxy Statement is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The relevant information to be set forth in the Proxy Statement is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)

The following documents are filed as part of this Report:

(1)

Financial Statements

See Part II, Item 8, of this Report.

(2)

Financial Statement Schedules

All financial schedules are omitted as the required information is not applicable or the information is presented in the consolidated financial statements or related notes.

(3)

Exhibits

Exhibit No. Description

3.1 Articles of Nicholas Financial, Inc. (1)

3.2 Notice of Articles of Nicholas Financial, Inc. (2)

4.1 Form of Common Stock Certificate (3)

4.2 Description of the Registrant’s Securities (4)

10.2 Note dated May 27, 2020 by the Company in favor of Fifth Third Bank (6)

10.5 Nicholas Financial, Inc. 2015 Omnibus Incentive Plan (10) *

21 Subsidiaries of Nicholas Financial, Inc.

23.1 Consent of RSM, LLP

24 Powers of Attorney (included on signature page hereto)

31.1 Certification of President and Interim Chief Executive Officer

31.2 Certification of Chief Financial Officer

32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. § 1350

101.INS Inline XBRL Instance Document

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

104.The cover page from the Company’s Annual Report on form 10-K for the year ended March 31, 2022, has been formatted in Inline XBRL.

* Represents a management contract or compensatory plan, contract or arrangement in which a director or named executive officer of the Company participated.

(1)

Incorporated by reference to Appendix B to the Company’s Proxy Statement and Information Circular for the 2006 Annual General Meeting of Shareholders filed with the SEC on June 30, 2006.

(2)

Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 filed with the SEC on May 24, 2007.

(3)

Incorporated by reference to Exhibit 4 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended March 31, 2004, as filed with the SEC on June 29, 2004.

(4)

Incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020, as filed with the SEC on June 22, 2020.

(5)

Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated November 5, 2021, as filed with the SEC on November 8, 2021.

(6)

Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated June 4, 2020, as filed with the SEC on June 6, 2020.

(7)

Incorporated by reference to Exhibit 10.22.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020, as filed with the SEC on June 22, 2020.

(8)

Incorporated by reference to Exhibit 10.22.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020, as filed with the SEC on June 22, 2020.

(9)

Incorporated by reference to Exhibit 10.22.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020, as filed with the SEC on June 22, 2020.

(10)

Incorporated by reference to Appendix A to the Company’s Proxy Statement and Information Circular for the 2015 Annual General Meeting of Shareholders, as filed with the SEC on July 6, 2015.

(11)

Incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016, as filed with the SEC on June 14, 2016.

(12)

Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016, as filed with the SEC on June 14, 2016.

(13)

Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016, as filed with the SEC on June 14, 2016.

(14)

Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated July 7, 2020, as filed with the SEC on July 9, 2020.

(15)

Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated May 10, 2022, as filed with the SEC on May 10, 2022.

(16)

Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated July 7, 2020, as filed with the SEC on July 9, 2020.

(17)

Incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017, as filed with the SEC on June 14, 2017.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

NICHOLAS FINANCIAL, INC.

Dated: June 24, 2022 By: /s/ Michael Rost

Michael Rost

Interim Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Jeffrey C. Royal and Michael Rost, his or her true and lawful attorney-in-fact and agent, each with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and any other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature Title Date

Michael Rost

Irina Nashtatik

/s/ Jeffrey C. Royal Chairman of the Board of Directors June 24, 2022

Jeffrey C. Royal

/s/ Mark Hutchins Director June 24, 2022

OLD MARKET CAPITAL Corp OMCC US Equity

OMCC · 10-K · period ended 2022-03-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation, Compensation Interlocks and Insider Participation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, Director Independence and Board of Directors

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

OLD MARKET CAPITAL Corp OMCC US Equity☆

OMCC · 10-K · period ended 2022-03-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation, Compensation Interlocks and Insider Participation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, Director Independence and Board of Directors

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

OLD MARKET CAPITAL Corp OMCC US Equity