UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

~~FORM10-Q~~

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~December~~DECEMBER 31, ~~2017~~2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROMTO.

Commission file number:0-26680

NICHOLAS FINANCIAL, INC.

(Exact Name of Registrant as Specified in its Charter)

British Columbia, Canada

~~8736-3354~~

59-2506879

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)


26133 US Highway 19 North, STE 300
Clearwater, Florida		33759
~~2454 McMullen Booth Road, Building C~~ ~~Clearwater, Florida~~
	~~33759~~
(Address of Principal Executive Offices)		(Zip Code)

~~(727)726-0763~~

(727) 726-0763

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock

NICK

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically, ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” inRule 12b-2 of the Exchange Act.

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

Indicate by ~~checkmark~~check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act) Yes ☐ No ☒

As of February ~~1, 2018, 12,599,201~~13, 2024, approximately 12.7 million common shares, no par value, of the Registrant were outstanding (of which ~~4,713,804~~5.4 million shares were held by the Registrant’s principal operating subsidiary and pursuant to applicable law, not entitled to vote and ~~7,885,397~~7.3 million shares were entitled to vote).

NICHOLAS FINANCIAL, INC.

FORM10-Q

TABLE OF CONTENTS


			Page
~~Part I.~~	~~Financial Information~~

~~Item 1.~~Part I .	Financial ~~Statements~~Information
Item 1.	Financial Statements (Unaudited)		1
	Condensed Consolidated Balance Sheets as of December 31, ~~2017~~2023 and March 31, ~~2017~~2023			2	1

	Condensed Consolidated Statements of Income (Loss) for the three and nine months ended December 31, ~~2017~~2023 and ~~2016~~2022			3	2
	Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended December 31, 2023 and 2022		3
	Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, ~~2017~~2023 and ~~2016~~2022			4

	Notes to the Condensed Consolidated Financial Statements			5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
		20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk			25
		33
Item 4.	Controls and Procedures			25
		33
~~Part II.~~	~~Other Information~~

~~Item 1.~~Part II .	~~Legal Proceedings~~Other Information			26

Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings			26
		34
Item 1A.	Risk Factors		34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		35
Item 3.	Defaults Upon Senior Securities		35
Item 4.	Mine Safety Disclosures		35
Item 5.	Other Information		35
Item 6.	Exhibits			28	36

PART I. FINANCIAL INFORMATION

~~ITEM 1.~~

~~FINANCIAL STATEMENTS~~

ITEM 1. FINANCIAL STATEMENTS

Nicholas Financial, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)


	December 31,			March 31,
	2017			2017
	(Unaudited)						December 31, 2023 (Unaudited)			March 31, 2023
Assets
Cash	$	3,082		$	2,855
Cash and cash equivalents							$	7,817		$	454
Finance receivables held for sale, at a lower of amortized cost or fair value								50,306			—
Finance receivables, held for investments, net of unearned discounts and fees and accrued interest receivable								—			124,315
Less: Allowance for credit losses								—			(17,396	)
Finance receivables, net		281,358			317,205			—			106,919
Assets held for resale		2,975			2,453
Repossessed assets held for sale, at a lower of carrying value or fair value less cost to sell								395			1,491
Prepaid expenses and other assets								390			316
Income taxes receivable		620			719			915			946
Prepaid expenses and other assets		729			674
Property and equipment, net		970			1,184			168			222
Interest rate swap agreements		—			17
Deferred income taxes		6,456			8,505

Total assets	$	296,190		$	333,612		$	59,991		$	110,348

Liabilities and shareholders’ equity
Line of credit	$	178,000		$	213,000
Drafts payable		2,186			1,851
Accounts payable and accrued expenses		4,994			5,932
Deferred revenues		3,313			3,969

Line of credit, net of debt issuance costs							$	—		$	28,936
Accounts payable, accrued expenses, and other liabilities								938			1,603
Total liabilities		188,493			224,752			938			30,539

Commitments and contingencies (see Note 9)
Shareholders’ equity
Preferred stock, no par: 5,000 shares authorized; none issued		—			—			—			—
Common stock, no par: 50,000 shares authorized; 12,599 and 12,524 shares issued, respectively; and 7,885 and 7,810 shares outstanding, respectively		34,467			33,889
Treasury stock: 4,714 common shares, at cost		(70,459	)		(70,459	)
Common stock, no par: 50,000 shares authorized; 12,658 shares issued, 7,289 shares outstanding as of December 31, 2023 and March 31, 2023								35,267			35,223
Treasury stock: 5,368 common shares, at cost								(76,794	)		(76,794	)
Retained earnings		143,689			145,430			100,580			121,380

Total shareholders’ equity		107,697			108,860			59,053			79,809

Total liabilities and shareholders’ equity	$	296,190		$	333,612		$	59,991		$	110,348

See ~~accompanying notes.~~ Notes to the Condensed Consolidated Financial Statements.

Nicholas Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Loss)

(Unaudited)

(In thousands, except per share amounts)


	Three months ended December 31,						Nine months ended December 31,						Three Months Ended December 31,						Nine Months Ended December 31,
	2017			2016			2017			2016			2023			2022			2023			2022
Interest and fee income on finance receivables	$	20,526		$	22,044		$	64,062		$	67,606		$	4,954		$	11,268		$	18,367		$	35,580

Expenses:
Marketing		351			369			1,095			1,100			22			177			88			1,086
Salaries and employee benefits		4,826			5,041			14,835			16,363
Administrative		2,845			2,932			8,698			8,752			3,906			9,398			12,328			25,066
Provision for credit losses		8,989			8,796			28,887			23,966			(10,482	)		10,730			2,570			23,280
Depreciation		116			142			356			413
Fair value and other adjustments, net														23,110			—			23,110			—
Depreciation and amortization of intangibles														22			97			66			339
Interest expense		2,585			2,258			7,483			6,745			68			1,239			826			2,782
Change in fair value of interest rate swap agreements		—			(81	)		17			(184	)

		19,712			19,457			61,371			57,155
Operating income before income taxes		814			2,587			2,691			10,451
Total expenses														16,646			21,641			38,988			52,553
Income from securities:
Net gain on equity investments														—			—			—			66
Income from cash equivalents														31			—			31			—
Total income from securities														31			—			31			66
Loss before income taxes														(11,661	)		(10,373	)		(20,590	)		(16,907	)
Income tax expense		3,712			981			4,432			3,972			—			3,000			—			1,415

Net income (loss)	$	(2,898	)	$	1,606		$	(1,741	)	$	6,479

Earnings (loss) per share:
Net loss													$	(11,661	)	$	(13,373	)	$	(20,590	)	$	(18,322	)
Loss per share:
Basic	$	(0.37	)	$	0.21		$	(0.22	)	$	0.83		$	(1.60	)	$	(1.85	)	$	(2.83	)	$	(2.49	)

Diluted	$	(0.37	)	$	0.21		$	( 0.22	)	$	0.83		$	(1.60	)	$	(1.85	)	$	(2.83	)	$	(2.49	)

See ~~accompanying notes.~~Notes to the Condensed Consolidated Financial Statements.

Nicholas Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)

(In thousands)


	Three Months Ended December 31, 2023
	Common Stock											Total
	Shares			Amount		Treasury Stock			Retained Earnings			Shareholders' Equity
Balance at September 30, 2023		7,289		$	35,266	$	(76,794	)	$	112,241		$	70,713
Share-based compensation		—			1		—			—			1
Net loss		—			—		—			(11,661	)		(11,661	)
Balance at December 31, 2023		7,289		$	35,267	$	(76,794	)	$	100,580		$	59,053

	Three Months Ended December 31, 2022
	Common Stock											Total
	Shares			Amount		Treasury Stock			Retained Earnings			Shareholders' Equity
Balance at September 30, 2022		7,309		$	35,172	$	(76,684	)	$	150,550		$	109,038
Issuance of restricted stock awards		—			—		—			—			—
Share-based compensation		—			25		—			—			25
Treasury stock		(19	)		—		(110	)		—			(110	)
Net loss		—			—		—			(13,373	)		(13,373	)
Balance at December 31, 2022		7,290		$	35,197	$	(76,794	)	$	137,177		$	95,580


	Nine Months Ended December 31, 2023
	Common Stock												Total
	Shares			Amount			Treasury Stock			Retained Earnings			Shareholders' Equity
Balance at March 31, 2023		7,289		$	35,223		$	(76,794	)	$	121,380		$	79,809
Cumulative effect of adoption of ASU 2016-13, net of tax		—			—			—			(210	)		(210	)
Share-based compensation		—			44			—			—			44
Net loss		—			—			—			(20,590	)		(20,590	)
Balance at December 31, 2023		7,289		$	35,267		$	(76,794	)	$	100,580		$	59,053

	Nine Months Ended December 31, 2022
	Common Stock												Total
	Shares			Amount			Treasury Stock			Retained Earnings			Shareholders' Equity
Balance at March 31, 2022		7,546		$	35,292		$	(74,405	)	$	155,499		$	116,386
Issuance of restricted stock awards		11			—			—			—			—
Cancellation of restricted stock awards		(26	)		(175	)		—			—			(175	)
Share-based compensation		—			80			—			—			80
Treasury stock		(241	)		—			(2,389	)		—			(2,389	)
Net loss		—			—			—			(18,322	)		(18,322	)
Balance at December 31, 2022		7,290		$	35,197		$	(76,794	)	$	137,177		$	95,580

See Notes to the Condensed Consolidated Financial Statements.

Nicholas Financial, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Nine months ended
December 31,

   2017 2016
Cash flows from operating activities

Net income (loss)
   $ (1,741 ) $ 6,479
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation
   356 413
Gain on sale of property and equipment
   (22 ) (13 )
Provision for credit losses
   28,887 23,966
Amortization of dealer discounts
   (8,670 ) (9,830 )
Amortization of commission for products
   (1,226 ) (1,342 )
Deferred income taxes
   2,049 (626 )
Share-based compensation
   240 474
Change in fair value of interest rate swap agreements
   17 (184 )
Changes in operating assets and liabilities:

Prepaid expenses and other assets
   156 345
Accounts payable and accrued expenses
   (938 ) 1,552
Income taxes receivable
   99 1,198
Deferred revenues
   (656 ) 86


Net cash provided by operating activities
   18,551 22,518


Cash flows from investing activities

Purchase and origination of finance receivables
   (74,760 ) (118,276 )
Principal payments received
   91,616 95,562
Increase in assets held for resale
   (522 ) (828 )
Purchase of property and equipment
   (143 ) (728 )
Proceeds from sale of property and equipment
   23 38


Net cash provided by (used in) investing activities
   16,214 (24,232 )


Cash flows from financing activities

(Decrease) Increase on line of credit
   (35,000 ) 3,340
Change in drafts payable
   335 188
Payment of loan origination fees
   (211 ) —
Proceeds from exercise of stock options
   338 1


Net cash (used in) provided by financing activities
   (34,538 ) 3,529


Net increase in cash
   227 1,815
Cash, beginning of period
   2,855 1,849


Cash, end of period
   $ 3,082 $ 3,664


Supplemental Disclosure of noncash investing and financing activities:

Tax deficiency from share awards
   —   $ (9 )


	Nine Months Ended December 31,
	2023			2022
Cash flows from operating activities:
Net income (loss)	$	(20,590	)	$	(18,322	)
Adjustments to reconcile net income (loss) to net cash provided (used in) by operating activities:
Depreciation and amortization of intangibles		66			339
Amortization of debt issuance costs		70			124
Non-cash lease expense		36			1,427
Net loss on disposal of property and equipment		10			650
Net gain on equity investments		—			(66	)
Fair value and other adjustments, net		23,110			—
Provision for credit losses		2,570			23,280
Amortization of dealer discounts		(2,660	)		(4,632	)
Amortization of insurance and fee commissions		(1,802	)		(2,395	)
Accretion of purchase price discount		(54	)		(119	)
Deferred income taxes		—			1,385
Cancellations of restricted stock awards		—			(175	)
Principal reduction on operating lease liabilities		(37	)		—
Share-based compensation		44			80
Changes in operating assets and liabilities:
Accrued interest receivable		895			(588	)
Prepaid expenses and other assets		(27	)		(100	)
Accounts payable, accrued expenses, and other liabilities		(627	)		(2,453	)
Income taxes receivable		31			44
Net cash provided by (used in) operating activities		1,035			(1,521	)
Cash flows from investing activities:
Purchase and origination of finance receivables		(5,515	)		(61,769	)
Principal payments received and proceeds from repossessed assets held for sale		40,955			75,309
Purchases of equity investments		—			(7,237	)
Proceeds from sale of equity investments		—			7,303
Payments for property and equipment		(13	)		—
Net cash provided by investing activities		35,427			13,606
Cash flows from financing activities:
Repayments on credit facilities		(29,100	)		(27,800	)
Proceeds from credit facilities		—			17,800
Payment of loan originations fees		—			(313	)
Repayment of PPP Loan		—			(3,244	)
Repurchases of treasury stock		—			(2,389	)
Net cash used in financing activities		(29,100	)		(15,946	)
Net increase (decrease) in cash and cash equivalents		7,362			(3,861	)
Cash and cash equivalents, at the beginning of period		454			4,775
Cash and cash equivalents, at the end of period	$	7,817		$	914
Supplemental disclosure of cash flow information:
Interest paid	$	975		$	2,532
Income taxes paid		—			24
Transfer of finance receivables to repossessed assets		14,034			6,446

See ~~accompanying notes.~~

~~Nicholas Financial, Inc. and Subsidiaries~~

Notes to the Condensed Consolidated Financial Statements.

Notes to the Condensed Consolidated Financial Statements

~~(Unaudited)~~

Note 1. Basis of Presentation

Nicholas Financial, Inc. (“Nicholas Financial – Canada”) is a Canadian holding company incorporated under the laws of British Columbia with several wholly-owned United States subsidiaries, including Nicholas Financial, Inc., a Florida corporation (“NFI”). The accompanying condensed consolidated balance sheet as of ~~March~~December 31, ~~2017, which has been derived from audited financial statements,~~2023, and the accompanying unaudited interim condensed consolidated financial statements of Nicholas Financial ~~Inc. (including~~– Canada, and its wholly-owned subsidiaries (collectively, the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information, ~~and~~ with the instructions to Form10-Q pursuant to the Securities ~~and~~ Exchange Act of 1934, as amended, inand with Article 108 of Regulation~~S-X.~~ S-X thereunder. Accordingly, they do not include all of the information and ~~footnotes~~notes to the consolidated financial statements required by U.S. GAAP for complete consolidated financial statements, although the Company believes that the disclosures made are adequate to ensure the information is not misleading. In the opinion of management, all adjustments (consisting of normal recurring ~~accruals)~~adjustments) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year ending March 31, ~~2018.~~2024. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form10-K for the year ended March 31, ~~2017~~2023 as filed with the Securities and Exchange Commission on June ~~14, 2017.~~27, 2023. The March 31, ~~2017~~2023 consolidated balance sheet included herein has been derived from the March 31, ~~2017~~2023 audited consolidated balance sheet included in the aforementioned Form10-K.

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~~receivables.

~~2. Revenue Recognition~~

~~Finance receivables consist~~all or substantially all of the Company's undertaking, consisting of automobile finance installment contracts, ~~(“Contracts”) and direct consumer loans (“Direct Loans”). Interest income on finance receivables is recognized using~~pursuant to the ~~interest method. Accrual~~terms of ~~interest income on finance receivables is suspended when~~ a ~~loan enters bankruptcy status, is contractually delinquent for 61 days or more or the collateral is repossessed, whichever is earlier. Chapter~~Master Asset Purchase Agreement dated as of November 13, ~~bankruptcy accounts are accounted for under the cost-recovery method. Interest income on Chapter 13 bankruptcy accounts does not resume until all principal amounts are recovered (see Note 4).~~

~~A dealer discount represents the difference~~2023 between the ~~finance receivable, net~~Company and Westlake Services, LLC dba Westlake Financial, a California limited liability company (the “Loan Portfolio Sale”). The Company is pursuing the Loan Portfolio Sale for a number of ~~unearned interest, of a Contract,~~reasons consistent with its previously disclosed evolving restructuring plan. Management believes the Loan Portfolio Sale will free up capital and ~~the amount of money~~permit the Company ~~actually pays~~to allocate excess capital and utilize net operating losses to increase shareholder returns, whether by acquiring businesses or by investing outside of the Company's traditional business. Assuming closing of the Loan Portfolio Sale, the Board of Directors intends to explore strategic alternatives for the ~~Contract. The discount negotiated by the Company is a function~~use 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 purchasednet proceeds from the ~~dealer from which the Company is purchasing the Contract,~~sale and seek to maximize the value of ~~the automobile in relation~~deferred tax assets, including net operating losses, available to the ~~purchase price~~Company.

The Company adopted ASU 2016-13 on April 1, 2023 (see Note 2), and consequently utilized the ~~term of the Contract. The entire amount of discount is~~current expected credit losses model through October 31, 2023, by applying a discounted cash flow methodology to its financial assets, measured at amortized ~~as an adjustment to yield using the interest method~~cost over the life of the ~~loan. The average dealer discount associated~~financial assets.

On November 1, 2023, concurrent with ~~new volume~~the decision to sell the portfolio, the Company reclassified its finance receivables to held for sale, which are carried at the lower of amortized cost or fair value. As a result of this reclassification, the Company eliminated the allowance for credit losses under Accounting Standards Codification (ASC) 326 which resulted in a reversal of previously recorded provisions for credit losses for the three ~~months ended December 31, 2017~~ and ~~2016 was 6.89% and 6.87%, respectively in relation to the total amount financed. The average dealer discount associated with new volume for the~~ nine months ended December 31, ~~2017~~2023. The Company compared the fair value and ~~2016 was 7.23%~~amortized cost of finance receivables held for sale and ~~7.00%, respectively.~~recorded a held for sale valuation allowance through earnings to reduce the amortized cost basis to fair value as of December 31, 2023.

The ~~amount~~Company estimates the fair value of ~~future unearned income is computed as the product~~these loans held for sale utilizing a discounted cash flow approach which includes an evaluation of the ~~Contract~~collateral and underlying loan characteristics, as well as assumptions to determine the discount rate such as credit loss and prepayment forecasts, and servicing costs. In determining the ~~Contract term~~appropriate discount rate, prepayment and credit assumptions, the Company monitors other capital markets activity for similar collateral being traded and/or interest rates currently being offered for similar products. The Company management also reviews the key assumptions used in arriving at the final estimates related to the fair value of these loans held for sale. Significant increases or decreases in any of those assumptions in isolation could result in a significantly lower (higher) fair value measurement.

Reclassifications

In certain instances, amounts reported in the prior year financial statements have been reclassified to conform to the current financial statement presentation. Such reclassifications had no effect on previously reported net income (loss)

Note 2. Accounting Standards Recently Adopted or Applied

Cash Equivalents

Short-term highly liquid investments with a maturity date that was 3 months or less at the time of purchase are treated as cash equivalents. Amounts earned from cash equivalents are presented separately in the unaudited Condensed Consolidated Statements of Income (Loss).

Allowance for Credit Losses (ACL)

In June 2016, the Financial Accounting Standard Board (FASB) issued the Accounting Standards Update (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. The ASU also requires additional disclosures related to estimates and judgments used to measure all expected credit losses.

The Company adopted this standard effective April 1, 2023. The initial impact of adoption was a $0.2 million decrease to retained earnings ($0.2 million increase to the allowance for credit losses (ACL)). As of April 1, 2023, there is a full valuation allowance recorded against the deferred tax assets (DTA). Therefore, a net increase of $0.1 million recorded to the DTA was offset by an increase of the same amount to the valuation allowance. The ACL reflects the difference between the amortized cost basis and the ~~Contract amount.~~

Deferred revenues 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 coverage, and forced placed automobile insurance. These commissions are amortized over the lifepresent value of the ~~contract~~expected cash flows.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which removes the accounting guidance for troubled debt restructurings and requires entities to evaluate whether a modification provided to a customer results in a new loan or continuation of an existing loan. The amendments enhance existing disclosures and require new disclosures for receivables when there has been a modification in contractual cash flows due to a customer experiencing financial difficulties. Additionally, the amendments require public business entities to disclose gross charge-off information by year of origination in the vintage disclosures. This ASU became effective for us on April 1, 2023. We adopted this guidance in the first quarter of fiscal 2024 using the ~~interest~~modified retrospective method.

Adoption of this standard did not have a material impact on the Company's unaudited Condensed Consolidated Financial Statements.

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.

Finance Receivables Held for Sale

~~Nicholas Financial, Inc.~~Finance Receivables are reclassified to held for sale at the point the criteria for changing classification is met (when the Company decides to sell finance receivables that were originally classified as held for investment). The previously recorded allowance for credit losses, under Topic 326, associated with the reclassified finance receivables (after applying the write off policy) is released and ~~Subsidiaries~~

~~Notes~~an offsetting entry recorded to the provision for credit losses. This has had the effect of reversing the pre-transfer held for investment allowance for credit losses through the provision. Finance receivables held for sale are carried at the lower of amortized cost bosis or fair value which generally established a new held for sale valuation allowance through earnings in the same reporting period. Changes in the held for sale valuation allowance are recorded through earnings along with charge offs and recoveries as "Fair value and other adjustments net" in the unaudited Condensed Consolidated ~~Financial~~ Statements ~~(Continued)~~of Income (Loss).

~~(Unaudited)~~

Note 3. Earnings ~~(Loss)~~ Per Share

The Company has granted stock compensation awards with nonforfeitable dividend rights which are considered participating securities. Earnings ~~(loss)~~ per share is calculated using thetwo-class method, as such awards are more dilutive under this method than the treasury stock method. Basic earnings ~~(loss)~~ per share is calculated by dividing net income ~~(loss)~~ allocated to common shareholders by the weighted average number of common shares outstanding during the period, which excludes the participating securities. The Company's participating securities are non-vested restricted shares which are not required to share losses, and accordingly, are not allocated losses in periods of net loss. Diluted earnings ~~(loss)~~ per share ~~includes~~include the dilutive effect of additional potential common shares from stock compensation awards. ~~Earnings (loss)~~For the three and nine months ended December 31, 2023, potentially dilutive securities that were not included in the diluted per share ~~have been~~calculation because they would be anti-dilutive comprise 10 thousand shares from options to purchase common shares. For the three and nine months ended December 31, 2022, potentially dilutive securities that were not included in the diluted per share calculation because they would be anti-dilutive comprise 10 thousand shares from options to purchase common shares. Earnings per share is computed based on the following weighted average number of common shares outstanding:

   Three months ended
December 31,
(In thousands, except per
share amounts)    Nine months ended
December 31,
(In thousands, except per
share amounts)
   2017    2016    2017    2016
Numerator:

Net income (loss)
   $ (2,898 )    $ 1,606    $ (1,741 )    $ 6,479
Less: Allocation of earnings (loss) to participating securities
   40    (22 )    23    (76 )








Net income (loss) allocated to common stock
   (2,858 )    1,584    (1,718 )    6,403








Basic earnings (loss) per share computation:

Net income (loss) allocated to common stock
   $ (2,858 )    $ 1,584    $ (1,718 )    $ 6,403








Weighted average common shares outstanding, including shares considered participating securities
   7,910    7,697    7,876    7,763
Less: Weighted average participating securities outstanding
   (110 )    (107 )    (102 )    (91 )








Weighted average shares of common stock
   7,800    7,590    7,774    7,672








Basic earnings (loss) per share
   $ (0.37 )    $ 0.21    $ (0.22 )    $ 0.83








Diluted earnings (loss) per share computation:

Net income (loss) allocated to common stock
   $ (2,858 )    $ 1,584    $ (1,718 )    $ 6,403
Undistributed earningsre-allocated to participating securities
   —      —      —      —








Numerator for diluted earnings (loss) per share
   $ (2,858 )    $ 1,584    $ (1,718 )    $ 6,403
Weighted average common shares outstanding for basic earnings (loss) per share
   7,800    7,590    7,774    7,672
Incremental shares from stock options
   —      60    —      60








Weighted average shares and dilutive potential common shares
   7,800    7,650    7,774    7,732








Diluted earnings (loss) per share
   $ (0.37 )    $ 0.21    $ (0.22 )    $ 0.83


	Three months ended December 31, (In thousands, except per share amounts)						Nine months ended December 31, (In thousands, except per share amounts)
	2023			2022			2023			2022
Numerator
Net loss per consolidated statements of income	$	(11,661	)	$	(13,373	)	$	(20,590	)	$	(18,322	)
Percentage allocated to shareholders *		100.0	%		100.0	%		100.0	%		100.0	%
Numerator for basic and diluted earnings per share	$	(11,661	)	$	(13,373	)	$	(20,590	)	$	(18,322	)

Denominator
Denominator for basic earnings per share - weighted-average shares outstanding		7,286			7,219			7,285			7,349
Dilutive effect of stock options		—			—			—			—
Denominator for diluted earnings per share		7,286			7,219			7,285			7,349

Per share loss from continuing operations
Basic	$	(1.60	)	$	(1.85	)	$	(2.83	)	$	(2.49	)
Diluted		(1.60	)		(1.85	)		(2.83	)		(2.49	)

* Basic weighted-average shares outstanding		7,286			7,219			7,285			7,349
Basic weighted-average shares outstanding and unvested restricted stock units expected to vest		7,287			7,219			7,285			7,349
Percentage allocated to shareholders		100.0	%		100.0	%		100.0	%		100.0	%

Diluted earnings (loss) per share do not include the effect of certain stock options as their impact would be anti-dilutive. The potential shares of common stock from stock options totaling 189,690 were excluded from the diluted earnings (loss) per share calculation for December 31, 2017 because the Company experienced a net loss for the period. The potential shares of common stock from stock options totaling 160,000 were excluded from the diluted earnings (loss) per share calculation for December 31, 2016 because their effect is anti-dilutive.

~~Nicholas Financial, Inc. and Subsidiaries~~

~~Notes to the Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~

Note 4. Finance Receivables

Finance receivables held for investment, net consist of Contracts and Direct Loans and are detailed as follows:

   (In thousands)
   December 31,
2017    March 31,
2017
Finance receivables, gross contract
   $ 454,277    $ 512,720
Unearned interest
   (137,594 )    (160,853 )




Finance receivables, net of unearned interest
   316,683    351,867
Unearned dealer discounts
   (14,138 )    (17,004 )




Finance receivables, net of unearned interest and unearned dealer discounts
   302,545    334,863
Allowance for credit losses
   (21,187 )    (17,658 )




Finance receivables, net
   $ 281,358    $ 317,205


	(In thousands)
	December 31, 2023		March 31, 2023
Finance receivables held for investment	$	—	$	128,170
Accrued interest receivable		—		1,932
Unearned dealer discounts		—		(4,286	)
Unearned insurance commissions and fees		—		(1,419	)
Unearned purchase price discount		—		(82	)
Finance receivables held for investment, net of unearned discounts and fees and accrued interest receivable		—		124,315
Allowance for credit losses		—		(17,396	)
Finance receivables held for investment, net	$	—	$	106,919

Finance receivables held for sale consist of Contracts and Direct Loans and are detailed as follows:


	(In thousands)
	December 31,			March 31,
	2023			2023
Finance receivables held for sale at amortized cost	$	69,763			-
Held for sale allowance		(19,457	)		-
Finance receivables held for sale at fair value	$	50,306		$	-

Contracts and Direct Loans each comprise a portfolio ~~segment.~~segment which consists of groups of loans sharing common risk factors. The following tables present selected information on the entire portfolio of the Company:

   As of
December 31,
   2017 2016
Contract Portfolio

Weighted APR
   22.21 % 22.43 %
Weighted average discount
   7.25 % 7.48 %
Weighted average term (months)
   57 57
Number of active contracts
   33,993 37,834


	As of December 31,			As of March 31,
Contract Portfolio	2023			2023
Average APR		22.7	%		22.8	%
Average discount		6.4	%		6.8	%
Average term (months)		49			49
Number of active contracts		9,088			14,081


	As of December 31,
	2017			2016			As of December 31,			As of March 31,
Direct Loan Portfolio							2023			2023
Weighted APR		25.18	%		25.69	%
Weighted average term (months)		33			33
Average APR								27.3	%		29.1	%
Average term (months)								33			28
Number of active contracts		2,718			3,023			2,485			5,322

~~Each~~

Allowance for Credit Losses (ACL) and Held for Sale Allowance

The Company adopted ASU 2016-13 on April 1, 2023, and consequently utilized the current expected credit losses model through October 31, 2023, by applying a Discounted Cash Flow (DCF) methodology to its financial assets, measured at amortized cost, over the life of those financial assets. Beginning on November 1, 2023, the Company is carrying its loan portfolio ~~segment consists~~at the lower of ~~smaller balance~~amortized cost or fair value.

For the period from April 1, 2023 through October 31, 2023, the ACL reflects the difference between the amortized cost basis and the present value of the expected cash flows of finance receivables. Provisions for credit losses were recorded in amounts sufficient to maintain an ACL at an adequate level to provide for estimated losses over the lives of the finance receivables. Portfolio segments are comprised of homogeneous loans sharing common risk factors. Accordingly, loans are not individually evaluated for collectability. Consistent with the application during prior reporting years, the Company continued charging credit losses against the allowance when the account reached 120 days contractually delinquent and any recoveries on finance receivables previously charged to the ACL were credited to the ACL when collected.

The Company used a DCF model to forecast expected credit losses. Historical information about losses generally provided a basis for the estimate of expected credit losses. The Company has utilized its own historical data as well as its peer group companies' data from FFIEC Call Report filings. This data was used to produce regression analysesdesigned to quantify the impact of reasonable and supportable forecasts in projective models.

The Company also considered the need to adjust historical information to reflect the extent to which conditions differed from the conditions that existed for the period over which historical information was evaluated. These adjustments to historical loss information may be qualitative or quantitative in nature. The Company considered changes in international, national, regional and local conditions, changes in the volume and severity of past due loans, portfolio bankruptcy trends, maturity terms extensions, changes in the value of underlying collateral for collateral dependent loans, the effect of other external factors, such as competition, legal and regulatory requirements on the level of estimated credit losses, the existence and effect of any concentrations of credit and changes in the levels of such concentrations, changes in the nature and volume of the portfolio and terms of loans, changes in the quality of the loan review system, changes in the experience, depth, and ability of lending management, and reasonable and supportable economic forecasts, which covered the lives of the finance receivables.

The Company discounted expected cash flows at the financial asset’s effective interest rate. The effective interest rate is defined in ASC 326as the contractual interest rate adjusted for any net deferred fees or costs, premium, or discount existing at the origination or

acquisition of the financial assets. For the Company, this was calculated using adjusted contractual cash flows relative to the amortized cost. The Company also considered prepayment and curtailment effects in calculation of its effective interest rate.

According to ASC 326-20-30-9, estimating expected credit losses is highly judgmental and requires management to produce reasonable and supportable forecasts of expected credit losses. The Company elected to forecast the first four quarters of the credit loss estimate and revert to a long-run average of each considered economic factor as permitted in ASC 326-20-30-9. Based on the final values in the forecast and the uncertainty of a post-pandemic recovery, management elected to revert over four quarters. The Company also used information provided by the Federal Open Market Committee (FOMC) to obtain various forecasts for unemployment rate and gross domestic product, as well as other economic factors that were considered as part of its ACL calculations.

The Company elected not to measure an allowance on accrued interest which is included as a component of amortized cost and limited to performing accounts, defined as an account that is less than 61 days past due. Accrual of interest income on finance receivables is suspended when a loan was contractually delinquent for 61 days or more, or the collateral is repossessed, whichever is earlier. Consistent with the application in the prior reporting periods, the Company continued timely reversing of the accrual of interest income when the loan was contractually delinquent 61 days or more. All of these accounts were accounted for in the calculation for allowance for credit losses.

The Company defines a non-performing asset as one that is 61 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 confirmation of a Chapter 13 bankruptcy account, 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.

Prior to adoption of ASU 2016-13 the Company was periodically evaluating 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 utilized significant judgment in determining probable incurred losses and in identifying and evaluating qualitative factors. This approach aligned 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.

The Company used a trailing twelve-month net charge-off as a percentage of average finance receivables, and applied this percentage to ending finance receivables to estimate probable credit losses. This approach reflected the current trends of incurred losses within the portfolio and closely aligns the allowance for credit losses with the portfolio’s performance indicators. Estimating the allowance for credit losses using the trailing twelve-month charge-off analysis reflected portfolio performance adjusted for seasonality. Management evaluated qualitative factors to support its allowance for credit losses. The Company examined the impact of macro-economic factors, such as year-over-year inflation, as well as portfolio performance characteristics, such as changes in the value of underlying collateral, level of nonperforming accounts, delinquency trends, and accounts with extended terms.

As of November 1, 2023, concurrent with the decision to sell the portfolio, the Company reclassified its finance receivables to held for sale, which are ~~collectively evaluated~~carried at the lower of amortized cost or fair value. As a result of this reclassification, the Company eliminated the allowance for ~~impairment.~~credit losses established under ASC 326 which resulted in a reversal of previously recorded provisions for credit losses for the period from April 1, 2023 through October 31, 2023. The Company compared the fair value and amortized cost of finance receivables held for sale and recorded a held for sale valuation allowance of $19.5 million through earnings to reduce the amortized cost basis to fair value as of December 31, 2023.

The following table sets forth a reconciliation of the changes in the allowance for credit losses under ASC 326 on ~~Contracts:~~Contracts and Direct Loans for the three and nine months ended December 31, 2023 and 2022 (in thousands):

   Three months ended
December 31,
(In thousands)    Nine months ended
December 31,
(In thousands)
   2017    2016    2017 2016
Balance at beginning of period
   $ 19,967    $ 12,925    $ 16,885 $ 12,265
Current period provision
   8,818    8,701    28,498 23,723
Losses absorbed
   (8,745 )    (8,247 )    (26,372 ) (23,815 )
Recoveries
   360    570    1,389 1,776






Balance at end of period
   $ 20,400    $ 13,949    $ 20,400 $ 13,949


	Three months ended December 31, 2023									Nine months ended December 31, 2023
	Contracts			Direct Loans			Total			Contracts			Direct Loans			Consolidated
Balance at beginning of period, prior to adoption of ASU 2016-13	$	12,189		$	1,068		$	13,257		$	16,265		$	1,131		$	17,396
Impact of adoption of ASU 2016-13		—			—			—			(562	)		772			210
Provision for credit losses (1)		1,588			183			1,771			12,713			2,110			14,823
Charge-offs		(3,041	)		(369	)		(3,410	)		(21,337	)		(3,495	)		(24,832	)
Recoveries		553			82			635			4,210			446			4,656
Reversal of allowance for credit losses (2)		(11,289	)		(964	)		(12,253	)		(11,289	)		(964	)		(12,253	)
Balance at December 31, 2023	$	—		$	—		$	—		$	—		$	—		$	—

	Three months ended December 31, 2022									Nine months ended December 31, 2022
	Contracts			Direct Loans			Total			Contracts			Direct Loans			Consolidated
Balance at beginning of period	$	5,088		$	2,003		$	7,091		$	1,960		$	989		$	2,949
Provision for credit losses		9,132			1,598			10,730			19,747			3,533			23,280
Charge-offs		(7,077	)		(1,056	)		(8,133	)		(17,266	)		(2,050	)		(19,316	)
Recoveries		1,240			24			1,264			3,942			97			4,039
Balance at December 31, 2022	$	8,383		$	2,569		$	10,952		$	8,383		$	2,569		$	10,952

~~The~~

(1)

Provision for credit losses and reversal of allowance for credit losses is increased by charges against earnings and decreased by charge-offs (net of recoveries). The Company aggregates Contracts into static pools consisting of Contracts purchased during a three-month period for each branch locationpresented net as management considers these pools to have similar risk characteristics and are considered smaller-balance homogenous loans. The Company analyzes each consolidated static pool at specific points in time to estimate losses that are probable of being incurred as of the reporting date. It has maintained historical~~write-off~~ ~~information for over 10 years with respect to every consolidated static pool and segregates each static pool by liquidation which creates~~

~~Nicholas Financial, Inc. and Subsidiaries~~

~~Notes to the Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~

~~4. Finance Receivables (continued)~~

~~snapshots or buckets of each pool’s historicalwrite-off~~ ~~to liquidation ratio at five different points in each vintage pool’s liquidation cycle. These snapshots are then used to assist in determining the allowance~~"Provision for credit ~~losses. The five snapshots are tracked at liquidation levels of 20%, 40%, 60%, 80% and 100%. These snapshots help us in determining the appropriate allowance for credit losses.~~

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 predominately for used vehicles. As of December 31, 2017, the average model year of vehicles collateralizing the portfolio was a 2010 vehicle. The Company utilizes a static pool approach to track portfolio performance. If the allowance for credit losses is determined to be inadequate for a static pool, then an additional charge to income through the provision is used to maintain adequate reserves based on management’s evaluation of the risk inherentlosses" in the ~~loan portfolio, the composition~~Condensed Consolidated Statements of ~~the portfolio, and current economic conditions. Such evaluation, considers among other matters, the estimated net realizable~~Income (Loss).

(2)

Amounts shown represents charge-off through October 31, 2023. Since November 1, 2023 charge-offs are included in "Fair value ~~of the underlying collateral, economic conditions, historical loan loss experience, management’s estimate of probable credit losses~~ and other ~~factors that warrant recognition~~adjustment, net" in ~~providing for an adequate allowance for credit losses.~~the Condensed Consolidated Statements of Income (Loss).

The following table ~~sets forth a reconciliation~~presents gross charge-offs and recoveries by receivable origination year for total portfolio:


	(In thousands)
	Three months ended December 31, 2023
	Gross Charge-offs		Gross Recoveries		Net Charge-offs
2024	$	88	$	—	$	88
2023		1,256		138		1,118
2022		1,294		216		1,078
2021		363		109		254
2020		215		42		173
Prior		194		130		64
Total	$	3,410	$	635	$	2,775


	(In thousands)
	Nine months ended December 31, 2023
	Gross Charge-offs		Gross Recoveries		Net Charge-offs
2024	$	113	$	—	$	113
2023		10,061		1,122		8,939
2022		9,448		1,496		7,952
2021		2,776		547		2,229
2020		1,209		506		703
Prior		1,225		985		240
Total	$	24,832	$	4,656	$	20,176

The following table presents gross charge-offs and recoveries by receivable origination year for Contract segment of portfolio:


	(In thousands)
	Three months ended December 31, 2023
	Gross Charge-offs		Gross Recoveries		Net Charge-offs
2024	$	88	$	—	$	88
2023		1,072		100		972
2022		1,124		185		939
2021		350		102		248
2020		214		38		176
Prior		193		128		65
Total	$	3,041	$	553	$	2,488


	(In thousands)
	Nine months ended December 31, 2023
	Gross Charge-offs		Gross Recoveries		Net Charge-offs
2024	$	113	$	—	$	113
2023		7,950		907		7,043
2022		8,127		1,320		6,807
2021		2,722		521		2,201
2020		1,201		489		712
Prior		1,224		973		251
Total	$	21,337	$	4,210	$	17,127

The following table presents gross charge-offs and recoveries by receivable origination year for Direct segment of portfolio:


	(In thousands)
	Three months ended December 31, 2023
	Gross Charge-offs		Gross Recoveries		Net Charge-offs
2024	$	—	$	—	$	—
2023		184		38		146
2022		170		31		139
2021		13		7		6
2020		1		4		(3	)
Prior		1		2		(1	)
Total	$	369	$	82	$	287


	(In thousands)
	Nine months ended December 31, 2023
	Gross Charge-offs		Gross Recoveries		Net Charge-offs
2024	$	—	$	—	$	—
2023		2,111		215		1,896
2022		1,321		176		1,145
2021		54		26		28
2020		8		17		(9	)
Prior		1		12		(11	)
Total	$	3,495	$	446	$	3,049

The following table is an assessment of the ~~changes in the allowance~~credit quality by creditworthiness for ~~credit losses on Direct Loans:~~finance receivables held for investment:

   Three months ended
December 31,
(In thousands)    Nine months ended
December 31,
(In thousands)
   2017    2016    2017 2016
Balance at beginning of period
   $ 782    $ 774    $ 773 $ 748
Current period provision
   171    95    389 243
Losses absorbed
   (172 )    (73 )    (395 ) (217 )
Recoveries
   6    3    20 25






Balance at end of period
   $ 787    $ 799    $ 787 $ 799


	(In thousands)
	December 31, 2023						March 31, 2023
	Contracts		Direct Loans		Total		Contracts		Direct Loans		Total
Performing accounts	$	—	$	—	$	—	$	101,856	$	16,926	$	118,782
Non-performing accounts		—		—		—		6,972		1,728		8,700
Total		—		—		—		108,828		18,654		127,482
Chapter 13 bankruptcy accounts		—		—		—		590		98		688
Finance receivables	$	—	$	—	$	—	$	109,418	$	18,752	$	128,170

Direct Loans are typically for amounts ranging from $1,000 to $11,000 and are generally secured by a lien on an automobile, watercraft or other permissible tangible personal property. Much 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 if 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. As of December 31, 2017, loans made by the Company pursuant to its Direct Loan program constituted approximately 2% of the aggregate principal amount of the Company’s loan portfolio. Changes in the allowance for credit losses for both Contracts and Direct Loans were driven by current economic conditions and credit loss trends over several reporting periods which are utilized in estimating future losses and overall portfolio performance.

A performing account is defined as an account that is less than 61 days past due. ~~We define~~The Company defines an automobile contract as delinquent when more than ~~25%~~10% of a payment contractually due by a certain date has not been paid immediately 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, wethe Company will grant obligorsone-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, or forgiveness of principal or of accrued interest. Accordingly, ~~we consider~~the Company considers such extensions to be insignificant delays in ~~payments rather than troubled debt restructurings.~~payments.

~~Nicholas Financial, Inc. and Subsidiaries~~

~~Notes to the Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~

~~4. Finance Receivables (continued)~~

~~The following table is an assessment of the credit quality by creditworthiness:~~

   (In thousands)
   December 31,
2017    December 31,
2016
   Contracts    Direct Loans    Contracts    Direct Loans
Performing accounts
   $ 412,775    $ 10,349    $ 462,569    $ 11,231
Non-performing accounts
   27,053    217    36,980    280








Total
   $ 439,828    $ 10,566    $ 499,549    $ 11,511
Chapter 13 bankruptcy accounts
   3,843    40    4,220    36








Finance receivables, gross contract
   $ 443,671    $ 10,606    $ 503,769    $ 11,547

Anon-performing account is defined as an account that is contractually delinquent for 61 days or more ~~and the accrual of interest income~~or is ~~suspended. When an account is 180 days contractually delinquent, the account is written off. The delinquency table below represents both performing andnon-performing~~ ~~accounts; however, it does not include Chapter 13 bankruptcy accounts. Upon notification of~~ a Chapter 13 bankruptcy ~~the~~ account ~~is not modified to reflect the new repayment plan administered by a court-appointed trustee. The cost recovery method of accounting is used, and~~for which the accrual of interest income ishas been suspended. The ~~balance will be reduced as payments are received by~~Company’s charge-off policy is to charge off an account in the ~~bankruptcy court. In~~month the ~~event the debtors’ balance has been reduced by the bankruptcy court, the Company will record a loss equal to the amount of principal balance reduction.~~ contract becomes 121 days contractually delinquent.

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

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

~~(In thousands, except percentages)~~

Contracts
   Gross Balance
Outstanding    31 – 60days 61 – 90days 91 – 120 days Over 120 Total
December 31, 2017
   $ 439,828    $ 33,453 $ 14,039 $ 7,893 $ 5,121 $ 60,506
      7.61 % 3.19 % 1.79 % 1.16 % 13.76 %
December 31, 2016
   $ 499,549    $ 35,184 $ 17,263 $ 11,072 $ 8,645 $ 72,164
      7.04 % 3.46 % 2.22 % 1.73 % 14.45 %


Direct Loans
   Gross Balance
Outstanding    31 – 60days 61 – 90days 91 – 120 days Over 120 Total
December 31, 2017
   $ 10,566    $ 254 $ 102 $ 32 $ 83 $ 471
      2.41 % 0.97 % 0.30 % 0.78 % 4.46 %
December 31, 2016
   $ 11,511    $ 282 $ 155 $ 61 $ 64 $ 562
      2.45 % 1.34 % 0.53 % 0.56 % 4.88 %


	Contracts
	(In thousands, except percentages)
	Balance Outstanding		30 – 59 days			60 – 89 days			90 – 119 days			120+		Total
December 31, 2023	$	62,664	$	7,741		$	2,390		$	1,353		$	—	$	11,484
				12.35	%		3.81	%		2.16	%	0.00%			18.33	%

March 31, 2023	$	108,828	$	10,083		$	3,274		$	3,698		$	—	$	17,055
				9.27	%		3.01	%		3.40	%	0.00%			15.67	%


	Direct Loans
	(In thousands, except percentages)
	Balance Outstanding		30 – 59 days			60 – 89 days			90 – 119 days			120+		Total
December 31, 2023	$	8,319	$	1,050		$	310		$	201		$	—	$	1,561
				12.62	%		3.73	%		2.42	%	0.00%			18.76	%

March 31, 2023	$	18,654	$	1,448		$	654		$	1,074		$	—	$	3,176
				7.76	%		3.51	%		5.76	%	0.00%			17.03	%

~~Nicholas Financial, Inc. and Subsidiaries~~

Note 5. Credit Facility

~~Notes to the Consolidated Financial Statements (Continued)~~Westlake Credit Facility

~~(Unaudited)~~

~~5. Line~~The Credit Agreement with Westlake Capital Finance, LLC (the "WL Credit Agreement") contains customary events of ~~Credit~~

The Company has a line of credit facility (the “Line”) up to $225.0 million. On November 8, 2017, the Company executed amendment 7 to this existing Line which extended the maturity date to March 31, 2018 and increased the pricing of the Line to 400 basis points above 30 day LIBOR, while maintaining the 1% floor on LIBOR. The amendment also increased the beneficial ownership limit from 20% to 30% and revised the calculation of availability and the minimum interest coverage ratio. The threshold for the minimum interest coverage ratio was lowered for the period ending December 31, 2017.

On December 30, 2016, the Company executed an amendment which increased the pricing of the Line to 350 basis points above 30 day LIBOR while maintaining the 1% floor on LIBOR. Prior to December 30, 2016, the pricing on the Line was 300 basis points above 30 day LIBOR with a 1% floor on LIBOR.

~~Pledged as collateral for this Line are all the assets of the Company. The Line requires compliance with certain financial ratios~~default and covenants, ~~and satisfaction of specified financial tests, including maintenance of asset quality and performance tests. As of December, 31 2017, the Company is in compliance with all debt covenants.~~

The Company has a longstanding relationship with its lenders and believes it is probable that it will be able to obtain financing from either its existing lenders or from other sources; however, we can provide no assurances that the lenders will approve the further renewal or extension of the Line past March 31, 2018 or, assuming that they will approve it, that the facility will not be on terms less favorable than the current agreement. The Company may also determine to seek alternative financing, including but not limited to financial and operating results around tangible net worth, collateral performance indicator, excess spread ratio. Subject to Company’s compliance with certain terms and conditions, the lender waived its rights and remedies under the WL Credit Agreement applicable to the excess spread ratio covenant and collateral performance indicator through September 30, 2024.

As of December 31, 2023, the Company had no aggregate outstanding indebtedness under the Westlake Capital Finance, LLC credit facility (the "WL Credit Facility"), compared to $28.9 million, net of debt issuance costs outstanding as of ~~equity or debt; however, we may not be able to raise additional funds on acceptable terms, or at all.~~

~~6. Interest Rate Swap Agreements~~

March 31, 2023. The Company ~~previously utilized interest rate swap agreements to manage exposure to variability in expected cash flows attributable to interest rate risk. The interest rate swap agreements converted a portion of~~fully paid the ~~floating rate debt to a fixed rate, more closely matching the interest rate characteristics of finance receivables.~~

During the nine months ended December 31, 2017, no new contracts were initiated and both interest rate swap contracts matured. During the nine months ended December 31, 2016, no new contracts were initiated and no contracts matured.

~~On June 13, 2017 an interest rate swap agreement with an effective date of June 13, 2012, a notional amount of $25.0 million, and a fixed rate of interest of 1.00% expired.~~

~~On July 30, 2017 an interest rate swap agreement with an effective date of July 30, 2012, a notional amount of $25.0 million, and a fixed rate of interest of 0.87% expired.~~

~~Nicholas Financial, Inc. and Subsidiaries~~

~~Notes to the Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~

~~6. Interest Rate Swap Agreements (continued)~~

~~The locations and amounts of loss and gain in income are as follows:~~

Three months ended
December 31,

Nine months ended
December 31,

   (In thousands)    (In thousands)
   2017    2016    2017    2016
Periodic change in fair value of interest rate swap agreements
   $ —      $ (81 )    $ 17    $ (184 )
Periodic settlement differentials included in interest expense
   —      45    18    163








Loss (gain) recognized in income
   $ —      $ (36 )    $ 35    $ (21 )

Net realized losses and gains from the interest rate swap agreements were recorded in the interest expense line item of the consolidated statements of income. The following table summarizes the average variable rates received and average fixed rates paidoutstanding indebtedness under the ~~swap agreements.~~WL Credit Facility as of October 27, 2023.

   Three months ended
December 31, Nine months ended
December 31,
   2017    2016 2017 2016
Variable rate received
   —      0.58 % 1.05 % 0.51 %
Fixed rate paid
   —      0.94 % 0.91 % 0.94 %

Note 6. Income Taxes

~~On December 22, 2017, the Tax Cuts and Jobs Act was passed into law (“TCJA”).~~ The TCJA includes a broad range of tax reform including changes to tax rates and deductions that are effective January 1, 2018. The decrease in the enacted corporate tax rate expected to apply when our temporary differences are realized or settled ultimately resulted in a~~one-time~~ ~~revaluation of our net deferred tax asset of $3.4 million in December 2017 with a corresponding charge to~~Company recorded an income tax ~~expense. The tax effects~~benefit of ~~the TCJA increased income tax expense to a level that reduced net income to a net loss for both the three and nine-month periods ending December 31, 2017.~~

~~The provision for income taxes increased to~~ approximately ~~$3.7~~$0 million for the three months ended December 31, ~~2017 from~~2023 compared to an income tax expense of approximately ~~$1.0~~$3.0 million for the three months ended December 31, ~~2016.~~2022. The Company’s effective tax rate ~~increased~~decreased to ~~456.48%~~0.0% for the three months ended December 31, ~~2017~~2023 from ~~37.93%~~-29.1% for the three months ended December 31, ~~2016.~~ 2022.

The ~~provision~~Company recorded an income tax benefit of $0 for the nine months ended December 31, 2023 compared to an income ~~taxes increased to~~tax expense of approximately ~~$4.4~~$1.4 million for the nine months ended December 31, ~~2017 from approximately $4.0 million~~2022. The Company’s effective tax rate decreased to 0.0% for the nine months ended December 31, ~~2016. The Company’s effective tax rate increased to 164.70%~~2023 from -8.4% for the nine months ended December 31, ~~2017~~2022. The lower effective tax rate for the three and nine months ended December 31, 2023 is primarily attributable to the establishment of a valuation allowance as of December 31, 2022.

During the quarter ended December 31, 2022, the Company determined there was not sufficient positive evidence of future earnings to support a position that it will be able to realize its net deferred tax asset. The Company has significant negative evidence to overcome in the form of cumulative pre-tax losses from ~~38.01%~~continuing operations. Therefore, it will continue to maintain a full valuation allowance on its U.S. federal and state net deferred tax asset. The Company does not have any material unrecognized tax benefits as of December 31, 2023.

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 income tax assets consist of the following:


	(In thousands)
	December 31, 2023			March 31, 2023

Valuation allowances on finance receivables	$	4,777		$	4,538
Share-based compensation		30			20
Federal and state net operating loss carryforwards		9,196			4,812
Right of use liability		33			43
Other items		29			87
Valuation allowance		(14,001	)		(9,457	)
Total deferred tax assets		64			43

Deferred tax liabilities
Right of use asset		33			43
Other items		31			-
Total deferred tax liabilities		64			43
Deferred income taxes	$	-		$	-

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 negative evidence evaluated was the cumulative pre-tax loss over the three-year period ended December 31, 2023, as a result of which, a full valuation allowance remained recorded against the Company’s net deferred tax asset.

The federal net operating loss ("NOL") generated beginning in 2021 and thereafter will carry forward indefinitely, while some state NOLs begin to expire March 31, 2039. As of December 31, 2023, the Company maintained a deferred income tax valuation allowance of $14.0 million, the remaining state gross NOL was $57.3 million, and the remaining federal gross NOL amounted to $36.2 million.

Note 7. Leases

The Company leases its corporate headquarters and central business operations hub. The Company’s headquarters is located in Clearwater, Florida. The current lease relating to this space was entered into effective February 1, 2023 and expires on January 31, 2026. The Company’s central business operations hub is located in Rock Hill, South Carolina. The current lease relating to this space was entered into effective March 20, 2023. The Company decided to terminate the lease for its central business operations hub as of January 31, 2024. Both 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 $0.1 million and $0.2 million as of December 31, 2023 and March 31, 2023, respectively. This 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. These lease liability amounts are included as part of other liabilities on Company's balance sheet. The lease asset was $0.1 million and $0.2 million as of December 31, 2023 and March 31, 2023, respectively. These lease asset amounts are included as part of other assets on Company's balance sheet.

Future minimum lease payments under non-cancellable operating leases in effect as of December 31, 2023, are as follows:


in thousands
FY2024 (remaining three months)	$	17
FY2025		69
FY2026		62
Total future minimum lease payments		148
Present value adjustment		(9	)
Operating lease liability	$	139

The following table reports information about the Company’s lease cost for the three months ended December 31, 2023 (in thousands):


Lease cost:


Operating lease cost	$	16
Variable lease cost		1
Total lease cost	$	17

The following table reports information about the Company’s lease cost for the three months ended December 31, 2022 (in thousands):


Lease cost:
Operating lease cost	$	435
Variable lease cost		92
Total lease cost	$	527

The following table reports other information about the Company’s leases for the three months ended December 31, 2023 (dollar amounts in thousands):


Operating Lease - Operating Cash Flows (Fixed Payments)	$	16
Operating Lease - Operating Cash Flows (Liability Reduction)	$	14
Weighted Average Lease Term - Operating Leases		2.4 years
Weighted Average Discount Rate - Operating Leases		6.5%

The following table reports other information about the Company’s leases for the three months ended December 31, 2022 (dollar amounts in thousands):


Operating Lease - Operating Cash Flows (Fixed Payments)	$	457
Operating Lease - Operating Cash Flows (Liability Reduction)	$	369
Weighted Average Lease Term - Operating Leases		3.9 years
Weighted Average Discount Rate - Operating Leases		6.5%

The following table reports information about the Company’s lease cost for the nine months ended December 31, ~~2016.~~2023 (in thousands):


Lease cost:
Operating lease cost	$	32
Variable lease cost		2
Total lease cost	$	34

The following table reports information about the Company’s lease cost for the nine months ended December 31, 2022 (in thousands):


Lease cost:
Operating lease cost	$	893
Variable lease cost		187
Total lease cost	$	1,080

The following table reports other information about the Company’s leases for the nine months ended December 31, 2023 (dollar amounts in thousands):


Operating Lease - Operating Cash Flows (Fixed Payments)	$	33
Operating Lease - Operating Cash Flows (Liability Reduction)	$	28
Weighted Average Lease Term - Operating Leases		2.4 years
Weighted Average Discount Rate - Operating Leases		6.5%

The following table reports other information about the Company’s leases for the nine months ended December 31, 2022 (dollar amounts in thousands):


Operating Lease - Operating Cash Flows (Fixed Payments)	$	902
Operating Lease - Operating Cash Flows (Liability Reduction)	$	748
Weighted Average Lease Term - Operating Leases		3.9 years
Weighted Average Discount Rate - Operating Leases		6.5%

Note 8. Fair Value Disclosures

The Company’s financial instruments consist of cash and cash equivalents, finance receivables held for sale, finance receivables held for investment, and the WL Credit Facility. Finance receivables held for sale are measured at the lower of amortized cost or fair value. When the fair value of the finance receivables is less than the amortized cost basis, the Company records a valuation allowance which is a non-recurring fair value measurement. Repossessed assets are measured at the lower of carrying value or fair value less cost to sell. When the fair value less cost to sell of the repossessed assets is less than the carrying value, the Company records a valuation allowance which is a non-recurring fair value measurement.

The Company ~~measures specific assets and liabilities at~~estimates the fair value of repossessed assets held for sale utilizing auction recoveries statistics, resulting in a classification within Level 3 of the valuation hierarchy, as further described below.

The Company estimates the fair value of finance receivables held for sale utilizing a discounted cash flow approach, which includes an evaluation of the underlying loan characteristics, as well as assumptions to determine the discount rate, credit mark, and prepayment forecasts. In determining the appropriate discount rate, prepayment and credit assumptions, the Company utilized its historical defaults and auction recoveries statistics, as well as publicly reported data for selected peers. Given the unobservable nature of these key inputs, these loans are therefore classified within Level 3 of the valuation hierarchy, as further described below. Significant increases (decreases) in the discount rate, in isolation, could result in a significantly lower (higher) fair value measurement.

Fair value is ~~an exit price, representing the~~defined in FASB ASC Topic 820-10-20 as “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,~~” Fair value also assumes that the ~~Company utilizes~~reporting entity would sell the asset or transfer the liability in the principal or most advantageous market. Market participants are defined as buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following characteristics: 1) an unrelated party; 2) knowledgeable (having a reasonable understanding about the asset or liability and the transaction based on all available information, including information that might be obtained through due diligence efforts that are usual or customary); 3) able to transact; and 4) willing to transact (motivated but not forced or otherwise compelled to do so).

The FASB states that “valuation techniques that are appropriate in the circumstances and for which sufficient data are available shall be used to measure fair value.” The valuation techniques for measuring fair value are consistent with the three traditional approaches to value: the market approach, the income approach, and the cost or asset approach. The application of valuation techniques requires the use of common sense, informed judgment, and reasonableness based on the relevant facts and circumstances surrounding the analysis. There are relevant inputs (both observable and unobservable) that can be used in valuation based on the facts and circumstances. The FASB has defined a fair value hierarchy for these inputs which prioritizes the inputs into three broad levels:

•Level 1 inputs are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2 inputs are defined as inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

•Level 3 inputs are defined as unobservable inputs for the asset or liability.

Unobservable inputs should be used only to the extent that relevant observable inputs are not available; this allows for situations where there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs should reflect the reporting entity’s own assumptions about the 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(including assumptions about ~~which little or no market data exists, therefore requiring an entity to develop its own assumptions.~~risk).

~~Nicholas Financial, Inc. and Subsidiaries~~

~~Notes to the Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~

~~8. Fair Value Disclosures (continued)~~

~~Assets and Liabilities Recorded at Fair Value on a Recurring Basis~~

The Company estimates the fair value of interest rate swap agreements based on the estimated net present value of the future cash flows using a forward interest rate yield curve in effect as of the measurement period, adjusted for nonperformance risk, if any, including a quantitative and qualitative evaluation of both the Company’s credit risk and the counterparty’s credit risk. Accordingly, the Company classifies interest rate swap agreements as Level 2.

   Fair Value Measurement Using
(In thousands)
Description
   Level 1    Level 2    Level 3    Fair Value
Interest rate swap agreements:

December 31, 2017 – assets:
   $ —      $ —      $ —      $ —
March 31, 2017 – assets:
   $ —      $ 17    $ —      $ 17

~~Financial Instruments Not Measured at Fair Value~~

~~The Company’s financial instruments consist of cash, finance receivables and the Line. For each of these financial instruments, the carrying value approximates fair value.~~

Finance receivables, net approximates fair value based on the price paid to acquire Contracts. The price paid reflects competitive market interest rates and purchase discounts for the Company’s chosen credit grade in the economic environment. This market is highly liquid as the Company acquires individual loans on a daily basis from dealers.

The initial terms of the Contracts generally range from 12 to 72 months. The initial terms of the Direct Loans generally range from 12 to 72 months. If liquidated outside of the normal course of business, the amount received may not be the carrying value.

~~Based on current market conditions, any new or renewed credit facility would contain pricing that approximates the Company’s current Line. Based on these market conditions, the~~ fair value of the ~~Line~~Credit Facility as of December 31, ~~2017~~2023 was zero. The fair value of the Credit Facility, which was entered late in the prior year, was estimated to be equal to the book ~~value. The~~ value at March 31, 2023 as the interest rate ~~for the Line is~~was a variable rate based on ~~LIBOR~~SOFR pricing options.


	(In thousands)
	Fair Value Measurement Using
Description	Level 1		Level 2		Level 3		Fair Value		Carrying Value
Cash
December 31, 2023	$	1,219	$	-	$	-	$	1,219	$	1,219
March 31, 2023	$	454	$	-	$	-	$	454	$	454
Cash equivalents:
December 31, 2023	$	6,598	$	-	$	-	$	6,598	$	6,598
March 31, 2023	$	-	$	-	$	-	$	-	$	-
Finance receivables:
December 31, 2023	$	-	$	-	$	50,306	$	50,306	$	50,306
March 31, 2023	$	-	$	-	$	105,971	$	105,971	$	106,919
Repossessed assets:
December 31, 2023	$	-	$	-	$	395	$	395	$	395
March 31, 2023	$	-	$	-	$	1,491	$	1,491	$	1,491
Credit Facility:
December 31, 2023	$	-	$	-	$	-	$	-	$	-
March 31, 2023	$	-	$	-	$	29,100	$	29,100	$	29,100

Level 3 Assets with Significant Unobservable Inputs

Fair Value

Valuation Technique

Significant Unobservable Inputs

Range

Weighted Average (1)

Non-recurring fair value

Finance receivables held for sale

50,306

Discounted Cash Flows

Discount Rate

16.4% - 17.6%

17.3%

Repossessed assets held for sale

395

Discounted Cash Flows

Discount Rate

16.4% - 17.6%

17.3%


(1)	Weighted averages are determined by the relative fair value of the instruments or the relative contribution to the instruments fair value.

Note 9. Commitments and Contingencies

~~Nicholas Financial, Inc. and Subsidiaries~~

~~Notes to the Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~

~~8. Fair Value Disclosures (continued)~~

(In thousands)

   Fair Value Measurement Using
Description
   Level 1    Level 2    Level 3    Fair
Value    Carrying
Value
Cash:

December 31, 2017
   $ 3,082    $ —      $ —      $ 3,082    $ 3,082
March 31, 2017
   $ 2,855    $ —      $ —      $ 2,855    $ 2,855
Finance receivables:

December 31, 2017
   $ —      $ —      $ 281,358    $ 281,358    $ 281,358
March 31, 2017
   $ —      $ —      $ 317,205    $ 317,205    $ 317,205
Line of credit:

December 31, 2017
   $ —      $ 178,000    $ —      $ 178,000    $ 178,000
March 31, 2017
   $ —      $ 213,000    $ —      $ 213,000    $ 213,000

~~Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis~~

The Company ~~may be required, from time to time, to measure~~is involved in certain ~~assets~~claims and ~~liabilities at fair value on a nonrecurring basis. The Company does not have any assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2017 and March 31, 2017.~~

~~9. Contingencies~~

~~The Company currently is not a party to any pending~~ legal proceedings ~~other than ordinary routine litigation incidental to its~~in the normal course of business ~~none~~ of which one, 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.

~~10. Summary of Significant Accounting Policies~~

~~Reclassifications~~

~~The~~Specifically, the Company made certain reclassifications to the 2016 statements of cash flows. The amortization of deferred revenues decreased cash flows from operating activities by $1.342 million for 2016 and correspondingly increased cash flows from investing activities.

has been sued together with several other defendants, in a lawsuit styled: Nicholas Financial, Inc. ~~and Subsidiaries~~

~~Notes~~v. Jeremiah Gross, No. 21CY-CV02148-01, 7th Judicial Circuit Court, Clay County, Missouri (the "Court"). On March 9, 2021 the Company filed suit against Jeremiah Gross for a deficiency balance owed to the ~~Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~

~~10. Summary~~Company following the 2018 surrender and sale of ~~Significant Accounting Policies (continued)~~

~~Recent Accounting Pronouncements~~

his motor vehicle which secured a loan from the Company. On April 22, 2021 a default judgment for $7,984.18 was entered against Mr. Gross. On December 22, 2021 Mr. Gross filed a motion to set aside the default judgment. The Court granted his motion on March 23, 2022. In ~~August 2016,~~his answer he asserted a class-action counterclaim against the ~~Financial Accounting Standards Board (“FASB”) issued~~Company seeking to represent a nationwide class of the ~~Accounting Standards Update (“ASU”)2016-15~~ ~~Statement~~Company’s customers who received allegedly deficient notices regarding the sale of ~~Cash Flows (Topic 230): Classification~~their vehicles and whose vehicles were recovered and sold by the Company, and on behalf of ~~Certain Cash Receipts~~Missouri customers who received allegedly deficient notices from the Company regarding the sale of their recovered vehicles and ~~Cash Payment. The new guidance focuses on making~~ the ~~Statement~~calculation of Cash Flows more uniform for companies. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.the deficiency owed the Company. The Company ~~is currently evaluating~~filed its answer to the ~~impact~~counterclaim on May 13, 2022. On September 9, 2022 the Company filed a motion for summary judgment as to all counts of the ~~adoption~~counterclaim and the Company's claim against Mr. Gross. The motion was argued on February 16, 2023. On March 27,

2023 the Court entered an order granting the motion in part and denying the motion in part. The Court found in favor of the Company as to the counterclaim regarding presale notices and prejudgment interest, and in Mr. Gross’s favor for the counterclaim as to post-sale notices. The Court denied the Company’s motion for summary judgment as to its claim for a deficiency against Mr. Gross. The remaining claim relates to post-sale notices sent to Missouri customers. The Company’s insurer accepted the defense of this ~~ASU~~litigation under a reservation of rights. On November 13, 2023 the Company and the Company’s insurer reached agreement with Mr. Gross on the ~~consolidated financial statements,~~terms and ~~is in~~conditions of a settlement for the ~~process of analyzing its current presentation of the Consolidated Statements of Cash Flows. At this time, the Company does not believe ASU2016-15~~ ~~will have a material impact.~~

~~In June 2016, the FASB issued the ASU2016-13~~ ~~Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.~~last remaining class action claim relating to post-sale notices sent to Missouri customers. Among other things, the ~~amendments~~settlement is expected to provide that the Company’s insurer will deposit the remaining available limits under the Company’s insurance policy, which shall in ~~this ASU require the measurement of~~no event be less than $750,000, into a qualified settlement fund in order to satisfy all ~~expected credit losses~~remaining claims in exchange 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. Manya full release of the ~~loss estimation techniques applied today will still be permitted, although~~Company and its affiliates and the ~~inputs~~Company’s insurer from any and all past, present and future liability arising out of or relating to ~~those techniques will change to reflect~~consumer credit contracts under which the ~~full amount~~Company or its affiliates obtained a security interest in property. The terms and conditions 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 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early applicationthe final settlement agreement will be ~~permitted for all organizations for fiscal years,~~subject to approval by the Court, and ~~interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating~~ the ~~impact~~parties in the litigation intend to seek such approval promptly following memorialization of the ~~adoption~~terms and conditions of ~~this ASU on~~ the ~~consolidated financial statements,~~settlement into a final agreement. There can be no assurance that the Court will approve the terms and ~~is collecting and analyzing data that will be needed to produce historical inputs into any models created as~~conditions of the final settlement agreement.

Note 10. Stock Plans

In May 2019, the Company’s Board of Directors (“Board”) authorized a ~~result of adopting this ASU. At this time, we believe the adoption of this ASU will likely have a material adverse effect on our consolidated financial statements.~~

~~In February 2016, the FASB issued ASUNo. 2016-02,~~ “Leases”, intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilitiesnew stock repurchase program allowing for the rights and obligations created by those leases. The accounting by organizations that own the assets leased by the lessee—also known as lessor accounting— will remain largely unchanged from current U.S. GAAP. ASU~~2016-02~~ is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. While the Company has not specifically evaluated each lease agreement, we anticipate upon adoption, the Company will add the impactrepurchase of up to $8.0 million of the ~~full operating lease terms that meets the scope, using the present value~~Company’s outstanding shares of ~~future minimum lease payments to the balance sheet. The Company will continue to evaluate the impact of the adoption of this ASU on the consolidated financial statements.~~

~~In January 2016, the FASB issued ASUNo. 2016-01,~~ “Financial Instruments—Recognition and Measurement of Financial Assets and Liabilities,” which is intended to improve the recognition and measurement of financial instruments by requiring: equity investments (other than equity methodcommon stock in open market purchases, privately negotiated transactions, or consolidation) to be measured at fair value with changes in fair value recognized in net income; public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and requiring a reporting organization to present separately inthrough other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair valuestructures in accordance with ~~the fair value option for financial instruments. This ASU is~~applicable federal securities laws. The authorization was effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU permits early adoption of the instrument-specific credit risk provision. While the Company is currently evaluating the impact of the pending adoption of this ASU onimmediately.

In August 2019, the Company’s ~~consolidated financial statements, the Company does not believe it will have a material impact on the consolidated financial statements.~~

~~Nicholas Financial, Inc. and Subsidiaries~~

~~Notes~~Board authorized additional repurchases of up to ~~the Consolidated Financial Statements (Continued)~~

~~(Unaudited)~~

~~10. Summary of Significant Accounting Policies (continued)~~

~~In May 2014, the FASB issued ASUNo. 2014-09,~~ “Revenue from Contracts with Customers (Topic 606)”. The ASU requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU, and all subsequently issued clarifying ASUs, will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition method. On July 9, 2015, the FASB approved the deferral of the effective date of ASU~~2014-09~~ ~~by one year. As a result, ASU2014-09~~ will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The ASU would permit public entities to adopt the ASU early, but not before the original effective date (i.e., annual periods beginning after December 15, 2016). The impact of the standard is limited to a large extent due to Topic 606 including a scope exception for finance receivables. Since substantially all$1.0 million of the Company’s ~~revenue streams~~outstanding shares.

The timing and actual number of repurchases 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.

The following table summarizes treasury share transactions under the Company's stock repurchase program:


	Three months ended December 31, (In thousands)
	2023					2022
	Number of Shares		Amount			Number of Shares		Amount
Treasury shares at the beginning of period		5,368	$	(76,794	)		5,349	$	(76,684	)
Treasury shares purchased		-		-			19		(110	)
Treasury shares at the end of period		5,368	$	(76,794	)		5,368	$	(76,794	)


	Nine months ended December 31, (In thousands)
	2023					2022
	Number of Shares		Amount			Number of Shares		Amount
Treasury shares at the beginning of period		5,368	$	(76,794	)		5,127	$	(74,405	)
Treasury shares purchased		-		-			241		(2,389	)
Treasury shares at the end of period		5,368	$	(76,794	)		5,368	$	(76,794	)

For the three and nine months ended December 31, 2023, the Company did not repurchase any shares of its common stock.

Note 11. Restructuring Activities

Costs related to the Company's previously disclosed restructuring plan are ~~generated from activities that are outside~~summarized as follows:


	(In thousands)
	Total Cost Estimated		Incurred to Date		Remaining cost
Branch Closures	$	3,213	$	3,207	$	6
Severance		570		570		-
Cease-use of contractual services		1,034		1,034		-
Professional fees		903		744		159
Other		26		12		14
Total restructuring cost	$	5,746	$	5,567	$	179

Note 12. Subsequent Events

On January 26, 2024 the ~~scope~~Company terminated the WL Credit Facility. The Company did not incur any termination penalties in connection with the termination of the ~~new standard,~~WL Credit Facility.

The Company’s Registration Statement on Form S-4 filed with the ~~Company does not believe that this standard will have a material impact~~U.S. Securities and Exchange Commission on ~~the Company’s financials. The Company has begun analyzingin-scope~~ ~~contracts using the five-step process outlined in Topic 606~~November 22, 2023, was amended on January 10, 2024 and ~~expects to finalize our conclusion during the quarter ending March 31, 2018.~~January 29, 2024, and became effective on February 9, 2024.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Information

This ~~report~~Quarterly Report on Form10-Q contains various forward-looking statements ~~other than those concerning historical information, that~~within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on management’s current beliefs and assumptions, as well as information currently available to management, and should be considered forward-looking statements. This notice is intended to take advantage of the safe harbor provided by the Private Securities Litigation Reform Act of 1995 with respect to such forward-looking statements.management. When used in this document, the words “anticipate”, “estimate”, “expect”, "forecast", “will”, "would", “may”, “plan,” “believe”, “intend” and similar expressions are intended to identify forward-looking statements. Although Nicholas Financial, Inc., including its subsidiaries ~~(the~~(collectively, the “Company,” ~~“we,” “us,”~~“we”, “us”, or “our”) believes that the expectations reflected or implied in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. ~~Such~~As a result, actual results could differ materially from those indicated in these forward-looking statements. Forward-looking statements in this Quarterly Report may include, without limitation statements about (1) the closing of the transaction contemplated by the Master Asset Purchase Agreement with Westlake Services, LLC dba Westlake Financial ("Westlake Financial"); (2) the approval by the Court of the settlement of the litigation involving Mr. Jeremiah Gross; (3) the expected benefits, costs and timing of the Company’s restructuring and change in operating strategy, including its servicing arrangement with Westlake Portfolio Management, LLC (collectively with its affiliate Westlake Capital Finance, LLC, “Westlake”) (including without limitation the servicing fees, classified as administrative costs), its loan agreement with Westlake (the "WL Loan Agreement") (including without limitation anticipated interest payments thereunder), and its restructuring activities; (4) the availability and use of excess capital (including by acquiring loan portfolios or businesses or by investing outside of the Company’s traditional business); (5) the continuing impact of COVID-19 on our customers and our business after the termination or curtailment of governmental programs aimed at ameliorating such impact, (6) projections of revenue, income, and other items relating to our financial position and results of operations, (7) statements of our plans, objectives, strategies, goals and intentions, (8) statements regarding the capabilities, capacities, market position and expected development of our business operations, and (9) statements of expected industry and general economic trends. These statements are subject to certain risks, uncertainties and assumptions that may cause results to differ materially from those expressed or implied in forward-looking statements, including ~~but~~without limitation:

•

the risk that the contemplated sale of substantially all of the Company’s assets to Westlake Financial may not ~~limited~~close, or the risk that the
anticipated short- and/or long-term benefits of such sale may not be realized, whether in whole or in part;

•

the risk that approval by the Court of the settlement of the litigation involving Mr. Jeremiah Gross may not be granted,
either on terms and conditions satisfactory to the Company or at all;

•

the risk that the anticipated benefits of the restructuring and change in operating strategy, including the servicing and financing arrangements with Westlake, an affiliate of Westlake Financial (including without limitation the expected reduction in overhead, streamlining of operations or reduction in compliance risk), do not materialize to the extent expected or at all, or do not materialize within the timeframe targeted by management;

•

the risk that the actual servicing fees paid by the Company under the Westlake loan servicing agreement (the " Servicing Agreement"), which the Company is classifying as administrative costs on its financial statements, exceed the range estimated;

•

the risk that the actual costs of the restructuring activities in connection with the consolidation of workforce and closure of offices exceed the Company’s estimates or that such activities are not completed on a timely basis;

•

the risk that the Company underestimates the staffing and other resources needed to operate effectively after consolidating its workforce and closing offices;

•

uncertainties surrounding the Company’s success in developing and executing on a new business plan;

•

uncertainties surrounding the Company’s ability to use any excess capital to increase shareholder returns, including without limitation, by acquiring loan portfolios or businesses or investing outside of the Company’s traditional business;

•

the ongoing impact on us, our employees, our customers and the overall economy of the COVID-19 pandemic and measures taken in response thereto;

•

the ongoing impact on us, our customers and the overall economy of the Russian invasion of Ukraine and related economic sanctions and the burgeoning hostilities between Israel and Hamas in the Gaza Strip;

•

availability of capital (including the ability to access bank financing);

•

recently enacted, proposed or future legislation and the manner in which it is implemented, including tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations;

•

fluctuations in the economy;

•

the degree and nature of competition and its effects on the Company’s financial results;

•

fluctuations in interest rates;

•

effectiveness of our risk management processes and procedures, including the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures;

•

our ability to successfully develop and commercialize new or enhanced products and services;

•

the sufficiency of our allowance for credit losses and the accuracy of the assumptions or estimates used in preparing our financial statements;

•

increases in the default rates experienced on our automobile finance installment contracts (“Contracts”) or direct loans (“Direct Loans”);

•

higher borrowing costs and adverse financial market conditions impacting our funding and liquidity;

•

regulation, supervision, examination and enforcement of our business by governmental authorities, and adverse regulatory changes in the Company’s existing and future markets, including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and other legislative and regulatory developments, including regulations relating to privacy, information security and data protection and the impact of the Consumer Financial Protection Bureau's (the “CFPB”) regulation of our business;

•

fraudulent activity, employee misconduct or misconduct by third parties, including representatives or agents of Westlake;

•

media and public characterization of consumer installment loans;

•

failure of third parties to provide various services that are important to our operations;

•

alleged infringement of intellectual property rights of others and our ability to protect our intellectual property;

•

litigation and regulatory actions;

•

our ability to attract, retain and motivate key officers and employees;

•

use of third-party vendors and ongoing third-party business relationships, particularly our relationship with Westlake;

•

cyber-attacks or other security breaches suffered by us or Westlake;

•

disruptions in the operations of our or Westlake’s computer systems and data centers;

•

the impact of changes in accounting rules and regulations, or their interpretation or application, which could materially and adversely affect the Company’s reported consolidated financial statements or necessitate material delays or changes in the issuance of the Company’s audited consolidated financial statements;

•

uncertainties associated with management turnover and the effective succession of senior management;

•

our ability to realize our intentions regarding strategic alternatives, including the failure to achieve anticipated synergies; and

•

the risk factors discussed under “Item 1A – Risk Factors” in our Annual Report on Form10-K and ~~“Part II – Item 1A – Risk Factors”~~under "RISK FACTORS" in ~~this~~our Proxy Circular/Prospectus contained in Amendment No. 2 to our Registration Statement on Form~~10-Q.~~ S-4 (Registration No. 333-275704) (the "Form S-4") filed with the SEC on January 29, 2024, and our other filings made with the U.S. Securities and Exchange Commission (“SEC”).

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. Among the key factors that may have a direct bearing on the Company’s operating results are the availability of capital (including the ability to access bank financing) on favorable terms, recently enacted, proposed or future legislation and the manner in which it is implemented, including the effect of changes in tax law, such as the effect of the Tax Cuts and Jobs Act (“TCJA”) that was enacted on December 22, 2017, fluctuations in the economy, the degree and nature of competition and its effects on the Company’s ability to maintain profit margins at acceptable levels or generate net income at all, fluctuations in interest rates, demand for consumer financing in the markets served by the Company, the Company’s products and services, increases in the default rates experienced on automobile finance installment contracts (“Contracts”), adverse regulatory changes in the Company’s existing and future markets, the Company’s ability to expand its business, including its ability to complete acquisitions and integrate the operations of acquired businesses and to expand into new markets, and the Company’s ability to recruit and retain qualified employees. All ~~forward looking~~forward-looking statements included in this ~~report~~Quarterly Report are based on information available to the Company onas the date ~~hereof,~~of filing of this Quarterly Report, and the Company assumes no ~~obligations~~obligation to update any such ~~forward looking~~forward-looking statement. ~~You~~Prospective investors should also consult the risk factors described from time to time in the Company’s other filings made with the ~~Securities and Exchange Commission,~~SEC, including its reports on Forms~~10-K,10-Q,8-K~~ 10-K, 10-Q, 8-K and annual reports to shareholders.

~~Litigation~~

Restructuring and ~~Legal Matters~~Change in Operating Strategy

~~See “Item 1. Legal Proceedings”~~The Company announced on Form 8-K filed on November 3, 2022 a change in ~~Part II~~its operating strategy and restructuring plan with the goal of reducing operating expenses and freeing up capital. As part of this ~~Form10-Q.~~plan, the Company has shifted from a decentralized to a regionalized business model in which each of its originators focused on a specific region in the Company’s smaller target market footprint, and the Company has entered into the Servicing Agreement with Westlake Portfolio Management, LLC (“WPM”, and, collectively with its affiliate, Westlake Capital Finance, LLC, “Westlake”). An affiliate of Westlake, Westlake Services, LLC, is the beneficial owner of approximately 6.8% of the Company’s common stock.

The Company does not intend to continue any significant Contract purchase and origination activities, except on a much smaller scale than it has historically, and its servicing, collections and recovery operations have been outsourced to Westlake. The Company has also ceased all originations of Direct Loans.

The Company anticipates that execution of its evolving restructuring plan will free up capital and permit the Company to allocate excess capital to increase shareholder returns, whether by acquiring loan portfolios or businesses or by investing outside of the Company’s traditional business. The overall timeframe and structure of the Company’s restructuring remains uncertain.

Although the Company no longer employs the branch-based model, its business remains focused on servicing its core product of financing primary transportation to and from work for the subprime borrower, which historically had been conducted through the local independent automobile dealership. The Company's strategy included risk-based pricing (rate, yield, advance, term, collateral value) and a commitment to the underwriting discipline required for optimal portfolio performance. The Company’s principal goals are to increase its profitability and its long-term shareholder value. During fiscal 2023, the Company focused on the following items:

•restructuring the Company’s business by downsizing and streamlining operations and reducing expenses;

•outsourcing servicing, collections and recovery operations;

•discontinuing our local branch model in favor of a regionalized business model;

•optimizing our technology to better fit the Company’s restructured operations; and

•terminating our live checks program for prospective new customers

In fiscal 2023, the Company also restructured and consolidated its operations by closing all of its brick and mortar branch locations in 18 states — Alabama, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky, Michigan, Missouri, North Carolina, Nevada, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Utah, and Wisconsin. As a result, as of December 31, 2023, the Company only had two offices in two states – its headquarters in Florida and its central business operations hub in South Carolina.

Although the Company had been licensed to provide Direct Loans in 14 states — Alabama, Florida, Georgia (over $3,000), Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, and Tennessee during fiscal 2023 the Company has cancelled, not renewed, or otherwise terminated all of such Direct Loan licenses.

Consequently, the Company has not originated any new Direct Loans since the end of the third quarter of fiscal 2023 and the Company does not intend to originate any new Direct Loans going forward.

On November 13, 2023, the Company and Nicholas Financial, Inc., a Florida corporation (“Nicholas”) and an indirect wholly-owned subsidiary of the Company, entered into a Master Asset Purchase Agreement (the “Purchase Agreement”) with Westlake Services, LLC dba Westlake Financial, a California limited liability company (“Westlake Financial”), pursuant to which the Company and Nicholas have agreed to sell, and Westlake Financial has agreed to purchase from the Company and Nicholas, substantially all of the Company’s and Nicholas’ assets, consisting of Nicholas’ motor vehicle retail installment sale contracts and unsecured consumer loan contracts (collectively, the “Contracts”) and the accounts receivable related to such Contracts (collectively, the “Receivables”). The Company is seeking shareholder approval for the closing of the transaction contemplated by the Purchase Agreement.

Westlake is an affiliate of Westlake Portfolio Management, LLC, a California limited liability company (“WPM”), and Nicholas entered into a Loan Servicing Agreement (the “Servicing Agreement”) with WPM on November 3, 2022, pursuant to which WPM commenced servicing of the Receivables under the Contracts in December 2022 and has continued such servicing to date. In connection with the entering into the Purchase Agreement, the Company has ceased new loans originations, and WPM is expected to continue to service such Receivables for Nicholas until the closing of the transaction contemplated by the Purchase Agreement. In addition to other customary closing conditions, the closing under the Purchase Agreement is subject to the approval of the shareholders of the Company. Assuming closing of the transaction contemplated by the Purchase Agreement, the Company intends to explore strategic alternatives for the use of the net proceeds of the asset sale and to seek to maximize the value of deferred tax assets available to the Company.

Restructuring Activities

The closing of branches and consolidation of the workforce pursuant to the restructuring plan were substantially completed by March 31, 2023. The Company recorded the majority of lease terminations and employee-related charges in the second half of Fiscal Year

2023. The Company expects significant annual operating cost savings to substantially exceed the upfront costs associated with the restructuring.
Westlake Loan Agreement
On January 18, 2023, the Company, through its subsidiaries, entered into a Loan and Security Agreement (the “WL Loan Agreement”) with Westlake, pursuant to which Westlake is providing the Company a senior secured revolving credit facility in the principal amount of up to $50 million (the “WL Credit Facility”).
As of October 27, 2023 the Company repaid all of its outstanding debt under WL Credit facility with no prepayment penalty. The availability of funds under the WL Credit Facility is generally limited to an advance rate of between 70% and 85% of the value of the Company’s eligible receivables. Outstanding advances under the WL Credit Facility will accrue interest at a rate equal to the secured overnight financing rate (SOFR) plus a specified margin, subject to a specified floor interest rate. Unused availability under the WL Credit Agreement will accrue interest at a low interest rate. The commitment period for advances under the WL Credit Facility is two years. We refer to the expiration of that time period as the “Maturity Date.”
The WL Loan Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, and sales of assets. The WL Loan Agreement also requires the Company to maintain (i) a minimum tangible net worth equal to the lower of $40 million and an amount equal to 60% of the outstanding balance of the WL Credit Facility and (ii) an excess spread ratio of no less than 8.0%. Pursuant to the WL Loan Agreement, the Company granted a security interest in substantially all of their assets as collateral for their obligations under the WL Credit Facility. If an event of default occurs, Westlake could increase borrowing costs, restrict the Company's ability to obtain additional advances under the WL Credit Facility, accelerate all amounts outstanding under the WL Credit Facility, enforce their interest against collateral pledged under the WL Loan Agreement or enforce such other rights and remedies as they have under the loan documents or applicable law as secured lenders. Subject to Company’s compliance with certain terms and conditions, the lender waived its rights and remedies under the Agreement applicable to the excess spread ratio covenant and collateral performance indicator through September 30, 2024.
If the Company terminates the WL Credit Facility prior to the Maturity Date, then the Company would be obligated to pay Westlake a termination fee in an amount equal to a percentage of the average outstanding principal balance of the WL Credit Facility during the immediately preceding 90 days. If the Company were to sell its accounts receivable to a third party prior to the Maturity Date, then the Company would be obligated to pay Westlake a fee in an amount equal to a specified percentage of the proceeds of such sale.
On January 18, 2023, in connection with entering into the WL Loan Agreement, the Company terminated its credit agreement with Wells Fargo (the “WF Credit Agreement”), and the indebtedness under that agreement (consisting of a revolving line of credit in a maximum principal amount of $60 million (with an outstanding balance of approximately $43 million)) was repaid in full. The Company did not incur any termination penalties in connection with the termination of the WF Credit Agreement.
As of December 31, 2023, the Company had no aggregate outstanding indebtedness under the Westlake credit facility (the "WL Credit Facility"), compared to $28.9 million, net of debt issuance costs outstanding as of March 31, 2023. The Company fully paid the outstanding indebtedness under the WL Credit Facility as of October 27, 2023.

Critical Accounting ~~Policy~~Estimates

The Company’s critical accounting ~~policy~~estimates (i.e., that involves a significant level of estimation uncertainty and has or is reasonably likely to have a material impact on the Company’s financial condition or results of operations) relates to (1) the allowance for credit losses under ASC 326, which reflects the difference between the amortized cost basis and the present value of the expected cash flows of finance receivables held for investment and (2) the determination of the fair value of finance receivables held for sale which determines the held for sale valuation allowance necessary to carry finance receivables held for sale at the lower of amortized cost or fair value.

There have been changes in our critical accounting policies from those disclosed in our Annual Report on 2023 Form 10-K related the following.

The Company's adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the guidance: ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, ASU 2019-05 in May 2019, ASU 2019-10 and -11 in November 2019, ASU 2020-02 in February 2020 and ASU 2022-02 in March 2022.

The Company's decision on November 1, 2023, to sell the portfolio. The Company reclassified its finance receivables to held for sale, which are carried at the lower of amortized cost or fair value. As a result of this reclassification, the Company eliminated the

allowance for credit losses established under ASC 326 which resulted in a reversal of previously recorded provisions for credit losses for the period from April 1, 2023 through October 31, 2023.

Allowance for Credit Losses (ACL)

The Company adopted ASU 2016-13 for measurement of current expected credit losses on April 1, 2023. An impairment model required by ASU 2016-13 is not prescriptive in the methodology used to determine the expected credit loss estimate. Therefore, management has flexibility in selecting the methodology. However, the expected credit losses must be estimated over a financial asset's remaining expected life, adjusted for prepayments, utilizing quantitative and qualitative factors. The estimate of current expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable economic forecasts that affect the collectability of the reported amounts. Historical loss experience is the starting point for estimating expected credit losses. Adjustments are made to historical loss experience to reflect differences in asset-specific risk characteristics, such as underwriting standards, portfolio mix or asset terms, and differences in economic conditions - both current conditions and reasonable and supportable forecasts. When the Company is not able to make or obtain reasonable and supportable forecasts for the entire life of the financial asset, it has estimated expected credit losses for the remaining life after the forecasted period using an approach that reverts to historical credit loss information.

The Company selected a discounted cash flow (DCF) model to estimate its base allowance for credit losses. Management has elected to use this approach after analysis and consideration. Below are a few of the key decision points that contributed to the election:

•

DCF models, being periodic in nature, allow for effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner.

•

The analysis aligns well with other calculations/actions outside the ACL estimation, which will mitigate model risk in other areas and allow for symmetrical application. For example, fair value (exit price notion), profitability analysis, internal rate of return calculations, stress testing, and other forms of cash flow analysis.

•

Peer data is available for certain inputs, such as probability of default and loss given default if first-party data is not available or meaningful. This is made possible by the periodic nature of the model.

DCF methodologies work properly with an amortizing approach. In order to estimate expected credit losses using methods that project future principal and interest cash flows (that is, a discounted cash flow method), the Company discounts expected cash flows at the financial asset’s effective interest rate. When a discounted cash flow method is applied, the allowance for credit losses must reflect the difference between the amortized cost basis and the present value of the expected cash flows.

The Company applies historical loss experience to forecast expected credit losses. Historical information about losses generally provides a basis for the estimate of expected credit losses. The Company also considers the need to adjust historical information to reflect the extent to which current conditions differ from the conditions that existed for the period over which historical information was evaluated. These adjustments to historical loss information may be qualitative or quantitative in nature.

Reasonable and supportable macroeconomic forecasts are required for the Company’s ACL model. The Company reviews macroeconomic forecasts to use in its ACL. The projected change in creditworthiness is modeled using information provided by FOMC, such as unemployment rate and GDP. The Company adjusts the historical loss experience by relevant qualitative factors for these expectations.

As loans receivable are originated, provisions for credit losses are recorded in amounts sufficient to maintain an ACL at an adequate level to provide for estimated losses over the remaining expected life of the finance receivables. The Company uses its historical loss experience and macroeconomic factors to forecast expected credit losses.

While the Company utilizes a systematic methodology in determining its allowance, the allowance is based on estimates, and ultimate losses may vary from current estimates. The estimates are reviewed periodically and, as adjustments become necessary, are reported in earnings in the periods in which they become known.

After adoption, all changes in the ACL, net of charge-offs and recoveries, are recorded as “Provision for credit losses” in the unaudited Condensed Consolidated Statements of Income (Loss).

Fair Value of Finance Receivables Held for Sale

Finance receivables held for sale, are carried at the lower of amortized cost basis or fair value which generally established a new held for sale valuation allowance through earnings in the same reporting period. The Company compared the fair value and amortized cost of finance receivables held for sale and recorded a held for sale valuation allowance through earnings to reduce the amortized cost basis to fair value as of December 31, 2023. The Company estimates the fair value of finance receivables held for sale utilizing a discounted cash flow approach which includes an evaluation of the collateral and underlying loan characteristics, as well as assumptions to determine the discount rate such as credit loss and prepayment forecasts. In determining the appropriate discount

rate, prepayment and credit assumptions, the Company monitors other capital markets activity for similar collateral being traded or /or interest rates currently being offered for similar products. Significant increases (decreases) in assumptions in isolation could results in a significantly lower (higher) fair value measurement. Changes in the held for sale valuation allowance are recorded through earnings along with charge offs and recoveries as "Fair value and other adjustments, net" in the unaudited Condensed Consolidated Statements of Income (Loss).

Introduction

The Company finances primary transportation to and from work for the subprime borrower. We do not finance luxury cars, second units or recreational vehicles, which are the first payments customers tend to skip in time of economic insecurity. We finance the main and often only vehicle in the household that is needed to get our customers to and from work. The amounts we finance are much lower than most of our competitors, and therefore the payments are significantly lower, too. The combination of financing a “need” over a “want” and making that loan on comparatively affordable terms incentivizes our customers to prioritize their account with us.

For the three months ended December 31, 2023, the dilutive loss per share was $1.60 as compared to dilutive loss per share of $1.85 for the three months ended December 31, 2022. Net loss was $11.7 million for the three months ended December 31, 2023 as compared to net loss of $13.4 million for the three months ended December 31, 2022. Interest and fee income on finance receivables decreased 55.8% to $5.0 million for the three months ended December 31, 2023, as compared to $11.3 million for the three months ended December 31, 2022.

The provisions for credit losses were reduced by the reversal of the allowance for credit losses, following the decision to reclass, the Company's loan portfolio from held for investment to held for sale. This led to a reversal of credit losses of $10.5 million and was offset by a fair value and other adjustments, net charge of $23.1 million for the three months ended December 31, 2023, which established an allowance to reduce finance receivables from amortized cost to fair value. This compares to a $10.7 million provision for credit losses expense and no fair value and other adjustments, net charges for the three months ended December 31, 2022.

For the nine months ended December 31, 2023, the dilutive loss per share was $2.83 as compared to dilutive loss per share of $2.49 for the nine months ended December 31, 2022. Net loss was $20.6 million for the nine months ended December 31, 2023 as compared to net loss of $18.3 million for the nine months ended December 31, 2022. Interest and fee income on finance receivables decreased 48.3% to $18.4 million for the nine months ended December 31, 2023, as compared to $35.6 million for the nine months ended December 31, 2022.

The provisions for credit losses were reduced by the reversal of the allowance for credit losses and resulted in a remaining provision for credit losses of $2.6 million for the nine months ended December 31, 2023. An additional charge of $23.1 million for fair value and other net adjustments was recorded for the nine months ended December 31, 2023. This compared to a $23.3 million provision for credit losses and no fair value and other adjustments, net charges for the nine months ended December 31, 2022.

Non-GAAP financial measures

From time-to-time the Company uses certain financial measures derived on a basis other than generally accepted accounting principles (“GAAP”), primarily by excluding from a comparable GAAP measure certain items the Company does not consider to be representative of its actual operating performance. Such financial measures qualify as “non-GAAP financial measures” as defined in SEC rules. The Company uses these non-GAAP financial measures in operating its business because management believes they are less susceptible to variances in actual operating performance that can result from the excluded items and other infrequent charges. The Company may present these financial measures to investors because management believes they are useful to investors in evaluating the primary factors that drive the Company’s core operating performance and provide greater transparency into the Company’s results of operations. However, items that are excluded and other adjustments and assumptions that are made in calculating these non-GAAP financial measures are significant components to understanding and assessing the Company’s financial performance. Such non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, the Company’s GAAP financial measures. Further, because these non-GAAP financial measures are not determined in accordance with GAAP and are, thus, susceptible to varying calculations, any non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures of other companies.


	Three months ended December 31, (In thousands)						Nine months ended December 31, (In thousands)
	2023			2022			2023			2022
Portfolio Summary
Average finance receivables (1)	$	70,204		$	165,783		$	96,291		$	174,004
Average indebtedness (2)	$	578		$	52,577		$	10,674		$	59,739
Interest and fee income on finance receivables	$	4,954		$	11,268		$	18,367		$	35,580
Interest expense		68			1,239			826			2,782
Net interest and fee income on finance receivables	$	4,886		$	10,029		$	17,541		$	32,798
Gross portfolio yield (3)		28.23	%		27.19	%		25.43	%		27.26	%
Net charge-off percentage (4)		34.83	%		16.57	%		32.56	%		8.79	%

Note: All income performance indicators expressed as percentages have been annualized.

(1)

Average finance receivables represent the average of finance receivables throughout the period. (This is considered a non-GAAP financial measure).

(2)

Average indebtedness represents the average outstanding borrowings under the WL Credit Facility. (This is considered a non-GAAP financial measure).

(3)

Portfolio yield represents interest and fee income on finance receivables as a percentage of average finance receivables. (This is considered a non-GAAP financial measure).

(4)

Net charge-off percentage represents net charge-offs (charge-offs less recoveries) divided by average finance receivables outstanding during the period. (This is considered a non-GAAP financial measure).

Analysis of Credit Losses

Implementation of ASU 2016-13

On April 1, 2023 the Company adopted ASU 2016-13 as further described in "Significant Accounting Policies" to the unaudited Condensed Consolidated Financial Statements. Upon implementation of ASU 2016-13, the Company recognized a decrease to its opening retained earnings balance of approximately $0.2 million, which reflects an increase to the allowance for credit ~~losses. It is~~losses (ACL) of approximately $0.2 million.

ASU 2016-13 introduced a new accounting model to measure credit losses for financial assets measured at amortized costs. In contrast to the previous incurred loss model, ASU 2016-13 requires credit losses for financial assets measured at amortized cost to be determined based on ~~management’s opinion~~the total current expected credit losses over the life of ~~an amount~~those financial assets or group of assets.

For the period from April 1, 2023 through October 31, 2023, preceding the decision to sell the portfolio, our process for determining the ACL considered a customer's willingness and ability to pay along with other risk characteristics, including loan size, effective interest rate, loan term, geographic location, expected loss patterns, loan modification programs and other macroeconomic factors. In addition to our quantitative ACL, we also incorporated qualitative adjustments that ~~is adequate~~may relate to ~~absorb losses incurred~~risks and changes in current economic conditions that may not be reflected in quantitatively derived results.

On November 1, 2023, concurrent with the ~~existing portfolio.~~

~~The~~decision to sell the portfolio, the Company reclassified its finance receivables to held for sale, which are carried at the lower of amortized cost or fair value. As a result of this reclassification, the Company eliminated the allowance for credit losses ~~is established through~~under ASC 326 which resulted in a ~~provision~~reversal of previously recorded provisions for credit losses for the three and nine months ended December 31, 2023. The Company compared the fair value and amortized cost of finance receivables to held for sale and recorded a held for sale valuation allowance through earnings to reduce the amortized cost basis to fair value as of December 31, 2023.

The Company estimates the fair value of these finance receivables held for sale utilizing a discounted cash flow approach which includes an evaluation of the collateral and underlying loan characteristics, as well as assumptions to determine the discount rate such as credit loss and prepayment forecasts. In determining the appropriate discount rate, prepayment and credit assumptions, the Company monitors other capital markets activity for similar collateral being traded and/or interest rates currently being offered for similar products. Discussions related to the fair value of these finance receivables held for sale are held between Company management and external valuation specialists to review the key assumptions used in arriving at the final estimates. As such these finance receivables are therefore classified within Level 3 of the valuation hierarchy. Significant increases or decreases in any of those assumptions in isolation could result in a significantly lower or higher fair value measurement.

Prior to adoption of ASU 2016-13 the Company used a trailing twelve-month charge-off analysis to calculate the allowance for credit losses and took into consideration the composition of the portfolio, current economic conditions, 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 adequacy of the allowance for credit losses. By including recent trends such as delinquency, non-performing assets, and bankruptcy in its determination, management believed that the allowance for credit losses reflected the current trends of incurred losses within the portfolio and was aligned with the portfolio’s performance indicators.

If the allowance for credit losses was determined to be inadequate, then an additional charge to the provision was recorded to maintain adequate reserves based on management’s evaluation of the risk inherent in the loan ~~portfolio which includes~~portfolio. Conversely, the ~~competitive environment that existed when the loan was acquired,~~Company could identify abnormalities in the composition of the portfolio, which would indicate the calculation is overstated and ~~current economic conditions. Such evaluation considers, among~~management judgment may be required to determine the allowance of credit losses for both Contracts and Direct Loans.

Non-performing assets are defined as accounts that are contractually delinquent for 61 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 ~~matters,~~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.

Beginning March 31, 2018, the Company allocated a specific reserve for the Chapter 13 bankruptcy accounts using a look back method to calculate the estimated ~~net realizable value or~~losses. Based on this look back, management calculated a specific reserve of approximately $381 thousand for these accounts as of October 31, 2023.

Prior to April 1, 2023, the ~~fair value of~~Company recorded losses based on the ~~underlying collateral, economic conditions, historical loan loss experience, management’s estimate of~~trailing twelve-month charge-offs, and applied this calculated percentage to ending finance receivables to calculate estimated probable credit losses ~~and other factors that warrant recognition in providing for an adequate credit loss allowance.~~

Because of the nature of the customers under the Company’s Contracts and its Direct Loan program, the Company considers the establishment of adequate reserves for credit losses to be imperative. The Company segregates its Contracts into static pools for purposes of establishing reserves for losses. All Contracts purchased by a branch during a fiscal quarter comprise a static pool. The Company pools Contracts according to branch location because the branches purchase Contracts in different geographic markets. This method of pooling by branch and quarter allows the Company to evaluate the different markets where the branches operate. The pools also allow the Company to evaluate the different levels of customer income, stability and credit history, and the types of vehicles purchased, in each market. In analyzing a static pool, the Company considers the performance of prior static pools originated by the same branch office, the competition at time of acquisition, and current market and economic conditions. Each static pool is analyzed monthly to determine if the loss reserves are adequate, and adjustments are made if they are determined to be necessary. A consolidated static pool contains the static pools of all branches for a given quarter. The Company analyzes each consolidated static pool at specific points in time.

~~The Company has been maintaining historicalwrite-off~~ ~~information for over 20 years with respect to every consolidated static pool, segregating each consolidated static pool by liquidation and in effect creating snapshots of a pool’swrite-off-to~~ ~~liquidation ratio at five different points in such pool’s liquidation cycle. These snapshots help the Company in~~ determining the ~~appropriate provision for credit losses and subsequent~~ allowance for credit losses. ~~The five snapshots are taken when the liquidation levels are at 20%, 40%, 60%, 80% and 100%.~~

~~The Company’s allowance for~~Upon adoption of ASC 326 on April 1, 2023, expected credit losses ~~incorporates recent trends that include~~were determined by comparing the ~~acquisition~~amortized cost of ~~longer term contracts and increased delinquencies which~~finance receivables with the ~~Company believes more closely depicts the amount~~present value of the ~~allowance for credit losses needed to maintain an adequate reserve. Management evaluates each static pool on an independent basis each quarter~~estimated future principal and accounts for such pool’s term, how far along the corresponding pool is in its liquidation cycle, late charges, the number of deferments, and delinquency. This information is based on the result each individual Contract.interest cash flows. The ~~Company believes that this approach~~current period provision reflects the ~~current trends of incurred losses within~~change in the ~~portfolio~~difference between the amortized cost basis and ~~better aligns~~ the ~~allowance for credit losses with the portfolio’s performance indicators.~~

~~Contracts are purchased from many different dealers and are all purchased on an individualContract-by-Contract~~ ~~basis. Individual Contract pricing is determined by the automobile dealerships and is generally based on the lesser~~present value 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 does not anticipate any portfolio acquisitions in the near-term.expected cash flows of finance receivables.

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. The Company also utilizes internal audit (the “IA”) to assure adherence to its underwriting guidelines. Any Contract that does not meet our underwriting guidelines can be submitted by a branch manager for approval from the Company’s District Managers or senior management.

~~Introduction~~

~~Pretax income for the three months ending December 31, 2017 was $.8 million. In the month of December 2017, the Company had aone-time~~ ~~income tax expense adjustment of $3.4 million relating to the Tax Cuts and Jobs Act (“TCJA”) which reduced net income to a net loss.~~ The net ~~loss~~charge-off percentage increased to 34.8% for the three months ended December 31, ~~2017 was $2.9 million.~~

~~For the three months ended December 31, 2016 the Company had pretax earnings of $2.6 million and net earnings of $1.6 million. Diluted net loss per share decreased to $0.37~~2023, from 16.6% for the three months ended December 31, ~~2017 as compared~~2022. Similarly, the net charge-off percentage increased to diluted earnings per share of $0.21 for the three months ended December 31, 2016. Revenue decreased 7% to $20.5 million for the three months ended December 31, 2017 as compared to $22.0 million for the three months ended December 31, 2016.

~~The Company announced that its pretax income for the nine months ending December 31, 2017 was $2.7 million. In the month of December 2017, the Company had aone-time~~ ~~income tax expense adjustment of $3.4 million relating to the TCJA which reduced net income to a net loss. The net loss~~32.6% for the nine months ended December 31, ~~2017 was $1.7 million.~~

~~For the nine months ended December 31, 2016 the Company had pretax earnings of $10.5 million and net earnings of $6.5 million. Diluted net loss per share decreased to $0.22~~2023, from 8.8% for the nine months ended December 31, 2017 as compared to diluted earnings per share of $0.83 for the nine months ended December 31, 2016. Revenue decreased 5% to $64.1 million for the nine months ended December 31, 2017 as compared to $67.6 million for the nine months ended December 31, 2016.

~~On December 22, 2017, the Tax Cuts~~2022, primarily driven by increased delinquencies and Jobs Act was passed into law (“TCJA”). The TCJA includes a broad range of tax reform including changes to tax rates and deductions that are effective January 1, 2018. The decrease in the enacted corporate tax rate expected to apply when our temporary differences are realized or settled ultimately resulted in a~~one-time~~ revaluation of our net deferred tax asset of $3.4 million in December 2017 with a corresponding charge to income tax expense. The tax effects of the TCJA increased income tax expense to a level that reduced net income to a net loss for both the three and nine-month periods ending December 31, 2017.

   Three months ended
December 31,
(In thousands) Nine months ended
December 31,
(In thousands)
   2017 2016 2017 2016
Portfolio Summary

Average finance receivables, net of unearned interest (1)
   $ 321,742 $ 349,916 $ 333,660 $ 345,950


Average indebtedness (2)
   $ 183,615 $ 210,745 $ 196,619 $ 209,875


Interest and fee income on finance receivables
   $ 20,526 $ 22,044 $ 64,062 $ 67,606
Interest expense
   2,585 2,258 7,483 6,745


Net interest and fee income on finance receivables
   $ 17,941 $ 19,786 $ 56,579 $ 60,861


Gross portfolio yield (3)
   25.52 % 25.20 % 25.60 % 26.06 %
Interest expense as a percentage of average finance receivables, net of unearned interest
   3.21 % 2.58 % 2.99 % 2.60 %
Provision for credit losses as a percentage of average finance receivables, net of unearned interest
   11.18 % 10.05 % 11.54 % 9.24 %


Net portfolio yield (3)
   11.13 % 12.57 % 11.07 % 14.22 %
Marketing, salaries, employee benefits, depreciation, and administrative expenses as a percentage of average finance receivables, net of unearned interest
   10.12 % 9.70 % 9.98 % 10.26 %


Pre-tax yield as a percentage of average finance receivables, net of unearned interest (4)
   1.01 % 2.87 % 1.09 % 3.96 %


Write-off to liquidation (5)
   13.66 % 12.35 % 13.00 % 11.02 %
Netcharge-off percentage (6)
   10.63 % 8.86 % 10.13 % 8.57 %
Allowance percentage (7)
   6.59 % 4.21 % 6.35 % 4.26 %

~~Note:~~

~~All three-month and nine-month statement of income performance indicators expressed as percentages have been annualized.~~

~~(1)~~

~~Average finance receivables, net of unearned interest, represents the average of gross finance receivables, less unearned interest throughout the period.~~

~~(2)~~

~~Average indebtedness represents the average outstanding borrowings under the Line~~

~~(3)~~

Gross portfolio yield represents interest and fee income on finance receivables as a percentage of average finance receivables, net of unearned interest. 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, net of unearned interest.

~~(4)~~

~~Pre-tax~~ yield represents net portfolio yield minus administrative expenses (marketing, salaries, employee benefits, depreciation, and administrative), as a percentage of average finance receivables, net of unearned interest.

~~(5)~~

~~Write-off~~ to liquidation percentage is defined as net charge-offs divided by liquidation. Liquidation is defined as beginning receivable balance plus current period purchases and originations minus ending receivable balance.

~~(6)~~

~~Netcharge-off~~ ~~percentage represents net charge-offs (charge-offs less recoveries) divided by average finance receivables, net of unearned interest, outstanding during the period.~~

~~(7)~~

~~Allowance percentage represents the allowance for credit losses divided by average finance receivables, net of unearned interest, outstanding during the period.~~

~~Three months ended December 31, 2017 compared to three months ended December 31, 2016~~

~~Interest Income and Loan Portfolio~~

Interest and fee income on finance receivables, predominately finance charge income, decreased 7% to $20.5 million for the three-month period ended December 31, 2017 from $22.0 million for the three-month period ended December 31, 2016. The decrease was primarily due to a decrease in the average weighted APR of the portfolio, and a decrease in the volume of Contracts purchased.

Average finance receivables, net of unearned interest equaled approximately $321.7 million for the three-month period ended December 31, 2017, a decrease of 8% from $349.9 million for the corresponding period ended December 31, 2016. Our purchasing volume declined 39% quarter over quarter mainly as a result of the modification of our underwriting guidelines, including the use of alternative data provided by a third party service company beginning in March 2017, to improve pricing for proper risk. The decrease in average finance receivables, net of unearned interest was primarily due to this decrease in purchasing volume.

The gross portfolio yield increased to 25.52% for the three-month period ended December 31, 2017 compared to 25.20% for the three-month period ended December 31, 2016. The gross portfolio yield increased primarily due to the decrease in~~past-due~~ ~~accounts (see~~~~“Note~~4- ~~Finance Receivables”~~for further discussion). The net portfolio yield decreased to 11.13% for the three-month period ended December 31, 2017 from 12.57% for the corresponding period ended December 31, 2016. The net portfolio yield decreased due to an increase in interest expense, as described under “Interest Expense”, and an increase in the provision for credit losses, as described under “Analysis of Credit Losses”.

~~Marketing, Salaries, Employee Benefits, Depreciation, and Administrative Expenses~~

Marketing, salaries, employee benefits, depreciation, and administrative expenses decreased to approximately $8.1 million for the three-month period ended December 31, 2017 from approximately $8.5 million for the three-month period ended December 31, 2016. The decrease was primarily related to a decrease in bonuses related to the declining portfolio performance along with a decrease in administrative costs directly related to the volume of Contracts purchased. Marketing, salaries, employee benefits, depreciation, and administrative expenses as a percentage of finance receivables, net of unearned interest, increased to 10.12% for the three-month period ended December 31, 2017 from 9.70% for the three-month period ended December 31, 2016.

~~Interest Expense~~

Interest expense increased to approximately $2.6 million for the three-month period ended December 31, 2017 as compared to $2.3 million for the three-month period ended December 31, 2016. This increase was primarily due to the increase in the pricing to 400 basis points above 30 day LIBOR and an increase in 30 day LIBOR rates. Pricing prior to November 7, 2017 was 350 basis points above 30 day LIBOR. Pricing for the three-month period ended December 31, 2016 was 300 basis points above 30 day LIBOR until December 30, 2016, when it changed to 350 basis points above 30 day LIBOR. This change continued until the November 7, 2017 amendment. See below for more details. The following table summarizes the Company’s average cost of borrowed funds:

   Three months ended December 31,
   2017 2016
Variable interest under the line of credit facility
   0.63 % 0.21 %
Settlements under interest rate swap agreements
   0.00 % 0.09 %
Credit spread under the line of credit facility
   5.00 % 4.00 %


Average cost of borrowed funds
   5.63 % 4.30 %

LIBOR rates have increased (1.57% as of December 31, 2017 compared to .77% as of December 31, 2016) which caused an increase in variable interest for the amount that exceeded the 1% floor. Average cost of borrowed funds is greater than the highest 30 day LIBOR rate plus 400 basis points, or 5.57%, due to amortized loan ~~costs. During the three months ended September 30, 2017, the Company’s remaining interest rate swap expired (see “~~~~Note~~6- ~~Interest Rate Swap Agreements”~~ ~~for further discussion) but these did not have a significant effect on borrowing costs. For further discussions regarding interest rates see~~~~“Note 5 – Line of Credit”.~~

~~Nine months ended December 31, 2017 compared to nine months ended December 31, 2016~~

~~Interest Income and Loan Portfolio~~

Interest and fee income on finance receivables, predominately finance charge income, decreased 5% to $64.1 million for the nine-month period ended December 31, 2017 from $67.6 million for the nine-month period ended December 31, 2016. The decrease was primarily due to a decrease in the average weighted APR of the portfolio, and a decrease in the volume of Contracts purchased.

Average finance receivables, net of unearned interest equaled approximately $333.7 million for the nine-month period ended December 31, 2017, a decrease of 4% from $346.0 million for the corresponding period ended December 31, 2016. Our purchasing volume declined 36% period over period mainly as a result of the modification of our underwriting guidelines, including the use of alternative data provided by a third party service company beginning in March 2017, to improve pricing for proper risk. The decrease in average finance receivables, net of unearned interest was primarily due to this decrease in purchasing volume.

The gross portfolio yield decreased to 25.60% for the nine-month period ended December 31, 2017 compared to 26.06% for the nine-month period ended December 31, 2016. The gross portfolio yield decreased primarily due to the decrease in the average weighted APR of the portfolio described above. The net portfolio yield decreased to 11.07% for the nine-month period ended December 31, 2017 from 14.22% for the corresponding period ended December 31, 2016. The net portfolio yield decreased due to a decrease in the gross portfolio yield, but primarily to an increase in the provision for credit losses, as described under “Analysis of Credit Losses”.

~~Marketing, Salaries, Employee Benefits, Depreciation, and Administrative Expenses~~

Marketing, salaries, employee benefits, depreciation, and administrative expenses decreased to approximately $25.0 million for the nine-month period ended December 31, 2017 from approximately $26.6 million for the nine-month period ended December 31, 2016. The decrease was primarily related to a decrease in the amount of Contracts purchased and a decrease in average headcount for the nine months ended December 31, 2017. The Company decreased average headcount to 305 for the nine-month period ended December 31, 2017 from 317 for the nine-month period ended December 31, 2016, mainly due to branch closures. Marketing, salaries, employee benefits, depreciation, and administrative expenses as a percentage of finance receivables, net of unearned interest, decreased to 9.98% for the nine-month period ended December 31, 2017 from 10.26% for the nine-month period ended December 31, 2016.

~~Interest Expense~~

Interest expense increased to approximately $7.5 million for the nine-month period ended December 31, 2017 as compared to $6.7 million for the nine-month period ended December 31, 2016. This increase was primarily due to the increase in the pricing to 400 basis points above 30 day LIBOR and an increase in 30 day LIBOR rates. Pricing prior to November 7, 2017 was 350 basis points above 30 day LIBOR. Pricing for the nine-month period ended December 31, 2016 was 300 basis points above 30 day LIBOR until December 30, 2016, when it changed to 350 basis points above 30 day LIBOR. This change continued until the November 7, 2017 amendment. See below for more details. The following table summarizes the Company’s average cost of borrowed funds:

   Nine months ended December 31,
   2017 2016
Variable interest under the line of credit facility
   0.08 % 0.18 %
Settlements under interest rate swap agreements
   (0.01 )% 0.10 %
Credit spread under the line of credit facility
   5.00 % 4.00 %


Average cost of borrowed funds
   5.07 % 4.28 %

LIBOR rates have increased (1.57% as of December 31, 2017 compared to .77% as of December 31, 2016) which caused an increase in variable interest for the amount that exceeded the 1% floor. The increase in LIBOR rates also caused a decrease in expense related to our interest rate swap agreements. During the nine months ended December 31, 2017, both of the Company’s interest rate swaps expired (see “~~Note~~6- ~~Interest Rate Swap Agreements”~~ ~~for further discussion) but these did not have a significant effect on borrowing costs. For further discussions regarding interest rates see~~~~“Note 5 – Line of Credit”.~~

~~Contract Procurement~~

The Company purchases Contracts in the eighteen states listed in the table below. The Contracts purchased by the Company are predominately for used vehicles; for the three and nine month periods ended December 31, 2017 and 2016, less than 1% were for new vehicles.

~~The following tables present selected information on Contracts purchased by the Company, net of unearned interest.~~

   As of
December 31,
2017 Three months ended
December 31,
Nine months ended
December 31,

   2017    2016    2017    2016
State
   Number of
branches Net Purchases
(In thousands)    Net Purchases
(In thousands)
FL
   19 $ 6,552    $ 12,950    $ 21,081    $ 36,527
GA
   6 3,000    4,195    8,270    11,515
NC
   6 2,374    3,740    6,364    9,843
SC
   2 1,088    1,213    3,040    3,062
OH
   6 3,693    5,100    10,431    14,645
MI
   2 1,286    1,725    3,685    5,121
VA
   2 770    1,126    1,986    3,041
IN
   3 1,776    2,318    4,975    6,865
KY
   3 1,410    2,271    4,159    6,316
MD
   1 244    898    886    2,056
AL
   2 682    1,138    2,259    3,699
TN
   2 982    1,426    2,304    3,858
IL
   3 525    2,004    2,245    5,570
MO
   3 1,153    2,383    3,615    5,997
KS
   1 427    926    1,390    2,274
TX
   2 739    1,578    1,859    5,239
PA
   1 677    748    1,666    1,878
WI
   – ^a —      202    106    806








Total
   64 $ 27,378    $ 45,941    $ 80,321    $ 128,312

a.	~~Purchases in the state of Wisconsin are currently being acquired and serviced through an Illinois branch.~~

   Three months ended
December 31,
(Purchases in thousands) Nine months ended
December 31,
(Purchases in thousands)
Contracts
   2017 2016 2017 2016
Purchases
   $ 27,378 $ 45,941 $ 80,321 $ 128,312
Weighted APR
   21.68 % 21.99 % 21.99 % 22.20 %
Average discount
   6.89 % 6.87 % 7.23 % 7.00 %
Weighted average term (months)
   54 57 55 57
Average loan
   $ 11,577 $ 11,945 $ 11,552 $ 11,727
Number of Contracts
   2,365 3,846 6,953 10,942

~~Loan Origination~~

~~The following table presents selected information on Direct Loans originated by the Company, net of unearned interest.~~

   Three months ended
December 31,
(Originations in thousands) Nine months ended
December 31,
(Originations in thousands)
Direct Loans Originated
   2017 2016 2017 2016


Originations
   $ 2,218 $ 2,578 $ 6,196 $ 7,109
Weighted APR
   25.20 % 25.87 % 25.25 % 26.03 %
Weighted average term (months)
   28 29 29 29
Average loan
   $ 3,566 $ 3,661 $ 3,742 $ 3,563
Number of loans
   622 704 1,656 1,995

~~Analysis of Credit Losses~~

As of December 31, 2017, the Company had approximately 1,491 active static pools. The average pool upon inception consisted of 49 Contracts with aggregate finance receivables, net of unearned interest, of approximately $570,000.

~~The provision for credit losses increased to $9.0 million for the three months ended December 31, 2017 from $8.8 million for the three months ended December 31, 2016, largely due to the netcharge-off~~ ~~percentage (see note 6 in~~defaults. (See the Portfolio Summary table in the~~“Introduction”~~ “Introduction” above for the definition of netcharge-off ~~percentage) increasing~~ percentage.) Management attributes these increased delinquencies and loan defaults primarily to ~~10.63%~~the fact that the beneficial impact of the government’s prior COVID-19-related assistance to the Company’s customers had subsided at a time when those customers began facing increased inflationary pressures affecting their cost of living, and expects that the net charge-off percentage will remain, for the three months ended December 31, 2017 from 8.86% for the three months ended December 31, 2016 for the reasons described below. The provision for credit losses increased to approximately $28.9 million for the nine months ended December 31, 2017 from approximately $24.0 million for the nine months ended December 31, 2016. This increase is primarily a result of an increase in the net~~charge-off~~ ~~rate to 10.13% for the nine months ended December 31, 2017 from 8.57% for the nine months ended December 31, 2016 for the reasons described below.~~

The Company’s allowance for credit losses incorporates recent trends that include increased delinquencies by analyzing the allowance on a loan by loan basis, which the Company believes more closely depicts the amount of the allowance for credit losses needed to maintain an adequate reserve within a static pool. 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. The allowance for credit losses as a percentage of average net receivables (see note 7 in the Portfolio Summary table in the “~~Introduction”~~ above for the definition of allowance percentage) increased to 6.59% for the three months ended December 31, 2017 from 4.21% for the three months ended December 31, 2016. The allowance for credit losses as a percentage of average net receivables increased to 6.35% for the nine months ended December 31, 2017 from 4.26% for the nine months ended December 31, 2016. The increase is primarily a result of an increase in~~write-off~~ to liquidation to 13.66% for the three months ended December 31, 2017 from 12.35% for the three months ended December 31, 2016 and to 13.00% for the nine months ended December 31, 2017 from 11.02% for the nine months ended December 31, 2016.

~~The Company considers multiple factors to assist in determining appropriate loss reserve levels. The Company continues to evaluate reserve~~foreseeable future, at levels ~~on apool-by-pool~~ basis during each reporting period. The longer-term outlook for portfolio performance will depend on overall economic conditions, the rational or irrational behavior of the Company’s competitors, and the Company’s ability to monitor, manage and implement its underwriting and collections philosophy in additional geographic areas as it strives to continue its expansion.

~~The Company’s loan losses as a percentage of liquidation (see note 5 in the Portfolio Summary table in the “~~~~Introduction~~~~” above for the definition ofwrite-off~~ to liquidation) increased to 13.66% for the three months ended December 31, 2017 as compared to 12.35% for the three months ended December 31, 2016. The Company’s losses as a percentage of liquidation increased to 13.00% for the nine months ended December 31, 2017 as compared to 11.02% for the nine months ended December 31, 2016.

~~The increases in the netcharge-off~~ ~~percentage,write-off~~ to liquidation percentage and allowance percentage for both the three-month and nine-month periods ended December 31, 2017 were primarily the result of the Company underestimating the competitiveness of the markethigher than those experienced in prior years and purchasing loans of lower credit quality in such years. As these loans move toward maturity, the actual losses do not occur evenly over their respective lives. Within both the three-month and nine-month periods ended December 31, 2017, the Company saw more charge-offs in these lower quality pools than it saw for the same pools during the three-month and nine-month periods ended December 31, 2016. At the beginning of 2016, the Company implemented measures to mitigate losses, identify fraud on the front end, and more accurately price

reasons.

for risk. In January of 2016, the Company modified its underwriting policies, in March of 2017 the Company engaged a third party service company, to more accurately price risk, and in June of 2017, the Company created a centralized funding department to provide a final review of all Contracts prior to funding. The Company also continues to see decreased auction proceeds from repossessed vehicles, which increases the amount of write-offs which, in turn, increases the~~write-off~~ ~~to liquidation percentage, allowance percentage and netcharge-off~~ percentage. During the three months ended December 31, 2017 and 2016, auction proceeds from the sale of repossessed vehicles averaged approximately 36% and 37%, respectively, of the related principal balance. During the nine months ended December 31, 2017 and 2016, auction proceeds from the sale of repossessed vehicles averaged approximately 35% and 38%, respectively, of the related principal balance. Based on current market conditions, the Company does not expect auction proceeds to improve within the remaining quarters of the fiscal year.

Recoveries as a percentage of charge-offs were approximately 4.10% and 6.88% for the three months ended December 31, 2017 and 2016, respectively. Recoveries as a percentage of charge-offs were approximately 5.26% and 7.49% for the nine months ended December 31, 2017 and 2016, respectively. The Company attributes a large portion of this decrease simply to the increase in charge-offs for the 2017 periods, and to a lesser extent to the September 1, 2016, change in its accounting policy to write off accounts that are 180+ delinquent (from 120+ days delinquent). The Company periodically aggregates~~charge-off~~ accounts it deems uncollectible and sells them to a third-party. For the nine months ended December 31,2016 the Company received approximately $225k from a third party sale, this has not occurred in the nine-months ended December 31, 2017.

The delinquency percentage for Contracts more than ~~thirty~~29 days past due, excluding Chapter 13 bankruptcy accounts, as of December 31, ~~2017~~2023 was ~~13.76%~~18.3%, a decrease from ~~14.45%~~21.1% as of December 31, ~~2016.~~2022. The delinquency percentage for Direct Loans more than ~~thirty~~29 days past due, excluding Chapter 13 bankruptcy accounts, as of December 31, ~~2017~~2023 was ~~4.46%~~18.8%, a decrease from ~~4.88%~~19.5% as of December 31, ~~2016. The decrease in~~2022. While delinquency percentage declined for both Contracts and Direct Loans ~~was~~ driven ~~primarily~~ by ~~portfolio improvement. The delinquency percentage for~~ the ~~period ended December 31, 2016 was exacerbated by greater than anticipated difficulties~~improvements in ~~implementing a centralized~~Company's collection ~~model in October 2016, after~~practices, the ~~Company moved all loan-servicing operations from branch locations to a centralized location within~~customers continue experiencing market and economic pressure and its ~~corporate headquarters in Clearwater. The Company has since moved all of its collections back to~~adverse impact on the ~~branches.~~consumers.

~~The Company has continued to see a significant number of competitors with aggressive underwriting in its operating market. See~~~~“Note 4—Finance Receivables”~~ ~~for changes in allowance for credit losses, credit quality and delinquencies.~~

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. ~~For the~~

Three months ended December 31, 2023 compared to three months ended December 31, ~~2017~~2022

Interest and ~~December 31, 2016, the Company granted deferrals~~Fee Income on Finance Receivables

Interest and fee income on finance receivables, which consist predominantly of finance charge income, decreased 55.8% to approximately 7.47% and 11.84%, respectively, of total Contracts and Direct Loans. For the nine months ended December 31, 2017 and December 31, 2016, the Company granted deferrals to approximately 30.34% and 22.85%, respectively, of total Contracts and Direct Loans. The increase in the number of deferrals for the nine month period ended December 31, 2017 was mainly a result of the impact of Hurricane Irma and Hurricane Harvey, with 42% of our branch locations located in areas that were affected by these storms. The Company offered deferrals to those customers that were impacted to assist them during a time of crisis. Additionally, deferments are 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.

~~Income Taxes~~

On December 22, 2017, the Tax Cuts and Jobs Act was passed into law (“TCJA”). The TCJA includes a broad range of tax reform including changes to tax rates and deductions that are effective January 1, 2018. The decrease in the enacted corporate tax rate expected to apply when our temporary differences are realized or settled ultimately resulted in a~~one-time~~ revaluation of our net deferred tax asset of $3.4 million in December 2017 with a corresponding charge to income tax expense. The tax effects of the TCJA increased income tax expense to a level that reduced net income to a net loss for both the three and nine-month periods ending December 31, 2017.

~~The provision for income taxes increased to approximately $3.7~~$5.0 million for the three months ended December 31, ~~2017~~2023, from ~~approximately $1.0~~$11.3 million for the three months ended December 31, ~~2016.~~2022. The ~~Company’s effective tax rate~~decrease was primarily due to a reduction in originations of Contracts and discontinued originating Direct Loans pursuant to the Company's restructuring plan.

The portfolio yield increased to ~~456.48%~~28.4% for the three months ended December 31, ~~2017 from 37.93%~~2023, compared to 27.2% for the three months ended December 31, ~~2016.~~2022. The improvement in the portfolio yield was driven by a reduction in interest cost after the Company repaid the WL Credit Facility.

Operating Expenses

Operating expenses decreased 59.2% to $4.0 million for the three months ended December 31, 2023, compared to $9.7 million for the three months ended December 31, 2022. The decrease in operating expenses was primarily attributable to the change in operating strategy and the restructuring plan the Company previously announced, which included outsourcing its servicing operations. These factors had a direct beneficial effect and led to the decrease in salary and wages as a result of the Company’s headcount reduction. Specifically, the Company reduced its payroll and employee related expenses by 76.9% to $0.7 million from $3.2 million for the three months ended December 31, 2023, and 2022, respectively, and branch related expenses, loan origination costs, and other administrative expenses, decreased by 49.1% to $3.2 million from $6.3 million for the three months ended December 31, 2023, and 2022, respectively. Following management’s decision to pursue the sale of the Company's loan portfolio, the Company discontinued loan originations and further reduced personnel, while its loan portfolio was serviced by a third-party provider.

Provision Expense and Fair Value and Other Net Adjustments

The provisions for credit losses were reduced by the reversal of the allowance for credit losses which resulted in reversal of credit losses of $10.5 million. This compared to a $10.8 million provision for ~~income taxes~~credit losses expense for the three months ended December 31, 2022.

The reversal of the allowance for credit losses was offset by charges for fair value and other adjustments, net of $23.1 million for the three months ended December 31, 2023, which established a Held for sale valuation allowance to reduce finance receivables from amortized cost to fair value and includes charge-offs net of recoveries since November 1, 2023.

Interest Expense

Interest expense decreased to $0.1 million for the three months ended December 31, 2023 from $1.2 million for the three months ended December 31, 2022, primarily due to a reduction in outstanding debt. In October 2023 the Company paid off the WL Credit Facility. The following table summarizes the Company’s average cost of borrowed funds:


	Three months ended December 31,
	2023			2022
Variable interest under the Credit Facility		5.08	%		2.14	%
Credit spread under the Credit Facility		3.35	%		2.25	%
Average cost of borrowed funds		8.43	%		4.39	%

SOFR rates have increased to 5.1%, which represented the daily SOFR rate as required under the WL Credit Agreement, as of December 31, 2023 compared to 2.1% as of December 31, 2022 governed by the Wells Fargo Credit Facility.

Income Taxes

The Company recorded an income tax expense of approximately ~~$4.4~~$0 million for the three months ended December 31, 2023 compared to an income tax expense of approximately $3.0 million for the three months ended December 31, 2022. The Company’s effective tax rate decreased to 0.0% for the three months ended December 31, 2023 from 29.1% for the three months ended December 31, 2022. The lower effective tax rate for the three months ended December 31, 2023 is primarily attributable to the establishment of a valuation allowance during the three months ended December 31, 2022.

Nine months ended December 31, 2023 compared to nine months ended December 31, 2022

Interest and Fee Income on Finance Receivables

Interest and fee income on finance receivables decreased 48.3% to $18.4 million for the nine months ended December 31, ~~2017 from approximately $4.0~~2023, as compared to $35.6 million for the nine months ended December 31, ~~2016.~~2022. The ~~Company’s effective tax rate increased~~decrease was primarily due to ~~164.70%~~a reduction in originations of Contracts and discontinued originating Direct Loans pursuant to the Company's restructuring plan.

The portfolio yield decreased to 25.5% for the nine months ended December 31, ~~2017 from 38.01%~~2023, compared to 27.3% for the nine months ended December 31, ~~2016.~~

2022. The portfolio yield was reduced primarily due to a decline in interest and fee income as the Company curtailed its loan origination tactics.

Operating Expenses

23Operating expenses decreased 52.9% to $12.5 million for the nine months ended December 31, 2023, from $26.5 million for the nine months ended December 31, 2022. The decrease in operating expenses was primarily attributable to the restructuring initiative associated with branch closures and transition of the servicing process to Westlake under the Servicing Agreement. These factors had a direct beneficial effect and led to the decrease in salary and wages as a result of the Company’s headcount reduction.

Provision Expense and Fair Value and Other Net Adjustments

The provisions for credit losses were reduced by the reversal of the allowance for credit losses which resulted in a remaining provision expense of $2.6 million for the nine months ended December 31, 2023. This compared to a $23.3 million provision for credit losses expense for the nine months ended December 31, 2022.

In addition the Company record fair value and other adjustments, net charges of a $23.1 million for the nine months ended December 31, 2023, which established a held for sale valuation allowance to reduce finance receivables from amortized cost to fair value and includes charge-offs net of recoveries since November 1, 2023.

Interest Expense

Interest expense decreased to $0.8 million for the nine months ended December 31, 2023 from $2.8 million for the nine months ended December 31, 2022, primarily due to a reduction and subsequent full liquidation of the Company's outstanding debt. The following table summarizes the Company’s average cost of borrowed funds:


	Nine months ended December 31,
	2023			2022
Variable interest under the Line of Credit		5.05	%		1.41	%
Credit spread under the Line of Credit		3.35	%		2.25	%
Average cost of borrowed funds		8.40	%		3.66	%

Income Taxes

The Company recorded an income tax expense of $0 for the nine months ended December 31, 2023 compared to an income tax expense of approximately $1.4 million for the nine months ended December 31, 2022. The Company’s effective tax rate decreased to 0.0% for the nine months ended December 31, 2023 from 8.4% for the nine months ended December 31, 2022. The lower effective tax rate for the three and nine months ended December 31, 2023 is primarily attributable to the establishment of a valuation allowance subsequent to December 31, 2022.

Contract Procurement

As previously disclosed in the Company’s Registration Statement on Form S-4 filed with the U.S. Securities and Exchange Commission on November 22, 2023, as amended on January 10, 2024 and January 29, 2024, which became effective on February 9, 2024, the Company is seeking shareholder approval for the sale of all or substantially all of the Company's undertaking, consisting of automobile finance installment contracts, pursuant to the terms of a Master Asset Purchase Agreement dated as of November 13, 2023 between the Company and Westlake Services, LLC dba Westlake Financial, a California limited liability company ("Loan Portfolio Sale"). Following the decision to pursue the Loan Portfolio Sale, the Company discontinued loan originations during the three months ended December 31, 2023.

As of December 31, 2023, the Company purchased Contracts in the states listed in the table below. The Contracts purchased by the Company were predominantly for used vehicles for the three-month and nine-month periods ended December 31, 2023 and 2022, with less than 1% for new vehicles.

The following tables present selected information on Contracts purchased by the Company.

As of December 31,

Three months ended
December 31,

Nine months ended
December 31,

2023

2023

2022

2023

2022

State

Number of
branches

Net Purchases
(In thousands)

Net Purchases
(In thousands)

FL

-

$
63

$
955

$
1,048

$
9,582

OH

-

108

571

2,929

6,773

GA

-

—

416

—

5,103

KY

-

36

175

740

2,796

MO

-

—

292

—

2,841

NC

-

—

227

237

3,977

IN

-

—

208

105

2,326

SC

-

45

575

456

2,893

AL

-

—

393

—

2,919

MI

-

—

35

—

549

NV

-

—

47

—

1,150

TN

-

—

288

—

1,203

IL

-

—

157

—

1,109

PA

-

—

59

—

1,139

TX

-

—

—

—

594

WI

-

—

—

—

344

ID

-

—

8

—

343

UT

-

—

8

—

102

AZ

-

—

39

—

128

KS

-

—

57

—

75

Total

-

$
252

$
4,510

$
5,515

$
45,946

Three months ended
December 31,
(Purchases in thousands)

Nine months ended
December 31,
(Purchases in thousands)

Contracts

2023

2022

2023

2022

Purchases

$
252

$
4,511

$
5,515

$
45,947

Average APR

21.9
%

22.4
%

22.1
%

22.7
%
Average discount

6.6
%

6.8
%

6.3
%

6.6
%
Average term (months)

51

48

50

48

Average amount financed

$
12,600

$
11,778

$
12,396

$
11,765

Number of Contracts

20

383

448

3,913

30
Direct Loan Origination
The following table presents selected information on Direct Loans originated by the Company.
Direct Loans

Three months ended
December 31,
(Originations in thousands)

Nine months ended
December 31,
(Originations in thousands)

Originated

2023

2022

2023

2022

Purchases/Originations

N/A

$
1,080

N/A

$
15,822

Average APR

N/A

29.6
%

N/A

30.4
%
Average term (months)

N/A

27

N/A

26

Average amount financed

N/A

$
4,128

N/A

$
4,277

Number of loans

N/A

245

N/A

3,662

Liquidity and Capital Resources

The Company’s cash flows are summarized as follows:


	Nine months ended December 31, (In thousands)						Nine months ended December 31, (In thousands)
	2017			2016			2023			2022
Cash provided by (used in):
Operating activities	$	18,551		$	22,518		$	1,035		$	(1,521	)
Investing activities		16,214			(24,232	)		35,427			13,606
Financing activities		(34,538	)		3,529			(29,100	)		(15,946	)

Net increase in cash	$	227		$	1,815

Net increase (decrease) in cash and cash equivalents							$	7,362		$	(3,861	)

The Company’s primary use of working capital for the nine months ended December 31, ~~2017~~2023 was ~~funding~~payments related to servicing the ~~purchase~~loans and repayment of ~~Contracts, which are financed substantially through cash from principal payments received, cash from operations and our~~the Company’s line of credit.

Please refer to “Note 5 – in the Annual Report on Form 10-K” for disclosure on the Company’s prior credit ~~(the “Line”). The Company may borrow up to $225.0 million~~facility with Wells Fargo under the ~~Line. Effective November 8, 2017,~~WF Credit Agreement, which disclosure is incorporated herein by reference.

On January 18, 2023, the Company executed amendment 7 to the Line which extended the maturity date to March 31, 2018 and increased the pricing of the Line to 400 basis points above 30 day LIBOR, while maintaining the 1% floor on LIBOR. The amendment also increased the voting stock ownership limit from 20% to 30% and revised the calculation of availability and the minimum interest coverage ratio. The threshold for the minimum interest coverage ratio was lowered for the period ending December 31, 2017.

On December 30, 2016, the Company had executed an amendment which increased the pricing of the Line to 350 basis points above 30 day LIBOR while maintaining the 1% floor on LIBOR. This pricing was maintained under a subsequent amendment effective June 30, 2017. Prior to December 30, 2016, the pricing on the Line was 300 basis points above 30 day LIBOR with a 1% floor on LIBOR.

Pledged as collateral for this Line are all the assets of the Company. The Line requires compliance with certain financial ratios and covenants and satisfaction of specified financial tests, including maintenance of asset quality and performance tests. As of December 31, 2017, the Company is in compliance with all debt covenants. Had the Company notthrough its subsidiaries, entered into amendment 6 and amendment 7 to the credit agreement, the Company would not have been in compliance with the minimum interest coverage ratio of 1.5:1 as of June 30, 2017, September 30, 2017 and December 31, 2017, respectively.

As of December 31, 2017, the amount outstanding under the Line was $178.0 million, while the average amount outstanding during the three and nine months ended December 31, 2017 was $183.6 million and $196.6 million, respectively. The exact amount that the Company may borrow under the Line at any given time is determined in accordance with the Second Amended and Restateda Loan and Security Agreement ~~as subsequently amended.~~(the “ WL Loan Agreement”) with Westlake, pursuant to which Westlake is providing the Company a senior secured revolving credit facility in the principal amount of up to $50 million (the “WL Credit Facility”).

~~The Company will continue to depend on the availability of the Line, together with cash from operations, to finance future operations.~~

The availability of funds under the ~~Line~~WL Credit Facility is generally ~~depends on availability calculations as defined in~~limited to an advance rate of between 70% and 85% of the ~~corresponding credit agreement. In addition, our credit facility requires us to comply with certain financial ratios and covenants and to satisfy specified financial tests, including maintenance~~value of ~~asset quality and portfolio performance tests.~~

~~Since~~ the ~~borrowings available~~Company's eligible receivables. Outstanding advances under the ~~Line are calculated every month based on individual loan criteria~~WL Credit Facility will accrue interest at a rate equal to the secured overnight financing rate (SOFR) plus a specified margin, subject to a specified floor interest rate. Unused availability under the WL Credit Agreement will accrue interest at a low interest rate. The commitment period for advances under the WL Credit Facility is two years. We refer to the expiration of that time period as ~~defined in~~ the ~~credit agreement, no assurances can be given that~~“Maturity Date.”

The WL Loan Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, and sales of assets. The WL Loan Agreement also requires the Company ~~will~~to maintain ~~sufficient availability.~~

~~As disclosed in Note 4~~(i) a minimum tangible net worth equal to the ~~financial statements, the quality~~lower of $40 million and an amount equal to 60% of the ~~Company’s loan portfolio has generally been deteriorating, which has resulted in~~outstanding balance of the WL Credit Facility and (ii) an ~~increase innon-performing~~ ~~loans, an increase in delinquencies (with a decrease limited~~excess spread ratio of no less than 8.0%. Pursuant to the ~~quarter ended December 31, 2017) and other factors, which~~WL Loan Agreement, the Company granted a security interest in ~~turn has resulted in increased net charge-offs and an increase in the provision~~substantially all of their assets as collateral for ~~credit losses. These conditions have resulted in a reduction in net earnings and have affected our borrowing capacity~~their obligations under the ~~credit facility.~~

~~Failure to meet any financial ratios, covenants or financial tests could result in an event of default under our line of credit facility.~~WL Credit Facility. If an event of default occurs, ~~under the credit facility, our lenders~~Westlake could increase ~~our~~ borrowing costs, restrict ~~our~~the Company's ability to obtain additional ~~borrowings~~advances under the ~~facility,~~WL Credit Facility, accelerate all amounts outstanding under the ~~facility, or~~WL Credit Facility, enforce their interest against collateral pledged under the ~~facility.~~WL Loan Agreement or enforce such other rights and remedies as they have under the loan documents or applicable law as secured lenders. Subject to Company’s compliance with certain terms and conditions, the lender waived its rights and remedies under the Agreement applicable to the excess spread ratio covenant and collateral performance indicator through September 30, 2024.

If the Company terminates the WL Credit Facility prior to the Maturity Date, then the Company would be obligated to pay Westlake a termination fee in an amount equal to a percentage of the average outstanding principal balance of the WL Credit Facility during the immediately preceding 90 days. If the Company were to sell its accounts receivable to a third party prior to the Maturity Date,

then the Company would be obligated to pay Westlake a fee in an amount equal to a specified percentage of the proceeds of such sale.

As of December 31, 2023, the Company had no aggregate outstanding indebtedness under the Westlake credit facility (the "WL Credit Facility"), compared to $28.9 million, net of debt issuance costs outstanding as of March 31, 2023. The Company fully paid the outstanding indebtedness under the WL Credit Facility as of October 27, 2023.

The Company has substantially completed its restructuring process to substantially decrease operating expenses and is developing a ~~longstanding relationship~~strategy with respect to its ~~lenders and believes it is probable that it will be able to obtain financing from either its existing lenders or from other sources. However, the Line currently matures on March 31,2018.~~long-term use of cash. The Company can provide no assurances that the lenders will approve the further renewal or extension of the Line past its current maturity or, assuming that they will approve it, that the facility will not be on terms less favorable than the current agreement. The Company may also determine to seek alternative financing, including but not limited to, the issuance of equity or debt; however, we may not be able to raise additional funds on acceptable terms, or at all.

~~See also “~~~~Our business depends on our continued access to bank financing on acceptable terms~~”related disclosure contained in “~~1A. Risk Factors~~”Restructuring and Change in ~~this report, which~~Operating Strategy” is incorporated herein by reference.

~~Contractual Obligations~~Off-Balance Sheet Arrangements

The ~~following table summarizes the Company’s material obligations as of December 31, 2017.~~Company does not engage in any off-balance sheet financing arrangements.

Significant Developments

   Payments Due by Period
(In thousands)
   Total    Less than
1 year    1 to 3
years    3 to 5
years    More than
5 years
Operating leases
   $ 4,153    $ 2,505    $ 1,578    $ 70    $ —
Line of credit¹
   178,000    178,000    —      —      —
Interest on Line¹
   2,479    2,479    —      —      —










Total
   $ 184,632    $ 182,984    $ 1,578    $ 70    $ —

None

The Company’s Line matures on March 31, 2018. Interest on outstanding borrowings under the Line as of December 31, 2017, is based on an effective interest rate of 5.57%. The effective interest rate used in the above table does not contemplate the possibility of entering into interest rate swap agreements in the future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to the Company’s operations result primarily from changes in interest rates. The Company does not engage in speculative or leveraged transactions, nor does it hold or issue financial instruments for trading purposes.Not Applicable.

~~Interest rate risk~~

Management’s objective is to minimize the cost of borrowing through an appropriate mix of fixed and floating rate debt. Derivative financial instruments, such as interest rate swap agreements, may be used to managing fluctuating interest rate exposures that exist from ongoing business operations. The Company does not use interest rate swap agreements for speculative purposes and does not currently have any active agreements.

As of December 31, 2017, $178.0 million, or 100.00% of our total debt, was subject to floating interest rates. As a result, a hypothetical increase in LIBOR of 1% or 100 basis points (based on actual LIBOR rates of 1.57% as of December 31, 2017) would have resulted in an annual~~after-tax~~ ~~increase of interest expense of approximately $1.2 million.~~

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of ~~disclosure controls~~Disclosure Controls and ~~procedures~~. Procedures

In accordance with Rule13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form10-Q, the Company’s management evaluated, with the participation of the Company’s ~~President and~~ Chief Executive Officer and ~~Principal~~Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule13a-15(e) under the Exchange Act).

Based ~~upon their~~on that evaluation, ~~of these disclosure controls and procedures,~~ the ~~Principal~~Chief Executive Officer and the ~~Principal~~Chief Financial Officer have concluded that ~~the~~our disclosure controls and procedures were effective at a reasonable level of assurance as of December 31, 2023.

We have previously identified material weakness in our internal control over financial reporting relating to the ~~end~~design of the controls over accounting for credit losses in accordance with FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) (CECL), including the operation of these controls.

Prior to October 31, 2023 we have implemented certain measures to remediate the material weakness related to the design of the controls related to application of the CECL accounting standard, including designing and implementing formal procedures and controls related to secondary review of data input, model calculations, journal entries, and financial statement disclosures.

We believe that changes implemented in internal controls designed for the financial reporting of finance receivables held to maturity have improved the effectiveness of our internal control over financial reporting and addressed the material weakness identified. The weakness could not be considered remediated until the applicable controls have operated for a sufficient period ~~covered by~~of time and management has concluded, through testing, that these controls were operating effectively through October 31, 2023.

On November 1, 2023, the Company reclassified its finance receivables to held for sale and consequently designed and implemented an effective set of controls over financial reporting to ensure finance receivables were appropriately accounted for in the accordance with FASB ASC Topic 820 and that required disclosures are complete and accurate.

The Company has concluded that the condensed consolidated financial statements included in this Quarterly Report on Form~~10-Q.~~ 10-Q present fairly, in all material respects, the financial position and results of operations of the Company as of and for the three and nine months ended December 31, 2023 in conformity with generally accepted accounting principles in the United States of America.

Changes in internal control over financial reporting~~. There have been no changes~~

In connection with the transfer of the finance receivable portfolio from held for investment to held for sale, management established and is refined its internal procedures and controls to ensure finance receivables were appropriately accounted for at the lower of amortized cost or fair value and that required disclosures are complete and accurate. This includes procedures and controls over inputs and assumptions used in the ~~Company’s~~estimation process for determine fair value of the finance receivables, the use of third parties, and other risk-based considerations.

Other than as described above, during the most recent fiscal quarter, there has not been any change in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that ~~occurred during the Company’s last fiscal quarter that have~~has materially affected or ~~are~~is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART ~~II -~~ II—OTHER INFORMATION

ITEM 1. ~~LEGAL PROCEEDINGS~~Legal Proceedings

~~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~~See the disclosure in Note 9 – Commitments and Contingencies to the ~~Company, would,~~condensed consolidated financial statements set forth in ~~the opinion~~Part I, Item 1 of ~~management, have a material adverse effect~~this Quarterly Report on ~~the Company’s financial condition or results of operations.~~Form 10-Q, which disclosure is hereby incorporated herein by reference.

ITEM 1A. ~~RISK FACTORS~~Risk Factors

In addition to the ~~risk factors~~Risk Factor below and the other information set forth in this ~~report,~~Quarterly Report on Form 10-Q, especially in the section entitled “PART I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward Looking Statements,” you should carefully consider the factors discussed in Part I “Item 1A. Risk Factors” in the Company’s Annual Report on Form10-K for the fiscal year ended March 31, ~~2017,~~2023, and the factors discussed under “RISK FACTORS” in the Company’s Form S-4 filed with the SEC on January 29, 2024, which could materially affect our business, financial condition or future ~~results.~~results of operations. The risks described ~~below, elsewhere~~ in ~~this report~~the Annual Report on Form 10-K and in the Form~~10-K~~ S-4 are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

~~Our business depends on our continued access to bank financing on acceptable terms.~~

~~Our business~~As part of its restructuring and change in operating strategy, the Company has outsourced its servicing, collection and recovery operations and is ~~particularly~~substantially dependent on ~~our ability~~Westlake for the generation of revenue and debt financing.

As part of the Company’s restructuring and change in operating strategy, in December 2022, Westlake began servicing all receivables held by the Company under its Contracts and Direct Loans, except for charged-off and certain other receivables. The Company expects to ~~access bank financing at competitive rates. We currently use~~add additional Contract receivables to the receivables pool covered under the Servicing Agreement with Westlake from time to time in the future, but will no longer originate Direct Loans. As a ~~$225.0 million line~~result, the Company has significantly reduced its footprint, closing all of its branches and retaining only 8 employees as of December 2023.

In January 2023, two of the Company’s subsidiaries entered into the WL Loan Agreement with Westlake, pursuant to which Westlake is providing a senior secured revolving credit facility ~~(the “Line”)~~in the principal amount of up to $50 million. This facility replaced the Company’s prior facility with ~~a consortium~~Wells Fargo.

Additional details on the Servicing Agreement, restructuring activities and the WL Loan Agreement are incorporated herein by reference to “Item 2. Management’s Discussion and Analysis of ~~lenders~~Financial Condition and Results of Operations – Restructuring and Change in Operating Strategy” in this Quarterly Report on Form 10-Q.

•

The Company’s restructuring and change in operating strategy is subject to ~~finance a large portion~~various risks, including without limitation: the risk that anticipated benefits of ~~our Contract purchases~~the restructuring and ~~Direct Loans. This Line has a maturity date~~change in operating strategy, including the servicing and financing arrangements with Westlake (including without limitation the expected reduction in overhead, streamlining of ~~March 31, 2018. Effective November 8, 2017,~~operations or reduction in compliance risk), do not materialize to the extent expected or at all, or do not materialize within the timeframe targeted by management;

•

the risk that the actual servicing fees paid by the Company ~~executed amendment 7 to~~under the ~~Line,~~Westlake Servicing Agreement, which extended the maturity date to March 31, 2018 and increased the pricing of the Line to 400 basis points above 30 day LIBOR, while maintaining the 1% floor on LIBOR. The amendment also increased the voting stock ownership limit from 20% to 30% and revised the calculation of availability and the minimum interest coverage ratio. The threshold for the minimum interest coverage ratio was lowered for the period ending December 31, 2017.

We can provide no assurances that the lenders will approve the further renewal or extension of the Line past March 31, 2018 or, assuming that they will approve it, that the facility will not be on terms less favorable than the current agreement. If the Company is ~~unable~~classifying as administrative costs on its financial statements, exceed the range estimated;

•

the risk that the actual interest payments made by the Company under the WL Loan Agreement exceed the range estimated;

•

risks arising from the loss of control over servicing, collection or recovery processes that we have controlled in the past and potentially, termination of these services by Westlake (a failure of Westlake to ~~renew~~perform their services under the Servicing Agreement or ~~replace~~ the facility or find alternative financing, or to do so on acceptable terms, it will be unable to finance the same or similar level of Contract purchases or Direct Loans, and will likely be required to curtail portions of its strategic plan. ThisWL Loan Agreement in ~~turn would~~a satisfactory manner may have a ~~material~~significant adverse effect on ~~its liquidity, capital resources and results of operations.~~

~~Pledged as collateral for~~ our business);

•

the ~~Line are substantially all~~risk that the actual costs of the assets of the Company. The Line requires compliance with certain financial ratios and covenants and satisfaction of specified financial tests, including maintenance of asset quality and performance tests. Had the Company not entered into amendment 6 and amendment 7 to the credit agreement, the Company would not have beenrestructuring activities in ~~compliance~~connection with the ~~minimum interest coverage ratio~~consolidation of ~~1.5:1 as~~workforce and closure of ~~June 30, 2017, September 30, 2017 and December 31, 2017, respectively. Failure to meet any financial ratios, covenants~~offices exceed the Company’s estimates or ~~financial tests could result in an event of default under~~ that such activities are not completed on a timely basis;

•

the Line. If an event of default occurs, our lenders could increase our borrowing costs, restrict our ability to obtain additional borrowings under the facility, accelerate all amounts outstanding under the facility, or enforce their interest against collateral pledged under the facility.

~~Since the borrowings available under the Line are calculated every month based on individual loan criteria as defined in the credit agreement, no assurances can be given~~risk that the Company ~~will maintain sufficient availability. As disclosed~~underestimates the staffing and other resources needed to operate effectively after consolidating its workforce and closing offices;

•

uncertainties surrounding the Company’s success in ~~Note 4~~developing and executing on a new business plan; and

•

uncertainties surrounding the Company’s ability to ~~the financial statements, the quality~~use any excess capital to increase shareholder returns, including without limitation, by acquiring loan portfolios or businesses or investing outside of the Company’s ~~loan portfolio has generally been deteriorating, which has resulted in an increase innon-performing~~ loans, an increase in delinquencies (with a decrease limited to the quarter ended December 31, 2017) and other factors, which in turn has resulted in increased net charge-offs and an increase in the provision for credit losses. These conditions have resulted in a reduction in net earnings and have affected our borrowing capacity under the Line.traditional business.

The Company may also determine to seek alternative financing, including but not limited through the issuance of equity or debt. We may not be able to raise additional funds on acceptable terms, or at all. If we are unable to secure sufficient capital to fund our operating activities, we may be required to curtail portions of our strategic plan. Any equity financings may cause substantial dilution to our stockholders and could involve the issuance of securities with rights senior to the common stock. Any allowed debt financings may require us to comply with onerous financial covenants and restrict our business operations. Our ability to complete additional financings is dependent on, among other things, the state of the capital markets at the timematerialization of any ~~proposed offering, market reception~~ of ~~the Company and the likelihood of the success of our business model, and the offering terms, among other things.~~

~~Changes in U.S. federal, state and local tax law or interpretations of existing tax law could increase our tax burden or otherwise~~these risks may adversely affect our ~~financial condition or~~ results of ~~operations.~~operations or financial position, potentially to a material extent.

~~We are subject~~ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

In May 2019, the Company’s Board of Directors (“Board”) authorized a new stock repurchase program allowing for the repurchase of up to taxation at the federal, state and local levels in the United States. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The changes included in the TCJA are broad and complex. The final transition impacts$8.0 million of the ~~TCJA may differ from~~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.

In August 2019, the ~~estimates provided elsewhere in this report, possibly materially, due~~Company’s Board authorized additional repurchase of up to ~~among other things, changes in interpretations~~$1.0 million of the ~~TCJA,~~Company’s outstanding shares.

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 legislative action to address questions that arise because of the TCJA, any changes in accounting standards for income taxes or related interpretations in response to the 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 based on our actual results in the fourth quarter of fiscal 2018 and our further analysis of the new law.

time.

ITEM 3. Defaults Upon Senior Securities

27None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

~~Item~~ITEM 6. ~~EXHIBITS~~Exhibits


Exhibit No.	Description
~~Exhibit~~ ~~No.~~		~~Description~~
31.1
~~10.1~~	Employment Agreement, dated December 12, 2017, between Nicholas Financial, Inc. and Douglas Marohn, President and Chief Executive Officer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form~~8-K~~ filed on December 11, 2017)*

~~10.2~~	~~Form of Dealer Agreement and Schedule thereto listing dealers that are parties to such agreements~~

~~31.1~~	Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.11	Certification of the Principal Executive Officer Pursuant to 18 U.S.C. § 1350

32.21	Certification of the Principal Financial Officer Pursuant to 18 U.S.C. § 1350

101.INS	Inline XBRL Instance Document

~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~	~~XBRL Taxonomy Extension Labels Linkbase Document~~

~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~

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

¹~~This certification accompanies~~
101.SCH	Inline XBRL Inline XBRLTaxonomy Extension Schema With Embedded Linkbase Documents

104	Cover Page Interactive Data File (embedded within the ~~Quarterly Report on Form10-Q~~ ~~and is not filed as part of it.~~Inline XBRL document)

1 This certification accompanies the Quarterly Report on Form 10-Q and is not filed as part of it.

SIGNATURES

~~SIGNATURES~~

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

NICHOLAS FINANCIAL, INC.

(Registrant)


Date: February ~~09, 2018~~	13, 2024		/s/ ~~Doug Marohn~~Mike Rost
		~~Doug Marohn~~ Mike Rost
		~~President and~~ Chief Executive Officer
		(Principal Executive Officer)



Date: February ~~09, 2018~~	13, 2024		/s/ ~~Katie L. MacGillivary~~Irina Nashtatik
		~~Katie L. MacGillivary~~ Irina Nashtatik
		~~Vice President and~~
		Chief Financial Officer
		(Principal Financial Officer)


	(In thousands)
	December 31, 2017			March 31, 2017
Finance receivables, gross contract	$	454,277		$	512,720
Unearned interest		(137,594	)		(160,853	)

Finance receivables, net of unearned interest		316,683			351,867
Unearned dealer discounts		(14,138	)		(17,004	)

Finance receivables, net of unearned interest and unearned dealer discounts		302,545			334,863
Allowance for credit losses		(21,187	)		(17,658	)

Finance receivables, net	$	281,358		$	317,205


	(In thousands)
	December 31, 2017				December 31, 2016
	Contracts		Direct Loans		Contracts		Direct Loans
Performing accounts	$	412,775	$	10,349	$	462,569	$	11,231
Non-performing accounts		27,053		217		36,980		280

Total	$	439,828	$	10,566	$	499,549	$	11,511
Chapter 13 bankruptcy accounts		3,843		40		4,220		36

Finance receivables, gross contract	$	443,671	$	10,606	$	503,769	$	11,547


Contracts	Gross Balance Outstanding		31 – 60days			61 – 90days			91 – 120 days			Over 120			Total
December 31, 2017	$	439,828	$	33,453		$	14,039		$	7,893		$	5,121		$	60,506
				7.61	%		3.19	%		1.79	%		1.16	%		13.76	%
December 31, 2016	$	499,549	$	35,184		$	17,263		$	11,072		$	8,645		$	72,164
				7.04	%		3.46	%		2.22	%		1.73	%		14.45	%


Direct Loans	Gross Balance Outstanding		31 – 60days			61 – 90days			91 – 120 days			Over 120			Total
December 31, 2017	$	10,566	$	254		$	102		$	32		$	83		$	471
				2.41	%		0.97	%		0.30	%		0.78	%		4.46	%
December 31, 2016	$	11,511	$	282		$	155		$	61		$	64		$	562
				2.45	%		1.34	%		0.53	%		0.56	%		4.88	%


	As of December 31, 2017			Three months ended December 31,				Nine months ended December 31,
	As of December 31, 2017			2017		2016		2017		2016
State	Number of branches			Net Purchases (In thousands)				Net Purchases (In thousands)
FL		19		$	6,552	$	12,950	$	21,081	$	36,527
GA		6			3,000		4,195		8,270		11,515
NC		6			2,374		3,740		6,364		9,843
SC		2			1,088		1,213		3,040		3,062
OH		6			3,693		5,100		10,431		14,645
MI		2			1,286		1,725		3,685		5,121
VA		2			770		1,126		1,986		3,041
IN		3			1,776		2,318		4,975		6,865
KY		3			1,410		2,271		4,159		6,316
MD		1			244		898		886		2,056
AL		2			682		1,138		2,259		3,699
TN		2			982		1,426		2,304		3,858
IL		3			525		2,004		2,245		5,570
MO		3			1,153		2,383		3,615		5,997
KS		1			427		926		1,390		2,274
TX		2			739		1,578		1,859		5,239
PA		1			677		748		1,666		1,878
WI		–	^a		—		202		106		806

Total		64		$	27,378	$	45,941	$	80,321	$	128,312


	Three months ended December 31, (Purchases in thousands)						Nine months ended December 31, (Purchases in thousands)
Contracts	2017			2016			2017			2016
Purchases	$	27,378		$	45,941		$	80,321		$	128,312
Weighted APR		21.68	%		21.99	%		21.99	%		22.20	%
Average discount		6.89	%		6.87	%		7.23	%		7.00	%
Weighted average term (months)		54			57			55			57
Average loan	$	11,577		$	11,945		$	11,552		$	11,727
Number of Contracts		2,365			3,846			6,953			10,942


	Three months ended December 31, (Originations in thousands)						Nine months ended December 31, (Originations in thousands)
Direct Loans Originated	2017			2016			2017			2016

Originations	$	2,218		$	2,578		$	6,196		$	7,109
Weighted APR		25.20	%		25.87	%		25.25	%		26.03	%
Weighted average term (months)		28			29			29			29
Average loan	$	3,566		$	3,661		$	3,742		$	3,563
Number of loans		622			704			1,656			1,995


	Three months ended December 31, (Purchases in thousands)						Nine months ended December 31, (Purchases in thousands)
Contracts	2023			2022			2023			2022
Purchases	$	252		$	4,511		$	5,515		$	45,947
Average APR		21.9	%		22.4	%		22.1	%		22.7	%
Average discount		6.6	%		6.8	%		6.3	%		6.6	%
Average term (months)		51			48			50			48
Average amount financed	$	12,600		$	11,778		$	12,396		$	11,765
Number of Contracts		20			383			448			3,913


Direct Loans	Three months ended December 31, (Originations in thousands)				Nine months ended December 31, (Originations in thousands)
Originated	2023	2022			2023	2022
Purchases/Originations	N/A	$	1,080		N/A	$	15,822
Average APR	N/A		29.6	%	N/A		30.4	%
Average term (months)	N/A		27		N/A		26
Average amount financed	N/A	$	4,128		N/A	$	4,277
Number of loans	N/A		245		N/A		3,662


	Payments Due by Period (In thousands)
	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years
Operating leases	$	4,153	$	2,505	$	1,578	$	70	$	—
Line of credit¹		178,000		178,000		—		—		—
Interest on Line¹		2,479		2,479		—		—		—

Total	$	184,632	$	182,984	$	1,578	$	70	$	—

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Smaller reporting company

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