I am pleased to report that our Company has once again achieved outstanding results by recording its thirteenth consecutive year of record profits, during fiscal 2003. The past year marked our 18th year of business and our 16th year as a public company.  Let me begin by reviewing several important milestones that were achieved during the past fiscal year.

Peter L. Vosotas, Chairman, CEO & President  - (left)
Ralph T. Finkenbrink, CFO & Sr. Vice President - (right)

Net income for the fiscal year ended March 31, 2003 increased 9% to $4,281,000 compared to $3,932,000 for the year ended March 31, 2002. Diluted earnings per share increased 8% to $.81, as compared to $.75 per share a year ago. Revenue for the year increased 11% to $ 22,377,000 compared to $20,218,000 last year. In addition, the Company announced record income and revenues in each quarter during the fiscal year. The net worth of our Company grew 20% from $18,436,333 to $22,090,440. In fact, our net worth has increased 148% over the past five years. We remain convinced that our shareholders will be rewarded if we continue to build the net worth of our Company each year.

During the past year we embarked upon a very successful expansion of our branch office network. The primary focus of this expansion was the state of Ohio, in which we added five new full service branches, including two in the Cleveland metropolitan area and one each in the cities of Columbus, Toledo and Cincinnati. In addition, we established a new branch office in Sarasota, Florida, bringing the total number of Nicholas Financial offices in Florida, Georgia, South Carolina, North Carolina and Ohio to 27. We felt that the past year was an advantageous time for the Company to expand. While several of our competitors were reducing market presence, office space rental pricing became more and more attractive. We also elected to take advantage of these favorable conditions to expand the size of our corporate offices by approximately 50%. The construction and transition into the newly expanded facilities were completed in May 2003. We are very confident that these expansions will serve us well in the near term.

Our consistent financial performance, highlighted by thirteen (13) consecutive years of increasing revenues and income, hasn’t happened by accident. It is the result of many people working very hard over a long period of time. The automobiles of our employees are usually the first to arrive in the parking lot each morning and invariably the last to drive away at night. We, like all companies, have a challenge to find decent, hardworking, and qualified people. When we do, we try our best to keep those that work hard and produce results. We reward our employees with excellent benefits, including performance bonuses and numerous career opportunities. As a result, we have had low employee turnover during the last few years. Our ability to mold and retain a veteran team is one of the primary reasons for our success. The majority of our senior managers, accounting staff and data processing staff has been with the Company since its inception in 1985.

We are convinced that our business model for financing automobiles, which we refer to as the “Nicholas Recipe”, is a very sound and time-tested approach to doing business in our market place. The way that we go about establishing a presence in a market is extremely simple. The first step is to identify a market that meets our criteria for automobile dealerships, average household income and lending regulations. Once we decide to establish our Company in a particular area, we then construct a branch office and build it out to our preset specifications. The branch is initially staffed with a manager and two or three assistants. Gradually assistants are added as needed until we reach a full compliment of five to seven employees. The manager and his/her staff make all lending and collection decisions for the branch office. The branch personnel are required to comply with strict corporate lending and collection guidelines. All exceptions to these guidelines must be processed through the appropriate levels of management and confirmed in writing. Our internal auditing staff audits all branch offices on a quarterly basis. Our goal is to have each branch generate over $300,000 in pre-tax income, within three years of opening. Most of our branches that have been operating for three or more years, have met this goal.

Nicholas Financial’s Loss Recovery department, based in our Clearwater headquarters, is one of the most important contributors to the success of Nicholas Financial. This team comprised of former Company managers and loan collection specialists are all seasoned veterans. The Loss Recovery staff handles everything from repossessed vehicle logistics through vehicle disposition to loan loss collections. In performing their specialized tasks they interact with judges, attorneys and insurance companies on a daily basis. This team collects unpaid balances from former customers and provides collection assistance to our branch offices. In a pinch, any member of Loss Recovery department can manage a branch that is short handed or faltering. Over the past few years, this very talented team has recovered millions of dollars.

We continue to maintain and support many small businesses with our financial software products through our data processing subsidiary, Nicholas Data Services Inc. (NDS). NDS also supplies Nicholas Financial with all of its data processing needs ranging from the application software to networking hardware and telecommunications equipment. Our NDS engineers have developed all web site and Internet facilities internally. We continue to leverage our use of the Internet for e-mail, business-to-business communications and software distribution. Anyone wishing detailed information about our Company might find it by visiting our web site at www.nicholasfinancial.com.

During the fourth quarter of the past fiscal year we began to implement and test 3rd-party accounting software that we believe will facilitate the growth of the Company to hundreds of branch locations. The integration of our internally developed industry specific application software with these state-of-the-art accounting programs has gone very smoothly. The cutover to the new systems is slated to take place in the second quarter of this fiscal year and no interruption to our day to day operations is expected. The skillful handling this of critical project by our experienced accounting and engineering staffs has made quick work of an undertaking that has brought other companies to their knees.

In the next few years we believe that we will require additional financing sources to satisfy our growth. In doing so, we will inevitably have to do business with investment bankers who have the means and methods to help us. To this end we have met and discussed our long- term financing needs with our current lenders, Bank of America, First Tennessee Bank and Hibernia National Bank. Additionally, we have spoken with several investment banking firms and expect to continue this process throughout the year.

We look forward with guarded optimism towards the New Year. We expect to grow the Company by increasing our existing branch loan portfolios and building new branch offices. We intend to open several new branches over the course of this year and next. We are presently exploring additional locations in Ohio, Michigan and the Carolinas.

Overall, we are very pleased with what Nicholas Financial has accomplished in a year traumatized by tough economic times, a continued slump in the financial markets and the war in Iraq. For us, 2002-2003 was a year of expansion, while several of our competitors were experiencing contraction. It was also a very difficult year for many of our customers, who in most cases face demanding challenges even in the best of times. But 2002-2003 was especially difficult considering the economic uncertainty, increased unemployment; fears of terrorism and of course, the war. It is our hope that the economic rebound and improving financial markets of late will energize business and provide relief to our customers. We also believe that the recently instituted tax cuts will help a great deal.

We are very proud of our employees, whose dedication, talent and loyalty have made Nicholas an important force in automobile financing. We are grateful for their ongoing efforts and for the support of our customers, bankers, vendors and shareholders. We remain determined to increase the value of our publicly traded stock. To all of you who have invested in Nicholas, we wish to thank you for having continued faith in our Company. On behalf of our Board of Directors and our employees, we thank you for the confidence that you have entrusted in us.

Peter L. Vosotas
Chairman, CEO & President
June 2003