2005 Annual Report

  From The President

Peter L. Vosotas, Chairman, CEO & President & Ralph Finkenbrink, CFO & Senior Vice President
I pleased to report that our Company once again achieved outstanding financial results by recording its 15th consecutive year of record revenues and profits, during fiscal 2005. Last year marked our 20th year of business and our 18thyear as a publicly traded company. Several notable milestones were achieved by our Company during the past year.

Net income for the year ended March 31, 2005 increased 55% to $8,080,000 as compared to $5,212,000 for the year ended March 31, 2004. Earnings per share increased by 25% to $ 0.80 as compared to $0.64 last year (adjusted for the three-for-two split). Revenue for the year increased 29% to $32,832,000 as compared to $25,500,000 last year. The net worth of our Company grew 71% from $27,409,000 to $46,758,000. In addition, the Company announced record income and revenues in each quarter during the past fiscal year.

In keeping with the Company’s expansion strategy, Nicholas added six new locations to our branch office network during the past fiscal year. We built our second South Carolina branch in Greenville and our fourth North Carolina branch in Greensboro. We added two offices in the state of Virginia with new branch locations in Richmond and Fredericksburg. The Company also extended its coverage of the Florida market from South Florida to the Western Panhandle by opening a new branch in Pensacola. That office became the 16th Nicholas location in the “Sunshine” state. Finally we established our first presence in the state of Kentucky this past December, by opening an office in Florence, a suburb south of Cincinnati, Ohio.

Nicholas Financial’s strategy of carefully managed growth will continue in the coming year. The Company intends to add 6 to 8 additional branch offices. We have targeted locations in Atlanta, Baltimore, Indianapolis, Louisville, Miami, and Raleigh-Durham at this time. After establishing an initial branch location in a state, we try to open additional branches within the same state, in order to create a market presence and increase operational efficiencies. As of March 31, 2005, we have a total of 35 branch offices in Florida, Georgia, South Carolina, North Carolina, Ohio, Kentucky, Michigan and Virginia. Our newest branch in Indianapolis, Indiana, will become operational by the end of June, 2005.

On May 12th, 2005 the Company announced a three for two stock split to shareholders of record as of June 7, 2005. The stock split is payable on June 17, 2005, in the form of a 50% stock dividend. Effective June 20, 2005 our stock will trade at the split adjusted price. In May 2004, the company successfully sold 2,100,000 shares of its common stock to the public. This secondary public offering, which was issued at $5.33 per share (adjusted for the three-for-two split), increased the total number of outstanding shares to approximately 9.8 million. As part of the offering we also elected to move up from the Nasdaq Small Cap listing to the Nasdaq National Market listing. The National Market has given us greater media exposure and contributed to the expansion of our shareholder base from approximately 800 shareholders to over 2,500 shareholders. We felt that it was extremely important to increase the number of outstanding shares in the hands of the investing public. This was effectively accomplished by the offering. The underwriter who handled the transaction for the secondary offering was Ferris Baker Watts, of Baltimore, Maryland.

In the course of the offering, Ferris Baker introduced us to over 40 institutional investors ranging from small investment managers that manage portfolios of less than $50 million dollars to extremely large firms that manage over $250 billion dollars. I am pleased to report that many of the investment institutions that we visited elected to purchase our stock. We estimate that the percentage of institutional ownership of Nicholas Financial stock is currently greater than 25%. The public exposure that Ferris Baker provided for Nicholas Financial through its retail brokerage network, institutional relationships and research coverage is immeasurable.

For many years I have made the same statement regarding our accomplishments, “Our consistent financial performance 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.” To the credit of our employees this statement rings as true today as when it was first written. We, like all companies, have a challenge to find good, hardworking, and qualified people. When we do, we try our best to keep those who work hard and produce results. We reward our employees with excellent benefits, including performance based bonuses and strong career opportunities. As a result, we have very low employee turnover. 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 have been with the Company since its inception in the late 1980’s. During the past year we maintained our close relationship with our current lenders, as we continued to address our long-term financing needs.

During the year we were pleased to announce the addition of the Bank of Scotland to our lending consortium. As a result we successfully expanded our line of credit to $85,000,000 and extended the credit facility by two years. Our line of credit now includes, Bank of America, First Tennessee Bank, Hibernia National Bank and the Bank of Scotland.

We look forward with optimism toward the coming year. Any company that can say, “Our potential customer base is over 250 billion dollars a year”, should be excited about its business prospects. Our intention is to continue our strategy of steady controlled growth by increasing our existing branch loan portfolios and building new branch offices. We intend to continue growing our company organically. However, we will stay alert to possible acquisition opportunities that may come to our attention. Overall, we are very pleased with what Nicholas Financial has accomplished during the past year in spite of the distress caused by four separate hurricanes in Florida.

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. We are convinced that our shareholders will be rewarded if we continue to build the net worth of our Company each year. 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 2005