The past year marked Nicholas Financial’s 24th year of business and our 22nd year as a public company. As you can see from the front cover of this year’s annual report, we have selected Albert Camus’ Greek mythological king Sisyphus as a metaphor for what seems to have happened in the economy and within our business during this past year. It has been and continues to be a tough uphill battle to find quality automobile loan contracts to underwrite and a challenge to collect from borrowers that are          Peter L. Vosotas, CEO & President struggling in today’s economic
environment. In spite of this, our core financial fundamentals continue to grow, as evidenced by shareholder equity (or net worth) which grew 8% to $85.0 million from $78.6 million and our book value which grew 7% to $8.20 per share from $7.68 per share.

We are pleased to report our 19th consecutive year of record revenues which rose 6% to $53,102,000 as compared to $50,083,000 in the previous year. Our after tax profits dropped 41% from $9,672,000 in 2008 to $5,673,000, if we exclude a non-cash unrealized mark-to-market loss of interest rate swaps. The Company purchases interest rate swaps as insurance against the possibility of rising interest rates. We have done this for several years and will continue to do so going forward.

Nicholas Financial provides a service that allows individuals with blemished credit to purchase a car or light truck. Americans have had a long love affair with their vehicles. An American’s car or truck is a status symbol and an expression of who they are. More importantly, it is a symbol of freedom and hope for their future. From the time a teenager receives his learners permit to the time we die, vehicle ownership gives us the freedom to GO. Go to work, go on vacation, go visit friends and family, go on a date or just simply go to the grocery store. Without a car, this freedom to move is greatly restricted, affecting a person’s ability to get that better job that’s not on the bus route, save money by traveling to the 75% off sale across town or get their kids to the doctor in an emergency. For many Americans, the freedom of movement has helped greatly in making them who they are. A vast majority will sacrifice a great deal to keep this freedom at all costs. Therefore we believe that both the sub prime borrower and secondary automobile markets will continue to expand.

Nicholas Financial has 48 company owned and operated branch offices in 12 states. We are optimistic in our future and confident in our tried and tested business model. We intend to add new branches during this coming year and in the years to come. In fact as I write this letter, we are in the process of wrapping up the lease for a new branch office in Akron, Ohio. We have been asked if the closure of several GM and Chrysler franchise stores will hurt our business in the upcoming year. We do not believe that the closings of these franchise locations will have a negative impact on our business. In fact we may benefit as some of these former franchises transform their stores into Used Car Superstores. Our current business mix is approximately 50% with franchise dealers and 50% independent dealers. Less than 3% of our business is the result of financing new vehicles.

For the past two years I have written that, “We believe that the coming years will be tough going for our fellow American consumers.” Little did I realize that the economy would be this difficult. I believe that the primary factors for the difficult business environment are uncertainty within the job market, the ever increasing cost of fuel, food, housing and health care, as well as the credit mess that many consumers have put themselves in. Our customers, those with sub prime credit who need their vehicles to get to work, are struggling not only with their debt obligations but also with the higher cost of just about everything. Fortunately, less than 10% of our 32,000 plus customers are homeowners and therefore are not directly affected by the mortgage crisis.

As a result of the spike in the unemployment rate, especially within financial services, we are now attracting a much higher number of quality job candidates than we have in the past. In many instances their company has either gone out of business or made considerable cut backs leaving them out of work or fearful of future layoffs. This recent change in the recruiting environment has allowed us to staff our company with several well-qualified people, making us stronger than ever. We believe this opportunity will help us to expand our Company, while our competitors pull back or in some cases, abandon our markets. Most noteworthy is the fact that we have not experienced any turnover in our senior management ranks over the past few years. Our Accounting, Loss Recovery, Information Technology and Marketing managers have all been with us for many years and they are all dedicated and talented leaders.

Over the past year we have also worked to modernize and strengthen our corporate infrastructure. Our IT staff has upgraded and expanded our computing facilities, which should provide ample processing and data storage capacities for the company’s future growth plans. We have also begun to implement telecommunications strategies that will allow the company to take advantage of maturing technologies such as Voice over IP, which should provide a platform for future innovation while at the same time reducing fixed operating expenses. As we go forward we will continue to look to implement efficiencies that will lower costs and amplify earnings growth when an economic rebound does occur.

During the past year we maintained our close relationship with our current lenders, as we continue to address our long-term financing needs. We are confident that we have sufficient credit line availability and cash flow to fund our business throughout the upcoming year. Of course we cannot guarantee that our bankers will extend us credit indefinitely or that future pricing of our credit line will not be at higher rates then we currently have in place. We also recognize that we may have to find an additional source of funding to facilitate our growth.

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 2009