NICHOLAS FINANCIAL INC MANAGEMENT REPORT ON FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

Forward-looking information

This Quarterly Report on Form 10-Q contains various forward-looking statements
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. When used in this document, the words "anticipate",
"estimate", "expect", "will", "may", "plan," "believe", "intend" and similar
expressions are intended to identify forward-looking statements. Although
Nicholas Financial, Inc., including its subsidiaries (collectively, the
"Company," "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. 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: (1) statements about 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 ("Westlake")
(including without limitation the servicing and termination fees) and its exit
and disposal activities; (2) the continuing impact of COVID-19 on our customers
and our business, (3) projections of revenue, income, and other items relating
to our financial position and results of operations, (4) statements of our
plans, objectives, strategies, goals and intentions, (5) statements regarding
the capabilities, capacities, market position and expected development of our
business operations, and (6) 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 without limitation:

the risk that the anticipated benefits of the restructuring and change in
operating strategy, including the servicing arrangement with Westlake (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
servicing agreement, which the Company expects to classify as administrative
costs on its financial statements, exceed the amounts estimated;

the risk that the actual costs of the exit and disposal 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 may underestimate the personnel and other resources needed to operate effectively after consolidating its workforce and closing offices;

uncertainties surrounding the Company’s success in developing and executing 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 risk that the lenders under the Wells Fargo credit facility (“WF Credit Facility”) may declare the Company’s obligations under the agreement immediately due and payable;

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

the ongoing impact on us, our customers and the overall economy of the supply
constraints, especially with respect to energy, caused by the COVID-19 pandemic
and the Russian invasion of Ukraine and related economic sanctions;

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

recently enacted, proposed or future legislation and how it is being implemented, including tax law initiatives or challenges to our tax positions and/or interpretations, and state tax rules and regulations sales;

•
fluctuations in the economy;

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

interest rate fluctuations;

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;

demand for consumer finance in the markets served by the Company;

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our ability to successfully develop and market new or improved products and services;

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

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

higher borrowing costs and adverse capital market conditions affecting 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 of third parties, including representatives or agents of Westlake;

the media and public characterization of consumer installment loans;

the inability of third parties to provide various services important to our operations;

alleged violation of the 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 executives and employees;

the use of third party suppliers and ongoing business relationships with third parties, in particular our relationship with Westlake;

cyberattacks or other security breaches suffered by us or Westlake;

disruptions to the operations of our computer systems and data centers or those of Westlake;

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;
the risk factors discussed under "Item 1A - Risk Factors" in our Annual Report
on Form 10-K, 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. All forward-looking statements
included in this Quarterly Report are based on information available to the
Company as the date of filing of this Quarterly Report, and the Company assumes
no obligation to update any such forward-looking statement. Prospective
investors should also consult the risk factors described from time to time in
the Company's other filings made with the SEC, including its reports on Forms
10-K, 10-Q, 8-K and annual reports to shareholders.

Restructuring and change of operational strategy

Change in operating strategy

On November 2, 2022, the Company announced a change in its operating strategy
and restructuring plan with the goal of reducing operating expenses and freeing
up capital. As part of this plan, the Company is shifting from a decentralized
to a regionalized business model, but continues to remain committed to its core
product of financing primary transportation to and from work for the subprime
borrower through the local independent automobile dealership. The Company
intends to scale down Contract originations to focus on certain regional markets
and will no longer originate Direct Loans. The Company's servicing, collections
and recovery operations will be outsourced. The Company's operating strategy
also includes risk-based pricing and a prudent underwriting discipline required
for optimal portfolio performance. The Company expects that this plan will
reduce overhead, streamline operations and reduce compliance risk, while
maintaining the Company's underwriting standards. The Company further
anticipates that execution of this 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 Company's

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its main objectives are to increase its profitability and long-term value.

Westlake maintenance contract

As part of the restructuring plan, Nicholas Financial, Inc.a Florida
company (“NFI”) and indirect wholly-owned subsidiary of the Company, has entered into a loan service agreement (the “Service Agreement”) with Westlake Investment Management, LLC (“West Lake”).

Pursuant to the Servicing Agreement, on or around the "Closing Date" (expected
to occur prior to early December 2022), Westlake will begin servicing all
receivables held by NFI under its Contracts and Direct Loans, except for
charged-off and certain other receivables. Those receivables covered by the
Servicing Agreement as of the Closing Date are referred to as the "initial
receivables." NFI expects to add additional Contract receivables to the
receivables pool covered under the Servicing Agreement from time to time in the
future, but will no longer originate Direct Loans. All receivables remain vested
in NFI.

More specifically, Westlake has agreed to manage, service, administer and make
collections on the receivables, as well as perform certain other duties
specified in the agreement, in accordance with servicing practices and standards
used by prudent sale finance companies or lending institutions that service
motor vehicle secured retail installment contracts of the same type. Westlake
will maintain custody of the receivable files and lien certificates, acting as
custodian for the Company.

Under the Servicing Agreement, NFI has agreed to pay Westlake a boarding fee
with respect to the initial receivables, and boarding fees based on a percentage
of any additional receivables to be added to the pool in the future. In
addition, NFI is obligated to pay Westlake monthly servicing fees depending on
the aggregate principal balance of receivables, the types of services provided
by Westlake and the payment status of the various loans. The Company expects to
classify such fees as administrative costs on its financial statements.
Estimates of such administrative costs applied to the initial receivables are
provided below. Any additional receivables will also be subject to such
servicing fees and presented as administrative costs on the Company's financial
statements. Collections of amounts made after accounts have been charged off are
split between NFI and Westlake. NFI must also reimburse Westlake for certain
expenses specified in the Servicing Agreement.

The Servicing Agreement contains representations and warranties by both parties.
It allows Westlake to delegate its duties under the agreement to an affiliate or
subservicer with NFI's prior written consent. If certain events specified in the
Servicing Agreement occur ("Servicer Termination Events"), NFI is entitled to
terminate Westlake's rights and obligations and appoint a successor servicer
under the agreement.

The Servicing Agreement will become effective after NFI has transferred the
relevant receivables files to Westlake and expires upon the earliest to occur of
(i) the date on which NFI sells, transfers or assigns all outstanding
receivables to a third party (including to Westlake), (ii) the date on which the
last receivable is repaid or otherwise terminated and (iii) 3 years from the
Closing Date. If NFI terminates the Agreement other than for a Servicer
Termination Event, it is obligated to pay Westlake a termination fee if the
termination occurs prior to the third anniversary of the Closing Date, which
fee, if payable, is expected to exceed $1 million.

Exit and disposal activities

As part of the restructuring plan and change in operating strategy disclosed
above, the Board of Directors of the Company determined on November 2, 2022 to
close 34 of its 36 branches. Consolidation of workforce associated with these
closures is expected to impact approximately 173 employees, representing 82% of
the Company's workforce as of such date.

The expected total charges to be incurred by the Company are between $11.1
million and $12.4 million, consisting of cash expenditures between $11.0 million
and $12.3 million, and approximately $0.1 million of non-cash impairment charges
associated with lease obligations.

Of these expected total charges, the Company estimates incurring, in the first
year following implementation of the restructuring plan, between $4.3 million
and $4.6 million of administrative costs, between $0.2 million and $0.3 million
of employee-related costs, including severance expenses, and between $3.3
million and $3.4 million for lease terminations, and, in the second through
fifth year following such implementation, between $3.2 million and $4.0 million
of administrative costs in the aggregate. These administrative costs relate
solely to the initial receivables described in the previous section and do not
include any additional receivables.

The closing of branches and consolidation of the workforce is expected to be
completed by January 31, 2023. The Company expects that the majority of lease
terminations and employee-related charges will be recorded in the third quarter
of Fiscal Year 2023.
The above estimates of charges and timelines could change as the Company's plans
evolve and become finalized. The Company expects significant annual operating
cost savings to substantially exceed the upfront costs associated with the
restructuring.

Regulatory developments

As noted earlier, Title X of the Dodd-Frank Act established the Consumer Financial Protection Bureau (“CFPB”), which

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became operational on July 21, 2011. Under the Dodd-Frank Act, the CFPB has
regulatory, supervisory and enforcement powers over providers of consumer
financial products, such as the Contracts and the Direct Loans that we offer,
including explicit supervisory authority to examine, audit, and investigate
companies offering a consumer financial product such as ourselves. Although the
Dodd-Frank Act expressly provides that the CFPB has no authority to establish
usury limits, efforts to create a federal usury cap, applicable to all consumer
credit transactions and substantially below rates at which the Company could
continue to operate profitably, are still ongoing. Any federal legislative or
regulatory action that severely restricts or prohibits the provision of consumer
credit and similar services on terms substantially similar to those we currently
provide could if enacted have a material, adverse impact on our business,
prospects, results of operations and financial condition. Some consumer advocacy
groups have suggested that certain forms of alternative consumer finance
products, such as installment loans, should be a regulatory priority and it is
possible that at some time in the future the CFPB could propose and adopt rules
making such lending or other products that we may offer materially less
profitable or impractical. Further, the CFPB may target specific features of
loans by rulemaking that could cause us to cease offering certain products. Any
such rules could have a material adverse effect on our business, results of
operations and financial condition. The CFPB could also adopt rules imposing new
and potentially burdensome requirements and limitations with respect to any of
our current or future lines of business, which could have a material adverse
effect on our operations and financial performance.

On October 5, 2017, the CFPB issued a final rule (the "Rule") imposing
limitations on (i) short-term consumer loans, (ii) longer-term consumer
installment loans with balloon payments, and (iii) higher-rate consumer
installment loans repayable by a payment authorization. The Rule requires
lenders originating short-term loans and longer-term balloon payment loans to
evaluate whether each consumer has the ability to repay the loan along with
current obligations and expenses ("ability to repay requirements"). The Rule
also curtails repeated unsuccessful attempts to debit consumers' accounts for
short-term loans, balloon payment loans, and installment loans that involve a
payment authorization and an Annual Percentage Rate over 36% ("payment
requirements"). The Rule has significant differences from the CFPB's proposed
rules announced on June 2, 2016, relating to payday, vehicle title, and similar
loans.

On February 6, 2019, the CFPB issued two notices of proposed rulemaking
regarding potential amendments to the Rule. First, the CFPB is proposing to
rescind provisions of the Rule, including the ability to repay requirements.
Second, the CFPB is proposing to delay the August 19, 2019 compliance date for
part of the Rule, including the ability to repay requirements. These proposed
amendments are not yet final and are subject to possible change before any final
amendments would be issued and implemented. We cannot predict what the ultimate
rulemaking will provide. The Company does not believe that these changes, as
currently described by the CFPB, would have a material impact on the Company's
existing lending procedures, because the Company currently underwrites all its
loans (including those secured by a vehicle title that would fall within the
scope of these proposals) by reviewing the customer's ability to repay based on
the Company's standards. Any regulatory changes could have effects beyond those
currently contemplated that could further materially and adversely impact our
business and operations. The Company will have to comply with the final rule's
payment requirements since it allows consumers to set up future recurring
payments online for certain covered loans such that it meets the definition of
having a "leveraged payment mechanism". The payment provisions of the final rule
are expected to go into effect on August 19, 2019. If the payment provisions of
the final rule apply, the Company will have to modify its loan payment
procedures to comply with the required notices within the mandated timeframes
set forth in the final rule.

The CFPB defines a "larger participant" of automobile financing if it has at
least 10,000 aggregate annual originations. The Company does not meet the
threshold of at least 10,000 aggregate annual direct loan originations, and
therefore would not fall under the CFPB's supervisory authority. The CFPB issued
rules regarding the supervision and examination of non-depository "larger
participants" in the automobile finance business. The CFPB's stated objectives
of such examinations are: to assess the quality of a larger participant's
compliance management systems for preventing violations of federal consumer
financial laws; to identify acts or practices that materially increase the risk
of violations of federal consumer finance laws and associated harm to consumers;
and to gather facts that help determine whether the larger participant engages
in acts or practices that are likely to violate federal consumer financial laws
in connection with its automobile finance business. At such time, if we become
or the CFPB defines us as a larger participant, we will be subject to
examination by the CFPB for, among other things, ECOA compliance; unfair,
deceptive or abusive acts or practices ("UDAAP") compliance; and the adequacy of
our compliance management systems.

We have continued to evaluate our existing compliance management systems. We
expect this process to continue as the CFPB promulgates new and evolving rules
and interpretations. Given the time and effort needed to establish, implement
and maintain adequate compliance management systems and the resources and costs
associated with being examined by the CFPB, such an examination could likely
have a material adverse effect on our business, financial condition and
profitability. Moreover, any such examination by the CFPB could result in the
assessment of penalties, including fines, and other remedies which could, in
turn, have a material effect on our business, financial condition, and
profitability.

Disputes and legal issues

See “Item 1. Legal Proceedings” in Part II of this quarterly report below.

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Critical accounting policy

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

The Company uses trailing twelve-month net charge-offs as a percentage of
average finance receivables, and applies this calculated percentage to ending
finance receivables to calculate estimated future probable credit losses for
purposes of determining the allowance for credit losses. The Company then takes
into consideration the composition of its portfolio, current economic
conditions, estimated net realizable value of the underlying collateral,
historical loan loss experience, delinquency, non-performing assets, and
bankrupt accounts and adjusts the above, if necessary, to determine management's
total estimate of probable credit losses and its assessment of the overall
adequacy of the allowance for credit losses. Management utilizes significant
judgment in determining probable incurred losses and in identifying and
evaluating qualitative factors. This approach aligns with the Company's lending
policies and underwriting standards.

If the allowance for credit losses is determined to be inadequate, then an
additional charge to the provision is recorded to maintain adequate reserves
based on management's evaluation of the risk inherent in the loan portfolio.
Conversely, the Company could identify abnormalities in the composition of the
portfolio, which would indicate the calculation is overstated and management
judgement may be required to determine the allowance of credit losses for both
Contracts and Direct Loans.

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

The Company 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 purchased have common risk
characteristics.

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 September 30, 2022, the dilutive loss per share was
$0.44 as compared to dilutive earnings per share of $0.21 for the three months
ended September 30, 2021. Net loss was $3.2 million for the three months ended
September 30, 2022 as compared to net income of $1.6 million for the three
months ended September 30, 2021. Interest and fee income on finance receivables
decreased 2.6% to $12.2 million for the three months ended September 30, 2022 as
compared to $12.6 million for the three months ended September 30, 2021.
Provision for credit losses increased 538.4% to $8.9 million for the three
months ended September 31, 2022 as compared to $1.4 million for the three months
ended September 30, 2021.


For the six months ended September 30, 2022, the dilutive loss per share was
$0.68 as compared to dilutive earnings per share of $0.44 for the six months
ended September 30, 2021. Net loss was $4.9 million for the six months ended
September 30, 2022 as compared to net income of $3.3 million for the six months
ended September 30, 2021. Interest and fee income on
finance receivables decreased 3.4% to $24.3 million for the six months ended
September 30, 2022 as compared to $25.2 million
for the six months ended September 30, 2021. Provision for credit losses
increased 490.6% to $12.6 million for the six months
ended September 31, 2022 as compared to $2.1 million for the six months ended
September 30, 2021.

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.

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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            Six months ended
                                                September 30,                September 30,
                                                (In thousands)               (In thousands)
                                             2022           2021          2022           2021
Portfolio Summary
Average finance receivables (1)            $ 178,636      $ 178,873     $ 178,902      $ 180,364
Average indebtedness (2)                   $  65,824      $  72,044     $  63,340      $  75,611
Interest and fee income on finance
receivables                                $  12,249      $  12,572     $  24,313      $  25,166
Interest expense                                 975          1,121         1,543          2,309
Net interest and fee income on finance
receivables                                $  11,274      $  11,451     $  22,770      $  22,857
Gross portfolio yield (3)                      27.43 %        28.11 %       27.18 %        27.91 %
Interest expense as a percentage of
average finance receivables                     2.18 %         2.51 %        1.72 %         2.56 %
Provision for credit losses as a
percentage of average finance
  receivables                                  19.94 %         3.12 %       14.03 %         2.36 %
Net portfolio yield (3)                         5.31 %        22.48 %       11.43 %        22.99 %
Operating expenses as a percentage of
average finance receivables                    16.46 %        17.70 %       18.80 %        18.04 %
Pre-tax yield as a percentage of average
finance receivables (4)                       (11.15 )%        4.78 %       (7.37 )%        4.95 %
Net charge-off percentage (5)                  12.38 %         4.88 %        9.43 %         4.23 %
Finance receivables                                                     $ 175,406      $ 177,013
Allowance percentage (6)                                                     4.04 %         2.52 %
Total reserves percentage (7)                                               

7.84% 6.50%

Note: All three-month and six-month revenue performance indicators expressed as a percentage 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
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. 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. (This is considered a non-GAAP financial measure).
(4)
Pre-tax yield represents net portfolio yield minus operating expenses
(marketing, salaries, employee benefits, depreciation, and administrative), as a
percentage of average finance receivables. (This is considered a non-GAAP
financial measure).
(5)
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).
(6)
Allowance percentage represents the allowance for credit losses divided by
finance receivables outstanding as of ending balance sheet date.
(7)
Total reserves percentage represents the allowance for credit losses, purchase
price discount, and unearned dealer discounts divided by finance receivables
outstanding as of ending balance sheet date.

Credit loss analysis

The Company uses a trailing twelve-month charge-off analysis to calculate the
allowance for credit losses and takes 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 believes that the allowance for
credit losses reflects the current trends of incurred losses within the
portfolio and is better aligned with the portfolio's performance indicators.

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.
Conversely, the Company could

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identify anomalies in the composition of the portfolio, which would indicate that the calculation is overstated and that management judgment may be required to determine the allowance for credit losses for 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 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 has allocated a specific reserve for Chapter 13 bankruptcy accounts using a retrospective method to calculate estimated losses. On the basis of this balance sheet, management has calculated a specific reserve of approximately $145,000 and $118,000 for these accounts from September 30, 2022 and September 30, 2021respectively.

The provision for credit losses increased to $8.9 million for the three months
ended on September 30, 2022, from $3.6 million for the three months ended on
June 30, 2022, due to a substantial increase in the net charge-off percentage.
The net charge-off percentage increased by approximately 91% to 12.4% for the
three months ended on September 30, 2022, from 6.5% for the three months ended
on June 30, 2022, and from 4.9% for the fiscal year ended September 30, 2021,
primarily resulting from increased delinquencies and loan defaults. (See note 5
in the Portfolio Summary table in the "Introduction" above for the definition of
net charge-off percentage). Management attributes these increased delinquencies
and loan defaults primarily to 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 foreseeable future, at levels higher than those
experienced in prior years for the same reasons.

The delinquency percentage for Contracts more than twenty-nine days past due,
excluding Chapter 13 bankruptcy accounts, as of September 30, 2022 was 11.2%, an
increase from 7.6% as of September 30, 2021. The delinquency percentage for
Direct Loans more than twenty-nine days past due, excluding Chapter 13
bankruptcy accounts, as of September 30, 2022 was 7.3%, an increase from 3.3% as
of September 30, 2021. The changes in delinquency percentage for both Contracts
and Direct Loans was driven primarily by market and economic pressure and its
adverse impact on consumers. The delinquency percentages were exceptionally
lower across the industry, current delinquency trends return to the pre-pandemic
levels.

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.

Three months completed September 30, 2022 compared to the three months ended September 30, 2021

Interest and commission income on financial receivables

Interest and fee income on finance receivables, which consist predominantly of
finance charge income, decreased 2.6% to $12.2 million for the three months
ended September 30, 2022, from $12.6 million for the three months ended
September 30, 2021. The decrease was primarily due to a 8.6% decrease in finance
receivables to $175.4 million for the three months ended September 30, 2022,
when compared to $177.0 million for the corresponding period ended September 30,
2021. The decrease in finance receivables was primarily the result of a
reduction in volume of Contracts purchased, average discount, and average APR.
While the reduction in volume continued a trend established under prior
management, the decline in average discount and average APR is primarily the
result of Company's operating strategy to stay competitive while maintaining
conservative underwriting practices.

The gross portfolio yield decreased to 27.4% for the three months ended
September 30, 2022, compared to 28.1% for the three months ended September 30,
2021. The net portfolio yield decreased to 5.3% for the three months ended
September 30, 2022, compared to 22.5% for the three months ended September 30,
2021. The substantial erosion in net portfolio yield was primarily caused by the
significant increase in the provision for credit losses, as described under
"Analysis of Credit Losses".

As part of the Company's restructuring and change in operating strategy
disclosed above, management expects that operating expenses will decline as the
Company transitions its servicing and collections activities to Westlake under
the Servicing Agreement, although the effects of this decline will likely not
begin materializing until the fourth quarter of fiscal year 2023. The Company
estimates that administrative costs with respect to the initial pool of
receivables serviced by Westlake will be as disclosed above under "Restructuring
and Change in Operating Strategy-Exit and Disposal Activities."


Functionnary costs

Operating expenses decreased to $7.4 million for the three months ended
September 30, 2022 compared to $7.9 million for the three months ended September 30, 2021. The decrease in operating expenses is mainly attributable to a reduction in salaries and

                                       23
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employee benefits expenses. Similarly, operating expenses as a percentage of
average finance receivables, also decreased to 16.5% for the three months ended
September 30, 2022 from 17.7% for the three months ended September 30, 2021.

Provision charge

The provision for credit losses increased to $8.9 million for the three months
ended September 30, 2022 from $1.4 million for the three months ended September
30, 2021, largely due to an increase in the net charge-off percentage to 12.4%
for the three months ended September 30, 2022 from 4.9% for the three months
ended September 30, 2021.

Interest Expense

Interest expense was $1.0 million for the three months ended September 30, 2022
and $1.1 million for the three months ended September 30, 2021. The following
table summarizes the Company's average cost of borrowed funds:

                                           Three months ended                Six months ended
                                              September 30,                    September 30,
                                         2022              2021            2022             2021
Variable interest under the Line of
Credit facility                              2.14 %            1.00 %          1.41 %          1.00 %
Credit spread under the Line of
Credit facility                              2.25 %            3.75 %          2.25 %          3.75 %
Average cost of borrowed funds               4.39 %            4.75 %       

3.66% 4.75%



SOFR rates have increased to 2.50%, which represents the daily SOFR rate as
required under our Wells Fargo Line of Credit, as of September 30, 2022 compared
to 0.1%, which represents the one-month LIBOR rate as required under our Line of
Credit, as of September 30, 2021. For further discussions regarding interest
rates see "Note 5. Credit Facility".

On October 20, 2022, the Company received a letter from the agent of its lenders
notifying the Company that it is instituting the default rate of interest of
2.5% imposed effective as of August 31, 2022 in connection with an event of
default that occurred by virtue of the Company failure to comply with Section
6.3(a) of the Loan Agreement (EBITDA Ratio) for the calendar month ending August
31, 2022. The effect of the imposition of the default rate of interest was an
additional interest expense of approximately $130 thousand for the quarter ended
September 30, 2022.

Income Taxes

The Company recorded an income tax benefit of approximately $958 thousand for
the three months ended September 30, 2022 compared to income tax expense of
approximately $536 thousand for the three months ended September 30, 2021. The
Company's effective tax rate decreased to 23.4% for the three months ended
September 30, 2021 from 25.1% for the three months ended September 30, 2021.

Six months ended September 30, 2022 compared to the six months ended September 30, 2021

Interest income and loan portfolio

Interest and fee income on finance receivables, decreased 3.4% to $24.3 million
for the six months ended September 30, 2022 from $25.2 million for the six
months ended September 30, 2021. The decrease was partly due to a lower average
discount and a 0.8% decrease in average finance receivables to $178.9 million
for the six months ended September 30, 2022 when compared to $180.4 million for
the corresponding period ended September 30, 2021. The decrease in average
finance receivables was primarily due to Company's commitment to maintaining its
conservative underwriting practices, that typically allow more aggressive
competitors to purchase a contract from a dealer.

The gross portfolio yield decreased to 27.2% for the six months ended September
30, 2022 compared to 27.9% for the six months ended September 30, 2021. The net
portfolio yield decreased to 11.4% for the six months ended September 30, 2022
compared to 23.0% for the six months ended September 30, 2021, respectively. The
substantial erosion in net portfolio yield was primarily caused by the
significant increase in the provision for credit losses, as described under
"Analysis of Credit Losses".

Functionnary costs

Operating expenses increased to approximately $16.8 million for the six months
ended September 30, 2022 from approximately $16.3 million for the six months
ended September 30, 2021. Operating expenses as a percentage of average finance
receivables increased to 18.8% for the six months ended September 30, 2022 from
18.0% for the six months ended September 30, 2021. The

                                       24
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the percentage increase is attributable to an increase in administrative expenses and a decrease in average financial receivable balances.

The disclosure on future operating expenses under "Three months ended September
30, 2022 compared to three months ended September 30, 2021-Operating Expenses"
is incorporated herein by reference.

Provision charge

Provision for credit losses increased to $12.6 for the six months ended
September 30, 2022 of $2.1 million for the six months ended September 30, 2021largely due to an increase in net write-off percentage to 9.4% for the six months ended September 30, 2022 4.2% for the half-year ended
September 30, 2021.

Interest charges

Interest charges were $1.5 million for the six months ended September 30, 2022
and $2.3 million for the six months ended September 30, 2021.

Income taxes

The Company recorded a tax saving of approximately $1.6 million for the six months ended September 30, 2022 compared to an income tax charge of approximately $1.1 million for the six months ended September 30, 2021. The Company’s effective tax rate decreased to 24.4% for the six months ended
September 30, 2022 25.4% for the half-year ended September 30, 2021.

Procurement

As of September 30, 2022, the Company purchased Contracts in the states listed
in the table below. The Contracts purchased by the Company are predominantly for
used vehicles; for the three-month periods ended September 30, 2022 and 2021,
less than 1% were for new vehicles.

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

             As of            Three months ended          Six months ended
         September 30,           September 30,              September 30,
             2022              2022          2021         2022         2021
           Number of             Net Purchases              Net Purchases
State      branches             (In thousands)             (In thousands)
FL                    8     $    3,878     $  2,798     $  8,627     $  6,232
OH                    6          3,219        2,885        6,202        6,138
GA                    5          1,928        2,403        4,687        5,417
KY                    2          1,120        1,135        2,621        2,798
MO                    2          1,159        1,332        2,549        2,785
NC                    3          1,910        1,827        3,750        2,958
IN                    2          1,008        1,071        2,118        2,079
SC                    2            977        1,242        2,318        2,212
AL                    2          1,460          964        2,526        1,783
MI                    -             64          513          514        1,303
NV                    1            535          656        1,103        1,194
TN                    1            619          486          915          964
IL                    1            463          307          952          746
PA                    1            466          372        1,080          732
TX                    -             68          328          594          663
WI                    -             80          234          344          520
ID                    -             40          203          335          374
UT                    -             23           86           94          231
AZ                    -             65           38           89           56
KS                    -              -            -           18            -
Total                36     $   19,082     $ 18,880     $ 41,436     $ 39,185




                                       25
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                                Three months ended                   Six months ended
                                   September 30,                       September 30,
                             (Purchases in thousands)            (Purchases in thousands)
       Contracts              2022               2021             2022               2021
Purchases                 $     19,082       $     18,880     $     41,436       $     39,185
Average APR                       22.7 %             23.0 %           22.8 %             23.1 %
Average discount                   6.4 %              6.7 %            6.5 %              6.9 %
Average term (months)               48                 47               48                 47
Average amount financed   $     11,964       $     11,061     $     11,758       $     10,745
Number of Contracts              1,595              1,707            3,530              3,654




Direct Loan Origination

The following table presents selected information on the direct loans granted by the Company.

                                                  Three months ended                      Six months ended
                                                     September 30,                          September 30,
              Direct Loans                    (Originations in thousands)            (Originations in thousands)
               Originated                      2022                2021               2022                 2021
Purchases/Originations                     $       6,527       $       7,040     $       14,742       $       12,777
Average APR                                         30.3 %              30.0 %             30.8 %               30.1 %
Average term (months)                                 25                  26                 25                   26
Average amount financed                    $       4,574       $       4,433     $        4,351       $        4,396
Number of loans                                    1,427               1,588              3,417                2,904



Cash and capital resources

The Company’s cash flows are summarized as follows:

                                 Six months ended
                                  September 30,
                                  (In thousands)
                                2022         2021
Cash provided by (used in):
Operating activities          $   (970 )   $   1,474
Investing activities            (1,279 )       6,722
Financing activities            (1,023 )     (18,322 )
Net decrease in cash          $ (3,272 )   $ (10,126 )



The Company's primary use of working capital for the quarter ended September 30,
2022 was funding the purchase of Contracts, which are financed substantially
through cash from principal and interest payments received, and the Company's
line of credit.

On November 5, 2021, NFI and its direct parent, Nicholas Data Services, Inc.
("NDS" and collectively with NFI, the "Borrowers"), entered into a senior
secured credit facility (the "WF Credit Facility") pursuant to a loan and
security agreement by and among the Borrowers, Wells Fargo Bank, N.A., as agent,
and the lenders that are party thereto (the "WF Credit Agreement"). The Ares
Credit Facility was paid off in connection with entering into the WF Credit
Facility.

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

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

The WF Credit Agreement and the other loan documents contain customary events of
default and negative covenants, including but not limited to those governing
indebtedness, liens, fundamental changes, investments, and sales of assets. If
an event of default

                                       26
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occurs, the lenders could increase borrowing costs, restrict the Borrowers'
ability to obtain additional advances under the WF Credit Facility, accelerate
all amounts outstanding under the WF Credit Facility, enforce their interest
against collateral pledged under the WF Credit Facility or enforce such other
rights and remedies as they have under the loan documents or applicable law as
secured lenders.

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

On October 20, 2022, the Company received a letter from the agent of the lenders
under the WF Credit Facility notifying the Company that the agent is instituting
the default rate of interest of 2.5% effective as of August 31, 2022 in
connection with an event of default that occurred by virtue of the Company's
failure to comply with Section 6.3(a) of the Loan Agreement (EBITDA Ratio) for
the calendar month ended August 31, 2022. The effect of the imposition of the
default rate of interest was an additional approximately $130 thousand in
interest for the quarter ended September 30, 2022. The Company expects that an
additional approximately $118 thousand in interest will be incurred per month
while the default rate remains in place. For the calendar months ended September
30, 2022 and October 31, 2022, the Company also failed to comply with the EBITDA
Ratio under the WF Credit Facility. The Company is working with Wells Fargo to
address the default, and is also negotiating a refinancing opportunity with an
alternative source. There can be no assurances that the Company will be
successful in addressing the default or entering into a successor agreement on
favorable terms or at all.

The Company will continue to depend on the availability the WF Credit Facility,
together with cash from operations, to finance future operations. The
availability of funds under the WF Credit Facility generally depends on
availability calculations as defined in the WF Credit Agreement. See also the
disclosure in Note 5. Credit Facility in this Form 10-Q, which is incorporated
herein by reference.

On May 27, 2020, the Company obtained a loan in the amount of approximately $3.2
million from a bank in connection with the U.S. Small Business Administration's
("SBA") Paycheck Protection Program (the "PPP Loan"). Pursuant to the Paycheck
Protection Program, all or a portion of the PPP Loan may be forgiven if the
Company uses the proceeds of the PPP Loan for its payroll costs and other
expenses in accordance with the requirements of the Paycheck Protection Program.
The Company used the proceeds of the PPP Loan for payroll costs and other
covered expenses and sought full forgiveness of the PPP Loan. The Company
submitted a forgiveness application to Fifth Third Bank, the lender, on December
7, 2020 and submitted supplemental documentation on January 16, 2021. On
December 27, 2021 SBA informed the Company that no forgiveness was granted. The
Company filed an appeal with SBA on January 5, 2022. On May 6, 2022 the Office
of Hearing and Appeals SBA (OHA) rendered a decision to deny the appeal. The
Company subsequently repaid the outstanding principal balance of $3.2 million
plus accrued and unpaid interest of $65 thousand on May 23, 2022.

The Company has begun its restructuring process to substantially decrease
operating expenses and is developing a strategy with respect to its long-term
use of cash. The related disclosure contained in "Restructuring and Change in
Operating Strategy" is incorporated herein by reference.

Off-balance sheet arrangements

The Company does not engage in any off-balance sheet financing arrangements.

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