Forward-Looking Information

This report on Form 10-Q contains various statements, other than those concerning historical information, that are based on management's 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. When used in this document, the words "anticipate", "estimate", "expect", and similar expressions are intended to identify forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties and assumptions. 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 fluctuations in the economy, the ability to access bank financing, the degree and nature of competition, demand for consumer financing in the markets served by the Company, the Company's products and services, increases in the default rates experienced on 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, to recruit and retain qualified employees, to expand into new markets and to maintain profit margins in the face of increased pricing competition. All forward looking statements included in this report are based on information available to the Company on the date hereof, and the Company assumes no obligations to update any such forward looking statement. You should also consult factors described from time to time in the Company's filings made with the Securities and Exchange Commission, including its reports on Form 10-K, 10-Q, 8-K and annual reports to shareholders.

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 in the existing portfolio. The allowance for credit losses is established through allocations of dealer discount and a provision for loss based on management's evaluation of the risk inherent in the loan portfolio, the composition of the portfolio, specific impaired loans and current economic conditions. Such evaluation, which includes a review of all loans on which full collectibility may not be reasonably assured, considers among other matters, the estimated net realizable value or the 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 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, credit history, and the types of vehicles purchased in each market. Each such static pool consists of the Contracts purchased by a branch office during the fiscal quarter.

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 state maximum interest rates or the maximum interest rate at which the customer will accept. In certain 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 only buys Contracts on an individual basis and never purchases Contracts in batches, although the Company does consider portfolio acquisitions as part of its growth strategy.

The Company has detailed underwriting guidelines it utilizes to determine which Contracts to purchase. These guidelines are specific and are designed to cause all of the Contracts that the Company purchases to have common risk characteristics. The Company utilizes its District Managers to evaluate their respective branch locations for adherence to these underwriting guidelines. The Company also utilizes a loss recovery department to assure adherence to its underwriting guidelines. The Company utilizes the branch model, which allows for Contract purchasing to be done on the branch level. Each Branch Manager may interpret the guidelines differently, and as a result, the common risk characteristics tend to be the same on an individual branch level but not necessarily compared to another branch.

A dealer discount represents the difference between the finance receivable, net of unearned interest, of a Contract, and the amount of money the Company actually pays for the Contract. The discount negotiated by the Company is a function of the credit quality of the customer and the wholesale value of the vehicle. The automotive dealer accepts these terms by executing a dealer agreement with the Company. The entire amount of discount is related to credit quality and is considered to be part of the allowance for credit losses. The Company utilizes a static pool approach to track portfolio performance. A static pool retains an amount equal to 100% of the discount as a reserve for credit losses.

Subsequent to the purchase, if the reserve for credit losses is determined to be inadequate for a static pool, which is not fully liquidated, then an additional charge to income through the provision is used to reestablish adequate reserves. For static pools not fully liquidated that are deemed to have excess reserves, such amounts are then considered when calculating the provision for credit losses on specific pools. If a static pool is fully liquidated and has any remaining reserves, these excess reserves are immediately reversed during the period.

In analyzing a static pool, the Company considers the performance of prior static pools originated by the branch office, the performance of prior Contracts purchased from the dealers whose Contracts are included in the current static pool, the credit rating of the customers under the Contracts in the static pool, 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.

Introduction

Consolidated net income decreased to approximately $235,000 for the three-month period ended December 31, 2008 as compared to $2.2 million for the corresponding period ended December 31, 2007. Consolidated net income decreased to $2.6 million for the nine-month period ended December 31, 2008 as compared to $7.6 million for the corresponding period ended December 31, 2007. Net income for the three and nine months ended December 31, 2008 includes a pre-tax charge of $1.7 million related to the non-cash unrealized mark-to-market interest rate swap losses. Earnings were negatively impacted primarily by an increase in the provision for credit losses, which was driven by increased charge-off rates and to a lesser extent an increase in operating expenses as a percentage of average finance receivables, net of unearned interest. The Company's software subsidiary, Nicholas Data Services ("NDS"), did not contribute significantly to consolidated operations in the three or nine months ended December 31, 2008 or 2007, respectively.

As discussed in note 6 "Interest Rate Swaps", the Company made an economic decision which resulted in undesignating the interest rate swaps as cash flow hedges. Under accounting rules this has introduced volatility to the statement of income for changes in the fair value of interest rate swaps that historically have been captured in accumulated comprehensive income or loss in the statement of shareholders' equity. The Company intends to hold interest rate swaps through there entire term. Accordingly, over the term of each interest rate swap agreement, the unrealized gains and losses from changes in the fair value of interest rate swaps, which are now recorded in the unrealized mark-to-market loss on interest rate swaps line item of the statement of income, will net or offset to $0 and cumulatively have no impact on retained earnings.

For the three months ended December 31, 2008, net earnings, excluding non-cash unrealized mark-to-market loss on interest rate swaps, decreased 43% to $1.3 million compared to $2.2 million for the three months ended December 31, 2007. Per share diluted net earnings, excluding non-cash unrealized mark-to-market loss on interest rate swaps, decreased 45% to $0.12 for the three months ended December 31, 2008 as compared to $0.22 for the three months ended December 31, 2007. See reconciliations of the non-GAAP measures on the following page.

For the nine months ended December 31, 2008, net earnings, excluding non-cash unrealized mark-to-market loss on interest rate swaps, decreased 53% to $3.6 million as compared to $7.6 million for the nine months ended December 31, 2007. Per share diluted net earnings, excluding non-cash unrealized mark-to-market loss on interest rate swaps, decreased 53% to $0.35 for the nine months ended December 31, 2008 as compared to $0.74 for the nine months ended December 31, 2007. See reconciliations of the non-GAAP measures on the following page.

Reconciliation of Non-GAAP Financial Measures

This filing contains disclosures of non-GAAP financial measures including: net earnings, excluding non-cash unrealized mark-to-market loss on interest rate swaps and per share diluted net earnings, excluding non-cash unrealized mark-to-market loss on interest rate swaps. These measures utilize the GAAP terms "net income" and "diluted earnings per share" and adjust the GAAP terms to exclude the effect of mark to market adjustments and reclassifications of previously recorded accumulated comprehensive losses associated with interest rate swaps. Management believes this presentation provides additional and meaningful measures for the assessment of the Company's ongoing results and performance. Because the Company has historically reported mark-to-market (interest rate swaps) through other comprehensive income under hedge accounting, management believes that the inclusion of this non-GAAP measure provides consistency in its financial reporting and facilitates investors' understanding of the Company's historic operating trends by providing an additional basis for comparisons to prior periods. Management recognizes that the use of non-GAAP measures has limitations, including the fact that they may not be directly comparable with similar non-GAAP financial measures used by other companies. All non-GAAP financial measures are intended to supplement the applicable GAAP disclosures and should not be considered in isolation from, or as substitute for, financial information prepared in accordance with GAAP. For a reconciliation of non-GAAP measures from GAAP reported amounts, please see the supplemental information below.

The following tables include reconciliations of GAAP reported net income to the non-GAAP measure, net earnings, excluding non-cash unrealized mark-to-market loss on interest rate swaps as well as GAAP reported diluted earnings per share to the non-GAAP measure, per share diluted net earnings, excluding non-cash unrealized mark-to-market loss on interest rate swaps. The non-GAAP measures exclude the effect of mark-to-market adjustments and reclassifications of previously recorded accumulated comprehensive losses associated with interest rate swaps.

                                                 Three months ended           Nine months ended
                                                    December 31,                December 31,
                                                 2008          2007          2008          2007
Net income, GAAP                              $   234,905   $ 2,236,424   $ 2,584,441   $ 7,616,930
Mark-to-market of interest rate swaps (net
of tax of $632,316)                             1,031,904            -      1,031,904            -

Net earnings, excluding non-cash unrealized
mark-to-market loss on interest rate swaps
(a)                                           $ 1,266,809   $ 2,236,424   $ 3,616,345   $ 7,616,930


                                                 Three months ended           Nine months ended
                                                    December 31,                December 31,
                                                 2008          2007          2008          2007
Diluted earnings per share, GAAP              $      0.02   $      0.22   $      0.25   $      0.74
Per diluted share mark-to-market of
interest rate swaps                           $      0.10            -    $      0.10            -

Per share diluted net earnings, excluding
non-cash unrealized mark-to-market loss on
interest rate swaps (a)                       $      0.12   $      0.22   $      0.35   $      0.74

(a) Represents a non-GAAP financial measure. See information on non-GAAP financial measures above.

                                             Three months ended                    Nine months ended
                                                December 31,                          December 31,
Portfolio Summary                         2008               2007               2008               2007
Average finance receivables, net
of unearned interest (1)              $ 208,438,920      $ 192,408,861      $ 206,814,055      $ 189,618,834

Average indebtedness (2)              $ 104,109,909      $  98,899,680      $ 103,705,519      $  96,177,013

Finance revenue (3)                   $  13,239,373      $  12,593,397      $  39,830,500      $  37,301,655

Interest expense                          1,268,669          1,610,758          4,109,682          4,842,628


Net finance revenue                   $  11,970,704      $  10,982,639      $  35,720,818      $  32,459,027


Weighted average contractual rate
(4)                                           23.90 %            24.14 %            24.17 %            24.25 %


Average cost of borrowed funds (2)             4.87 %             6.51 %             5.28 %             6.71 %


Gross portfolio yield (5)                     25.41 %            26.18 %            25.68 %            26.23 %

Interest expense as a percentage
of average finance receivables,
net of unearned interest                       2.43 %             3.35 %             2.65 %             3.41 %

Provision for credit losses as a
percentage of average finance
receivables, net of unearned
interest                                       8.77 %             5.09 %             8.46 %             3.67 %


Net portfolio yield (5)                       14.21 %            17.74 %            14.57 %            19.15 %

Marketing, salaries, employee
benefits, depreciation and
administrative expenses as a
percentage of average finance
receivables, net of unearned
interest (6)                                  10.22 %            10.27 %            10.67 %            10.46 %


Pre-tax yield as a percentage of
average finance receivables, net
of unearned interest (7)                       3.99 %             7.47 %             3.90 %             8.69 %


Write-off to liquidation (8)                  14.62 %            10.35 %            12.90 %             8.77 %

Net charge-off percentage (9)                 11.15 %             9.51 %            10.27 %             7.98 %

Note: All three and nine month key 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. Average cost of borrowed funds represents interest expense as a percentage of average indebtedness.

(3) Finance revenue is interest and fee income on finance receivables and does not include sales revenue generated by NDS.

(4) Weighted average contractual rate represents the weighted average annual percentage rate ("APR") of all Contracts purchased and direct loans originated during the period.

(5) Gross portfolio yield represents finance revenue as a percentage of average finance receivables, net of unearned interest. Net portfolio yield represents finance revenue minus (a) interest expense and (b) the provision for credit losses as a percentage of average finance receivables, net of unearned interest.

(6) Administrative expenses included in the calculation above are net of administrative expenses associated with NDS which approximated $48,000 during each of the three-month periods ended December 31, 2008 and 2007 and $259,000 and $150,000 during the nine-month periods ended December 31, 2008 and 2007, respectively.

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

(8) 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 minus voids and refinances minus ending receivable balance.

(9) Net charge-off percentage represents net charge-offs divided by average finance receivables, net of unearned interest, outstanding during the period.

Three months ended December 31, 2008 compared to three months ended December 31, 2007

Interest Income and Loan Portfolio

Interest income on finance receivables, predominately finance charge income, increased 5% to approximately $13.2 million for the three-month period ended December 31, 2008, from $12.6 million for the corresponding period ended December 31, 2007. Average finance receivables, net of unearned interest equaled approximately $208.4 million for the three-month period ended December 31, 2008, an increase of 8% from $192.4 million for the corresponding period ended December 31, 2007. The primary reason average finance receivables, net of unearned interest, increased was the increase in the receivable base of several existing branches in younger markets during fiscal 2008 and the first six months of fiscal 2009. The gross finance receivable balance increased 9% to approximately $291.5 million as of December 31, 2008 from $267.3 million as of December 31, 2007. The primary reason interest income increased was the increase in the outstanding loan portfolio. The gross portfolio yield decreased from 26.18% for the three-month period ended December 31, 2007 to 25.41% for the three-month period ended December 31, 2008. The net portfolio yield decreased from 17.74% for the three-month period ended December 31, 2007 to 14.21% for the corresponding period ended December 31, 2008. The gross portfolio yield decreased due to reduced accretion of discounts as compared to the prior year (see discussion under "Analysis of Credit Losses" below). The net portfolio yield decreased due to the above factor plus the effect of additional provision in response to increased charge-off rates.

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

Marketing, salaries, employee benefits, depreciation and administrative expenses increased to approximately $5.4 million for the three-month period ended December 31, 2008 from approximately $5.0 million for the corresponding period ended December 31, 2007. This increase of 8% was primarily attributable to the additional staffing of several existing branches in younger markets and increased general operating expenses. Marketing, salaries, employee benefits, depreciation, and administrative expenses as a percentage of finance receivables, net of unearned interest, decreased to 10.22% for the three-month period ended December 31, 2008 from 10.27% for the three-month period ended December 31, 2007.

Interest Expense

Interest expense decreased to approximately $1.3 million for the three-month period ended December 31, 2008 from $1.6 million for the three-month period ended December 31, 2007. The average indebtedness for the three-month period ended December 31, 2008 increased to approximately $104.1 million as compared to $98.9 million for the corresponding period ended December 31, 2007. The Company's average cost of borrowed funds decreased to 4.87% for the three-month period ended December 31, 2008 as compared to 6.51% for the corresponding period ended December 31, 2007. The primary reasons the Company's average cost of funds decreased is the weighted-average 30-day LIBOR rate decreased from 5.02% for the three months ended December 31, 2007 as compared to 2.89% for the three months ended December 31, 2008 and the Company's decision, based on credit market events that transpired in October of 2008, to elect a prime rate pricing option for the month of October 2008, which resulted in a lower interest rate than the LIBOR pricing option for October of 2008. The reduction in 30-day LIBOR rates was offset in part by the Company's interest rate swap agreements, which convert a portion of the Company's floating rate debt to fixed rate debt. For further discussions regarding the Company's cost of funds and the effect of interest rate swap agreements see note 6 - "Interest Rate Swaps".

Nine months ended December 31, 2008 compared to nine months ended December 31, 2007

Interest Income and Loan Portfolio

Interest income on finance receivables, predominately finance charge income, increased 7% to approximately $39.8 million for the nine-month period ended December 31, 2008, from approximately $37.3 million for the corresponding period ended December 31, 2007. Average finance receivables, net of unearned interest equaled approximately $206.8 million for the nine-month period ended December 31, 2008, an increase of 9% from approximately $189.6 million for the corresponding period ended December 31, 2007. The primary reason average finance receivables, net of unearned interest, increased was the increase in the receivable base of several existing branches in younger markets during fiscal 2008 and the first six months of fiscal 2009. The gross finance receivable balance increased 9% to approximately $291.5 million as of December 31, 2008 from $267.3 million as of December 31, 2007. The primary reason interest income increased was the increase in the outstanding loan portfolio. The gross portfolio yield decreased from 26.23% for the nine-month period ended December 31, 2007 to 25.68% for the nine-month period ended December 31, 2008. The net portfolio yield decreased from 19.15% for the nine-month period ended December 31, 2007 to 14.57% for the corresponding period ended December 31, 2008. The gross portfolio yield decreased due to reduced accretion of discounts as compared to the prior year (see discussion under "Analysis of Credit Losses" below). The net portfolio yield decreased due to the above factor plus the effect of additional provision in response to increased charge-off rates.

Marketing, Salaries, Employee Benefits, Depreciation and Administrative Expenses

Marketing, salaries, employee benefits, depreciation and administrative expenses increased to approximately $16.8 million for the nine-month period ended December 31, 2008 from approximately $15.0 million for the corresponding period ended December 31, 2007. This increase of 12% was primarily attributable to the additional staffing of several existing branches in younger markets and increased general operating expenses. Marketing, salaries, employee benefits, depreciation and administrative expenses as a percentage of finance receivables, net of unearned interest, increased to 10.67% for the nine-month period ended December 31, 2008 from 10.46% for the nine-month period ended December 31, 2007.

Interest Expense

Interest expense decreased to approximately $4.1 million for the nine-month period ended December 31, 2008 from $4.8 million for the nine-month period ended December 31, 2007. The average indebtedness for the nine-month period ended December 31, 2008 increased to approximately $103.7 million as compared to $96.2 million for the corresponding period ended December 31, 2007. The Company's average cost of borrowed funds decreased to 5.28% for the nine-month period ended December 31, 2008 as compared to 6.71% for the corresponding period ended December 31, 2007. The primary reason the Company's average cost of funds decreased is the weighted-average 30-day LIBOR rate decreased from 5.23% for the nine months ended December 31, 2007 as compared to 2.67% for the nine months ended December 31, 2008. The reduction in 30-day LIBOR rates was offset in part by the Company's interest rate swap agreements, which convert a portion of the Company's floating rate debt to fixed rate debt. For further discussions regarding the Company's cost of funds and the effect of interest rate swap agreements see note 6 - "Interest Rate Swaps".

Contract Procurement

The Company purchases Contracts in the twelve 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, 2008 and 2007, less than 3% were for new vehicles. As of December 31, 2008, the average model year of vehicles collateralizing the portfolio was a 2003 vehicle.

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

                         Three months ended             Nine months ended
                            December 31,                  December 31,
             State       2008           2007           2008           2007
             FL      $  8,232,199   $ 10,881,386   $ 31,900,120   $ 36,255,569
             GA         2,323,341      2,024,286      8,245,818      8,997,984
             NC         1,833,047      2,934,295      8,164,930      9,208,081
             SC           383,500        638,304      1,672,662      2,870,616
             OH         3,326,428      3,633,921     11,699,003     10,292,674
             MI           746,055        446,308      2,100,454      1,338,732
             VA           787,132      1,181,912      3,591,065      2,907,605
             IN         1,598,370        581,405      5,163,710      2,303,757
. . .