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 may 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 performs internal branch audits 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 credit loss reserve. 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. If a static pool is fully liquidated and has any remaining reserves, the excess discounts are immediately recognized into income and the excess provision is immediately reversed during the period. For static pools not fully liquidated that are determined to have excess discounts, such excess amounts are accreted into income over the remaining life of the static pool. For static pools not fully liquidated that are deemed to have excess reserves, such excess amounts are reversed against provision for credit losses 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 quarterly to determine if the loss reserves are adequate and adjustments are made if they are determined to be necessary.

Introduction

Consolidated net income increased to approximately $2.3 million for the three-month period ended June 30, 2009 as compared to $1.6 million for the corresponding period ended June 30, 2008. Net income for the three months ended June 30, 2009 includes a pre-tax gain of approximately $297,000 related to the change in fair value of interest rate swaps. Earnings were favorably impacted primarily by an increase in the average net receivables, a decrease in operating expenses as a percentage of average finance receivables, net of unearned interest and a decrease in the average cost of borrowed funds. The Company's software subsidiary, Nicholas Data Services ("NDS"), did not contribute significantly to consolidated operations in the three months ended June 30, 2009 or 2008, 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 change in fair value of 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 June 30, 2009, net earnings, excluding changes in fair value of interest rate swaps, increased 31% to $2.1 million compared to $1.6 million for the three months ended June 30, 2008. Per share diluted net earnings, excluding changes in fair value of interest rate swaps, increased 33% to $0.20 for the three months ended June 30, 2009 as compared to $0.15 for the three months ended June 30, 2008. 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 changes in fair value of interest rate swaps and per share diluted net earnings, excluding changes in fair value of 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 gains and 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 changes in fair value of interest rate swaps as well as GAAP reported diluted earnings per share to the non-GAAP measure, per share diluted net earnings, excluding changes in fair value of 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
                                                                       June 30,
                                                                2009              2008
Net income, GAAP                                             $ 2,263,899       $ 1,557,693
Mark-to-market of interest rate swaps, net of tax
(expense) of ($114,441)                                         (182,863 )              -

Net earnings, excluding changes in fair value of interest
rate swaps (a)                                               $ 2,081,036       $ 1,557,693


                                                                  Three months ended
                                                                       June 30,
                                                                2009              2008
Diluted earnings per share, GAAP                             $      0.22       $      0.15
Per diluted share mark-to-market of interest rate swaps      $     (0.02 )     $        -

Per share diluted net earnings, excluding changes in fair
value of interest rate swaps (a)                             $      0.20       $      0.15

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

                                                              Three months ended
Portfolio Summary                                                  June 30,
                                                          2009                 2008

Average finance receivables, net of unearned
interest (1)                                          $ 215,721,582        $ 203,328,823


Average indebtedness (2)                              $ 102,991,423        $ 101,856,230


Finance revenue (3)                                   $  13,673,272        $  13,103,966

Interest expense                                          1,272,677            1,409,336


Net finance revenue                                   $  12,400,595        $  11,694,630


Weighted average contractual rate (4)                         23.93 %              24.28 %


Average cost of borrowed funds (2)                             4.94 %               5.53 %


Gross portfolio yield (5)                                     25.35 %              25.78 %

Interest expense as a percentage of average
finance receivables, net of unearned interest                  2.36 %               2.77 %

Provision for credit losses as a percentage of
average finance receivables, net of unearned
interest                                                       6.16 %               6.69 %


Net portfolio yield (5)                                       16.83 %              16.32 %

Marketing, salaries, employee benefits,
depreciation and administrative expenses as a
percentage of average finance receivables, net of
unearned interest (6)                                         10.49 %              11.10 %


Pre-tax yield as a percentage of average finance
receivables, net of unearned interest (7)                      6.34 %               5.22 %


Write-off to liquidation (8)                                  10.80 %              11.24 %

Net charge-off percentage (9)                                  7.72 %               9.39 %

Note: All three 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 $52,000 and $202,000 during the three-month periods ended June 30, 2009 and 2008, 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 June 30, 2009 compared to three months ended June 30, 2008

Interest Income and Loan Portfolio

Interest income on finance receivables, predominately finance charge income, increased 5% to approximately $13.7 million for the three-month period ended June 30, 2009, from $13.1 million for the corresponding period ended June 30, 2008. Average finance receivables, net of unearned interest equaled approximately $215.7 million for the three-month period ended June 30, 2009, an increase of 6% from $203.3 million for the corresponding period ended June 30, 2008. 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 2009 and the first three months of fiscal 2010. The gross finance receivable balance increased 5% to approximately $307.9 million as of June 30, 2009, from $292.1 million as of June 30, 2008. The primary reason interest income increased was the increase in the outstanding loan portfolio. The gross portfolio yield decreased from 25.78% for the three-month period ended June 30, 2008 to 25.35% for the three-month period ended June 30, 2009. The net portfolio yield increased from 16.32% for the three-month period ended June 30, 2008 to 16.83% for the corresponding period ended June 30, 2009. The gross portfolio yield decreased primarily due to a lower weighted annual percentage rate ("APR") earned on finance receivables. The net portfolio yield increased due to a decrease in the average cost of borrowed funds and a reduction in the provision for credit losses.

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

Marketing, salaries, employee benefits, depreciation and administrative expenses decreased to approximately $5.7 million for the three-month period ended June 30, 2009 from approximately $5.8 million for the corresponding period ended June 30, 2008. Marketing, salaries, employee benefits, depreciation, and administrative expenses as a percentage of finance receivables, net of unearned interest, decreased to 10.49% for the three-month period ended June 30, 2009 from 11.10% for the three-month period ended June 30, 2008.

Interest Expense

Interest expense decreased to approximately $1.3 million for the three-month period ended June 30, 2009 from $1.4 million for the three-month period ended June 30, 2008. The average indebtedness for the three-month period ended June 30, 2009 increased to approximately $104.0 million as compared to $101.9 million for the corresponding period ended June 30, 2008. The Company's average cost of borrowed funds decreased to 4.94% for the three-month period ended June 30, 2009 as compared to 5.53% for the corresponding period ended June 30, 2008. The primary reasons the Company's average cost of funds decreased is the weighted-average 30-day LIBOR rate decreased from 2.65% for the three months ended June 30, 2008 as compared to 0.41% for the three months ended June 30, 2009. The reduction in 30-day LIBOR rates was offset in part by the Company's interest rate swap agreements, which convert a majority 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 Swap Agreements".

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-month periods ended June 30, 2009 and 2008, less than 3% were for new vehicles. As of June 30, 2009, the average model year of vehicles collateralizing the portfolio was a 2004 vehicle.

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

                                     Three months ended
                                          June 30,
                         State       2009           2008
                         FL      $ 11,550,590   $ 13,600,755
                         GA         3,015,352      3,416,819
                         NC         3,084,921      3,341,600
                         SC           621,153        670,825
                         OH         4,431,835      4,384,934
                         MI           955,819        537,659
                         VA           937,103      1,531,276
                         IN         1,749,481      1,668,400
                         KY         2,083,609      1,777,912
                         MD           310,884        637,781
                         AL           852,626      1,122,933
                         TN           495,894        633,557

                         Total   $ 30,089,267   $ 33,324,451

                                                  Three months ended
                                                       June 30,
           Contracts                            2009              2008
           Purchases                        $ 30,089,267      $ 33,324,451
           Weighted APR                            23.83 %           24.19 %
           Average discount                         9.29 %            8.87 %
           Weighted average term (months)             49                49
           Average loan                     $      9,444      $      9,554
           Number of contracts                     3,186             3,488

Loan Origination

The following table presents selected information on direct loans originated by
the Company, net of unearned interest.



                                                  Three months ended
                                                       June 30,
             Direct Loans Originated            2009            2008
             Originations                     $ 949,722      $ 1,228,249
             Weighted APR                         27.04 %          26.81 %
             Weighted average term (months)          23               26
             Average loan                     $   2,595      $     2,773
             Number of loans                        366              443

Analysis of Credit Losses

As of June 30, 2009, the Company had 959 active static pools. The average pool upon inception consisted of 63 Contracts with aggregate finance receivables, net of unearned interest, of approximately $586,000.

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts.

                                                   Three months ended
                                                        June 30,
                                                 2009              2008
          Balance at beginning of period     $ 24,926,076      $ 20,112,260
          Discounts acquired on new volume      2,763,411         2,894,144
          Losses absorbed                      (4,608,484 )      (5,093,878 )
          Current period provision              3,245,071         3,141,292
          Recoveries                              446,975           424,157
          Discounts accreted                     (192,795 )        (277,303 )

          Balance at end of period           $ 26,580,254      $ 21,200,672

The following table sets forth a reconciliation of the changes in the allowance for credit losses on direct loans.

                                                 Three months ended
                                                      June 30,
                                                2009            2008
             Balance at beginning of period   $ 513,067      $  335,057
             Current period provision            77,885         261,163
             Losses absorbed                    (66,523 )      (170,056 )
             Recoveries                          13,656          20,331

             Balance at end of period         $ 538,085      $  446,495

The Company continues to see deterioration in the overall performance of its Contract portfolio, more specifically, static pools originated since June 30, 2006 have seen an increase in the default rate when compared to the preceding years pool performance during their same liquidation cycle. The Company attributes this increase to weakness in the consumer credit cycle and weakness in employment during that timeframe. However, pools originated during 2008 are experiencing lower default rates than pools originated during 2007. As a result, the Company experienced a lower net charge-off percentage of 7.72% during the three-month period ended June 30, 2009 as compared to 9.39% for the three-month period ended June 30, 2008.

The average dealer discount associated with new volume for the three months ended June 30, 2009 and 2008 were 9.29% and 8.87%, respectively. The Company believes the increase in the average dealer discount was the result of the marketplace pricing in additional risk of defaults in a weak economy. The Company intends to remain focused on maintaining these increased discount levels to help off-set the rising loss rates it has been experiencing.

The provision for credit losses decreased from approximately $3.4 million for the three-month period ended June 30, 2008, to $3.3 million for the three-month period ended June 31, 2009. The Company's losses absorbed as a percentage of liquidation decreased from 11.24% for the three months ended June 30, 2008, to 10.80% for the three months ended June 30, 2009. In addition, excess provisions reversed, increased from approximately $10,000 for the three-month period ended June 30, 2008 to approximately $150,000 for the three-month period ended June 30, 2009. The reversal of provisions previously recorded in each period was due to the favorable charge-off performance of static pools originated from April 2005 through March 2006.