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 Forms 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 losses based on management's evaluation of the risk inherent in the loan portfolio, the composition of the portfolio, and current economic conditions. Such evaluation, 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 Loans, 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 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 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 utilizes an internal audit 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 including fees, if any. The discount negotiated by the Company is a function of the credit quality of the customer, the wholesale value of the vehicle, and competition in any given market. The automotive dealer accepts these terms by executing a dealer agreement with the Company. For allowance purposes, the Company considers the entire amount of discount to be related to credit quality and is 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 discounts 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 reserves 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 decreased 15% to approximately $4.6 million for the three-month period ended December 31, 2012 as compared to $5.4 million for the corresponding period ended December 31, 2011. Diluted earnings per share decreased 18% to $0.37 as compared to $0.45 for the three months ended December 31, 2012 and December 31, 2011. Consolidated net income decreased 7% to approximately $15.1 million for the nine-month period ended December 31, 2012 as compared to $16.2 million for the corresponding period ended December 31, 2011. Diluted earnings per share decreased 8% to $1.24 for the nine months ended December 31, 2012 as compared to $1.35 for the nine months ended December 31, 2011.

The revenue increase for the three months ended December 31, 2012 was more than offset by the dividend tax of approximately $1.2 million related to the special cash dividend of $2.00 per share, an increase in provision for credit losses, and an increase in operating expenses as a percentage of net finance receivables. The increase in operating expenses were mainly attributable to the opening of three new branch locations.

The Company's software subsidiary, Nicholas Data Services, did not contribute significantly to consolidated operations in the three or nine months ended December 31, 2012 or 2011.

                                           Three months ended                    Nine months ended
                                              December 31,                          December 31,
Portfolio Summary                       2012               2011               2012               2011
Average finance receivables, net
of unearned interest (1)            $ 281,553,866      $ 274,595,968      $ 281,242,951      $ 272,213,775

Average indebtedness (2)            $ 114,131,239      $ 116,000,000      $ 111,293,746      $ 116,668,640

Interest and fee income on
finance receivables (3)             $  17,878,745      $  17,126,855      $  52,910,831      $  50,950,173
Interest expense                        1,275,015          1,236,866          3,717,386          3,702,737

Net interest and fee income on
finance receivables                 $  16,603,730      $  15,889,989      $  49,193,445      $  47,247,436

Weighted average contractual rate
(4)                                         23.34 %            23.79 %            23.55 %            23.87 %

Average cost of borrowed funds
(2)                                          4.47 %             4.27 %             4.45 %             4.23 %

Gross portfolio yield (5)                   25.40 %            24.95 %            25.08 %            24.96 %
Interest expense as a percentage
of average finance receivables,
net of unearned interest                     1.81 %             1.80 %             1.76 %             1.81 %
Provision for credit losses as a
percentage of average finance
receivables, net of unearned
interest                                     1.16 %             0.66 %             0.54 %             0.35 %

Net portfolio yield (5)                     22.43 %            22.49 %            22.78 %            22.80 %
Marketing, salaries, employee
benefits, depreciation, dividend
tax and administrative expenses
as a percentage of average
finance receivables, net of
unearned interest (6)                       11.86 %             9.76 %            10.76 %             9.82 %

Pre-tax yield as a percentage of
average finance receivables, net
of unearned interest (7)                    10.57 %            12.73 %            12.02 %            12.98 %

Write-off to liquidation (8)                 7.94 %             7.16 %             6.82 %             5.96 %
Net charge-off percentage (9)                6.75 %             5.70 %             5.74 %             4.69 %

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) Interest and fee income on finance receivables does not include revenue generated by Nicholas Data Services, Inc., ("NDS") the wholly-owned software subsidiary of Nicholas Financial, Inc.

(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 revenues 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 $54,000 and $51,000 during the three-month periods ended December 31, 2012 and 2011, respectively, and $172,000 and $167,000 during the nine-month periods ended December 31, 2012 and 2011, respectively. The numerators for the three and nine months include a tax associated with cash dividends. In December 2012, this amount was substantial due to a $2.00 special cash dividend. Absent the dividend tax, the percentages would have been 10.03% and 10.08% for the three and nine months ended December 31, 2012, and 9.67% and 9.76% for the three and nine months ended December 31, 2011.

(7) Pre-tax yield represents net portfolio yield minus 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, 2012 compared to three months December 31, 2011

Interest Income and Loan Portfolio

Interest and fee income on finance receivables, predominately finance charge income, increased 5% to approximately $17.9 million for the three-month period ended December 31, 2012 from $17.1 million for the corresponding period ended December 31, 2011. Average finance receivables, net of unearned interest equaled approximately $281.6 million for the three-month period ended December 31, 2012, an increase of 3% from $274.6 million for the corresponding period ended December 31, 2011. 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 and also the opening of new branch locations (see "Contract Procurement" and "Loan Origination" below), which more than offset the effects of the competition on our mature branches. The gross finance receivable balance increased 2% to approximately $389.4 million as of December 31, 2012, from $381.8 million as of December 31, 2011. The primary reason interest income increased was the increase in the outstanding loan portfolio. The gross portfolio yield increased to 25.40% for the three-month period ended December 31, 2012 compared to 24.95% for the three-month period ended December 31, 2011. The net portfolio yield decreased to 22.43% for the corresponding period ended December 31, 2012 from 22.49% for the three-month period ended December 31, 2011. The gross portfolio yield increased slightly due to the accretion of dealer discount in certain pools as a result of actual losses to date in certain seasoned pools not exceeding the dealer discount associated with such static pools. This has occurred with certain pools originated during calendar year 2009 when competition was lower and discounts were higher than the current environment. The net portfolio yield decreased slightly, primarily due to an increase in the actual and expected net charge-offs as well as delinquencies which drove an increase in the provision for credit losses. See discussion below under "Analysis of Credit Losses."

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

Marketing, salaries, employee benefits, depreciation, dividend tax and administrative expenses increased to approximately $8.4 million for the three-month period ended December 31, 2012 from approximately $6.8 million for the corresponding period ended December 31, 2011. The increase of 24% was primarily attributable to the dividend tax relating to the special $2.00 cash dividend. The remaining increase is related to costs associated with branch expansions. The Company operated 64 and 60 branch locations as of December 31, 2012 and 2011, respectively. The Company increased average headcount to 314 for the three-month period ended December 31, 2012 from 301 for the three-month period ended December 31, 2011. Marketing, salaries, employee benefits, depreciation, dividend tax, and administrative expenses as a percentage of finance receivables, net of unearned interest, increased to 11.86% for the three-month period ended December 31, 2012 from 9.76% for the three-month period ended December 31, 2011.

Interest Expense

Interest expense increased to approximately $1.3 million for the three-month
period ended December 31, 2012 from $1.2 million for the three-month period
ended December 31, 2011. The following table summarizes the Company's average
cost of borrowed funds:



                                                             Three months ended December 31,
                                                              2012                     2011
Variable interest under the line of credit facility                0.45 %                   0.54 %
Settlements under interest rate swap agreements                    0.32 %                   0.00 %
Credit spread under the line of credit facility                    3.70 %                   3.73 %

Average cost of borrowed funds                                     4.47 %                   4.27 %

The Company's average cost of funds increased due to the effect of interest rate swaps, which were partially offset from the reduction in the unused line fees resulting from average indebtness increasing during the three months ended December 31, 2012.

The notional amount of interest rate swap agreements was $50 million at a weighted average fixed rate of 0.94% for the three months ended December 31, 2012. No interest rate swap agreements were in effect for the three months ended December 31, 2011. For further discussions regarding the effect of interest rate swap agreements see note 6 - "Interest Rate Swap Agreements".

Nine months ended December 31, 2012 compared to nine months ended December 31, 2011

Interest Income and Loan Portfolio

Interest and fee income on finance receivables, predominately finance charge income, increased 4% to approximately $52.9 million for the nine-month period ended December 31, 2012 from $51.0 million for the corresponding period ended December 31, 2011. Average finance receivables, net of unearned interest equaled approximately $281.2 million for the nine-month period ended December 31, 2012, an increase of 3% from $272.2 million for the corresponding period ended December 31, 2011. 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 and also the opening of new branch locations (see "Contract Procurement" and "Loan Origination" below), which more than offset the effects of the competition on our mature branches. The gross finance receivable balance increased 2% to approximately $389.4 million as of December 31, 2012, from $381.8 million as of December 31, 2011. The primary reason interest income increased was the increase in the outstanding loan portfolio. The gross portfolio yield increased to 25.08% for the nine-month period ended December 31, 2012 from 24.96% for the nine-month period ended December 31, 2011. The net portfolio yield remained relatively flat at 22.78% for the period ended December 31, 2012 and 22.80% for the nine-month period ended December 31, 2011. The increase in the provision for credit losses, driven by an increase in the actual and expected net charge-offs as well as delinquencies, was offset by a decrease in interest expense. The gross portfolio yield increased slightly due to the accretion of dealer discount in certain pools as a result of actual losses to date in certain seasoned pools not exceeding the dealer discount associated with such static pools. This has occurred with certain pools originated during calendar year 2009 when competition was lower and discounts were higher than the current environment.

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

Marketing, salaries, employee benefits, depreciation, dividend tax and administrative expenses increased to approximately $22.9 million for the nine-month period ended December 31, 2012 from approximately $20.2 million for the corresponding period ended December 31, 2011. The increase of 13% was primarily attributable the dividend tax related to the $2.00 per share cash dividend. The remaining increase was due to new branch locations. The Company opened additional branches and increased average headcount to 308 for the nine-month period ended December 31, 2012 from 297 for the nine-month period ended December 31, 2011. Marketing, salaries, employee benefits, depreciation, and administrative expenses as a percentage of finance receivables, net of unearned interest, increased to 10.76% for the nine-month period ended December 31, 2012 from 9.82% for the nine-month period ended December 31, 2011.

Interest Expense

Interest expense remained unchanged at approximately $3.7 million for the
nine-month periods ended December 31, 2012 and 2011. The following table
summarizes the Company's average cost of borrowed funds for the nine-month
period ended December 31:



                                                            Nine months ended
                                                               December 31,
                                                            2012           2011
    Variable interest under the line of credit facility        0.51 %       0.47 %
    Settlements under interest rate swap agreements            0.22 %       0.00 %
    Credit spread under the line of credit facility            3.72 %       3.76 %

    Average cost of borrowed funds                             4.45 %       4.23 %

The Company's average cost of funds increased due to unused line fees and the costs associated with settlements under the interest rate swap agreement during the nine months ended December 31, 2012.

The weighted average notional amount of interest rate swap agreements was $31.2 million at a weighted average fixed rate of 0.95% for the nine months ended December 31, 2012. No interest rate swap agreements were in effect for the nine months ended December 31, 2011. For further discussions regarding the effect of interest rate swap agreements see note 6 - "Interest Rate Swap Agreements".

Contract Procurement

The Company purchases Contracts in the fifteen states listed in the table below. The Contracts purchased by the Company are predominately for used vehicles; for the three-month period ended December 31, 2012 and 2011, less than 2% were for new vehicles.

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       2012             2011             2012              2011
          FL      $  9,977,985     $  9,506,374     $  32,956,621     $  31,539,348
          GA         3,213,167        3,727,661        11,226,294        11,626,696
          NC         3,474,070        2,947,629        11,015,882         9,675,753
          SC           844,289          701,250         2,617,501         1,993,023
          OH         4,420,025        4,613,249        15,209,269        13,871,831
          MI           931,609        1,358,480         3,079,204         4,454,295
          VA         1,081,670        1,050,850         3,645,234         2,664,506
          IN         1,824,059        2,157,885         5,833,759         6,649,908
          KY         2,106,658        1,690,506         6,415,816         6,145,478
          MD           466,178          396,844         1,576,783         1,137,310
          AL           818,633        1,424,583         3,799,938         4,860,584
          TN           927,196          974,972         3,694,356         3,414,785
          IL           325,813          594,779         2,501,016         2,251,155
          MO           611,282        1,148,189         3,386,462         3,330,724
          KS           394,963          183,280           935,394           417,064

          Total   $ 31,417,597     $ 32,476,531     $ 107,893,529     $ 104,032,460

                                          Three months ended                       Nine months ended
                                             December 31,                             December 31,
Contracts                              2012                2011                2012                 2011
Purchases                          $ 31,417,597        $ 32,476,531        $ 107,893,529        $ 104,032,460
Weighted APR                              23.10 %             23.62 %              23.37 %              23.75 %
Average discount                           7.92 %              8.41 %               7.85 %               8.46 %
Weighted average term (months)               50                  49                   49                   49
Average loan                       $     10,459        $      9,990        $      10,228        $       9,928
Number of Contracts                       3,004               3,251               10,549               10,479

Loan Origination

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



                                            Three months ended                    Nine months ended
                                               December 31,                          December 31,
Direct Loans Originated                  2012               2011               2012               2011
Originations                          $ 2,337,021        $ 1,870,851        $ 6,637,991        $ 4,818,855
Weighted APR                                26.51 %            26.76 %            26.41 %            26.65 %
Weighted average term (months)                 27                 25                 28                 25
Average loan                          $     3,108        $     2,914        $     3,238        $     2,937
Number of loans                               752                642              2,050              1,641

Analysis of Credit Losses

As of December 31, 2012, the Company had 1,385 active static pools. The average pool upon inception consisted of 58 Contracts with aggregate finance receivables, net of unearned interest, of approximately $585,000.

The Company anticipates losses absorbed as a percentage of liquidation will be . . .