Nicholas Financial, Inc.
2016 Annual Report
From The President
The fiscal year ended March 31, 2016 marks our 31st year in business and our 29th as a publicly traded company. The past year continued the recent trend of challenging marketing conditions and a heightened regulatory environment for our company. Despite these challenges we remain optimistic that our conservative lending practices, significant upgrades to our technology and infrastructure as well as a focus on regulatory compliance, will build a solid foundation that will lead to a successful future for our organization. From our perspective the sub-prime auto financing market remains a highly competitive landscape. We have seen many new entrants in this market, including start-ups, credit unions, and many banks that had previously done little to nothing with respect to auto financing in the sub-prime space. We continue to observe pockets of irrational lending which we are confident will ultimately lead to changes in underwriting criteria for those whom have engaged in a growth strategy that is not sustainable. Some lenders are building large portfolios with low margins that epitomize the classic risk reward scenario. This strategy does indeed produce sizable income numbers in the short term, however, it inherently carries greater risk in the event that certain macroeconomic events come to fruition. Weakening labor markets, rising gasoline prices, interest rate increases, rising food costs, and softness in the resale markets for repossessed vehicles are some examples which would lead to deteriorating portfolio performance for any lender. As a result of these market conditions, we are currently evaluating our corporate structure and operating strategy. We expect that in the coming months we will implement changes to reduce operating expenses. These potential changes are intended to allow us to remain competitive in the marketplace, without sacrificing credit quality or negatively affecting other important aspects of our business plan. During this past year, we successfully implemented a new loan origination system. We are confident that it has allowed us to be more efficient and also more diligent in detecting auto financing installment contracts that do not meet the company’s underwriting guidelines. We are also early in the process of launching a new loan servicing platform, which is scheduled to be fully implemented between December of 2016 and June of 2017. This new servicing system will be beneficial in regards to compliance, operating efficiency and will position our back office for future growth. We continually measure the performance of each of our branch locations. We may consolidate certain branch locations that are unable to build a receivable portfolio adequate to meet the Company’s business plan. The potential opening of any new branch locations will be primarily driven by our analysis of our operating strategy and the competitive conditions in the markets in which the Company operates. We continue to build on our existing infrastructure in order to maintain or implement procedures and controls directly related to the requirements of the Dodd-Frank Act. The Consumer Financial Protection Bureau (“CFPB”) is expected to issue new rules regarding collection of debt. The CFPB were initially targeting third-party debt collectors, however there’s been much speculation that the same new rules will be used to regulate collections in the auto lending market. At this time, we are unable to measure the effect of any new regulatory rules. We do expect to continue allocating additional resources as the result of increased scrutiny in the auto lending market. We remain committed to executing our business plan in order to achieve long-term sustainable value for our shareholders.
Ralph T. Finkenbrink |
