Atlanticus Holdings Corporation Annual Report 2018

FY2018 Annual Report · Atlanticus Holdings Corporation

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2018 Annual Report

NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements in this Annual Report concerning our future stock price, operating and financial results,
business strategy, capital investment, sufficiency of available capital, demand for our products, growth
and financial performance of our auto finance business, and other statements of our plans, beliefs, or
expectations, are forward-looking statements. In some cases these statements are identifiable through the
use of words such as “believe,” “can,” “could,” “expect,” “hope,” “intend,” “may,” “might,” “plan,”
“seek,” “should,” “think,” “will,” “would” and similar expressions. These forward-looking statements are
not guarantees of future performance and are subject to various assumptions, risks and other factors that
could cause our actual results to differ materially from those suggested by these forward-looking
statements. These factors include, among others, the risks and others set forth under the Item 1A, “Risk
Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required by law.

Dear Fellow Shareholders:

Our experience differentiates us. Atlanticus has passed the 22-year mark as a company, and we have
experienced a great deal of change during that time. Consumers, the debt markets, the economy, and the
regulatory environment have all changed in many ways. One thing that has not changed is our core
reason for operating this company:

Atlanticus exists to create value for consumers, our employees and our shareholders.

Consumers

We cannot achieve success if consumers are not offered compelling products on compelling terms. While
the U.S. economy continues to perform at historic levels, not all consumers have reaped the rewards.
This is particularly true of the consumer segment we serve. 75% of U.S. adults live paycheck to
paycheck. 40% of U.S. adults do not have access to $400 in an emergency. Over 90 million consumers
have credit scores less than 700. Regardless of the recent macroeconomic success, the need for the
products that we offer remains, and in fact, continues to grow. Our goal is, and always has been, to
provide consumers with the right product, at the right time, at the right place, and in the right way in an
effort to meet their everyday financial needs. We know through our response rates, customer satisfaction
surveys, and by monitoring how the products we offer are being used that we are achieving these goals.
94% of the credit card customers that we market to and service would recommend our products and we
earn a 4.7 out of 5 star rating.

Team Members

Our experience over 22 years has taught us that nothing is more important to our success than our team
members. As a company, we are only as good as the individuals who make up our team. As shareholders,
you should know that your company is in great hands. We are fortunate to work with the most dedicated
and most experienced team in the industry. The best in the business. During the recession, our
employees made the decision to persevere with Atlanticus. This was not because we were having
financial success or because they did not have other opportunities. It was a very difficult and challenging
time for almost all financial firms. They stuck with us because they believe in what we are doing and
because we care about one another. This is evident in our day to day interactions and supported by the
employee surveys we conduct. One consistent comment we hear from team members is that “Atlanticus
feels like family.” That’s important because it fosters a collaborative environment and translates directly
to how we treat our customers. We do not believe that a company can have great customer satisfaction
unless it starts with outstanding employee satisfaction.

Shareholders

Your management team is incredibly well aligned with you, as shareholders. A significant percentage of
compensation for management comes from increases in the value of the company. Over the last 22 years,
the controlling shareholders have never sold stock of the company in the public market. We seek to
make all decisions based on what we believe will deliver the highest long-term return for shareholders.
Over the years, there have been times when we made decisions that may not have generated quick short-
term returns, but we believe these decisions will drive meaningful long-term value creation. We know we
are doing things to increase the inherent value of the business, and we believe the positive financial
results will follow which we expect to result in long-term appreciation in our stock price.

Business Update

Experience is not being old or outdated, it is about being knowledgeable and constantly evolving. Since
our founding in 1996, we have constantly evolved. Over our 22 years we have added products and
marketing channels and expanded geographically. We have contracted when necessary and
opportunistically entered and exited lines of business. We have faced macroeconomic downturns and
expansions and dealt with both exuberant and excessively tight liquidity markets. We have gone head to
head with competitors, new and old, both rational and irrational.

Although our assets performed as modeled during the recession (it is well documented that less than
prime consumer assets showed much less volatility than other asset classes during the recession, and our
assets were no exception), we felt it prudent to wait until we were more comfortable with both the
changing regulatory rules by which we were to operate our business and the certainty of access to
liquidity before reinvesting in growth. While we were hesitant to deploy capital in asset growth, we did
invest in maintaining the team and infrastructure needed to serve our market when we were once again
comfortable deploying capital. That time has come.

We began redeploying capital with the launch of our Fortiva Retail Credit platform whereby through our
bank partner, we provide financing alternatives to customers of retailers at the point of sale. Through our
platform, these retail partners can provide a solution for those that are declined by traditional providers of
credit who typically cater to “prime” consumers. Because of our significant investment in technology and
our deep understanding of these consumers, we’ve become the pre-eminent provider of second look point
of sale financing options in the market today. We are proud to call as our partners respected brands like
Home Depot, Wayfair, Aspen Dental, American Signature Furniture, ICON Fitness, Rheem, and VIVINT
Smart Home.

We have also relaunched a general-purpose MasterCard product. Few companies have the knowledge,
infrastructure, and capital partners with which to rapidly and profitably scale this product. We do. We
have something very few companies have—long term data that tell us how under-served customers
perform in all economic cycles! This knowledge is derived from our having serviced over 17 million
customers and over $25 billion in loans during our 22 years in business.

We continue to grow our auto finance business as well. Here too, we provide liquidity to an underserved
segment of the market and generate consistent and predictable returns on our capital. Our auto business
had a record year in 2018, and we expect the positive trends to continue.

In our market, we cannot succeed without an extraordinarily rigorous approach to compliance. Over the
last 10 years, we’ve seen meaningful swings in compliance requirements. Our experience and
conservative approach have allowed us to stay ahead of these shifts. We are fortunate to have a head of
compliance who has been with us for 19 years. She leads a department that is second to none and whose
primary focus is assuring that our businesses comply with not only the laws and regulations pertaining to
consumer lending, but also with the spirit of consumer regulation in the markets where we operate. In a
regulated industry, we believe that it is incredibly important to be on the leading edge of compliance
programs. We are proud of our team and our processes to ensure that we provide products and services in
the most ethical and honest way possible.

Few developments have been as transformative to our business as has been the integration of technology
into everything that we do. We are all technology companies now. We are, and have always been, at the
forefront of prudent technology investment. And this is an evolutionary process, not, as some would have
you believe, a revolutionary process. Today, our entire infrastructure is cloud-based giving us greater

reliability, redundancy and scalability at a lower cost than ever before. Our mobile first customer service
platform enables us to engage with customers more deeply and offer more value-added features than at
any other time in our history. Our ability to aggregate more data allows us to make better risk decisions
and to address a broader market. Our entire business is technology-enabled. This is done in an
environment that ensures security for all our data across all our business lines.

We are as excited as we have ever been about the opportunity that lies ahead. Across our multitude of
product lines and marketing channels, we believe we are once again positioned for rapid growth. We are
offering a broad array of products through numerous marketing channels to consumers with a continual
need for our services. The liquidity markets have once again returned to normalcy. The regulatory rules
relating to our business are more well defined. Our asset performance continues to meet or exceed our
models. Now we will focus on growth as we once again scale our business as we have in the past.

We thank you for your ongoing support and are confident that our future performance will be rewarding
of that support.

Sincerely,

David G. Hanna
Chairman and Chief Executive Officer

Jeffrey A. Howard
President

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

For the year ended December 31, 2018

ATLANTICUS HOLDINGS CORPORATION

a Georgia Corporation
IRS Employer Identification No. 58-2336689
SEC File Number 0-53717

Five Concourse Parkway, Suite 300
Atlanta, Georgia 30328
(770) 828-2000

Atlanticus’ common stock, no par value per share, is registered pursuant to Section 12(b) of the Securities Exchange

Act of 1934 (the “Act”) and is listed on the NASDAQ Global Select Market.

Atlanticus is not a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.

Atlanticus (1) is required to file reports pursuant to Section 13 of the Act, (2) has filed all reports required to be filed

by Section 13 of the Act during the preceding 12 months and (3) has been subject to such filing requirements for the past
90 days.

Atlanticus has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of

Regulation S-T during the preceding 12 months.

Atlanticus believes that its executive officers, directors and 10% beneficial owners subject to Section 16(a) of the Act

complied with all applicable filing requirements during 2018, except as set forth under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in Atlanticus' Proxy Statement for the 2019 Annual Meeting of Shareholders.

Atlanticus is a smaller reporting company and is not a shell company or an emerging growth company.

The aggregate market value of Atlanticus’ common stock (based upon the closing sales price quoted on the NASDAQ

Global Select Market) held by non-affiliates as of June 30, 2018 was $13.9 million. (For this purpose, directors, officers and
10% shareholders have been assumed to be affiliates, and we also have included 1,459,233 loaned shares at June 30, 2018.)

As of March 13, 2019, 15,956,074 shares of common stock, no par value, of Atlanticus were outstanding, including

1,459,233 loaned shares to be returned.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Atlanticus' Proxy Statement for its 2019 Annual Meeting of Shareholders are incorporated by reference

into Part III.

Table of Contents

PART I

1
Item 1. Business .....................................................................................................................................................
Item 1A. Risk Factors ...............................................................................................................................................
7
Item 1B. Unresolved Staff Comments ...................................................................................................................... 15
Item 2. Properties ................................................................................................................................................... 15
Item 3. Legal Proceedings ...................................................................................................................................... 15
Item 4. Mine Safety Disclosure .............................................................................................................................. 16

Page

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities ................................................................................................................................................. 17
Item 6. Selected Financial Data ............................................................................................................................. 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................... 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .................................................................. 33
Item 8. Financial Statements and Supplementary Data .......................................................................................... 33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .................... 33
Item 9A. Controls and Procedures ............................................................................................................................ 33
Item 9B. Other Information ...................................................................................................................................... 34

PART III

Item 10 Directors, Executive Officers and Corporate Governance ......................................................................... 34
Item 11. Executive Compensation ........................................................................................................................... 34
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .. 34
Item 13. Certain Relationships and Related Transactions, and Director Independence ........................................... 34
Item 14. Principal Accountant Fees and Services .................................................................................................... 34

PART IV

Item 15. Exhibits and Financial Statement Schedules ............................................................................................. 35
Item 16. Form 10-K Summary ................................................................................................................................. 38

In this Report, except as the context suggests otherwise, the words “Company,” “Atlanticus Holdings Corporation,” “Atlanticus,”
“we,” “our,” “ours” and “us” refer to Atlanticus Holdings Corporation and its subsidiaries and predecessors. Atlanticus owns
Aspire®, Emerge®, Fortiva®, Imagine®, Salute®, Tribute® and other trademarks and service marks in the United States (“U.S.”)
and the United Kingdom (“U.K.”).

Cautionary Notice Regarding Forward-Looking Statements

We make forward-looking statements in this Report and in other materials we file with the Securities and Exchange

Commission (“SEC”) or otherwise make public. In this Report, both Item 1, “Business,” and Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” contain forward-looking statements. In addition, our senior
management might make forward-looking statements to analysts, investors, the media and others. Statements with respect to
expected revenue; income; receivables; income ratios; net interest margins; long-term shareholder returns; acquisitions of
financial assets and other growth opportunities; divestitures and discontinuations of businesses; loss exposure and loss provisions;
delinquency and charge-off rates; changes in collection programs and practices; changes in the credit quality and fair value of our
credit card loans, interest and fees receivable and the fair value of their underlying structured financing facilities; the impact of
actions by the Federal Deposit Insurance Corporation (“FDIC”), Federal Reserve Board, Federal Trade Commission (“FTC”),
Consumer Financial Protection Bureau (“CFPB”) and other regulators on both us, banks that issue credit cards and other credit
products on our behalf, and merchants that participate in our point-of-sale finance operations; account growth; the performance of
investments that we have made; operating expenses; the impact of bankruptcy law changes; marketing plans and expenses; the
performance of our Auto Finance segment; the impact of our credit card receivables on our financial performance; the sufficiency
of available capital; the prospect for improvements in the capital and finance markets; future interest costs; sources of funding
operations and acquisitions; growth and profitability of our point-of-sale finance operations; our ability to raise funds or renew
financing facilities; share repurchases or issuances; debt retirement; the results associated with our equity-method investee; our
servicing income levels; gains and losses from investments in securities; experimentation with new products and other statements
of our plans, beliefs or expectations are forward-looking statements. These and other statements using words such as “anticipate,”
“believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” and
similar expressions also are forward-looking statements. Each forward-looking statement speaks only as of the date of the
particular statement. The forward-looking statements we make are not guarantees of future performance, and we have based these
statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions,
expected future developments and other factors we believe are appropriate in the circumstances. Forward-looking statements by
their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results
could differ materially from those described in such statements. Management cautions against putting undue reliance on forward-
looking statements or projecting any future results based on such statements or present or historical earnings levels.

Although it is not possible to identify all factors, we continue to face many risks and uncertainties. Among the factors

that could cause actual future results to differ materially from our expectations are the risks and uncertainties described under
“Risk Factors” set forth in Part I, Item 1A, and the risk factors and other cautionary statements in other documents we file with the
SEC, including the following:

•
•

•
•
•

•

•
•
•

•

the availability of adequate financing to support growth;
the extent to which federal, state, local and foreign governmental regulation of our various business lines and the
products we service for others limits or prohibits the operation of our businesses;
current and future litigation and regulatory proceedings against us;
the effect of adverse economic conditions on our revenues, loss rates and cash flows;
competition from various sources providing similar financial products, or other alternative sources of credit, to
consumers;
the adequacy of our allowances for uncollectible loans, interest and fees receivable and estimates of loan losses used
within our risk management and analyses;
the possible impairment of assets;
our ability to manage costs in line with the expansion or contraction of our various business lines;
our relationship with (i) the merchants that participate in point-of-sale finance operations and (ii) the banks that
issue credit cards and provide certain other credit products utilizing our technology platform and related services;
and
theft and employee errors.

Most of these factors are beyond our ability to predict or control. Any of these factors, or a combination of these factors,

could materially affect our future financial condition or results of operations and the ultimate accuracy of our forward-looking
statements. There also are other factors that we may not describe (because we currently do not perceive them to be material) that
could cause actual results to differ materially from our expectations.

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new

information, future events or otherwise, except as required by law.

ITEM 1.

BUSINESS

PART I

This Report contains information that we obtained from industry and general publications and research, surveys

and studies conducted by third parties. This information involves many assumptions and limitations, and you are cautioned
not to give undue weight to any of this data. We have obtained this information from sources that we believe are
reliable. However, we have not independently verified market or industry data from third party sources.

General

A general discussion of our business follows. For additional information about our business, please visit our

website at www.Atlanticus.com. Information contained on or available through our website is not incorporated by reference
in this Report.

We are a Georgia corporation formed in 2009, as successor to an entity that commenced operations in 1996. We

provide various credit and related financial services and products primarily to or associated with the financially underserved
consumer credit market.

We utilize proprietary analytics and a flexible technology platform to enable financial institutions to provide

various credit and related financial services and products to or associated with the financially underserved consumer credit
market. According to data published by FICO (NYSE: FICO), 41.7% of consumers had FICO® scores of 700 or less as of
April 2018 which represents a population in excess of 90 million consumers. The “Report on Economic Well-Being of
U.S. Households in 2017” published by the Board of Governors of the Federal Reserve System further states that 40% of
adults do not have ready access to $400 to cover an unexpected expense or would cover the expense by selling something
or borrowing money, with CareerBuilder noting that 75% of Americans live “paycheck to paycheck”. These consumers
often have short-term, immediate credit needs that are often not effectively met by traditional financial institutions. By
facilitating fairly priced consumer credit alternatives with value added features and benefits specifically curated for the
unique needs of this financially underserved consumer, we endeavor to empower consumers on a path to improved
financial well-being.

Currently, within our Credit and Other Investments segment, we are applying the experiences gained and
infrastructure built from servicing over $25 billion in consumer loans over our 22-year operating history to support lenders
who originate a range of consumer loan products. These products include retail credit and credit cards marketed through
multiple channels, including retail point-of-sale, direct mail solicitation, and partnerships with third parties. In the point-of-
sale channel, we partner with retailers and service providers in various industries across the U.S. to allow them to provide
credit to their customers for the purchase of a variety of goods and services including consumer electronics, furniture,
elective medical procedures, healthcare, educational services and home-improvements. These services of our lending
partners are often extended to consumers who may not have access to traditional financing options. We specialize in
supporting this “second-look” credit service. Our flexible technology platform allows our lending partners to integrate our
paperless process and instant decision-making platform with the technology infrastructure of participating retailers and
service providers. Additionally, we support lenders who market general purpose credit cards directly to consumers through
additional channels, which enables them to reach consumers through a diverse origination platform that includes retail
point-of-sale, direct mail and digital marketing solicitation and partnerships with third parties. Our technology platform and
proprietary analytics enable lenders to make instant credit decisions utilizing hundreds of inputs from multiple sources and
thereby offer credit to consumers overlooked by traditional providers of financing. By offering a range of products through
a multitude of channels, we enable lenders to provide the right type of credit, whenever and wherever the consumer has a
need.

In most cases, we invest in the receivables originated by lenders who utilize our technology platform and other

related services. From time to time, we also purchase receivables portfolios from third parties. In this Report, "receivables"
refer to receivables we have purchased from our lending partners or from third parties.

Using our infrastructure and technology platform, we also provide loan servicing, including risk management and

customer service outsourcing, for third parties. Also through our Credit and Other Investments segment, we engage in
testing and limited investment in consumer finance technology platforms as we seek to capitalize on our expertise and
infrastructure.

Additionally, we report within our Credit and Other Investments segment: (1) the income earned from an
investment in an equity-method investee that holds credit card receivables for which we are the servicer; and (2) gains or
losses associated with investments previously made in consumer finance technology platforms.

The recurring cash flows we receive within our Credit and Other Investments segment principally include those

associated with (1) point-of-sale and direct-to-consumer receivables, (2) servicing compensation and (3) credit card
receivables portfolios that are unencumbered or where we own a portion of the underlying structured financing facility.

We believe that our point-of-sale and direct-to-consumer receivables are generating, and will continue to generate,

attractive returns on assets, thereby facilitating debt financing under terms and conditions (including advance rates and
pricing) that will support attractive returns on equity, and we continue to pursue growth in this area.

Beyond these activities within our Credit and Other Investments segment, we invest in and service portfolios of

credit card receivables. One of our portfolios of credit card receivables is encumbered by non-recourse structured financing,
and for this portfolio our principal remaining economic interest is the servicing compensation we receive as an offset
against our servicing costs given that the likely future collections on the portfolio are insufficient to allow for full
repayment of the financing.

Within our Auto Finance segment, our CAR subsidiary operations principally purchase and/or service loans
secured by automobiles from or for, and also provide floor plan financing for, a pre-qualified network of independent
automotive dealers and automotive finance companies in the buy-here, pay-here, used car business. We purchase auto loans
at a discount and with dealer retentions or holdbacks that provide risk protection. Also within our Auto Finance segment,
we are providing certain installment lending products in addition to our traditional loans secured by automobiles.

We closely monitor and manage our expenses based on current product offerings. At this time, we are maintaining
our infrastructure and incurring increased overhead and other costs in order to expand point-of-sale and direct-to-consumer
finance and credit solutions and new product offerings that we believe have the potential to grow into our existing
infrastructure and allow for long-term shareholder returns.

Subject to the availability of capital at attractive terms and pricing, we plan to continue to evaluate and pursue a

variety of activities, including: (1) investments in additional financial assets associated with point-of-sale and direct-to-
consumer finance and credit activities as well as the acquisition of interests in receivables portfolios; (2) investments in
other assets or businesses that are not necessarily financial services assets or businesses; and (3) the repurchase of our
convertible senior notes and other debt or our outstanding common stock.

Credit and Other Investments Segment. Our Credit and Other Investments segment includes our activities relating
to our servicing of and our investments in receivables from point-of-sale and credit card operations, our various credit card
receivables portfolios, as well as other product testing and investments that generally utilize much of the same
infrastructure. The types of revenues we earn from our investments in receivables portfolios and services primarily include
finance charges, fees and the accretion of discounts associated with the point-of-sale receivables or annual fees on our
direct-to-consumer receivables.

As previously discussed, we support lenders who originate a range of consumer loan products over multiple
channels. Through our point-of-sale operations, we leverage our flexible technology platform that allows retail partners and
service providers to offer loan options to their customers who may have been declined by a primary lender. The same
proprietary analytics and infrastructure also allows lenders to offer general purpose loan products directly to consumers
with our direct-to-consumer products. We reach these consumers through a diverse origination platform that includes direct
mail, digital marketing and partnerships.

We are currently expanding our acquisitions of new receivables associated with credit card accounts. With respect
to the credit card accounts underlying our legacy credit card receivables and portfolios, substantially all of the related credit
card accounts have been closed to new cardholder purchases since 2009. We continue to service these credit card portfolios
as they liquidate and they no longer constitute a meaningful part of our ongoing operations.

Our credit and other operations are heavily regulated, which may cause us to change how we conduct our

operations either in response to regulation or in keeping with our goal of leading the industry in adherence to consumer-
friendly practices. We have made meaningful changes to our practices over the past several years, and because our account
management practices are evolutionary and dynamic, it is possible that we may make further changes to these practices,
some of which may produce positive, and others of which may produce adverse, effects on our operating results and
financial position. Customers at the lower end of the credit score range intrinsically have higher loss rates than do
customers at the higher end of the credit score range. As a result, we price our products to reflect this higher loss rate. As
such, our products are subject to greater regulatory scrutiny than the products of prime only lenders who are able to price
their credit products at much lower levels than we can. See “Consumer and Debtor Protection Laws and Regulations—
Credit and Other Investments Segment” and Item 1A, “Risk Factors.”

Auto Finance Segment. The operations of our Auto Finance segment are conducted through our CAR platform,
which we acquired in April 2005. CAR primarily purchases and/or services loans secured by automobiles from or for, and
also provides floor-plan financing for, a pre-qualified network of independent automotive dealers and automotive finance
companies in the buy-here, pay-here used car business. We have expanded these operations to also include certain
installment lending products in addition to our traditional loans secured by automobiles both in the U.S. and U.S.
territories.

Through our CAR operations, we generate revenues on purchased loans through interest earned on the face value

of the installment agreements combined with the accretion of discounts on loans purchased. We generally earn discount
income over the life of the applicable loan. Additionally, we generate revenues from servicing loans on behalf of dealers for
a portion of actual collections and by providing back-up servicing for similar quality assets owned by unrelated third
parties. We offer a number of other products to our network of buy-here, pay-here dealers (including our floor-plan
financing offering), but the majority of our activities are represented by our purchases of auto loans at discounts and our
servicing of auto loans for a fee. As of December 31, 2018, our CAR operations served more than 580 dealers in 33 states,
the District of Columbia and two U.S. territories. These operations continue to perform well (achieving consistent
profitability and generating positive cash flows and growth).

How Do We Manage the Receivables and Mitigate Our Risks?

Credit and Other Investments Segment. We manage our investments in receivables using credit scoring, credit

file data and our proprietary risk evaluation systems developed and refined over our 22-year operating history. These
strategies include the management of transaction authorizations, account renewals, credit line modifications and collection
programs. We use an adaptive control system to translate our strategies into account management processes. The system
enables us to develop and test multiple strategies simultaneously, which allows us to continually refine our account
management activities. We have incorporated our proprietary risk scores into the control system, in addition to standard
credit behavior scores used widely in the industry, in order to segment, evaluate and manage the receivables. We believe
that by combining external credit file data along with historical and current customer activity, we are able to better predict
the true risk associated with current and delinquent receivables.

For our point-of-sale and direct-to-consumer finance activities as well as the accounts that are open to purchases,

we generally assist our lending partners with managing credit lines to reward financially underserved customers who are
performing well and to mitigate losses from delinquent customer segments. We also assist our lending partners with
employing strategies to reduce otherwise open credit lines for customers demonstrating indicators of increased credit or
bankruptcy risk. Data relating to account performance are captured and loaded into our proprietary database for ongoing
analysis. We adjust account management strategies as necessary, based on the results of such analyses. Additionally, we use
industry-standard fraud detection software to manage the portfolio. We route accounts to manual work queues and suspend
charging privileges if the transaction-based fraud models indicate a probability of fraudulent use.

Auto Finance Segment. Our CAR operations manage credit quality and loss mitigation at the dealer portfolio

level through the implementation of dealer-specific loss reserve accounts. In most instances, the reserve accounts are cross-
collateralized across all accounts presented by any single dealer. CAR monitors performance at the dealer portfolio level
(by product type) to adjust pricing or the reserve account or to determine whether to terminate future account purchases
from such dealer.

CAR provides dealers with specific purchase guidelines based upon each product offering and delegates approval

authority to assist in the monitoring of transactions during the loan acquisition process. Dealers are subject to specific
approval criteria, and individual accounts typically are verified for accuracy before, during and after the acquisition process.
Dealer portfolios across the business segment are monitored and compared against expected collections and peer dealer
performance. Monitoring of dealer pool vintages, delinquencies and loss ratios helps determine past performance and
expected future results, which are used to adjust pricing and reserve requirements. Our CAR operations also manage risk
through diversifying their receivables among multiple dealers.

How Do We Collect?

Credit and Other Investments Segment. The goal of the collections process is to collect as much of the money

that is owed to us in the most cost-effective and customer-friendly manner possible. To this end, we employ the traditional
cross-section of letters and telephone calls to encourage payment. We also sometimes offer flexibility with respect to the
application of payments in order to encourage larger or prompter payments. For instance, in certain cases we may vary from
our general payment application priority (i.e., of applying payments first to finance charges, then to fees, and then to
principal) by agreeing to apply payments first to principal and then to finance charges and fees or by agreeing to provide

payments or credits of finance charges and principal to induce or in exchange for an appropriate payment. Application of
payments in this manner also permits our collectors to assess real time the degree to which payments over the life of an
account have covered the principal credit extensions on that account. This allows our collectors to readily identify our
potential economic loss associated with the charge off of a particular receivable (i.e., the excess of principal loaned over
payments received throughout the life of the account). Our selection of collection techniques, including, for example, the
order in which we apply payments or the provision of payments or credits to induce or in exchange for a payment, impacts
the statistical performance of the portfolios that we present under “Credit and Other Investments Segment” within Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Our collectors employ various and evolving tools when collecting receivables, and they routinely test and evaluate

new tools in their effort toward improving our collections with a greater degree of efficiency and service. These tools
include programs under which the contractual interest associated with a receivable may be reduced or eliminated, or a
certain amount of accrued fees is waived, provided a minimum number or amount of payments have been made. In some
instances, we may agree to match the payment on a receivable, for example, with commensurate payments or reductions of
finance charges or waivers of fees. In other situations, we may actually settle and adjust finance charges and fees on a
receivable, for example, based on a commitment and follow through on a commitment to pay certain portions of the
balances owed. Our collectors may also decrease minimum payments owed under certain collection programs.
Additionally, we employ re-aging techniques as discussed below. We also may occasionally use our marketing group to
assist in determining various programs to assist in the collection process. Moreover, we voluntarily participate in the
Consumer Credit Counseling Service (“CCCS”) program by waiving a certain percentage of a receivable that is considered
our “fair share” under the CCCS program. All of our programs are utilized based on the degree of economic success and
customer service they achieve.

We regularly monitor and adapt our collection strategies, techniques, technology and training to optimize our
efforts to reduce delinquencies and charge offs. We use our operations systems to develop these proprietary collection
strategies and techniques, and we analyze the output from these systems to identify the strategies and techniques that we
believe are most likely to result in curing a delinquent account in the most cost-effective manner, rather than treating all
accounts the same based on the mere passage of time.

As in all aspects of our risk management strategies, we compare the results of each of the above strategies with

other collection strategies and devote resources to those strategies that yield the best results. Results are measured based on,
among other things, delinquency rates, expected losses and costs to collect. Existing strategies are then adjusted based on
these results. We believe that routinely testing, measuring and adjusting collection strategies results in lower bad debt
losses and operating expenses.

Interest and fees for most credit products we service are discontinued when loans, interest and fees receivable
become contractually 90 or more days past due and we charge off loans, interest and fees receivable when they become
contractually more than 180 days past due. For all of our products, we charge off receivables within 30 days of notification
and confirmation of bankruptcy or death of the obligor. However, in some cases of death, we do not charge off receivables
if there is a surviving, contractually liable individual or an estate large enough to pay the debt in full.

Our determination of whether an account is contractually past due is relevant to our delinquency and charge-off
data provided under the “Credit and Other Investments Segment” caption within Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” Various factors are relevant in analyzing whether an account is
contractually past due (e.g., whether an account has not satisfied its minimum payment due requirement), which for us is
the trigger for moving receivables through our various delinquency stages and ultimately to charge-off status. For our point-
of-sale and direct-to-consumer finance accounts, we consider an account to be delinquent if the customer has not made any
required payment as of the payment due date. For credit card accounts, we consider a cardholder’s receivable to be
delinquent if the cardholder has failed to pay a minimum amount, computed as the greater of a stated minimum payment or
a fixed percentage of the statement balance (for example 3% to 10% of the outstanding balance in some cases or in other
cases 1% of the outstanding balance plus any finance charges and late fees billed in the current cycle).

Additionally, we may re-age customer accounts that meet our qualifications for re-aging. Re-aging involves
changing the delinquency status of an account. It is our policy to work cooperatively with customers demonstrating a
willingness and ability to repay their indebtedness and who satisfy other criteria, but are unable to pay the entire past due
amount. Generally, to qualify for re-aging, an account must have been opened for at least nine months and may not be re-
aged more than once in a twelve-month period or twice in a five-year period. In addition, an account on a workout program
may qualify for one additional re-age in a five-year period. The customer also must have made three consecutive minimum
monthly payments or the equivalent cumulative amount in the last three billing cycles. If a re-aged account subsequently
experiences payment defaults, it will again become contractually delinquent and will be charged off according to our

regular charge-off policy. The practice of re-aging an account may affect delinquencies and charge offs, potentially
delaying or reducing such delinquencies and charge offs; however, this impact generally changes such delinquencies and
charge offs by less than 10% and 5%, respectively.

As discussed above, typically, once an account is 90 days or more past due, the account is placed on a non-accrual
status. Placement on a non-accrual status results in the use of programs under which the contractual interest associated with
a receivable may be reduced or eliminated, or a certain amount of accrued fees is waived, provided a minimum number or
amount of payments have been made. Following this adjustment, if a customer demonstrates a willingness and ability to
resume making monthly payments and meets the additional criteria discussed above, we will re-age the customer’s account.
When we re-age an account, we adjust the status of the account to bring a delinquent account current, but generally do not
make any further modifications to the payment terms or amount owed. Thus we do not recognize an impairment or write-
down solely due to the re-aging process. Once an account is placed on a non-accrual status, it is closed for further
purchases. We believe that re-ages help our customers to manage difficult repayment periods, return to good standing and
avoid further deterioration to their credit scores. Accounts that are placed on a non-accrual status and thereafter make at
least one payment qualify as troubled debt restructurings (“TDRs”). See Note 2, “Significant Accounting Policies and
Consolidated Financial Statement Components-Loans, Interest and Fees Receivable-Troubled Debt Restructurings” to our
consolidated financial statements included herein for further discussion of TDRs.

Auto Finance Segment. Accounts that CAR purchases from approved dealers initially are collected by the
originating branch or service center location using a combination of traditional collection practices. The collection process
includes contacting the customer by phone or mail, skip tracing and using starter interrupt devices to minimize
delinquencies. Uncollectible accounts in our CAR operation generally are returned to the dealer under an agreement with
the dealer to charge the balance on the account against the dealer’s reserve account. We generally do not repossess autos in
our CAR operation as a result of the agreements that we have with the dealers unless there are insufficient dealer reserves to
offset the loss or if a dealer instructs us to do so.

Consumer and Debtor Protection Laws and Regulations

Credit and Other Investments Segment. Our U.S. business is regulated directly and indirectly under various

federal and state consumer protection, collection and other laws, rules and regulations, including the federal Credit Card
Accountability Responsibility and Disclosure Act of 2009 (the “CARD Act”), the federal Dodd-Frank Wall Street Reform
and Consumer Protection Act (“Dodd-Frank”), the federal Truth In Lending Act (“TILA”), the federal Equal Credit
Opportunity Act, the federal Fair Credit Reporting Act, the federal Fair Debt Collection Practices Act, the Federal Trade
Commission (“FTC”) Act, the federal Gramm-Leach-Bliley Act and the federal Telemarketing and Consumer Fraud and
Abuse Prevention Act. These laws, rules and regulations, among other things, impose disclosure requirements when
consumer products are advertised, when an account is opened, when monthly billing statements are sent and when
consumer obligations are collected. In addition, various statutes limit the liability of consumers for unauthorized use,
prohibit discriminatory practices in consumer transactions, impose limitations on the types of charges that may be assessed
and restrict the use of consumer credit reports and other account-related information. Many of our lending partners'
products are designed for customers at the lower end of the credit score range. These products are priced to reflect the
higher credit risk of these customers. Because of the inherently greater credit risks of these customers and the resulting
higher interest and fees, we and our finance partners are subject to significant regulatory scrutiny. If regulators, including
the FDIC (which regulates bank lenders), the CFPB and the FTC, object to the terms of these products, or to our marketing
or collection practices, we could be required to modify or discontinue certain products or practices.

In the U.K., our operations are subject to U.K. regulations that provide similar consumer protections to those

provided under the U.S. regulatory framework. We are licensed and regulated by the Financial Conduct Authority (“FCA”),
and we are governed by an extensive legislative and regulatory framework that includes the Consumer Credit Act, the Data
Protection Act, Privacy and Electronic Communications Regulations, Consumer Protection and Unfair Trading regulations,
Financial Services (Distance Marketing) Regulations, the Enterprise Act, Money Laundering Regulations, Financial
Ombudsman Service and Advertising Standards Authority adjudications. The aforementioned legislation and regulations
impose strict rules on the form and content of consumer contracts, the calculation and presentation of annual percentage
rates (“APRs”), advertising in all forms, parties who can be contacted and disclosures to consumers, among others. The
regulators, such as the FCA, provide guidance on consumer credit practices including collections. The FCA requires a
comprehensive licensing process.

Auto Finance Segment. This segment is regulated directly and indirectly under various federal and state consumer

protection and other laws, rules and regulations, including the federal TILA, the federal Equal Credit Opportunity Act, the
federal Fair Credit Reporting Act, the federal Fair Debt Collection Practices Act, Dodd-Frank, the federal Gramm-Leach-
Bliley Act and the federal Telemarketing and Consumer Fraud and Abuse Prevention Act. In addition, various state statutes
limit the interest rates and fees that may be charged, limit the types of interest computations (e.g., interest bearing or pre-
computed) and refunding processes, prohibit discriminatory practices in extending credit, impose limitations on fees and
other ancillary products and restrict the use of consumer credit reports and other account-related information. Many of the
states in which this segment operates have various licensing requirements and impose certain financial or other conditions
in connection with these licensing requirements.

Privacy and Data Security Laws and Regulations. We are required to manage, use, and store large amounts of

personally identifiable information, principally the confidential personal and financial data of our lending partners’
customers, in the course of our business. We depend on our IT networks and systems, and those of third parties, to process,
store, and transmit that information. In the past, financial service companies have been targeted for sophisticated cyber
attacks. A security breach involving our files and infrastructure could lead to unauthorized disclosure of confidential
information. We take numerous measures to ensure the security of our hardware and software systems as well as customer
information.

We are subject to various U.S. federal and state laws and regulations designed to protect confidential personal and
financial data. For example, we must comply with guidelines under the Gramm-Leach-Bliley Act that require each financial
institution to develop, implement and maintain a written, comprehensive information security program containing
safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial
institution’s activities and the sensitivity of any customer information at issue. Additionally, various federal banking
regulatory agencies, and all 50 states, the District of Columbia, Puerto Rico and the Virgin Islands, have enacted data
security regulations and laws requiring customer notification in the event of a security breach.

Competition

Credit and Other Investments Segment. We face substantial competition from financial service companies, the

intensity of which varies depending upon economic and liquidity cycles. Our point-of-sale and direct-to-consumer finance
activities compete with national, regional and local bankcard and consumer credit issuers, other general-purpose credit card
issuers and retail credit card and merchant credit issuers. Many of these competitors are substantially larger than we are,
have significantly greater financial resources than we do and have significantly lower costs of funds than we have.

Auto Finance Segment. Competition within the auto finance sector is widespread and fragmented. Our auto
finance operations target automobile dealers that oftentimes are not capable of accessing indirect lending from major
financial institutions or captive finance companies. We compete mainly with a handful of national and regional companies
focused on this credit segment (e.g., Credit Acceptance Corporation, Westlake Financial, Mid-Atlantic Finance, Santander
Consumer USA, Western Funding Inc., U.S. Auto Credit, and United Acceptance) and a large number of smaller, regional
private companies with a narrow geographic focus. Individual dealers with access to capital may also compete in this
segment through the purchase of receivables from peer dealers in their markets.

Employees

As of December 31, 2018, we had 310 employees, including 6 part-time employees, most of whom are principally
employed within the U.S. We consider our relations with our employees to be good. None of our employees are covered by
a collective-bargaining agreement, and we have never experienced any organized work stoppage, strike or labor dispute.

Trademarks, Trade Names and Service Marks

We have registered and continue to register, when appropriate, various trademarks, trade names and service marks

used in connection with our businesses and for private-label marketing of certain of our products. We consider these
trademarks, trade names and service marks to be readily identifiable with, and valuable to, our business. This Annual
Report on Form 10-K also contains trade names and trademarks of other companies that are the property of their respective
owners.

Additional Information

We are headquartered in Atlanta, Georgia, and our principal executive offices are located at Five Concourse

Parkway, Suite 300, Atlanta, Georgia 30328. Our headquarters telephone number is (770) 828-2000, and our website is

www.Atlanticus.com. We make available free of charge on our website certain of our recent SEC filings, including our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and
amendments to those filings as soon as reasonably practicable after we electronically file such material with, or furnish it to,
the SEC. These reports are also available on the SEC's website at http://www.sec.gov.

Certain corporate governance materials, including our Board of Directors committee charters and our Code of

Business Conduct and Ethics, are posted on our website under the heading “For Investors.” From time to time, the
corporate governance materials on our website may be updated as necessary to comply with rules issued by the SEC or
NASDAQ, or as desirable to further the continued effective and efficient governance of our company.

ITEM 1A.

RISK FACTORS

An investment in our common stock or other securities involves a number of risks. You should carefully consider
each of the risks described below before deciding to invest in our common stock or other securities. If any of the following
risks develops into actual events, our business, financial condition or results of operations could be negatively affected, the
market price of our common stock or other securities could decline and you may lose all or part of your investment.

Investors should be particularly cautious regarding investments in our common stock or other securities at the

present time in light of uncertainties as to the profitability of our business model going forward and our inability to achieve
consistent earnings from our operations in recent years.

Our Cash Flows and Net Income Are Dependent Upon Payments from Our Investments in Receivables

The collectibility of our investments in receivables is a function of many factors including the criteria used to

select who is issued credit, the pricing of the credit products, the lengths of the relationships, general economic conditions,
the rate at which consumers repay their accounts or become delinquent, and the rate at which consumers borrow
funds. Deterioration in these factors would adversely impact our business. In addition, to the extent we have over-
estimated collectibility, in all likelihood we have over-estimated our financial performance. Some of these concerns are
discussed more fully below.

Our portfolio of receivables is not diversified and primarily originates from consumers whose creditworthiness
is considered sub-prime. Historically, we have invested in receivables in one of two ways—we have either (i) invested in
receivables originated by lenders who utilize our services or (ii) invested in or purchased pools of receivables from other
issuers. In either case, substantially all of our receivables are from financially underserved borrowers—borrowers
represented by credit risks that regulators classify as “sub-prime.” Our reliance on sub-prime receivables has negatively
impacted and may in the future negatively impact, our performance. Our various past and current losses might have been
mitigated had our portfolios consisted of higher-grade receivables in addition to our sub-prime receivables.

Economic slowdowns increase our credit losses. During periods of economic slowdown or recession, we

experience an increase in rates of delinquencies and frequency and severity of credit losses. Our actual rates of
delinquencies and frequency and severity of credit losses may be comparatively higher during periods of economic
slowdown or recession than those experienced by more traditional providers of consumer credit because of our focus on the
financially underserved consumer market, which may be disproportionately impacted.

We are subject to foreign economic and exchange risks. Because of our operations in the U.K., we have

exposure to fluctuations in the U.K. economy. We also have exposure to fluctuations in the relative values of the U.S.
dollar and the British pound. Because the British pound has experienced a net decline in value relative to the U.S. dollar
since we commenced our most significant operations in the U.K., we have experienced significant transaction and
translation losses within our financial statements.

Because a significant portion of our reported income is based on management’s estimates of the future
performance of receivables, differences between actual and expected performance of the receivables may cause
fluctuations in net income. Significant portions of our reported income (or losses) are based on management’s estimates of
cash flows we expect to receive on receivables, particularly for such assets that we report based on fair value. The expected
cash flows are based on management’s estimates of interest rates, default rates, payment rates, cardholder purchases,
servicing costs, and discount rates. These estimates are based on a variety of factors, many of which are not within our
control. Substantial differences between actual and expected performance of the receivables will occur and cause
fluctuations in our net income. For instance, higher than expected rates of delinquencies and losses could cause our net
income to be lower than expected. Similarly, levels of loss and delinquency can result in our being required to repay
lenders earlier than expected, thereby reducing funds available to us for future growth. Because all of the credit card

receivables structured financing facilities are now in amortization status—which for us generally means that the only
meaningful cash flows that we are receiving with respect to the credit card receivables that are encumbered by such
structured financing facilities are those associated with our contractually specified fee for servicing the receivables—recent
payment and default trends have substantially reduced the cash flows that we receive from these receivables.

Due to our relative lack of historical experience with Internet consumers, we may not be able to evaluate their

creditworthiness. We have less historical experience with respect to the credit risk and performance of receivables owed by
consumers acquired over the Internet and other digital channels. As a result, we may not be able to target and evaluate
successfully the creditworthiness of these potential consumers. Therefore, we may encounter difficulties managing the
expected delinquencies and losses and appropriately pricing products.

We Are Substantially Dependent Upon Borrowed Funds to Fund Receivables We Purchase

We finance receivables that we acquire in large part through financing facilities. All of our financing facilities are
of finite duration (and ultimately will need to be extended or replaced) and contain financial covenants and other conditions
that must be fulfilled in order for funding to be available. Moreover, some of our facilities currently are in amortization
stages (and are not allowing for the funding of any new loans) based on their original terms. The cost and availability of
equity and borrowed funds is dependent upon our financial performance, the performance of our industry generally and
general economic and market conditions, and at times equity and borrowed funds have been both expensive and difficult to
obtain.

If additional financing facilities are not available in the future on terms we consider acceptable—an issue that has

been made even more acute in the U.S. given regulatory changes that reduced asset-level returns on credit card lending—
we will not be able to purchase additional receivables and those receivables may contract in size.

Our Financial Performance Is, in Part, a Function of the Aggregate Amount of Receivables That Are Outstanding

The aggregate amount of outstanding receivables is a function of many factors including purchase rates, payment

rates, interest rates, seasonality, general economic conditions, competition from credit card issuers and other sources of
consumer financing, access to funding, and the timing and extent of our receivable purchases.

Despite our recent purchases of credit card receivables, our aggregate credit card receivable balances may

fluctuate. The amount of our credit card receivables is a product of a combination of factors, many of which are not in our
control. Factors include:

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the availability of funding on favorable terms;
our relationships with the banks that issue credit cards;
the degree to which we lose business to competitors;
the level of usage of our credit card products by consumers;
the availability of portfolios for purchase on attractive terms;
levels of delinquencies and charge offs;
the level of costs of acquiring new receivables;
our ability to employ and train new personnel;
our ability to maintain adequate management systems, collection procedures, internal controls and automated
systems; and
general economic and other factors beyond our control.

Reliance upon relationships with a few large retailers in the point-of-sale finance operations may adversely

affect our revenues and operating results from these operations. Our five largest retail partners accounted for over 50% of
our outstanding point-of-sale receivables as of December 31, 2018. Although we are adding new retail partners on a regular
basis, it is likely that we will continue to derive a significant portion of this operations’ receivables base and corresponding
revenue from a relatively small number of partners in the future. If a significant partner reduces or terminates its
relationship with us, these operations’ revenue could decline significantly and our operating results and financial condition
could be harmed.

We Operate in a Heavily Regulated Industry

Changes in bankruptcy, privacy or other consumer protection laws, or to the prevailing interpretation thereof, may

expose us to litigation, adversely affect our ability to collect receivables, or otherwise adversely affect our operations.
Similarly, regulatory changes could adversely affect the ability or willingness of lenders who utilize our technology
platform and related services to market credit products and services to consumers. While the Presidential Administration

supports reducing regulatory burdens, the prospects for significant modifications are uncertain. Also, the accounting rules
that apply to our business are exceedingly complex, difficult to apply and in a state of flux. As a result, how we value our
receivables and otherwise account for our business is subject to change depending upon the changes in, and, interpretation
of, those rules. Some of these issues are discussed more fully below.

Reviews and enforcement actions by regulatory authorities under banking and consumer protection laws and
regulations may result in changes to our business practices, may make collection of receivables more difficult or may
expose us to the risk of fines, restitution and litigation. Our operations and the operations of the issuing banks through
which the credit products we service are originated are subject to the jurisdiction of federal, state and local government
authorities, including the CFPB, the SEC, the FDIC, the Office of the Comptroller of the Currency, the FTC, U.K. banking
and licensing authorities, state regulators having jurisdiction over financial institutions and debt origination and collection
and state attorneys general. Our business practices and the practices of issuing banks, including the terms of products,
servicing and collection practices, are subject to both periodic and special reviews by these regulatory and enforcement
authorities. These reviews can range from investigations of specific consumer complaints or concerns to broader inquiries.
If as part of these reviews the regulatory authorities conclude that we or issuing banks are not complying with applicable
law, they could request or impose a wide range of remedies including requiring changes in advertising and collection
practices, changes in the terms of products (such as decreases in interest rates or fees), the imposition of fines or penalties,
or the paying of restitution or the taking of other remedial action with respect to affected consumers. They also could
require us or issuing banks to stop offering some credit products or obtain licenses to do so, either nationally or in selected
states. To the extent that these remedies are imposed on the issuing banks that originate credit products using our platform,
under certain circumstances we are responsible for the remedies as a result of our indemnification obligations with those
banks. We or our issuing banks also may elect to change practices that we believe are compliant with law in order to
respond to regulatory concerns. Furthermore, negative publicity relating to any specific inquiry or investigation could hurt
our ability to conduct business with various industry participants or to generate new receivables and could negatively affect
our stock price, which would adversely affect our ability to raise additional capital and would raise our costs of doing
business.

If any deficiencies or violations of law or regulations are identified by us or asserted by any regulator, or if the

CFPB, the FDIC, the FTC or any other regulator requires us or issuing banks to change any practices, the correction of such
deficiencies or violations, or the making of such changes, could have a material adverse effect on our financial condition,
results of operations or business. In addition, whether or not these practices are modified when a regulatory or enforcement
authority requests or requires, there is a risk that we or other industry participants may be named as defendants in litigation
involving alleged violations of federal and state laws and regulations, including consumer protection laws. Any failure to
comply with legal requirements by us or the banks that originate credit products utilizing our platform in connection with
the issuance of those products, or by us or our agents as the servicer of our accounts, could significantly impair our ability
to collect the full amount of the account balances. The institution of any litigation of this nature, or any judgment against us
or any other industry participant in any litigation of this nature, could adversely affect our business and financial condition
in a variety of ways.

We are dependent upon banks to issue credit cards and provide certain other credit products utilizing our

technology platform and related services. We acquire receivables generated by banks from credit cards that they have
issued and other products, and their regulators could at any time limit their ability to issue some or all of these products that
we service, or to modify those products significantly. Any significant interruption of those relationships would result in our
being unable to acquire new receivables or help develop other credit products. It is possible that a regulatory position or
action taken with respect to any of the issuing banks might result in the bank’s inability or unwillingness to originate future
credit products in collaboration with us. In the current state, such a disruption of our issuing bank relationships principally
would adversely affect our ability to grow our investments in point-of-sale and direct-to-consumer receivables.

Changes to consumer protection laws or changes in their interpretation may impede collection efforts or

otherwise adversely impact our business practices. Federal and state consumer protection laws regulate the creation and
enforcement of consumer credit card receivables and other loans. Many of these laws (and the related regulations) are
focused on sub-prime lenders and are intended to prohibit or curtail industry-standard practices as well as non-standard
practices. For instance, Congress enacted legislation that regulates loans to military personnel through imposing interest
rate and other limitations and requiring new disclosures, all as regulated by the Department of Defense. Similarly, in 2009
Congress enacted legislation that required changes to a variety of marketing, billing and collection practices, and the
Federal Reserve adopted significant changes to a number of practices through its issuance of regulations. While our
practices are in compliance with these changes, some of the changes (e.g., limitations on the ability to assess up-front fees)
have significantly affected the viability of certain credit products within the U.S. Changes in the consumer protection laws
could result in the following:

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receivables not originated in compliance with law (or revised interpretations) could become unenforceable and
uncollectible under their terms against the obligors;

• we may be required to credit or refund previously collected amounts;
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certain fees and finance charges could be limited, prohibited or restricted, which would reduce the profitability of
certain investments in receivables;
certain collection methods could be prohibited, forcing us to revise our practices or adopt more costly or less
effective practices;
limitations on our ability to recover on charged-off receivables regardless of any act or omission on our part;
some credit products and services could be banned in certain states or at the federal level;
federal or state bankruptcy or debtor relief laws could offer additional protections to consumers seeking
bankruptcy protection, providing a court greater leeway to reduce or discharge amounts owed to us; and
a reduction in our ability or willingness to invest in receivables arising under loans to certain consumers, such as
military personnel.

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Material regulatory developments may adversely impact our business and results from operations.

Our Automobile Lending Activities Involve Risks in Addition to Others Described Herein

Automobile lending exposes us not only to most of the risks described above but also to additional risks, including
the regulatory scheme that governs installment loans and those attendant to relying upon automobiles and their repossession
and liquidation value as collateral. In addition, our Auto Finance segment operation acquires loans on a wholesale basis
from used car dealers, for which we rely upon the legal compliance and credit determinations by those dealers.

Funding for automobile lending may become difficult to obtain and expensive. In the event we are unable to

renew or replace any Auto Finance segment facilities that bear refunding or refinancing risks when they become due, our
Auto Finance segment could experience significant constraints and diminution in reported asset values as lenders retain
significant cash flows within underlying structured financings or otherwise under security arrangements for repayment of
their loans. If we cannot renew or replace future facilities or otherwise are unduly constrained from a liquidity perspective,
we may choose to sell part or all of our auto loan portfolios, possibly at less than favorable prices.

Our automobile lending business is dependent upon referrals from dealers. Currently we provide substantially

all of our automobile loans only to or through used car dealers. Providers of automobile financing have traditionally
competed based on the interest rate charged, the quality of credit accepted and the flexibility of loan terms offered. In order
to be successful, we not only need to be competitive in these areas, but also need to establish and maintain good relations
with dealers and provide them with a level of service greater than what they can obtain from our competitors.

The financial performance of our automobile loan portfolio is in part dependent upon the liquidation of
repossessed automobiles. In the event of certain defaults, we may repossess automobiles and sell repossessed automobiles
at wholesale auction markets located throughout the U.S. Auction proceeds from these types of sales and other recoveries
rarely are sufficient to cover the outstanding balances of the contracts; where we experience these shortfalls, we will
experience credit losses. Decreased auction proceeds resulting from depressed prices at which used automobiles may be
sold would result in higher credit losses for us.

Repossession of automobiles entails the risk of litigation and other claims. Although we have contracted with
reputable repossession firms to repossess automobiles on defaulted loans, it is not uncommon for consumers to assert that
we were not entitled to repossess an automobile or that the repossession was not conducted in accordance with applicable
law. These claims increase the cost of our collection efforts and, if correct, can result in awards against us.

We Routinely Explore Various Opportunities to Grow Our Business, to Make Investments and to Purchase and Sell
Assets

We routinely consider acquisitions of, or investments in, portfolios and other assets as well as the sale of portfolios
and portions of our business. There are a number of risks attendant to any acquisition, including the possibility that we will
overvalue the assets to be purchased and that we will not be able to produce the expected level of profitability from the
acquired business or assets. Similarly, there are a number of risks attendant to sales, including the possibility that we will
undervalue the assets to be sold. As a result, the impact of any acquisition or sale on our future performance may not be as
favorable as expected and actually may be adverse.

Portfolio purchases may cause fluctuations in our reported Credit and Other Investments segment’s managed

receivables data, which may reduce the usefulness of this data in evaluating our business. Our reported Credit and Other

Investments segment managed receivables data may fluctuate substantially from quarter to quarter as a result of recent and
future credit card portfolio acquisitions.

Receivables included in purchased portfolios are likely to have been originated using credit criteria different from

the criteria of issuing bank partners that have originated accounts utilizing our technology platform. Receivables included in
any particular purchased portfolio may have significantly different delinquency rates and charge-off rates than the
receivables previously originated and purchased by us. These receivables also may earn different interest rates and fees as
compared to other similar receivables in our receivables portfolio. These variables could cause our reported managed
receivables data to fluctuate substantially in future periods making the evaluation of our business more difficult.

Any acquisition or investment that we make will involve risks different from and in addition to the risks to which
our business is currently exposed. These include the risks that we will not be able to integrate and operate successfully new
businesses, that we will have to incur substantial indebtedness and increase our leverage in order to pay for the acquisitions,
that we will be exposed to, and have to comply with, different regulatory regimes and that we will not be able to apply our
traditional analytical framework (which is what we expect to be able to do) in a successful and value-enhancing manner.

Other Risks of Our Business

We are a holding company with no operations of our own. As a result, our cash flow and ability to service our
debt is dependent upon distributions from our subsidiaries. The distribution of subsidiary earnings, or advances or other
distributions of funds by subsidiaries to us, all of which are subject to statutory and could be subject to contractual
restrictions, are contingent upon the subsidiaries’ cash flows and earnings and are subject to various business and debt
covenant considerations.

Unless we obtain a bank charter, we cannot issue credit cards. Because we do not have a bank charter, we
currently cannot issue credit cards ourselves. Unless we obtain a bank or credit card bank charter, we will continue to
provide servicing for banking relationships that provide for the issuance of credit cards to consumers, and acquire interests
in receivables originated through such banking relationships. Even if we obtain a bank charter, there may be restrictions on
the types of credit that the bank may extend. Our various issuing bank agreements have scheduled expiration dates. If we
are unable to extend or execute new agreements with our issuing banks at the expirations of our current agreements with
them, or if our existing or new agreements with our issuing banks were terminated or otherwise disrupted, there is a risk
that we would not be able to enter into agreements with an alternate issuer on terms that we consider favorable or in a
timely manner without disruption of our business.

We are party to litigation. We are party to certain legal proceedings which include litigation customary for a
business of our nature. In each case we believe that we have meritorious defenses or that the positions we are asserting
otherwise are correct. However, adverse outcomes are possible in these matters, and we could decide to settle one or more
of our litigation matters in order to avoid the ongoing cost of litigation or to obtain certainty of outcome. Adverse outcomes
or settlements of these matters could require us to pay damages, make restitution, change our business practices or take
other actions at a level, or in a manner, that would adversely impact our business.

We face heightened levels of economic risk associated with new investment activities. We have made a number
of investments in businesses that are not directly related to our traditional servicing and receivables financing activities to,
or associated with, the underserved consumer credit market. In addition, some of these investments that we have made and
may make in the future are or will be in debt or equity securities of businesses over which we exert little or no control,
which likely exposes us to greater risks of loss than investments in activities and operations that we control. We make only
those investments we believe have the potential to provide a favorable return. However, because some of the investments
are outside of our core areas of expertise, they entail risks beyond those described elsewhere in this Report.

Because we outsource account-processing functions that are integral to our business, any disruption or

termination of that outsourcing relationship could harm our business. We generally outsource account and payment
processing. If these outsourcing relationships were not renewed or were terminated or the services provided to us were
otherwise disrupted, we would have to obtain these services from an alternative provider. There is a risk that we would not
be able to enter into a similar outsourcing arrangement with an alternate provider on terms that we consider favorable or in
a timely manner without disruption of our business.

If we are unable to protect our information systems against service interruption, our operations could be

disrupted and our reputation may be damaged. We rely heavily on networks and information systems and other
technology, that are largely hosted by third-parties to support our business processes and activities, including processes
integral to the origination and collection of loans and other financial products, and information systems to process financial

information and results of operations for internal reporting purposes and to comply with regulatory financial reporting and
legal and tax requirements. Because information systems are critical to many of our operating activities, our business may
be impacted by hosted system shutdowns, service disruptions or security breaches. These incidents may be caused by
failures during routine operations such as system upgrades or user errors, as well as network or hardware failures, malicious
or disruptive software, computer hackers, rogue employees or contractors, cyber-attacks by criminal groups, geopolitical
events, natural disasters, failures or impairments of telecommunications networks, or other catastrophic events. If our
information systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively
resolve the issues in a timely manner, we could experience delays in reporting our financial results, and we may lose
revenue and profits as a result of our inability to collect payments in a timely manner. We also could be required to spend
significant financial and other resources to repair or replace networks and information systems.

Unauthorized or unintentional disclosure of sensitive or confidential customer data could expose us to
protracted and costly litigation, and civil and criminal penalties. To conduct our business, we are required to manage, use,
and store large amounts of personally identifiable information, consisting primarily of confidential personal and financial
data regarding consumers across all operations areas. We also depend on our IT networks and systems, and those of third
parties, to process, store, and transmit this information. As a result, we are subject to numerous U.S. federal and state laws
designed to protect this information. Security breaches involving our files and infrastructure could lead to unauthorized
disclosure of confidential information.

We take a number of measures to ensure the security of our hardware and software systems and customer

information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may
result in the technology used by us to protect data being breached or compromised. In the past, banks and other financial
service providers have been the subject of sophisticated and highly targeted attacks on their information technology. An
increasing number of websites have reported breaches of their security.

If any person, including our employees or those of third-party vendors, negligently disregards or intentionally

breaches our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could
be subject to costly litigation, monetary damages, fines, and/or criminal prosecution. Any unauthorized disclosure of
personally identifiable information could subject us to liability under data privacy laws. Further, under credit card rules and
our contracts with our card processors, if there is a breach of credit card information that we store, we could be liable to the
credit card issuing banks for their cost of issuing new cards and related expenses. In addition, if we fail to follow credit card
industry security standards, even if there is no compromise of customer information, we could incur significant fines.
Security breaches also could harm our reputation, which could potentially cause decreased revenues, the loss of existing
merchant credit partners, or difficulty in adding new merchant credit partners.

Internet and data security breaches also could impede our bank partners from originating loans over the
Internet, cause us to lose consumers or otherwise damage our reputation or business. Consumers generally are concerned
with security and privacy, particularly on the Internet. As part of our growth strategy, we have enabled lenders to originate
loans over the Internet. The secure transmission of confidential information over the Internet is essential to maintaining
customer confidence in such products and services offered online.

Advances in computer capabilities, new discoveries or other developments could result in a compromise or breach

of the technology used by us to protect our client or consumer application and transaction data transmitted over the
Internet. In addition to the potential for litigation and civil penalties described above, security breaches could damage our
reputation and cause consumers to become unwilling to do business with our clients or us, particularly over the Internet.
Any publicized security problems could inhibit the growth of the Internet as a means of conducting commercial
transactions. Our ability to service our clients’ needs over the Internet would be severely impeded if consumers become
unwilling to transmit confidential information online.

Also, a party that is able to circumvent our security measures could misappropriate proprietary information, cause

interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and
business.

Regulation in the areas of privacy and data security could increase our costs. We are subject to various

regulations related to privacy and data security/breach, and we could be negatively impacted by these regulations. For
example, we are subject to the Safeguards guidelines under the Gramm-Leach-Bliley Act. The Safeguards guidelines
require that each financial institution develop, implement and maintain a written, comprehensive information security
program containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope
of the financial institution’s activities and the sensitivity of any customer information at issue. Broad-ranging data security
laws that affect our business also have been adopted by various states. Compliance with these laws regarding the protection

of consumer and employee data could result in higher compliance and technology costs for us, as well as potentially
significant fines and penalties for non-compliance. Further, there are various other statutes and regulations relevant to the
direct email marketing, debt collection and text-messaging industries including the Telephone Consumer Protection Act.
The interpretation of many of these statutes and regulations is evolving in the courts and administrative agencies and an
inability to comply with them may have an adverse impact on our business.

In addition to the foregoing enhanced data security requirements, various federal banking regulatory agencies, and

all 50 states, the District of Columbia, Puerto Rico and the Virgin Islands, have enacted data security regulations and laws
requiring varying levels of consumer notification in the event of a security breach.

Also, federal legislators and regulators are increasingly pursuing new guidelines, laws and regulations that, if

adopted, could further restrict how we collect, use, share and secure consumer information, which could impact some of our
current or planned business initiatives.

Unplanned system interruptions or system failures could harm our business and reputation. Any interruption in

the availability of our transactional processing services due to hardware and operating system failures will reduce our
revenues and profits. Any unscheduled interruption in our services results in an immediate, and possibly substantial, loss of
revenues. Frequent or persistent interruptions in our services could cause current or potential consumers to believe that our
systems are unreliable, leading them to switch to our competitors or to avoid our websites or services, and could
permanently harm our reputation.

Although our systems have been designed around industry-standard architectures to reduce downtime in the event

of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires,
power loss, telecommunication failures, computer viruses, computer denial-of-service attacks, and similar events or
disruptions. Some of our systems are not fully redundant, and our disaster recovery planning may not be sufficient for all
eventualities. Our systems also are subject to break-ins, sabotage, and intentional acts of vandalism. Despite any
precautions we may take, the occurrence of a natural disaster, a decision by any of our third-party hosting providers to close
a facility we use without adequate notice for financial or other reasons, or other unanticipated problems at our hosting
facilities could cause system interruptions, delays, and loss of critical data, and result in lengthy interruptions in our
services. Our business interruption insurance may not be sufficient to compensate us for losses that may result from
interruptions in our service as a result of system failures.

Climate change and related regulatory responses may impact our business. Climate change as a result of

emissions of greenhouse gases is a significant topic of discussion and may generate federal and other regulatory
responses. It is impracticable to predict with any certainty the impact on our business of climate change or the regulatory
responses to it, although we recognize that they could be significant. The most direct impact is likely to be an increase in
energy costs, which would adversely impact consumers and their ability to incur and repay indebtedness. However, we are
uncertain of the ultimate impact, either directionally or quantitatively, of climate change and related regulatory responses
on our business.

Risks Relating to an Investment in Our Securities

The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell your

shares of our common stock when you want or at prices you find attractive. The price of our common stock on the
NASDAQ Global Select Market constantly changes. We expect that the market price of our common stock will continue to
fluctuate. The market price of our common stock may fluctuate in response to numerous factors, many of which are beyond
our control. These factors include the following:

•
•

•
•
•

•
•

•

actual or anticipated fluctuations in our operating results;
changes in expectations as to our future financial performance, including financial estimates by securities analysts
and investors;
the overall financing environment, which is critical to our value;
the operating and stock performance of our competitors;
announcements by us or our competitors of new products or services or significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
changes in interest rates;
the announcement of enforcement actions or investigations against us or our competitors or other negative
publicity relating to us or our industry;
changes in GAAP, laws, regulations or the interpretations thereof that affect our various business activities and
segments;

•
•

general domestic or international economic, market and political conditions;
changes in ownership by executive officers, directors and parties related to them who control a majority of our
common stock;
additions or departures of key personnel; and
future sales of our common stock and the transfer or cancellation of shares of common stock pursuant to a share
lending agreement.

In addition, the stock markets from time to time experience extreme price and volume fluctuations that may be

unrelated or disproportionate to the operating performance of companies. These broad fluctuations may adversely affect the
trading price of our common stock, regardless of our actual operating performance.

Future sales of our common stock or equity-related securities in the public market, including sales of our
common stock pursuant to share lending agreements or short sale transactions by purchasers of convertible senior
notes, could adversely affect the trading price of our common stock and our ability to raise funds in new stock
offerings. Sales of significant amounts of our common stock or equity-related securities in the public market, including
sales pursuant to share lending agreements, or the perception that such sales will occur, could adversely affect prevailing
trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-
related securities. Future sales of shares of common stock or the availability of shares of common stock for future sale,
including sales of our common stock in short sale transactions by purchasers of our convertible senior notes, may have a
material adverse effect on the trading price of our common stock.

We have the ability to issue preferred stock, warrants, convertible debt and other securities without shareholder

approval. Our common stock may be subordinate to classes of preferred stock issued in the future in the payment of
dividends and other distributions made with respect to common stock, including distributions upon liquidation or
dissolution. Our articles of incorporation permit our Board of Directors to issue preferred stock without first obtaining
shareholder approval. If we issue preferred stock, these additional securities may have dividend or liquidation preferences
senior to the common stock. If we issue convertible preferred stock, a subsequent conversion may dilute the current
common shareholders’ interest. We have similar abilities to issue convertible debt, warrants and other equity securities.

Our executive officers, directors and parties related to them, in the aggregate, control a majority of our

common stock and may have the ability to control matters requiring shareholder approval. Our executive officers,
directors and parties related to them own a large enough share of our common stock to have an influence on, if not control
of, the matters presented to shareholders. As a result, these shareholders may have the ability to control matters requiring
shareholder approval, including the election and removal of directors, the approval of significant corporate transactions,
such as any reclassification, reorganization, merger, consolidation or sale of all or substantially all of our assets and the
control of our management and affairs. Accordingly, this concentration of ownership may have the effect of delaying,
deferring or preventing a change of control of us, impede a merger, consolidation, takeover or other business combination
involving us or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us,
which in turn could have an adverse effect on the market price of our common stock.

The right to receive payments on our convertible senior notes is subordinate to the rights of our existing and
future secured creditors. Our convertible senior notes are unsecured and are subordinate to existing and future secured
obligations to the extent of the value of the assets securing such obligations. As a result, in the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding of our company, our assets generally would be available to
satisfy obligations of our secured debt before any payment may be made on the convertible senior notes. To the extent that
such assets cannot satisfy in full our secured debt, the holders of such debt would have a claim for any shortfall that would
rank equally in right of payment (or effectively senior if the debt were issued by a subsidiary) with the convertible senior
notes. In such an event, we may not have sufficient assets remaining to pay amounts on any or all of the convertible senior
notes.

As of December 31, 2018, Atlanticus Holdings Corporation had outstanding: $406.7 million of secured

indebtedness, which would rank senior in right of payment to the convertible senior notes; $93.3 million of senior
unsecured indebtedness in addition to the convertible senior notes that would rank equal in right of payment to the
convertible senior notes; and no subordinated indebtedness. Included in senior secured indebtedness are certain guarantees
we have executed in favor of our subsidiaries. For more information on our outstanding indebtedness, See Note 9, “Notes
Payable,” to our consolidated financial statements included herein.

Our convertible senior notes are junior to the indebtedness of our subsidiaries. Our convertible senior notes are

structurally subordinated to the existing and future claims of our subsidiaries’ creditors. Holders of the convertible senior
notes are not creditors of our subsidiaries. Any claims of holders of the convertible senior notes to the assets of our
subsidiaries derive from our own equity interests in those subsidiaries. Claims of our subsidiaries’ creditors will generally
have priority as to the assets of our subsidiaries over our own equity interest claims and will therefore have priority over the
holders of the convertible senior notes. Consequently, the convertible senior notes are effectively subordinate to all
liabilities, whether or not secured, of any of our subsidiaries and any subsidiaries that we may in the future acquire or
establish. Our subsidiaries’ creditors also may include general creditors and taxing authorities. As of December 31, 2018,
our subsidiaries had total liabilities of approximately $487.3 million (including the $406.7 million of senior secured
indebtedness mentioned above), excluding intercompany indebtedness. In addition, in the future, we may decide to increase
the portion of our activities that we conduct through subsidiaries.

Note Regarding Risk Factors

The risk factors presented above are all of the ones that we currently consider material. However, they are not the
only ones facing our company. Additional risks not presently known to us, or which we currently consider immaterial, also
may adversely affect us. There may be risks that a particular investor views differently from us, and our analysis might be
wrong. If any of the risks that we face actually occurs, our business, financial condition and operating results could be
materially adversely affected and could differ materially from any possible results suggested by any forward-looking
statements that we have made or might make. In such case, the trading price of our common stock or other securities could
decline, and you could lose part or all of your investment. We expressly disclaim any obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise, except as required
by law.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

We lease 335,372 square feet of office space in Atlanta, Georgia for our executive offices and the primary
operations of our Credit and Other Investments segment. We have sub-leased 254,710 square feet of this office space. Our
Auto Finance segment principally operates from 12,807 square feet of leased office space in Lake Mary, Florida, with
additional offices and branch locations in various states and territories. We believe that our facilities are suitable to our
business and that we will be able to lease or purchase additional facilities as our needs, if any, require.

ITEM 3.

LEGAL PROCEEDINGS

On April 4, 2007, we purchased a portfolio of credit card accounts from Barclays Bank PLC (“Barclays”)
pursuant to a Sale and Purchase Agreement (the “SPA”). On May 4, 2017, we sued Barclays in the High Court of Justice
Business and Property Courts of England and Wales, Claim No. FL-2017-000003. The claims related to Barclays’
obligation to reimburse us for certain consumer claims and other damages incurred as a result of the SPA and Barclays’
actions and inactions. In conjunction with the lawsuit, Barclays asserted a counterclaim alleging that past reimbursement
claims paid to us were not in accordance with its policies. On December 19, 2018, the Company received £34 million
(approximately $42.9 million) from Barclays Bank UK PLC in full and final settlement of this matter.

We are involved in various other legal proceedings that are incidental to the conduct of our business. There are

currently no other pending legal proceedings that are expected to be material to us.

ITEM 4.

MINE SAFETY DISCLOSURES

None.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NASDAQ Global Select Market under the symbol “ATLC.” As of
February 22, 2019, there were 46 record holders of our common stock, which does not include persons whose stock is held
in nominee or “street name” accounts through brokers, banks and intermediaries.

ISSUER PURCHASES OF EQUITY SECURITIES

The following table sets forth information with respect to our repurchases of common stock during the three

months ended December 31, 2018.

Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs

Total Number
of Shares
Purchased

Average Price
Paid per
Share

Maximum
Number of
Shares that
May Yet Be
Purchased
under the
Plans or
Programs (1)
4,737,540
4,737,540
4,737,540
4,737,540

October 1 - October 31 ........................................
November 1 - November 30 ................................
December 1 - December 31 .................................
Total ....................................................................

2,268 $
— $
— $
2,268 $

2.97
—
—
2.97

2,268
—
—
2,268

(1) Pursuant to a share repurchase plan authorized by our Board of Directors on May 10, 2018, we are authorized to

repurchase 5,000,000 shares of our common stock through June 30, 2020.

We will continue to evaluate our stock price relative to other investment opportunities and, to the extent we

believe that the repurchase of our stock represents an appropriate return of capital, we will repurchase shares of our stock.

ITEM 6.

SELECTED FINANCIAL DATA

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this

information.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and the related notes
included therein, where certain terms have been defined.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-
looking statements. We base these forward-looking statements on our current plans, expectations and beliefs about future
events. There are risks, including the factors discussed in “Risk Factors” in Item 1A and elsewhere in this Report, that our
actual experience will differ materially from these expectations. For more information, see “Cautionary Notice Regarding
Forward-Looking Statements” at the beginning of this Report.

In this Report, except as the context suggests otherwise, the words “Company,” “Atlanticus Holdings

Corporation,” “Atlanticus,” “we,” “our,” “ours,” and “us” refer to Atlanticus Holdings Corporation and its subsidiaries and
predecessors.

OVERVIEW

We utilize proprietary analytics and a flexible technology platform to enable financial institutions to provide

In most cases, we invest in the receivables originated by lenders who utilize our technology platform and other

Using our infrastructure and technology platform, we also provide loan servicing, including risk management and

in companies engaged in mobile technologies, marketplace lending and other financial technologies. These investments are
carried at the lower of cost or market valuation. None of these companies are publicly-traded and there are no material
pending liquidity events.

The recurring cash flows we receive within our Credit and Other Investments segment principally include those

We believe that our point-of-sale and direct-to-consumer receivables are generating, and will continue to generate,

Beyond these activities within our Credit and Other Investments segment, we invest in and service portfolios of

Subject to the availability of capital at attractive terms and pricing, we plan to continue to evaluate and pursue a

CONSOLIDATED RESULTS OF OPERATIONS

(In Thousands)

For the Year Ended
December 31,

2018

2017

Income
Increases
(Decreases)
from 2017
to 2018

Total interest income ................................................................... $
Interest expense ...........................................................................
Fees and related income on earning assets:

Fees on credit products .....................................................
Changes in fair value of loans, interest and fees

161,168 $
(36,896)

114,707 $
(27,700)

46,461
(9,196 )

25,694

10,427

15,267

receivable recorded at fair value ...................................

606

3,456

(2,850 )

Changes in fair value of notes payable associated with

structured financings recorded at fair value ..................
Rental revenue ..................................................................
Other .................................................................................

Other operating income:

Servicing income ..............................................................
Other income ....................................................................
Equity in income of equity-method investee ....................
Total ................................................................... $

Net losses upon (recovery of) charge off of loans, interest and

3,589
—
103

1,969
39,820
581
196,634 $

2,315
148
(2,057)

3,854
1,419
1,158
107,727 $

1,274
(148 )
2,160

(1,885 )
38,401
(577 )
88,907

fees receivable recorded at fair value ......................................

549

(9,460)

(10,009 )

Provision for losses on loans, interest and fees receivable

recorded at net realizable value ...............................................

100,338

77,612

(22,726 )

Other operating expenses:

Salaries and benefits .........................................................
Card and loan servicing ....................................................
Marketing and solicitation ................................................
Depreciation .....................................................................
Other .................................................................................
Net income (loss) ........................................................................
Net loss attributable to noncontrolling interests ..........................
Net income (loss) attributable to controlling interests .................

23,430
37,145
12,124
987
18,579
7,612
244
7,856

22,751
31,534
13,070
1,021
18,449
(40,872)
91
(40,781)

(679 )
(5,611 )
946
34
(130 )
48,484
153
48,637

Year Ended December 31, 2018, Compared to Year Ended December 31, 2017

Total interest income. Total interest income consists primarily of finance charges and late fees earned on point-of-
sale and direct-to-consumer receivables, credit card and auto finance receivables. Period-over-period results primarily relate
to growth in point-of-sale finance and direct-to-consumer products, the receivables of which increased from $316.7 million
as of December 31, 2017 to $453.3 million as of December 31, 2018. We are currently experiencing continued period-over-
period growth in point-of-sale and direct-to-consumer receivables and to a lesser extent in our CAR receivables—growth
which we expect to result in net period-over-period growth in our total interest income for these operations in 2019. Future
periods’ growth is also dependent on the addition of new retail partners to expand the reach of point-of-sale operations as
well as growth within existing partnerships and continued growth and marketing within the direct-to-consumer receivables.

Interest expense. Variations in interest expense are due to new borrowings associated with growth in point-of-sale

and direct-to-consumer receivables and CAR operations as evidenced within Note 9, “Notes Payable,” to our consolidated
financial statements offset by our debt facilities being repaid commensurate with net liquidations of the underlying credit
card, auto finance and installment loan receivables that serve as collateral for the facilities. Outstanding notes payable
associated with our point-of-sale and direct-to-consumer operations increased from $204.0 million as of December 31,
2017 to $366.7 million as of December 31, 2018. We anticipate additional debt financing over the next few quarters as we
continue to grow, and as such, we expect our quarterly interest expense to be above that experienced in the prior periods for
these operations.

Fees and related income on earning assets. The significant factors affecting our differing levels of fees and

related income on earning assets include:

•

increases in fees on credit products, primarily associated with growth in direct-to-consumer products and to a
lesser degree by growth in point-of-sale finance products, offset somewhat by general net declines in legacy
credit card receivables;
the effects of changes in the fair values of credit card receivables recorded at fair value and notes payable
associated with structured financings recorded at fair value as described below; and
a $2.1 million write-down in 2017 of the carrying value associated with investments previously made in
consumer finance technology platforms carried at the lower of cost or market valuation.

We expect increasing levels of direct-to-consumer fee income in 2019 as we continue to invest in new credit card
receivables as part of our direct-to-consumer operations. Additionally, for credit card accounts for which we use fair value
accounting, we expect our change in fair value of credit card receivables recorded at fair value and our change in fair value
of notes payable associated with structured financings recorded at fair value amounts to gradually diminish (absent
significant changes in the assumptions used to determine these fair values) in the future. These amounts, however, are
subject to potentially high levels of volatility if we experience changes in the quality of our credit card receivables or if
there are significant changes in market valuation factors (e.g., interest rates and spreads) in the future. Such volatility will
be muted somewhat, however, by the offsetting nature of the receivables and underlying debt being recorded at fair value
and with the expected reductions in the face amounts of such outstanding receivables and debt as we experience further
legacy credit card receivables liquidations and associated debt repayments.

Servicing income. We earn servicing income by servicing loan portfolios for third parties (including our equity-

method investee). Unless and/or until we grow the number of contractual servicing relationships we have with third parties
or our current relationships grow their loan portfolios, we will not experience significant growth and income within this
category, and we currently expect to experience continued declines in this category of revenue relative to revenue earned in
prior periods.

Other income. Historically included within our other income category are ancillary and interchange revenues,
which are now relatively insignificant for us due to previous credit card account closures and net credit card receivables
portfolio liquidations. Given recent growth associated with new credit card offerings and related receivables, we expect
ancillary and interchange revenues to grow modestly throughout the year. Also included within our other income category
for the year ended December 31, 2018, is the receipt of £34 million (approximately $42.9 million) in settlement of
previously-disclosed litigation, resulting in income recognition of approximately $36.2 million after adjusting for amounts
previously recorded.

Equity in income of equity-method investee. Because our equity-method investee uses the fair value option to
account for its financial assets and liabilities, changes in fair value estimates can cause some volatility in the earnings of
this investee. Because of continued liquidations in the credit card receivables portfolio of our equity-method investee,
absent additional investments in our existing or in new equity-method investees in the future, we expect gradually declining
effects from our equity-method investment on our operating results.

Net losses upon (recovery of) charge off of loans, interest and fees receivable recorded at fair value. This

account reflects charge offs (net of recoveries) of the face amount of credit card receivables we record at fair value on our
consolidated balance sheet. We have experienced a general trending decline in, and we expect future trending declines in,
these charge-offs as we continue to liquidate our legacy credit card receivables. Additionally, net recovery in the year ended
December 31, 2017 reflects the effects of reimbursements received in respect of one of our portfolios. For the year ended
December 31, 2017, these reimbursements exceeded the charge-offs experienced within the portfolio during the period as
the reimbursements are not directly associated with the timing of actual charge-offs. A reduction in the amount of
these reimbursements during 2018 resulted in net losses for that period. We currently do not expect further reimbursements
will result in a net recovery of losses upon impairment, and do not expect such reimbursements to have a material impact
on charge-offs in 2019.

Provision for losses on loans, interest and fees receivable recorded at net realizable value. Our provision for

losses on loans, interest and fees receivable recorded at net realizable value covers, with respect to such receivables,
changes in estimates regarding our aggregate loss exposures on (1) principal receivable balances, (2) finance charges and
late fees receivable underlying income amounts included within our total interest income category, and (3) other fees
receivable. We have experienced a period-over-period increase in this category between the years ended December 31,
2018 and 2017 primarily reflecting the effects of volume associated with point-of-sale and direct-to-consumer finance
receivables (i.e., growth of new product receivables and their subsequent maturation), rather than specific credit quality
changes or deterioration, which also impacted our provision for losses on loans, interest and fees receivable recorded at net
realizable value to a lesser degree. Partially offsetting this increase was a reduction in our provision for loan losses for
unearned fees and discounts that may be applicable for outstanding loan receivables and which would serve to reduce the
financial impact of an eventual charge-off. The offsetting of unearned fees and discounts against our provision for losses
resulted in an initial $3.3 million reduction in the provision recognized for the twelve months ended December 31, 2018.
See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components,” to our consolidated
financial statements and the discussions of our Credit and Other Investments and Auto Finance segments for further credit
quality statistics and analysis.

Total other operating expense. Total other operating expense variances for the year ended December 31, 2018,

relative to the year ended December 31, 2017, reflect the following:

•

increases in salaries reflecting marginal growth in both the number of employees and increases in related
benefit costs. We expect some marginal increase in this cost for 2019 when compared to 2018 as we expect
our receivables to continue to grow;
increases in card and loan servicing expenses in the year ended December 31, 2018 when compared to the
year ended December 31, 2017 due to growth in receivables associated with our investments in point-of-sale
and direct-to-consumer receivables which grew from $316.7 million outstanding to $453.3 million
outstanding at December 31, 2017 and December 31, 2018, respectively, offset by the continued net
liquidations in our legacy credit card portfolios, the receivables of which declined from $16.6 million
outstanding to $9.6 million outstanding at December 31, 2017 and December 31, 2018, respectively;
decreases in marketing and solicitation costs for the year ended December 31, 2018 primarily due to volume-
related decreases in new accounts and the timing of solicitations during 2018. We expect increased origination
and brand marketing support will result in overall increases in year-over-year expenditures during 2019.

Certain operating costs are variable based on the levels of accounts and receivables we service (both for our own
account and for others) and the pace and breadth of our growth in receivables. However, a number of our operating costs
are fixed and until recently have comprised a larger percentage of our total costs based on the ongoing contraction of our
legacy credit card receivables. This trend is gradually reversing as we continue to grow our earning assets (including loans,
interest and fees receivable) based principally on growth of point-of-sale and direct-to-consumer receivables and to a lesser
extent, growth within our CAR operations. This is evidenced by the growth we experienced in our managed receivables
levels with minimal growth in the fixed portion of our card and loan servicing expenses as well as our salaries and benefits
costs as we were able to better utilize our fixed costs to grow our asset base. We continue to manage our costs effectively.

Notwithstanding our cost-control efforts and focus, we expect increased levels of expenditures associated with
anticipated growth in point-of-sale and direct-to-consumer credit card-related operations. These expenses will primarily
relate to the variable costs of marketing efforts and card and loan servicing expenses associated with new receivable
acquisitions. While we have greater control over our variable expenses, it is difficult (as explained above) for us to
appreciably reduce our fixed and other costs associated with an infrastructure (particularly within our Credit and Other
Investments segment) that was built to support levels of managed receivables that are significantly higher than both our
current levels and the levels that we expect to see in the near future. At this point, our Credit and Other Investments
segment cash inflows are sufficient to cover its direct variable costs and a portion, but not all, of its share of overhead costs
(including, for example, corporate-level executive and administrative costs and our convertible senior notes interest costs).
As such, if we are unable to contain overhead costs or expand revenue-earning activities to levels commensurate with such
costs, then, depending upon the earnings generated from our Auto Finance segment and our liquidating credit card
portfolios, we may experience continuing pressure on our ability to achieve consistent profitability.

Noncontrolling interests. We reflect the ownership interests of noncontrolling holders of equity in our majority-

owned subsidiaries as noncontrolling interests in our consolidated statements of operations. Unless we enter into significant
new majority-owned subsidiary ventures with noncontrolling interest holders in the future, we expect to have negligible
noncontrolling interests in our majority-owned subsidiaries and negligible allocations of income or loss to noncontrolling
interest holders in future quarters.

Income Taxes. We experienced a negative effective income tax expense rate of 118.6% for the year ended
December 31, 2018, compared to an effective income tax benefit rate of 13.5% for the year ended December 31, 2017. Our
negative effective income tax expense rate for the year ended December 31, 2018 is significantly below the statutory rate
principally as a result of our settlement during 2018 of an IRS examination of our 2008 tax return and the carryback of its
resulting net operating losses to pre-2008 tax years. The settlement resulted in a decrease in our federal tax valuation
allowance and net reductions in our accruals of interest on liabilities for uncertain tax positions and unpaid taxes. Our
effective income tax benefit rate for the year ended December 31, 2017 was below the statutory rate principally due to (1)
interest and penalties that we accrued on unpaid federal tax liabilities and (2) our establishment of valuation allowances
against our net federal deferred tax assets associated with our net loss incurred in that year.

We report income tax-related interest and penalties (including those associated with both our accrued liabilities for

uncertain tax positions and unpaid tax liabilities) within our income tax line item on our consolidated statements of
operations. We likewise report the reversal of income tax-related interest and penalties within such line item to the extent
that we resolve our liabilities for uncertain tax positions or unpaid tax liabilities in a manner favorable to our accruals
therefor. For 2018, we reported a net reversal of income tax-related interest and penalties of $1.2 million within our income
tax line item, and, for 2017, we reported net income tax-related interest and penalties of $0.5 million within our income tax
line item.

In December 2014, we reached a settlement with the IRS concerning the tax treatment of net operating losses we

incurred in 2007 and 2008 and carried back to obtain refunds of federal income taxes paid in earlier years dating back to
2003. In 2015, we filed an amended return claim that, if accepted, would have eliminated the $7.4 million assessment (and
corresponding interest and penalties) under a negotiated provision of the December 2014 IRS settlement. The IRS filed a
lien (as is customarily the case) associated with the assessment. Subsequently, an IRS examination team denied our
amended return claims, and we filed a protest with IRS Appeals. Following correspondence and conferences held with IRS
Appeals, we received and accepted a settlement offer from IRS Appeals in June 2018 that reduced our $7.4 million net
unpaid income tax assessment referenced above to $3.7 million. In July 2018, we paid $5.4 million to the IRS to cover the
$3.7 million unpaid income tax assessment and most of the interest that had accrued thereon; subsequently, during the three
months ended September 30, 2018, the IRS refunded $0.5 million of our $5.4 million payment. Although we have paid all
assessed income taxes related to this matter, we still have an outstanding accrued liability for some of the interest and for
failure-to-pay penalties related to this matter. We are pursuing complete abatement of the failure-to-pay penalties, and once
this matter is resolved and we pay any remaining interest liability, we expect the IRS to remove the aforementioned lien in
due course.

Credit and Other Investments Segment

Our Credit and Other Investments segment includes our activities relating to our servicing of and our investments

in the point-of-sale, direct-to-consumer personal finance and credit card operations, our various credit card receivables
portfolios, as well as other product testing and investments that generally utilize much of the same infrastructure. The types
of revenues we earn from our investments in receivables portfolios and services primarily include finance charges, fees and
the accretion of discounts associated with the point-of-sale receivables or annual fees on our direct-to-consumer
receivables.

We record (i) the finance charges, discount accretion and late fees assessed on our Credit and Other Investments

segment receivables in the interest income - consumer loans, including past due fees category on our consolidated
statements of operations, (ii) the rental revenue, annual, activation, monthly maintenance, returned-check, cash advance and
other fees in the fees and related income on earning assets category on our consolidated statements of operations, and (iii)
the charge offs (and recoveries thereof) within our provision for losses on loans, interest and fees receivable on our
consolidated statements of operations (for all credit product receivables other than those for which we have elected the fair
value option) and within net losses upon (recovery of) charge off of loans, interest and fees receivable recorded at fair value
on our consolidated statements of operations (for all of our other receivables for which we have elected the fair value
option). Additionally, we show the effects of fair value changes for those credit card receivables for which we have elected
the fair value option as a component of fees and related income on earning assets in our consolidated statements of
operations.

We historically have invested in receivables portfolios through subsidiary entities. If we control through direct

ownership or exert a controlling interest in the entity, we consolidate it and reflect its operations as noted above. If we exert
significant influence but do not control the entity, we record our share of its net operating results in the equity in income of
equity-method investee category on our consolidated statements of operations.

Managed Receivables

We make various references within our discussion of the Credit and Other Investments segment to our managed

receivables. Our managed receivables data includes only the performance of those receivables underlying consolidated
subsidiaries and excludes from managed receivables data the performance of receivables held by our equity method
investee. As the receivables underlying our equity method investee reflect a diminishing portion of our overall receivables
base, we do not believe their inclusion or exclusion in the overall results is material. Additionally, we calculate average
managed receivables based on the quarter ending balances.

Financial, operating and statistical data based on aggregate managed receivables are important to any evaluation of
the performance of our credit portfolios, including our risk management, servicing and collection activities and our valuing
of purchased receivables. In allocating our resources and managing our business, management relies heavily upon financial
data and results prepared on this “managed basis.” Analysts, investors and others also consider it important that we provide
selected financial, operating and statistical data on a managed basis because this allows a comparison of us to others within
the specialty finance industry. Moreover, our management, analysts, investors and others believe it is critical that they
understand the credit performance of our managed receivables because it provides information concerning the quality of
loan originations and the related credit risks inherent within the portfolios.

Reconciliation of the managed receivables data to our GAAP financial statements requires an understanding that:
(1) our managed receivables data are based on billings and actual charge-offs as they occur, without regard to any changes
in our allowance for uncollectible loans, interest and fees receivable; (2) our managed receivables data exclude non-
consolidated receivables (3) the period-end and average managed receivables data include the face value of receivables
which are accounted for under the fair value option; and (4) when applicable, we exclude from our managed receivables
data certain reimbursements received in respect of one of our portfolios which resulted in pre-tax income benefits within
our net recovery of impairment of loans, interest and fees receivable recorded at fair value line item on our consolidated
statements of operations totaling approximately $0.4 million for the three months ended September 30, 2018, $1.7 million
for the the three months ended June 30, 2018, $2.9 million for the three months ended September 30, 2017, $1.1 million for
the three months ended June 30, 2017, and $8.6 million for the three months ended March 31, 2017. This last category of
reconciling items above is excluded because it does not bear on our performance in managing our credit card portfolios,
including our risk management, servicing and collection activities and our valuing of purchased receivables; moreover, we
do not expect to receive any further material reimbursements with respect to this portfolio.

A reconciliation of our Loans, interest and fees receivable, at fair value to the assets underlying those receivables

which are included in our managed receivables are as follows (in thousands):

At or for the Three Months Ended

2018

2017

Dec. 31 Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31

Loans, interest and fees

receivable, gross ..............
Fair value adjustment ..........
Loans, interest and fees

9,575 10,504 13,790 15,557 16,601 18,180 20,102 21,922
(8,331)
(3,269)

(7,332 )

(6,161 )

(6,144)

(3,379)

(5,504)

(5,492)

receivable, at fair value ....

6,306

7,125

8,286

9,413 11,109 12,019 12,770 13,591

Asset quality. Our delinquency and charge-off data at any point in time reflect the credit performance of our

managed receivables. The average age of the accounts underlying our receivables, the timing of portfolio purchases, the
success of our collection and recovery efforts and general economic conditions all affect our delinquency and charge-off
rates. The average age of the accounts underlying our receivables portfolio also affects the stability of our delinquency and
loss rates. We consider this delinquency and charge-off data in our allowance for uncollectible loans, interest and fees
receivable for our other credit product receivables that we report at net realizable value. Our strategy for managing
delinquency and receivables losses consists of account management throughout the life of the receivable. This strategy
includes credit line management and pricing based on the risks. See also our discussion of collection strategies under the
“How Do We Collect?” in Item 1, “Business”.

The following table presents the delinquency trends of the receivables we manage within our Credit and Other
Investments segment, as well as charge-off data and other managed receivables statistics (in thousands; percentages of
total):

At or for the Three Months Ended

2018

2017

Dec. 31 Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31

Period-end managed

receivables ..................... $ 462,862 $ 406,057 $ 371,331 $ 337,848 $ 333,286 $ 303,080 $ 267,637 $ 247,569

Percent 30 or more days

past due .........................

13.2%

12.7%

11.8%

12.1 %

13.7 %

12.1%

11.5%

Percent 60 or more days

past due .........................

9.5%

9.3%

8.5%

9.1 %

9.8 %

8.3%

7.8%

8.3%

Percent 90 or more days

past due .........................

6.7%

6.4%

5.7%

6.5 %

5.5%

4.9%

5.5%

Averaged managed

receivables ..................... $ 434,460 $ 388,694 $ 354,590 $ 335,567 $ 318,183 $ 285,359 $ 257,603 $ 243,031
34.8%

44.3%

43.2%

41.0 %

39.5 %

36.5%

41.6%

35.1%

Total yield ratio .................
Combined gross charge-

off ratio .........................

21.6%

19.7%

22.4%

24.2 %

20.1 %

18.2%

21.1%

22.4%

The following table presents additional trends and data with respect to our current point-of-sale (“Retail”) and

direct-to-consumer operations (“Direct”) (dollars in thousands). Results of our legacy credit card receivables portfolios are
excluded:

Retail - At or for the Three Months Ended

2018

2017

Dec. 31 Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31

Period-end managed

receivables ..................... $ 257,772 $ 238,851 $ 223,873 $ 207,231 $ 206,877 $ 193,403 $ 180,830 $ 161,876

Percent 30 or more days

past due .........................

13.6%

13.4%

12.4%

12.6 %

14.0 %

14.0%

12.3%

11.8%

Percent 60 or more days

past due .........................

9.9%

9.8%

8.8%

9.4 %

10.1 %

9.9%

8.4%

8.6%

Percent 90 or more days

past due .........................
Average APR ....................
Receivables purchased

7.1%
25.0%

6.9%
24.7%

5.8%
24.8%

6.8 %
24.2 %

7.2 %
24.2 %

6.9%
26.7%

5.6%
26.7%

6.1%
26.5%

during period ................. $ 80,096 $ 70,860 $ 74,391 $ 60,932 $ 64,036 $ 59,293 $ 65,786 $ 64,617

Direct - At or for the Three Months Ended

2018

2017

Dec. 31 Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31

Period-end managed

receivables ..................... $ 195,515 $ 156,702 $ 133,668 $ 115,060 $ 109,808 $ 91,497 $ 66,705 $ 63,771

Percent 30 or more days

past due .........................

13.0%

12.1%

11.5%

12.2 %

12.9 %

8.3%

9.3%

10.8%

Percent 60 or more days

past due .........................

9.3%

8.9%

8.5%

9.2 %

9.1 %

5.0%

6.2%

7.4%

Percent 90 or more days

past due .........................
Average APR ....................
Receivables purchased

6.4%
28.1%

6.0%
27.6%

5.9%
27.2%

6.4 %
26.9 %

5.3 %
27.5 %

2.7%
28.5%

3.4%
28.0%

3.8%
27.8%

during period ................. $ 69,585 $ 48,729 $ 48,966 $ 33,747 $ 38,338 $ 38,005 $ 15,051 $

5,782

The following discussion relates to the tables above.

Managed receivables levels. We experienced overall quarterly growth throughout 2018 and 2017 related to our

current product offerings with over $136.6 million in net receivables growth associated with our point-of-sale and direct-to-
consumer products during 2018. The addition of large point-of-sale retail partners and ongoing purchases of receivables
from existing retail partners helped grow our point-of-sale receivables by $50.9 million and $65.6 million in the years
ended December 31, 2018 and 2017, respectively. Our direct-to-consumer acquisitions grew by over $85.7 million and
$36.8 million, net during the years ended December 31, 2018 and 2017, respectively. While we expect continued quarterly
growth in our managed receivables balances for all of our products during 2019, this growth in future periods largely is
dependent on the addition of new retail partners to the point-of-sale operations as well as the timing of solicitations within
the direct-to-consumer operations. Further, the loss of existing retail partner relationships could adversely affect new loan
acquisition levels. In 2018, our top five retail partnerships accounted for over 50% of the above referenced Retail period-
end managed receivables outstanding as of December 31, 2018.

Delinquencies. Delinquencies have the potential to impact net income in the form of net credit losses.

Delinquencies also are costly in terms of the personnel and resources dedicated to resolving them. We intend for the
receivables management strategies we use on our portfolios to manage and, to the extent possible, reduce the higher
delinquency rates that can be expected with the younger average age of the newer originations in our managed portfolio.
These account management strategies include conservative credit line management, purging of inactive accounts and
collection strategies intended to optimize the effective account-to-collector ratio across delinquency categories. We
measure the success of these efforts by reviewing delinquency rates. These rates exclude receivables that have been charged
off.

As we continue to invest in our newer point-of-sale and direct-to-consumer receivables, our delinquency rates

have increased when compared to the same periods in prior years. This is largely a result of the risk profiles (and
corresponding expected returns) for these receivables. Our delinquency rates have continued to be somewhat lower than
what we ultimately expect for our new point-of-sale and direct-to-consumer receivables given the continued growth and age
of the related accounts. This trend can be seen in periods of large growth in the charts above which result in lower
delinquency rates. If and when growth for these product lines moderates, we expect increased overall delinquency rates as
the existing receivables mature through their peak charge-off periods. Additionally, we expect to continue to see seasonal
payment patterns on these receivables which impact our delinquencies. For example, delinquency rates historically are
lower in the first quarter of each year due to the benefits of seasonally strong payment patterns associated with year-end tax
refunds for most consumers. However, we are uncertain whether this historical trend will continue, given recent reported
decreases in the amount of income tax refunds.

Total yield ratio. Currently, we are experiencing growth in our newer, higher yielding receivables, including point-
of-sale receivables and direct-to-consumer loans. While this growth has contributed to increases in our total yield ratio, we
expect this growth also will continue to result in higher charge-off and delinquency rates than those experienced
historically. Our fourth quarter 2018 total yield ratio excludes the impact of $36.2 million associated with our
aforementioned litigation settlement. Additionally, our fourth quarter 2017 total yield ratio excludes the impact of our $2.1
million write-down of the carrying value associated with a previous investment in a consumer finance technology platform.

We expect total yield ratios to continue to fluctuate somewhat based on the relative mix of growth in point-of-sale

receivables and our higher yielding direct-to-consumer credit card receivables.

Combined gross charge-off ratio. We charge off our Credit and Other Investments segment receivables when they

become contractually more than 180 days past due. For all of our products, we charge off receivables within 30 days of
notification and confirmation of a customer’s bankruptcy or death. However, in some cases of death, we do not charge off
receivables if there is a surviving, contractually liable individual or an estate large enough to pay the debt in full.

Growth within point-of-sale finance and direct-to-consumer receivables has resulted in increases in our charge-off

rates over time. Our fourth quarter 2017 and first quarter 2018 combined gross charge-off ratios reflect further significant
investments during the second and third quarters in 2017 in direct-to-consumer receivables, which reached their peak
charge off periods during the fourth quarter of 2017 and first quarter of 2018. Second and third quarter 2018 declines in the
gross charge-off ratio are reflective of this as well and are also indicative of some of the seasonal delinquency benefits
discussed above.

The growth in the point-of-sale and direct-to-consumer receivables continues to result in higher charge-offs than
those experienced historically. In the next few quarters, we expect continued elevated charge off rates when compared to
historical results, given the following: (1) higher expected charge off rates on the point-of-sale and direct-to-consumer

receivables corresponding with higher yields on these product offerings, (2) continued testing of receivables with higher
risk profiles, which could lead to periodic increases in combined gross charge-offs, and (3) recent vintages reaching peak
charge-off periods. Offsetting these increases will be growth in the underlying receivables base which will serve to mute to
a varying degree some of the aforementioned impacts as has been seen in recent quarters. Further impacting our charge-off
rates are the timing of solicitations which serve to minimize charge off rates in periods of high receivable acquisitions but
also exacerbate charge-off rates in periods of lower receivable acquisitions.

Average APR. Our average annual percentage rate (“APR”) charged to customers varies by receivable type, credit
history and other factors. The average APR for receivables in our point-of-sale operations range from 9.99% to 36.0%. For
our direct-to-consumer receivables, average APR ranges from 19.99% to 36.0%. We have experienced minor fluctuations
in our average APR based on the relative product mix of receivables purchased during a period. We currently expect our
average APRs in 2019 to remain consistent with the average APRs we have experienced over the past several quarters;
however, the timing and relative mix of receivables acquired could cause some minor fluctuations.

Receivables purchased during period. Receivables purchased during the period reflect the gross amount of

investments we have made in a given period, net of any credits issued to consumers during that same period. For most
periods presented, our point-of-sale receivable purchases experienced overall growth throughout the periods presented
largely based on the addition of new point-of-sale retail partners, as previously discussed. We may experience periodic
declines in these acquisitions due to: the loss of one or more retail partners; seasonal purchase activity by consumers; or the
timing of new customer originations by our lending partners. We currently expect to see increases in receivable acquisitions
when compared to the same period in prior years. Our direct-to-consumer receivable acquisitions tend to have more
volatility based on the issuance of new credit card accounts by our banking partner and the availability of capital to fund
new purchases. Nonetheless, we expect continued growth in the acquisition of these receivables throughout 2019.

Auto Finance Segment

CAR, our auto finance platform acquired in April 2005, principally purchases and/or services loans secured by
automobiles from or for, and also provides floor-plan financing for, a pre-qualified network of independent automotive
dealers and automotive finance companies in the buy-here, pay-here used car business. We have expanded these operations
to also include certain installment lending products in addition to our traditional loans secured by automobiles both in the
U.S. and U.S. territories.

Collectively, as of December 31, 2018, we served more than 580 dealers through our Auto Finance segment in 33

states, the District of Columbia and two U.S. territories.

Managed Receivables Background

For reasons set forth above within our Credit and Other Investments segment discussion, we also provide managed

receivables-based financial, operating and statistical data for our Auto Finance segment. Reconciliation of the auto finance
managed receivables data to our GAAP financial statements requires an understanding that our managed receivables data
are based on billings and actual charge offs as they occur, without regard to any changes in our allowance for uncollectible
loans, interest and fees receivable. Similar to the managed calculation above, the average managed receivables used in the
ratios below is calculated based on the quarter ending balances of consolidated receivables.

Analysis of Statistical Data

Financial, operating and statistical metrics for our Auto Finance segment are detailed (in thousands; percentages of

total) in the following table:

At or for the Three Months Ended

2018

2017

Dec. 31 Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31

Period-end managed

receivables ................ $ 88,057 $ 85,338 $ 83,872 $ 78,436 $ 77,213 $ 74,923 $ 76,387 $ 72,121

Percent 30 or more days

past due .....................

14.7%

13.3%

10.8%

8.8%

12.8%

13.0%

11.7%

10.0%

Percent 60 or more days

past due .....................

5.7%

4.3%

3.6%

3.3%

5.0%

4.0%

4.2%

Percent 90 or more days

past due .....................

2.5%

1.7%

1.4%

1.6%

2.4%

2.2%

1.4%

2.1%

Average managed

receivables ................ $ 86,698 $ 84,605 $ 81,154 $ 77,825 $ 76,068 $ 75,655 $ 74,254 $ 74,278
39.3%

38.2%

37.9%

36.1%

37.9%

39.2%

38.8%

Total yield ratio ............
Combined gross charge-

off ratio .....................
Recovery ratio ..............

2.8%
0.9%

0.9%
0.9%

0.5%
1.0%

2.1%
1.5%

3.0%
1.5%

1.1%
1.7%

2.5%
2.0%

2.5%
1.6%

Managed receivables. We expect modest growth in the level of our managed receivables for 2019 when

compared to the same periods in prior years in both the U.S. and U.S. territories as CAR expands within its existing
locations and continues plans for service area expansion. Although we are expanding our CAR operations, the Auto
Finance segment faces strong competition from other specialty finance lenders, as well as the indirect effects on us of our
buy-here, pay-here dealership partners’ competition with more traditional franchise dealerships for consumers interested in
purchasing automobiles. Managed receivable levels are higher in each period of 2018 when compared to the same period in
2017 primarily due to the acquisition of new dealer relationships which has resulted in the ability to purchase higher levels
of auto receivables.

Delinquencies. Delinquency levels experienced for the first three quarters of 2018 generally were lower than those
experienced during the same periods in 2017 largely due to the absence of any significant dealer-related losses (as opposed
to individual consumer defaults) that are typical during any given year and which tend to produce larger portfolio level
defaults on receivables. These low delinquencies also contributed to lower combined gross charge-off rates during 2018 as
discussed further below. Delinquency rates also tend to fluctuate based on seasonal trends and historically are lower in the
first quarter of each year as seen above due to the benefits of strong payment patterns associated with year-end tax refunds
for most consumers. However, we are uncertain whether this historical trend will continue, given recent reported decreases
in the amount of income tax refunds. While we expect some increase in our delinquency rates in 2019 (as was seen in the
fourth quarter of 2018) when compared to the same periods in 2018, we are not concerned with modest fluctuations in
delinquency rates and do not believe they will have a significantly positive or adverse impact on our results of operations;
even at slightly elevated rates, we earn significant yields on CAR’s receivables and have significant dealer reserves (i.e.,
retainages or holdbacks on the amount of funding CAR provides to its dealer customers) to protect against meaningful
credit losses.

Total yield ratio. We have experienced modest fluctuations in our total yield ratio largely impacted by the relative

mix of receivables in various products offered by CAR as some shorter term product offerings tend to have higher yields.
Yields on our CAR products over the last few quarters are consistent with our expectations. Further, we expect our total
yield ratio to remain in line with current experience, with moderate fluctuations based on relative growth or declines in
average managed receivables for a given quarter. These variations would be based on the relative mix of receivables in our
various product offerings. Additionally, our product offerings in the U.S. territories tend to have slightly lower yields than
those offered in the U.S. As such, continued growth in that region also will serve to slightly depress our overall total yield
ratio, yet we expect growth in that region to continue to generate attractive returns on assets.

Combined gross charge-off ratio and recovery ratio. We charge off auto finance receivables when they are

between 120 and 180 days past due, unless the collateral is repossessed and sold before that point, in which case we will
record a charge off when the proceeds are received. Combined gross charge-off ratios in the above table reflect the lower
delinquency rates we have recently experienced. While we anticipate our charge-offs to be incurred ratably across our
portfolio of dealers, specific dealer-related losses are difficult to predict and can negatively influence our combined gross

charge-off ratio. We continually re-assess our dealers and will take appropriate action if we believe a particular dealer’s risk
characteristics adversely change. While we have appropriate dealer reserves to mitigate losses across the majority of our
pool of receivables, the timing of recognition of these reserves as an offset to charge offs is largely dependent on various
factors specific to each of our dealer partners including ongoing purchase volumes, outstanding balances of receivables and
current performance of outstanding loans. As such, the timing of charge off offsets is difficult to predict; however, we
believe that these reserves are adequate to offset any loss exposure we may incur. Additionally, the products we issue in the
U.S. territories do not have dealer reserves with which we can offset losses. Further, given our expectation of some gradual
increase in our delinquency rates as discussed above, we expect gross charge-off rates will climb slightly over existing rates
although as indicated above, the timing of individual dealer-related losses is difficult to predict. We also expect our
recovery rate to fluctuate modestly from quarter to quarter due to the timing of the sale of repossessed autos.

Definitions of Financial, Operating and Statistical Measures

Total yield ratio. Represents an annualized fraction, the numerator of which includes (as appropriate for each

applicable disclosed segment) the: 1) finance charge and late fee income billed on all consolidated outstanding receivables
and the amortization of the accretable yield component of our acquisition discounts for portfolio purchases, collectively
included in the consumer loans, including past due fees category on our consolidated statements of income; plus 2) credit
card fees (including cash advance fees, returned check fees and interchange income), earned, amortized amounts of annual
membership fees and activation fees with respect to certain credit card receivables, collectively included in our fees and
related income on earning assets category on our consolidated statements of income; plus 3) servicing, other income and
other activities collectively included in our other operating income category on our consolidated statements of income. The
denominator used represents our average managed receivables.

Combined gross charge-off ratio. Represents an annualized fraction, the numerator of which is the aggregate

consolidated amounts of finance charge, fee and principal losses from consumers unwilling or unable to pay their
receivables balances, as well as from bankrupt and deceased consumers, less current-period recoveries (including
recoveries from dealer reserve offsets for our CAR operations) and the related portion of unamortized discounts, as
reflected in Note 2 “Significant Accounting Policies and Consolidated Financial Statement Components-Loans, Interest and
Fees Receivable”, and the denominator of which is average managed receivables. Recoveries on managed receivables
represent all amounts received related to managed receivables that previously have been charged off, including payments
received directly from consumers and proceeds received from the sale of those charged-off receivables. Recoveries
typically have represented less than 2% of average managed receivables.

LIQUIDITY, FUNDING AND CAPITAL RESOURCES

As discussed elsewhere in this Report, we incur a significant level of costs associated with a fixed infrastructure
that had been designed to support our significant legacy credit card operations. Our infrastructure costs are still somewhat
elevated, and while we had in the past focused on cost reduction, our primary focus now is growing the point-of-sale and
direct-to-consumer credit card receivables so that our revenues from these investments can cover our infrastructure costs
and return us to consistent profitability. Increases in new and existing retail partnerships and the expansion of our
investments in direct-to-consumer finance products have resulted in quarterly growth of total managed receivables levels,
and we expect this growth to continue in the coming quarters.

Accordingly, we will continue to focus in the coming quarters on (i) containing costs (as opposed to our previous

focus on reducing expenses) (ii) obtaining new retail partners to continue growth of the point-of-sale receivables (iii)
continuing growth in direct-to-consumer credit card receivables and (iv) obtaining the funding necessary to meet capital
needs required by the growth of our receivables and to cover our infrastructure costs until our receivables investments
generate enough revenues and cash flows to cover such costs.

All of our Credit and Other Investments segment’s structured financing facilities are expected to amortize down

with collections on the receivables within their underlying trusts and should not represent significant refunding or
refinancing risks to our consolidated balance sheet. Additionally, we do not expect any imminent refunding or financing
needs associated with our convertible senior notes given their maturity in 2035. As such, facilities that could represent near-
term significant refunding or refinancing needs as of December 31, 2018 are those associated with the following notes
payable in the amounts indicated (in millions):

Revolving credit facility (expiring October 30, 2019) that is secured by certain receivables and restricted

cash ............................................................................................................................................................ $

Revolving credit facility (expiring November 1, 2020) that is secured by the financial and operating

assets of our CAR operations .....................................................................................................................

Revolving credit facility (expiring June 11, 2020) that is secured by certain receivables and restricted

cash ............................................................................................................................................................

Revolving credit facility (expiring November 16, 2020) that is secured by certain receivables and

restricted cash ............................................................................................................................................

Senior secured term loan from related parties (expiring November 21, 2019) that is secured by certain

assets of the Company ...............................................................................................................................
Total .............................................................................................................................................................. $

49.9

30.0

80.5

8.0

40.0
208.4

Further details concerning the above debt facilities and our convertible senior notes are provided in Note 9, “Notes
Payable,” and Note 10, “Convertible Senior Notes,” to our consolidated financial statements included herein. Based on the
state of the debt capital markets, the performance of our assets that serve as security for the above facilities, and our
relationships with lenders, we view imminent refunding or refinancing risks with respect to the above facilities as low in
the current environment, and we believe that the quality of our new receivables should allow us to raise more capital
through increasing the size of our facilities with our existing lenders and attracting new lending relationships.

In February 2017, we (through a wholly owned subsidiary) established a program under which we sell certain

receivables to a consolidated trust in exchange for notes issued by the trust. The notes are secured by the receivables and
other assets of the trust. Simultaneously with the establishment of the program, the trust issued a series of variable funding
notes and sold an aggregate amount of up to $90.0 million (of which $61.0 million was outstanding as of December 31,
2018) to an unaffiliated third party pursuant to a facility that can be drawn upon to the extent of outstanding eligible
receivables. Interest rates on the notes range from 10.0% to 14.0%. The facility matures on February 8, 2022 and is subject
to certain affirmative covenants and collateral performance tests, the failure of which could result in required early
repayment of all or a portion of the outstanding balance of notes. The facility also may be prepaid subject to payment of a
prepayment or other fee.

In June 2018 and again in November 2018, we (through a wholly owned subsidiary) expanded the above
mentioned program to sell up to an additional $100.0 million of notes ($200.0 million in total notes through the June and
November 2018 expansions) which are secured by the receivables and other assets of the trust (of which $88.5 million was
outstanding as of December 31, 2018) to separate unaffiliated third parties pursuant to facilities that can be drawn upon to
the extent of outstanding eligible receivables. Interest rates on the notes are based on commercial paper rates plus 4.25%
and LIBOR plus 4.5%, respectively.

The facilities mature on June 11, 2020 and November 16, 2020, respectively, and are subject to certain affirmative

covenants and collateral performance tests, the failure of which could result in required early repayment of all or a portion
of the outstanding balance of notes. The facilities also may be prepaid subject to payment of a prepayment or other fee.

In November 2018, we sold $167.3 million of asset backed securities (“ABS”) secured by certain retail point-of-
sale receivables. A portion of the proceeds from the sale were used to pay-down our existing term and revolving facilities
associated with our point-of-sale receivables. The weighted average interest rate on the securities is 5.76%.

In February 2019, we extended the maturity date of the revolving credit facility secured by the financial and

operating assets of CAR to November 1, 2020. There were no other material changes to the existing terms or conditions
and the new maturity date is reflected in the table above.

At December 31, 2018, we had $61.0 million in unrestricted cash held by our various business subsidiaries.

Because the characteristics of our assets and liabilities change, liquidity management has been a dynamic process for us,
driven by the pricing and maturity of our assets and liabilities. We historically have financed our business through cash
flows from operations, asset-backed structured financings and the issuance of debt and equity. Details concerning our cash
flows for the years ended December 31, 2018 and 2017 are as follows:

• During the year ended December 31, 2018, we generated $42.9 million of cash flows from operations compared to
the use of $26.5 million of cash flows from operations during the year ended December 31, 2017. The increase in
cash provided by operating activities was principally related to the settlement of aforementioned litigation.

• During the year ended December 31, 2018, we used $134.5 million of cash from our investing activities,

compared to use of $80.3 million of cash from investing activities during the year ended December 31, 2017. This
increase is primarily due to increasing levels of investments for 2018 in the point-of-sale and direct-to-consumer
receivables relative to the same period in 2017 and which we expect to continue to make throughout 2019.
Offsetting this increase in cash used by investing activities are returns on our aforementioned investments in
point-of-sale and direct-to-consumer receivables which contributed positively to our cash generated from investing
activities.

• During the year ended December 31, 2018, we generated $161.7 million of cash in financing activities, compared

to our generating $84.6 million of cash in financing activities during the year ended December 31, 2017. In both
periods, the data reflect borrowings associated with point-of-sale and direct-to-consumer receivables offset by net
repayments of amortizing debt facilities as payments are made on the underlying receivables that serve as
collateral.

Beyond our immediate financing efforts discussed throughout this report, we will continue to evaluate debt and

equity issuances as a means to fund our investment opportunities. We expect to take advantage of any opportunities to raise
additional capital if terms and pricing are attractive to us. Any proceeds raised under these efforts or additional liquidity
available to us could be used to fund (1) the acquisition of additional financial assets associated with the point-of-sale and
direct-to-consumer finance operations as well as the acquisition of credit card receivables portfolios, (2) further repurchases
of our convertible senior notes and common stock, and (3) investments in certain financial and non-financial assets or
businesses. Pursuant to a share repurchase plan authorized by our Board of Directors on May 10, 2018, we are authorized to
repurchase up to 5,000,000 million shares of our common stock through June 30, 2020.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE-SHEET ARRANGEMENTS

Commitments and Contingencies

We do not currently have any off-balance-sheet arrangements; however, we do have certain contractual
arrangements that would require us to make payments or provide funding if certain circumstances occur, which we refer to
as contingent commitments. We do not currently expect that these contingent commitments will result in any material
amounts being paid by us. See Note 11, “Commitments and Contingencies,” to our consolidated financial statements
included herein for further discussion of these matters.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components,” to our

consolidated financial statements included herein for a discussion of recent accounting pronouncements.

CRITICAL ACCOUNTING ESTIMATES

We have prepared our financial statements in accordance with GAAP. These principles are numerous and complex.

We have summarized our significant accounting policies in the notes to our consolidated financial statements. In many
instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular
facts and circumstances. A variance in the estimates used or a variance in the application or interpretation of GAAP could
yield a materially different accounting result. It is impracticable for us to summarize every accounting principle that requires
us to use judgment or estimates in our application. Nevertheless, we describe below the areas for which we believe that the
estimations, judgments or interpretations that we have made, if different, would have yielded the most significant
differences in our consolidated financial statements.

On a quarterly basis, we review our significant accounting policies and the related assumptions, in particular, those

mentioned below, with the audit committee of the Board of Directors.

Revenue Recognition

Consumer Loans, Including Past Due Fees

Consumer loans, including past due fees reflect interest income, including finance charges, and late fees on loans
in accordance with the terms of the related customer agreements. Premiums and discounts paid or received associated with
a loan are generally deferred and amortized over the average life of the related loans using the effective interest method.
Finance charges and fees, net of amounts that we consider uncollectible, are included in loans, interest and fees receivable
and revenue when the fees are earned.

Fees and Related Income on Earning Assets

Fees and related income on earning assets primarily include: (1) fees associated with our credit products,
including the receivables underlying our U.S. point-of-sale finance and direct-to-consumer activities, and our legacy credit
card receivables; (2) changes in the fair value of loans, interest and fees receivable recorded at fair value; (3) changes in fair
value of notes payable associated with structured financings recorded at fair value; (4) revenues associated with rent
payments on rental merchandise; and (5) gains or losses associated with our investments in securities.

We assess fees on credit card accounts underlying our credit card receivables according to the terms of the related
cardholder agreements and, except for annual membership fees, we recognize these fees as income when they are charged
to the customers’ accounts. We accrete annual membership fees associated with our credit card receivables into income on
a straight-line basis over the cardholder privilege period. Similarly, fees on our other credit products are recognized when
earned, which coincides with the time they are charged to the customer’s account. Fees and related income on earning
assets, net of amounts that we consider uncollectible, are included in loans, interest and fees receivable and revenue when
the fees are earned.

Measurements for Loans, Interest and Fees Receivable at Fair Value and Notes Payable Associated with Structured
Financings at Fair Value

Our valuation of loans, interest and fees receivable, at fair value is based on the present value of future cash flows
using a valuation model of expected cash flows and the estimated cost to service and collect those cash flows. We estimate
the present value of these future cash flows using a valuation model consisting of internally developed estimates of
assumptions third-party market participants would use in determining fair value, including estimates of net collected yield,
principal payment rates, expected principal credit loss rates, costs of funds, discount rates and servicing costs. Similarly,
our valuation of notes payable associated with structured financings, at fair value is based on the present value of future
cash flows utilized in repayment of the outstanding principal and interest under the facilities using a valuation model of
expected cash flows net of the contractual service expenses within the facilities. We estimate the present value of these
future cash flows using a valuation model consisting of internally developed estimates of assumptions third-party market
participants would use in determining fair value, including: estimates of net collected yield, principal payment rates and
expected principal credit loss rates on the credit card receivables that secure the non-recourse notes payable; costs of funds;
discount rates; and contractual servicing fees.

The estimates for credit losses, payment rates, servicing costs, contractual servicing fees, costs of funds, discount

rates and yields earned on credit card receivables significantly affect the reported amount of our loans, interest and fees
receivable, at fair value and our notes payable associated with structured financings, at fair value on our consolidated
balance sheet, and they likewise affect our changes in fair value of loans, interest and fees receivable recorded at fair value
and changes in fair value of notes payable associated with structured financings recorded at fair value categories within our
fees and related income on earning assets line item on our consolidated statements of operations.

Allowance for Uncollectible Loans, Interest and Fees

Through our analysis of loan performance, delinquency data, charge-off data, economic trends and the potential

effects of those economic trends on consumers, we establish an allowance for uncollectible loans, interest and fees
receivable as an estimate of the probable losses inherent within those loans, interest and fees receivable that we do not
report at fair value. Our loans, interest and fees receivable consist of smaller-balance, homogeneous loans, divided into two
portfolio segments: Credit and Other Investments; and Auto Finance. Each of these portfolio segments is further divided
into pools based on common characteristics such as contract or acquisition channel. For each pool, we determine the
necessary allowance for uncollectible loans, interest and fees receivable by analyzing some or all of the following unique to
each type of receivable pool: historical loss rates; current delinquency and roll-rate trends; vintage analyses based on the
number of months an account has been in existence; the effects of changes in the economy on our customers; changes in

underwriting criteria; and estimated recoveries. These inputs are considered in conjunction with (and potentially reduced
by) any unearned fees and discounts that may be applicable for an outstanding loan receivable. To the extent that actual
results differ from our estimates of uncollectible loans, interest and fees receivable, our results of operations and liquidity
could be materially affected.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this

information.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Index to Financial Statements in Item 15, “Exhibits and Financial Statement Schedules.”

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of December 31, 2018, an evaluation of the effectiveness of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Act) was carried out on behalf of Atlanticus Holdings Corporation and our subsidiaries by our
management and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial
Officer (principal financial officer). Based upon the evaluation, our principal executive officer and principal financial
officer concluded that these disclosure controls and procedures were effective as of December 31, 2018.

Management’s Report on Internal Control over Financial Reporting

Management of Atlanticus Holdings Corporation is responsible for establishing and maintaining adequate internal

control over financial reporting (as such term is defined in Rule 13a-15(f) under the Act) for Atlanticus Holdings
Corporation and our subsidiaries. Our management conducted an evaluation of the effectiveness of internal control over
financial reporting as of December 31, 2018, based on the framework in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control-Integrated
Framework (2013 framework).

Based on our evaluation under the COSO 2013 framework, management has concluded that internal control over

financial reporting was effective as of December 31, 2018.

This Annual Report does not include an attestation report of our independent public accounting firm regarding

internal control over financial reporting. Management’s report is not subject to attestation by our independent public
accounting firm pursuant to SEC rules that permit us to provide only management’s report in this Annual Report.

Changes in Internal Control Over Financial Reporting

During the quarter ended December 31, 2018, no change in our internal control over financial reporting (as defined

in Rule 13a-15(f) under the Act) occurred that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

Limitations on Controls

Because of its inherent limitations, internal control over financial reporting may not prevent or detect

misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item will be set forth in our Proxy Statement for the 2019 Annual Meeting of

Shareholders in the sections entitled “Proposal One: Election of Directors,” “Executive Officers of Atlanticus,”
“Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” and is incorporated by
reference.

ITEM 11.

EXECUTIVE COMPENSATION

The information required by this Item will be set forth in our Proxy Statement for the 2019 Annual Meeting of

Shareholders in the section entitled “Executive and Director Compensation” and is incorporated by reference.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information required by this Item will be set forth in our Proxy Statement for the 2019 Annual Meeting of
Shareholders in the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and “Equity
Compensation Plan Information” and is incorporated by reference.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

The information required by this Item will be set forth in our Proxy Statement for the 2019 Annual Meeting of
Shareholders in the sections entitled “Related Party Transactions” and “Corporate Governance” and is incorporated by
reference.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item will be set forth in our Proxy Statement for the 2019 Annual Meeting of

Shareholders in the section entitled “Auditor Fees” and is incorporated by reference.

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Report:

1. Financial Statements

INDEX TO FINANCIAL STATEMENTS

Page
Report of Independent Public Accounting Firm ......................................................................................................... F-1
Consolidated Balance Sheets as of December 31, 2018 and 2017 .............................................................................. F-2
Consolidated Statements of Operations for the Years Ended December 31, 2018 and 2017 ...................................... F-3
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2018 and 2017 ...... F-4
Consolidated Statements of Shareholders’ Deficit for the Years Ended December 31, 2018 and 2017 ..................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017 .................................... F-6
Notes to Consolidated Financial Statements as of December 31, 2018 and 2017 ...................................................... F-7

2. Financial Statement Schedules

None.

3. Exhibits

Incorporated by Reference from
Atlanticus’ SEC Filings
Unless Otherwise Indicated(1)
May 16, 2017, Form 8-K, exhibit 3.1
May 16, 2017, Form 8-K, exhibit 3.2

March 30, 2016, Form 10-K, exhibit 4.1
November 28, 2005, Form 8-K, exhibit 4.1

July 7, 2009, Form 8-K, exhibit 4.2

January 18, 2000, Form S-1, exhibit 10.1
April 10, 2017, Definitive Proxy Statement
on Schedule 14A, Appendix A
May 18, 2016, Form 8-K, exhibit 10.2
Filed herewith
May 18, 2016, Form 8-K, exhibit 10.4
Filed herewith
May 18, 2016, Form 8-K, exhibit 10.6
May 18, 2016, Form 8-K, exhibit 10.7
April 10, 2018, Definitive Proxy Statement
on Schedule 14A, Appendix A
December 29, 2008, Form 8-K,
exhibit 10.1
March 28, 2014, Form 10-K, exhibit 10.7
March 28, 2014, Form 10-K, exhibit 10.8
August 14, 2018, Form 10-Q, exhibit 10.1
June 25, 2010, Form 8-K/A, exhibit 10.1

November 22, 2005, Form 8-K, exhibit
10.1
March 6, 2012, Form 10-K, exhibit
10.12(a)

Exhibit
Number
3.1
3.2

4.1
4.2

4.3

10.1
10.2†

Description of Exhibit

Articles of Incorporation, as amended
Amended and Restated Bylaws (as amended through May 12,
2017)
Form of common stock certificate
Indenture dated November 23, 2005 with U.S. Bank National
Association, as successor to Wachovia Bank, National Association
Supplemental Indenture dated June 30, 2009 with U.S. Bank
National Association, as successor to Wachovia Bank, National
Association
Stockholders Agreement dated as of April 28, 1999
Second Amended and Restated 2014 Equity Incentive Plan

10.2(a)† Form of Restricted Stock Agreement–Directors
10.2(b)† Form of Restricted Stock Agreement–Employees
10.2(c)† Form of Stock Option Agreement–Directors
10.2(d)† Form of Stock Option Agreement–Employees
10.2(e)† Form of Restricted Stock Unit Agreement–Directors
10.2(f)† Form of Restricted Stock Unit Agreement–Employees
10.3†

Second Amended and Restated Employee Stock Purchase Plan

10.4†

10.5†
10.6†
10.7†
10.8

10.9

Amended and Restated Employment Agreement for David G.
Hanna
Employment Agreement for Jeffrey A. Howard
Employment Agreement for William R. McCamey
Outside Director Compensation Package
Amended and Restated Note Purchase Agreement, dated March 1,
2010, among Merrill Lynch Mortgage Capital Inc., CCFC Corp.
(formerly CompuCredit Funding Corp.), Atlanticus Services
Corporation (formerly CompuCredit Corporation), and
CompuCredit Credit Card Master Note Business Trust
Share Lending Agreement

10.9(a)

Amendment to Share Lending Agreement

Incorporated by Reference from
Atlanticus’ SEC Filings
Unless Otherwise Indicated(1)
July 7, 2009, Form 8-K, exhibit 10.1

May 15, 2017, Form 10-Q, exhibit 10.1

May 15, 2017, Form 10-Q, exhibit 10.1(a)

May 15, 2017, Form 10-Q, exhibit 10.1(b)

May 15, 2017, Form 10-Q, exhibit 10.1(c)

March 6, 2015, Form 10-K, exhibit 10.15

March 30, 2016, Form 10-K, exhibit
10.14(a)
March 31, 2017, Form 10-K, exhibit
10.14(b)
April 2, 2018, Form 10-K, exhibit 10.14(c)

August 14, 2018, Form 10-Q, exhibit 10.2

Exhibit
Number
10.10

10.11

10.11(a)*

10.11(b)*

10.11(c)

10.12

10.12(a)**

10.12(b)

10.13

10.13(a)

10.13(b)

10.13(c)

10.13(d)

10.13(e)

10.13(f)

21.1
23.1
31.1

31.2

Description of Exhibit

Assumption Agreement dated June 30, 2009 between Atlanticus
Holdings Corporation (formerly CompuCredit Holdings
Corporation) and Atlanticus Services Corporation (formerly
CompuCredit Corporation)
Master Indenture for Perimeter Master Note Business Trust, dated
February 8, 2017, among Perimeter Master Note Business Trust,
U.S. Bank National Association and Atlanticus Services
Corporation
Series 2017-One Indenture Supplement for Perimeter Master Note
Business Trust, dated February 8, 2017
Purchase Agreement, dated February 8, 2017, among TSO-Fortiva
Notes Holdco LP, TSO-Fortiva Certificate Holdco LP, Perimeter
Funding Corporation, Atlanticus Services Corporation and
Perimeter Master Note Business Trust
Trust Agreement, dated February 8, 2017, between Perimeter
Funding Corporation and Wilmington Trust, National Association
Master Indenture for Fortiva Retail Credit Master Note Business
Trust, dated November 9, 2018, among Fortiva Retail Credit
Master Note Business Trust, U.S. Bank National Association and
Access Financing, LLC
Series 2018-One Indenture Supplement for Fortiva Retail Credit
Master Note Business Trust, dated November 9, 2018
Amended and Restated Trust Agreement, dated November 9, 2018,
between FRC Funding Corporation and Wilmington Trust,
National Association
Loan and Security Agreement, dated November 26, 2014, by and
among Atlanticus Holdings Corporation, Certain Subsidiaries
Named Therein, and Dove Ventures, LLC
First Amendment to Loan and Security Agreement, dated
November 23, 2015
Second Amendment to Loan and Security Agreement, dated
November 22, 2016
Third Amendment to Loan and Security Agreement, dated
November 22, 2017
Fourth Amendment to Loan and Security Agreement, dated June 5,
2018
Fifth Amendment to Loan and Security Agreement, dated October
22, 2018
Sixth Amendment to Loan and Security Agreement, dated
November 21, 2018
Subsidiaries of the Registrant
Consent of BDO USA, LLP
Certification of Principal Executive Officer pursuant to Rule 13a-
14(a)
Certification of Principal Financial Officer pursuant to Rule 13a-
14(a)

Filed herewith

Filed herewith
Filed herewith
Filed herewith

Filed herewith

Exhibit
Number
32.1

Description of Exhibit
Certification of Principal Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C. Section 1350

101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document

Incorporated by Reference from
Atlanticus’ SEC Filings Unless
Otherwise Indicated(1)

Filed herewith

Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith

Management contract, compensatory plan or arrangement.

†
(1) Documents incorporated by reference from SEC filings made prior to June 2009 were filed under CompuCredit

Corporation (now Atlanticus Services Corporation) (File No. 000-25751), our predecessor issuer.
Portions of this document were omitted and field separately with the SEC pursuant to a grant of confidential
treatment in accordance with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Portions of this document were omitted and filed separately with the SEC pursuant to a request for confidential
treatment in accordance with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

ITEM 16.

FORM 10-K SUMMARY

None.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the

Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Atlanta, State of Georgia, on March 26, 2019.

SIGNATURES

Atlanticus Holdings Corporation

By:

/s/ David G. Hanna
David G. Hanna
Chief Executive Officer and Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed

below by the following persons in the capacities and on the dates indicated.

Signature

Title

/s/David G. Hanna
David G. Hanna

Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)

/s/William R. McCamey
William R. McCamey

Chief Financial Officer
(Principal Financial Officer)

/s/Mitchell C. Saunders
Mitchell C. Saunders

Chief Accounting Officer
(Principal Accounting Officer)

/s/Jeffrey A. Howard
Jeffrey A. Howard

/s/Deal W. Hudson
Deal W. Hudson

/s/Mack F. Mattingly
Mack F. Mattingly

/s/Thomas G. Rosencrants
Thomas G. Rosencrants

Director

Date

March 26, 2019

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
Atlanticus Holdings Corporation
Atlanta, Georgia

Opinion on the consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Atlanticus Holdings Corporation (the “Company”) and
subsidiaries as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income
(loss), shareholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2018, and the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31,
2018 and 2017, and the results of their operations and their cash flows for each of the two years in the period ended
December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2002.
Atlanta, Georgia
March 26, 2019

F-1

Atlanticus Holdings Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)

December 31, December 31,

2018

2017

Assets
Unrestricted cash and cash equivalents ........................................................................... $
Restricted cash and cash equivalents (including $77.8 million and $39.7 million
associated with variable interest entities at December 31, 2018 and 2017,
respectively) .................................................................................................................

Loans, interest and fees receivable:

Loans, interest and fees receivable, at fair value (including $5.6 million and

$9.2 million associated with variable interest entities at December 31, 2018
and 2017, respectively ...................................................................................

Loans, interest and fees receivable, gross (including $403.4 million and

$252.7 million associated with variable interest entities at December 31,
2018 and 2017, respectively) .........................................................................

Allowances for uncollectible loans, interest and fees receivable (including

$57.4 million and $32.0 million associated with variable interest entities at
December 31, 2018 and 2017, respectively) .................................................

Deferred revenue (including $13.2 million and $8.5 million associated with

variable interest entities at December 31, 2018 and 2017, respectively) .......
Net loans, interest and fees receivable ............................................................................
Property at cost, net of depreciation ................................................................................
Investments in equity-method investees ..........................................................................
Deposits ...........................................................................................................................
Prepaid expenses and other assets ...................................................................................
Total assets ...................................................................................................................... $
Liabilities
Accounts payable and accrued expenses ......................................................................... $
Notes payable, at face value (including $366.7 million and $204.0 million associated

with variable interest entities at December 31, 2018 and 2017, respectively) .............
Notes payable to related parties .......................................................................................
Notes payable associated with structured financings, at fair value (associated with

variable interest entities) ..............................................................................................
Convertible senior notes ..................................................................................................
Income tax liability ..........................................................................................................
Total liabilities.................................................................................................................

Commitments and contingencies (Note 11)

Equity
Common stock, no par value, 150,000,000 shares authorized: 15,563,574 shares issued
and outstanding (including 1,459,233 loaned shares to be returned) at December 31,
2018; and 15,291,884 shares issued and outstanding (including 1,459,233 loaned
shares to be returned) at December 31, 2017 ...............................................................
Paid-in capital ..................................................................................................................
Accumulated other comprehensive income (loss) ...........................................................
Retained deficit ...............................................................................................................
Total shareholders’ deficit ...............................................................................................
Noncontrolling interests ..................................................................................................
Total deficit .....................................................................................................................
Total liabilities and deficit ............................................................................................... $

60,968 $

41,484

80,786

29,174

6,306

11,109

541,344

393,898

(79,211 )

(62,970)

(43,897 )
424,542
3,625
2,476
124
10,087
582,608 $

(36,956)
305,081
3,229
4,244
252
42,149
425,613

105,765 $

115,737

390,927
40,000

5,651
62,142
252
604,737

226,238
40,000

9,240
61,393
9,132
461,740

—
213,435
3,558
(238,784 )
(21,791 )
(338 )
(22,129 )
582,608 $

—
212,785
(2,178)
(246,640)
(36,033)
(94)
(36,127)
425,613

See accompanying notes.

F-2

Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share data)

Interest income:
Consumer loans, including past due fees......................................................................... $
Other ................................................................................................................................
Total interest income .......................................................................................................
Interest expense ...............................................................................................................
Net interest income before fees and related income on earning assets and provision for

losses on loans, interest and fees receivable ................................................................
Fees and related income on earning assets ...............................................................
Net recovery of (losses upon) impairment of loans, interest and fees receivable

For the Year Ended
December 31,

2018

2017

160,968 $
200
161,168
(36,896)

124,272
29,992

114,488
219
114,707
(27,700)

87,007
14,289

recorded at fair value ............................................................................................

(549)

9,460

Provision for losses on loans, interest and fees receivable recorded at net

realizable value .....................................................................................................
Net interest income, fees and related income on earning assets ......................................
Other operating income:

Servicing income ......................................................................................................
Other income ............................................................................................................
Equity in income (loss) of equity-method investees ................................................
Total other operating income ..........................................................................................
Other operating expense:
Salaries and benefits ........................................................................................................
Card and loan servicing ...................................................................................................
Marketing and solicitation ...............................................................................................
Depreciation ....................................................................................................................
Other ................................................................................................................................
Total other operating expense .........................................................................................
Income (loss) before income taxes ..................................................................................
Income tax benefit ...........................................................................................................
Net income (loss) ............................................................................................................
Net loss attributable to noncontrolling interests ..............................................................
Net income (loss) attributable to controlling interests ..................................................... $
Net income (loss) attributable to controlling interests per common share—basic .......... $
Net income (loss) attributable to controlling interests per common share—diluted ....... $

(100,338)
53,377

(77,612)
33,144

1,969
39,820
581
42,370

23,430
37,145
12,124
987
18,579
92,265
3,482
4,130
7,612
244
7,856 $
0.56 $
0.56 $

3,854
1,419
1,158
6,431

22,751
31,534
13,070
1,021
18,449
86,825
(47,250)
6,378
(40,872)
91
(40,781)
(2.93)
(2.93)

See accompanying notes.

F-3

Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in thousands)

Net income (loss) ............................................................................................................ $
Other comprehensive income (loss):
Foreign currency translation adjustment .........................................................................
Reclassifications of foreign currency translation adjustment to Other operating

expense on the consolidated statements of operations .................................................
Income tax expense related to other comprehensive income ..........................................
Comprehensive income (loss) .........................................................................................
Comprehensive loss attributable to noncontrolling interests ...........................................
Comprehensive income (loss) attributable to controlling interests.................................. $

See accompanying notes.

For the Year Ended
December 31,

2018

2017

7,612 $

(40,872)

5,774

(2,178)

(38 )
—
13,348
244
13,592 $

—
—
(43,050)
91
(42,959)

F-4

Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Deficit
For the Years Ended December 31, 2018 and 2017
(Dollars in thousands)

Common Stock

Shares
Issued

Amount

Paid-In
Capital

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Deficit

Noncontrolling
Interests

Total
Deficit

Balance at December 31,

2016 .............................. 15,348,086 $
Compensatory stock
issuances, net of
forfeitures ..................

102,000

— $ 211,646 $

— $ (205,859 ) $

(10 ) $

5,777

—

Contributions by
owners of
noncontrolling
interests .....................

Deferred stock-based

—

compensation costs ....

—

1,528

—

1,528

Redemption and

retirement of shares ...
Comprehensive loss ......

(158,202 )
—

—
—

(389 )
—

—
(2,178 )

—
(40,781 )

—
(389 )
(91 ) (43,050 )

Balance at December 31,

2017 .............................. 15,291,884 $
Stock option exercises
and proceeds related
thereto .......................

20,300

— $ 212,785 $

(2,178 ) $ (246,640 ) $

(94 ) $ (36,127 )

—

Compensatory stock
issuances, net of
forfeitures ..................

Deferred stock-based

533,177

—

compensation costs ....

—

1,323

—

1,323

Redemption and

retirement of shares ...

(281,787 )

—

(723 )

—

(723 )

Comprehensive income

(loss) ..........................

—

5,736

7,856

(244 ) 13,348

Balance at December 31,

2018 .............................. 15,563,574 $

— $ 213,435 $

3,558 $ (238,784 ) $

(338 ) $ (22,129 )

See accompanying notes.

F-5

Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)

Operating activities
Net income (loss) ............................................................................................................ $
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation, amortization and accretion, net ..........................................................
(Net recovery of) losses upon impairment of loans, interest and fees receivable

recorded at fair value ............................................................................................
Provision for losses on loans, interest and fees receivable .......................................
Interest expense from accretion of discount on notes ...............................................
Income from accretion of discount associated with receivables purchases ..............
Unrealized gain on loans, interest and fees receivable and underlying notes

payable held at fair value ......................................................................................
Amortization of deferred loan costs .........................................................................
Income from equity-method investments .................................................................
Deferred stock-based compensation costs ................................................................
Changes in assets and liabilities:

(Increase) decrease in uncollected fees on earning assets .................................
Decrease in income tax liability ........................................................................
Decrease in deposits ..........................................................................................
(Decrease) increase in accounts payable and accrued expenses ........................
Other .................................................................................................................
Net cash provided by (used in) operating activities .........................................................
Investing activities
Proceeds from equity-method investees ..........................................................................
Investments in earning assets ..........................................................................................
Proceeds from earning assets ..........................................................................................
Purchases and development of property, net of disposals ...............................................
Net cash used in investing activities ................................................................................
Financing activities
Noncontrolling interests contributions, net .....................................................................
Proceeds from exercise of stock options .........................................................................
Purchase and retirement of outstanding stock .................................................................
Proceeds from borrowings ...............................................................................................
Repayment of borrowings ...............................................................................................
Net cash provided by financing activities ........................................................................
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents ......................................................
Cash and cash equivalents and restricted cash at beginning of period ............................
Cash and cash equivalents and restricted cash at end of period ...................................... $
Supplemental cash flow information
Cash paid for interest ....................................................................................................... $
Net cash income tax payments ........................................................................................ $

See accompanying notes.

For the Year Ended
December 31,

2018

2017

7,612 $

(40,872)

987

1,021

549
100,338
890
(75,517 )

(4,195 )
2,128
(581 )
1,323

(8,754 )
(8,880 )
126
(5,411 )
32,241
42,856

2,349
(607,981 )
472,497
(1,383 )
(134,518 )

—
50
(723 )
632,043
(469,623 )
161,747
1,011
71,096
70,658
141,754 $

(9,460)
77,612
548
(59,119)

(5,771)
867
(1,158)
1,528

10,396
(6,637)
253
22,336
(18,014)
(26,470)

3,639
(466,740)
383,179
(395)
(80,317)

7
—
(389)
324,997
(239,976)
84,639
165
(21,983)
92,641
70,658

33,467 $
4,750 $

25,478
258

F-6

Atlanticus Holdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2018 and 2017

Description of Our Business

Our accompanying consolidated financial statements include the accounts of Atlanticus Holdings Corporation (the

“Company”) and those entities we control. We are primarily focused on providing financial technology and related
services. Through our subsidiaries, we provide technology and other support services to lenders who offer an array of
financial products and services to consumers who may have been declined under traditional financing options.

In most cases, we invest in the receivables originated by lenders who utilize our technology platform and other

related services. From time to time, we also purchase receivables portfolios from third parties. References to "receivables"
include receivables purchased from our lending partners and from third parties. As discussed further below, we reflect our
business lines within two reportable segments: Credit and Other Investments; and Auto Finance. See also Note 3, “Segment
Reporting,” for further details.

Within our Credit and Other Investments segment, we facilitate consumer finance programs offered by our bank

partners to originate consumer loans through multiple channels, including retail point-of-sale, direct mail solicitation,
digital marketing and through partner relationships. In the retail credit (the “point-of-sale” operations) channel, we partner
with retailers and service providers in various industries across the United States (“U.S.”) to enable them to provide credit
to their customers for the purchase of goods and services. These services of our lending partners are often extended to
consumers who may have been declined under traditional financing options. We specialize in supporting this “second look”
credit service in various industries across the U.S. Additionally, we support lenders who market general purpose credit
cards directly to consumers (collectively, the “direct-to-consumer” operations) through additional channels enabling them
to reach consumers through a diverse origination platform that includes retail point-of-sale, direct mail solicitation, digital
marketing and partnerships with third parties. Using our infrastructure and technology platform, we also provide loan
servicing, including risk management and customer service outsourcing, for third parties.

Beyond these activities within our Credit and Other Investments segment, we continue to service portfolios of

legacy credit card receivables. One of our portfolios of legacy credit card receivables is encumbered by non-recourse
structured financing, and for this portfolio our principal remaining economic interest is the servicing compensation we
receive as an offset against our servicing costs given that the likely future collections on the portfolio are insufficient to
allow for full repayment of the financing.

Additionally, we report within our Credit and Other Investments segment: 1) the income earned from an
investment in an equity-method investee that holds credit card receivables for which we are the servicer; and 2) gains or
losses associated with investments previously made in consumer finance technology platforms. These include investments
in companies engaged in mobile technologies, marketplace lending and other financial technologies. These investments are
carried at the lower of cost or market valuation. None of these companies are publicly-traded and there are no material
pending liquidity events.

Significant Accounting Policies and Consolidated Financial Statement Components

The following is a summary of significant accounting policies we follow in preparing our consolidated financial

statements, as well as a description of significant components of our consolidated financial statements.

Basis of Presentation and Use of Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in
the U.S. (“GAAP”). The preparation of financial statements in accordance with GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of

F-7

the date of our consolidated financial statements, as well as the reported amounts of revenues and expenses during each
reporting period. We base these estimates on information available to us as of the date of the financial statements. Actual
results could differ materially from these estimates. Certain estimates, such as credit losses, payment rates, costs of funds,
discount rates and the yields earned on credit card receivables, significantly affect the reported amount of credit card
receivables that we report at fair value and our notes payable associated with structured financings, at fair value; these
estimates likewise affect the changes in these amounts reflected within our fees and related income on earning assets line
item on our consolidated statements of operations. Additionally, estimates of future credit losses have a significant effect on
loans, interest and fees receivable, net, as shown on our consolidated balance sheets, as well as on the provision for losses
on loans, interest and fees receivable within our consolidated statements of operations.

We have eliminated all significant intercompany balances and transactions for financial reporting purposes.

Unrestricted Cash and Cash Equivalents

Unrestricted cash and cash equivalents consist of cash, money market investments and overnight deposits. We

consider all highly liquid cash investments with low interest rate risk and original maturities of three months or less to be
cash equivalents. Cash equivalents are carried at cost, which approximates market. We maintain unrestricted cash and cash
equivalents for general operating purposes and to meet our longer term debt obligations. The majority of these cash
balances are not insured.

Restricted Cash

Restricted cash as of December 31, 2018 and 2017 includes certain collections on loans, interest and fees
receivable, the cash balances of which are required to be distributed to noteholders under our debt facilities. Our restricted
cash balances also include minimum cash balances held in accounts at the request of certain of our business partners.

Loans, Interest and Fees Receivable

Loans, Interest and Fees Receivable, at Fair Value. Loans, interest and fees receivable held at fair value
represent receivables underlying credit card securitization trusts, and which qualify as a variable interest entity ("VIE"), that
are consolidated onto our consolidated balance sheet, some portfolios of which are unencumbered and some of which are
still encumbered under structured financing facilities. Further details concerning our loans, interest and fees receivable held
at fair value are presented within Note 6, “Fair Values of Assets and Liabilities.”

Loans, Interest and Fees Receivable. Our loans, interest and fees receivable, gross, currently consist of
receivables associated with (a) our U.S. point-of-sale and direct-to-consumer financing and other credit products currently
being marketed within our Credit and Other Investments segment and (b) our Auto Finance segment’s operations. Our
Credit and Other Investments segment loans, interest and fees receivable generally are unsecured, while our Auto Finance
segment loans, interest and fees receivable generally are secured by the underlying automobiles in which we hold the
vehicle title. We purchased loans with outstanding principal of $179.4 million and $167.1 million for the years ended
December 31, 2018 and 2017, respectively, through our pre-qualified network of independent automotive dealers and
automotive finance companies.

We show both an allowance for uncollectible loans, interest and fees receivable and unearned fees (or “deferred
revenue”) for our loans, interest and fees receivable (i.e., as opposed to those carried at fair value). Our loans, interest and
fees receivable consist of smaller-balance, homogeneous loans, divided into two portfolio segments: Credit and Other
Investments; and Auto Finance. While each of these categories has unique features, they share many of the same credit risk
characteristics and thus share a similar approach to the establishment of an allowance for loan losses. Each portfolio
segment is divided into pools based on common characteristics such as contract or acquisition channel. For each pool, we
determine the necessary allowance for uncollectible loans, interest and fees receivable by analyzing some or all of the
following unique attributes for each type of receivable pool: historical loss rates; current delinquency and roll-rate trends;
vintage analyses based on the number of months an account has been in existence; the effects of changes in the economy on
our customers; changes in underwriting criteria; and estimated recoveries. For our Auto Finance segment we may further
reduce the expected charge-off, taking into consideration specific dealer level reserves which may allow us to offset our
losses and, in the case of secured loans, the impact of collateral available to offset a potential loss. Conversely, on our
Credit and Other Investments segment, which generally do not have a secured interest in collateral, we look to reserve for
the gross expected exposure to charge-offs.

F-8

These reserves are considered in conjunction with (and potentially reduced by) any unearned fees and discounts

that may be applicable for an outstanding loan receivable. A considerable amount of judgment is required to assess the
ultimate amount of uncollectible loans, interest and fees receivable, and we continuously evaluate and update our
methodologies to determine the most appropriate allowance necessary. We may individually evaluate a receivable or pool
of receivables for impairment if circumstances indicate that the receivable or pool of receivables may be at higher risk for
non-performance than other receivables (e.g., if a particular retail or auto-finance partner has indications of non-
performance (such as a bankruptcy) that could impact the underlying pool of receivables we purchased from the partner).

Certain of our loans, interest and fees receivable also contain components of deferred revenue including discounts

on the purchases of receivables for our point-of-sale receivables and annual fee billings for our direct-to-consumer credit
card offerings. Our point-of-sale and auto finance loans, interest and fees receivable include principal balances and
associated fees and interest due from customers which are earned each period a loan is outstanding, net of the unearned
portion of loan discounts. Additionally, many of our direct-to-consumer credit card offerings have an annual membership
fee that is billed to the consumer on card activation and for each anniversary of that date thereafter. As of December 31,
2018 and December 31, 2017, the weighted average remaining accretion period for the $43.9 million and $37.0 million of
deferred revenue reflected in the consolidated balance sheets was 11 months. Included within deferred revenue, are
discounts on purchased loans of $30.0 million and $27.8 million as of December 31, 2018 and December 31, 2017,
respectively.

A roll-forward (in millions) of our allowance for uncollectible loans, interest and fees receivable by class of

receivable is as follows:

For the year ended December 31, 2018
Allowance for uncollectible loans, interest and fees

receivable:

Credit
Cards

Auto

Finance

Other
Unsecured
Lending
Products

Total

Balance at beginning of period .............................................. $
Provision for loan losses .......................................................
Charge offs ............................................................................
Recoveries .............................................................................
Balance at end of period ........................................................ $

(18.2) $
(46.6)
29.9
(0.5)
(35.4) $

(2.3) $
(0.3)
2.2
(0.9)
(1.3) $

(42.5) $
(53.4)
58.2
(4.8)
(42.5) $

(63.0)
(100.3)
90.3
(6.2)
(79.2)

As of December 31, 2018
Allowance for uncollectible loans, interest and fees

receivable:

Balance at end of period individually evaluated for

Credit
Cards

Auto

Finance

Other
Unsecured
Lending
Products

Total

impairment ......................................................................... $

— $

(0.2) $

(0.1) $

(0.3)

Balance at end of period collectively evaluated for

impairment ......................................................................... $

(35.4) $

(1.1) $

(42.4) $

(78.9)

Loans, interest and fees receivable:

Loans, interest and fees receivable, gross ............................. $
Loans, interest and fees receivable individually evaluated

188.6 $

88.1 $

264.6 $

541.3

for impairment ................................................................... $

— $

0.4 $

0.1 $

0.5

Loans, interest and fees receivable collectively evaluated

for impairment ................................................................... $

188.6 $

87.7 $

264.5 $

540.8

F-9

For the year ended December 31, 2017
Allowance for uncollectible loans, interest and fees

receivable:

Credit
Cards

Auto

Finance

Other
Unsecured
Lending
Products Total

(1.4) $
(19.2)
3.8
(1.4)
(18.2) $

(2.1) $
(1.9)
3.0
(1.3)
(2.3) $

(39.8) $
(56.5)
57.0
(3.2)
(42.5) $

(43.3)
(77.6)
63.8
(5.9)
(63.0)

As of December 31, 2017
Allowance for uncollectible loans, interest and fees

receivable:

Balance at end of period individually evaluated for

Credit
Cards

Auto
Finance

Other
Unsecured
Lending
Products

Total

impairment ......................................................................... $

— $

(0.2) $

(0.4)

Balance at end of period collectively evaluated for

impairment ......................................................................... $

(18.2) $

(2.1) $

(42.3) $

(62.6)

Loans, interest and fees receivable:

Loans, interest and fees receivable, gross ............................. $
Loans, interest and fees receivable individually evaluated

87.2 $

77.8 $

228.9 $

393.9

for impairment ................................................................... $

— $

0.4 $

0.2 $

0.6

Loans, interest and fees receivable collectively evaluated

for impairment ................................................................... $

87.2 $

77.4 $

228.7 $

393.3

Delinquent loans, interest and fees receivable reflect the principal, fee and interest components of loans we did not

collect on or prior to the contractual due date. Amounts we believe we will not ultimately collect are included as a
component in our overall allowance for uncollectible loans, interest and fees receivable. For most products we service other
than our Auto Finance receivables, interest and fees are discontinued when loans, interest and fees receivable become
contractually 90 or more days past due. We charge off our Credit and Other Investments and Auto Finance segment
receivables when they become contractually more than 180 days past due. For all of our products, we charge off receivables
within 30 days of notification and confirmation of a customer’s bankruptcy or death. However, in some cases of death, we
do not charge off receivables if there is a surviving, contractually liable individual or an estate large enough to pay the debt
in full.

Recoveries on accounts previously charged off are credited to the allowance for uncollectible loans, interest and

fees receivable and effectively offset our provision for losses on loans, interest and fees receivable recorded at net realizable
value on our consolidated statements of operations. (All of the above discussion relates only to our loans, interest and fees
receivable for which we use net realizable value, as opposed to fair value accounting. For loans, interest and fees receivable
recorded at fair value, recoveries offset losses upon impairment of the underlying loans, interest and fees receivable
recorded at fair value, net of recoveries on our consolidated statements of operations.)

F-10

Other
Unsecured
Lending
Products
9.7 $
7.6
18.5
35.8
228.8
264.6 $

7.9 $
2.8
2.2
12.9
75.2
88.1 $

Total

24.7
15.7
33.0
73.4
467.9
541.3

Other
Unsecured
Lending
Products
9.0 $
7.1
15.7
31.8
197.1
228.9 $

6.4 $
2.1
1.9
10.4
67.4
77.8 $

Total

18.6
12.5
22.5
53.6
340.3
393.9

We consider loan delinquencies a key indicator of credit quality because this measure provides the best ongoing

estimate of how a particular class of receivables is performing. An aging of our delinquent loans, interest and fees
receivable, gross (in millions) by class of receivable as of December 31, 2018 and December 31, 2017 is as follows:

Credit
Cards

Auto

Finance

As of December 31, 2018
30-59 days past due ...................................................................... $
60-89 days past due ......................................................................
90 or more days past due ..............................................................
Delinquent loans, interest and fees receivable, gross ...................
Current loans, interest and fees receivable, gross .........................
Total loans, interest and fees receivable, gross............................. $
Balance of loans greater than 90-days delinquent still accruing

7.1 $
5.3
12.3
24.7
163.9
188.6 $

interest and fees ........................................................................ $

— $

1.5 $

— $

1.5

Credit
Cards

Auto
Finance

As of December 31, 2017
30-59 days past due ...................................................................... $
60-89 days past due ......................................................................
90 or more days past due ..............................................................
Delinquent loans, interest and fees receivable, gross ...................
Current loans, interest and fees receivable, gross .........................
Total loans, interest and fees receivable, gross............................. $
Balance of loans greater than 90-days delinquent still accruing

3.2 $
3.3
4.9
11.4
75.8
87.2 $

interest and fees ........................................................................ $

— $

1.6 $

— $

1.6

Troubled Debt Restructurings. As part of ongoing collection efforts, once an account in our Credit and Other

Investments segment is 90 days or more past due, the account is placed on a non-accrual status. Placement on a non-accrual
status results in the use of programs under which the contractual interest associated with a receivable may be reduced or
eliminated, or a certain amount of accrued fees is waived, provided a minimum number or amount of payments have been
made. Following this adjustment, if a customer demonstrates a willingness and ability to resume making monthly payments
and meets certain additional criteria, we will re-age the customer’s account. When we re-age an account, we adjust the
status of the account to bring a delinquent account current, but generally do not make any further modifications to the
payment terms or amount owed. Once an account is placed on a non-accrual status, it is closed for further purchases.
Accounts that are placed on a non-accrual status and thereafter make at least one payment qualify as troubled debt
restructurings (“TDRs”).

The following table details by class of receivable, the number and amount of modified loans, including TDRs that

have been re-aged, as of December 31, 2018 and December 31, 2017:

December 31, 2018

December 31, 2017

As of

Number of accounts on non-accrual status ...................................
Number of accounts on non-accrual status above that have been

re-aged ......................................................................................
Amount of receivables on non-accrual status (in thousands) ....... $
Amount of receivables on non-accrual status above that have

Point-of-
sale

14,174

Direct-to-
consumer
12,734

Point-of-
sale

11,432

Direct-to-
consumer
6,681

1,322
20,903 $

688
14,437 $

915
17,169 $

80
7,067

been re-aged (in thousands) ...................................................... $

2,613 $

722 $

1,570 $

Carrying value of receivables on non-accrual status (in

thousands) ................................................................................. $
TDRs - Performing (carrying value, in thousands)* .................... $
TDRs - Nonperforming (carrying value, in thousands)* .............. $

5,524 $
3,171 $
2,353 $

2,686 $
1,639 $
1,047 $

4,247 $
2,368 $
1,879 $

1,173
508
665

F-11

*“TDRs - Performing” include accounts that are current on all amounts owed, while “TDRs - Nonperforming”

include all accounts with past due amounts owed.

Given that the above TDRs have a high reserve rate prior to modification as TDRs, we do not separately reserve or

impair these receivables outside of our general reserve process.

The Company modified 14,924 and 11,003 accounts in the amount of $22.0 million and $20.2 million during the

twelve month periods ended December 31, 2018 and December 31, 2017, respectively, that qualified as TDRs. The
following table details by class of receivable, the number of accounts and balance of loans that completed a modification
(including those that were classified as TDRs) within the prior twelve months and subsequently defaulted.

Twelve Months Ended

December 31, 2018

December 31, 2017

Number of accounts .........................................................
Loan balance at time of charge off (in thousands) ........... $

6,217
7,863 $

3,776
3,275 $

1,720
2,675 $

Point-of-sale

Direct-to-
consumer Point-of-sale

Direct-to-
consumer
870
2,466

Property at Cost, Net of Depreciation

We capitalize costs related to internal development and implementation of software used in our operating activities

in accordance with applicable accounting literature. These capitalized costs consist almost exclusively of fees paid to third-
party consultants to develop code and install and test software specific to our needs and to customize purchased software to
maximize its benefit to us.

We record our property at cost less accumulated depreciation or amortization. We compute depreciation expense
using the straight-line method over the estimated useful lives of our assets, which are approximately 5 years for furniture,
fixtures and equipment, and 3 years for computers and software. We amortize leasehold improvements over the shorter of
their estimated useful lives or the terms of their respective underlying leases.

We periodically review our property to determine if it is impaired. We incurred no impairment costs in 2018 and

no impairment costs in 2017.

Investment in Equity-Method Investee

We account for an investment using the equity method of accounting if we have the ability to exercise significant
influence, but not control, over the investee. Significant influence is generally deemed to exist based on ownership interest,
although other factors, such as representation on an investee’s board of managers, specific voting and veto rights held by
each investor and the effects of commercial arrangements, are considered in determining whether equity method accounting
is appropriate. We record our interests in the income of our equity-method investee within the equity in income of equity-
method investee category on our consolidated statements of operations.

We use the equity method for our 66.7% investment in a limited liability company formed in 2004 to acquire a

portfolio of credit card receivables. We account for this investment using the equity method of accounting due to specific
voting and veto rights held by each investor, which do not allow us to control this investee.

We evaluate our investments in the equity-method investee for impairment each quarter by comparing the carrying

amount of the investment to its fair value. Because no active market exists for the investee’s limited liability company
membership interests, we evaluate our investment for impairment based on our evaluation of the fair value of the equity-
method investee’s net assets relative to its carrying value. If we ever were to determine that the carrying value of our
investment in the equity-method investee was greater than its fair value, we would write the investment down to its fair
value.

Prepaid Expenses and Other Assets

Prepaid expenses and other assets include amounts paid to third parties for marketing and other services as well as
amounts owed to us by third parties. Prepaid amounts are expensed as the underlying related services are performed. Also
included are (1) commissions paid associated with our various office leases which we amortize into expense over the lease

F-12

terms, (2) ongoing deferred costs associated with service contracts and (3) investments in consumer finance technology
platforms carried at the lower of cost or market valuation.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses reflect both the billed and unbilled amounts owed at the end of a period

for services rendered. Also included within accounts payable and accrued expenses are amounts which may be owed in
respect of one of our portfolios.

Revenue Recognition and Revenue from Contracts with Customers

Consumer Loans, Including Past Due Fees

Consumer loans, including past due fees reflect interest income, including finance charges, and late fees on loans
in accordance with the terms of the related customer agreements. Premiums and discounts paid or received associated with
an installment or auto loan are generally deferred and amortized over the average life of the related loans using the effective
interest method. Finance charges and fees, net of amounts that we consider uncollectible, are included in loans, interest and
fees receivable and revenue when the fees are earned based upon the contractual terms of the loans.

Fees and Related Income on Earning Assets

Fees and related income on earning assets primarily include: (1) fees associated with our credit products, including

the receivables underlying our U.S. point-of-sale finance and direct-to-consumer activities, and our legacy credit card
receivables; (2) changes in the fair value of loans, interest and fees receivable recorded at fair value; (3) changes in fair
value of notes payable associated with structured financings recorded at fair value; and (4) gains or losses associated with
our investments in securities (including an other than temporary impairment in 2017 of $2.1 million).

We assess fees on credit card accounts underlying our credit card receivables according to the terms of the related
cardholder agreements and, except for annual membership fees, we recognize these fees as income when they are charged
to the customers’ accounts. We accrete annual membership fees associated with our credit card receivables into income on
a straight-line basis over the cardholder privilege period which is generally 12 months. Similarly, fees on our other credit
products are recognized when earned, which coincides with the time they are charged to the customer’s account. Fees and
related income on earning assets, net of amounts that we consider uncollectible, are included in loans, interest and fees
receivable and revenue when the fees are earned based upon the contractual terms of the loans.

The components (in thousands) of our fees and related income on earning assets are as follows:

Fees on credit products .................................................................................................... $
Changes in fair value of loans, interest and fees receivable recorded at fair value .........
Changes in fair value of notes payable associated with structured financings recorded

at fair value ..................................................................................................................
Rental revenue .................................................................................................................
Other ................................................................................................................................
Total fees and related income on earning assets .............................................................. $

Year ended December 31,

2018

2017

25,694 $
606

3,589
—
103
29,992 $

10,427
3,456

2,315
148
(2,057)
14,289

The above changes in the fair value of loans, interest and fees receivable recorded at fair value category exclude
the impact of current period charge offs associated with these receivables which are separately stated in Net (losses upon)
recovery of charge off of loans, interest and fees receivable recorded at fair value on our consolidated statements of
operations. See Note 6, “Fair Values of Assets and Liabilities,” for further discussion of these receivables and their effects
on our consolidated statements of operations.

Other income

Other income includes revenues associated with ancillary product offerings and interchange revenues. We
recognize these fees as income in the period earned. For 2018, Other income also includes the receipt of £34 million
(approximately $42.9 million) in settlement of litigation, resulting in income recognition of approximately $36.2 million
after adjusting for amounts previously recorded.

F-13

Revenue from Contracts with Customers

In the first quarter of 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from

Contracts with Customers” under the modified retrospective transition method. There was no material change in the timing
of revenue recognition upon adoption. The majority of our revenue is earned from financial instruments and is not included
within the scope of this standard. We have determined that revenue from contracts with customers would primarily consist
of interchange revenues in our Credit and Other Investments segment and servicing revenue and other customer-related fees
in both our Credit and Other Investments segment and our Auto Finance segment. Servicing revenue is generated by
meeting contractual performance obligations related to the collection of amounts due on receivables, and is settled with the
customer net of our fee. Revenue from these contracts with customers is included as a component of Other income on our
consolidated statements of operations. Components (in thousands) of our revenue from contracts with customers is as
follows:

Credit and

Other

Year ended December 31, 2018
Interchange revenues, net (1) ............................................................. $
Servicing income ................................................................................
Service charges and other customer related fees ................................
Total revenue from contracts with customers ............................. $

Investments Auto Finance
— $
1,022
69
1,091 $

2,881 $
947
637
4,465 $

(1) Interchange revenue is presented net of customer reward expense.

Credit and

Other

Year ended December 31, 2017
Interchange revenues, net (1) ............................................................. $
Servicing income ................................................................................
Service charges and other customer related fees ................................
Total revenue from contracts with customers ..................................... $

Investments Auto Finance
— $
844
—
844 $

1,345 $
3,010
74
4,429 $

Total

2,881
1,969
706
5,556

Total

1,345
3,854
74
5,273

(1) Interchange revenue is presented net of customer reward expense.

Card and Loan Servicing Expenses

Card and loan servicing costs primarily include collections and customer service expenses. Within this category of

expenses are personnel, service bureau, cardholder correspondence and other direct costs associated with our collections
and customer service efforts. Card and loan servicing costs also include outsourced collections and customer service
expenses. We expense card and loan servicing costs as we incur them, with the exception of prepaid costs, which we
expense over respective service periods.

Marketing and Solicitation Expenses

We expense product solicitation costs, including printing, credit bureaus, list processing, telemarketing, postage,

and internet marketing fees, as we incur these costs or expend resources.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The
guidance requires an assessment of credit losses based on expected rather than incurred losses (known as the current
expected credit loss model). This generally will result in the recognition of allowances for losses earlier than under current
accounting guidance for trade and other receivables, held to maturity debt securities and other instruments. The standard
will be adopted on a prospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of
the first reporting period in which the guidance is effective. ASU 2016-13 is effective for annual and interim periods
beginning after December 15, 2019, with early adoption permitted. We are currently in the process of reviewing accounting
interpretations, expected data requirements and necessary changes to our loss estimation methods, processes and systems.
This standard is expected to result in an increase to our allowance for loan losses given the change to expected losses for the
estimated life of the financial asset. The extent of the increase will depend on the asset quality of the portfolio, and
economic conditions and forecasts at adoption.

F-14

In February 2016, the FASB issued ASU No. 2016-02, Leases, along with subsequent guidance, which requires
lessees to recognize assets and liabilities for most leases and changes certain aspects of current lessor accounting, among
other things. We will adopt these standards using a modified retrospective transition approach for leases existing at, or
entered into after, January 1, 2019 and will not recast the comparative periods presented in the Consolidated Financial
Statements upon adoption.

ASU 2016-02 provides a number of optional practical expedients and policy elections in transition. We currently

expect to elect the ‘package of practical expedients’ under which we will not reassess prior conclusions about lease
identification, lease classification and initial direct costs. We do not expect to elect the use-of-hindsight or the practical
expedient pertaining to land easements; the latter not being applicable to us. We also currently expect to elect the short-term
lease recognition exemption for all leases that qualify, meaning we would not recognize right-of-use assets or lease
liabilities for these short term leases.

Based on our current leases we expect this adoption will result in a increase in the Total assets and Total liabilities

on our Consolidated Balance Sheet. We do not anticipate adoption will have a significant impact on our Consolidated
Statements of Operations or Cash Flows. Upon adoption, we currently expect to recognize additional lease liabilities
of $30.2 million and corresponding right-of-use assets of $18.6 million. The impact of our status as a lessor in the sublease
arrangements we maintain will not result in a material change upon completion.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU 2014-
09 establishes a principles-based model under which revenue from a contract is allocated to the distinct performance
obligations within the contract and recognized in income as each performance obligation is satisfied. Additional disclosure
about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including
significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract is
also required. In August 2015, the FASB delayed the effective date by one year and the guidance was effective for annual
and interim periods beginning January 1, 2018. Most revenue associated with financial instruments, including interest
income, loan origination fees and credit card fees, is outside the scope of the guidance. This includes most of the revenue of
the Company. We adopted this standard as of January 1, 2018 using the modified retrospective method of adoption. Our
adoption of this standard did not have a material impact on our consolidated financial statements.

Subsequent Events

We evaluate subsequent events that occur after our consolidated balance sheet date but before our consolidated

financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional
evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the
process of preparing financial statements; and (2) nonrecognized, or those that provide evidence with respect to conditions
that did not exist at the date of the balance sheet but arose subsequent to that date. We have evaluated subsequent events
occurring after December 31, 2018, and based on our evaluation we did not identify any recognized or nonrecognized
subsequent events that would have required further adjustments to our consolidated financial statements.

Segment Reporting

We operate primarily within one industry consisting of two reportable segments by which we manage our

business. Our two reportable segments are: Credit and Other Investments, and Auto Finance.

As of both December 31, 2018 and December 31, 2017, we did not have a material amount of long-lived assets

located outside of the U.S., and only a negligible portion of our revenues for the years ended December 31, 2018 and 2017
were generated outside of the U.S.

We measure the profitability of our reportable segments based on their income after allocation of specific costs

and corporate overhead; however, our segment results do not reflect any charges for internal capital allocations among our
segments. Overhead costs are allocated based on headcounts and other applicable measures to better align costs with the
associated revenues.

Summary operating segment information (in thousands) is as follows:

F-15

Credit and
Other

Year ended December 31, 2018

Investments Auto Finance

Total

Interest income:
Consumer loans, including past due fees ........................................ $
Other ....................................................................................
Total interest income ............................................................
Interest expense ..............................................................................
Net interest income before fees and related income on earning
assets and provision for losses on loans, interest and fees
receivable .................................................................................... $
Fees and related income on earning assets ...................................... $
Servicing income ............................................................................ $
Equity in income of equity-method investees ................................. $
(Loss) income before income taxes ................................................ $
Income tax benefit (expense) .......................................................... $
Total assets ..................................................................................... $

131,096 $
200
131,296
(35,564)

95,732 $
29,912 $
947 $
581 $
(6,767) $
6,345 $
507,232 $

29,872 $
—
29,872
(1,332)

28,540 $
80 $
1,022 $
— $
10,249 $
(2,215) $
75,376 $

160,968
200
161,168
(36,896 )

124,272
29,992
1,969
581
3,482
4,130
582,608

Year ended December 31, 2017

Interest income:

Credit and
Other

Investments Auto Finance

Total

Consumer loans, including past due fees ............................. $
Other ....................................................................................
Total interest income ......................................................................
Interest expense ..............................................................................
Net interest income before fees and related income on earning
assets and provision for losses on loans, interest and fees
receivable .................................................................................... $
Fees and related income on earning assets ...................................... $
Servicing income ............................................................................ $
Depreciation of rental merchandise ................................................ $
Equity in income of equity-method investees ................................. $
(Loss) income before income taxes ................................................ $
Income tax benefit (expense) .......................................................... $
Total assets ..................................................................................... $

86,395 $
219
86,614
(26,702)

59,912 $
14,170 $
3,010 $
(27) $
1,158 $
(54,387) $
9,417 $
359,563 $

28,093 $
—
28,093
(998)

27,095 $
119 $
844 $
— $
— $
7,137 $
(3,039) $
66,050 $

114,488
219
114,707
(27,700 )

87,007
14,289
3,854
(27 )
1,158
(47,250 )
6,378
425,613

Shareholders’ Deficit

During the years ended December 31, 2018 and 2017, we repurchased and contemporaneously retired 281,787 and

158,202 shares of our common stock at an aggregate cost of $723,000 and $389,000, respectively, pursuant to both open
market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding
obligations.

We had 1,459,233 loaned shares outstanding at December 31, 2018 and December 31, 2017, which were originally

lent in connection with our November 2005 issuance of convertible senior notes. We retire lent shares as they are returned
to us.

F-16

Investment in Equity-Method Investee

Our equity-method investment outstanding at December 31, 2018 consists of our 66.7% interest in a joint venture

formed to purchase a credit card receivable portfolio.

In the following tables, we summarize (in thousands) balance sheet and results of operations data for our equity-

method investee:

As of

December 31,
2018

December 31,
2017

Loans, interest and fees receivables, at fair value ........................................................ $
Total assets ................................................................................................................... $
Total liabilities.............................................................................................................. $
Members’ capital .......................................................................................................... $

3,546 $
3,732 $
18 $
3,714 $

6,123
6,392
26
6,366

Net interest income, fees and related income on earning assets .................................... $
Net income .................................................................................................................... $
Net income attributable to investee ............................................................................... $

875 $
613 $
581 $

1,742
1,370
1,158

Year ended December 31,

2018

2017

Fair Values of Assets and Liabilities

We elected the fair value option with respect to our investments in equity securities, included in other assets, as

well as our credit card loans, interest and fees receivable portfolios, the retained interests in which we historically recorded
at fair value under securitization structures that were off balance sheet prior to accounting rules changes requiring their
consolidation into our financial statements. The legal structure qualifies as a VIE but is consolidated as the Company is the
primary beneficiary. With respect to our equity securities, we decided to carry these assets at fair value due to our intent to
invest and redeem these investments with expected frequency. For our credit card loans, interest and fees receivable
portfolios underlying our formerly off-balance-sheet securitization structures, we elected the fair value option because, in
contrast to substantially all of our other assets, we had significant experiences in determining the fair value of these assets
in connection with our historical fair value accounting for our retained interests in their associated securitization structures.
Because we elected to account for the credit card receivables underlying our formerly off-balance-sheet securitization
structures at fair value, accounting rules require that we account for the notes payable issued by such securitization
structures at fair value as well. For our other credit card receivables that have never been owned by our formerly off-
balance-sheet securitization structures, we have not elected the fair value option, and we record such receivables at net
realizable value within loans, interest and fees receivable, net on our consolidated balance sheets.

For all of our other debt other than the notes payable underlying our formerly off-balance sheet credit card

securitization structures, we have not elected the fair value option. Nevertheless, pursuant to applicable requirements, we
include disclosures of the fair value of this other debt to the extent practicable within the disclosures below. Additionally,
we have other liabilities, associated with consolidated legacy credit card securitization trusts, that we are required to carry
at fair value in our consolidated financial statements, and they also are addressed within the disclosures below.

Where applicable as noted above, we account for our financial assets and liabilities at fair value based upon a

three-tiered valuation system. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active
markets for identical assets or liabilities that we have the ability to access. Fair values determined by Level 2 inputs use
inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices
that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted
intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any,
market activity for the asset or liability. Where inputs used to measure fair value may fall into different levels of the fair
value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been
determined is based on the lowest level input that is significant to the fair value measurement in its entirety.

F-17

Valuations and Techniques for Assets

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires

judgment and considers factors specific to the asset or liability. The table below summarizes (in thousands) by fair value
hierarchy the December 31, 2018 and December 31, 2017 fair values and carrying amounts of (1) our assets that are
required to be carried at fair value in our consolidated financial statements and (2) our assets not carried at fair value, but
for which fair value disclosures are required:

Assets – As of December 31, 2018 (1)
Loans, interest and fees receivable, net for which it is

Quoted
Prices in
Active
Markets for
Identical
Assets

(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Amount of
Assets

practicable to estimate fair value ...................................... $
Loans, interest and fees receivable, at fair value .................. $

— $
— $

470,496 $
6,306 $

418,236
6,306

Assets – As of December 31, 2017 (1)
Loans, interest and fees receivable, net for which it is

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Amount of
Assets

practicable to estimate fair value ...................................... $
Loans, interest and fees receivable, at fair value .................. $

— $
— $

324,945 $
11,109 $

293,972
11,109

(1)

For cash, deposits and investments in equity securities, the carrying amount is a reasonable estimate of
fair value.

For those asset classes above that are required to be carried at fair value in our consolidated financial statements,

gains and losses associated with fair value changes are detailed on our fees and related income on earning assets table
within Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components.” For our loans, interest
and fees receivable included in the above tables, we assess the fair value of these assets based on our estimate of future cash
flows net of servicing costs, and to the extent that such cash flow estimates change from period to period, any such changes
are considered to be attributable to changes in instrument-specific credit risk.

For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the

following table presents (in thousands) a reconciliation of the beginning and ending balances for the year ended December
31, 2018 and 2017:

Balance at January 1, ....................................................................................................... $
Total gains—realized/unrealized:
Net revaluations of loans, interest and fees receivable, at fair value ...............................
Settlements ......................................................................................................................
Impact of foreign currency translation ............................................................................
Balance at December 31, ................................................................................................. $

Loans, Interest and Fees
Receivables, at Fair Value

2018

2017

11,109 $

15,648

606
(5,395 )
(14 )
6,306 $

3,456
(8,049)
54
11,109

The unrealized gains and losses for assets within the Level 3 category presented in the tables above include

changes in fair value that are attributable to both observable and unobservable inputs. Impacts related to foreign currency
translation are included as a component of other operating expense on the consolidated statements of operations when
recognized.

F-18

Net Revaluation of Loans, Interest and Fees Receivable. We record the net revaluation of loans, interest and fees

receivable (including those pledged as collateral) in the fees and related income on earning assets category in our
consolidated statements of operations, specifically as changes in fair value of loans, interest and fees receivable recorded at
fair value. The net revaluation of loans, interest and fees receivable is based on the present value of future cash flows using
a valuation model of expected cash flows and the estimated cost to service and collect those cash flows. We estimate the
present value of these future cash flows using a valuation model consisting of internally developed estimates of
assumptions third-party market participants would use in determining fair value, including estimates of net collected yield,
principal payment rates, expected principal credit loss rates, costs of funds, discount rates and servicing costs. Interest
income on receivables underlying our asset classes that are carried at fair value in our consolidated financial statements is
recorded in Interest income - Consumer loans, including past due fees in our consolidated statements of operations.

For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the
following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the
fair value measurement as of December 31, 2018 and December 31, 2017:

Quantitative Information about Level 3 Fair Value Measurements

Fair Value Measurements

Fair Value at
December 31, 2018
(in thousands)

Valuation
Technique Unobservable Input

Range (Weighted Average)

Loans, interest and fees receivable,

at fair value ................................ $

Discounted
cash flows

6,306

Gross yield
Principal payment rate
Expected credit loss rate
Servicing rate
Discount rate

25.8% to 30.8% (26.4%)
2.2% to 3.0% (2.3%)
8.7% to 11.3% (9.0%)
14.9% to 19.5% (15.5%)
14.9% to 14.9% (14.9%)

Quantitative Information about Level 3 Fair Value Measurements

Fair Value Measurements

Fair Value at
December 31, 2017
(in thousands)

Valuation
Technique

Loans, interest and fees receivable,

at fair value ................................ $

Discounted
cash flows

11,109

Unobservable Input

Range (Weighted Average)

Gross yield
Principal payment rate
Expected credit loss rate
Servicing rate
Discount rate

15.8% to 27.4% (24.5%)
1.9% to 3.6% (2.6%)
9.4% to 10.4% (9.7%)
10.2% to 12.3% (10.5%)
6.0% to 14.2% (12.8%)

F-19

Valuations and Techniques for Liabilities

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires

judgment and considers factors specific to the liability. The table below summarizes (in thousands) by fair value hierarchy
the December 31, 2018 and December 31, 2017 fair values and carrying amounts of (1) our liabilities that are required to be
carried at fair value in our consolidated financial statements and (2) our liabilities not carried at fair value, but for which
fair value disclosures are required:

Quoted
Prices in
Active
Markets for
Identical
Assets

(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Amount of
Liabilities

— $
— $
— $
— $

— $
— $
— $
47,230 $

389,707 $
1,220 $
40,000 $
— $

389,707
1,220
40,000
62,142

Liabilities – As of December 31, 2018
Liabilities not carried at fair value
Revolving credit facilities .................................................... $
Amortizing debt facilities ..................................................... $
Notes payable to related parties ............................................ $
Convertible senior notes ....................................................... $
Liabilities carried at fair value
Notes payable associated with structured financings,

at fair value ....................................................................... $

— $

5,651 $

5,651

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying
Amount of
Liabilities

— $
— $
— $
— $

— $
— $
— $
43,588 $

160,854 $
65,384 $
40,000 $
— $

160,854
65,384
40,000
61,393

Liabilities - As of December 31, 2017
Liabilities not carried at fair value
Revolving credit facilities .................................................... $
Amortizing debt facilities ..................................................... $
Notes payable to related parties ............................................ $
Convertible senior notes ....................................................... $
Liabilities carried at fair value
Notes payable associated with structured financings,

at fair value ....................................................................... $

— $

9,240 $

9,240

For our notes payable, we assess the fair value of these liabilities based on our estimate of future cash flows

generated from their underlying credit card receivables collateral, net of servicing compensation required under the note
facilities, and to the extent that such cash flow estimates change from period to period, any such changes are considered to
be attributable to changes in instrument-specific credit risk. Gains and losses associated with fair value changes for our
notes payable associated with structured financing liabilities that are carried at fair value are detailed on our fees and related
income on earning assets table within Note 2, “Significant Accounting Policies and Consolidated Financial Statement
Components.” For our 5.875% convertible senior notes due 2035 (“5.875% convertible senior notes”), we assess fair value
based upon the most recent trade data available from third-party providers. We have evaluated the fair value of our third
party debt by analyzing the expected repayment terms and credit spreads included in our recent financing arrangements
obtained with similar terms. These recent financing arrangements provide positive evidence that the underlying data used in
our assessment of fair value has not changed relative to the general market and therefore the fair value of our debt continues
to be the same as the carrying value. See Note 9, “Notes Payable,” for further discussion on our other notes payable.

F-20

For our material Level 3 liabilities carried at fair value measured on a recurring basis using significant
unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for
the year ended December 31, 2018 and 2017.

Notes Payable Associated with
Structured Financings, at
Fair Value

2018

2017

Beginning balance, January 1, ......................................................................................... $
Total (gains) losses—realized/unrealized:
Net revaluations of notes payable associated with structured financings, at fair value ...
Repayments on outstanding notes payable, net ...............................................................
Ending balance, December 31, ........................................................................................ $

9,240 $

12,276

(3,589 )
—
5,651 $

(2,315)
(721)
9,240

The unrealized gains and losses for liabilities within the Level 3 category presented in the table above include

changes in fair value that are attributable to both observable and unobservable inputs. We provide below a brief description
of the valuation techniques used for Level 3 liabilities.

Net Revaluation of Notes Payable Associated with Structured Financings, at Fair Value. We record the net

revaluations of notes payable associated with structured financings, at fair value, in the changes in fair value of notes
payable associated with structured financings line item within the fees and related income on earning assets category of our
consolidated statements of operations. The legal entity associated with the securitization transaction is consolidated as a
VIE as the Company is deemed the primary beneficiary of the entity. The Company is not liable for the full face value of
the liability in the VIE so it is carried at fair value based upon amounts the borrower will receive from the legal entity. The
net revaluation of these notes is based on the present value of future cash flows utilized in repayment of the outstanding
principal and interest under the facilities using a valuation model of expected cash flows net of the contractual service
expenses within the facilities. We estimate the present value of these future cash flows using a valuation model consisting
of internally developed estimates of assumptions third-party market participants would use in determining fair value,
including: estimates of net collected yield, principal payment rates and expected principal credit loss rates on the credit card
receivables that secure the non-recourse notes payable; costs of funds; discount rates; and contractual servicing fees.
Accrued interest expense on notes payable underlying our notes payable associated with structured financings, at fair value
is recorded in Interest expense in our consolidated statements of operations.

F-21

For material Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable
inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs
used in the fair value measurement as of December 31, 2018 and December 31, 2017:

Quantitative Information about Level 3 Fair Value Measurements

Fair Value Measurements
Notes payable associated with structured

financings, at fair value ............................... $

5,651

Valuation
Technique
Discounted cash
flows

Fair Value at
December 31,
2018
(in thousands)

Unobservable
Input

Weighted
Average

Gross yield
Principal payment
rate
Expected credit
loss rate
Discount rate

25.8%

2.2%

8.7%
14.9%

Quantitative Information about Level 3 Fair Value Measurements

Fair Value Measurements
Notes payable associated with structured

financings, at fair value ............................... $

Fair Value at
December
31, 2017
(in thousands)

Valuation
Technique
Discounted cash
flows

9,240

Unobservable
Input

Weighted
Average

Gross yield
Principal payment
rate
Expected credit
loss rate
Discount rate

25.9%

2.5%

9.4%
14.2%

Other Relevant Data

Other relevant data (in thousands) as of December 31, 2018 and December 31, 2017 concerning certain assets and liabilities
we carry at fair value are as follows:

As of December 31, 2018

Loans, Interest
and Fees
Receivable
Pledged as
Collateral
under
Structured
Financings at
Fair Value

Loans, Interest
and Fees
Receivable at
Fair Value

Aggregate unpaid principal balance within loans, interest and fees receivable that

are reported at fair value........................................................................................... $

1,160 $

7,708

Aggregate fair value of loans, interest and fees receivable that are reported at fair

value ......................................................................................................................... $

655 $

5,651

Aggregate fair value of receivables carried at fair value that are 90 days or more

past due (which also coincides with finance charge and fee non-accrual policies) .. $

3 $

Unpaid principal balance of receivables within loans, interest and fees receivable
that are reported at fair value and are 90 days or more past due (which also
coincides with finance charge and fee non-accrual policies) over the fair value of
such loans, interest and fees receivable .................................................................... $

35 $

224

F-22

As of December 31, 2017

Loans, Interest
and Fees
Receivable
Pledged as
Collateral
under
Structured
Financings at
Fair Value

Loans, Interest
and Fees
Receivable at
Fair Value

Aggregate unpaid principal balance within loans, interest and fees receivable that

are reported at fair value........................................................................................... $

4,416 $

11,349

Aggregate fair value of loans, interest and fees receivable that are reported at fair

value ......................................................................................................................... $

1,869 $

9,240

Aggregate fair value of receivables carried at fair value that are 90 days or more

past due (which also coincides with finance charge and fee non-accrual policies) .. $

5 $

107 $

369

Notes Payable

Notes Payable
Associated
with
Structured
Financings, at
Fair Value as
of December
31, 2018

Notes Payable
Associated
with
Structured
Financings, at
Fair Value as
of December
31, 2017

Aggregate unpaid principal balance of notes payable .................................................. $
Aggregate fair value of notes payable ......................................................................... $

101,314 $
5,651 $

101,314
9,240

Property

Details (in thousands) of our property on our consolidated balance sheets are as follows:

As of December 31,
2017

2018

Software .......................................................................................................................... $
Furniture and fixtures ......................................................................................................
Data processing and telephone equipment ......................................................................
Leasehold improvements .................................................................................................
Other ................................................................................................................................
Total cost .........................................................................................................................
Less accumulated depreciation ........................................................................................
Property, net .................................................................................................................... $

3,467 $
6,307
7,625
10,570
1,156
29,125
(25,500 )
3,625 $

5,542
6,252
11,196
10,651
—
33,641
(30,412)
3,229

Depreciation expense totaled $1.0 million and $1.0 million for the years ended December 31, 2018 and 2017,

respectively.

F-23

Leases

We lease premises and certain equipment under cancelable and non-cancelable leases, some of which contain

renewal options under various terms. Total rental expense associated with these operating leases was $1.7 million in
2018 and $1.7 million in 2017, net of sublease income of $5.1 million and $5.0 million for the years ended December 31,
2018 and 2017, respectively. During the fourth quarter of 2006, we entered into a 15-year lease in Atlanta, Georgia for
335,372 square feet (net of space which was surrendered to the landlord through our exercise of a termination option),
254,710 square feet of which we have subleased, and the remainder of which houses our corporate offices. In connection
with this lease, we received a $21.2 million construction allowance for the build-out of our new corporate offices. We are
amortizing the construction allowance as a reduction of rent expense over the term of the lease. As of December 31, 2018,
the future minimum rental commitments (in thousands) for all non-cancelable operating leases with initial or remaining
terms of more than one year (both gross and net of any sublease income) are as follows:

2019 .................................................................................................... $
2020 ....................................................................................................
2021 ....................................................................................................
2022 ....................................................................................................
2023 ....................................................................................................
Thereafter ...........................................................................................
Total ................................................................................................... $

Gross

Sublease
Income

Net

9,998 $
10,075
10,089
4,285
71
12
34,530 $

(6,919) $
(7,115)
(7,315)
(3,112)
—
—
(24,461) $

3,079
2,960
2,774
1,173
71
12
10,069

In addition, we occasionally lease certain equipment under cancelable and non-cancelable leases, which are

accounted for as capital leases in our consolidated financial statements. As of December 31, 2018, we had no material non-
cancelable capital leases with initial or remaining terms of more than one year.

Notes Payable

The Company contributes certain receivables to VIEs. These entities are established to facilitate a more efficient

means of obtaining third party financing. When assets are contributed to the VIE, they serve as collateral for the debt
securities issued by the VIE. The evaluation of whether the entity qualifies as a VIE is based upon the sufficiency of the
equity at risk in the legal entity. This evaluation is generally a function of the level of excess collateral in the legal
entity. We consolidate VIEs when we hold a variable interest and are the primary beneficiary. We are the primary
beneficiary when we have the power to direct activities that most significantly affect the economic performance and have
the obligation to absorb the majority of the losses or benefits. In certain circumstances we guarantee the performance of the
underlying debt or agree to contribute additional collateral when necessary. When collateral is pledged it is not available
for the general use of the Company and can only be used to satisfy the related debt obligation. The results of operations and
financial position of consolidated VIEs are included in our consolidated financial statements.

The following table presents a summary of VIEs in which we had continuing involvement or held a variable

interest (in millions):

As of December 31,

2018

2017

Cash and restricted cash .................................................................................................. $
Loans, interest and fees receivable, at fair value .............................................................
Loans, interest and fees receivable, gross ........................................................................
Allowances for uncollectible loans, interest and fees receivable ....................................
Deferred revenue .............................................................................................................
Total Assets held by VIEs ............................................................................................... $
Notes Payable, at face value held by VIEs ...................................................................... $
Notes Payable, at fair value held by VIEs ....................................................................... $
Maximum exposure to loss due to involvement with VIE .............................................. $

78 $
6
403
(57 )
(13 )
416 $
367 $
6 $
438 $

40
9
253
(32)
(9)
261
204
9
455

F-24

Notes Payable Associated with Structured Financings, at Fair Value

Scheduled (in millions) in the table below are (1) the carrying amount of our structured financing note secured by

certain credit card receivables and reported at fair value as of December 31, 2018 and December 31, 2017, (2) the
outstanding face amount of our structured financing note secured by certain credit card receivables and reported at fair
value as of December 31, 2018 and December 31, 2017, and (3) the carrying amount of the credit card receivables and
restricted cash that provide the exclusive means of repayment for the note (i.e., lenders have recourse only to the specific
credit card receivables and restricted cash underlying each respective facility and cannot look to our general credit for
repayment) as of December 31, 2018 and December 31, 2017.

Carrying Amounts at
Fair Value as of

December 31,
2018

December 31,
2017

Securitization facility (stated maturity of December 2021), outstanding face amount of
$101.3 million as of December 31, 2018 ($101.3 million as of December 31, 2017)
bearing interest at a weighted average 7.5% interest rate, based upon LIBOR, at
December 31, 2018 (6.7% at December 31, 2017), which is secured by credit card
receivables and restricted cash aggregating $5.7 million as of December 31, 2018
($9.2 million as of December 31, 2017) in carrying amount ....................................... $

5.7 $

9.2

Contractual payment allocations within this credit card receivables structured financing provide for a priority

distribution of cash flows to us to service the credit card receivables, a distribution of cash flows to pay interest and
principal due on the notes, and a distribution of all excess cash flows (if any) to us. The structured financing facility
included in the above table is amortizing down along with collections of the underlying receivables and there are no
provisions within the debt agreement that allow for acceleration or bullet repayment of the facility prior to its scheduled
expiration date. The aggregate carrying amount of the credit card receivables and restricted cash that provide security for
the $5.7 million in fair value of the structured financing facility indicated in the above table is $5.7 million, which means
that we have no aggregate exposure to pre-tax equity loss associated with the above structured financing arrangement at
December 31, 2018.

As discussed elsewhere, the legal entity holding the securitization facility discussed in the table above, is a
VIE. Beyond our role as servicer of the underlying assets within the credit cards receivables structured financing, we have
provided no other financial or other support to the structure, and we have no explicit or implicit arrangements that could
require us to provide financial support to the structure.

F-25

Notes Payable, at Face Value and Notes Payable to Related Parties

Other notes payable outstanding as of December 31, 2018 and December 31, 2017 that are secured by the financial

and operating assets of either the borrower, another of our subsidiaries or both, include the following, scheduled (in
millions); except as otherwise noted, the assets of our holding company (Atlanticus Holdings Corporation) are subject to
creditor claims under these scheduled facilities:

As of

December 31,
2018

December 31,
2017

Revolving credit facilities at a weighted average interest rate equal to 7.6% at December
31, 2018 (7.8% at December 31, 2017) secured by the financial and operating assets of
CAR and/or certain receivables and restricted cash with a combined aggregate carrying
amount of $468.8 million as of December 31, 2018 ($216.0 million at December 31, 2017)
Revolving credit facility, not to exceed $40.0 million (expiring November 1, 2020) (1) (2) .....
Revolving credit facility, not to exceed $50.0 million (expiring October 30, 2019) (2) (3) (7) .
Revolving credit facility, not to exceed $12.0 million (expiring December 21, 2019)

(2) (3) (4) (7) ..........................................................................................................................

Revolving credit facility, not to exceed $20.0 million (expiring December 31, 2019)

(3) (4) (7) ................................................................................................................................

Revolving credit facility, not to exceed $90.0 million (expiring February 8, 2022)

(3) (5) (7) (8) ..........................................................................................................................

Revolving credit facility, not to exceed $100.0 million (expiring June 11, 2020)

(3) (5) (7) (8) ..........................................................................................................................
Revolving credit facility, not to exceed $15.0 million (expiring June 25, 2020) (2) (3) (4) (7) .
Revolving credit facility, not to exceed $100.0 million (expiring November 16, 2020)

(3) (5) (7) (8) ..........................................................................................................................

Revolving credit facility, not to exceed $167.3 million (expiring November 15, 2023)

30.0
49.9

—

61.0

80.5
—

8.0

(3) (5) (7) (8) ..........................................................................................................................

167.3

Amortizing facilities at a weighted average interest rate equal to 6.0% at December 31,
2017, secured by certain receivables and restricted cash with a combined aggregate
carrying amount of $77.9 million as of December 31, 2017
Amortizing debt facility (repaid in March 2018) (3) (6) (7) .......................................................
Amortizing debt facility (repaid in June 2018) (3) (6) (7) ..........................................................
Amortizing debt facility (repaid in September 2018) (3) (7) ......................................................
Amortizing debt facility (repaid in November 2018) (3) (4) (6) (7) ...........................................
Amortizing debt facility (repaid in November 2018) (3) (4) (6) (7) ...........................................

Other facilities

—
—
—
—
—

Other secured debt (expiring September 8, 2023) that is secured by certain assets of the

Company with an annual rate equal to 5.5% ..........................................................................

1.2

Senior secured term loan to related parties (expiring November 21, 2019) that is secured by

certain assets of the Company with an annual rate equal to 9.0% (5) ....................................
Total notes payable before unamortized debt issuance costs and discounts ...............................
Unamortized debt issuance costs and discounts .........................................................................
Total notes payable outstanding ..................................................................................................... $

40.0
437.9
(7.0)
430.9 $

24.8
49.4

3.8

19.8

65.0

—
7.5

—

3.7
18.3
6.0
20.5
10.0

—

40.0
268.8
(2.6)
266.2

(1)

(2)

(3)

(4)
(5)
(6)

(7)
(8)

Loan is subject to certain affirmative covenants, including a coverage ratio, a leverage ratio and a collateral performance test, the
failure of which could result in required early repayment of all or a portion of the outstanding balance by our CAR Auto Finance
operations.
These notes reflect modifications to either extend the maturity date, increase the loan amount or both, and are treated as
accounting modifications.
Loans are subject to certain affirmative covenants tied to default rates and other performance metrics the failure of which could
result in required early repayment of the remaining unamortized balances of the notes.
Loans were paid down in November 2018 as part of securitization discussed below.
See below for additional information.
Loans were comprised of four tranches with the same lenders. Terms and conditions were substantially identical with the
exception of maturity date as indicated in the table above.
Loans are associated with variable interest entities.
Creditors do not have recourse against the general assets of the Company but only to the collateral within the VIEs.

F-26

On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove

Ventures, LLC, a Nevada limited liability company (“Dove”). The agreement provides for a senior secured term loan
facility in an amount of up to $40.0 million at any time outstanding. The Loan and Security Agreement was fully drawn
with $40.0 million outstanding as of December 31, 2018. In November 2018, the agreement was amended to extend the
maturity date of the term loan to November 21, 2019. All other terms remain unchanged.

Our obligations under the agreement are guaranteed by certain subsidiary guarantors and secured by a pledge of

certain assets of ours and the subsidiary guarantors. The loans bear interest at the rate of 9.0% per annum, payable monthly
in arrears. The principal amount of these loans is payable in a single installment on November 21, 2019 (as amended). The
agreement includes customary affirmative and negative covenants, as well as customary representations, warranties and
events of default. Subject to certain conditions, we can prepay the principal amounts of these loans without premium or
penalty.

Dove is a limited liability company owned by three trusts. David G. Hanna is the sole shareholder and the

President of the corporation that serves as the sole trustee of one of the trusts, and David G. Hanna and members of his
immediate family are the beneficiaries of this trust. Frank J. Hanna, III is the sole shareholder and the President of the
corporation that serves as the sole trustee of the other two trusts, and Frank J. Hanna, III and members of his immediate
family are the beneficiaries of these other two trusts.

In October 2015, we (through a wholly owned subsidiary) entered a revolving credit facility with a (as
subsequently amended) $50.0 million revolving borrowing limit that can be drawn to the extent of outstanding eligible
principal receivables (of which $49.9 million was drawn as of December 31, 2018). This facility is secured by the loans
and fees receivable and related restricted cash and accrues interest at an annual rate equal to LIBOR plus 5.0%. The loan is
subject to certain affirmative covenants, including a liquidity test and an eligibility test, the failure of which could result in
required early repayment of all or a portion of the outstanding balance. The note is guaranteed by Atlanticus who is
required to maintain certain minimum liquidity levels.

In October 2016, we (through a wholly owned subsidiary) entered a revolving credit facility with a $40.0 million

borrowing limit that can be drawn to the extent of outstanding eligible principal receivables of our CAR subsidiary (of
which $30.0 million was drawn as of December 31, 2018). This facility is secured by the financial and operating assets of
CAR and accrues interest at an annual rate equal to LIBOR plus a range between 2.4% and 3.0% based on certain
ratios. The loan is subject to certain affirmative covenants, including a coverage ratio, a leverage ratio and a collateral
performance test, the failure of which could result in required early repayment of all or a portion of the outstanding
balance. In February 2019, we extended the maturity date of this revolving credit facility to November 1, 2020. There were
no other material changes to the existing terms or conditions and the new maturity date is reflected in the table above.

In February 2017, we (through a wholly owned subsidiary) established a program under which we sell certain

receivables to a consolidated trust in exchange for notes issued by the trust. The notes are secured by the receivables and
other assets of the trust. Simultaneously with the establishment of the program, the trust issued a series of variable funding
notes and sold an aggregate amount of up to $90.0 million (of which $61.0 million was outstanding as of December 31,
2018) to an unaffiliated third party pursuant to a facility that can be drawn upon to the extent of outstanding eligible
receivables. Interest rates on the notes are fixed and range from 10.0% to 14.0%. The facility matures on February 8,
2022 and is subject to certain affirmative covenants and collateral performance tests, the failure of which could result in
required early repayment of all or a portion of the outstanding balance of notes. The facility also may be prepaid subject to
payment of a prepayment or other fee.

In 2018, we (through a wholly owned subsidiary) entered into two separate facilities associated with the above

mentioned program to sell up to an aggregate $200.0 million of notes which are secured by the receivables and other assets
of the trust (of which $88.5 million was outstanding as of December 31, 2018) to separate unaffiliated third parties pursuant
to facilities that can be drawn upon to the extent of outstanding eligible receivables. Interest rates on the notes are based on
commercial paper rates plus 4.25% and LIBOR plus 4.5%, respectively. The facilities mature on June 11, 2020 and
November 16, 2020, respectively, and are subject to certain affirmative covenants and collateral performance tests, the
failure of which could result in required early repayment of all or a portion of the outstanding balance of notes. The
facilities also may be prepaid subject to payment of a prepayment or other fee.

In November 2018, we sold $167.3 million of asset backed securities (“ABS”) secured by certain retail point-of-
sale receivables. A portion of the proceeds from the sale were used to pay-down our existing term and revolving facilities
associated with our point-of-sale receivables, noted in the table above, and the remaining proceeds are available to fund the

F-27

acquisition of future receivables. The terms of the ABS allow for a two-year revolving structure with a subsequent 18-
month amortization period. The weighted average interest rate on the securities is fixed at 5.76%.

We are in compliance with the covenants underlying our various notes payable.

10.

Convertible Senior Notes

In November 2005, we issued $300.0 million aggregate principal amount of 5.875% convertible senior notes due
November 30, 2035. The convertible senior notes are unsecured, subordinate to existing and future secured obligations and
structurally subordinate to existing and future claims of our subsidiaries’ creditors. These notes (net of repurchases since
the issuance dates) are reflected within convertible senior notes on our consolidated balance sheets. No put rights exist
under our convertible senior notes.

The following summarizes (in thousands) components of our consolidated balance sheets associated with our

convertible senior notes:

As of

December 31,
2018

December 31,
2017

Face amount of 5.875% convertible senior notes ............................................................ $
Discount ..........................................................................................................................
Net carrying value ........................................................................................................... $
Carrying amount of equity component included in paid-in capital ................................. $
Excess of instruments’ if-converted values over face principal amounts ........................ $

88,280 $
(26,138 )
62,142 $
108,714 $
— $

88,280
(26,887)
61,393
108,714
—

During certain periods and subject to certain conditions, the remaining $88.3 million of outstanding 5.875%

convertible senior notes as of December 31, 2018 (as referenced in the table above) are convertible by holders into cash
and, if applicable, shares of our common stock at an adjusted effective conversion rate of 40.63 shares of common stock per
$1,000 principal amount of notes, subject to further adjustment; the conversion rate is based on an adjusted conversion
price of $24.61 per share of common stock. Upon any conversion of the notes, we will deliver to holders of the notes cash
of up to $1,000 per $1,000 aggregate principal amount of notes and, at our option, either cash or shares of our common
stock in respect of the remainder of the conversion obligation, if any. The maximum number of shares of common stock
that any note holder may receive upon conversion is fixed at 40.63 shares per $1,000 aggregate principal amount of notes,
and we have a sufficient number of authorized shares of our common stock to satisfy this conversion obligation. We are
required to pay contingent interest on the notes during a 6-month period if the average trading price of the notes is above a
specified level. Thus far we have not paid any contingent interest on these notes. In addition, holders of the notes may
require us to repurchase the notes for cash upon certain specified events.

In conjunction with the offering of the 5.875% convertible senior notes, we entered into a 30-year share lending
agreement with Bear, Stearns International Limited (“BSIL”) and Bear, Stearns & Co. Inc, as agent for BSIL, pursuant to
which we lent BSIL 5,677,950 shares of our common stock. We exclude the loaned shares from earnings per share
computations. The obligations of Bear Stearns were assumed by JP Morgan in 2008. JP Morgan (as the guarantor of the
obligation) is required to return the loaned shares to us at the end of the 30-year term of the share lending agreement or
earlier upon the occurrence of specified events. Such events include the bankruptcy of JP Morgan, its failure to make
payments when due, its failure to post collateral when required or return loaned shares when due, notice of its inability to
perform obligations, or its untrue representations. If an event of default occurs, then the borrower (JP Morgan) may settle
the obligation in cash. Further, in the event that JP Morgan’s credit rating drops below A/A2, it would be required to post
collateral for the market value of the lent shares ($5.3 million based on the 1,459,233 shares remaining outstanding under
the share lending arrangement as of December 31, 2018). JP Morgan has agreed to use the loaned shares for the purpose of
directly or indirectly facilitating the hedging of our convertible senior notes by the holders thereof or for such other purpose
as reasonably determined by us. We deem it highly remote that any event of default will occur and therefore cash
settlement, while an option, is an unlikely scenario.

We analogize the share lending agreement to a prepaid forward contract, which we have evaluated under
applicable accounting guidance. We determined that the instrument was not a derivative in its entirety and that the
embedded derivative would not require separate accounting. The net effect on shareholders’ equity of the shares lent
pursuant to the share lending agreement, which includes our requirement to lend the shares and the counterparties’
requirement to return the shares, is the fee received upon our lending of the shares.

F-28

Accounting for Convertible Senior Notes

Under applicable accounting literature, the accounting for the issuance of the notes includes (1) allocation of the

issuance proceeds between the notes and paid-in capital, (2) establishment of a discount to the face amount of the notes
equal to the portion of the issuance proceeds that are allocable to paid-in capital, (3) creation of a deferred tax liability
related to the discount on the notes, and (4) an allocation of issuance costs between the portion of such costs considered to
be associated with the notes and the portion of such costs considered to be associated with the equity component of the
notes’ issuances (i.e., paid-in capital). We are amortizing the discount to the remaining face amount of the notes into
interest expense over the expected life of the notes, which results in a corresponding release of associated deferred tax
liability. Amortization for the years ended December 31, 2018 and 2017 totaled $0.6 million and $0.5 million, respectively.
Actual incurred interest (based on the contractual interest rates within the two convertible senior notes series) totaled $5.2
million for each of the years ended December 31, 2018 and 2017. We will amortize the discount remaining at December 31,
2018 into interest expense over the expected term of the 5.875% convertible senior notes (currently expected to be October
2035). The weighted average effective interest rate for the 5.875% convertible senior notes was 9.2% for all periods
presented.

11.

Commitments and Contingencies

General

Under finance products available in the point-of-sale and direct-to-consumer channels, consumers have the ability

to borrow up to the maximum credit limit assigned to each individual’s account. Unfunded commitments under these
products aggregated $631.0 million at December 31, 2018. We have never experienced a situation in which all borrowers
have exercised their entire available lines of credit at any given point in time, nor do we anticipate this will ever occur in
the future. Moreover, there would be a concurrent increase in assets should there be any exercise of these lines of
credit. We also have the effective right to reduce or cancel these available lines of credit at any time.

Additionally, our CAR operations provide floor-plan financing for a pre-qualified network of independent

automotive dealers and automotive finance companies in the buy-here, pay-here used car business. The floor plan
financing allows dealers and finance companies to borrow up to the maximum pre-approved credit limit allowed in order to
finance ongoing inventory needs. These loans are secured by the underlying auto inventory and, in certain cases where we
have other lending products outstanding with the dealer, are secured by the collateral under those lending arrangements as
well, including any outstanding dealer reserves. As of December 31, 2018, CAR had unfunded outstanding floor-plan
financing commitments totaling $7.7 million. Each draw against unused commitments is reviewed for conformity to pre-
established guidelines.

Under agreements with third-party originating and other financial institutions, we have pledged security
(collateral) related to their issuance of consumer credit and purchases thereunder, of which $11.7 million remains pledged
as of December 31, 2018 to support various ongoing contractual obligations.

Under agreements with third-party originating and other financial institutions, we have agreed to indemnify the
financial institutions for certain liabilities associated with the services we provide on behalf of the financial institutions—
such indemnification obligations generally being limited to instances in which we either (a) have been afforded the
opportunity to defend against any potentially indemnifiable claims or (b) have reached agreement with the financial
institutions regarding settlement of potentially indemnifiable claims. As of December 31, 2018, we have assessed the
likelihood of any potential payments related to the aforementioned contingencies as remote. We will accrue liabilities
related to these contingencies in any future period if and in which we assess the likelihood of an estimable payment as
probable.

We also are subject to certain minimum payments under cancelable and non-cancelable lease arrangements. For

further information regarding these commitments, see Note 8, “Leases”.

Litigation

We are involved in various legal proceedings that are incidental to the conduct of our business. There are currently

no pending legal proceedings that are expected to be material to us.

F-29

12.

Income Taxes

Deferred tax assets and liabilities reflect the effects of tax losses, credits, and the future income tax effects of

temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.

The current and deferred portions (in thousands) of federal, foreign and state income tax benefit or expense are as

follows:

Federal income tax benefit:

Current tax benefit (expense) ................................................................................... $
Deferred tax (expense) benefit .................................................................................
Total federal income tax benefit ...................................................................................... $
Foreign income tax expense:

Current tax expense .................................................................................................. $
Deferred tax benefit ..................................................................................................
Total foreign income tax expense .................................................................................... $
State and other income tax benefit:

Current tax (expense) benefit ................................................................................... $
Deferred tax (expense) benefit .................................................................................
Total state and other income tax (expense) benefit ......................................................... $
Total income tax benefit .................................................................................................. $

For the Year Ended
December 31,

2018

2017

5,932 $
(1,159 )
4,773 $

(53 ) $
3
(50 ) $

(3 ) $
(590 )
(593 ) $
4,130 $

(113)
6,187
6,074

(94)
8
(86)

16
374
390
6,378

We experienced a negative effective income tax expense rate of 118.6% for the year ended December 31, 2018,
compared to an effective income tax benefit rate of 13.5% for the year ended December 31, 2017. Our negative effective
income tax expense rate for the year ended December 31, 2018 is significantly below the statutory rate principally as a
result of our settlement during 2018 of an IRS examination of our 2008 tax return and the carryback of its resulting net
operating losses to pre-2008 tax years. The settlement resulted in a decrease in our federal tax valuation allowance and net
reductions in our accruals of interest on liabilities for uncertain tax positions and unpaid taxes. Our effective income tax
benefit rate for the year ended December 31, 2017 was below the statutory rate principally due to (1) interest and penalties
that we accrued on unpaid federal tax liabilities and (2) our establishment of valuation allowances against our net federal
deferred tax assets associated with our net loss incurred in that year.

We report income tax-related interest and penalties (including those associated with both our accrued liabilities for

In December 2014, we reached a settlement with the IRS concerning the tax treatment of net operating losses we

incurred in 2007 and 2008 and carried back to obtain refunds of federal income taxes paid in earlier years dating back to
2003. In 2015, we filed an amended return claim that, if accepted, would have eliminated the $7.4 million assessment (and
corresponding interest and penalties) under a negotiated provision of the December 2014 IRS settlement. The IRS filed a
lien (as is customarily the case) associated with the assessment. Subsequently, an IRS examination team denied our
amended return claims, and we filed a protest with IRS Appeals. Following correspondence and conferences held with IRS
Appeals, we received and accepted a settlement offer from IRS Appeals in June 2018 that reduced our $7.4 million net
unpaid income tax assessment referenced above to $3.7 million. In July 2018, we paid $5.4 million to the IRS to cover the
$3.7 million unpaid income tax assessment and most of the interest that had accrued thereon; subsequently, during the three
months ended September 30, 2018, the IRS refunded $0.5 million of our $5.4 million payment. Although we have paid all
assessed income taxes related to this matter, we still have an outstanding accrued liability for some of the interest and for
failure-to-pay penalties related to this matter. We are pursuing complete abatement of the failure-to-pay penalties of $0.9
million, and once this matter is resolved and we pay any remaining interest liability, we expect the IRS to remove the
aforementioned lien in due course.

F-30

The following table reconciles our effective income tax benefit rates for 2018 and 2017:

For the Year Ended
December 31,

2018

2017

Statutory benefit rate .......................................................................................................

21.0%

35.0%

Increase (decrease) in statutory tax benefit rate resulting from:
Federal valuation allowance .....................................................................................
Global intangible low-taxed income ........................................................................
Interest and penalties related to uncertain tax positions and IRS settlement

adjustment .............................................................................................................
Foreign taxes, net of valuation allowance ................................................................
Permanent and other prior year true ups and tax effect of non-controlling interest .
Impact of change in federal tax rate .........................................................................
State taxes, net of valuation allowance ....................................................................
Effective benefit rate .......................................................................................................

(132.0)
9.6

(27.2)
(8.2)
4.7
—
13.5
(118.6)%

(12.7)
—

(0.9)
0.6
(0.4)
(8.7)
0.6
13.5%

As of December 31, 2018 and December 31, 2017, the respective significant components (in thousands) of our

deferred tax assets and liabilities were:

Deferred tax assets:

Software development costs/fixed assets ................................................................. $
Goodwill and intangible assets .................................................................................
Provision for loan loss ..............................................................................................
Equity-based compensation ......................................................................................
Accrued expenses .....................................................................................................
Accruals for state taxes and interest associated with unrecognized tax benefits ......
Federal net operating loss carry-forward ..................................................................
Minimum tax credit carry-forward ...........................................................................
Foreign net operating loss carry-forward .................................................................
Other ........................................................................................................................
State tax benefits, primarily from net operating losses ............................................
Deferred tax assets, gross ................................................................................................ $
Valuation allowances ...............................................................................................
Deferred tax assets net of valuation allowance................................................................ $
Deferred tax liabilities:

Prepaid expenses and other ...................................................................................... $
Equity in income of equity-method investee ............................................................
Other ........................................................................................................................
Credit card fair value election differences ................................................................
Market discount on loans .........................................................................................
Deferred costs ..........................................................................................................
Convertible senior notes ...........................................................................................
Cancellation of indebtedness income .......................................................................
Deferred tax liabilities, gross ........................................................................................... $
Deferred tax assets, net .................................................................................................... $

As of December 31,

2018

2017

108 $
895
19,479
748
307
87
44,485
1,015
256
151
42,318
109,849 $
(40,830 )
69,019 $

(210 ) $
(1,092 )
—
(21,021 )
(21,749 )
(469 )
(22,106 )
(1,882 )
(68,529 ) $
490 $

83
1,801
16,320
604
113
78
49,098
2,005
362
—
44,643
115,107
(48,242)
66,865

(194)
(1,054)
(511)
(19,381)
(13,083)
(466)
(20,098)
(9,841)
(64,628)
2,237

We undertook a detailed review of our deferred taxes and determined that a valuation allowance was required for

certain deferred tax assets in the U.S. (federal and state) and the U.K. We reduce our deferred tax assets by a valuation
allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which
temporary differences are deductible. In making our valuation allowance determinations, we consider all available positive
and negative evidence affecting specific deferred tax assets, including our past and anticipated future performance, the
reversal of deferred tax liabilities, the length of carry-back and carry-forward periods, and the implementation of tax
planning strategies. We also considered future global intangible low-tax income inclusions in taxable income (as enacted in
the Tax Cuts and Jobs Act of 2017) as potential positive evidence toward the ultimate realization of federal deferred tax

F-31

assets, but we concluded that this potential positive evidence was insufficient to support a conclusion that a valuation
allowance was not needed against such deferred tax assets. Because our valuation allowance evaluations
require consideration of future events, significant judgment is required in making the evaluations, and our conclusions
could be materially different should certain of our expectations not be met. Our valuation allowance was $40.8 million and
$48.2 million at December 31, 2018, and December 31, 2017, respectively.

Certain of our deferred tax assets relate to federal, foreign and state net operating losses, capital losses, and credits

as noted in the above table, and we have no other net operating losses, capital losses, or credit carry-forwards other than
those noted herein. We have recorded a federal deferred tax asset of $44.5 million (based on gross federal net operating loss
and capital loss carryforwards of $198.9 million, which expire in varying amounts between 2029 and 2033).

Beyond allowing for the refundability of federal minimum tax credits, the Tax Cuts and Jobs Act of 2017 made

other significant changes to the Internal Revenue Code. Because of the significance of these changes, the SEC staff issued
Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which
allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment
date. Accordingly, in 2017, we recorded provisional amounts in our consolidated financial statements. We did not record
any remeasurements of our recorded amounts in our 2018 consolidated financial statements.

We conduct business globally, and as a result, our subsidiaries file federal, state and/or foreign income tax returns.

In the normal course of our business, we are subject to examination by taxing authorities throughout the world, including
such major jurisdictions as the U.S., the U.K., and various U.S. states and territories. With a few exceptions of a non-
material nature and considering that we settled with the IRS our 2008 tax-settlement-related claims discussed previously,
we are no longer subject to federal, state, local, or foreign income tax examinations for years prior to 2014.

Reconciliations (in thousands) of our unrecognized tax benefits from the beginning to the end of 2018 and 2017,

respectively, are as follows:

Balance at January 1, ....................................................................................................... $
Reductions based on tax positions related to prior years ..........................................
Additions based on tax positions related to the current year ....................................
Interest and penalties accrued ..................................................................................
Balance at December 31, ................................................................................................. $

(373 ) $
51
(71 )
(21 )
(414 ) $

(818)
583
(87)
(51)
(373)

2018

2017

Further, our unrecognized tax benefits that, if recognized, would affect the effective tax rate are not material at

only $0.4 million and $0.4 million at December 31, 2018, and 2017, respectively.

13.

Net Income (Loss) Attributable to Controlling Interests Per Common Share

We compute net income (loss) attributable to controlling interests per common share by dividing net income (loss)
attributable to controlling interests by the weighted-average common shares (including participating securities) outstanding
during the period, as discussed below. Diluted computations applicable in financial reporting periods in which we report
income reflect the potential dilution to the basic income per common share computations that could occur if securities or
other contracts to issue common stock were exercised, were converted into common stock or were to result in the issuance
of common stock that would share in our results of operations. In performing our net income (loss) attributable to
controlling interests per common share computations, we apply accounting rules that require us to include all unvested
stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the number
of shares outstanding in our basic and diluted calculations. Common stock and certain unvested share-based payment
awards earn dividends equally, and we have included all outstanding restricted stock awards in our basic and diluted
calculations for current and prior periods.

F-32

The following table sets forth the computations of net income (loss) attributable to controlling interests per

common share (in thousands, except per share data):

Numerator:
Net income (loss) attributable to controlling interests ..................................................... $
Denominator:
Basic (including unvested share-based payment awards) (1) ..........................................
Effect of dilutive stock compensation arrangements (2) .................................................
Diluted (including unvested share-based payment awards) (1) .......................................
Net income (loss) attributable to controlling interests per common share—basic .......... $
Net income (loss) attributable to controlling interests per common share—diluted ....... $

For the Year Ended
December 31,

2018

2017

7,856 $

(40,781)

13,927
75
14,002
0.56 $
0.56 $

13,925
15
13,940
(2.93)
(2.93)

(1)

(2)

Shares related to unvested share-based payment awards included in our basic and diluted share counts
were 272,172 for the year ended December 31, 2018, compared to 281,282 for the year ended December
31, 2017.
The effect of dilutive stock compensation arrangements is shown only for informational purposes where
we are in a net loss position. In such situations, the effect of including outstanding options and restricted
stock would be anti-dilutive, and they are thus excluded from all loss period calculations.

As their effects were anti-dilutive, we excluded 2.9 million and 2.5 million stock options from our net income

(loss) attributable to controlling interests per common share calculations for the years ended December 31, 2018 and 2017,
respectively.

For the years ended December 31, 2018 and 2017, there were no shares potentially issuable and thus includible in
the diluted net income (loss) attributable to controlling interests per common share calculations pursuant to our convertible
senior notes. However, in future reporting periods during which our closing stock price is above the $24.61 conversion
price for the convertible senior notes, and depending on the closing stock price at conversion, the maximum potential
dilution under the conversion provisions of such notes is 3.6 million shares, which could be included in diluted share counts
in net income (loss) per common share calculations. See Note 10, “Convertible Senior Notes,” for a further discussion of
these convertible securities.

14.

Stock-Based Compensation

We currently have two stock-based compensation plans, the Second Amended and Restated Employee Stock

Purchase Plan (the “ESPP”) and the Second Amended and Restated 2014 Equity Incentive Plan (the “2014 Plan”). As of
December 31, 2018, 85,412 shares remained available for issuance under the ESPP and 45,826 shares remained available
for issuance under the 2014 Plan.

Exercises and vestings under our stock-based compensation plans resulted in no income tax-related charges to

paid-in capital during the years ended December 31, 2018 and 2017.

Restricted Stock

During the year ended December 31, 2018 and 2017, we granted 533,177 and 102,000 shares of restricted stock
(net of any forfeitures), respectively, with aggregate grant date fair values of $1.3 million and $0.3 million, respectively.
We incurred expenses of $0.7 million and $0.6 million during the year ended December 31, 2018 and 2017, respectively,
related to restricted stock awards. When we grant restricted stock, we defer the grant date value of the restricted stock and
amortize that value (net of the value of anticipated forfeitures) as compensation expense with an offsetting entry to the paid-
in capital component of our consolidated shareholders’ equity. Our restricted stock awards typically vest over a range of 12
to 60 months (or other term as specified in the grant which may include the achievement of performance measures) and are
amortized to salaries and benefits expense ratably over applicable vesting periods. As of December 31, 2018, our
unamortized deferred compensation costs associated with non-vested restricted stock awards were $0.7 million with a
weighted-average remaining amortization period of 1.3 years.

F-33

Stock Options

Our 2014 Plan provides that we may grant options on or shares of our common stock (and other types of equity
awards) to members of our Board of Directors, employees, consultants and advisors. The exercise price per share of the
options must be equal to or greater than the market price on the date the option is granted. The option period may not
exceed 10 years from the date of grant. The vesting requirements for options are determined by the Compensation
Committee of the Board of Directors. We had expense of $0.6 million and $0.9 million related to stock option-related
compensation costs during the years ended December 31, 2018 and 2017, respectively. When applicable, we recognize
stock option-related compensation expense for any awards with graded vesting on a straight-line basis over the vesting
period for the entire award. The table below includes additional information about outstanding options:

Weighted-
Average
Exercise
Price

Number of
Shares

Weighted-
Average of
Remaining
Contractual
Life

(in years)

Aggregate
Intrinsic
Value

Outstanding at December 31, 2017 .............................................. 2,619,334 $
533,500 $
Issued............................................................................................
(20,300 ) $
Exercised ......................................................................................
Cancelled/Forfeited ......................................................................
(11,334 ) $
Outstanding at December 31, 2018 .............................................. 3,121,200 $
Exercisable at December 31, 2018 ............................................... 1,162,349 $

3.04
5.73
2.45
3.04
3.50
3.11

2.8 $ 1,791,200
728,735
1.5 $

We had $1.2 million and $0.9 million of unamortized deferred compensation costs associated with non-vested

stock options as of December 31, 2018 and December 31, 2017, respectively.

15.

Employee Benefit Plans

We maintain a defined contribution retirement plan (“401(k) plan”) for our U.S. employees that provides for a

matching contribution by us. All full time U.S. employees are eligible to participate in the 401(k) plan. Our U.K. credit card
subsidiary offers eligible employees membership in a Group Personal Pension Plan which is set up with Friends Provident.
This plan is a defined contribution plan in which all permanent employees who have completed 3 months of continuous
service are eligible to join the plan. Company matching contributions are available to U.K. employees who contribute a
minimum of 3% of their salaries under our Group Personal Pension Plan and to U.S. employees who participate in our
401(k) plan. We made matching contributions under our U.S. and U.K. plans of $285,477 and $272,005 in 2018 and 2017,
respectively.

Also, all employees, excluding executive officers, are eligible to participate in the ESPP. Under the ESPP,

employees can elect to have up to 10% of their annual wages withheld to purchase our common stock up to a fair market
value of $10,000. The amounts deducted and accumulated by each participant are used to purchase shares of common stock
on or as promptly as practicable after the last business day of each month. The price of stock purchased under the ESPP is
approximately 85% of the fair market value per share of our common stock on the purchase date. Employees contributed
$51,593 to purchase 23,681 shares of common stock in 2018 and $35,593 to purchase 16,954 shares of common stock in
2017 under the ESPP. The ESPP covers up to 150,000 shares of common stock. Our charge to expense associated with the
ESPP was $28,629 and $22,590 in 2018 and 2017, respectively.

16.

Related Party Transactions

Under a shareholders’ agreement which we entered into with certain shareholders, including David G. Hanna,

Frank J. Hanna, III and certain trusts that were Hanna affiliates, following our initial public offering (1) if one or more of
the shareholders accepts a bona fide offer from a third party to purchase more than 50% of the outstanding common stock,
each of the other shareholders that is a party to the agreement may elect to sell his shares to the purchaser on the same terms
and conditions, and (2) if shareholders that are a party to the agreement owning more than 50% of the common stock
propose to transfer all of their shares to a third party, then such transferring shareholders may require the other shareholders
that are a party to the agreement to sell all of the shares owned by them to the proposed transferee on the same terms and
conditions.

F-34

In June 2007, we entered into a sublease for 1,000 square feet (as later amended to cover 600 square feet) of

excess office space at our Atlanta headquarters with HBR Capital, Ltd. (“HBR”), a company co-owned by David G. Hanna
and his brother Frank J. Hanna, III. The sublease rate per square foot is the same as the rate that we pay under the prime
lease. Under the sublease, HBR paid us $18,089 and $26,629 for 2018 and 2017, respectively. The aggregate amount of
payments required under the sublease from January 1, 2019 to the expiration of the sublease in May 2022 is $58,154.

In January 2013, HBR began leasing four employees from us. HBR reimburses us for the full cost of the
employees, based on the amount of time devoted to HBR. In the years ended December 31, 2018 and 2017, we received
$270,932 and $263,453, respectively, of reimbursed costs from HBR associated with these leased employees.

On November 26, 2014, we and certain of our subsidiaries entered into a Loan and Security Agreement with Dove

Our obligations under the agreement are guaranteed by certain subsidiary guarantors and secured by a pledge of

Dove is a limited liability company owned by three trusts. David G. Hanna is the sole shareholder and the

F-35

SHAREHOLDER INFORMATION

BOARD OF DIRECTORS

David G. Hanna
Chairman of the Board and
Chief Executive Officer,
Atlanticus Holdings Corporation

Jeffrey A. Howard
President,
Atlanticus Holdings Corporation

Deal W. Hudson
President,
The Morley Institute
(a religious and educational
think tank)

Mack F. Mattingly
U.S. Senator, Retired
(entrepreneur, speaker and author)

Thomas G. Rosencrants
Chief Executive Officer,
Greystone Capital Group, LLC
(a strategic growth advisory firm)

Corporate Office

Atlanticus Holdings Corporation
Five Concourse Parkway, Suite 300
Atlanta, Georgia 30328
(770) 828-2000

Internet Address

www.atlanticus.com

Stock Listing

Exchange - Nasdaq
Ticker - ATLC

Notice of Annual Meeting

Thursday, May 9, 2019, 9 a.m. ET
Atlanticus Holdings Corporation
Five Concourse Parkway
Suite 300
Atlanta, Georgia 30328

Investor Contact

Inquiries from securities analysts and
investors should be directed to the
Director of Investor Relations, at the
Company’s headquarters, at
(770) 828-2000.

Common Stock Transfer Agent and
Registrar

American Stock Transfer &
Trust Company, LLC
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
Phone: (800) 937-5449
Local/International: (718) 921-8124
Website: www.astfinancial.com
Email: help@astfinancial.com

Availability of Form 10-K and Other
Investor Information

Shareholders may obtain, at no charge,
a copy of the Company’s Annual
Report on Form 10-K filed with the
Securities and Exchange Commission.
In order to communicate information
to interested individuals in an efficient
manner, Atlanticus’ financial results,
SEC filings and other important
information can be requested through
several channels:

(770) 828-2000

PHONE
WEBSITE www.atlanticus.com
under For Investors
investors@atlanticus.com
Investor Relations at the
Corporate Office

EMAIL
MAIL

Corporate Counsel
Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 3000
Atlanta, Georgia 30308-2216

Independent Auditors
BDO USA, LLP
1100 Peachtree Street, Suite 700
Atlanta, Georgia 30309-4516

Executive Officers

David G. Hanna
Chief Executive Officer

Jeffrey A. Howard
President

William R. McCamey
Chief Financial Officer

Atlanticus Holdings Corporation
Five Concourse Parkway
Suite 300
Atlanta, GA 30328
(770) 828-2000
www.atlanticus.com