Consumer Portfolio Services, Inc. Annual Report 2014

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FY2014 Annual Report · Consumer Portfolio Services, Inc.

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CPS

2014 Annual Report
Consumer Portfolio Services, Inc.

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-K (abridged)

☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014
Commission file number: 001-14116

CONSUMER PORTFOLIO SERVICES, INC.
(Exact name of registrant as specified in its charter)

California
(State or other jurisdiction of incorporation or organization)

33-0459135
(I.R.S. Employer Identification No.)

3800 Howard Hughes Pkwy, Las Vegas, NV
(Address of principal executive offices)

89169
(Zip Code)

Registrant’s telephone number, including area code: (949) 753-6800
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock, no par value

Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC (Global Market)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes  No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.

Yes  No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of "large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large Accelerated Filer 

Smaller Reporting Company 

Non-Accelerated Filer 

Accelerated Filer 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The aggregate market value of the 20,319,932 shares of the registrant’s common stock held by non-affiliates as of the date of filing of
this report, based upon the closing price of the registrant’s common stock of $7.62 per share reported by Nasdaq as of June 30, 2014,
was approximately $154,837,882. For purposes of this computation, a registrant sponsored pension plan and all directors and
executive officers are deemed to be affiliates. Such determination is not an admission that such plan, directors and executive officers
are, in fact, affiliates of the registrant. The number of shares of the registrant's Common Stock outstanding on February 19, 2015 was
25,602,440.

The proxy statement for registrant’s 2015 annual shareholders meeting is incorporated by reference into Part III hereof.

DOCUMENTS INCORPORATED BY REFERENCE

This annual report to shareholders consists of selected portions of the information that we filed with the U.S.
Securities and Exchange Commission on our Form 10-K report, together with a stock performance graph and
director identification information, as set forth below. The entire report on Form 10-K may be accessed at our
website, www.consumerportfolio.com, and at the website of the Commission, www.sec.gov.

TABLE OF CONTENTS

Item 1.

Business .................................................................................................................................................................... 1

Director Identification Information ....................................................................................................................... 16

Executive Officers of the Registrant ..................................................................................................................... 16

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

Equity Securities .................................................................................................................................................... 17

Stock Performance Graph ...................................................................................................................................... 18

Item 6.

Selected Financial Data .......................................................................................................................................... 20

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .............................. 22

Item 7A. Quantitative and Qualitative Disclosures About Market Risk .............................................................................. 44

Item 8.

Financial Statements and Supplementary Data ..................................................................................................... 44

Index to Financial Statements .................................................................................................................................................. F-1

Report of Independent Registered Public Accounting Firm – Crowe Horwath LLP ............................................................. F-2

Consolidated Balance Sheets as of December 31, 2014 and 2013 ......................................................................................... F-3

Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012 ........................................ F-4

Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012 ................... F-5

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2014, 2013 and 2012 ....................... F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012 ...................................... F-7

Notes to Consolidated Financial Statements ........................................................................................................................... F-9

Item 1. Business

Overview

We are a specialty finance company. Our business is to purchase and service retail automobile contracts originated

primarily by franchised automobile dealers and, to a lesser extent, by select independent dealers in the United States in the sale
of new and used automobiles, light trucks and passenger vans. Through our automobile contract purchases, we provide indirect
financing to the customers of dealers who have limited credit histories, low incomes or past credit problems, who we refer to as
sub-prime customers. We serve as an alternative source of financing for dealers, facilitating sales to customers who otherwise
might not be able to obtain financing from traditional sources, such as commercial banks, credit unions and the captive finance
companies affiliated with major automobile manufacturers. In addition to purchasing installment purchase contracts directly
from dealers, we have also acquired installment purchase contracts in four merger and acquisition transactions, and purchased
or originated immaterial amounts of loans secured by vehicles. In this report, we refer to all of such contracts and loans as
"automobile contracts."

We were incorporated and began our operations in March 1991. We consist of Consumer Portfolio Services, Inc. and

subsidiaries (collectively, “we,” “us,” “CPS” or “the Company”). From inception through December 31, 2014, we have
purchased a total of approximately $11.3 billion of automobile contracts from dealers. In addition, we acquired a total of
approximately $822.3 million of automobile contracts in mergers and acquisitions in 2002, 2003, 2004 and, most recently in
September 2011. The September 2011 acquisition consisted of approximately $217.8 million of automobile contracts that we
purchased from Fireside Bank of Pleasanton, California. In 2004 and 2009, we were appointed as a third-party servicer for
certain portfolios of automobile contracts originated and owned by non-affiliated entities. From 2008 through 2010, our
managed portfolio decreased each year due to our strategy of limiting contract purchases to conserve our liquidity during the
financial crisis and resulting recession, as discussed further below. However, since October 2009, we have gradually increased
contract purchases, which, in turn, has resulted in increases in our managed portfolio. Contract purchase volumes and managed
portfolio levels for the five years ended December 31, 2014 are shown in the table below:

Contract Purchases and Outstanding Managed Portfolio

$ in thousands

Contracts
Purchased
in Period

113,023
284,236
551,742
764,087
944,944

Managed
Portfolio
at Period
End

756,203
794,649
897,575
1,231,422
1,643,920

Year
2010
2011
2012
2013
2014

Our principal executive offices are in Las Vegas, Nevada. Most of our operational and administrative functions take
place in Irvine, California. Credit and underwriting functions are performed primarily in our California branch with certain of
these functions also performed in our Florida and Nevada branches. We service our automobile contracts from our California,
Nevada, Virginia, Florida and Illinois branches.

We direct our marketing efforts primarily to dealers, rather than to consumers. We establish relationships with dealers
through our employee marketing representatives, who contact prospective dealers to explain our automobile contract purchase
programs, and thereafter provide dealer training and support services. Our marketing representatives represent us exclusively.
They may be located in our Irvine branch, in our Las Vegas branch, or in the field, in which case they work from their homes
and support dealers in their geographic area. Our marketing representatives present dealers with a marketing package, which
includes our promotional material containing the terms offered by us for the purchase of automobile contracts, a copy of our
standard-form dealer agreement, and required documentation relating to automobile contracts. As of December 31, 2014, we
had 130 marketing representatives and in that month we received applications from 8,637 dealers in 48 states. As of
December 31, 2014, approximately 68% of our active dealers were franchised new car dealers that sell both new and used
vehicles, and the remainder were independent used car dealers. For the year ended December 31, 2014, approximately 84% of
the automobile contracts purchased under our programs consisted of financing for used cars and 16% consisted of financing for
new cars, as compared to 91% financing for used cars and 9% for new cars in the year ended December 31, 2013.

We purchase automobile contracts with the intention of financing them on a long-term basis through securitizations.

Securitizations are transactions in which we sell a specified pool of contracts to a special purpose subsidiary of ours. The
subsidiary in turn issues (or contributes to a trust that issues) asset-backed securities, which are purchased by institutional
investors. Since 1994, we have completed 65 term securitizations of approximately $9.4 billion in contracts. We depend upon
the availability of short-term warehouse credit facilities as interim financing for our contract purchases prior to the time we
pool those contracts for a securitization. From February 2011 through the date of this report, we have maintained two $100
million revolving warehouse credit facilities.

Sub-Prime Auto Finance Industry

Automobile financing is the second largest consumer finance market in the United States. The automobile finance

industry can be considered as a continuum where participants choose to provide financing to consumers in various segments of
the spectrum of creditworthiness depending on each participant’s business strategy. We operate in a segment of the spectrum
that is frequently referred to as sub-prime since we provide financing to less credit-worthy borrowers at higher rates of interest
than more credit-worthy borrowers are likely to obtain.

Traditional automobile finance companies, such as banks, their subsidiaries, credit unions and captive finance

subsidiaries of automobile manufacturers, generally lend to the most creditworthy, or so-called prime, borrowers, although
some traditional lenders are significant participants in the sub-prime segment in which we operate. Historically, independent
companies specializing in sub-prime automobile financing and subsidiaries of larger financial services companies have
competed in the sub-prime segment which we believe remains highly fragmented, with no single company having a dominant
position in the market.

Economic conditions of uncertainty have from time to time negatively affected our industry. Notably, and most
recently, throughout 2008 and 2009 there was reduced demand for asset-backed securities secured by consumer finance
receivables, including sub-prime automobile receivables. Over roughly that same period, lenders who previously provided
short-term warehouse financing for sub-prime automobile finance companies such as ours were reluctant to provide such short-
term financing due to the uncertainty regarding the prospects of obtaining long-term financing through the issuance of asset-
backed securities. In addition, many capital market participants such as investment banks, financial guaranty providers and
institutional investors who previously played a role in the sub-prime auto finance industry withdrew from the industry, or in
some cases, ceased to do business. Finally, broad economic weakness and high levels of unemployment during 2008, 2009 and
thereafter caused many of the obligors under our receivables to be less willing or able to pay, resulting in higher delinquencies,
charge-offs and losses. Each of these factors adversely affected our results of operations in the period 2008 through 2011.
Since October 2009, however, improvements in the capital markets have allowed us to obtain new short-term credit facilities,
and to regularly access long-term funding.

Our Operations

Our automobile financing programs are designed to serve sub-prime customers, who generally have limited credit

histories, low incomes or past credit problems. Because we serve customers who are unable to meet certain credit standards, we
incur greater risks, and generally receive interest rates higher than those charged in the prime credit market. We also sustain a
higher level of credit losses because of the higher risk customers we serve.

Originations

When a retail automobile buyer elects to obtain financing from a dealer, the dealer takes a credit application to submit

to its financing sources. Typically, a dealer will submit the buyer's application to more than one financing source for review.
We believe the dealer’s decision to choose a financing source is based primarily on: (i) the monthly payment made available to
the dealer's customer; (ii) the purchase price offered to the dealer for the automobile contract; (iii) the timeliness, consistency
and predictability of response; (iv) funding turnaround time; (v) any conditions to purchase; and (vi) the financial stability of
the financing source. Dealers can send credit applications to us by entering the necessary data on our website or through one of
several third-party application aggregators. For the year ended December 31, 2014, we received approximately 78% of all
applications through DealerTrack (the industry leading dealership application aggregator), 4% via our website and 18% via
another aggregator. Our automated application decisioning system produced our initial decision within minutes on
approximately 99% of those applications.

Upon receipt of information from a dealer, we immediately order two credit reports to document the buyer's credit

history. If, upon review by our proprietary automated decisioning system, or in some cases, one of our credit analysts, we
determine that the automobile contract meets our underwriting criteria, or would meet such criteria with modification, we

request and review further information from the dealer and, ultimately, decide whether to approve the automobile contract for
purchase.

Dealers with which we do business are under no obligation to submit any automobile contracts to us, nor are we

obligated to purchase any automobile contracts from them. During the year ended December 31, 2014, no dealer accounted for
more than 0.40% of the total number of automobile contracts we purchased. The following table sets forth the geographical
sources of the automobile contracts we purchased (based on the addresses of the customers as stated on our records) during the
years ended December 31, 2014 and 2013.

Contracts Purchased During the Year Ended

December 31, 2014

December 31, 2013

Number

Percent(1)

Number

Percent(1)

Texas ....................................................
California .............................................
Ohio .....................................................
New Jersey ...........................................
Florida ..................................................
Pennsylvania ........................................
Other States..........................................
Total ...........................................

5,926
5,163
3,379
2,996
2,951
2,855
36,006
59,276

10.0%
8.7%
5.7%
5.1%
5.0%
4.8%
60.7%
100.0%

4,910
5,175
2,337
2,479
2,230
2,962
28,902
48,995

10.0%
10.6%
4.8%
5.1%
4.6%
6.0%
59.0%
100.0%

(1)

Percentages may not total to 100.0% due to rounding.

The following table sets forth the geographic concentrations of our outstanding managed portfolio as of December 31,

2014 and 2013.

December 31, 2014

December 31, 2013

Amount

Percent(1)

Amount

Percent(1)

State based on obligor's residence
California ............................................. $
Texas ....................................................
Georgia ................................................
Pennsylvania ........................................
Ohio .....................................................
All others .............................................
Total ........................................... $

178.8
166.8
83.4
82.5
81.8
1,050.6
1,643.9

($ in millions)
10.9% $
10.1%
5.1%
5.0%
5.0%
63.9%
100.0% $

164.2
123.3
65.8
73.3
55.8
749.0
1,231.4

13.3%
10.0%
5.3%
6.0%
4.5%
60.8%
100.0%

(1)

Percentages may not total to 100.0% due to rounding.

We purchase automobile contracts from dealers at a price generally computed as the total amount financed under the
automobile contracts, adjusted for an acquisition fee, which may either increase or decrease the automobile contract purchase
price we pay. The amount of the acquisition fee, and whether it results in an increase or decrease to the automobile contract
purchase price, is based on the perceived credit risk of and, in some cases, the interest rate on the automobile contract. The
following table summarizes the average net acquisition fees we charged dealers and the weighted average annual percentage
rate on our purchased contracts for the periods shown:

2014

2013

2012

2011

2010

Average net acquisition fee amount ...................... $
Average net acquisition fee as % of amount

financed ..............................................................
Weighted average annual percentage interest rate

162 $

418 $

836 $

1,155 $

1,382

1.0%
19.6%

2.7%
20.1%

5.5%
20.3%

7.4%
20.1%

9.2%
20.1%

We believe that levels of acquisition fees are determined partially by competition in the marketplace, which has

increased over the periods presented, and also by our pricing strategy. Our pricing strategy is driven by our objectives for new
contract purchase quantities and yield.

We offer seven different financing programs to our dealership customers, and price each program according to the

relative credit risk. Our programs cover a wide band of the credit spectrum and are labeled as follows:

First Time Buyer – This program accommodates an applicant who has limited significant past credit history,

such as a previous auto loan. Since the applicant has limited credit history, the contract interest rate and dealer
acquisition fees tend to be higher, and the loan amount, loan-to-value ratio, down payment and payment-to-income
ratio requirements tend to be more restrictive compared to our other programs.

Mercury / Delta – This program accommodates an applicant who may have had significant past non-
performing credit including recent derogatory credit. As a result, the contract interest rate and dealer acquisition fees
tend to be higher, and the loan amount, loan-to-value ratio, down payment, and payment-to-income ratio requirements
tend to be more restrictive compared to our other programs.

Standard – This program accommodates an applicant who may have significant past non-performing credit,

but who has also exhibited some performing credit in their history. The contract interest rate and dealer acquisition
fees are comparable to the First Time Buyer and Mercury/Delta programs, but the loan amount and loan-to-value ratio
requirements are somewhat less restrictive.

Alpha – This program accommodates applicants who may have a discharged bankruptcy, but who have also
exhibited performing credit. In addition, the program allows for homeowners who may have had other significant non-
performing credit in the past. The contract interest rate and dealer acquisition fees are lower than the Standard
program, down payment and payment-to-income ratio requirements are somewhat less restrictive.

Alpha Plus – This program accommodates applicants with past non-performing credit, but with a stronger

history of recent performing credit, including auto or mortgage related credit, and higher incomes than the Alpha
program. Contract interest rates and dealer acquisition fees are lower than the Alpha program.

Super Alpha – This program accommodates applicants with past non-performing credit, but with a somewhat

stronger history of recent performing credit, including auto or mortgage related credit, and higher incomes than the
Alpha Plus program. Contract interest rates and dealer acquisition fees are lower, and the maximum loan amount is
somewhat higher, than the Alpha Plus program.

Preferred – This program accommodates applicants with past non-performing credit, but who demonstrate a

somewhat stronger history of recent performing credit than the Super Alpha program. Contract interest rates and
dealer acquisition fees are lower, and the maximum loan amount is somewhat higher than the Super Alpha program.

Our upper credit tier products, which are our Preferred, Super Alpha, Alpha Plus and Alpha programs, accounted for
approximately 74% of our new contract originations in 2014, 74% in 2013 and 72% in 2012, measured by aggregate amount
financed.

The following table identifies the credit program, sorted from highest to lowest credit quality, under which we

purchased automobile contracts during the years ended December 31, 2014, 2013, and 2012.

December 31, 2014

Amount
Financed

Percent(1)

Contracts Purchased During the Year Ended (1)
December 31, 2013
(dollars in thousands)
Amount
Financed

Percent(1)

Amount
Financed

December 31, 2012

Preferred .............................. $
Super Alpha .........................
Alpha Plus ...........................
Alpha ...................................
Standard ...............................
Mercury / Delta ...................
First Time Buyer .................
$

40,534
127,994
137,337
395,858
90,412
89,075
63,734
944,944

4.3% $
13.5%
14.5%
41.9%
9.6%
9.4%
6.7%
100.0% $

25,135
116,551
101,907
320,558
78,320
66,656
54,960
764,087

3.3% $
15.3%
13.3%
42.0%
10.3%
8.7%
7.2%
100.0% $

(1)

Percentages may not total to 100.0% due to rounding.

Percent(1)
3.6%
17.3%
12.9%
38.7%
11.3%
9.4%
6.8%
100.0%

19,715
95,303
71,172
213,371
62,405
52,077
37,699
551,742

We attempt to control misrepresentation regarding the customer's credit worthiness by carefully screening the

automobile contracts we purchase, by establishing and maintaining professional business relationships with dealers, and by
including certain representations and warranties by the dealer in the dealer agreement. Pursuant to the dealer agreement, we
may require the dealer to repurchase any automobile contract in the event that the dealer breaches its representations or
warranties. There can be no assurance, however, that any dealer will have the willingness or the financial resources to satisfy
its repurchase obligations to us.

In addition to our purchases of installment contracts from dealers, we purchased from 2006 through 2008 an
immaterial number of vehicle purchase money loans, evidenced by promissory notes and security agreements. A non-affiliated
lender originated all such loans directly to vehicle purchasers, and sold the loans to us. We began financing vehicle purchases
by lending money directly to consumers in January 2008, on terms similar to those that we offered through dealers, though
without a down payment requirement and with more restrictive loan-to-value and credit score requirements. In October 2008
we suspended purchases of loans from other lenders and direct lending to consumers. There can be no assurance as to whether
or not we will recommence these programs, the extent to which we may make such loans, or as to their future performance. In
2012, we initiated a program to make direct loans secured by automobiles to consumers who own their vehicles. As of
December 31, 2014 our managed portfolio includes $2.7 million of such loans.

Underwriting

To be eligible for purchase, we require that the automobile contract be originated by a dealer that has entered into a
dealer agreement with us. The automobile contract must be secured by a first priority lien on a new or used automobile, light
truck or passenger van and must meet our underwriting criteria. In addition, each automobile contract requires the customer to
maintain physical damage insurance covering the financed vehicle and naming us as a loss payee. We may, nonetheless, suffer
a loss upon theft or physical damage of any financed vehicle if the customer fails to maintain insurance as required by the
automobile contract and is unable to pay for repairs to or replacement of the vehicle.

We believe that our underwriting criteria enable us to evaluate effectively the creditworthiness of sub-prime customers
and the adequacy of the financed vehicle as security for an automobile contract. The underwriting criteria include standards for
price, term, amount of down payment, installment payment and interest rate; mileage, age and type of vehicle; principal
amount of the automobile contract in relation to the value of the vehicle; customer income level, employment and residence
stability, credit history and debt service ability, as well as other factors. Specifically, our underwriting guidelines generally
limit the maximum principal amount of a purchased automobile contract to 115% of wholesale book value in the case of used
vehicles or to 115% of the manufacturer's invoice in the case of new vehicles, plus, in each case, sales tax, licensing and, when
the customer purchases such additional items, a service contract or a policy to supplement the customer’s casualty policy in the
event of a total loss of the related vehicle. We generally do not finance vehicles that are more than 11 model years old or have
in excess of 135,000 miles. Under most of our programs, the maximum term of a purchased contract is 72 months; a shorter
maximum term may be applicable based on the program and mileage. Automobile contracts with the maximum term of up to
72 months may be purchased if the customer is among the more creditworthy of our obligors and the vehicle generally has less
than 50,000 miles. Automobile contract purchase criteria are subject to change from time to time as circumstances may
warrant. Prior to purchasing an automobile contract, our underwriters verify the customer's employment, income, residency,
insurance coverage, and credit information by contacting various parties noted on the customer's application, credit information
bureaus and other sources. In addition, we contact each customer by telephone to confirm that the customer understands and
agrees to the terms of the related automobile contract. During this "welcome call," we also ask the customer a series of open
ended questions about his application and the contract, which may uncover potential misrepresentations.

Credit Scoring. We use proprietary scoring models to assign each automobile contract several "credit scores" at the

time the application is received from the dealer and the customer's credit information is retrieved from the credit reporting
agencies. These proprietary scores are used to help determine whether or not we want to approve the application and, if so, the
program and pricing we will offer to the dealer. The credit scores are based on a variety of parameters including the customer's
credit history, employment and residence stability and income. Once a vehicle is selected by the customer and a proposed deal
structure is provided to us by the dealer, our scores will then consider the loan-to-value ratio, payment-to-income ratio, down
payment amount, the make and mileage of the vehicle. We have developed the credit scores utilizing statistical risk
management techniques and historical performance data from our managed portfolio. We believe this improves our allocation
of credit evaluation resources, enhances our competitiveness in the marketplace and manages the risk inherent in the sub-prime
market.

Characteristics of Contracts. All of the automobile contracts we purchase are fully amortizing and provide for level
payments over the term of the automobile contract. All automobile contracts may be prepaid at any time without penalty. The
average original principal amount financed under the CPS programs in 2014 was $15,941, with an average original term of 63

months and an average down payment amount of 12.4%. Based on information contained in customer applications for this 12-
month period, the retail purchase price of the related automobiles averaged $16,171 (which excludes tax, license fees and any
additional costs such as a service contract) and the average age of the vehicle at the time the automobile contract was purchased
was five years. The average age of our customers is approximately 41, with approximately $55,000 in average annual
household income and an average of six years tenure with his or her current employer.

Dealer Compliance. The dealer agreement and related assignment contain representations and warranties by the

dealer that an application for state registration of each financed vehicle, naming us as secured party with respect to the vehicle,
was effected by the time of sale of the related automobile contract to us, and that all necessary steps have been taken to obtain a
perfected first priority security interest in each financed vehicle in favor of us under the laws of the state in which the financed
vehicle is registered. To the extent that we do not receive such state registration within three months of purchasing the
automobile contract, our dealer compliance group will work with the dealer in an attempt to rectify the situation. If these efforts
are unsuccessful, we generally will require the dealer to repurchase the automobile contract.

Servicing and Collection

We currently service all automobile contracts that we own as well as those automobile contracts that are included in

portfolios that we have sold in securitizations or service for third parties. We organize our servicing activities based on the
tasks performed by our personnel. Our servicing activities consist of mailing monthly billing statements; collecting, accounting
for and posting of all payments received; responding to customer inquiries; taking all necessary action to maintain the security
interest granted in the financed vehicle or other collateral; investigating delinquencies; communicating with the customer to
obtain timely payments; repossessing and liquidating the collateral when necessary; collecting deficiency balances; and
generally monitoring each automobile contract and the related collateral. We are typically entitled to receive a base monthly
servicing fee equal to 2.5% per annum computed as a percentage of the declining outstanding principal balance of the non-
charged-off automobile contracts in the securitization pools. The servicing fee is included in interest income for those
securitization transactions that are treated as financings.

Collection Procedures. We believe that our ability to monitor performance and collect payments owed from sub-

prime customers is primarily a function of our collection approach and support systems. We believe that if payment problems
are identified early and our collection staff works closely with customers to address these problems, it is possible to correct
many problems before they deteriorate further. To this end, we utilize pro-active collection procedures, which include making
early and frequent contact with delinquent customers; educating customers as to the importance of maintaining good credit;
and employing a consultative and customer service approach to assist the customer in meeting his or her obligations, which
includes attempting to identify the underlying causes of delinquency and cure them whenever possible. In support of our
collection activities, we maintain a computerized collection system specifically designed to service automobile contracts with
sub-prime customers and similar consumer obligations.

We attempt to make telephonic contact with delinquent customers from one to 15 days after their monthly payment
due date, depending on our proprietary behavioral scorecards which assess the customer’s likelihood of payment during early
stages of delinquency. Our contact priorities may be based on the customers' physical location, stage of delinquency, size of
balance or other parameters. Our collectors inquire of the customer the reason for the delinquency and when we can expect to
receive the payment. The collector will attempt to get the customer to make an electronic payment over the phone or a promise
for the payment for a time generally not to exceed one week from the date of the call. If the customer makes such a promise,
the account is routed to a promise queue and is not contacted until the outcome of the promise is known. If the payment is
made by the promise date and the account is no longer delinquent, the account is routed out of the collection system. If the
payment is not made, or if the payment is made, but the account remains delinquent, the account is returned to the queue for
subsequent contacts.

If a customer fails to make or keep promises for payments, or if the customer is uncooperative or attempts to evade

contact or hide the vehicle, a supervisor will review the collection activity relating to the account to determine if repossession
of the vehicle is warranted. Generally, such a decision will occur between the 60th and 90th day past the customer's payment
due date, but could occur sooner or later, depending on the specific circumstances. At the time the vehicle is repossessed we
will stop accruing interest on this automobile contract, and reclassify the remaining automobile contract balance to other assets.
In addition we will apply a specific reserve to this automobile contract so that the net balance represents the estimated fair
value less costs to sell.

If we elect to repossess the vehicle, we assign the task to an independent local repossession service. Such services are

licensed and/or bonded as required by law. When the vehicle is recovered, the repossession service delivers it to a wholesale
automobile auction, where it is kept until sold. Financed vehicles that have been repossessed are generally resold through
unaffiliated automobile auctions, which are attended principally by car dealers. Net liquidation proceeds are applied to the

customer's outstanding obligation under the automobile contract. Such proceeds usually are insufficient to pay the customer's
obligation in full, resulting in a deficiency. In most cases we will continue to contact our customers to recover all or a portion
of this deficiency for up to several years after charge-off. From time to time, we sell certain charged off accounts to unaffiliated
purchasers who specialize in collecting such accounts.

Once an automobile contract becomes greater than 90 days delinquent, we do not recognize additional interest income
until the borrower makes sufficient payments to be less than 90 days delinquent. Any payments received by a borrower that are
greater than 90 days delinquent are first applied to accrued interest and then to principal reduction.

We generally charge off the balance of any contract by the earlier of the end of the month in which the automobile

contract becomes five scheduled installments past due or, in the case of repossessions, the month that we receive the proceeds
from the liquidation of the financed vehicle or if the vehicle has been in repossession inventory for more than three months. In
the case of repossession, the amount of the charge-off is the difference between the outstanding principal balance of the
defaulted automobile contract and the net repossession sale proceeds.

Credit Experience

Our financial results are dependent on the performance of the automobile contracts in which we retain an ownership

interest. Broad economic factors such as recession and significant changes in unemployment levels influence the credit
performance of our portfolio, as does the weighted average age of the receivables at any given time. Our internal credit
performance data consistently show that new receivables have lower levels of delinquency and losses early in their lives, with
delinquencies increasing throughout their lives and losses gradually increasing to a peak between 36 and 42 months, after
which they gradually decrease. The weighted average seasoning of our total owned portfolio excluding contracts acquired from
Fireside Bank (“Fireside Portfolio”), represented in the tables below, was 14 months, 14 months and 18 months as of
December 31, 2014, December 31, 2013, and December 31, 2012, respectively. Our primary method of monitoring ongoing
credit quality of our portfolio is to closely review monthly delinquency, default and net charge off activity and the related
trends. The tables below document the delinquency, repossession and net credit loss experience of all such automobile
contracts that we were servicing as of the respective dates shown. The tables do not include the experience of third party
servicing portfolios.

Delinquency, Repossession and Extension Experience
Delinquency and Extension Experience (1)
Total Owned Portfolio Excluding Fireside Portfolio

Delinquency Experience
Gross servicing portfolio (1) ...................
Period of delinquency (2) .......................
31-60 days .............................................
61-90 days .............................................
91+ days ................................................
Total delinquencies (2) ...........................
Amount in repossession (3) ....................
Total delinquencies and amount in

repossession (2) ..................................

Delinquencies as a percentage of gross

December 31, 2014

Number of
Contracts Amount

December 31, 2013

Number of
Contracts Amount
(Dollars in thousands)

December 31, 2012

Number of
Contracts

Amount

123,033 $

1,641,807

94,206 $

1,213,793

74,124 $

825,186

3,571
1,813
1,890
7,274
2,664

42,823
23,334
23,239
89,396
28,249

2,652
2,024
1,162
5,838
2,961

21,887
24,914
11,060
57,861
25,010

2,545
1,179
773
4,497
1,932

18,034
9,360
5,297
32,691
12,506

9,938 $

117,645

8,799 $

82,871

6,429 $

45,197

servicing portfolio .............................

5.9%

5.4%

6.2%

4.8%

6.1%

4.0%

Total delinquencies and amount in

repossession as a percentage of gross
servicing portfolio .............................

Extension Experience
Contracts with one extension, accruing

(4) .......................................................

Contracts with two or more extensions,

accruing (4) ........................................

Contracts with one extension, non-

accrual (4) ..........................................

Contracts with two or more extensions,

non-accrual (4) ...................................

8.1%

7.2%

9.3%

6.8%

8.7%

5.5%

18,165 $

238,267

13,754 $

176,236

9,094 $

73,632

7,537
25,702

93,220
331,487

5,449
19,203

43,869
220,105

7,795
16,889

37,761
111,393

1,268

14,701

1,030

9,348

632

4,401

594
1,862

6,468

21,169

622
1,652

3,267
12,615

1,044
1,676

4,344
8,745

Total accounts with extensions ..............

27,564 $

352,656

20,855 $

232,720

18,565 $

120,138

Delinquency and Extension Experience (1)
Fireside Portfolio

December 31, 2014

Number of
Contracts

Amount

December 31, 2013

Number of
Contracts Amount
(Dollars in thousands)

December 31, 2012

Number of
Contracts

Amount

911 $

1,664

4,893 $

14,786

15,039 $

60,804

113
53
45
211
1

262
74
62
398
1

366
125
108
599
30

878
253
234
1,365
120

621
204
114
939
175

2,206
710
332
3,248
703

212 $

399

629 $

1,485

1,114 $

3,951

Delinquency Experience
Gross servicing portfolio (1) ....................
Period of delinquency (2) .........................
31-60 days .............................................
61-90 days .............................................
91+ days ................................................
Total delinquencies (2) .............................
Amount in repossession (3) ......................
Total delinquencies and amount in

repossession (2) ...................................

Delinquencies as a percentage of gross

servicing portfolio ..............................

23.2%

23.9%

12.2%

9.2%

6.2%

23.3%

24.0%

12.9%

10.0%

7.4%

5.3

6.5

Total delinquencies and amount in

repossession as a percentage of gross
servicing portfolio ..............................

Extension Experience
Contracts with one extension, accruing

(4) ........................................................

Contracts with two or more extensions,

accruing (4) ..........................................

Contracts with one extension, non-

accrual (4) ............................................

Contracts with two or more extensions,

non-accrual (4) .....................................

212 $

376

1,203 $

3,945

3,117 $

15,262

303
515

815
1,191

685
1,888

2,924
6,869

134
3,251

717
15,979

18
35

30
52

35
95

155

160

118
273

6
166

726

20
746

Total accounts with extensions ..............

550 $

1,243

1,983 $

7,142

3,417 $

16,725

Delinquency and Extension Experience (1)
Total Owned Portfolio

December 31, 2014

Number of
Contracts Amount

December 31, 2013

Number of
Contracts Amount
(Dollars in thousands)

December 31, 2012

Number of
Contracts

Amount

123,944 $

1,643,471

99,099 $

1,228,579

89,163 $

885,990

3,684
1,866
1,935
7,485
2,665

43,085
23,407
23,301
89,793
28,250

3,018
2,149
1,270
6,437
2,991

22,765
25,167
11,294
59,226
25,130

3,166
1,383
887
5,436
2,107

20,240
10,070
5,628
35,938
13,209

10,150 $

118,043

9,428 $

84,356

7,543 $

49,147

Delinquency Experience
Gross servicing portfolio (1) ...................
Period of delinquency (2) ........................
31-60 days .............................................
61-90 days .............................................
91+ days ................................................
Total delinquencies (2) ............................
Amount in repossession (3) .....................
Total delinquencies and amount in

repossession (2) ..................................

Delinquencies as a percentage of gross

servicing portfolio .............................

6.0%

5.5%

6.5%

4.8%

6.1%

4.1%

Total delinquencies and amount in

repossession as a percentage of gross
servicing portfolio .............................

Extension Experience
Contracts with one extension, accruing

(4) .......................................................

Contracts with two or more extensions,

accruing (4) .........................................

Contracts with one extension, non-

accrual (4) ...........................................

Contracts with two or more extensions,

non-accrual (4) ....................................

8.2%

7.2%

9.5%

6.9%

8.5%

5.5%

18,377 $

238,643

14,957 $

180,181

12,211 $

88,894

7,840
26,217

94,035
332,678

6,134
21,091

46,793
226,974

7,929
20,140

38,478
127,372

1,285

14,723

1,090

9,503

792

5,127

612
1,897

6,499

21,222

657
1,747

3,385
12,888

1,050
1,842

4,364
9,491

Total accounts with extensions ..............

28,114 $

353,900

22,838 $

239,862

21,982 $

136,863

(1)

All amounts and percentages are based on the amount remaining to be repaid on each automobile contract, including,
for pre-computed automobile contracts, any unearned interest. The information in the table represents the gross
principal amount of all automobile contracts we purchased, including automobile contracts we subsequently sold in
securitization transactions that we continue to service. The table does not include certain contracts we have serviced for
third-parties on which we earn servicing fees only, and have no credit risk.

(2) We consider an automobile contract delinquent when an obligor fails to make at least 90% of a contractually due

(3)

(4)

Net Credit Loss Experience (1)
Total Owned Portfolio Excluding Fireside

2014

Year Ended December 31,
2013
(Dollars in thousands)

2012

Average servicing portfolio outstanding ............................................... $
Net charge-offs as a percentage of average servicing portfolio (2) .......

1,415,667 $
5.9%

1,044,686 $
4.7 %

699,030
3.5%

Net Credit Loss Experience (1)
Fireside Portfolio (3)

2014

Year Ended December 31,
2013
(Dollars in thousands)

2012

Average servicing portfolio outstanding ............................................... $
Net charge-offs as a percentage of average servicing portfolio (2) .......

5,919 $
0.6%

31,293 $
5.5 %

103,548
4.5%

Net Credit Loss Experience (1)
Total Owned Portfolio (3)

2014

Year Ended December 31,
2013
(Dollars in thousands)

2012

Average servicing portfolio outstanding ................................................. $
Net charge-offs as a percentage of average servicing portfolio (2) .......

1,421,587 $
5.8%

1,075,979 $
4.7 %

802,579
3.6%

(1)

(2)

(3)

All amounts and percentages are based on the principal amount scheduled to be paid on each automobile contract, net
of unearned income on pre-computed automobile contracts. The information in the table represents all automobile
contracts we service, excluding certain contracts we have serviced for third-parties on which we earn servicing fees
only, and have no credit risk.
Net charge-offs include the remaining principal balance, after the application of the net proceeds from the liquidation of
the vehicle (excluding accrued and unpaid interest) and amounts collected subsequent to the date of charge-off,
including some recoveries which have been classified as other income in the accompanying financial statements.
Amounts and percentages associated with the Fireside Portfolio reflect only the period after the acquisition of the
portfolio in September 2011.

Extensions

In certain circumstances we will grant obligors one-month payment extensions to assist them with temporary cash

flow problems. In general, an obligor would not be entitled to more than two such extensions in any 12-month period and no
more than six over the life of the contract. The only modification of terms is to advance the obligor’s next due date by one
month and extend the maturity date of the receivable by one month. In some cases, a two-month extension may be granted.
There are no other concessions such as a reduction in interest rate, forgiveness of principal or of accrued interest. Accordingly,
we consider such extensions to be insignificant delays in payments rather than troubled debt restructurings.

The basic question in deciding to grant an extension is whether or not we will (a) be delaying an inevitable
repossession and liquidation or (b) risk losing the vehicle as a result of not being able to locate the obligor and vehicle. In both
of those situations, the loss would likely be higher than if the vehicle had been repossessed without the extension. The benefits
of granting an extension include minimizing current losses and delinquencies, minimizing lifetime losses, getting the obligor’s
account current (or close to it) and building goodwill with the obligor so that he might prioritize us over other creditors on
future payments. Our servicing staff are trained to identify when a past due obligor is facing a temporary problem that may be
resolved with an extension. In most cases, the extension will be granted in conjunction with our receiving a past due payment
(and where allowed by law, a nominal fee) from the obligor, thereby indicating an additional monetary and psychological
commitment to the contract on the obligor’s part. Fees collected in conjunction with an extension are credited to obligors’
outstanding accrued interest.

The credit assessment for granting an extension is initially made by our collector, who bases the recommendation on
the collector’s discussions with the obligor. In such assessments the collector will consider, among other things, the following
factors: (1) the reason the obligor has fallen behind in payments; (2) whether or not the reason for the delinquency is
temporary, and if it is, have conditions changed such that the obligor can begin making regular monthly payments again after
the extension; (3) the obligor's past payment history, including past extensions if applicable; and (4) the obligor’s willingness
to communicate and cooperate on resolving the delinquency. If the collector believes the obligor is a good candidate for an
extension, he must obtain approval from his supervisor, who will review the same factors stated above prior to offering the
extension to the obligor. After receiving an extension, an account remains subject to our normal policies and procedures for
interest accrual, reporting delinquency and recognizing charge-offs.

We believe that a prudent extension program is an integral component to mitigating losses in our portfolio of sub-
prime automobile receivables. The table below summarizes the status, as of December 31, 2014, for accounts that received
extensions from 2008 through 2013:

Period of
Extension

# Extensions
Granted

Active or
Paid Off at
December
31, 2014

% Active or
Paid Off at
December
31, 2014

Charged Off
> 6 Months
After
Extension

% Charged
Off > 6
Months
After
Extension

Charged Off
≤ 6 Months
After

Extension

%
Charged
Off ≤ 6
Months
After
Extension

Avg
Months
to Charge
Off Post
Extension

2008

2009

2010

2011

2012

2013

35,588

10,871

30.5%

19,898

55.9%

4,819 13.5%

32,004

10,271

32.1%

15,950

49.8%

5,783 18.1%

26,167

12,489

47.7%

11,679

44.6%

1,999

7.6%

18,786

11,382

60.6%

6,472

34.5%

932

5.0%

18,783

12,439

66.2%

5,548

29.5%

796

4.2%

23,398

17,759

75.9%

4,663

19.9%

976

4.2%

Table excludes extensions on portfolios serviced for third parties

We view these results as a confirmation of the effectiveness of our extension program. For the accounts receiving
extensions in 2008, 2009, 2010, 2011, 2012 and 2013, 30.5%, 32.1%, 47.7%, 60.6%, 66.2% and 75.9%, respectively, were
either paid in full or are active and performing at December 31, 2014. With each of these successful extensions we received
continued payments of interest and principal (including payment in full in many cases). Without the extension, however, we
would have likely incurred a substantial loss and no additional interest revenue.

For extension accounts that ultimately charged off, we consider accounts that charged off more than six months after

the extension to be at least partially successful. For the 2008, 2009, 2010, 2011, 2012 and 2013 extensions that charged off, the
charge off was incurred, on average, 19, 16, 18, 17, 14 and 11 months, respectively, after the extension, This indicates that
even in the cases of an ultimate loss, we received additional payments of principal and interest that otherwise we would not
have received.

Additional information about our extensions is provided in the tables below:

Year Ended
December 31,

2014

2013

Year Ended
December 31,
2012

Average number of extensions granted per month .................................

2,148

1,950

1,565

Average number of outstanding accounts ..............................................

110,356

93,247

93,022

Average monthly extensions as % of average outstandings ...................

1.9%

2.1%

1.7%

Table excludes extensions on portfolios serviced for third parties

December 31, 2014

December 31, 2013

December 31, 2012

Number of
Contracts Amount

Number of
Contracts Amount
(Dollars in thousands)

Number of
Contracts Amount

Contracts with one extension ...........
Contracts with two extensions .........
Contracts with three extensions .......
Contracts with four extensions ........
Contracts with five extensions .........
Contracts with six extensions ..........

19,662 $
6,378
1,603
365
74
32
28,114 $

253,366
79,774
17,452
2,710
442
157
353,900

16,047 $
4,397
1,486
634
224
50
22,838 $

189,684
38,499
7,790
2,519
1,059
309
239,860

13,003 $
4,801
2,822
1,134
196
26
21,982 $

94,021
23,214
13,096
5,371
1,038
124
136,864

Gross servicing portfolio .................

123,944 $ 1,643,471

99,099 $ 1,228,579

89,163 $

885,990

Table excludes extensions on portfolios serviced for third parties

Non-Accrual Receivables

It is not uncommon for our obligors to fall behind in their payments. However, with the diligent efforts of our
servicing staff and systems for managing our collection efforts, we regularly work with our customers to resolve delinquencies.
Our staff is trained to employ a counseling approach to assist our customers with their cash flow management skills and help
them to prioritize their payment obligations in order to avoid losing their vehicle to repossession. Through our experience, we
have learned that once a contract becomes greater than 90 days past due, it is more likely than not that the delinquency will not
be resolved and will ultimately result in a charge-off. As a result, we do not recognize any interest income or retain on our
balance sheet any accrued interest for contracts that are greater than 90 days past due.

If an obligor exceeds the 90 days past due threshold at the end of one period, and then makes the necessary payments

such that it becomes equal to or below 90 days delinquent at the end of a subsequent period, the related contract would be
restored to full accrual status for our financial reporting purposes. At the time a contract is restored to full accrual in this
manner, there can be no assurance that full repayment of interest and principal will ultimately be made. However, we monitor
each obligor’s payment performance and are aware of the severity of his delinquency at any time. The fact that the delinquency
has been reduced below the 90-day threshold is a positive indicator. Should the contract again exceed the 90-day delinquency
level at the end of any reporting period, it would again be reflected as a non-accrual account.

Our policy for placing a contract on non-accrual status is independent of our policy to grant an extension. In practice,

it would be an uncommon circumstance where an extension was granted and the account remained in a non-accrual status,
since the goal of the extension is to bring the contract current (or nearly current).

Securitization of Automobile Contracts

Throughout the period for which information is presented in this report, we have purchased automobile contracts with
the intention of financing them on a long-term basis through securitizations, and on an interim basis through warehouse credit
facilities. All such financings have involved identification of specific automobile contracts, sale of those automobile contracts
(and associated rights) to one of our special-purpose subsidiaries, and issuance of asset-backed securities to be purchased by
institutional investors. Depending on the structure, these transactions may be accounted for under generally accepted
accounting principles as sales of the automobile contracts or as secured financings.

When structured to be treated as a secured financing for accounting purposes, the subsidiary is consolidated with us.
Accordingly, the sold automobile contracts and the related debt appear as assets and liabilities, respectively, on our unaudited
condensed consolidated balance sheet. We then periodically (i) recognize interest and fee income on the contracts, (ii)
recognize interest expense on the securities issued in the transaction and (iii) record as expense a provision for credit losses on
the contracts.

Since 1994 we have conducted 65 term securitizations (generally quarterly) of automobile contracts that we purchased

the related contracts. From 1994 through April 2008 we generally utilized financial guarantees for the senior asset-backed
notes issued in the securitization. Since September 2010 we have utilized senior subordinated structures without any financial
guarantees.

Our history of term securitizations, over the most recent ten years, is summarized in the table below:

Recent Asset-Backed Term Securitizations

$ in thousands

Period
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

Number of
Term
Securitizations

4 $
4
3
2
0
1
3
4
4
4

Amount of
Receivables
698,353
957,681
1,118,097
509,022
–
103,772
335,593
603,500
778,000
923,000

Our 2012 securitizations included $58.2 million in contracts that were repurchased in 2012 from securitizations closed

in 2006 and 2007. Our 2013 securitizations included $7.4 million in contracts that were repurchased from a securitization
closed in 2008. Our 2010 securitization was, in substance, a re-securitization of the receivables from our second securitization
of 2008 which allowed us to take advantage of a lower interest rate environment at that time.

From time to time we have also completed financings of our residual interests in other securitizations that we and our

affiliates previously sponsored. As of December 31, 2014 we have one such residual interest financing outstanding.

Since December 2011, our securitizations have included a pre-funding feature in which a portion of the receivables to

be sold to the securitization trust were not delivered until after the initial closing. As a result, our restricted cash balance at
December 31, 2014 included $85.3 million from the proceeds of the sale of the asset-backed notes that were held by a trustee
pending delivery of the remaining receivables. In January 2015, the requisite additional receivables were delivered to the
securitization trust and we received the related restricted cash, most of which was used to repay amounts owed under our
warehouse credit facilities.

Generally, prior to a securitization transaction we fund our automobile contract purchases primarily with proceeds

from warehouse credit facilities. Our current short-term funding capacity is $200 million, comprising two credit facilities. The
first $100 million credit facility was established in December 2010. This facility was renewed in March 2013, extending the
revolving period to March 2015, and adding an amortization period through March 2017. Our second $100 million credit
facility was established in May 2012. This facility was renewed in August 2014, extending the revolving period to August
2016, and adding an amortization period through August 2017.

In a securitization and in our warehouse credit facilities, we are required to make certain representations and
warranties, which are generally similar to the representations and warranties made by dealers in connection with our purchase
of the automobile contracts. If we breach any of our representations or warranties, we will be obligated to repurchase the
automobile contract at a price equal to the principal balance plus accrued and unpaid interest. We may then be entitled under
the terms of our dealer agreement to require the selling dealer to repurchase the contract at a price equal to our purchase price,
less any principal payments made by the customer. Subject to any recourse against dealers, we will bear the risk of loss on
repossession and resale of vehicles under automobile contracts that we repurchase.

Whether a securitization is treated as a secured financing or as a sale for financial accounting purposes, the related
special purpose subsidiary may be unable to release excess cash to us if the credit performance of the securitized automobile
contracts falls short of pre-determined standards. Such releases represent a material portion of the cash that we use to fund our
operations. An unexpected deterioration in the performance of securitized automobile contracts could therefore have a material
adverse effect on both our liquidity and results of operations, regardless of whether such automobile contracts are treated as
having been sold or as having been financed.

Certain of our securitization transactions and our warehouse credit facilities contain various financial covenants

requiring certain minimum financial ratios and results. Such covenants include maintaining minimum levels of liquidity and
net worth and not exceeding maximum leverage levels. In addition, certain securitization and non-securitization related debt
contain cross-default provisions that would allow certain creditors to declare a default if a default occurred under a different
facility. As of December 31, 2014 we were in compliance with all such covenants.

Competition

The automobile financing business is highly competitive. We compete with a number of national, regional and local

finance companies with operations similar to ours. In addition, competitors or potential competitors include other types of
financial services companies, such as banks, leasing companies, credit unions providing retail loan financing and lease
financing for new and used vehicles, and captive finance companies affiliated with major automobile manufacturers. Many of
our competitors and potential competitors possess substantially greater financial, marketing, technical, personnel and other
resources than we do. Moreover, our future profitability will be directly related to the availability and cost of our capital in
relation to the availability and cost of capital to our competitors. Our competitors and potential competitors include far larger,
more established companies that have access to capital markets for unsecured commercial paper and investment grade-rated
debt instruments and to other funding sources that may be unavailable to us. Many of these companies also have long-standing
relationships with dealers and may provide other financing to dealers, including floor plan financing for the dealers' purchase
of automobiles from manufacturers, which we do not offer.

We believe that the principal competitive factors affecting a dealer's decision to offer automobile contracts for sale to

a particular financing source are the monthly payment amount made available to the dealer’s customer, the purchase price
offered for the automobile contracts, the timeliness of the response to the dealer upon submission of the initial application, the
amount of required documentation, the consistency and timeliness of purchases and the financial stability of the funding
source. While we believe that we can obtain from dealers sufficient automobile contracts for purchase at attractive prices by
consistently applying reasonable underwriting criteria and making timely purchases of qualifying automobile contracts, there
can be no assurance that we will do so.

Regulation

Several federal and state consumer protection laws, including the federal Truth-In-Lending Act, the federal
Equal Credit Opportunity Act, the federal Fair Debt Collection Practices Act and the Federal Trade Commission Act, regulate
consumer credit transactions. These laws mandate certain disclosures with respect to finance charges on automobile contracts
and impose certain other restrictions. In most states, a license is required to engage in the business of purchasing automobile
contracts from dealers. In addition, laws in a number of states impose limitations on the amount of finance charges that may be
charged by dealers on credit sales. The so-called Lemon Laws enacted by various states provide certain rights to purchasers
with respect to automobiles that fail to satisfy express warranties. The application of Lemon Laws or violation of such other
federal and state laws may give rise to a claim or defense of a customer against a dealer and its assignees, including us and
those who purchase automobile contracts from us. The dealer agreement contains representations by the dealer that, as of the
date of assignment of automobile contracts, no such claims or defenses have been asserted or threatened with respect to the
automobile contracts and that all requirements of such federal and state laws have been complied with in all material respects.
Although a dealer would be obligated to repurchase automobile contracts that involve a breach of such warranty, there can be
no assurance that the dealer will have the financial resources to satisfy its repurchase obligations. Certain of these laws also
regulate our servicing activities, including our methods of collection.

In July 2010 the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) became law.

The Dodd-Frank Act restructured the regulation and supervision of the financial services industry and created the Consumer
Financial Protection Bureau (the “CFPB”). The CFPB has rulemaking and enforcement authority over “non-banks,” including
us. Many of the provisions of the Dodd-Frank Act have extended implementation periods and delayed effective dates and will
require extensive rulemaking. As a result, the ultimate effect of the Dodd-Frank Act on our business cannot be determined at
this time. We believe that we are currently in material compliance with applicable statutes and regulations; however, there can
be no assurance that we are correct, nor that we will be able to maintain such compliance. The past or future failure to comply
with applicable statutes and regulations could have a material adverse effect on us. Furthermore, the adoption of additional
statutes and regulations, changes in the interpretation and enforcement of current statutes and regulations or the expansion of
our business into jurisdictions that have adopted more stringent regulatory requirements than those in which we currently
conduct business could have a material adverse effect on us. In addition, due to the consumer-oriented nature of our industry
and the application of certain laws and regulations, industry participants are regularly named as defendants in litigation
involving alleged violations of federal and state laws and regulations and consumer law torts, including fraud. Many of these
actions involve alleged violations of consumer protection laws. A significant judgment against us or within the industry in

connection with any such litigation could have a material adverse effect on our financial condition, results of operations or
liquidity.

Employees

As of December 31, 2014, we had 869 employees. The breakdown of the employees is as follows: 11 were senior

management personnel; 445 were servicing personnel; 210 were automobile contract origination personnel; 155 were
marketing personnel (130 of whom were marketing representatives); 26 were operations and systems personnel; and 22 were
administrative personnel. We believe that our relations with our employees are good. We are not a party to any collective
bargaining agreement.

DIRECTORS AND EXECUTIVE OFFICERS

Director Identification Information

Our directors and their principal occupations are as follows: Charles E. Bradley, Jr., chief executive officer of

Consumer Portfolio Services, Inc.; Chris A. Adams, owner and chief executive officer of Latrobe Pattern Company and K
Castings Inc., which are firms engaged in the business of fabricating metal parts; Brian J. Rayhill, a practicing attorney in New
York state; William B. Roberts, president of Monmouth Capital Corp., an investment firm that specializes in management
buyouts; Gregory S. Washer, owner and president of Clean Fun Promotional Marketing LLC, a promotional marketing
company; and Daniel S. Wood, retired president of Carclo Technical Plastics, a manufacturer of custom injection moldings.

Executive Officers of the Registrant

Charles E. Bradley, Jr., 55, has been our President and a director since our formation in March 1991, and was elected
Chairman of the Board of Directors in July 2001. In January 1992, Mr. Bradley was appointed Chief Executive Officer. From
April 1989 to November 1990, he served as Chief Operating Officer of Barnard and Company, a private investment firm. From
September 1987 to March 1989, Mr. Bradley, Jr. was an associate of The Harding Group, a private investment banking firm.
Mr. Bradley does not currently serve on the board of directors of any other publicly-traded companies.

Jeffrey P. Fritz, 55, has been Executive Vice President and Chief Financial Officer since March 2014. Prior to that, he

was Senior Vice President and Chief Financial Officer since April 2006. He was Senior Vice President of Accounting from
August 2004 through March 2006 and served as a consultant to us from May 2004 to August 2004. He also served as our Chief
Financial Officer from our inception through May 1999. He is a licensed Certified Public Accountant and has previously
practiced public accounting.

Robert E. Riedl, 51, has been Executive Vice President and Chief Operating Officer since March 2014. Mr. Riedl

joined CPS in 2003 and has held a number of different senior positions within the company since then, including Chief
Investment Officer, Chief Financial Officer and Senior Vice President, Risk Management. Prior to CPS, Mr. Riedl was a
Principal at Northwest Capital Appreciation ("NCA"), a middle market private equity firm, from 1999 to 2002. Mr. Riedl was
an investment banker for ContiFinancial Services, Jefferies & Company and PaineWebber from 1986 until 1999.

Michael T. Lavin, 42, has been Executive Vice President - Chief Legal Officer since March 2014. Prior to that, he

was our Senior Vice President – General Counsel since March 2013, Senior Vice President and Corporate Counsel since May
2009 and our Vice President- Legal since joining the Company in November of 2001. Mr. Lavin was previously engaged as a
law clerk and an associate with the San Diego based large law firm (now defunct) of Edwards, Sooy & Byron from 1996
through 2000 and then as an associate with the Orange County based firm of Trachtman & Trachtman from 2000 through
2001. Mr. Lavin also clerked for the San Diego District Attorney’s office and Orange County Public Defender’s office.

Mark A. Creatura, 55, has been Senior Vice President – General Counsel since October 1996. From October 1993

through October 1996, he was Vice President and General Counsel at Urethane Technologies, Inc., a polyurethane chemicals
formulator. Mr. Creatura was previously engaged in the private practice of law with the Los Angeles law firm of Troy & Gould
Professional Corporation, from October 1985 through October 1993.

Christopher Terry, 47, has been Senior Vice President – Asset Recovery since August 2013. Prior to that was our

Senior Vice President of Servicing since May 2005, and prior to that was Senior Vice President - Asset Recovery since January
2003. He joined us in January 1995 as a loan officer, held a series of successively more responsible positions, and was
promoted to Vice President - Asset Recovery in June 1999. Mr. Terry was previously a branch manager with Norwest
Financial from 1990 to October 1994.

Teri L. Robinson, 52, has been Senior Vice President of Originations since April 2007. Prior to that, she held the

position of Vice President of Originations since August 1998. She joined the Company in June 1991 as an Operations
Specialist, and held a series of successively more responsible positions. Previously, Ms. Robinson held an administrative
position at Greco & Associates.

Curtis K. Powell, 57, has been Senior Vice President – Project Development since May 2010. Previously he was our

Senior Vice President – Marketing from March 2007 to May 2010. Prior to that, he was our Senior Vice President of
Originations from June 2001 to March 2007. Prior to that, he was our Senior Vice President – Marketing, from April 1995 to
June 2001. He joined us in January 1993 as an independent marketing representative until being appointed Regional Vice
President of Marketing for Southern California in November 1994. From June 1985 through January 1993, Mr. Powell was in
the retail automobile sales and leasing business.

Laurie A. Straten, 46, has been Senior Vice President of Servicing since August 2013. Prior to that, she was our

Senior Vice President of Asset Recovery since April 2013, and before that she held the position of Vice President of Asset
Recovery starting in April 2005. She started with the Company in March 1996 as a bankruptcy specialist and took on more
responsibility within Asset Recovery over time. Prior to joining CPS she worked for the FDIC and served in the United States
Marine Corps.

Richard B. Haskell, 48, has been Senior Vice President of Systems and Risk Management since April 2013. Prior to
that, he held the positions of Vice President of Systems and Risk Management since January 2007, and Vice President of Risk
Management since January 2005. He joined the Company in March 1994 as a data entry clerk in the Originations Department
and held a series of successively more responsible positions. Previously, Mr. Haskell held a position as loan officer at Trust
One Mortgage.

John P. Harton, 50, has been Senior Vice President - Marketing since March 2014. Prior to that, he held the position

of Vice President – Marketing since April 2010. He joined the Company in April 1996 as a loan officer, held a series of
successively more responsible positions, and was promoted to Vice President - Originations in June 2007. Mr. Harton was
previously a branch manager with American General Finance from 1990 to March 1996.

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

Securities

The Company’s Common Stock is traded on the Nasdaq Global Market, under the symbol "CPSS." The following

table sets forth the high and low sale prices as reported by Nasdaq for our Common Stock for the periods shown.

January 1 - March 31, 2013 ..................................................................
April 1 - June 30, 2013 ..........................................................................
July 1 - September 30, 2013 .................................................................
October 1 - December 31, 2013 ............................................................
January 1 - March 31, 2014 ..................................................................
April 1 - June 30, 2014 ..........................................................................
July 1 - September 30, 2014 .................................................................
October 1 - December 31, 2014 ............................................................

High
11.94
12.79
7.62
9.45
9.64
7.99
8.22
8.00

Low
5.37
6.82
5.61
5.86
6.63
6.33
6.41
6.36

As of January 1, 2015, there were 43 holders of record of the Company’s Common Stock. To date, we have not
declared or paid any dividends on our Common Stock. The payment of future dividends, if any, on our Common Stock is
within the discretion of the Board of Directors and will depend upon our income, capital requirements and financial condition,
and other relevant factors. The instruments governing our outstanding debt place certain restrictions on the payment of
dividends. We do not intend to declare any dividends on our Common Stock in the foreseeable future, but instead intend to
retain any cash flow for use in our operations.

The table below presents information regarding outstanding options to purchase our Common Stock as of

December 31, 2014:

Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights

Weighted
average exercise
price of
outstanding
options,
warrants and
rights

Number of
securities
remaining
available for
future issuance
under equity
compensation
plans

Plan category

Equity compensation plans approved by security holders ......... $
Equity compensation plans not approved by security holders ...

10,828,245 $

–

4.05
–

2,108,381
–

Total ............................................................................................ $

10,828,245 $

4.05

2,108,381

Issuer Purchases of Equity Securities in the Fourth Quarter

Total
Number of
Shares
Purchased

Average
Price Paid
per Share

Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs(2)

Approximate
Dollar Value
of Shares
that May Yet
be Purchased
Under the
Plans or
Programs

– $
–
–

– $

–
–
–

–

986,193
986,193
986,193

– $
–
–

–

Period(1)

October 2014 ...........................................
November 2014 .......................................
December 2014 .......................................

Total ........................................................

(1) Each monthly period is the calendar month.
(2) Through December 31, 2014, our board of directors had authorized the purchase of up to $34.5 million of our outstanding

securities, which program was first announced in our annual report for the year 2002, filed on March 26, 2003. All
purchases described in the table above were under the plan announced in March 2003, which has no fixed expiration date.
As of December 31, 2014, we have purchased $5.0 million in principal amount of debt securities and $28.4 million of our
common stock representing 9,800,720 shares.

Stock Performance Graph

The line graph that follows compares the cumulative total stockholder return on our common stock with the cumulative total
return of the Nasdaq US Benchmark Total Return Index, and the Nasdaq OMX Financial Services Index for the five years
ended December 31, 2014. The graph assumes that $100 was invested on December 31, 2009 in each of our common stock,
Nasdaq US Benchmark Total Return Index, and the Nasdaq OMX Financial Services Index, and that all dividends were
reinvested. Past performance should not be regarded as indicative of the future.

Item 6. Selected Financial Data

The following table presents our selected consolidated financial data and operating data as of and for the dates

indicated. The data under the captions "Statement of Operations Data" and "Balance Sheet Data" have been derived from our
audited consolidated financial statements. The remainder is derived from other records of ours. You should read the selected
consolidated financial data together with "Management’s Discussion and Analysis of Financial Condition and Results of
Operations" and our audited and unaudited consolidated financial statements and notes thereto that are included in this report,
and in our quarterly and periodic filings.

(in thousands, except per share data)

2014

As of and
For the Year Ended December 31,
2012

2013

2011

Statement of Operations Data
Revenues:
Interest income
Servicing fees
Other income
Gain on cancellation of debt
Total revenues
Expenses:
Employee costs
General and administrative
Interest expense
Provision for credit losses
Provision for contingent liabilities
Total expenses
Income (loss) before income tax expense

(benefit)

Income tax expense (benefit)
Net income (loss)

Earnings (loss) per share-basic
Earnings (loss) per share-diluted
Pre-tax income (loss) per share-basic(1)
Pre-tax income (loss) per share-diluted(2)
Weighted average shares outstanding-basic
Weighted average shares outstanding-diluted

Balance Sheet Data
Total assets
Cash and cash equivalents
Restricted cash and equivalents
Finance receivables, net
Finance receivables measured at fair value
Residual interest in securitizations
Warehouse lines of credit
Residual interest financing
Debt secured by receivables measured at fair
value
Securitization trust debt
Long-term debt
Shareholders' equity

286,734 $
1,376
12,146
–
300,256

231,330 $
3,093
10,405
10,947
255,775

175,314 $
2,305
9,589
–
187,208

127,856 $
4,348
10,927
–
143,131

50,129
39,262
50,395
108,228
–
248,014

42,960
32,753
58,179
76,869
7,841
218,602

35,573
29,531
79,422
33,495
–
178,021

32,270
26,759
83,054
15,508
–
157,591

$
$
$
$

52,242
22,726
29,516 $

1.18 $
0.92 $
2.09 $
1.63 $

25,040
32,032

37,173
16,168
21,005 $

9,187
(60,221)
69,408 $

(14,460)
–

(14,460) $

0.98 $
0.67 $
1.73 $
1.18 $

21,538
31,574

3.56 $
2.72 $
0.47 $
0.36 $

19,473
25,478

(0.76) $
(0.76) $
(0.76) $
(0.76) $

19,013
19,013

$ 1,833,058 $

17,859
175,382
1,534,496
1,664
68
56,839
12,327

1,250
1,598,496
15,233
127,253

1,396,366 $
22,112
132,284
1,115,437
14,476
854
9,452
19,096

1,037,620 $
12,966
104,445
744,749
59,668
4,824
21,731
13,773

13,117
1,177,559
57,701
94,602

57,107
792,497
73,416
61,311

890,050 $
10,094
159,228
506,279
160,253
4,414
25,393
21,884

166,828
583,065
79,094
(14,207)

2010

137,090
7,657
10,438
–
155,185

33,814
26,068
81,577
29,921
–
171,380

(16,195)
16,982
(33,177)

(1.90)
(1.90)
(0.93)
(0.93)
17,477
17,477

742,390
16,252
123,958
552,453
–
3,841
45,564
39,440

–
567,722
65,210
2,421

(1)

(2)

Income (loss) before income tax benefit divided by weighted average shares outstanding-basic. Included for illustrative
purposes because some of the periods presented include significant income tax benefits while other periods have neither
income tax benefit nor expense.
Income (loss) before income tax benefit divided by weighted average shares outstanding-diluted. Included for illustrative
purposes because some of the periods presented include significant income tax benefits while other periods have neither
income tax benefit nor expense.

(dollars in thousands, except per share data)

2014

As of and
For the Year Ended December 31,
2012

2013

2011

2010

Contract Purchases/Securitizations
Automobile contract purchases ............................ $
Automobile contracts securitized - structured as

sales .................................................................

Automobile contracts securitized - structured as

944,944 $

764,087 $

551,742 $

284,236 $

113,023

–

103,772

secured financings ...........................................

924,000

778,000

603,500

335,593

–

Managed Portfolio Data
Contracts held by consolidated subsidiaries
Fireside portfolio ..................................................
Contracts held by non-consolidated subsidiaries ..
Third party portfolios (1) ......................................
Total managed portfolio ....................................... $ 1,643,920 $
Average managed portfolio ..................................

1,664
390
1,330

$ 1,640,536 $

1,422,870

1,207,694 $
14,786
4,074
4,868
1,231,422 $
1,081,936

807,888 $
60,804
17,298
11,585
897,575 $
822,571

546,018 $
172,167
42,971
33,493
794,649 $
711,725

597,142
–
83,964
75,097
756,203
928,977

Weighted average fixed effective interest rate

(total managed portfolio) (2) ............................

Core operating expense (% of average managed

portfolio) (3) .....................................................

Allowance for finance credit losses
Allowance for finance credit losses (% of total

19.8%

20.0%

19.6%

18.5%

16.2%

6.3%
61,460 $

7.0%
39,626 $

7.9%
19,594 $

8.3%
10,351 $

6.4%
13,168

contracts held by consolidated subsidiaries) ....

3.7%

3.3%

2.4%

1.9%

2.2%

Aggregate allowance for finance credit losses

and repossessions in inventory

79,289 $

54,405 $

25,978 $

15,116 $

29,446

Aggregate allowance for finance credit losses (%

of total repossessions in inventory and
contracts held by consolidated subsidiaries) ....
Total delinquencies (2) (4) ......................................
Total delinquencies and repossessions (2) (4) .........
Net charge-offs (2) (5) ............................................

4.8%
5.5%
7.2%
5.8%

4.5%
4.8%
6.8%
4.7%

3.2%
4.0%
5.5%
3.6%

2.8%
4.4%
6.2%
4.8%

4.9%
5.7%
9.2%
9.0%

(1) Receivables related to the third party portfolios, on which we earn only a servicing fee.
(2) Excludes receivables related to the third party portfolios.
(3) Total expenses excluding provision for credit losses, provision for contingent liabilities, interest expense, loss on sale of

receivables and impairment loss on residual assets.

(4) For further information regarding delinquencies and the managed portfolio, see the table captioned "Delinquency

Experience," in Item 1, Part I of this report and the notes to that table.

(5) Net charge-offs include the remaining principal balance, after the application of the net proceeds from the liquidation of
the vehicle (excluding accrued and unpaid interest) and amounts collected subsequent to the date of the charge-off,
including some recoveries which have been classified as other income in the accompanying consolidated financial
statements. For further information regarding charge-offs, see the table captioned "Net Charge-Off Experience," in Item I,
Part I of this report and the notes to that table.

Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements and

notes thereto and other information included or incorporated by reference herein.

Overview

We are a specialty finance company. Our business is to purchase and service retail automobile contracts originated

primarily by franchised automobile dealers and, to a lesser extent, by select independent dealers in the United States in the sale
of new and used automobiles, light trucks and passenger vans. Through our automobile contract purchases, we provide indirect
financing to the customers of dealers who have limited credit histories, low incomes or past credit problems, who we refer to as
sub-prime customers. We serve as an alternative source of financing for dealers, facilitating sales to customers who otherwise
might not be able to obtain financing from traditional sources, such as commercial banks, credit unions and the captive finance
companies affiliated with major automobile manufacturers. In addition to purchasing installment purchase contracts directly
from dealers, we have also (i) acquired installment purchase contracts in four merger and acquisition transactions, (ii)
purchased immaterial amounts of vehicle purchase money loans from non-affiliated lenders, and (iii) directly originated an
immaterial amount of vehicle purchase money loans by lending money directly to consumers. In this report, we refer to all of
such contracts and loans as “automobile contracts.”

We were incorporated and began our operations in March 1991. From inception through December 31, 2014, we have

purchased a total of approximately $11.3 billion of automobile contracts from dealers. In addition, we acquired a total of
approximately $822.3 million of automobile contracts in mergers and acquisitions in 2002, 2003, 2004 and, most recently in
September 2011. The September 2011 acquisition consisted of approximately $217.8 million of automobile contracts that we
purchased from Fireside Bank of Pleasanton, California. In 2004 and 2009, we were appointed as a third-party servicer for
certain portfolios of automobile contracts originated and owned by non-affiliated entities. From 2008 through 2010, our
managed portfolio decreased each year due to our strategy of limiting contract purchases to conserve our liquidity during the
financial crisis and resulting recession, as discussed further below. However, since October 2009, we have gradually increased
contract purchase which, in turn, has resulted in recent increases in our managed portfolio. Recent contract purchase volumes
and managed portfolio levels are shown in the table below:

Contract Purchases and Outstanding Managed Portfolio

$ in thousands

Contracts
Purchased in
Period

Managed
Portfolio at
Period End

296,817 $
8,599
113,023
284,236
551,742
764,087
944,944

1,664,122
1,194,722
756,203
794,649
897,575
1,231,422
1,643,920

Year
2008
2009
2010
2011
2012
2013
2014

We purchase contracts in our own name (“CPS”) and, until July 2008, also in the name of our wholly-owned
subsidiary, TFC. Programs marketed under the CPS name are intended to serve a wide range of sub-prime customers, primarily
through franchised new car dealers. Our TFC program served vehicle purchasers enlisted in the U.S. Armed Forces, primarily
through independent used car dealers. In July 2008, we suspended contract purchases under our TFC program. We purchase
automobile contracts with the intention of financing them on a long-term basis through securitizations. Securitizations are
transactions in which we sell a specified pool of contracts to a special purpose subsidiary of ours, which in turn issues asset-
backed securities to fund the purchase of the pool of contracts from us.

Securitization and Warehouse Credit Facilities

Since 1994 we have conducted 65 term securitizations (generally quarterly) of automobile contracts that we purchased

from dealers under our regular programs. As of December 31, 2014, 16 of those securitizations are active and all but one are
structured as secured financings. Our September 2010 transaction is our only active securitization that is structured as a sale of
the related contracts. From 1994 through April 2008 we generally utilized financial guarantees for the senior asset-backed
notes issued in the securitization. Since September 2010 we have utilized senior subordinated structures without any financial
guarantees.

Our history of term securitizations, over the most recent ten years, is summarized in the table below:

Recent Asset-Backed Term Securitizations

$ in thousands

Period
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

Number of
Term
Securitizations
4
4
3
2
0
1
3
4
4
4

Amount of
Receivables

698,353
957,681
1,118,097
509,022
–
103,772
335,593
603,500
778,000
923,000

Our 2012 securitizations included $58.2 million in contracts that were repurchased in 2012 from securitizations closed

From time to time we have also completed financings of our residual interests in other securitizations that we and our

affiliates previously sponsored. As of December 31, 2014 we have one such residual interest financing outstanding.

Since December 2011, our securitizations have included a pre-funding feature in which a portion of the receivables to

be sold to the trust were not delivered until after the initial closing. As a result, our restricted cash balance at December 31,
2014 included $85.3 million from the proceeds of the sale of the asset-backed notes that were held by the trustee pending
delivery of the remaining receivables. In January 2015, the requisite additional receivables were delivered to the trust and we
received the related restricted cash, most of which was used to repay amounts owed under our warehouse credit facilities.

Generally, prior to a securitization transaction we fund our automobile contract purchases primarily with proceeds

facility was established in May 2012. This facility was renewed in August 2014, extending the revolving period to August
2016, and adding an amortization period through August 2017.

Credit Risk Retained

Whether a sale of automobile contracts in connection with a securitization or warehouse credit facility is treated as a

secured financing or as a sale for financial accounting purposes, the related special-purpose subsidiary may be unable to release
excess cash to us if the credit performance of the related automobile contracts falls short of pre-determined standards. Such
releases represent a material portion of the cash that we use to fund our operations. An unexpected deterioration in the
performance of such automobile contracts could therefore have a material adverse effect on both our liquidity and our results of
operations, regardless of whether such automobile contracts are treated for financial accounting purposes as having been sold
or as having been financed. For estimation of the magnitude of such risk, it may be appropriate to look to the size of our
"managed portfolio," which represents both financed and sold automobile contracts as to which such credit risk is retained. Our
managed portfolio as of December 31, 2014 was approximately $1,643.9 million, which includes a third party servicing
portfolio of $1.3 million on which we earn only servicing fees and have no credit risk.

Critical Accounting Policies

We believe that our accounting policies related to (a) Allowance for Finance Credit Losses, (b) Amortization of

Deferred Originations Costs and Acquisition Fees, (c) Term Securitizations, (d) Finance Receivables and Related Debt
Measured at Fair Value (e) Accrual for Contingent Liabilities and (f) Income Taxes are the most critical to understanding and
evaluating our reported financial results. Such policies are described below.

Allowance for Finance Credit Losses

In order to estimate an appropriate allowance for losses incurred on finance receivables, we use a loss allowance

methodology commonly referred to as "static pooling," which stratifies our finance receivable portfolio into separately
identified pools based on the period of origination. Using analytical and formula driven techniques, we estimate an allowance
for finance credit losses, which we believe is adequate for probable incurred credit losses that can be reasonably estimated in
our portfolio of automobile contracts. For each monthly pool of contracts that we purchase, we begin establishing the
allowance in the month of acquisition and increase it over the subsequent 11 months, through a provision for credit losses
charged to our consolidated statement of operations, with the goal of establishing an allowance that approximates the next 12
months of expected net losses. Net losses incurred on finance receivables are charged to the allowance. We evaluate the
adequacy of the allowance by examining current delinquencies, the characteristics of the portfolio, prospective liquidation
values of the underlying collateral and general economic and market conditions. As circumstances change, our level of
provisioning and/or allowance may change as well.

Broad economic factors such as recession and significant changes in unemployment levels influence the credit
performance of our portfolio, as does the weighted average age of the receivables at any given time. Our internal credit
performance data consistently show that new receivables have lower levels of delinquency and losses early in their lives, with
delinquencies increasing throughout their lives and losses gradually increasing to a peak between 36 and 42 months, after
which they gradually decrease. The historical weighted average seasoning of our total owned portfolio excluding Fireside, is
summarized in the table below:

Weighted
Average Age in
Months of
Owned
Portfolio
33
37
27
18
14
14

December 31,
2009
2010
2011
2012
2013
2014

The credit performance of our portfolio is also significantly influenced by our underwriting guidelines and credit

criteria we use when evaluating contracts for purchase from dealers. We regularly evaluate our portfolio credit performance
and modify our purchase criteria to maximize the credit performance of our portfolio, while maintaining competitive programs
and levels of service for our dealers.

Amortization of Deferred Originations Costs and Acquisition Fees

Upon purchase of a contract from a dealer, we generally either charge or advance the dealer an acquisition fee. In

addition, we incur certain direct costs associated with originations of our contracts. All such acquisition fees and direct costs
are applied to the carrying value of finance receivables and are accreted into earnings as an adjustment to the yield over the
estimated life of the contract using the interest method.

Term Securitizations

Our term securitization structure has generally been as follows:

We sell automobile contracts we acquire to a wholly-owned special purpose subsidiary, which has been established

for the limited purpose of buying and reselling our automobile contracts. The special-purpose subsidiary then transfers the
same automobile contracts to another entity, typically a statutory trust. The trust issues interest-bearing asset-backed securities,
in a principal amount equal to or less than the aggregate principal balance of the automobile contracts. We typically sell these
automobile contracts to the trust at face value and without recourse, except that representations and warranties similar to those
provided by the dealer to us are provided by us to the trust. One or more investors purchase the asset-backed securities issued
by the trust; the proceeds from the sale of the asset-backed securities are then used to purchase the automobile contracts from
us. We may retain or sell subordinated asset-backed securities issued by the trust or by a related entity. Through 2008, we
generally purchased external credit enhancement for most of our term securitizations in the form of a financial guaranty
insurance policy, guaranteeing timely payment of interest and ultimate payment of principal on the senior asset-backed
securities, from an insurance company. However, in our 16 most recent securitizations since 2010, we have not purchased
financial guaranty insurance policies and do not expect to do so in the near future.

We structure our securitizations to include internal credit enhancement for the benefit the investors (i) in the form of
an initial cash deposit to an account ("spread account") held by the trust, (ii) in the form of overcollateralization of the senior
asset-backed securities, where the principal balance of the senior asset-backed securities issued is less than the principal
balance of the automobile contracts, (iii) in the form of subordinated asset-backed securities, or (iv) some combination of such
internal credit enhancements. The agreements governing the securitization transactions require that the initial level of internal
credit enhancement be supplemented by a portion of collections from the automobile contracts until the level of internal credit
enhancement reaches specified levels, which are then maintained. The specified levels are generally computed as a percentage
of the principal amount remaining unpaid under the related automobile contracts. The specified levels at which the internal
credit enhancement is to be maintained will vary depending on the performance of the portfolios of automobile contracts held
by the trusts and on other conditions, and may also be varied by agreement among us, our special purpose subsidiary, the
insurance company, if any, and the trustee. Such levels have increased and decreased from time to time based on performance
of the various portfolios, and have also varied from one transaction to another. The agreements governing the securitizations

generally grant us the option to repurchase the sold automobile contracts from the trust when the aggregate outstanding balance
of the automobile contracts has amortized to a specified percentage of the initial aggregate balance.

Our September 2008 securitization and the subsequent re-securitization of the remaining receivables from such

transaction in September 2010 were each in substance sales of the underlying receivables, and have been treated as sales for
financial accounting purposes. They differ from those treated as secured financings in that the trust to which our special-
purpose subsidiaries sold the automobile contracts met the definition of a "qualified special-purpose entity" under Statement of
Financial Accounting Standards No. 140 (ASC 860 10 65-2). As a result, assets and liabilities of those trusts are not
consolidated into our consolidated balance sheet.

Historically, our warehouse credit facility structures were similar to the above, except that (i) our special-purpose
subsidiaries that purchased the automobile contracts pledged the automobile contracts to secure promissory notes that they
issued, (ii) no increase in the required amount of internal credit enhancement was contemplated, and (iii) we did not purchase
financial guaranty insurance. Our current maximum revolving warehouse financing capacity is $200 million.

Upon each transfer of automobile contracts in a transaction structured as a secured financing for financial accounting

purposes, whether a term securitization or a warehouse financing, we retain on our consolidated balance sheet the related
automobile contracts as assets and record the asset-backed notes or loans issued in the transaction as indebtedness.

Under the September 2008 and September 2010 securitizations, and other term securitizations completed prior to July

2003 that were structured as sales for financial accounting purposes, we removed from our consolidated balance sheet the
automobile contracts sold and added to our consolidated balance sheet (i) the cash received, if any, and (ii) the estimated fair
value of the ownership interest that we retained in the automobile contracts sold in the transaction. That retained or residual
interest consisted of (a) the cash held in the spread account, if any, (b) overcollateralization, if any, (c) asset-backed securities
retained, if any, and (d) receivables from the trust, which include the net interest receivables. Net interest receivables represent
the estimated discounted cash flows to be received from the trust in the future, net of principal and interest payable with respect
to the asset-backed notes, the premium paid to the insurance company, if any, and certain other expenses. The excess of the
cash received and the assets we retained over the carrying value of the automobile contracts sold, less transaction costs,
equaled the net gain on sale of automobile contracts we recorded.

We receive periodic base servicing fees for the servicing and collection of the automobile contracts. Under our

securitization structures treated as secured financings for financial accounting purposes, such servicing fees are included in
interest income from the automobile contracts. In addition, we are entitled to the cash flows from the trusts that represent
collections on the automobile contracts in excess of the amounts required to pay principal and interest on the asset-backed
securities, base servicing fees, and certain other fees and expenses (such as trustee and custodial fees). Required principal
payments on the asset-backed notes are generally defined as the payments sufficient to keep the principal balance of such notes
equal to the aggregate principal balance of the related automobile contracts (excluding those automobile contracts that have
been charged off), or a pre-determined percentage of such balance. Where that percentage is less than 100%, the related
securitization agreements require accelerated payment of principal until the principal balance of the asset-backed securities is
reduced to the specified percentage. Such accelerated principal payment is said to create overcollateralization of the asset-
backed notes.

If the amount of cash required for payment of fees, expenses, interest and principal on the senior asset-backed notes

exceeds the amount collected during the collection period, the shortfall is withdrawn from the spread account, if any. If the
cash collected during the period exceeds the amount necessary for the above allocations plus required principal payments on
the subordinated asset-backed notes, and there is no shortfall in the related spread account or the required overcollateralization
level, the excess is released to us. If the spread account and overcollateralization is not at the required level, then the excess
cash collected is retained in the trust until the specified level is achieved. Although spread account balances are held by the
trusts on behalf of our special-purpose subsidiaries as the owner of the residual interests (in the case of securitization
transactions structured as sales for financial accounting purposes) or the trusts (in the case of securitization transactions
structured as secured financings for financial accounting purposes), we are restricted in use of the cash in the spread accounts.
Cash held in the various spread accounts is invested in high quality, liquid investment securities, as specified in the
securitization agreements. The interest rate payable on the automobile contracts is significantly greater than the interest rate on
the asset-backed notes. As a result, the residual interests described above historically have been a significant asset of ours.

In all of our term securitizations and warehouse credit facilities, whether treated as secured financings or as sales, we

have sold the automobile contracts (through a subsidiary) to the securitization entity. The difference between the two structures
is that in securitizations that are treated as secured financings we report the assets and liabilities of the securitization trust on
our consolidated balance sheet. Under both structures, recourse to us by holders of the asset-backed securities and by the trust,
for failure of the automobile contract obligors to make payments on a timely basis, is limited to the automobile contracts

included in the securitizations or warehouse credit facilities, the spread accounts and our retained interests in the respective
trusts.

Since the third quarter of 2003, we have conducted 40 term securitizations. Of these 40, 34 were periodic (generally
quarterly) securitizations of automobile contracts that we purchased from automobile dealers under our regular programs. In
addition, in March 2004 and November 2005, we completed securitizations of our retained interests in other securitizations that
we and our affiliates previously sponsored. The debt from the March 2004 transaction was repaid in August 2005, and the debt
from the November 2005 transaction was repaid in May 2007. Also, in June 2004, we completed a securitization of automobile
contracts purchased under our TFC program and acquired in a bulk purchase. Further, in December 2005 and May 2007 we
completed securitizations that included automobile contracts purchased under the TFC programs, automobile contracts
purchased under the CPS programs and automobile contracts we repurchased upon termination of prior securitizations. Since
July 2003 all such securitizations have been structured as secured financings, except our September 2008 and September 2010
securitizations that were in substance sales of the underlying receivables, and were treated as sales for financial accounting
purposes.

Since December 2011, our securitizations have included a pre-funding feature in which a portion of the receivables to
be sold to the trust were not delivered until after the initial closing. As a result, our restricted cash balance at December 31,
2014 included $85.3 million from the proceeds of the sale of the asset-backed notes that were held by the trustee pending
delivery of the remaining receivables. In January 2015, the requisite additional receivables were delivered to the trust and we
received the related restricted cash, most of which was used to repay amounts owed under our warehouse credit facilities.

Finance Receivables and Related Debt Measured at Fair Value

In September 2011 we purchased finance receivables from Fireside Bank. These receivables are pledged as collateral
for debt that was structured specifically for the acquisition of this portfolio. Since the Fireside receivables were originated by
another entity with its own underwriting guidelines and procedures, we have elected to account for the Fireside receivables and
the related debt secured by those receivables at their estimated fair values so that changes in fair value will be reflected in our
results of operations as they occur. There are limited observable inputs available to us for measurement of such receivables, or
for the related debt. We use our own assumptions about the factors that we believe market participants would use in pricing
similar receivables and debt, and are based on the best information available in the circumstances. The valuation method used
to estimate fair value may produce a fair value measurement that may not be indicative of ultimate realizable value.
Furthermore, while we believe our valuation methods are appropriate and consistent with those used by other market
participants, the use of different methods or assumptions to estimate the fair value of certain financial instruments could result
in different estimates of fair value. Those estimated values may differ significantly from the values that would have been used
had a readily available market for such receivables or debt existed, or had such receivables or debt been liquidated, and those
differences could be material to the financial statements.

Accrual for Contingent Liabilities

We are routinely involved in various legal proceedings resulting from our consumer finance activities and practices,
both continuing and discontinued. Our legal counsel has advised us on such matters where, based on information available at
the time of this report, there is an indication that it is both probable that a liability has been incurred and the amount of the loss
can be reasonably determined.

We have recorded a liability as of December 31, 2014, which represents our best estimate of probable incurred losses

for legal contingencies. The amount of losses that may ultimately be incurred cannot be estimated with certainty. However,
based on such information as is available to us, we believe that the range of reasonably possible losses for the legal proceedings
and contingencies described or referenced above, as of December 31, 2014, and in excess of the liability we have recorded, is
from $0 to $1.5 million.

Accordingly, we believe that the ultimate resolution of such legal proceedings and contingencies, after taking into

account our current litigation reserves, should not have a material adverse effect on our consolidated financial condition. We
note, however, that in light of the uncertainties inherent in contested proceedings, there can be no assurance that the ultimate
resolution of these matters will not significantly exceed the reserves we have accrued; as a result, the outcome of a particular
matter may be material to our operating results for a particular period, depending on, among other factors, the size of the loss
or liability imposed and the level of our income for that period.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax

assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.
Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements
and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to
reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that
includes the enactment date.

Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. A

valuation allowance is recognized for a deferred tax asset if, based on the weight of the available evidence, it is more likely
than not that some portion of the deferred tax asset will not be realized. In making such judgements, significant weight is given
to evidence that can be objectively verified. As a result of the unprecedented adverse changes in the market for securitizations,
the recession and the resulting high levels of unemployment that occurred in 2008 and 2009, we incurred substantial operating
losses from 2009 through 2011 which led us to establish a valuation allowance against a substantial portion of our deferred tax
assets. However, since the fourth quarter of 2011, we have reported 13 consecutive quarters of increasing profitability.
Furthermore, we have demonstrated an ability to increase our volumes of contract purchases, grow our managed portfolio and
obtain cost effective short- and long-term financing for our finance receivables.

As a result of these and other factors, we determined at December 31, 2012 that, based on the weight of the available

objective evidence, it was more likely than not that we would generate sufficient future taxable income to utilize our net
deferred tax assets. Accordingly, we reversed the related valuation allowance of $62.8 million in the fourth quarter of 2012.

Our net deferred tax asset of $42.8 million, as of December 31, 2014, consists of approximately $32.7 million of net

U.S. federal deferred tax assets and $10.1 million of net state deferred tax assets. The major components of the deferred tax
asset are $18.6 million in net operating loss carryforwards and built in losses and $24.2 million in net deductions which have
not yet been taken on a tax return.

As of December 31, 2014, we had net operating loss carryforwards for federal and state income tax purposes of $3.5

million and $108.5 million, respectively. The federal net operating losses begin to expire in 2022. The state net operating losses
begin to expire in 2015.

In determining the possible future realization of deferred tax assets, we have considered future taxable income from

the following sources: (a) reversal of taxable temporary differences; and (b) forecasted future net earnings from operations.
Based upon those considerations, we have concluded that it is more likely than not that the U.S. and state net operating loss
carryforward periods provide enough time to utilize the deferred tax assets pertaining to the existing net operating loss
carryforwards and any net operating loss that would be created by the reversal of the future net deductions which have not yet
been taken on a tax return. Our estimates of taxable income are forward-looking statements, and there can be no assurance that
our estimates of such taxable income will be correct. Factors discussed under "Risk Factors," and in particular under the
subheading "Risk Factors -- Forward-Looking Statements" may affect whether such projections prove to be correct.

We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the

accompanying consolidated statements of operations. Accrued interest and penalties are included within the related tax liability
line in the consolidated balance sheets.

Uncertainty of Capital Markets and General Economic Conditions

We depend upon the availability of warehouse credit facilities and access to long-term financing through the issuance
of asset-backed securities collateralized by our automobile contracts. Since 1994, we have completed 65 term securitizations of
approximately $9.4 billion in contracts. From the fourth quarter of 2007 through the end of 2009, we observed unprecedented
adverse changes in the market for securitized pools of automobile contracts. These changes included reduced liquidity, and
reduced demand for asset-backed securities, particularly for securities carrying a financial guaranty and for securities backed
by sub-prime automobile receivables. Moreover, during that period many of the firms that previously provided financial
guarantees, which were an integral part of our securitizations, suspended offering such guarantees. These adverse changes
caused us to conserve liquidity by significantly reducing our purchases of automobile contracts. However, since September
2009 we have established new funding facilities and gradually increased our contract purchases and the frequency and amount
of our term securitizations.

Financial Covenants

Certain of our securitization transactions and our warehouse credit facilities contain various financial covenants

Results of Operations

Comparison of Operating Results for the year ended December 31, 2014 with the year ended December 31, 2013

Revenues. In April 2013, we repurchased the outstanding Class D notes from our first 2008 securitization for a cash
payment and a new note. We subsequently exercised our “clean-up call” option and repurchased the remaining collateral from
the related securitization trust. The aggregate value of our consideration for the Class D notes was $10.9 million less than our
carrying value of the Class D notes at the time of the repurchase. As a result of the repurchase of the Class D notes and the
termination of the securitization trust, we realized a gain of $10.9 million, or 4.3% of our total revenues of $255.8 million for
year ended December 31, 2013. The discussion below excludes the gain of $10.9 million for 2013 for comparative purposes.

During the year ended December 31, 2014, our revenues were $300.3 million, an increase of $55.4 million, or 22.6%,
from the prior year revenue of $244.8 million. The primary reason for the increase in revenues is an increase in interest income.
Interest income for the year ended December 31, 2014 increased $55.4 million, or 24.0%, to $286.7 million from $231.3
million in the prior year. The primary reason for the increase in interest income is the increase in finance receivables held by
consolidated subsidiaries, which increased from $1,222.5 million at December 31, 2013 to $1,642.2 million at December 31,
2014. The table below shows the average balances of our portfolio held by consolidated subsidiaries for the year ended
December 31, 2014 and 2013:

Finance Receivables Owned by
Consolidated Subsidiaries

Average Balances
for the Year Ended

December 31,
2014
Amount

December 31,
2013
Amount

($ in millions)

CPS Originated Receivables ...................................................................................... $
Fireside .......................................................................................................................
Total ...................................................................................................................... $

1,414.3 $
5.9
1,420.2 $

1,044.7
31.3
1,076.0

Servicing fees totaling $1.4 in the year ended December 31, 2014 decreased $1.7 million, or 55.5%, from $3.1 million

in the prior year. We earn base servicing fees on three portfolios that are decreasing in size as we receive customer payments
and, consequently, base servicing fees are decreasing also. As of December 31, 2014 and 2013, our managed portfolio owned
by consolidated vs. non-consolidated subsidiaries and other third parties was as follows:

December 31, 2014

December 31, 2013

Amount (1)

% (2)

Amount (1)

% (2)

Total Managed Portfolio

Owned by Consolidated Subsidiaries

CPS Originated Receivables ............... $
Fireside ................................................

Owned by Non-Consolidated
Subsidiaries ..............................................
Third-Party Servicing Portfolios .............

Total ....................................................... $

1,640.5
1.7

0.4
1.3
1,643.9

($ in millions)

99.8% $
0.1%

0.0%
0.1%
100.0% $

1,207.7
14.8

4.0
4.9
1,231.4

98.1%
1.2%

0.3%
0.4%
100.0%

At December 31, 2014, we were generating income and fees on a managed portfolio with an outstanding principal

balance of $1,643.9 million (this amount includes $390,000 of automobile contracts on which we earn servicing fees and own a
residual interest and also includes another $1.3 million of automobile contracts on which we earn base and incentive servicing

fees), compared to a managed portfolio with an outstanding principal balance of $1,231.4 million as of December 31, 2013. At
December 31, 2014 and 2013, the managed portfolio composition was as follows:

December 31, 2014

December 31, 2013

Amount (1)

% (2)

Amount (1)

% (2)

Originating Entity
CPS .......................................................... $
Fireside ....................................................
Third Party Portfolio ...............................
Total ........................................................ $

1,640.9
1.7
1.3
1,643.9

($ in millions)
99.8% $
0.1%
0.1%
100.0% $

1,211.8
14.8
4.8
1,231.4

98.4%
1.2%
0.4%
100.0%

(1) Contractual balances.
(2) Percentages may not add up to 100% due to rounding.

Other income increased by $1.7 million, or 16.7%, to $12.1 million in the year ended December 31, 2014 from

$10.4 million during the prior year. The increase consists of a net increase of $150,000 in the fair value of the receivables and
debt associated with the Fireside portfolio acquisition, an increase of $971,000 in fees associated with direct mail and other
related products and services that we offer to our dealers, an increase of $303,000 in sales tax refunds and an increase of
$335,000 in payments from third-party payment processors.

Expenses. Our operating expenses consist largely of provision for credit losses, interest expense, employee costs and
general and administrative expenses. Provision for credit losses and interest expense are significantly affected by the volume of
automobile contracts we purchased during the trailing 12-month period and by the outstanding balance of finance receivables
held by consolidated subsidiaries. Employee costs and general and administrative expenses are incurred as applications and
automobile contracts are received, processed and serviced. Factors that affect margins and net income include changes in the
automobile and automobile finance market environments, and macroeconomic factors such as interest rates and changes in the
unemployment level.

Employee costs include base salaries, commissions and bonuses paid to employees, and certain expenses related to the

accounting treatment of outstanding stock options, and are one of our most significant operating expenses. These costs (other
than those relating to stock options) generally fluctuate with the level of applications and automobile contracts processed and
serviced.

Other operating expenses consist largely of facilities expenses, telephone and other communication services, credit

services, computer services, marketing and advertising expenses, and depreciation and amortization.

During the year ended December 31, 2013, we recognized $7.8 million in contingent liability expenses to either

record or increase the amounts we believe we may incur related to various pending litigation. The amount was allocated in part
to a long running case we refer to as the Stanwich litigation, and also to more recent matters including two California class
action suits where we are the defendant, and a governmental inquiry, in which the United States Federal Trade Commission
(“FTC”) has informally proposed that the we refrain from certain allegedly unfair trade practices, and make restitutionary
payments into a consumer relief fund. The discussion below omits the $7.8 million contingent liability expense from the year
ended December 31, 2013 for comparative purposes.

Total operating expenses were $248.0 million for the year ended December 31, 2014, compared to $210.8 million for

the prior year, an increase of $37.3 million, or 17.7%. The increase is primarily due to the increase in the amount of new
contracts we purchased, the resulting increase in our consolidated portfolio and associated servicing costs, and the related
increase in our provision for credit losses. Increases in core operating expenses and provision for credit losses were partially
offset by decreases in interest expense.

Employee costs increased by $7.2 million or 16.7%, to $50.1 million during the year ended December 31, 2014,

representing 20.2% of total operating expenses, from $43.0 million for the prior year, or 20.4% of total operating expenses.
Since 2010, we have added employees in our Originations and Marketing departments to accommodate the increase in contract
purchases. More recently, we have also added Servicing staff to accommodate the increase in the number of accounts in our
managed portfolio. The table below summarizes our employees by category as well as contract purchases and units in our
managed portfolio as of, and for the years ended, December 31, 2014 and 2013:

December 31,
2014
Amount

December 31,
2013
Amount

Contracts purchased (dollars) ............................................. $
Contracts purchased (units) .................................................
Managed portfolio outstanding (dollars) ............................ $
Managed portfolio outstanding (units) ...............................

($ in millions)
944.9 $
59,276
1,643.9 $
124,074

Number of Originations staff ..............................................
Number of Marketing staff .................................................
Number of Servicing staff ...................................................
Number of other staff ..........................................................
Total number of employees ................................................

210
155
445
59
869

764.1
48,995
1,231.4
99,842

172
119
348
66
705

General and administrative expenses include costs associated with purchasing and servicing our portfolio of finance

receivables, including expenses for facilities, credit services, and telecommunications. General and administrative expenses
were $19.3 million, an increase of $2.9 million, or 17.8%, compared to the previous year and represented 7.8% of total
operating expenses.

Interest expense for the year ended December 31, 2014 decreased by $7.8 million to $50.4 million, or 13.4%,

compared to $58.2 million in the previous year.

Interest expense on the Fireside portfolio credit facility decreased by $3.1 million compared to the prior year as the

Fireside portfolio and the related debt have paid down to significantly lower levels over the last year.

Interest on securitization trust debt increased by $3.8 million, or 10.9%, for the year ended December 31, 2014

compared to the prior year. Although the average balance of securitization trust debt increased 37.9% to $1,298.0 million for
the year ended December 31, 2014 from $941.6 million for the year ended December 31, 2013, the blended interest rates on
new term securitizations since 2013 have been significantly lower than in previous years. As a result, during 2014, portions of
our securitization trust debt that were outstanding at December 31, 2013 at higher blended interest rates were repaid as we
added new securitization trust debt at significantly lower blended interest rates.

Interest expense on senior secured debt and subordinated renewable notes decreased by $7.4 million, or 65.6%. This
was due primarily to the repayment in full of $39.2 million in senior secured debt in the first quarter of 2014. In addition, we
reduced the balance of our outstanding subordinated renewable notes by $3.9 million from $19.1 million at December 31, 2013
to $15.2 million at December 31, 2014. The reduction in interest expense was also a result of our decreasing the average
interest rate on our subordinated renewable notes from 14.5% for the year ended December 31, 2013 to 12.9% for the year
ended December 31, 2014.

Interest expense on residual interest financing decreased $1.3 million in the year ended December 31, 2014 compared

to the prior year. The decrease is due to the repayments on that facility of $6.8 million during the year.

Interest expense on warehouse lines of credit increased by $214,000, or 4.3% for the year ended December 31, 2014
compared to the prior year. Although we increased our contract purchases by $180.9 million, or 23.7%, to $944.9 million for
the year ended December 31, 2014 compared to the prior year, we attempt to minimize the use of our warehouse credit
facilities and rely more on unrestricted cash balances to fund our contract purchases prior to securitization.

The following table presents the components of interest income and interest expense and a net interest yield analysis

for the years ended December 31, 2014 and 2013:

Year Ended December 31,

2014

2013

Average
Balance (1)

Interest

(Dollars in thousands)

Annualized
Average
Yield/Rate

Average

Balance (1)

Annualized
Average

Interest

Yield/Rate

Interest Earning Assets

Finance receivables gross(2) .... $ 1,383,193 $
Finance receivables measured

285,169

20.6% $

1,015,404 $

225,268

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

5,919
$ 1,389,112

1,565
286,734

26.4%
20.6% $

31,294
1,046,698

6,062
231,330

Interest Bearing Liabilities
Warehouse lines of credit ........ $
Residual interest financing ......
Debt secured by receivables

measured at fair value .........
Securitization trust debt ...........
Senior secured debt, related

52,596
14,225

5,561
1,298,033

party ...................................
Subordinated renewable notes .

9,471
17,074
$ 1,396,960

5,217
1,989

772
38,558

1,651
2,208
50,395

9.9% $

14.0%

40,285
24,107

13.9%
3.0%

27,506
941,591

17.4%
12.9%
3.6% $

41,906
21,763
1,097,158

5,003
3,330

3,877
34,744

8,064
3,161
58,179

Net interest income/spread ......
Net interest margin (3) .............
Ratio of average interest

earning assets to average
interest bearing liabilities ...

236,339

173,151

17.0%

99%

95%

22.2%

19.4%
22.1%

12.4%
13.8%

14.1%
3.7%

19.2%
14.5%
5.3%

16.5%

(1) Average balances are based on month end balances except for warehouse lines of credit, which are based on daily balances.
(2) Net of deferred fees and direct costs.
(3) Annualized net interest income divided by average interest earning assets.

Interest Earning Assets
Finance receivables gross ................. $
Finance receivables measured at fair
value ...............................................

Interest Bearing Liabilities
Warehouse lines of credit .................
Residual interest financing ...............
Debt secured by receivables

measured at fair value ...................
Securitization trust debt ....................
Senior secured debt, related party.....
Subordinated renewable notes ..........

Year Ended December 31, 2014
Compared to December 31, 2013
Change Due
to Volume
(In thousands)

Total
Change

Change Due
to Rate

59,901 $

81,594 $

(21,693)

(4,497)
55,404

214
(1,341)

(3,105)
3,814
(6,413)
(953)
(7,784)

(4,915)
76,679

1,529
(1,365)

(3,093)
13,152
(6,241)
(681)
3,301

418
(21,275)

(1,315)
24

(12)
(9,338)
(172)
(272)
(11,085)

Net interest income/spread ............... $

63,188 $

73,378 $

(10,190)

Provision for credit losses was $108.2 million for the year ended December 31, 2014, an increase of $31.4 million, or
40.8% compared to the prior year and represented 43.6% of total operating expenses. The provision for credit losses maintains
the allowance for finance credit losses at levels that we feel are adequate for probable incurred credit losses that can be
reasonably estimated. Our approach for establishing the allowance requires greater amounts of provision for credit losses early
in the terms of our finance receivables. Consequently, the increase in provision expense is the result of the increase in contract
purchases during the last year and the larger portfolio owned by our consolidated subsidiaries compared to the prior year.

Marketing expenses consist primarily of commission-based compensation paid to our employee marketing

representatives. Our marketing representatives earn a salary plus commissions based on volume of contract purchases and sales
of ancillary products and services that we offer our dealers, such as training programs, internet lead sales, and direct mail
products. Marketing expenses increased by $2.8 million, or 20.6%, to $16.1 million during the year ended December 31, 2014,
compared to $13.4 million in the prior year, and represented 6.5% of total operating expenses. For the year ended December
31, 2014, we purchased 59,276 contracts representing $944.9 million in receivables compared to 48,995 contracts representing
$764.1 million in receivables in the prior year.

Occupancy expenses increased by $856,000 or 32.8%, to $3.5 million compared to $2.6 million in the previous year

and represented 1.4% of total operating expenses. In April 2014, we established our fifth servicing center located in Las Vegas,
Nevada.

Depreciation and amortization expenses decreased by $9,000 or 2.1%, to $428,000 compared to $437,000 in the

previous year and represented 0.2% of total operating expenses.

For the year ended December 31, 2014, we recorded income tax expense of $22.7 million, representing a 43.5%
effective income tax rate. In the prior year, we recorded $16.2 million of income tax expense, also representing a 43.5%
effective income tax rate.

Comparison of Operating Results for the year ended December 31, 2013 with the year ended December 31, 2012

During the year ended December 31, 2013, excluding the gain on cancellation of debt of $10.9 million, our revenues

were $244.8 million, an increase of $57.6 million, or 30.8%, from the prior year revenue of $187.2 million. The primary reason

for the increase in revenues is an increase in interest income. Interest income for the year ended December 31, 2013 increased
$56.0 million, or 32.0%, to $231.3 million from $175.3 million in the prior year. The primary reason for the increase in interest
income is the increase in finance receivables held by consolidated subsidiaries, which increased from $868.7 million at
December 31, 2012 to $1,222.5 million at December 31, 2013. The table below shows the average balances of our portfolio
held by consolidated subsidiaries for the year ended December 31, 2013 and 2012:

Finance Receivables Owned by
Consolidated Subsidiaries

December 31,
2013
Amount

December 31,
2012
Amount

($ in millions)

CPS Originated Receivables .............................................. $
Fireside ...............................................................................
Total .......................................................................... $

1,044.7 $
31.3
1,076.0 $

699.0
103.5
802.5

Servicing fees totaling $3.1 million in the year ended December 31, 2013 increased $788,000, or 34.2%, from $2.3

million in the prior year. We earn base servicing fees on three portfolios that are decreasing in size as we receive customer
payments and, consequently, base servicing fees are decreasing also. On one of those portfolios, however, we recently began
earning an incentive servicing fee. Such incentive servicing fee was $1.6 million for the year ended December 31, 2013 and
more than offset the decrease of $600,000 in base servicing fees. We did not earn any incentive servicing fee in the prior year.
As of December 31, 2013 and 2012, our managed portfolio owned by consolidated vs. non-consolidated subsidiaries and other
third parties was as follows:

Total Managed Portfolio
Owned by Consolidated Subsidiaries ......

CPS Originated Receivables ............... $
Fireside ................................................

Owned by Non-Consolidated
Subsidiaries ..............................................
Third-Party Servicing Portfolios .............
Total ......................................................... $

December 31, 2013

December 31, 2012

Amount (1)

% (2)

Amount (1)

% (2)

($ in millions)

1,207.7
14.8

4.0
4.9
1,231.4

98.1% $
1.2%

0.3%
0.4%
100.0% $

807.9
60.8

17.3
11.6
897.6

90.0%
6.8%

1.9%
1.3%
100.0%

(1) Contractual balances.
(2) Percentages may not add up to 100% due to rounding.

At December 31, 2013, we were generating income and fees on a managed portfolio with an outstanding principal
balance of $1,231.4 million (this amount includes $4.0 million of automobile contracts on which we earn servicing fees and
own a residual interest and also includes another $4.9 million of automobile contracts on which we earn base and incentive
servicing fees), compared to a managed portfolio with an outstanding principal balance of $897.6 million as of December 31,
2012. At December 31, 2013 and 2012, the managed portfolio composition was as follows:

December 31, 2013

Amount (1)

% (2)

December 31, 2012

Amount (1)

% (2)

Originating Entity
CPS ........................................................... $
Fireside .....................................................
TFC ...........................................................
Third Party Portfolio ................................
Total ......................................................... $

1,211.8
14.8
–
4.8
1,231.4

($ in millions)
98.4% $
1.2%
0.0%
0.4%
100.0% $

825.0
60.8
0.2
11.6
897.6

91.9%
6.8%
0.0%
1.3%
100.0%

(1) Contractual balances.
(2) Percentages may not add up to 100% due to rounding.

Other income increased by $816,000, or 8.5%, to $10.4 million in the year ended December 31, 2013 from
$9.6 million during the prior year. The increase is comprised of a net increase of $415,000 in the fair value of the receivables
and debt associated with the Fireside portfolio acquisition, an increase of $588,000 in fees associated with direct mail and other
related products and services that we offer to our dealers, and an increase of $58,000 in payments from third-party providers of
convenience fees paid by our customers for web based and other electronic payments. These increases were partially offset by
a decrease of $215,000 in recoveries on receivables from the 2002 acquisition of MFN Financial Corporation and a decrease in
sales tax refunds of $30,000.

Employee costs include base salaries, commissions and bonuses paid to employees, and certain expenses related to the

Other operating expenses consist largely of facilities expenses, telephone and other communication services, credit

services, computer services, marketing and advertising expenses, and depreciation and amortization.

During the year ended December 31, 2013, we recognized $7.8 million in contingent liability expenses to either

The following comparison of our expenses for the year ended December 31, 2013 and 2012 excludes the impact of the

$7.8 million contingent liability expense incurred in the year ended December 31, 2013.

Total operating expenses were $210.8 million for the year ended December 31, 2013, compared to $178.0 million for

the prior year, an increase of $32.7 million, or 18.4%. The increase is primarily due to the increase in the amount of new
contracts we purchased, the resulting increase in our consolidated portfolio and associated servicing costs, and the related
increase in our provision for credit losses. Increases in core operating expenses and provision for credit losses were partially
offset by decreases in interest expense.

Employee costs increased by $7.4 million or 20.8%, to $43.0 million during the year ended December 31, 2013,

representing 20.4% of total operating expenses, from $35.6 million for the prior year, or 20.0% of total operating expenses.
Since 2010, we have added employees in our Originations and Marketing departments to accommodate the increase in contract
purchases. More recently, we have also added Servicing staff to accommodate the increase in the number of accounts in our
managed portfolio. The table below summarizes our employees by category as well as contract purchases and units in our
managed portfolio as of, and for the years ended, December 31, 2013 and 2012:

Contracts purchased (dollars) ............................................... $
Contracts purchased (units) ..................................................
Managed portfolio outstanding (dollars) .............................. $
Managed portfolio outstanding (units) .................................

Number of Originations staff ................................................
Number of Marketing staff ...................................................
Number of Servicing staff ....................................................
Number of other staff ............................................................
Total number of employees ..................................................

December 31,
2013
Amount

December 31,
2012
Amount

($ in millions)
764.1 $
48,995
1,231.4 $
99,842

172
119
348
66
705

551.7
36,030
897.6
91,549

146
89
279
60
574

General and administrative expenses include costs associated with purchasing and servicing our portfolio of finance

receivables, including expenses for facilities, credit services, and telecommunications. General and administrative expenses
were $16.3 million, an increase of $916,000, or 5.9%, compared to the previous year and represented 7.8% of total operating
expenses.

Interest expense for the year ended December 31, 2013 decreased by $21.2 million to $58.2 million, or 26.7%,

compared to $79.4 million in the previous year.

Interest expense on the Fireside portfolio credit facility decreased by $12.0 million compared to the prior year as the

Fireside portfolio and the related debt have paid down to significantly lower levels over the last year.

Interest on securitization trust debt decreased by $3.4 million for the year ended December 31, 2013 compared to the

prior year. Although the average balance of securitization trust debt increased to $941.6 million for the year ended
December 31, 2013 compared to $630.0 million for the year ended December 31, 2012, the blended interest rates on new term
securitizations since 2012 have been significantly lower than in previous years. As a result, during 2013, portions of our
securitization trust debt that were outstanding at December 31, 2012 at higher blended interest rates were repaid as we added
new securitization trust debt at significantly lower blended interest rates.

Interest expense on senior secured debt and subordinated renewable notes decreased by $4.7 million. This was due
primarily to the April 2013 repayment of $15.0 million in senior secured debt and to the reduction in the interest rate on the
remaining senior secured debt from 16.0% to 13.0%. In addition, we reduced the balance of our outstanding subordinated
renewable notes by $4.2 million from $23.3 million at December 31, 2012 to $19.1 million at December 31, 2013. The
reduction in interest expense was also a result of our decreasing the average interest rate on our subordinated renewable notes
from 14.4% at December 31, 2012 to 12.5% at December 31, 2013.

Interest expense on residual interest financing increased $701,000 in the year ended December 31, 2013 compared to
the prior year. The increase is due to the establishment in April 2013 of a new $20 million residual interest financing. This was
partially offset by the September 2013 repayment of the $13.8 million of indebtedness outstanding under the residual facility
originally established in 2007.

Interest expense on warehouse debt decreased by $1.9 million for the year ended December 31, 2013 compared to the
prior year. Although we increased our contract purchases to $764.1 million for the year ended December 31, 2013 compared to
$551.7 million in the prior period, recently we have relied less on warehouse credit facilities and more on unrestricted cash
balances to fund receivables prior to securitization.

The following table presents the components of interest income and interest expense and a net interest yield analysis

for the years ended December 31, 2013 and 2012:

Year Ended December 31,

2013

2012

Average
Balance (1)

Interest

(Dollars in thousands)

Annualized
Average
Yield/Rate

Average

Balance (1)

Annualized

Average

Interest

Yield/Rate

Interest Earning Assets

Finance receivables gross(2) ........ $ 1,015,404 $
Finance receivables measured at

225,268

22.2% $

662,173 $

152,977

fair value .................................

31,294
$ 1,046,698

6,062
231,330

19.4%
22.1% $

103,571
765,744

22,337
175,314

Interest Bearing Liabilities
Warehouse lines of credit ............ $
Residual interest financing ..........
Debt secured by receivables

measured at fair value .............
Securitization trust debt ...............
Senior secured debt, related party
Subordinated renewable

40,285
24,107

27,506
941,591
41,906

notes .........................................

21,763
$ 1,097,158

5,003
3,330

3,877
34,744
8,064

3,161
58,179

12.4% $
13.8%

36,558
15,716

14.1%
3.7%
19.2%

101,381
629,987
53,654

14.5%
5.3% $

21,564
858,860

6,928
2,629

15,877
38,095
12,454

3,439
79,422

Net interest income/spread ...........
Net interest margin (3) ..................
Ratio of average interest earning

assets to average interest
bearing liabilities ......................

173,151

95,892

16.5%

95%

89%

23.1%

21.6%
22.9%

19.0%
16.7%

15.7%
6.0%
23.2%

15.9%
9.2%

12.5%

Interest Earning Assets

Finance receivables gross ................. $
Finance receivables measured

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

Interest Bearing Liabilities
Warehouse lines of credit .................
Residual interest financing ...............
Debt secured by receivables

measured at fair value ....................
Securitization trust debt ....................
Senior secured debt, related party.....
Subordinated renewable notes ..........

Year Ended December 31, 2013
Compared to December 31, 2012
Change Due
to Volume
(In thousands)

Total
Change

Change Due
to Rate

72,291 $

81,604 $

(9,313)

(16,275)
56,016

(1,925)
701

(12,000)
(3,351)
(4,390)
(278)
(21,243)

(15,588)
66,016

706
1,404

(11,569)
18,843
(2,727)
32
6,689

(687)
(10,000)

(2,631)
(703)

(431)
(22,194)
(1,663)
(310)
(27,932)

Net interest income/spread ............... $

77,259 $

59,327 $

17,932

Provision for credit losses was $76.9 million for the year ended December 31, 2013, an increase of $43.4 million, or

129.5% compared to the prior year and represented 36.5% of total operating expenses. The provision for credit losses
maintains the allowance for finance credit losses at levels that we feel are adequate for probable incurred credit losses that can

be reasonably estimated. Our approach for establishing the allowance requires greater amounts of provision for credit losses
early in the terms of our finance receivables. Consequently, the increase in provision expense is the result of the increase in
contract purchases during the last year and the larger portfolio owned by our consolidated subsidiaries compared to the prior
year.

Marketing expenses consist primarily of commission-based compensation paid to our employee marketing

representatives. Our marketing representatives earn a salary plus commissions based on volume of contract purchases and sales
of ancillary products and services that we offer our dealers, such as training programs, internet lead sales, and direct mail
products. Marketing expenses increased by $2.7 million, or 25.3%, to $13.4 million during the year ended December 31, 2013,
compared to $10.7 million in the prior year, and represented 6.3% of total operating expenses. For the year ended
December 31, 2013, we purchased 48,995 contracts representing $764.1 million in receivables compared to 36,030 contracts
representing $551.7 million in receivables in the prior year.

Occupancy expenses decreased by $286,000 or 9.9%, to $2.6 million compared to $2.9 million in the previous year

and represented 1.2% of total operating expenses.

Depreciation and amortization expenses decreased by $106,000 or 19.5%, to $437,000 compared to $543,000 in the

previous year and represented 0.2% of total operating expenses.

For the year ended December 31, 2013, we recorded income tax expense of $16.2 million, representing a 43.5%

effective income tax rate. In the prior year, we recorded $2.6 million of net tax expense and reduced our valuation allowance
for our deferred tax assets by $62.8 million, which resulted in a net tax benefit of $60.2 million. At December 31, 2012, we had
reported five consecutive quarters of increasing profitability, observed improvement in credit metrics, and produced reliable
internal financial projections. Furthermore, we had demonstrated an ability to increase our new contract purchases, grow our
managed portfolio and obtain cost effective short- and long-term financing for our finance receivables. As a result of these and
other factors, we determined at December 31, 2012 that, based on the weight of the available objective evidence, it was more
likely than not that we would generate sufficient future taxable income to utilize our deferred tax assets. Accordingly, we
reversed the related valuation allowance. However, if future events change our expected realization of our deferred tax assets,
we may be required to reestablish the related valuation allowance in the future.

Liquidity and Capital Resources

Liquidity

Our business requires substantial cash to support purchases of automobile contracts and other operating activities. Our
primary sources of cash have been cash flow from operating activities, including proceeds from term securitization transactions
and other sales of automobile contracts, amounts borrowed under warehouse credit facilities, servicing fees on portfolios of
automobile contracts previously sold in securitization transactions or serviced for third parties, customer payments of principal
and interest on finance receivables, fees for origination of automobile contracts, and releases of cash from securitized portfolios
of automobile contracts in which we have retained a residual ownership interest and the related spread accounts. Our primary
uses of cash have been the purchases of automobile contracts, repayment of securitization trust debt, repayment of amounts
borrowed under warehouse credit facilities, operating expenses such as employee, interest, occupancy expenses and other
general and administrative expenses, the establishment of spread accounts and initial overcollateralization, if any, and the
increase of credit enhancement to required levels in securitization transactions, and income taxes. There can be no assurance
that internally generated cash will be sufficient to meet our cash demands. The sufficiency of internally generated cash will
depend on the performance of securitized pools (which determines the level of releases from those portfolios and their related
spread accounts), the rate of expansion or contraction in our managed portfolio, and the terms upon which we are able to
purchase, sell, and borrow against automobile contracts.

Net cash provided by operating activities for the years ended December 31, 2014, 2013 and 2012 was $135.8 million,

$99.4 million and $35.0 million, respectively. Net cash from operating activities is generally provided by net income from
operations adjusted for significant non-cash items such as our provision for credit losses, provision for contingent liabilities,
accretion of deferred acquisition fees, the $10.9 million gain on cancellation of debt in 2013 and, in 2012, the net change in our
deferred tax assets of $62.8 million.

Net cash used in investing activities for the years ended December 31, 2014, 2013 and 2012 was $541.2 million,

$409.6 million and $91.5 million, respectively. Cash provided by investing activities primarily results from principal payments
and other proceeds received on finance receivables held for investment. Cash used in investing activities generally relates to
purchases of finance receivables. Purchases of finance receivables held for investment were $944.9 million, $764.1 million and
$551.7 million in 2014, 2013 and 2012, respectively.

Net cash provided by financing activities for the years ended December 31, 2014, 2013 and 2012 was $401.1 million,

$319.3 million and $59.4 million, respectively. Cash used or provided by financing activities is primarily attributable to the
repayment or issuance of debt, and in particular, securitization trust debt and portfolio acquisition financing. We issued $923.0
million in new securitization trust debt in 2014 compared to $778.0 million in 2013 and $558.5 million in 2012. Repayments of
securitization debt were $502.2 million, $382.6 million and $351.0 million in 2014, 2013 and 2012, respectively.

We purchase automobile contracts from dealers for a cash price approximating their principal amount, adjusted for an

acquisition fee which may either increase or decrease the automobile contract purchase price. Those automobile contracts
generate cash flow, however, over a period of years. As a result, we have been dependent on warehouse credit facilities to
purchase automobile contracts, and on the availability of cash from outside sources in order to finance our continuing
operations, as well as to fund the portion of automobile contract purchase prices not financed under revolving warehouse credit
facilities.

The acquisition of automobile contracts for subsequent financing in securitization transactions, and the need to fund
spread accounts and initial overcollateralization, if any, and increase credit enhancement levels when those transactions take
place, results in a continuing need for capital. The amount of capital required is most heavily dependent on the rate of our
automobile contract purchases, the required level of initial credit enhancement in securitizations, and the extent to which the
previously established trusts and their related spread accounts either release cash to us or capture cash from collections on
securitized automobile contracts. Of those, the factor most subject to our control is the rate at which we purchase automobile
contracts.

We are and may in the future be limited in our ability to purchase automobile contracts due to limits on our capital. As

of December 31, 2014, we had unrestricted cash of $17.9 million. We had $76.4 million available under one warehouse credit
facility and $66.7 million available under our second warehouse credit facility (advances from both facilities are subject to
available eligible collateral). During 2014 we completed four securitizations aggregating $923.0 million of receivables, and we
intend to continue completing securitizations regularly during 2015, although there can be no assurance that we will be able to
do so. Our plans to manage our liquidity include maintaining our rate of automobile contract purchases at a level that matches
our available capital, and, as appropriate, minimizing our operating costs. If we are unable to complete such securitizations, we
may be unable to increase our rate of automobile contract purchases, in which case our interest income and other portfolio
related income could decrease.

Our liquidity will also be affected by releases of cash from the trusts established with our securitizations. While the

specific terms and mechanics of each spread account vary among transactions, our securitization agreements generally provide
that we will receive excess cash flows, if any, only if the amount of credit enhancement has reached specified levels and the
delinquency, defaults or net losses related to the automobile contracts in the pool are below certain predetermined levels. In the
event delinquencies, defaults or net losses on the automobile contracts exceed such levels, the terms of the securitization:
(i) may require increased credit enhancement to be accumulated for the particular pool; or (ii) in certain circumstances, may
permit the transfer of servicing on some or all of the automobile contracts to another servicer. There can be no assurance that
collections from the related trusts will continue to generate sufficient cash. Moreover, some of our spread account balances are
pledged as collateral to our residual interest financing and, under certain circumstances, releases from our spread account
balances could be diverted to repay such residual interest financing.

One of our securitization transactions, our warehouse credit facilities, our residual interest financing and our financing

for the Fireside portfolio contain various financial covenants requiring certain minimum financial ratios and results. Such
covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. In
addition, some agreements contain cross-default provisions that would allow certain creditors to declare a default if a default
occurred under a different facility. As of December 31, 2014, we were in compliance with all such covenants.

We have and will continue to have a substantial amount of indebtedness. At December 31, 2014, we had
approximately $1,684.1 million of debt outstanding. Such debt consisted primarily of $1,598.5 million of securitization trust
debt, and also included $1.3 million in debt for the acquisition of the Fireside portfolio, $56.8 million of warehouse lines of
credit, $12.3 million of residual interest financing and $15.2 million in subordinated renewable notes. We are also currently
offering the subordinated notes to the public on a continuous basis, and such notes have maturities that range from three
months to 10 years.

Our recent operating results include pre-tax earnings of $52.2 million, $37.2 million and $9.2 million in 2014, 2013

and 2012, respectively, preceded by pre-tax losses of $14.5 million and $16.2 million in 2011 and 2010, respectively. We
believe that our 2011 and 2010 results were materially and adversely affected by the disruption in the capital markets that

began in the fourth quarter of 2007, by the recession that began in December 2007, and by related high levels of
unemployment.

Although we believe we are able to service and repay our debt, there is no assurance that we will be able to do so. If

our plans for future operations do not generate sufficient cash flows and earnings, our ability to make required payments on our
debt would be impaired. Failure to pay our indebtedness when due could have a material adverse effect and may require us to
issue additional debt or equity securities.

Contractual Obligations

The following table summarizes our material contractual obligations as of December 31, 2014 (dollars in thousands):

Payment Due by Period (1)
2 to 3
Years

Less than
1 Year

4 to 5
Years

More than
5 Years

Total

Long Term Debt (2) .... $
Operating Leases ........ $

27,560 $
11,383 $

10,359
3,695

9,607
5,063

6,166
2,625

1,428
–

(1) Securitization trust debt, in the aggregate amount of $1,598.5 million as of December 31, 2014, is omitted from this table
because it becomes due as and when the related receivables balance is reduced by payments and charge-offs. Expected
payments, which will depend on the performance of such receivables, as to which there can be no assurance, are $636.5
million in 2015, $468.3 million in 2016, $285.8 million in 2017, $143.2 million in 2018, $56.8 million in 2019, and $7.9
million in 2020. The $1.3 million in debt associated with the Fireside receivables acquisition was repaid in full in January
2015.

(2) Long-term debt includes residual interest debt, senior secured debt and subordinated renewable notes.

For debt that is due in 2015, we anticipate repaying it with a combination of cash flows from operations and the potential
issuance of new debt.

Warehouse Credit Facilities

The terms on which credit has been available to us for purchase of automobile contracts have varied in recent years, as

shown in the following summary of our warehouse credit facilities:

Facility Established in December 2010. In December 2010 we entered into a $100 million two-year warehouse credit

line with affiliates of Goldman, Sachs & Co. and Fortress Investment Group. The facility is structured to allow us to fund a
portion of the purchase price of automobile contracts by borrowing from a credit facility to our consolidated subsidiary Page
Six Funding LLC. The facility provides for advances up to 88% of eligible finance receivables and the loans under it accrue
interest at a rate of one-month LIBOR plus 5.73% per annum, with a minimum rate of 6.73% per annum. In March 2013, this
facility was amended to extend the revolving period to March 2015 and to include an amortization period through March 2017
for any receivables pledged to the facility at the end of the revolving period. There was $23.6 million outstanding under this
facility at December 31, 2014.

Facility Established in May 2012. On May 11, 2012, we entered into an additional $100 million one-year warehouse

credit line with Citibank, N.A. The facility is structured to allow us to fund a portion of the purchase price of automobile
contracts by borrowing from a credit facility to our consolidated subsidiary Page Eight Funding, LLC. The facility provides for
effective advances up to 88.0% of eligible finance receivables. The loans under the facility accrue interest at one-month
LIBOR plus 5.50% per annum, with a minimum rate of 6.25% per annum. In August 2014, this facility was amended to extend
the revolving period to August 2016 and to include an amortization period through August 2017 for any receivables pledged to
the facility at the end of the revolving period. At December 31, 2014 there was $33.3 million outstanding under this facility.

Capital Resources

Securitization trust debt is repaid from collections on the related receivables, and becomes due in accordance with its

terms as the principal amount of the related receivables is reduced. Although the securitization trust debt also has alternative
final maturity dates, those dates are significantly later than the dates at which repayment of the related receivables is
anticipated, and at no time in our history have any of our sponsored asset-backed securities reached those alternative final
maturities.

The acquisition of automobile contracts for subsequent transfer in securitization transactions, and the need to fund
spread accounts and initial overcollateralization, if any, when those transactions take place, results in a continuing need for
capital. The amount of capital required is most heavily dependent on the rate of our automobile contract purchases, the required
level of initial credit enhancement in securitizations, and the extent to which the trusts and related spread accounts either
release cash to us or capture cash from collections on securitized automobile contracts. We plan to adjust our levels of
automobile contract purchases and the related capital requirements to match anticipated releases of cash from the trusts and
related spread accounts.

Capitalization

Over the period from January 1, 2012 through December 31, 2014 we have managed our capitalization by issuing and

refinancing debt as summarized in the following table:

2014

Year Ended December 31,
2013
(Dollars in thousands)

2012

RESIDUAL INTEREST FINANCING:
Beginning balance ....................................................................... $
Issuances ..................................................................................
Payments ..................................................................................
Ending balance ............................................................................ $

19,096 $

–
(6,769)
12,327 $

13,773 $
20,000
(14,677)
19,096 $

SECURITIZATION TRUST DEBT:
Beginning balance ....................................................................... $
Issuances ..................................................................................
Payments ..................................................................................
Amortization of discount .........................................................
Cancellation of debt .................................................................
Ending balance ............................................................................ $

1,177,559 $
923,000
(502,193)
130
–

1,598,496 $

792,497 $
778,000
(382,591)
600
(10,947)
1,177,559 $

SENIOR SECURED DEBT, RELATED PARTY:
Beginning balance ....................................................................... $
Issuances ..................................................................................
Payments ..................................................................................
Debt discount net of amortization ...........................................
Ending balance ............................................................................ $

SUBORDINATED RENEWABLE NOTES:
Beginning balance ....................................................................... $
Issuances ..................................................................................
Payments ..................................................................................
Ending balance ............................................................................ $

DEBT SECURED BY RECEIVABLES MEASURED AT

FAIR VALUE:

Beginning balance ....................................................................... $
Payments ..................................................................................
Accretion of premium .............................................................
Mark to fair value ....................................................................
Ending balance ............................................................................ $

Residual Interest Financing.

38,559 $

–
(39,182)
623

– $

19,142 $
579
(4,488)
15,233 $

13,117 $
(12,456)
712
(123)
1,250 $

In July 2007, we established a combination term and revolving residual credit facility and have used eligible residual

interests in securitizations as collateral for floating rate borrowings. The amount that we were able to borrow was computed
using an agreed valuation methodology of the residuals, subject to an overall maximum principal amount of $120 million,
represented by (i) a $60 million Class A-1 variable funding note (the “revolving note”), and (ii) a $60 million Class A-2 term
note (the “term note”). The term note was fully drawn in July 2007 and was originally due in July 2009. As of July 2008, we

21,884
–
(8,111)
13,773

583,065
558,500
(350,981)
1,913
–
792,497

58,344
–
(11,200)
2,991
50,135

20,750
4,957
(2,426)
23,281

50,135 $
5,284
(18,852)
1,992
38,559 $

23,281 $
1,276
(5,415)
19,142 $

57,107 $
(45,969)
2,726
(747)
13,117 $

166,828
(121,413)
4,579
7,113
57,107

had drawn $26.8 million on the revolving note. The facility’s revolving feature expired in July 2008. On July 10, 2008 we
amended the terms of the combination term and revolving residual credit facility, (i) eliminating the revolving feature and
increasing the interest rate, (ii) consolidating the amounts then owing on the Class A-1 note with the Class A-2 note,
(iii) establishing an amortization schedule for principal reductions on the Class A-2 note, and (iv) providing for an extension, at
our option if certain conditions were met, of the Class A-2 note maturity from June 2009 to June 2010. In June 2009 we met all
such conditions and extended the maturity. In conjunction with the amendment, we reduced the principal amount outstanding
to $70 million by delivering to the lender (i) warrants valued as being equivalent to 2,500,000 common shares, or $4,071,429,
and (ii) cash of $12,765,244. The warrants represent the right to purchase 2,500,000 CPS common shares at a nominal exercise
price, at any time prior to July 10, 2018. In May 2010, we extended the maturity date from June 2010 to May 2011. In
May 2011, we extended the maturity date of the facility from May 2011 to May 2012. In February 2012, we exchanged certain
previously pledged residual interests with new, previously unpledged, residual interests and extended the maturity date to
February 2013. In September 2012, the maturity date was again extended to September 2013 and the requirement for monthly
principal repayments was eliminated if certain pool performance measures are met. This facility was repaid in full in
September 2013.

In April 2013, we established a five-year $20 million term residual facility. The facility is secured by eligible residual

interests in two previously securitized pools of automobile receivables. The facility provides for effective advances up to
70.0% of the related borrowing base. Notes issued under the facility accrue interest at one-month LIBOR plus 11.75% per
annum. At December 31, 2014, there was $12.3 million outstanding under this facility.

Securitization Trust Debt. From July 2003 through April 2008, we treated all securitizations of automobile contracts
as secured financings for financial accounting purposes, and the asset-backed securities issued in such securitizations remain
on our consolidated balance sheet as securitization trust debt. Our September 2008 and the re-securitization of the remaining
receivables from such transaction in September 2010 were each structured as a sale for financial accounting purposes and the
asset-backed securities issued in those transactions have not been and are not on our consolidated balance sheet. Since 2011 all
15 of our securitizations have been treated as secured financings and make up $1,598.5 million of our securitization trust debt
at December 31, 2014.

Senior Secured Debt. From 1998 to 2005, we entered into a series of financing transactions with Levine Leichtman

Capital Partners II, L.P. In July 2007 we repaid the final amounts due under these financing transactions. On June 30, 2008, we
entered into a series of agreements pursuant to which an affiliate of Levine Leichtman Capital Partners purchased a $10 million
five-year, fixed rate, senior secured note from us. The indebtedness is secured by substantially all of our assets, though not by
the assets of our special-purpose financing subsidiaries. In July 2008, in conjunction with the amendment of the residual
interest financing as discussed above, the lender purchased an additional $15 million note with substantially the same terms as
the $10 million note. Pursuant to the June 30, 2008 securities purchase agreement, we issued to the lender 1,225,000 shares of
common stock. In addition, we issued the lender two warrants: (i) warrants that we refer to as the FMV Warrants, which are
exercisable for 1,611,114 shares of our common stock, at an exercise price of $1.39818 per share, and (ii) warrants that we
refer to as the N Warrants, which are exercisable for 285,781 shares of our common stock, at a nominal exercise price. Both the
FMV Warrants and the N Warrants are exercisable in whole or in part and at any time up to and including June 30, 2018. We
valued the warrants using the Black-Scholes valuation model and recorded their value as a liability on our consolidated balance
sheet because the terms of the warrants also included a provision whereby the lender could require us to purchase the warrants
for cash. That provision was eliminated by mutual agreement in September 2008. The FMV Warrants were initially exercisable
to purchase 1,500,000 shares for $2.573 per share, were adjusted in connection with the July 2008 issuance of other warrants to
become exercisable to purchase 1,564,324 shares at $2.4672 per share, and were further adjusted in connection with a
July 2009 amendment of our option plan to become exercisable at $1.44 per share. Upon issuance in September 2009 of the
Fortress Warrant, the FMV Warrant was further adjusted to become exercisable to purchase 1,600,991 shares at an exercise
price of $1.407 per share. Upon issuance in March 2010 of the Page Five Warrant, the FMV Warrant was further adjusted to
become exercisable to purchase 1,611,114 shares at an exercise price of $1.39818 per share. All of the FMV Warrants and N
Warrants were exercised in November 2013 and are no longer outstanding.

In November 2009 we entered into an additional agreement with this lender whereby they purchased an additional
$5 million note. The note accrued interest at 15.0% and was repaid in December 2010 at which time the lender purchased a
new $27.8 million note under substantially the same terms as the $10 million and $15 million notes already outstanding. The
$27.8 million note accrued interest at 16.0% and matured in December 2013. Concurrent with the issuance of the $27.8 million
note, the term $10 million and $15 million notes were amended to change their maturity dates to December 2013. In
conjunction with the issuance of the $27.8 million note, we issued to the lender 880,000 shares of common stock and 1,870
shares of Series B convertible preferred stock. Each share of the Series B convertible preferred stock was exchanged for 1,000
shares of our common stock on June 15, 2011, upon shareholder approval of such exchange. At the time of issuance, the value
of the common stock and Series B preferred stock was $753,000 and $1.6 million, respectively. On March 31, 2011, we sold an
additional $5 million note due February 29, 2012 to LLCP. In April 2011 we purchased from LLCP a portion of an outstanding

subordinated note issued by our CPS Cayman Residual Trust 2008-A, and financed that purchase by issuing to LLCP a new
$3 million note which was fully repaid in June 2012. In November 2011, we sold an additional $5 million note which was fully
repaid in October 2012. In February 2012, we extended the maturity of the $5 million note that was originally due in February
2012 to March 2012 when it was repaid in full. In April 2013 we repaid the $15 million note, reduced the interest rates on the
remaining notes from 14.0% to 13.0% per annum and extended the maturity of the remaining notes to June 30, 2014. In
January 2014 we repaid the $10 million note and in March 2014 we repaid the remaining notes aggregating $28.9 million.

Subordinated Renewable Notes Debt. In June 2005, we began issuing registered subordinated renewable notes in an

ongoing offering to the public. Upon maturity, the notes are automatically renewed for the same term as the maturing notes,
unless we repay the notes or the investor notifies us within 15 days after the maturity date of his note that he wants it repaid.
Renewed notes bear interest at the rate we are offering at that time to other investors with similar note maturities. Based on the
terms of the individual notes, interest payments may be required monthly, quarterly, annually or upon maturity. At
December 31, 2014 there were $15.2 million of such notes outstanding.

We must comply with certain affirmative and negative covenants related to debt facilities, which require, among other

things, that we maintain certain financial ratios related to liquidity, net worth, capitalization, investments, acquisitions,
restricted payments and certain dividend restrictions. In addition, certain securitization and non-securitization related debt
contain cross-default provisions that would allow certain creditors to declare default if a default occurred under a different
facility. As of December 31, 2014, we were in compliance with all such covenants.

Forward-looking Statements

This report on Form 10-K includes certain "forward-looking statements". Forward-looking statements may be
identified by the use of words such as "anticipates," "expects," "plans," "estimates," or words of like meaning. As to the
specifically identified forward-looking statements, factors that could affect charge-offs and recovery rates include changes in
the general economic climate, which could affect the willingness or ability of obligors to pay pursuant to the terms of contracts,
changes in laws respecting consumer finance, which could affect our ability to enforce rights under contracts, and changes in
the market for used vehicles, which could affect the levels of recoveries upon sale of repossessed vehicles. Factors that could
affect our revenues in the current year include the levels of cash releases from existing pools of contracts, which would affect
our ability to purchase contracts, the terms on which we are able to finance such purchases, the willingness of dealers to sell
contracts to us on the terms that it offers, and the terms on which we are able to complete term securitizations once contracts
are acquired. Factors that could affect our expenses in the current year include competitive conditions in the market for
qualified personnel, investor demand for asset-backed securities and interest rates (which affect the rates that we pay on asset-
backed securities issued in our securitizations). The statements concerning structuring securitization transactions as secured
financings and the effects of such structures on financial items and on future profitability also are forward-looking statements.
Any change to the structure of our securitization transaction could cause such forward-looking statements not to be accurate.
Both the amount of the effect of the change in structure on our profitability and the duration of the period in which our
profitability would be affected by the change in securitization structure are estimates. The accuracy of such estimates will be
affected by the rate at which we purchase and sell contracts, any changes in that rate, the credit performance of such contracts,
the financial terms of future securitizations, any changes in such terms over time, and other factors that generally affect our
profitability.

Off-Balance Sheet Arrangements

From July 2003 through April 2008 all of our securitizations were structured as secured financings for financial
accounting purposes. In September 2008, we securitized $198.7 million of our automobile contracts in a structure that is treated
as a sale of the receivables for financial accounting purposes. The terms of the September 2008 securitization provided for us
(1) to continue servicing the sold portfolio, (2) to retain a 5.0% interest in the bonds issued by the trust to which we sold the
automobile contracts and (3) to earn additional compensation contingent upon (a) the return to the holders of the senior bonds
issued by the trust reaching certain targets or (b) “lifetime” cumulative net charge-offs on the automobile contracts being below
a pre-determined level. In September 2010 we re-securitized the remaining receivables from the September 2008 transaction in
a similar "off balance sheet" structure. The September 2010 transaction is treated as a sale of the receivables for financial
accounting purposes. See "Critical Accounting Policies" for a detailed discussion of our securitization structure.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are subject to interest rate risk during the period between when contracts are purchased from dealers and when
such contracts become part of a term securitization. Specifically, the interest rate due on our warehouse credit facilities are
adjustable while the interest rates on the contracts are fixed. Therefore, if interest rates increase, the interest we must pay to our
lenders under warehouse credit facilities is likely to increase while the interest we receive from warehoused automobile
contracts remains the same. As a result, excess spread cash flow would likely decrease during the warehousing period.
Additionally, automobile contracts warehoused and then securitized during a rising interest rate environment may result in less
excess spread cash flow to us. Historically, our securitization facilities have paid fixed rate interest to security holders set at
prevailing interest rates at the time of the closing of the securitization, which may not take place until several months after we
purchased those contracts. Our customers, on the other hand, pay fixed rates of interest on the automobile contracts, set at the
time they purchase the underlying vehicles. A decrease in excess spread cash flow could adversely affect our earnings and cash
flow.

To mitigate, but not eliminate, the short-term risk relating to interest rates payable under the warehouse facilities, we

have historically held automobile contracts in the warehouse credit facilities for less than four months. To mitigate, but not
eliminate, the long-term risk relating to interest rates payable by us in securitizations, we have structured our term
securitization transactions to include pre-funding structures, whereby the amount of notes issued exceeds the amount of
contracts initially sold to the trusts. We expect to continue to use pre-funding structures in our securitizations. In pre-funding,
the proceeds from the pre-funded portion are held in an escrow account until we sell the additional contracts to the trust. In pre-
funded securitizations, we lock in the borrowing costs with respect to the contracts we subsequently deliver to the
securitization trust. However, we incur an expense in pre-funded securitizations equal to the difference between the money
market yields earned on the proceeds held in escrow prior to subsequent delivery of contracts and the interest rate paid on the
notes outstanding. The amount of such expense may vary. Despite these mitigation strategies, an increase in prevailing interest
rates would cause us to receive less excess spread cash flows on automobile contracts, and thus could adversely affect our
earnings and cash flows.

Item 8. Financial Statements and Supplementary Data

This report includes Consolidated Financial Statements, notes thereto and an Independent Auditors’ Report, at the

pages indicated below, in the "Index to Financial Statements."

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm – Crowe Horwath LLP .......................................................

Page
Reference
F-2

Consolidated Balance Sheets as of December 31, 2014 and 2013 ...................................................................................

F-3

Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012 .................................

F-4

Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012 .............

F-5

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2014, 2013 and 2012 .................

F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012 ................................

F-7

Notes to Consolidated Financial Statements .....................................................................................................................

F-9

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Consumer Portfolio Services, Inc.
Las Vegas, Nevada

We have audited the accompanying consolidated balance sheets of Consumer Portfolio Services, Inc. and subsidiaries (the
Company) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income,
shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2014. We also have
audited the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in the
2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting
based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.

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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Consumer Portfolio Services, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 2014 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, Consumer Portfolio Services,
Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on
the criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

/s/ CROWE HORWATH LLP

Costa Mesa, California
February 25, 2015

F-2

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

December 31, December 31,

2014

2013

ASSETS
Cash and cash equivalents ..................................................................................................... $
Restricted cash and equivalents .............................................................................................

17,859 $

175,382

22,112
132,284

Finance receivables ................................................................................................................
Less: Allowance for finance credit losses .............................................................................
Finance receivables, net .........................................................................................................

1,595,956
(61,460)
1,534,496

Finance receivables measured at fair value ...........................................................................
Residual interest in securitizations ........................................................................................
Furniture and equipment, net .................................................................................................
Deferred financing costs ........................................................................................................
Deferred tax assets, net ..........................................................................................................
Accrued interest receivable ....................................................................................................
Other assets ............................................................................................................................

1,664
68
1,161
12,362
42,847
23,372
23,847
1,833,058 $

1,155,063
(39,626)
1,115,437

14,476
854
766
11,071
59,215
18,670
21,481
1,396,366

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses ............................................................................... $
Warehouse lines of credit ......................................................................................................
Residual interest financing ....................................................................................................
Debt secured by receivables measured at fair value .............................................................
Securitization trust debt .........................................................................................................
Senior secured debt, related party..........................................................................................
Subordinated renewable notes ...............................................................................................

Commitments and contingencies ...........................................................................................
Shareholders' Equity
Preferred stock, $1 par value; authorized 4,998,130 shares; none issued .............................
Series A preferred stock, $1 par value; authorized 5,000,000 shares; none issued ...............
Series B preferred stock, $1 par value; authorized 1,870 shares; none issued ......................
Common stock, no par value; authorized 75,000,000 shares; 25,540,640 and 24,015,585

shares issued and outstanding at December 31, 2014 and 2013, respectively ..................
Retained earnings ...................................................................................................................
Accumulated other comprehensive loss ................................................................................

21,660 $
56,839
12,327
1,250
1,598,496
–
15,233
1,705,805

24,839
9,452
19,096
13,117
1,177,559
38,559
19,142
1,301,764

–
–
–

80,513
51,791
(5,051)
127,253

–
–
–

73,422
22,275
(1,095)
94,602

See accompanying Notes to Consolidated Financial Statements.

1,833,058 $

1,396,366

F-3

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Revenues:
Interest income ......................................................................................... $
Servicing fees ...........................................................................................
Other income ............................................................................................
Gain on cancellation of debt ....................................................................

Expenses:
Employee costs ........................................................................................
General and administrative ......................................................................
Interest ......................................................................................................
Provision for credit losses ........................................................................
Provision for contingent liabilities ..........................................................
Marketing .................................................................................................
Occupancy ................................................................................................
Depreciation and amortization .................................................................

Income before income tax expense .........................................................
Income tax expense (benefit) ...................................................................
Net income ............................................................................................... $

Year Ended December 31,
2013

2014

2012

286,734 $
1,376
12,146
–
300,256

50,129
19,254
50,395
108,228
–
16,116
3,464
428
248,014
52,242
22,726
29,516 $

231,330 $
3,093
10,405
10,947
255,775

42,960
16,345
58,179
76,869
7,841
13,363
2,608
437
218,602
37,173
16,168
21,005 $

175,314
2,305
9,589
–
187,208

35,573
15,429
79,422
33,495
–
10,665
2,894
543
178,021
9,187
(60,221)
69,408

Earnings per share:

Basic .................................................................................................... $
Diluted .................................................................................................

1.18 $
0.92

0.98 $
0.67

3.56
2.72

Number of shares used in computing earnings per share:

Basic ....................................................................................................
Diluted .................................................................................................

25,040
32,032

21,538
31,574

19,473
25,478

See accompanying Notes to Consolidated Financial Statements.

F-4

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

Net income .............................................................................................. $
Other comprehensive income (loss); change in funded status of

pension plan, net of ($2,654), $3,044 and ($150) in tax for 2014,
2013 and 2012, respectively ................................................................
Comprehensive income ........................................................................... $

Year Ended December 31,
2013

2014

2012

29,516 $

21,005 $

69,408

(3,956)
25,560 $

4,542
25,547 $

2,898
72,306

See accompanying Notes to Consolidated Financial Statements.

F-5

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)

Common Stock

Amount

Retained
Earnings/
(Accumulated
Deficit)

Accumulated
Other
Comprehensive
Loss

Total

Balance at January 1, 2012 .......

19,527 $

62,466 $

(68,138) $

(8,535 ) $

(14,207)

Common stock issued upon
exercise of options and
warrants .................................
Purchase of common stock .......
Pension benefit obligation ........
Stock-based compensation ........
Reclassification of warrants

from debt ...............................
Net income ...............................
Balance at December 31, 2012 .

Common stock issued upon
exercise of options and
warrants .................................
Pension benefit obligation ........
Stock-based compensation ........
Reclassification of warrants

from debt ...............................
Net income ................................
Balance at December 31, 2013 .

Common stock issued upon
exercise of options and
warrants .................................
Pension benefit obligation ........
Stock-based compensation ........
Net income ................................
Balance at December 31, 2014 .

632
(320)
–
–

–
–

1,206
(435)
–
1,134

1,307
–

19,839 $

65,678 $

–
–
–
–

–
–
2,898
–

–
69,408
1,270 $

–
–

(5,637 ) $

4,177
–
–

–
–

3,297
–
3,864

583
–

24,016 $

73,422 $

1,525
–
–
–

3,256
–
3,835
–

25,541 $

80,513 $

–
–
–

–
21,005
22,275 $

–
–
–
29,516
51,791 $

–
4,542
–

–
–

(1,095 ) $

–
(3,956 )
–
–

(5,051 ) $

3,256
(3,956)
3,835
29,516
127,253

1,206
(435)
2,898
1,134

1,307
69,408
61,311

3,297
4,542
3,864

583
21,005
94,602

See accompanying Notes to Consolidated Financial Statements.

F-6

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Cash flows from operating activities:

Net income ....................................................................................................... $
Adjustments to reconcile net income to net cash provided by operating

activities: ........................................................................................................
Accretion of deferred acquisition fees ..........................................................
Accretion of purchase discount on receivables measured at fair value .........
Amortization of discount on securitization trust debt ...................................
Amortization of discount on senior secured debt, related party ....................
Accretion of premium on debt secured by receivables measured at fair

value ...........................................................................................................
Mark to fair value on debt secured by receivables at fair value ....................
Mark to fair value of receivables at fair value ...............................................
Depreciation and amortization .......................................................................
Amortization of deferred financing costs .......................................................
Provision for credit losses ..............................................................................
Provision for contingent liabilities .................................................................
Stock-based compensation expense ...............................................................
Interest income on residual assets ..................................................................
Gain on cancellation of debt ..........................................................................
Change in fair value of warrants ....................................................................
Changes in assets and liabilities:

Accrued interest receivable ..........................................................................
Other assets ..................................................................................................
Deferred tax assets, net ................................................................................
Accounts payable and accrued expenses ....................................................
Net cash provided by operating activities ..................................................

Cash flows from investing activities:

Purchases of finance receivables held for investment ......................................
Payments received on finance receivables held for investment ........................
Payments on receivables portfolio at fair value ................................................
Proceeds received on residual interest in securitizations ..................................
Change in repossessions held in inventory .......................................................
Decreases (increases) in restricted cash and cash equivalents, net ...................
Purchase of furniture and equipment ................................................................
Net cash used in investing activities ..........................................................

Cash flows from financing activities:

Proceeds from issuance of securitization trust debt ..........................................
Proceeds from issuance of subordinated renewable notes ................................
Proceeds from issuance of senior secured debt, related party ..........................
Payments on subordinated renewable notes .....................................................
Net proceeds from (repayments of) warehouse lines of credit .........................
Net proceeds from (repayments of) residual interest financing debt ................
Repayment of securitization trust debt .............................................................
Repayment of debt secured by receivables measured at fair value...................
Repayment of senior secured debt, related party ..............................................
Payment of financing costs ..............................................................................
Repurchase of common stock ..........................................................................
Exercise of options and warrants .....................................................................
Net cash provided by financing activities ..................................................
Increase (decrease) in cash and cash equivalents ...............................................
Cash and cash equivalents at beginning of year .................................................
Cash and cash equivalents at end of year ........................................................... $

2014

Year Ended December 31,
2013

2012

29,516 $

21,005 $

69,408

(16,213)
(283)
130
623

712
(123)
(27)
428
6,767
108,228
–
3,835
(372)
–
–

(4,702)
(1,925)
16,368
(7,135)
135,827

(944,944)
433,870
13,122
1,158
(441)
(43,098)
(823)
(541,156)

(20,565)
(1,421)
600
1,992

2,726
(747)
595
437
6,803
76,869
7,841
3,864
–
(10,947)
–

(8,259)
(2,183)
16,425
4,337
99,372

(764,087)
337,095
46,018
3,970
(4,246)
(27,839)
(477)
(409,566)

923,000
579
–
(4,488)
47,387
(6,769)
(502,193)
(12,456)
(39,182)
(8,058)
–
3,256
401,076
(4,253)
22,112
17,859 $

778,000
1,276
5,284
(5,415)
(12,279)
5,323
(382,591)
(45,969)
(18,852)
(8,734)
–
3,297
319,340
9,146
12,966
22,112 $

(15,957)
(4,144)
1,913
2,296

4,579
7,113
(6,634)
543
5,954
33,495
–
1,134
(410)
–
695

(3,979)
5,625
(60,640)
(6,002)
34,989

(551,742)
295,734
111,363
–
(1,237)
54,783
(394)
(91,493)

558,500
4,957
–
(2,426)
(3,662)
(8,111)
(350,981)
(121,413)
(11,200)
(7,059)
(435)
1,206
59,376
2,872
10,094
12,966

See accompanying Notes to Consolidated Financial Statements.

F-7

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Year Ended December 31,
2013

2014

2012

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Interest ............................................................................................. $
Income taxes ...................................................................................

45,914 $
6,520

50,663 $
2,277

75,654
1,139

Non-cash financing activities:

Pension benefit obligation, net .......................................................
Derivative warrants reclassified from liabilities to common stock
upon amendment .........................................................................

3,956

(4,542)

(2,898)

–

583

1,307

See accompanying Notes to Consolidated Financial Statements.

F-8

(1) Summary of Significant Accounting Policies

Description of Business

Consumer Portfolio Services, Inc. ("CPS") was incorporated in California on March 8, 1991. CPS and its
subsidiaries (collectively, the "Company") specialize in purchasing and servicing retail automobile installment sale
contracts ("contracts") originated by licensed motor vehicle dealers ("Dealers") located throughout the United States.
Dealers located in Texas, California, Ohio, New Jersey, Florida and Pennsylvania represented 10.0%, 8.7%, 5.7%, 5.1%
5.0% and 4.8%, respectively, of contracts purchased during 2014 compared with 10.0%, 10.6%, 4.8%, 5.1%, 4.6% and
6.0% respectively in 2013. No other state had a concentration in excess of 4.8% in 2014. We specialize in contracts with
borrowers who generally would not be expected to qualify for traditional financing provided by commercial banks or
automobile manufacturers’ captive finance companies.

We are subject to various regulations and laws as they relate to the extension of credit in consumer credit

transactions. Failure to comply with such laws and regulations could have a material adverse effect on the Company.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of Consumer Portfolio Services, Inc. and its wholly-

owned subsidiaries, certain of which are special purpose subsidiaries ("SPS"), formed to accommodate the structures under
which we purchase and securitize our contracts. The Consolidated Financial Statements also include the accounts of CPS
Leasing, Inc., an 80% owned subsidiary. All significant intercompany balances and transactions have been eliminated in
consolidation.

Cash and Cash Equivalents

For purposes of the statements of cash flows, we consider all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. Cash equivalents consist of cash on hand and due from banks and
money market accounts. Substantially all of our cash is deposited at three financial institutions. We maintain cash due from
banks in excess of the banks' insured deposit limits. We do not believe we are exposed to any significant credit risk on
these deposits. As part of certain financial covenants related to debt facilities, we are required to maintain a minimum
unrestricted cash balance. As of December 31, 2014, our unrestricted cash balance was $17.9 million, which exceeded the
minimum amounts required by our financial covenants.

Finance Receivables

Finance receivables, which we have the intent and ability to hold for the foreseeable future or until maturity or
payoff, are presented at cost. All finance receivable contracts are held for investment. Interest income is accrued on the
unpaid principal balance. Origination fees, net of certain direct origination costs, are deferred and recognized in interest
income using the interest method without anticipating prepayments. Generally, payments received on finance receivables
are restricted to certain securitized pools, and the related contracts cannot be resold. Finance receivables are charged off
pursuant to the controlling documents of certain securitized pools, generally as described below under Charge Off Policy.
Management may authorize an extension of payment terms if collection appears likely during the next calendar month.

Our portfolio of finance receivables consists of small-balance homogeneous contracts that are collectively

evaluated for impairment on a portfolio basis. We report delinquency on a contractual basis. Once a Contract becomes
greater than 90 days delinquent, we do not recognize additional interest income until the obligor under the Contract makes
sufficient payments to be less than 90 days delinquent. Any payments received on a Contract that is greater than 90 days
delinquent are first applied to accrued interest and then to principal reduction.

Allowance for Finance Credit Losses

In order to estimate an appropriate allowance for losses likely incurred on finance receivables, we use a loss

allowance methodology commonly referred to as "static pooling," which stratifies the finance receivable portfolio into
separately identified pools based on their period of origination, then uses historical performance of seasoned pools to
estimate future losses on current pools. Historical loss experience is adjusted as necessary for current economic conditions.
We consider our portfolio of finance receivables to be relatively homogenous and consequently we analyze credit
performance primarily in the aggregate rather than stratification by any particular credit quality indicator. Using analytical
and formula driven techniques, we estimate an allowance for finance credit losses, which we believe is adequate for
probable incurred credit losses that can be reasonably estimated in our portfolio of finance receivable contracts. For each
monthly pool of contracts that we purchase, we begin establishing the allowance in the month of acquisition and increase it
over the subsequent 11 months, through a provision for credit losses charged to our Consolidated Statement of Operations.
Net losses incurred on finance receivables are charged to the allowance. We evaluate the adequacy of the allowance by
examining current delinquencies, the characteristics of the portfolio, the value of the underlying collateral and historical
loss trends. As conditions change, our level of provisioning and/or allowance may change.

F-9

Finance Receivables and Related Debt Measured at Fair Value

In September 2011, we acquired $217.8 million of finance receivables from Fireside Bank for a purchase price of
$201.3 million. The receivables were acquired by our wholly-owned special purpose subsidiary, CPS Fender Receivables,
LLC, which issued a note for $197.3 million, with a fair value of $196.5 million.

The receivables we acquired are pledged as collateral for debt that was structured specifically for the acquisition
of this portfolio. Since the Fireside receivables were originated by another entity with its own underwriting guidelines and
procedures, we elected to account for the Fireside receivables and the related debt secured by those receivables at their
estimated fair values so that changes in fair value will be reflected in our results of operations as they occur. We use our
own assumptions about the factors that we believe market participants would use in pricing similar receivables and debt,
and are based on the best information available in the circumstances. The valuation method used to estimate fair value may
produce a fair value measurement that may not be indicative of ultimate realizable value. Furthermore, while we believe
our valuation methods are appropriate and consistent with those used by other market participants, the use of different
methods or assumptions to estimate the fair value of certain financial instruments could result in different estimates of fair
value. Those estimated values may differ significantly from the values that would have been used had a readily available
market for such receivables or debt existed, or had such receivables or debt been liquidated, and those differences could be
material to the financial statements. Interest income from the receivables and interest expense on the debt are included in
interest income and interest expense, respectively. Changes to the fair value of the receivables and debt are also to be
included in interest income and interest expense, respectively.

Charge Off Policy

Delinquent contracts for which the related financed vehicle has been repossessed are generally charged off at the
earliest of (1) the month in which the proceeds from the sale of the financed vehicle are received, (2) the month in which
90 days have passed from the date of repossession or (3) the month in which the Contract becomes seven scheduled
payments past due (see Repossessed and Other Assets below). The amount charged off is the remaining principal balance
of the Contract, after the application of the net proceeds from the liquidation of the financed vehicle. With respect to
delinquent contracts for which the related financed vehicle has not been repossessed, the remaining principal balance is
generally charged off no later than the end of the month that the Contract becomes five scheduled payments past due.

Contract Acquisition Fees and Origination Costs

Upon purchase of a Contract from a Dealer, we generally either charge or advance the Dealer an acquisition fee.

Dealer acquisition fees and deferred origination costs are applied to the carrying value of finance receivables and are
accreted into earnings as an adjustment to the yield over the estimated life of the Contract using the interest method.

Repossessed and Other Assets

If a Contract obligor fails to make or keep promises for payments, or if the obligor is uncooperative or attempts to

evade contact or hide the vehicle, a supervisor will review the collection activity relating to the account to determine if
repossession of the vehicle is warranted. Generally, such a decision is made between the 60th and 90th day past the
obligor’s payment due date, but could occur sooner or later, depending on the specific circumstances. At the time the
vehicle is repossessed we stop accruing interest on the Contract, and reclassify the remaining Contract balance to the line
item "Other Assets" on our Consolidated Balance Sheet at its estimated fair value less costs to sell. Included in other assets
in the accompanying Consolidated Balance Sheets are repossessed vehicles pending sale of $10.4 million and $10.0
million at December 31, 2014 and 2013, respectively.

F-10

Treatment of Securitizations

Our term securitization structure has generally been as follows:

We sell contracts we acquire to a wholly-owned special purpose subsidiary ("SPS"), which has been established
for the limited purpose of buying and reselling our contracts. The SPS then transfers the same contracts to another entity,
typically a statutory trust ("Trust"). The Trust issues interest-bearing asset-backed securities ("Notes"), in a principal
amount equal to or less than the aggregate principal balance of the contracts. We typically sell these contracts to the Trust
at face value and without recourse, except representations and warranties that we make to the Trust that are similar to those
provided to us by the Dealer. One or more investors purchase the Notes issued by the Trust (the "Noteholders"); the
proceeds from the sale of the Notes are then used to purchase the contracts from us. We may retain or sell subordinated
Notes issued by the Trust. In addition, we have provided "Credit Enhancement" for the benefit of the Noteholders in three
forms: (1) an initial cash deposit to a bank account (a "Spread Account") held by the Trust, (2) overcollateralization of the
Notes, where the principal balance of the Notes issued is less than the principal balance of the contracts, and (3) in the form
of subordinated Notes. The agreements governing the securitization transactions (collectively referred to as the
"Securitization Agreements") require that the initial level of Credit Enhancement be supplemented by a portion of
collections from the contracts until the level of Credit Enhancement reaches specified levels, which are then maintained.
The specified levels are generally computed as a percentage of the principal amount remaining unpaid under the related
contracts. The specified levels at which the Credit Enhancement is to be maintained will vary depending on the
performance of the portfolios of contracts held by the Trusts and on other conditions. Such levels have increased and
decreased from time to time based on performance of the various portfolios, and have also varied from one Trust to
another.

Our warehouse securitization structures are similar to the above, except that (i) the SPS that purchases the
contracts pledges the contracts to secure promissory notes or loans that it issues, and (ii) no increase in the required amount
of Credit Enhancement is contemplated. Upon each sale of contracts in a securitization structured as a secured financing,
we retain as assets on our Consolidated Balance Sheet the securitized contracts and record as indebtedness the Notes issued
in the transaction.

For all of the securitizations that we have completed since July 2003 (other than the September 2008 and

September 2010 securitizations), we have the power to direct the most significant activities of the SPS. In addition, we
have the obligation to absorb losses and the rights to receive benefits from the SPS, both of which could be potentially
significant to the SPS. These types of securitization structures are treated as secured financings, in which the receivables
remain on our Consolidated Balance Sheet, and the debt issued by the SPS is shown as a securitization trust debt on our
Consolidated Balance Sheet.

Under the September 2008 and September 2010 securitizations and other term securitizations completed prior to
July 2003 (which were structured as sales for financial accounting purposes), we removed from our Consolidated Balance
Sheet the contracts sold and added to our Consolidated Balance Sheet (i) the cash received, if any, and (ii) the estimated
fair value of the ownership interest that we retained in contracts sold in the securitization. That retained or residual interest
(the "Residual") consists of (a) the cash held in the Spread Account, if any, (b) overcollateralization, if any, (c) Notes
retained, if any, and (d) receivables from the Trust, which include the net interest receivables ("NIRs"). NIRs represent the
estimated discounted cash flows to be received from the Trust in the future, net of principal and interest payable with
respect to the Notes, any premiums paid to the senior Note insurer (a “Note Insurer”), if any, and certain other expenses.

We recognize gains or losses attributable to any changes in the estimated fair value of the Residuals. Gains in fair

value are recognized as Other Income and losses are recorded as an impairment loss in the Consolidated Statement of
Operations. We are not aware of an active market for the purchase or sale of interests such as the Residuals; accordingly,
we determine the estimated fair value of the Residuals by discounting the amount of anticipated cash flows that we
estimate will be released to us in the future (the cash out method), using a discount rate that we believe is appropriate for
the risks involved. The anticipated cash flows may include collections from both current and charged off receivables. We
have used an effective pre-tax discount rate of 20% per annum.

We receive periodic base servicing fees for the servicing and collection of the contracts. In addition, we are

entitled to the cash flows from the Trusts that represent collections on the contracts in excess of the amounts required to
pay principal and interest on the Notes, the base servicing fees, and the premium paid to the Note Insurer, if any, and
certain other fees (such as trustee and custodial fees). Required principal payments on the Notes are generally defined as
the payments sufficient to keep the principal balance of the Notes equal to the aggregate principal balance of the related
contracts (excluding those contracts that have been charged off), or a pre-determined percentage of such balance. Where
that percentage is less than 100%, the related Securitization Agreements require accelerated payment of principal until the
principal balance of the Notes is reduced to the specified percentage. Such accelerated principal payment is said to create
"overcollateralization" of the Notes.

If the amount of cash required for payment of fees, interest and principal on the senior Notes exceeds the amount

collected during the collection period, the shortfall is generally withdrawn from the Spread Account, if any. If the cash
collected during the period exceeds the amount necessary for the above allocations plus required principal payments on the
F-11

subordinated Notes, if any, and there is no shortfall in the related Spread Account or other form of Credit Enhancement,
the excess is released to us. If the total Credit Enhancement amount is not at the required level, then the excess cash
collected is retained in the Trust until the specified level is achieved. Cash in the Spread Accounts is restricted from our
use. Cash held in the various Spread Accounts is invested in high quality, liquid investment securities, as specified in the
Securitization Agreements. In determining the value of the Residuals, we have estimated the future rates of prepayments,
delinquencies, defaults, default loss severity, and recovery rates, as all of these factors affect the amount and timing of the
estimated cash flows. Our estimates are based on historical performance of comparable contracts.

Following a securitization that is structured as a sale for financial accounting purposes, we recognize interest
income on the balance of the Residuals. In addition, we will recognize additional revenue in other income if the actual
performance of the contracts related to the Residuals is better than our estimate of the value of the Residual. If the actual
performance of the contracts is worse than our estimate, then a reduction to the carrying value of the Residuals and a
related impairment charge would be required. In a securitization structured as a secured financing for financial accounting
purposes, interest income is recognized when accrued under the terms of the related contracts and, therefore, presents less
potential for fluctuations in performance when compared to the approach used in a transaction structured as a sale for
financial accounting purposes.

In all of our term securitizations, whether treated as secured financings or as sales, we have transferred the

receivables (through a subsidiary) to the securitization Trust. The difference between the two structures is that in
securitizations that are treated as secured financings we report the assets and liabilities of the securitization Trust on our
Consolidated Balance Sheet. Under both structures the Noteholders’ and the related securitization Trusts’ recourse against
us for failure of the contract obligors to make payments on a timely basis is limited, in general, to our Finance Receivables,
Spread Accounts and Residuals.

Servicing

We consider the contractual servicing fee received on our managed portfolio held by non-consolidated
subsidiaries to be equal to adequate compensation. Additionally, we consider that these fees would fairly compensate a
substitute servicer, should one be required. As a result, no servicing asset or liability has been recognized. Servicing fees
received on the managed portfolio held by non-consolidated subsidiaries are reported as income when earned. Servicing
fees received on the managed portfolio held by consolidated subsidiaries are included in interest income when earned.
Servicing costs are charged to expense as incurred. Servicing fees receivable, which are included in Other Assets in the
accompanying Consolidated Balance Sheets, represent fees earned but not yet remitted to us by the trustee.

Furniture and Equipment

Furniture and equipment are stated at cost net of accumulated depreciation. We calculate depreciation using the
straight-line method over the estimated useful lives of the assets, which range from three to five years. Assets held under
capital leases and leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the
related lease terms. Amortization expense on assets acquired under capital lease is included with depreciation expense on
owned assets.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the
lower of carrying amount or fair value less costs to sell.

F-12

Other Income

The following table presents the primary components of Other Income:

Direct mail revenues ............................................................................ $
Convenience fees revenue ...................................................................
Recoveries on previously charged-off contracts .................................
Sales tax refunds ..................................................................................
Other .....................................................................................................

Earnings Per Share

2014

Year Ended December 31,
2013
(In thousands)

2012

7,975 $
3,300
143
500
228
12,146 $

7,004 $
2,965
177
197
62
10,405 $

5,949
2,907
392
227
114
9,589

The following table illustrates the computation of basic and diluted earnings per share:

Numerator:
Numerator for basic and diluted earnings per share............................ $
Denominator:
Denominator for basic earnings per share

- weighted average number of common shares outstanding
during the year .................................................................................

Incremental common shares attributable to exercise of outstanding

options and warrants ........................................................................
Denominator for diluted earnings per share ........................................
Basic earnings per share ...................................................................... $
Diluted earnings per share ................................................................... $

2014

Year Ended December 31,
2012
2013
(In thousands, except per share data)

29,516 $

21,005 $

69,408

25,040

21,538

19,473

6,992
32,032

1.18 $
0.92 $

10,036
31,574
0.98 $
0.67 $

6,005
25,478
3.56
2.72

Incremental shares of 4.5 million, 2.1 million and 979,000 related to stock options and warrants have been

excluded from the diluted earnings per share calculation for the years ended December 31, 2014, 2013 and 2012,
respectively, because the effect is anti-dilutive.

Deferral and Amortization of Debt Issuance Costs

Costs related to the issuance of debt are deferred and amortized using the interest method over the contractual or

expected term of the related debt.

Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return and combined or stand-alone state

franchise tax returns for certain states. We utilize the asset and liability method of accounting for income taxes, under
which deferred income taxes are recognized for the future tax consequences attributable to the differences between the
financial statement values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. We estimate a valuation allowance against that portion of the deferred tax asset
whose utilization in future periods is not more than likely.

Purchases of Company Stock

We record purchases of our own common stock at cost and treat the shares as retired.

Stock Option Plan

We recognize compensation costs in the financial statements for all share-based payments granted subsequent to

January 1, 2006 based on the grant date fair value estimated in accordance with the provisions of ASC 718 “Stock
Compensation”. Compensation cost is recognized over the required service period, generally defined as the vesting period.

F-13

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the

United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the
reported periods. Specifically, a number of estimates were made in connection with determining an appropriate allowance
for finance credit losses, determining appropriate reserves for contingent liabilities, valuing finance receivables measured
at fair value and the related debt, accreting net acquisition fees, amortizing deferred costs, and recording deferred tax assets
and reserves for uncertain tax positions. These are material estimates that could be susceptible to changes in the near term
and, accordingly, actual results could differ from those estimates.

Reclassification

Certain amounts for the prior year have been reclassified to conform to the current year’s presentation with no

effect on previously reported earnings or shareholders’ equity.

Derivative Financial Instruments

We do not use derivative financial instruments to hedge exposures to cash flow or market risks. However, from
2008 to 2010, we issued warrants to purchase our common stock in conjunction with various debt financing transactions.
At the time of issuance, five of these warrants issued contained "down round," or price reset, features that are subject to
classification as liabilities for financial statement purposes. These liabilities were measured at fair value, with the changes
in fair value at the end of each period reflected as current period income or loss. Accordingly, changes to the market price
per share of our common stock underlying these warrants with "down round" features directly affected the fair value
computations for these derivative financial instruments. The effect was that any increase in the market price per share of
our common stock would also increase the related liability, which in turn would result in a current period loss. Conversely,
any decrease in the market price per share of our common stock would also decrease the related liability, which in turn
would result in a current period gain. We used a binomial pricing model to compute the fair value of the liabilities
associated with the outstanding warrants. In computing the fair value of the warrant liabilities at the end of each period, we
used significant judgments with respect to the risk free interest rate, the volatility of our stock price, and the estimated life
of the warrants. The warrant liabilities were included in Accounts Payable and Accrued Expenses on our Consolidated
Balance Sheets. On March 29, 2012 we agreed with the holders to amend three of the five warrants that contained the
“down round” features, removing those specific price reset terms. On the date of the amendment, we valued each of the
three warrants using a binomial pricing model as described above. The aggregate value of the three amended warrants of
$1.1 million was then reclassified from Accounts Payable to Common Stock. On June 25, 2012 we agreed with the holder
to amend one other warrant that contained the “down round” features, removing those specific price reset terms. The
$250,000 aggregate value of this amended warrant was reclassified from Accounts Payable to Common Stock on the date
of the amendment. The fifth warrant with the “down round” feature was exercised on February 22, 2013. The $583,000
intrinsic value of this warrant was reclassified from Accounts Payable to Common Stock on the date of the exercise. As of
December 31, 2014 and 2013, all five of the warrants issued that previously contained price reset features have either been
amended or exercised and are no longer subject to quarterly valuations.

Financial Covenants

Certain of our securitization transactions, our residual interest financing and our warehouse credit facilities
contain various financial covenants requiring certain minimum financial ratios and results. Such covenants include
maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. In addition, certain
securitization and non-securitization related debt contain cross-default provisions that would allow certain creditors to
declare a default if a default occurred under a different facility. As of December 31, 2014 we were in compliance with all
such financial covenants.

Gain on Cancellation of Debt

In April 2013, we repurchased the outstanding Class D notes from our first 2008 securitization for a cash payment

of $6.1 million and a new 5% note for $5.3 million due in June 2014. The Class D notes were held by the same related
party that held our senior secured debt. On the date we repurchased the Class D notes, the Class D note holder owned
10.5% of our outstanding common stock and warrants to purchase an additional 1.9 million shares of common stock. We
subsequently exercised our “clean-up call” option and repurchased the remaining collateral from the related securitization
trust. The aggregate value of our consideration for the Class D notes was $10.9 million less than our carrying value of the
Class D notes at the time of the repurchase. As a result of the repurchase of the Class D notes and the termination of the
securitization trust, we realized a gain of $10.9 million for the year ended December 31, 2013.

F-14

Provision for Contingent Liabilities

We are routinely involved in various legal proceedings resulting from our consumer finance activities and
practices, both continuing and discontinued. Our legal counsel has advised us on such matters where, based on information
available at the time of this report, there is an indication that it is both probable that a liability has been incurred and the
amount of the loss can be reasonably determined.

In 2013, we recognized $7.8 million in contingent liability expenses to either record or increase the amounts we
believed represented our best estimate of probable incurred losses related to various matters. The amount was allocated in
part to a long running case (“Pardee”) in which we were sued for indemnity, and also to more recent matters. In September
2014 we reached a settlement of the Pardee case, pursuant to which we paid $5.99 million and all claims against us were
fully and finally discharged.

The more recent matters included two California class action suits where we are the defendant, and a
governmental inquiry, in which the United States Federal Trade Commission (“FTC”) had informally proposed that we
refrain from certain allegedly unfair trade practices, and make restitutionary payments into a consumer relief fund. In May
2014, the FTC announced its agreement to settle the matter by filing a lawsuit against us, and requesting, with our consent,
that the court enter an agreed judgment against us. The lawsuit arose out of the FTC’s inquiry into our business practices.
Under the agreed settlement, we made approximately $1.9 million of restitutionary payments and $1.6 million of account
adjustments to our customers in September 2014, and paid a $2 million penalty to the federal government in June 2014,
and implemented procedural changes, all pursuant to a consent decree which was entered by the court in June 2014.

We have recorded a liability as of December 31, 2014, which represents our best estimate of probable incurred
losses for legal contingencies. The amount of losses that may ultimately be incurred cannot be estimated with certainty.

(2) Restricted Cash

Restricted cash consists of cash and cash equivalent accounts relating to our outstanding securitization trusts and
credit facilities. The amount of restricted cash on our Consolidated Balance Sheets was $175.4 million and $132.3 million
as of December 31, 2014 and 2013, respectively.

Our securitization transactions and one of our warehouse credit facilities require that we establish cash reserves,

or spread accounts, as additional credit enhancement. These cash reserves, which are included in restricted cash, were
$31.2 million and $23.3 million as of December 31, 2014 and 2013, respectively.

(3) Finance Receivables

Our portfolio of finance receivables consists of small-balance homogeneous contracts comprising a single

segment and class that is collectively evaluated for impairment on a portfolio basis according to delinquency status. Our
contract purchase guidelines are designed to produce a homogenous portfolio. We report delinquency on a contractual
basis. Once a contract becomes greater than 90 days delinquent, we do not recognize additional interest income until the
obligor under the contract makes sufficient payments to be less than 90 days delinquent. Any payments received on a
contract that is greater than 90 days delinquent are first applied to accrued interest and then to principal reduction.

The following table presents the components of finance receivables, net of unearned interest:

December 31,

2014

2013

(In thousands)

Finance receivables ..........................................................

Automobile finance receivables, net of unearned

interest ...................................................................... $
Less: Unearned acquisition fees and discounts ...........
Finance receivables ...................................................... $

1,612,246 $
(16,290)
1,595,956 $

1,182,950
(27,887)
1,155,063

F-15

We consider an automobile contract delinquent when an obligor fails to make at least 90% of a contractually due

payment by the following due date, which date may have been extended within limits specified in the servicing
agreements. The period of delinquency is based on the number of days payments are contractually past due, as extended
where applicable. Automobile contracts less than 31 days delinquent are not included. In certain circumstances we will
grant obligors one-month payment extensions to assist them with temporary cash flow problems. The only modification of
terms is to advance the obligor’s next due date by one month and extend the maturity date of the receivable by one month.
In certain limited cases, a two-month extension may be granted. There are no other concessions such as a reduction in
interest rate, forgiveness of principal or of accrued interest. Accordingly, we consider such extensions to be insignificant
delays in payments rather than troubled debt restructurings. The following table summarizes the delinquency status of
finance receivables as of December 31, 2014 and 2013:

Delinquency Status
Current ............................................................................. $
31 - 60 days ......................................................................
61 - 90 days ......................................................................
91 + days ..........................................................................

December 31,

2014

2013

(In thousands)

1,523,020 $
42,730
23,300
23,196
1,612,246 $

1,125,926
21,421
24,663
10,940
1,182,950

Finance receivables totaling $23.2 million and $10.9 million at December 31, 2014 and 2013, respectively, have

been placed on non-accrual status as a result of their delinquency status.

The following table presents a summary of the activity for the allowance for finance credit losses, for the years

ended December 31, 2014, 2013 and 2012:

2014

December 31,
2013
(In thousands)

Balance at beginning of year ........................................... $
Provision for credit losses ................................................
Charge-offs .......................................................................
Recoveries ........................................................................
Balance at end of year ...................................................... $

39,626 $

108,228
(109,914)
23,520
61,460

19,594 $
76,869
(69,455)
12,618
39,626 $

2012

10,351
33,495
(37,638)
13,386
19,594

Excluded from finance receivables are contracts that were previously classified as finance receivables but were
reclassified as other assets because we have repossessed the vehicle securing the Contract. The following table presents a
summary of such repossessed inventory together with the allowance for losses on repossessed inventory:

Gross balance of repossessions in inventory ................... $
Allowance for losses on repossessed inventory ..............
Net repossessed inventory included in other assets ........ $

(4) Finance Receivables Measured at Fair Value

December 31,

2014

2013

(In thousands)
28,234 $
(17,829)
10,405 $

24,743
(14,779)
9,964

In September 2011 we purchased approximately $217.8 million of finance receivables from Fireside Bank. These

receivables are recorded on our Consolidated Balance Sheets at fair value.

The following table presents the components of finance receivables measured at fair value and includes $1,319

and $120,000 in repossessed inventory at December 31, 2014 and December 31, 2013, respectively:

December 31,

2014

2013

(In thousands)

Finance receivables measured at fair value .....................

Finance receivables and accrued interest, net of

unearned interest .......................................................... $
Less: Fair value adjustment .........................................
Finance receivables measured at fair value ................. $

1,664 $
–
1,664 $

14,786
(310)
14,476

F-16

The following table summarizes the delinquency status of finance receivables measured at fair value as of

December 31, 2014 and December 31, 2013:

December 31,

2014

2013

(In thousands)

Delinquency Status ..........................................................
Current ............................................................................. $
31 - 60 days ...................................................................... 262
61 - 90 days ......................................................................
91 + days ..........................................................................

1,266 $

13,421

878

74
62
1,664 $

253
234
14,786

(5) Furniture and Equipment

The following table presents the components of furniture and equipment:

Furniture and fixtures ...................................................... $
Computer and telephone equipment ................................
Leasehold improvements .................................................

Less: accumulated depreciation and amortization ..........

December 31,

2014

2013

(In thousands)
1,396 $
4,424
871
6,691
(5,530)
1,161 $

1,141
4,094
633
5,868
(5,102)
766

Depreciation expense totaled $428,000, $437,000 and $543,000 for the years ended December 31, 2014, 2013 and

2012, respectively.

(6) Securitization Trust Debt.

We have completed numerous term securitization transactions that are structured as secured borrowings for
financial accounting purposes. The debt issued in these transactions is shown on our Consolidated Balance Sheets as
“Securitization trust debt,” and the components of such debt are summarized in the following table

Series

Final
Scheduled
Payment
Date (1)

Receivables
Pledged at
December 31,
2014 (2)

Outstanding
Principal at
December 31,
2014
(Dollars in thousands)

Initial
Principal

Outstanding
Principal at
December 31,
2013

Page Five
Funding
CPS 2011-A
CPS 2011-B
CPS 2011-C
CPS 2012-A
CPS 2012-B
CPS 2012-C
CPS 2012-D
CPS 2013-A
CPS 2013-B
CPS 2013-C
CPS 2013-D
CPS 2014-A
CPS 2014-B
CPS 2014-C
CPS 2014-D (3)

January 2018
April 2018
September 2018
March 2019
June 2019
September 2019
December 2019
March 2020
June 2020
September 2020
December 2020
March 2021
June 2021
September 2021
December 2021
March 2022
$

–
12,613
23,569
30,662
36,757
51,168
56,717
68,703
98,601
119,537
135,980
134,498
146,784
180,717
259,899
180,449
1,536,654 $

46,058
100,364
109,936
119,400
155,000
141,500
147,000
160,000
185,000
205,000
205,000
183,000
180,000
202,500
273,000
267,500
2,680,258 $

–
8,457
22,985
30,601
35,923
50,125
55,619
67,833
97,775
118,692
133,628
132,150
143,456
177,601
256,151
267,500
1,598,496 $

9,358
24,526
44,433
56,271
65,051
86,254
93,006
108,815
142,842
172,499
191,504
183,000
–
–
–
–
1,177,559

Weighted
Average
Interest
Rate at
December 31,
2014

–

2.84%
4.54%
4.95%
3.41%
3.11%
2.45%
2.12%
1.97%
2.46%
2.75%
2.44%
2.05%
1.87%
2.10%
2.34%

_________________________

(1) The Final Scheduled Payment Date represents final legal maturity of the securitization trust debt. Securitization
trust debt is expected to become due and to be paid prior to those dates, based on amortization of the finance
F-17

receivables pledged to the Trusts. Expected payments, which will depend on the performance of such receivables,
as to which there can be no assurance, are $636.5 million in 2015, $468.3 million in 2016, $285.8 million in 2017,
$143.2 million in 2018, $56.8 million in 2019, and $7.9 million in 2020.

(2) Includes repossessed assets that are included in Other Assets on our Consolidated Balance Sheets.
(3) An additional $85.3 million of receivables were pledged to CPS 2014-D in January 2015.

All of the securitization trust debt was issued in private placement transactions to qualified institutional investors.

The debt was issued by our wholly-owned, bankruptcy remote subsidiaries and is secured by the assets of such
subsidiaries, but not by any of our other assets.

The terms of the various securitization agreements related to the issuance of the securitization trust debt require

that certain delinquency and credit loss criteria be met with respect to the collateral pool, and require that we maintain
minimum levels of liquidity and net worth and not exceed maximum leverage levels. We were in compliance with all such
covenants as of December 31, 2014.

We are responsible for the administration and collection of the contracts. The securitization agreements also

require certain funds be held in restricted cash accounts to provide additional credit enhancement for the Notes or to be
applied to make payments on the securitization trust debt. As of December 31, 2014, restricted cash under the various
agreements totaled approximately $175.4 million. This amount includes $85.3 million in pre-funding proceeds related to
CPS 2014-D. Interest expense on the securitization trust debt is composed of the stated rate of interest plus amortization of
additional costs of borrowing. Additional costs of borrowing include facility fees, insurance premiums, amortization of
transaction costs, and amortization of discounts required on the notes at the time of issuance. Deferred financing costs
related to the securitization trust debt are amortized using the interest method. Accordingly, the effective cost of borrowing
of the securitization trust debt is greater than the stated rate of interest.

Our wholly-owned, bankruptcy remote subsidiaries were formed to facilitate the above asset-backed financing

transactions. Similar bankruptcy remote subsidiaries issue the debt outstanding under our warehouse line of credit.
Bankruptcy remote refers to a legal structure in which it is expected that the applicable entity would not be included in any
bankruptcy filing by its parent or affiliates. All of the assets of these subsidiaries have been pledged as collateral for the
related debt. All such transactions, treated as secured financings for accounting and tax purposes, are treated as sales for all
other purposes, including legal and bankruptcy purposes. None of the assets of these subsidiaries are available to pay any
of our other creditors.

(7) Debt

The terms of our debt outstanding at December 31, 2014 and 2013 are summarized below:

Description

Interest Rate

Maturity

Amount Outstanding at

December 31,

2014

2013

(In thousands)

March 2017

23,581 $

9,452

Warehouse lines of credit

5.73% over one month Libor
(Minimum 6.73%)

5.50% over one month Libor
(Minimum 6.25%)

August 2017

Residual interest financing

11.75% over one month Libor

April 2018

Debt secured by receivables measured
at fair value

n/a

Repayment is based on payments
from underlying receivables. Final
payment of the 8.00% loan was made
in September 2013. Final residual
payment was made in January 2015.

Senior secured debt, related party

13.00%

5.00%

n/a

Subordinated renewable notes

Weighted average rate of

10.7% and 12.5% at
December 31, 2014 and 2013,
respectively

Weighted average maturity of October
2016 and July 2015 at December 31,
2014 and 2013, respectively

33,258

12,327

1,250

–

19,096

13,117

–

37,128

1,431

15,233

19,142

In March 2013 we renewed our $100 million warehouse credit line with affiliates of Goldman, Sachs & Co. and

Fortress Investment Group. The facility is structured to allow us to fund a portion of the purchase price of automobile
contracts by borrowing from a credit facility to our consolidated subsidiary Page Six Funding LLC. The facility provides

F-18

85,649 $

99,366

for advances up to 88% of eligible finance receivables and the loans under it accrue interest at a rate of one-month LIBOR
plus 5.73% per annum, with a minimum rate of 6.73% per annum. There was $23.6 million outstanding under this facility
at December 31, 2014. This facility has a revolving period through March 2015 and an amortization period through March
2017 for any receivables pledged to the facility at the end of the revolving period.

In August 2014, we renewed our $100 million warehouse credit line with Citibank, N.A. The facility is structured

to allow us to fund a portion of the purchase price of automobile contracts by borrowing from a credit facility to our
consolidated subsidiary Page Eight Funding, LLC. The facility provides for effective advances up to 88.0% of eligible
finance receivables. The loans under the facility accrue interest at one-month LIBOR plus 5.50% per annum, with a
minimum rate of 6.25% per annum. There was $33.3 million outstanding under this facility at December 31, 2014. This
facility has a revolving period through August 2016 and an amortization period through August 2017 for any receivables
pledged at the end of the revolving period.

The total outstanding debt on our warehouse lines of credit was $56.8 million as of December 31, 2014, compared

to $9.5 million outstanding as of December 31, 2013.

The costs incurred in conjunction with the above debt are recorded as deferred financing costs on the

accompanying Consolidated Balance Sheets and are more fully described in Note 1.

We must comply with certain affirmative and negative covenants related to debt facilities, which require, among

other things, that we maintain certain financial ratios related to liquidity, net worth and capitalization. Further covenants
include matters relating to investments, acquisitions, restricted payments and certain dividend restrictions. See the
discussion of financial covenants in Note 1.

The following table summarizes the contractual and expected maturity amounts of long term debt as of December

31, 2014:

Contractual maturity date

Residual
interest

financing (1)

Subordinated
renewable
notes
(In thousands)

2015 .................................................... $
2016 ....................................................
2017 ....................................................
2018 ....................................................
2019 ....................................................
Thereafter ...........................................
Total ................................................... $

2,188 $
1,473
3,159
5,507
–
–
12,327 $

8,171 $
3,833
1,142
610
49
1,428
15,233 $

Total

10,359
5,306
4,301
6,117
49
1,428
27,560

_________________________

(1) The residual interest financing debt has a contractual maturity date in April 2018. This debt is expected to become

due and payable prior to that date, based on the decreasing valuation of the underlying collateral.

(2) Debt secured by receivables measured at fair value, in the amount of $1.3 million as of December 31, 2014, is
omitted from this table because it becomes due as and when the related receivables balance is reduced by
payments and charge-offs.

(8) Shareholders’ Equity

Common Stock

Holders of common stock are entitled to such dividends as our Board of Directors, in its discretion, may declare
out of funds available, subject to the terms of any outstanding shares of preferred stock and other restrictions. In the event
of liquidation of the Company, holders of common stock are entitled to receive, pro rata, all of the assets of the Company
available for distribution, after payment of any liquidation preference to the holders of outstanding shares of preferred
stock. Holders of the shares of common stock have no conversion or preemptive or other subscription rights and there are
no redemption or sinking fund provisions applicable to the common stock.

We are required to comply with various operating and financial covenants defined in the agreements governing
the warehouse lines of credit, senior debt, residual interest financing and subordinated debt. The covenants for the senior
debt, residual interest financing and subordinated debt restrict the payment of certain distributions, including dividends
(See Note 7).

Stock Purchases

F-19

At five different times between 2000 and 2011, our Board of Directors has authorized the repurchase of up to

$34.5 million of our securities. As of December 31, 2014, we had purchased $5.0 million principal amount of debt
securities, and $28.4 million of our common stock, representing 9,800,720 shares. There is approximately $1.0 million
remaining under such plans, which have no expiration date.

Options and Warrants

In 2006, the Company adopted and its shareholders approved the CPS 2006 Long-Term Equity Incentive Plan

(the “2006 Plan”) pursuant to which our Board of Directors, or a duly-authorized committee thereof, may grant stock
options, restricted stock, restricted stock units and stock appreciation rights to our employees or employees of our
subsidiaries, to directors of the Company, and to individuals acting as consultants to the Company or its subsidiaries. In
June 2008, May 2012 and again in April 2013, the shareholders of the Company approved an amendment to the 2006 Plan
to increase the maximum number of shares that may be subject to awards under the 2006 Plan to 5,000,000, 7,200,000 and
12,200,000, respectively, in each case plus shares authorized under prior plans and not issued. Options that have been
granted under the 2006 Plan and a previous plan approved in 1997 have been granted at an exercise price equal to (or
greater than) the stock’s fair market value at the date of the grant, with terms generally of 7-10 years and vesting generally
over 4-5 years.

The per share weighted-average fair value of stock options granted during the years ended December 31, 2014,

2013 and 2012 was $2.73, $4.79 and $1.15, respectively. That fair value was estimated using the Black-Scholes option
pricing model using the weighted average assumptions noted in the following table. We use historical data to estimate the
expected term of each option. The volatility estimate is based on the historical and implied volatility of our stock over the
period that equals the expected life of the option. Volatility assumptions ranged from 52% to 55% for 2014, 50% to 85%
for 2013 and 54% to 82% for 2012. The risk-free interest rate is based on the yield on a U.S. Treasury bond with a maturity
comparable to the expected life of the option. The dividend yield is estimated to be zero based on our intention not to issue
dividends for the foreseeable future.

Expected life (years) ........................................................
Risk-free interest rate .......................................................
Volatility ..........................................................................
Expected dividend yield ..................................................

4.22
1.43%
55%
–

5.41
0.73 %
80 %
–

5.63
1.32%
79%
–

Year Ended December 31,
2013

2014

2012

For the years ended December 31, 2014, 2013 and 2012, we recorded stock-based compensation costs in the
amount of $3.8 million, $3.9 million and $1.1 million, respectively. As of December 31, 2014, the unrecognized stock-
based compensation costs to be recognized over future periods was equal to $13.9 million. This amount will be recognized
as expense over a weighted-average period of 3.0 years.

At December 31, 2014 and 2013, the options outstanding and exercisable had intrinsic values of $36.7 million and

$61.6 million, respectively. The total intrinsic value of options exercised was $9.1 million and $8.1 million for the years
ended December 31, 2014 and 2013, respectively. New shares were issued for all options exercised during the year ended
December 2014 and cash of $2.5 million was received. A tax benefit of $1.0 million was recorded for the options exercised
in 2014. At December 31, 2014, there were a total of 2.1 million additional shares available for grant under the 2006 Plan.

Stock option activity for the year ended December 31, 2014 for stock options under the 2006 and 1997 plans is as

follows:

Number of
Shares (in
thousands)

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term

Options outstanding at the beginning of period

Granted .........................................................................
Exercised ......................................................................
Forfeited/Expired .........................................................

Options outstanding at the end of period

10,128 $
2,030
(1,227)
(103)
10,828 $

3.30
6.59
2.02
4.58
4.05

N/A
N/A
N/A
N/A
6.01 years

Options exercisable at the end of period

5,761 $

2.52

4.89 years

The per share weighted average exercise price of stock options granted whose exercise price was equal to the

market price of the stock on the grant date during the years ended December 31, 2014, 2013 and 2012, was $6.59, $7.43
and $1.72, respectively. We did not issue any stock options with an exercise price above or below the market price of the
stock on the grant date for the years ended December 31, 2014, 2013 and 2012.

F-20

On June 30, 2008, we entered into a series of agreements pursuant to which a lender purchased a $10 million five-

year, fixed rate, senior secured note from us. In July 2008, in conjunction with the amendment of the residual interest
financing as discussed above, the lender purchased an additional $15 million note with substantially the same terms as the
$10 million note. Pursuant to the June 30, 2008 securities purchase agreement, we issued to the lender 1,225,000 shares of
common stock. In addition, we issued the lender two warrants: (i) warrants that we refer to as the FMV Warrants, which
were exercisable for 1,611,114 shares of our common stock, at an exercise price of $1.39818 per share, and (ii) warrants
that we refer to as the N Warrants, which were exercisable for 285,781 shares of our common stock, at a nominal exercise
price. Both the FMV Warrants and the N Warrants were exercised in November 2013.

In connection with the amendment to and partial repayment of our residual interest financing in July 2008, we
issued warrants exercisable for 2,500,000 common shares for $4,071,429. The warrants represent the right to purchase
2,500,000 CPS common shares at a nominal exercise price, at any time prior to July 10, 2018. In March 2010 we
repurchased warrants for 500,000 of these shares for $1.0 million. Warrants to purchase 2,000,000 shares remain
outstanding as of December 31, 2014.

A warrant to purchase 1,162,270 shares of our common shares at an exercise price of $0.876 per share, which was

issued in connection with our $50 million revolving credit facility established in September 2009, was exercised by the
lender in April 2013.

Warrants to purchase 500,000 of our common shares at an exercise price of $1.41 per share were issued to certain
note purchasers in our March 2010 $50 million term funding facility. Warrants to purchase 409,390 shares were exercised
during 2014 and none remain outstanding as of December 31, 2014.

(9) Interest Income and Interest Expense

The following table presents the components of interest income:

Interest on finance receivables ........................................ $
Residual interest income ..................................................
Other interest income .......................................................
Interest income ................................................................. $

286,361 $
372
1

286,734 $

231,320 $
–
10
231,330 $

174,019
458
837
175,314

2014

Year Ended December 31,
2013
(In thousands)

2012

F-21

The following table presents the components of interest expense:

2014

Year Ended December 31,
2013
(In thousands)

2012

Securitization trust debt ................................................... $
Warehouse lines of credit ................................................
Senior secured debt, related party ...................................
Debt secured by receivables at fair value ........................
Residual interest financing ..............................................
Subordinated renewable notes .........................................
Interest expense ................................................................ $

38,558 $
5,217
1,651
772

1,989
2,208
50,395 $

34,744 $
5,003
8,064
3,877
3,330
3,161
58,179 $

38,289
6,874
12,314
15,877
2,629
3,439
79,422

(10) Income Taxes

Income taxes consist of the following:

2014

Year Ended December 31,
2013
(In thousands)

2012

Current federal tax expense ............................................. $
Current state tax expense .................................................
Deferred federal tax expense ...........................................
Deferred state tax expense (benefit) ................................
Change in valuation allowance ........................................
Income tax expense (benefit) ........................................... $

1,348 $
1,316
18,338
1,724
–

22,726 $

977 $
365
13,306
1,520
–
16,168 $

369
49
2,826
(654)
(62,811)
(60,221)

Income tax expense/(benefit) for the years ended December 31, 2014, 2013 and 2012 differs from the amount

determined by applying the statutory federal rate of 35% to income before income taxes as follows:

Expense at federal tax rate ............................................... $
State taxes, net of federal income tax effect ....................
Other adjustments to tax reserve .....................................
Effect of change in state tax rate .....................................
Change in valuation allowance ........................................
Stock-based compensation...............................................
Non-deductible expenses .................................................
Other .................................................................................

2014

Year Ended December 31,
2013
(In thousands)

2012

18,285 $
2,651
(54)
144
–
1,182
116
402
22,726 $

13,011 $
2,079
(419)
(239)
–
911
619
206
16,168 $

3,215
1,190
(1,153)
(1,105)
(62,811)
321
63
59
(60,221)

F-22

The tax effected cumulative temporary differences that give rise to deferred tax assets and liabilities as of

December 31, 2014 and 2013 are as follows:

Deferred Tax Assets:
Finance receivables .......................................................... $
Accrued liabilities ............................................................
Furniture and equipment ..................................................
NOL carryforwards ..........................................................
Built in losses ...................................................................
Pension accrual ................................................................
AMT credit carryforward ................................................
Other .................................................................................
Total deferred tax assets ..............................................

Deferred Tax Liabilities:
FAS 91 deferred costs ......................................................
Pension accrual ................................................................
Investment residual ..........................................................

Total deferred tax liabilities .........................................

December 31,

2014

2013

(In thousands)

19,046 $
2,551
16
6,922
11,698
1,090
2,899
941
45,163

(2,316)
–
–
(2,316)

17,258
5,079
196
23,811
13,074
–
1,993
839
62,250

(1,555)
(1,136)
(344)
(3,035)

Net deferred tax asset ................................................... $

42,847 $

59,215

We acquired certain net operating losses and built-in loss assets as part of our acquisitions of MFN Financial

Corp. (“MFN”) in 2002 and TFC Enterprises, Inc. (“TFC”) in 2003. Moreover, both MFN and TFC have undergone an
ownership change for purposes of Internal Revenue Code (“IRC”) Section 382. In general, IRC Section 382 imposes an
annual limitation on the ability of a loss corporation (that is, a corporation with a net operating loss (“NOL”) carryforward,
credit carryforward, or certain built-in losses (“BILs”)) to utilize its pre-change NOL carryforwards or BILs to offset
taxable income arising after an ownership change.

In determining the possible future realization of deferred tax assets, we have considered future taxable income

from the following sources: (a) reversal of taxable temporary differences; and (b) tax planning strategies that, if necessary,
would be implemented to accelerate taxable income into years in which net operating losses might otherwise expire.

Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. A

valuation allowance is recognized for a deferred tax asset if, based on the weight of the available evidence, it is more likely
than not that some portion of the deferred tax asset will not be realized. In making such judgements, significant weight is
given to evidence that can be objectively verified. As a result of the unprecedented adverse changes in the market for
securitizations, the recession and the resulting high levels of unemployment that occurred in 2008 and 2009, we incurred
substantial operating losses from 2009 through 2011 which led us to establish a valuation allowance against a substantial
portion of our deferred tax assets. We determined at December 31, 2012 that, based on the weight of the available
objective evidence, it was more likely than not that we would generate sufficient future taxable income to utilize our net
deferred tax assets. Accordingly, we reversed the related valuation allowance of $62.8 million in the fourth quarter of
2012.

Although realization is not assured, we believe that the realization of the recognized net deferred tax asset of

$42.8 million as of December 31, 2014 is more likely than not based on forecasted future net earnings. Our net deferred tax
asset of $42.8 million consists of approximately $32.7 million of net U.S. federal deferred tax assets and $10.1 million of
net state deferred tax assets. The major components of the deferred tax asset are $18.6 million in net operating loss
carryforwards and built in losses and $24.2 million in net deductions which have not yet been taken on a tax return.

As of December 31, 2014, we had net operating loss carryforwards for federal and state income tax purposes of

$3.5 million and $108.5 million, respectively. The federal net operating losses begin to expire in 2022. The state net
operating losses begin to expire in 2015.

F-23

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits including interest and

penalties for the year:

Unrecognized tax benefit - opening balance ................... $
Gross increases - tax positions in prior period ................
Gross decreases - tax positions in current period ............
Gross increases - tax positions in current period ............
Settlements .......................................................................
Lapse of statute of limitations .........................................
Unrecognized tax benefit - ending balance ..................... $

2014

2013

(In thousands)
– $
–
–
–
–
–
– $

1,331
–
–
–
(686)
(645)
–

We recognize a tax position as a benefit only if it is “more likely than not” that the tax position would be

sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest
amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the
“more likely than not” test, no tax benefit is recorded. We recognize potential interest and penalties related to unrecognized
tax benefits as income tax expense. At December 31, 2014, we had no unrecognized tax benefits for uncertain tax
positions.

We are subject to taxation in the US and various state jurisdictions. With few exceptions, we are no longer subject

to U.S. federal, state, or local examinations by tax authorities for years before 2011.

(11) Related Party Transactions

In December 2007, one of our directors purchased a $4.0 million subordinated renewable note pursuant to our
ongoing program of issuing such notes to the public. The note was purchased through the registered agent and under the
same terms and conditions, including the interest rate, that were offered to other purchasers at the time the note was issued.
As of December 31, 2014, $4.0 million remains outstanding on this note.

(12) Commitments and Contingencies

Leases

The Company leases its facilities and certain computer equipment under non-cancelable operating leases, which
expire through 2018. Future minimum lease payments at December 31, 2014, under these leases are due during the years
ended December 31 as follows:

2015 .................................................................................. $
2016 ..................................................................................
2017 ..................................................................................
2018 ..................................................................................
2019 ..................................................................................
Thereafter .........................................................................
Total minimum lease payments ....................................... $

Amount
(In
thousands)
3,695
3,185
1,878
1,536
1,089
–
11,383

Rent expense for the years ended December 31, 2014, 2013 and 2012, was $3.5 million, $2.6 million and $2.9

million, respectively.

Our facility leases contain certain rental concessions and escalating rental payments, which are recognized as

adjustments to rental expense and are amortized on a straight-line basis over the terms of the leases.

F-24

Litigation

Consumer Litigation. We are routinely involved in various legal proceedings resulting from our consumer finance

activities and practices, both continuing and discontinued. Consumers can and do initiate lawsuits against us alleging
violations of law applicable to collection of receivables, and such lawsuits sometimes allege that resolution as a class
action is appropriate. We are currently defending two such purported class actions, one of which has been settled by
agreement with the plaintiffs (such settlement remains subject to approval by the court). For the most part, we have legal
and factual defenses to such claims, which we routinely contest or settle (for immaterial amounts) depending on the
particular circumstances of each case. We have recorded a liability as of December 31, 2014 with respect to such matters,
in the aggregate.

FTC Action. In July 2013, the staff of the U.S. Federal Trade Commission (“FTC”) advised us that they were

prepared to recommend that the FTC initiate a lawsuit against us relating to allegedly unfair trade practices, and
simultaneously advised that settlement of such issues by consent decree might be achieved. On May 29, 2014, the FTC
announced its agreement to settle the matter by filing a lawsuit against us, and requesting, with our consent, that the court
enter an agreed judgment against us. The lawsuit arose out of the FTC’s inquiry into our business practices. Under the
agreed settlement, we made approximately $1.9 million of restitutionary payments and $1.6 million of account adjustments
to our customers in September 2014, paid a $2 million penalty to the federal government in June 2014, and implemented
procedural changes, all pursuant to a consent decree that was entered by the court in June 2014.

Department of Justice Subpoena. In January 2015, we were served with a subpoena by the U.S. Department of

Justice directing us to produce certain documents relating to our and our subsidiaries’ and affiliates’ origination and
securitization of sub-prime automobile contracts since 2005 in connection with an investigation by the U.S. Department of
Justice in contemplation of a civil proceeding for potential violations of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989. Among other matters, the subpoena requests information relating to the underwriting criteria
used to originate these automobile contracts and the representations and warranties relating to those underwriting criteria
that were made in connection with the securitization of the automobile contracts. We are investigating these matters
internally and are cooperating with the request. Such investigation could in the future result in the imposition of damages,
fines or civil or criminal claims and/or penalties. No assurance can be given as to the ultimate outcome of the investigation
or any resulting proceeding(s), which might materially and adversely affect us.

In General. There can be no assurance as to the outcomes of the matters referenced above. We have recorded a
liability as of December 31, 2014, which represents our best estimate of probable incurred losses for legal contingencies,
including all of the matters described or referenced above. The amount of losses that may ultimately be incurred cannot be
estimated with certainty. However, based on such information as is available to us, we believe that the range of reasonably
possible losses for the legal proceedings and contingencies we face, including those described or referenced above, as of
December 31, 2014, and in excess of the liability we have recorded, is from $0 to $1.5 million.

Accordingly, we believe that the ultimate resolution of such legal proceedings and contingencies, after taking into

account our current litigation reserves, should not have a material adverse effect on our consolidated financial condition.
We note, however, that in light of the uncertainties inherent in contested proceedings, there can be no assurance that the
ultimate resolution of these matters will not significantly exceed the reserves we have accrued; as a result, the outcome of a
particular matter may be material to our operating results for a particular period, depending on, among other factors, the
size of the loss or liability imposed and the level of our income for that period. See Note 1 for a discussion of legal
contingent liabilities.

(13) Employee Benefits

We sponsor a pretax savings and profit sharing plan (the “401(k) Plan”) qualified under Section 401(k) of the

Internal Revenue Code. Under the 401(k) Plan, eligible employees are able to contribute up to 15% of their compensation
(subject to stricter limitation in the case of highly compensated employees). We may, at our discretion, match 100% of
employees’ contributions up to $1,500 per employee per calendar year. Our contributions to the 401(k) Plan were $642,000
and $471,000 for the year ended December 31, 2014 and 2013. We did not make any matching contributions in 2012.

We also sponsor a defined benefit plan, the MFN Financial Corporation Pension Plan (the “Plan”). The Plan

benefits were frozen on June 30, 2001.

F-25

The following tables represents a reconciliation of the change in the plan’s benefit obligations, fair value of plan

assets, and funded status at December 31, 2014 and 2013:

Change in Projected Benefit Obligation
Projected benefit obligation, beginning of year ................................................................ $
Service cost ........................................................................................................................
Interest cost ........................................................................................................................
Assumption changes ..........................................................................................................
Actuarial (gain) loss ...........................................................................................................
Settlements .........................................................................................................................
Benefits paid ......................................................................................................................

Projected benefit obligation, end of year ...................................................................... $

Change in Plan Assets
Fair value of plan assets, beginning of year ...................................................................... $
Return on assets .................................................................................................................
Employer contribution .......................................................................................................
Expenses .............................................................................................................................
Settlements .........................................................................................................................
Benefits paid ......................................................................................................................
Fair value of plan assets, end of year ............................................................................

December 31,

2014

2013

(In thousands)

18,841 $
–
888
3,570
211
–
(951)
22,559 $

21,664 $
(1,009)
237
(93)
–
(951)
19,848 $

21,792
–
823
(2,420)
(113)
–
(1,241)
18,841

16,612
6,009
389
(105)
–
(1,241)
21,664

Funded Status at end of year ........................................................................................... $

(2,711) $

2,823

Additional Information

Weighted average assumptions used to determine benefit obligations and cost at December 31, 2014 and 2013

were as follows:

Weighted average assumptions used to determine benefit obligations
Discount rate ......................................................................................................................

3.80%

4.75%

Weighted average assumptions used to determine net periodic benefit cost
Discount rate ......................................................................................................................
Expected return on plan assets ...........................................................................................

4.75%
8.00%

3.91%
8.25%

December, 31

2014

2013

F-26

Our overall expected long-term rate of return on assets is 8.00% per annum as of December 31, 2014. The

expected long-term rate of return is based on the weighted average of historical returns on individual asset categories,
which are described in more detail below.

2014

December 31,
2013
(In thousands)

2012

Amounts recognized on Consolidated Balance Sheet
Other assets .......................................................................................... $
Other liabilities .....................................................................................

Net amount recognized .................................................................... $

– $
(2,711)
(2,711) $

2,823 $
–
2,823 $

–
(5,180)
(5,180)

Amounts recognized in accumulated other comprehensive loss
consists of:
Net loss ................................................................................................. $
Unrecognized transition asset ..............................................................

Net amount recognized .................................................................... $

Components of net periodic benefit cost
Interest cost .......................................................................................... $
Expected return on assets .....................................................................
Amortization of transition asset ...........................................................
Amortization of net loss .......................................................................
Net periodic benefit cost ......................................................................
Settlement (gain)/loss ..........................................................................

Total ................................................................................................. $

Benefit Obligation Recognized in Other Comprehensive Loss
(Income)
Net loss (gain) ...................................................................................... $
Prior service cost (credit) .....................................................................
Amortization of prior service cost .......................................................

Net amount recognized in other comprehensive loss (income) ...... $

7,977 $
–
$

7,977

1,367 $
–
1,367 $

888 $
(1,727)
–
–
(839)
–
(839) $

823 $
(1,335)
–
484
(28)
–
(28) $

8,953
–
8,953

875
(928)
–
680
627
–
627

6,610 $
–
–
6,610 $

(7,586) $
–
–
(7,586) $

(2,748)
–
–
(2,748)

The estimated net loss that will be amortized from accumulated other comprehensive income into net periodic

benefit cost in 2015 is $350,000.

The weighted average asset allocation of our pension benefits at December 31, 2014 and 2013 were as follows:

Weighted Average Asset Allocation at Year-End
Asset Category
Equity securities .................................................................................................................
Debt securities ....................................................................................................................
Cash and cash equivalents .................................................................................................
Total ...............................................................................................................................

December 31,

2014

2013

84%
15%
1%
100%

87%
13%
0%
100%

Our investment policies and strategies for the pension benefits plan utilize a target allocation of 75% equity

securities and 25% fixed income securities (excluding Company stock). Our investment goals are to maximize returns
subject to specific risk management policies. We address risk management and diversification by the use of a professional
investment advisor and several sub-advisors which invest in domestic and international equity securities and domestic
fixed income securities. Each sub-advisor focuses its investments within a specific sector of the equity or fixed income
market. For the sub-advisors focused on the equity markets, the sectors are differentiated by the market capitalization, the
relative valuation and the location of the underlying issuer. For the sub-advisors focused on the fixed income markets, the
sectors are differentiated by the credit quality and the maturity of the underlying fixed income investment. The investments
made by the sub-advisors are readily marketable and can be sold to fund benefit payment obligations as they become
payable.

F-27

Cash Flows

Estimated Future Benefit Payments (In thousands)
2015 ................................................................................................................................................................... $
2016 ...................................................................................................................................................................
2017 ...................................................................................................................................................................
2018 ...................................................................................................................................................................
2019 ...................................................................................................................................................................
Years 2020 – 2023 ............................................................................................................................................

771
785
822
856
902
5,128

Anticipated Contributions in 2015 ................................................................................................................... $

–

The fair value of plan assets at December 31, 2014 and 2013, by asset category, is as follows:

Level 1 (1)

Level 2 (2)

Level 3 (3)

December 31, 2014

Investment Name:
Company Common Stock ...................................... $
Large Cap Value ....................................................
Mid Cap Index .......................................................
Small Cap Growth ..................................................
Small Cap Value ....................................................
Focus Value ............................................................
Growth ....................................................................
International Growth ..............................................
Core Bond ..............................................................
High Yield ..............................................................
Inflation Protected Bond ........................................
Money Market ........................................................

Total ................................................................... $

6,542

$
–
–
–
–
–
–
–
–
–
–
–
6,542 $

(in thousands)

–
2,378

682
691
673
700

2,383
2,649
1,969
382
518
281
13,306 $

Level 1 (1)

Level 2 (2)

Level 3 (3)

December 31, 2013

Investment Name:
Company Common Stock ...................................... $
Fundamental Value ................................................
Mid Cap Growth ....................................................
Focus Value ............................................................
Small Co. Value .....................................................
Growth ....................................................................
International Growth ..............................................
Core Bond ..............................................................
High Yield ..............................................................
Inflation Protected Bond ........................................
Money Market ........................................................

Total ................................................................... $

8,319

$
–
–
–
–
–
–
–
–
–
–
8,319 $

(in thousands)

–
2,384

709
692
693
3,237
2,855
1,870
387
487
31
13,345 $

Total

6,542
2,378
682
691
673
700
2,383
2,649
1,969
382
518
281
19,848

Total

8,319
2,384
709
692
693
3,237
2,855
1,870
387
487
31
21,664

– $
–
–
–
–

–
–
–
–
–
–
– $

– $
–
–
–
–
–
–
–
–
–
–
– $

________________________

(1) Company common stock is classified as level 1 and valued using quoted prices in active markets for identical

assets.

(2) All other plan assets in stock, bond and money market funds are classified as level 2 and valued using significant

observable inputs.

(3) There are no plan assets classified as level 3 in the fair value hierarchy as a result of having significant

unobservable inputs.

F-28

(14) Fair Value Measurements

ASC 820, "Fair Value Measurements" clarifies the principle that fair value should be based on the assumptions
market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed
by level within the fair value hierarchy.

ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation

hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The
three levels are defined as follows: level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets; level 2 – inputs to the valuation methodology include quoted prices for
similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or
indirectly, for substantially the full term of the financial instrument; and level 3 – inputs to the valuation methodology are
unobservable and significant to the fair value measurement.

In September 2008 we sold automobile contracts in a securitization that was structured as a sale for financial

accounting purposes. In that sale, we retained both securities and a residual interest in the transaction that are measured at
fair value. In September 2010 we took advantage of improvement in the market for asset-backed securities by re-
securitizing the underlying receivables from our unrated September 2008 securitization. We also sold the securities
retained from the September 2008 transaction. No gain or loss was recorded as a result of the re-securitization transaction
described above. We describe below the valuation methodologies we use for the securities retained and the residual interest
in the cash flows of the transaction, as well as the general classification of such instruments pursuant to the valuation
hierarchy. The residual interest in such securitization is $68,000 as of December 31, 2014 and $854,000 as of December
31, 2013 and is classified as level 3 in the fair value hierarchy. We determine the value of that residual interest using a
discounted cash flow model that includes estimates for prepayments and losses. We used a discount rate of 20% per annum
and a cumulative net loss rate of 15% at December 31, 2014 and 2013. The assumptions we used are based on historical
performance of automobile contracts we have originated and serviced in the past, adjusted for current market conditions.

In September 2011, we acquired $217.8 million of finance receivables from Fireside Bank for a purchase price of
$199.6 million. The receivables were acquired by our wholly-owned special purpose subsidiary, CPS Fender Receivables,
LLC, which issued a note for $197.3 million, with a fair value of $196.5 million. Since the Fireside receivables were
originated by another entity with its own underwriting guidelines and procedures, we have elected to account for the
Fireside receivables and the related debt secured by those receivables at their estimated fair values so that changes in fair
value will be reflected in our results of operations as they occur. Interest income from the receivables and interest expense
on the note are included in interest income and interest expense, respectively. Changes to the fair value of the receivables
and debt are included in other income. Our level 3, unobservable inputs reflect our own assumptions about the factors that
market participants use in pricing similar receivables and debt, and are based on the best information available in the
circumstances. They include such inputs as estimated net charge-offs and timing of the amortization of the portfolio of
finance receivables. Our estimate of the fair value of the Fireside receivables is performed on a pool basis, rather than
separately on each individual receivable.

F-29

The table below presents a reconciliation of the acquired finance receivables and related debt measured at fair

value on a recurring basis using significant unobservable inputs:

Finance Receivables Measured at Fair Value:
Balance at beginning of year ............................................................................................. $
Payments on finance receivables at fair value ..................................................................
Charge-offs on finance receivables at fair value ...............................................................
Discount accretion .............................................................................................................
Mark to fair value ...............................................................................................................
Balance at end of year ........................................................................................................ $

Debt Secured by Finance Receivables Measured at Fair Value:
Balance at beginning of year ............................................................................................. $
Principal payments on debt at fair value ...........................................................................
Premium accretion .............................................................................................................
Mark to fair value ...............................................................................................................
Balance at end of year ........................................................................................................
Reduction for payments collected and payable .................................................................
Adjusted balance at end of year ......................................................................................... $

December 31,

2014

2013

(in thousands)

14,476 $
(12,276)
(846)
283
27
1,664 $

13,117 $
(12,456)
712
(123)
1,250
–
1,250 $

59,668
(43,122)
(2,896)
1,421
(595)
14,476

57,107
(45,969)
2,726
(747)
13,117
(1,654)
11,463

The table below compares the fair values of the Fireside receivables and the related secured debt to their

contractual balances for the periods shown:

December 31, 2014

December 31, 2013

Contractual
Balance

Fair
Value

Contractual
Balance

Fair
Value

(In thousands)

Fireside receivables portfolio ................................ $

1,664 $

14,786 $

14,476

Debt secured by Fireside receivables portfolio .....

–

1,250

–

13,117

The fair value of the debt secured by the Fireside receivables portfolio represents the discounted value of future
cash flows that we estimate will become due to the lender in accordance with the terms of our financing for the Fireside
portfolio. The terms of the debt provide for the lenders to receive a share of residual cash flows from the underlying
receivables after the contractual balance of the debt is repaid and the Company’s investment in the Fireside portfolio is
returned.

Repossessed vehicle inventory, which is included in Other Assets on our Consolidated Balance Sheet, is measured

at fair value using level 2 assumptions based on our actual loss experience on sale of repossessed vehicles. At December
31, 2014, the finance receivables related to the repossessed vehicles in inventory totaled $28.2 million. We have applied a
valuation adjustment, or loss allowance, of $17.8 million, which is based on a recovery rate of approximately 37%,
resulting in an estimated fair value and carrying amount of $10.4 million. The fair value and carrying amount of the
repossessed inventory at December 31, 2013 was $10.0 million after applying a valuation adjustment of $14.8 million.

There were no transfers in or out of level 1 or level 2 assets and liabilities for 2014 and 2013. We have no level 3
assets that are measured at fair value on a non-recurring basis. The table below presents a reconciliation for level 3 assets
measured at fair value on a recurring basis using significant unobservable inputs:

December 31,

2014

2013

(in thousands)

Residual Interest in Securitizations:
Balance at beginning of year ........................................... $
Cash received during year ...............................................
Included in earnings .........................................................
Balance at end of year ...................................................... $

854
$
(1,158)
372
68 $

4,824
(3,970)
–
854

F-30

The following table provides certain qualitative information about our level 3 fair value measurements for assets

and liabilities carried at fair value:

Financial Instrument Fair Values as of

December 31,

Inputs as of
December 31,

2014

2013

Valuation Techniques Unobservable Inputs 2014

2013

(In thousands)

Assets:

Finance receivables
measured at fair value

Residual interest in
securitizations

Liabilities:

Debt secured by
receivables measured at
fair value

1,664 $

14,476 Discounted cash flows Cumulative net losses

Discount rate

15.4% 15.4%
5.0% 5.0%

Monthly average

0.5% 0.5%

854 Discounted cash flows Cumulative net losses

prepayments

Discount rate

20.0% 20.0%
15.0% 15.0%

Monthly average

0.5% 0.5%

prepayments

1,250

13,117 Discounted cash flows

Discount rate

12.2% 12.2%

The estimated fair values of financial assets and liabilities at December 31, 2014 and 2013, were as follows:

Financial Instrument

Carrying

Value

As of December 31, 2014
(In thousands)
Fair Value Measurements Using:
Level 2

Level 1

Level 3

Total

Assets:
Cash and cash equivalents .......... $
Restricted cash and equivalents ..
Finance receivables, net ..............
Finance receivables measured at
fair value .................................

Residual interest in

securitizations .........................
Accrued interest receivable .........
Liabilities:
Warehouse lines of credit ........... $
Accrued interest payable .............
Residual interest financing .........
Debt secured by receivables

measured at fair value .............
Securitization trust debt ..............
Subordinated renewable notes ....

17,859

$
175,382
1,534,496

17,859
175,382
–

1,664

68
23,372

56,839
$
2,613
12,327

1,250
1,598,496
15,233

–

–
–

–
$
–
–

–
–
–

–
$
–
–

–

–
–

–
$
–
–

–
–
–

– $
–
1,512,567

17,859
175,382
1,512,567

1,664

68
23,372

56,839 $
2,613
12,327

68
23,372

56,839
2,613
12,327

1,250
1,619,742
15,233

F-31

Financial Instrument

Carrying

Value

As of December 31, 2013
(In thousands)
Fair Value Measurements Using:
Level
2

Level 1

Level 3

Total

Assets:
Cash and cash equivalents ............ $
Restricted cash and equivalents
Finance receivables, net ................
Finance receivables measured at

22,112
132,284
1,115,437

$ 22,112
132,284
–

fair value ...................................

14,476

Residual interest in

securitizations ...........................
Accrued interest receivable ...........
Liabilities: .....................................
Warehouse lines of credit ............. $
Accrued interest payable ...............
Residual interest financing ...........
Debt secured by receivables

measured at fair value ...............
Securitization trust debt ................
Senior secured debt, related party.
Subordinated renewable notes ......

854
18,670

9,452
2,908
19,096

13,117
1,177,559
38,559
19,142

–

–
–

–
–
–

–
–
–
–

–
–
–

–

–
–

–
–
–

–
–
–
–

–
–
1,100,153

22,112
132,284
1,100,153

14,476

854
18,670

9,452
2,908
19,096

14,476

854
18,670

9,452
2,908
19,096

13,117
1,189,086
38,559
19,142

The following summary presents a description of the methodologies and assumptions used to estimate the fair

value of our financial instruments. Much of the information used to determine fair value is highly subjective. When
applicable, readily available market information has been utilized. However, for a significant portion of our financial
instruments, active markets do not exist. Therefore, significant elements of judgment were required in estimating fair value
for certain items. The subjective factors include, among other things, the estimated timing and amount of cash flows, risk
characteristics, credit quality and interest rates, all of which are subject to change. Since the fair value is estimated as of
December 31, 2014 and 2013, the amounts that will actually be realized or paid at settlement or maturity of the instruments
could be significantly different.

Cash, Cash Equivalents and Restricted Cash and Equivalents

The carrying value equals fair value.

Finance Receivables, net

The fair value of finance receivables is estimated by discounting future cash flows expected to be collected using

current rates at which similar receivables could be originated.

Finance Receivables Measured at Fair Value and Debt Secured by Receivables Measured at Fair Value

The carrying value equals fair value.

Residual Interest in Securitizations

The fair value is estimated by discounting future cash flows using credit and discount rates that we believe reflect

the estimated credit, interest rate and prepayment risks associated with similar types of instruments.

Accrued Interest Receivable and Payable

The carrying value approximates fair value because the related interest rates are estimated to reflect current

market conditions for similar types of instruments.

Warehouse Lines of Credit, Residual Interest Financing, Senior Secured Debt, Related Party and Subordinated Renewable
Notes

The carrying value approximates fair value because the related interest rates are estimated to reflect current

market conditions for similar types of secured instruments.

F-32

Securitization Trust Debt

The fair value is estimated by discounting future cash flows using interest rates that we believe reflect the current

market rates.

(15) Quarterly Financial Data (unaudited)

Quarter Ended

March 31,

June 30,

September
30,

December 31,

(In thousands, except per share data)

2014
Revenues ................................................................ $
Income before income tax expense .......................
Net income .............................................................
Earnings per share:

Basic ................................................................... $
Diluted ................................................................

2013
Revenues ................................................................ $
Income before income tax expense .......................
Net income .............................................................
Earnings per share:

Basic ................................................................... $
Diluted ................................................................

2012
Revenues ................................................................ $
Income before income tax expense .......................
Net income .............................................................
Earnings per share:

Basic ................................................................... $
Diluted ................................................................

68,146 $
11,764
6,705

71,594 $
12,329
7,026

77,050 $
13,804
7,776

0.28 $
0.21

0.28 $
0.22

0.31 $
0.24

54,594 $
6,528
3,785

70,482 $
8,546
4,825

64,066 $
10,559
5,873

0.19 $
0.12

0.23 $
0.15

0.27 $
0.19

44,518 $
512
512

44,151 $
1,341
1,341

47,920 $
2,728
2,728

0.03 $
0.02

0.07 $
0.05

0.14 $
0.11

83,467
14,346
8,010

0.31
0.25

66,634
11,540
6,522

0.28
0.21

50,620
4,607
64,828

3.30
2.20

F-33