Consumer Portfolio Services
Annual Report 2018

Plain-text annual report

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549________________ FORM 10-K [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018Commission file number: 001-14116 CONSUMER PORTFOLIO SERVICES, INC.(Exact name of registrant as specified in its charter) California33-0459135(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.) 3800 Howard Hughes Pkwy, Las Vegas, NV89169(Address of principal executive offices)(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 ClassName of Each Exchange on Which RegisteredCommon Stock, no par valueThe 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 [X] 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 [X] 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 12months (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 [X] No [_] Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule405 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 suchfiles). Yes [X] 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 willnot 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 orany amendment to this Form 10-K. [X] 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 thedefinitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer [_]Accelerated filer [X]Non-accelerated filer [_]Smaller reporting company [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X] The aggregate market value of the 14,928,466 shares of the registrant’s common stock held by non-affiliates as of the date of filing of this report, based uponthe closing price of the registrant’s common stock of $4.07 per share reported by Nasdaq as of June 30, 2018, was approximately $60,758,857. For purposesof this computation, a registrant sponsored pension plan and all directors and executive officers are deemed to be affiliates. Such determination is not anadmission that such plan, directors and executive officers are, in fact, affiliates of the registrant. The number of shares of the registrant's Common Stockoutstanding on March 7, 2019 was 22,148,586. DOCUMENTS INCORPORATED BY REFERENCEThe proxy statement for registrant’s 2019 annual shareholders meeting is incorporated by reference into Part III hereof.  TABLE OF CONTENTS PART I Item 1.Business1Item 1A.Risk Factors15Item 1B. Unresolved Staff Comments27Item 2.Properties27Item 3.Legal Proceedings28Item 4.Mine Safety Disclosuresnot applicable Executive Officers of the Registrant28 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities30Item 6. Selected Financial Data31Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations34Item 7A. Quantitative and Qualitative Disclosures About Market Risk54Item 8.Financial Statements and Supplementary Data54Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure54Item 9A. Controls and Procedures54Item 9B.Other Information55 PART III Item 10. Directors, Executive Officers and Corporate Governance56Item 11. Executive Compensation56Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters56Item 13. Certain Relationships and Related Transactions, and Director Independence56Item 14. Principal Accountant Fees and Services56 PART IV Item 15. Exhibits, Financial Statement Schedules57 Index to Financial StatementsF-1 i  PART I Item 1. Business Overview We are a specialty finance company. Our primary business is to purchase and service retail automobile contracts originated primarily by franchisedautomobile dealers and select independent dealers in the United States in the sale of new and used automobiles, light trucks and passenger vans. Through ourautomobile contract purchases, we provide indirect financing to the customers of dealers who have limited credit histories or past credit problems, who werefer 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 toobtain financing from traditional sources, such as commercial banks, credit unions and the captive finance companies affiliated with major automobilemanufacturers. In addition to purchasing installment purchase contracts directly from dealers, we have also acquired installment purchase contracts in fourmerger and acquisition transactions. We also offer financing directly to sub-prime consumers to facilitate their purchase of a new or used automobile, lighttruck or passenger van. In this report, we refer to all of such contracts and loans as "automobile contracts" and all such purchases or acquisitions as“originations” or “acquisitions”. 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, 2018, we have purchased a total of approximately $15.2 billion of automobilecontracts 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. Contract purchase volumes and managed portfolio levels for the five years ended December 31, 2018 are shownin the table below. Managed portfolio comprises both contracts we owned and those we were servicing for non-affiliates. Contract Purchases and Outstanding Managed Portfolio $ in thousands Year ContractsPurchasedin Period ManagedPortfolioat Period End 2014 944,944 1,643,920 2015 1,060,538 2,031,136 2016 1,088,785 2,308,070 2017 859,069 2,333,530 2018 902,416 2,380,847 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 Nevadabranches. We service our automobile contracts from our California, Nevada, Virginia, Florida and Illinois branches. The majority of our contract acquisitions volume results from our purchases of retail installment sales contracts from franchised or independentautomobile dealers. We establish relationships with dealers through our employee marketing representatives, who contact prospective dealers to explain ourautomobile 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 theirgeographic area. Our marketing representatives present dealers with a marketing package, which includes our promotional material containing the termsoffered by us for the purchase of automobile contracts, a copy of our standard-form dealer agreement, and required documentation relating to automobilecontracts. As of December 31, 2018, we had 81 marketing representatives and in that month we received applications from 8,201 dealers in 46 states. As ofDecember 31, 2018, approximately 74% of our active dealers were franchised new car dealers that sell both new and used vehicles, and the remainder wereindependent used car dealers. 1  We also solicit credit applications directly from prospective automobile consumers through the internet under a program we refer to as our directlending platform. For qualified applicants we offer terms similar to those that we offer through dealers, though without a down payment requirement and withmore restrictive loan-to-value and credit score requirements. Applicants approved in this fashion are free to shop for and purchase a vehicle from a dealer oftheir choosing, after which we enter into a note and security agreement directly with the consumer. During the year ended December 31, 2018 automobilecontracts originated under the direct lending platform represented 2.8% of our total acquisitions and represented 1.6% of our outstanding managed portfolioas of December 31, 2018. Regardless of whether an automobile contract is originated from one of our dealers or through our direct lending platform, thediscussion that follows regarding our acquisitions guidelines, procedures and demographic statistics applies to all of our originated contracts. For the year ended December 31, 2018, approximately 74% of the automobile contracts originated under our programs consisted of financing forused cars and 26% consisted of financing for new cars, as compared to 75% financing for used cars and 25% for new cars in the year ended December 31,2017. We originate automobile contracts with the intention of financing them on a long-term basis through securitizations. Securitizations are transactionsin which we sell a specified pool of automobile contracts to a special purpose subsidiary of ours. The subsidiary in turn issues (or contributes to a trust thatissues) asset-backed securities, which are purchased by institutional investors. Since 1994, we have completed 80 term securitizations of approximately $13.4billion in automobile contracts. We depend upon the availability of short-term warehouse credit facilities as interim financing for our contract purchases priorto the time we pool those contracts for a securitization. As of December 31, 2018 we have three such short-term warehouse facilities, each with a maximumborrowing amount of $100 million. 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 acontinuum where participants choose to provide financing to consumers in various segments of the spectrum of creditworthiness depending on eachparticipant’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 automobilemanufacturers, generally lend to the most creditworthy, or so-called prime, borrowers, although some traditional lenders are significant participants in thesub-prime segment in which we operate. Historically, independent companies specializing in sub-prime automobile financing and subsidiaries of largerfinancial services companies have competed in the sub-prime segment which we believe remains highly fragmented, with no single company having adominant position in the market. Our automobile financing programs are designed to serve sub-prime customers, who generally have limited credit histories 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 thosecharged in the prime credit market. We also sustain a higher level of credit losses because of the higher risk customers we serve. Contract Acquisitions 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 financingsource is based primarily on: (i) the interest rate and monthly payment made available to the dealer's customer; (ii) any fees to be charged to (or paid to) thedealer by the financing source; (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 oneof two third-party application aggregators. We also have a pass-through arrangement with another lender who sends us applications from their dealers in caseswhere that lender chooses not to approve those applications. For the year ended December 31, 2018, we received approximately 42% of all applicationsthrough DealerTrack (the industry leading dealership application aggregator), 38% through a pass-through arrangement we have with another lender, 16%via another aggregator, Route One and 4% via our website. Our automated application decisioning system produced our initial decision within seconds onapproximately 99% of those applications. 2  Upon receipt an application, if the application meets certain minimum criteria, we immediately order two credit reports to document the buyer'scredit history. If, upon review by our proprietary automated decisioning system, or in some cases, one of our credit analysts, we determine that the automobilecontract meets our underwriting criteria, we advise the dealer of our decision to approve the contract and the terms under which we will purchase it. In somecases where we don’t grant an approval, we may suggest alternatives from the terms proposed by the dealer or request and review further information from thedealer. Dealers with which we do business are under no obligation to submit any automobile contracts to us, nor are we obligated to purchase anyautomobile contracts from them. During the year ended December 31, 2018, no dealer accounted for as much as 1% of the total number of automobilecontracts we purchased. Under our direct lending platform, the applicant submits a credit application directly to us via our website, or in some cases, through a third-partywho accepts such applications and refers them to us for a fee. In either case, we order two credit reports and process the application with the same automatedapplication decisioning process as described above for applications from dealers. We then advise the applicant as to whether or not we would grant themcredit and on what terms. The following table sets forth the geographical sources of the automobile contracts we originated (based on the addresses of the customers as statedon our records) during the years ended December 31, 2018 and 2017. Contracts Purchased During the Year Ended December 31, 2018 December 31, 2017 Number Percent (1) Number Percent (1) Ohio 4,641 8.8% 3,871 7.4% California 4,581 8.7% 3,762 7.1% North Carolina 3,293 6.2% 3,041 5.8% Florida 3,157 6.0% 3,130 5.9% Indiana 2,720 5.2% 1,988 3.8% Texas 2,689 5.1% 3,907 7.4% Pennsylvania 2,582 4.9% 2,887 5.5% Other States 29,068 55.1% 30,057 57.1% Total 52,731 100.0% 52,643 100.0% (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, 2018 and 2017. December 31, 2018 December 31, 2017 Amount Percent (1) Amount Percent (1) State Based on Obligor's Residence ($ in millions) California $202.9 8.5% $191.8 8.2% Texas 166.1 7.0% 183.8 7.9% Ohio 170.4 7.2% 150.1 6.4% Florida 138.5 5.8% 129.2 5.5% North Carolina 137.8 5.8% 123.6 5.3% All others 1,565.1 65.7% 1,555.0 66.6% Total $2,380.8 100.0% $2,333.5 100.0% (1)Percentages may not total to 100.0% due to rounding. 3  We purchase automobile contracts from dealers at a price generally computed as the total amount financed under the automobile contracts, adjustedfor an acquisition fee, which may either increase or decrease the automobile contract purchase price we pay. The amount of the acquisition fee, and whether itresults 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 theautomobile contract. The following table summarizes the average net acquisition fees we charged dealers and the weighted average annual percentage rate onour purchased contracts for the periods shown: 2018 2017 2016 2015 2014 Average net acquisition fee charged (paid) to dealers(1) $(238) $(34) $15 $56 $162 Average net acquisition fee as % of amount financed(1) -1.4% -0.2% 0.1% 0.3% 1.0% Weighted average annual percentage interest rate 18.3% 19.1% 19.2% 19.3% 19.6% (1) Not applicable to direct lending platform Our pricing strategy is driven by our objectives for new contract purchase quantities and yield. We believe that levels of acquisition fees aredetermined primarily by competition in the marketplace, which has increased over the periods presented, and also by our pricing strategy. The competitiveenvironment in recent years has resulted in higher fees paid to dealers in conjunction with our contract acquisitions, compared to the years 2016 and earlierwhen dealers were generally paying us fees. This change in the marketplace has increased our capital requirements for acquiring contracts. We offer eight different financing programs, and price each program according to the relative credit risk. Our programs cover a wide band of thecredit spectrum and are labeled as follows: Bravo - this program accommodates an applicant with significant past non-performing credit including recent derogatory credit. Advance rates arelowest of all of our programs to offset the greater risk. To offset the low up-front advance to the dealer, we agree to pay the dealer a portion of futurepayments we receive from the obligor, depending on loan performance. The Bravo program was introduced in November of 2015 and was terminated inNovember of 2018. First Time Buyer – This program accommodates an applicant who has limited significant past credit history, such as a previous auto loan. Since theapplicant has limited credit history, the contract interest rate and dealer acquisition fees tend to be higher, and the loan amount, loan-to-value ratio, downpayment 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 derogatorycredit. 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, andpayment-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 someperforming 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. Inaddition, the program allows for homeowners who may have had other significant non-performing credit in the past. The contract interest rate and dealeracquisition fees are lower than the Standard program, down payment and payment-to-income ratio requirements are somewhat less restrictive. 4  Alpha Plus – This program accommodates applicants with past non-performing credit, but with a stronger history of recent performing credit, suchas auto or mortgage related credit, and higher incomes than the Alpha program. Contract interest rates and dealer acquisition fees are lower than the Alphaprogram. Super Alpha – This program accommodates applicants with past non-performing credit, but with a somewhat stronger history of recent performingcredit, including auto or mortgage related credit, and higher incomes than the Alpha Plus program. Contract interest rates and dealer acquisition fees arelower, 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 recentperforming credit than the Super Alpha program. Contract interest rates and dealer acquisition fees are lower, and the maximum loan amount is somewhathigher than the Super Alpha program. Our upper credit tier products, which are our Preferred, Super Alpha, Alpha Plus and Alpha programs, accounted for approximately 79% of our newcontract acquisitions in 2018, and 73% in 2017 and 2016, measured by aggregate amount financed. The following table identifies the credit program, sorted from highest to lowest credit quality, under which we originated automobile contractsduring the years ended December 31, 2018 and 2017. December 31, 2018 December 31, 2017 (dollars in thousands) Program AmountFinanced Percent (1) AmountFinanced Percent (1) Preferred $52,774 5.8% $30,239 3.5% Super Alpha 93,581 10.4% 62,159 7.2% Alpha Plus 196,555 21.8% 149,918 17.5% Alpha 372,156 41.2% 386,554 45.0% Standard 103,642 11.5% 111,963 13.0% Mercury / Delta 55,745 6.2% 71,453 8.3% First Time Buyer 23,569 2.6% 38,779 4.5% Bravo 4,394 0.5% 8,004 0.9% $902,416 100.0% $859,069 100.0% (1)Percentages may not total to 100.0% due to rounding. We attempt to control misrepresentation regarding the customer's credit worthiness by carefully screening the automobile contracts we originate, byestablishing and maintaining professional business relationships with dealers, and by including certain representations and warranties by the dealer in thedealer agreement. Pursuant to the dealer agreement, we may require the dealer to repurchase any automobile contract in the event that the dealer breaches itsrepresentations or warranties. There can be no assurance, however, that any dealer will have the willingness or the financial resources to satisfy its repurchaseobligations to us. Underwriting For automobile contracts that we purchase from dealers, we require that the contract be originated by a dealer that has entered into a dealeragreement with us. Under our direct lending platform, we require the customer to sign a note and security agreement. In each case, the contract is secured by afirst priority lien on a new or used automobile, light truck or passenger van and must meet our underwriting criteria. In addition, each automobile contractrequires the customer to maintain physical damage insurance covering the financed vehicle and naming us as a loss payee. We may, nonetheless, suffer a lossupon 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 payfor repairs to or replacement of the vehicle. 5  We believe that our underwriting criteria enable us to evaluate effectively the creditworthiness of sub-prime customers and the adequacy of thefinanced vehicle as security for an automobile contract. The underwriting criteria include standards for price, term, amount of down payment, installmentpayment and interest rate; mileage, age and type of vehicle; principal amount of the automobile contract in relation to the value of the vehicle; customerincome level, employment and residence stability, credit history and debt service ability, as well as other factors. Specifically, our underwriting guidelinesgenerally 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, aservice contract or a product to supplement the customer’s casualty policy in the event of a total loss of the related vehicle. We generally do not financevehicles that are more than 11 model years old or have in excess of 150,000 miles. The maximum term of a purchased contract is 72 months, although weconsider the loan to value and mileage as significant factors in determining the maximum term of a contract. Automobile contract purchase criteria aresubject to change from time to time as circumstances may warrant. Prior to purchasing an automobile contract, our underwriters verify the customer'semployment, income, residency, insurance coverage, and credit information by contacting various parties noted on the customer's application, creditinformation bureaus and other sources. In addition, we contact each customer by telephone to confirm that the customer understands and agrees to the termsof the related automobile contract. During this "welcome call," we also ask the customer a series of open ended questions about his application and thecontract, which may uncover potential misrepresentations. Credit Scoring. We use proprietary scoring models to assign each automobile contract two internal "credit scores" at the time the application isreceived and the customer's credit information is retrieved from the credit reporting agencies. These proprietary scores are used to help determine whether ornot we want to approve the application and, if so, the program and pricing we will offer either to the dealer, or in the case of our direct lending platform,directly to the customer. Our internal credit scores are based on a variety of parameters including the customer's credit history, data derived from alternativesources such as utilities, telecom, and social media, length of employment, residence stability and total income. Once a vehicle is selected by the customerand a proposed deal structure is provided to us, our scores will then consider various deal structure parameters such as down payment amount, loan to valueand the make and mileage of the vehicle. We have developed our credit scores utilizing statistical risk management techniques and historical performancedata from our managed portfolio. We believe this improves our allocation of credit evaluation resources, enhances our competitiveness in the marketplaceand 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 theautomobile contract. All automobile contracts may be prepaid at any time without penalty. The table below compares certain characteristics, at the time oforigination, of our contract purchases for the years ended December 31, 2018 and 2017: Contracts Purchased During the Year Ended December 31, 2018 December 31, 2017 Average Original Amount Financed $17,114 $16,319 Average Original Term 69 months 68 months Average Down Payment Percent 9.1% 10.6% Average Vehicle Purchase Price $16,184 $16,044 Average Age of Vehicle 4 years 4 years Average Age of Customer 43 years 43 years Average Time in Current Job 5 years 6 years Average Household Annual Income $56,000 $51,000 Dealer Compliance. The dealer agreement and related assignment contain representations and warranties by the dealer that an application for stateregistration of each financed vehicle, naming us as secured party with respect to the vehicle, was effected by the time of sale of the related automobilecontract 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 thelaws 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 theautomobile contract, our dealer compliance group will work with the dealer in an attempt to rectify the situation. If these efforts are unsuccessful, wegenerally will require the dealer to repurchase the automobile contract. 6  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 insecuritizations or service for third parties. We organize our servicing activities based on the tasks performed by our personnel. Our servicing activities consistof mailing monthly billing statements; collecting, accounting for and posting of all payments received; responding to customer inquiries; taking allnecessary action to maintain the security interest granted in the financed vehicle or other collateral; investigating delinquencies; communicating with thecustomer to obtain timely payments; repossessing and liquidating the collateral when necessary; collecting deficiency balances; and generally monitoringeach 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 apercentage of the declining outstanding principal balance of the non-charged-off automobile contracts in the securitization pools. The servicing fee isincluded in interest income for contracts that are pledged to a warehouse credit facility or a securitization transaction. Collection Procedures. We believe that our ability to monitor performance and collect payments owed from sub-prime customers is primarily afunction of our collection approach and support systems. We believe that if payment problems are identified early and our collection staff works closely withcustomers to address these problems, it is possible to correct many problems before they deteriorate further. To this end, we utilize pro-active collectionprocedures, which include making early and frequent contact with delinquent customers; educating customers as to the importance of maintaining goodcredit; and employing a consultative and customer service approach to assist the customer in meeting his or her obligations, which includes attempting toidentify the underlying causes of delinquency and cure them whenever possible. In support of our collection activities, we maintain a computerizedcollection system specifically designed to service automobile contracts with sub-prime customers. We attempt to make telephonic contact with delinquent customers from one to 20 days after their monthly payment due date, depending on ourassessment of the customer’s likelihood of payment during early stages of delinquency. If a customer has authorized us to do so, we may also send automatedtext message reminders at various stages of delinquency and our collectors may also choose to contact a customer via text message instead of, or in additionto, via telephone. Our contact priorities may be based on the customers' physical location, stage of delinquency, size of balance or other parameters. Ourcollectors inquire of the customer the reason for the delinquency and when we can expect to receive the payment. The collector will attempt to get thecustomer 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. Ifthe 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 paymentis 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 thepayment is made, but the account remains delinquent, the account is returned to a collector’s 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, asupervisor will review the collection activity relating to the account to determine if repossession of the vehicle is warranted. Generally, such a decision willoccur 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 thetime the vehicle is repossessed we will stop accruing interest on this automobile contract, and reclassify the remaining automobile contract balance to otherassets. 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 national repossession service. Such services are licensed and/or bonded asrequired by law. Upon recovery it stored until it is picked up by a wholesale auction that we designate, where it is kept until sold. Financed vehicles that havebeen repossessed are generally resold through unaffiliated automobile auctions, which are attended principally by car dealers. Net liquidation proceeds areapplied to the customer's outstanding obligation under the automobile contract. Such proceeds usually are insufficient to pay the customer's obligation infull, 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 aftercharge-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 makessufficient payments to be less than 90 days delinquent. Any payments received by a borrower that are greater than 90 days delinquent are first applied toaccrued interest and then to principal reduction. 7  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 scheduledinstallments past due or, in the case of repossessions, the month after we receive the proceeds from the liquidation of the financed vehicle or if the vehicle hasbeen in repossession inventory for more than three months. In the case of repossession, the amount of the charge-off is the difference between the outstandingprincipal balance of the defaulted automobile contract and the net repossession sale proceeds. Credit Experience Our primary method of monitoring ongoing credit quality of our portfolio is to closely review monthly delinquency, default and net charge offactivity and the related trends. Our internal credit performance data consistently show that new receivables have lower levels of delinquency and losses earlyin their lives, with delinquencies increasing throughout their lives and losses gradually increasing to a peak between 36 and 42 months, after which theygradually decrease. The weighted average seasoning of our total owned portfolio, represented in the tables below, was 23 months, 21 months and 18 monthsas of December 31, 2018, December 31, 2017, and December 31, 2016, respectively. Our financial results are dependent on the performance of the automobilecontracts in which we retain an ownership interest. Broad economic factors such as recession and significant changes in unemployment levels influence thecredit performance of our portfolio, as does the weighted average age of the receivables at any given time. In addition, in June 2014 we became subject to aconsent decree that required that we implement procedural changes in our servicing practices, which changes may have contributed to somewhat higherdelinquencies, extensions and net losses compared to prior periods. The tables below document the delinquency, repossession and net credit loss experienceof all such automobile contracts that we were servicing as of the respective dates shown. The tables do not include the experience of third party servicingportfolios, because we do not bear the credit risk on such portfolios. 8  Delinquency, Repossession and Extension Experience Delinquency and Extension Experience (1)Total Owned Portfolio December 31, 2018 December 31, 2017 December 31, 2016 Number of Number of Number of Contracts Amount Contracts Amount Contracts Amount Delinquency Experience (Dollars in thousands) Gross servicing portfolio (1) 176,042 $2,380,847 173,998 $2,333,524 169,720 $2,308,058 Period of delinquency (2) 31-60 days 13,182 183,974 10,163 138,395 8,673 116,073 61-90 days 5,577 74,485 4,741 63,081 3,998 52,403 91+ days 2,858 35,520 2,295 27,515 3,407 44,384 Total delinquencies (2) 21,617 293,979 17,199 228,991 16,078 212,860 Amount in repossession (3) 2,840 36,480 2,630 33,679 3,162 40,125 Total delinquencies and amount in repossession (2) 24,457 $330,459 19,829 $262,670 19,240 $252,985 Delinquencies as a percentage of gross servicingportfolio 12.3% 12.3% 9.9% 9.8% 9.5% 9.2 Total delinquencies and amount in repossession asa percentage of gross servicing portfolio 13.9% 13.9% 11.4% 11.3% 11.3% 11.0 Extension Experience Contracts with one extension, accruing (4) 27,192 $364,575 31,708 $430,801 34,354 $479,237 Contracts with two or more extensions, accruing(4) 61,977 828,573 55,203 756,561 30,450 407,631 89,169 1,193,148 86,911 1,187,362 64,804 886,868 Contracts with one extension, non-accrual (4) 798 9,518 1,032 12,241 1,676 22,335 Contracts with two or more extensions, non-accrual(4) 3,946 51,912 2,701 35,626 1,999 25,617 4,744 61,430 3,733 47,867 3,675 47,952 Total accounts with extensions 93,913 $1,254,578 90,644 $1,235,229 68,479 $934,820 (1)All amounts and percentages are based on the amount remaining to be repaid on each automobile contract. The information in the table represents thegross principal amount of all automobile contracts we purchased, including automobile contracts we subsequently sold in securitization transactionsthat we continue to service. The table does not include certain contracts we have serviced for third-parties on which we earn servicing fees only, andhave no credit risk.(2)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 dayspayments are contractually past due. Automobile contracts less than 31 days delinquent are not included. The delinquency aging categories shown inthe tables reflect the effect of extensions.(3)Amount in repossession represents the contract balance on financed vehicles that have been repossessed but not yet liquidated.(4)We do not recognize interest income on accounts past due more than 90 days. 9  Net Credit Loss Experience (1)Total Owned Portfolio Year Ended December 31, 2018 2017 2016 (Dollars in thousands) Average servicing portfolio outstanding $2,341,954 $2,334,008 $2,226,056 Net charge-offs as a percentage of average servicing portfolio (2) 7.7% 7.7% 7.0% (1)All amounts and percentages are based on the principal amount scheduled to be paid on each automobile contract contracts. The information in thetable represents all automobile contracts we service, excluding certain contracts we have serviced for third-parties on which we earn servicing feesonly, and have no credit risk.(2)Net charge-offs include the remaining principal balance, after the application of the net proceeds from the liquidation of the vehicle (excludingaccrued and unpaid interest) and amounts collected subsequent to the date of charge-off, including some recoveries which have been classified asother income in the accompanying financial statements. Extensions In certain circumstances we will grant obligors one-month payment extensions to assist them with temporary cash flow problems. In general, anobligor will not be permitted more than two such extensions in any 12-month period and no more than six over the life of the contract. The only modificationof terms is to advance the obligor’s next due date, generally by one month, though in some cases we may permit a longer extension, and in any case anadvance in the maturity date corresponding to the advance of the due date. There are no other concessions such as a reduction in interest rate, forgiveness ofprincipal 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) risklosing 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 vehiclehad been repossessed without the extension. The benefits of granting an extension include minimizing current losses and delinquencies, minimizing lifetimelosses, 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 futurepayments. 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 mostcases, the extension will be granted in conjunction with our receiving a past due payment or partial payment from the obligor, thereby indicating anadditional monetary and psychological commitment to the contract on the obligor’s part. The credit assessment for granting an extension is initially made by our collector, who bases the recommendation on the collector’s discussions withthe obligor. In such assessments the collector will consider, among other things, the following factors: (1) the reason the obligor has fallen behind inpayments; (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 regularmonthly payments again after the extension; (3) the obligor's past payment history, including past extensions if applicable; and (4) the obligor’s willingnessto communicate and cooperate on resolving the delinquency. If the collector believes the obligor is a good candidate for an extension, he must obtainapproval from his supervisor, who will review the same factors stated above prior to offering the extension to the obligor. After receiving an extension, anaccount remains subject to our normal policies and procedures for interest accrual, reporting delinquency and recognizing charge-offs.We believe that aprudent extension program is an integral component to mitigating losses in our portfolio of sub-prime automobile receivables. The table below summarizesthe status, as of December 31, 2018, for accounts that received extensions from 2008 through 2017: 10  Period ofExtension # of ExtensionsGranted Active or PaidOff at December31, 2018 % Active orPaid Off atDecember 31,2018 Charged Off > 6Months AfterExtension % Charged Off> 6 MonthsAfter Extension Charged Off <=6 Months AfterExtension % Charged Off<= 6 MonthsAfter Extension Avg Months toCharge Off PostExtension 2008 35,588 10,710 30.1% 20,059 56.4% 4,819 13.5% 19 2009 32,226 10,275 31.9% 16,168 50.2% 5,783 17.9% 17 2010 26,167 12,165 46.5% 12,003 45.9% 1,999 7.6% 19 2011 18,786 10,975 58.4% 6,879 36.6% 932 5.0% 19 2012 18,783 11,351 60.4% 6,636 35.3% 796 4.2% 18 2013 23,398 11,539 49.3% 10,883 46.5% 976 4.2% 22 2014 25,773 11,760 45.6% 13,187 51.2% 826 3.2% 22 2015 53,319 28,188 52.9% 24,049 45.1% 1,082 2.0% 20 2016 80,897 64,334 79.5% 14,630 18.1% 1,933 2.4% 10 2017 133,881 100,631 75.2% 26,290 19.6% 6,926 5.2% 11 We view these results as a confirmation of the effectiveness of our extension program. We consider accounts that have had extensions and wereactive or paid off at December 31, 2018 to be successful. Successful extensions result in continued payments of interest and principal (including payment infull in many cases). Without the extension, however, the account may have defaulted and we would have likely incurred a substantial loss and no additionalinterest revenue. For extension accounts that ultimately charged off, we consider accounts that charged off more than six months after the extension to be at leastpartially successful. In such cases, in spite of the ultimate loss, we received additional payments of principal and interest that otherwise we would not havereceived. Additional information about our extensions is provided in the tables below: For the Year Ended December 31,2018 December 31,2017 December 31,2016 Average number of extensions granted per month 10,128 11,157 6,741 Average number of outstanding accounts 174,738 173,137 163,050 Average monthly extensions as % of averageoutstandings 5.8% 6.4% 4.1% December 31, 2018 December 31, 2017 December 31, 2016 Number of Number of Number of Contracts Amount Contracts Amount Contracts Amount (Dollars in thousands) Contracts with one extension 27,991 $374,116 32,740 $443,042 36,030 $501,572 Contracts with two extensions 20,789 277,497 24,375 335,643 17,800 242,216 Contracts with three extensions 17,210 231,905 16,378 227,980 8,794 116,929 Contracts with four extensions 13,583 185,114 9,506 129,795 4,032 52,368 Contracts with five extensions 9,189 121,836 5,096 67,703 1,426 17,190 Contracts with six extensions 5,152 64,134 2,549 31,067 397 4,545 93,914 $1,254,602 90,644 $1,235,230 68,479 $934,820 Gross servicing portfolio 176,042 $2,380,847 173,998 $2,333,524 169,720 $2,308,058 11  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 formanaging our collection efforts, we regularly work with our customers to resolve delinquencies. Our staff is trained to employ a counseling approach to assistour customers with their cash flow management skills and help them to prioritize their payment obligations in order to avoid losing their vehicle torepossession. Through our experience, we have learned that once a contract becomes greater than 90 days past due, it is more likely than not that thedelinquency will not be resolved and will ultimately result in a charge-off. As a result, for contracts originated prior to January 2018 that are not accountedfor under the fair value method, we do not recognize any interest income 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 toor below 90 days delinquent at the end of a subsequent period, the related contract would be restored to full accrual status for our financial reportingpurposes. 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 ultimatelybe made. However, we monitor each obligor’s payment performance and are aware of the severity of his delinquency at any time. The fact that thedelinquency has been reduced below the 90-day threshold is a positive indicator. Should the contract again exceed the 90-day delinquency level at the endof 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 uncommoncircumstance 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 financingthem on a long-term basis through securitizations, and on an interim basis through warehouse credit facilities. All such financings have involvedidentification of specific automobile contracts, sale of those automobile contracts (and associated rights) to one of our special-purpose subsidiaries, andissuance of asset-backed securities to be purchased by institutional investors. Depending on the structure, these transactions may be accounted for undergenerally 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 soldautomobile contracts and the related debt appear as assets and liabilities, respectively, on our consolidated balance sheet. We then periodically (i) recognizeinterest and fee income on the contracts, (ii) recognize interest expense on the securities issued in the transaction and (iii) record as expense a provision forcredit losses on the contracts. Effective January 1, 2018, we adopted the fair value method of accounting for finance receivables acquired on or after that date.For these receivables, we recognize interest income on a level yield basis using that internal rate of return as the applicable interest rate. We do not record anexpense for provision for credit losses on these receivables because such credit losses are included in our computation of the appropriate level yield. Since 1994 we have conducted 80 term securitizations of automobile contracts that we originated under our regular programs. As of December 31,2018, 19 of those securitizations are active and all are structured as secured financings. We have generally conducted our securitizations on a quarterly basis,near the end of each calendar quarter, resulting in four securitizations per calendar year. In recent years, we have found that the securitizations we conductedin December of those years, had a tendency toward less investor demand in the related bonds than the securitizations we conducted in other times of the year.As a result, in 2015, we elected to defer what would have been our December securitization in favor of a securitization in January 2016, and since then haveconducted our securitizations near the beginning of each calendar quarter. 12  Our history of term securitizations, over the most recent ten years, is summarized in the table below: Recent Asset-Backed Securitizations Period Number of TermSecuritizations Amount of Receivables $ in thousands 2008 2 509,022 2009 0 – 2010 1 103,772 2011 3 335,593 2012 4 603,500 2013 4 778,000 2014 4 923,000 2015 3 795,000 2016 4 1,214,997 2017 4 870,000 2018 4 883,452 From time to time we have also completed financings of our residual interests in other securitizations that we and our affiliates previously sponsored.On May 16, 2018, we completed a $40.0 million securitization of residual interests from previously issued securitizations. In this residual interest financingtransaction, qualified institutional buyers purchased $40.0 million of asset-backed notes secured by residual interests in thirteen CPS securitizationsconsecutively conducted from September 2013 through December 2016, and an 80% interest in a CPS affiliate that owns the residual interests in the four CPSsecuritizations conducted in 2017. The sold notes (“2018-1 Notes”), issued by CPS Auto Securitization Trust 2018-1, consist of a single class with a couponof 8.595%. Generally, prior to a securitization transaction we fund our automobile contract acquisitions primarily with proceeds from warehouse credit facilities.Our current short-term funding capacity is $300 million, comprising three credit facilities. The first $100 million credit facility was established in May 2012.This facility was most recently renewed in September 2018, extending the revolving period to September 2020, and adding an amortization period throughSeptember 2021. In April 2015, we entered into a second $100 million facility. This facility was renewed in April 2017 and again in February 2019,extending the revolving period to February 2021, followed by an amortization period to February 2023. In November 2015, we entered into a third $100million facility. This facility was renewed in November 2017, extending the revolving period to November 2019, followed by an amortization period toNovember 2021. In a securitization and in our warehouse credit facilities, we are required to make certain representations and warranties, which are generally similarto the representations and warranties made by dealers in connection with our purchase of the automobile contracts. If we breach any of our representations orwarranties, we may be required to repurchase the automobile contract at a price equal to the principal balance plus accrued and unpaid interest. We may thenbe 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 anyprincipal payments made by the customer. Subject to any recourse against dealers, we will bear the risk of loss on repossession and resale of vehicles underautomobile 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 beunable to release excess cash to us if the credit performance of the securitized automobile contracts falls short of pre-determined standards. Such releasesrepresent a material portion of the cash that we use to fund our operations. An unexpected deterioration in the performance of securitized automobilecontracts could therefore have a material adverse effect on both our liquidity and results of operations, regardless of whether such automobile contracts aretreated as having been sold or as having been financed. 13  Certain of our securitization transactions and our warehouse credit facilities contain various financial covenants requiring certain minimumfinancial ratios and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. Inaddition, certain securitization and non-securitization related debt contain cross-default provisions that would allow certain creditors to declare a default if adefault occurred under a different facility. As of December 31, 2018 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 withoperations similar to ours. In addition, competitors or potential competitors include other types of financial services companies, such as banks, leasingcompanies, credit unions providing retail loan financing and lease financing for new and used vehicles, and captive finance companies affiliated with majorautomobile manufacturers. Many of our competitors and potential competitors possess substantially greater financial, marketing, technical, personnel andother resources than we do. Moreover, our future profitability will be directly related to the availability and cost of our capital in relation to the availabilityand cost of capital to our competitors. Our competitors and potential competitors include far larger, more established companies that have access to capitalmarkets for unsecured commercial paper and investment grade-rated debt instruments and to other funding sources that may be unavailable to us. Many ofthese 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 sourceare the monthly payment amount made available to the dealer’s customer, the purchase price offered for the automobile contracts, the timeliness of theresponse to the dealer upon submission of the initial application, the amount of required documentation, the consistency and timeliness of purchases and thefinancial stability of the funding source. While we believe that we can obtain from dealers sufficient automobile contracts for purchase at attractive prices byconsistently applying reasonable underwriting criteria and making timely purchases of qualifying automobile contracts, there can be no assurance that wewill do so. Regulation Numerous federal and state consumer protection laws, including the federal Truth-In-Lending Act, the federal Equal Credit Opportunity Act, thefederal Fair Debt Collection Practices Act and the Federal Trade Commission Act, regulate consumer credit transactions. These laws mandate certaindisclosures with respect to finance charges on automobile contracts and impose certain other restrictions. In most states, a license is required to engage in thebusiness of purchasing automobile contracts from dealers. In addition, laws in a number of states impose limitations on the amount of finance charges thatmay be charged by dealers on credit sales. The so-called Lemon Laws enacted by various states provide certain rights to purchasers with respect toautomobiles 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 ordefense of a customer against a dealer and its assignees, including us and those who purchase automobile contracts from us. The dealer agreement containsrepresentations by the dealer that, as of the date of assignment of automobile contracts, no such claims or defenses have been asserted or threatened withrespect to the automobile contracts and that all requirements of such federal and state laws have been complied with in all material respects. Although adealer would be obligated to repurchase automobile contracts that involve a breach of such warranty, there can be no assurance that the dealer will have thefinancial resources to satisfy its repurchase obligations. Certain of these laws also regulate our servicing activities, including our methods of collection. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was enacted in July 2010, and many of its provisionsbecame effective in July 2011. The Dodd-Frank Act restructured the regulation and supervision of the financial services industry and created the ConsumerFinancial Protection Bureau (the “CFPB”). The CFPB has rulemaking, supervisory and enforcement authority over “non-banks,” including us. The CFPB isspecifically authorized, among other things, to take actions to prevent companies from engaging in “unfair, deceptive or abusive” acts or practices inconnection with consumer financial products and services, and to issue rules requiring enhanced disclosures for consumer financial products or services. TheCFPB also has authority to interpret, enforce and issue regulations implementing enumerated consumer laws, including certain laws that apply to us. Further,the CFPB has general supervisory and examination authority over non-depository “larger participants” in the market for automotive finance companies. Weare subject to such supervision and examination. 14  The Dodd-Frank Act and related regulations are likely to affect our cost of doing business, may limit or expand our permissible activities, may affectthe competitive balance within our industry and market areas and could have a material adverse effect on us. We continue to assess the Dodd-Frank Act’sprobable effect on our business, financial condition and results of operations, and to monitor developments involving the entities charged with promulgatingregulations. However, the ultimate effect of the Dodd-Frank Act on the financial services industry in general, and on us in particular, is uncertain at this time. In addition to the CFPB, other state and federal agencies have the ability to regulate aspects of our business. For example, the Dodd-Frank Actprovides a mechanism for state Attorneys General to investigate us. In addition, the Federal Trade Commission has jurisdiction to investigate aspects of ourbusiness. We expect that regulatory investigation by both state and federal agencies will continue, and there can be no assurance that the results of suchinvestigations will not have a material adverse effect on us. We believe that we are currently in material compliance with applicable statutes and regulations; however, there can be no assurance that we arecorrect, nor that we will be able to maintain such compliance. The past or future failure to comply with applicable statutes and regulations could have amaterial adverse effect on us. Furthermore, the adoption of additional statutes and regulations, changes in the interpretation and enforcement of currentstatutes and regulations or the expansion of our business into jurisdictions that have adopted more stringent regulatory requirements than those in which wecurrently conduct business could have a material adverse effect on us. In addition, due to the consumer-oriented nature of our industry and the application ofcertain laws and regulations, industry participants are regularly named as defendants in litigation involving alleged violations of federal and state laws andregulations and consumer law torts, including fraud. Many of these actions involve alleged violations of consumer protection laws. A significant judgmentagainst us or within the industry in connection with any such litigation could have a material adverse effect on our financial condition, results of operationsor liquidity. Employees As of December 31, 2018, we had 1,032 employees. The breakdown of the employees is as follows: 10 were senior management personnel; 610 wereservicing personnel; 215 were automobile contract origination personnel; 132 were marketing personnel and program development (81 of whom weremarketing representatives); 65 were various administration personnel including human resources, legal, accounting and systems. We believe that ourrelations with our employees are good. We are not a party to any collective bargaining agreement. Item 1A. RISK FACTORS Our business, operating results and financial condition could be adversely affected by any of the following specific risks. The trading price of ourcommon stock could decline due to any of these risks and other industry risks. This listing of risks by its nature cannot be exhaustive, and the order in whichthe risks appear is not intended as an indication of their relative weight or importance. In addition to the risks described below, we may encounter risks thatwe do not currently recognize or that we currently deem immaterial, which may also impair our business operations and the value of our common stock. 15  Risks Related to Our Business We Require a Substantial Amount of Cash to Service Our Substantial Debt. To service our existing substantial indebtedness, we require a significant amount of cash. Our ability to generate cash depends on many factors,including our successful financial and operating performance. Our financial and operational performance depends upon a number of factors, many of whichare beyond our control. These factors include, without limitation: ·the economic and competitive conditions in the asset-backed securities market;·the performance of our current and future automobile contracts;·the performance of our residual interests from our securitizations and warehouse credit facilities;·any operating difficulties or pricing pressures we may experience;·our ability to obtain credit enhancement for our securitizations;·our ability to establish and maintain dealer relationships;·the passage of laws or regulations that affect us adversely;·our ability to compete with our competitors; and·our ability to acquire and finance automobile contracts. Depending upon the outcome of one or more of these factors, we may not be able to generate sufficient cash flow from operations or obtain sufficientfunding to satisfy all of our obligations. Such factors may result in our being unable to pay our debts timely or as agreed. If we were unable to pay our debts,we would be required to pursue one or more alternative strategies, such as selling assets, refinancing or restructuring our indebtedness or selling additionalequity capital. These alternative strategies might not be feasible at the time, might prove inadequate, or could require the prior consent of our lenders. Ifexecuted, these strategies could reduce the earnings available to our shareholders. We Need Substantial Liquidity to Operate Our Business. We have historically funded our operations principally through internally generated cash flows, sales of debt and equity securities, includingthrough securitizations and warehouse credit facilities, borrowings under senior secured debt agreements and sales of subordinated notes. However, we maynot be able to obtain sufficient funding for our future operations from such sources. During 2008, 2009 and much of 2010, our access to the capital marketswas impaired with respect to both short-term and long-term funding. While our access to such funding has improved since then, our results of operations,financial condition and cash flows have been and may continue to be materially and adversely affected. We require a substantial amount of cash liquidity tooperate our business. Among other things, we use such cash liquidity to: ·acquire automobile contracts;·fund overcollateralization in warehouse credit facilities and securitizations;·pay securitization fees and expenses;·fund spread accounts in connection with securitizations;·satisfy working capital requirements and pay operating expenses;·pay taxes; and·pay interest expense. 16  Historically we have matched our liquidity needs to our available sources of funding by reducing our acquisition of new automobile contracts, attimes to merely nominal levels. There can be no assurance that we will continue to be successful with that strategy. Periods of Significant Losses. From time to time throughout our history we have incurred net losses, most recently over the period beginning with the quarter ended September 30,2008 and ending with the quarter ended September 30, 2011. We were adversely affected by the economic recession affecting the United States as a whole,for a time by increased financing costs and decreased availability of capital to fund our purchases of automobile contracts, and by a decrease in the overalllevel of sales of automobiles and light trucks. Similar periods of losses began in the quarter ended March 31, 1999 through the quarter ended December 31,2000 and also from the quarter ended September 30, 2003 through the quarter ended March 31, 2005. We expect to earn quarterly profits during 2019; however, there can be no assurance as to that expectation. Our expectation of profitability is aforward-looking statement. We discuss the assumptions underlying that expectation under the caption “Forward-Looking Statements” in this report. Weidentify important factors that could cause actual results to differ, generally in the “Risk Factors” section of this report, and also under the caption “Forward-Looking Statements.” One reason for our expectation is that we have had positive net income in each of the seven years fiscal ended December 31, 2018,although not in every quarter within that period. Our Results of Operations Will Depend on Our Ability to Secure and Maintain Adequate Credit and Warehouse Financing on Favorable Terms.Our business strategy requires that warehouse credit facilities be available in order to purchase significant volumes of receivables. Historically, our primary sources of day-to-day liquidity have been our warehouse credit facilities, in which we sell and contribute automobilecontracts, as often as twice a week, to special-purpose subsidiaries, where they are "warehoused" until they are financed on a long-term basis through theissuance and sale of asset-backed notes. Upon sale of the notes, funds advanced under one or more warehouse credit facilities are repaid from the proceeds.Our current short-term funding capacity is $300 million, comprising three credit facilities, each with a maximum credit limit of $100 million. Each of thethree warehouse credit facilities includes a revolving period during which we may receive advances secured by contributed automobile contracts, followedby an amortization period during which no further advances may be made, but prior to which outstanding advances are due and payable. See “Management’sDiscussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Liquidity”. If we are unable to maintain warehouse financing on acceptable terms, we might curtail or cease our purchases of new automobile contracts, whichcould lead to a material adverse effect on our results of operations, financial condition and cash flows. Our Results of Operations Will Depend on Our Ability to Securitize Our Portfolio of Automobile Contracts. We depend upon our ability to obtain permanent financing for pools of automobile contracts by conducting term securitization transactions. By"permanent financing" we mean financing that extends to cover the full term during which the underlying automobile contracts are outstanding and requiresrepayment as the underlying automobile contracts are repaid or charged off. By contrast, our warehouse credit facilities permit us to borrow against the valueof such receivables only for limited periods of time. Our past practice and future plan has been and is to repay loans made to us under our warehouse creditfacilities with the proceeds of securitizations. There can be no assurance that any securitization transaction will be available on terms acceptable to us, or atall. The timing of any securitization transaction is affected by a number of factors beyond our control, any of which could cause substantial delays, including,without limitation: ·market conditions;·the approval by all parties of the terms of the securitization;·our ability to acquire a sufficient number of automobile contracts for securitization. 17  During 2008 and 2009 we observed adverse changes in the market for securitized pools of automobile contracts, which made permanent financing inthe form of securitization transactions difficult to obtain and more costly than in prior periods. These changes included reduced liquidity and reduceddemand for asset-backed securities, particularly for securities carrying a financial guaranty or for securities backed by sub-prime automobile receivables.Although we have seen improvements in the capital markets from 2010 and thereafter, as compared to 2008 and 2009, if the market conditions for asset-backed securitizations should reverse, we could expect a material adverse effect on our results of operations. Our Results of Operations Will Depend on Cash Flows from Our Residual Interests in Our Securitization Program and Our Warehouse CreditFacilities. When we finance our automobile contracts through securitizations and warehouse credit facilities, we receive cash and retain a residual interest inthe assets financed. Those financed assets are owned by the special-purpose subsidiary that is formed for the related securitization. This residual interestrepresents the right to receive the future cash flows to be generated by the automobile contracts in excess of (i) the interest and principal paid to investors orlenders on the indebtedness issued in connection with the financing, (ii) the costs of servicing the automobile contracts and (iii) certain other costs incurredin connection with completing and maintaining the securitization or warehouse credit facility. We sometimes refer to these future cash flows as "excessspread cash flows." Under the financial structures we have used to date in our securitizations and warehouse credit facilities, excess spread cash flows that wouldotherwise be paid to the holder of the residual interest are first used to increase overcollateralization or are retained in a spread account within thesecuritization trusts or the warehouse facility to provide liquidity and credit enhancement for the related securities. While the specific terms and mechanics vary among transactions, our securitization and warehousing agreements generally provide that we willreceive excess spread cash flows only if the amount of overcollateralization and spread account balances have reached specified levels and/or thedelinquency, defaults or net losses related to the automobile contracts in the automobile contract pools are below certain predetermined levels. In the eventdelinquencies, defaults or net losses on automobile contracts exceed these levels, the terms of the securitization or warehouse credit facility: ·may require increased credit enhancement, including an increase in the amount required to be on deposit in the spread account to beaccumulated for the particular pool; and·in certain circumstances, may permit affected parties to require the transfer of servicing on some or all of the securitized or warehousedcontracts from us to an unaffiliated servicer. We typically retain residual interests or use them as collateral to borrow cash. In any case, the future excess spread cash flow received in respect ofthe residual interests is integral to the financing of our operations. The amount of cash received from residual interests depends in large part on how well ourportfolio of securitized and warehoused automobile contracts performs. If our portfolio of securitized and warehoused automobile contracts has higherdelinquency and loss ratios than expected, then the amount of money realized from our retained residual interests, or the amount of money we could obtainfrom the sale or other financing of our residual interests, would be reduced. Such higher than expected losses occurred in 2008 through 2010, which had anadverse effect on our operations, financial condition and cash flows. Should significant increases in losses reoccur, such recurrence might have materialadverse effects on our future results of operations, financial condition and cash flows. 18  If We Are Unable to Obtain Credit Enhancement for Our Securitizations Upon Favorable Terms, Our Results of Operations Would Be Impaired. In our securitizations from 1994 through 2008, we utilized credit enhancement in the form of one or more financial guaranty insurance policiesissued by financial guaranty insurance companies. Each of these policies unconditionally and irrevocably guaranteed timely interest and ultimate principalpayments on the senior classes of the securities issued in those securitizations. These guarantees enabled those securities to achieve the highest credit ratingavailable. This form of credit enhancement reduced the costs of our securitizations relative to alternative forms of credit enhancement available to us at thetime. Due to significantly reduced investor demand for securities carrying such a financial guaranty, this form of credit enhancement may not be economicalfor us in the future. The 31 securitization transactions we executed from 2010 through 2018 did not utilize financial guaranty insurance policies. Prior to thesecond quarter of 2014, none of the securities issued in those transactions received the highest possible credit rating from any rating agency. As we pursuefuture securitizations, we may not be able to obtain: ·credit enhancement in any form on terms acceptable to us, or at all; or·similar highest available credit ratings for senior classes of securities to be issued in future securitizations. The credit spread between the interest rates payable on our securitization trust debt and the rates payable on risk-free investments has varied. As ofthe date of this report, it is the consensus of market observers that interest rates on risk-free debt will rise within the next year. If interest rates on risk-free debtdo increase, or if our spread above risk-free rates should increase, or both, we would expect increased interest expense, which would adversely affect ourresults of operations. If We Are Unable to Compete Successfully with our Competitors, Our Results of Operations May Be Impaired. The automobile financing business is highly competitive. We compete with a number of national, regional and local finance companies. In addition,competitors or potential competitors include other types of financial services companies, such as commercial banks, savings and loan associations, leasingcompanies, credit unions providing retail loan financing and lease financing for new and used vehicles and captive finance companies affiliated with majorautomobile manufacturers, such as Ford Motor Credit Company, LLC and General Motors Financial Company, Inc. Many of our competitors and potentialcompetitors possess substantially greater financial, marketing, technical, personnel and other resources than we do, including greater access to capitalmarkets for unsecured commercial paper and investment grade rated debt instruments, and to other funding sources which may be unavailable to us.Moreover, our future profitability will be directly related to the availability and cost of our capital relative to that of our competitors. Many of thesecompanies also have long-standing relationships with automobile dealers and may provide other financing to dealers, including floor plan financing for thedealers' purchases of automobiles from manufacturers, which we do not offer. There can be no assurance that we will be able to continue to competesuccessfully and, as a result, we may not be able to purchase automobile contracts from dealers at a price acceptable to us, which could result in reductions inour revenues or the cash flows available to us. If Our Dealers Do Not Submit a Sufficient Number of Suitable Automobile Contracts to Us for Purchase, Our Results of Operations May Be Impaired. We are dependent upon establishing and maintaining relationships with a large number of unaffiliated automobile dealers to supply us withautomobile contracts. During the years ended December 31, 2018 and 2017, no single dealer accounted for as much as 1% of the automobile contracts wepurchased. The agreements we have with dealers to purchase automobile contracts do not require dealers to submit a minimum number of automobilecontracts for purchase. The failure of dealers to submit automobile contracts that meet our underwriting criteria could result in reductions in our revenues orthe cash flows available to us, and, therefore, could have an adverse effect on our results of operations. If a Significant Number of Our Automobile Contracts Experience Defaults, Our Results of Operations May Be Impaired. We specialize in the purchase and servicing of automobile contracts to finance automobile purchases by sub-prime customers, those who havelimited credit history, low income, or past credit problems. Such automobile contracts entail a higher risk of non-performance, higher delinquencies andhigher losses than automobile contracts with more creditworthy customers. While we believe that our pricing of the automobile contracts and theunderwriting criteria and collection methods we employ enable us to control, to a degree, the higher risks inherent in automobile contracts with sub-primecustomers, no assurance can be given that such pricing, criteria and methods will afford adequate protection against such risks. 19  If automobile contracts that we purchase and hold experience defaults to a greater extent than we have anticipated, this could materially andadversely affect our results of operations, financial condition, cash flows and liquidity. Our results of operations, financial condition, cash flows andliquidity, depend, to a material extent, on the performance of automobile contracts that we purchase, warehouse and securitize. A portion of the automobilecontracts that we acquire will default or prepay. In the event of payment default, the collateral value of the vehicle securing an automobile contract realizedby us in a repossession will generally not cover the outstanding principal balance on that automobile contract and the related costs of recovery. We maintainan allowance for credit losses on automobile contracts held on our balance sheet, which reflects our estimates of probable credit losses that can be reasonablyestimated for securitizations that are accounted for as financings and warehoused automobile contracts. If the allowance is inadequate, then we wouldrecognize the losses in excess of the allowance as an expense and our results of operations could be adversely affected. In addition, under the terms of ourwarehouse credit facilities, we are not able to borrow against defaulted automobile contracts, including automobile contracts that are, at the time of default,funded under our warehouse credit facilities, which will reduce the overcollateralization of those warehouse credit facilities and possibly reduce the amountof cash flows available to us. If We Lose Servicing Rights on Our Portfolio of Automobile Contracts, Our Results of Operations Would Be Impaired. We are entitled to receive servicing fees only while we act as servicer under the applicable sale and servicing agreements governing our warehousecredit facilities and securitizations. Under such agreements, we may be terminated as servicer upon the occurrence of certain events, including: ·our failure generally to observe and perform our responsibilities and other covenants;·certain bankruptcy events; or·the occurrence of certain events of default under the documents governing the facilities. The loss of our servicing rights could materially and adversely affect our results of operations, financial condition and cash flows. Our results ofoperations, financial condition and cash flow, would be materially and adversely affected if we were to be terminated as servicer with respect to a materialportion of our managed portfolio. If We Lose Key Personnel, Our Results of Operations May Be Impaired. Our senior management team averages over 20 years of service with us. Charles E. Bradley, Jr., our President and CEO, has been our President sinceour formation in 1991. Our future operating results depend in significant part upon the continued service of our key senior management personnel, none ofwhom is bound by an employment agreement. Our future operating results also depend in part upon our ability to attract and retain qualified management,technical, sales and support personnel for our operations. Competition for such personnel is intense. We cannot assure you that we will be successful inattracting or retaining such personnel. Conversely, adverse general economic conditions may have had a countervailing effect. The loss of any key employee,the failure of any key employee to perform in his or her current position or our inability to attract and retain skilled employees, as needed, could materiallyand adversely affect our results of operations, financial condition and cash flow. If We Fail to Comply with Regulations, Our Results of Operations May Be Impaired. Failure to materially comply with all laws and regulations applicable to us could materially and adversely affect our ability to operate our business.Our business is subject to numerous federal and state consumer protection laws and regulations, which, among other things: ·require us to obtain and maintain certain licenses and qualifications;·limit the interest rates, fees and other charges we are allowed to charge;·limit or prescribe certain other terms of our automobile contracts;·require specific disclosures to our customers;·define our rights to repossess and sell collateral; and·maintain safeguards designed to protect the security and confidentiality of customer information. 20  Our industry is also at times investigated by regulators and offices of state attorneys general, which could lead to enforcement actions, fines andpenalties, or the assertion of private claims and law suits against us. The Federal Trade Commission (“FTC”) has the authority to investigate consumercomplaints against us, to conduct inquiries at its own instance, and to recommend enforcement actions and seek monetary penalties. The FTC has conductedand concluded an inquiry into our practices, and proposed remedial action against us in 2014, to which we consented. The CFPB has adopted regulationsthat place us and other companies similar to us under its supervision. Our industry has also been under investigation by the United States Department ofJustice, which has conducted and may continue to conduct an inquiry that appears to be focused on securitization practices. In that inquiry, we received asubpoena in January 2015, which required that we produce specified documents. We have been advised by the Department of Justice that we have providedsuch information as is required, and that no enforcement action against us is recommended. Although the inquiry commenced January 2015 is thuscompleted as to us, no assurance can be given as to whether some other government agency may commence inquiries into or actions against us, nor as towhether the DOJ may recommence its investigation, any of which hypothetical proceedings might materially and adversely affect us. If we fail to comply with applicable laws and regulations, such failure could result in penalties, litigation losses and expenses, damage to ourreputation, or the suspension or termination of our licenses to conduct business, which would materially adversely affect our results of operations, financialcondition and stock price. In addition, new federal and state laws or regulations or changes in the ways that existing rules or laws are interpreted or enforcedcould limit our activities in the future or significantly increase the cost of compliance. Furthermore, judges or regulatory bodies could interpret current rulesor laws differently than the way we do, leading to such adverse consequences as described above. The resolution of such matters may require considerabletime and expense, and if not resolved in our favor, may result in fines or damages, and possibly an adverse effect on our financial condition. We believe that we are in compliance in all material respects with all such laws and regulations, and that such laws and regulations have had nomaterial adverse effect on our ability to operate our business. However, we may be materially and adversely affected if we fail to comply with: ·applicable laws and regulations;·changes in existing laws or regulations;·changes in the interpretation of existing laws or regulations; or·any additional laws or regulations that may be enacted in the future. Changes in Law and Regulations May Have an Adverse Effect on Our Business. The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"), adopted in 2010, made numerous changes to the laws applicableto the consumer financial services industry. Among other things, Dodd-Frank created the CFPB, which is authorized to promulgate and enforce consumerprotection regulations relating to financial products and mandated that other federal agencies adopt rules implementing risk retention requirements insecuritizations. We are also subject to regulation by each state in which we operate, and such states’ laws and regulations, and the interpretations thereof, alsochange from time to time. Compliance with new laws and regulations may be or likely will be costly and can affect operating results. Compliance requires forms, processes,procedures, controls and the infrastructure to support these requirements. Compliance may create operational constraints and place limits on pricing. Laws inthe financial services industry are designed primarily for the protection of consumers. The failure to comply could result in significant statutory civil andcriminal penalties, monetary damages, attorneys’ fees and costs, possible revocation of licenses and damage to reputation, brand and valued customerrelationships. At this time, it is difficult to predict the extent to which new regulations or amendments will affect our business. However, compliance with thesenew laws and regulations may result in additional cost and expenses, which may adversely affect our results of operations, financial condition or liquidity. 21  Risk Retention Rules May Limit Our Liquidity and Increase Our Capital Requirements. Securitizations of automobile receivables after December 2016 are subject to risk retention requirements, which generally require that sponsors ofasset-backed securities (ABS), such as us, retain not less than five percent of the credit risk of the assets collateralizing the ABS issuance. The rule also setsforth prohibitions on transferring or hedging the credit risk that the sponsor is required to retain. Similar but not identical risk retention requirements areapplicable after December 2018 to securitization transactions where purchasers of the ABS have sufficient contacts with the European Union. Because therules place an upper limit on the degree to which we may use financial leverage in our securitization structures may require more capital of us, or may releaseless cash to us, than might be the case in the absence of such rules. If We Experience Unfavorable Litigation Results, Our Results of Operations May Be Impaired. We operate in a litigious society and currently are, and may in the future be, named as defendants in litigation, including individual and class actionlawsuits under consumer credit, consumer protection, theft, privacy, data security, automated dialing equipment, debt collections and other laws. Many ofthese cases present novel issues on which there is no clear legal precedent, which increases the difficulty in predicting both the potential outcomes and costsof defending these cases. We are subject to regulatory examinations, investigations, inquiries, litigation, and other actions by licensing authorities, stateattorneys general, the Federal Trade Commission, the Consumer Financial Protection Bureau and other governmental bodies relating to our activities. Thelitigation and regulatory actions to which we are or may become subject involve or may involve potential compensatory or punitive damage claims, fines,sanctions or injunctive relief that, if granted, could require us to pay damages or make other expenditures in amounts that could have a material adverse effecton our financial position and our results of operations. We have recorded loss contingencies in our financial statements only for matters on which losses areprobable and can be reasonably estimated. Our assessments of these matters involve significant judgments, and may change from time to time. Actual lossesincurred by us in connection with judgments or settlements of these matters may be more than our associated reserves. Furthermore, defending lawsuits andresponding to governmental inquiries or investigations, regardless of their merit, could be costly and divert management’s attention from the operation of ourbusiness. Unfavorable outcomes in any such current or future proceedings could materially and adversely affect our results of operations, financial conditionsand cash flows. As a consumer finance company, we are subject to various consumer claims and litigation seeking damages and statutory penalties basedupon, among other things, disclosure inaccuracies and wrongful repossession, which could take the form of a plaintiff's class action complaint. We, as theassignee of finance contracts originated by dealers, may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. We arealso subject to other litigation common to the automobile industry and to businesses in general. The damages and penalties claimed by consumers and othersin these types of matters can be substantial. The relief requested by the plaintiffs varies but includes requests for compensatory, statutory and punitivedamages. While we intend to vigorously defend ourselves against such proceedings, there is a chance that our results of operations, financial condition andcash flows could be materially and adversely affected by unfavorable outcomes. Negative publicity associated with litigation, governmental investigations, regulatory actions, and other public statements could damage ourreputation. From time to time there are negative news stories about the “sub-prime” credit industry. Such stories may follow the announcements of litigation orregulatory actions involving us or others in our industry. Negative publicity about our alleged or actual practices or about our industry generally couldadversely affect our stock price and our ability to retain and attract employees. 22  If We Experience Problems with Our Originations, Accounting or Collection Systems, Our Results of Operations May Be Impaired. We are dependent on our receivables originations, accounting and collection systems to service our portfolio of automobile contracts. Such systemsare vulnerable to damage or interruption from natural disasters, power loss, telecommunication failures, terrorist attacks, computer viruses and other events. Asignificant number of our systems are not redundant, and our disaster recovery planning is not sufficient for every eventuality. Our systems are also subject tobreak-ins, sabotage and intentional acts of vandalism by internal employees and contractors as well as third parties. Despite any precautions we may take,such problems could result in interruptions in our services, which could harm our reputation and financial condition. We do not carry business interruptioninsurance sufficient to compensate us for losses that may result from interruptions in our service as a result of system failures. Such systems problems couldmaterially and adversely affect our results of operations, financial conditions and cash flows. A breach in the security of our systems could result in the disclosure of confidential information or subject us to liability We hold in our systems confidential financial and other personal data with respect to our customers, which may be of value to identity thieves andothers if revealed. Although we endeavor to protect the security of our computer systems and the confidentiality of customer information entrusted to us,there can be no assurance that our security measures will provide adequate security. It is possible that we may not be able to anticipate, detect or recognize threats to our systems or to implement effective preventive measures againstall security breaches, especially because the techniques used change frequently or are not recognized until launched, and because cyberattacks can originatefrom a wide variety of sources, including third parties outside the Company such as persons who are associated with external service providers or who are ormay be involved in organized crime or linked to terrorist organizations. Such persons may also attempt to fraudulently induce employees or other users of our systems to disclose sensitive information in order to gainaccess to our data or that of our customers. These risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expands our useof web-based products and applications. A successful penetration of the security of our systems could cause serious negative consequences, including disruption of our operations,misappropriation of confidential information, or damage to our computers or systems, and could result in violations of applicable privacy and other laws,financial loss to us or to our customers, customer dissatisfaction, significant litigation exposure and harm to our reputation, any or all of which could have amaterial adverse effect on us. We Have Substantial Indebtedness. We currently have and will continue to have a substantial amount of indebtedness. At December 31, 2018, we had approximately $2,256.9 millionof debt outstanding. Such debt consisted primarily of $2,063.6 million of securitization trust debt, $136.8 million of warehouse lines of credit, $39.1 millionof residual interest financing debt and $17.3 million in subordinated renewable notes. We are also currently offering the subordinated renewable notes to thepublic on a continuous basis, and such notes have maturities that range from three months to 10 years. 23  Our substantial indebtedness could adversely affect our financial condition by, among other things: ·increasing our vulnerability to general adverse economic and industry conditions;·requiring us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing amountsavailable for working capital, capital expenditures and other general corporate purposes;·limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;·placing us at a competitive disadvantage compared to our competitors that have less debt; and·limiting our ability to borrow additional funds. Although we believe we are able to service and repay such debt, there is no assurance that we will be able to do so. If we do not generate sufficientoperating profits, our ability to make required payments on our debt would be impaired. Failure to pay our indebtedness when due would give rise to variousremedies in favor of any unpaid creditors, and creditors’ exercise of such remedies could have a material adverse effect on our earnings. Because We Are Subject to Many Restrictions in Our Existing Credit Facilities and Securitization Transactions, Our Ability to Pay Dividends orEngage in Specified Transactions May Be Impaired. The terms of our existing credit facilities, term securitizations and our other outstanding debt impose significant operating and financial restrictionson us and our subsidiaries and require us to meet certain financial tests. These restrictions may have an adverse effect on our business activities, results ofoperations and financial condition. These restrictions may also significantly limit or prohibit us from engaging in certain transactions, including thefollowing: ·incurring or guaranteeing additional indebtedness;·making capital expenditures in excess of agreed upon amounts;·paying dividends or other distributions to our shareholders or redeeming, repurchasing or retiring our capital stock or subordinatedobligations;·making investments;·creating or permitting liens on our assets or the assets of our subsidiaries;·issuing or selling capital stock of our subsidiaries;·transferring or selling our assets;·engaging in mergers or consolidations;·permitting a change of control of our company;·liquidating, winding up or dissolving our company;·changing our name or the nature of our business, or the names or nature of the business of our subsidiaries; and·engaging in transactions with our affiliates outside the normal course of business. These restrictions may limit our ability to obtain additional sources of capital, which may limit our ability to generate earnings. In addition, thefailure to comply with any of the covenants of one or more of our debt agreements could cause a default under other debt agreements that may be outstandingfrom time to time. A default, if not waived, could result in acceleration of the related indebtedness, in which case such debt would become immediately dueand payable. A continuing default or acceleration of one or more of our credit facilities or any other debt agreement, would likely cause a default under otherdebt agreements that otherwise would not be in default, in which case all such related indebtedness could be accelerated. If this occurs, we may not be able torepay our debt or borrow sufficient funds to refinance our indebtedness. Even if any new financing is available, it may not be on terms that are acceptable tous or it may not be sufficient to refinance all of our indebtedness as it becomes due. 24  In addition, the transaction documents for our securitizations restrict our securitization subsidiaries from declaring or making payment to us of (i)any dividend or other distribution on or in respect of any shares of their capital stock, or (ii) any payment on account of the purchase, redemption, retirementor acquisition of any option, warrant or other right to acquire shares of their capital stock unless (in each case) at the time of such declaration or payment (andafter giving effect thereto) no amount payable under any transaction document with respect to the related securitization is then due and owing, but unpaid.These restrictions may limit our ability to receive distributions in respect of the residual interests from our securitization facilities, which may limit ourability to generate earnings. Risks Related to Fair Value Accounting Receivables we’ve acquired since January 1, 2018 are accounted for based on the fair value method of accounting. If Actual Results for Our Receivables Materially Deviate from Our Estimates, We May Be Required to Reduce the Interest Income We Recognize forSome or All of the Receivables Measured at Fair Value. We recognize interest income on receivables accounted under fair value based on a level yield internal rate of return that we calculate based theterms of the receivables and our estimates [at the time of acquisition of the future performance of those receivables]. Such estimates include the timing andseverity of future credit losses and the rates of amortization and of prepayments. If actual credit losses were to exceed our estimates, or if the actualamortization and prepayments of the receivables were to be materially different from our estimates, we might be required to change our estimates, whichcould result in a reduced interest income for those receivables in subsequent periods. If Actual Results for Our Receivables Materially Deviate from Our Estimates, We May Be Required to Reduce the Carrying Value for Some or All ofthe Receivables Measured at Fair Value. We re-evaluate the carrying value of receivables measured at fair value at the close of each quarter. If the re-evaluation were to yield a valuematerially different from the previous carrying value, an adjustment would be required. If actual credit losses were to exceed our estimates, or if the actualamortization and prepayments of the receivables were to be materially different from our estimates, we might be required to adjust the carrying value of suchreceivables. A downward readjustment in carrying value would correspondingly reduce our income and book value for and as of the end of the relatedquarter. If Actual Market Conditions Indicate That the Amount a Market Participant Would Pay for Our Receivables is Materially Lower Than Our CarryingValue, We May Be Required to Reduce the Carrying Value for Some or All of the Receivables Measured at Fair Value. The fair value of an asset is, by definition, the exchange price in an orderly transaction between market participants. Receivables such as ours are notregularly traded on exchanges where we can observe prices for exchanges of similar assets. We may therefore rely on estimates of what a market participantwould pay for our receivables. If such estimated value were to be materially different from our carrying value, we might be required to adjust the carryingvalue of our receivables. A downward readjustment in carrying value would correspondingly reduce our income and book value. 25  Risks Related to General Factors If The Economy of All or Certain Regions of the United States Falls into Recession, Our Results of Operations May Be Impaired. Our business is directly related to sales of new and used automobiles, which are sensitive to employment rates, prevailing interest rates and otherdomestic economic conditions. Delinquencies, repossessions and losses generally increase during economic slowdowns or recessions. Because of our focuson sub-prime customers, the actual rates of delinquencies, repossessions and losses on our automobile contracts could be higher under adverse economicconditions than those experienced in the automobile finance industry in general, particularly in the states of California, Texas, Ohio, Florida, North Carolinaand Pennsylvania, states in which our automobile contracts are geographically concentrated. Any sustained period of economic slowdown or recession couldadversely affect our ability to acquire suitable automobile contracts, or to securitize pools of such automobile contracts. The timing of any economic changesis uncertain, and weakness in the economy could have an adverse effect on our business and that of the dealers from which we purchase automobile contractsand result in reductions in our revenues or the cash flows available to us. Our Results of Operations May Be Impaired as a Result of Natural Disasters. Our automobile contracts are geographically concentrated in the states of California and Texas. Such states may be particularly susceptible tonatural disasters: earthquake in the case of California, and hurricanes and flooding in Texas. Natural disasters, in those states or others, could cause a materialnumber of our vehicle purchasers to lose their jobs, or could damage or destroy vehicles that secure our automobile contracts. In either case, such eventscould result in our receiving reduced collections on our automobile contracts, and could thus result in reductions in our revenues or the cash flows availableto us. If an Increase in Interest Rates Results in a Decrease in Our Cash Flows from Excess Spread, Our Results of Operations May Be Impaired. Our profitability is largely determined by the difference, or "spread," between the effective interest rate we receive on the automobile contracts thatwe acquire and the interest rates payable under warehouse credit facilities and on the asset-backed securities issued in our securitizations. In the past,disruptions in the market for asset-backed securities resulted in an increase in the interest rates we paid on asset-backed securities. Should similar disruptionstake place in the future, we may pay higher interest rates on asset-backed securities issued in the future. Although we have the ability to partially offsetincreases in our cost of funds by increasing fees we charge to dealers when purchasing automobile contracts, or by demanding higher interest rates onautomobile contracts we purchase, there is no assurance that such actions will materially offset increases in interest we pay to finance our managed portfolio.As a result, an increase in prevailing interest rates could cause us to receive less excess spread cash flows on automobile contracts, and thus could adverselyaffect our earnings and cash flows. See “Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk.” Risks Related to Our Common Stock Our Common Stock Is Thinly-Traded. Our stock is thinly-traded, which means investors will have limited opportunities to sell their shares of common stock in the open market. Limitedtrading of our common stock also contributes to more volatile price fluctuations. Because there historically has been low trading volume in our commonstock, there can be no assurance that our stock price will not decline as additional shares are sold in the public market. As of December 31, 2018, our directorsand executive officers collectively owned 5.1 million shares of our common stock, or approximately 24%. We Do Not Intend to Pay Dividends on Our Common Stock. We have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings and do not expect topay any dividends in the foreseeable future. See "Dividend Policy". 26  Forward-Looking Statements Discussions of certain matters contained in this report may constitute forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended (the "Securities Act") and Section 21E of the Exchange Act, and as such, may involve risks and uncertainties. Theseforward-looking statements relate to, among other things, expectations of the business environment in which we operate, projections of future performance,perceived opportunities in the market and statements regarding our mission and vision. You can generally identify forward-looking statements as statementscontaining the words "will," "would," "believe," "may," "could," "expect," "anticipate," "intend," "estimate," "assume" or other similar expressions. Our actualresults, performance and achievements may differ materially from the results, performance and achievements expressed or implied in such forward-lookingstatements. The discussion under "Risk Factors" identifies some of the factors that might cause such a difference, including the following: ·changes in general economic conditions;·changes in performance of our automobile contracts;·increases in interest rates;·our ability to generate sufficient operating and financing cash flows;·competition;·level of losses incurred on contracts in our managed portfolio; and·adverse decisions by courts or regulators Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Actual results may differ fromexpectations due to many factors beyond our ability to control or predict, including those described herein, and in documents incorporated by reference inthis report. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities LitigationReform Act of 1995. We undertake no obligation to publicly update any forward-looking information. You are advised to consult any additional disclosure we make inour periodic reports filed with the SEC. See "Where You Can Find More Information" and "Documents Incorporated by Reference." Item 1B. Unresolved Staff Comments Not applicable. Item 2. Properties Our principal executive offices are located in Las Vegas, Nevada, where we currently lease approximately 45,000 square feet of general office spacefrom an unaffiliated lessor. The annual base rent is approximately $1.5 million, increasing to approximately $1.7 million through 2022. Our operating headquarters are located in Irvine, California, where we currently lease approximately 129,000 square feet of general office space froman unaffiliated lessor. The annual base rent is approximately $4.0 million, increasing to approximately $4.5 million through 2022. The remaining three regional servicing centers occupy a total of approximately 59,000 square feet of leased space in Chesapeake, Virginia;Maitland, Florida; and Lombard, Illinois. The termination dates of such leases range from 2019 to 2025. The annual base rent for these facilities totalapproximately $1.4 million increasing to approximately $1.6 million through 2025. 27  Item 3. Legal Proceedings Consumer Litigation. We are routinely involved in various legal proceedings resulting from our consumer finance activities and practices, bothcontinuing and discontinued. Consumers can and do initiate lawsuits against us alleging violations of law applicable to collection of receivables, and suchlawsuits sometimes allege that resolution as a class action is appropriate. For the most part, we have legal and factual defenses to consumer claims, which we routinely contest or settle (for immaterial amounts) depending onthe particular circumstances of each case. Wage and Hour Claim. On September 24, 2018, a former employee filed a lawsuit against us in the Superior Court of Orange County, California,alleging that we incorrectly classified our sales and marketing representatives as outside salespersons exempt from overtime wages, mandatory break periodsand certain other employee protective provisions of California and federal law. The complaint seeks injunctive relief, an award of unpaid wages, liquidateddamages, and attorney fees and interest. The plaintiff purports to act on behalf of a class of similarly situated employees and ex-employees. As of the date ofthis report, no motion for class certification has been filed or granted. We believe that our compensation practices with respect to our marketing representatives are compliant with applicable law. Accordingly, we havedefended and intend to continue to defend this lawsuit. We have not recorded a liability with respect to this claim on the accompanying consolidatedfinancial statements. Department of Justice Industry Inquiry. In January 2015, we were served with a subpoena by the U.S. Department of Justice (the “DOJ”) directing usto 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 DOJ in contemplation of a civil proceeding for potential violations of the Financial Institutions Reform,Recovery, and Enforcement Act of 1989. The DOJ in its investigation requested information relating, among other matters, to the underwriting criteria usedto originate these automobile contracts and to the representations and warranties relating to those underwriting criteria that were made in connection with thesecuritization of the automobile contracts. We are among several other securitizers of sub-prime automobile receivables who received such subpoenas in2014, 2015 and 2016. We have provided the required information, and we were advised by the DOJ in February 2018 that no further information is requiredof us and that no enforcement action is recommended. Although the inquiry commenced January 2015 is thus completed as to us, no assurance can be given as to whether some other government agencymay commence inquiries into or actions against us, nor as to whether the DOJ may recommence its investigation, any of which hypothetical proceedingsmight materially and adversely affect us. In General. There can be no assurance as to the outcomes of the matters described or referenced above. We record at each measurement date, mostrecently as of December 31, 2018, our best estimate of probable incurred losses for legal contingencies, including each of the matters described or referencedabove. The amount of losses that may ultimately be incurred cannot be estimated with certainty. However, based on such information as is available to us, webelieve that the total of probable incurred losses for legal contingencies as of December 31, 2018 is immaterial, and that the range of reasonably possiblelosses for the legal proceedings and contingencies we face, including those described or referenced above, as of December 31, 2018 does not exceed $3million. Accordingly, we believe that the ultimate resolution of such legal proceedings and contingencies should not have a material adverse effect on ourconsolidated financial condition. We note, however, that in light of the uncertainties inherent in contested proceedings, the wide discretion vested in the DOJand other government agencies, and the deference that courts may give to assertions made by government litigants, there can be no assurance that theultimate resolution of these matters will not be material to our operating results for a particular period, depending on, among other factors, the size of the lossor liability imposed and the level of our income for that period. Executive Officers of the Registrant Charles E. Bradley, Jr., 59, has been our President and a director since our formation in March 1991, and was elected Chairman of the Board ofDirectors in July 2001. In January 1992, Mr. Bradley was appointed Chief Executive Officer. From April 1989 to November 1990, he served as ChiefOperating Officer of Barnard and Company, a private investment firm. From September 1987 to March 1989, Mr. Bradley, Jr. was an associate of The HardingGroup, a private investment banking firm. Mr. Bradley does not currently serve on the board of directors of any other publicly-traded companies. 28  Jeffrey P. Fritz, 59, has been Executive Vice President and Chief Financial Officer since March 2014. Prior to that, he was Senior Vice President andChief Financial Officer since April 2006. He was Senior Vice President of Accounting from August 2004 through March 2006 and served as a consultant tous 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 PublicAccountant and has previously practiced public accounting. Michael T. Lavin, 46, has been Executive Vice President and Chief Operating Officer since February 2019, and our Chief Legal Officer since March2014. Prior to that, he was our Senior Vice President – General Counsel since March 2013, Senior Vice President and Corporate Counsel since May 2009 andour 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 SanDiego 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 ofTrachtman & Trachtman from 2000 through 2001. Mr. Lavin also clerked for the San Diego District Attorney’s office and Orange County Public Defender’soffice. Curtis K. Powell, 62, has been Senior Vice President – Product 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 wasour Senior Vice President – Marketing, from April 1995 to June 2001. He joined us in January 1993 as an independent marketing representative until beingappointed Regional Vice President of Marketing for Southern California in November 1994. From June 1985 through January 1993, Mr. Powell was in theretail automobile sales and leasing business. Mark A. Creatura, 59, has been Senior Vice President – General Counsel since October 1996. From October 1993 through October 1996, he wasVice President and General Counsel at Urethane Technologies, Inc., a polyurethane chemicals formulator. Mr. Creatura was previously engaged in the privatepractice of law with the Los Angeles law firm of Troy & Gould Professional Corporation, from October 1985 through October 1993. Christopher Terry, 51, has been Senior Vice President of Risk Management since May 2017. Prior to that he was our Senior Vice President ofServicing from May 2005 to August 2013. He was Senior Vice President of Asset Recovery from August 2013 to May 2017 and from January 2003 to May2005. He joined us in January 1995 as a loan officer, held a series of successively more responsible positions, and was promoted to Vice President - AssetRecovery in June 1999. Mr. Terry was previously a branch manager with Norwest Financial from 1990 to October 1994. Teri L. Robinson, 56, has been Senior Vice President of Originations since April 2007. Prior to that, she held the position of Vice President ofOriginations since August 1998. She joined the Company in June 1991 as an Operations Specialist, and held a series of successively more responsiblepositions. Previously, Ms. Robinson held an administrative position at Greco & Associates. Laurie A. Straten, 52, has been Senior Vice President of Servicing since August 2013. Prior to that, she was our Senior Vice President of AssetRecovery 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 inMarch 1996 as a bankruptcy specialist and took on more responsibility within Asset Recovery over time. Prior to joining CPS she worked for the FDIC andserved in the United States Marine Corps. John P. Harton, 54, has been Senior Vice President - Marketing since March 2014. Prior to that, he held the position of Vice President – Marketingsince 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 VicePresident - Originations in June 2007. Mr. Harton was previously a branch manager with American General Finance from 1990 to March 1996. Danny Bharwani, 51, has been Senior Vice President – Finance since April 2016. Previously, he was our Vice President – Finance from June 2002.He joined us as Assistant Controller in August 1997. Mr. Bharwani was previously employed as Assistant Controller at The Todd-AO Corporation, from 1989to 1997. 29  PART II 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 lowsale prices as reported by Nasdaq for our Common Stock for the periods shown. High Low January 1 - March 31, 2017 5.69 4.37 April 1 - June 30, 2017 5.21 4.06 July 1 - September 30, 2017 4.86 3.66 October 1 - December 31, 2017 4.82 4.00 January 1 - March 31, 2018 4.69 3.67 April 1 - June 30, 2018 4.48 3.27 July 1 - September 30, 2018 4.22 3.18 October 1 - December 31, 2018 4.06 2.99 As of January 1, 2019, there were 29 holders of record of the Company’s Common Stock. To date, we have not declared or paid any dividends on ourCommon 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 ourincome, capital requirements and financial condition, and other relevant factors. The instruments governing our outstanding debt place certain restrictions onthe 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 cashflow for use in our operations. The table below presents information regarding outstanding options to purchase our Common Stock as of December 31, 2018: Plan category Number ofsecurities to beissued uponexercise ofoutstandingoptions, warrantsand rights Weighted averageexercise price ofoutstandingoptions, warrantsand rights Number ofsecuritiesremainingavailable forfuture issuanceunder equitycompensationplans Equity compensation plans approved by security holders 14,420,649 $4.57 2,872,581 Equity compensation plans not approved by security holders – – – Total 14,420,649 $4.57 2,872,581 30  Issuer Purchases of Equity Securities in the Fourth Quarter Total Number of Approximate Dollar Total Shares Purchased as Value of Shares that Number of Average Part of Publicly May Yet be Purchased Shares Price Paid Announced Plans or Under the Plans or Period(1) Purchased per Share Programs(2) Programs October 2018 66,526 $3.85 66,526 $8,084,394 November 2018 90,714 3.92 90,714 7,729,238 December 2018 77,147 3.35 77,147 7,470,537 Total 234,387 $3.71 234,387 (1)Each monthly period is the calendar month.(2)Through December 31, 2018, our board of directors had authorized the purchase of up to $74.5 million of our outstanding securities, which programwas 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 planannounced in March 2003, which has no fixed expiration date. As of December 31, 2018, we have purchased $5.0 million in principal amount of debtsecurities and $62.1 million of our common stock representing 17,360,654 shares. 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 thecaptions "Statement of Income Data" and "Balance Sheet Data" have been derived from our audited consolidated financial statements. The remainder isderived from other records of ours. You should read the selected consolidated financial data together with "Management’s Discussion and Analysis ofFinancial Condition and Results of Operations" and our audited and unaudited consolidated financial statements and notes thereto that are included in thisreport, and in our quarterly and periodic filings. 31  As of and For the Year Ended December 31, (in thousands, except per share data) 2018 2017 2016 2015 2014 Statement of Income Data Revenues: Interest income $380,297 $424,174 $408,996 $349,912 $286,734 Other income 9,478 10,209 13,286 13,738 13,522 Total revenues 389,775 434,383 422,282 363,650 300,256 Expenses: Employee costs 79,318 72,967 65,549 59,556 50,129 General and administrative 57,208 50,287 48,620 42,349 39,262 Interest expense 101,466 92,345 79,941 57,745 50,395 Provision for credit losses 133,080 186,713 178,511 142,618 108,228 Total expenses 371,072 402,312 372,621 302,268 248,014 Income before income tax expense 18,703 32,071 49,661 61,382 52,242 Income tax expense 3,841 28,306 20,361 26,701 22,726 Net income $14,862 $3,765 $29,300 $34,681 $29,516 Earnings per share-basic $0.68 $0.17 $1.20 $1.34 $1.18 Earnings per share-diluted $0.59 $0.14 $1.01 $1.10 $0.92 Pre-tax income per share-basic (1) $0.85 $1.41 $2.04 $2.37 $2.09 Pre-tax income per share-diluted (2) $0.75 $1.18 $1.71 $1.94 $1.63 Weighted average shares outstanding-basic 21,989 22,687 24,356 25,935 25,040 Weighted average shares outstanding-diluted 24,988 27,214 29,035 31,584 32,032 Balance Sheet Data Total assets $2,485,680 $2,424,841 $2,410,402 $2,128,925 $1,833,058 Cash and cash equivalents 12,787 12,731 13,936 19,322 17,859 Restricted cash and equivalents 117,323 111,965 112,754 106,054 175,382 Finance receivables, net 1,454,709 2,195,797 2,172,365 1,909,490 1,534,496 Finance receivables measured at fair value 821,066 – 4 61 1,664 Warehouse lines of credit 136,847 112,408 103,358 194,056 56,839 Residual interest financing 39,106 – – 9,042 12,327 Debt secured by receivables measured at fair value – – – – 1,250 Securitization trust debt 2,063,627 2,083,215 2,080,900 1,720,021 1,598,496 Long-term debt 17,290 16,566 14,949 15,138 15,233 Shareholders' equity 197,118 183,937 186,218 161,159 127,253 (1)Income before income tax expense divided by weighted average shares outstanding-basic. Included for illustrative purposes because some of theperiods presented include significant income tax expense or benefit.(2)Income before income tax expense divided by weighted average shares outstanding-diluted. Included for illustrative purposes because some of theperiods presented include significant income tax expense or benefit. 32  As of and For the Year Ended December 31, (in thousands) 2018 2017 2016 2015 2014 Contract Originations / Securitizations Automobile contract originations $902,416 $859,069 $1,088,785 $1,060,538 $944,944 Automobile contracts securitized 883,452 870,000 1,214,997 795,000 924,000 Managed Portfolio Data Contracts associated with the allowance for financecredit losses $1,551,797 $2,333,497 $2,307,956 $2,030,652 $1,640,536 Contracts measured at fair value 829,039 – – – – Contracts held by consolidated subsidiaries $2,380,836 $2,333,497 $2,307,956 $2,030,652 $1,640,536 Fireside portfolio – – 3 61 1,664 Contracts held by non-consolidated subsidiaries – – 9 40 390 Third party portfolios (1) 11 33 102 383 1,330 Total managed portfolio $2,380,847 $2,333,530 $2,308,070 $2,031,136 $1,643,920 Average managed portfolio 2,341,957 2,334,015 2,226,073 1,847,945 1,422,870 Weighted average fixed effective interest rate (totalmanaged portfolio) (2) 18.9% 19.2% 19.4% 19.5% 19.8% Core operating expenses (% of average managedportfolio) (3) 5.8% 5.3% 5.1% 5.5% 6.3% Allowance for finance credit losses $67,376 $109,187 $95,578 $75,603 $61,460 Allowance for finance credit losses (% of totalcontracts associated with the allowance) 4.3% 4.7% 4.1% 3.7% 3.7% Aggregate allowance for finance credit losses andrepossessions in inventory $91,940 $133,211 $124,503 $102,557 $79,289 Aggregate allowance for finance credit losses (% ofrepossessions in inventory and contracts associatedwith the allowance) 5.9% 5.7% 5.4% 5.1% 4.8% Total delinquencies (2) (4) 12.3% 9.8% 9.2% 7.6% 5.5% (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 impairmentloss 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 thisreport 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 (excludingaccrued and unpaid interest) and amounts collected subsequent to the date of the charge-off, including some recoveries which have been classified asother income in the accompanying consolidated financial statements. For further information regarding charge-offs, see the table captioned "NetCharge-Off Experience," in Item I, Part I of this report and the notes to that table. 33  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 otherinformation 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 franchisedautomobile dealers and, to a lesser extent, by select independent dealers in the United States in the sale of new and used automobiles, light trucks andpassenger vans. Through our automobile contract purchases, we provide indirect financing to the customers of dealers who have limited credit histories, lowincomes or past credit problems, who we refer to as sub-prime customers. We serve as an alternative source of financing for dealers, facilitating sales tocustomers who otherwise might not be able to obtain financing from traditional sources, such as commercial banks, credit unions and the captive financecompanies 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 fromnon-affiliated lenders, and (iii) directly originated an immaterial amount of vehicle purchase money loans by lending money directly to consumers. In thisreport, 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, 2018, we have originated a total ofapproximately $15.2 billion of automobile contracts, primarily by purchasing retail installment sales contracts from dealers, and to a lesser degree, byoriginating loans secured by automobiles directly with consumers. In addition, we acquired a total of approximately $822.3 million of automobile contractsin mergers and acquisitions in 2002, 2003, 2004 and, most recently, in September 2011. The September 2011 acquisition consisted of approximately $217.8million of automobile contracts that we purchased from Fireside Bank of Pleasanton, California. In 2004 and 2009, we were appointed as a third-partyservicer for certain portfolios of automobile contracts originated and owned by non-affiliated entities. Recent contract purchase volumes and managedportfolio levels are shown in the table below: Contract Purchases and Outstanding Managed Portfolio $ in thousands Year ContractsPurchasedin Period ManagedPortfolioat Period End 2008 $296,817 $1,664,122 2009 8,599 1,194,722 2010 113,023 756,203 2011 284,236 794,649 2012 551,742 897,575 2013 764,087 1,231,422 2014 944,944 1,643,920 2015 1,060,538 2,031,136 2016 1,088,785 2,308,070 2017 859,069 2,333,530 2018 902,416 2,380,847 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 that California branch with certain of these functions also performed in our Florida and Nevadabranches. We service our automobile contracts from our California, Nevada, Virginia, Florida and Illinois branches. 34  The programs we offer to dealers and consumers are intended to serve a wide range of sub-prime customers, primarily through franchised new cardealers. We originate automobile contracts with the intention of financing them on a long-term basis through securitizations. Securitizations are transactionsin 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 thepool of contracts from us. Securitization and Warehouse Credit Facilities Throughout the period for which information is presented in this report, we have purchased automobile contracts with the intention of financingthem on a long-term basis through securitizations, and on an interim basis through warehouse credit facilities. All such financings have involvedidentification of specific automobile contracts, sale of those automobile contracts (and associated rights) to one of our special-purpose subsidiaries, andissuance of asset-backed securities to be purchased by institutional investors. Depending on the structure, these transactions may be accounted for undergenerally 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 soldautomobile contracts and the related debt appear as assets and liabilities, respectively, on our consolidated balance sheet. We then periodically (i) recognizeinterest and fee income on the contracts, (ii) recognize interest expense on the securities issued in the transaction and (iii) record as expense a provision forcredit losses on the contracts. Since 1994 we have conducted 80 term securitizations of automobile contracts that we originated. As of December 31, 2018, 19 of thosesecuritizations are active, all of which are structured as secured financings. From 1994 through April 2008 we generally utilized financial guarantees for thesenior asset-backed notes issued in the securitization. Since September 2010 we have utilized senior subordinated structures without any financialguarantees. We have generally conducted our securitizations on a quarterly basis, near the end of each calendar quarter, resulting in four securitizations percalendar year. However, in 2015, we elected to defer what would have been our December securitization in favor of a securitization in January 2016, andsince that time have generally conducted our securitizations near the beginning of each calendar quarter. 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 Number of TermSecuritizations Amount of Receivables 2008 2 509,022 2009 0 – 2010 1 103,772 2011 3 335,593 2012 4 603,500 2013 4 778,000 2014 4 923,000 2015 3 795,000 2016 4 1,214,997 2017 4 870,000 2018 4 883,452 35  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 $300 million, comprising three credit facilities. The first $100 million credit facility was established in May 2012.This facility was most recently renewed in September 2018, extending the revolving period to September 2020, and adding an amortization period throughSeptember 2021. In April 2015, we entered into a second $100 million facility. This facility was renewed in April 2017 and again in February 2019,extending the revolving period to February 2021, followed by an amortization period to April 2023. In November 2015, we entered into a third $100 millionfacility. This facility was renewed in November 2017, extending the revolving period to November 2019, followed by an amortization period to November2021. In a securitization and in our warehouse credit facilities, we are required to make certain representations and warranties, which are generally similarto the representations and warranties made by dealers in connection with our purchase of the automobile contracts. If we breach any of our representations orwarranties, we will be obligated to repurchase the automobile contract at a price equal to the principal balance plus accrued and unpaid interest. We may thenbe 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 anyprincipal payments made by the customer. Subject to any recourse against dealers, we will bear the risk of loss on repossession and resale of vehicles underautomobile 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 beunable to release excess cash to us if the credit performance of the securitized automobile contracts falls short of pre-determined standards. Such releasesrepresent a material portion of the cash that we use to fund our operations. An unexpected deterioration in the performance of securitized automobilecontracts could therefore have a material adverse effect on both our liquidity and results of operations, regardless of whether such automobile contracts aretreated as having been sold or as having been financed. Critical Accounting Policies We believe that our accounting policies related to (a) Finance Receivables at Fair Value, (b) Allowance for Finance Credit Losses, (c) Amortizationof Deferred Origination Costs and Acquisition Fees, (d) Term Securitizations, (e) Accrual for Contingent Liabilities and (f) Income Taxes are the most criticalto 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 toas "static pooling," which stratifies our finance receivable portfolio into separately identified pools based on the period of origination. Using analytical andformula driven techniques, we estimate an allowance for finance credit losses, which we believe is adequate for probable incurred credit losses that can bereasonably estimated in our portfolio of automobile contracts. Net losses incurred on finance receivables are charged to the allowance. We evaluate theadequacy of the allowance by examining current delinquencies, the characteristics of the portfolio, prospective liquidation values of the underlyingcollateral and general economic and market conditions. As circumstances change, our level of provisioning and/or allowance may change as well.Receivables acquired after 2017, are accounted for using fair value and will have no allowance for finance credit losses in accordance with the fair valuemethod of accounting for finance receivables. 36  Broad economic factors such as recession and significant changes in unemployment levels influence the credit performance of our portfolio, as doesthe weighted average age of the receivables at any given time. Our internal credit performance data consistently show that new receivables have lower levelsof delinquency and losses early in their lives, with delinquencies increasing throughout their lives and losses gradually increasing to a peak between 36 and42 months, after which they gradually decrease. The historical weighted average seasoning of our total owned portfolio including Finance Receivables atFair Value, is summarized in the table below: December 31, Weighted Average Age in Monthsof Owned Portfolio 2009 33 2010 37 2011 27 2012 18 2013 14 2014 14 2015 16 2016 18 2017 21 2018 23 The credit performance of our portfolio is also significantly influenced by our underwriting guidelines and credit criteria we use when evaluatingcontracts for purchase from dealers. We regularly evaluate our portfolio credit performance and modify our purchase criteria to maximize the creditperformance of our portfolio, while maintaining competitive programs and levels of service for our dealers. We generally do not lower the contractual interest rate or waive or forgive principal when our borrowers incur financial difficulty on either atemporary or permanent basis. An exception to this policy is when a court order mandates the terms of the contract to be modified, such as in a Chapter 13bankruptcy proceeding. In such cases, which represent an immaterial portion of our portfolio of finance receivables, we have estimated the amount ofimpairment that results from such modification and established an appropriate allowance within our Allowance for Finance Credit Losses. Finance Receivables Measured at Fair Value Effective January 1, 2018, we adopted the fair value method of accounting for finance receivables acquired on or after that date. For each financereceivable acquired after 2017, we consider the price paid on the purchase date as the fair value for such receivable. We estimate the cash to be received inthe future with respect to such receivables, based on our experience with similar receivables acquired in the past. We then compute the internal rate of returnthat results in the present value of those estimated cash receipts being equal to the purchase date fair value. Thereafter, we recognize interest income on suchreceivables on a level yield basis using that internal rate of return as the applicable interest rate. Cash received with respect to such receivables is applied firstagainst such interest income, and then to reduce the carrying value of the receivables. We re-evaluate the fair value of such receivables at the close of each measurement period. If the reevaluation were to yield a value materiallydifferent from the carrying value, an adjustment would be required. 37  Anticipated credit losses are included in our estimation of cash to be received with respect to receivables. Because such credit losses are included inour computation of the appropriate level yield, we do not thereafter make periodic provision for credit losses, as our best estimate of the lifetime aggregate ofcredit losses is included in that initial computation. Also because we include anticipated credit losses in our computation of the level yield, the computedlevel yield is materially lower than the average contractual rate applicable to the receivables. Because our initial carrying value is fixed as the price we payfor the receivable, rather than as the contractual principal balance, we do not record acquisition fees as an amortizing asset related to the receivables, nor dowe capitalize costs of acquiring the receivables. Rather we recognize the costs of acquisition as expenses in the period incurred. 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 directcosts associated with acquisitions of our contracts. All such acquisition fees and direct costs are applied to the carrying value of finance receivables and areaccreted into earnings as an adjustment to the yield over the estimated life of the contract using the interest method. Receivables acquired after 2017 areaccounted for using fair value. In accordance with the fair value method of accounting for finance receivables, any dealer acquisition fees will beincorporated into acquisition price of the receivables and no direct costs will be deferred. 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 ofbuying and reselling our automobile contracts. The special-purpose subsidiary then transfers the same automobile contracts to another entity, typically astatutory trust. The trust issues interest-bearing asset-backed securities, in a principal amount equal to or less than the aggregate principal balance of theautomobile contracts. We typically sell these automobile contracts to the trust at face value and without recourse, except that representations and warrantiessimilar 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; theproceeds 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. We structure our securitizations to include internal credit enhancement for the benefit the investors (i) in the form of an initial cash deposit to anaccount ("spread account") held by the trust, (ii) in the form of overcollateralization of the senior asset-backed securities, where the principal balance of thesenior 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 internalcredit enhancement be supplemented by a portion of collections from the automobile contracts until the level of internal credit enhancement reachesspecified levels, which are then maintained. The specified levels are generally computed as a percentage of the principal amount remaining unpaid under therelated automobile contracts. The specified levels at which the internal credit enhancement is to be maintained will vary depending on the performance of theportfolios 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 soldautomobile contracts from the trust when the aggregate outstanding balance of the automobile contracts has amortized to a specified percentage of the initialaggregate balance. Upon each transfer of automobile contracts in a transaction structured as a secured financing for financial accounting purposes, we retain on ourconsolidated balance sheet the related automobile contracts as assets and record the asset-backed notes or loans issued in the transaction as indebtedness. 38  We receive periodic base servicing fees for the servicing and collection of the automobile contracts. Under our securitization structures treated assecured financings for financial accounting purposes, such servicing fees are included in interest income from the automobile contracts. In addition, we areentitled to the cash flows from the trusts that represent collections on the automobile contracts in excess of the amounts required to pay principal and intereston the asset-backed securities, base servicing fees, and certain other fees and expenses (such as trustee and custodial fees). Required principal payments onthe asset-backed notes are generally defined as the payments sufficient to keep the principal balance of such notes equal to the aggregate principal balance ofthe related automobile contracts (excluding those automobile contracts that have been charged off), or a pre-determined percentage of such balance. Wherethat 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 collectedduring the collection period, the shortfall is withdrawn from the spread account, if any. If the cash collected during the period exceeds the amount necessaryfor the above allocations plus required principal payments on the subordinated asset-backed notes, and there is no shortfall in the related spread account orthe required overcollateralization level, the excess is released to us. If the spread account and overcollateralization is not at the required level, then the excesscash 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) orthe trusts (in the case of securitization transactions structured as secured financings for financial accounting purposes), we are restricted in use of the cash inthe spread accounts. Cash held in the various spread accounts is invested in high quality, liquid investment securities, as specified in the securitizationagreements. The interest rate payable on the automobile contracts is significantly greater than the interest rate on the asset-backed notes. As a result, theresidual 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 automobilecontracts (through a subsidiary) to the securitization entity. The difference between the two structures is that in securitizations that are treated as securedfinancings we report the assets and liabilities of the securitization trust on our consolidated balance sheet. Under both structures, recourse to us by holders ofthe 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 automobilecontracts included in the securitizations or warehouse credit facilities, the spread accounts and our retained interests in the respective trusts. Accrual for Contingent Liabilities We are routinely involved in various legal proceedings resulting from our consumer finance activities and practices, both continuing anddiscontinued. 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 isboth 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, 2018, which represents our best estimate of probable incurred losses for legal contingencies at thatdate. The amount of losses that may ultimately be incurred cannot be estimated with certainty. However, based on such information as is available to us, webelieve that the range of reasonably possible losses for the legal proceedings and contingencies described or referenced above, as of December 31, 2018, andin excess of the liability we have recorded, does not exceed $3 million. Accordingly, we believe that the ultimate resolution of such legal proceedings and contingencies, after taking into account our current litigationreserves, should not have a material adverse effect on our consolidated financial condition. We note, however, that in light of the uncertainties inherent incontested proceedings, there can be no assurance that the ultimate resolution of these matters will not significantly exceed the reserves we have accrued; as aresult, 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 theloss or liability imposed and the level of our income for that period. 39  Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for theexpected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities aredetermined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year inwhich 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 periodthat 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 recognizedfor 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 berealized. In making such judgments, significant weight is given to evidence that can be objectively verified. 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 itis 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 theexisting net operating loss carryforwards and any net operating loss that would be created by the reversal of the future net deductions which have not yetbeen 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 taxableincome will be correct. Factors discussed under "Risk Factors," and in particular under the subheading "Risk Factors -- Forward-Looking Statements" mayaffect 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 consolidatedstatements 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 securitiescollateralized by our automobile contracts. Since 1994, we have completed 80 term securitizations of approximately $13.4 billion in contracts. From thefourth 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 forsecurities backed by sub-prime automobile receivables. Moreover, during that period many of the firms that previously provided financial guarantees, whichwere an integral part of our securitizations, suspended offering such guarantees. These adverse changes caused us to conserve liquidity by significantlyreducing our purchases of automobile contracts. However, since September 2009 we have established new funding facilities and gradually increased ourcontract 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 requiring certain minimumfinancial ratios and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceeding maximum leverage levels. Inaddition, certain securitization and non-securitization related debt contain cross-default provisions that would allow certain creditors to declare a default if adefault occurred under a different facility. As of December 31, 2018 we were in compliance with all such financial covenants. 40  Results of Operations Comparison of Operating Results for the year ended December 31, 2018 with the year ended December 31, 2017 Revenues. During the year ended December 31, 2018, our revenues were $389.8 million, a decrease of $44.6 million, or 10.3%, from the prior yearrevenues of $434.4 million. The primary reason for the decrease in revenues is a decrease in interest income. Interest income for the year ended December 31,2017 decreased $43.9 million, or 10.3%, to $380.3 million from $424.2 million in the prior year. The primary reason for the decrease in interest income is thelower interest yield on the receivables measured at fair value. The interest yield on receivables measured at fair value is reduced to take account of expectedlosses and is therefore less than the yield on other finance receivables. The table below shows the outstanding and average balances of our portfolio held byconsolidated subsidiaries for the year months ended December 31, 2018 and 2017: Year Ended December 31, 2018 2017 (Dollars in thousands) Average Interest Average Interest Balance Interest Yield Balance Interest Yield Interest Earning Assets Finance receivables $1,860,388 $336,434 18.1% $2,299,218 $424,174 18.4% Finance receivables measured at fairvalue 447,167 43,863 9.8% – – – Total $2,307,555 $380,297 16.5% $2,299,218 $424,174 18.4% Other income decreased by $730,000, or 7.2%, to $9.5 million in the year ended December 31, 2018 from $10.2 million during the prior year. Thedecrease in other income resulted from a decrease of $600,000 in revenues associated with direct mail and other related products and services that we offer toour dealers, and a decrease of $200,000 in payments from third-party providers of convenience fees paid by our customers for web based and other electronicpayments. Expenses. Our operating expenses consist largely of provision for credit losses, interest expense, employee costs and general and administrativeexpenses. Provision for credit losses and interest expense are significantly affected by the volume of automobile contracts we purchased during the trailing12-month period and by the outstanding balance of finance receivables held by consolidated subsidiaries (other than our portfolio of finance receivablesmeasured at fair value, as to which expected credit losses have the effect of reducing the interest rate applicable to such receivables). Employee costs andgeneral and administrative expenses are incurred as applications and automobile contracts are received, processed and serviced. Factors that affect marginsand net income include changes in the automobile and automobile finance market environments, and macroeconomic factors such as interest rates andchanges in the unemployment level. Employee costs include base salaries, commissions and bonuses paid to employees, and certain expenses related to the accounting treatment ofoutstanding stock options, and are one of our most significant operating expenses. These costs (other than those relating to stock options) generally fluctuatewith 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. Total operating expenses were $371.1 million for the year ended December 31, 2018, compared to $402.3 million for the prior year, a decrease of$31.2 million, or 7.8%. The decrease is primarily due to a decrease in provision for credit losses, offsetting increases in employee costs, interest expense,marketing and general and administrative expenses. 41  Employee costs increased by $6.4 million or 8.7%, to $79.3 million during the year ended December 31, 2018, representing 21.4% of total operatingexpenses, from $73.0 million for the prior year, or 18.1% of total operating expenses. Employee costs for the prior year period were net of $5.4 million ofdirect employee costs associated with the originations of contracts during that period. Such deferred costs are then recognized over the life of the relatedreceivables using the interest method. The table below summarizes our employees by category as well as contract purchases and units in our managedportfolio as of, and for the years ended, December 31, 2018 and 2017: December 31, 2018 December 31, 2017 Amount Amount ($ in millions) Contracts purchased (dollars) $902.4 $859.1 Contracts purchased (units) 52,731 52,643 Managed portfolio outstanding (dollars) $2,380.8 $2,333.5 Managed portfolio outstanding (units) 176,042 177,760 Number of Originations staff 215 212 Number of Marketing staff 132 120 Number of Servicing staff 610 597 Number of other staff 75 70 Total number of employees 1,032 999 General and administrative expenses include costs associated with purchasing and servicing our portfolio of finance receivables, including expensesfor facilities, credit services, and telecommunications. General and administrative expenses were $31.0 million, an increase of $4.5 million, or 16.8%,compared to the previous year and represented 8.4% of total operating expenses. Interest expense for the year ended December 31, 2018 increased by $9.1 million to $101.5 million, or 9.9%, compared to $92.3 million in theprevious year. Interest on securitization trust debt increased by $6.8 million, or 8.2%, for the year ended December 31, 2018 compared to the prior year. Theaverage balance of securitization trust debt decreased 1.5% to $2,140.1 million for the year ended December 31, 2018 compared to $2,172.1 million for theyear ended December 31, 2017. In addition, the blended interest rates on our term securitizations have generally increased since June 2014. As a result, thecost of securitization debt during the year ended December 31, 2018 was 4.2%, compared to 3.8% in the prior year period. For any particular quarterlysecuritization transaction, the blended cost of funds is ultimately the result of many factors including the market interest rates for benchmark swaps of variousmaturities against which our bonds are priced and the margin over those benchmarks that investors are willing accept, which in turn, is influenced by investordemand for our bonds at the time of the securitization. These and other factors have resulted in a general trend toward higher securitization trust debt interestcosts in 2018 compared to 2017. The blended interest rates of our recent securitizations are summarized in the table below: Blended Cost of Funds on Recent Asset-Backed Term Securitizations Period Blended Cost ofFunds January 2017 3.91% April 2017 3.45% July 2017 3.52% October 2017 3.39% January 2018 3.46% April 2018 3.98% July 2018 4.18% October 2018 4.22% 42  The annualized average rate on our securitization trust debt was 4.2% for the year ended December 31, 2018 compared to 3.8% in the prior year. Theannualized average rate is influenced by the manner in which the underlying securitization trust bonds are repaid. The rate tends to increase over time on anyparticular securitization since the structures of our securitization trusts generally provide for sequential repayment of the shorter term, lower interest ratebonds before the longer term, higher interest rate bonds. Interest expense on our subordinated debt increased by $117,000, or 8.8%, for the year ended December 31, 2018 compared to the prior year. Theincrease was the result of an increase in the average interest rate on our subordinated renewable notes to 8.7% for the year ended December 31, 2018 from8.3% for the year ended December 31, 2017. This increase was also the result of an increase in the average balance of the notes from $16.0 million in the prioryear to $16.5 million for the year ended December 31, 2018. Interest expense on residual interest financing was $2.3 million in the year ended December 31, 2018. There was no residual interest financing debtoutstanding during 2017. Interest expense on warehouse lines of credit decreased by $181,000, or 2.3% for the year ended December 31, 2018 compared to the prior year. Thedecrease is due primarily to a decrease in the average interest rate on our warehouse credit line debt from 12.7% in 2017 to 11.6% in 2018. However, most ofthe decrease in interest expense was offset by higher utilization of our warehouse lines in 2018 compared to 2017. The following table presents the components of interest income and interest expense and a net interest yield analysis for the years ended December31, 2018 and 2017: Year Ended December 31, 2018 2017 (Dollars in thousands) Annualized Annualized Average Average Average Average Balance (1) Interest Yield/Rate Balance (1) Interest Yield/RateInterest Earning Assets Finance receivables gross (2) $1,860,388 $336,434 18.1% $2,299,218 $424,174 18.4%Finance receivables at fair value 447,167 43,863 9.8% – – - 2,307,555 380,297 16.5% 2,299,218 424,174 Interest Bearing Liabilities Warehouse lines of credit $66,984 7,752 11.6% $62,353 7,933 12.7%Residual interest financing 25,000 2,343 9.4% – – -Securitization trust debt 2,140,093 89,926 4.2% 2,172,145 83,084 3.8%Subordinated renewable notes 16,533 1,445 8.7% 16,028 1,328 8.3% $2,248,610 101,466 4.5% $2,250,526 92,345 4.1% Net interest income/spread $278,831 $331,829 Net interest margin (3) 12.1% 14.4%Ratio of average interest earningassets to average interestbearing liabilities 103% 102% (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)Net interest income divided by average interest earning assets 43  Year Ended December 31, 2018 Compared to December 31, 2017 Total Change Due Change Due Change to Volume to Rate Interest Earning Assets (In thousands) Finance receivables gross $(87,740) $(80,958) $(6,782)Finance receivables at fair value 43,863 43,863 – (43,877) (37,095) (6,782)Interest Bearing Liabilities Warehouse lines of credit (181) 589 (770)Residual interest financing 2,343 2,343 – Securitization trust debt 6,842 (1,226) 8,068 Subordinated renewable notes 117 42 75 9,121 1,748 7,373 Net interest income/spread $(52,998) $(38,843) $(14,155) Provision for credit losses was $133.1 million for the year ended December 31, 2018, a decrease of $53.6 million, or 28.7% compared to the prioryear and represented 35.9% of total operating expenses. The provision for credit losses maintains the allowance for finance credit losses at levels that we feelare adequate for probable incurred credit losses that can be reasonably estimated. Finance receivables that we have originated since January 2018 areaccounted for at fair value. Under the fair value method of accounting, we recognize interest income under the interest method on a level yield basis based onforecasted future cash flows net of expected credit losses. Thus, no provision for credit loss expense is recorded for finance receivables measured at fair value.This is the primary reason for the reduction in provision for credit losses in 2018. Marketing expenses consist primarily of commission-based compensation paid to our employee marketing representatives. Our marketingrepresentatives 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 $2.0 million, or 12.5%, to $17.6 million during theyear ended December 31, 2018, compared to $15.6 million in the prior year, and represented 4.7% of total operating expenses. For the year ended December31, 2018, we purchased 52,731 contracts representing $902.4 million in receivables compared to 52,643 contracts representing $859.1 million in receivablesin the prior year. Occupancy expenses increased by $445,000 or 6.2%, to $7.6 million compared to $7.2 million in the previous year and represented 2.1% of totaloperating expenses. Depreciation and amortization expenses increased by $58,000 or 6.2%, to $992,000 compared to $934,000 in the previous year and represented0.3% of total operating expenses. For the year ended December 31, 2018, we recorded income tax expense of $3.8 million, representing an effective income tax rate of 20.5%. Thisincludes $2.1 million of income tax benefit related to certain tax planning strategies and other adjustments. Excluding the impact of the tax benefit, theeffective tax rate for 2018 would have been 31.8%. For the year ended December 31, 2017, we recorded income tax expense of $28.3 million, representing aneffective income tax rate of 88.3%. This includes $15.1 million of income tax expense related to the effects of the Tax Act, which are required to be recordedin the period of enactment. Excluding the impact of the Tax Act, the effective tax rate for 2017 would have been 41.1%. 44  Comparison of Operating Results for the year ended December 31, 2017 with the year ended December 31, 2016 Revenues. During the year ended December 31, 2017, our revenues were $434.4 million, an increase of $12.1 million, or 2.9%, from the prior yearrevenues of $422.3 million. The primary reason for the increase in revenues is an increase in interest income. Interest income for the year ended December 31,2017 increased $15.2 million, or 3.7%, to $424.2 million from $409.0 million in the prior year. The primary reason for the increase in interest income is theincrease in finance receivables held by consolidated subsidiaries, which increased from $2,307.9 million at December 31, 2016 to $2,333.5 million atDecember 31, 2017. Other income decreased by $3.1 million, or 23.2%, to $10.2 million in the year ended December 31, 2017 from $13.3 million during the prior year.The decrease in other income resulted from a decrease of $2.8 million in revenues associated with direct mail and other related products and services that weoffer to our dealers, a decrease of $245,000 in payments from third-party providers of convenience fees paid by our customers for web based and otherelectronic payments and a decrease of $203,000 in recoveries on previously charged off receivables. Expenses. Our operating expenses consist largely of provision for credit losses, interest expense, employee costs and general and administrativeexpenses. Provision for credit losses and interest expense are significantly affected by the volume of automobile contracts we purchased during the trailing12-month period and by the outstanding balance of finance receivables held by consolidated subsidiaries. Employee costs and general and administrativeexpenses are incurred as applications and automobile contracts are received, processed and serviced. Factors that affect margins and net income includechanges in the automobile and automobile finance market environments, and macroeconomic factors such as interest rates and changes in the unemploymentlevel. Employee costs include base salaries, commissions and bonuses paid to employees, and certain expenses related to the accounting treatment ofoutstanding stock options, and are one of our most significant operating expenses. These costs (other than those relating to stock options) generally fluctuatewith 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. Total operating expenses were $402.3 million for the year ended December 31, 2017, compared to $372.6 million for the prior year, an increase of$29.7 million, or 8.0%. The increase is primarily due to the increase in interest expense, provision for credit losses and servicing costs. Employee costs increased by $7.4 million or 11.3%, to $73.0 million during the year ended December 31, 2017, representing 18.1% of totaloperating expenses, from $65.5 million for the prior year, or 17.6% of total operating expenses. During the year ended December 31, 2017, we addedServicing staff to accommodate the increase in the number of accounts in our managed portfolio. The table below summarizes our employees by category aswell as contract purchases and units in our managed portfolio as of, and for the years ended, December 31, 2017 and 2016: December 31, 2017 December 31, 2016 Amount Amount ($ in millions) Contracts purchased (dollars) $859.1 $1,088.8 Contracts purchased (units) 52,643 66,527 Managed portfolio outstanding (dollars) $2,333.5 $2,308.1 Managed portfolio outstanding (units) 177,760 169,720 Number of Originations staff 212 215 Number of Marketing staff 120 114 Number of Servicing staff 572 542 Number of other staff 95 89 Total number of employees 999 960 45  General and administrative expenses include costs associated with purchasing and servicing our portfolio of finance receivables, including expensesfor facilities, credit services, and telecommunications. General and administrative expenses were $26.6 million, an increase of $1.8 million, or 7.0%,compared to the previous year and represented 6.6% of total operating expenses. Interest expense for the year ended December 31, 2017 increased by $12.4 million to $92.3 million, or 15.5%, compared to $79.9 million in theprevious year. Interest on securitization trust debt increased by $13.9 million, or 20.1%, for the year ended December 31, 2017 compared to the prior year. Theaverage balance of securitization trust debt increased 4.7% to $2,172.1 million at December 31, 2017 compared to $2,075.1 million at December 31, 2016. Inaddition, the blended interest rates on our term securitizations have generally increased since June 2014. As a result, the cost of securitization debt during theyear ended December 31, 2017 was 3.8%, compared to 3.3% in the prior year period. For any particular quarterly securitization transaction, the blended costof funds is ultimately the result of many factors including the market interest rates for benchmark swaps of various maturities against which our bonds arepriced and the margin over those benchmarks that investors are willing accept, which in turn, is influenced by investor demand for our bonds at the time ofthe securitization. These and other factors have resulted in a general trend toward higher securitization trust debt interest costs since June 2014, although thattrend has reversed somewhat since July 2016. The blended interest rates of our recent securitizations are summarized in the table below: Blended Cost of Funds on Recent Asset-Backed Term Securitizations Period Blended Cost ofFunds June 2014 2.37% September 2014 2.71% December 2014 3.07% March 2015 3.04% June 2015 3.18% September 2015 3.78% January 2016 4.34% April 2016 4.65% July 2016 4.48% October 2016 3.66% January 2017 3.91% April 2017 3.45% July 2017 3.52% October 2017 3.39% The annualized average rate on our securitization trust debt was 3.8% for the year ended December 31, 2017 compared to 3.3% in the prior year. Theannualized average rate is influenced by the manner in which the underlying securitization trust bonds are repaid. The rate tends to increase over time on anyparticular securitization since the structures of our securitization trusts generally provide for sequential repayment of the shorter term, lower interest ratebonds before the longer term, higher interest rate bonds. Interest expense on our subordinated debt decreased by $20,000, or 1.5%, for the year ended December 31, 2017 compared to the prior year. Thereduction was the result of a decrease in the average interest rate on our subordinated renewable notes to 8.3% for the year ended December 31, 2017 from8.9% for the year ended December 31, 2016. This decrease was mostly offset by an increase in the average balance of the notes from $15.1 million in the prioryear to $16.0 million for the year ended December 31, 2017. 46  Interest expense on residual interest financing was $846,000 in the year ended December 31, 2016. This debt was repaid in full in November 2016. Interest expense on warehouse lines of credit decreased by $636,000, or 7.4% for the year ended December 31, 2017 compared to the prior year. Thedecrease is due primarily to lower utilization of our warehouse lines in 2017 compared to 2016. The following table presents the components of interest income and interest expense and a net interest yield analysis for the years ended December31, 2017 and 2016: Year Ended December 31, 2017 2016 (Dollars in thousands) Annualized Annualized Average Average Average Average Balance (1) Interest Yield/Rate Balance (1) Interest Yield/RateInterest Earning Assets Finance receivables gross (2) $2,299,218 $424,174 18.4% $2,188,852 $408,996 18.7% Interest Bearing Liabilities Warehouse lines of credit $62,353 7,933 12.7% $76,208 8,569 11.2%Residual interest financing – – – 6,413 846 13.2%Securitization trust debt 2,172,145 83,084 3.8% 2,075,127 69,178 3.3%Subordinated renewable notes 16,028 1,328 8.3% 15,062 1,348 8.9% $2,250,526 92,345 4.1% $2,172,810 79,941 3.7% Net interest income/spread $331,829 $329,055 Net interest margin (3) 14.4% 15.0%Ratio of average interest earningassets to average interestbearing liabilities 102% 101% (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)Net interest income divided by average interest earning assets. 47  Year Ended December 31, 2017 Compared to December 31, 2016 Total Change Due Change Due Change to Volume to Rate Interest Earning Assets (In thousands) Finance receivables gross $15,178 $20,622 $(5,444) Interest Bearing Liabilities Warehouse lines of credit (636) (1,558) 922 Residual interest financing (846) (846) – Securitization trust debt 13,906 3,234 10,672 Subordinated renewable notes (20) 86 (106) 12,404 916 11,488 Net interest income/spread $2,774 $19,706 $(16,932) Provision for credit losses was $186.7 million for the year ended December 31, 2017, an increase of $8.2 million, or 4.6% compared to the prior yearand represented 46.4% of total operating expenses. The provision for credit losses maintains the allowance for finance credit losses at levels that we feel areadequate for probable incurred credit losses that can be reasonably estimated. Our approach for establishing the allowance requires greater amounts ofprovision for credit losses early in the terms of our finance receivables, and also takes into account the performance of the receivables. Consequently, theincrease in provision expense is the result of the larger portfolio owned by our consolidated subsidiaries compared to the prior year and an adverse trend inthe performance of our receivables. Marketing expenses consist primarily of commission-based compensation paid to our employee marketing representatives. Our marketingrepresentatives 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 decreased by $2.2 million, or 12.4%, to $15.6 million during theyear ended December 31, 2017, compared to $17.8 million in the prior year, and represented 3.9% of total operating expenses. For the year ended December31, 2017, we purchased 52,643 contracts representing $859.1 million in receivables compared to 66,527 contracts representing $1,088.8 million inreceivables in the prior year. Occupancy expenses increased by $2.0 million or 38.1%, to $7.2 million compared to $5.2 million in the previous year and represented 1.8% oftotal operating expenses. The increase in occupancy expense is a result of leases for additional office space in Irvine, California and Las Vegas, Nevada. Depreciation and amortization expenses increased by $157,000 or 20.2%, to $934,000 compared to $777,000 in the previous year and represented0.1% of total operating expenses. For the year ended December 31, 2017, we recorded income tax expense of $28.3 million, representing an effective income tax rate of 88.3%. Thisincludes $15.1 million of income tax expense related to the effects of the Tax Act, which are required to be recorded in the period of enactment. Excludingthe impact of the Tax Act, the effective tax rate for 2017 would have been 41.1%. In 2016, we recorded $20.4 million of income tax expense, representing a41.0% effective income tax rate. 48  Liquidity and Capital Resources Liquidity Our business requires substantial cash to support our acquisitions of automobile contracts and other operating activities. Our primary sources of cashhave been cash flow from operating activities, including proceeds from term securitization transactions and other sales of automobile contracts, amountsborrowed under warehouse credit facilities, servicing fees on portfolios of automobile contracts previously sold in securitization transactions or serviced forthird parties, customer payments of principal and interest on finance receivables, fees for origination of automobile contracts, and releases of cash fromsecuritized portfolios of automobile contracts in which we have retained a residual ownership interest and the related spread accounts. Our primary uses ofcash have been the acquisitions of automobile contracts, repayment of securitization trust debt, repayment of amounts borrowed under warehouse creditfacilities, operating expenses such as employee, interest, occupancy expenses and other general and administrative expenses, the establishment of spreadaccounts 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 dependon the performance of securitized pools (which determines the level of releases from those portfolios and their related spread accounts), the rate of expansionor 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, 2018, 2017 and 2016 was $216.2 million, $215.6 million and $196.3million, respectively. Net cash from operating activities is generally provided by net income from operations adjusted for significant non-cash items such asour provision for credit losses and accretion of deferred acquisition fees. Net cash used in investing activities for the years ended December 31, 2018, 2017 and 2016 was $242.2 million, $210.6 million and $437.8 million,respectively. Cash provided by investing activities primarily results from principal payments and other proceeds received on finance receivables held forinvestment. Cash used in investing activities generally relates to acquisitions of finance receivables. Acquisitions of finance receivables held for investmentwere $914.9 million (includes acquisition fees paid), $859.1 million and $1,088.8 million in 2018, 2017 and 2016, respectively. Net cash provided by financing activities for the years ended December 31, 2018 and 2016 was $31.4 million and $242.8 million, respectively. Netcash used in financing activities for the year ended December 31, 2017 was $7.0 million. Cash used or provided by financing activities is primarilyattributable to the repayment or issuance of debt, and in particular, securitization trust debt and portfolio acquisition financing. We issued $855.8 million innew securitization trust debt in 2018 compared to $852.6 million in 2017 and $1,197.5 million in 2016. Repayments of securitization debt were $876.1million, $851.2 million and $834.9 million in 2018, 2017 and 2016, respectively. We purchase automobile contracts from dealers for a cash price approximating their principal amount, adjusted for an acquisition fee which mayeither increase or decrease the automobile contract purchase price. Those automobile contracts generate cash flow, however, over a period of years. As aresult, we have been dependent on warehouse credit facilities to purchase automobile contracts and on access to the asset-backed securitization market forlong-term financing of our portfolio of automobile contracts. In addition, from time to time, we have relied on the availability of cash from outside sources inorder to finance our continuing operations, as well as to fund the portion of automobile contract purchase prices not financed under revolving warehousecredit facilities. The acquisition of automobile contracts for subsequent financing in securitization transactions, and the need to fund spread accounts and initialovercollateralization, if any, and increase credit enhancement levels when those transactions take place, results in a continuing need for capital. The amountof capital required is most heavily dependent on the rate of our automobile contract purchases, the required level of initial credit enhancement insecuritizations, and the extent to which the previously established trusts and their related spread accounts either release cash to us or capture cash fromcollections on securitized automobile contracts. Of those, the factor most subject to our control is the rate at which we acquire automobile contracts. 49  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, 2018, wehad unrestricted cash of $12.8 million. We had an aggregate of $161.9 million available under our three $100 million warehouse credit facilities (subject toavailable eligible collateral and our own capital). During 2018 we completed four securitizations aggregating $883.5 million of receivables, and we intend tocontinue completing securitizations regularly during 2019, although there can be no assurance that we will be able to do so. Our plans to manage ourliquidity include maintaining our rate of automobile contract purchases at a level that matches our available capital, and, as appropriate, minimizing ouroperating costs. If we are unable to complete such securitizations, we may be unable to increase our rate of automobile contract purchases, in which case ourinterest 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 ofeach spread account vary among transactions, our securitization agreements generally provide that we will receive excess cash flows, if any, only if theamount of credit enhancement has reached specified levels and the delinquency, defaults or net losses related to the automobile contracts in the pool arebelow certain predetermined levels. In the event delinquencies, defaults or net losses on the automobile contracts exceed such levels, the terms of thesecuritization: (i) may require increased credit enhancement to be accumulated for the particular pool; or (ii) in certain circumstances, may permit the transferof 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 togenerate sufficient cash. We currently have and will continue to have a substantial amount of indebtedness. At December 31, 2018, we had approximately $2,256.9 millionof debt outstanding. Such debt consisted primarily of $2,063.6 million of securitization trust debt, $136.8 million of warehouse lines of credit, $39.1 millionof residual interest financing debt and $17.3 million in subordinated renewable notes. We are also currently offering the subordinated renewable notes to thepublic on a continuous basis, and such notes have maturities that range from three months to 10 years. 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 operationsdo not generate sufficient cash flows and earnings, our ability to make required payments on our debt would be impaired. Failure to pay our indebtednesswhen 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, 2018 (dollars in thousands): Payment Due by Period (1) Less than 2 to 3 4 to 5 More than Total 1 Year Years Years 5 Years Long Term Debt (2) $17,290 $6,867 $5,773 $1,973 $2,677 Operating Leases 30,942 7,684 15,064 7,505 689 (1)Securitization trust debt, in the aggregate amount of $2,063.6 million as of December 31, 2018, is omitted from this table because it becomes due as andwhen the related receivables balance is reduced by payments and charge-offs. Expected payments, which will depend on the performance of suchreceivables, as to which there can be no assurance, are $780.0 million in 2019, $587.5 million in 2020, $378.8 million in 2021, $194.6 million in 2022,$116.0 million in 2023, and $6.8 million in 2024.(2)Long-term debt represents subordinated renewable notes. We anticipate repaying debt due in 2019 with a combination of cash flows from operations and the potential issuance of new debt. 50  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 followingsummary of our warehouse credit facilities: Facility Established in May 2012. On May 11, 2012, we entered into a $100 million one-year warehouse credit line with Citibank, N.A. The facilityis structured to allow us to fund a portion of the purchase price of automobile contracts by borrowing from a credit facility to our consolidated subsidiaryPage Eight Funding, LLC. The facility provides for effective advances up to 87.0% of eligible finance receivables. The loans under the facility accrue interestat one-month LIBOR plus 3.00% per annum, with a minimum rate of 3.75% per annum. In September 2018, this facility was amended to extend the revolvingperiod to September 2020 and to include an amortization period through September 2021 for any receivables pledged to the facility at the end of therevolving period. At December 31, 2018 there was $99.9 million outstanding under this facility. Facility Established in April 2015. On April 17, 2015, we entered into an additional $100 million one-year warehouse credit line with FortressInvestment 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 toour consolidated subsidiary Page Six Funding, LLC. The facility provides for effective advances up to 88.0% of eligible finance receivables. The loans underthe facility accrue interest at one-month LIBOR plus 5.50% per annum, with a minimum rate of 6.50% per annum. In April 2017, this facility was amended toextend the revolving period to April 2019 followed by an amortization period through April 2021 for any receivables pledged to the facility at the end of therevolving period. At December 31, 2018 there was $38.2 million outstanding under this facility. In February 2019, this facility was amended to extend therevolving period to February 2021 followed by an amortization period through February 2023. Facility Established in November 2015. On November 24, 2015, we entered into an additional $100 million one-year warehouse credit line withaffiliates of Credit Suisse Group and Ares Management LP. The facility is structured to allow us to fund a portion of the purchase price of automobilecontracts by borrowing from a credit facility to our consolidated subsidiary Page Nine Funding, LLC. The facility provides for effective advances up to88.0% of eligible finance receivables, or up to 80.0% for certain other receivables. The loans under the facility accrue interest at a commercial paper rate plus6.75% per annum, with a minimum rate of 7.75% per annum. In November 2017, this facility was amended to extend the revolving period to November 2019followed by an amortization period through November 2021 for any receivables pledged to the facility at the end of the revolving period. At December 31,2018 there was no amount 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 amountof the related receivables is reduced. Although the securitization trust debt also has alternative final maturity dates, those dates are significantly later than thedates at which repayment of the related receivables is anticipated, and at no time in our history have any of our sponsored asset-backed securities reachedthose alternative final maturities. The acquisition of automobile contracts for subsequent transfer in securitization transactions, and the need to fund spread accounts and initialovercollateralization, if any, when those transactions take place, results in a continuing need for capital. The amount of capital required is most heavilydependent on the rate of our automobile contract purchases, the required level of initial credit enhancement in securitizations, and the extent to which thetrusts and related spread accounts either release cash to us or capture cash from collections on securitized automobile contracts. We plan to adjust our levelsof automobile contract purchases and the related capital requirements to match anticipated releases of cash from the trusts and related spread accounts. 51  Capitalization Over the period from January 1, 2016 through December 31, 2018 we have managed our capitalization by issuing and refinancing debt assummarized in the following table: Year Ended December 31, 2018 2017 2016 (Dollars in thousands) RESIDUAL INTEREST FINANCING: Beginning balance $– $– $9,042 Issuances 40,000 – – Payments – – (9,042)Capitalization of deferred financing costs (1,081) – – Amortization of deferred financing costs 187 – – Ending balance $39,106 $– $– SECURITIZATION TRUST DEBT: Beginning balance $2,083,215 $2,080,900 $1,731,598 Issuances 855,828 852,615 1,197,515 Payments (876,094) (851,193) (834,880)Amortization of discount – – 20 Reclassification of deferred financing costs – – (11,579)Capitalization of deferred financing costs (6,198) (6,104) (8,367)Amortization of deferred financing costs 6,876 6,997 6,593 Ending balance $2,063,627 $2,083,215 $2,080,900 SUBORDINATED RENEWABLE NOTES: Beginning balance $16,566 $14,949 $15,138 Issuances 3,175 4,083 2,911 Payments (2,451) (2,466) (3,100)Ending balance $17,290 $16,566 $14,949 Residual Interest Financing. On May 16, 2018, we completed a $40.0 million securitization of residual interests from previously issued securitizations. In this residual interestfinancing transaction, qualified institutional buyers purchased $40.0 million of asset-backed notes secured by residual interests in thirteen CPSsecuritizations consecutively conducted from September 2013 through December 2016, and an 80% interest in a CPS affiliate that owns the residual interestsin the four CPS securitizations conducted in 2017. The sold notes (“2018-1 Notes”), issued by CPS Auto Securitization Trust 2018-1, consist of a single classwith a coupon of 8.595%. As of December 31, 2018, $40.0 million of residual interest financing debt remains outstanding. This amount does not exclude$894,000 in unamortized debt issuance costs. These debt issuance costs are presented as a direct deduction to the carrying amount of the debt on ourUnaudited Condensed Consolidated Balance Sheets. 52  The agreed valuation of the collateral for the 2018-1 Notes is the sum of the amounts on deposit in the underlying spread accounts for each relatedsecuritization and the over-collateralization of each related securitization, which is the difference between the outstanding principal balances of the relatedreceivables less the principal balance of the outstanding notes issued in the related securitization. With respect to the securitizations conducted by CPS in2017, only 80% of such amounts are included in the collateral. On each monthly payment date, the 2018-1 Notes are entitled to interest at the coupon rateand, if necessary, a principal payment necessary to maintain a specified minimum collateral ratio. Securitization Trust Debt. Since 2011, we treated all 30 of our securitizations of automobile contracts as secured financings for financialaccounting purposes, and the asset-backed securities issued in such securitizations remain on our consolidated balance sheet as securitization trust debt. Wehad $2,063.6 million of securitization trust debt outstanding at December 31, 2018. 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 15days 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 withsimilar note maturities. Based on the terms of the individual notes, interest payments may be required monthly, quarterly, annually or upon maturity. AtDecember 31, 2018 there were $17.3 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 maintaincertain financial ratios related to liquidity, net worth, capitalization, investments, acquisitions, restricted payments and certain dividend restrictions. Inaddition, certain securitization and non-securitization related debt contain cross-default provisions that would allow certain creditors to declare default if adefault occurred under a different facility. As of December 31, 2018, 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 affectcharge-offs and recovery rates include changes in the general economic climate, which could affect the willingness or ability of obligors to pay pursuant tothe terms of contracts, changes in laws respecting consumer finance, which could affect our ability to enforce rights under contracts, and changes in themarket for used vehicles, which could affect the levels of recoveries upon sale of repossessed vehicles. Factors that could affect our revenues in the currentyear 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 ableto 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 termsecuritizations once contracts are acquired. Factors that could affect our expenses in the current year include competitive conditions in the market forqualified personnel, investor demand for asset-backed securities and interest rates (which affect the rates that we pay on asset-backed securities issued in oursecuritizations). The statements concerning structuring securitization transactions as secured financings and the effects of such structures on financial itemsand on future profitability also are forward-looking statements. Any change to the structure of our securitization transaction could cause such forward-looking statements to be inaccurate. Both the amount of the effect of the change in structure on our profitability and the duration of the period in which ourprofitability would be affected by the change in securitization structure are estimates. The accuracy of such estimates will be affected by the rate at which wepurchase and sell contracts, any changes in that rate, the credit performance of such contracts, the financial terms of future securitizations, any changes insuch terms over time, and other factors that generally affect our profitability. 53  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 aterm 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 receivefrom 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 thesecuritization, which may not take place until several months after we purchased those contracts. Our customers, on the other hand, pay fixed rates of intereston the automobile contracts, set at the time they purchase the underlying vehicles. A decrease in excess spread cash flow could adversely affect our earningsand cash flow. To mitigate, but not eliminate, the short-term risk relating to interest rates payable under the warehouse facilities, we have historically heldautomobile contracts in the warehouse credit facilities for less than four months. To mitigate, but not eliminate, the long-term risk relating to interest ratespayable by us in securitizations, we have structured our term securitization transactions to include pre-funding structures, whereby the amount of notes issuedexceeds the amount of contracts initially sold to the trusts. We expect to continue to use pre-funding structures in our securitizations. In pre-funding, theproceeds 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 inthe borrowing costs with respect to the contracts we subsequently deliver to the securitization trust. However, we incur an expense in pre-fundedsecuritizations equal to the difference between the money market yields earned on the proceeds held in escrow prior to subsequent delivery of contracts andthe interest rate paid on the notes outstanding. The amount of such expense may vary. Despite these mitigation strategies, an increase in prevailing interestrates 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." Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. Item 9A. Controls and Procedures Disclosure Controls and Procedures. Under the supervision and with the participation of the Company’s Chief Executive Officer and ChiefFinancial Officer, management of the Company has evaluated the effectiveness of the design and operation of the Company’s disclosure controls andprocedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act") as of December 31, 2018 (the"Evaluation Date"). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, theCompany’s disclosure controls and procedures are effective (i) to ensure that information required to be disclosed by us in reports that the Company files orsubmits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities andExchange Commission; and (ii) to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act isaccumulated and communicated to our management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisionsregarding required disclosures. The certifications of our Chief Executive Officer and Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act have been filed as Exhibits 31.1 and 31.2 to this report. 54  Internal Control. Management’s Report on Internal Control over Financial Reporting is included in this Annual Report, immediately below. Duringthe fiscal quarter ended December 31, 2018, there were no changes in our internal control over financial reporting that have materially affected, or arereasonably likely to materially affect, our internal control over financial reporting. Management’s Report on Internal Control over Financial Reporting. We are responsible for establishing and maintaining adequate internal controlover financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed toprovide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systemsdetermined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation. Management, with the participation of the Chief Executive and Chief Financial Officers, assessed the effectiveness of our internal control overfinancial reporting as of December 31, 2018. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission (COSO) in the 2013 Internal Control — Integrated Framework. Based on this assessment, management, with the participation of theChief Executive and Chief Financial Officers, believes that, as of December 31, 2018, our internal control over financial reporting is effective based on thosecriteria. Our internal control over financial reporting as of December 31, 2018, has been audited by Crowe LLP, an independent registered public accountingfirm, as stated in their report which is included herein. Item 9B. Other Information Not Applicable. 55  PART III Item 10. Directors and Executive Officers and Corporate Governance Information regarding directors of the registrant is incorporated by reference to the registrant’s definitive proxy statement for its annual meeting ofshareholders to be held in 2019 (the "2019 Proxy Statement"). The 2019 Proxy Statement will be filed not later than April 30, 2019. Information regardingexecutive officers of the registrant appears in Part I of this report, and is incorporated herein by reference. Item 11. Executive Compensation Incorporated by reference to the 2019 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Incorporated by reference to the 2019 Proxy Statement. Item 13 Certain Relationships and Related Transactions, and Director Independence Incorporated by reference to the 2019 Proxy Statement. Item 14. Principal Accountant Fees and Services Incorporated by reference to the 2019 Proxy Statement. 56  PART IV Item 15. Exhibits, Financial Statement Schedules The financial statements listed below under the caption "Index to Financial Statements" are filed as a part of this report. No financial statementschedules are filed as the required information is inapplicable or the information is presented in the Consolidated Financial Statements or the related notes.Separate financial statements of the Company have been omitted as the Company is primarily an operating company and its subsidiaries are wholly ownedand do not have minority equity interests held by any person other than the Company in amounts that together exceed 5% of the total consolidated assets asshown by the most recent year-end Consolidated Balance Sheet. The exhibits listed below are filed as part of this report, whether filed herewith or incorporated by reference to an exhibit filed with the reportidentified in the parentheses following the description of such exhibit. Unless otherwise indicated, each such identified report was filed by or with respect tothe registrant. ExhibitNumber Description (“**” indicates compensatory plan or agreement.)3.1 Restated Articles of Incorporation (Exhibit 3.1 to Form 10-K filed March 31, 2009)3.1.1 Certificate of Designation re Series B Preferred (Exhibit 3.1.1 to Form 8-K filed by the registrant on December 30, 2010)3.2 Amended and Restated Bylaws (Exhibit 3.3 to Form 8-K filed July 20, 2009)4. Instruments defining the rights of holders of long-term debt of certain consolidated subsidiaries of the registrant are omitted pursuant tothe exclusion set forth in subdivisions (b)(iv)(iii)(A) and (b) (v) of Item 601 of Regulation S-K (17 CFR 229.601). The registrant agrees toprovide copies of such instruments to the United States Securities and Exchange Commission upon request.4.1 Form of Indenture re Renewable Unsecured Subordinated Notes (“RUS Notes”). (Exhibit 4.1 to Form S-2, no. 333-121913)4.2.1 Form of RUS Notes (Exhibit 4.2 to Form S-2, no. 333-121913)4.3 Form of Indenture re additional Renewable Unsecured Subordinated Notes (“ARUS Notes”) (Exhibit 4.1 to Form S-1, no. 333-168976)4.3.1 Form of ARUS Notes (Exhibit 4.2 to Form S-1, no. 333-168976)4.4 Supplement dated December 7, 2010 to Indenture re ARUS Notes (Exhibit 4.3 to Form S-1, no. 333-168976)4.4 Supplement dated January 22, 2014 to Indenture re ARUS Notes (Exhibit 4.4 to Form S-1, no. 333-190766)4.61 Indenture re Notes issued by CPS Auto Receivables Trust 2015-B (exhibit 4.61 to Form 8-K/A filed by the registrant on June 26, 2015)4.62 Sale and Servicing Agreement dated as of June 1, 2015, related to notes issued by CPS Auto Receivables Trust 2015-B (exhibit 4.62 toForm 8-K/A filed by the registrant on June 26, 2015)4.63 Indenture re Notes issued by CPS Auto Receivables Trust 2015-C (exhibit 4.63 to Form 8-K filed by the registrant on September 22, 2015)4.64 Sale and Servicing Agreement dated as of September 1, 2015, related to notes issued by CPS Auto Receivables Trust 2015-C (exhibit 4.64to Form 8-K filed by the registrant on September 22, 2015)4.65 Indenture re Notes issued by CPS Auto Receivables Trust 2016-A (exhibit 4.65 to Form 10-Q/A filed by the registrant on May 4, 2016)4.66 Sale and Servicing Agreement dated as of September 1, 2015, related to notes issued by CPS Auto Receivables Trust 2016-A (exhibit 4.66to Form 10-Q/A filed by the registrant on May 4, 2016)4.67 Indenture re Notes issued by CPS Auto Receivables Trust 2016-B (exhibit 4.67 to Form 10-Q/A filed by the registrant on May 4, 2016)4.68 Sale and Servicing Agreement dated as of September 1, 2015, related to notes issued by CPS Auto Receivables Trust 2016-B (exhibit 4.68to Form 10-Q/A filed by the registrant on May 4, 2016)4.69 Indenture re Notes issued by CPS Auto Receivables Trust 2016-C (exhibit 4.69 to Form 8-K filed by the registrant on July 27, 2016)4.70 Sale and Servicing Agreement dated as of September 1, 2016, related to notes issued by CPS Auto Receivables Trust 2016-C (exhibit 4.70to Form 8-K filed by the registrant on July 27, 2016)10.14 2006 Long-Term Equity Incentive Plan as amended May 18, 2015 (Incorporated by reference to pages A-1 through A-10 of the definitiveproxy statement filed by the registrant on April 27, 2015)**10.14.1 Form of Option Agreement under the 2006 Long-Term Equity Incentive Plan (Exhibit 10.14.1 to registrant's Form 10-K filed March 9,2007)**10.14.2 Form of Option Agreement under the 2006 Long-Term Equity Incentive Plan (Exhibit 99.(D)(2) to registrant's Schedule TO filedNovember 12, 2009)** 57  10.14.2 Form of Option Agreement under the 2006 Long-Term Equity Incentive Plan (Exhibit 99.(D)(3) to registrant's Schedule TO filedNovember 12, 2009)**10.23 Warrant dated July 10, 2008, issued to Citigroup Global Markets Inc. (Exhibit 10.23 to registrant's Form 10-Q filed August 11, 2008)14 Registrant’s Code of Ethics for Senior Financial Officers (Exhibit 14 to Form 10-K filed March 13, 2006)21 List of subsidiaries of the registrant (filed herewith)23.1 Consent of Crowe LLP (filed herewith)31.1 Rule 13a-14(a) certification by Chief Executive Officer (filed herewith)31.2 Rule 13a-14(a) certification by Chief Financial Officer (filed herewith)32 Section 1350 certification (filed herewith) 101.INS XBRL Instances Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 58  SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. CONSUMER PORTFOLIO SERVICES, INC. (registrant) March 13, 2019 By: /s/ CHARLES E. BRADLEY, JR. Charles E. Bradley, Jr., President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. March 13, 2019 /s/ CHARLES E. BRADLEY, JR. Charles E. Bradley, Jr., Director,President and Chief Executive Officer(Principal Executive Officer) March 13, 2019 /s/ CHRIS A. ADAMS Chris A. Adams, Director March 13, 2019 /s/ BRIAN J. RAYHILL Brian J. Rayhill, Director March 13, 2019 /s/ WILLIAM B. ROBERTS William B. Roberts, Director March 13, 2019 /s/ GREGORY S. WASHER Gregory S. Washer, Director March 13, 2019 /s/ DANIEL S. WOOD Daniel S. Wood, Director March 13, 2019 /s/ JEFFREY P. FRITZ Jeffrey P. Fritz, Executive Vice President and Chief Financial Officer(Principal Accounting Officer) 59  INDEX TO FINANCIAL STATEMENTS Page Reference Report of Independent Registered Public Accounting FirmF-2 Consolidated Balance Sheets as of December 31, 2018 and 2017F-3 Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016F-4 Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016F-5 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2018, 2017 and 2016F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016F-7 Notes to Consolidated Financial StatementsF-8 F-1  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and ShareholdersConsumer Portfolio Services, Inc. and SubsidiariesLas Vegas, Nevada Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Consumer Portfolio Services, Inc. and Subsidiaries (the "Company") as of December 31,2018 and 2017, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework: (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO).” In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018 in conformity withaccounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework: (2013) issued byCOSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for itsassessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overFinancial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal controlover financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (UnitedStates) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicablerules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control overfinancial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due toerror or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amountsand disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating thedesign and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considerednecessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely 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 ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. /s/ CROWE LLPCosta Mesa, CaliforniaMarch 13, 2019 We have served as the Company's auditor since 2008. F-2  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, December 31, 2018 2017 ASSETS Cash and cash equivalents $12,787 $12,731 Restricted cash and equivalents 117,323 111,965 Finance receivables 1,522,085 2,304,984 Less: Allowance for finance credit losses (67,376) (109,187)Finance receivables, net 1,454,709 2,195,797 Finance receivables measured at fair value 821,066 – Furniture and equipment, net 1,837 1,752 Deferred tax assets, net 19,188 32,446 Accrued interest receivable 31,969 46,753 Other assets 26,801 23,397 $2,485,680 $2,424,841 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Accounts payable and accrued expenses $31,692 $28,715 Warehouse lines of credit 136,847 112,408 Residual interest financing 39,106 – Securitization trust debt 2,063,627 2,083,215 Subordinated renewable notes 17,290 16,566 2,288,562 2,240,904 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; 22,421,688 and 21,488,589 shares issuedand outstanding at December 31, 2018 andDecember 31, 2017, respectively 70,273 71,582 Retained earnings 134,399 119,537 Accumulated other comprehensive loss (7,554) (7,182) 197,118 183,937 $2,485,680 $2,424,841 See accompanying Notes to Consolidated Financial Statements. F-3  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Year Ended December 31, 2018 2017 2016 Revenues: Interest income $380,297 $424,174 $408,996 Other income 9,478 10,209 13,286 389,775 434,383 422,282 Expenses: Employee costs 79,318 72,967 65,549 General and administrative 31,037 26,578 24,840 Interest 101,466 92,345 79,941 Provision for credit losses 133,080 186,713 178,511 Marketing 17,572 15,613 17,818 Occupancy 7,607 7,162 5,185 Depreciation and amortization 992 934 777 371,072 402,312 372,621 Income before income tax expense 18,703 32,071 49,661 Income tax expense 3,841 28,306 20,361 Net income $14,862 $3,765 $29,300 Earnings per share: Basic $0.68 $0.17 $1.20 Diluted 0.59 0.14 1.01 Number of shares used in computing earnings per share: Basic 21,989 22,687 24,356 Diluted 24,988 27,214 29,035 See accompanying Notes to Consolidated Financial Statements. F-4  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Year Ended December 31, 2018 2017 2016 Net income $14,862 $3,765 $29,300 Other comprehensive income (loss); change in funded status of pension plan, net of$173, $232 and $7 in tax for 2018, 2017 and 2016, respectively (372) (500) (32)Comprehensive income $14,490 $3,265 $29,268 See accompanying Notes to Consolidated Financial Statements. F-5  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) Accumulated Other Common Stock Retained Comprehensive Shares Amount Earnings Loss Total Balance at January 1, 2016 25,617 $81,337 $86,472 $(6,650) $161,159 Common stock issued upon exercise of options and warrants 448 706 – – 706 Repurchase of common stock (2,478) (10,468) – – (10,468)Pension benefit obligation – – – (32) (32)Stock-based compensation – 5,553 – – 5,553 Net income – – 29,300 – 29,300 Balance at December 31, 2016 23,587 $77,128 $115,772 $(6,682) $186,218 Common stock issued upon exercise of options and warrants 647 1,085 – – 1,085 Repurchase of common stock (2,745) (12,346) – – (12,346)Pension benefit obligation – – – (500) (500)Stock-based compensation – 5,715 – – 5,715 Net income – – 3,765 – 3,765 Balance at December 31, 2017 21,489 $71,582 $119,537 $(7,182) $183,937 Common stock issued upon exercise of options and warrants 2,315 483 – – 483 Repurchase of common stock (1,382) (5,307) – – (5,307)Pension benefit obligation – – – (372) (372)Stock-based compensation – 3,515 – – 3,515 Net income – – 14,862 – 14,862 Balance at December 31, 2018 22,422 $70,273 $134,399 $(7,554) $197,118 See accompanying Notes to Consolidated Financial Statements. F-6  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2018 2017 2016 Cash flows from operating activities: Net income $14,862 $3,765 $29,300 Adjustments to reconcile net income to net cash provided by operating activities: Accretion of deferred acquisition fees 2,655 1,305 (2,980)Net interest income accretion on fair value receivables 26,162 – 20 Depreciation and amortization 992 934 777 Amortization of deferred financing costs 8,453 8,738 8,389 Provision for credit losses 133,080 186,713 178,511 Stock-based compensation expense 3,515 5,715 5,553 Changes in assets and liabilities: Accrued interest receivable 14,784 (10,520) (4,686)Other assets (4,161) 5,361 (8,739)Deferred tax assets, net 13,258 10,399 (5,248)Accounts payable and accrued expenses 2,605 3,238 (4,564)Net cash provided by operating activities 216,205 215,648 196,333 Cash flows from investing activities: Originations of finance receivables held for investment – (859,069) (1,088,785)Payments received on finance receivables held for investment 605,353 647,619 650,379 Purchases of finance receivables measured at fair value (914,949) – – Payments on receivables portfolio at fair value 67,721 4 58 Change in repossessions held in inventory 757 1,490 1,629 Purchase of furniture and equipment (1,077) (669) (1,079)Net cash used in investing activities (242,195) (210,625) (437,798) Cash flows from financing activities: Proceeds from issuance of securitization trust debt 855,828 852,615 1,197,515 Proceeds from issuance of subordinated renewable notes 3,175 4,083 2,911 Payments on subordinated renewable notes (2,451) (2,466) (3,100)Net proceeds from (repayments of) warehouse lines of credit 23,809 9,309 (91,496)Repayments of residual interest financing debt – – (9,042)Net advances of residual interest financing debt 40,000 – – Repayment of securitization trust debt (876,094) (851,193) (834,880)Payment of financing costs (8,039) (8,104) (9,367)Repurchase of common stock (5,307) (12,346) (10,468)Exercise of options and warrants 483 1,085 706 Net cash provided by (used in) financing activities 31,404 (7,017) 242,779 Increase (decrease) in cash and cash equivalents 5,414 (1,994) 1,314 Cash and cash equivalents at beginning of year 124,696 126,690 125,376 Cash and cash equivalents at end of year $130,110 $124,696 $126,690 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $92,405 $83,110 $71,077 Income taxes 417 9,319 32,909 See accompanying Notes to Consolidated Financial Statements. F-7  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 Ohio, California, North Carolina, Florida and Indiana represented 8.8%, 8.7%, 6.2%, 6.0% and 5.2%,respectively, of contracts purchased during 2018 compared with 7.4%, 7.1%, 5.8%, 5.9% and 3.8% respectively in 2017. No other state had a concentrationin excess of 5.2% in 2018. We specialize in contracts with vehicle purchasers who generally would not be expected to qualify for traditional financingprovided 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 suchlaws 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 ofwhich are special purpose subsidiaries ("SPS"), formed to accommodate the structures under which we purchase and securitize our contracts. TheConsolidated Financial Statements also include the accounts of CPS Leasing, Inc., an 80% owned subsidiary. All significant intercompany balances andtransactions 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 cashequivalents. Cash equivalents consist of cash on hand and due from banks and money market accounts. Substantially all of our cash is deposited at threefinancial institutions. We maintain cash due from banks in excess of the banks' insured deposit limits. We do not believe we are exposed to any significantcredit 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, 2018, our unrestricted cash balance was $12.8 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. Allfinance receivable contracts are held for investment. Interest income is accrued on the unpaid principal balance. Origination fees, net of certain directorigination costs, are deferred and recognized in interest income using the interest method without anticipating prepayments. Generally, payments receivedon finance receivables are restricted to certain securitized pools, and the related contracts cannot be resold. Finance receivables are charged off pursuant tothe controlling documents of certain securitized pools, generally as described below under Charge Off Policy. Management may authorize an extension ofpayment terms if collection appears likely during the next calendar month. F-8  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our portfolio of finance receivables consists of small-balance homogeneous contracts that are collectively evaluated for impairment on a portfoliobasis. We report delinquency on a contractual basis. Once a Contract becomes greater than 90 days delinquent, we do not recognize additional interestincome until the obligor under the Contract makes sufficient payments to be less than 90 days delinquent. Any payments received on a Contract that isgreater than 90 days delinquent are first applied to accrued interest and then to principal reduction. Finance Receivables Measured at Fair Value Effective January 1, 2018, we adopted the fair value method of accounting for finance receivables acquired on or after that date. For each financereceivable acquired after 2017, we consider the price paid on the purchase date as the fair value for such receivable. We estimate the cash to be received in thefuture with respect to such receivables, based on our experience with similar receivables acquired in the past. We then compute the internal rate of return thatresults in the present value of those estimated cash receipts being equal to the purchase date fair value. Thereafter, we recognize interest income on suchreceivables on a level yield basis using that internal rate of return as the applicable interest rate. Cash received with respect to such receivables is applied firstagainst such interest income, and then to reduce the carrying value of the receivables. We re-evaluate the fair value of such receivables at the close of each measurement period. If the reevaluation were to yield a value materiallydifferent from the carrying value, an adjustment would be required. Anticipated credit losses are included in our estimation of cash to be received with respect to receivables. Because such credit losses are included inour computation of the appropriate level yield, we do not thereafter make periodic provision for credit losses, as our best estimate of the lifetime aggregate ofcredit losses is included in that initial computation. Also because we include anticipated credit losses in our computation of the level yield, the computedlevel yield is materially lower than the average contractual rate applicable to the receivables. Because our initial carrying value is fixed as the price we payfor the receivable, rather than as the contractual principal balance, we do not record acquisition fees as an amortizing asset related to the receivables, nor dowe capitalize costs of acquiring the receivables. Rather we recognize the costs of acquisition as expenses in the period incurred. 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 commonlyreferred to as "static pooling," which stratifies the finance receivable portfolio into separately identified pools based on their period of origination, then useshistorical performance of seasoned pools to estimate future losses on current pools. Historical loss experience is adjusted as necessary for current economicconditions. We consider our portfolio of finance receivables to be relatively homogenous and consequently we analyze credit performance primarily in theaggregate rather than stratification by any particular credit quality indicator. Using analytical and formula driven techniques, we estimate an allowance forfinance credit losses, which we believe is adequate for probable incurred credit losses that can be reasonably estimated in our portfolio of finance receivablecontracts. For each monthly pool of contracts that we purchase, we begin establishing the allowance in the month of acquisition and increase it over thesubsequent 11 months, through a provision for credit losses charged to our Consolidated Statement of Income. Net losses incurred on finance receivables arecharged to the allowance. We evaluate the adequacy of the allowance by examining current delinquencies, the characteristics of the portfolio, the value ofthe underlying collateral and historical loss trends. As conditions change, our level of provisioning and/or allowance may change. F-9  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 whichthe 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 inwhich the Contract becomes seven scheduled payments past due (see Repossessed and Other Assets below). The amount charged off is the remainingprincipal balance of the Contract, after the application of the net proceeds from the liquidation of the financed vehicle. With respect to delinquent contractsfor which the related financed vehicle has not been repossessed, the remaining principal balance is generally charged off no later than the end of the monththat 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 deferredorigination 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 ofthe Contract using the interest method. However, for receivables measured at fair value, we do not record acquisition fees as an amortizing asset related to thereceivables, nor do we capitalize costs of acquiring the receivables. Rather we recognize the costs of acquisition as expenses in the period incurred. 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 ismade 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 thetime the vehicle is repossessed we stop accruing interest on the Contract, and reclassify the remaining Contract balance to the line item "Other Assets" on ourConsolidated Balance Sheet at its estimated fair value less costs to sell. Included in other assets in the accompanying Consolidated Balance Sheets arerepossessed vehicles pending sale of $8.9 million and $9.7 million at December 31, 2018 and 2017, respectively. Treatment of Securitizations Our term securitization structure has generally been as follows: We sell contracts we acquire to a wholly-owned SPS, which has been established for the limited purpose of buying and reselling our contracts. TheSPS 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 andwithout 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(the "Noteholders") purchase the Notes issued by the Trust; the proceeds from the sale of the Notes are then used to purchase the contracts from us. We mayretain 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 theNotes issued is less than the principal balance of the contracts, and (3) in the form of subordinated Notes. The agreements governing the securitizationtransactions (collectively referred to as the "Securitization Agreements") require that the initial level of Credit Enhancement be supplemented by a portion ofcollections from the contracts until the level of Credit Enhancement reaches specified levels, which are then maintained. The specified levels are generallycomputed as a percentage of the principal amount remaining unpaid under the related contracts. The specified levels at which the Credit Enhancement is tobe maintained will vary depending on the performance of the portfolios of contracts held by the Trusts and on other conditions. Such levels have increasedand decreased from time to time based on performance of the various portfolios, and have also varied from one Trust to another. F-10  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our warehouse securitization structures are similar to the above, except that (i) the SPS that purchases the contracts pledges the contracts to securepromissory 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 asecuritization structured as a secured financing, we retain as assets on our Consolidated Balance Sheet the securitized contracts and record as indebtednessthe Notes issued in the transaction. 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 receivebenefits from the SPS, both of which could be potentially significant to the SPS. These types of securitization structures are treated as secured financings, inwhich the receivables remain on our Consolidated Balance Sheet, and the debt issued by the SPS is shown as a securitization trust debt on our ConsolidatedBalance Sheet. 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 Truststhat represent collections on the contracts in excess of the amounts required to pay principal and interest on the Notes, the base servicing fees, and certainother fees (such as trustee and custodial fees). Required principal payments on the Notes are generally defined as the payments sufficient to keep the principalbalance 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 ofprincipal 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 collectionperiod, the shortfall is generally withdrawn from the Spread Account, if any. If the cash collected during the period exceeds the amount necessary for theabove allocations plus required principal payments on the subordinated Notes, if any, and there is no shortfall in the related Spread Account or other form ofCredit Enhancement, the excess is released to us. If the total Credit Enhancement amount is not at the required level, then the excess cash collected isretained 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 isinvested in high quality, liquid investment securities, as specified in the Securitization Agreements. In all of our term securitizations we have transferred thereceivables (through a subsidiary) to the securitization Trust. We report the assets and liabilities of the securitization Trust on our Consolidated BalanceSheet. The Noteholders’ and the related securitization Trusts’ recourse against us for failure of the contract obligors to make payments on a timely basis islimited, in general, to our Finance Receivables, and Spread Accounts. Servicing We consider the contractual servicing fee received on our managed portfolio held by non-consolidated subsidiaries to be equal to adequatecompensation. Additionally, we consider that these fees would fairly compensate a substitute servicer, should one be required. As a result, no servicing assetor 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 chargedto expense as incurred. Servicing fees receivable, which are included in Other Assets in the accompanying Consolidated Balance Sheets, represent fees earnedbut 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 theestimated useful lives of the assets, which range from three to five years. Assets held under capital leases and leasehold improvements are amortized over thelesser of the estimated useful lives of the assets or the related lease terms. Amortization expense on assets acquired under capital lease is included withdepreciation expense on owned assets. F-11  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 thecarrying 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 anasset 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 measuredby 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 carryingamount or fair value less costs to sell. Other Income The following table presents the primary components of Other Income: Year Ended December 31, 2018 2017 2016 (In thousands) Direct mail revenues $5,829 $6,432 $9,202 Convenience fee revenue 1,700 1,900 2,145 Recoveries on previously charged-offcontracts 248 563 766 Sales tax refunds 887 866 811 Other 814 448 362 $9,478 $10,209 $13,286 Earnings Per Share The following table illustrates the computation of basic and diluted earnings per share: Year Ended December 31, 2018 2017 2016 (In thousands, except per share data) Numerator: Numerator for basic and diluted earnings pershare $14,862 $3,765 $29,300 Denominator: Denominator for basic earnings per share -weighted average number of commonshares outstanding during the year 21,989 22,687 24,356 Incremental common shares attributable toexercise of outstanding options andwarrants 2,999 4,527 4,679 Denominator for diluted earnings per share 24,988 27,214 29,035 Basic earnings per share $0.68 $0.17 $1.20 Diluted earnings per share $0.59 $0.14 $1.01 F-12  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Incremental shares of 10.3 million, 7.5 million and 7.9 million related to stock options and warrants have been excluded from the diluted earningsper share calculation for the years ended December 31, 2018, 2017 and 2016, 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.Unamortized debt issuance costs are presented as a direct deduction to the carrying amount of the related debt on our Consolidated Balance Sheets. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return and combined or stand-alone state franchise tax returns for certainstates. We utilize the asset and liability method of accounting for income taxes, under which deferred income taxes are recognized for the future taxconsequences attributable to the differences between the financial statement values of existing assets and liabilities and their respective tax bases. Deferredtax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences areexpected 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 enactmentdate. 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 based on the grant date fair value estimated in accordance with the provisions of ASC718 “Stock Compensation”. Compensation cost is recognized over the required service period, generally defined as the vesting period. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us tomake estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reportedamounts of income and expenses during the reported periods. These 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 earningsor shareholders’ equity. Financial Covenants Certain of our securitization transactions, our residual interest financing and our warehouse credit facilities contain various financial covenantsrequiring certain minimum financial ratios and results. Such covenants include maintaining minimum levels of liquidity and net worth and not exceedingmaximum leverage levels. In addition, certain securitization and non-securitization related debt contain cross-default provisions that would allow certaincreditors to declare a default if a default occurred under a different facility. As of December 31, 2018 we were in compliance with all such financial covenants. F-13  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Provision for Contingent Liabilities We are routinely involved in various legal proceedings resulting from our consumer finance activities and practices, both continuing anddiscontinued. 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 isboth 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, 2018, which represents our best estimate of the immaterial aggregate probable incurred losses forlegal contingencies. The amount of losses that may ultimately be incurred, over and above such losses as are probable, cannot be estimated with certainty. Recently Issued Accounting Standards In January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”. Themajority of the Company’s revenues come from interest income which is outside the scope of ASC 606. The Company’s services that fall within the scope ofASC 606 are presented within Other Income and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scopeof ASC 606 include revenue associated with direct mail and other related products and services that we offer to our dealers. In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement ofCredit Losses on Financial Instruments. The revised accounting guidance changes the criteria under which credit losses are measured. The amendmentintroduces a new credit reserving model known as the Current Expected Credit Loss (CECL) model, which replaces the incurred loss impairmentmethodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable andsupportable information to establish credit loss estimates. This new accounting guidance will be effective for interim and annual reporting periods beginningafter December 15, 2019. The Company is currently evaluating the provisions of ASU No. 2016-13, however, it is expected that the new CECL model willalter the assumptions used in calculating the Company's credit losses, given the change to estimated losses for the estimated life of the financial asset, andwill likely result in a material effect on the Company’s financial position and results of operations. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which modifies lease accounting for lessees to increasetransparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. Wewill adopt ASU 2016-02 effective January 1, 2019 utilizing the modified retrospective transition method. The Company anticipates recording lease assetsand liabilities of approximately $24.2 million on its Consolidated Balance Sheets, with no material impact to its Consolidated Statements of Operations. (2) Restricted Cash Restricted cash consists of cash and cash equivalent accounts relating to our outstanding securitization trusts and credit facilities. The amount ofrestricted cash on our Consolidated Balance Sheets was $117.3 million and $112.0 million as of December 31, 2018 and 2017, respectively. Our securitization transactions and one of our warehouse credit facilities require that we establish cash reserves, or spread accounts, as additionalcredit enhancement. These cash reserves, which are included in restricted cash, were $48.5 million and $45.7 million as of December 31, 2018 and 2017,respectively. F-14  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) Finance Receivables Our portfolio of finance receivables consists of small-balance homogeneous contracts comprising a single segment and class that is collectivelyevaluated for impairment on a portfolio basis according to delinquency status. Our contract purchase guidelines are designed to produce a homogenousportfolio. We report delinquency on a contractual basis. Once a contract becomes greater than 90 days delinquent, we do not recognize additional interestincome until the obligor under the contract makes sufficient payments to be less than 90 days delinquent. Any payments received on a contract that is greaterthan 90 days delinquent are first applied to accrued interest and then to principal reduction. In January 2018 the Company adopted the fair value method of accounting for finance receivables acquired after 2017. Finance receivablesmeasured at fair value are recorded separately on the Company’s Balance Sheet and are excluded from all tables in this footnote. The following table presents the components of finance receivables, net of unearned interest: December 31, 2018 2017 Finance receivables (In thousands) Automobile finance receivables, net of unearned interest $1,518,395 $2,298,608 Unearned acquisition fees, discounts and deferred origination costs,net 3,690 6,376 Finance receivable $1,522,085 $2,304,984 We consider an automobile contract delinquent when an obligor fails to make at least 90% of a contractually due payment by the following duedate, which date may have been extended within limits specified in the servicing agreements. The period of delinquency is based on the number of dayspayments are contractually past due, as extended where applicable. Automobile contracts less than 31 days delinquent are not reported as delinquent. Incertain circumstances we will grant obligors one-month payment extensions. The only modification of terms is to advance the obligor’s next due date by onemonth 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 otherconcessions, such as a reduction in interest rate, forgiveness of principal or of accrued interest. Accordingly, we consider such extensions to be insignificantdelays in payments rather than troubled debt restructurings. The following table summarizes the delinquency status of finance receivables as of December 31,2018 and 2017: December 31, 2018 2017 (In thousands) Delinquency Status Current $1,262,730 $2,069,617 31 - 60 days 157,688 138,395 61 - 90 days. 66,134 63,081 91 + days 31,843 27,515 $1,518,395 $2,298,608 Finance receivables totaling $31.8 million and $27.5 million at December 31, 2018 and 2017, respectively, have been placed on non-accrual statusas a result of their delinquency status. F-15  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We use a loss allowance methodology commonly referred to as "static pooling," which stratifies our finance receivable portfolio into separatelyidentified pools based on the period of origination. Using analytical and formula driven techniques, we estimate an allowance for finance credit losses, whichwe believe is adequate for probable incurred credit losses that can be reasonably estimated in our portfolio of automobile contracts. The estimate for probableincurred credit losses is reduced by our estimate for future recoveries on previously incurred losses. Provision for credit losses is charged to our consolidatedstatement of income. Net losses incurred on finance receivables are charged to the allowance. We establish the allowance for new receivables over the 12-month period following their acquisition. The following table presents a summary of the activity for the allowance for finance credit losses, for the years ended December 31, 2018, 2017 and2016: December 31, 2018 2017 2016 (In thousands) Balance at beginning of year $109,187 $95,578 $75,603 Provision for credit losses 133,080 186,713 178,511 Charge-offs (220,523) (211,948) (192,366)Recoveries 45,632 38,844 33,830 Balance at end of year $67,376 $109,187 $95,578 Excluded from finance receivables are contracts that were previously classified as finance receivables but were reclassified as other assets because wehave repossessed the vehicle securing the Contract. The following table presents a summary of such repossessed inventory together with the allowance forlosses on repossessed inventory: December 31, 2018 2017 (In thousands) Gross balance of repossessions in inventory $33,462 $33,679 Allowance for losses on repossessed inventory (24,564) (24,024)Net repossessed inventory included in other assets $8,898 $9,655 (4) Furniture and Equipment The following table presents the components of furniture and equipment: December 31, 2018 2017 (In thousands) Furniture and fixtures $1,647 $1,566 Computer and telephone equipment 6,203 5,470 Leasehold improvements 1,507 1,260 9,357 8,296 Less: accumulated depreciation and amortization (7,520) (6,544) $1,837 $1,752 Depreciation expense totaled $992,000, $934,000 and $777,000 for the years ended December 31, 2018, 2017 and 2016, respectively. F-16  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) Securitization Trust Debt We have completed numerous term securitization transactions that are structured as secured borrowings for financial accounting purposes. The debtissued in these transactions is shown on our Consolidated Balance Sheets as “Securitization trust debt,” and the components of such debt are summarized inthe following table: Series FinalScheduledPaymentDate (1) ReceivablesPledged atDecember 31,2018 (2) InitialPrincipal OutstandingPrincipal atDecember 31,2018 OutstandingPrincipal atDecember 31,2017 WeightedAverageContractualInterest RateatDecember 31,2018 (Dollars in thousands) CPS 2013-B September 2020 – 205,000 – 18,407 – CPS 2013-C December 2020 – 205,000 – 25,559 – CPS 2013-D March 2021 – 183,000 – 24,917 – CPS 2014-A June 2021 17,442 180,000 15,328 30,521 5.36% CPS 2014-B September 2021 26,092 202,500 24,051 44,516 4.42% CPS 2014-C December 2021 42,912 273,000 40,896 71,174 4.52% CPS 2014-D March 2022 48,279 267,500 46,489 79,099 4.95% CPS 2015-A June 2022 54,983 245,000 52,448 87,194 4.49% CPS 2015-B September 2022 65,736 250,000 64,591 102,873 4.43% CPS 2015-C December 2022 92,123 300,000 90,639 141,362 4.89% CPS 2016-A March 2023 121,404 329,460 119,444 180,761 5.18% CPS 2016-B June 2023 139,696 332,690 135,688 201,199 5.40% CPS 2016-C September 2023 139,406 318,500 136,114 203,504 5.12% CPS 2016-D April 2024 107,009 206,325 104,645 149,671 3.84% CPS 2017-A April 2024 115,991 206,320 113,527 161,892 4.00% CPS 2017-B December 2023 140,953 225,170 127,726 186,594 3.43% CPS 2017-C September 2024 142,106 224,825 131,845 197,155 3.35% CPS 2017-D June 2024 142,370 196,300 132,919 189,277 3.11% CPS 2018-A March 2025 151,620 190,000 142,643 – 3.13% CPS 2018-B December 2024 175,363 201,823 167,809 – 3.58% CPS 2018-C September 2025 214,617 230,275 204,418 – 3.65% CPS 2018-D June 2025 236,410 233,730 224,189 – 3.74% $2,174,512 $5,206,418 $2,075,409 $2,095,675 _________________________ (1)The Final Scheduled Payment Date represents final legal maturity of the securitization trust debt. Securitization trust debt is expected to become dueand to be paid prior to those dates, based on amortization of the finance receivables pledged to the Trusts. Expected payments, which will depend onthe performance of such receivables, as to which there can be no assurance, are $780.0 million in 2019, $587.5 million in 2020, $378.8 million in 2021,$194.6 million in 2022, $116.0 million in 2023, and $6.8 million in 2024. (2)Includes repossessed assets that are included in Other Assets on our Consolidated Balance Sheets. F-17  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Debt issuance costs of $11.8 million and $12.5 million as of December 31, 2018 and December 31, 2017, respectively, have been excluded from thetable above. These debt issuance costs are presented as a direct deduction to the carrying amount of the Securitization trust debt on our Consolidated BalanceSheets. All of the securitization trust debt was issued in private placement transactions to qualified institutional investors. The debt was issued by ourwholly-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 creditloss criteria be met with respect to the collateral pool, and require that we maintain minimum levels of liquidity and net worth and not exceed maximumleverage levels. We were in compliance with all such covenants as of December 31, 2018. We are responsible for the administration and collection of the contracts. The securitization agreements also require certain funds be held inrestricted cash accounts to provide additional credit enhancement for the Notes or to be applied to make payments on the securitization trust debt. As ofDecember 31, 2018, restricted cash under the various agreements totaled approximately $117.3 million. Interest expense on the securitization trust debt iscomposed of the stated rate of interest plus amortization of additional costs of borrowing. Additional costs of borrowing include facility fees, insurancepremiums, amortization of deferred financing costs, and amortization of discounts required on the notes at the time of issuance. Deferred financing costsrelated to the securitization trust debt are amortized using the interest method. Accordingly, the effective cost of borrowing of the securitization trust debt isgreater than the stated rate of interest. Our wholly-owned, bankruptcy remote subsidiaries were formed to facilitate the above asset-backed financing transactions. Similar bankruptcyremote subsidiaries issue the debt outstanding under our warehouse line of credit. Bankruptcy remote refers to a legal structure in which it is expected that theapplicable entity would not be included in any bankruptcy filing by its parent or affiliates. All of the assets of these subsidiaries have been pledged ascollateral 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. F-18  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Debt The terms of our debt outstanding at December 31, 2018 and 2017 are summarized below: December 31, December 31, 2018 2017 (In thousands) Description Interest Rate Maturity Warehouse lines of credit 5.50% over one month Libor(Minimum 6.50%) February 2021 $38,198 $25,629 3.00% over one month Libor(Minimum 3.75%) September 2020 99,885 77,546 6.75% over a commercialpaper rate (Minimum 7.75%) November 2019 – 11,100 Residual interest financing 8.60% January 2026 40,000 – Subordinated renewablenotes Weighted average rate of8.53% and 7.99% atDecember 31, 2018 andDecember 31, 2017,respectively Weighted average maturityof January 2021 and March2020 at December 31, 2018and December 31, 2017,respectively 17,290 16,566 $195,373 $130,841 Debt issuance costs of $1.2 million and $1.9 million as of December 31, 2018 and December 31, 2017, respectively, have been excluded from thetable above. These debt issuance costs are presented as a direct deduction to the carrying amount of the Warehouse lines of credit and residual interestfinancing on our Consolidated Balance Sheets. On May 11, 2012, we entered into a $100 million one-year warehouse credit line with Citibank, N.A. The facility is structured to allow us to fund aportion of the purchase price of automobile contracts by borrowing from a credit facility to our consolidated subsidiary Page Eight Funding, LLC. Thefacility provides for effective advances up to 87.0% of eligible finance receivables. The loans under the facility accrue interest at one-month LIBOR plus3.00% per annum, with a minimum rate of 3.75% per annum. In September 2018, this facility was amended to extend the revolving period to September 2020and to include an amortization period through September 2021 for any receivables pledged to the facility at the end of the revolving period. At December 31,2018 there was $99.9 million outstanding under this facility. F-19  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On April 17, 2015, we entered into an additional $100 million one-year warehouse credit line with Fortress Investment Group. The facility isstructured to allow us to fund a portion of the purchase price of automobile contracts by borrowing from a credit facility to our consolidated subsidiary PageSix 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 6.50% per annum. In April 2017, this facility was amended to extend the revolving period toApril 2019 followed by an amortization period through April 2021 for any receivables pledged to the facility at the end of the revolving period. At December31, 2018 there was $38.2 million outstanding under this facility. In February 2019, this facility was amended to extend the revolving period to February2021 followed by an amortization period through February 2023. On November 24, 2015, we entered into an additional $100 million one-year warehouse credit line with affiliates of Credit Suisse Group and AresManagement LP. The facility is structured to allow us to fund a portion of the purchase price of automobile contracts by borrowing from a credit facility toour consolidated subsidiary Page Nine Funding, LLC. The facility provides for effective advances up to 88.0% of eligible finance receivables, or up to 80.0%for certain other receivables. The loans under the facility accrue interest at a commercial paper rate plus 6.75% per annum, with a minimum rate of 7.75% perannum. In November 2017, this facility was amended to extend the revolving period to November 2019 followed by an amortization period throughNovember 2021 for any receivables pledged to the facility at the end of the revolving period. At December 31, 2018 there was no amount outstanding underthis facility. The total outstanding debt on our three warehouse lines of credit was $138.1 million as of December 31, 2018, compared to $114.3 millionoutstanding as of December 31, 2017. The costs incurred in conjunction with the above debt are recorded as deferred financing costs on the accompanying Consolidated Balance Sheetsand are more fully described in Note 1. On May 16, 2018, we completed a $40.0 million securitization of residual interests from previously issued securitizations. In this residual interestfinancing transaction, qualified institutional buyers purchased $40.0 million of asset-backed notes secured by residual interests in thirteen CPSsecuritizations consecutively conducted from September 2013 through December 2016, and an 80% interest in a CPS affiliate that owns the residual interestsin the four CPS securitizations conducted in 2017. The sold notes (“2018-1 Notes”), issued by CPS Auto Securitization Trust 2018-1, consist of a single classwith a coupon of 8.595%. The agreed valuation of the collateral for the 2018-1 Notes is the sum of the amounts on deposit in the underlying spread accounts for each relatedsecuritization and the over-collateralization of each related securitization, which is the difference between the outstanding principal balances of the relatedreceivables less the principal balance of the outstanding notes issued in the related securitization. With respect to the securitizations conducted by CPS in2017, only 80% of such amounts are included in the collateral. On each monthly payment date, the 2018-1 Notes are entitled to interest at the coupon rateand, if necessary, a principal payment necessary to maintain a specified minimum collateral ratio. Unamortized debt issuance costs of $894,000 have been excluded from the amount reported above for residual interest financing. These debtissuance costs are presented as a direct deduction to the carrying amount of the debt on our Consolidated Balance Sheets. We must comply with certain affirmative and negative covenants related to debt facilities, which require, among other things, that we maintaincertain financial ratios related to liquidity, net worth and capitalization. Further covenants include matters relating to investments, acquisitions, restrictedpayments and certain dividend restrictions. See the discussion of financial covenants in Note 1. F-20  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the contractual and expected maturity amounts of long term debt as of December 31, 2018: Contractual maturity date Subordinatedrenewable notes 2019 $8,561 2020 2,788 2021 3,607 2022 404 2023 366 Thereafter 1,564 Total $17,290 (7) 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 theterms of any outstanding shares of preferred stock and other restrictions. In the event of liquidation of the Company, holders of common stock are entitled toreceive, pro rata, all of the assets of the Company available for distribution, after payment of any liquidation preference to the holders of outstanding sharesof preferred stock. Holders of the shares of common stock have no conversion or preemptive or other subscription rights and there are no redemption orsinking fund provisions applicable to the common stock. Stock Purchases For the year ending December 31, 2018, we purchased 1,382,401 shares of our common stock at an average price of $3.81. In October 2017 ourboard of directors authorized the repurchase of up to $10 million of our common stock. There is approximately $7.5 million of board authorization remainingunder such plans, which have no expiration date. The table below describes the purchase of our common stock for the twelve-month periods ended December31, 2018 and 2017: Twelve Months Ended December 31, 2018 December 31, 2017 Shares Avg. Price Shares Avg. Price Open market purchases 1,258,797 $3.77 2,693,562 $4.48 Shares redeemed upon net exercise of stock options 33,604 4.37 51,931 4.50 Other 90,000 4.13 – – Total stock purchases 1,382,401 $3.81 2,745,493 $4.49 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 whichour Board of Directors, or a duly-authorized committee thereof, may grant stock options, restricted stock, restricted stock units and stock appreciation rightsto 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, April 2013, May 2015 and again in July 2018, the shareholders of the Company approved an amendment to the 2006 Plan toincrease the maximum number of shares that may be subject to awards under the 2006 Plan to 5,000,000, 7,200,000, 12,200,000, 17,200,000 and 19,200,000,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 planapproved in 1997 have been granted at an exercise price equal to (or greater than) the stock’s fair value at the date of the grant, with terms generally of 7-10years and vesting generally over 4-5 years. F-21  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The per share weighted-average fair value of stock options granted during the years ended December 31, 2018, 2017 and 2016 was $1.06, $1.32 and$1.38, respectively. That fair value was estimated using a binomial option pricing model using the weighted average assumptions noted in the followingtable. 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 stockover the period that equals the expected life of the option. Volatility assumptions ranged from 31% to 34% for 2018, 35% to 37% for 2017, and 44% to 51%for 2016. 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 dividendyield is estimated to be zero based on our intention not to issue dividends for the foreseeable future. Year Ended December 31, 2018 2017 2016 Expected life (years) 3.99 4.02 4.04 Risk-free interest rate 2.74% 1.59% 1.09%Volatility 34% 36% 51%Expected dividend yield – – – For the years ended December 31, 2018, 2017 and 2016, we recorded stock-based compensation costs in the amount of $3.5 million, $5.7 millionand $5.6 million, respectively. As of December 31, 2018, the unrecognized stock-based compensation costs to be recognized over future periods was equal to$3.6 million. This amount will be recognized as expense over a weighted-average period of 2.1 years. At December 31, 2018 and 2017, options outstanding had intrinsic values of $4.9 million and $10.4 million, respectively. At December 31, 2018and 2017, options exercisable had intrinsic values of $4.9 million and $9.5 million, respectively. The total intrinsic value of options exercised was $869,000and $1.9 million for the years ended December 31, 2018 and 2017, respectively. New shares were issued for all options exercised during the year endedDecember 2018 and cash of $483,000 million was received. At December 31, 2018, there were a total of 2,873,000 additional shares available for grant underthe 2006 Plan. Stock option activity for the year ended December 31, 2018 for stock options under the 2006 and 1997 plans is as follows: Weighted Number of Weighted Average Shares Average Remaining (in thousands) Exercise Price Contractual TermOptions outstanding at the beginning of period 13,135 $4.66 N/AGranted 1,720 3.49 N/AExercised (315) 1.53 N/AForfeited/Expired (119) 7.20 N/AOptions outstanding at the end of period 14,421 $4.57 3.91 years Options exercisable at the end of period 8,789 $4.76 3.42 years 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 endedDecember 31, 2018, 2017 and 2016. F-22  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In connection with the amendment to and partial repayment of our residual interest financing in July 2008, we issued warrants exercisable for2,500,000 common shares, and allocated $4,071,429 of the aggregate consideration received in that transaction to the issuance of the warrants. The warrantsrepresented the right to purchase CPS common shares at a nominal exercise price. In March 2010 we repurchased the warrants for 500,000 of these shares for$1.0 million. Warrants to purchase 2,000,000 shares were exercised on July 10, 2018 and 1,999,995 net shares were issued to the holder, following surrenderof five shares in payment of the exercise price. (8) Interest Income and Interest Expense The following table presents the components of interest income: Year Ended December 31, 2018 2017 2016 (In thousands) Interest on finance receivables $334,634 $423,567 $408,723 Interest on finance receivables at fair value 43,863 – – Other interest income 1,800 607 273 Interest income $380,297 $424,174 $408,996 The following table presents the components of interest expense: Year Ended December 31, 2018 2017 2016 (In thousands) Securitization trust debt $89,926 $83,084 $69,178 Warehouse lines of credit 7,752 7,933 8,569 Residual interest financing 2,343 – 846 Subordinated renewable notes 1,445 1,328 1,348 Interest expense $101,466 $92,345 $79,941 (9) Income Taxes Income taxes consist of the following: Year Ended December 31, 2018 2017 2016 (In thousands) Current federal tax expense $(7,526) $14,369 $22,872 Current state tax expense (2,064) 3,305 2,671 Deferred federal tax expense 9,074 10,131 (6,329)Deferred state tax expense 4,357 501 1,147 Income tax expense $3,841 $28,306 $20,361 F-23  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income tax expense for the years ended December 31, 2018, 2017 and 2016 differs from the amount determined by applying the statutory federalrate to income before income taxes as follows: Year Ended December 31, 2018 2017 2016 (In thousands) Expense at federal tax rate $3,928 $11,225 $17,381 State taxes, net of federal income tax effect 1,718 1,831 2,679 Stock-based compensation 238 682 824 Non-deductible expenses 824 171 145 Effect of change in tax rate – 15,117 – Accounting method change (2,100) – – Other (767) (720) (668) $3,841 $28,306 $20,361 For the year ended December 31, 2018, we recorded income tax expense of $3.8 million which include a $2.1 million net tax benefit related tocertain tax planning strategies and other adjustments. Without the benefit, income tax expense for 2018 would have been $5.9 million. The tax effected cumulative temporary differences that give rise to deferred tax assets and liabilities as of December 31, 2018 and 2017 are asfollows: December 31, 2018 2017 (In thousands) Deferred Tax Assets: Finance receivables $1,867 $23,034 Accrued liabilities 256 206 NOL carryforwards 7,736 529 Built in losses 4,651 5,277 Pension accrual 1,552 1,654 Stock compensation 4,161 3,642 Other 356 582 Total deferred tax assets 20,579 34,924 Deferred Tax Liabilities: Deferred loan costs (1,137) (2,233)Furniture and equipment (254) (245)Total deferred tax liabilities (1,391) (2,478) Net deferred tax asset $19,188 $32,446 F-24  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We acquired certain net operating losses and built-in loss assets as part of our acquisitions of MFN Financial Corp. (“MFN”) in 2002 and TFCEnterprises, 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 incomearising 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 inwhich 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 recognizedfor 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 berealized. In making such judgements, significant weight is given to evidence that can be objectively verified. Although realization is not assured, we believethat the realization of the recognized net deferred tax asset of $19.2 million as of December 31, 2018 is more likely than not based on forecasted future netearnings. Our net deferred tax asset of $19.2 million consists of approximately $13.9 million of net U.S. federal deferred tax assets and $5.3 million of netstate deferred tax assets. The major components of the deferred tax asset are $12.4 million in net operating loss carryforwards and built in losses and $6.8million in net deductions which have not yet been taken on a tax return. As of December 31, 2018, we had net operating loss carryforwards for state income tax purposes of $35.7 million. These state net operating lossesbegin to expire in 2019. 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 taxexamination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized onexamination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. We recognize potential interest and penalties related tounrecognized tax benefits as income tax expense. At December 31, 2018, 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 localexaminations by tax authorities for years before 2014. (10) 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 suchnotes to the public. The note was purchased through the registered agent and under the same terms and conditions, including the interest rate, that wereoffered to other purchasers at the time the note was issued. As of December 31, 2018, $4.0 million was outstanding on this note. The note was redeemed at parplus accrued interest in February 2019. F-25  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) Commitments and Contingencies Leases The Company leases its facilities and certain computer equipment under non-cancelable operating leases, which expire through 2025. Futureminimum lease payments at December 31, 2018, under these leases are due during the years ended December 31 as follows: Amount (In thousands) 2019 $7,684 2020 7,588 2021 7,476 2022 6,116 2023 1,389 Thereafter 689 Total minimum lease payments $30,942 Rent expense for the years ended December 31, 2018, 2017 and 2016, was $7.2 million, $6.3 million and $5.2 million, respectively. Our facility leases contain certain rental concessions and escalating rental payments, which are recognized as adjustments to rental expense and areamortized on a straight-line basis over the terms of the leases. Legal Proceedings Consumer Litigation. We are routinely involved in various legal proceedings resulting from our consumer finance activities and practices, bothcontinuing and discontinued. Consumers can and do initiate lawsuits against us alleging violations of law applicable to collection of receivables, and suchlawsuits sometimes allege that resolution as a class action is appropriate. For the most part, we have legal and factual defenses to consumer claims, which we routinely contest or settle (for immaterial amounts) depending onthe particular circumstances of each case. Department of Justice Industry Inquiry. In January 2015, we were served with a subpoena by the U.S. Department of Justice (the “DOJ”) directing usto 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 DOJ in contemplation of a civil proceeding for potential violations of the Financial Institutions Reform,Recovery, and Enforcement Act of 1989. The DOJ in its investigation requested information relating, among other matters, to the underwriting criteria usedto originate these automobile contracts and to the representations and warranties relating to those underwriting criteria that were made in connection with thesecuritization of the automobile contracts. We are among several other securitizers of sub-prime automobile receivables who received such subpoenas in2014, 2015 and 2016. We have provided the required information, and we were advised by the DOJ in February 2018 that no further information is requiredof us and that no enforcement action is recommended. F-26  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Although the inquiry commenced January 2015 is thus completed as to us, no assurance can be given as to whether some other government agencymay commence inquiries into or actions against us, nor as to whether the DOJ may recommence its investigation, any of which hypothetical proceedingsmight materially and adversely affect us. Wage and Hour Claim. On September 24, 2018, a former employee filed a lawsuit against us in the Superior Court of Orange County, California,alleging that we incorrectly classified our sales and marketing representatives as outside salespersons exempt from overtime wages, mandatory break periodsand certain other employee protective provisions of California and federal law. The complaint seeks injunctive relief, an award of unpaid wages, liquidateddamages, and attorney fees and interest. The plaintiff purports to act on behalf of a class of similarly situated employees and ex-employees. As of the date ofthis report, no motion for class certification has been filed or granted. We believe that our compensation practices with respect to our marketing representatives are compliant with applicable law. Accordingly, we havedefended and intend to continue to defend this lawsuit. We have not recorded a liability with respect to this claim on the accompanying consolidatedfinancial statements. In General. There can be no assurance as to the outcomes of the matters described or referenced above. We record at each measurement date, mostrecently as of December 31, 2018, our best estimate of probable incurred losses for legal contingencies, including each of the matters described or referencedabove. The amount of losses that may ultimately be incurred cannot be estimated with certainty. However, based on such information as is available to us, webelieve that the total of probable incurred losses for legal contingencies as of December 31, 2018 is immaterial, and that the range of reasonably possiblelosses for the legal proceedings and contingencies we face, including those described or referenced above, as of December 31, 2018 does not exceed $3million. Accordingly, we believe that the ultimate resolution of such legal proceedings and contingencies should not have a material adverse effect on ourconsolidated financial condition. We note, however, that in light of the uncertainties inherent in contested proceedings, the wide discretion vested in the DOJand other government agencies, and the deference that courts may give to assertions made by government litigants, there can be no assurance that theultimate resolution of these matters will not be material to our operating results for a particular period, depending on, among other factors, the size of the lossor liability imposed and the level of our income for that period. (12) 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 the401(k) Plan, eligible employees are able to contribute up to the maximum allowed under the law. We may, at our discretion, match 100% of employees’contributions up to $2,000 per employee per calendar year. Our matching contributions to the 401(k) Plan were $1.5 million, $1.2 million, and $929,000respectively, for the years ended December 31, 2018, 2017 and 2016. 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-27  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables represents a reconciliation of the change in the plan’s benefit obligations, fair value of plan assets, and funded status atDecember 31, 2018 and 2017: December 31, 2018 2017 (In thousands) Change in Projected Benefit Obligation Projected benefit obligation, beginning of year $22,562 $21,515 Service cost – – Interest cost 775 855 Assumption changes (1,867) 1,535 Actuarial (gain) loss (361) (298)Settlements – – Benefits paid (1,024) (1,045)Projected benefit obligation, end of year $20,085 $22,562 Change in Plan Assets Fair value of plan assets, beginning of year $16,446 $16,243 Return on assets (1,806) 1,508 Employer contribution 1,000 – Expenses (248) (260)Settlements – – Benefits paid (1,024) (1,045)Fair value of plan assets, end of year $14,368 $16,446 Funded Status at end of year $(5,717) $(6,116) Additional Information Weighted average assumptions used to determine benefit obligations and cost at December 31, 2018 and 2017 were as follows: December, 31 2018 2017 Weighted average assumptions used to determine benefit obligations Discount rate 4.11% 3.50% Weighted average assumptions used to determine net periodic benefitcost Discount rate 3.50% 4.05% Expected return on plan assets 7.25% 7.25% F-28  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our overall expected long-term rate of return on assets is 7.25% per annum as of December 31, 2018. The expected long-term rate of return is basedon the weighted average of historical returns on individual asset categories, which are described in more detail below. December 31, 2018 2017 2016 (In thousands) Amounts recognized on Consolidated Balance Sheet Other assets $– $– $– Other liabilities (5,717) (6,116) (5,272)Net amount recognized $(5,717) $(6,116) $(5,272) Amounts recognized in accumulated other comprehensive loss consists of: Net loss $11,896 $11,350 $10,618 Unrecognized transition asset – – – Net amount recognized $11,896 $11,350 $10,618 Components of net periodic benefit cost Interest cost $775 $855 $882 Expected return on assets (1,163) (1,149) (1,199)Amortization of transition asset – – – Amortization of net loss 443 405 553 Net periodic benefit cost 55 111 236 Settlement (gain)/loss – – – Total $55 $111 $236 Benefit Obligation Recognized in Other Comprehensive Loss (Income) Net loss (gain) $545 $732 $25 Prior service cost (credit) – – – Amortization of prior service cost – – – Net amount recognized in other comprehensive loss (income) $545 $732 $25 The estimated net loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2019 is $376,000. F-29  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The weighted average asset allocation of our pension benefits at December 31, 2018 and 2017 were as follows: December 31, 2018 2017 Weighted Average Asset Allocation at Year-End Asset Category Equity securities 78% 83% Debt securities 22% 17% Cash and cash equivalents 0% 0% Total 100% 100% Our investment policies and strategies for the pension benefits plan utilize a target allocation of 75% equity securities and 25% fixed incomesecurities (excluding Company stock). Our investment goals are to maximize returns subject to specific risk management policies. We address riskmanagement and diversification by the use of a professional investment advisor and several sub-advisors which invest in domestic and international equitysecurities and domestic fixed income securities. Each sub-advisor focuses its investments within a specific sector of the equity or fixed income market. Forthe sub-advisors focused on the equity markets, the sectors are differentiated by the market capitalization, the relative valuation and the location of theunderlying issuer. For the sub-advisors focused on the fixed income markets, the sectors are differentiated by the credit quality and the maturity of theunderlying fixed income investment. The investments made by the sub-advisors are readily marketable and can be sold to fund benefit payment obligationsas they become payable. Cash Flows Estimated Future Benefit Payments (In thousands) 2019 $829 2020 873 2021 911 2022 947 2023 976 Years 2024 - 2028 5,507 Anticipated Contributions in 2019 $– F-30  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair value of plan assets at December 31, 2018 and 2017, by asset category, is as follows: December 31, 2018 Level 1 (1) Level 2 (2) Level 3 (3) Total Investment Name: (in thousands) Company Common Stock $2,635 $– $– $2,635 Large Cap Value – 1,983 – 1,983 Mid Cap Index – 563 – 563 Small Cap Growth – 559 – 559 Small Cap Value – 558 – 558 Large Cap Blend – 587 – 587 Growth – 2,031 – 2,031 International Growth – 2,301 – 2,301 Core Bond – 1,921 – 1,921 High Yield – 364 – 364 Inflation Protected Bond – 510 – 510 Money Market – 356 – 356 Total $2,635 $11,733 $– $14,368 December 31, 2017 Level 1 (1) Level 2 (2) Level 3 (3) Total Investment Name: (in thousands) Company Common Stock $3,633 $– $– $3,633 Large Cap Value – 2,324 – 2,324 Mid Cap Index – 654 – 654 Small Cap Growth – 657 – 657 Small Cap Value – 647 – 647 Large Cap Blend – 661 – 661 Growth – 2,313 – 2,313 International Growth – 2,683 – 2,683 Core Bond – 1,870 – 1,870 High Yield – 373 – 373 Inflation Protected Bond – 505 – 505 Money Market – 126 – 126 Total $3,633 $12,813 $– $16,446 ________________________ (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-31  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) Fair Value Measurements ASC 820, "Fair Value Measurements" clarifies the principle that fair value should be based on the assumptions market participants would use whenpricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fairvalue measurements are 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 valuemeasurement and enhances disclosure requirements for fair value measurements. The three levels are defined as follows: level 1 - inputs to the valuationmethodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; level 2 – inputs to the valuation methodology include quotedprices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantiallythe full term of the financial instrument; and level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. Effective January 2018 we have elected to use the fair value method to value our portfolio of finance receivables acquired in January 2018 andthereafter. Our valuation policies and procedures have been developed by our Accounting department in conjunction with our Risk department and withconsultation with outside valuation experts. Our policies and procedures have been approved by our Chief Executive and our Board of Directors and includemethodologies for valuation, internal reporting, calibration and back testing. Our periodic review of valuations includes an analysis of changes in fair valuemeasurements and documentation of the reasons for such changes. There is little available third-party information such as broker quotes or pricing servicesavailable to assist us in our valuation process. Our level 3, unobservable inputs reflect our own assumptions about the factors that market participants use in pricing similar receivables and arebased on the best information available in the circumstances. They include such inputs as estimates for the magnitude and timing of net charge-offs and therate of amortization of the portfolio of finance receivable. Significant changes in any of those inputs in isolation would have a significant impact on our fairvalue measurement. The table below presents a reconciliation of the finance receivables measured at fair value on a recurring basis using significant unobservableinputs: Twelve Months Ended December 31, 2018 2017 (In thousands) Balance at beginning of period $– $– Finance receivables at fair value acquired during period 914,949 – Payments received on finance receivables at fair value (67,720) – Net interest income accretion on fair value receivables (26,163) – Mark to fair value – – Balance at end of period $821,066 $– F-32  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The table below compares the fair values of these finance receivables to their contractual balances for the periods shown: December 31, 2018 December 31, 2017 Contractual Fair Contractual Fair Balance Value Balance Value (In thousands) Finance receivables measured at fair value $829,039 $821,066 $– $– The following table provides certain qualitative information about our level 3 fair value measurements: Financial Instrument Fair Values as of Inputs as of December 31, December 31, 2018 2017 Unobservable Inputs 2018 2017 (In thousands) Assets: Finance receivables measured at fair value $821,066 $– Discount rate 8.9% - 9.9% n/a Cumulative net losses 15% - 16% n/a The following table summarizes the delinquency status using the contractual balance of these finance receivables measured at fair value as ofDecember 31, 2018 and December 31, 2017: December 31, December 31, 2018 2017 (In thousands) Delinquency Status Current $790,727 $– 31 - 60 days 26,285 – 61 - 90 days 8,350 – 91 + days 3,677 – $829,039 $– Repossessed vehicle inventory, which is included in Other assets on our consolidated balance sheet, is measured at fair value using level 2assumptions based on our actual loss experience on sale of repossessed vehicles. At December 31, 2018, the finance receivables related to the repossessedvehicles in inventory totaled $33.5 million. We have applied a valuation adjustment, or loss allowance, of $24.6 million, which is based on a recovery rate ofapproximately 27%, resulting in an estimated fair value and carrying amount of $8.9 million. The fair value and carrying amount of the repossessedinventory at December 31, 2017 was $9.7 million after applying a valuation adjustment of $24.0 million. F-33  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS There were no transfers in or out of level 1 or level 2 assets and liabilities for 2018 and 2017. We have no level 3 assets or liabilities that aremeasured at fair value on a non-recurring basis. The estimated fair values of financial assets and liabilities at December 31, 2018 and 2017, were as follows: As of December 31, 2018 Financial Instrument (In thousands) Carrying Fair Value Measurements Using: Value Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $12,787 $12,787 $– $– $12,787 Restricted cash and equivalents 117,323 117,323 – – 117,323 Finance receivables, net 1,454,709 – – 1,434,631 1,434,631 Accrued interest receivable 31,969 – – 31,969 31,969 Liabilities: Warehouse lines of credit $136,847 $– $– $136,847 $136,847 Accrued interest payable 4,819 – – 4,819 4,819 Securitization trust debt 2,063,627 – – 2,051,920 2,051,920 Subordinated renewable notes 17,290 – – 17,290 17,290 As of December 31, 2017 Financial Instrument (In thousands) Carrying Fair Value Measurements Using: Value Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $12,731 $12,731 $– $– $12,731 Restricted cash and equivalents 111,965 111,965 – – 111,965 Finance receivables, net 2,195,797 – – 2,171,846 2,171,846 Accrued interest receivable 46,753 – – 46,753 46,753 Liabilities: Warehouse lines of credit $112,408 $– $– $112,408 $112,408 Accrued interest payable 4,212 – – 4,212 4,212 Securitization trust debt 2,083,215 – – 2,089,678 2,089,678 Subordinated renewable notes 16,566 – – 16,566 16,566 F-34  CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15) Subsequent Events On January 23, 2019 we executed our first securitization of 2019. In the transaction, qualified institutional buyers purchased $254.4 million of asset-backed notes secured by $265.0 million in automobile receivables purchased by us. The sold notes, issued by CPS Auto Receivables Trust 2019-A, consist offive classes. Ratings of the notes were provided by Standard & Poor’s, and DBRS and were based on the structure of the transaction, the historicalperformance of similar receivables and our experience as a servicer. The weighted average yield on the notes is approximately 4.22%. The 2019-A transaction has initial credit enhancement consisting of a cash deposit equal to 1.00% of the original receivable pool balance. The finalenhancement level requires accelerated payment of principal on the notes to reach overcollateralization of the lesser of 8.50% of the original receivable poolbalance, or 18.70% of the then outstanding pool balance. The transaction utilizes a pre-funding structure, in which CPS sold approximately $166.1 million ofreceivables on January 23, 2019 and sold $98.9 million of additional receivables on February 13, 2019. The transaction was a private offering of securities,not registered under the Securities Act of 1933, or any state securities law. On February 22, 2019 we amended our $100 million warehouse credit line with Fortress Investment Group extending the revolving period toFebruary 2021 followed by an amortization period through February 2023. F-35 Exhibit 21 Registrant Consumer Portfolio Services, Inc. Subsidiaries of the Registrant NameJurisdiction of Organization CPS Receivables Five LLCDelawarePage Six Funding LLCDelawarePage Seven Funding LLCDelawarePage Nine Funding LLCDelawareFolio Residual Holdings LLCDelaware Other subsidiaries, which would not constitute a significant subsidiary if considered collectively as a single subsidiary, are omitted.Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement Nos. 333-190766 and 333-168976 on Form S-1, Nos. 333-152969 and 333-204492on Form S-3, and Nos. 333-58199, 333-35758, 333-75594, 333-115622, 333-135907, 333-161448, 333-166892, and 333-193926 on Form S-8 of ConsumerPortfolio Services, Inc. of our report dated March 13, 2019 relating to the financial statements and effectiveness of internal control over financial reporting,appearing in this Annual Report on Form 10-K. /s/ Crowe LLP Crowe LLP Costa Mesa, CaliforniaMarch 13, 2019EXHIBIT 31.1CERTIFICATION PURSUANT TO RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Charles E. Bradley, Jr., certify that: 1.I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2018 of Consumer Portfolio Services, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: March 13, 2019 /s/ Charles E. Bradley, Jr. Charles E. Bradley, Jr. Chairman, President and Chief Executive OfficerEXHIBIT 31.2 CERTIFICATION PURSUANT TO RULE 13a-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Jeffrey P. Fritz, Jr., certify that: 1.I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2018 of Consumer Portfolio Services, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: March 13, 2019 /s/ Jeffrey P. Fritz Jeffrey P. Fritz Executive Vice President and Chief Financial OfficerEXHIBIT 32 CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Consumer Portfolio Services, Inc. (“Registrant”) on Form 10-K for the fiscal year ended December 31, 2018, as filedwith the Securities and Exchange Commission on March 13, 2019 (the “Report”), Charles E. Bradley, Jr., chairman, president and chief executive officer, andJeffrey P. Fritz , chief financial officer and executive vice president, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge: (1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations as of December31, 2017. March 13, 2019 /s/ Charles E. Bradley, Jr. Charles E. Bradley, Jr. Chairman, President and Chief Executive OfficerMarch 13, 2019 /s/ Jeffrey P. Fritz Jeffrey P. Fritz Chief Financial Officer and Executive Vice President 

Continue reading text version or see original annual report in PDF format above