##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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For the quarterly period ended March 31, 2006

of



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|                        |  |     
|----------------------- |  | ----
|COMPUCREDIT CORPORATION |  | LOGO



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a Georgia Corporation

IRS Employer Identification No. 58-2336689

SEC File Number 0-25751

245
Perimeter Center Parkway, Suite 600

Atlanta, Georgia 30346

(770) 206-6200



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CompuCredit (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act (the Act) during
the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

CompuCredit is an
accelerated filer and is not a shell company (as defined in Rule 12b-2 of the Act).

As of May 2, 2006, 49,080,254 shares of
Common Stock, no par value, of CompuCredit were outstanding. (This excludes 5,677,950 loaned shares to be returned.)



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##### Table of Contents

COMPUCREDIT CORPORATION

FORM 10-Q

TABLE OF CONTENTS



|         |  |                       |  |                                                                                       |  |   
|-------- |  | --------------------- |  | ------------------------------------------------------------------------------------- |  | --
|         |  |                       |  | Page                                                                                 
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                      
|         |  | Item 1.               |  | Financial Statements (Unaudited)                                                      |  |   
|         |  |                       |  | Condensed Consolidated Balance Sheets                                                 |  | 1 
|         |  |                       |  | Condensed Consolidated Statements of Operations                                       |  | 2 
|         |  |                       |  | Condensed Consolidated Statement of Shareholders Equity                              |  | 3 
|         |  |                       |  | Condensed Consolidated Statements of Cash Flows                                       |  | 4 
|         |  |                       |  | Notes to Condensed Consolidated Financial Statements                                  |  | 5 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 17
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 32
|         |  | Item 4.               |  | Controls and Procedures                                                               |  | 33
|PART II. |  | OTHER INFORMATION     |  |                                                                                      
|         |  | Item 1.               |  | Legal Proceedings                                                                     |  | 34
|         |  | Item 1A.              |  | Risk Factors                                                                          |  | 34
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 43
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                       |  | 43
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                   |  | 43
|         |  | Item 5.               |  | Other Information                                                                     |  | 43
|         |  | Item 6.               |  | Exhibits                                                                              |  | 43
|         |  |                       |  | Signatures                                                                            |  | 44



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in thousands)



|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                                                                                                                                                                   |  | March 31,2006 |           |   | December 31,2005 |  
|                                                                                                                                                                                                                                                                                                                                   |  | (Unaudited)   |           |   |                  |  
|Assets                                                                                                                                                                                                                                                                                                                             |  |               |           |   |                  |   |           |  
|Cash and cash equivalents (including restricted cash of $15,103 at March 31, 2006 and $12,427 at December 31, 2005,
respectively)                                                                                                                                                                                                  |  | $             | 159,352   |   |                  | $ | 240,655   |  
|Securitized earning assets                                                                                                                                                                                                                                                                                                         |  |               | 801,216   |   |                  |   | 786,983   |  
|Non-securitized earning assets, net                                                                                                                                                                                                                                                                                                |  |               | 501,785   |   |                  |   | 468,311   |  
|Deferred costs, net                                                                                                                                                                                                                                                                                                                |  |               | 29,261    |   |                  |   | 31,012    |  
|Software, furniture, fixtures and equipment, net                                                                                                                                                                                                                                                                                   |  |               | 58,139    |   |                  |   | 48,383    |  
|Investments in equity-method investees                                                                                                                                                                                                                                                                                             |  |               | 75,837    |   |                  |   | 69,343    |  
|Intangibles, net                                                                                                                                                                                                                                                                                                                   |  |               | 12,834    |   |                  |   | 13,749    |  
|Goodwill                                                                                                                                                                                                                                                                                                                           |  |               | 120,254   |   |                  |   | 130,800   |  
|Prepaid expenses and other assets                                                                                                                                                                                                                                                                                                  |  |               | 31,129    |   |                  |   | 31,954    |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Total assets                                                                                                                                                                                                                                                                                                                       |  | $             | 1,789,807 |   |                  | $ | 1,821,190 |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Liabilities                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                  |   |           |  
|Accounts payable and accrued expenses                                                                                                                                                                                                                                                                                              |  | $             | 86,473    |   |                  | $ | 96,483    |  
|Notes payable                                                                                                                                                                                                                                                                                                                      |  |               | 175,542   |   |                  |   | 165,186   |  
|Convertible senior notes                                                                                                                                                                                                                                                                                                           |  |               | 550,000   |   |                  |   | 550,000   |  
|Deferred revenue                                                                                                                                                                                                                                                                                                                   |  |               | 65,731    |   |                  |   | 67,585    |  
|Current and deferred income tax liabilities                                                                                                                                                                                                                                                                                        |  |               | 70,171    |   |                  |   | 129,283   |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                                                                                                                                                                                  |  |               | 947,917   |   |                  |   | 1,008,537 |  
|                                                                                                                                                                                                                                                                                                                                   |  |              
|Minority interests                                                                                                                                                                                                                                                                                                                 |  |               | 42,503    |   |                  |   | 45,442    |  
|                                                                                                                                                                                                                                                                                                                                   |  |              
|Commitments and contingencies (Note 11)                                                                                                                                                                                                                                                                                            |  |               |           |   |                  |   |           |  
|                                                                                                                                                                                                                                                                                                                                   |  |              
|Shareholders equity                                                                                                                                                                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Common stock, no par value, 150,000,000 shares authorized: 59,179,878 shares issued and 54,747,909 shares outstanding at March 31, 2006
(including 5,677,950 loaned shares to be returned); and 59,080,610 shares issued and 54,628,020 shares outstanding at December 31, 2005 (including 5,677,950 loaned shares to be returned) |  |               |          |   |                  |   |          |  
|Additional paid-in capital                                                                                                                                                                                                                                                                                                         |  |               | 322,756   |   |                  |   | 318,178   |  
|Treasury stock, at cost, 4,431,969 and 4,452,590 shares at March 31, 2006 and December 31, 2005, respectively                                                                                                                                                                                                                      |  |               | (125,010  | ) |                  |   | (125,068  | )
|Deferred compensation                                                                                                                                                                                                                                                                                                              |  |               | (8,544    | ) |                  |   | (5,426    | )
|Warrants                                                                                                                                                                                                                                                                                                                           |  |               | 25,610    |   |                  |   | 25,610    |  
|Retained earnings                                                                                                                                                                                                                                                                                                                  |  |               | 584,575   |   |                  |   | 553,917   |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Total shareholders equity                                                                                                                                                                                                                                                                                                         |  |               | 799,387   |   |                  |   | 767,211   |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Total liabilities and shareholders equity                                                                                                                                                                                                                                                                                         |  | $             | 1,789,807 |   |                  | $ | 1,821,190 |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  

See accompanying notes.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)



|                                                                                                                 |  |                                      |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                 |  | For the three months ended March 31, |        
|                                                                                                                 |  | 2006                                 |         |   | 2005 |  
|Interest income:                                                                                                 |  |                                      |         |   |      |   |         |  
|Consumer loans, including past due fees                                                                          |  | $                                    | 52,975  |   |      | $ | 11,258  |  
|Other                                                                                                            |  |                                      | 4,575   |   |      |   | 1,995   |  
|                                                                                                                 |  |                                      |         |   |      |   |         |  
|Total interest income                                                                                            |  |                                      | 57,550  |   |      |   | 13,253  |  
|Interest expense                                                                                                 |  |                                      | (11,450 | ) |      |   | (2,422  | )
|                                                                                                                 |  |                                      |         |   |      |   |         |  
|Net interest income before fees and other income on non-securitized earning assets and provision for loan losses |  |                                      | 46,100  |   |      |   | 10,831  |  
|Fees and other income on non-securitized earning assets                                                          |  |                                      | 119,770 |   |      |   | 99,342  |  
|Provision for loan losses                                                                                        |  |                                      | (77,829 | ) |      |   | (14,104 | )
|                                                                                                                 |  |                                      |         |   |      |   |         |  
|Net interest income, fees and other income on non-securitized earning assets                                     |  |                                      | 88,041  |   |      |   | 96,069  |  
|Other operating income:                                                                                          |  |                                      |         |   |      |   |         |  
|Fees and other income on securitized earning assets                                                              |  |                                      | 50,469  |   |      |   | 37,492  |  
|Servicing income                                                                                                 |  |                                      | 27,810  |   |      |   | 36,459  |  
|Ancillary and interchange revenues                                                                               |  |                                      | 8,194   |   |      |   | 5,533   |  
|Equity in income of equity-method investees                                                                      |  |                                      | 25,665  |   |      |   | 18,819  |  
|                                                                                                                 |  |                                      |         |   |      |   |         |  
|Total other operating income                                                                                     |  |                                      | 112,138 |   |      |   | 98,303  |  
|Other operating expense:                                                                                         |  |                                      |         |   |      |   |         |  
|Salaries and benefits                                                                                            |  |                                      | 11,645  |   |      |   | 7,107   |  
|Card and loan servicing                                                                                          |  |                                      | 63,657  |   |      |   | 59,335  |  
|Marketing and solicitation                                                                                       |  |                                      | 26,079  |   |      |   | 18,050  |  
|Depreciation                                                                                                     |  |                                      | 7,634   |   |      |   | 4,213   |  
|Goodwill impairment                                                                                              |  |                                      | 10,546  |   |      |   |        |  
|Other                                                                                                            |  |                                      | 29,311  |   |      |   | 19,058  |  
|                                                                                                                 |  |                                      |         |   |      |   |         |  
|Total other operating expense                                                                                    |  |                                      | 148,872 |   |      |   | 107,763 |  
|                                                                                                                 |  |                                      |         |   |      |   |         |  
|Income before minority interests and income taxes                                                                |  |                                      | 51,307  |   |      |   | 86,609  |  
|Minority interests                                                                                               |  |                                      | (3,405  | ) |      |   | (9,161  | )
|                                                                                                                 |  |                                      |         |   |      |   |         |  
|Income before income taxes                                                                                       |  |                                      | 47,902  |   |      |   | 77,448  |  
|Income taxes                                                                                                     |  |                                      | (17,244 | ) |      |   | (28,268 | )
|                                                                                                                 |  |                                      |         |   |      |   |         |  
|Net income                                                                                                       |  | $                                    | 30,658  |   |      | $ | 49,180  |  
|                                                                                                                 |  |                                      |         |   |      |   |         |  
|Net income per common sharebasic                                                                                |  | $                                    | 0.63    |   |      | $ | 0.96    |  
|                                                                                                                 |  |                                      |         |   |      |   |         |  
|Net income per common sharediluted                                                                              |  | $                                    | 0.61    |   |      | $ | 0.94    |  
|                                                                                                                 |  |                                      |         |   |      |   |         |  

See accompanying notes.



2



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Condensed Consolidated Statement of Shareholders Equity
(Unaudited)

For the Three Months Ended March 31, 2006

(Dollars in thousands)



|                                                       |  |               |   |                          |        |   |               |   |         |                      |  |   |          |   |                  |   |                          |   |  |   |        |  |   |         |  |   |        
|------------------------------------------------------ |  | ------------- | - | ------------------------ | ------ | - | ------------- | - | ------- | -------------------- |  | - | -------- | - | ---------------- | - | ------------------------ | - |  | - | ------ |  | - | ------- |  | - | -------
|                                                       |  | Common Stock  |   | AdditionalPaid-InCapital |        |   | TreasuryStock |   |         | DeferredCompensation |  |   | Warrants |   | RetainedEarnings |   | TotalShareholdersEquity
|                                                       |  | Shares Issued |   |                          | Amount |   |               |   |         |                      | 
|Balance at December 31, 2005                           |  | 59,080,610    |   |                          | $      |  |               | $ | 318,178 |                      |  | $ | (125,068 | ) |                  | $ | (5,426                   | ) |  | $ | 25,610 |  | $ | 553,917 |  | $ | 767,211
|Stock options, including tax benefit                   |  | 20,621        |   |                          |        |  |               |   | 428     |                      |  |   |         |   |                  |   |                         |   |  |   |       |  |   |        |  |   | 428    
|Use of treasury stock to satisfy stock option exercise |  | (20,621       | ) |                          |        |  |               |   | (58     | )                    |  |   | 58       |   |                  |   |                         |   |  |   |       |  |   |        |  |   |       
|Issuance of restricted stock, net                      |  | 99,268        |   |                          |        |  |               |   | 4,208   |                      |  |   |         |   |                  |   | (4,208                   | ) |  |   |       |  |   |        |  |   |       
|Amortization of deferred compensation                  |  |              |   |                          |        |  |               |   |        |                      |  |   |         |   |                  |   | 1,090                    |   |  |   |       |  |   |        |  |   | 1,090  
|Net income                                             |  |              |   |                          |        |  |               |   |        |                      |  |   |         |   |                  |   |                         |   |  |   |       |  |   | 30,658  |  |   | 30,658 
|                                                       |  |               |   |                          |        |   |               |   |         |                      |  |   |          |   |                  |   |                          |   |  |   |        |  |   |         |  |   |        
|Balance at March 31, 2006                              |  | 59,179,878    |   |                          | $      |  |               | $ | 322,756 |                      |  | $ | (125,010 | ) |                  | $ | (8,544                   | ) |  | $ | 25,610 |  | $ | 584,575 |  | $ | 799,387
|                                                       |  |               |   |                          |        |   |               |   |         |                      |  |   |          |   |                  |   |                          |   |  |   |        |  |   |         |  |   |        

See accompanying notes.



3



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)



|                                                                                  |  |                                     |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ----------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                  |  | For the three monthsended March 31, |         
|                                                                                  |  | 2006                                |          |   | 2005 |  
|Operating activities                                                              |  |                                     |          |   |      |   |          |  
|Net income                                                                        |  | $                                   | 30,658   |   |      | $ | 49,180   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                     |          |   |      |   |          |  
|Depreciation expense                                                              |  |                                     | 7,634    |   |      |   | 4,213    |  
|Impairment of goodwill                                                            |  |                                     | 10,546   |   |      |   |         |  
|Provision for loan losses                                                         |  |                                     | 77,829   |   |      |   | 14,104   |  
|Amortization of intangibles                                                       |  |                                     | 915      |   |      |   | 715      |  
|Accretion of deferred revenue                                                     |  |                                     | (3,232   | ) |      |   | (5,805   | )
|Stock-based compensation expense                                                  |  |                                     | 1,257    |   |      |   | 533      |  
|Minority interest                                                                 |  |                                     | 3,405    |   |      |   | 9,161    |  
|Retained interests income adjustment, net                                         |  |                                     | 4,999    |   |      |   | (13,367  | )
|Income in excess of distributions from equity-method investments                  |  |                                     | (6,494   | ) |      |   | (7,736   | )
|Changes in assets and liabilities, exclusive of business acquisitions:            |  |                                     |          |   |      |   |          |  
|Decrease in deferred costs                                                        |  |                                     | 1,751    |   |      |   | 3,839    |  
|Decrease in income tax liability                                                  |  |                                     | (59,112  | ) |      |   | (38,726  | )
|Increase in uncollected fees on non-securitized earning assets                    |  |                                     | (21,054  | ) |      |   | (14,558  | )
|Increase (decrease) in deferred revenue                                           |  |                                     | 1,378    |   |      |   | (655     | )
|Other                                                                             |  |                                     | 3,426    |   |      |   | 766      |  
|                                                                                  |  |                                     |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                                     | 53,906   |   |      |   | 1,664    |  
|                                                                                  |  |                                     |          |   |      |   |          |  
|Investing activities                                                              |  |                                     |          |   |      |   |          |  
|Investments in equity-method investees                                            |  |                                     |         |   |      |   | (10,949  | )
|Investments in securitized earning assets                                         |  |                                     | (347,884 | ) |      |   | (249,233 | )
|Proceeds from securitized earning assets                                          |  |                                     | 328,653  |   |      |   | 325,950  |  
|Investments in non-securitized earning assets                                     |  |                                     | (598,186 | ) |      |   | (195,029 | )
|Proceeds from non-securitized earning assets                                      |  |                                     | 500,339  |   |      |   | 178,789  |  
|Acquisition of sub-prime lenders assets                                          |  |                                     |         |   |      |   | (12,138  | )
|Purchases of and development of software, furniture, fixtures and equipment       |  |                                     | (7,785   | ) |      |   | (4,228   | )
|                                                                                  |  |                                     |          |   |      |   |          |  
|Net cash (used in) provided by investing activities                               |  |                                     | (124,863 | ) |      |   | 33,162   |  
|                                                                                  |  |                                     |          |   |      |   |          |  
|Financing activities                                                              |  |                                     |          |   |      |   |          |  
|Minority interests distribution, net                                              |  |                                     | (6,344   | ) |      |   | (7,798   | )
|Proceeds from exercise of stock options                                           |  |                                     | 177      |   |      |   | 601      |  
|Proceeds from borrowings                                                          |  |                                     | 11,054   |   |      |   | 13,500   |  
|Repayment of borrowings                                                           |  |                                     | (15,233  | ) |      |   | (18,969  | )
|                                                                                  |  |                                     |          |   |      |   |          |  
|Net cash used in financing activities                                             |  |                                     | (10,346  | ) |      |   | (12,666  | )
|                                                                                  |  |                                     |          |   |      |   |          |  
|Net (decrease) increase in cash                                                   |  |                                     | (81,303  | ) |      |   | 22,160   |  
|Cash and cash equivalents at beginning of period                                  |  |                                     | 240,655  |   |      |   | 68,240   |  
|                                                                                  |  |                                     |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                        |  | $                                   | 159,352  |   |      | $ | 90,400   |  
|                                                                                  |  |                                     |          |   |      |   |          |  
|Supplemental cash flow information                                                |  |                                     |          |   |      |   |          |  
|Cash paid for interest                                                            |  | $                                   | 7,048    |   |      | $ | 2,204    |  
|                                                                                  |  |                                     |          |   |      |   |          |  
|Cash paid for income taxes                                                        |  | $                                   | 76,272   |   |      | $ | 66,997   |  
|                                                                                  |  |                                     |          |   |      |   |          |  
|Supplemental non-cash information                                                 |  |                                     |          |   |      |   |          |  
|Notes payable associated with capital leases                                      |  | $                                   | 13,834   |   |      | $ | 8,457    |  
|                                                                                  |  |                                     |          |   |      |   |          |  
|Notes payable associated with bond investments                                    |  | $                                   | 34,362   |   |      | $ | 6,737    |  
|                                                                                  |  |                                     |          |   |      |   |          |  
|Issuance of restricted stock                                                      |  | $                                   | 4,208    |   |      | $ | 5,788    |  
|                                                                                  |  |                                     |          |   |      |   |          |  

See accompanying notes.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2006

1. Basis of
Presentation

We have prepared our condensed consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (SEC) Regulation S-X. Accordingly,
they do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of management, all normal recurring adjustments considered necessary to fairly state the results for the interim
periods presented have been included. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Certain estimates, such
as credit losses, payment rates, discount rates and the yield earned on securitized receivables, significantly affect our reported gains on securitizations and income from retained interests in credit card receivables securitized (both of which are
components of fees and other income on securitized earning assets on our condensed consolidated statements of operations) and our reported value of securitized earning assets on our condensed consolidated balance sheets. Additionally, estimates of
future credit losses on our non-securitized loans and fees receivable have a significant impact on the provision for loan losses within our condensed consolidated statements of operations and loans and fees receivable, net, which is a component of
non-securitized earning assets, net on our condensed consolidated balance sheets. Operating results for the three months ended March 31, 2006 are not necessarily indicative of the results for the year ending December 31, 2006. Our
unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2005 contained in our Annual
Report on Form 10-K filed with the SEC.

Certain amounts in prior period financial statements have been reclassified to conform to the
current period presentation. All significant intercompany balances and transactions have been eliminated for financial reporting purposes.

2. Summary
of Significant Accounting Policies

The following is a summary of significant accounting policies followed in our preparation of the
condensed consolidated financial statements, as well as a description of the significant components of our condensed consolidated financial statements.

Non-Securitized Earning Assets, Net

Non-securitized earning assets, net on our condensed consolidated balance sheets
include loans and fees receivable, net, investments in previously charged-off receivables and investments in debt securities, each of which is discussed separately below. Details of non-securitized earning assets, net balances are as follows (in
thousands):



|                                                  |  |                          |         |                             |   |        
|------------------------------------------------- |  | ------------------------ | ------- | --------------------------- | - | -------
|                                                  |  | Balance atMarch, 31 2006 |         | Balance atDecember 31, 2005
|Loans and fees receivable, net                    |  | $                        | 417,854 |                             | $ | 375,919
|Investments in previously charged-off receivables |  |                          | 14,120  |                             |   | 16,993 
|Investments in debt securities                    |  |                          | 69,811  |                             |   | 75,399 
|                                                  |  |                          |         |                             |   |        
|Non-securitized earning assets, net               |  | $                        | 501,785 |                             | $ | 468,311
|                                                  |  |                          |         |                             |   |        

Loans and Fees Receivable, Net. Loans and fees receivable, net include
receivables associated with our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range, micro-loan activities and auto finance business, none of which has been securitized in off balance sheet securitizations.
These receivables are shown net of an allowance for uncollectible loans and fees. Loans and fees receivable also are presented net of unearned fees (or deferred revenue) in accordance with Statement of Financial Accounting Standards
No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Receivables and Initial Direct Costs of Leases.

The loans and fees receivable associated with our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range consist of finance charges and fees (both billed and accrued), as well
as principal balances receivable from this consumer base. In addition to finance charges on principal balances, the fees associated with this product offering include activation, annual, monthly maintenance, over-limit, cash advance and returned
check fees. The activation fees are recognized over the estimated period a customer would repay the fee (approximately one year), and the annual fees are recognized over the year to which they apply. The loans and fees receivable associated with our
micro-loan activities include principal balances and associated fees due from consumers, as well as marketing and servicing fees receivable from a third-party financial institution; these fees are recognized as earnedgenerally over a two-week
period. Loans and fees receivable associated with our auto finance business include principal balances and associated fees and interest, net of the unearned portion of loan discounts due from customers, which is recognized over the life of each
loan.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

March 31, 2006



The allowance for uncollectible loans and fees is provided for that portion of the loans and fees
receivable that we believe will not ultimately be collected. Loans and fees receivables, gross and the allowance for uncollectible loans exclude, however, any finance charges and fees that were billed on late-stage delinquent receivables (i.e.,
those more than 120 days delinquent) for which we concluded at the time of billing that collections were unlikely; all such amounts are not accrued into income or the underlying loans and fees receivable, gross balances. The components of loans and
fees receivable, net are as follows (in millions):



|                                           |  |                             |        |   |           |   |       |              |  |   |                          |   |  |   |        |  
|------------------------------------------ |  | --------------------------- | ------ | - | --------- | - | ----- | ------------ |  | - | ------------------------ | - |  | - | ------ | -
|                                           |  | Balance atDecember 31, 2005 |        |   | Additions |   |       | Subtractions |  |   | Balance atMarch 31, 2006 |  
|Loans and fees receivable, gross           |  | $                           | 530.6  |   |           | $ | 548.8 |              |  | $ | (450.1                   | ) |  | $ | 629.3  |  
|Deferred revenue                           |  |                             | (100.4 | ) |           |   | (49.6 | )            |  |   | 35.5                     |   |  |   | (114.5 | )
|Allowance for uncollectible loans and fees |  |                             | (54.3  | ) |           |   | (77.8 | )            |  |   | 35.2                     |   |  |   | (96.9  | )
|                                           |  |                             |        |   |           |   |       |              |  |   |                          |   |  |   |        |  
|Loans and fees receivable, net             |  | $                           | 375.9  |   |           | $ | 421.4 |              |  | $ | (379.4                   | ) |  | $ | 417.9  |  
|                                           |  |                             |        |   |           |   |       |              |  |   |                          |   |  |   |        |  

Interest income associated with these loans and fees receivable is included in interest income
under the consumer loans, including past due fees category on our accompanying condensed consolidated statements of operations. Additionally, $109.5 million, and $47.6 million of fee income associated with these loans and fees receivable for the
three months ended March 31, 2006 and 2005, respectively, is reflected in fees and other income from non-securitized earning assets on the condensed consolidated statements of operations. As of March 31, 2006, the weighted-average
remaining accretion period for the $114.5 million of deferred revenue reflected in the above table was 9.3 months; deferred revenue associated with any accounts that may charge off in future will not be accreted into revenue after the
charge-off date.

Investments in Previously Charged-off Receivables. For the three months ended March 31, 2006, the
following table shows a roll-forward of our investments in previously charged-off receivables activities (in thousands):



|                                                                                                                                                                                                         |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------- | -
|Unrecovered balance at December 31, 2005                                                                                                                                                                 |  | $ | 16,993  |  
|Acquisitions of defaulted accounts                                                                                                                                                                       |  |   | 7,397   |  
|Cash collections                                                                                                                                                                                         |  |   | (17,672 | )
|Accretion of deferred revenue associated with forward flow contract                                                                                                                                      |  |   | (1,895  | )
|Cost-recovery method income recognized on defaulted accounts (included as a component of fees and other income on non-securitized earning
assets on our condensed consolidated statements of operations) |  |   | 9,297   |  
|                                                                                                                                                                                                         |  |   |         |  
|Balance at March 31, 2006                                                                                                                                                                                |  | $ | 14,120  |  
|                                                                                                                                                                                                         |  |   |         |  
|Estimated remaining collections (ERC)                                                                                                                                                                  |  | $ | 59,124  |  
|                                                                                                                                                                                                         |  |   |         |  

In June 2005, our debt collections business sold a significant pool of its previously
charged-off receivables. Remaining after this sale are the subsidiarys pools of previously charged-off receivables primarily associated with accounts for which the debtors have filed for bankruptcy protection under Chapter 13 of the United
States Bankruptcy Code (Chapter 13 Bankruptcies) and accounts participating in or acquired in connection with the subsidiarys balance transfer program. Additionally, our debt collections business is expected to continue to acquire
for resale under a forward flow contract certain previously charged-off receivables from trusts, the receivables of which are serviced by us, and certain previously charged-off receivables associated with our largely fee-based credit card offering
to consumers at the lower end of the FICO scoring range. Included within cost-recovery method income recognized on defaulted accounts in the above table is $1.9 million of accreted deferred revenue associated with a $67.0 million cash prepayment
made to us under the forward flow contract.

The life of each pool of previously charged-off receivables acquired by us generally is
estimated to be between 24 and 36 months for normal delinquency charged-off accounts and approximately 60 months for Chapter 13 Bankruptcies, which constitute the majority of accounts retained after sales under the forward flow contract. We
anticipate collecting approximately 37.1% of the ERC of the existing accounts over the next twelve months, with the balance to be collected thereafter.

Investments in Securities. We periodically invest through the open market in debt and equity securities that we believe will provide us with an adequate return. Generally, these debt and equity
securities are purchased outright or partially funded using existing margin accounts; see Note 9, Notes Payable. Our purchased debt securities generally are classified as trading securities. Additionally, we have occasionally
received distributions of debt securities from our equity-method investees; we have classified such distributed debt securities as held to maturity.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

March 31, 2006



Fees and Other Income on Securitized Earning Assets

Fees and other income on securitized earning assets include (1) annual membership, over-limit, cash advance, returned check and other fees associated
with our securitized credit card receivables, (2) securitization gains and (3) income from retained interests in credit card receivables securitized, each of which is detailed (in thousands) in the following table for the three months
ended March 31, 2006 and 2005.



|                                                                      |  |                                     |        |      |   |       
|--------------------------------------------------------------------- |  | ----------------------------------- | ------ | ---- | - | ------
|                                                                      |  | For the three monthsended March 31,
|                                                                      |  | 2006                                |        | 2005
|Securitization gains                                                  |  | $                                   | 863    |      | $ | 1,587 
|Income from retained interests in credit card receivables securitized |  |                                     | 33,204 |      |   | 19,869
|Fees on securitized receivables                                       |  |                                     | 16,402 |      |   | 16,036
|                                                                      |  |                                     |        |      |   |       
|Total fees and other income on securitized earning assets             |  | $                                   | 50,469 |      | $ | 37,492
|                                                                      |  |                                     |        |      |   |       

Fees are assessed on credit card accounts according to the terms of the related cardholder
agreements and, except for annual membership and activation fees, are recognized as revenue when charged to the cardholders account. Annual membership fees are accreted into revenue on a straight-line basis over the cardholder privilege
period, which is twelve months. Direct receivables origination costs are amortized against fee income. See Note 8, Off Balance Sheet Arrangements, for further discussion on securitization gains and income from retained interests in
credit card receivables (including the effects of changes in retained interest valuations).

Fees and Other Income on Non-Securitized Earning Assets

For the three months ended March 31, 2006 and 2005, fees and other income on non-securitized earning assets include:
(1) lending fees associated with our retail and Internet-based micro-loan activities; (2) fees associated with our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range; (3) income associated
with our Fingerhut receivables (see Note 6, Fingerhut Receivables) during periods in which we held them on balance sheet; (4) income associated with our investments in previously charged-off receivables; (5) transaction
and other fees associated with our stored-value card offering; and (6) gains and losses associated with our investments in securities.

The components (in thousands) of our fees and other income on non-securitized earning assets for the three months ended March 31, 2006 and 2005 are as follows:



|                                                  |  |                                      |         |      |   |       
|------------------------------------------------- |  | ------------------------------------ | ------- | ---- | - | ------
|                                                  |  | For the three months ended March 31,
|                                                  |  | 2006                                 |         | 2005
|Retail micro-loan fees                            |  | $                                    | 20,939  |      | $ | 17,876
|Fees on non-securitized credit card receivables   |  |                                      | 87,351  |      |   | 28,305
|Fingerhut receivables while on balance sheet      |  |                                      |        |      |   | 32,732
|Investments in previously charged-off receivables |  |                                      | 9,297   |      |   | 17,508
|Other                                             |  |                                      | 2,183   |      |   | 2,921 
|                                                  |  |                                      |         |      |   |       
|Total                                             |  | $                                    | 119,770 |      | $ | 99,342
|                                                  |  |                                      |         |      |   |       

Stock Compensation

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123(R), Accounting for Stock-Based Compensation, (Statement No. 123(R)) using the modified
prospective application. On March 31, 2006, we had five stock-based employee compensation plans (an employee stock purchase plan, three stock option plans and a restricted stock plan). The compensation cost that has been charged against income
for the stock option plans was $167,000 and the total income tax benefit recognized in our condensed consolidated statement of operations for stock-based compensation arrangements was $84,000 for the three months ended March 31, 2006. We issued
no stock options during the three months ended March 31, 2006.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

March 31, 2006



The following table presents the effects on net income (in thousands) and net income per share if we
had recognized compensation expense under the fair value recognition provisions of Statement No. 123 for the three months ended March 31, 2005:



|                                                                                        |  |                                          |        |  
|--------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | -
|                                                                                        |  | For the three monthsended March 31, 2005 |       
|Net income attributable to common shareholders, as reported                             |  | $                                        | 49,180 |  
|Stock-based employee compensation expense determined under fair value basis, net of tax |  |                                          | (189   | )
|Pro-forma net income (loss)                                                             |  | $                                        | 48,991 |  
|                                                                                        |  |                                          |        |  
|Net income per common share:                                                            |  |                                          |        |  
|Basicas reported                                                                       |  | $                                        | 0.96   |  
|Basicpro-forma                                                                         |  | $                                        | 0.96   |  
|Dilutedas reported                                                                     |  | $                                        | 0.94   |  
|Dilutedpro-forma                                                                       |  | $                                        | 0.93   |  

Due to a variety of factors, including the timing and number of awards, the above pro-forma
results may not be indicative of the future effect of stock option expensing on our results of operations.

Recent Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards
No. 155, Accounting for Certain Hybrid Financial Instruments  an amendment of FASB Statements No. 133 and 140, (Statement No. 155). Statement No. 155 amends Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, (Statement No. 133) and Statement of Financial Accounting Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, (Statement No. 140). Statement No. 155 resolves issues addressed in Statement No. 133 Implementation Issue No. D1, Application of
Statement 133 to Beneficial Interests in Securitized Financial Assets. Among other provisions, the new rule (a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation, (b) clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement No. 133, (c) establishes a requirement to evaluate interests in securitized financial
assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (d) clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives, and (e) amends Statement No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another
derivative financial instrument. Statement No. 155 is effective for fiscal years beginning after September 15, 2006 and is required to be adopted by us in the first quarter of fiscal year 2007, beginning January 1, 2007. We currently
are evaluating the effects that the adoption of Statement No. 155 could have on our consolidated results of operations, financial position and cash flows, although we do not expect any material effects associated with its adoption.
Nevertheless, the standard could affect future income recognition for securitized financial assets because there may be more embedded derivatives identified for which changes in fair value will be recognized in computing net income.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets  an
amendment of FASB Statement No. 140, (Statement No. 156). Statement No. 156 amends Statement No. 140 with respect to the accounting for separately recognized servicing assets and servicing liabilities and
requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. The standard permits an entity to subsequently measure each class of servicing assets or servicing liabilities at
fair value and report changes in fair value in the statement of income in the accounting period in which the changes occur. Statement No. 156 is effective for fiscal years beginning after September 15, 2006 and is required to be adopted by
us in the first quarter of fiscal year 2007, beginning January 1, 2007. We currently are evaluating the effects that the adoption of Statement No. 156 could have on our consolidated results of operations, financial position and cash flows,
although we do not expect any material effects associated with its adoption.

3. Segment Reporting

We operate primarily within one industry consisting of five reportable segments by which we manage our business. Our five reportable segments are: Credit
Cards; Investments in Previously Charged-off Receivables; Retail Micro-Loans, Auto Finance; and Other.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

March 31, 2006



We measure the profitability of our reportable segments based on their income after allocation of
specific costs and corporate overhead. Overhead costs are allocated based on headcounts and other applicable measures to better align costs with the associated revenues. Summary operating segment information is as follows (in thousands):



|                                                                             |  |              |           |                                                |   |                   |  |   |              |   |       |   |         |       |   |         |   |  |   |          
|---------------------------------------------------------------------------- |  | ------------ | --------- | ---------------------------------------------- | - | ----------------- |  | - | ------------ | - | ----- | - | ------- | ----- | - | ------- | - |  | - | ---------
|Three Months Ended March 31, 2006                                            |  | Credit Cards |           | Investments inPreviouslyCharged-OffReceivables |   | RetailMicro-Loans |  |   | Auto Finance |   | Other |   |         | Total
|Net interest income, fees and other income on non-securitized earning assets |  | $            | 57,306    |                                                | $ | 9,478             |  | $ | 12,897       |   |       | $ | 7,852   |       | $ | 508     |   |  | $ | 88,041   
|                                                                             |  |              |           |                                                |   |                   |  |   |              |   |       |   |         |       |   |         |   |  |   |          
|Total other operating income                                                 |  | $            | 108,153   |                                                | $ | 61                |  | $ | 3,735        |   |       | $ | 164     |       | $ | 25      |   |  | $ | 112,138  
|                                                                             |  |              |           |                                                |   |                   |  |   |              |   |       |   |         |       |   |         |   |  |   |          
|Income (loss) before income taxes                                            |  | $            | 69,729    |                                                | $ | 5,224             |  | $ | (17,039      | ) |       | $ | 847     |       | $ | (10,859 | ) |  | $ | 47,902   
|                                                                             |  |              |           |                                                |   |                   |  |   |              |   |       |   |         |       |   |         |   |  |   |          
|Loans and fees receivable, gross                                             |  | $            | 423,534   |                                                | $ |                  |  | $ | 51,312       |   |       | $ | 142,191 |       | $ | 12,246  |   |  | $ | 629,283  
|                                                                             |  |              |           |                                                |   |                   |  |   |              |   |       |   |         |       |   |         |   |  |   |          
|Loans and fees receivable, net                                               |  | $            | 253,316   |                                                | $ |                  |  | $ | 42,193       |   |       | $ | 115,422 |       | $ | 6,923   |   |  | $ | 417,854  
|                                                                             |  |              |           |                                                |   |                   |  |   |              |   |       |   |         |       |   |         |   |  |   |          
|Total assets                                                                 |  | $            | 1,391,292 |                                                | $ | 31,021            |  | $ | 183,372      |   |       | $ | 155,232 |       | $ | 28,890  |   |  | $ | 1,789,807
|                                                                             |  |              |           |                                                |   |                   |  |   |              |   |       |   |         |       |   |         |   |  |   |          
|                                                                             |  |              |           |                                                |   |                  
|Three Months Ended March 31, 2005                                            |  | Credit Cards |           | Investments inPreviouslyCharged-OffReceivables |   | RetailMicro-Loans |  |   | Auto Finance |   | Other |   |         | Total
|Net interest income, fees and other income on non-securitized earning assets |  | $            | 64,010    |                                                | $ | 17,508            |  | $ | 14,315       |   |       | $ |        |       | $ | 236     |   |  | $ | 96,069   
|                                                                             |  |              |           |                                                |   |                   |  |   |              |   |       |   |         |       |   |         |   |  |   |          
|Total other operating income                                                 |  | $            | 91,427    |                                                | $ | 1,441             |  | $ | 5,435        |   |       | $ |        |       | $ |        |   |  | $ | 98,303   
|                                                                             |  |              |           |                                                |   |                   |  |   |              |   |       |   |         |       |   |         |   |  |   |          
|Income (loss) before income taxes                                            |  | $            | 75,263    |                                                | $ | 7,071             |  | $ | 890          |   |       | $ |        |       | $ | (5,776  | ) |  | $ | 77,448   
|                                                                             |  |              |           |                                                |   |                   |  |   |              |   |       |   |         |       |   |         |   |  |   |          
|Loans and fees receivable, gross                                             |  | $            | 130,913   |                                                | $ |                  |  | $ | 27,806       |   |       | $ |        |       | $ | 1,648   |   |  | $ | 160,367  
|                                                                             |  |              |           |                                                |   |                   |  |   |              |   |       |   |         |       |   |         |   |  |   |          
|Loans and fees receivable, net                                               |  | $            | 84,646    |                                                | $ |                  |  | $ | 22,781       |   |       | $ |        |       | $ | 1,071   |   |  | $ | 108,498  
|                                                                             |  |              |           |                                                |   |                   |  |   |              |   |       |   |         |       |   |         |   |  |   |          
|Total assets                                                                 |  | $            | 819,354   |                                                | $ | 19,187            |  | $ | 158,414      |   |       | $ |        |       | $ | 11,618  |   |  | $ | 1,008,573
|                                                                             |  |              |           |                                                |   |                   |  |   |              |   |       |   |         |       |   |         |   |  |   |          

4. Shareholders Equity

Treasury Stock

At our discretion, we use treasury shares to satisfy option exercises and
restricted stock grants. We use the cost approach when accounting for the repurchase and reissuance of our treasury stock. During the three months ended March 31, 2006, we reissued 20,621 treasury shares in satisfaction of option exercises at
an approximate cost of $58,000.

Restricted Share Awards

During the quarter ended March 31, 2006, we granted 102,438 shares of restricted stock under our 2004 Restricted Stock Plan, and we recorded the fair market value of granted restricted shares determined as of
their respective dates of grant (net of anticipated forfeitures) as deferred compensation within consolidated shareholders equity. Our restricted share grants generally vest over a range of 24 to 36 months and associated deferred
compensation amounts are being amortized to compensation expense ratably over the vesting period. As such, deferred compensation is shown net of amortization as of the close of each accounting period on our condensed consolidated balance sheets.

5. Investments in Equity-Method Investees

In January 2005, we purchased a 47.5% interest in a joint venture for $10.9 million, including transaction costs. A wholly owned subsidiary of ours and two unaffiliated investors formed this entity in connection with the
acquisition of $376.3 million (face amount) in credit card receivables. These receivables were then transferred to a subsidiary of the joint venture, and then on to a trust pursuant to a Statement No. 140 transfer in exchange for notes and
a subordinated, certificated interest issued by the trust.

As of March 31 2006, we held a 33.3% interest in both Transistor Holdings,
LLC (Transistor) and Capacitor Holdings, LLC (Capacitor), a 47.5% interest in the above-mentioned joint venture and a 50.0% interest in a limited liability company in which we invested in 2002 (CSG). We account
for our investment interest in these entities using the equity method of accounting, and these investments are included in investments in equity-method investees on our condensed consolidated balance sheets.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

March 31, 2006



The following table summarizes combined balance sheet and results of operations data (in thousands)
for our equity-method investees:



|                                                                             |  |                                     |         |                        |   |        
|---------------------------------------------------------------------------- |  | ----------------------------------- | ------- | ---------------------- | - | -------
|                                                                             |  | As of March 31,2006                 |         | As of December 31,2005
|Securitized earning assets                                                   |  | $                                   | 89,333  |                        | $ | 73,020 
|                                                                             |  |                                     |         |                        |   |        
|Non-securitized earning assets, net                                          |  | $                                   | 522,204 |                        | $ | 556,930
|                                                                             |  |                                     |         |                        |   |        
|Total assets                                                                 |  | $                                   | 604,005 |                        | $ | 651,042
|                                                                             |  |                                     |         |                        |   |        
|Total liabilities                                                            |  | $                                   | 427,457 |                        | $ | 474,509
|                                                                             |  |                                     |         |                        |   |        
|Members capital                                                             |  | $                                   | 176,548 |                        | $ | 176,893
|                                                                             |  |                                     |         |                        |   |        
|                                                                             | 
|                                                                             |  | For the three monthsended March 31,
|                                                                             |  | 2006                                |         | 2005                  
|Net interest income, fees and other income on non-securitized earning assets |  | $                                   | 40,178  |                        | $ | 18,636 
|                                                                             |  |                                     |         |                        |   |        
|Fees and other income on securitized earning assets                          |  | $                                   | 23,237  |                        | $ | 31,408 
|                                                                             |  |                                     |         |                        |   |        
|All other operating income                                                   |  | $                                   | 27,666  |                        | $ | 34,675 
|                                                                             |  |                                     |         |                        |   |        
|Net income                                                                   |  | $                                   | 60,320  |                        | $ | 45,850 
|                                                                             |  |                                     |         |                        |   |        

6. Fingerhut Receivables

In September 2005, we sold our Fingerhut receivables to a trust pursuant to a Statement No. 140 transfer. For the three months ended March 31, 2005 (prior to the September 2005 securitization transaction),
we recognized $26.9 million of income associated with cash received on the Fingerhut receivables and $5.8 million of income through accretion of deferred gain associated with the Fingerhut receivables. Both of these items of income were included as
a component of fees and other income on non-securitized earning assets on our condensed consolidated statement of operations for the quarter ending March 31, 2005. As of March 31, 2006, the servicing liability related to the securitized
Fingerhut receivables was valued at $0.5 million.

7. Credit Card Receivables Acquisition

In January 2005, one of our majority-owned subsidiaries purchased $72.1 million (face amount) in credit card receivables for $42.0 million,
including transaction costs. These receivables were then transferred to a trust pursuant to a Statement No. 140 transfer in exchange for notes and a subordinated, certificated interest issued by the trust, thereby resulting in securitization
gains of $1.6 million. To fund this purchase, we contributed $2.0 million into our majority-owned subsidiary. The assets and liabilities of the majority-owned subsidiary, and its associated earnings from operations, are presented as part of our
condensed consolidated financial statements with a minority interest being shown to reflect the unaffiliated investors portion of the operations. The minority interest associated with this subsidiary is not shown net of tax because the
subsidiary is a pass-through entity for income tax purposes. For a fee that represents adequate compensation for servicing, we have agreed to service the entire portfolio of credit card receivables underlying the trust.

See separately the discussion of credit card receivables acquired by our equity-method investees in Note 5, Investments in Equity-Method
Investees, above.

8. Off Balance Sheet Arrangements

We securitize all of our credit card receivables originated on a daily basis under our primary third-party financial institution relationship (the originated portfolio), except for those credit card
receivables underlying our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range. The securitized credit card receivables are transferred to a master trust, which issues notes representing undivided ownership
interests in the assets of the master trust. Additionally, during the first quarter of 2005, we acquired receivables from a third party and subsequently securitized them. (See Note 7, Credit Card Receivables Acquisition, for a
discussion of the first quarter of 2005 acquisition.)

All of our credit card receivables, with the exception of those receivables
associated with our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range, are held by securitization trusts. Our only interest in these securitized receivables is in the form of retained interests. GAAP
requires us to treat our transfers to the securitization trusts as sales, and the receivables are removed from our condensed consolidated balance sheets. Under Statement No. 140, an entity recognizes the assets it controls and liabilities it
has incurred, and derecognizes the financial assets for which control has been surrendered and all liabilities that have been extinguished. An entity is considered to have surrendered control over the transferred assets and, therefore, to have sold
the assets if the following conditions are met:



| | 1. | The transferred assets have been isolated from the transferor and put presumptively beyond the reach of the transferor and its creditors.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------



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CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

March 31, 2006



| | 2. | Each transferee has the right to pledge or exchange the assets it has received, and no condition both constrains the transferee from taking advantage of its right to pledge or
exchange and provides more than a trivial benefit to the transferor.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | The transferor does not maintain effective control over the transferred assets through either (i) an agreement that both entitles and obligates the transferor to repurchase or
redeem them before their maturity, or (ii) the ability to unilaterally cause the holder to return specific assets, other than through a clean-up call.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The securitization transactions do not affect the relationship we have with our customers, and we continue to service the securitized credit card receivables.

The table below summarizes our securitization activity (in thousands) for the periods presented. As with other tables included herein, it does not
include the securitization activity of our equity-method investees:



|                                                                         |  |                                     |           |      |   |          
|------------------------------------------------------------------------ |  | ----------------------------------- | --------- | ---- | - | ---------
|                                                                         |  | For the three monthsended March 31,
|                                                                         |  | 2006                                |           | 2005
|Gross amount of receivables securitized at period end                    |  | $                                   | 1,638,014 |      | $ | 1,609,863
|                                                                         |  |                                     |           |      |   |          
|Proceeds from collections reinvested in revolving-period securitizations |  | $                                   | 303,722   |      | $ | 248,298  
|                                                                         |  |                                     |           |      |   |          
|Excess cash flows generated on securitized receivables                   |  | $                                   | 70,984    |      | $ | 65,865   
|                                                                         |  |                                     |           |      |   |          
|Securitization gains                                                     |  | $                                   | 863       |      | $ | 1,587    
|Income from retained interests in credit card receivables securitized    |  |                                     | 33,204    |      |   | 19,869   
|Fees on securitized receivables                                          |  |                                     | 16,402    |      |   | 16,036   
|                                                                         |  |                                     |           |      |   |          
|Total fees and other income on securitized earning assets                |  | $                                   | 50,469    |      | $ | 37,492   
|                                                                         |  |                                     |           |      |   |          

The investors in our securitization transactions have no recourse against us for our
customers failure to pay their credit card receivables. However, most of our retained interests are subordinated to the investors interests until the investors have been fully paid.

Generally, all collections received from the cardholders underlying each securitization are included in the securitization cash flows. This includes
collections from the cardholders for interest, fees and other charges on the accounts and collections from the cardholders repaying the principal portion of their account balances. In general, the cash flows are then distributed to us as servicer
for our servicing fee, to the investors as interest on their outstanding notes, to the investors to repay any portion of their outstanding notes that become due and payable and to us as the seller to fund new purchases. Any collections from
cardholders remaining each month after making the various payments noted above generally are paid to us on our retained interests.

The
retained interests associated with the credit card receivables that we have securitized are carried at estimated fair market value within the securitized earning assets category on the condensed consolidated balance sheet, and because they are
classified as trading securities, any changes in fair value are included in income. Because quoted market prices for our retained interests are not generally available, we estimate fair value based on the estimated present value of future cash flows
using our best estimates of key assumptions.

The measurements of retained interests associated with our arranged securitizations are
dependent upon our estimate of future cash flows using the cash-out method. Under the cash-out method, the future cash flows (including the release of any cash related to credit enhancements) are recorded at a discounted value. The cash flows are
discounted based on the timing of when we expect to receive the cash flows. The discount rates are based on our estimates of returns that would be required by investors in an investment with similar terms and credit quality. Yields on the credit
card receivables are estimated based on the stated annual percentage rates in the credit card agreements. Estimated default and payment rates are based on historical results, adjusted for expected changes based on our credit risk models. Credit card
receivables are typically charged-off when the receivables become 180 days past due, although earlier charge offs may occur specifically related to accounts of bankrupt or deceased customers. Bankrupt and deceased customers accounts are
typically charged-off within 30 days of verification.



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CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

March 31, 2006



Our retained interests in credit card receivables securitized (labeled as securitized earning assets
on the condensed consolidated balance sheets) include the following (in thousands):



|                                 |  |               |         |   |                  |   |         |  
|-------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                 |  | March 31,2006 |         |   | December 31,2005 |  
|I/O strip                        |  | $             | 72,090  |   |                  | $ | 70,843  |  
|Accrued interest and fees        |  |               | 12,750  |   |                  |   | 13,412  |  
|Servicing liability              |  |               | (452    | ) |                  |   | (583    | )
|Amounts due from securitization  |  |               | 10,882  |   |                  |   | 8,965   |  
|Fair value of retained interests |  |               | 705,946 |   |                  |   | 694,346 |  
|                                 |  |               |         |   |                  |   |         |  
|Securitized earning assets       |  | $             | 801,216 |   |                  | $ | 786,983 |  
|                                 |  |               |         |   |                  |   |         |  

The I/O strip reflects the fair value of our rights to future income from securitizations arranged
by us and includes certain credit enhancements. Accrued interest and fees represent the estimated collectible portion of fees earned but not billed to the cardholders underlying credit card receivables portfolios that we have securitized. The
servicing liability reflects, for those securitization structures for which servicing compensation is not adequate, the fair value of the costs to service the receivables above and beyond the servicing income we expect to receive from the
securitizations. Amounts due from securitization represent cash flows that are distributable to us from the prior months cash flows within each securitization trust; we generally expect to receive these amounts within 30 days from the close of
each respective month. Lastly, our retained interests are measured at fair value as set forth within the fair value of retained interests category in the above table.

Changes in any of the assumptions used to value our retained interests in our securitizations could impact our fair value estimates. The weighted-average key assumptions used to estimate the fair value of our retained
interests in the receivables we have securitized are presented below:



|                                       |  |               |   |  |                  |   |  |               |  
|-------------------------------------- |  | ------------- | - |  | ---------------- | - |  | ------------- | -
|                                       |  | March 31,2006 |   |  | December 31,2005 |   |  | March 31,2005 |  
|Yield (annualized)                     |  | 30.0          | % |  | 29.8             | % |  | 29.8          | %
|Payment rate (monthly)                 |  | 6.8           |   |  | 6.7              |   |  | 6.4           |  
|Expected credit loss rate (annualized) |  | 14.0          |   |  | 14.2             |   |  | 12.7          |  
|Residual cash flows discount rate      |  | 13.5          |   |  | 13.6             |   |  | 20.0          |  
|Servicing liability discount rate      |  | 14.0          |   |  | 14.0             |   |  | 14.0          |  

The decrease in the December 31, 2005 and March 31, 2006 residual cash flows discount
rates relative to the 20% rate at March 31, 2005 corresponds with our use of other forms of liquidity throughout the last three quarters of 2005 to fund cardholder purchases, which has had the effect of increasing our collateral enhancement
levels within our originated portfolio master trust. Our Statement No. 140 models recognize in computing the residual cash flows discount rate that variations in collateral enhancement levels affect the returns that investors require within
securitization structures. Accordingly, because our collateral enhancement levels have increased relative to March 31, 2005 levels and because we are now intentionally and significantly over collateralized, our March 31, 2006 residual cash
flows discount rate has dropped; investors would require a much reduced investment return on the retained interests within our originated portfolio master trust because of its currently over collateralized position.

The following illustrates the hypothetical effect on the March 31, 2006 value of our retained interests in credit card receivables securitized
(dollars in thousands) of an adverse 5 and 10 percent change in our key valuation assumptions:



|                                           |  |                        |         |  
|------------------------------------------ |  | ---------------------- | ------- | -
|                                           |  | Credit CardReceivables |        
|Yield (annualized)                         |  |                        | 30.0    | %
|Impact on fair value of 5% adverse change  |  | $                      | (13,274 | )
|Impact on fair value of 10% adverse change |  | $                      | (26,548 | )
|Payment rate (monthly)                     |  |                        | 6.8     | %
|Impact on fair value of 5% adverse change  |  | $                      | (1,203  | )
|Impact on fair value of 10% adverse change |  | $                      | (2,349  | )
|Expected credit loss rate (annualized)     |  |                        | 14.0    | %
|Impact on fair value of 5% adverse change  |  | $                      | (6,033  | )
|Impact on fair value of 10% adverse change |  | $                      | (12,066 | )
|Residual cash flows discount rate          |  |                        | 13.5    | %
|Impact on fair value of 5% adverse change  |  | $                      | (2,115  | )
|Impact on fair value of 10% adverse change |  | $                      | (4,215  | )
|Servicing liability discount rate          |  |                        | 14.0    | %
|Impact on fair value of 5% adverse change  |  | $                      | (2      | )
|Impact on fair value of 10% adverse change |  | $                      | (4      | )



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

March 31, 2006



These sensitivities are hypothetical and should be used with caution. As the figures indicate,
changes in fair value based on a 5% and a 10% variation in assumptions generally cannot be extrapolated because the relationship of a change in assumption to the change in fair value of our retained interests in credit card receivables securitized
may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumptions; in reality, changes in one assumption may result in changes
in another. For example, increases in market interest rates may result in lower prepayments and increased credit losses, which could magnify or counteract the sensitivities.

Our managed receivables portfolio underlying our securitizations (including only those of our consolidated subsidiaries) is comprised of our retained
interests in the credit card receivables securitized and other investors shares of these securitized receivables. The investors shares of securitized credit card receivables are not assets of ours. The following table summarizes (in
thousands) the balances included within, and certain operating statistics associated with, our managed receivables portfolio underlying both the outside investors shares of and our retained interests in credit card receivables securitizations.



|                                           |  |               |           |                  |   |          
|------------------------------------------ |  | ------------- | --------- | ---------------- | - | ---------
|                                           |  | March 31,2006 |           | December 31,2005
|Total managed principal balance            |  | $             | 1,491,460 |                  | $ | 1,522,285
|Total managed finance charge balance       |  |               | 146,554   |                  |   | 145,737  
|                                           |  |               |           |                  |   |          
|Total managed receivables                  |  | $             | 1,638,014 |                  | $ | 1,668,022
|                                           |  |               |           |                  |   |          
|Receivables delinquent  60 or more days   |  | $             | 121,738   |                  | $ | 128,706  
|                                           |  |               |           |                  |   |          
|Net charge offs for the three months ended |  | $             | 30,631    |                  | $ | 59,522   
|                                           |  |               |           |                  |   |          

9. Notes Payable and Convertible Senior Notes

As of March 31, 2006, we had notes payable of $175.5 million and Convertible Senior debt of $550.0 million, compared to $165.2 million and $550.0
million, respectively, at December 31, 2005. As of March 31, 2006, our notes payable balances included $72.3 million related to the working capital needs of our Auto Finance segment (at an interest rate of 8.8% as of March 31, 2006)
that is recourse only to the Auto Finance segments assets that have been pledged to the lender, $34.4 million related to callable margin borrowings underlying our investments in debt securities (at an interest rate of 7.0% as of
March 31, 2006) and $13.8 million associated with certain vendor-financed acquisitions of software and equipment (at various interest rates ranging from 2% to 7%).

Also included in notes payable are certain debt instruments associated with the acquisition of and ongoing working capital needs of our Retail
Micro-Loans segment. As of March 31, 2006, the following debt (dollars in thousands) was outstanding under these arrangements:



|                          |  |                          |        |                                             |       |  
|------------------------- |  | ------------------------ | ------ | ------------------------------------------- | ----- | -
|                          |  | Balance atMarch 31, 2006 |        | Applicable InterestRate as ofMarch 31, 2006 |      
|Term Loan A               |  | $                        | 20,000 |                                             | 8.53  | %
|Term Loan B               |  |                          | 20,000 |                                             | 14.03 | %
|Revolving Credit Facility |  |                          | 10,000 |                                             | 7.75  | %
|Seller Note               |  |                          | 5,000  |                                             | 10.00 | %
|                          |  |                          |        |                                             |       |  
|Total Debt                |  | $                        | 55,000 |                                             |       |  
|                          |  |                          |        |                                             |       |  

The interest rates associated with the term loan facilities and the revolving credit facility are
adjusted periodically based on an index over LIBOR or Prime. In April 2006, our Retail Micro Loans segment paid off all of the outstanding debt in the above table with the exception of the $5.0 million seller note. Proceeds used to pay off this
outstanding debt were derived from a loan from the parent company bearing similar terms and conditions to the third-party debt that was repaid.

In March 2006, we completed a structured financing transaction that is secured by substantially all of the credit card receivables associated with our largely fee-based credit card offering to consumers at the lower end of the FICO scoring
range. This $150.0 million debt facility is recourse only to the underlying credit card receivables that serve as security for the facility. As of March 31, 2006, we had not drawn any amounts against this $150.0 million facility.

We are in compliance with the covenants underlying our various notes payable and debt facilities.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

March 31, 2006



10. Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of the purchase price and related costs over the
value assigned to net tangible and identifiable intangible assets acquired and accounted for under the purchase method. Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, (Statement
No. 142) requires that entities assess the fair value of all acquisition-related goodwill on a reporting unit basis. We review the recorded value of goodwill for impairment at least annually at the beginning of the fourth quarter of each
year, or earlier if events or changes in circumstances indicate that the carrying amount may exceed fair value.

During February 2006, we
learned from our principal Retail Micro-Loans segment bank partner that the FDIC had effectively asked insured financial institutions to cease deferred presentment and installment micro-loan activities conducted through processing and servicing
agents. Cessation of these activities would directly impact our micro-loan subsidiaries ability to continue operating in four states. In response to the FDICs actions, our subsidiaries began evaluating strategic alternatives within
theses states, including the possibility of switching to a direct lending model in compliance with the regulatory frameworks within each of the four states, or, alternatively, closing the branch locations within the four affected states. In
addition, effective March 11, 2006, our North Carolina retail micro-loan subsidiary agreed with the Attorney General of the State of North Carolina to cease its traditional marketing and servicing of deferred-presentment and installment
micro-loans in North Carolina. As a result of this agreement, our North Carolina retail micro-loan subsidiary began pursuing a direct lending model in North Carolina in compliance with existing regulatory frameworks, as well as closing several
existing North Carolina locations in the near-term. As of March 31, 2006, our North Carolina subsidiary had closed 13 branch locations in response to these events. As a result of these events, we conducted an assessment of the fair value of our
Retail Micro-Loans segment utilizing a combination of the expected present value of future cash flows associated with the business and prices of comparable businesses in accordance with Statement No. 142, and we recorded a goodwill impairment
of $10.5 million to properly report goodwill at its fair value.

Changes in the carrying amount of goodwill for the three months ended
March 31, 2005 and 2006 by reportable segment are as follows (in thousands):



|                                  |  |                    |         |   |             |   |              |  |   |         |  
|--------------------------------- |  | ------------------ | ------- | - | ----------- | - | ------------ |  | - | ------- | -
|                                  |  | Retail Micro-Loans |         |   | AutoFinance |   | Consolidated | 
|Balance as of December 31, 2004   |  | $                  | 100,552 |   |             | $ |             |  | $ | 100,552 |  
|Goodwill acquired during the year |  |                    | 7,913   |   |             |   |             |  |   | 7,913   |  
|                                  |  |                    |         |   |             |   |              |  |   |         |  
|Balance as of March 31, 2005      |  | $                  | 108,465 |   |             | $ |             |  | $ | 108,465 |  
|                                  |  |                    |         |   |             |   |              |  |   |         |  
|Balance as of December 31, 2005   |  | $                  | 108,640 |   |             | $ | 22,160       |  | $ | 130,800 |  
|Impairment loss                   |  |                    | (10,546 | ) |             |   |             |  |   | (10,546 | )
|                                  |  |                    |         |   |             |   |              |  |   |         |  
|Balance as of March 31, 2006      |  | $                  | 98,094  |   |             | $ | 22,160       |  | $ | 120,254 |  
|                                  |  |                    |         |   |             |   |              |  |   |         |  

Intangible Assets

As of both March 31, 2006 and December 31, 2005, we had $4.1 million of intangible assets that were determined to have an indefinite benefit period. The net unamortized carrying amount of intangible assets
subject to amortization was $8.7 million as of March 31, 2006 and $9.6 million as of December 31, 2005. Intangible asset-related amortization expense was $906,000 and $715,000 for the first three months of 2006 and 2005, respectively.

11. Commitments and Contingencies

In
the normal course of business through the origination of unsecured credit card receivables, we incur off balance sheet risks. Our off balance sheet risks with respect to the receivables we manage include commitments to extend further credit to
cardholders totaling $2.1 billion at March 31, 2006. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts securitized. The principal amount of these instruments reflects the maximum exposure we have in
the instruments. We have not experienced the situation in which all of our customers have exercised their entire available line of credit at any given point in time, nor do we anticipate that this will ever occur in the future. We have the effective
right to reduce or cancel these available lines of credit at any time.

For various receivables portfolio investments we have made through
majority-owned subsidiaries and equity-method investees, we have entered into guarantee agreements whereby we have agreed to guarantee the purchase of additional interests in portfolios of credit card receivables owned by trusts, the retained
interests in which are owned by our majority-owned subsidiaries and



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

March 31, 2006



equity-method investees, should there be net new growth in the receivables or should collections not be available to
fund new cardholder purchases. As of March 31, 2006, none of our majority-owned subsidiaries or equity-method investees had purchased nor were they required to purchase any additional notes under the note purchase agreements. Our guarantee is
limited to our respective ownership percentages in the various majority-owned subsidiaries and equity-method investees multiplied by the total amount of the notes that each of the majority-owned subsidiaries and equity-method investees could be
required to purchase. As of March 31, 2006, the maximum amount of our collective guarantees related to all of these majority-owned subsidiaries and equity-method investees was $404.7 million. In general, this aggregate contingency amount
will decline as the amounts of credit available to cardholders for future purchases declines. The portfolios of all these majority-owned subsidiaries and equity-method investees have declined and are expected to continue to decline as payments are
expected to exceed new purchases each month. We currently do not have any liability recorded with respect to these guarantees, but we will record one if events occur that make payment probable under the guarantees. The fair value of these guarantees
is not material.

Our agreement with our principal third-party originating financial institution requires us to purchase on a daily basis
the credit card receivables that are originated in the accounts maintained for our benefit. To secure this obligation, we have provided the financial institution a $10.0 million standby letter of credit and have pledged retained interests
carried at $71.2 million. Our arrangements with the financial institution expire in March 2009. If we were to terminate a sub-service agreement under which this institution also provides certain services for us, there would be penalties of
$14.7 million as of March 31, 2006. We currently do not have any liability recorded with respect to the guarantees discussed in this paragraph, but we will record one if events occur that make payment probable under the guarantees. The
fair value of these guarantees is not material. Additionally, we have agreed to indemnify our principal third-party originating financial institution for certain costs associated with the financial institutions card issuance activities; by
reason of probable costs to be incurred by the financial institution associated with ongoing regulatory inquiries, we currently estimate the value of this indemnification to be $3.2 million and have recorded a liability to reflect this amount.

Certain of our subsidiaries have agreements with third-party financial institutions pursuant to which the applicable subsidiaries service
loans on behalf of the financial institutions in exchange for servicing fees; these servicing activities are expected to cease by May 31, 2006 by reason of recent guidance issued by the FDIC effectively asking FDIC-insured financial
institutions to cease loan origination activities through these types of servicing arrangements. Nevertheless while we believe that the entities that conduct this servicing business are adequately capitalized and in furtherance of growth plans in
existence originally for these operations prior to the recent FDIC guidance (i) we have guaranteed up to $15.0 million of potential indebtedness to the financial institution under our servicing program with certain of our subsidiaries within
our Retail Micro-Loans segment, and (ii) we have guaranteed up to $5.0 million in excess of the aggregate amount of loans outstanding to the financial institution under our servicing program for a subsidiary within our Other segment engaged in
the Internet-based micro-loans business and for another subsidiary within our Other segment engaged in the merchant credit business. We currently do not have any liability recorded with respect to the guarantees discussed in this paragraph, but we
will record one if events occur that make payment probable under these guarantees. The fair value of these guarantees is not material. Notwithstanding the aforementioned, because the recent change in regulatory positions by the FDIC will cause the
originating bank for which we service micro-loans in four states to exit that business prior to May 31, 2006 and because the originating bank plans to liquidate any loans existing as of that date through a loan participation relationship with
Maverick Management Company LLC (Maverick), we have agreed to indemnify Maverick for up to $2.8 million in losses that it may incur as a result of its being a successor to the banks interest in the loans and their
liquidation. Richard W. Gilbert, a member of our Board of Directors and our Chief Operating Officer, has a 20% economic interest in Maverick, and Mr. Gilberts son is its manager.

One of our most significant sources of liquidity is the securitization of credit card receivables. The maturity terms of our securitizations vary. As of
March 31, 2006, securitization facilities underlying our securitization trusts included: a six-year term securitization facility (expiring October 2010), a five-year term securitization facility (expiring October 2009), a two-year variable
funding securitization facility with renewal options (initial term expiring January 2008) and a one-year conduit securitization facility with renewal options (initial term expiring September 2006) issued out of our originated portfolio master trust;
a ten-year amortizing term securitization facility issued out of the Embarcadero Trust (expiring January 2014); a two-year amortizing term securitization facility issued out of the Fingerhut Trust (expiring September 2007); and a one-year variable
funding securitization facility issued out of the trust associated with our securitization of $92.0 million and $72.1 million (face amount) in credit card receivables acquired during 2004 and in the first quarter of 2005, respectively (expiring
January 2007). While we have never triggered an early amortization within any of the series underlying our arranged securitization facilities, and do not believe that we will, we may trigger an early amortization of one or more of the outstanding
series within our securitization trusts. As each securitization facility expires or comes up for renewal, there can be no assurance that the facility will be renewed, or if renewed, there can be no assurance that the terms will be as favorable as
the terms that currently exist. Either of these events could significantly increase our need for additional liquidity.

We are subject to
various legal proceedings and claims that arise in the ordinary course of business. In one of these legal proceedings, CompuCredit Corporation and five of our subsidiaries are defendants in a purported class action lawsuit entitled Knox, et al. vs.
First Southern Cash Advance, et al, No 5 CV 0445, filed in the Superior Court of New Hanover County, North Carolina, on February 8, 2005. The plaintiffs allege that in conducting a so-called payday lending business,
certain of our Retail Micro-Loans



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)

March 31, 2006



segment subsidiaries violated various laws governing consumer finance, lending, check cashing, trade practices and
loan brokering. The plaintiffs further allege that CompuCredit is the alter ego of its subsidiaries and is liable for their actions. The plaintiffs are seeking damages of up to $75,000 per class member. We intend to vigorously defend this lawsuit.
These claims are similar to those that have been asserted against several other market participants in transactions involving small balance, short-term loans made to consumers in North Carolina. There are no other material pending legal proceedings
to which we are a party. We do not believe the pending legal proceedings will have a material impact on our financial position.

As
mentioned in Note 13, Pending CardWorks, Inc. Acquisition, a majority-owned subsidiary of CompuCredit Corporation could be subject to a fee of $27.0 million if the purchase contract is terminated as defined by the purchase agreement. We
have guaranteed this obligation of our subsidiary and currently do not have any liability recorded with respect to the guarantee, but we will record one if events occur that make payment probable under the guarantee.

12. Net Income Per Common Share

The following table
sets forth the computation (in thousands, except per share data) of net income per common share:



|                                              |  |                                      |        |      |   |       
|--------------------------------------------- |  | ------------------------------------ | ------ | ---- | - | ------
|                                              |  | For the three months ended March 31,
|                                              |  | 2006                                 |        | 2005
|Numerator:                                    |  |                                      |        |      |   |       
|Net income                                    |  | $                                    | 30,658 |      | $ | 49,180
|                                              |  |                                      |        |      |   |       
|Denominator:                                  |  |                                      |        |      |   |       
|Basic (weighted-average shares outstanding)   |  |                                      | 48,632 |      |   | 51,277
|Effect of dilutive stock options and warrants |  |                                      | 1,672  |      |   | 1,239 
|                                              |  |                                      |        |      |   |       
|Diluted (adjusted weighted-average shares)    |  |                                      | 50,304 |      |   | 52,516
|                                              |  |                                      |        |      |   |       
|Net income per common share  basic           |  | $                                    | 0.63   |      | $ | 0.96  
|                                              |  |                                      |        |      |   |       
|Net income per common share  diluted         |  | $                                    | 0.61   |      | $ | 0.94  
|                                              |  |                                      |        |      |   |       

Excluded from the March 31, 2006 and 2005 earnings per share calculations were 36,500 stock
options and 44,700 stock options, respectively, as their effects were anti-dilutive. The above year-over-year comparison of net income per share is affected by our 2006 adoption of the modified prospective application of stock option expensing under
Statement No. 123(R). See Note 2, Summary of Significant Accounting Policies, however, for a pro forma presentation of net income per share for the three months ended March 31, 2005.

13. Pending CardWorks, Inc. Acquisition

In September
2005, we entered into a Stock Purchase Agreement (the Agreement) with CardWorks, L.P., pursuant to which we would acquire all of the issued and outstanding shares of capital stock of CardWorks, Inc., a privately held issuer and
third-party servicer of consumer credit cards through its subsidiaries Merrick Bank Corporation, a Utah industrial loan bank, and Cardholder Management Services, LLC. Pursuant to an agreement subsequently reached with an affiliate of Merrill Lynch
in December 2005, the affiliate of Merrill Lynch acquired a 20% interest in the CompuCredit subsidiary that is obligated to purchase CardWorks, Inc.

Under the Agreement with CardWorks, L.P., the purchase price to be paid for the shares of CardWorks, Inc. is $270.0 million in cash, and by reason of a CompuCredit guarantee, we could be subject to a fee of $27.0
million if the Agreement is terminated by us under certain circumstances. The CardWorks, Inc. acquisition is subject to customary closing conditions, including the receipt of regulatory approvals, the timing of which cannot be reasonably determined.
Recent Amendments to the Agreement with CardWorks, L.P., allow CardWorks, L.P. to negotiate the sale of CardWorks, Inc. with third parties and extend the termination date of the Agreement to the earlier of June 30, 2006 or two days after notice
of termination by either party at any time on or after May 19, 2006.



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##### Table of Contents

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The
following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes included therein and our Annual Report on Form 10-K for the year ended December 31, 2005 where certain terms
(including trust, subsidiary and other entity names and financial, statistical and operating measures) have been defined.

This
Managements Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. We have based these forward-looking statements on our current plans, expectations and beliefs about future events. Actual
results could differ materially because of factors discussed in Risk Factors in Part II, Item 1A and elsewhere in this report.

OVERVIEW

We provide various credit and related financial services and products to or associated with the underserved, or
sub-prime, consumer credit market, as well as to un-banked consumers. Historically, we have served this market through our marketing and solicitation of credit card accounts and our servicing of various credit card receivables underlying
both our originated accounts and our portfolio acquisitions. Our operations have expanded to include the purchase and recovery of previously charged-off receivables, the marketing, servicing and/or origination of micro-loans through various
channels, including our own retail branch locations, direct marketing, telemarketing and the Internet, the purchase and servicing of consumer receivables secured by automobiles through our Auto Finance units nationwide network of pre-qualified
dealers in the Buy Here/Pay Here used car business, and the issuance of merchant credit and stored-value cards.

Additionally,
in September 2005, we agreed to acquire all of the issued and outstanding shares of capital stock of CardWorks, Inc., a privately held issuer and third-party servicer of consumer credit cards through its subsidiaries Merrick Bank Corporation, a Utah
industrial loan bank, and Cardholder Management Services, LLC. An affiliate of Merrill Lynch has subsequently acquired a 20% interest in the CompuCredit subsidiary that is obligated to purchase CardWorks, Inc. The CardWorks, Inc. acquisition is in
furtherance of our diversification strategy, but is subject to customary closing conditions, including the receipt of regulatory approvals, the timing of which cannot be reasonably determined.

Throughout 2006 and beyond, our shareholders should expect us to continue to evaluate and pursue additional credit card receivables portfolios and other
business activities and asset classes that are complementary to our historic sub-prime credit card business, including further acquisitions of sub-prime lenders.

We remain focused on making good economic decisions that will result in high returns on equity to our shareholders over a long-term horizon. While our decisions may make economic sense, they may also result in
volatile earnings under GAAP as a result of the accounting requirements for securitizations under Statement No. 140. To the extent that we grow our overall portfolio of credit card receivables (through origination, acquisition or other new
channels) and then securitize these assets, we will have securitization gains, which may be material. For further discussion of our historic results and the impact of securitization accounting on our results, see the Results of
Operations and Liquidity, Funding and Capital Resources sections below, as well as our condensed consolidated financial statements and the notes thereto.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2006, Compared to the Three Months Ended March 31,
2005

Total interest income. Total interest income consists primarily of finance charges and late fees earned on loans and
fees receivable that we have not securitized in off balance sheet securitization transactionsprincipally receivables associated with our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range and our
Auto Finance segment. The approximate $44.3 million increase when comparing the three months ended March 31, 2006 to 2005 is primarily due to growth in our credit card receivables associated with our largely fee-based credit card offering
to consumers at the lower end of the FICO scoring range, as well as the fact that we did not complete our Auto Finance segment acquisition until after the close of the first quarter of 2005. Also included within total interest income (under the
other category) is the interest income that we have earned on our various investments in debt securities, including interest earned on bonds distributed to us from our equity-method investees, and on our subordinated, certificated interest in the
Embarcadero Trust. Principal amortization has caused reductions in interest income levels associated with some of our bonds and the Embarcadero Trust subordinated, certificated interest. Nevertheless, our other interest income levels have remained
relatively consistent between 2005 and 2006 due to other bond investments (typically in bonds issued by other third-party asset backed securitizations) that we have made throughout 2005 and the first quarter of 2006.

As we continue to grow receivables associated with our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range and
within our new Auto Finance segment, and assuming that we do not securitize these receivables in off balance sheet arrangements (which we have no current plans to do), we expect to see continued growth in our total interest income throughout 2006.



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Interest Expense. Interest expense increased $9.0 million principally due to $6.7
million of interest expense associated with our issuance of $550 million in Convertible Senior notes during May and November of 2005. Also contributing to our interest expense increase was $2.5 million of interest costs associated with our April
2005 Auto Finance segment acquisition and its working capital-related debt.

Fees and other income on non-securitized earning
assets. The following table details (in thousands) the components of fees and other income on non-securitized earning assets:



|                                                  |  |                                      |         |      |   |       
|------------------------------------------------- |  | ------------------------------------ | ------- | ---- | - | ------
|                                                  |  | For the three months ended March 31,
|                                                  |  | 2006                                 |         | 2005
|Retail micro-loan fees                            |  | $                                    | 20,939  |      | $ | 17,876
|Fees on non-securitized credit card receivables   |  |                                      | 87,351  |      |   | 28,305
|Fingerhut receivables while on balance sheet      |  |                                      |        |      |   | 32,732
|Investments in previously charged-off receivables |  |                                      | 9,297   |      |   | 17,508
|Other                                             |  |                                      | 2,183   |      |   | 2,921 
|                                                  |  |                                      |         |      |   |       
|Total                                             |  | $                                    | 119,770 |      | $ | 99,342
|                                                  |  |                                      |         |      |   |       

The increase of $20.4 million in fees and other income on non-securitized earning assets was
largely attributable to:



| | (1) | growth in fees on our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range, which increased $59.0 million; and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | growth throughout 2005 in our Retail Micro-Loans segment, in which fees increased $3.1 million when compared to the same period in the previous year.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------

These increases were partially offset by:



| | (1) | elimination of income in 2006 associated with our Fingerhut receivables (including the amortization of the associated deferred gain) of $32.7 million as these receivables were
securitized during the third quarter of 2005; and
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | the decline in income within our Investments In Previously Charged-off Receivables segment of $8.2 million due to the bulk sale of receivables which occurred during the second
quarter of 2005.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because of the September 2005 securitization of the Fingerhut receivables, income for the foreseeable
future associated with the Fingerhut receivables will be represented exclusively within fees and other income on securitized earning assets (as income from retained interests in credit card receivables) and as part of servicing income on our
consolidated statements of operations. Because the portfolio of Fingerhut receivables is liquidating at a rapid rate, the income generated from this portfolio will be much lower in 2006 than it has been in prior years.

The other category above includes gains on put options that we wrote on our stock in 2005, gains associated with our investments in securities and fees
associated with our stored-value card, merchant credit, on-line micro-loan, and third-party consumer finance receivable servicing operations, none of which currently represent significant activities for us. We expect to see continued income growth
within the other category, as well as within our retail micro-loans fees and fees on non-securitized credit card categories throughout 2006 and beyond.

Provision for loan losses. Our provision for loan losses increased to $77.8 million for the three months ended March 31, 2006, from $14.1 million for the three months ended March 31,
2005. The $63.7 million increase is principally due to our significant year-over-year growth in on-balance-sheet loans and fees receivable related to our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range
and our second quarter 2005 Auto Finance acquisition.

The provision for loan losses is provided to cover aggregate loss exposures on
(1) principal receivable balances, (2) finance charges and late fees receivable underlying income amounts included within our total interest income category, and (3) other fees receivable. Although we do not expect to see any
significant degradation in the credit quality of our on-balance-sheet loans and fees receivable in 2006, and while current delinquency and credit loss trends for these receivables generally look favorable, we do expect that our provision for loan
losses will increase throughout 2006 based on the loans and fees receivable growth that we are planning throughout 2006.



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The percentage of our allowance for uncollectible loans and fees receivable to gross period-end loans and
fees receivable at March 31, 2006 (15.4%) is higher than it was at both December 31, 2005 (10.2%) and March 31, 2005 (11.5%). Additionally, our provision for loan losses as a percentage of average gross loans and fees
receivable in first quarter of 2006 (13.4%) is higher than it was in both the fourth quarter of 2005 (11.1%) and the first quarter of 2005 (9.2%). These trends are explained principally by the following:



| |  |  | With the significant growth that we have experienced for receivables associated with our largely fee-based credit card offering to consumers at the lower end of the FICO scoring
range, there has been a mix change in the receivables comprising our gross loans and fees receivable, such that an increasing percentage of our gross loans and fees receivable is comprised of these receivables; the loss rates for these receivables
are higher than for the receivables within our Auto Finance segment and our Retail Micro-Loans segment (such receivables comprising most of the remaining receivables within our gross loans and fees receivable balance); and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Through our Other segment, we have begun recently to invest in loans and fees receivable that are secured by sports vehicles, including motorcycles, all-terrain vehicles, personal
water crafts and the like. Because this is a new asset class for us for which we do not have any direct historical loan loss experiences, and because the risk-profile of this particular asset class is different from those of our other previous
underwriting endeavors, we have provided loan loss allowances associated with this new asset class that are more significant on a relative basis than the allowances that we have provided on some of our other receivables.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following factors offset the trends noted within the above percentages:



| |  |  | Through our Auto Finance segment, which was acquired in April 2005, we acquire loans and fees receivable from auto dealers with recourse back to the dealers to the extent of
negotiated reserves that we carry as a liability ($28.4 million at March 31, 2006) within accounts payable and accrued expenses on our balance sheet. Because of the level of recourse that we have back to the dealers, our credit loss rates for
the Auto Finance segment are (and are expected in the future to be) lower than average loss rates experienced (and expected to be experienced) for our credit card and micro-loan activities; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We added a new category of receivables during the third quarter of 2005 within our retail micro-loan operations for which we have low loss expectations given underlying credit
enhancements in the form of corporate guarantees and bank-issued standby letters of credit; we have not provided an allowance for these loans receivable ($22.7 million at March 31, 2006) because we do not expect to see any charge offs of these
receivables.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fees and other income on securitized earning assets. Fees and other income on securitized earning
assets include (1) annual membership, over-limit, cash advance, returned check and other fees associated with our credit card products, (2) securitization gains, and (3) income from retained interests in credit card receivables
securitized, each of which is detailed (in thousands) in the following table.



|                                                                      |  |                                     |        |      |   |       
|--------------------------------------------------------------------- |  | ----------------------------------- | ------ | ---- | - | ------
|                                                                      |  | For the three monthsended March 31,
|                                                                      |  | 2006                                |        | 2005
|Securitization gains                                                  |  | $                                   | 863    |      | $ | 1,587 
|Income from retained interests in credit card receivables securitized |  |                                     | 33,204 |      |   | 19,869
|Fees on securitized receivables                                       |  |                                     | 16,402 |      |   | 16,036
|                                                                      |  |                                     |        |      |   |       
|Total fees and other income on securitized earning assets             |  | $                                   | 50,469 |      | $ | 37,492
|                                                                      |  |                                     |        |      |   |       

The $13.0 million increase in total fees and other income on securitized earning assets reflects:



| |  |  | an increase in income from retained interests in credit card receivables securitized of $13.3 million, principally due to (a) continued improvements in the credit quality
and performance of our retained interests in our originated portfolio master trust and purchased portfolio trusts, (b) income from retained interests associated with the September 2005 securitization of the Fingerhut receivables and
(c) the benefits of reduced charge offs associated with personal bankruptcies that were accelerated into the fourth quarter of 2005 prior to the effective date of newly enacted bankruptcy legislation. These improvements were partially offset
by reductions in managed receivables levels within the Embarcadero Trust between March 31, 2005 and March 31, 2006 and the favorable first quarter of 2005 effects of purchase discounts underlying our retained interests in the
Embarcadero Trust. (The benefits of purchase discounts associated with the managed receivables underlying our retained interests in the Embarcadero Trust abated significantly
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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between March 31, 2005 and March 31, 2006; this was expected as the mix of managed receivables
within the Embarcadero Trust has continued to shift over time (i.e., from receivables to which purchase discounts applied at the date of acquisition to new receivables generated from post-acquisition cardholder purchases for which there are no
purchase discounts). Related to these mix changes are higher finance charge, late fee and principal charge offs being netted against our income from retained interests in credit card receivables securitized, as well as lower inclusions of accretable
yield as a component of our income from retained interests in credit card receivables securitized.)



| |  |  | a small increase in fees on securitized receivables associated with lower 2005 over-limit fees reflecting general economic environment and credit quality improvements for our
securitized receivables; offset by
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | lower securitization gains in the first quarter of 2006 relative to the first quarter of 2005 given our first quarter 2005 acquisition and securitization of $72.1 million (face
amount) in credit card receivables for $42.0 million, including transaction costs, through one of our majority-owned subsidiaries. Securitization gains recognized during the first quarter of 2006 have resulted only from a net increase in the managed
receivables underlying securitizations through our originated portfolio master trust during the first quarter of 2006. We expect to see additional securitization gains associated with receivables underlying securitizations through our originated
portfolio master trust throughout 2006 as we continue to grow this portfolio.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Further details concerning delinquency and
credit quality trends, which affect the level of our income from retained interests in credit card receivables securitized, are provided in the discussion of our Credit Cards segment below.

Servicing income. Servicing income decreased $8.6 million due to receivables liquidations within our securitized purchased portfolios.
Absent one or more significant credit card portfolio acquisitions in 2006, it is likely that servicing income in 2006 will be lower than in 2005 as net growth of the serviced receivables within our originated portfolio master trust is unlikely to
exceed net liquidations of the securitized acquired portfolios for which we have been engaged as servicer. Moreover, in February 2006, the FDIC effectively asked FDIC-insured financial institutions to cease cash advance and installment micro-loan
activities conducted through processing and servicing agents such as our Retail Micro-Loans segment subsidiaries. We earned $3.7 million in servicing income from these retail micro-loan activities in the first quarter of 2006, and this servicing
income will cease during the second quarter of 2006. While we expect to lend directly to consumers where we can do so profitably under the state regulatory regimes of the four states for which our operations have been affected by this and related
developments, we expect substantially diminished revenues (relative to the servicing revenues that we were able to earn from our FDIC-insured financial institution partner) associated with any direct lending that we may be able to do within these
four states.

Ancillary and interchange revenues. Ancillary and interchange revenues increased $2.7 million primarily due to
growth in both categories as a result of our origination of new credit card accounts, including those the receivables of which have been sold to our originated portfolio master trust and those associated with our largely fee-based credit card
offering to consumers at the lower end of the FICO scoring range. We typically experience higher ancillary revenues and higher purchasing volumes and associated interchange fees for newer cardholders than for more mature cardholders within our
managed receivables portfolios. As such, our emphasis during 2006 on new account additions to replace older more stagnant accounts is expected to provide further growth in our ancillary and interchange revenues.

Equity in income of equity-method investees. Equity in income of equity-method investees increased $6.8 million primarily due to
(1) improvements in the performance of receivables associated with our investments in our Transistor and Capacitor (33.3% each) equity-method investees, (2) our investment the first quarter of 2005 in another 47.5%-owned equity-method
investee that acquired a credit card receivables portfolio and (3) resumption of income within our 50%-owned equity-method investee, CSG, which resulted from the resumption in late 2005 of its receipt of cash flows from its underlying
securitization trust after an extended several month blackout period. We expect our equity-method investees to continue to contribute significantly to our equity in income of equity-method investees throughout 2006, albeit at levels that will
diminish over time as the receivables balances associated with these equity-method investees are liquidated.

Total other operating
expense. Total other operating expense increased by $41.1 million between the first quarter of 2005 and the first quarter of 2006 due to:



| | (1) | a $4.5 million increase in salaries and benefits primarily due to (a) growth in receivables within our originated portfolio master trust and receivables associated with our
largely fee-based credit card offering to consumers at the lower end of the FICO scoring range, (b) personnel additions in connection with the acquisition of our Auto Finance segment in April of 2005 and (c) additional information
technology and other management personnel that we have hired associated with several new product and systems launches within our Other segment;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | a $4.3 million net increase in card and loan servicing due to (a) servicing costs related to growth in receivables associated with our largely fee-based credit card offering to
consumers at the lower end of the FICO scoring range,
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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(b) net growth in our originated portfolio master trust receivables and (c) $5.8 million of new
expenses related to our Auto Finance segment, which was acquired in April 2005, all such increases being offset partially by an $5.6 million decrease in servicing costs associated with our Investments in Previously Charged-Off Receivables
segment as it now sells previously charged-off receivables under a 5-year forward flow contract covering up to $3.25 billion of its acquisitions of previously charged-off receivables, thereby defraying the servicing costs normally associated with
collection efforts on those receivables;



| | (3) | an $8.0 million increase in marketing and solicitation costs principally associated with increased marketing efforts aimed at growing account originations (a) within our
originated portfolio master trust, (b) with respect to our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range and (c) within our Retail Micro-Loans segment;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | $10.5 million of first quarter 2006 expense for goodwill impairment within our Retail Micro-Loans segment; and
| | --- | --------------------------------------------------------------------------------------------------------------



| | (5) | an overall increase of $13.8 million in other expenses, including occupancy and related expenses, due primarily to increased costs associated with infrastructure build-out to
handle (a) growth within our originated portfolio and our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range (along with associated customer service enhancements), (b) the April 2005 addition of
our Auto Finance segment and (c) several new product and systems launches within our Other segment.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

While we incur
certain base levels of fixed costs associated with the infrastructure that we have built to support our growth and diversification into new products and services for our under-served and un-banked customers, the vast majority of our operating costs
are highly variable based on the levels of receivables that we service (both for our own account and for others) and the pace and breadth of our search for, acquisition of and introduction of new business lines, products and services. We expect to
continue growing and diversifying our business in 2006, and while certain unique expenses undertaken in 2005 and the first quarter of 2006 may not be repeated and while we continue to derive cost reductions through our outsourcing and other
cost-control efforts, we do expect to see continued growth in our total other operating expense levels (on a year-over-year, quarter-over-quarter comparative basis relative to 2005) based on growth that we plan to undertake.

Minority interest. The ownership interests of minority holders of equity in our majority-owned subsidiaries are reflected as minority
interests in our condensed consolidated statements of operations. The minority interests expense associated with these subsidiaries totaled $3.4 million and $9.2 million for the three months ended March 31, 2006 and March 31, 2005,
respectively. These trends are consistent with the relative contributions of our majority-owned subsidiaries (as discussed in Fees and other income on securitized earning assets, above) to income from retained interests in credit card
receivables securitized as noted above.

Income taxes. Our effective tax rate was 36.0% for the three months ended
March 31, 2006, compared to 36.5% for the three months ended March 31, 2005. The decrease of 0.5% in our effective tax rate between 2006 and 2005 is principally due to the favorable state income tax effects of several of our recent
expansion and diversification initiatives.

Credit Cards Segment

Our Credit Cards segment consists of our credit card investment and servicing activities, as conducted with respect to receivables underlying accounts originated and portfolios purchased by us. This segment represents
aggregate activities associated with substantially all of our credit card products, including our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range. Because we have not securitized the receivables
associated with our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range, revenues associated with this offering include interest income (along with late fees), fees and other income. With respect to our
securitized credit card receivables (which represent a substantial majority of our receivables), our fees and other income on securitized earning assets within the Credit Cards segment include (1) securitization gains, (2) income from
retained interests in credit card receivables securitized and (3) fees and other income. Also within our Credit Cards segment are equity in the income of equity-method investees and servicing income revenue sources. We earn servicing income
from the trusts underlying our securitizations and the receivables of and securitizations of our equity-method investees. Our revenue categories most affected by delinquency and credit loss trends are the net interest income, the fees and other
income on non-securitized earnings assets (which are net of a provision for loan losses) and the income from retained interests in credit card receivables securitized categories.

The issuance of credit products is heavily regulated and is subject to a wide range of consumer protection laws. The performance of our Credit Cards
segment, for example, is susceptible to adverse actions by regulators and adverse developments in these laws. For instance, restrictions on the interest rates, fees and other terms of our productswhether as a result of changes in laws,
regulatory interpretations or otherwisewould adversely impact the performance of our business. Similarly, the imposition of more onerous disclosure requirements in our marketing materials might discourage potential customers from applying for
new credit cards. State regulators routinely review our practices, and the FDIC and other regulators routinely review each of the banks that issues



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credit cards on our behalf. It is common that the reviews of the banks include reviews of the credit card issuing and
related practices of these banks (including the terms of our products). Routinely regulators make comments on our products, in response to which we adjust our marketing, servicing, collection, fee and other practices. For instance, we currently are
in the process of revising our marketing materials in response to comments by one regulator, and we have just commenced a review of our minimum payment practices in response to comments by another regulator. Adverse regulatory actions with respect
to our credit card products could affect the ability or willingness of the banks that issue our products to continue or further expand their issuances of products on our behalf, thereby causing our expectations herein to be unachievable. For
additional information, please see Part II, Item 1A, Risk Factors.

Background

All of our credit card securitizations are treated as sales under GAAP. As such, we remove the securitized receivables from our condensed consolidated
balance sheet. The performance of the underlying credit card receivables will nevertheless affect the future cash flows we actually receive. Various references within this section are to our managed receivables, which include our non-securitized
credit card receivables and the credit card receivables underlying our off balance sheet securitization facilities. Managed receivables data also include our equity interest in the receivables that we manage for our equity-method investees and
exclude minority interest holders shares of the receivables that we manage for our majority-owned subsidiaries.

Financial, operating
and statistical data based on these aggregate managed receivables are key to any evaluation of our performance in managing (including underwriting, valuing purchased receivables, servicing and collecting) the aggregate of the portfolios of credit
card receivables reflected on our balance sheet and underlying our securitization facilities. In allocating our resources and managing our business, management relies heavily upon financial data and results prepared on a so-called managed
basis. It is also important to analysts, investors and others that we provide selected financial, operating and statistical data on a managed basis because this allows a comparison of us to others within the specialty finance industry.
Moreover, our management, analysts, investors and others believe it is critical that they understand the credit performance of the entire portfolio of our managed receivables because it reveals information concerning the quality of loan originations
and the related credit risks inherent within the securitized portfolios and our retained interests in our securitization facilities.

Managed receivables data assume that none of the credit card receivables underlying our off balance sheet securitization facilities was ever transferred to securitization facilities and present the net credit losses and delinquent balances
on the receivables as if we still owned the receivables. Reconciliation of the managed receivables data to our GAAP financial statements requires: (1) recognition that a significant majority of our loans and fees receivable (i.e., all but
$423.5 million of GAAP credit card loans and fees receivable at gross face value) had been sold in securitization transactions as of March 31, 2006; (2) a look-through to our economic share of (or equity interest in) the receivables that
we manage for our equity-method investees; (3) removal of our minority interest holders interests in the managed receivables underlying our GAAP consolidated results; and (4) recognition that our Fingerhut managed receivables were
recorded at a $0.0 basis in our GAAP financial statements prior to our re-securitization of these receivables in September 2005.

The
period-end and average managed receivables data (as well as delinquency and charge off statistics) that follow within this section exclude receivables associated with accounts in late delinquency status in sellers hands as of the dates of our
acquisitions of the receivables or interests therein. Pursuant to this treatment, the only activity within the following statistical data associated with these excluded accounts are recoveries, which we include within the numerator of the other
income ratio computation, as well as the costs of pursuing these recoveries, which we include within the numerator of the operating ratio computation.

The credit card receivables portfolios that we acquire are typically acquired at substantial discounts. A portion of each acquisition discount is related to the excluded receivables and accounts described above.
Another portion of each discount relates to the credit quality of the remaining acquired receivables and is calculated as the difference between the face amount of the receivables purchased (less the excluded receivables described above) and the
future cash flows expected to be collected from the receivables. We refer to the balance of the discount for each purchase not needed for credit quality as accretable yield, which we accrete into net interest margin using the interest method over
the estimated life of each acquired portfolio. As of the close of each financial reporting period, we evaluate the appropriateness of the credit quality discount component of our acquisition discount and the accretable yield component of our
acquisition discount based on actual and projected future results.

No credit card receivables portfolios were acquired during the three
months ended March 31, 2006.

Asset Quality

Our delinquency and charge off data at any point in time reflect the credit performance of our managed receivables. The average age of our credit card accounts, the timing of portfolio purchases, the success of our
collection and recovery efforts and general economic conditions all affect our delinquency and charge off rates. The average age of our credit card receivables portfolio also affects the stability of our delinquency and loss rates. The delinquency
and charge off data reflected herein are considered by



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management in determining our allowance for uncollectible loans and fees with respect to our non-securitized earning
assets, net on our condensed consolidated balance sheets, as well as the valuation of our retained interests in credit card receivables securitized which is a component of securitized earning assets on our condensed consolidated balance sheets. As
receivables are charged off, the charge offs of non-securitized receivables are reflected within our provision for loan losses, and the charge offs of securitized receivables are reflected as an offset in determining income from retained interests
in credit card receivables securitized (within fees and other income on securitized earning assets) on our condensed consolidated statements of operations.

Our strategy for managing delinquency and receivables losses consists of account management throughout the customer relationship. This strategy includes credit line management and pricing based on the risks of the
credit card accounts.

Delinquencies. Delinquencies have the potential to impact net income in the form of net credit losses.
Delinquencies are also costly in terms of the personnel and resources dedicated to resolving them. The account management strategies that we use on our portfolio are intended to manage and to the extent possible reduce the higher delinquency rates
that can be expected in a more mature managed portfolio such as ours. These account management strategies include conservative credit line management, purging of inactive accounts and collection strategies (as described under the heading How
Do We Collect from Our Customers? in Item 1. Business of our Annual Report on Form 10-K for the year ended December 31, 2005) intended to optimize the effective account-to-collector ratio across delinquency buckets. We
measure the success of these efforts by measuring delinquency rates. These rates exclude accounts that have been charged off. It is our policy to continue to bill interest and fee income on all credit card accounts, except in limited circumstances,
until the account and all related receivables, interest and other fees are charged off. See the Charge offs discussion as well.

The following table presents the delinquency trends of the credit card receivables that we manage (dollars and accounts in thousands; % of total):



|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|------------------------------------------------ |  | -------------------------------- | --------- | - | ------- | - | --------- | ------- |  | - | --------- | - |  | ------- | --------- | - | ------- | - | --------- | ------- |  | - | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                                 |  | At or for the Three Months Ended |          
|                                                 |  | 2006                             |           |   | 2005    |   |           | 2004    | 
|                                                 |  | Mar. 31                          |           |   | Dec. 31 |   |           | Sep. 30 |  |   | Jun. 30   |   |  | Mar. 31 |           |   | Dec. 31 |   |           | Sep. 30 |  |   | Jun. 30   |  
|Period-end managed receivables                   |  | $                                | 2,351,667 |   |         | $ | 2,317,751 |         |  | $ | 2,230,108 |   |  | $       | 2,198,703 |   |         | $ | 2,246,256 |         |  | $ | 2,166,489 |   |  | $ | 1,931,514 |   |  | $ | 1,942,059 |  
|Period-end managed accounts                      |  |                                  | 3,647     |   |         |   | 3,428     |         |  |   | 3,169     |   |  |         | 2,973     |   |         |   | 2,943     |         |  |   | 2,888     |   |  |   | 2,317     |   |  |   | 2,222     |  
|Receivables delinquent:                          |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|30 to 59 days past due                           |  | $                                | 84,081    |   |         | $ | 93,583    |         |  | $ | 82,070    |   |  | $       | 83,175    |   |         | $ | 70,558    |         |  | $ | 80,419    |   |  | $ | 76,028    |   |  | $ | 84,474    |  
|60 to 89 days past due                           |  |                                  | 71,213    |   |         |   | 68,531    |         |  |   | 66,287    |   |  |         | 61,882    |   |         |   | 54,505    |         |  |   | 61,408    |   |  |   | 61,144    |   |  |   | 60,780    |  
|90 or more days past due                         |  |                                  | 184,693   |   |         |   | 156,414   |         |  |   | 158,161   |   |  |         | 128,351   |   |         |   | 143,416   |         |  |   | 167,863   |   |  |   | 148,132   |   |  |   | 126,505   |  
|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|Total 30 or more days past due                   |  | $                                | 339,987   |   |         | $ | 318,528   |         |  | $ | 306,518   |   |  | $       | 273,408   |   |         | $ | 268,479   |         |  | $ | 309,690   |   |  | $ | 285,304   |   |  | $ | 271,759   |  
|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|Total 60 or more days past due                   |  | $                                | 255,906   |   |         | $ | 224,945   |         |  | $ | 224,448   |   |  | $       | 190,233   |   |         | $ | 197,921   |         |  | $ | 229,271   |   |  | $ | 209,276   |   |  | $ | 187,285   |  
|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|Receivables delinquent as % of period-end loans: |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|30 to 59 days past due                           |  |                                  | 3.6       | % |         |   | 4.0       | %       |  |   | 3.7       | % |  |         | 3.8       | % |         |   | 3.1       | %       |  |   | 3.7       | % |  |   | 3.9       | % |  |   | 4.3       | %
|60 to 89 days past due                           |  |                                  | 3.0       |   |         |   | 3.0       |         |  |   | 3.0       |   |  |         | 2.8       |   |         |   | 2.4       |         |  |   | 2.8       |   |  |   | 3.2       |   |  |   | 3.1       |  
|90 or more days past due                         |  |                                  | 7.9       |   |         |   | 6.7       |         |  |   | 7.1       |   |  |         | 5.8       |   |         |   | 6.4       |         |  |   | 7.7       |   |  |   | 7.7       |   |  |   | 6.5       |  
|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|Total 30 or more days past due                   |  |                                  | 14.5      | % |         |   | 13.7      | %       |  |   | 13.8      | % |  |         | 12.4      | % |         |   | 11.9      | %       |  |   | 14.2      | % |  |   | 14.8      | % |  |   | 13.9      | %
|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|Total 60 or more days past due                   |  |                                  | 10.9      | % |         |   | 9.7       | %       |  |   | 10.1      | % |  |         | 8.6       | % |         |   | 8.8       | %       |  |   | 10.5      | % |  |   | 10.9      | % |  |   | 9.6       | %
|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  

The increases in our 30- plus day delinquencies and 60- plus day delinquencies between
March 31, 2005 and March 31, 2006 are largely attributable to (1) the beneficial denominator effects at March 31, 2005 of first quarter 2005 portfolio purchases (and the associated exclusion from our managed receivables data of
receivables associated with accounts in late delinquency status in sellers hands as of the dates of our acquisitions of the receivables as described above) and (2) the growth in our largely fee-based credit card offering to consumers at
the lower end of the FICO scoring range, the receivables of which experience greater delinquency and charge-off levels than are experienced with respect to our other credit card receivables. As receivables underlying our largely fee-based credit
card offering to consumers at the lower end of the FICO scoring range become a larger component of our overall managed receivables balance, we expect this mix change to cause further increases in our overall delinquency and charge-off levels. We
believe that the heightened delinquency and charge-off levels associated with our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range are reasonable based on the relative returns offered.

The increase in our 30- plus day delinquencies and 60- plus day delinquencies between December 31, 2005 and March 31, 2006 reflects the
favorable effects that the October 17, 2005 bankruptcy law change had on December 31, 2005 delinquency levels.



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This conclusion is supported by comparing December 31, 2005 delinquency levels with December 31, 2004
delinquency levels; notwithstanding the favorable effects of a large fourth quarter 2004 portfolio acquisition on December 31, 2004 delinquency levels, the December 31, 2005 delinquency levels are even lower than they were at
December 31, 2004. Because of the October 17, 2005 bankruptcy law change, many consumers that would have otherwise been delinquent at December 31, 2005 rushed to file for bankruptcy prior to the October 17, 2005 effective date of
the new bankruptcy laws; this caused these consumers receivables to charge off in the fourth quarter of 2005 prematurely relative to the timing of their charge off through the normal delinquency process.

Charge offs. We generally charge off credit card receivables when they become contractually 180 days past due or within 30 days of
notification and confirmation of a customers bankruptcy or death. However, if a cardholder makes a payment greater than or equal to two minimum payments within a month of the charge off date, we may reconsider whether charge off status remains
appropriate. Additionally, in some cases of death, receivables are not charged off if, with respect to the deceased customers account, there is a surviving, contractually liable individual or an estate large enough to pay the debt in full.

The following table presents the charge off data (dollars in thousands; percentages annualized) for: (1) all of the credit card
receivables underlying the securitizations of our consolidated subsidiaries (adjusted to exclude the receivables associated with minority interest holders equity in our consolidated subsidiaries); (2) our respective 50.0%, 33.3% and 47.5%
shares of the receivables that we manage on behalf of our equity-method investees; and (3) all non-securitized credit card receivables, including the Fingerhut receivables while they were held on balance sheet and the receivables associated
with our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range ($423.5 million face amount of receivables at March 31, 2006).



|                                |  |                            |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|------------------------------- |  | -------------------------- | --------- | - | ------- | - | --------- | ------- |  | - | --------- | - |  | ------- | --------- | - | ------- | - | --------- | ------- |  | - | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                |  | For the Three Months Ended |          
|                                |  | 2006                       |           |   | 2005    |   |           | 2004    | 
|                                |  | Mar. 31                    |           |   | Dec. 31 |   |           | Sep. 30 |  |   | Jun. 30   |   |  | Mar. 31 |           |   | Dec. 31 |   |           | Sep. 30 |  |   | Jun. 30   |  
|Average managed receivables     |  | $                          | 2,341,712 |   |         | $ | 2,256,994 |         |  | $ | 2,211,547 |   |  | $       | 2,212,378 |   |         | $ | 2,307,471 |         |  | $ | 2,039,235 |   |  | $ | 1,924,520 |   |  | $ | 2,001,489 |  
|Gross yield ratio               |  |                            | 32.9      | % |         |   | 31.1      | %       |  |   | 30.2      | % |  |         | 29.1      | % |         |   | 28.2      | %       |  |   | 29.3      | % |  |   | 29.8      | % |  |   | 29.6      | %
|Combined gross charge offs      |  | $                          | 129,111   |   |         | $ | 162,917   |         |  | $ | 120,989   |   |  | $       | 129,921   |   |         | $ | 117,924   |         |  | $ | 131,061   |   |  | $ | 121,498   |   |  | $ | 140,573   |  
|Net charge offs                 |  | $                          | 47,571    |   |         | $ | 75,708    |         |  | $ | 58,473    |   |  | $       | 67,602    |   |         | $ | 54,432    |         |  | $ | 58,270    |   |  | $ | 61,255    |   |  | $ | 74,087    |  
|Adjusted charge offs            |  | $                          | 39,344    |   |         | $ | 62,078    |         |  | $ | 42,463    |   |  | $       | 44,900    |   |         | $ | 39,053    |         |  | $ | 39,899    |   |  | $ | 38,343    |   |  | $ | 43,934    |  
|Combined gross charge off ratio |  |                            | 22.1      | % |         |   | 28.9      | %       |  |   | 21.9      | % |  |         | 23.5      | % |         |   | 20.4      | %       |  |   | 25.7      | % |  |   | 25.3      | % |  |   | 28.1      | %
|Net charge off ratio            |  |                            | 8.1       | % |         |   | 13.4      | %       |  |   | 10.6      | % |  |         | 12.2      | % |         |   | 9.1       | %       |  |   | 11.4      | % |  |   | 12.7      | % |  |   | 14.8      | %
|Adjusted charge off ratio       |  |                            | 6.7       | % |         |   | 11.0      | %       |  |   | 7.7       | % |  |         | 8.1       | % |         |   | 6.8       | %       |  |   | 7.8       | % |  |   | 8.0       | % |  |   | 8.0       | %
|Net interest margin             |  |                            | 25.2      | % |         |   | 22.6      | %       |  |   | 23.3      | % |  |         | 22.5      | % |         |   | 21.1      | %       |  |   | 20.4      | % |  |   | 22.4      | % |  |   | 20.8      | %
|Other income ratio              |  |                            | 15.1      | % |         |   | 12.4      | %       |  |   | 10.4      | % |  |         | 8.6       | % |         |   | 6.8       | %       |  |   | 5.4       | % |  |   | 7.4       | % |  |   | 6.9       | %
|Operating ratio                 |  |                            | 10.7      | % |         |   | 12.9      | %       |  |   | 9.0       | % |  |         | 8.9       | % |         |   | 8.6       | %       |  |   | 10.3      | % |  |   | 8.2       | % |  |   | 7.6       | %

The higher gross yield ratio experienced during the three months ended March 31, 2006
reflects interest rate increases associated with cardholder accounts. Interest rates on our credit card receivables are indexed to prime rates, which have increased along with Federal Reserve Board rate increases over the past several months.
Factors relevant to the remaining categories in the above table include:



| |  |  | While all of our charge off levels and ratios benefit from our marketing of new accounts underlying our originated portfolio master trust, the favorable effects of these new
accounts are offset to some degree by the growth in our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range, the receivables of which experience: (1) greater gross charge off levels than we experience
within our originated portfolio master trust and with respect to any of our acquired receivables portfolios; and (2) adjusted net charge off rates roughly in line with those that we experience within our originated portfolio master trust and
with respect to our acquired receivables portfolios.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The rush of consumers to file for bankruptcy prior to the October 2005 effective date of the new bankruptcy laws caused unusually high fourth quarter 2005 charge offs that exceeded
our expectations coming into the fourth quarter. This rush of bankruptcy filings served to accelerate certain charge offs that we otherwise would have experienced in 2006; as such, we experienced lower bankruptcy and other delinquency charge offs
during the first quarter of 2006. While we expect this beneficial impact to continue into the second quarter, we expect that it will decline over time as new bankruptcy filings start to occur under the new bankruptcy laws.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | While our net interest margin benefits from lower finance charge and late fee charge off levels within newly added accounts underlying our originated portfolio master trust, the
favorable effects of the new accounts are offset partially by the growth in our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range, the receivables of which have lower APRs and have greater finance charge
and late fee charge offs than we experience within our originated portfolio master trust and with respect to acquired receivables portfolios.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our recent trending net interest margin improvements also demonstrate the generally favorable effects of lower finance charge and late fee charge offs that are associated with
absolute improvements that we are seeing year over year in the credit quality of our securitized portfolios. This improvement in our net interest margin throughout 2005 and into 2006 also corresponds with the improved gross yield ratios experienced
in recent quarters, as well as higher accretable yield inclusions within the net interest margin based on the continued strength of the Fingerhut portfolio. Additionally, our first quarter 2006 net interest margin was favorably influenced by
significantly diminished bankruptcy charge offs in the first quarter of 2006 given the October 2005 bankruptcy law change discussed above.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Also favorably impacting our net interest margin are reduced draws made against the securitization facilities underlying our
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



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credit card portfolios during the first quarter of 2006. Historically, we have managed draws to fund
cardholder purchases under our securitization facilities so as to meet our cash needs on an as needed basis. Due to the issuance of $550 million in Convertible Senior notes during 2005, we have been able to fund cardholder purchases and
further restrict draws under our securitization facilities thus reducing associated interest expense. As we continue to actively manage our liquidity needs, future draws made under securitization facilities will have the effect of reducing our net
interest margin.



| |  |  | Growth in our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range also accounts for the increase in the combined gross charge off ratio in
the first quarter of 2006 relative to the first quarter of 2005, notwithstanding that the net charge off ratio and the adjusted charge off ratio actually declined slightly in the first quarter of 2006 relative to the first quarter of 2005. While a
mix change in our receivables based on disproportionably larger growth in our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range can be expected to increase our combined gross charge off ratios, the fact
that the ratio of principal receivables to total receivables for this category of receivables is much smaller than for our other originated and purchased credit card receivables means that our net charge off and adjusted charge off ratios are not
likely to be adversely affected by the higher gross charge offs that we experience within the receivables underlying our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Credit quality improvements within our portfolios, lower delinquencies and the pull-through effects of the October 2005 bankruptcy law changes discussed above have all contributed
to trending lower net charge off ratios and adjusted charge off ratios, when comparing the first quarter of 2006 to the first quarter of 2005. The magnitude of these factors is actually masked, however, by the favorable effects of late 2004 and
early 2005 portfolio acquisitions on first quarter 2005 charge off data as discussed below.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our first quarter of 2005 combined gross charge off, net charge off and adjusted charge off ratios all benefited materially from the effects of the three acquisitions that occurred
late in the fourth quarter of 2004 and early in the first quarter of 2005. That is to say that our March 31, 2005 managed receivables data excluded all receivables associated with accounts that were at of near charge off at the time the
receivables portfolios were acquired. The exclusion of these late stage or severely delinquent accounts at the time of acquisition means that there are fewer charge offs on the acquired portfolios receivables until the portfolio seasoned
through their delinquency buckets in the months following the acquisitions. Magnifying this beneficial effect is the fact that while there are no charge offs of these receivables until the portfolios season through their delinquency buckets, the
denominator of the various charge off ratio computations is increased to include all of the acquired portfolios receivables that were not at or near charge off at the times of acquisition. In prior filings we have sometimes referred to this
effect as the denominator effect. These beneficial effects diminished significantly during the second quarter of 2005 with the seasoning of the acquired portfolios receivables through their delinquency buckets; this accounted for
the increases in the second quarter 2005 combined charge off ratio, net charge off ratio and adjusted charge off ratio relative to comparable first quarter 2005 ratios.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The gap between our net charge offs and adjusted charge offs, as well as their associated ratios, narrowed in recent quarters leading up to the first quarter of 2005. Given our
efforts to grow our account originations and receivables levels for both our traditional credit card product and our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range and given cardholder purchase
activities and the commensurate generation of new receivables by customers underlying our portfolio acquisitions, the pre-acquisition receivables balances within our acquired portfolios (to which our credit quality discount at acquisition applies)
have fallen as a relative percentage of our total portfolio of managed receivables. Our first quarter 2005 receivables acquisitions contributed to a temporary reversal of this trend in the second quarter of 2005. As first quarter 2005
acquisitions began to age through their delinquency buckets in the second quarter of 2005, we began to experience charge offs for these acquisitions for the first time, and the net charge offs associated with these acquisitions were offset by credit
quality discounts in arriving at our adjusted charge offs. This caused the proportion of net charge offs to which credit quality discounts relate to actually increase (thus widening the spread between the net charge off ratio and the adjusted charge
off ratio) in the second quarter of 2005. As expected, we saw the gap between our net charge offs and adjusted charge offs (and their associated ratios) begin to narrow again in the third quarter of 2005 for the same reasons cited above with respect
to the narrowing that occurred leading into the second quarter of 2005.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The general trend of quarter over quarter improvements in the other income ratio results principally from increased fee income (net of fee charge offs) associated with our largely
fee-based credit card offering to consumers at the lower end of the FICO scoring range. Also contributing is improved credit quality overall, which has had the effect of reducing the level of fee charge offs netted against fee income associated with
our originated portfolio master trust and acquired receivables portfolios. Additionally, our first quarter 2006 other income ratio was favorably influenced by significantly diminished bankruptcy charge offs in the first quarter of 2006 given the
October 2005 bankruptcy law change discussed above.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The increase in the operating ratio in the first quarter of 2006 relative to the first quarter of 2005 is principally associated
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



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with a mix change in our receivables toward lower balance receivables associated with our largely
fee-based credit card offering to consumers at the lower end of the FICO scoring range. This disproportionably growing category of receivables is comprised of accounts with smaller receivables balances than those accounts underlying our originated
portfolio master trust and acquired portfolios. The addition of these many new accounts with small receivables balances means many more customer service interactions, and hence higher costs as a percentage of average managed receivables than we have
historically experienced with our originated portfolio master trust and acquired portfolios receivables.

Definitions of Financial, Operating
and Statistical Measures

We refer readers to our Annual Report on Form 10-K for the year ended December 31, 2005 for the
definitions of adjusted charge offs, combined gross charge offs, the gross yield ratio, net charge offs, the net interest margin, operating ratio and the other income ratio, none of which have changed from the definitions provided in that Annual
Report on Form 10-K.

Investments in Previously Charged-off Receivables Segment

The following table shows a roll-forward of our investments in previously charged-off receivables activities (in thousands) for first quarter of 2006:



|                                                                                                                                                                                                         |  |               |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | -
|                                                                                                                                                                                                         |  | March 31,2006 |        
|Unrecovered balance at beginning of period                                                                                                                                                               |  | $             | 16,993  |  
|Acquisitions of defaulted accounts                                                                                                                                                                       |  |               | 7,397   |  
|Cash collections                                                                                                                                                                                         |  |               | (17,672 | )
|Accretion of deferred revenue associated with forward flow contract                                                                                                                                      |  |               | (1,895  | )
|Cost-recovery method income recognized on defaulted accounts (included as a component of fees and other income on non-securitized earning
assets on our condensed consolidated statements of operations) |  |               | 9,297   |  
|                                                                                                                                                                                                         |  |               |         |  
|Balance at the end of the period                                                                                                                                                                         |  | $             | 14,120  |  
|                                                                                                                                                                                                         |  |               |         |  
|Estimated remaining collections (ERC)                                                                                                                                                                  |  | $             | 59,124  |  
|                                                                                                                                                                                                         |  |               |         |  

The above table reflects our use of the cost recovery method of accounting for our investments in
previously charged-off receivables. Under this method, static pools consisting of homogenous accounts and receivables are established for each portfolio acquisition. Once a static pool is established, the receivables within the pool are not changed.
Each static pool is recorded at cost and is accounted for as a single unit for payment application and income recognition purposes. Under the cost recovery method, income associated with a particular portfolio is not recognized until cash
collections have exceeded the investment. Additionally, until such time as cash collected for a particular portfolio exceeds our investment in the portfolio, we will incur commission costs and other internal and external servicing costs associated
with the cash collections on the portfolio investment that will be charged as an operating expense without any offsetting income amounts. Included within cost-recovery method income recognized on defaulted accounts in the above table is $1.9 million
of accreted deferred revenue associated with a $67.0 million cash prepayment made to us under a forward flow contract into which we entered with Encore Capital during the second quarter of 2005.

Remaining after the Encore Capital transaction are our pools of previously charged-off receivables associated with Chapter 13 Bankruptcies and our
balance transfer program, which we expect to continue to service and grow through future acquisitions. We expect our Investments in Previously Charged-Off Receivables segment to continue its acquisition and collection of Chapter 13 Bankruptcies, its
balance transfer program and other previously charged-off receivables activities throughout the remainder of 2006 and beyond, such activities to include the acquisition of previously charged-off receivables and the sale of these charge offs to
Encore Capital for a fixed sales price under the forward flow contract.

The life of each pool of charged-off receivables that we typically
acquire is generally estimated to be between 24 and 36 months for normal delinquency charged-off accounts and approximately 60 months for Chapter 13 Bankruptcies. We anticipate collecting approximately 37.1% of the ERC of the existing accounts
over the next twelve months, with the balance to be collected thereafter.

We expect our Investments in Previously Charged-off Receivables
segment to continue its revenue and income growth throughout 2006 relative to those levels experienced subsequent to a bulk sale of $2.9 billion (face amount) of previously charged-off receivables to Encore Capital in the second quarter of 2005.

Retail Micro-Loans Segment

The Retail
Micro-Loans segment consists of a network of storefront locations that provide, either directly or on behalf of a lending bank, small-denomination, short-term, unsecured cash advances that are typically due on the customers next payday. As of
March 31, 2006, our subsidiaries operated a total of 494 micro-loan and servicing locations in 16 states.



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In most of the states in which our subsidiaries operate, they make cash advance, installment loans, auto
loans and other micro-loans directly to customers. However, in four states (Arkansas, Florida, North Carolina and West Virginia), they have historically acted only as a processing and servicing agent for a state-chartered, FDIC-insured bank that
issues loans to the customers pursuant to the authority of the laws of the state in which the bank is located and federal interstate banking laws, regulations and guidelines. During February 2006, we learned from our bank partner that the FDIC had
effectively asked insured financial institutions to cease deferred presentment and installment micro-loan activities conducted through processing and servicing agents. Cessation of these activities would directly impact our micro-loan
subsidiaries ability to continue operating in the four states. In response to the FDICs actions, our subsidiaries began evaluating strategic alternatives within theses states, including the possibility of switching to a direct lending
model in compliance with the regulatory frameworks within each of the four states, or, alternatively, closing certain branch locations within the four affected states. In addition, effective March 11, 2006, our North Carolina retail micro-loan
subsidiary agreed with the Attorney General of the State of North Carolina to cease its traditional marketing and servicing of deferred-presentment and installment micro-loans in North Carolina. As a result of this agreement, our North Carolina
retail micro-loan subsidiary began pursuing a direct lending model in North Carolina in compliance with existing regulatory frameworks, as well as closing several existing North Carolina locations in the near-term. As of March 31, 2006, our
North Carolina subsidiary had closed 13 branch locations in response to these events. As a result of the recent changes in regulatory positions by the FDIC, the originating bank for which we service micro-loans in the four states is required to exit
that business prior to May 31, 2006 and because the originating bank plans to liquidate any loans existing as of that date through a loan participation relationship with Maverick Management Company LLC (Maverick), our micro loan
subsidiary has agreed to indemnify Maverick for up to $2.8 million in losses that it may incur as a result of its being a successor to the banks interest in the loans and their liquidation. Richard W. Gilbert, a member of our Board of
Directors and our Chief Operating Officer, has a 20% economic interest in Maverick, and Mr. Gilberts son is its manager.

Pre-tax net loss within our Retail Micro-Loans segment was $17.0 million for the first quarter of 2006. These financial results reflect certain impairment, indemnification, loan loss and other charges of $15.5 million related to the branch
closings in North Carolina as well as anticipated branch closings in Arkansas, Florida and West Virginia (including $10.5 million of associated goodwill impairment related to these store closings). In addition, the first quarter of each calendar
year historically includes the slowest lending months of the year for the micro-loan sector as many consumers have the benefit of income tax refunds during this period, which allows them to repay their outstanding micro-loan obligations and to meet
their day-to-day cash flow needs without the necessity of micro-loan products.

During the first quarter of 2006, our Retail Micro-Loans
segment also began the process of converting our entire network of branches to a common information technology platform capable of supporting multiple products that we began testing in our stores during the latter half of 2005 and into 2006.
Initiating our strategy to convert our mono-line retail micro-loan branches into full service neighborhood financial centers, this suite of products is expected to include auto insurance, debit cards, check cashing, money transfer, money
order, amortizing installment loans and auto equity loans. In connection with the system conversion required to support these multiple products, our Retail Micro-Loans segment incurred certain non-recurring travel, training and other operating
expenses during the first quarter of 2006. Completion of this system conversion is expected to occur during the second quarter of 2006.

We
did not open any new branch locations during the quarter ended March 31, 2006, and we closed a total of 15 locations (including the 13 closed locations in North Carolina) as we continue to assess the profitability of existing locations as well
as the benefits of opening new store locations. As of March 31, 2006, our subsidiaries were making micro-loans directly to customers in 382 of the 494 locations in 12 states, and they were acting or had previously acted as a processing and
servicing agent for the lending bank in the remaining 112 locations in 4 states. For the three months ended March 31, 2006, direct storefront micro-loans generated revenues of $20.9 million, and revenues through processing and servicing
activities for the lending bank were $3.7 million. This compares to revenues of $17.9 million and $5.4 million for our direct storefront and processing/servicing activities, respectively, for the three months ended March 31, 2005.



|                              |  |                                  |   |  |                             |  
|----------------------------- |  | -------------------------------- | - |  | --------------------------- | -
|                              |  | Three Months EndedMarch 31, 2006 |   |  | Year EndedDecember 31, 2005 |  
|Beginning number of locations |  | 509                              |   |  | 482                         |  
|Acquired locations            |  |                                 |   |  | 40                          |  
|Opened locations              |  |                                 |   |  | 16                          |  
|Closed locations              |  | (15                              | ) |  | (29                         | )
|                              |  |                                  |   |  |                             |  
|Ending locations              |  | 494                              |   |  | 509                         |  
|                              |  |                                  |   |  |                             |  

For the remainder of 2006, while we are less certain about potential growth trends for the
traditional micro-loan as a stand-alone product, we expect new products to contribute to our Retail Micro-Loans segment revenues, and we expect to see improved



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profitability, both overall and on a per store basis. In addition, revenues from direct storefront operations are likely
to increase as we shift to a direct storefront model in all or a portion of the four states where we previously processed and serviced micro-loans on behalf of our bank partner.

Auto Finance Segment

On April 1, 2005, we acquired Wells Fargo Financials CAR business
unit. This acquisition included all of CARs assets, business operations and employees for $121.5 million including transaction costs. Upon acquisition, the business unit had approximately 300 employees and $128.9 million of
auto-finance-related receivables (at face, net of unearned discounts) and operated in thirty-eight states through its twelve branches, three regional processing centers and national collection center at its Lake Mary, FL headquarters.

CAR consists of a nationwide network of pre-qualified dealers in the Buy Here/Pay Here used car business, from which auto loans are purchased
at a discount or serviced for a fee. Revenues are generated on purchased loans through interest earned on the face value of the installment agreements combined with discounts on loans purchased. Discount income is generally earned over the life of
the applicable loan. Additionally, CAR generates revenues from servicing loans on behalf of dealers for a portion of actual collections and by providing back-up servicing for similar quality securitized assets.

The number of active dealers is a function of new dealer enrollments offset by dealer attrition within the states in which CAR is licensed. Dealers are
certified upon being recruited by a sales force of approximately 60 located strategically throughout approved territories. As of March 31, 2006, CAR operated in forty-five states, had approximately 1,300 active dealers and owned approximately
40,000 active accounts.

Early in the first quarter of 2006, CAR completed a conversion from a system of record that it licensed from Wells
Fargo Financial to a more robust system of record, which is expected to support future growth through creating efficiencies in the processing of new dealer relationships, new product offerings and potential portfolio acquisitions. Due to CARs
unique product offerings and the customization required to accommodate these offerings, the system of record conversion leveraged resources traditionally assigned to operations and sales. These resources can now transition from work on the
conversion and related post-conversion activities to efforts on gaining operational efficiencies and additional market share. The dedication of these resources to the conversion contributed to a decline in receivables and revenue during the first
two months in the quarter, but CAR experienced some growth in receivables and revenue during the last month of the quarter. Furthermore, the revenue was impacted due to seasonal declines in CARs core products experienced in the fourth quarter
of 2005 and early part of the first quarter of 2006. The decline in receivables and revenue, along with internal conversion related expenses, contributed to a reduction in profits.

CAR also is now in the process of developing and releasing new financing products designed to complement its current product offerings. These new
products could not be accommodated during the period prior to conversion while CAR was licensing the Wells Fargo Financial system of record. It is anticipated that these new products will be launched in stages during the second quarter of 2006. In
addition to these initiatives, the business is in the process of forming strategic alliances with aftermarket product and service providers in an effort to cross-sell to their existing customer base. CAR also is testing the ability to cross sell
other Company subsidiaries products to a select number of the existing customer base. Pre-tax net income for the first three months of 2006 within our Auto Finance segment was $0.8 million.

Other Segment

Our Other segment encompasses various
activities that are start-up in nature. As reflected in the financial data for the Other segment within our segment data (see Note 3, Segment Reporting, to our condensed consolidated financial statements included herein), we have
invested significantly in a variety of start-up businesses in keeping with our diversification strategy. Moreover, as with any start-up effort, there is testing that needs to occur as we work to refine our product offerings and businesses within our
Other segment. For example, we have experimented in recent months with different underwriting processes and thresholds for a variety of Internet-based micro-loan productsthis all in an effort to determine the right mix of marketing costs and
systems costs versus first-pay defaults. These tests and the associated charge offs of receivables generated through these tests have contributed to higher fourth quarter 2005 and first quarter of 2006 loan loss provisions within the Other segment.

Additionally, our overall direction has shifted significantly over the past few years with respect to our stored-value card offering. Our
customer responses to this product offering support our belief that un-banked consumers want the convenience and flexibility of a stored-value card. Nevertheless, the financial investments associated with our initial strategy of tying
our technologies together with third-party retail partners have proven too great relative to the revenue potential of this product offering. As such, we recently retooled our stored-value card offering to expand the utility of the product and to
focus on distribution of this product as an adjunct to certain of our credit card offerings or as an offer to consumers who come to us through Internet and other marketing channels and who may not be in a situation that currently warrants our
extending credit to them through one of our lending products. Our expectations are that we can learn about the income and spending patterns of these particular stored-value card customers so that we can gradually graduate them into our credit
products.



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Beyond our shift in focus for our stored-value card offerings, we also have turned our attention to
developing an underwriting, servicing and collections platform that utilizes non-traditional processes to offer credit products directly to consumers. These techniques include the utilization of external data bases other than the traditional credit
bureaus, the application of proprietary scoring models built off of internal and external data attributes, proprietary application processing and approval methods, and payment processing tools that are currently unique in the marketplace. We
generally refer to these collective methods, models, and processes as our Market Expansion Platform (MEP), and we consider them proprietary in nature. To date, we have launched the PurposeAdvantage charge-card program through the
Discover®Network and the Imagine MasterCard credit card product utilizing the MEP, both
of which are included in our Credit Card segment. We have found that the MEP has expanded the scope of consumers that we can profitably approve for these credit card products beyond what we could traditionally approve using our credit
bureau-oriented underwriting models. Customers acquired to-date have lower average FICO scores than we see in our other credit card products, a very limited credit bureau history or no credit bureau history at all. The MEP has also allowed us to
market our products on the Internet and through retail distribution at the point-of-sale, channels that until now have proven to be unsuccessful in generating large amounts of profitable credit card customers for us. We intend to further utilize the
MEP to enter additional product lines, including installment lending, retailer financing, auto lending and consumer receivables factoring in the second and third quarters of this year. We also plan to utilize the MEP in the radio and television
marketing channels for all of the aforementioned products.

Our Other segment also is currently building technologies to enable us to
underwrite, service and collect a wide variety of third-party consumer finance receivables. With customers that we already have in place, we have begun to make some principal investments of our own in asset-secured consumer finance receivables such
as loans secured by motorcycles, all terrain vehicles and the like. We see these efforts as being complementary to the third-party servicing platform that we expect to obtain upon completion of our CardWorks, Inc. acquisition. A significant portion
of our Other segments provision for loan losses relates to the loans and fees receivable underlying this new category of asset-secured consumer finance receivable for us. For the time being, however, we plan to suspend loan originations within
this asset class so that we can study the performance of these assets and our underwriting models for a few quarters to determine our further growth plans within this asset class.

Another activity currently underway within our Other segment is the development of systems, marketing materials and the infrastructure necessary to
attract currently underserved or under-banked consumers to us so that we can use a centralized decision engine to determine which of our various credit products is appropriate for each consumer. Through this effort, we intend to engage in broad
television and Internet advertising campaigns aimed at attracting consumers who may need credit or debit products to us; we also plan to partner with other providers of financial services and products and expect to earn fees through our referral of
customers to these other providers.

In summary, through our Other segment activities and by employing our credit and underwriting
knowledge and leveraging and improving upon an established technology infrastructure, we can continue to develop and test new credit delivery programs. We see tremendous opportunity to grow our lending businesses through the use of Internet lead
generators and search engines, and we expect many of the activities supported by the Other segment to be profitable for us in 2006. As an example, our Other segment has been instrumental in our effort to marry MEP underwriting technologies with
credit card product offerings. These product offerings are already generating profits for us within our Credit Cards segment, and in subsequent quarters, one can expect us to reclassify costs incurred in the latter quarters of 2005 from our Other
segment to our Credit Cards segment so as to reflect a consistent matching of costs and revenues for these new products within the Credit Cards segment.

Liquidity, Funding and Capital Resources

At March 31, 2006, we had $144.2 million in unrestricted cash. Because
the characteristics of our assets and liabilities change, liquidity management is a dynamic process affected by the pricing and maturity of our assets and liabilities. We finance our business through cash flows from operations, asset backed
securitizations and the issuance of debt and equity:



| |  |  | During the three months ended March 31, 2006, we generated $53.9 million in cash flow from operations, compared to $1.7 million during the three months ended
March 31, 2005. The $52.2 million increase is due in part to improved cash flows associated with favorable delinquency, charge off and payment rate trends that we have seen for our credit product offerings. Additionally, the returns and cash
flows that we experience with respect to our growing portfolio of receivables associated with our largely fee-based credit card offering to consumers at the lower end of the FICO scoring range have also contributed significantly to our improved cash
flow from operations.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During the three months ended March 31, 2006, we used $124.9 million of cash in investing activities, compared to generating $33.2 million of cash for the three
months ended March 31, 2005. This $158.1 million increase in cash used in investing activities is consistent with the significant higher investments that we are now making in receivables associated with our largely fee-based credit card
offering to consumers at the lower end of the FICO scoring range and to a lesser extent receivables within our originated portfolio master trust.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | During the three months ended March 31, 2006, we used $10.3 million in cash from financing, compared to $12.7 million during the same period in 2005. The $2.4 million
decrease in cash flow used is primarily due decreased net distributions to minority interest-holders in our consolidated subsidiaries and lower net debt repayments in the first quarter of 2006.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In April 2006, our Retail Micro-Loans segment paid off all of its outstanding debt with the exception of a $5.0 million seller note. Proceeds of $50.0
million used to pay off this outstanding debt were derived from parent company debt bearing similar terms and conditions to the third-party debt that was repaid.

In March 2006, we completed a structured financing transaction that is secured by substantially all of the credit card receivables associated with our largely fee-based credit card offering to consumers at the lower
end of the FICO scoring range. This $150.0 million debt facility is recourse only to the underlying credit card receivables which serve as security for the facility. As of March 31, 2006, we had not drawn any amounts against this $150.0 million
facility; nevertheless, our collateral base underlying this structured financing transaction is sufficient to allow us to immediately draw the full $150.0 million of available funding under this facility as and when we have needs for this liquidity
in the future.

As of March 31, 2006, our collateral base within our originated portfolio master trust was sufficient to allow for
additional cash draws of $418.9 million against our existing securitization facilities.

Considering all of the above factors, along with
our unrestricted cash balances of $144.2 million at March 31, 2006, we now have (as of the date of this Report) over $650.0 million of available liquidity for use in our growth, acquisition and diversification efforts. While this level of
liquidity is more than adequate to meet our operating needs throughout 2006, we have an acquisition pending (CardWorks) and expect to explore several new acquisition opportunities throughout 2006 and beyond through our efforts to acquire other
credit card receivables portfolios and our expansion into product and service offerings complementary to our sub-prime consumer market. We continue to explore new sources of capital to facilitate our acquisition goals, and if market conditions are
right for us, we may leverage other assets through structured finance or securitization transactions or issue other debt instruments or equity.

Our Board of Directors has authorized a program to repurchase up to 10 million shares of our outstanding common stock. Under the plan, we repurchase shares of our common stock from time to time either on the open market or through
privately negotiated transactions in compliance with SEC guidelines. We are authorized to purchase 4,736,105 more shares in addition to shares purchased through March 31, 2006. At our discretion, we may use the treasury shares to satisfy option
exercises and restricted stock grants. We will continue to evaluate our stock price relative to other investment opportunities and, to the extent we believe that the repurchase of our stock represents an appropriate return of capital, we will
repurchase additional shares of our stock.

Securitization Facilities

Our most significant source of liquidity is the securitization of credit card receivables. As of March 31, 2006, we had committed total
securitization facilities of $2.2 billion and had used $825.9 million of these facilities. The weighted-average borrowing rate on these facilities at March 31, 2006 was approximately 5.94%. The maturity terms of our securitizations vary.

In the table below, we have noted the securitization facilities (in millions) along with their maturity dates with respect to which a
substantial majority of our managed credit card receivables served as collateral as of March 31, 2006. Following the table are further details concerning each of the facilities.



|                  |  |                   |        
|----------------- |  | ----------------- | -------
|Maturity date     |  | Facility Limit(1)
|September 2006(2) |  | $                 | 306.0  
|January 2007(3)   |  |                   | 45.9   
|September 2007(4) |  |                   | 16.2   
|January 2008(5)   |  |                   | 1,000.0
|October 2009(6)   |  |                   | 299.5  
|October 2010(6)   |  |                   | 299.5  
|January 2014(7)   |  |                   | 213.3  
|                  |  |                   |        
|Total             |  | $                 | 2,180.4
|                  |  |                   |        

---

|(1) | Excludes securitization facilities related to receivables managed by our equity-method investees because such receivables and their related securitization facilities are
appropriately excluded from direct presentation in our condensed consolidated statements of operations or condensed consolidated balance sheet items included herein.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents the end of the revolving period for a $306.0 million conduit facility.
|--- | ---------------------------------------------------------------------------------



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|(3) | Represents the conduit notes associated with our 75.1% membership interest in our majority-owned subsidiary that securitized the $92.0 million (face amount) of receivables acquired
in the third quarter of 2004 and the $72.1 million (face amount) of receivables acquired in the first quarter of 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | In September 2005, we securitized the Fingerhut receivables in a two-year amortizing structure.
|--- | -----------------------------------------------------------------------------------------------

|(5) | This two-year variable funding note facility also contains one-year renewal periods (subject to certain conditions precedent) at the expiration of the recently renewed two-year term
and an orderly amortization of the facility at expiration.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | In October 2004, we completed two new, term securitization facilities that were issued out of our originated portfolio master trust: a 5-year facility represented by $299.5
million aggregate principal notes and a 6-year facility also represented by $299.5 million aggregate principal notes. To date, we have elected to sell only $287.0 million of the principal notes underlying the 5-year facility and $264.0 million of
the principal notes underlying the 6-year facility. However, assuming the continuation of current market conditions and performance within our original portfolio master trust, we believe we can sell the remaining principal notes under terms
advantageous to us should we need additional liquidity from the sale of the notes during the life of the facilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Represents a ten-year amortizing term series issued out of the Embarcadero Trust.
|--- | ---------------------------------------------------------------------------------

While we have never triggered an early amortization within any of the series underlying our originated portfolio master trust securitizations and while we do not believe that we will, it is conceivable that, even with
close management, we may trigger an early amortization of one or more of the outstanding series within these trusts. Early amortization for any of the originated portfolio master trust securitization series would have adverse effects on our
liquidity, certainly during the early amortization period and potentially beyond repayment of any such series as potential investors could elect to abstain from future CompuCredit-backed issuances.

Contractual Obligations, Commitments and Off Balance Sheet Arrangements

In March 2006, we completed a structured financing transaction that is secured by substantially all of the credit card receivables associated with our largely fee-based credit card offering to consumers at the lower
end of the FICO scoring range. This $150.0 million debt facility is recourse only to the underlying credit card receivables that serve as security for the facility. As of March 31, 2006, we had not drawn any amounts against this $150.0 million
facility; nevertheless, our collateral base underlying this structured financing transaction is sufficient to allow us to immediately draw the full $150.0 million of available funding under this facility as and when we have needs for this liquidity
in the future. There have been no other material commitments entered into since December 31, 2005.

See Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2005.

Commitments and Contingencies

We have certain contractual arrangements that would require us
to make payments or provide funding if certain circumstances occur (contingent commitments). We do not currently expect that these contingent commitments will result in any amounts being paid by us. See Note 11, Commitments
and Contingencies, to our condensed consolidated financial statements for further discussion of these matters.

Recent Accounting Pronouncements

See Note 2, Significant Accounting Policies, to our condensed consolidated financial statements for a discussion of
recent accounting pronouncements.

Critical Accounting Estimates

In many instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular facts and circumstances. A variance in the estimates used or a variance in the
application or interpretation of GAAP could yield a materially different accounting result. It is impracticable for us to summarize every accounting principle that requires us to use judgment or estimates in its application. In our Annual Report on
Form 10-K for the year ended December 31, 2005, we discuss the five areas (valuation of retained interests, investments in previously charged-off receivables, non-consolidation of qualifying special purpose entities, allowance for
uncollectible loans and fees and goodwill and identifiable assets and impairment analyses) where we believe that the estimations, judgments or interpretations that we have made, if different, would have yielded the most significant differences in
our financial statements, and we urge you to review that discussion. In addition, in Note 8, Off Balance Sheet Arrangements, to the condensed consolidated financial statements included in this report, we have updated a portion of
our sensitivity analysis with respect to retained interest valuations.



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Related Party Transactions

Since 2001, we have been subleasing 7,316 square feet of excess office space to Frank J. Hanna, Jr., for $24.19 per square foot. Frank J. Hanna, Jr. is the father of our Chairman and Chief Executive Officer,
David G. Hanna, and one of our directors, Frank J. Hanna, III. The sublease rate is the same as the rate that we pay on the prime lease. Total rent for the three months ended March 31, 2006 for the sublease was approximately $43,000.

See Note 2, Significant Accounting Policies, to the condensed consolidated financial statements included within our Annual
Report on Form 10-K for the year ended December 31, 2005 for a discussion of the investments in previously charged-off receivables by one of our subsidiaries from trusts serviced by us.

See Note 11, Commitments and Contingencies, for discussion of an indemnity agreement into which we have entered with Maverick associated with
its participation in loans originated by a financial institution for which we have provided micro-loan servicing and processing services. Richard W. Gilbert, a Director on our Board of Directors and our Chief Operating Officer, has a 20% economic
interest in Maverick, and Mr. Gilberts son is its manager.

Forward-Looking Information

We make numerous forward-looking statements throughout this report including statements with respect to our expected income, acquisitions and other growth
opportunities, loss exposure and loss provisions, delinquency and charge off rates, securitizations and gains and losses from securitizations, the impact of actions by the FDIC and other regulators of both us and the banks that issue credit cards on
our behalf, account growth, performance of investments that we have made, operating expenses, impact of the recent bankruptcy law changes, marketing plans, and our experimentation with new products. Frequently these statements are introduced with
words such as expect, likely, will, believe, estimate, project, anticipate, or predict. Actual results may differ materially from those suggested by the
forward-looking statements that we make for a number of reasons including those described in Part II, Item 1A, Risk Factors of this Report.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity and Market Risk

Interest rate sensitivity is comprised of basis risk, gap risk and market risk. Basis risk is caused by the difference in the interest
rate indices used to price assets and liabilities. Gap risk is caused by the difference in repricing intervals between assets and liabilities. Market risk is the risk of loss from adverse changes in market prices and rates. Our principal market risk
is related to changes in interest rates. This affects us directly in our lending and borrowing activities, as well as indirectly as interest rates may impact the payment performance of our customers.

We incur basis risk because we fund managed assets at a spread over commercial paper rates or LIBOR, while the rates on the underlying managed assets are
indexed to the prime rate. This basis risk results from the potential variability over time in the spread between the prime rate on the one hand, and commercial paper rates and LIBOR on the other hand. We have not hedged our basis risk because we
believe that the cost of hedging this risk is greater than the benefits we would get from elimination of this risk. We incur gap risk because the debt underlying our securitization trust facilities reprices monthly; whereas, our receivables do not
adjust unless we specifically adjust them with appropriate notification. This gap risk, however, is relatively minor as we can reprice the substantial majority of our receivables very quickly in response to a rate change.

As to the issue of market risk, we attempt to minimize the impact of interest rate fluctuations on net income by regularly evaluating the risk inherent
within our asset and liability structure, especially our off balance sheet assets (such as securitized receivables) and their corresponding liabilities. The impact of interest rate fluctuations on our securitized receivables is reflected in the
valuation of our retained interests in credit card receivables securitized. This risk arises from continuous changes in our asset and liability mix, changes in market interest rates (including such changes that are caused by fluctuations in
prevailing interest rates, payment trends on our interest-earning assets and payment requirements on our interest-bearing liabilities) and the general timing of all other cash flows. To manage our direct risk to interest rates, management actively
monitors interest rates and the interest sensitive components of our securitization structures. Management seeks to minimize the impact of changes in interest rates on the fair value of assets, net income and cash flows primarily by matching asset
and liability repricings. There can be no assurance, however, that we will be successful in our attempts to manage such risks.

At
March 31, 2006, a substantial portion of our managed credit card receivables, including those related to our equity-method investees, and other interest-earning assets had variable rate pricing, with receivables carrying annual percentage rates
at a spread over



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the prime rate (7.75% at March 31, 2006), subject to interest rate floors. At March 31, 2006,
$52.1 million of our total managed receivables were priced at their floor rate, of which, $26.8 million of these receivables were closed and therefore ineligible to be repriced and the remaining $25.3 million were open and eligible to be
repriced. Every 10% increase in LIBOR that we experience until the $26.8 million in closed account receivables reach their floor rate would result in an approximate $90,000 after-tax negative impact on our annual cash flows. Nevertheless, to
the extent we choose to reprice any of the $25.3 million of receivables underlying the open accounts that are below their floor rate, we can mitigate against any possible adverse impact on our cash flows.

We believe we are not exposed to any material foreign currency exchange rate risk or commodity price risk.

ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure controls and procedures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on
such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective at meeting their objectives.

(b) Internal control over financial reporting.

There were not any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in various legal proceedings that are incidental to the
conduct of our business. In one of these legal proceedings, CompuCredit Corporation and five of our subsidiaries are defendants in a purported class action lawsuit entitled Knox, et al. vs. First Southern Cash Advance, et al,
No 5 CV 0445, filed in the Superior Court of New Hanover county, North Carolina, on February 8, 2005. The plaintiffs allege that in conducting a so-called payday lending business, certain of our Retail Micro-Loans
segment subsidiaries violated various laws governing consumer finance, lending, check cashing, trade practices and loan brokering. The plaintiffs further allege that CompuCredit is the alter ego of our subsidiaries and is liable for their actions.
The plaintiffs are seeking damages of up to $75,000 per class member. We are vigorously defending this lawsuit. These claims are similar to those that have been asserted against several other market participants in transactions involving small
balance, short-term loans made to consumers in North Carolina.

ITEM 1A. RISK FACTORS

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

Our Cash Flows Are Dependent Upon the Cash Flows Received on
the Receivables Underlying Our Securitizations and From Our Other Credit Products.

The collectibility of the receivables
underlying our securitizations and those that we hold and do not securitize is a function of many factors including the criteria used to select who is issued credit, the pricing of the credit products, the lengths of the relationships, general
economic conditions, the rate at which customers repay their accounts or become delinquent and the rate at which cardholders use their cards. To the extent we have over estimated collectibility, in all likelihood we have over estimated our financial
performance. Some of these concerns are discussed more fully below.

We may not successfully evaluate the creditworthiness of our
customers and may not price our credit products so as to remain profitable. The creditworthiness of our target market generally is considered sub-prime based on guidance issued by the agencies that regulate the banking industry.
Thus, our customers generally have a higher frequency of delinquencies, higher risk of nonpayment and, ultimately, higher credit losses than consumers who are served by more traditional providers of consumer credit. Some of the consumers included in
our target market are consumers who are dependent upon finance companies, consumers with only retail store credit cards and/or lacking general purpose credit cards, consumers who are establishing or expanding their credit and consumers who may have
had a delinquency, a default or, in some instances, a bankruptcy in their credit histories, but have, in our view, demonstrated recovery. We price our credit products taking into account the perceived risk level of our target customers. If our
estimates are incorrect, customer default rates will be higher, we will receive less cash from our securitizations and other credit products, which will result in a decrease in the value of our retained interests (which are based on expected future
cash flows) and our loans receivable, and we will experience reduced levels of net income.

An economic slowdown could increase
credit losses and/or decrease our growth. Because our business is directly related to consumer spending, any period of economic slowdown or recession could make it more difficult for us to add or retain accounts or account balances. In
addition, during periods of economic slowdown or recession, we expect to experience an increase in rates of delinquencies and frequency and severity of credit losses. Our actual rates of delinquencies and frequency and severity of credit losses may
be higher under adverse economic conditions than those experienced in the consumer finance industry generally because of our focus on the sub-prime market. Changes in credit use, payment patterns and the rate of defaults by account holders may
result from a variety of unpredictable social, economic and geographic factors. Social factors include, among other things, changes in consumer confidence levels, the publics perception of the use of credit and changing attitudes about
incurring debt and the stigma of personal bankruptcy. Economic factors include, among other things, the rates of inflation, the unemployment rates and the relative interest rates offered for various types of loans. Moreover, adverse changes in
economic conditions in states where account holders are located, including as a result of severe weather, could have a direct impact on the timing and amount of payments on our credit card accounts.

Because a significant portion of our reported income is based on managements estimates of the future performance of securitized receivables,
differences between actual and expected performance of the receivables may cause fluctuations in net income. Income from the sale of credit card receivables and other credit products in securitization transactions and income from retained
interests in receivables securitized have constituted, and are likely to continue to constitute, a significant portion of our income. Portions of this income are based on managements estimates of cash flows we expect to receive from the
interests that we retain when we securitize receivables. Differences between actual and expected performance of the receivables will occur and may cause fluctuations in our net income. The expected cash flows are based on managements estimates
of interest rates, default rates, payment rates, new purchases, costs of funds paid to investors in the securitizations, servicing costs, discount rates and required amortization payments. These estimates are based on a variety of factors, many of
which are not within our control. As a result, these estimates will differ from actual performance.



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Increases in expected losses and delinquencies may prevent us from continuing to securitize
receivables in the future on similar terms. Greater than expected delinquencies and losses also could impact our ability to complete other securitization transactions on acceptable terms or at all, thereby decreasing our liquidity and
forcing us to either decrease or stop our growth or rely on alternative, and potentially more expensive, funding sources if even available.

Increased utilization of existing credit lines by cardholders would require us to establish additional securitization facilities or curtail credit lines. Our existing commitments to extend credit to cardholders exceed our
available securitization facilities. If all of our cardholders were to use their entire lines of credit at the same time, we would not have sufficient capacity to fund card use. However, in that event, we could either reduce our cardholders
available credit lines or establish additional securitization facilities. This would subject us to several of the other risks that we have described in this section.

Increases beyond expected losses and delinquencies may cause us to incur losses on our retained interests. If the actual amounts of delinquencies and losses that occur in our securitized receivables are
greater than our expectations, the value of our retained interests in the securitization transactions will decrease. Since we derive a portion of our income from these retained interests, higher than expected rates of delinquency and loss could
cause our net income to be lower than expected. In addition, under the terms of our securitizations agreements, levels of loss and delinquency could result in us being required to repay our securitization investors earlier than expected, reducing
funds available to us for future growth.

Our portfolio of receivables is not diversified and originates from customers whose
creditworthiness is considered sub-prime. We obtain the receivables that we securitize in one of two wayswe either originate receivables or purchase receivables from other credit card issuers. In either case, substantially all of our
securitized receivables originate from sub-prime borrowers. Our reliance on sub-prime receivables has in the past (and may in the future) negatively impacted our performance. For example, in the fourth quarter of 2001, we suffered a substantial loss
after we increased our discount rate to reflect the higher rate of return required by investors in sub-prime markets. Because our receivables portfolios are all of substantially the same character (i.e., sub-prime), the increased discount rate
resulted in a decrease in the value of our retained interests in our securitized receivables portfolios. These losses might have been mitigated had our portfolios consisted of higher-grade receivables in addition to our sub-prime receivables.
Because our portfolios are undiversified, negative market forces have the potential to cause a widespread adverse impact. We have no immediate plans to issue or acquire significant receivables of a higher quality.

Seasonal consumer spending may result in fluctuations in our net income. Our quarterly income may substantially fluctuate as a result of
seasonal consumer spending. In particular, our customers may charge more and carry higher balances during the year-end holiday season and during the late summer vacation and back-to-school period, resulting in corresponding increases in the
receivables we manage and subsequently securitize during those periods.

Increases in interest rates will increase our cost of funds
and may reduce the payment performance of our customers. Increases in interest rates will increase our cost of funds, which could significantly affect our results of operations and financial condition. Our credit card accounts have variable
interest rates. Significant increases in these variable interest rates may reduce the payment performance of our customers.

Due to
the lack of historical experience with Internet customers, we may not be able to successfully target these customers or evaluate their creditworthiness. There is less historical experience with respect to the credit risk and performance of
customers acquired over the Internet. As part of our growth strategy, we are expanding our origination of accounts over the Internet; however, we may not be able to successfully target and evaluate the creditworthiness of these potential customers.
Therefore, we may encounter difficulties managing the expected delinquencies and losses and appropriately pricing our products.

We Are Substantially
Dependent Upon Securitizations and Other Borrowed Funds in Order to Fund the Receivables That We Originate or Purchase.

All of our
securitization facilities are of finite duration (and ultimately will need to be extended or replaced) and contain conditions that must be fulfilled in order for funding to be available. Although our primary credit card receivables facility with
Merrill Lynch alleviates for the foreseeable future our principal exposure to advance rate fluctuations, in the event that future advance rates (i.e., the percentage on a dollar of receivables that lenders will lend us) for securitizations are
reduced, investors in securitizations require a greater rate of return, we fail to meet the requirements for continued funding or securitizations otherwise become unavailable to us, we may not be able to maintain or grow our base of receivables or
it may be more expensive for us to do so. In addition, because of advance rate limitations, we retain subordinate interests in our securitizations, the retained interests, that must be funded through profitable operations, equity raised
from third parties or funds borrowed elsewhere. The cost and availability of equity and borrowed funds is dependent upon our financial performance, the performance of our industry generally and general economic and market conditions, and has at
times been both expensive and difficult to obtain. Some of these concerns are discussed more fully below.



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Our growth is dependent on our ability to add new securitization facilities. We finance
most of our receivables through securitizations. To the extent we grow our receivables significantly, our cash requirements are likely to exceed the amount of cash we generate from operations, thus requiring us to add new securitization facilities.
Our historic and projected performance impact whether, on what terms and at what cost we can sell interests in our securitizations. If additional securitization facilities are not available on terms we consider acceptable, or if existing
securitization facilities are not renewed on terms as favorable as we have now or are not renewed at all, we may not be able to grow.

As our securitization facilities mature, they will be required to accumulate cash that therefore will not be available for operations. Repayment for our securitization facilities begins as early as one year prior to their
maturity dates. Once repayment begins and until the facility is paid, payments from customers on receivables are accumulated to repay the investors and are no longer reinvested in new receivables. When a securitization facility matures, the
underlying trust continues to own the receivables and effectively the maturing facility maintains its priority in its right to payments following collections on the underlying receivables until it is repaid in full. As a result, new purchases need
to be funded using debt, equity or a replacement facility subordinate to the maturing facilitys interest in the underlying receivables. Although this subordination historically has not made it more difficult to obtain replacement facilities,
it may do so in the future. If our securitization facilities begin to accumulate cash and we also are unable to obtain additional sources of liquidity, such as debt, equity or new securitization facilities that are structurally subordinate to the
facilities accumulating cash, we may be forced to prohibit new purchases in some or all of our accounts in order to significantly reduce our need for any additional cash.

The documents under which the securitization facilities are established provide that, upon the occurrence of certain adverse events known as early redemption events, the timing of payments to the investors could be
accelerated. Early redemption events include portfolio performance triggers, the termination of the affinity agreement with CB&T, breach of certain representations, warranties and covenants, insolvency or receivership, servicer defaults, and may
include the occurrence of an early redemption event with respect to another securitization transaction. In the Merrill Lynch facility, an early redemption event also may be triggered based on a total consolidated equity test or a change of control
in CompuCredit. If an early redemption event occurs, principal payments would be made to investors to reduce their interests in our securitizations. As investors interests in our securitizations decrease, our liquidity would be negatively
impacted and our financial results may suffer. We would need to obtain alternative sources of funding, and there is no certainty that we would be able to do so.

We may be unable to obtain capital from third parties needed to fund our existing securitizations or may be forced to rely on more expensive funding sources. We need equity or debt capital to fund our
retained interests in our securitizations. Investors should be aware of our dependence on third parties for funding and our exposure to increases in costs for that funding. External factors, including the general economy, impact our ability to
obtain funds. For instance, in late 2001, we needed additional liquidity to fund our operations and the growth in our retained interests, and we had a difficult time obtaining the needed cash. If in the future we need to raise cash by issuing
additional debt or equity or by selling a portion of our retained interests, there is no certainty that we will be able to do so or that we will be able to do so on favorable terms. Our ability to raise cash will depend on factors such as our
performance and creditworthiness, the performance of our industry, the performance of issuers of other non-credit card-based asset backed securities and the general economy.

The timing and volume of securitizations may cause fluctuations in quarterly income. Fluctuations in the timing or the volume of
receivables securitized will cause fluctuations in our quarterly income. Factors that affect the timing or volume of our securitizations include the growth in our receivables, market conditions and the approval by all parties of the terms of the
securitization.

The performance of our competitors may impact the costs of our securitization. Investors in our
securitizations compare us to other sub-prime credit card issuers and, to some degree, our performance is tied to many of the factors that impact their performance. Generally speaking, our securitizations investors also invest in our
competitors securitizations. These investors broadly invest in receivables, and when they evaluate their investments, they typically do so on the basis of overall industry performance. Thus, when our competitors perform poorly, we typically
experience negative investor sentiment, and the investors in our securitizations require greater returns, particularly with respect to subordinated interests. In the fourth quarter of 2001, for instance, investors demanded unprecedented returns. In
the event that investors require higher returns and we sell our retained interests at that time, the total return to the buyer may be greater than the discount rate we are using to value the retained interests in our financial statements. This would
result in a loss for us at the time of the sale as the total proceeds from the sale would be less than the carrying amount of the retained interests in our financial statements. We also might increase the discount rate used to value all of our other
retained interests, which also would result in further losses. Conversely, if we sold our retained interests for a total return to the investor that was less than our current discount rate, we would record income from the sale, and we would
potentially decrease the rate used to value all of our other retained interests, which would result in additional income.

We may be
required to pay to investors in our securitizations an amount equal to the amount of securitized receivables if representations and warranties made to us by sellers of the receivables are inaccurate. The representations and warranties made
to us by sellers of receivables we purchased may be inaccurate. We rely on these representations and warranties when we securitize these purchased receivables. In securitization transactions, we make representations and warranties to investors and,
generally speaking, if



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there is a breach of our representations and warranties, then under the terms of the applicable investment agreement we
could be required to pay the investors the amount of the non-compliant receivables. Thus, our reliance on a representation or warranty of a receivables seller, which proves to be false and causes a breach of one of our representations or warranties,
could subject us to a potentially costly liability.

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

The aggregate amount of outstanding receivables is a function of many factors including purchase rates, payment rates,
interest rates, seasonality, general economic conditions, competition from other credit card issuers and other sources of consumer financing, access to funding as noted above and the success of our marketing efforts. To the extent that we have over
estimated the size or growth of our receivables, in all likelihood we have over estimated our future financial performance.

Intense
competition for customers may cause us to lose receivables to competitors. We may lose receivables to competitors that offer lower interest rates and fees or other more attractive terms or features. We believe that customers choose credit
card issuers and other lenders largely on the basis of interest rates, fees, credit limits and other product features. For this reason, customer loyalty is often limited. Our future growth depends largely upon the success of our marketing programs
and strategies. Our credit card business competes with national, regional and local bank card issuers and with other general purpose credit card issuers, including American Express®, Discover®Network and issuers of Visa®and
MasterCard®credit cards. Our other businesses have substantial competitors as well. Some
of these competitors already may use or may begin using many of the programs and strategies that we have used to attract new accounts. In addition, many of our competitors are substantially larger than we are and have greater financial resources.
Further, the Gramm-Leach-Bliley Act of 1999, which permits the affiliation of commercial banks, insurance companies and securities firms, may increase the level of competition in the financial services market, including the credit card business.

We may be unable to sustain and manage our growth. We may experience fluctuations in net income or sustain net losses if we
are not able to sustain or effectively manage our growth. Growth is a product of a combination of factors, many of which are not in our control. Factors include:



| |  |  | growth in both existing and new receivables;
| | - |  | --------------------------------------------



| |  |  | the degree to which we lose receivables to competitors;
| | - |  | -------------------------------------------------------



| |  |  | levels of delinquencies and charge offs;
| | - |  | ----------------------------------------



| |  |  | the availability of funding, including securitizations, on favorable terms;
| | - |  | ---------------------------------------------------------------------------



| |  |  | our ability to sell retained interests on favorable terms;
| | - |  | ----------------------------------------------------------



| |  |  | our ability to attract new customers through originations or portfolio purchases;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the level of costs of soliciting new customers;
| | - |  | -----------------------------------------------



| |  |  | the level of response to our solicitations;
| | - |  | -------------------------------------------



| |  |  | our ability to employ and train new personnel;
| | - |  | ----------------------------------------------



| |  |  | our ability to maintain adequate management systems, collection procedures, internal controls and automated systems; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | general economic and other factors beyond our control.
| | - |  | ------------------------------------------------------

Our decisions regarding marketing can have a significant impact on our growth. We can increase or decrease the size of our outstanding receivables balances by increasing or decreasing our marketing efforts. Marketing is
expensive, and during periods when we have less liquidity than we like or when prospects for continued liquidity in the future do not look promising, we may decide to limit our marketing and thereby our growth. We decreased our marketing during
2003, although we increased our marketing in 2004 and 2005 because of our improved access to capital attributable to our Merrill Lynch securitization facility.

Our operating expenses and our ability to effectively service our accounts are dependent on our ability to estimate the future size and general growth rate of the portfolio. One of our servicing
agreements causes us to make additional payments if we overestimate the size or growth of our business. These additional payments compensate the servicer for increased staffing expenses it incurs in anticipation of our growth. If we grow more slowly
than anticipated, we still may have higher servicing expenses than we actually need, thus reducing our net income.

We Operate in a Heavily Regulated
Industry.

Changes in bankruptcy, privacy or other consumer protection laws, or to the prevailing interpretation thereof, may expose us
to litigation, adversely affect our ability to collect account balances in connection with our traditional credit card business, Jefferson Capitals charged-off receivables operations, auto finance and micro-loan activities, or otherwise
adversely affect our operations. Similarly, regulatory changes could adversely affect our ability or willingness to market credit cards and other products and services to our customers. The accounting rules that govern our business are exceedingly
complex, difficult to apply and in a state of flux. As a result, how we value our receivables and otherwise account for our business (including whether we consolidate our securitizations) is subject to change depending upon the interpretation of,
and changes in, those rules. Some of these issues are discussed more fully below.



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Reviews and enforcement actions by regulatory authorities under banking and consumer protection
laws and regulations may result in changes to our business practices, may make collection of account balances more difficult or may expose us to the risk of fines and litigation.Our operations and the operations of the issuing banks through
which we originate credit products are subject to the jurisdiction of federal, state and local government authorities, including the SEC, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, state regulators
having jurisdiction over financial institutions and debt origination and debt collection and state attorneys general. Our business practices, including the terms of our products and our marketing, servicing and collection practices, are subject to
both periodic and special reviews by these regulatory and enforcement authorities. These reviews can range from the investigations of specific consumer complaints or concerns to broader inquiries into our practices generally. If as part of these
reviews the regulatory authorities conclude that we are not complying with applicable law, they could request or impose a wide range of remedies including requiring changes in advertising and collection practices, changes in the terms of our
products (such as decreases in interest rates or fees), the imposition of fines or penalties, or the taking of remedial action with respect to affected customers. They also could require us to stop offering some of our products, either nationally or
in selected states. To the extent that these remedies are imposed on the issuing banks through which we originate credit products, we generally are responsible for the remedies as a result of our indemnification obligations with those banks.
Furthermore, negative publicity relating to the announcement of any specific inquiry or investigation could hurt our ability to conduct business with various industry participants or attract new accounts and could negatively affect our stock price,
which would adversely affect our ability to raise additional capital and raise our costs of doing business.

As discussed below, in March
2006, one of our subsidiaries stopped processing and servicing micro-loans in North Carolina in settlement of a review by the North Carolina Attorney General, and we are terminating our processing and servicing of micro-loans for third-party banks
in three other states in response to a position taken with respect to banks generally by the FDIC. Additionally, we are in the process of responding to a review of our marketing and other materials and our servicing and collection practices in
another jurisdiction. The regulator has taken the position that certain specific practices are not in compliance with its interpretation of applicable state law and has requested various remedies. We also are in the process of responding to various
routine reviews by other regulatory authorities. We believe that our compliance with the likely remedies in these situations will not result in a material adverse change in our financial condition, results of operations or business. However, if any
additional deficiencies or violations of law or regulations are identified by us or any regulator as a result of these or other reviews, there can be no assurance that the correction of such deficiencies or violations would not have a material
adverse effect on our financial condition, results of operations or business.

In addition, whether or not we modify our practices when a
regulatory or enforcement authority requests or requires that we do so, there is a risk that we or other industry participants may be named as defendants in litigation involving alleged violations of federal and state laws and regulations, including
consumer protection laws. Any failure to comply with legal requirements by us or the issuing banks through which we originate credit products in connection with the issuance of those products, or by us or our agents as the servicer of our accounts,
could significantly impair our ability to collect the full amount of the account balances. The institution of any litigation of this nature, or any judgment against us or any other industry participant in any litigation of this nature, could
adversely affect our business and financial condition in a variety of ways.

Increases in required minimum payment levels could
impact our business adversely. Recently, regulators of credit card issuers have requested or required that the issuers increase their minimum monthly payment requirements to prevent so-called negative amortization, in which the
monthly minimum payment is not sufficient to reduce the outstanding balance even if new purchases are not made. This can be caused by, among other things, the imposition of over-limit, late and other fees. We request a minimum payment from our
credit cardholders that is sufficient to cover over-limit, late and other fees plus 3% or 4% (depending upon the credit card product) of their outstanding balancea minimum payment level that is designed to prevent negative amortization.
However, we have followed a more consumer friendly practice of not treating cardholders as delinquent (with commensurate adverse credit agency reporting) provided they make a minimum payment of only 3% or 4% (depending on the credit card product) of
their outstanding balance (i.e., exclusive of the requested over-limit, late and other fees). Because of this practice, as of March 31, 2006, approximately 1.5% of our accounts (representing approximately 3% of our receivables) were
experiencing negative amortizations. In anticipation of a request by regulators or any of our issuing banks that we modify our minimum payment practices, we have commenced the process of testing alternative minimum payment, fee and other credit
terms designed to prevent negative amortization. This testing will take one year or more to complete, and at the end of the testing we expect to change some of our practices. We have not, however, made any assessment of the impact of any changes on
our business, although changes could adversely impact our delinquency and charge off statistics and the amounts ultimately collected from cardholders.

Adverse regulatory action with respect to issuing banks could adversely impact our business. It is possible that a regulatory position or action taken with respect to any of the issuing banks through
which we originate credit products or for whom we service receivables, might result in the banks inability or unwillingness to originate credit products on our behalf or in partnership with us. For instance, in February 2006 the FDIC
effectively asked insured financial institutions not to issue cash advance and installment micro-loans through third-party servicers. Immediately after this request, the issuing bank for which we provide services in four states stopped making new
loans. In the future, the FDIC or other regulators may find other aspects of the products that we originate or



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service objectionable, including, for instance, the terms of the credit offerings (particularly for our high fee
products) or the manner in which we market them. We are entirely dependent in our issuing relationships with these institutions, and their regulators could at any time limit their ability to issue some or all products on our behalf, or that we
service on their behalf, or to modify those products significantly. Any significant interruption of those relationships would result in our being unable to originate new receivables and other credit products, which would have a materially adverse
impact on our business.

Changes to consumer protection laws or changes in their interpretation may impede collection efforts or
otherwise adversely impact our business practices. Federal and state consumer protection laws regulate the creation and enforcement of consumer credit card receivables and other loans. As an originator and servicer of sub-prime receivables,
we typically charge higher interest rates and fees than lenders serving consumers with higher credit scores. Sub-prime lenders are commonly the target of legislation (and revised legislative interpretations) intended to prohibit or curtail these and
other industry-standard practices as well as non-standard practices. Among others, changes in the consumer protection laws could result in the following:



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



| |  |  | we may be required to refund previously collected amounts;
| | - |  | ----------------------------------------------------------



| |  |  | certain of our collection methods could be prohibited, forcing us to revise our practices or adopt more costly or less effective practices;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | federal and state laws may limit our ability to recover on charged-off receivables regardless of any act or omission on our part;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | reductions in statutory limits for fees and finance charges could cause us to reduce our fees and charges;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | some of our products and services could be banned in certain states or at the federal level; for example, in 2004 the State of Georgia made certain micro-loan practices illegal and
regulatory action and litigation has been brought in North Carolina alleging that certain micro-loan practices are prohibited in that state; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | federal or state bankruptcy or debtor relief laws could offer additional protections to customers seeking bankruptcy protection, providing a court greater leeway to reduce or
discharge amounts owed to us.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Accordingly, our business is always subject to changes in the regulatory environment. Changes
or additions to the consumer protection laws and related regulations, or to the prevailing interpretations thereof, could invalidate or call into question a number of our existing products, services and business practices, including our credit card
origination, charged-off receivable collection, auto finance and micro-loan activities. Any material regulatory developments could adversely impact our results from operations.

Changes in bankruptcy laws may have an adverse impact on our performance. Effective October 17, 2005, the federal bankruptcy code
was amended in several respects. One of the changes made it substantially more difficult for individuals to obtain a complete release from their debts through a bankruptcy filing. As a result, immediately prior to the effective date of the
amendments there was a substantial increase in bankruptcy filings by individuals. While much of the impact of this particular law change appears to have been simply to accelerate the bankruptcy filings by individuals who otherwise would have filed
in due course and while this particular law may have ongoing future benefits to us through potential reductions in future bankruptcy filings, other future bankruptcy law changes could potentially have a materially adverse effect on our business.

The Retail Micro-Loans segment of our business operates in an increasingly hostile regulatory environment. Most states have
specific laws regulating micro-loan activities and practices (one form of these activities is sometimes referred to as payday lending). Moreover, during the last few years, legislation has been adopted in some states that prohibits or
severely restricts micro-loan cash advance services. For example, in May 2004, a new law became effective in Georgia that effectively prohibits certain micro-loan practices in the state. Several other state legislatures have introduced bills to
restrict or prohibit cash advance micro-loans. In addition, Mississippi and Arizona have sunset provisions in their laws permitting micro-loans that require renewal of the laws by the state legislatures at periodic intervals. Although
states provide the primary regulatory framework under which we conduct our micro-loan services, certain federal laws also impact our business. In March 2005 the FDIC issued guidance limiting the frequency of borrower usage of cash advance
micro-loans offered by FDIC-supervised institutions and the period a customer may have cash advance micro-loans outstanding from any lender to three months during the previous 12-month period. Subsequently, in February 2006, the FDIC effectively
asked FDIC-insured financial institutions to cease cash advance and installment micro-loan activities conducted through a processing and servicing agent such as us. Moreover, future laws or regulations (at the state, federal or local level)
prohibiting micro-loan services or making them unprofitable could be passed at any time or existing micro-loan laws could expire or be amended, any of which could have a material adverse effect on our business, results of operations and financial
condition.

Additionally, state attorneys general, banking regulators, and others continue to scrutinize the micro-loan industry and may
take actions that could require us to cease or suspend operations in their respective states. For example, one of our subsidiaries recently agreed with the Attorney General of the State of North Carolina to stop servicing micro-loans for third-party
banks. Also, a group of plaintiffs brought a series of putative class action lawsuits in North Carolina claiming, among other things, that the cash advance micro-loan activities of the defendants violate numerous North Carolina consumer protection
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remedies including treble damages. One of these lawsuits is pending against CompuCredit and five of our subsidiaries. If
these cases are determined adversely to us, there could be significant consequences to us, including the payment of monetary damages. In the future, we also might voluntarily (or with the encouragement of a regulator) withdraw particular products
from particulars states, which could have a similar effect.

Negative publicity may impair acceptance of our products.
Critics of sub-prime credit and micro-loan providers have in the past focused on marketing practices that they claim encourage consumers to borrow more money than they should, as well as on pricing practices that they claim are either confusing or
result in prices that are too high. Consumer groups, Internet chat sites and media reports frequently characterize sub-prime lenders as predatory or abusive toward consumers and may misinform consumers regarding their rights. If these negative
characterizations and misinformation become widely accepted by consumers, demand for our products and services could be adversely impacted. Increased criticism of the industry or criticism of us in the future could hurt customer acceptance of our
products or lead to changes in the law or regulatory environment, either of which would significantly harm our business.

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

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

Portfolio purchases may cause fluctuations in reported managed receivables data, which may reduce the usefulness of
historical managed loan data in evaluating our business. Our reported managed receivables data may fluctuate substantially from quarter to quarter as a result of recent and future portfolio acquisitions. As of December 31, 2005, portfolio
acquisitions account for 30.4% of our total portfolio based on our ownership percentages.

Receivables included in purchased portfolios are
likely to have been originated using credit criteria different from our criteria. As a result, some of these receivables have a different credit quality than receivables we originated. Receivables included in any particular purchased portfolio may
have significantly different delinquency rates and charge off rates than the receivables previously originated and purchased by us. These receivables also may earn different interest rates and fees as compared to other similar receivables in our
receivables portfolio. These variables could cause our reported managed receivables data to fluctuate substantially in future periods making the evaluation of our business more difficult.

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

We recently
entered the automobile lending business.On April 1, 2005, we acquired Wells Fargo Financials CAR business unit. We are operating these assets in forty-five states through twelve branches, three regional processing centers and one
national collection center based in Lake Mary, Florida under the name CAR Financial Services, Inc. Automobile lending is a new business for us, and we expect to expand further in this business over time. As a new business, we may not be able to
integrate or manage the business effectively. In addition, automobile lending exposes us to a range of risks to which we previously have not been exposed, including the regulatory scheme that governs installment loans and those attendant to relying
upon automobiles and their liquidation value as collateral. In addition, this business acquires loans on a wholesale basis from used car dealers, for which we will be relying upon the legal compliance and credit determinations by those dealers.

Other Risks of Our Business

Unless we obtain a bank charter, we cannot issue credit cards other than through agreements with banks. Because we do not have a bank charter, we currently cannot issue credit cards other than through agreements with banks.
Previously we applied for permission to acquire a bank and our application was denied. Unless we obtain a bank or credit card bank charter, we will continue to rely upon banking relationships to provide for the issuance of credit cards to our
customers. Even if we obtain a bank charter, there may be restrictions on the types of credit that it may extend. Our primary issuing agreement is with CB&T and is scheduled to expire on March 31, 2009. If we are unable to execute a new
agreement with CB&T at the expiration of the current agreement, or if our existing or new agreement with CB&T were terminated or otherwise disrupted, there is a risk that we would not be able to enter into an agreement with an alternate
provider on terms that we consider favorable or in a timely manner without disruption of our business.



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We may not be able to purchase charged-off receivables at sufficiently favorable prices or terms
for our Jefferson Capital operations to be successful. The charged-off receivables that are acquired and serviced by Jefferson Capital or sold to third parties pursuant to forward flow contracts have been deemed uncollectible and written off
by the originators. Jefferson Capital seeks to purchase charged-off receivables portfolios where our projected collections or purchase price received for the sale of such charged-off receivables will exceed our acquisition costs. Accordingly,
factors causing the acquisition price of targeted portfolios to increase could reduce the ratio of collections (or purchase price received) to acquisitions costs for a given portfolio, and thereby negatively affect Jefferson Capitals
profitability. The availability of charged-off receivables portfolios at favorable prices and on favorable terms depends on a number of factors, including the continuation of the current growth and charge off trends in consumer receivables, our
ability to develop and maintain long-term relationships with key charged-off receivable sellers, our ability to obtain adequate data to appropriately evaluate the collectibility of portfolios and competitive factors affecting potential purchasers
and sellers of charged-off receivables, including pricing pressures, which may increase the cost to us of acquiring portfolios of charged-off receivables and reduce our return on such portfolios.

Additionally, sellers of charged-off receivables generally make numerous attempts to recover on their non-performing receivables, often using a
combination of their in-house collection and legal departments as well as third-party collection agencies. Charged-off receivables are difficult to collect, and we may not be successful in collecting amounts sufficient to cover the costs associated
with purchasing the receivables and funding our Jefferson Capital operations.

The analytical model we use to project credit quality
may prove to be inaccurate. We assess credit quality using an analytical model that we believe predicts the likelihood of payment more accurately than traditional credit scoring models. For instance, we have identified factors (such as
delinquencies, defaults and bankruptcies) that under some circumstances we weight differently than do other credit providers. We believe our analysis enables us to better identify consumers within the underserved market who are likely to be better
credit risks than otherwise would be expected. Similarly, we apply our analytical model to entire portfolios in order to identify those that may be more valuable than the seller or other potential purchasers might recognize. There can be no
assurance, however, that we will be able to achieve the collections forecasted by our analytical model. If any of our assumptions underlying our model proves materially inaccurate or changes unexpectedly, we may not be able to achieve our expected
levels of collection, and our revenues will be reduced, which would result in a reduction of our earnings.

Because we outsource
account-processing functions that are integral to our business, any disruption or termination of that outsourcing relationship could harm our business. We outsource account and payment processing pursuant to agreements with CB&T and its
affiliates. In 2005, we paid CB&T and its affiliates $32.0 million for these services. If these agreements were not renewed or were terminated or the services provided to us otherwise disrupted, we would have to obtain these services from
an alternative provider. There is a risk that we would not be able to enter into a similar agreement with an alternate provider on terms that we consider favorable or in a timely manner without disruption of our business.

We rely on Visionary Systems, Inc. for software design and support, and any disruption of our relationship with Visionary Systems could
negatively impact our business. During 2005, we paid Visionary Systems $6.1 million for software development, account origination and consulting services. In the event that Visionary Systems no longer provides us with software and
support, our business would be negatively impacted until we retained replacement vendors. We believe that a number of vendors are qualified to perform the services performed by Visionary Systems and believe that this impact would be only temporary.

If we obtain a bank charter, any changes in applicable state or federal laws could adversely affect our business.
CardWorks, Inc. owns a bank, and as part of our proposed acquisition of CardWorks, Inc. we have applied for permission to acquire that bank. We may or may not receive permission to acquire that bank, and in the future we may apply for
other charters as well. If we obtain a bank or credit card bank charter, we will be subject to the various state and federal regulations generally applicable to similar institutions, including restrictions on the ability of the banking subsidiary to
pay dividends to us. We are unable to predict the effect of any future changes of applicable state and federal laws or regulations, but such changes could adversely affect the banks business and operations.

If we ever consolidate the entities that hold our receivables, the changes to our financial statements are likely to be significant. When
we securitize receivables, they are owned by special purpose entities that are not consolidated with us for financial reporting purposes. The rules governing whether these entities are consolidated are complex and evolving. These rules at some point
could be changed or interpreted in a manner that requires us to consolidate these entities. In addition, we might at some point modify how we securitize receivables, or propose modifications to existing securitization facilities, such that the
consolidation of these entities could be required. If this occurred, we would include the receivables as assets on our balance sheets and also would include a loan loss reserve. Similarly, we no longer would include the corresponding retained
interests as assets. There also would be significant changes to our statements of operations and cash flows. The net effect of consolidation would be dependent upon the amount and nature of the receivables at the time they were consolidated, and
although it is difficult to predict the net effect of consolidation, it is likely to be material.

Internet security breaches could
damage our reputation and business.Internet security breaches could damage our reputation and business. As part of our growth strategy, we may expand our origination of credit card accounts over the Internet. The



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secure transmission of confidential information over the Internet is essential to maintaining consumer confidence in our
products and services offered online. Advances in computer capabilities, new discoveries or other developments could result in a compromise or breach of the technology used by us to protect customer application and transaction data transmitted over
the Internet. Security breaches could damage our reputation and expose us to a risk of loss or litigation. Moreover, consumers generally are concerned with security and privacy on the Internet, and any publicized security problems could inhibit the
growth of the Internet as a means of conducting commercial transactions. Our ability to solicit new account holders over the Internet would be severely impeded if consumers become unwilling to transmit confidential information online.

Investments that we make in the securities of others may be more risky and volatile than similar assets owned by us. From time-to-time
we purchase debt and securities of others, principally those issued by asset-backed securitization trusts (e.g., notes secured or backed by pools of assets) that represent sub-prime credit risks of individuals. These securities in
many cases are junior, including below investment grade, traunches of securities issued by the trusts. The assets underlying these securities are not originated by us and, accordingly, may not meet the underwriting standards that we follow in
originating receivables. Further, we do not have control over the management of the underlying assets and, similarly, they may not be managed as effectively as we would manage similar assets. As a result, the securities in which we invest
may carry higher risks, including risks of higher delinquencies and charge offs, risks of covenant violations and risks of value impairment due to the claims of more senior securities issued by the trusts, than similar assets originated and owned by
us. These higher risks can cause much greater valuation volatility for these securities than we typically have experienced and would expect to experience on our holdings of securities underlying the trusts that we service. And although these
securities generally are traded in an active secondary market, valuation volatility also can be expected to result from liquidity needs that we might have in the future, including any need that we may have for quick liquidity or to meet margin
requirements related to our investments in these securities should their prices decline. In turn, this could result in steep and immediate impairments in the values of the securities as presented within our financial statements and could cause our
financial position and results of operations to deteriorate, possibly materially. At March 31, 2006, we had investments in the debt and similar securities of others of $64.4 million.

Risks Relating to an Investment in Our Common Stock

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



| |  |  | actual or anticipated fluctuations in our operating results;
| | - |  | ------------------------------------------------------------



| |  |  | changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | the operating and stock performance of our competitors;
| | - |  | -------------------------------------------------------



| |  |  | announcements by us or our competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in interest rates;
| | - |  | --------------------------



| |  |  | the announcement of enforcement actions or investigations against us or our competitors or other negative publicity relating to us or our industry;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in accounting principles generally accepted in the United States of America (GAAP), laws, regulations or the interpretations thereof that affect our various
business activities and segments;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | general domestic or international economic, market and political conditions;
| | - |  | ----------------------------------------------------------------------------



| |  |  | additions or departures of key personnel; and
| | - |  | ---------------------------------------------



| |  |  | future sales of our common stock and the share lending agreement.
| | - |  | -----------------------------------------------------------------

In addition, the stock markets from time to time experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies. These broad fluctuations may adversely affect the trading
price of our common stock, regardless of our actual operating performance.

Future sales of our common stock or equity-related
securities in the public market, including sales of our common stock pursuant to share lending agreements or in short sales transactions by purchasers of convertible notes securities, could adversely affect the trading price of our common stock and
our ability to raise funds in new stock offerings.Sales of significant amounts of our common stock or equity-related securities in the public market, including sales pursuant to share lending agreements, or the perception that such sales
will occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related securities. No prediction can be made as to the effect, if any, that
future sales of shares of common stock or the availability of shares of common stock for future sale, including sales of our common stock in short sales transactions by purchasers of the notes, will have on the trading price of our common stock.



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

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

Note Regarding Risk Factors

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS



|              |  |                                                                                                                                       |  |                                                                                
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                |  | Incorporated byreference fromCompuCredits SECfilings
unlessotherwiseindicated:
|2.1           |  | Amendment to the Stock Purchase Agreement, dated as of March 23, 2006, by and between CardWorks, L.P. and Liberty Acquisition, Inc.   |  | March 29, 2006, Form 8-K, exhibit 2.1                                          
|              |  |                                                                                                                                      
|2.2           |  | Amendment No. 2 to Stock Purchase Agreement, dated as of April 12, 2006, by and between CardWorks, L.P. and Liberty Acquisition, Inc. |  | April 14, 2006, Form 8-K, exhibit 2.1                                          
|              |  |                                                                                                                                      
|2.3           |  | Amendment No. 3 to Stock Purchase Agreement, dated as of April 12, 2006, by and between CardWorks, L.P. and Liberty Acquisition, Inc. |  | April 28, 2006, Form 8-K, exhibit 2.1                                          
|              |  |                                                                                                                                      
|31.1          |  | Certification per Section 302 of the Sarbanes-Oxley Act of 2002 for David G. Hanna                                                    |  | Filed herewith                                                                 
|              |  |                                                                                                                                      
|31.2          |  | Certification per Section 302 of the Sarbanes-Oxley Act of 2002 for J.Paul Whitehead, III                                             |  | Filed herewith                                                                 
|              |  |                                                                                                                                      
|32.1          |  | Certification per Section 906 of the Sarbanes-Oxley Act of 2002 for David G. Hanna and J.Paul Whitehead, III                          |  | Filed herewith                                                                 



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|            |  |                         |  |                                                          
|----------- |  | ----------------------- |  | ---------------------------------------------------------
|            |  | COMPUCREDIT CORPORATION
|            |  |                        
|May 8, 2006 |  | By                      |  | /s/ J.PAUL WHITEHEAD, III                                
|            |  |                         |  | J.Paul Whitehead, III                                    
|            |  |                         |  | Chief Financial Officer                                  
|            |  |                         |  | (duly authorized officer and principal financial officer)



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