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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C.   20549**

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**FORM10-Q**
| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|-----------------------------------------------------------------------------------------------|
|       | **For the quarterly period ended June 30, 2001.**                                             |
|       | **or**                                                                                        |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|       | **For the transition period  from_________to_________.**                                      |

**Commission file number 025751**

 

**CompuCredit Corporation**(Exact name of registrant as specified in its charter)

| **Georgia**                                                     |   | **58-2336689**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| ****                                                            |   | ****                                  |
| (State or other  jurisdiction of incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                            |   |                                  |
| **245 Perimeter Center Parkway, Suite 600, Atlanta, Georgia**   |   | **30346**                             |
| ****                                                            |   | ****                                  |
| (Address  of principal executive offices)                       |   | (Zip  Code)                           |

**(770) 206-6200**

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(Registrant’stelephone number, including area code)

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Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. YES ý        NO o

Thenumber of shares outstanding of the issuer’s only class of Common Stock, no parvalue, (the “Common Stock”), as of August 6, 2001 was 46,559,165 shares.

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**COMPUCREDITCORPORATION**

**FORM10-Q**

**TABLEOF CONTENTS**

June30, 2001
|     |     |                                                                                        |                                                            |
|----------|----------|---------------------------------------------------------------------------------------------|-----------------------------------------------------------------|
| PART I.  |     | FINANCIAL INFORMATION                                                                       |                                                            |
|     |     |                                                                                        |                                                            |
|     | Item 1.  | Financial Statements  (Unaudited)                                                           |                                                            |
|     |     |                                                                                        | Condensed  Consolidated Balance Sheets                          |   |
|     |     |                                                                                        | Condensed  Consolidated Statements of Income                    |   |
|     |     |                                                                                        | Condensed  Consolidated Statements of Shareholders’ Equity |   |
|     |     |                                                                                        | Condensed  Consolidated Statements of Cash Flows                |   |
|     |     |                                                                                        | Notes  to Condensed Consolidated Financial Statements           |   |
|     |     |                                                                                        |                                                            |
|     | Item  2. | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |                                                            |
|     |     |                                                                                        |                                                            |
|     | Item  3. | Quantitative  and Qualitative Disclosures About Market Risk                                 |                                                            |
|     |     |                                                                                        |                                                            |
| PART II. |     | OTHER INFORMATION                                                                           |                                                            |
|     |     |                                                                                        |                                                            |
|     | Item 1.  | Legal Proceedings                                                                           |                                                            |
|     |     |                                                                                        |                                                            |
|     | Item  2. | Changes  in Securities and Use of Proceeds                                                  |                                                            |
|     |     |                                                                                        |                                                            |
|     | Item 3.  | Defaults  Upon Senior Securities                                                            |                                                            |
|     |     |                                                                                        |                                                            |
|     | Item  4. | Submission  of Matters to a Vote of Security Holders                                        |                                                            |
|     |     |                                                                                        |                                                            |
|     | Item 5.  | Other Information                                                                           |                                                            |
|     |     |                                                                                        |                                                            |
|     | Item  6. | Exhibits  and Reports on Form 8-K                                                           |                                                            |
|     |     |                                                                                        |                                                            |
|     |     | Signatures                                                                                  |                                                            |
|          |          |                                                                                             |                                                                 |  |  |

 

| **Part I -  FINANCIAL INFORMATION****Item 1. Financial Statements**                                                                                                |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                               |   |   |   |   |   |   |
| **CompuCredit Corporation and  SubsidiariesCondensed Consolidated Balance  Sheets**                                                                                |
|                                                                                                                                                               |   |   |   |   |   |   |
|                                                                                                                                                               |   |   | **(Unaudited)** |   |   |   |
|                                                                                                                                                               |   |   | **June 30,** |   | ** ** | **December 31,** |
|                                                                                                                                                               |   |   | **2001** |   | ** ** | **2000** |
|                                                                                                                                                               |   |   | **** |   |   | **** |
|                                                                                                                                                               |   |   | *(Dollars in  thousands)* |
|                                                                                                                                                               |   |   |   |   | ** ** |   |
| **Assets**                                                                                                                                                         |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                                                          |   | $ | 50,977 |   |  $ | 68,980 |
|                                                                                                                                                               |   |   |   |   |   |   |
| Retained interests in credit card  receivables securitized                                                                                                         |   |   | 361,731 |   |   | 325,583 |
| Accrued interest and fees                                                                                                                                          |   |   | 27,409 |   |   | 24,569 |
|                                                                                                                                                               |   |   |  |   |   |  |
| Net credit card receivables                                                                                                                                        |   |   | 389,140 |   |   | 350,152 |
|                                                                                                                                                               |   |   |   |   |   |   |
| Amounts due from securitization                                                                                                                                    |   |   | 10,248 |   |   | 11,735 |
| Deferred costs, net                                                                                                                                                |   |   | 6,671 |   |   | 8,332 |
| Software, furniture, fixtures and  equipment, net                                                                                                                  |   |   | 22,729 |   |   | 14,268 |
| Prepaid expenses                                                                                                                                                   |   |   | 908 |   |   | 5,540 |
| Other assets                                                                                                                                                       |   |   | 8,793 |   |   | 11,498 |
|                                                                                                                                                               |   |   |  |   |   |  |
| Total assets                                                                                                                                                       |   | $ | 489,466 |   |  $ | 470,505 |
|                                                                                                                                                               |   |   |  |   |   |  |
|                                                                                                                                                               |   |   |   |   |   |   |
| **Liabilities**                                                                                                                                                    |   |   |   |   |   |   |
| Accrued expenses                                                                                                                                                   |   | $ | 12,095 |   |  $ | 21,531 |
| Note payable                                                                                                                                                       |   |   | 1,412 |   |   | – |
| Deferred revenue                                                                                                                                                   |   |   | 7,494 |   |   | 9,217 |
| Income tax liability                                                                                                                                               |   |   | 43,132 |   |   | 35,576 |
|                                                                                                                                                               |   |   |  |   |   |  |
| Total liabilities                                                                                                                                                  |   |   | 64,133 |   |   | 66,324 |
|                                                                                                                                                               |   |   |   |   |   |   |
|                                                                                                                                                               |   |   |   |   |   |   |
| **Shareholders'  equity**                                                                                                                                          |   |   |   |   |   |   |
| Common stock, no par value, 150,000,000 shares authorized,  46,559,165 and 46,514,639 issued and outstanding at June 30, 2001 and  December 31, 2000, respectively |   |   | – |   |       | – |
| Additional paid-in capital                                                                                                                                         |   |   | 240,352 |   |   | 239,789 |
| Note issued to purchase stock                                                                                                                                      |   |   | (500 | ) |   | – |
| Retained earnings                                                                                                                                                  |   |   | 185,481 |   |   | 164,392 |
|                                                                                                                                                               |   |   |  |   |   |  |
| Total shareholders' equity                                                                                                                                         |   |   | 425,333 |   |   | 404,181 |
|                                                                                                                                                               |   |   |  |   |   |  |
| Total liabilities and  shareholders' equity                                                                                                                        |   | $ | 489,466 |   |  $ | 470,505 |
|                                                                                                                                                               |   |   |  |   |   |  |
|                                                                                                                                                               |   |   |   |   |   |   |
| *See accompanying notes.*                                                                                                                                          |   |   |   |   |   |   |

 

| **CompuCredit  Corporation and Subsidiaries**               |
|-------------------------------------------------------------|
| **Condensed Consolidated Statements of Income (Unaudited)** |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |   | **For the Three Months Ended** |   | **For the Six  Months Ended** |   |
|                                                        |   | **June 30,** |   | **June 30,** |   |
|                                                        |   |   | **2001** |   |   | **2000** |   |   | **2001** |   |   | **2000** |   |
|                                                        |   |   | **** |   |   | **** |   |   | **** |   |   | **** |   |
|                                                        |   | *(Dollars in  thousands, except per share data)* |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                         |   | $ | 636 |   |  $ | 2,402 |   |  $ | 1,645 |   |  $ | 3,834 |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other operating income:                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                        | Securitization income, net |   |   | 238 |   |   | 3,967 |   |   | 504 |   |   | 5,756 |   |
|                                                        | Income from retained interests in credit card   receivables securitized |   |   | 21,278 |   |     | 31,455 |   |     | 36,723 |   |     | 63,804 |   |
|                                                        | Servicing income |   |   | 1,548 |   |   | 2,052 |   |   | 3,235 |   |   | 4,266 |   |
|                                                        | Other credit card fees |   |   | 20,796 |   |   | 11,701 |   |   | 39,509 |   |   | 21,609 |   |
|                                                        | Interchange fees |   |   | 5,541 |   |   | 4,694 |   |   | 10,902 |   |   | 8,787 |   |
|                                                        | Ancillary products |   |   | 7,372 |   |   | 6,613 |   |   | 14,942 |   |   | 13,617 |   |
|                                                        |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total other operating income                                |   |   | 56,773 |   |   | 60,482 |   |   | 105,815 |   |   | 117,839 |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other operating expense:                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                        | Salaries and benefits |   |   | 2,760 |   |   | 1,253 |   |   | 5,043 |   |   | 2,454 |   |
|                                                        | Credit card servicing |   |   | 15,051 |   |   | 5,627 |   |   | 29,180 |   |   | 10,714 |   |
|                                                        | Marketing and solicitation |   |   | 7,727 |   |   | 12,606 |   |   | 19,858 |   |   | 24,380 |   |
|                                                        | Professional fees |   |   | 828 |   |   | 221 |   |   | 1,810 |   |   | 925 |   |
|                                                        | Data processing |   |   | 1,875 |   |   | 1,202 |   |   | 4,492 |   |   | 2,357 |   |
|                                                        | Net occupancy |   |   | 602 |   |   | 277 |   |   | 1,407 |   |   | 519 |   |
|                                                        | Ancillary product expense |   |   | 2,113 |   |   | 2,143 |   |   | 6,080 |   |   | 4,005 |   |
|                                                        | Other |   |   | 3,817 |   |   | 1,613 |   |   | 7,145 |   |   | 2,850 |   |
|                                                        |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total other operating expense                               |   |   | 34,773 |   |   | 24,942 |   |   | 75,015 |   |   | 48,204 |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before income taxes                                  |   |   | 22,636 |   |   | 37,942 |   |   | 32,445 |   |   | 73,469 |   |
| Income tax expense                                          |   |   | (7,923 | ) |   | (13,072 | ) |   | (11,356 | ) |   | (24,609 | ) |
|                                                        |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Net income                                                  |   | $ | 14,713 |   |  $ | 24,870 |   |  $ | 21,089 |   |  $ | 48,860 |   |
|                                                        |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income attributable to common  shareholders             |   | $ | 14,713 |   |  $ | 24,870 |   |  $ | 21,089 |   |  $ | 48,860 |   |
|                                                        |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Net income per common share -  basic                        |   | $ | 0.32 |   |  $ | 0.54 |   |  $ | 0.45 |   |  $ | 1.08 |   |
|                                                        |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Net income per common share -  diluted                      |   | $ | 0.32 |   |  $ | 0.53 |   |  $ | 0.45 |   |  $ | 1.07 |   |
|                                                        |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| *See accompanying notes.*                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |

 

| **CompuCredit  Corporation and Subsidiaries**                             |
|---------------------------------------------------------------------------|
| **Condensed Consolidated Statements of Shareholders' Equity (Unaudited)** |
| **For the Six  Months Ended June 30, 2001 and 2000**                      |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                      |   | **Common Stock** |   |   | **Additional** |   |   | **Other** |   |   |   |   | **Total** |
|                                                                      |   | **** |   |   | **Paid-In** |   |   | **Changes in** |   |   | **Retained** |   | **Shareholders'** |
|                                                                      |   | **Shares** |   |   | **Amount** |   |   | **Capital** |   |   | **Equity** |   |   | **Earnings** |   |   | **Equity** |   |
|                                                                      |   | **** |   |   | **** |   |   | **** |   |   | **** |   |   | **** |   |   | **** |   |
|                                                                      |   | *(Dollars in  thousands)* |   |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2000                                                |   | 41,834,725 |   | $ | – |   | $ | 93,374 |   | $ | – |   | $ | 82,847 |   | $ | 176,221 |   |
|                                                                      | Issuance of common stock |   | 4,600,000 |   |   | – |   |   | 145,242 |   |   | – |   |   | – |   |   | 145,242 |   |
|                                                                      | Stock options exercised |   | 5,500 |   |   | – |   |   | 66 |   |   | – |   |   | – |   |   | 66 |   |
|                                                                      | Cash dividend paid by pooled  Company |   | – |   |   | – |   |   | – |   |   | – |   |   | (829 | ) |   | (829 | ) |
|                                                                      | Net income |   | – |   |   | – |   |   | – |   |   | – |   |   | 48,860 |   |   | 48,860 |   |
|                                                                      |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Balance at June 30, 2000                                                  |   | 46,440,225 |   | $ | – |   | $ | 238,682 |   | $ | – |   | $ | 130,878 |   | $ | 369,560 |   |
|                                                                      |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2001                                                |   | 46,514,639 |   | $ | – |   | $ | 239,789 |   | $ | – |   | $ | 164,392 |   | $ | 404,181 |   |
|                                                                      | Issuance of common stock |   | 44,526 |   |   | – |   |   | 563 |   |   | – |   |   | – |   |   | 563 |   |
|                                                                      | Note issued to purchase stock | – |   |   | – |   |   | – |   |   | (500 | ) |   | – |   |   | (500 | ) |
|                                                                      | Net income |   | – |   |   | – |   |   | – |   |   | – |   |   | 21,089 |   |   | 21,089 |   |
|                                                                      |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Balance at June 30, 2001                                                  |   | 46,559,165 |   | $ | – |   | $ | 240,352 |   | $ | (500 | ) | $ | 185,481 |   | $ | 425,333 |   |
|                                                                      |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| *See accompanying notes.*                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

 

**CompuCreditCorporation and Subsidiaries**

**CondensedConsolidated Statements of Cash Flows (Unaudited)******

|                                                                               | **For the Six  Months Ended**                 |   |
|------------------------------------------------------------------------------------|-----------------------------------------------|--------|
|                                                                               | **June 30,**                                  |   |
|                                                                               | **2001**                                      |   | **2000** |   |
|                                                                               | ****                                          |   | **** |   |
|                                                                               | *(Dollars in  thousands)*                     |   |
|                                                                               |                                          |   |   |   |
| **Operating activities**                                                           |                                          |   |   |   |
| Net income                                                                         | $                                             | 21,089 |   | $ | 48,860 |   |
| Adjustments to reconcile net income to net cash provided by  operating activities: |                                          |   |   |   |
|                                                                               | Depreciation expense                          | 3,848  |   | 1,746 |   |
|                                                                               | Amortization expense                          | 3,224  |   | 2,147 |   |
|                                                                               | Securitization income                         | (504   | ) | (5,756 | ) |
|                                                                               | Retained interests income  adjustment, net    | 6,802  |   | (3,487 | ) |
|                                                                               | Changes in operating assets and  liabilities: |   |   |   |   |
|                                                                               | Restricted  cash                              | – |   | 10,000 |   |
|                                                                               | Accrued  interest and fees                    | (2,840 | ) | (6,208 | ) |
|                                                                               | Amounts  due from securitization              | 1,487  |   | (2,027 | ) |
|                                                                               | Deferred  costs                               | (2,529 | ) | (2,472 | ) |
|                                                                               | Prepaid  expenses                             | 4,632  |   | (301 | ) |
|                                                                               | Accrued  expenses                             | (8,024 | ) | 7,092 |   |
|                                                                               | Deferred  revenue                             | (1,723 | ) | (882 | ) |
|                                                                               | Income  tax liability                         | 7,556  |   | 1,752 |   |
|                                                                               | Other                                         | 2,704  |   | (1,502 | ) |
|                                                                               |                                               |   |  |   |
| Net cash provided by operating  activities                                         | 35,722                                        |   | 48,962 |   |
|                                                                               |                                          |   |   |   |
|                                                                               |                                          |   |   |   |
| **Investing activities**                                                           |                                          |   |   |   |
| Net loans originated or purchased                                                  | (199,387                                      | )      | (339,273 | ) |
| Recoveries of loans previously  charged off                                        | 12,381                                        |   | 4,064 |   |
| Net proceeds from securitization  of loans                                         | 139,112                                       |   | 266,850 |   |
| Proceeds from retained interests in credit card receivables  securitized           | 6,415                                         |   | 9,394 |   |
| Purchases of and development of software, furniture, fixtures  and equipment       | (12,309                                       | )      | (5,413 | ) |
|                                                                               |                                               |   |  |   |
| Net cash used in investing  activities                                             | (53,788                                       | )      | (64,378 | ) |
|                                                                               |                                          |   |   |   |
|                                                                               |                                          |   |   |   |
| **Financing activities**                                                           |                                          |   |   |   |
| Proceeds from exercise of stock  options                                           | –                                        |   | 66 |   |
| Cash dividend paid by pooled  company                                              | –                                        |   | (829 | ) |
| Note issued to purchase stock                                                      | (500                                          | )      | – |   |
| Net proceeds from issuance of  common stock                                        | 563                                           |   | 145,242 |   |
|                                                                               |                                               |   |  |   |
| Net cash provided by financing  activities                                         | 63                                            |   | 144,479 |   |
|                                                                               |                                          |   |   |   |
| **Net (decrease)/increase in cash**                                                | (18,003                                       | )      | 129,063 |   |
| Cash and cash equivalents at  beginning of period                                  | 68,980                                        |   | 11,837 |   |
|                                                                               |                                               |   |  |   |
| Cash and cash equivalents at end  of period                                        | $                                             | 50,977 |   | $ | 140,900 |   |
|                                                                               |                                               |   |  |   |
|                                                                               |                                          |   |   |   |
| *See accompanying notes.*                                                          |                                          |   |   |   |
|                                                                                    |                                               |        |  |  |  |  |  |  |

 

**CompuCredit Corporation and Subsidiaries****Notes to CondensedConsolidated Financial Statements (Unaudited)****June 30, 2001**

**1. Organization and Basis of Presentation**

             Thecondensed consolidated financial statements include the accounts of CompuCreditCorporation and its subsidiaries (collectively, the “Company”).  All significant intercompany balances andtransactions have been eliminated for financial reporting purposes. The Companywas formed for the purpose of offering unsecured credit cards and fee based productsand services to a specialized segment of the consumer credit market.  The Company markets unsecured generalpurpose credit cards through direct mail, television, telemarketing and on theInternet through its wholly owned subsidiary, AspireCard.com.  The Company has a contractual arrangementwith a third party financial institution pursuant to which the financialinstitution issues general purpose credit cards, and the Company purchases thereceivables relating to such accounts. The Company also markets to our cardholders other fee-based productsincluding card registration, memberships in preferred buying clubs, magazines,travel services and credit life, disability and unemployment insurance.

             Theaccompanying unaudited condensed consolidated financial statements of theCompany have been prepared in accordance with accounting principles generallyaccepted in the United States for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, theydo not include all of the information and footnotes required by accountingprinciples generally accepted in the United States for complete consolidatedfinancial statements. In the opinion of management, all normal recurringadjustments considered necessary to fairly state the results for the interimperiods presented have been included. The preparation of financial statementsin conformity with accounting principles generally accepted in the UnitedStates requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the consolidated financial statements as well asthe reported amount of revenues and expenses during the reporting period.Actual results could differ from these estimates. Certain estimates such ascredit losses, payment and discount rates have a significant impact on thegains recorded on securitizations and the value of retained interests in creditcard receivables securitized. Operating results for the six months ended June30, 2001 are not necessarily indicative of the results for the year endedDecember 31, 2001. The notes to the financial statements for the year endedDecember 31, 2000 contained in the Company’s Annual Report on Form 10-K filedwith the Securities and Exchange Commission should be read in conjunction withthese condensed consolidated financial statements.

             Certainamounts in prior period financial statements have been reclassified to conformto the current period presentation.

**2. Significant Accounting Policies**

             Thefollowing is a summary of significant accounting policies followed in thepreparation of the consolidated financial statements.

**Asset Securitization**

             TheCompany has securitized a substantial portion of its credit card receivables.When the Company sells receivables in securitizations, it retains certainundivided ownership interests, interest-only strips and servicing rights.Although the Company continues to service the underlying credit card accountsand maintains the client relationships, these transactions are treated as salesand the securitized receivables are not reflected on the consolidated balancesheet. The retained ownership interests and the interest-only strips areincluded in Retained Interests in Credit Card Receivables Securitized.  Amounts Due from Securitization includepayments recently received on the securitized receivables that are still heldby the securitization structure but are payable to the Company within the next30 days.

             UnderStatement of Financial Accounting Standards No. 140, “Accounting forTransfers and Servicing of Financial Assets and Extinguishments of Liabilities”(“Statement No. 140”), gains are recognized at the time of each sale.  “See Recently Issued Accounting Standards.”These gains are based on the estimated fair value of the retained interests,which are based on the estimated present value of the cash flows the Companyexpects to receive over the estimated outstanding life of the receivables.These cash flows represent estimates of finance charges and late fees,servicing fees, costs of funds paid to investors, payment rates, credit losses,and required amortization payments to investors.

             Theretained interests are subsequently accounted for as trading securities andreported at estimated fair market value with changes in fair value included inincome in accordance with Statement of Financial Accounting StandardsNo. 115, “Accounting for Certain Investments in Debt and EquitySecurities” (“Statement No. 115”). Certain estimates used in the determinationof the gains and the related fair values of interest-only strips andretainedownership interests are influenced by factors outside the Company’s control,and, as a result, such estimates could materially change in the near term.

**Recently Issued Accounting Standards**

             InSeptember 2000, the FASB issued Statement No. 140, that replaces, inits entirety, FASB Statement No. 125. Although Statement 140 has changed manyof the rules regarding securitizations, it continues to require an entity torecognize the financial and servicing assets it controls and the liabilities ithas incurred and to derecognize financial assets when control has beensurrendered in accordance with the criteria provided in the statement. Asrequired, the Company has applied the new rules prospectively to transactionsbeginning after March 31, 2001. Adoption of this Statement did not have amaterial impact on the Company's financial statements.

             On January 1, 2001 the Companyadopted Financial Accounting Standard ("FAS") No. 133,"Accounting for Derivative Instruments and Hedging Activities." ThisStatement establishes new accounting and reporting standards for derivativeinstruments and hedging activities. It requires that an entity recognize allderivatives as either assets or liabilities on the balance sheet and measurethose derivatives at fair value. The accounting for the gains or lossesresulting from changes in the value of those derivatives will depend on theintended use of the derivative and whether it qualifies for hedge accounting.FAS 133, as amended by statement 138, was required to be adopted forfiscal years beginning after June 15, 2000. Adoption of this Statement didnot have a material impact on the Company's financial statements.

             On January 1, 2001 the Companyadopted Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition inFinancial Statements. This SAB explains how the SEC staff believes existingRevenue Recognition rules should be applied. In June 2000, the SEC issuedSAB 101B, which delays the implementation date of SAB 101 until no later thanthe fourth fiscal quarter of fiscal years beginning after December 15,1999. Adoption of this Standard did not have a material impact on the Company'sfinancial statements.

**3. Securitizations**

             TheCompany securitizes a substantial portion of its Company issued credit cardreceivables through the CompuCredit Credit Card Master Note Business Trust andthe CompuCredit Credit Card Master Note Business Trust II (collectively, the“Master Trust”). Credit card receivables are transferred to the Master Trust,which issues notes representing undivided ownership interests in the assets ofthe Master Trust. The Company also securitized two purchased portfolios ofcredit card receivables through securitization structures with third partycommercial paper conduits. Generally Accepted Accounting Principles (“GAAP”)require the Company to treat the transfers as sales and the receivables areremoved from the consolidated balance sheet. The securitization transactions donot affect the relationship theCompany has with its customers and the Company continues to service the creditcard receivables. As of June 30, 2001, the Company receives servicing feesequal to either the cost of servicing the portfolio plus 0.1% per year of the securitizedprincipal receivables or 5% of cash collected, depending on the securitization.The Company either performs the servicing or contracts with third party serviceproviders.

             The table below summarizes theCompany’s securitization activity:

|                                              |   | **For the  Three Months Ended  June 30,** |   |    | **For the  Six Months Ended  June 30,** |   |
|---------------------------------------------------|--------|-------------------------------------------|--------|---------|-----------------------------------------|--------|
|                                              |   | **2001**                                  |   |    | **2000**                                |   |   | **2001** |   |   | **2000** |   |
|                                              |   | ****                                      |   |    | ****                                    |   |   | **** |   |   | **** |   |
|                                              |   | *(In  thousands)*                         |   |
|                                              |   |                                      |   |    |                                    |   |   |   |   |   |   |   |
| Proceeds  from securitizations                    | $      | 66,733                                    |   |  $ | 144,217                                 |   |  $ | 145,527 |   |  $ | 276,244 |   |
| Excess  cash flows received on retained interests |   | 43,605                                    |   |    | 37,384                                  |   |   | 93,509 |   |   | 75,047 |   |
| Pretax  securitization income                     |   | 238                                       |   |    | 3,967                                   |   |   | 504 |   |   | 5,756 |   |

             Theinvestors in the Company’s securitization transactions have no recourse againstthe Company for its clients’ failure to pay their credit card loans. However,most of the Company’s retained interests are subordinated to the investors’interests until the investors have been fully paid.

             Asan additional credit enhancement on CompuCredit’s securitization structuresassociated with its purchased receivables, CompuCredit pays a portion of theexcess cash collected on the receivables to the investors as an acceleratedamortization payment.  This excess cashthat the Company paid to the investors totaled $3.1 million and $9.4 millionfor the three months ended June 30, 2001 and 2000, respectively.  The decrease in 2001 is due to a reductionin the amortization payments required under its agreements and due to thedecrease in the purchased portfolio receivables outstanding.  The Company’s valuation of its retainedinterests incorporates this credit enhancement, and the Company estimates thatit takes approximately three to five years from the inception of eachsecuritization structure to completely repay the investors using excess cash collectedon the receivables. Once the investors are repaid, any remaining receivablesand funds held in the securitization structure will be payable to the Company.

             The pretax securitization income recorded by theCompany and the measurement of the Company’s interest-only strips are dependentupon management’s estimates of future cash flows using the cash-out method.Under the cash-out method, the future cash flows (including the release of anycash related to credit enhancements) are recorded at a discounted value. Thecash flows are discounted based on the timing of when the Company expects toreceive the cash flows. The discount rates are based on management’s estimatesof returns that would be required by investors in an investment with similarterms and credit quality. Interest rates received on the credit cardreceivables are estimated based on the stated annual percentage rates in thecredit card agreements. Estimated default and payment rates are based onhistorical results, adjusted for expected changes based on the Company’s creditrisk models. Credit card receivables are typically charged off when the loansbecome 180 days past due, although earlier charge-offs may occur specificallyrelated to accounts of bankrupt or deceased customers. Bankrupt and deceasedcustomers’ accounts are typically charged off within 30 days of verification.

             Subsequentto each sale, the Company’s retained interests are carried at estimated fairmarket value with changes in fair value included in income as they are classifiedas trading securities. Since quoted market prices are generally not available,the Company estimates fair value based on the estimated present value of futurecash flows using management’s best estimates of key assumptions. Changes in anyof these assumptions could impact the fair value estimates and the realizationof future cash flows. The weighted average key assumptions used to estimate thefair value of the Company’s retained interests as of the end of eachthree-month period are presented below:

|                                    | **June 30,** |
|-----------------------------------------|--------------|
|                                    | **2001**     |   | **2000** |
|                                    | ****         |   | **** |
|                                    |         |   |   |   |   |
| Payment  rate (monthly)                 | 9.4          | % |   | 8.5 | % |
| Expected  credit loss rate (annualized) | 13.6         |   |   | 10.1 |   |
| Residual  cash flows discount rate      | 14.2         |   |   | 18.0 |   |

             Thereturn to the investors in the securitizations is based on management’sestimates of forward yield curves. The changes in the weighted averageassumptions from June 30, 2000 to June 30, 2001 are primarily due to thechange in the mix of CompuCredit’s originated and purchased receivables.  Since the receivables originated byCompuCredit have historically performed better than the purchased portfolio,the significant growth experienced in the originated portfolio has caused theweighted average assumptions of the payment rate and the residual cash flowsdiscount rate to improve as of June 30, 2001. The expected credit loss rate (annualized) has increased as theoriginated portfolio matures.

             TheCompany’s managed loan portfolio is comprised of retained interests in loanssecuritized and the investors’ share of securitized credit card loans.  The investors’ share of securitized creditcard loans is not an asset to the Company. Therefore, the Company does not show it on the consolidated balance sheets.  The following table summarizes the balancesincluded in the managed loan portfolio.

|                                                                            | **June  30,**    |
|---------------------------------------------------------------------------------|------------------|
|                                                                            | **2001**         |   | **2000** |
|                                                                            | ****             | **** | **** |
|                                                                            | *(In thousands)* |
|                                                                            |             |   |   |   |   |
| Retained  interests in loans securitized—(Seller's Interest)               | $                | 329,555 |   | $ | 73,959 |
| Investors' interests  in loans securitized—(Not included on Balance Sheet) |             | 1,342,207 |   |     | 952,140 |
|                                                                            |                  |  |  |
| Total  managed loans                                                            | $                | 1,671,762 |   |  $ | 1,026,099 |

Thefollowing illustrates the hypothetical effect as of June 30, 2001 of an adverse5 and 10 percent change in key economic assumptions has on the retainedinterests in credit card receivables securitized (Dollars in thousands):

|                                          | **Credit card****loans** |
|-----------------------------------------------|--------------------------|
|                                          | ****                     |
|                                          |                     |   |
| **Payment  rate (monthly)**                   | 9.4                      | % |
| *Impact  on fair value of 5% adverse change*  | $                        | (341 | ) |
| *Impact  on fair value of 10% adverse change* | $                        | (3,017 | ) |
|                                          |                     |   |
| **Expected  credit loss rate (annualized)**   | 13.6                     | % |
| *Impact  on fair value of 5% adverse change*  | $                        | (6,614 | ) |
| *Impact  on fair value of 10% adverse change* | $                        | (9,624 | ) |
|                                          |                     |   |
| **Residual  cashflows discount rate**         | 14.2                     | % |
| *Impact  on fair value of 5% adverse change*  | $                        | (375 | ) |
| *Impact  on fair value of 10% adverse change* | $                        | (739 | ) |

 

             Thesesensitivities are hypothetical and should be used with caution. As the figuresindicate, changes in fair value based on a 5% and a 10% variation inassumptions generally cannot be extrapolated because the relationship of thechange in assumption to the change in fair value may not be linear. Also, inthis table, the effect of a variation in a particular assumption on the fairvalue of the retained interest is calculated without changing any otherassumptions; in reality, changes in one assumption may result in changes inanother. For example, increases in market interest rates may result in lowerpayments and increased credit loses, which could magnify or counteract thesensitivities.

**4. Earnings Per Share**

             Thefollowing table sets forth the computation of earnings per share:

|                       |                                         | **For the Three  Months Ended** |                                     | **For the Six  Months Ended** |    |
|----------------------------|----------------------------------------------|---------------------------------|------------------------------------------|-------------------------------|---------|
|                       |                                         |                            | **June 30,**                             |                          |    | **June 30,** |   |
|                       |                                         |                            | **2001**                                 |                          |    | **2000** |   |   | **2001** |   |   | **2000** |   |
|                       |                                         |                            | ****                                     |                          |    | **** |   |   | **** |   |   | **** |   |
|                       |                                         |                            | *(In thousands,  except per share data)* |                          |
| Numerator:                 |                                         |                            |                                     |                          |    |   |   |   |   |   |   |   |   |
|                       | Net income                                   |                            | $                                        | 14,713                        |    |  $ | 24,870 |   |  $ | 21,089 |   |  $ | 48,860 |   |
| Denominator:               |                                         |                            |                                     |                          |    |   |   |   |   |   |   |   |   |
|                       | Denominator for basic earnings per share -   |                            |                                     |                          |    |   |   |   |   |   |   |   |   |   |
|                       | Weighted-average shares outstanding          |                            |                                     | 46,535                        |    |   | 46,438 |   |   | 46,525 |   |   | 45,274 |   |
|                       | Effect of dilutive stock options             |                            |                                     | 120                           |    |   | 187 |   |   | 102 |   |   | 193 |   |
|                       |                                         |                            |                                          |                          |    |  |   |   |  |   |   |  |   |
|                       | Denominator for diluted earnings per share - |                            |                                     |                          |    |     |   |   |     |   |   |     |   |     |
|                       | Adjusted weighted-average shares             |                            |                                     | 46,655                        |    |   | 46,625 |   |   | 46,627 |   |   | 45,467 |   |
| Basic earnings per share   |                                         | $                               | 0.32                                     |                          |  $ | 0.54 |   |  $ | 0.45 |   |  $ | 1.08 |   |
| Diluted earnings per share |                                         | $                               | 0.32                                     |                          |  $ | 0.53 |   |  $ | 0.45 |   |  $ | 1.07 |   |
|                            |                                              |                                 |                                          |                               |         |  |  |  |  |  |  |  |  |  |  |  |

             InFebruary 2000, the Company issued 4,600,000 shares of common stock at $33.50per share in a follow-on offering.

**5. Subsequent Event**

             OnAugust 3, 2001, the Company completed a floating rate three year termsecuritization totaling approximately $433 million.  The Company intends to use the cashgenerated from this transaction to fund future credit card receivables growth.

 

**Item2.   Management'sDiscussion and Analysis of Financial Condition and Results of Operations**

             Thefollowing discussion should be read in conjunction with our condensedconsolidated financial statements and the related notes included herein.

**General**

             CompuCreditCorporation is a credit card company that originates and purchases credit cardreceivables and markets products and services to its customers for which itearns fees.  We market unsecured creditcards through direct mail, television, telemarketing and the Internet.

             Consumercredit product revenues consist of (1) interest income and late fees onoutstanding revolving credit card receivables, (2) credit card fees,including annual membership, cash advance, over-limit and other credit cardfees, and (3) interchange fees, which are the portion of the merchant feeassessed by Visa and MasterCard and passed on to us, and is based on thepurchase volume of our credit card receivables. Non-interest income includessecuritization income, income from retained interests in credit cardreceivables securitized, servicing income and fee-based product revenues. Our primaryexpenses include the costs of funding our receivables, credit losses andoperating expenses, including employee compensation, account solicitation andmarketing expenses, data processing and servicing expenses, and income taxes.

             OnApril 13, 2000, the Company acquired Citadel Group, Inc. (“Citadel”) of DaytonaBeach, Florida. The transaction was accounted for as a pooling of intereststhrough the exchange of 1,783,333 shares of the Company’s common stock for allof the outstanding stock of Citadel. All amounts have been restated to reflectthe financial position, results of operations and cash flows of the respectivecompanies as though the companies were combined for all periods presented.Citadel currently markets fee-based products and services to CompuCredit’scardholders.

**Credit Card Securitizations**

             We havesecuritized a substantial portion of our credit card receivables. Oursecuritization transactions involve the sale of our credit card receivables toa separate entity. The entity is either a corporation or a trust that has beencreated by us exclusively to purchase receivables. The entity purchases thereceivables from us using cash generated from selling interests in thereceivables to investors.

             We haveentered into agreements with investors which specify the conditions and priceof each sale including the total amount of receivables the investor iscommitting to purchase from us. The agreements include terms and conditionsthat are similar to those included in bank loan agreements and define ourduties to service the securitized receivables. We are required by theagreements to remit collections on the receivables to the investors in thesecuritizations. The agreements also include representations and warrantiesregarding the receivables and financial performance measures that must be metin order for us to continue to securitize receivables and in order for us toreceive any additional cash from the collections of the receivables.  In each securitization transaction, weretain the risk of compliance with federal and state laws and regulationsregarding the securitized accounts and any fraudulent activity with regard tosuch accounts.

             Afteran initial purchase by the investors, there is usually a period during whichcollections from the receivables are used to purchase new receivables. This isreferred to as a revolving period. At the end of the revolving period, theinvestment of collections in new receivables ends and collections are insteadused to repay the investors. The period during which investors are being repaidis referred to as an amortization period. The amortization period may begin ata specific point in time determined under the agreements or it may be caused byspecified events including deterioration in the quality of the receivablespurchased or a material adverse change in our financial condition. A breach ofa representation or warranty made by us could also cause an amortization periodto begin.

             Theinvestors in the securitizations require us to provide credit support for thereceivables to reduce the risk of loss to the investors resulting fromcardholders not repaying their credit card balances when due. We negotiate witheach investor the amount of the credit support, which is based on historicaland expected delinquency and loss experience on the receivables. The creditsupport is usually in the form of over collateralization, which means that wesell the receivables for less than, or at a discount from, their outstandingbalances. As a result, the receivables available to repay the investors exceedthe total amount of the investors' interests in the receivables. This excess isthe retained interest that we own, which is also referred to as a subordinatedinterest, or Seller’s Interest. The investors in the securitized receivableshave no recourse against us for our cardholders' failure to pay their creditcard loans; however, most of our Seller’s Interests are subordinated to theinvestors' interests until the investors have been fully repaid. This meansthat our Seller’s Interests will first absorb any losses due to cardholders'failure to repay their balances before investors in the securitizations have toabsorb these losses.

             We willreceive additional cash from the securitized receivables if collections fromthe receivables exceed required interest and principal payments to theinvestors. The collections from the receivables depend on the performance ofthe receivables, which includes the timing and amount of payments on thereceivables, the interest rates, fees and other charges paid on thereceivables, and their delinquency and loss rates.  In each securitization, we receive cash, retain a Seller’sInterest, retain the rights to receive cash in the future and service the accounts.Securitizations are treated as sales under Generally Accepted AccountingPrinciples (“GAAP”).  As such, we removethe securitized loans from our Consolidated Balance Sheet.  Asnoted above, we retain a Seller's Interest in the pool of assets included ineach securitization, with the right to receive collections allocated to suchsubordinated interest after payments to investors are made. The collectionsreceived are recorded as Income from Retained Interests in Credit CardReceivables Securitized. The Seller's Interest equals the amount of assetsincluded in the securitization structure less the investors' ownership.Additionally, we recognize an "interest-only" ("I/O")strip, which is the present value of the projected excess cash flows thereceivables will produce during its life. The excess cash flow is the excess ofthe finance charges and late fees generated by the securitized receivables overthe related credit losses, interest paid to investors, servicing costs andcertain other expenses. The income resulting from the I/O strip is recorded asSecuritization Income on our Income Statement. The I/O strip and the Seller'sInterest are included in Retained Interests in Credit Card ReceivablesSecuritized on our Consolidated Balance Sheet. Amounts Due from Securitizationon our balance sheet include payments recently received on the securitizedreceivables that are still held by the securitization structure but are payableto us in the next 30 days.

             Securitizations are accounted forunder Financial Accounting Standards No. 140, “Accounting for Transfers andServicing of Financial Assets and Extinguishments of Liabilities” (“StatementNo. 140”), and, prior to April 1, 2001, were accounted for under FinancialAccounting Standards No. 125, "Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities" (“Statement No.125”). Under Statement No. 140 and its predecessor, Statement No. 125, gainsare recognized at the time of each sale. These gains are based on the estimatedfair value of the I/O strip.

             Thesecuritization transactions do not affect the relationship we have with ourcustomers, and we continue to service the credit card receivables. As of June30, 2001, we received servicing fees equal to either the cost of servicing theportfolio plus 0.1% per year of the securitized principal receivables or 5% ofcash collected, depending on the securitization.  We either provide the servicing or contract with third partyservice providers.

             Thetable below summarizes our securitization activity.

|                                              | **For the  Three Months Ended June 30,** |   | **For the  Six Months Ended  June 30,** |   |
|---------------------------------------------------|------------------------------------------|--------|-----------------------------------------|--------|
|                                              | **2001**                                 |   | **2000**                                |   | **2001** |   | **2000** |   |
|                                              | ****                                     |   | ****                                    |   | **** |   | **** |   |
|                                              | *(In  thousands)*                        |   |
|                                              |                                     |   |                                    |   |   |   |   |   |
| Proceeds  from securitizations                    | $                                        | 66,733 |                                    | $      | 144,217 |   | $ | 145,527 |   | $ | 276,244 |   |
| Excess  cash flows received on retained interests | 43,605                                   |   | 37,384                                  |   | 93,509 |   | 75,047 |   |
| Pretax  securitization income                     | 238                                      |   | 3,967                                   |   | 504 |   | 5,756 |   |
|                                                   |                                          |        |                                         |        |  |  |  |  |  |  |  |  |

             Financecharges and past due fees collected in excess of servicing fees and periodicinterest payments are available to absorb the investors' share of creditlosses. Investors bear the risk of credit losses on the underlying receivablesto the extent that credit losses, servicing fees and periodic interest paymentsrequired by the investors exceed finance charges and past due fees earned onthe receivables and our retained interests in the receivables pool. Investorsin our securitization programs are generally entitled to receive principalpayments either through monthly payments during an amortization period or inone lump sum from the proceeds of issuances of additional notes orparticipation interests in the receivables pool.

             Asadditional credit support on our securitization structures associated with ourpurchased receivables, we pay a portion of the excess cash collected to theinvestors as an accelerated amortization payment.  This excess cash totaled $3.1 million for the three months endedJune 30, 2001 and $9.4 million for the three months ended June 30,2000.  The decrease in 2001 is due to areduction in the amortization payments required under our agreements and due tothe decrease in the purchased portfolio receivables outstanding. Once theinvestors are repaid, any remaining receivables and funds held in the buyingentity are payable to us.

**Managed Loan Portfolio**

             Weanalyze our financial performance on a “managed loan” portfolio basis, as ifthe receivables securitized were still on our balance sheet, because theperformance of our securitized receivables will affect the future cash flows wereceive on the receivables.

             Thetable set forth below indicates our net interest margin and our operating ratioon a managed loan basis as if the receivables securitized were still on ourBalance Sheet. The table also indicates the ending and average managed loansand the number of managed accounts.   Interest income for us on a managed loan basis includes all net interestand late fee income on all outstanding receivables less all costs associatedwith securitizations, including the interest expense paid to theinvestors.  Our operating ratio includesall expenses associated with our business on a managed basis, other thanmarketing expenses and ancillary product expenses, and is expressed as apercentage of average managed loans.

             During1998, we purchased two portfolios of credit card receivables with outstandingreceivables balances at the time of purchase of $579.7 million. The presentedmanaged loan data excludes certain of these receivables and the relatedaccounts which at the time of purchase were closed accounts in a certaindelinquency status. Management believes that these accounts were either in theprocess of being charged off by the seller due to delinquency or were likely tobe charged off in the near term. As a result, management believes that it wouldhave had very little opportunity to influence the delinquency or default ratesof these accounts prior to charge-off. We therefore excluded these accounts,the receivables and any activity in the accounts since the date of purchasefrom any managed loan data presented. At the time of the purchases, there wereapproximately 52,000 such accounts, representing 25.9% of the accountspurchased and $137.2 million of the $579.7 million outstanding receivablespurchased.

             Theportfolios acquired during 1998 were purchased at substantial discounts. Aportion of the discount at the time of purchase related to the credit qualityof the remaining loans in the portfolio and reflects the difference between thepurchased face amount of the receivables and the future cash collectionsmanagement expects to receive with respect to the purchased face amount. Thesubstantial discount we received on the purchased portfolio exceeds thediscount we ascribed to the credit quality of the purchased receivables. We arereporting this excess discount as additional interest income over the life ofthe portfolio for managed loan reporting and are amortizing it into interestincome using the interest method.

|                                              | **At or  for the Quarter Ended**          |
|---------------------------------------------------|-------------------------------------------|
|                                              | **March  31,  2000**                      |   | **June 30,  2000** |   | **Sept.  30,  2000** |   | **Dec. 31,  2000** |   | **March  31,  2001** |   | **June 30,  2001** |   |
|                                              | ****                                      |   | **** |   | **** |   | **** |   | **** |   | **** |   |
|                                              | *(In  thousands, except for percentages)* |
|                                              |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Period-end  total managed loans                   | $                                         | 1,026,099 |   | $ | 1,171,932 |   | $ | 1,321,128 |   | $ | 1,528,372 |   | $ | 1,589,584 |   | $ | 1,671,762 |   |
| Period-end  total managed accounts                | 1,416                                     |   | 1,648 |   | 1,891 |   | 2,178 |   | 2,256 |   | 2,300 |   |
| Total  average managed loan portfolio             | $                                         | 963,939 |   | $ | 1,097,610 |   | $ | 1,256,239 |   | $ | 1,398,041 |   | $ | 1,574,554 |   | $ | 1,623,730 |   |
| Net  interest margin on managed loans, annualized | 23.8                                      | % | 23.3 | % | 23.4 | % | 21.8 | % | 21.6 | % | 22.0 | % |
| Operating  ratio                                  | 8.0                                       | % | 7.3 | % | 7.6 | % | 7.9 | % | 9.1 | % | 8.4 | % |

             Our netinterest margins are influenced by a number of factors, including the timingand size of portfolio purchases and the level of our charge-offs. Purchasedportfolios typically have lower interest rates and late fees until we convertthe accounts to our credit card. When we convert accounts to our credit card,we reprice the accounts to interest rates and fees that are similar to those onaccounts we have originated through our solicitation process. We typicallyconvert the accounts within six months of purchase. Fluctuations in ourcharge-off ratios also affect our net interest margins. At charge-off, theinterest and late fees on an account are deducted from interest income in thecurrent period. Our net interest margin for the three months ended June 30,2001 increased primarily due to a reduction in interest expense, which wasoffset by a decrease in finance charges.

             Ouroperating ratio includes all costs of operating our business on a managed loanbasis, other than marketing expenses and ancillary product expenses.  We continue to spend on our infrastructure,our personnel, our collections operations, our Internet technology, our creditcard servicing and our database management system to accommodate ouroperational needs and anticipated portfolio growth.  While we spent relatively the same amount during the period fromApril 1, 2001 to June 30, 2001 as we did from January 1, 2001 to March 31,2001, our operating ratio decreased from March 31, 2001 to June 30, 2001 due toan increase in our average managed loans.

**Results of Operations**

             Netincome for the three months ended June 30, 2001 was $14.7 million, or $0.32 pershare on a diluted basis, a decrease of approximately $10.2 million from netincome of $24.9 million for the three months ended June 30, 2000.  Net income for the six months ended June 30,2001 was $21.1 million, or $0.45 per share on a diluted basis, a decrease of$27.8 million from net income of $48.9 million for the six months ended June30, 2000.  The decrease in net incomewas primarily the result of the decrease in income from retained interests incredit card receivables securitized of approximately $10.2 million, and $27.1million, respectively.  Income fromretained interests in credit card receivables securitized decreased because ofan increase in charge offs.    Theincrease in charge offs is due to the seasoning of the originated portfolio andan increase in bankruptcy filings in the second quarter of 2001.  The seasoning of a portfolio takes place asthe average age of the portfolio increases. Delinquency rates can be expected first to increase, then peak andfinally decrease and stabilize thereafter.

             Thelargest component of our income comes from the profit generated from ourmanaged receivables.  Growth in managedreceivables cannot be predicted with certainty.  In general, receivables growth is a product of our marketing andother strategic efforts.  However, it isalso dependent upon a number of factors that we are not able to control, suchas levels of consumer spending, competition and general economic circumstances.

             Otheroperating income, excluding securitization income and income from retainedinterests in credit card receivables securitized, increased $10.2 million from$25.1 million for the three months ended June 30, 2000 to$35.3 million for the three months ended June 30, 2001.  Other operating income increased $20.3million from $48.3 million for the six months ended June 30, 2000 to $68.6million for the six months ended June 30, 2001.  The increases are primarily due to the increase in other creditcard fees, which includes annual membership, over-limit and cash advancefees.  The revenue associated with thesefees increased as a result of the growth of our managed loans and an increase inour number of managed accounts.

             Otheroperating expenses increased to $34.8 million for the three months ended June30, 2001, from $24.9 million for the three months ended June 30, 2000, anincrease of approximately $9.9 million. Other operating expenses increased to $75.0 million for the six monthsended June 30, 2001, from $48.2 million for the six months ended June 30,2000.  These increases primarily reflectthe increase in the cost of operations associated with the growth in ourbusiness, including additional servicing costs.

**Interest Income**

             Interestincome consists of interest income earned on cash and cash equivalents.  Interest income totaled $0.6 million for thethree months ended June 30, 2001 and totaled $2.4 million for the three monthsended June 30, 2000.  Interestincome totaled $1.6 million for the six months ended June 30, 2001 and totaled$3.8 million for the six months ended June 30, 2000.  The decrease in interest income is attributable to the usage ofthe cash proceeds we received from our first quarter 2000 follow-on publicoffering to increase the number of accounts in our portfolios and improveinfrastructure.

**Net Securitization Income andIncome from Retained Interests in Credit Card Receivables Securitized**

             Retained Interests in Credit CardReceivables Securitized are calculated in accordance with the provisions ofStatement No. 140 (See Recent Accounting Pronouncements for additionalinformation concerning Statement No. 140). These retained interests are subsequently accounted for as tradingsecurities and reported at estimated fair market value in accordance withStatement of Financial Accounting Standards No. 115, "Accounting forCertain Investments in Debt and Equity Securities" ("StatementNo. 115"). See "Credit Card Securitizations."

             Net securitization income isrecognized at the time the receivables are securitized under StatementNo. 140. The income is based on the estimated fair value of the I/O strip.Net securitization income for the three months ended June 30, 2001 was$238,000, compared to $4.0 million for the three months ended June 30,2000.  Netsecuritization income for the six months ended June 30, 2001 was $504,000compared to $5.8 million for the six months ended June 30, 2000.  Net securitization income decreaseddue to the seasoning of the originated portfolio.

             TheI/O strip is estimated by discounting the expected future cash flows from thereceivables that have been securitized at rates which we believe are consistentwith those that would be used by an independent third party. Since quotedmarket prices are generally not available for the I/O strip, the fair value isbased on the estimated present value of future cash flows using management'sbest estimates of finance charges and late fees, servicing fees, costs of fundspaid to investors, payment rates, credit losses, and required amortizationpayments to investors. The weighted average key assumptions used as of the endof each period are presented below. Changes in any of these assumptions couldimpact the estimates of the fair value of the I/O strip as well as therealization of expected future cash flows:

 

|                                    | **At  June 30,** |
|-----------------------------------------|------------------|
|                                    | **2001**         |   | **2000** |   |
|                                    | ****             |   | **** |   |
|                                    |             |   |   |   |
| Payment  rate (monthly)                 | 9.4              | % | 8.5 | % |
| Expected  credit loss rate (annualized) | 13.6             |   | 10.1 |   |
| Residual  cash flows discount rate      | 14.2             |   | 18.0 |   |
|                                         |                  |  |  |  |  |  |

             Thechanges in the weighted average assumptions from June 30, 2000 to June 30, 2001are primarily due to the change in the mix of our originated and purchasedreceivables.  The seasoning of theoriginated portfolio has caused the weighted average assumption for credit lossrate to increase as of June 30, 2001. The discount rates are based onmanagement's estimates of returns that would be required by investors in aninvestment with similar terms and credit quality. Interest rates received onthe credit card receivables are estimated based on the stated annual percentagerates in the credit card agreements. Estimated default and payment rates arebased on historical results, adjusted for expected changes based on our credit riskmodels. The returns to the investors in the securitizations are based onmanagement's estimates of forward yield curves.

**Other Operating Income**

             Otheroperating income, excluding securitization income and income from retainedinterests in credit card receivables securitized, consists of the following forthe periods indicated:

|                    | **Three  Months Ended   June 30,** |   | **Six  Months Ended** **June 30,** |   |
|-------------------------|------------------------------------|--------|-----------------------------------------|--------|
|                    | **2001**                           |   | **2000**                                |   | **2001** |   | **2000** |   |
|                    | ****                               |   | ****                                    |   | **** |   | **** |   |
|                    | *(In  thousands)*                  |   |
|                    |                               |   |                                    |   |   |   |   |   |
| Servicing  income       | $                                  | 1,548  |                                    | $      | 2,052 |   | $ | 3,235 |   | $ | 4,266 |   |
| Other  credit card fees | 20,796                             |   | 11,701                                  |   | 39,509 |   | 21,609 |   |
| Interchange  fees       | 5,541                              |   | 4,694                                   |   | 10,902 |   | 8,787 |   |
| Ancillary  products     | 7,372                              |   | 6,613                                   |   | 14,942 |   | 13,617 |   |
|                    |                                    |   |                                         |   |  |   |  |   |
|                    | Total  other operating income      | $      | 35,257                                  |   | $ | 25,060 |   | $ | 68,588 |   | $ | 48,279 |   |
|                    |                                    |   |                                         |   |  |   |  |   |
|                         |                                    |        |                                         |        |  |  |  |  |  |  |  |  |  |

The increase in other operating income to$35.3 million for the three months ended June 30, 2001 and $68.6 millionfor the six months ended June 30, 2001 relates to the increase in our managedreceivables, which increased from $1.172 billion at June 30, 2000 to $1.672billion at June 30, 2001.  The number ofaccounts increased from 1.6 million at June 30, 2000 to 2.3 million at June 30,2001.  Strong growth in new customers,an increase in the number of customers purchasing our fee-based products and anincrease in credit card fees, such as annual, late, over-limit and cash advancefees, resulted in the increase in other operating income.

             Asubstantial portion of the servicing income relates to our purchasedportfolios. Because the size of our purchased portfolios decreased, there was acorresponding decrease in servicing income. Interchange fees are the portion ofthe merchant fee assessed by Visa and Mastercard and passed on to us based onthe purchase volume on our credit card receivables.

**Other Operating Expense**

             Other operating expense consists ofthe following for the periods indicated:

|                       | **Three Months Ended   June 30,** |   | **Six Months Ended** **June 30,** |   |
|----------------------------|-----------------------------------|--------|----------------------------------------|--------|
|                       | **2001**                          |   | **2000**                               |   | **2001** |   | **2000** |   |
|                       | ****                              |   | ****                                   |   | **** |   | **** |   |
|                       | *(In thousands)*                  |   |
|                       |                              |   |                                   |   |   |   |   |   |
| Salaries and benefits      | $                                 | 2,760  |                                   | $      | 1,253 |   | $ | 5,043 |   | $ | 2,454 |   |
| Credit card servicing      | 15,051                            |   | 5,627                                  |   | 29,180 |   | 10,714 |   |
| Marketing and solicitation | 7,727                             |   | 12,606                                 |   | 19,858 |   | 24,380 |   |
| Professional fees          | 828                               |   | 221                                    |   | 1,810 |   | 925 |   |
| Data processing            | 1,875                             |   | 1,202                                  |   | 4,492 |   | 2,357 |   |
| Net occupancy              | 602                               |   | 277                                    |   | 1,407 |   | 519 |   |
| Ancillary product expense  | 2,113                             |   | 2,143                                  |   | 6,080 |   | 4,005 |   |
| Other                      | 3,817                             |   | 1,613                                  |   | 7,145 |   | 2,850 |   |
|                       |                                   |   |                                        |   |  |   |  |   |
|                       | Total other operating expense     | $      | 34,773                                 |   | $ | 24,942 |   | $ | 75,015 |   | $ | 48,204 |   |
|                       |                                   |   |                                        |   |  |   |  |   |
|                            |                                   |        |                                        |        |  |  |  |  |  |  |  |  |  |

             Otheroperating expense for the three months ended June 30, 2001 increased to $34.8million from $24.9 million for the three months ended June 30, 2000.   Other operating expense for the six monthsended June 30, 2001 increased to $75.0 million from $48.2 million for the sixmonths ended June 30, 2000.  Theseincreases are due primarily to increases in credit card servicing, salaries andbenefits, data processing expenses, and other expenses, offset by a decrease inmarketing and solicitation expenses. Servicing costs increased due to the increase in our managedreceivables. Salaries and benefits, professional fees, data processing, netoccupancy and other expenses increased as our operations expanded to servicethe increased number of accounts.

**Income Taxes**

             Incometax expense for the three months ended June 30, 2001 was $7.9 million and forthe three months ended June 30, 2000 was $13.1 million.  Our effective tax rate was 35.0% for thethree months ended June 30, 2001 and 34.5% for the three months ended June 30,2000.  Income tax expense was $11.4million for the six months ended June 30, 2001 and $24.6 million for thecomparable period in 2000.  Theeffective tax rate was 35.0% for the six months ended June 30, 2001 and 33.5%for the six months ended June 30, 2000.

**Asset Quality**

             ­Ourdelinquency and net loan charge-off rates at any point in time reflect thecredit performance of our receivables. The average age of our credit card accounts, the timing of portfoliopurchases, the success of our collection and recovery efforts and generaleconomic conditions affect our delinquency and charge-off rates. The averageage of our credit card account portfolio affects the stability of delinquencyand loss rates of the portfolio.

             ­Ourstrategy for managing delinquency and loan losses consists of active accountmanagement throughout the customer relationship. This strategy includes creditline management and pricing based on the risk of the credit card accounts.

*Delinquencies.*  Delinquencieshave the potential to impact net income in the form of net credit losses.Delinquencies are also costly in terms of the personnel and resources dedicatedto resolving them. A credit card account is contractually delinquent if theminimum payment is not received by the specified date on the customer'sstatement. It is ­our policy to continue to accrue interest and fee income onall credit card accounts, except in limited circumstances, until the accountand all related loans, interest and other fees are charged off. See "NetCharge-Offs."

             The following tablepresents the delinquency trends of ­our credit card receivables portfolio on amanaged loan portfolio basis:

|              | **At the Quarter Ended***(Dollars in thousands)* |    |
|-------------------|--------------------------------------------------|---------|
|              | **March 31,****2000**                            |    | **June 30,****2000** |   | **September 30,****2000** |   | **December 31,****2000** |   | **March 31,****2001** |   | **June 30,****2001** |   |
|              | ****                                             |    | **** |   | **** |   | **** |   | **** |   | **** |   |
|              | **Amount**                                       |    | **% of****Total** |   | **Amount** |   | **% of  Total** |   | **Amount** |   | **% of  Total** |   | **Amount** |   | **% of****Total** |   | **Amount** |   | **% of  Total** |   | **Amount** |   | **% of  Total** |   |
|              |                                                  |    |  |   |  |   |  |   |  |   |  |   |
| Loans Delinquent: |                                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|              | 30 to 59 days                                    | $       | 31,270 |   | 3.0 | % | $ | 40,256 |   | 3.4 | % | $ | 50,313 |   | 3.8 | % | $ | 59,138 |   | 3.9 | % | $ | 63,338 |   | 4.0 | % | $ | 69,602 |   | 4.2 | % |
|              | 60 to 89 days                                    | 23,995  |   | 2.4 |   | 28,028 |   | 2.4 |   | 37,324 |   | 2.8 |   | 47,118 |   | 3.1 |   | 42,952 |   | 2.7 |   | 55,084 |   | 3.3 |   |
|              | 90 or more                                       | 46,554  |   | 4.5 |   | 57,552 |   | 4.9 |   | 78,753 |   | 6.0 |   | 98,568 |   | 6.4 |   | 107,253 |   | 6.7 |   | 121,494 |   | 7.3 |   |
|              |                                                  |    |  |   |  |   |  |   |  |   |  |   |
| Total 30 or more  | $                                                | 101,819 |   | 9.9 | % | $ | 125,836 |   | 10.7 | % | $ | 166,390 |   | 12.6 | % | $ | 204,824 |   | 13.4 | % | $ | 213,543 |   | 13.4 | % | $ | 246,180 |   | 14.8 | % |
|              |                                                  |    |  |   |  |   |  |   |  |   |  |   |
| Total 60 or more  | $                                                | 70,549  |   | 6.9 | % | $ | 85,580 |   | 7.3 | % | $ | 116,077 |   | 8.8 | % | $ | 145,686 |   | 9.5 | % | $ | 150,206 |   | 9.4 | % | $ | 176,578 |   | 10.6 | % |
|              |                                                  |    |  |   |  |   |  |   |  |   |  |   |
|                   |                                                  |         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

             Thefollowing table separately reports ­our loan delinquency trends for ouroriginated portfolio and for our purchased portfolio on a managed loanportfolio basis:

|                     | **%  of Total**      |   |
|--------------------------|---------------------------|--------|
|                     | **At the  Quarter Ended** |   |
|                     | **March  31,****2000**    |   | **June 30,****2000** |   | **Sept.  30,****2000** |   | **Dec. 31,****2000** |   | **March  31,****2001** |   | **June 30,****2001** |   |
|                     |                           |   |  |   |  |   |  |   |  |   |  |   |
| **Originated Portfolio** |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loans  Delinquent:       |                      |   |   |   |   |   |   |   |   |   |   |   |
|                     | 30  to 59 days            | 2.7    | % | 3.3 | % | 3.6 | % | 3.5 | % | 3.8 | % | 4.1 | % |
|                     | 60  to 89 days            | 2.1    |   | 2.3 |   | 2.7 |   | 3.0 |   | 2.6 |   | 3.3 |   |
|                     | 90  or more               | 4.0    |   | 4.8 |   | 6.0 |   | 6.4 |   | 6.7 |   | 7.3 |   |
|                     |                           |   |  |   |  |   |  |   |  |   |  |   |
| Total  30 or more        | 8.8                       | %      | 10.4 | % | 12.3 | % | 12.9 | % | 13.1 | % | 14.7 | % |
|                     |                           |   |  |   |  |   |  |   |  |   |  |   |
| Total  60 or more        | 6.1                       | %      | 7.1 | % | 8.7 | % | 9.4 | % | 9.3 | % | 10.6 | % |
|                     |                           |   |  |   |  |   |  |   |  |   |  |   |
| **Purchased Portfolio**  |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loans  Delinquent:       |                      |   |   |   |   |   |   |   |   |   |   |   |
|                     | 30  to 59 days            | 4.4    | % | 4.3 | % | 5.4 | % | 6.7 | % | 5.7 | % | 5.0 | % |
|                     | 60  to 89 days            | 3.4    |   | 2.8 |   | 3.6 |   | 4.1 |   | 3.5 |   | 3.8 |   |
|                     | 90  or more               | 6.4    |   | 5.5 |   | 5.7 |   | 7.1 |   | 7.4 |   | 7.4 |   |
|                     |                           |   |  |   |  |   |  |   |  |   |  |   |
| Total  30 or more        | 14.2                      | %      | 12.6 | % | 14.7 | % | 17.9 | % | 16.6 | % | 16.2 | % |
|                     |                           |   |  |   |  |   |  |   |  |   |  |   |
| Total  60 or more        | 9.8                       | %      | 8.3 | % | 9.3 | % | 11.2 | % | 10.9 | % | 11.2 | % |
|                     |                           |   |  |   |  |   |  |   |  |   |  |   |
|                          |                           |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

             Ingeneral, as the average age of an originated credit card receivables portfolioincreases, delinquency rates can be expected first to increase, then peak andfinally decrease and stabilize thereafter. For the quarter ended June 30, 2001 compared to the previous quarter,the delinquency rate increased due partly to seasonality and partly as a resultof strong collection performance during the quarter, which lowered charge-offs,but increased the delinquency rate as many late stage delinquent accounts madepayments but were not cured to current. We are using our account management strategies on our originatedportfolio, which are intended to reduce the delinquency rates as our originatedportfolio matures.

             Thepurchased portfolio delinquency rate increased slightly during the June 30,2001 quarter compared to the March 31, 2001. We continue to aggressively manage account activity using behavioralscoring, credit file data and our proprietary risk evaluation models.

*Net Charge-Offs.*  Net charge-offsinclude the principal amount of losses from customers unwilling or unable topay their loan balance, as well as bankrupt and deceased customers, lesscurrent period recoveries. Net charge-offs exclude accrued finance charges andfees, which are charged against the related income at the time of charge-off.Losses from fraudulent activity in accounts are also excluded from netcharge-offs and are included separately in other operating expenses.  We generally charge off loans when the loanbecomes contractually 180 days past due. However, bankrupt accounts and the accounts of deceased customerswithout a surviving, contractually liable individual or an estate large enoughto pay the debt in full are charged off within 30 days of notification of thecustomer's bankruptcy or death.

             Approximately$87.5 million of the discount on our portfolio purchases during 1998 related tothe credit quality of the remaining loans in the portfolio and reflects thedifference between the purchased face amount and the future cash collectionsmanagement expects to receive with respect to the purchased face amount. Forpurposes of reporting pro forma charge-off ratios on managed loans below, thisdiscount related to credit quality has been utilized to offset a portion ofactual net charge-offs. The following table presents our net charge-offs forthe periods indicated on a managed loan portfolio basis:

|                                     | **For the  Quarter Ended** |    |
|------------------------------------------|----------------------------|---------|
|                                     | **March 31,****2000**      |    | **June 30,****2000** |   | **Sept. 30,****2000** |   | **Dec. 31,****2000** |   | **March 31,****2001** |   | **June 30,****2001** |   |
|                                     | ****                       |    | **** |   | **** |   | **** |   | **** |   | **** |   |
|                                     | *(Dollars  in thousands)*  |    |
|                                     |                       |    |   |   |   |   |   |   |   |   |   |   |
| **Total Managed Loan Portfolio :**       |                       |    |   |   |   |   |   |   |   |   |   |   |
| Average  managed loan portfolio          | $                          | 963,939 |   | $ | 1,097,610 |   | $ | 1,256,239 |   | $ | 1,398,041 |   | $ | 1,574,554 |   | $ | 1,623,730 |   |
| Net  charge-offs                         | 23,605                     |    | 26,302 |   | 35,678 |   | 46,552 |   | 58,229 |   | 59,807 |   |
| Pro  forma net charge-offs               | 20,229                     |    | 25,346 |   | 34,525 |   | 46,132 |   | 58,126 |   | 59,434 |   |
| Net  charge-off ratio (annualized)       | 9.8                        | %       | 9.6 | % | 11.4 | % | 13.3 | % | 14.8 | % | 14.7 | % |
| Pro  forma charge-off ratio (annualized) | 8.4                        |    | 9.2 |   | 11.0 |   | 13.2 |   | 14.8 |   | 14.6 |   |
|                                          |                            |         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

             Asdescribed above under delinquencies, as our portfolio matures, we expectcharge-off rates to also increase and then stabilize.  Typically, as our accounts mature or season, there are very fewcharge-offs during the first 180 days, then the charge-offs are expectedto increase and peak in the second year and then stabilize in the thirdyear.  We expect our charge-off rates tocontinue to increase as our portfolio seasons. We plan to continue to focus our resources on refining our creditunderwriting standards for new accounts and to increase our focus on collectionand post charge-off recovery efforts to minimize losses.

*Credit Losses.*  For securitizedreceivables, anticipated credit losses are reflected in the calculations of netsecuritization income and the actual charge-offs are included in income fromretained interests in credit card receivables securitized.  In evaluating credit losses, ­we take intoconsideration several factors, including (1) historical charge-off andrecovery activity by receivables portfolio, (2) recent and expecteddelinquency and collection trends by receivables portfolio, (3) the impactof current economic conditions and recent economic trends on the customers'ability to repay and (4) the risk characteristics of the portfolios.Substantially all of ­our credit card receivables have been securitized. As ­wehave securitized our receivables, we have removed them from our balance sheet.

**Interest Rate Sensitivity and Market Risk**

             Interestrate sensitivity is comprised of basis risk, gap risk and market risk. Basisrisk is caused by the difference in the interest rate indices used to priceassets and liabilities. Gap risk is caused by the difference in repricingintervals between assets and liabilities. Market risk is the risk of loss fromadverse changes in market prices and rates. Our principal market risk is related to changes in interest rates. Thisaffects us directly in our lending and borrowing activities, as well asindirectly as interest rates may impact the payment performance of ourcustomers.

             Weincur basis risk because we fund managed assets at a spread over the commercialpaper rate or LIBOR while the rates on the underlying assets are indexed to theprime rate.  This basis risk resultsfrom the potential variability in the spread between the prime rate and thecommercial paper rate, on the one hand, and LIBOR, on the other hand, overtime.  We have not hedged our basis riskdue to the cost of hedging this risk versus the benefits from elimination ofthis risk.

             Weattempt to minimize the impact of market interest rate fluctuations on netinterest income and net income by regularly evaluating the risk inherent in ourasset and liability structure, especially our off-balance sheet assets andliabilities such as securitized receivables. The impact of market interest ratefluctuations on our securitized receivables is reflected in the valuation ofour retained interests in credit card receivables securitized.  This risk arises from continuous changes inour asset and liability mix, changes in market interest rates, includingchanges affected by fluctuations in prevailing interest rates, payment trendson ­our interest-earning assets and payment requirements on ­ourinterest-bearing liabilities, and the general timing of all other cash flows.To manage ­our direct risk to market interest rates, management activelymonitors market interest rates and the interest sensitive components of ­oursecuritization structures. Management seeks to minimize the impact of changesin interest rates on the fair value of assets, net income and cash flowprimarily by matching asset and liability repricings. There can be no assurancethat management will be successful in its attempt to manage such risks.

             At June30, 2001, all of our credit card receivables and other interest-bearing assetshad variable rate pricing, with receivables carrying annual percentage rates ata spread over the prime rate, subject to certain interest rate floors.  At June 30, 2001, our securitizations had$1.342 billion in variable rate, interest-bearing liabilities, payable to ourinvestors compared to $952.1 million as of June 30, 2000. Since both ourmanaged interest-earning assets and our managed interest-bearing liabilitiesreprice every 30 days, we believe that the impact of a change in interest rateswould not be material to our financial performance.

             Webelieve we are not exposed to any material foreign currency exchange rate riskor commodity price risk.

**Liquidity, Funding and Capital Resources**

             Aprimary financial goal is to maintain an adequate level of liquidity throughactive management of assets and liabilities. Because the characteristics of ourassets and liabilities change, liquidity management is a dynamic processaffected by the pricing and maturity of our assets and liabilities.

             Wefinance our business through cashflows from operations, asset securitizationsand the issuance of equity.  DuringSeptember 2000, we completed afloating rate three-year term securitization totaling approximately $600million.

             Asignificant source of liquidity for us has been the securitization of creditcard receivables. We received proceeds of $145.5 million during the sixmonths ended June 30, 2001 and $276.2 million during the three monthsended June 30, 2000 from sales of our credit card receivables throughsecuritizations. As of June 30, 2001, we had total securitization facilities of$1.797 billion and had used approximately $1.342 billion of thesefacilities. As of June 30, 2000, we had total securitization facilities of$1.049 billion and had used approximately $952.1 million of thesefacilities. We believe that securitizations will continue to be an importantsource of funding but can give no assurance that securitizations will providesufficient funding.

             Thematurity terms of ­our securitizations vary. With the exception of the three year securitization described above,most are one year securitizations. Once repayment begins, payments fromcustomers on credit card receivables are accumulated to repay the specialpurpose entities’ investors and are no longer reinvested in new credit cardreceivables. At that time, our funding requirements for new credit cardreceivables will increase accordingly. The occurrence of certain events mayalso cause the securitization transactions to amortize earlier than scheduled.In the case of ­our Master Trust, a decline in the portfolio's annual yield ora decline in the payment rate, in each case, below certain rates, or anincrease in delinquencies above certain rates, will cause early amortization.The portfolio's annual yield typically includes finance charges and past duefees earned on the receivables less servicing fees and credit losses. In thecase of our other securitization programs, such events include an increase inthe charge-off rates above a certain rate or a decline in the payment ratesbelow a certain rate. These events would accelerate the need to utilizealternative funding sources. Under each of our securitization structures, therehas not been an early amortization period.

             In January 2000, we enteredinto an agreement providing for a one year, $25.0 million revolving creditfacility under which we may request advances from time to time which will bearinterest at floating rates based on LIBOR. Advances under the facility will besecured by our assets other than credit card receivables and other assetsrelating to our securitization transactions. As of June 30, 2001, no advanceswere outstanding under this facility, however, $5 million is reserved fora letter of credit in favor of a third party servicer. This agreement wasrenewed in January 2001 for one year.

             In February 2000, we completed afollow-on public offering and received net proceeds of $145.2 million.

             Webelieve that our asset securitizations, cash flow from operations, and futureequity issuances will provide adequate liquidity for meeting anticipated cashneeds, although we cannot give assurance to that effect.

**Recent AccountingPronouncements**

             InSeptember 2000, the FASB issued Statement No. 140, that replaces, inits entirety, FASB Statement No. 125. Although Statement 140 has changed manyof the rules regarding securitizations, it continues to require an entity torecognize the financial and servicing assets it controls and the liabilities ithas incurred and to derecognize financial assets when control has beensurrendered in accordance with the criteria provided in the statement. Asrequired, we have applied the new rules prospectively to transactions beginningafter March 31, 2001. Adoption of this Statement did not have a materialimpact on our financial statements.

             On January 1, 2001 we adoptedFinancial Accounting Standard ("FAS") No. 133, "Accountingfor Derivative Instruments and Hedging Activities." This Statementestablishes new accounting and reporting standards for derivative instrumentsand hedging activities. It requires that an entity recognize all derivatives aseither assets or liabilities on the balance sheet and measure those derivativesat fair value. The accounting for the gains or losses resulting from changes inthe value of those derivatives will depend on the intended use of thederivative and whether it qualifies for hedge accounting. FAS 133, asamended by statement 138, was required to be adopted for fiscal years beginningafter June 15, 2000. Adoption of this Statement did not have a materialimpact on our financial statements.

             On January 1, 2001 we adoptedStaff Accounting Bulletin (SAB) No. 101, Revenue Recognition in FinancialStatements. This SAB explains how the SEC staff believes existing RevenueRecognition rules should be applied. In June 2000, the SEC issued SAB101B, which delays the implementation date of SAB 101 until no later than thefourth fiscal quarter of fiscal years beginning after December 15, 1999.Adoption of this Standard did not have a material impact on our financialstatements.

**Forward-Looking Information**

             Thisreport includes “forward-looking statements.” The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,”“estimate” and similar expressions are intended to identify suchforward-looking statements; however, this report also contains otherforward-looking statements that may not be so identified.  Forward looking statements include ourexpectations with respect to delinquency rates, charge-off rates, our effortsto manage our portfolio and the information under “Liquidity, Funding andCapital Resources.”  Forward-lookingstatements are subject to a number of risks and uncertainties, many of whichare beyond CompuCredit’s control. Actual results may differ materially from those suggested by theforward-looking statements. Accordingly, there can be no assurance that such indicated results willbe realized.  Among the importantfactors that could cause actual results to differ materially from thoseindicated by such forward-looking statements are (1) the effect of anydisruption of our outsourcing relationship with Columbus Bank and Trust and itsaffiliates, including Total Systems Services, Inc., (2) our ability to evaluatethe creditworthiness of our customers and price our credit productsaccordingly, (3) the effect of increases in interest rates on our cost of fundsand the payment performance of our customers, (4) compliance with and changesin laws and regulations, including consumer protection laws, laws relating tothe interest rates, charges or terms and conditions of our credit card accountsor other laws regulating the credit card, consumer loan or financial servicesindustry, (5) the impact of intense competition for credit card customers onCompuCredit’s efforts to market our credit cards, (6) the ability ofCompuCredit to continue to securitize receivables and to otherwise access thecapital markets on acceptable terms to fund its operations and future growth,(7) the impact of unexpected economic changes and other factors on theperformance of our credit card receivables and securitizations, and the factorsset forth under the caption “Risk Factors” in the Company’s Form 10-K for theyear ended December 31, 2000 filed with the Securities and ExchangeCommission.  By making theseforward-looking statements, CompuCredit Corporation expressly disclaims anyobligation to update them in any manner except as may be required by itsdisclosure obligations in filings it makes with the Securities and ExchangeCommission under Federal securities laws.

**Item 3.**             **Quantitative and Qualitative DisclosuresAbout Market Risk.**

             The information required under thisitem is provided under the caption “Interest Rate Sensitivity and Market Risk”under Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations.

 

**PART II – OTHER INFORMATION**

**Item 1.**             **Legal Proceedings**

             In November 2000, CompuCredit andDavid Hanna, our Chief Executive Officer, were named defendants in a series ofpurported class action lawsuits filed in the Federal District Court for theNorthern District of Georgia. These lawsuits arise from the decline in themarket value of our common stock on October 25, 2000, and allege that prior tothat date CompuCredit and Mr. Hanna made false and misleading statementsin violation of Federal securities laws. On May 7, 2001, by court order, the lawsuits were consolidated, andBrett Samsky, our Chief Financial Officer from our inception in 1996 untilJanuary 2001, was added as a defendant. In general, the lawsuit seeks compensatory monetary damages and legalfees. We do not believe that this lawsuit has any merit and we intend to defendit vigorously. We do not believe that the lawsuit is reasonably likely to havea material adverse effect on CompuCredit's financial position or results ofoperations. In addition, we could become involved in litigation from time totime relating to claims arising out of the ordinary course of business.

**Item 2.**              **Changes in Securities and Use ofProceeds.**

|   | (a)    | Not applicable.                                                                                                                                                                                                                             |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                        |
|   | (b)    | Not applicable.                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                        |
|   | (c)    | On May 21, 2001,  we issued a note receivable in the amount of $500,000 to a consultant to  purchase 39,526 shares of our stock.   We also issued the consultant  5,000 shares of our stock in connection with a consulting agreement. |

**Item 3.**             **Defaults Upon Senior Securities.**

None.

**Item 4.**              **Submission of Matters to a Vote ofSecurity Holders.**

None.

**Item 5.**              **Other Information.**

             None.

**Item 6.**              **Exhibits and Reports on Form 8-K.******

|   | 3.1          | Amended and Restated Articles of  Incorporation of CompuCredit Corporation (incorporated by reference to  Exhibit 3.1 to CompuCredit's Registration Statement on Form S-1  (File No. 333-62327)), filed with the Commission on August 27, 1998.        |
|--------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |  3.1(a) | Amendment to Amended and Restated  Articles of Incorporation of CompuCredit Corporation (incorporated by  reference to Exhibit 3.1(a) of CompuCredit's Form 10-Q for the  quarter ended June 30, 2000), filed with the Commission on August 14,  2000. |
|   |  3.2    | Second Amended and Restated Bylaws of  CompuCredit Corporation (incorporated by reference to Exhibit 3.2 to  CompuCredit's Quarterly Report on Form 10-Q for the quarter ended  September 30, 2000, filed with the Commission on November 14, 2000).   |
|   |  4.1    | Form of certificate representing shares  of the Registrant's common stock (incorporated by reference to  Exhibit 4.1 to CompuCredit's Registration Statement on Form S-1  (File No. 333-69879)).                                                            |
|   |  4.3    | CompuCredit Corporation’s 2000 Stock  Option Plan (incorporated by reference to Appendix A to CompuCredit’s  Definitive Proxy Statement filed with the Commission on March 30, 2001).                                                                            |

             (b)  Reports on Form 8-K

             Current Report on from 8-K datedJuly 16, 2001 containing a press release regarding certain information that isbeing distributed to certain investors in the asset-backed securitizationmarket regarding a portfolio of credit card accounts (the “Trust Portfolio”)established by CompuCredit Corporation.

 

**SIGNATURES**

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

|            |   | CompuCredit Corporation                                                            |
|-----------------|--------|------------------------------------------------------------------------------------|
|            |   |                                                                               |
| August 14, 2001 | By     | /s/  Ashley L. Johnson                                                             |
|            |   |                                                                                    |
|            |   | Ashley L. Johnson                                                                  |
|            |   | Chief Financial Officer (duly  authorized officer and principal financial officer) |