SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q

For The Quarterly Period Ended March 31, 2004

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|COMPUCREDIT CORPORATION                                                                  | LOGO
|---------------------------------------------------------------------------------------- | ----
|                                                                                         |     
|a Georgia Corporation
IRS Employer Identification No. 58-2336689
SEC File Number 0-25751
|245 Perimeter Center Parkway, Suite 600
Atlanta, Georgia 30346
(770) 206-6200           

CompuCredit
has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) been subject to such filing requirements for the past 90 days.

CompuCredit
is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).

As
of April 30, 2004, there were 47,980,408 outstanding shares of CompuCredit's Common Stock, no par value (the "Common Stock").



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COMPUCREDIT CORPORATION        FORM 10-Q

TABLE OF CONTENTS

March 31,
2004

|         |                       |                                                                                       |                                                          |    | Page
|-------- | --------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------------------- | -- | ----
|PART I.  | FINANCIAL INFORMATION |                                                                                       |                                                         
|         | Item 1.               | Financial Statements (Unaudited)                                                      |                                                          |   
|         |                       |                                                                                       | Condensed Consolidated Balance Sheets                    |    | 1   
|         |                       |                                                                                       | Condensed Consolidated Statements of Operations          |    | 2   
|         |                       |                                                                                       | Condensed Consolidated Statement of Shareholders' Equity |    | 3   
|         |                       |                                                                                       | Condensed Consolidated Statements of Cash Flows          |    | 4   
|         |                       |                                                                                       | Notes to Condensed Consolidated Financial Statements     |    | 5   
|         | Item 2.               | Management's Discussion and Analysis of Financial Condition and Results of Operations |                                                          | 21
|         | Item 3.               | Quantitative and Qualitative Disclosures About Market Risk                            |                                                          | 39
|         | Item 4.               | Controls and Procedures                                                               |                                                          | 40
|PART II. | OTHER INFORMATION     |                                                                                       |                                                         
|         | Item 1.               | Legal Proceedings                                                                     |                                                          | 41
|         | Item 2.               | Changes in Securities and Use of Proceeds                                             |                                                          | 41
|         | Item 3.               | Defaults Upon Senior Securities                                                       |                                                          | 41
|         | Item 4.               | Submission of Matters to a Vote of Security Holders                                   |                                                          | 41
|         | Item 5.               | Other Information                                                                     |                                                          | 41
|         | Item 6.               | Exhibits and Reports on Form 8-K                                                      |                                                          | 41
|         |                       | Signatures                                                                            |                                                          | 42

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CompuCredit Corporation and Subsidiaries        Consolidated Balance Sheets

|                                                                                                                                                  |                                                                                                                             | March 31,
2004 |         | December 31,
2003 |  
|------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ----------------- | -
|
|Assets                                                                                                                                            |                                                                                                                             |                |         |                   |  
|Cash and cash equivalents                                                                                                                         |                                                                                                                             | $              | 69,286  |                   | $
|Restricted cash                                                                                                                                   |                                                                                                                             |                | 10,000  |                   |  
|Retained interests in credit card receivables securitized                                                                                         |                                                                                                                             |                | 538,201 |                   |  
|Amounts due from securitization                                                                                                                   |                                                                                                                             |                | 11,198  |                   |  
|Loans receivable, net                                                                                                                             |                                                                                                                             |                | 29,060  |                   |  
|Deferred costs, net                                                                                                                               |                                                                                                                             |                | 38,500  |                   |  
|Software, furniture, fixtures and equipment, net                                                                                                  |                                                                                                                             |                | 24,006  |                   |  
|Investment in equity-method investee                                                                                                              |                                                                                                                             |                | 6,363   |                   |  
|Investment in previously charged off receivables                                                                                                  |                                                                                                                             |                | 18,266  |                   |  
|Investment in debt securities                                                                                                                     |                                                                                                                             |                | 20,678  |                   |  
|Prepaid expenses and other assets                                                                                                                 |                                                                                                                             |                | 17,302  |                   |  
|                                                                                                                                                  |                                                                                                                             |                |         |                   |  
|Total assets                                                                                                                                      |                                                                                                                             | $              | 782,860 |                   | $
|                                                                                                                                                  |                                                                                                                             |                |         |                   |  
|Liabilities                                                                                                                                       |                                                                                                                             |                |         |                   |  
|Accounts payable and accrued expenses                                                                                                             |                                                                                                                             | $              | 28,862  |                   | $
|Notes payable                                                                                                                                     |                                                                                                                             |                | 6,139   |                   |  
|Deferred revenue                                                                                                                                  |                                                                                                                             |                | 6,744   |                   |  
|Income tax liability                                                                                                                              |                                                                                                                             |                | 70,245  |                   |  
|                                                                                                                                                  |                                                                                                                             |                |         |                   |  
|Total liabilities                                                                                                                                 |                                                                                                                             |                | 111,990 |                   |  
|                                                                                                                                                  |                                                                                                                             |                |         |                   |  
|Minority interest                                                                                                                                 |                                                                                                                             |                | 60,021  |                   |  
|                                                                                                                                                  |                                                                                                                             |                |         |                   |  
|Shareholders' equity                                                                                                                              |                                                                                                                             |                |         |                   |  
|Preferred stock, no par value, 10,000,000 shares authorized:                                                                                      |                                                                                                                             |                |         |                   |  
|                                                                                                                                                  | Series A preferred stock, 30,000 shares issued and 25,000 outstanding at March 31, 2004 and December 31, 2003, respectively |                |         | 30,577            |  
|                                                                                                                                                  | Series B preferred stock, 10,000 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively        |                |         | 12,486            |  
|Common stock, no par value, 150,000,000 shares authorized:
47,964,975 and 47,885,506 issued at March 31, 2004 and December 31, 2003, respectively |                                                                                                                             |                |        |                   |  
|Additional paid-in capital                                                                                                                        |                                                                                                                             |                | 252,392 |                   |  
|Treasury stock, at cost, 872,900 shares at March 31, 2004 and December 31, 2003, respectively                                                     |                                                                                                                             |                | (4,586  | )                 |  
|Deferred compensation                                                                                                                             |                                                                                                                             |                | (488    | )                 |  
|Warrant                                                                                                                                           |                                                                                                                             |                | 16,498  |                   |  
|Retained earnings                                                                                                                                 |                                                                                                                             |                | 303,970 |                   |  
|                                                                                                                                                  |                                                                                                                             |                |         |                   |  
|Total shareholders' equity                                                                                                                        |                                                                                                                             |                | 610,849 |                   |  
|                                                                                                                                                  |                                                                                                                             |                |         |                   |  
|Total liabilities and shareholders' equity                                                                                                        |                                                                                                                             | $              | 782,860 |                   | $
|                                                                                                                                                  |                                                                                                                             |                |         |                   |  

See
accompanying notes.

1

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CompuCredit Corporation and Subsidiaries        Consolidated Statements of Operations (Unaudited)

|                                                     |                                                                       | For the
three months ended
March 31, |        
|---------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------ | -------
|
|
|Interest income                                      |                                                                       | $                                    | 7,705  
|Interest expense                                     |                                                                       |                                      | (91    
|Provision for loan losses                            |                                                                       |                                      | (9,115 
|                                                     |                                                                       |                                      |        
|Net interest expense after provision for loan losses |                                                                       |                                      | (1,501 
|                                                     |                                                                       |                                      |        
|Other operating income:                              |                                                                       |                                      |        
|                                                     | Income from retained interests in credit card receivables securitized |                                      |        
|                                                     | Servicing income                                                      |                                      |        
|                                                     | Fees and other income                                                 |                                      |        
|                                                     | Equity in (loss) income of equity method investee                     |                                      |        
|                                                     |                                                                       |                                      |        
|Total other operating income                         |                                                                       |                                      | 95,989 
|                                                     |                                                                       |                                      |        
|Other operating expense:                             |                                                                       |                                      |        
|                                                     | Salaries and benefits                                                 |                                      |        
|                                                     | Credit card servicing                                                 |                                      |        
|                                                     | Marketing and solicitation                                            |                                      |        
|                                                     | Depreciation                                                          |                                      |        
|                                                     | Other                                                                 |                                      |        
|                                                     |                                                                       |                                      |        
|Total other operating expense                        |                                                                       |                                      | 58,119 
|                                                     |                                                                       |                                      |        
|Income before minority interest and income taxes     |                                                                       |                                      | 36,369 
|Minority interest                                    |                                                                       |                                      | (6,293 
|                                                     |                                                                       |                                      |        
|Income before income taxes                           |                                                                       |                                      | 30,076 
|Income taxes                                         |                                                                       |                                      | (11,288
|                                                     |                                                                       |                                      |        
|Net income                                           |                                                                       | $                                    | 18,788 
|                                                     |                                                                       |                                      |        
|Net income attributable to common shareholders       |                                                                       | $                                    | 17,718 
|                                                     |                                                                       |                                      |        
|Net income per common sharebasic                    |                                                                       | $                                    | 0.36   
|                                                     |                                                                       |                                      |        
|Net income per common shareassuming dilution        |                                                                       | $                                    | 0.36   
|                                                     |                                                                       |                                      |        

See
accompanying notes.

2

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CompuCredit Corporation and Subsidiaries        Consolidated Statement of Shareholders' Equity (Unaudited)        For the Three Months Ended March 31, 2004

|                             |                                                  |   |        | Common Stock |            |        |   |   |   |         |       |   |        |   |   |      |    
|---------------------------- | ------------------------------------------------ | - | ------ | ------------ | ---------- | ------ | - | - | - | ------- | ----- | - | ------ | - | - | ---- | ---
|
|
|
|Balance at December 31, 2003 |                                                  | $ | 41,997 |              | 47,885,506 |        |  |   | $ | 250,943 |       | $ | (4,586 | ) | $ | (593 | )  
|                             | Exercise of stock options, including tax benefit |   |        |             |            | 79,469 |   |  |   |         | 1,436 |   |        |  |   |      |   
|                             | Preferred dividends                              |   |        |             |            |       |   |  |   |         |      |   |        |  |   |      |   
|                             | Accretion of preferred dividends                 |   |        | 1,066        |            |       |   |  |   |         |      |   |        |  |   |      |   
|                             | Issuance of warrant                              |   |        |             |            |       |   |  |   |         |      |   |        |  |   |      |   
|                             | Amortization of deferred compensation            |   |        |             |            |       |   |  |   |         |      |   |        |  |   |      | 105
|                             | Other                                            |   |        |             |            |       |   |  |   |         | 13    |   |        |  |   |      |   
|                             | Net income                                       |   |        |             |            |       |   |  |   |         |      |   |        |  |   |      |   
|                             |                                                  |   |        |              |            |        |   |   |   |         |       |   |        |   |   |      |    
|Balance at March 31, 2004    |                                                  | $ | 43,063 |              | 47,964,975 |        |  |   | $ | 252,392 |       | $ | (4,586 | ) | $ | (488 | )  
|                             |                                                  |   |        |              |            |        |   |   |   |         |       |   |        |   |   |      |    

See accompanying notes.

3

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CompuCredit Corporation and Subsidiaries        Consolidated Statements of Cash Flows (Unaudited)

|                                                                                            |                                                    | For the
three months ended
March 31,                         |         
|------------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------------------------ | --------
|
|
|Operating activities                                                                        |                                                    |                                                              |         
|Net income                                                                                  |                                                    | $                                                            | 18,788  
|Adjustments to reconcile net income to net cash (used in) provided by operating activities: |                                                    |                                                              |         
|                                                                                            | Depreciation expense                               |                                                              |         
|                                                                                            | Amortization expense                               |                                                              |         
|                                                                                            | Amortization of acquired servicing liability       |                                                              |         
|                                                                                            | Amortization of deferred compensation              |                                                              |         
|                                                                                            | Minority interest                                  |                                                              |         
|                                                                                            | Retained interests income adjustment, net          |                                                              |         
|                                                                                            | Income from equity investee (net of distributions) |                                                              |         
|                                                                                            | Changes in assets and liabilities:                 |                                                              |         
|                                                                                            |                                                    | Decrease in restricted cash                                  |         
|                                                                                            |                                                    | Decrease in accrued interest and fees                        |         
|                                                                                            |                                                    | Increase in amounts due from securitization                  |         
|                                                                                            |                                                    | Increase in deferred costs                                   |         
|                                                                                            |                                                    | Increase in prepaid expenses                                 |         
|                                                                                            |                                                    | Increase (decrease) in accounts payable and accrued expenses |         
|                                                                                            |                                                    | (Decrease) increase in deferred revenue                      |         
|                                                                                            |                                                    | Decrease in income tax liability                             |         
|                                                                                            |                                                    | Other                                                        |         
|                                                                                            |                                                    |                                                              |         
|Net cash (used in) provided by operating activities                                         |                                                    |                                                              | (18,241 
|                                                                                            |                                                    |                                                              |         
|Investing activities                                                                        |                                                    |                                                              |         
|Proceeds from bond investment, net of (investment)                                          |                                                    |                                                              | (2,853  
|Purchase of charged off receivables                                                         |                                                    |                                                              | (13,708 
|Net loan payments (purchases)                                                               |                                                    |                                                              | 152,006 
|Recoveries of receivables previously charged off                                            |                                                    |                                                              | 11,370  
|Net increase in retained interest                                                           |                                                    |                                                              | (169,388
|Purchases of and development of software, furniture, fixtures and equipment                 |                                                    |                                                              | (1,976  
|                                                                                            |                                                    |                                                              |         
|Net cash used in investing activities                                                       |                                                    |                                                              | (24,549 
|                                                                                            |                                                    |                                                              |         
|Financing activities                                                                        |                                                    |                                                              |         
|Minority interest contribution (distribution), net                                          |                                                    |                                                              | 1,152   
|Proceeds from exercise of stock options                                                     |                                                    |                                                              | 685     
|Purchase of treasury stock                                                                  |                                                    |                                                              |        
|Proceeds from (repayment of) short-term borrowings, net                                     |                                                    |                                                              | (366    
|                                                                                            |                                                    |                                                              |         
|Net cash provided by (used in) financing activities                                         |                                                    |                                                              | 1,471   
|                                                                                            |                                                    |                                                              |         
|Net decrease in cash                                                                        |                                                    |                                                              | (41,319 
|Cash and cash equivalents at beginning of period                                            |                                                    |                                                              | 110,605 
|                                                                                            |                                                    |                                                              |         
|Cash and cash equivalents at end of period                                                  |                                                    | $                                                            | 69,286  
|                                                                                            |                                                    |                                                              |         
|Supplemental cash flow information                                                          |                                                    |                                                              |         
|Cash paid for interest                                                                      |                                                    | $                                                            | 91      
|                                                                                            |                                                    |                                                              |         
|Cash paid for income taxes                                                                  |                                                    | $                                                            | 36,783  
|                                                                                            |                                                    |                                                              |         
|Issuance of warrant                                                                         |                                                    | $                                                            | 16,498  
|                                                                                            |                                                    |                                                              |         
|Note payable associated with bond investment                                                |                                                    | $                                                            | 2,800   
|                                                                                            |                                                    |                                                              |         
|Accretion of preferred stock dividends                                                      |                                                    | $                                                            | 1,066   
|                                                                                            |                                                    |                                                              |         

See accompanying notes.

4

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CompuCredit Corporation and Subsidiaries        Notes to Condensed Consolidated Financial Statements (Unaudited)        March 31, 2004

1.     Organization and Basis of Presentation

General

The condensed consolidated financial statements include the accounts of CompuCredit Corporation and its wholly owned subsidiaries (collectively, the "Company").
The Company is a provider of various credit and related financial services and products to or associated with the underserved, or sub-prime, consumer credit market. Historically, the
Company has served this market through its marketing and solicitation of credit card accounts and its servicing of various credit card receivables underlying both its originated accounts and its
portfolio acquisitions. Because only financial institutions can issue general purpose credit cards, the Company has a contractual arrangement with a third-party financial institution pursuant to which
the financial institution issues general purpose Visa and MasterCard credit cards, and the Company purchases the receivables relating to such accounts on a daily basis. The Company markets to its
cardholders other fee-based products including card registration, memberships in preferred buying clubs, travel services and credit life, disability and unemployment insurance.

The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to Form 10-Q and Article 10 of
Securities and Exchange Commission ("SEC") Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in
the United States of America ("GAAP") for complete consolidated financial statements. In the opinion of management, all normal recurring adjustments considered necessary to fairly state the results
for the interim periods presented have been included. The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Certain estimates, such as credit losses,
payments, discount rates and the yield earned on securitized receivables, have a significant impact on the gains and losses recorded on securitizations and the value of retained interests in credit
card receivables securitized. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results for the year ending December 31, 2004. These
condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements for the year ended December 31, 2003 contained in the Company's
Annual Report on Form 10-K filed with the SEC.

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

2.     Significant Accounting Policies

The following is a summary of significant accounting policies followed in the preparation of the consolidated financial statements.

5

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Restricted Cash

The Company provides an irrevocable standby letter of credit agreement for $10.0 million to the financial institution that issues the credit cards marketed
by the Company. The purpose of the letter of credit is to protect the financial institution from non-payment by the Company of its obligation to purchase receivables arising in the credit
card accounts on a daily basis. The Company is required to maintain a minimum cash balance of $10.0 million with the bank that has issued the letter of credit. Such cash has been disclosed as
restricted cash on the face of the consolidated balance sheet. Additionally, as of December 31, 2003, the restricted cash balance included a portion ($1.9 million) of the servicing fee
associated with the Embarcadero Trust (see Note 5, "Embarcadero Acquisition") that
was then contingent on the Company achieving certain milestones; these milestones were achieved, and the Company received these proceeds in January 2004.

Asset Securitization

Substantially all of the Company's credit card receivables are securitized. When the Company sells receivables in securitizations, it retains certain undivided
ownership interests, interest-only ("I/O") strips and servicing rights. Although the Company continues to service the underlying credit card accounts and maintains the customer
relationships, these securitizations are treated as sales, and the securitized receivables are not reflected on the consolidated balance sheet. The retained ownership interests and the
interest-only strips are included in retained interests in credit card receivables securitized on the face of the consolidated balance sheet.

Under
Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("Statement
No. 140"), gains and losses are recognized at the time of each sale. These gains or losses on sales of receivables depend in part on the previous carrying amount of the financial assets sold,
as well as the fair value of the assets and cash proceeds received. The cash flows used to measure the gains and losses represent estimates of finance charges and late fees, servicing fees, costs of
funds paid to investors, payment rates, credit losses and any required amortizing principal payments to investors. The Company initially records a servicing liability within a securitization structure
when the servicing fees the Company expects to receive do not provide adequate compensation for servicing the receivables. The initial servicing liability is recorded at estimated fair market value.
The servicing liability is then evaluated each quarter and carried at its estimated fair value. Changes in servicing liability fair value are included as a component of the Company's income from
retained interests in credit card receivables securitized, with actual servicing expenses being recorded into operations as incurred. Because quoted market prices are generally not available for the
Company's servicing liabilities, the Company estimates fair value based on the estimated present value of future cash flows using management's best estimates of key assumptions as outlined in
Note 6, "Off Balance Sheet Arrangements." The servicing liability is netted against the value of the I/O strip and included in retained interests in credit card receivables securitized on the
Company's consolidated balance sheet. In accordance with Statement No. 140 and FASB interpretation No. 46, "Consolidated Financial Statements" ("Interpretation No. 46"), the
Company does not consolidate any of the qualifying special purpose entities ("QSPEs") in its securitizations.

The
retained interests for portfolios securitized by the Company are accounted for as trading securities and reported at estimated fair market value, with changes in fair value included
in operations in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("Statement No. 115"). The
estimates used to determine

6

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the
gains and losses and the related fair values of I/O strips and retained ownership interests are influenced by factors outside of the Company's control, and such estimates could materially change
from quarter to quarter.

Retained
interests purchased by the Company during 2002 are carried at the lower of amortized cost or fair market value, net of a servicing liability. In accordance with Emerging Issues
Task Force Issue 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets" ("EITF 99-20"),
expected cash flows in excess of the costs of the purchased retained interests are being amortized into income from retained interests in credit card receivables securitized using the effective
interest method.

Amounts
due from securitization include payments recently received on the securitized receivables that are still held by the securitization structure but are due and payable to the
Company within the next 30 days.

Loans Receivable, Net

Loans receivable, net represent credit card receivables that the Company has not securitized. These receivables are derived principally from the Company's largely
fee-based card offering to consumers at the lower end of the FICO scoring system and consist of finance charges and fees, as well as principal balances receivable from this class of
customer. In addition to finance charges on principal balances, the fees associated with this particular product offering consist principally of activation, annual and monthly fees. The activation
fees are recognized over the estimated life of a customer (approximately one year). The annual fees are recognized over the year to which they apply. Loans receivable are presented net of unearned
fees in accordance with Statement of Financial Accounting Standards No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Receivables and Initial Direct
Costs of Leases." The allowance for uncollectible loans is provided for that portion of the loans receivable that management believes will not ultimately be collected based on historical experience.
The components of loans receivable, net are as follows (in millions):

Balance at
December 31, 2003

Additions

Subtractions

Balance at
March 31, 2004Loans receivable, gross

$
37.2

$
21.9

$


$
59.1Deferred revenue


(13.8
)

(10.3
)

7.2


(16.9
)Allowance for uncollectible loans


(7.1
)

(9.1
)

3.1


(13.1
)Loans receivable, net

$
16.3

$
2.5

$
10.3

$
29.1


Reflected
in interest income on the consolidated statement of operations is $6.0 million and $0 of interest (or finance charge) income and reflected in fees and other income is
$16.4 million and $0 of fee income associated with these loans receivable for the three months ended March 31, 2004 and 2003, respectively. The weighted average remaining vesting period
for the deferred revenue for this product at March 31, 2004 was 8 months.

Investment in Previously Charged Off Receivables

In late 2002, the Company formed a new debt collections subsidiary and began the process of obtaining the appropriate state licenses and meeting the applicable
regulatory requirements necessary

7

---



for
the Company to hold itself out as a debt collector and a buyer of defaulted credit card accounts. Through this subsidiary, the Company now pursues, competitively bids for and acquires previously
charged off credit card receivables. All of the Company's acquisitions of previously charged off credit card receivables thus far during 2004 and all but one of the acquisitions during 2003 have been
from the securitization trusts underlying the Company's retained interests investments. The Company is continually evaluating acquisition opportunities, but only at appropriate pricing. Further, the
sales of the receivables serviced by the Company are subject to a strict competitive bid process involving other potential third-party portfolio purchasers to ensure that all acquisitions have been at
fair market prices; the Company has also participated with and under the same terms as other third-party purchasers to acquire some of its previously charged off receivables, thereby allowing the
third-party purchasers to establish a market for the purchases.

Static
pools consisting of homogenous accounts and receivables are established for each acquisition. Once a static pool is established, the receivables within the pool are not changed.
Each static pool is recorded at cost and is accounted for as a single unit for payment application and income recognition purposes. The Company accounts for its investment in previously charged off
receivables by applying the cost recovery method on a portfolio-by-portfolio basis under the guidance of Practice Bulletin 6, "Amortization of Discounts on Certain Acquired
Loans" ("PB 6"). Under the cost recovery method, income associated with a particular portfolio is not recognized until cash collections have exceeded the investment. Additionally, until such time as
cash collected for a particular portfolio exceeds the Company's investment in the portfolio, the Company will incur commission costs and other servicing costs associated with the cash collections on
the portfolio investment that will be charged as an operating expense without any offsetting income amounts.

The
Company will use the cost recovery method for each particular static pool until such time that its experience with that pool is sufficient to justify use of the PB 6 interest method
(such method being one by which income associated with each static pool is accrued monthly based on each static pool's effective interest rate) based on criteria communicated to the Company during
2003 by the Staff of the SEC. The Company does not anticipate meeting these criteria for use of the interest method for any particular acquired pool for the foreseeable future.

For
the three months ended March 31, 2004, the following table shows a roll-forward of the Company's investment in previously charged off receivables activities (in
thousands):

Unrecovered balance at December 31, 2003

$
13,960Acquisitions of defaulted accounts


13,708Cash collections on all portfolios


(23,358
)Income recognized on defaulted accounts


13,956Unrecovered balance at March 31, 2004

$
18,266Estimated remaining collections ("ERC")

$
68,178


At
the time of acquisition, the life of each pool generally is estimated to be between 24 and 36 months based upon the proprietary models of the Company. The Company anticipates
collecting approximately 76% of the ERC over the next twelve months, with the balance to be collected thereafter.

8

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Investment in Debt Securities and Notes Payable

In addition to the CSG Trust bonds held by the Company and discussed in its Annual Report on Form 10-K for the year ended December 31,
2003, during the first quarter of 2004, the Company acquired $6.7 million in Class A and B bonds issued by the First Consumer Credit Card Master Business Trust in the open market for a
total purchase price of approximately $5.6 million and has included this amount in investment in debt securities. The bonds earn interest at 1.40% and 2.19%, respectively. The Company financed
the purchase of these bonds with $2.8 million in borrowed funds that accrue interest at 3.5%. These borrowed funds are included in notes payable along with borrowings associated with certain
vendor-financed acquisitions of software and equipment. These bonds have been classified as trading securities.

Applying
the principles of Statement No. 115, the Company has classified all of its bonds purchased prior to its first quarter of 2004 purchase as
held-to-maturity. Given the absence of an active market for these bonds and the gradual repayment of the bonds combined with the Company's lack of a requirement for additional
liquidity, management is of the opinion that held-to-maturity is the appropriate classification.

Warrant

In connection with a new securitization facility that was entered into during the first quarter of 2004, the Company issued to the investor a warrant to acquire
2.4 million shares of the Company's common stock at a strike price of $22.45. The costs associated with this warrant were recorded within deferred costs, net, on the Company's consolidated
balance sheet at fair value (approximately $16.5 million determined using the Black-Scholes model), and the initial deferred cost amount is being amortized as an additional component of expense
over the two-year term of the securitization facility.

Stock Options

The Company has three stock-based employee compensation plansone of which is subject to shareholder approval in May 2004. As permitted by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" ("Statement No. 123"), the Company accounts for those plans under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and its related interpretations. Because all options granted under
the Company's plans had an exercise price equal to the market value of the underlying common stock on the date of grant, no stock-based compensation cost is reflected in net income under the Company's
application of APB 25. Additionally, the Company did not issue any options to non-employees who were not directors for the three months ended March 31, 2004 and March 31,
2003, respectively.

9

---



The
following table presents the effects on net income and net income per share if the Company had recognized compensation expense under the fair value recognition provisions of
Statement No. 123:

For the
three months ended
March 31,2004

2003(In thousands)Net income, as reported

$
17,718

$
29,487Stock-based employee compensation expense determined under fair value basis, net of tax


(137
)

(219
)Pro forma net income

$
17,581

$
29,268Earnings per share:Basicas reported

$
0.36

$
0.60Basicpro forma

$
0.36

$
0.60Dilutedas reported

$
0.36

$
0.60Dilutedpro forma

$
0.35

$
0.60


The
pro forma results may not be indicative of the future effect on the results of operations due to a variety of factors including the timing and number of awards. The following table
summarizes the Black-Scholes value of the Company's outstanding stock options on a per share basis, as well as the key assumptions used in the Black-Scholes model.

At March 31,2004

2003Fair value per share

$
8.95

$
3.86Dividend rate


0
%

0
%Risk free rate


2.8
%

2.8
%Expected volatility


42.8
%

77.5
%Expected life of the options


5 years


5 years


Fees and Other Income

Fees and other income consists of the following:

For the
three months ended
March 31,2004

2003Fees

$
38,070

$
19,392Recoveries of previously charged off receivables


13,956


3,638Ancillary product revenue


1,055


1,862Interchange fees


3,183


3,112Total

$
56,264

$
28,004


10

---



Fees
include annual membership, overlimit, returned check, cash advance transaction fees and other fees. Fees are assessed on credit card accounts according to the terms of the related
cardholder agreements and, except for annual fees, are recognized as revenue when charged to the cardholder's account. Annual fees are amortized into revenue on a straight-line basis over
the cardholder privilege period, which is twelve months. Direct receivables origination costs are amortized against fee income.

The
Company offers various fee-based products and services (ancillary products) to its customers, including memberships, insurance products and subscription services. When
the Company markets its own products, the fees, net of estimated cancellations, are recorded as deferred revenue upon the customer's acceptance of the product and are amortized on a
straight-line basis over the life of the product (which ranges from one to twelve months). When the Company markets products for third parties under commission arrangements, the revenue is
recognized when earned, which is generally during the same month the product is sold to the customer. The Company considers revenue to be earned once delivery has occurred (i.e., when there is no
further performance obligation), the commission is fixed and collectibility is reasonably assured. Once these conditions are satisfied, the Company recognizes its commission as ancillary product
revenue.

Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, which addresses consolidation by business enterprises of variable interest entities that
have certain characteristics. In general, Interpretation No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss
from the variable interest entity's activities or is entitled to receive a majority of the entity's residual returns or both. An entity that meets this definition is considered the "primary
beneficiary." Interpretation No. 46 requires disclosures about variable interest entities by the primary beneficiary and an enterprise that holds significant variable interests in a variable
interest entity but is not the primary beneficiary. Interpretation No. 46 provides for exceptions to the scope of this interpretation including transfers to qualifying special purpose entities
subject to the reporting of
Statement No. 140, which would not be consolidated. Interpretation No. 46 applies immediately to variable interest entities created after January 31, 2003 and to variable interest
entities in which an enterprise obtains an interest after January 31, 2003. Interpretation No. 46 applies in the first fiscal year, or interim period, beginning after December 15,
2003 to variable interests entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. This statement did not have a material impact on the Company's
consolidated financial statements.

In
June 2003, the FASB issued an Exposure Draft for a proposed Statement of Financial Accounting Standards entitled "Qualifying Special Purpose Entities and Isolation of
Transferred Assets, an Amendment of Statement No. 140" ("The Exposure Draft"). The Exposure Draft is a proposal that is subject to change and, as such, is not yet authoritative. If the proposal
is promulgated in its current form, it will amend and clarify Statement No. 140. Under the Exposure Draft, the renewal of certain commercial paper facilities underlying the Company's
securitizations could cause the Company to have to record on its books the assets and liabilities related to the securitizations.

In
December 2003, the American Institute of Certified Public Accountants Accounting Standards Executive Committee issued Statement of Position 03-3, "Accounting for
Certain Loans or Debt Securities Acquired in a Transfer" ("SOP 03-3"). SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to
be collected from an investor's initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable,

11

---



at
least in part, to credit quality. It applies to loans acquired in business combinations, but does not apply to loans originated by the entity. SOP 03-3 is effective for loans acquired
in fiscal years beginning after December 15, 2004, with early adoption encouraged. The Company does not anticipate that the adoption of SOP 03-3 will have a material impact on its
financial statements.

3.     Equity Method Investment in CSG, LLC

CSG, LLC ("CSG") was formed during the second quarter of 2002 by affiliates of Goldman, Sachs & Co., Salomon Smith Barney and a wholly owned subsidiary of
the Company to acquire notes and a subordinated, certificated interest issued by a trust ("CSG Trust") that owns a portfolio of credit card receivables, which were initially purchased by the trust
from Providian National Bank. The Company accounts for its interest in CSG using the equity method of accounting. The Company has a 50% interest in CSG and funded its initial $34.9 million
investment in CSG with cash of $3.5 million and by borrowing $31.4 million, which was repaid during the fourth quarter of 2002. Notwithstanding the Company's repayment of this loan's
principal, the lender continues to receive a portion of excess cash flows received by the Company from CSG. These payments are classified as interest expense.

During
the three months ended March 31, 2004 and 2003, the Company received $0 and $19.6 million, respectively, in cash distributions from CSG. During the second quarter of
2003, and as expected at the time of CSG's acquisition of its interests in the CSG Trust, a principal balance trigger occurred, and hence an early amortization began. While CSG made distributions to
the Company through June 2003, the occurrence of this trigger event caused CSG to cease its cash distributions to the Company, and it will not resume these distributions until approximately the
middle of 2006. Accordingly, all significant income from the Company's equity-method investment will cease until distributions resume in 2006.

The
following represents condensed results of operations of CSG as of March 31, 2004 and December 31, 2003, respectively, and for the three-months ended March 31,
2004 and March 31, 2003, respectively (in thousands):

As of
March 31, 2004

As of
December 31, 2003Retained interests in credit card receivables securitized

$
1

$
1Total assets


12,925


13,172Total liabilities


199


18Members' capital


12,726


13,154


For the
three months ended
March 31, 2004

For the
three months ended
March 31, 2003Income from retained interests in credit card receivables securitized

$


$
29,854Total other operating income


263


30,296Net income


(429
)

28,592


In
exchange for servicing 100% of the receivables owned by the CSG Trust, the Company receives a servicing fee from the securitization structure, which the Company considers adequate
compensation for servicing.

12

---



4.     Purchase of Assets

In July 2002, the Company completed a transaction with Federated Department Stores, Inc. in which the Company purchased for $75.2 million
plus an assumed $95.8 million servicing liability the retained interests in a trust (the "Original Fingerhut Trust") that owned approximately $1.0 billion in face amount of receivables.
The receivables included in the trust were those generated by private label revolving credit cards used to purchase items from the Fingerhut catalog. This portfolio will decrease over time because
payments and charge-offs from cardholders are expected to be significantly greater than purchases and interest charges. In accordance with EITF 99-20, the Company has
accounted for the retained interests it purchased at the lower of amortized cost or fair market value, and the Company has amortized remaining expected cash flows in excess of the costs of the
purchased retained interests into income from retained interests in credit card receivables securitized using the effective interest method. Also, pursuant to EITF 99-20, the
Company has updated its EITF 99-20 model when there has been a change in its estimate of projected future cash flows. These updates can result in the Company either
(1) adjusting
the prospective yield that it will realize over future periods, or (2) reducing the carrying value of the Company's investment to fair value if a significant adverse change occurs. To date,
none of these updates has resulted in a reduction in the carrying value of the Company's investment.

The
gross cash flows that were available to the Company through the securitization structure associated with the Fingerhut trust retained interests were $1.8 million and
$86.3 million during the three months ended March 31, 2004 and 2003, respectively. From date of acquisition through the third quarter of 2003, the portion of expected cash flows that
exceeded the cost of the purchased retained interests was amortized into income from retained interests in credit card receivables securitized using the effective interest method ($65.4 million
pre-tax was amortized into income during the three months ended March 31, 2003). During the third quarter of 2003, a third party acquired the Company's retained interest in the
Original Fingerhut Trust in exchange for $27.3 million and a retained interest in a new trust (the "Fingerhut Trust"), which owns a collateral security interest in the Original Fingerhut Trust.
Subsequent to this third quarter 2003 transaction, the effective interest method is also being used to record income associated with the Company's retained interest in the new Fingerhut Trust;
$1.8 million of such pre-tax income is reflected in income from retained interests in credit card receivables securitized during the three months ended March 31, 2004. For
further discussion of this third quarter 2003 transaction and the Company's accounting for its investment in the Fingerhut retained interests, see Note 6, "Off Balance Sheet Arrangements."

5.     Embarcadero Acquisition

On August 1, 2003, the Company purchased a 62.5% interest in Embarcadero Holdings, LLC ("Embarcadero") for $26.5 million. Embarcadero was formed by
an affiliate of Merrill Lynch and one of the Company's wholly owned subsidiaries in connection with the acquisition of approximately $824 million (face amount) in credit card receivables from
Providian Bank. These receivables were then transferred to a trust pursuant to a Statement No. 140 transfer in exchange for notes and a subordinated, certificated interest issued by the trust
("Embarcadero Trust"), thereby resulting in securitization income of $31.4 million. (See Note 6, "Off Balance Sheet Arrangements," for further discussion.) Embarcadero retained the
subordinated, certificated interest originally issued by the Embarcadero Trust until the initial conduit facility underlying the securitization was replaced in January 2004 with a new
10-year amortizing term facility; Embarcadero now owns the subordinated, certificated interest underlying the new 10-year amortizing term facility. The assets and liabilities
of

13

---



Embarcadero,
and its associated earnings from operations, are presented as part of the Company's consolidated financial statements with a minority interest being shown to reflect the Merrill Lynch
affiliate's portion of the operations. The minority interest on the statements of operations is not shown net of tax because Embarcadero is a pass-through entity for income tax purposes.
For a fee that represents adequate compensation for servicing, the Company has agreed to service the entire portfolio of credit card receivables underlying the Embarcadero Trust. In addition,
Embarcadero is obligated to provide for the purchase of receivables in the unlikely event that the Embarcadero Trust is unable to fund such receivables. To date, there have been no, and management
does not expect any, borrowings related to this obligation.

6.     Off Balance Sheet Arrangements

The Company securitizes substantially all of its credit card receivables originated on a daily basis under its primary third-party financial institution
relationship (the "originated portfolio") through a master trust. Credit card receivables are transferred to a master trust, which issues notes representing undivided ownership interests in the assets
of the master trust. Additionally, during the third quarter of 2002, the Company acquired retained interests in a credit card receivables trust. (See Note 4, "Purchase of Assets.") Further,
during the third quarter of 2003, the Company acquired receivables from a third-party and subsequently securitized them. (See Note 5, "Embarcadero Acquisition.")

In
accordance with the above, substantially all of the Company's credit card receivables are held by securitization trusts, and the exclusive interest of the Company in these receivables
is in the form of retained interests. GAAP requires the Company to treat its transfers to the securitization trusts as sales, and the receivables are removed from the Company's consolidated balance
sheet. Under Statement No. 140, an entity recognizes the assets it controls and liabilities it has incurred, and derecognizes the financial assets for which control has been surrendered and all
liabilities that have been extinguished. An entity is considered to have surrendered control over the transferred assets and, therefore, to have sold the assets if the following conditions are met:



The
securitization transactions do not affect the relationship the Company has with its customers, and the Company continues to service the credit card receivables.

14

---





The table below summarizes the Company's securitization activity for the periods presented. It does not include any of the receivables managed by or the
securitization facility of CSG, the Company's 50%-owned equity-method investee:

For the
three months ended
March 31,2004

2003(In thousands)Gross amount of receivables securitized at period end(1)

$
2,017,592

$
2,068,573Proceeds from collections reinvested in revolving period securitizations


197,961


251,738Excess cash flows received on retained interests


73,257


134,826Income from retained interests in credit card receivables securitized


14,641


36,307


---

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

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

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

15

---



The
retained interests associated with the credit card receivables that the Company has securitized are carried at estimated fair market value, and because they are classified as trading
securities, any changes in fair value are included in income. Because quoted market prices for the Company's retained interests are generally not available, the Company estimates fair value based on
the estimated present value of future cash flows using management's best estimates of key assumptions.

The
Company's retained interests in credit card receivables securitized include the following:

March 31, 2004

December 31, 2003(In thousands)I/O strip

$
81,971

$
80,552Accrued interest and fees


16,478


19,030Servicing liability


(26,291
)

(32,519
)Fair value of retained interests


466,043


471,898Retained interests in credit card receivables securitized

$
538,201

$
538,961


The
I/O strip reflects the fair value of the Company's rights to future income from Company-arranged securitizations and includes certain credit enhancements. The I/O strip increased
during the first three months of 2004 principally due to the effects of the new Embarcadero 10-year amortizing term securitization facility completed in January 2004, combined with
improved yield and lower charge offs, partially offset by a lower payment rates, experienced within the Embarcadero Trust. The decrease in accrued interest and fees corresponds with reductions in
receivables balances within the portfolios underlying the Company's securitizations. The servicing liability reflects, for those securitization structures for which servicing compensation is not
adequate, the fair value of the costs to service the receivables above and beyond the servicing income the Company expects to receive from the securitizations. The servicing liability decrease
experienced thus far in 2004 corresponds with reductions in receivables levels within the Company's originated portfolio. The fair value of retained interests includes those interests in
Company-arranged securitizations, as well as the Company's purchased interests in securitizations. The fair value of retained interests decreased between December 31, 2003 and March 31,
2004, principally due to the currently liquidating nature of the Company's managed receivables portfolios, partially offset, however, by the improved performance of the portfolios' receivables in the
first quarter of 2004.

During
the third quarter of 2003, a third party acquired the Company's retained interest in the Original Fingerhut Trust in exchange for $27.3 million and a retained interest in a
new Fingerhut Trust, which owns a collateral security interest in the Original Fingerhut Trust representing an undivided interest in the receivables held by the Original Fingerhut Trust. For
accounting purposes, this transaction had no ramifications other than its effect on the timing of income recognition under the effective interest method of EITF 99-20 based on
revised cash flow timing. As a result of this transaction, with the exception of servicing fees, the Company will receive only negligible further cash flows from the Fingerhut Trust until the holders
of all senior notes issued by the Fingerhut Trust are repaid (currently estimated to be the third quarter of 2004). The remaining excess cash flows from the Fingerhut investment are currently
estimated to be $127.4 million. Once the Fingherhut Trust senior note holders are repaid, the Company will again realize material income amounts associated with its Fingerhut investment.
Because the Company is now receiving adequate compensation for servicing the portfolio of credit card receivables underlying the Fingerhut Trust, the Company no longer has the

16

---



servicing
liability associated with the Original Fingerhut Trust, but rather, a deferred gain associated with the exchange of the Fingerhut retained interests, which currently is being amortized into
income using the EITF 99-20 effective interest method.

Changes
in any of the assumptions used to value the Company's retained interests could impact the fair value estimates. The weighted average key assumptions used to estimate the fair
value of the Company's retained interests in receivables the Company has securitized are presented below:

March 31,
2004

December 31,
2003

March 31,
2003Yield (annualized)

28.7
%
29.5
%
32.0
%Payment rate (monthly)

6.0

6.5

6.8Expected credit loss rate (annualized)

13.3

15.0

18.4Residual cash flows discount rate

22.5

22.5

22.5Servicing liability discount rate

14.0

14.0

14.1


At
March 31, 2004, the following illustrates the hypothetical effect of an adverse 5 and 10 percent change in key economic assumptions on the retained interests in credit
card receivables securitized ($ in thousands):

Credit card
ReceivablesYield (annualized)


28.7
%Impact on fair value of 5% adverse change

$
(8,956
)Impact on fair value of 10% adverse change

$
(17,912
)Payment rate (monthly)


6.0
%Impact on fair value of 5% adverse change

$
(5,302
)Impact on fair value of 10% adverse change

$
(12,122
)Expected credit loss rate (annualized)


13.3
%Impact on fair value of 5% adverse change

$
(4,315
)Impact on fair value of 10% adverse change

$
(8,630
)Residual cash flows discount rate


22.5
%Impact on fair value of 5% adverse change

$
(2,006
)Impact on fair value of 10% adverse change

$
(3,988
)Servicing discount rate


14.0
%Impact on fair value of 5% adverse change

$
(99
)Impact on fair value of 10% adverse change

$
(198
)


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

17

---



As
noted above, the Fingerhut Trust retained interests are carried at the lower of amortized cost or fair market value, net of any applicable servicing liability. In accordance with
EITF 99-20, expected cash flows in excess of the cost of the purchased retained interests are being amortized into income from retained interests in credit card receivables
securitized using the effective interest method.

The
Company's managed receivables portfolio underlying its securitizations (including its 50% and 62.5% ownership shares in the CSG and Embarcadero managed receivables, respectively) is
comprised of retained interests in the credit card receivables securitized and the investors' shares of these securitized receivables. The investors' shares of securitized credit card receivables are
not assets of the Company. The following table summarizes the balances included in the Company's managed receivables portfolio underlying its retained interests in the securitizations.

March 31,
2003

December 31,
2002(In thousands)Total managed principal balance

$
1,817,182

$
2,083,320Total managed finance charge balance


273,462


257,578Total managed receivables

$
2,090,644

$
2,340,898Receivables delinquent60 or more days

$
218,243

$
280,312Net charge offs for the three months ended

$
87,331

$
90,446


7.     Earnings Per Share

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

For the
three months ended
March 31,2004

2003(In thousands, except
per share data)Numerator:Net income

$
18,788

$
30,595Preferred stock dividends


(1,070
)

(1,108
)Income attributable to common shareholders

$
17,718

$
29,487Denominator:Denominator for basic earnings per shareweighted-average shares outstanding


51,726


50,827Effect of dilutive stock options and warrants


955


144Denominator for diluted earnings per shareadjusted weighted-average shares


52,681


50,971Basic earnings per share

$
0.36

$
0.60Diluted earnings per share

$
0.36

$
0.60


18

---



The
Company's preferred shares, plus dividends that have been accreted thereon, are convertible into approximately 4.8 million shares of common stock at $9.14 per share as of
March 31, 2004. These
4.8 million shares of common stock have been included in the weighted average shares outstanding in the above computations. Excluded from the March 31, 2004 calculation are
2.4 million warrants and 0.2 million stock options as their effect is anti-dilutive.

8.     Commitments and Contingencies

In the normal course of business through the origination of unsecured credit card receivables, the Company incurs off balance sheet risks. These financial
instruments consist of commitments to extend credit totaling approximately $2.2 billion and $2.3 billion at March 31, 2004 and December 31, 2003, respectively. These
instruments involve, to varying degrees, elements of credit risk in excess of the amounts securitized. The principal amount of these instruments reflects the maximum exposure the Company has in the
instruments. The Company has not experienced and does not anticipate that all of its customers will exercise their entire available line of credit at any given point in time. The Company has the right
to reduce or cancel these available lines of credit at any one time.

The
Company is an equity member of CSG. (See Note 4, "Equity Method Investment in CSG, LLC.") During the second quarter of 2002, CSG entered into a note purchase agreement whereby
it agreed to buy additional interests in a portfolio of credit card receivables owned by CSG Trust should there be net new growth in the receivables or should collections not be available to fund new
cardholder purchases. As of March 31, 2004, CSG would be obligated to purchase up to approximately $61.1 million of new notes from the CSG Trust should this contingency arise. In
general, this contingency amount will decline as the amount of credit available to cardholders for future purchases declines. The portfolio has declined and is expected to continue to decline during
the life of the CSG Trust as payments are expected to exceed new purchases each month. As a member of CSG, the Company has agreed to guarantee the payment of the purchase price of the aforementioned
new notes if the events giving rise to this contingency arise, but only if CSG itself should fail to purchase the new notes under the note purchase agreement. As of March 31, 2004, CSG had not
purchased and was not required to purchase any additional notes under the note purchase agreement. The Company's guarantee is limited to its ownership percentage in CSG (which at March 31, 2004
was 50%) times the total amount of the notes that CSG would be required to purchase. Therefore, as of March 31, 2004, the maximum amount of the Company's guarantee was approximately
$30.6 million. The Company currently does not have any liability recorded with respect to this guarantee, but it will record one if events occur that make payment probable under the guarantee.
The fair value of this guarantee is not material.

The
Company's agreement with its principal third-party originating financial institution requires the Company to purchase on a daily basis the credit card receivables that are originated
in the accounts maintained for the Company's benefit. To secure this obligation, the Company provides the financial institution a $10.0 million cash-collateralized letter of credit
and has pledged retained interests carried at approximately $80.5 million. These arrangements prevent the Company from using the $10.0 million of cash for any other purpose, although the
Company can substitute other collateral for the pledged retained interests. The Company's arrangements with the financial institution expire in March 2006. If the Company were to terminate its
service agreement with this institution, there would be penalties of approximately $1.5 million as of March 31, 2004. The Company currently does not have any liability recorded with
respect to the guarantees discussed in this paragraph, but it will record one if events

19

---



occur
that make payment probable under the guarantees. The fair value of these guarantees is not material.

The
Company's most significant source of liquidity is the securitization of credit card receivables. The maturity terms of the Company's securitizations vary. As of March 31,
2004, the Company had a three-year term securitization facility that it completed in July 2001, a two-year variable funding securitization facility with renewal options
and a one-year conduit securitization facility issued out of its originated portfolio master trust, a ten-year amortizing term securitization facility issued out of the
Embarcadero Trust and a three-year amortizing term securitization issued out of the Fingerhut Trust.

For
each portfolio of credit card receivables securitized by the Company, there has never been an early amortization period. The Company has experienced, however, early amortization
events associated with each of the securitization structures represented by the retained interests that the Company and CSG acquired in 2002both of which were fully contemplated in
connection with the Company's establishment of purchase prices for the respective acquisitions. In March 2003, the credit card receivables underlying the Original Fingerhut Trust dropped below
a minimum receivables balance threshold, thereby causing the series issued by the Original Fingerhut Trust to begin an early amortization period. Also, due to a reduction in the principal balance of
the receivables within the CSG Trust (the retained interests in which are owned by the Company's equity-method investee, CSG), a principal balance trigger occurred, and hence early amortization began,
during the second quarter of 2003. The occurrence of this event caused CSG to cease its cash distributions to the Company in June 2003, although the Company expects that the CSG Trust will
continue to provide adequate compensation to the Company in cash for servicing the portfolio of receivables underlying the CSG Trust and will continue to make payments to the Company in respect of the
Company's investment in CSG Trust bonds.

Finally,
while the Company has never triggered an early amortization within any of the series underlying Company-arranged securitization facilities, and while the Company does not
believe that it will, it is conceivable that, even with close management, the Company may trigger an early amortization of one or more of the outstanding series within its securitization trusts.

As
each securitization facility expires or comes up for renewal, there can be no assurance that the facility will be renewed, or if renewed, there can be no assurance that the terms will
be as favorable as the terms that currently exist. Either of these events could significantly increase the Company's need for additional liquidity.

The
Company is subject to various legal proceedings and claims that arise in the ordinary course of business. There are no material pending legal proceedings to which the Company is a
party.

9.     Subsequent Event

During the second quarter of 2004, the Company entered into an agreement to acquire a sub-prime lender for approximately $106 million including
transaction costs. The acquisition is expected to close in the second quarter of 2004, but is subject to financing, due diligence and various other customary conditions precedent to closing. The
Company anticipates financing this acquisition with 50% cash and 50% debt financing.

20

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

The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes included
therein.

This
Management's Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. We have based these forward-looking statements on our
current plans, expectations and beliefs about future events. In light of the risks, uncertainties and assumptions discussed under the caption "Risk Factors" in "Item 1. Business" of our Annual Report
on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission ("SEC") and other factors discussed in that section, there is a risk that
our actual experience will differ materially from the expectations and beliefs reflected in the forward-looking statements in this section and elsewhere in this report.

Overview

We are a provider of various credit and related financial services and products to or associated with the underserved, or sub-prime, consumer credit
market. Historically, we have served this market through our marketing and solicitation of credit card accounts and our servicing of various credit card receivables underlying both our originated
accounts and our portfolio acquisitions.

We
generally have financed our credit card origination activities through the securitization of the receivables underlying the accounts we originate and the portfolios that we purchase.
The leverage (i.e., the percentage on a dollar that lenders will lend us, or the "advance rate") that our securitization facilities provide against our originated credit card receivables is a critical
factor in our ability to obtain the desired returns on equity for our shareholders. From the latter part of 2001 through the end of 2003, the advance rates that securitization lenders were willing to
provide us were not adequate enough for us to earn the returns on equity that we demand for our shareholders. Accordingly, we did not originate a significant number of accounts during that time
period.

In
January 2004, however, we completed a two-year securitization facility in connection with our originated portfolio master trust at advance rates that allow us to
earn acceptable returns on equity from account originations to our traditional customer base. This facility provides for an initial one-year committed funding level of
$1.25 billion, growth in that committed funding level to $1.5 billion in the second year (subject to certain conditions precedent), one-year renewal periods (subject to
certain conditions precedent) at the expiration of the initial two-year term and an orderly amortization of the facility at expiration in a manner that we expect will allow us to receive
cash flows that will adequately cover our servicing costs while amounts borrowed under the facility are repaid by the originated portfolio master trust. Accordingly, we have begun to market our card
offerings so that we can begin growing our traditional originated credit card business in 2004.

During
the intervening period between late 2001 through the end of 2003 while we were not originating significant numbers of accounts, we sought to diversify our product offerings. We
initially focused on portfolio acquisition as a significant growth channel for our overall credit card receivables portfolio. Through this channel, we were able to obtain sufficient leverage against
our discounted purchase prices to allow us to earn our desired returns on equity. We completed two significant acquisitions in 2002 and one in 2003. Further, we also decided to expand our business
into the purchase and recovery of previously charged off receivables.

Our
portfolio acquisitions and our charged off receivables recovery operations have been very successful and have fit within our longstanding strategy of maximizing shareholder returns
through high return business activities, while growing only to the extent that we have the liquidity in place to profitably do so. We believe that we have achieved our goals to date by maintaining
flexibility and

21

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seeking
opportunities where others might not, and we believe that these traits are essential for our continued success. Thus, our focus is on how we can efficiently deploy our risk modeling,
underwriting, servicing and collection platform and expertise, irrespective of the particular vehicle through which we obtain the receivables to which we apply our skill set. Accordingly, we are
looking for new applications of our abilities, and we believe that we can successfully extend our platform and expertise into other sub-prime asset classes and activities beyond credit
card receivables. Throughout 2004 and beyond, our shareholders should expect us to evaluate and pursue other business activities and asset classes that are complementary to our historic
sub-prime credit card business, including potential acquisitions of sub-prime lenders. As evidence of this, we began rolling out a stored-value or debit card initiative during
the first quarter of 2004; through this initiative, we believe that we can nurture a platform for transactional and other fee income growth and for possible expansion into further lending
opportunities to our debit card customer base. We also entered into an agreement in April of this year to acquire a complementary sub-prime lender in a transaction that we expect to
complete either late in our second quarter or early during our third quarter of 2004.

We
remain focused on making good economic decisions that will result in high returns on equity to our shareholders over a long-term horizon. While our decisions may make
economic sense, they may also result in volatile earnings under GAAP as a result of the accounting requirements for
securitizations under Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("Statement
No. 140"). To the extent that we grow our overall portfolio of credit card receivables (either through origination, acquisition channels or other new channels) and then securitize these assets,
we will have securitization income (loss), which may be material. (This occurred, for example, in the third quarter of 2003.) For further discussion of our historic results and the impact of
securitization accounting on our results, see the "Results of Operations" and "Liquidity and Capital Resources" sections below, as well as our condensed consolidated financial statements and the notes
thereto.

Results of Operations

Three Months Ended March 31, 2004, Compared to Three Months Ended March 31, 2003

Our results of operations were as follows for the three months ended March 31, (in thousands except per share data):

2004

2003Net income

$
18.8

$
30.6Net income attributable to common shareholders

$
17.7

$
29.5Diluted income per share

$
0.36

$
0.60


The
decrease in our net income as compared to the first quarter of 2003 was principally due to:



22

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These
negative effects were partially offset, however, by:



Our
2004 results were also reduced by the additional costs to service the Embarcadero portfolio; however, these were more than offset by the income generated by this portfolio as noted
above.

Net Interest Expense After Provision for Loan Losses

Net interest expense after provision for loan losses represents interest income earned on cash, cash equivalents and investments and finance charges and late fees
earned on any loans receivable that we have not securitized, less interest expense and a provision for loan losses. Exclusive of our provision for loan losses we had net interest income of
$7.6 million for the three months ended March 31, 2004 versus net interest expense of $2.1 million for the three months ended March 31, 2003. The factors accounting for
this shift to net interest income exclusive of the provision for loan losses in 2004 from net interest expense in 2003 include:



As
we continue to grow our principally fee-based credit card offering to consumers at the lower end of the FICO scoring system, and assuming that we do not securitize the
credit card loans receivable underlying this product offering, we expect to see continued growth in our interest income.

Our
$9.1 million provision for loan losses in 2004 relates to those non-securitized receivables associated with our largely fee-based card offering to
consumers at the lower end of the FICO scoring system and is provided to cover aggregate loss exposures on (1) principal loans receivable balances, (2) finance charges and late fees
receivables underlying income amounts included within our interest

23

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income
category, and (3) fees receivable underlying fee income included within our fees and other income category. Prior to the third quarter of 2003, all of our receivables were securitized in
off-balance sheet qualifying securitizations.

Income from Retained Interests in Credit Card Receivables Securitized

See Note 6, "Off Balance Sheet Arrangements," to our condensed consolidated financial statements for a description of our securitizations.

Income
(loss) from retained interests in credit card receivables securitized includes the income earned on the retained interests and any changes in the fair value of the retained
interest in credit card receivables securitized in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as
follows:

Three Months Ended
March 31,2004

2003Income (loss) from retained interests in credit card receivables securitized (in millions):Originated portfolio

$
1.3

$
(30.0
)Purchased portfolio(1)


13.3


66.3Total

$
14.6

$
36.3


---

The
expected decrease in total income from retained interests in credit card receivables securitized is attributable to the performance of our acquired Fingerhut retained interests (only
$1.8 million of Fingerhut pre-tax income from retained interests in credit card receivables securitized for 2004, compared with $65.4 million for 2003), offset, however, by:



For
discussion of a third quarter 2003 Fingerhut retained interests exchange and our accounting for our investment in the Fingerhut retained interests, see Note 6, "Off Balance
Sheet Arrangements," to our condensed consolidated financial statements. While cash flows within the Fingerhut Trust are being used, as they currently are, to repay the outstanding securitization
facility underlying the trust, we do not expect to receive any material income associated with the Fingerhut Trust. Once the debt is repaid, however, which we expect will occur during the third
quarter of 2004, we anticipate the resumption of cash flows to us, which will cause us to again recognize material income associated with the Fingerhut investment. We currently estimate that we will
receive $127.4 million in future cash flows associated with the Fingerhut investment.

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Equity Method Investment in CSG

Under the equity method of accounting for our CSG investment, we recorded approximately $(0.2) million of pretax loss and $14.3 million of pretax income
during the three months ended March 31, 2004 and 2003, respectively. This change relates to the principal balance trigger that occurred, and hence, the early amortization that began during the
second quarter of 2003 for the securitization facility underlying the CSG Trust, the retained interest in which was the principal income earning asset of CSG during the first quarter of 2003. While we
received distributions from CSG through June 2003, the occurrence of the trigger event has caused CSG to cease its cash distributions to us, and distributions will not resume until
approximately the middle of 2006. Accordingly, all significant income from our equity-method investment will cease until the distributions resume. The occurrence of this trigger event should not
impact, however, our expected future cash flows associated with our servicing of the CSG Trust receivables or our investment in CSG Trust notes.

Servicing Income and Fees and Other Income

The remaining components of our other operating income (i.e., beyond the income from retained interests in credit card receivables securitized and equity in
income of equity-method investee items discussed above) are as follows:

Three months ended
Mar. 31,2004

2003(In thousands)Servicing income

$
25,298

$
27,666Fees and other income

$
56,264

$
28,004


Our
servicing income is typically based on negotiated servicing rates applied to the principal balances of the receivables that we manage on behalf of our securitization trusts.
Fundamentally, the decline in servicing income between 2003 and 2004 results from reductions in managed receivables balances underlying the CSG and Fingerhut trusts, partially offset, however, by our
management of additional receivables balances associated with our third quarter 2003 Embarcadero Trust securitization transaction.

Unless
we acquire additional receivables portfolios and securitize them or acquire additional retained interests in existing securitization structures, our servicing income should
gradually decline during the remainder of 2004 as we liquidate the receivables underlying the Fingerhut CSG and Embarcadero trusts. We do not anticipate that servicing income associated with our
planned growth of receivables in the originated portfolio master trust will be sufficient to fully offset the servicing income reductions that we anticipate associated with these other trusts.

Fees
and other income have risen in 2004 due to: (1) the performance of our new largely fee-based credit card product offering to consumers at the lower end of the
FICO scoring system ($16.4 million of fees in 2004 with no corresponding fees in 2003); and (2) the performance of our purchase and recovery of previously charged off receivables
operations ($14.0 million income in 2004 versus $3.6 million in 2003). These fees and other income increases were partially offset, however, by relative reductions in managed credit card
receivables levels between 2003 and 2004.

25

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Other Operating Expense

Other operating expense consists of the following for the periods indicated:

Three months ended
Mar. 31,2004

2003(In thousands)Salaries and benefits

$
6,245

$
4,341Credit card servicing


32,267


38,047Marketing and solicitation


5,699


1,587Depreciation


3,993


3,865Other


9,915


8,539Total other operating expense

$
58,119

$
56,379


The
slight increase in other operating expense for the three months ended March 31, 2004 versus the same period for 2003 reflects investments (e.g., salaries and benefits
associated with new hiring, capital expenditures resulting in greater depreciation levels and marketing and solicitation) that we are making to renew growth in the receivables underlying our
originated master trust and to diversify into other complementary products and services (like our new stored value or debit card offering) that we can market to our sub-prime customer
base. Notwithstanding the higher expense levels associated with these efforts, we have realized reductions in credit card servicing expenses, which have
declined along with the expected decline in our managed credit card receivables between the first quarter of 2003 and the first quarter of 2004. While our credit card servicing costs have been
trending down in recent months along with the decline in our managed receivables, this downward trend is also reflective of our renegotiation of certain outsourced rates, our utilization of greater
outsourcing opportunities due to reduced rates and lower overall delinquencies.

As
we see the results of our renewed marketing efforts to grow the number of accounts and the associated receivables levels within the originated portfolio master trust, we anticipate
that the current downward trends in monthly credit card servicing costs will eventually reverse as growth in the receivables underlying the originated portfolio master trust outstrips the reductions
in receivables levels within the Embarcadero, CSG and Fingerhut trusts. As we continue to aggressively market our largely fee-based product offering to consumers at the lower end of the
FICO scoring system and our traditional credit card offering within our originated portfolio master trust, we expect a continued trend of heightened marketing and solicitation costs throughout 2004.

The
other expense category above includes professional fees, net occupancy costs, ancillary product expense, fraud, travel and entertainment, insurance, hiring expense, corporate
communications, leased equipment expenses, office supplies and other miscellaneous expenses. These expenses have generally increased incrementally because we are adding infrastructure to support our
growth and diversification into other sub-prime products and services complementary to our traditional credit card activities. Our cardholder fraud expense includes the expense of
unauthorized use of the credit cards, including identity theft and purchases on lost or stolen cards. To date, we have experienced very little fraud for unauthorized use, and the total expense has
approximated 0.03% of our average managed receivables in any given year.

Minority Interest

The 37.5% ownership interest of the Merrill Lynch affiliate in Embarcadero is reflected as a minority interest in the operating results. The $6.3 million
recorded in 2004 reflects Merrill Lynch's portion of the Embarcadero results of operations. Prior to the third quarter of 2003, we did not have any minority interest.

26

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Income Taxes

Our effective tax rate was 37.5% for 2004 and 36.0% for 2003. The increase was due to certain of our operations now being subject to various state income taxes,
as well as an increase in our non-deductible expenses.

Selected Credit Card Data

As noted above, our securitizations are treated as sales under GAAP. As such, we remove the securitized receivables from our consolidated balance sheet. The
performance of the underlying credit card receivables will nevertheless affect the future cash flows we actually receive.

Various
references within this report are to the managed credit card receivables underlying our off balance sheet securitization facilities. Performance metrics and data based on these
managed receivables are key to any evaluation of our performance in managing (including underwriting, valuing purchased receivables, servicing and collecting) the portfolios of receivables underlying
our securitization facilities. Indeed, management allocates our resources and manages our business using financial data and results prepared on a so-called "managed basis." It is also
important to analysts, investors and others that we provide selected metrics and data on a managed basis because this allows a comparison of CompuCredit to others within the specialty finance
industry. Moreover, our management, analysts, investors and others believe it is critical that they understand the credit performance of the entire portfolio of our managed credit card receivables
because it reveals information concerning the quality of loan originations and the related credit risks inherent within the securitized portfolios and our retained interests in our securitization
facilities.

Managed
receivables data assumes that none of the credit card receivables underlying our off balance sheet securitization facilities were ever transferred to securitization facilities
and presents the net credit losses and delinquent balances on the receivables as if we had still owned the receivables. Reconciliation of the managed receivables data to our GAAP financial statements
requires recognition that substantially all of our credit card receivables had been sold in securitization transactions as of March 31, 2004 (i.e., all but $59.1 million of our
originated credit card receivables as of March 31, 2004); this reconciliation requires the removal of all but $59.1 million of the managed receivables data from our books and records to
yield only the $59.1 million of originated credit card receivables and associated statistics under GAAP, coupled with the recording under GAAP of our retained interests in various
securitization structures.

The
information in the following tables is presented to reflect the credit card receivables, or portions thereof, in which we have an economic interestthat is, the
receivables underlying our interest in Company-arranged securitizations (e.g., 100% of the credit card receivables of the originated portfolio master trust and 62.5% of the credit card receivables
underlying the Embarcadero Trust,
which reflects our ownership percentage in Embarcadero), the credit card receivables associated with retained interests that we have acquired (e.g., from Federated in 2002), 50% of the credit card
receivables underlying the CSG Trust (which reflects our ownership percentage in CSG) and the $59.1 million of originated receivables associated with our largely fee-based card
offering to consumers at the lower end of the FICO scoring system which have not been securitizedtogether, our "managed receivables" as discussed above. For example, we have included 50%
of the managed receivables underlying the CSG Trust because we have a 50% economic interest in CSG, which owns the retained interest in the CSG Trust. CSG's cash flows and income are dependent on how
the receivables in the CSG Trust perform, and therefore, our cash flows and income (other than with respect to our servicing fee, which we earn with respect to 100% of the receivables underlying the
CSG Trust) are dependent upon 50% of the managed receivables.

We
provide the selected credit card data included within this section so that readers can evaluate our performance as a servicer with respect to the portfolios of credit card receivables
that we manage.

27

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As
noted above, performance metrics and data based on these managed receivables are key to any evaluation of our performance in managing (including underwriting, valuing purchased receivables,
servicing and collecting) the portfolios of receivables underlying our off balance sheet securitization facilities, as well as to any comparison of our Company to others within the specialty finance
industry.

The
period-end and average managed receivables data (as well as delinquency and charge-off statistics) that follow within this section exclude the receivables
associated with all accounts in late delinquency status in sellers' hands as of the dates of our acquisitions of the receivables or interests therein. Pursuant to this treatment, the only activity
within the following statistical data associated with these excluded accounts are recoveries, which we include within the numerator of the other income ratio computation, as well as the costs of
pursuing these recoveries, which we include within the numerator of the operating ratio computation. Also, because acquisition prices for previously charged off credit card receivables range from less
than a penny to just a few pennies to the dollar of face amount of the receivables, we exclude from the period-end and average managed receivables data the face amount of the previously
charged off credit card receivables that our subsidiary, Jefferson Capital, acquires. The recovery income from Jefferson Capital's recovery operations (like that of our excluded
late-delinquency-stage receivables at acquisition) has been included within the numerator of the other income ratio computation. Likewise, the costs associated with pursuing these
recoveries are included within the numerator of the operating ratio computation. For a more detailed discussion of the rationale for both of these exclusions from our managed receivables data, see the
"Selected Credit Card Data" section within Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended
December 31, 2003.

|                               |  | As of and for the three months ended |          
|------------------------------ |  | ------------------------------------ | ---------
|
|
|
|Period-end managed receivables |  | $                                    | 2,090,644
|Period-end managed accounts    |  |                                      | 2,276    
|Average managed receivables    |  | $                                    | 2,219,537
|Net interest margin            |  |                                      | 17.5     
|Other income ratio             |  |                                      | 11.3     
|Operating ratio                |  |                                      | 10.0     

The following are definitions related to the table above:



28

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Our
net interest margins are influenced by a number of factors, including (1) the level of accrued finance charges and late fees billed, (2) the weighted average cost of
funds within our securitization structures, (3) amortization of the accretable yield component of our acquisition discounts for portfolio purchases and (4) the level of our accrued
finance charge and fee charge offs. Factors contributing to
the expected decline in the net interest margin during the first quarter of 2004 as compared to the fourth quarter of 2003 included:



On
a routine basis, generally no less frequently than quarterly, we re-underwrite our portfolio to price our products to appropriately reflect the level of each customer's
credit risk. As part of this underwriting process, existing customers may be offered increased or decreased pricing depending on their credit risk, as well as their supply of and demand for credit.
Increases in pricing may increase our net interest margin, while decreases in pricing may reduce our net interest margin.

Now
that the Embarcadero acquisition has seasoned during its immediate post-acquisition period, we anticipate greater stability in our net interest margin during the
remainder of 2004, with perhaps some improvements based on repricing and the effects of expected account additions within the originated portfolio master trust.

The
other income ratio increased during the first quarter of 2004 relative to the fourth quarter of 2004 due to:



This
increase was partially offset, however, by:



We
also saw a higher operating ratio in the first quarter of 2004 based on the investments we are making in pursuing other complementary sub-prime financial service-related
activities and products. With our planned growth in receivables within the originated portfolio master trust and our planned expansion into other complementary sub-prime financial
service-related activities and products during the remainder of 2004 and beyond, we expect increases in both our other income ratio and our operating ratio. These respective ratios should rise as our
focus on these other complementary products and activities (e.g., our stored value or debit card offering) is not expected to produce a corresponding increase in our average managed receivables
denominator used in these ratio calculations. Finally, with

29

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new
account additions, we should see an increase in ancillary product revenues as a component of our other income ratio.

Asset Quality

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

Our
strategy for managing delinquency and receivables losses consists of account management throughout the customer relationship. This strategy includes credit line management and
pricing based on the risk of the credit card accounts. See also our discussion of collection strategies under the heading "How Do We Collect From Our Customers?" in Item I of our Annual Report on
Form 10-K for the year ended December 31, 2003.

The
discussion below focuses on the change in our delinquency and charge off data as of and for the three months ended March 31, 2004.

Delinquencies.Delinquencies have the potential to impact net income in the form of net credit losses. Delinquencies are also
costly in terms of the personnel and resources dedicated to resolving them. A credit card account is contractually delinquent if the minimum payment is not received by the specified date on the
customer's statement. It is our policy to continue to accrue interest and fee income on all credit card accounts, except in limited circumstances, until the account and all related receivables,
interest and other fees are charged off. See the "Charge offs" discussion as well.

The
account management strategies that we use on our portfolio are intended to manage and, to the extent possible, reduce the higher delinquency rates that can be expected in a more
mature managed portfolio such as ours. Examples of management strategies include conservative credit line management, purging of inactive accounts and collection strategies (described under the
heading "How Do We Collect From Our Customers?" in Item I of our Annual Report on Form 10-K for the year ended December 31, 2003) intended to optimize the effective
account-to-collector ratio across delinquency buckets. We measure the success of these efforts by measuring delinquency rates. These rates exclude accounts that have been
charged off.

The
following table presents the delinquency trends of our credit card receivables on a managed receivables portfolio basis:

|                                                       |  | As of |        
|------------------------------------------------------ |  | ----- | -------
|
|
|
|Receivables delinquent:                                |  |       |        
|30 to 59 days past due                                 |  | $     | 71,108 
|60 to 89 days past due                                 |  |       | 58,188 
|90 or more days past due                               |  |       | 160,055
|                                                       |  |       |        
|Total 30 or more days past due                         |  | $     | 289,351
|                                                       |  |       |        
|Total 60 or more days past due                         |  | $     | 218,243
|                                                       |  |       |        
|Receivables delinquent as % of
period-end receivables: |  |       |        
|30 to 59 days past due                                 |  |       | 3.4    
|60 to 89 days past due                                 |  |       | 2.8    
|90 or more days past due                               |  |       | 7.7    
|                                                       |  |       |        
|Total 30 or more days past due                         |  |       | 13.9   
|                                                       |  |       |        
|Total 60 or more days past due                         |  |       | 10.5   
|                                                       |  |       |        

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Our 30, 60 and 90 or more days past due delinquency rates have all decreased from December 31, 2003 due to (1) the results of our
improved collection strategies including our ability to implement such techniques in a timely manner; (2) general improvement in the economy; and (3) seasonal trends under which we
typically experience higher payments, and hence lower delinquencies, during the first quarter of each year relative to other quarters of the year. While delinquencies in the first quarter of each year
have typically benefited from seasonality patterns, we believe that we are seeing absolute quality improvements in each of the portfolios that go beyond our typical seasonal delinquency improvements.

Charge offs.For the following table, these definitions apply:



We
generally charge off receivables when they become contractually 180 days past due or within 30 days of notification and confirmation of a customer's bankruptcy or death.
In some cases of death, however, receivables are not charged off if, with respect to the deceased customer's account, there is a surviving, contractually liable individual or an estate large enough to
pay the debt in full.

The
following table presents the charge off data for all of the credit card receivables underlying the securitizations of our consolidated subsidiaries (adjusted for minority interest in
the case of the Embarcadero managed receivables so as to include only our 62.5% share), our 50% share of the managed receivables of CSG, our equity-method investee, and the $59.1 million face
amount of originated receivables associated with our largely fee-based card offering to consumers at the lower end of the FICO scoring system, which have not been securitized.

|                                |  | 2004 |         | 2003 |   | 2002    |  
|------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|
|Gross yield ratio               |  |      | 30.3    | %    |   | 31.3    | %
|Combined gross charge offs      |  | $    | 167,069 |      | $ | 169,482 |  
|Net charge offs                 |  | $    | 87,331  |      | $ | 90,446  |  
|Adjusted charge offs            |  | $    | 45,294  |      | $ | 47,304  |  
|Combined gross charge off ratio |  |      | 30.1    | %    |   | 28.0    | %
|Net charge off ratio            |  |      | 15.7    | %    |   | 15.0    | %
|Adjusted charge off ratio       |  |      | 8.2     | %    |   | 7.8     | %

31

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The principal factor contributing to the lower gross yield ratio experienced during the first quarter of 2004 is our improved across-the-board delinquency rates
within each of our managed receivables portfolios. Lower delinquencies have translated directly into lower late fee billings.

While
the aggregate dollar values of charge offs have decreased in the three months ended March 31, 2004, the respective charge-off ratios have increased. This
phenomenon was expected for two principal reasons. First, 90-day plus delinquency rates (from the table under the "Delinquencies" heading above) coming into the first quarter of 2004 were
higher than they were coming into the fourth quarter of 2003. Second, we continued to see the post-acquisition effects of Embarcadero charge off normalization on our charge off levels.
(While not warranted here, a much more exhaustive discussion of post-acquisition charge off normalization, in general and as specifically related to the Embarcadero transaction, can be
found under the "Charge offs" sub-heading within the "Selected Credit Card Data" section of Managements Discussion and Analysis of Financial Condition and Results of Operations within the
Annual Report on Form 10-K for the year ended December 31, 2003.)

Liquidity, Funding and Capital Resources

At March 31, 2004, we had approximately $69.3 million in unrestricted cash. Because the characteristics of our assets and liabilities change,
liquidity management is a dynamic process affected by the pricing and maturity of our assets and liabilities. We finance our business through cash flows from operations, asset backed securitizations
and the issuance of debt and equity:



The
reduction in our March 31, 2004 unrestricted cash balance relative to the $100-plus million unrestricted cash balances experienced at recent prior quarter ends
reflects our focus in 2004 on reducing the levels of our draws against our available variable funding and conduit facilities within our originated portfolio master trust so as to minimize the costs of
funds that flow through to affect our income from retained interests in credit card receivables securitized. Rather than incurring costs on funds that are not currently needed to fund investments or
operations, we will focus in 2004 on reducing our unrestricted cash balances to the minimal levels necessary to meet our daily operations and investment needs. Given the completion of our new
$1.25 billion 2-year variable funding facility in January of this year, we are confident in our ability to draw additional cash from this facility to meet our liquidity needs as
they arise during 2004. As of March 31, 2004, we had the ability to draw approximately $140 million of additional cash against this new variable funding securitization facility.

For
more on our uses of cash, see the "Liquidity, Funding, and Capital Resources" section of our Annual Report on Form 10-K for the year ended December 31,
2003.

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On
August 1, 2003, we purchased a 62.5% interest in Embarcadero for $26.5 million in cash. As noted previously, Embarcadero was formed by an affiliate of Merrill Lynch and
one of our wholly owned subsidiaries in connection with the acquisition of approximately $824 million (face amount) in credit card receivables from Providian Bank. These receivables were then
transferred to the Embarcadero Trust pursuant to a Statement No. 140 transfer in exchange for notes and a subordinated, certificated interest issued by the trust. For a fee that represents
adequate compensation for servicing, we have agreed to service the entire portfolio of credit card receivables underlying the Embarcadero Trust. Under the terms of a new 10-year amortizing
term securitization facility issued out of the Embarcadero Trust in January 2004, we expect to begin receiving cash in addition to the servicing income from this investment during the second
quarter of 2004.

As
noted above, during the first quarter of 2004, we completed a two-year securitization facility with Merrill Lynch that was issued out of the originated portfolio master
trust. This securitization facility provides for an initial one-year committed funding level of $1.25 billion, growing to a committed funding level to $1.5 billion in the
second year (subject to certain conditions precedent), one-year renewal periods (subject to certain conditions precedent) at the expiration of the initial two-year term, an
orderly amortization of the facility at expiration in a manner that is expected to allow us to receive cash flows that are more than adequate to cover our servicing costs while amounts borrowed under
the facility are repaid by the originated portfolio master trust and an advance rate against the originated portfolio master trust receivables that in management's opinion is sufficient to allow us to
begin to grow the originated portfolio and provide acceptable returns on equity from our credit card receivables origination activities. In connection with this new securitization facility, we issued
to the investor a warrant to acquire up to 2.4 million shares of our common stock at a strike price of $22.45.

During
2004, we have looked at, and will continue to look at, various opportunities to expand our sub-prime offerings via both new organic growth initiatives (like our stored
value or debit card initiative) and acquisition. During the second quarter of 2004, we entered into an agreement to acquire a sub-prime lender for approximately $106 million
including transaction costs. The acquisition is expected to be completed late in the second quarter or early in the third quarter of 2004, but is subject to financing, due diligence and various other
customary conditions precedent to closing. We anticipate financing this acquisition with an approximate 50%/50% mix of cash and debt financing.

Another
potential 2004 use of cash may arise in connection with our Series A and B preferred stock issuances. To date, we have paid the dividends on our Series A and B
preferred stock in additional shares of preferred stock. If, beginning on December 17, 2003 and measured on the 17th of each following March, June, September and December, the
volume-weighted share price of the common stock for the immediately preceding 20 trading days is less than 106% of the corresponding volume-weighted share price of the common stock for the immediately
preceding three month period, then the holders of the preferred stock can require us to pay the Series A and B preferred stock dividends in cash. If this occurs, it will require approximately
$1.1 million in cash per quarter.

During
the third quarter of 2002, our Board of Directors authorized a program under which we are authorized to repurchase up to 5 million shares (approximately 11 percent
of the outstanding shares) of our outstanding common stock. We have not repurchased any shares since the first quarter of 2003 and, to date, we have purchased 872,900 shares in the aggregate under
this program. We will continue to evaluate our stock price relative to other investment opportunities and, to the extent that we believe that the repurchase of our stock represents the best return of
capital, we will repurchase additional shares of our stock.

During
the remainder of 2004, we will continue our expansion into complementary product and service offerings to our sub-prime consumer market, both through organic growth
and through acquisition as we have stated above. While we anticipate using some of our existing cash reserves (and draw potential against our existing variable funding and conduit securitization
facilities) to fund

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potential
acquisitions during 2004, and while these acquisitions may require the use of material amounts of cash or may require us to incur material acquisition-related debt financing, we anticipate
having more than adequate cash for our operations during 2004.

Securitization Facilities

Our most significant source of liquidity is the securitization of credit card receivables. As of March 31, 2004, we had total securitization facilities of
$2.8 billion and had used approximately $1.5 billion of these facilities. The weighted-average borrowing rate on these facilities at March 31, 2004 was approximately 2.75%. The
maturity terms of our securitizations vary.

For
more on our securitization facilities and practices, see the "Securitization Facilities" section of our Annual Report on Form 10-K for the year ended
December 31, 2003 and Note 6, "Off Balance Sheet Arrangements," to our condensed consolidated financial statements included herein.

In
the table below, we have noted the securitization facilities, including a structurally subordinate facility, (along with their maturity dates) with respect to which our managed credit
card receivables served as collateral as of March 31, 2004. Following the table are further details concerning each of the facilities.

Maturity date

Facility limit(1)(Dollars in millions)July 2004(2)

$
432.5August 2004(3)


9.0September 2004(4)


734.7January 2006(5)


1,250.0January 2014(6)


400.9Total

$
2,827.1


---

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For
each portfolio of credit card receivables that we have securitized, there has never been an early amortization period. We have experienced, however, early amortization events
associated with each of the securitization structures represented by the retained interests that we acquired in 2002 and that CSG acquired in 2002both of which were contemplated in
connection with our establishment of purchase prices for the respective acquisitions. In March 2003, the credit card receivables underlying the Original Fingerhut Trust dropped below a minimum
receivables balance threshold, thereby causing the series issued by the Original Fingerhut Trust to begin an early amortization period. This early amortization event was made irrelevant, however, by
the Fingerhut retained interests exchange during the third quarter of 2003, which resulted in $27.3 million of net proceeds to us during this quarter as well as an increase in our ongoing
servicing compensation to an adequate level; see Note 6, "Off Balance Sheet Arrangements," to our condensed consolidated financial statements for further details. Also, due to a reduction in
the principal balance of the receivables within the CSG Trust (the retained interests in which are owned by our equity-method investee, CSG), a principal balance trigger occurred, and hence early
amortization began, during the second quarter of 2003. The occurrence of this event caused CSG to cease its cash distributions to us in June 2003,
although we expect that the CSG Trust will continue to provide adequate compensation to us in cash for servicing the portfolio of receivables underlying the CSG Trust and will continue to make
payments to us in respect of our investment in CSG Trust bonds held.

Finally,
while we have never triggered an early amortization within any of the series underlying our originated portfolio master trust securitization and while we do not believe that we
will, it is conceivable that, even with close management, we may trigger an early amortization of one or more of the outstanding series within this trust, particularly until we begin to see growth in
receivables levels within the trust. Just as the denominator effect associated with shrinking the receivables levels within our originated portfolio master trust has tended to cause certain increases
in charge off ratios even while the absolute dollar amount of charge offs has remained flat or even declined, this same effect could trigger some of our early amortization triggers for the outstanding
series within the originated portfolio master trust. Early amortization for any of the originated portfolio master trust securitization series would have adverse effects on our liquidity, certainly
during the early amortization period and potentially beyond repayment of any such series because potential investors could tend to shy away from future CompuCredit-backed issuances.

Contractual Obligations, Commitments and Off Balance Sheet Arrangements

See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the
year ended December 31, 2003. There have been no new material commitments entered into since that report other than:



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Commitments and Contingencies

We also have certain contractual arrangements that would require us to make payments or provide funding if certain circumstances occur ("contingent commitments").
We do not currently expect that these contingent commitments will result in any amounts being paid by us. See Note 8, "Commitments and Contingencies," to our condensed consolidated financial
statements for further discussion of these matters.

Recent Accounting Pronouncements

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

Critical Accounting Policies

Our financial statements are prepared in accordance with GAAP. These principles are numerous and complex. Our significant accounting policies are summarized in
the notes to our financial statements. In many instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular facts and circumstances. A
variance in the estimates used or a variance in the application or interpretation of GAAP could yield a materially different accounting result. It is impracticable for us to summarize every accounting
principle that requires us to use judgment or estimates in its application. In our Annual Report on Form 10-K for the year ended December 31, 2003, we discuss the two areas,
valuation of retained interests and non-consolidation of qualifying special purpose entities, where we believe that the estimations, judgments or interpretations that we have made, if
different, would have yielded the most significant differences in our financial statements, and we urge you to review that discussion. In addition, in Note 6, "Off Balance Sheet Arrangements"
to the condensed financial statements included in this report, we updated a portion of our sensitivity analysis with respect to valuations.

Related Party Transactions

During 2001, we began subleasing 7,316 square feet of excess office space to Frank J. Hanna, Jr., for $21.50 per square foot. Frank J. Hanna, Jr. is the father of
our Chairman and Chief Executive Officer, David G. Hanna, and one of our directors, Frank J. Hanna, III. The sublease rate is the same as the rate that we pay on the prime lease. Total rent for the
three months ended March 31, 2004 for the
sublease was approximately $0.1 million. Additionally, entities owned by Frank J. Hanna, Jr. provide certain collection services to us and rent to us a plane for business usage at market rates
for which we paid approximately $0.2 million and $0.2 million, respectively, during the three months ended March 31, 2004.

See
Note 2, "Significant Accounting Policies," for a discussion of the acquisition of previously defaulted receivables by Jefferson Capital from trusts serviced by us.

Forward-Looking Information

All statements in this quarterly report concerning our operating, earnings and liquidity expectations for 2004 and all other statements regarding our future
performance (including those using words such

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as
"believe," "estimate," "project," "anticipate, or "predict") are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to various
assumptions, risks and other factors that could cause our actual results to differ materially from those suggested by these forward-looking statements. These factors include, among others, the
following risks and others set forth under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2003:



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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity and Market Risk

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

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

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

At
March 31, 2004, a substantial portion of our managed credit card receivables, including those related to our investment in the CSG Trust, and other interest-earning assets had
variable rate pricing, with receivables carrying annual percentage rates at a spread over the prime rate (4.0% at March 31, 2004), subject to interest rate floors. At March 31, 2004,
approximately $0.9 billion of our total managed receivables were priced at their floor rate, and $0.2 billion of these receivables were closed and therefore ineligible to be repriced.
The remaining $0.7 billion of these receivables that were priced at their floor rate at March 31, 2004 represented market interest rate risk to us to the extent that the floor rate is in
excess of the rate that would exist for the receivables if no floor rate were in effect. In April 2004, we embarked on an effort to reprice the $0.7 billion of open accounts eligible for
repricing to mitigate the market risk associated with the above pricing gap. While we believe that most of our cardholder relationships will continue despite our repricing efforts, not all of the
cardholders to whom we corresponded are expected to maintain their open account relationships with us. Because we have not yet quantified the balances of our receivables to which our April 2004
repricing efforts were effective, we calculate herein the maximum interest rate exposure associated with the $0.7 billion of open accounts at issue as of March 31, 2004. Assuming that we
were not successful in repricing any of these receivables, a 10% increase in commercial paper rates or LIBOR would have an approximate $3.2 million after-tax negative impact on our
annual cash flows.

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

ITEM 4. CONTROLS AND PROCEDURES



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



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

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PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | Exhibit
Number |  | Description of Exhibit                                                                                       |  | Incorporated by reference from
CompuCredit's SEC filings
unless otherwise indicated:
| | -------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------
| | 31.1           |  | Certification per Section 302 of the Sarbanes-Oxley Act of 2002 for David G. Hanna                           |  | Filed herewith                                                                      
| | 31.2           |  | Certification per Section 302 of the Sarbanes-Oxley Act of 2002 for J.Paul Whitehead, III                    |  | Filed herewith                                                                      
| | 32.1           |  | Certification per Section 906 of the Sarbanes-Oxley Act of 2002 for David G. Hanna and J.Paul Whitehead, III |  | Filed herewith                                                                      

---

During
the quarter ended March 31, 2004, we filed five current reports on Form 8-K:

Filing Date

Items Reported

Financial StatementsJanuary 15, 2004

7 and 12

NoneFebruary 17, 2004

7 and 12

NoneFebruary 18, 2004

7 and 12

NoneFebruary 25, 2004

7 and 12

NoneMarch 15, 2004

7 and 12

None


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SIGNATURES

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

|May 4, 2004 |  | CompuCredit Corporation
|----------- |  | -----------------------
|            |  |                        
|            |  | By                     

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