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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K/A

Amendment No. 2

For the fiscal year ended December 31, 2002

of

|                        |     
|----------------------- | ----
|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

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CompuCredit's Common Stock, no par value per share, is registered pursuant to Section 12(g) of the Act.

CompuCredit
(1) has 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 (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

CompuCredit
believes that during the 2002 fiscal year its executive officers, directors and 10% beneficial owners subject to Section 16(a) of the Securities Exchange Act of 1934
complied with all applicable filing requirements, except as set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in CompuCredit's Proxy Statement for the 2003
Annual Meeting of Shareholders.

CompuCredit
is an accelerated filer (as defined in Exchange Act Rule 12b-2). The aggregate market value of the registrant's Common Stock (based upon the closing sales price quoted
on the Nasdaq National Market) held by nonaffiliates as of June 28, 2002, was $98,634,134, for this purpose, directors, officers and 5% shareholders have been assumed to be affiliates.

The
aggregate market value of the registrant's Common Stock (based upon the closing sales price quoted on the Nasdaq National Market) held by nonaffiliates as of March 3, 2003,
was $52,492,184, for this purpose, directors, officers and 5% shareholders have been assumed to be affiliates. As of March 3, 2003, 45,976,265 shares of CompuCredit's Common Stock were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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Table of Contents

|Part I  
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|Part II 
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|Part III
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|Part IV 
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Cautionary Notice Regarding Forward-Looking Statements

This Report includes forward-looking statements, including, in particular, forward-looking statements under the headings "Item 1. Business" and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." The words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are intended to identify such forward-looking statements; however, this report also contains other forward-looking statements that may not be so identified. Forward-looking statements are
subject to a number of risks and uncertainties, many of which are beyond CompuCredit's control. Actual results may differ materially from those suggested by the forward-looking statements.
Accordingly, there can be no assurance that such indicated results will be realized. Among the important factors that could cause actual results to differ materially from those indicated by such
forward-looking statements are the factors set forth below in "Item 1. BusinessRisk Factors." CompuCredit expressly disclaims any obligation to update any forward-looking
statements in any manner except as may be required by its disclosure obligations in filings it makes with the Securities and Exchange Commission (the "SEC") under the Federal securities laws.

In
this Report, the words "Company," "CompuCredit," "we," "our," "ours," and "us" refer to CompuCredit and its subsidiaries and predecessors. CompuCredit owns the Aspire®,
CompuCredit® and other trademarks in the United States.

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PART I

ITEM 1. BUSINESS

General

CompuCredit is a credit card company that uses analytical techniques to serve consumers who we believe are underserved by traditional grantors of credit and to
price for acquisition portfolios of receivables generally arising within this same consumer base. Some of these consumers have had delinquencies, a default or a bankruptcy in their credit histories,
but have, in our view, demonstrated recovery. Others in our target market are establishing or expanding their credit. Our predictive credit models analyze credit bureau data to assist us in
determining if someone has demonstrated an ability to repay us. The criteria are empirically derived from hundreds of credit bureau attributes. Examples include months since last delinquency, months
since bankruptcy, recent performance on current trade lines (including recent payment trends) and total dollars of past due amounts. We have developed and enhanced our techniques by continually
testing our products and operating practices and by continually analyzing credit bureau data and the results of our lending experience. Moreover, our continual testing of our products and operating
practices has enabled us to begin to include origination activity for consumers at the lower end of traditional credit quality indices. We believe that our analytical approach allows us to:



We
market unsecured general-purpose Visa and MasterCard credit cards, including our Aspire Visa credit card, Emerge Mastercard and Freedom card MasterCard, through direct mail and
telemarketing and, to a limited extent, television and the internet. We market credit cards generally under an agreement with Columbus Bank and Trust Company ("CB&T"), a Georgia state chartered
banking subsidiary of Synovus Financial Corporation. Under this agreement, CB&T, as the issuer, owns the credit card accounts. Similarly, with respect to the securitized retained interests we acquired
from Federated Department Stores, Inc. ("Federated") in July 2002, the credit card accounts underlying that securitization are owned by Axsys National Bank. We also maintain a
substantially less significant account ownership relationship with one other bank and may establish additional relationships in the future.

On
a daily basis, we purchase credit card receivables generated in the accounts originated by banksprimarily CB&Tunder an agreement with us. We in turn
securitize all of the receivables each day by selling the receivables to trusts or into multi-seller commercial paper conduits administered by national banking institutions. The receivables that are
sold through securitizations are removed from our balance sheet for financial reporting purposes. When we sell the receivables, we receive cash proceeds and a retained interest in the receivables. The
cash proceeds that we receive from investors when we sell receivables in our securitizations are less than the cash we use to initially purchase the credit card receivables. The retained interest we
receive equals this difference and is a use of our cash. Our retained interests are subordinate to the other investors' interests. The receivables that are sold in our securitizations generate future
cash flows as cardholders remit payments on their accounts. These payments are remitted to the securitization trusts and then disbursed in accordance with the

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securitization
agreements. We receive all of the excess cash flows from the securitizations, which represent collections on the accounts in excess of the interest paid to the investors, servicing
fees, credit losses and required amortization payments. We use the cash proceeds that we receive when we sell the receivables to help fund the new receivables generated in the accounts. We use cash
flows generated from operations, as well as cash from the issuance of debt and equity, to fund our seller's interests in the receivables generated in the accounts.

The
timing and amount of cash flows received from the receivables that are sold to the securitizations are dependent upon the performance of our cardholders in the aggregate. Cardholders
make purchases or receive cash advances on their credit card accounts, which increase their receivable balances. Each cardholder is assessed a combination of fees on their account based on the terms
of their cardholder agreement and based on their payment performance on the account. Examples include annual fees, interest, late fees, overlimit fees and cash advance fees. We determine the level and
combination of fees that we charge a cardholder using our "target marketing system" as more fully described later in this section. Cardholders are required to make monthly payments on their accounts,
which decrease their receivable balance. Cardholders who fail to make their required payments become delinquent. Receivables that become more than 180 days delinquent and receivables of
cardholders that file for bankruptcy or become deceased are charged off for accounting purposes.

We
develop criteria to determine who is issued a credit card and the terms of the cardholder agreement for the credit card. The terms of the agreement include the size of the credit line
on the card, the fees that will be charged to the cardholder and the payment terms of the card. Although we securitize all of the credit card receivables, we are responsible for servicing the credit
card receivables. We either perform the servicing ourselves or we outsource the servicing to other parties. We describe our material outsourced services in more detail in the "Outsourcing" discussion
under the "Account and Portfolio Management" subheading later in this section. We also market to our cardholders fee-based products including card registration, memberships in preferred
buying clubs, magazines, travel services and credit life, disability and unemployment insurance. Our fee-based products and services are described in more detail later in this section.

Because
we securitize the receivables, we own retained interests, which generate cash flow as the underlying receivables generate income. The receivables generate income when the total
interest and fees charged to cardholders exceeds the total of the interest paid to the investors, the cost of servicing the receivables and charge offs. Because we no longer own the credit card
receivables that have been sold, a large portion of our income is the cash that is generated by the receivables in the trusts and is recorded in our statement of operations as Income from Retained
Interests. Further, because we securitize all of our credit card receivables, our financial statements reflect the amount of income from the securitization structures rather than many of the
individual components of income that would otherwise be reflected in our statement of operations separately if we did not securitize the receivables. These components would include net interest
income, servicing expenses paid to subservicers of our retained interest and charge offs. Servicing income, other credit card fees and interchange fees are part of the securitization structures and
are disclosed separately on our statement of operations. Our net income is dependent on the performance of the underlying credit card receivables. Therefore, we provide selected credit card data
including gross yield, net interest margin, servicing and charge offs in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." This data reflects the
underlying performance of the credit card receivables that have been sold under our securitization programs.

We
use securitization because we believe it is our most efficient source of financing. If our securitization facilities are not renewed, they begin to accumulate cash to repay investors.
If we are unable to obtain additional sources of liquidity such as other securitization facilities that are structurally subordinate to the facilities accumulating cash, or if we are unable to issue
additional debt or equity, we would begin to prohibit new purchases in some or all of our customers' credit card accounts and thus reduce our need for additional cash. Any prohibition of new purchases
is likely to negatively

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impact
our ability to collect existing balances because card users, in making payments, tend to favor the card companies that are willing to extend them additional credit. As of March 2003, our
current securitizations facilities are scheduled to expire between April 2003 and July 2004. See "Item 1. BusinessOff Balance Sheet Arrangements" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations-Off Balance Sheet Arrangements and Liquidity, Funding and Capital Resources."

As
of December 31, 2002, and including our 50% interest in our equity method investee, CSG, LLC ("CSG"), our managed receivables were comprised of $2.8 billion of credit
card receivables outstanding in approximately 3.6 million credit card accounts, substantially all of which are considered "sub-prime" based on guidance issued by the agencies that
regulate the banking industry. While we are not a bank and are not directly regulated by any financial regulator, we generally follow guidance that has been issued by those agencies that regulate
credit card lending activity within the banking industry. We grow our business by adding accounts and by increasing the credit card receivables outstanding in the accounts. We add accounts through
marketing campaigns or by purchasing portfolios. In either case, we use our same proprietary models and target marketing system to evaluate each individual customer using credit bureau and market
information from a variety of sources.

The
balance of this section includes an overview of several aspects of our business as well as a discussion of recent business developments that we believe will assist you in
understanding our financial performance. These sections include:



CompuCredit
was formed in 1996 by David G. Hanna, Chairman and Chief Executive Officer, and Richard W. Gilbert, Vice Chairman and Chief Operating Officer, after completing almost two
years of research and development in the area of consumer finance.

CompuCredit
is incorporated in Georgia. Its principal executive offices are located at 245 Perimeter Center Parkway, Suite 600, Atlanta, Georgia 30346, its telephone number at that
address is (770) 206-6200, and its internet address iswww.compucredit.com. CompuCredit makes available free of charge on its
internet website its annual reports on Form 10-K, quarterly reports on Form10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 as soon as reasonably practicable after it electronically files such material with, or furnishes it to,
the SEC.

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Our Database System

We have developed a proprietary database management system which supports the decision-making functions, including target marketing, solicitation, application
processing, account management and collections activities. The database system is an information warehouse that maintains information regarding a customer throughout the customer's relationship with
us. The system's purpose is to gather, store and analyze the data necessary to facilitate our target marketing and risk management decisions.

CHART

Our
database system captures combinations of customer information gathered either from prior owners of our acquired receivables or in the target marketing and solicitation phases of an
originated customer relationship and additional data gathered throughout the remainder of our relationship with the customer, including customer behavior patterns. By combining this information, we
have established an analytical database linking static historical data with actual customer performance. Our intranet interface allows management to access the database management system.

CHART

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The
use of a single database system for all phases of the customer relationship enables us to continuously refine target marketing and portfolio management decisions on the basis of
continuous feedback. We believe that this capability has been critical in identifying underserved segments.

We
believe that the information that we collect in our database system, as well as the ability that we have to access, study and model this information, provides us with a more efficient
and complete process to effectively price our products. We believe that we have priced our products such that over time the income we earn from the cardholders who are not charged off is sufficient to
cover our marketing expense, our servicing expenses, our costs of funds and our losses from cardholders who fail to make their payments and are charged off.

Target Marketing System

Since 1996, we have worked with national credit bureaus to develop proprietary risk evaluation systems using credit bureau data. Initially, we developed the
systems using randomly selected historical data sets of payment history on all types of consumer loans. Since March 1997, these proprietary risk evaluation systems have included the specific
behavior of our customers. Our systems enable us to segment customers into narrower ranges within each FICO score range. The FICO score, developed by Fair, Isaac & Co., Inc., is the most
commonly used credit risk score in the consumer credit industry. The purpose of the FICO score is to rank-order consumers relative to their probability of non-payment on a
consumer loan. We believe that sub-segmenting our market within FICO score ranges enables us to better evaluate credit risk and to price our products effectively.

Within
each FICO score range, we evaluate potential customers using credit and marketing segmentation methods derived from a variety of data sources. We place potential customers into
product offering segments based upon combinations of factors reflecting our assessment of credit risk, bankruptcy risk, supply of revolving credit, demand for revolving credit, payment capacity and
revenue potential, among other factors. These product-offering segments are chosen to meet the following primary target marketing strategies:



We
focus our marketing programs on those customer segments that appear to have high income potential when compared to other segments and demonstrate acceptable credit and bankruptcy
risk. We seek to accomplish this by establishing, for each customer segment, the appropriate risk-based pricing level that will maintain an acceptable response rate to our direct mail and
telemarketing campaigns. The key to our efforts is the use of our systems to evaluate credit risk more effectively than the use of FICO scores alone.

Our
customer solicitation strategy is to test several differently priced products against pools of potential customers with similar risk characteristics. The results of direct mail,
telemarketing, internet and limited television campaigns are continuously monitored and analyzed using our proprietary database system.

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Product
offerings for a particular customer are determined by examining a number of factors in the customer's credit file based upon the criteria described above. We offer a variety of
product offerings within our originated portfolio, varying by the amount of the credit line, the interest rate and the annual fee:

|Characteristic |  | Range of Initial Offerings                |  | Average as of
December 31, 2002 |       | Average as of
December 31, 2001 |  
|-------------- |  | ----------------------------------------- |  | ------------------------------- | ----- | ------------------------------- | -
|Credit Line    |  | $300 to $10,000                           |  | $                               | 2,266 |                                 | $
|APR            |  | Prime rate + 3.90% to Prime rate + 30.25% |  |                                 | 27.6  | %                               |  
|Annual Fee     |  | $0 to $150                                |  | $                               | 7     |                                 | $

The
average credit line within our originated portfolio decreased during 2002 due primarily to our credit line management. We were able to increase the average APR within our originated
portfolio during 2002 through our active account management. The reduction in our average annual fee within the originated portfolio in 2002 reflects our diminished marketing in 2002 in general, as
well as our diminished marketing in 2002 of a higher fee product that we tested rather extensively in 2001. With our reduced marketing in 2002, we added a smaller number of new accounts compared to
2001, and new accounts typically bear higher annual fees than more mature accounts. We use our target marketing strategies to assess the type of product offering to be made to each potential customer.
In our marketing campaigns, we continually test combinations of interest rates, fees, and credit limits directed at specific customer segments in order to evaluate response rates and further refine
our pricing strategies.

Target Marketing in Portfolio Acquisitions

Our principal source of account additions in 2002 was portfolio acquisition, and we anticipate that this will be our principal source of account growth during
2003 as well. In June 2002, we purchased a 50% interest in a $1.2 billion portfolio and in July 2002 we purchased a $1.0 billion portfolio. We did not acquire any
portfolios in 1999, 2000, or 2001. We also generated new account additions in 2002 as well as in prior years through the use of our target marketing system to originate customers through direct mail,
telemarketing internet, and limited television campaigns. Depending on relative competitive and liquidity environments for portfolio acquisition versus origination, we may use either or both of these
methods of account growth to varying degrees. We believe that the current competitive and liquidity environments favor growth through acquisition, rather than origination, for our entire underserved
customer base, except for a rather narrow category of sub-prime consumers at the lower end of the FICO scoring system. As such, we plan to grow during 2003 principally through acquisition,
rather than origination, for all of those segments of our underserved market except for a segment of sub-prime consumers at the lower end of the FICO scoring system to which we plan to
offer a largely fee-based card product during 2003.

A
key to our purchased portfolio strategy is our use of credit and marketing segmentation methods to select those customers to which our credit card will be issued and to use our
proprietary account management systems to enhance the performance of the portfolio and to market fee-based ancillary products and services to the new customers. As with the account
origination process, each customer is evaluated using credit and marketing segmentation methods derived from a variety of data sources. Customers are placed into product offering segments based upon
combinations of factors reflecting their credit risk, bankruptcy risk, supply of revolving credit, demand for revolving credit, payment capacity and revenue potential, among other factors. Core to our
growth and profitability strategy is our regular evaluation of potential portfolio acquisitions.

Our
target marketing system is intended to provide the same competitive advantage when evaluating portfolios as when originating customers through our marketing campaigns. We believe
that our ability to evaluate credit risk within FICO score ranges enables us to more accurately determine the portfolio's overall credit risk than many portfolio sellers and many other companies that
may bid on

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portfolio
purchases. This risk evaluation expertise is designed to enable us to avoid portfolio purchases in which the final purchase premium or discount does not accurately reflect the credit risk of
the portfolio. Conversely, we may bid more aggressively for portfolios in which the perceived credit risk, as reflected by the FICO scores, is significantly higher than our forecast of credit risk.

Our
target marketing system, which combines our proprietary risk evaluation system with sophisticated techniques for estimating supply of revolving credit, demand for revolving credit
and bankruptcy risk, is designed to provide us with a competitive advantage in evaluating the potential profitability of target customers, whether originated by us or purchased. We continuously seek
to refine our target marketing system through the development of new analytical segmentation tools and the evaluation of the system's effectiveness on previous marketing campaigns and portfolio
acquisitions.

Direct Mail and Telemarketing Solicitation

We use our target marketing strategies to identify potential customers and to assess the type of product offering to be made to each potential customer. In our
direct mail or telemarketing campaigns, we have experimented with several combinations of rates, fees and credit limits directed at specific customer segments in order to evaluate response rates and
further refine our pricing strategies within each customer segment and for all customer segments as a group. Third party print production facilities produce our direct mail campaigns, and we contract
with third party telemarketing providers for our telemarketing campaigns. Responses to both direct mail and telemarketing campaigns are then forwarded to us for application processing. The response
data received is also integrated into our database system for future analysis and response modeling. To date, we have done most of our marketing through direct mail and telemarketing channels; we have
conducted only limited programs and tests through internet and television marketing channels.

Application Processing

We contract with third party providers for the data entry of credit card applications resulting from our direct mail solicitations. We also use telemarketing
vendors to input application data for customers who respond to solicitations via the telephone. Entered application data is electronically transmitted in batches to us for processing by our
application processing system.

We
have developed proprietary methods of evaluating applications using an application processing system that automates the evaluation of customer application data. The system uses
pre-defined criteria to review applicant-provided information and to compare the information to the applicant's original solicitation data and to data from an online credit file that is
automatically requested for each applicant. The system performs a series of comparisons of identification information, such as name, address and social security number, from the three data sources to
verify that customer-supplied information is complete and accurate. Potentially fraudulent applications are declined or held for further review.

The
applicant's online credit file that is obtained after the receipt of his or her application is further evaluated by the system to ensure that the applicant still meets the
creditworthiness criteria applied during the original pre-screening process. The same credit criteria, proprietary custom models and credit bureau data items used during the initial
pre-screen selection process are recalculated for each applicant. Applicants still meeting our creditworthiness criteria are designated as "approvals" and assigned a final credit offer.

Statistics
related to response rates and final offers and terms are captured daily for all processed applications and are transferred to our proprietary database for ongoing tracking and
analysis.

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Fee-Based Products and Services

We offer fee-based products and services to our customers, including memberships, card registration, insurance products and subscription services.
Memberships include preferred buying clubs, travel services and credit monitoring programs. Insurance products feature supplemental, non-compulsory products, such as credit life,
unemployment insurance and disability policies. Subscription services include recurring consumer products such as magazine subscriptions, telephone service, and internet service provider access. These
fee-based products and services are offered throughout our relationship with a customer. Our three largest providers of fee-based products are American Consumer Alliance, which
provides most membership products, and the Assurant Group and Union Fidelity Life Insurance Company, a subsidiary of General Electric, both of which provide supplemental insurance products to our
customers. We provide a billing platform for these third party providers, and they pay us commissions based upon the services they provide to our customers and/or the quantity of products sold to our
customers. These third party providers are fully responsible for the fulfillment of the products they offer. Our responsibility is to ensure that enrollment and cancellation of the products purchased
by our customers are properly processed and billed to the customers at the rates established by the provider.

The
success of our fee-based business is a function of the number and variety of our fee-based product offerings, the marketing channels leveraged to sell
fee-based products and the customers to whom we market these products. The profitability of our fee-based products and services is affected by new credit card account growth,
the response rates to product solicitations, the volume and frequency of the marketing programs, the claim rates for products, the operating expenses associated with the programs and ultimately the
commission rates that we receive from the product providers. Although a wide-range of our customers purchase fee-based products and services, fee-based product and
service sales generally are higher to new customers and tend to diminish throughout our relationship with our cardholders. As a result, we anticipate that during periods of low new account growth, our
profitability from fee-based products and services will either grow at a reduced rate or decline.

Account and Portfolio Management

Ongoing Account Management.Our management strategy is to manage account activity using behavioral scoring, credit file data
and our proprietary risk evaluation systems. These strategies include the management of transaction authorizations, account renewals, over-limit accounts and credit line modifications. We
use an adaptive control system to translate our strategies into the account management processes. The system enables us to develop and test multiple strategies simultaneously, which allows us to
continually refine our account management activities. We have incorporated our proprietary risk scores into the control system, in addition to standard behavior scores used widely in the industry, in
order to segment, evaluate and manage the accounts. We believe that by combining external credit file data along with historical and current customer activity, we are able to better predict the true
risk associated with current and delinquent accounts.

We
monitor authorizations for all accounts. Customer credit availability is limited for transaction types that we believe present higher risks, such as foreign transactions and cash
advances. We manage credit lines to reward underserved customers who are performing well and to mitigate losses from delinquent customer segments. Accounts exhibiting favorable credit characteristics
are periodically reviewed for credit line increases, and strategies are in place to reduce credit lines for customers demonstrating indicators of increased credit or bankruptcy risk. Data relating to
account performance is captured and loaded into our proprietary database for ongoing analysis. We adjust account management strategies as necessary, based on the results of such analyses.
Additionally, we use industry-standard fraud detection software to manage the portfolio. We route accounts to manual work queues and suspend charging privileges if the transaction-based fraud models
indicate a high probability of fraudulent card use.

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Client Advisory Services.We have an advisory program to assist our customers in understanding the prudent use of
general-purpose credit cards. We use our proprietary systems to identify customers who are not delinquent but are exhibiting credit behavior likely to result in delinquency in the future. We
assign these accounts to our credit advisors who actively review all account activity and, if necessary, contact the customers via letter or telephone. Actions taken by us may include
customer-friendly advice concerning the prudent use of credit, temporary or permanent reduction in credit line availability, review of the customer's full credit report, debts and income and
establishing repayment terms to assist the customer in avoiding becoming over-extended.

Management
believes this customer advisory strategy is not widely practiced in the credit card industry. Our advisory program allows us to enhance our relationship with our customers by
providing valuable and meaningful assistance while simultaneously contributing to prudent risk management strategies to reduce bad debt losses.

Outsourcing.Many account functions including card embossing/mailing, cycle billing/payment processing and transaction
processing/authorization are performed by third parties, including CB&T and Total Systems, both subsidiaries of Synovus Financial Corporation. In January 1997, we entered into an Affinity Card
Agreement with CB&T that provides for the issuance of our credit cards and the performance of the outsourced functions noted above. During the third quarter of 2002, we extended this agreement from
December 2003 to March 2006. Synovus Financial Corporation and its affiliates are our largest service providers and, during 2002, we paid them approximately $40.0 million.

Data
processing and development services, services related to the evaluation of customer application data and marketing services are outsourced to Visionary Systems, Inc. ("VSI").
Pursuant to agreements with VSI that will expire in July, 2004, we pay VSI on a monthly basis for those services. During 2002, we paid approximately $11.2 million to VSI and its subsidiaries
for software development, account origination, and consulting services. Two of our officers have an indirect investment in VSI. For more information regarding this relationship with VSI, see "Item 13.
Relationships and Related Transactions."

Collections and Delinquency Management

Management considers its prior experience in operating professional collection agencies, coupled with our proprietary systems, to be a competitive advantage in
minimizing delinquencies, bad debt losses and operating expenses associated with the collection process. We use our systems to develop proprietary collection strategies and techniques to be employed
in our operations. We analyze the output from these systems to identify the collection activity that we believe is most likely to result in curing the delinquency cost-effectively, rather
than treating all accounts the same based on the mere passage of time.

As
in all aspects of our risk management strategies, we routinely test alternative strategies and compare the results with existing collection strategies. Results are measured based on
delinquency rates, expected losses and costs to collect. Existing strategies are then adjusted as suggested by these results. Management believes that maintaining the ongoing discipline of testing,
measuring and adjusting collection strategies will result in minimized bad debt losses and operating expenses. We believe this
approach differs from the approach taken by the vast majority of credit grantors that implement collection strategies based on commonly accepted peer group practices.

For
further explanation, see the discussion of "Collection Strategies" under the "Asset Quality" subheading in "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of OperationsSelected Credit Card Data."

We
have six collection facilities: two in metro Atlanta, Georgia totaling approximately 36,000 square feet; one in North Wilkesboro, North Carolina totaling approximately 32,000 square
feet; two in

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the
St. Cloud, Minnesota area totaling approximately 117,000 square feet; and one in Salt Lake City, Utah totaling approximately 21,000 square feet. In addition to our full-time staff, we
outsource some of our collection activities. We continuously monitor the performance of our third party providers against that of our staff to determine which, in our view, is more effective.

Off Balance Sheet Arrangements

We began marketing and servicing credit card accounts in February 1997. CB&T originates certain of its VISA and MasterCard revolving credit card accounts
under an agreement with us. On a daily basis, CB&T sells us an interest in the receivables created that day in these accounts. Similarly, with respect to the securitized retained interests we acquired
from Federated in July 2002, the credit card accounts underlying that securitization are owned by Axsys National Bank. Each day, upon our acquisition of that day's receivables, we, in turn,
sell our interest in the receivables to trusts or to multi-seller commercial paper conduits administered by national banking institutions ("conduits"). Our sales meet the criteria of Statement of
Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("Statement No. 140"). The receivables that are
sold through securitization are removed from our balance sheet for financial reporting purposes.

The
trusts or the conduits purchase receivables from us by raising proceeds from investors. The proceeds raised are part of series of notes issued by the trust or the conduits. These
notes are similar to bank loan agreements as they have a note balance, a maturity date, an interest rate and contain standard representations, warranties and performance covenants that are contained
in most loan agreements. The proceeds from the investors are then remitted to us as part of the purchase price of the receivables. We had the following total commitments and outstanding notes in our
securitizations for each year presented:

As of December 31,2002(1)

2001

2000(In thousands)Total commitments from investors

$
2,259

$
2,046

$
1,847Total outstanding amounts


1,673


1,524


1,229


As
indicated in the table below, as of March 2003, our securitization facilities and their respective maturity dates were as follows:

Maturity Date

Facility Limit(1)(in millions)April 2003

$
75.0July 2003


300.0September 2003(2)


676.5October 2003


306.0March 2004


100.0April 2004


360.1July 2004


441.5$
2,259.1




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We
try to structure our securitization funding sources by having commitments in excess of our current growth plans so that we have investors who will purchase notes from the trusts,
which in turn allows the trusts to purchase the receivables from us. We believe we have structured our securitization program to reduce our reliance on any one series of notes by generally staggering
the maturity dates of the notes issued by the trusts. At appropriate times, including the current environment, we have slowed our growth when we have not had any assurance that when any series of
notes matured, they would be renewed on terms that were favorable to us, or at all. This is more fully discussed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity, Funding and Capital Resources."

When
we sell the receivables, we receive cash proceeds and a seller's interest in the receivables. Our seller's interests are subordinate to the other investors in the trusts or the
investors in the commercial paper conduits. The receivables that are sold in our securitizations generate future cash flows as cardholders remit payments on their accounts. These payments are remitted
to the securitization trusts and then disbursed in accordance with the securitization agreements. We receive all of the excess cash flows from the securitizations, which represent collections on the
accounts in excess of the interest paid
to the investors, servicing fees, credit losses and required amortization payments. We use the cash proceeds that we receive when we sell the receivables as well as the future cash flows we receive
from the performance of the receivables to fund our operations and to purchase new receivables generated in the accounts.

We
include in our consolidated financial statements all of our wholly owned subsidiaries. However, in accordance with Statement No. 140, we do not consolidate any of the trusts,
all of which are qualifying special purpose entities ("QSPEs"). We are required to service the receivables that have been sold. We also perform the administrative functions for the trusts including
preparing daily and monthly reports relating to the receivables. We do this pursuant to an administration agreement between the trustees of the trusts and us. The investors do not have any recourse
against us for the cardholders' failure to pay their credit card balances; however, most of our retained interests are subordinate to the investors' interests. Under our securitization agreements, our
retained interests would absorb losses due to the cardholders' failure to pay before the investors would have to absorb these losses. In addition, if the receivables within the trusts were to perform
poorly, our ability to securitize receivables in the future could be adversely impacted.

We
further detail our securitization program in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsOff Balance Sheet
Arrangements."

Consumer and Debtor Protection Laws and Regulations

Our business is regulated directly and indirectly under various federal and state consumer protection and other laws, rules and regulations, including the federal
Truth-In-Lending Act, the federal Equal Credit Opportunity Act, the federal Fair Credit Reporting Act, the federal Fair Debt Collection Practices Act, the federal Gramm-
Leach-Biley Act and the federal Telemarketing and Consumer Fraud

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and
Abuse Prevention Act. These statutes and their enabling regulations, among other things, impose disclosure requirements when a consumer credit loan is advertised, when the account is opened and
when monthly billing statements are sent. In addition, various statutes limit the liability of credit cardholders for unauthorized use, prohibit discriminatory practices in extending credit and impose
limitations on the types of charges that may be assessed and restrict the use of consumer credit reports and other account-related information.

Changes
in any of these laws or regulations, or in their interpretation or application, could significantly impact our operations. Various proposals which could affect our business have
been introduced in Congress in recent years, including, among others, proposals relating to imposing a statutory cap on credit card interest rates, substantially revising the laws governing consumer
bankruptcy, limiting the use of social security numbers and regulating the internet. There have also been proposals in state
legislatures in recent years to restrict telemarketing and internet activities, impose statutory caps on consumer interest rates, limit the use of social security numbers and expand consumer
protection laws. It is impossible to determine whether any of these proposals will become law and, if so, what impact they will have on us.

In
1999, Congress enacted the Gramm-Leach-Bliley Act. Among other things, the Gramm-Leach-Bliley Act establishes new federal privacy requirements applicable to all financial
institutions. Financial institutions are required to establish a privacy policy and to disclose the policy at the start of a customer relationship and once a year thereafter. Additionally, financial
institutions must give a customer the opportunity to block the sharing of the customer's nonpublic personal information with unaffiliated third parties, except in limited circumstances. Further,
financial institutions are barred from sharing credit card numbers, account numbers or access numbers of customers with third-party marketers. Federal law does not preempt state laws that provide a
greater degree of privacy protection than federal law.

Although
we believe that the banks that originate credit card accounts under an agreement with us and we are currently in compliance with applicable statutes and regulations, there can
be no assurance that these banks or we will be able to maintain such compliance. Failure to comply with applicable statutes or regulations could result in significant harm to our results of operations
or financial condition. In addition, because of the consumer-oriented nature of the credit card industry, there is a risk that we or other industry participants may be named as defendants in
litigation involving alleged violations of federal and state laws and regulations, including consumer protection laws, and consumer law torts, including fraud. The institution of any material
litigation or a significant judgment against these banks or us or within the industry in connection with any such litigation could have a material adverse effect on our results of operations or
financial condition.

The
National Bank Act of 1864 authorizes national banks to charge customers interest at the rates allowed by the laws of the state in which the bank is located, regardless of any
inconsistent law of the state in which the bank's customers are located. A similar right is granted to state institutions in the Depository Institutions Deregulation and Monetary Control Act of 1980.
In 1996, the United States Supreme Court held that late payment fees are "interest" and therefore can be "exported" under the National Bank Act, deferring to the Comptroller of the Currency's
interpretation that interest includes late payment fees, insufficient funds fees, over-limit fees and other fees and charges associated with credit card accounts. This decision does not
directly apply to state institutions, such as CB&T. Although several courts have upheld the ability of state institutions to export some types of fees, a number of lawsuits have been filed alleging
that the laws of some states prohibit the imposition of late fees. If the courts do not follow existing precedents, the ability of state institutions to impose some fees could be adversely affected,
which could result in significant harm to our results of operations or financial condition.

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We
do not currently own a bank. In October 1998, we applied for a bank charter, but we withdrew the application in June 2001, because we then believed that it would be
difficult for us to charter a bank in the prevailing regulatory environment. More recently, we applied to acquire a bank in connection with our acquisition of a credit card portfolio, but we do not
know whether that application ultimately will be successful. If we were able to charter or acquire a bank, we would expect that the bank would become the issuer of a portion of the credit cards we
market. Any bank we charter would be subject to the various state and federal laws and regulations generally applicable to such institutions, including laws and regulations like those referenced
above.

Competition

We face competition, the intensity of which varies depending upon economic and liquidity cycles, from other consumer lenders. Our credit card business competes
with national, regional and local bank card issuers, and with other general-purpose credit card issuers, including American Express®, Discover® and other issuers of
Visa® and MasterCard®. We also compete with retail credit card issuers, such as department stores and oil companies, and other providers of unsecured credit. Large credit card
issuers, including but not limited to Capital One, Providian and Metris, may compete with us for customers by offering lower interest rates and fees. Many of these competitors are substantially larger
than we are and have greater financial resources. Customers choose credit card issuers largely on the basis of price, including interest rates and fees, credit limit and other product features. For
this reason, customer loyalty is often limited. We may lose entire accounts, or may lose account balances, to competing credit card issuers.

Our
competitors are continually introducing new strategies to attract customers and increase their market share. The most heavily used techniques are advertising, target marketing,
balance transfers, price competition, incentive programs and using the name of a sports team or a professional association on their credit cards, known as "co-branding." In response to
competition, some issuers of credit cards have lowered interest rates and offered incentives to retain existing customers and attract new ones. These competitive practices, as well as competition that
may develop in the future, could harm our ability to obtain customers and maintain profitability.

The
Gramm-Leach-Bliley Act repeals the Glass-Steagall Act of 1933, which separated commercial and investment banking, and eliminates the Bank Holding Company Act's prohibition on
insurance underwriting activities by bank holding companies. As a result, the Gramm-Leach-Bliley Act permits the affiliation of commercial banks, insurance companies and securities firms. This change
may increase the ability of insurance companies and securities firms to acquire, or otherwise affiliate with, commercial banks and likely will increase the number of competitors in the banking
industry and the level of competition for banking products, including credit cards.

Business Developments

We began marketing credit cards issued by CB&T in 1997. During our first four years, we saw robust growth rates and surpassed two million cardholders. We believe
that in the latter part of 2000 the national economy began to slow and that traditional credit card companies began to increase their marketing to our underserved target market. We believe the economy
further slid into a recession in the first quarter of 2001 and that consumer spending in general slowed. In response to the decrease in the average usage of our cards, our perception of the
competitive landscape, and external events such as those of September 11, 2001, the receivership of NextCard and the effect of Providian's performance on our industry, we decided to decrease
our marketing for new credit card accounts during late 2001.

In
2002, the credit card industry faced even more challenges. Several competitors encountered regulatory problems. An economy that we hoped would improve during 2002 continued to worsen.
Finally, an unease in the consumer spending habits was made even worse with the growing potential for

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a
war in Iraq. Throughout 2002, we continued with our disciplined approach of slowing originated portfolio growth. As a result, new accounts decreased from 1.3 million accounts in 2000, to
670,000 accounts in 2001, to 545,000 accounts in 2002. While targeting a lower number of new accounts decreases our marketing expense, it also reduces the growth of our average managed receivables.

The
very factors described above that have caused problems for other credit card issuers and us have, at the same time, provided opportunities for us. We purchased interests in two large
portfolios of receivables during 2002. These purchases were not our first experience with buying portfolios. In 1998, CompuCredit successfully purchased two portfolios as well. We intend to grow by
purchasing portfolios when the environment is favorable for that opportunity, such as it is now, and to grow organically when we see a favorable environment for organic growth.

Although
we securitize all of our credit card receivables, our financial performance is a function of the performance of the aggregate amount of credit card receivables that are
outstanding. This aggregate amount is a function of many factors including purchase rates, payment rates, interest rates, charge off rates, seasonality, general economic conditions, competition from
other credit card companies and other sources of consumer financing, access to funding including access to securitizations and the success of our marketing efforts, including our fee-based
products. We cannot precisely estimate the future performance of these individual factors or the impact of the factors working in combination, although they directly impact the size or growth of the
credit card receivables and our future performance. We continually study and monitor these factors to determine the day-to-day decisions we make in running our business. Given
the uncertainty in these factors, we have slowed our organic growth and are waiting to increase our growth until we believe we have more clarity as to these factors and their impact on the performance
of credit card receivables.

Due
to the current liquidity environment in which we are experiencing declining advance rates (i.e., the portion of the securitizations that are funded with funds from investors), we
intend to shrink our traditional originated under-served business for the remainder of the 2003 year so that we can free up capital to deploy in more attractive areas. It is our belief that as
the economy turns, we may once again see attractive advance rates that make it feasible to grow this portion of our business again. However, at current advance rate levels, we believe our capital is
currently best deployed acquiring portfolios.

We
continue, however, to explore a wide range of options for liquidity to prepare us for growth, as well as, for adverse changes in the securitization marketplace. These options include
revolving lines of credit, selling a subordinate interest in one or more of our securitizations and the issuance of debt or equity.

We
discuss the performance of the credit card receivables underlying our securitizations in more detail in "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of OperationsSelected Credit Card Data."

As
we wait to see how the economy and consumers will respond to the challenges of 2003, we will concentrate on objectives that are more in our control such as reducing our operating
expenses, evaluating portfolios to purchase and providing excellent customer service to our consumers. We also plan to increase our marketing focus in 2003 on a rather narrow category of
sub-prime consumers at the lower end of the FICO scoring system to which we plan to offer a largely fee-based card product during 2003. Based on the testing of this
sub-prime market sector that we have performed over the past two years, we believe that this category offers us superior returns on equity that are more within our control. We have
experienced strong returns on equity within this category, even on an unleveraged basis; as such, we are better able to control our desired returns on equity within this category without being as
constrained by the unfavorable liquidity terms and advance rates that we are seeing in the asset backed securities markets.

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Employees

As of December 31, 2002, we had approximately 1,650 employees, substantially all of whom are located in Georgia, North Carolina, Minnesota and Utah. No
collective bargaining agreement exists for any of our employees. We consider our relations with our employees to be good.

Trademarks

CompuCredit, Aspire, Aspire A Mas, Aspire Diamond, Aspire Rapid Miles, For Everything You Aspire To Be, Get On Get Yours, It's Your Credit Take Charge of It, One
Screen, Para Todo Lo Que Aspira A' Ser and Transforming Information into Value are registered trademarks of CompuCredit. AspireCard, Aspire Ahora, Aspire2It, Aspire Bank, Aspire Financial Management,
Aspire Life, and In Charge are common law trademarks of CompuCredit. We consider these trademarks to be readily identifiable with, and valuable to, our business. This Annual Report on
Form 10-K also contains trade names and trademarks of other companies that are the property of their respective owners.

Proprietary Rights and Licenses

We regard our database management system and our customer selection and risk evaluation criteria as confidential and proprietary. We initially developed our
pre-screen customer selection criteria under a contract with a national credit bureau; however, we own all intellectual property rights in the resulting model. Our database management
system was developed by Visionary Systems, Inc. and VSx Corporation under a contract pursuant to which we held an exclusive, perpetual license to use, copy, execute, display and reproduce the
software constituting our database management system. In May 2001, we purchased from VSx Corporation the components of the data management system known as the "Brain," and we entered into a
license agreement with VSI, which continues to own one component of the software known as the "Switch." Pursuant to our agreement with VSI, we were granted a nonexclusive license to use, copy, execute
or display for internal use the Switch, a system that automates the evaluation of customer application data and, among other things, provides us with real-time access to credit information
concerning our target market and our customers. In addition, VSI continues to provide substantially all of the computer software design and implementation services we require in the continuing
refinement and use of our computer software systems. VSI has granted to us a right of first refusal during the term of the agreement in the event the developer wishes to sell or otherwise transfer any
of its ownership rights in the Switch. During 2002, we
paid approximately $11.2 million to VSI and its subsidiaries for software development, account origination, and consulting services. Two of our officers have an indirect investment in VSI. For
more information regarding our relationship with VSI, see "Item 13. Relationships and Related Transactions."

RISK FACTORS

An investment in our preferred or common stock involves a high degree of risk. You should carefully consider the risks described below and the other information
contained in this prospectus and in our other filings incorporated by reference before deciding to invest in our stock. The risks described below and in our other filings incorporated by reference are
the ones that we currently consider material, although they are not the only ones facing our company. There may be risks that a particular investor views differently from us, and our analysis may be
wrong. Additional risks not presently known to us, or which we currently consider immaterial may also adversely affect us. If any of the following risks actually occur, or other risks that we face,
our business, financial condition and operating results could be materially adversely affected and could differ materially from any possible results suggested by any forward looking statements that we
have made or might make. In such case, the trading price of our common stock could decline, and you could lose part or all of your investment. We will update these risks as required by law.

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Set forth below are factors that we believe may affect our performance or cause actual results to differ materially from forward-looking statements that we have
made or may make in the future. The risks and uncertainties described below are not the only risks we face. These risks are the ones we consider to be material at this time. We might be wrong. There
may be risks that you in particular view differently than we do, and there are other risks and uncertainties that are not presently known to us or that we currently consider immaterial, but that may
in fact impair our business operations. If any of the following risks actually occur, our business, results of operations and financial condition could be seriously harmed and the trading price of our
common stock could decline. We will update these risks as required by law.

The cash flows we receive from our retained interests drive our financial performance and are dependent upon the cash flows received on the credit card receivables underlying
our securitizations.

The collectibility of the receivables underlying our securitizations is a function of many factors including the criteria used to select who is issued a credit
card, the pricing of the credit products, the length of the relationship with each cardholder, general economic conditions, the rate at which cardholders repay their accounts, and the rate at which
cardholders charge off or become delinquent. To the extent we have over estimated collectibility, in all likelihood we have over estimated our financial performance. Some of these concerns are
discussed more fully below.

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

The lack of seasoning of our credit card portfolio makes it difficult to predict the performance of our business.A portfolio of older accounts generally behaves more predictably than a newly originated portfolio. In general, as the average age of an originated credit card receivables portfolio
increases, delinquency and charge off rates can be expected to increase and then stabilize. Any increases in delinquencies and charge offs beyond our expectations will decrease the value of our
retained interests in securitization transactions resulting in a decrease in our net income. This also may reduce the funds available for our future growth and may hinder our ability to complete other
securitizations in the future. Our delinquency rates (the percentage of our accounts more than 60 days past due) have increased over the last several years from 6.4% at December 31,
1999, to 9.5% at December 31, 2000, to 11.1% at December 31, 2001 and to 13.9% at December 31, 2002. The majority of our charge offs occur when the account becomes contractually
180 days delinquent. Thus, increased charge offs would generally follow increased delinquencies, absent significant changes in collection activities. During the fourth quarter of 2000 and
throughout 2001 and 2002 a greater than expected charge off ratio adversely impacted our business.

An economic slowdown could increase credit losses and/or decrease our growth.Because our business is
directly related to consumer spending, any period of economic slowdown or recession could make it more difficult for us to add or retain accounts or account balances. In addition, during periods of
economic slowdown or recession, we expect to experience an increase in rates of delinquencies and the frequency and severity of credit losses. Our actual rates of delinquencies and frequency and
severity of

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credit
losses may be higher under adverse economic conditions than those experienced in the consumer finance industry generally because of our focus on the underserved sub-prime market.

Because a significant portion of our reported income is based on our management's estimates of the performance of securitized receivables,
differences between actual and expected performance of the receivables may cause fluctuations in net income.Income from the sale of receivables in securitization
transactions
and income from retained interests in credit card receivables securitized have constituted, and are likely to continue to constitute, a significant portion of our income. Portions of this income are
based primarily on management's estimates of cash flows we expect to receive from the interests that we retain when we securitize receivables. Differences between actual and expected performance of
the receivables may cause fluctuations in our net income. The expected cash flows are based on management's estimates of interest rates, default rates, payment rates, new purchases, costs of funds
paid to investors in the securitizations, servicing costs, discount rates and required amortization payments. These estimates are based on a variety of factors, many of which are not within our
control. As a result, these estimates will differ from actual performance. During the fourth quarter of 2001, we increased the discount rate used to value our retained interests from 14.2% used at
September 30, 2001, to 34.9%. This resulted in a substantial loss. We increased our discount rate primarily to reflect the higher rate of return required by investors. We sold retained
interests in two transactions during the fourth quarter of 2001. The first was during November, and the internal rate of return required by the purchaser was approximately 22%. The second transaction
was in December, and the internal rate of return required by the purchaser was approximately 35%. We attribute the increase to a general economic slowdown, the repercussions from the events of
September 11, 2001, uncertainty in the liquidity markets in general, concerns surrounding the poor performance of our competitors, our lack of negotiating leverage (due to our need for funds),
and our failure to meet analysts' expectations given the slowdown in the growth of our managed receivables. Please see "Year Ended December 31, 2001, Compared to Year Ended December 31,
2000" in "Results of Operations" of our MD&A section of our Annual Report on Form 10-K for the year ended December 31, 2001. During the second quarter of 2002, the Company
hired an independent financial advisory firm to assist in the Company's evaluation of its estimate of the residual cash flow discount rate. The independent financial advisory firm advised that the
appropriate residual cash flow discount rate was 22.5%. The Company adopted that recommendation and revised the estimate for the residual cash flow discount rate to 22.5%, from 34.9% at
March 31, 2002. This resulted in an increase in the value of our retained interests of approximately $22.8 million and a corresponding increase in pretax income of approximately
$22.8 million. We attribute the change to a lessening of market place concern regarding the performance of other credit card issuers and our improved liquidity. This change emphasizes, however,
that the discount rate may be volatile.

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

Increased utilization of existing credit lines by cardholders would require us to establish additional securitization facilities or
curtail credit lines.Our existing commitments to extend credit to cardholders exceeded our commitments for securitizations by over 1.6 to 1 at December 31,
2002. If all of our cardholders were to use their entire lines of credit at the same time, we would not have sufficient capacity to fund card use. However, in that event, we could either reduce our
cardholders' available credit lines or establish additional securitization facilities. This would subject us to several of the other risks that we have described in this section.

Increases in expected losses and delinquencies may cause us to incur losses on our retained
interests.If the actual amounts of delinquencies and losses that occur in our securitized receivables are greater

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than
our expectations, the value of our retained interests in the securitization transactions will be decreased. Since we derive a portion of our income from these retained interests, higher than
expected rates of delinquency and loss could cause our net income to be lower than expected. In addition, under the terms of our securitizations agreements, levels of loss and delinquency could result
in us being required to repay our securitizations investors earlier than expected, reducing funds available to us for future growth.

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

Seasonal consumer spending may result in fluctuations in our net income.Our quarterly income may
substantially fluctuate as a result of seasonal consumer spending. In particular, our customers may charge more and carry higher balances during the year-end holiday season and before the
beginning of the school year, resulting in corresponding increases in managed receivables and receivables securitized during those periods.

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

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

We are substantially dependent upon securitizations and other borrowed funds in order to fund the credit card receivables that we originate or purchase.

All of our securitization facilities are of finite duration (and ultimately will need to be extended or replaced) and contain conditions that must be fulfilled in
order for funding to be available. In the event that advance rates for securitizations are reduced, investors in securitizations require a greater rate of return, we fail to meet the requirements for
continued funding, or securitizations otherwise become unavailable to us, we may not be able to maintain or grow our base of credit card receivables or it may be more expensive for us to do so. In
addition, because of advance rate limitations, we maintain retained interests in our securitizations that must be funded through profitable operations, equity raised from third parties, or funds
borrowed elsewhere. The cost and availability of equity and borrowed funds is dependent upon our financial performance, the performance of our industry generally, and general

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economic
and market conditions, and recently has been both expensive and difficult to obtain. Some of these concerns are discussed more fully below.

Our growth is dependent on our ability to add new securitization facilities.We finance all of our
receivables through securitizations. To the extent we grow our receivables significantly, our cash requirements are likely to exceed the amount of cash we generate from operations, thus requiring us
to add new securitization facilities. Our historic and projected performance impact whether, on what terms and at what cost we can sell interests in our securitizations. If additional securitization
facilities are not available on terms we consider acceptable, or if existing securitization facilities are not renewed on terms as favorable as we have now or are not renewed at all, we may not be
able to grow. One of the reasons that we have slowed our growth plans is because a significant portion of our securitizations have or will mature in the near future, and we do not have any assurances
that we will be able to obtain new securitizations on satisfactory terms.

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

We may be unable to obtain capital from third parties needed to fund our existing securitizations or may be forced to rely on more
expensive funding sources.We need equity or debt capital to fund our retained interests in our securitizations. Investors should be aware of our dependence on
third parties for funding and our exposure to increases in costs for that funding. External factors, including the general economy, impact our ability to obtain funds. In late 2001, we needed
additional liquidity to fund our operations as well as the growth in the retained interests in our securitizations, and we had a difficult time obtaining those needed funds. We were not able to issue
common stock at a price we deemed acceptable due to a variety of factors, including a general economic slowdown, the repercussions from the events of September 11, 2001, uncertainty in the
liquidity markets in general, concerns surrounding the poor performance of our competitors and our failure to meet analysts' expectations given the slowdown in the growth of our managed receivables.
At the same time, due to many of these factors, we were able to sell our retained interests in our securitization only at a dramatically increased rate of return to the investors. During the fourth
quarter of 2001, we utilized our revolving credit facility to fund the portion of our receivables growth that could not be funded through securitization. To date, we have not replaced our revolving
credit facility, which expired in January 2002. If in the future we need to replace that facility or otherwise raise cash by issuing additional debt or equity or by selling a portion of our
retained interests, there is no certainty that we will be able to do so or that we will be able to do so on favorable terms. Our ability to replace our credit facility or otherwise raise cash will
depend on factors such as our performance and creditworthiness, the performance of our industry, the performance of issuers of other non-credit card based asset backed securities, and the
general economy.

The timing and size of securitizations may cause fluctuations in quarterly income.Substantial
fluctuations in the timing or the volume of receivables securitized will cause fluctuations in our

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quarterly
income. Factors that affect the timing or volume of securitizations include the growth in our receivables, market conditions and the approval by all parties of the terms of the
securitization.

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

We may be required to pay to investors in our securitizations an amount equal to the amount of securitized receivables if representations
and warranties made to us by sellers of the receivables are inaccurate.The representations and warranties made to us by sellers of receivables we purchased may be
inaccurate. We rely on these representations and warranties when we securitize these purchased receivables. Our securitization transactions involve us making representations and warranties to
investors and, generally speaking, if there is a breach of our representations and warranties, then under the terms of the applicable investment agreement, we could be required to pay the investors a
sum equal to the amount of the securitized receivables. Thus, our reliance on a representation or warranty of a receivables seller, which proves to be false and causes a breach of one of our
representations or warranties, could subject us to a potentially costly liability.

Our financial performance is, in part, a function of the aggregate amount of credit card receivables that are outstanding.

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

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

22

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affiliation
of commercial banks, insurance companies and securities firms, may increase the level of competition in the financial services market, including the credit card business.

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



Currently,
we are not aggressively pursuing growth in our originated portfolio because of a number of factors, including securitization costs and terms and general economic conditions.

Our decisions regarding marketing can have a significant impact on our growth.We can increase or
decrease, as the case may be, the size of our outstanding receivables balances by increasing or decreasing our marketing efforts. Marketing is expensive, and during periods when we have less liquidity
than we like or when prospects for continued liquidity in the future do not look promising, we may decide to limit our marketing and thereby our growth. A decline in size of our receivables would
reduce our net income in future periods. We have decreased our marketing plans for 2003 as compared to 2002.

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

We operate in a heavily regulated industry.Changes in bankruptcy, privacy or other consumer
protection laws may adversely affect our ability to collect credit card account balances or otherwise adversely affect our business or expose us to litigation. Similarly, regulatory changes could
adversely affect our ability to market credit cards and other products and services to our customers. The accounting rules that govern our business are exceedingly complex, difficult to apply, and in
a state of flux. As a result, how we value our credit card receivables and otherwise account for our business (including whether we consolidate our securitizations) is subject to change depending upon
the interpretation of, and changes in, those rules. Some of these issues are discussed more fully below.

Consumer protection laws may make collection of credit card account balances more difficult or may expose us to the risk of
litigation.Any failure to comply with legal requirements by CB&T, as the primary issuer of our credit cards, or by us or CB&T, as the servicer of our credit card
accounts, could

23

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significantly
impair our ability to collect the full amount of the credit card account balances. Further, any such failure to comply with the law could expose us or CB&T to the risk of litigation
under state and federal consumer protection statutes, rules and regulations. Our operations and the operations of CB&T are regulated by federal, state and local government authorities and are subject
to various laws, rules and regulations, as well as judicial and administrative decisions imposing requirements and restrictions on our business. Due to the consumer-oriented nature of the credit
industry, there is a risk that we or other industry participants may be named as defendants in litigation involving alleged violations of federal and state laws and regulations, including consumer
protection laws. There is always a risk that new legislation or regulations could place additional requirements and restrictions on our business. However, this risk is amplified since our target
market consists almost entirely of "sub-prime" borrowers, and lawmakers and regulators have recently shown an interest in increasing the regulation of this segment in order to protect the
customers of and investors in sub-prime lenders. The institution of any litigation of this nature or any judgment against us or any other industry participant in any litigation of this
nature could adversely affect our business and financial condition in a variety of ways. For more information regarding consumer and debtor protection laws applicable to CB&T and us, see "Item 1.
BusinessConsumer and Debtor Protection Laws and Regulations."

Changes in law may increase our credit losses and administrative expenses, restrict the amount of interest and other charges imposed on
the credit card accounts or limit our ability to make changes to existing accounts.Numerous legislative and regulatory proposals are advanced each year which, if
adopted, could harm our profitability or limit the manner in which we conduct our activities. Changes in federal and state bankruptcy and debtor relief laws may increase our credit losses and
administrative expenses. More restrictive laws, rules and regulations may be adopted in the future which could make compliance more difficult or expensive, further restrict the amount of interest and
other charges we can impose on the credit card accounts we originate or market, target sub-prime lenders, limit our ability to make changes to the terms on existing accounts or otherwise
significantly harm our business.

Negative publicity may impair acceptance of our products.Critics of the credit card industry have in
the past focused on marketing practices that they claim encourage consumers to borrow more money than they should, as well as on pricing practices that they claim are either confusing or result in
prices that are too high. Increased criticism of the industry or criticism of us in the future could hurt customer acceptance of our products or lead to changes in the law or regulatory environment,
either of which would significantly harm our business.

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

We routinely explore various opportunities to grow our business, including the purchase of credit card receivable portfolios and other businesses.

There are a number of risks attendant to any acquisition, including the possibility that we will overvalue the assets to be purchased, that we will not be able to
successfully integrate the acquired business or assets, and that we will not be able to produce the expected level of profitability from the

24

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acquired
business or assets. As a result, the impact of any acquisition on our future performance may not be as favorable as expected and actually may be adverse.

Our
portfolio purchases may cause fluctuations in reported managed receivables data, which may reduce the usefulness of historical managed loan data in evaluating our business. Our
reported managed receivables data may fluctuate substantially from quarter to quarter as a result of recent and future portfolio acquisitions. As of December 31, 2002, portfolio acquisitions
account for 43% of our total portfolio.

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

Other Risks.

We also face a number of other uncertainties. These include:

The existence of the preferred stock could adversely impact holders of common stock.As of
March 15, 2003, the Series A Preferred Stock and Series B Preferred Stock in the aggregate could be converted into approximately 4.9 million shares of common stock, or
10.6% of the number of shares that would be outstanding immediately following conversion. Additionally, dividends on the Preferred Stock will generally be paid in additional shares of Preferred Stock
on a quarterly basis, which means that over time the holders of the Preferred Stock will be entitled to convert their shares into an even greater percentage of our Common Stock. For example, assuming
that no dividends are paid in cash, none of the stockholders exercise their conversion rights and the antidilution rights of the preferred stockholders are not triggered, then five years after
issuance (December 2006) the preferred stock could be converted into approximately 15.4% of the common stock outstanding at the time of issuance. In addition, the holders of the preferred stock
have the right to vote separately on various itemsincluding material corporate transactionsand may not vote in a manner beneficial to the interests of the common stock where
the interests of the two classes are different.

Unless we obtain a bank charter, we cannot issue credit cards other than through an agreement with a bank.Because we do not have a bank charter, we currently cannot issue credit cards other than through an agreement with a bank. We issue our credit cards under an agreement with CB&T. In
October 1998, we applied for a bank charter, but we withdrew the application in June 2001, because, given the failure of a significant sub-prime lender, we believed that it
would be difficult for us to charter a bank in the regulatory environment which existed at that time. However, we are open to obtaining a bank charter and are currently pursuing the acquisition of a
bank, but if we pursue these options it is likely our status as a sub-prime lender will have an adverse effect on our efforts. Unless we obtain a bank charter, we will continue to rely
upon CB&T to issue credit cards to our customers. If our agreement with CB&T were terminated or otherwise disrupted, there is a risk that we would not be able to enter into an agreement with an
alternate provider on terms that we consider favorable or in a timely manner without disruption of our business. Additionally, any bank we charter would be subject to the various state and federal
regulations and restrictions generally applicable to such institutions.

Because we outsource account-processing functions that are integral to our business, any disruption or termination of that outsourcing
relationship could harm our business.We outsource account and payment processing pursuant to agreements with CB&T and its affiliates. In 2002 we paid CB&T and its
affiliates approximately $40.0 million for these services. If these agreements were terminated or the

25

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services
provided to us otherwise disrupted, we would have to obtain these services from an alternative provider. There is a risk that we would not be able to enter into a similar agreement with an
alternate provider on terms that we consider favorable or in a timely manner without disruption of our business.

We rely on Visionary Systems, Inc. for software design and support, and any disruption of our relationship with Visionary Systems
would negatively impact our business.VSI is a privately owned designer of computer software and provider of processing and other computer services. Two of our
officers, Richard R. House, Jr. and Richard W. Gilbert, each indirectly own 13.0% of its stock. During 2002, we paid VSI approximately $11.2 million for software development, account
origination, consulting services, intellectual property and two patents. In the event that VSI no longer provides us with software and
support, our business would be negatively impacted until we retained replacement vendors. We believe that a number of vendors are qualified to perform the services performed by VSI and believe that
this impact would only be temporary.

If we obtain a bank charter, any changes in applicable state or federal laws could adversely affect our
business.In the future, we may apply for a bank charter. If we obtain a bank charter, we will be subject to the various state and federal regulations generally
applicable to similar institutions, including restrictions on the ability of the banking subsidiary to pay dividends to us. We are unable to predict the effect of any future changes of applicable
state and federal laws or regulations, but such changes could adversely affect the bank's business and operations.

In the event that our stock price does not increase, we may be required to pay the dividends on our preferred stock in
cash.The terms of the Series A Preferred Stock and Series B Preferred Stock initially permit us, at our election, to pay the required dividends in
either additional shares of preferred stock or in cash. However, commencing in September 2003, in the event that our stock price does not increase by 6% per quarter thereafter, the holders may
require that we pay dividends in cash. If we assume dividends are paid through increasing the redemption price (called the "accreted value") of the preferred stock until September 2003, the
cash dividends at that time would initially be approximately $1.2 million per quarter.

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

ITEM 2. PROPERTIES

Our principal executive offices, comprising approximately 137,000 square feet, and our operations centers and collection facilities, comprising approximately
237,000 square feet, are located in leased premises in Atlanta, Georgia; Monticello, Minnesota; St. Cloud, Minnesota; North Wilkesboro, North Carolina; and Salt Lake City, Utah. We believe that our
facilities are suitable to our business and that we will be able to lease or purchase additional facilities as our needs require.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in various legal proceedings that are incidental to the conduct of its business. The Company is not involved in any pending or threatened
legal proceedings which the Company believes could reasonably be expected to have a material adverse effect on the Company's financial condition or results of operations.

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

No matters were submitted to a vote of security holders during the quarter ended December 31, 2002.

26

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

Our common stock has traded on the Nasdaq National Market under the symbol "CCRT" since our initial public offering in April 1999. The following table sets
forth, for the periods indicated, the high and low sales prices per share of our common stock as reported on the Nasdaq National Market. As of March 3, 2003, there were approximately 481
holders of our common stock, not including persons whose stock is held in nominee or "street name" accounts through brokers.

2002

High

Low1st Quarter 2002

$
12.25

$
4.182nd Quarter 2002


8.68


5.503rd Quarter 2002


7.63


4.854th Quarter 2002


8.52


4.00


2001

High

Low1st Quarter 2001

$
25.88

$
6.532nd Quarter 2001


13.50


7.093rd Quarter 2001


15.39


5.854th Quarter 2001


11.78


5.67


The
closing price of our common stock on the Nasdaq National Market on March 3, 2003 was $5.70. We have never declared or paid cash dividends on our common stock and do not
anticipate paying a cash dividend on our common stock in the foreseeable future. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity, Funding and Capital Resources."

ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth, for the periods indicated, selected consolidated financial and other data for CompuCredit. You should read the selected
consolidated financial and other data below in conjunction with our consolidated financial statements and the related notes and with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Form 10-K. With the exception of the selected credit card data, we have derived the following selected financial data
from our consolidated financial statements for the year ended December 31, 2002, which have been audited by BDO Seidman, LLP, independent certified public accountants, and from our consolidated
financial statements for the years ended December 31, 2001, 2000, 1999 and 1998, all of which have been audited by Ernst & Young LLP, independent auditors. In April 2000, we
acquired Citadel Group, Inc. of Daytona Beach, Florida. The transaction was
accounted for as a pooling of interests. All amounts have been restated to reflect the financial position, results of operations and cash flows of the respective companies as though the companies were
combined for all periods presented.

In
August 1997, we began securitizing our credit card receivables. In each securitization, we receive cash, retain an interest in the receivables that are securitized, retain the
rights to receive cash in the future and retain the rights and obligations to service the accounts. Securitizations are treated as sales under generally accepted accounting principles in the United
States. As such, we remove the securitized receivables from our consolidated balance sheet. The performance of the underlying credit card receivables will affect the future cash flows we actually
receive. The information in the following table

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under
"Selected Credit Card Data" is presented for the credit card receivables that we have securitized and for the interests that we have acquired in credit card receivables that were securitized by
others.

|                                                                             |                               | Year Ended December 31, |         
|---------------------------------------------------------------------------- | ----------------------------- | ----------------------- | --------
|
|
|Statement of Operations Data:                                                |                               |                         |         
|Interest income                                                              |                               | $                       | 2,494   
|Interest expense                                                             |                               |                         | (7,579  
|                                                                             |                               |                         |         
|                                                                             | Net interest (expense) income |                         |         
|Securitization (loss) income                                                 |                               |                         | (18     
|(Loss) income from retained interests in credit card receivables securitized |                               |                         | (25,049 
|Servicing income                                                             |                               |                         | 37,772  
|Other credit card fee income                                                 |                               |                         | 95,877  
|Interchange fee income                                                       |                               |                         | 15,867  
|Ancillary product fee income                                                 |                               |                         | 14,846  
|Equity in income of equity method investee                                   |                               |                         | 45,717  
|Other operating expense                                                      |                               |                         | (170,895
|                                                                             |                               |                         |         
|                                                                             | Income before income taxes    |                         |         
|Income taxes                                                                 |                               |                         | (3,161  
|                                                                             |                               |                         |         
|Net income                                                                   |                               | $                       | 5,871   
|                                                                             |                               |                         |         
|Net income attributable to common shareholders                               |                               | $                       | 1,703   
|                                                                             |                               |                         |         
|Net income per diluted share                                                 |                               | $                       | 0.04    
|                                                                             |                               |                         |         

|                                                          |  | At December 31,
|--------------------------------------------------------- |  | ---------------
|
|
|Balance Sheet Data:                                       |  |                
|Retained interests in credit card receivables securitized |  | $              
|Total assets                                              |  |                
|Shareholders' equity                                      |  |                

|                                   |  | At or for the Year Ended December 31, |          
|---------------------------------- |  | ------------------------------------- | ---------
|
|
|Selected Credit Card Data:         |  |                                       |          
|Average managed receivables        |  | $                                     | 2,451,933
|Period-end managed receivables     |  | $                                     | 2,795,888
|Period-end managed accounts        |  |                                       | 3,562    
|Net interest margin                |  |                                       | 17.6     
|Operating ratio                    |  |                                       | 8.2      
|Combined gross charge off ratio(1) |  |                                       | 28.8     
|Net charge off ratio(1)            |  |                                       | 13.7     
|Adjusted charge off ratio(2)       |  |                                       | 11.1     
|Delinquency ratio                  |  |                                       | 13.9     

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The
following tables contain unaudited quarterly results for the years ended December 31, 2002, and 2001.

Selected Quarterly Financial Data

|                                                                             |  | At or for the Three Months Ended |       
|---------------------------------------------------------------------------- |  | -------------------------------- | ------
|
|
|
|Summary of operations:                                                       |  |                                  |       
|Net interest (expense) income                                                |  | $                                | (725  
|Securitization (loss) income, net                                            |  |                                  |      
|Income (loss) from retained interests in credit card receivables securitized |  |                                  | 8,462 
|Other operating income                                                       |  |                                  | 68,944
|Other operating expense                                                      |  |                                  | 49,328
|Income (loss) before income taxes                                            |  |                                  | 27,353
|Income taxes                                                                 |  |                                  | (9,573
|Net (loss) income                                                            |  | $                                | 17,780

|                  |  |   |      |  |   | At or for the Three Months Ended |  |   |       |  
|----------------- |  | - | ---- |  | - | -------------------------------- |  | - | ----- | -
|
|
|
|Per common share: |  |   |      |  |   |                                  |  |   |       |  
|Basic             |  | $ | 0.35 |  | $ | 0.43                             |  | $ | (0.80 | )
|Diluted           |  |   | 0.35 |  |   | 0.43                             |  |   | (0.80 | )

|                                                          |  | At or for the Three Months Ended
|--------------------------------------------------------- |  | --------------------------------
|
|
|
|Balance sheet data:                                       |  |                                 
|Retained interests in credit card receivables securitized |  | $                               
|Total assets                                              |  |                                 
|Shareholders' equity                                      |  |                                 

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During
the second quarter of 2002, net income decreased by approximately $38.2 million due primarily to (a) a decrease in our estimate of the fair value of our retained
interests in finance charge receivables of approximately $54.7 million based in part on proposed bank regulatory guidelines at the time which were subsequently issued in final form later in
2002, (b) a decrease in our estimate of accrued interest and fees earned but not billed of approximately $12.0 million to better estimate the collectible portion of these fees also based
in part on the aforementioned bank regulatory guidelines, partially offset by (c) an approximately $22.8 million increase in the fair value of our retained interest due to a decrease of
our residual cash flows discount rate to 22.5%.

During
the fourth quarter of 2001, our net income decreased by approximately $48.1 million due to a decrease in securitization income of approximately $10.0 million and a
decrease in income from retained interests in credit card receivables securitized of approximately $63.7 million. The decrease in the securitization income (loss) resulted from selling
approximately $36.3 million of our retained interests in
credit card receivables securitized for net proceeds of approximately $26.7 million during the fourth quarter of 2001. As a result of these transactions, we recognized a loss of approximately
$49.7 million when we revalued our retained interests with the discount rate assumption implicit within these fourth quarter 2001 transactions. The loss associated with the change in fair
market value of our retained interests was recorded in income (loss) from retained interests in credit card receivables securitized. Other than these fourth quarter of 2001 transactions, we have not
sold at a discount any of our retained interests in credit card receivables securitized.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with "Item 6. Selected Financial Data" and our consolidated financial statements
and the related notes included herein.

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 this Annual Report
on Form 10-K and other factors discussed in this section, there are risks that our actual experience will differ materially from the expectations and beliefs reflected in the
forward-looking statements in this section. See "Cautionary Notice Regarding Forward-Looking Statements."

General

CompuCredit is a credit card company that originates and purchases receivables and markets products and services to its customers for which it earns commissions
from the providers of such products and services, and to a limited extent certain fee payments directly from its customers. We market unsecured Visa and MasterCard credit cards through direct mail and
telemarketing and to a limited degree television and the internet.

Our
revenues primarily consist of (1) securitization income, (2) income from our retained interests in credit card receivables securitized, (3) servicing income,
(4) other credit card fee income, (5) interchange fees, (6) ancillary product revenue and (7) equity in the income of our equity method investee.

Securitization
income is gain or loss we recognize at the time of each sale of our credit card receivables. Income or loss from retained interests in credit card receivables securitized
is the income or loss we recognize from credit card receivables that have been securitized. See the "Off Balance Sheet Arrangements" and "Results of Operations" sections for additional information.
Servicing income consists of the gross fees we receive for servicing the various portfolios of credit card receivables. Other credit card fee income includes annual fees, over-limit fees,
cash advance fees, other

30

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fees
assessed to our cardholders and recovery revenue. Interchange fees are the portions of the merchant fees assessed by Visa and MasterCard that are passed on to us and are a function of the
purchase volume of our cardholders. Ancillary product revenue consists of the commissions we earn from our sales on behalf of various providers of products and services of certain
fee-based products and to a limited extent certain fees that we receive directly from customers associated with the sale of various fee-based products. These
fee-based products include various memberships, insurance, subscription and other products. Equity in the income of our equity method investee is our portion of our equity method
investment in CSG discussed below.

Our
primary operating costs include the costs of funding our receivables, credit losses and other operating expenses, such as employee compensation, account solicitation and marketing
expenses, data processing, servicing expenses and income taxes.

We
originate the receivables in our originated portfolio through the use of our target marketing system and direct mail, telemarketing, internet and television campaigns to obtain our
customers. We also add accounts by purchasingeither by ourselves or with entities formed through our partnership with othersboth credit card receivables portfolios and
retained interests in credit card receivables portfolios that have been previously securitized by others. With the exception of receivables purchased or originated through accounts added in portfolio
acquisitions, the size of our receivables depend in part on the timing, size and success of our marketing campaigns. During periods of reduced marketing, which we experienced in 2002 and expect to
continue to experience throughout 2003 and until we see more favorable advance rates for our securitizations in the asset backed securities markets, our originated receivables portfolio may not grow
and may decline. We continue to evaluate opportunities to purchase portfolios because we believe they may provide an attractive return on our investment and because we believe that we may be able to
obtain liquidity to fund these activities under terms that are favorable toward these acquisitions.

During
the second quarter of 2002, we purchased a 50% interest in CSG. CSG was formed during the second quarter of 2002 by affiliates of Goldman, Sachs & Co. and Salomon Smith
Barney and one of our wholly owned subsidiaries. CSG was formed to acquire notes and a certificated interest issued by a trust ("CSG Trust"). Equity in the income of our equity method investee is 50%
of CSG's income or loss, before income taxes. See the "Results of Operations" and "Other Operating Income" sections for additional information on these revenues. We agreed to service the entire
portfolio of credit card receivables underlying the CSG Trust. In exchange for our servicing, we receive a fee. In our "Selected Credit Card Data" section, we include information relating to the
receivables underlying our
securitizations. Beginning with the second quarter of 2002, our data reflects the credit card receivables underlying our securitizations, as well as 50% of the managed receivables underlying the CSG
Trust (which reflects our 50% interest in CSG).

In
July 2002, we acquired from Federated the retained interests in a trust (the "Fingerhut Trust") that then owned approximately $1.0 billion in face amount of receivables.
The receivables included in the Fingerhut Trust are private label revolving credit cards used to purchase items from the Fingerhut catalog. This portfolio will decrease in size over time because
payments from cardholders are expected to be significantly greater than purchases being made by cardholders. We also hired approximately 830 employees from Federated to service the receivables in the
Fingerhut Trust. We assumed a servicing liability in the Federated transaction because the contractual servicing fee we receive from the Fingerhut Trust is less than adequate compensation for
servicing the receivables. Our servicing liabilities, as well as why we accept servicing revenues less than our anticipated servicing costs, are more fully described in our "Off Balance Sheet
Arrangements" section below.

During
the third quarter of 2002, we extended our Affinity Card Agreement with CB&T, the subsidiary of Synovus Financial Corporation that provides for the issuance of our originated
credit cards. This agreement was extended from December 2003 to March 2006.

31

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Our
income is dependent upon the size and the quality of the credit card receivables underlying our securitizations. During 2002, we added approximately 545,000 gross new accounts within
our originated portfolio. Additionally, with the acquisition of the retained interests from Federated and our investment in CSG, the managed receivables underlying our securitizations and our 50%
share of the CSG securitizations increased by approximately $0.9 billion. The receivables within the Fingerhut Trust, in particular, are expected to decline very rapidly. If we do not increase
the growth of our portfolio either by originating more accounts or by acquiring additional portfolios, our income from retained interests in future quarters will likely decrease relative to that
experienced in 2002.

Depending
on relative competitive, market, and liquidity environments for portfolio acquisition versus origination, we may use either or both of these methods of account growth to
varying degrees. We believe that the current competitive, market, and liquidity environments favor growth through acquisition, rather than origination, for our entire underserved customer base, except
for those consumers at the lower end of the FICO scoring system. As such, we plan to grow during 2003 through acquisition, rather than origination, for all of those segments of our underserved market
except for a segment of consumers at the lower end of the FICO scoring system to which we plan to offer a largely fee-based card product during 2003.

Off Balance Sheet Arrangements

We contract with banksprimarily CB&Tto originate Visa and MasterCard revolving credit card accounts under agreements with us. On a daily
basis, the banks sell us an interest in the receivables created that day in these accounts. Each day, upon our acquisition of that day's receivables, we in turn sell our interest in the receivables to
trusts or to multi-seller commercial paper conduits administered by national banking institutions. The trusts or conduits issue notes to investors in order to obtain the cash to pay us for the
receivables.

After
an initial purchase of notes by the investors, there is usually a period during which collections from the receivables are used to purchase new receivables. This is referred to as
a revolving period. The revolving period typically begins on the issuance date of any particular series of notes and ends at the beginning of an amortization period. At the end of the revolving
period, the investment of collections in new receivables ends, and collections are instead used to repay the investors. The period during which investors are being repaid is referred to as an
amortization period. The revolving periods have coincided with the maturity dates for each of our 364 day commercial paper conduit series or are no less than two years for our series placed
with other investors. The maturity date for each series is included in our "Liquidity, Funding and Capital Resources" section.

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. The cash flows are then distributed in accordance with the
securitization documents. Cash is distributed to us as servicer for our servicing fee, to the investors as interest on their outstanding notes, to or for the benefit of the investors to repay any
portion of their outstanding notes that become due and payable and to us as the seller to fund new purchases. Any collections from cardholders remaining each month after making the payments noted
above are paid to us on our retained interests.

In
each securitization transaction, we retain the risk of compliance with federal and state laws and regulations regarding the securitized accounts and any fraudulent activity with
regard to the accounts. The fraud for which we are responsible includes the unauthorized use of the credit cards, including identity theft or purchases on lost or stolen cards or account numbers. We
expense these fraud losses in other operating expense. To date, we have experienced very little fraud for unauthorized use of the credit cards, and the total expense has annually averaged below 0.20%
of average managed receivables.

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The
investors in the securitizations require us to provide credit support for the receivables to reduce the risk of loss to the investors resulting from cardholders not repaying their
credit card balances when
due. We negotiate with each investor the amount of the credit support, which is based on historical and expected delinquency and loss experience on the receivables. The credit support is usually in
the form of over-collateralization, which means that we sell the receivables for cash and a subordinated retained interest. Because the retained interest is subordinate to the investors'
investment, the investors get excess collateral for their cash purchase price. As a result, the receivables available to repay the investors exceed the total amount of the investors' interests in the
receivables. This excess is the retained interest that we own, which is also referred to as a subordinated interest, or a seller's interest. These retained interests represent the difference in the
cash we receive from the investors when we sell our originated receivables in our securitizations and the cash we paid to initially purchase the receivables. Increases in retained interests are a use
of our cash. During July 2002, we acquired retained interests in the Fingerhut Trust; these retained interests are carried at the lower of amortized cost or fair market value. Expected cash
flows in excess of the cost of the purchased retained interests are being amortized into income from retained interests using the effective interest method. The carrying amount of the retained
interests we purchase from third parties is included in our "retained interest in credit card receivables securitized" on our consolidated balance sheet.

The
investors in the securitized receivables have no recourse against us for the cardholders' failure to pay their credit card balances; however, substantially all of our retained
interests are subordinated to the investors' interests until the investors have been fully repaid. This means that our retained interests will absorb any losses due to cardholders' failure to repay
their balances first before investors in the securitizations have to absorb these losses. In addition, if the receivables within the trusts were to perform poorly, our ability to securitize
receivables in the future could be adversely impacted.

We
will receive additional cash from the securitized receivables if collections from the receivables exceed required interest and principal payments to the investors. The collections
from the receivables depend on the performance of the receivables, which includes the timing and amount of payments on the receivables, the interest, fees and other charges paid on the receivables,
and their delinquency and loss rates.

Our
securitizations are treated as sales under generally accepted accounting principles in the United States ("GAAP"). As such, we remove the securitized receivables from our
consolidated balance sheets. As noted above, we own a retained interest in the pool of assets included in each securitization, with the right to receive collections allocated to such retained interest
after payments to investors are made. These amounts are recorded as income from retained interests in credit card receivables securitized. Because quoted market prices are generally not available for
the retained interests arising from securitizations of our originated portfolio, the fair values of our retained interests in our originated portfolio's receivables are based on the estimated present
value of the future cash flows using management's best estimates of key assumptions and the estimated collectible portion of finance charge receivables. We also recognize an
"interest-only" ("I/O") strip, which is the present value of the projected excess cash flows the receivables will produce during their life. The excess cash flow is the excess of the
finance charges and late fees generated by the securitized receivables over related credit losses, interest paid to investors, servicing costs and other expenses. The I/O strip is included in
"retained interests in credit card receivables securitized" on our consolidated balance sheet.

As
noted above, the 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 cost of the purchased retained interests are being amortized into income from retained interests using the effective interest method.

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"Amounts
due from securitization" on our consolidated balance sheets include payments recently received by the securitization structure with respect to the securitized receivables that
are still held by the structure but are payable to us within the next 30 days.

Our
securitizations are accounted for in accordance with Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("Statement No. 140"), and, prior to April 1, 2001, were accounted for under Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("Statement No. 125"). Under these statements, gains or losses are recognized at the time of each sale and are
recorded as securitization income or loss in our consolidated statements of operations. The gains or losses recognized on the sales of credit card receivables depend in part on the previous carrying
amount of the financial assets sold as well as the fair value of the financial assets and cash proceeds received.

We
believe our securitizations satisfy the conditions of Statement No. 140 for sale accounting because each trust, as the issuer, is a qualified special purpose entity ("QSPE").
The activities of each trust are limited to (1) acquiring, owning and managing its assets and the proceeds of those assets; (2) issuing and making payments on notes; and
(3) engaging in related activities. In addition, each holder of a beneficial interest in the notes has the right to pledge or exchange its beneficial interest. Finally, we, as the transferor,
transfer the receivables to each trust or to a third party conduit, and we do not maintain control over the receivables.

The
securitization transactions do not affect the relationship we have with our customers, and we continue to service the credit card receivables. We either perform the servicing or
contract with third party service providers. The fees we receive to service credit cards are included in our servicing income and are discussed in our "Results of OperationsOther
Operating Income" section. In cases where we do not receive adequate compensation for servicing the credit cards, we have recognized a servicing liability for the projected servicing costs that exceed
our projected servicing revenue. See our "Results of OperationsNet Securitization (Loss) Income and (Loss) Income from Retained Interests in Credit Card Receivables Securitized" section
for the assumptions used and the servicing liability amounts. The amount of servicing revenue we receive is dictated by the trust agreements in our securitizations. We accept servicing revenue that is
less than the anticipated servicing costs because during the revolving period, we receive all of the excess cash flows from the securitizations; these excess cash flows represent collections on the
receivables in excess of the interest
paid to the investors, the servicing fees paid to us as servicer, and required amortization payments. Because we receive the residual or excess cash flows during the revolving period, the total cash
we expect to receive, inclusive of both the servicing revenue as well as the excess cash flows, is expected to more than cover our servicing costs.

The
table below summarizes our securitization activity:

For the year ended
December 31,2002

2001(In thousands)Gross amount of receivables securitized at year end(1)

$
2,334,939

$
1,891,842Excess cash flows received on retained interests


311,423


202,350Pretax securitization loss


(18
)

(8,400
)Proceeds from collections reinvested in revolving-period securitizations


1,123,938


1,208,413(Loss) income from retained interests in credit card receivables securitized


(25,049
)

11,328




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The
gross amount of receivables securitized increased from December 31, 2001, to December 31, 2002, due to the receivables underlying the Fingerhut Trust.
Proceeds from collections reinvested in revolving-period securitizations decreased during that same time period due to reduced growth in our originated portfolio. Also during this time period, excess
cash flows received on retained interests increased due to the cash flows generated from the retained interests in the Fingerhut Trust. Our pretax securitization income is recognized when the
receivables are securitized. Net securitization loss was approximately $18,000 for the year ended December 31, 2002, compared to net securitization loss of $8.4 million for the year
ended December 31, 2001. The decrease in securitization loss in 2002 was due primarily to sales of retained interests at a loss during the fourth quarter of 2001. During the fourth quarter of
2001, we sold approximately $36.3 million of our retained interest in credit card receivables securitized for net proceeds of approximately $26.7 million. The $9.6 million
difference was a loss and was included in our securitization loss for 2001. Prior to the fourth quarter 2001, and subsequent to the fourth quarter of 2001, we had not and have not sold at a discount
to face value any retained interests in credit card receivables securitized.

The
trusts or the conduits in our securitization structures purchase receivables from us by raising proceeds from investors. The proceeds raised are included within the series of notes
issued by the trusts or issued by the conduits. The proceeds from the investors are then remitted to us as part of the trusts' or conduits' purchase price of the receivables. We had the following
total commitments and outstanding notes in our securitizations for each year presented excluding the structurally subordinate series:

For the year ended December 31,2002

2001

2000(In millions)Total commitments from investors

$
2,259

$
2,046

$
1,847Total outstanding amounts


1,673


1,524


1,229


The
maturities of these notes range from April 2003 to July 2004, and are more fully detailed in the "Liquidity, Funding and Capital Resources" section. We try to structure
our securitization funding
sources by having commitments in excess of our current growth plans so that we have investors who will purchase notes from the trusts, which in turn allows the trusts to purchase receivables from us.
We believe we have structured our securitization program to reduce our reliance on any one series of notes by staggering the maturity dates of the notes (assuming, of course, that prior to the
maturity of any one series of notes that such series can be replaced with a series structurally subordinate to the series that is nearing maturity).

The
payment terms of each securitization structure are negotiated with investors. Some facilities enter into accumulation periods at pre-determined dates prior to their
maturity. During an accumulation period, a portion of cash collected from the cardholders is required to be accumulated in an account for the benefit of the facility and is not available to us to fund
new purchases.

In
our securitization structure associated with the portfolios we purchased in 1998, each month a portion of the cash collected from the cardholders is paid to the investors to decrease
their remaining invested amount. The amount paid to the investors to decrease their invested amount totaled $47.1 million for the year ended December 31, 2002, and $45.1 million
for the year ended December 31, 2001. Under the current terms of the securitization, the amount paid to the investors to reduce their invested amount equals 100% of the cash collected less
servicing fees paid to CompuCredit and less interest charges on the invested amount. CompuCredit is responsible for financing any new purchases. For the year ended December 31, 2002,
CompuCredit was required to finance $0.3 million in purchases. For the year ended December 31, 2001, CompuCredit was not required to finance any purchases. As of December 31,
2002, the total due to the investors in the securitization structure associated with the portfolios that were purchased in 1998 was approximately $49.1 million and the retained interest was
$14.3 million. As of December 31, 2001, the total due to the

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investors
in the securitization structure was approximately $96.2 million and the retained interest was $19.1 million.

The excess cash from the securitization structure associated with the Fingerhut Trust retained interests we purchased in 2002 was $128.9 million during 2002. As of
December 31, 2002, the total due to the investors in the securitization structure associated with the purchased Fingerhut Trust retained interest was approximately $360.1 million, the
gross retained interests were carried at $21.1 million and the servicing liability was carried at $66.9 million. The amortization of the servicing liability associated with this
securitization structure was $28.9 million for 2002. The timing of the amortization of the servicing liability will not be affected by the occurrence in March 2003 of the minimum
principal balance early amortization trigger within the Fingerhut Trust.

Once
the investors in each of our securitization structures are repaid, all cash collected on any remaining receivables is payable to us. We detail the maturity dates and describe our
facilities and amounts being used to repay investors in the "Liquidity, Funding and Capital Resources" section.

We
include in our consolidated financial statements all of our wholly owned subsidiaries. However, in accordance with Statement No. 140, we do not consolidate any of the trusts,
all of which are QSPEs. We are required to service the receivables that have been sold. We also perform the administrative functions for the trusts, including preparing daily and monthly reports
relating to the receivables. We do this pursuant to an administration agreement between the trustees of the trusts and us.

Our
securitization documents require us, as servicer of the receivables, to covenant that we will maintain an acceptable ratio of tangible net worth to total managed receivables or that
we will not default in the payment of material indebtedness or reduce the periodic finance charges assessed on the receivables below agreed upon levels. We have also agreed to service the receivables
in accordance with our servicing policies and procedures. In addition to the above, there are events described in our agreements that may trigger an early redemption, which would cause substantially
all collections on the receivables to go to the investors to pay the principal on the notes. This would largely delay the payment of cash to us with respect to our seller's interests until the
investors' notes were paid in full. These events include our failure as servicer to remit the collections that we receive from cardholders to the appropriate securitization accounts within the
required time frames, our failure to provide reports regarding the activity in the accounts within required time frames, or a breach of our representations and warranties. These events also include
financial performance measures on the underlying receivables. As servicer of the accounts, we do not covenant or make any representation or warranty regarding the collectibility of the receivables in
the accounts.

Our
securitization documents require us, as the seller of the receivables, to make representations and warranties relating to the validity and the enforceability of the agreements
pursuant to which the receivables were created. We also make other standard representations and warranties including our ability to enter into the agreements and the accuracy of the information
provided by us to investors. If we breach any of these representations, we may not be able to sell additional receivables into our securitization structures, and we may cause an early redemption
event. As seller of the receivables, we do not make any representation or warranty regarding the collectibility of the receivables in the accounts.

As
of December 31, 2002, we have not breached any representations or warranties or otherwise caused an early redemption event, and the underlying performance of the receivables
has not caused an early redemption event in any of our securitizations. However, during the first quarter of 2003, and in line with our expectations at the time of our acquisition and projections upon
which we based our purchase price for the Fingerhut Trust retained interests, Fingerhut Trust Series 1998-2 triggered an early amortization as a result of the principal balance of
receivables in the trust falling below the minimum balance required by the series.

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Results of Operations

Year Ended December 31, 2002, Compared to Year Ended December 31, 2001

Net income for the year ended December 31, 2002 was $5.9 million, an increase of $3.0 million from net income of $2.9 million for the
year ended December 31, 2001. Net income attributable to common shareholders for the year ended December 31, 2002, was $1.7 million, or $0.04 per diluted share, compared to net
income attributable to common shareholders of $2.7 million, or $0.06 per diluted share for the year ended December 31, 2001. The increase in our net income was principally due to our
equity method-investee, the Federated acquisition and the change in our residual cash flow discount rate. These effects were partially offset, however, by (a) decreases during the second
quarter of 2002 in our estimates of both the fair value of our retained interests in finance charge receivables ($41.2 million net of tax, or $0.89 per share) and accrued interest and fees
earned but not billed ($8.2 million net of tax, or $0.18 per share), and (b) the seasoning during 2002 of the receivables underlying our securitizations, which resulted in a larger
percentage of our receivables portfolio aging into the second and third year of their lives. As the receivables age through their peak charge-off period, as described below, they produce
less income. The reduction in net income attributable to common shareholders in 2002 versus 2001 reflects the higher 2002 costs of dividends paid on our preferred stock; our preferred stock was
outstanding during the entire 2002 year versus less than one month during 2001.

During
2002, as in prior years, we securitized all of our receivables, but nevertheless experienced income that was dependent upon the performance of the receivables underlying the
securitizations. During 2002, our managed receivables grew approximately 47% from $1.9 billion as of December 31, 2001, to $2.8 billion as of December 31, 2002. The
$2.8 billion managed receivables balance as of December 31, 2002, includes our 50% share of the managed receivables of CSG.

In
connection with both the CSG investment and the Federated acquisition, we agreed to service 100% of the receivables underlying their respective securitizations. We receive servicing
fees, which increased our servicing income to $37.8 million during the 2002, as compared to $6.0 million during 2001. Because we are servicing these assets, our credit card servicing
expense increased from $62.4 million in 2001 to $94.0 million in 2002. Additionally, we recorded approximately $45.7 million of pretax income during the year ended
December 31, 2002, under the equity method of accounting for our CSG investment. This income primarily consisted of income from retained interests in credit card receivables securitized that
CSG acquired in the second quarter of 2002 from the CSG Trust.

We
had a loss from retained interests in credit card receivables securitized during 2002 of $25.0 million, compared to 2001 income from retained interests of $11.3 million.
This change resulted principally from an approximate $76.0 million decrease during 2002 of our estimate of the fair value of our retained interests in finance charge receivables and accrued
interest and fees. Prior to the second quarter of 2002, we estimated the fair value of our retained interests in finance charge receivables and accrued interest and fees using our estimates of total
finance charges billed and earned but not yet billed to cardholders. Our new estimates better reflect our expectation of just the collectible portion of these finance charges. We believe our change in
estimate was preferable as it more accurately reflects the cash we expect to receive in the future from cardholders with respect to these fees. We made this change in our estimate during the second
quarter based in part on proposed regulatory guidelines, which affect many other companies in the credit card industry and which were issued in final form during the latter half of 2002. Although we
are not a bank and are not directly regulated by any financial regulator, we believe other credit card companies either have or will be adopting this change in estimate in response to the new
regulatory guidance.

Our
income from retained interests also decreased during 2002 as compared to 2001 due to a reduction in the profitability of the originated credit card receivables underlying our
retained interests. This resulted from an increase in the charge offs of the receivables, which is due to a larger percentage

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of
our originated receivables aging through the second and third years of their life, as well as generally poor economic conditions and the effects of these conditions on the ability of our customers
to make their required payments. When credit card receivables are first originated, we expect them to have low charge off rates in their first twelve months. The charge off levels are then expected to
dramatically increase during year two and then moderate in year three and beyond. We have observed this trend in our originated portfolio but have noticed our charge offs have not moderated as quickly
as expected, primarily due to the generally poor economic conditions that have existed since the end of 2001. For 2002, we incurred combined gross charge offs on our originated portfolio of
$529.8 million, as compared to $388.9 million during 2001; for further detailed discussion of our charge off data and the credit quality of our originated portfolio, see the "Selected
Credit Card Data" section.

The
above decreases in our income from retained interests were partially offset by (a) an approximate $22.8 million increase in our retained interests due to the reduction
of our residual cash flows discount rate from 34.9% as of December 31, 2001, to 22.5% during the second quarter of 2002 and throughout the remainder of the 2002 year, and
(b) income from the retained interests in the Fingerhut Trust we acquired during July 2002.

The
largest component of our income comes from the profit generated from the credit card receivables underlying our securitizations. Growth in managed receivables cannot be predicted
with certainty. In general, it is a product of our marketing, portfolio acquisitions and other strategic efforts. In general, our growth is a product of (1) the growth in the number of
accounts, and (2) the amount of usageor balanceson the accounts. Our growth also is dependent upon a number of factors that we are not able to control, such as levels
of consumer spending, competition
and general economic conditions. Growth in the number of accounts is a product of several factors, primarily the level of our marketing efforts, our competition, the general economy and our portfolio
acquisition efforts. Our marketing and solicitation expenses decreased to $11.9 million for 2002 from $29.9 million for 2001, and we expect a decrease in marketing expense in 2003
compared to 2002. We decreased our marketing in 2002 and have decreased our marketing budget for 2003 because we believe that, while we should have access to liquidity for our origination activities,
the advance rates and other terms underlying this available liquidity do not allow us to earn our, and our shareholders' desired returns on equity. We have chosen to focus our 2003 growth efforts on
portfolio acquisition, rather than marketing and origination activities for our traditional underserved market. We do anticipate some marketing efforts and originations, however, during 2003, pursuant
to our efforts to move down to the lower end of the FICO scoring system with more of a fee-based card product in 2003.

Year Ended December 31, 2001, Compared to Year Ended December 31, 2000

Net income for the year ended December 31, 2001, was $2.9 million, or $0.06 per diluted share, a decrease of $79.5 million from net income of
$82.4 million for the year ended December 31, 2000. The decrease was principally due to a $9.6 million loss on the sale of two retained interests during our fourth quarter of 2001
and a reduction in the fair market value of our retained interests in the fourth quarter of $49.7 million. The decrease in our income was also due to the seasoning of the receivables underlying
our securitizations, as the average growth rate during 2001 decreased as compared to 2000, resulting in a larger percentage of our receivables portfolio being more than twelve months old during 2001.
When receivables age through their peak charge-off period they produce less income. Receivables generated in accounts that are new typically will have much lower charge offs over the next
twelve months or so than receivables generated in accounts that are between one and two years old. We generally expect charge off levels to dramatically increase during year two and then moderate in
year three and beyond. While we have noticed this general trend within our originated portfolio and believe in this trend line in moderate to good economic environments, our charge offs have not
moderated as quickly as expected primarily due to the generally poor economic conditions that have existed since the

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end
of 2001 and the effects of these conditions on the ability of our cardholders to make their required payments.

During
2001, as in prior years, we securitized all of our receivables; however, our income for 2001 was dependent upon the performance of the receivables underlying the securitizations.
During 2001, our managed receivables grew approximately 24% from $1.5 billion at December 31, 2000, to $1.9 billion at December 31, 2001. This growth rate was substantially
less than the growth rate we experienced during 2000 of 67%.

Our
receivables growth rate decreased from 2000 to 2001 because we added fewer accounts. During 2001, our net charge off rate increased and our net interest margin decreased because a
larger percentage of the accountsmany of which were added during 1999 and 2000 growth
periodsseasoned to an age of greater than twelve months. When credit card receivables are first originated, they tend to have artificially low charge off rates in their first twelve
months. Receivables generated in accounts that are new typically will have much lower charge offs over the next twelve months or so than receivables generated in accounts that are between one and two
years old. We further describe the receivables portfolio in "Selected Credit Card Data," including further discussion of the asset quality of the receivables. Because our income is dependent upon the
performance of the receivables underlying our securitizations, the reduction in our growth rate in receivables during 2001, as compared to 2000, resulted in a reduction in our income for 2001 as
compared to 2000.

During
the fourth quarter of 2001, we sold approximately $36.3 million of our retained interests in credit card receivables securitized for net proceeds of approximately
$26.7 million. Approximately $27.0 million of our retained interests sold were to a related party, which is more fully described in "Item 13. Relationships and Related Transactions." The
$9.6 million difference is a loss on sale under the provisions of Statement No. 140 and is included in our securitization loss for 2001. We sold the retained interests to raise
additional liquidity without selling additional common stock at what we believed was a low price. The retained interests were sold at a discount because the stated interest rates on the interests were
less than the interest rate required by investors in the marketplace. The first retained interest that we sold at a discount had a stated interest rate of LIBOR +7.5%, while the investor required a
total return of 22%. The second retained interest that we sold had a stated interest rate of 15%, while the investor required a total return of 35%. We believe the pricing was a function of the
uncertainty in the economy resulting from a general economic slowdown and from events that took place on September 11, 2001. We also believe the pricing was a function of uncertainty in the
liquidity markets and issues surrounding other credit card issuers such as NextCard and Providian, both of which were having financial difficulties at the time we accessed the capital markets. The
investor that required the 35% return also purchased Series A Preferred Stock from us. Prior to the fourth quarter of 2001, we had not previously sold at a discount to face value any retained
interests in credit card receivables securitized.

Income
from retained interests in credit card receivables securitized decreased to $11.3 million in 2001, versus $113.9 million in 2000, due primarily to a decrease in the
fair market value of our retained interests in credit card receivables securitized at December 31, 2001. Additionally, the income earned on the retained interest during 2001 was less than the
income earned during 2000 due primarily to an increase in the combined gross charge off rates on our securitized receivables. See our discussion under "Net Securitization Income (Loss) and Income from
Retained Interests in Credit Card Receivables Securitized."

The
fair market value of our retained interests in credit card receivables securitized decreased at December 31, 2001, due primarily to a substantial increase in the market
interest rate (or discount rate) used to discount the associated cash flows and an increase in the net charge off rate used in valuing our retained interests. The discount rate increased to 34.9% at
December 31, 2001, from 16.7% at December 31, 2000, and the charge off rate increased to 16.7% at December 31, 2001, from 10.9%

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at
December 31, 2000. The increase in the market interest rate reflects the interest rate implicit in sales of retained interests that occurred during the fourth quarter of 2001. We sold a
retained interest in November 2001 with a total return to the investor of 22% and a retained interest in December 2001 with a total return to the investor of 35%.

The
largest component of our income is derived from profit generated from the managed receivables underlying our securitizations. The components of our income that the managed
receivables impact are securitization income, income from retained interests in credit card receivables securitized, servicing income, other credit card fees and interchange fees. These items are more
fully discussed below in this MD&A. Growth in managed receivables cannot be predicted with certainty, but, in general, is a product of (1) the growth in the number of accounts, and
(2) the amount of usageor balances on the accounts. Overall, our managed receivables grew from $0.9 billion in 1999, to $1.5 billion in 2000 (a 67% growth rate), to
$1.9 billion in 2001 (a 27% growth rate). At the same time, the number of accounts grew from 1.18 million in 1999, to 2.18 million in 2000 (84.4%), to 2.19 million in 2001
(0.3%). During the third quarter of 2001, we closed 182,000 inactive accounts, which reduced our ending accounts at the end of 2001.

Growth
in the number of accounts is a product of several factors, primarily the level of our marketing efforts, our competition and the general economy. Our marketing and solicitation
expenses increased from $33.2 million in 1999 to $59.5 million in 2000, and declined to $29.9 million in 2001. We decreased our marketing in 2001 because we believed that
(1) the profitability of the accounts that we could add given the economic circumstances of late 2001 did not justify the marketing expense, and (2) we had limited access to liquidity
and we did not want our portfolio to grow beyond what we could fund.

During
2001, our competition also was active. We faced intense competition, and we believe that the drop in the usage of our credit cards during 2000 and 2001 was due in part to
increased competition from other credit card companies during the same period, including Metris, Providian, NextCard and Capital One. Although we cannot measure the impact of competitors to our
business specifically, we believe that many of our competitors were offering lower fees during 2000 and 2001 for their credit card products and were possibly offering larger credit lines on their
credit card products. We also believe that our competitors may have been offering teaser rates to induce cardholders to accept and use their products.

During
2001, we believe that the average usage of accounts also declined due to both general economic and, particularly after September 11, broader uncertainty. A decrease in the
usage of the accounts directly impacts the amount of outstanding receivables, and therefore, our income.

Other
operating income, excluding securitization income and income from retained interests in credit card receivables securitized, increased to $148.9 million for the year ended
December 31, 2001, from $109.2 million for the year ended December 31, 2000. This increase is due primarily to the increase in other credit card fees. Our interchange income and
our income from ancillary products did not materially change from 2000.

Net Interest Income and Interest Expense

Net interest income consists of interest income earned on cash and cash equivalents less interest expense. Net interest expense was $5.1 million for the
year ended December 31, 2002, compared to net interest income of $2.0 million for the year ended December 31, 2001, and $7.1 million for the year ended December 31,
2000. The decrease in net interest income of $7.1 million during 2002 is due primarily to interest expense associated with the debt used to purchase our ownership interest in CSG and to acquire
the retained interest of the Fingerhut Trust. Both of these loans were paid off during 2002. However, as part of the loan to acquire our interest in CSG, the lender is entitled to receive a portion of
excess cash flows received by the Company from CSG. These payments are classified as

40

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interest
expense. As such, we anticipate interest expense increasing during the first six months of 2003 and then decreasing the last six months of 2003. The $5.1 million decrease in net
interest income between 2000 and 2001 is attributable to (a) the usage during 2000 and 2001 of the cash proceeds we received from our first quarter 2000 follow-on public offering,
and (b) increased 2001 interest expense associated with amounts outstanding under our revolving credit facility during that year.

During
2001, we utilized our $25.0 million, one-year, revolving credit facility. As of December 2001, $15.0 million was outstanding under this facility
and $10.0 million was reserved for a letter of credit in favor of a third party servicer. The revolving credit facility expired in January 2002 and was paid in full.

Net Securitization (Loss) Income and (Loss) Income from Retained Interests in Credit Card Receivables Securitized

Retained interests in credit card receivables securitized are valued in accordance with the provisions of Statement No. 140 and EITF 99-20.
Retained interests accounted for under Statement No. 140 are subsequently accounted for as trading securities and reported at estimated fair market value in accordance with Financial Accounting
Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("Statement No. 115"). See "Off Balance Sheet Arrangements."

Net
securitization (loss) income is recognized under Statement No. 140 at the time the receivables are securitized. 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. In a sale, we receive cash, retain an interest in the receivables sold (our
retained interest) and retain rights to receive cash in the future (the I/O strip). Net securitization loss for the year ended December 31, 2002, was $18,000 compared to net securitization loss
of $8.4 million as of December 31, 2001, compared to net securitization income of $11.8 million for the year ended December 31, 2000. The decrease in securitization loss in
2002 was due primarily to sales of retained interests at a loss during the fourth quarter of 2001. During the fourth quarter of 2001, we sold approximately $36.3 million of our retained
interest in credit card receivables securitized for net proceeds of approximately $26.7 million. The $9.6 million difference was a loss and was included in our securitization loss for
2001. Other than these fourth quarter of 2001 transactions, we have not sold at a discount any retained interests in credit card receivables securitized. The securitization loss in 2001 as compared to
securitization income in 2000 is due primarily to the fourth quarter 2001 sales of the retained interests as described above.

Loss (income) 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 No. 115 as follows:

2002

2001

2000(Loss) income from retained interests in credit
card receivables securitized (in millions):Originated portfolio

$
(100.0
)
$
(5.0
)
$
85.5Purchased portfolio (1)


75.0


16.3


28.4Total

$
(25.0
)
$
11.3

$
113.9


---

The significant decrease in our income (loss) from retained interests in credit card receivables securitized from December 31, 2001, to December 31, 2002, was due primarily
to (a) a decrease in our estimate of the fair value of our retained interests in finance charge receivables of our originated portfolio of approximately $63.3 million; (b) a
decrease in our estimate of accrued interest and fees

41

---

earned but not billed of approximately $12.7 million to better estimate the collectible portion of these fees; and (c) an increase in the charge offs of the receivables with a
commensurate increase in the charge off assumption used to value our retained interests. Substantially all of our cardholders as of December 31, 2002, and December 31, 2001, are
considered "sub-prime" according to the guidance provided by the agencies that regulate the banking industry. This reflects the fact that, as a whole, the accounts underlying our
securitizations generally experience higher losses than prime accounts. We factor these higher expected losses into our projected loss assumptions which are used to value our retained interests under
Statement No. 140. See Note 6 (Off Balance Sheet Arrangements) to our consolidated financial statements. The increase in the charge off assumptions is due primarily to the seasoning of
the portfolio and the generally poor economic conditions being experienced throughout the country and the effects of these conditions on the ability of our cardholders to make their required payments.
The aforementioned decreases in our income from retained interests were partially offset, however, by (a) an approximate $22.8 million increase in our retained interest due to decreasing
our residual cash flows discount rate from 34.9% to 22.5% during the second and subsequent quarters of 2002; and (b) the income from the retained interests we acquired in the Fingerhut Trust
during July 2002. The Fingerhut Trust retained interests are carried at the lower of amortized cost or fair market value, net of a servicing liability. In accordance with EITF 99-20,
expected cash flows in excess of the cost of the purchased retained interests ($263.5 million) are being amortized into income from retained interests using the effective interest method over
the estimated life of the portfolio (54 months). During 2002, $76.9 million of such excess cash flows were amortized into income under EITF 99-20. Because the Fingerhut Trust triggered
an early amortization event in March 2003 (as discussed further in the Liquidity, Funding, and Capital Resources section), the Company anticipates moderately higher income under EITF 99-20
during the first quarter of 2003 associated with the Fingerhut Trust and significantly reduced income under EITF 99-20 associated with the Fingerhut Trust throughout the remaining three quarters of
2003 and through the first half of 2004.

The
significant decrease in our income from retained interests in credit card receivables securitized from December 31, 2000, to December 31, 2001, is due to a decrease in
the fair value of the retained interests at December 31, 2001. This decrease attributable to the change in the fair value was approximately $49.7 million and is due primarily to the
increase in our discount rate from 16.7% at December 31, 2000, to 34.9% at December 31, 2001. The increase in the discount rate reflects the interest rate implicit in sales of retained
interests that occurred during the fourth quarter of 2001. Additionally, the change in fair value was also due to the increase in the estimated expected credit loss rate from 10.9% at
December 31, 2000, to 16.7% at December 31, 2001. The remainder of the 2001
decrease in income from retained interests in credit card receivables securitized was due to an increase in charges offs, offset in part by an increase in APR and late fees.

The
fair value of our retained interests in credit card receivables securitized is estimated by discounting the expected future cash flows from the receivables that have been securitized
at rates which we believe are consistent with those that would be used by an independent third party. These rates have historically been reflective of (a) average rates disclosed by our peers
and (b) average rates we have reviewed from transactions where the total interest rate to the investor has been disclosed. We also sold two retained interests during the fourth quarter of 2001.
The sale in November 2001 provided a total return of 22% and the December 2001 sale provided a total return of 35%. The increase in our residual cash flows discount rate used at
December 31, 2001, was reflective of the higher rate of return of the transaction that we closed in December 2001. This fourth quarter 2001 increase in the discount rate used to value
the interest-only strip did not affect the discount rate used to value the servicing liability because the two fourth quarter 2001 transactions did not affect the servicing discount rate.
The discount rate for the servicing liability is what we believe is reflective of what market participants would use for servicing valuation. Had we increased the discount rate of the servicing
liability, it would have decreased the servicing liability and thus increased our income.

42

---

Because
quoted market prices are generally not available, the fair value is based on the estimated present value of future cash flows using management's best estimates of finance charges
and late fees, servicing fees, costs of funds paid to investors, payment rates, credit losses, discount rates and required amortization payments to investors. The weighted average key assumptions used
as of the end of each period are presented below. Changes in any of these assumptions could impact the estimates of the fair value of our retained interest as well as the realization of expected
future cash flows:

See
below for the assumptions used to value the interest-only strip and servicing liability for the receivables that we have securitized.

At December 31,2002

2001

2000Payment rate (monthly)

6.7
%
8.0
%
8.8
%Expected credit loss rate (annualized)

18.0

16.7

10.9Residual cash flows discount rate

22.5

34.9

16.7Servicing liability discount rate

14.1

14.0

16.7


Management
estimates the fair value of the retained interests at the end of each period. Fair value is estimated as the amount the retained interests could be bought for, or sold for, in
a current transaction between willing parties; specifically, other than in a forced liquidation. We believe that quoted market prices in active markets are the best evidence of fair value. Because
quoted market prices are not available for our retained interests, the estimated fair value is based on the best information available under the circumstances. As such, we utilize a discounted cash
flow approach, under which our estimated future cash flows are discounted at the estimated rate of return that we believe an investor in our retained interests would expect to be associated with such
an investment (the "residual cash flows discount rate").

Estimated default and payment rates are based on historical results, adjusted for expected changes based on our credit risk models. The payment rate decreased from 2001 to 2002,
primarily due to the seasoning of the originated portfolio and the effects of the generally poor economic climate on our cardholders. Expected credit loss rates have increased due to the generally
poor economic climate, increases in our delinquencies and our expected overall credit quality decline within our portfolios given the trending higher weighted-average age of the portfolios. We compare
historical loss rates on each vintage of our portfolio at comparable points in their lives to project our expected credit loss rate. Our servicing liability discount rate is based on management's
estimate of the required returns for companies who service similar assets.

The
residual cash flow discount rate is dependant on the asset backed securities market and the various companies that make up this market (e.g., Providian, Capital One, Metris, NextCard
and CompuCredit). The asset backed securities market is influenced by the results of the issuers who participate in the market, as well as (a) the reaction of rating agencies to the results of
issuers, (b) general economic conditions and (c) the investment appetite of investors, which include banks, commercial paper conduits administered by banks, money market funds, pension funds, hedge
funds and insurance companies. Also, as demonstrated to us in December 2001, they also are impacted by our own perceived liquidity and negotiating positions. However, absent exigent circumstances, the
asset backed securities market tends to react to the overall performance of the group as opposed to the individual companies comprising the group (i.e., the advance rates, pricing and terms available
are responsive to the peer group that includes us, as opposed to just us).

Our
residual cash flows discount rate has been volatile during the latter part of 2001 and the first half of 2002. That volatility was unprecedented and unforeseen, both by us and other
market participants, but reflected the prevailing market conditions in the asset backed securities market as well

43

---

as
our own liquidity. GAAP requires, however, that we estimate the residual cash flows discount rate at the end of each period.

During
the fourth quarter of 2001, we completed transactions at very unfavorable pricing, which yielded a 35% return to the buyers. This pricing reflected the deterioration of the asset
backed securities markets and our near-term liquidity needs in December 2001. The December transaction was the most readily available information upon which to base the Company's
fourth quarter 2001 discount rate estimateat this point we increased our discount rate to 34.9%.

During
the first quarter of 2002, due to the continued general weakness of the economy and the continued stress and liquidity challenges that we saw in the asset backed securities
markets, we did not believe that there was sufficient evidence to warrant a reduction in our discount rate. In the second quarter of 2002, however, our liquidity position improved with the purchase
(through our 50%-owned equity method investee, CSG) of the retained interests from Providian. Additionally, we finalized the terms of a new securitization structure with more favorable advance rates,
pricing and other terms. As a result, we concluded, after consultation with and corroboration by an independent third-party valuation firm, that a reduction in our discount rate was warranted. The
valuation techniques utilized by the third-party valuation firm included analyzing our recent transactions and our competitors (both direct and indirect) discount rates and cost of equity, with equal
weighting given to each.

During
the third and fourth quarters of 2002, we did not see any evidence indicating an adjustment in our discount rate was necessary, thus, our residual cash flows discount rate
remained at 22.5% at the end of those periods.

The various assumptions in the above table relate only to receivables that we have securitized and do not apply to retained interests that we have purchased. The Fingerhut Trust 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 EITF 99-20, expected cash
flows in excess of the cost of the purchased retained interests are being amortized into income from retained interests using the effective interest method. This same method is used by the Company's
50%-owned equity method investee, CSG, with respect to its purchase of the retained interests in the CSG Trust during 2002.

We
securitize all of our originated receivables each day by selling the receivables to trusts or to multi-seller commercial paper conduits administered by national banking institutions.
The receivables that are sold through securitizations are removed from our balance sheet for financial reporting purposes. When we sell the receivables we receive cash proceeds and a retained interest
in the receivables. Our retained interests are subordinate to the other investors. We receive all of the excess cash flows from the securitizations, which represent collections on the accounts in
excess of the interest paid to the investors, servicing fees, credit losses and required amortization payments.

44

---

The
following table summarizes our securitization activity for the periods presented and does not include any of the receivables managed by or the securitization facility of CSG, our
50%-owned equity method investee:

|                                                                                                          |  | At or for the Year Ended December 31, |          
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ---------
|
|
|Securitization Activity:
Gross amounts of receivables securitized at year end (total managed receivables) |  | $                                     | 2,334,939
|Principal securitized                                                                                     |  |                                       | 2,063,454
|Total outstanding amounts securitized                                                                     |  |                                       | 1,672,500
|Over-collateralization                                                                                    |  |                                       | 390,954  
|Over-collateralization ratio                                                                              |  |                                       | 18.9     
|Net proceeds from securitizations                                                                         |  |                                       | 2,987    
|Excess cash flows received on retained interests                                                          |  |                                       | 311,423  
|Pretax securitization (loss) income                                                                       |  |                                       | (18      
|(Loss) income from retained interests in credit card receivables securitized                              |  |                                       | (25,049  
|I/O strip                                                                                                 |  | $                                     | 99,964   
|Servicing liability                                                                                       |  |                                       | (108,010 
|                                                                                                          |  |                                       |          
|Net I/O strip                                                                                             |  |                                       | (8,046   

The
gross amounts of receivables securitized at year-end have increased each year as we have grown our business. The principal portion securitized has increased accordingly
as have our total receivables securitized. Prior to the end of 2001, we saw a steady decrease in the amount of over-collateralization ratio required by our investors in our securitizations
as a percentage of the total principal securitized as a result of the maturation of the securitizations. In addition to the general seasoning of the portfolio, there was more historical data available
about the securitizations on which investors could more accurately base their over-collaterization decisions. The percentage of over-collateralization to total principal
securitized increase from 2001 to 2002 is due to both adverse asset backed securities liquidity market factors and trends and the retained interests we acquired in 2002. The proceeds from
securitizations are the result of purchases of receivables by third party investors. These proceeds fluctuate based on the growth of the originated receivables. The proceeds from securitization
increased from 1999 to 2000 due to the increase in managed receivables and then decreased during 2001 and 2002 as our growth slowed and we did not securitize the volume of receivables that we did
while growing the originated portfolio prior to 2001. The excess cash flows received on our retained interests are a function of the size and average age of the managed portfolio. Our pretax
securitization (loss) income is loss or gain recognized when the receivables are securitized. This amount remained fairly constant from 1999 to 2000 and decreased from 2000 to 2002 due to the loss
associated with the sale of two pieces of our retained interest in the fourth quarter of 2001 (explained in more detail above) and the lower volume of receivables securitized during the period. Our
interest-only strip is the present value of the projected excess cash flows we expect to receive on the securitized receivables. These cash flows are dependent upon the size and
performance of the gross amount of receivables securitized. Our interest-only strip increased from 1999 to 2002 as the aggregate amount of receivables securitized increased.

We
initially record a servicing liability with respect to a securitization structure when the servicing fees we expect 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 estimated fair market value with changes
in fair value included in

45

---

income.
Because quoted market prices 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 as outlined in Note 6 (Off Balance Sheet Arrangements) to our consolidated financial statements. The servicing liability is netted against the value of the I/O strip and included in
retained interests in credit card receivables securitized on our consolidated balance sheets. These servicing costs are also a function of the gross amount of receivables securitized and increased
from 2000 to 2002 as the receivables we serviced increased. The increase in the servicing liability from December 31, 2001, to December 31, 2002, is due primarily to our servicing for
the Fingerhut Trust, for which we do not receive adequate compensation. We typically accept servicing revenue that is not considered adequate compensation because, during the revolving period of a
securitization, we receive all of the excess cash flows from the securitization, which represent collections on the receivables in excess of the interest paid to the investors, the servicing fees paid
to us as servicer, and required amortization payments. Because we receive the residual or excess cash flows during the revolving period, the total cash we expect to receive inclusive of both the
servicing revenue as well as the excess cash flows is expected to more than cover our servicing costs.

Our
retained interests in credit card receivables securitized include the following:

At December 31,2002

2001

2000(In thousands)I/O strip

$
99,964

$
84,390

$
52,249Fair value of retained interest


283,681


312,622


295,141Servicing liability


(108,010
)

(38,123
)

(21,807
)Retained interests in credit card receivables securitized

$
275,635

$
358,889

$
325,583


The
I/O strip reflects the estimated fair value of our rights to future income from the portfolios and includes certain credit enhancements. The servicing liability reflects, for those
securitizations for which servicing compensation is not adequate, the estimated fair value of the costs to service receivables above and beyond the servicing income we expect to receive from the
securitizations. The change in the servicing liability is included in income from retained interests in credit card receivables securitized. The fair value of retained interests includes all of the
retained interests we own in the securitizations. Our I/O strip increased from December 31, 2001, primarily due to a decrease in our residual cash flows discount rate from 34.9% at
December 31, 2001, to 22.5% at December 31, 2002, as discussed previously. Our servicing liability increased due to the servicing liability we assumed when we purchased the Fingerhut
Trust retained interests from Federated in July 2002. We have received strong cash flows from the Fingerhut acquisition. The fair value of retained interest decreased between
December 31, 2001, and December 31, 2002, due to a decrease in our estimate of the fair value of our retained interests in finance charge receivables as discussed earlier, partially
offset by the acquisition of the retained interests we purchased from Federated in July 2002.

Equity Method Investment in CSG

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 certificated interest issued by the CSG Trust, which owns a portfolio of credit card receivables. We own a 50% interest in CSG, and we account for our interest in CSG using the
equity method of accounting. We funded our initial $34.9 million investment in CSG with cash of $3.5 million and by borrowing $31.4 million. In exchange for servicing 100% of the
receivables owned by the CSG Trust, we receive a servicing fee from the securitization structure. The servicing fee is considered adequate compensation for the services performed.

46

---

Under
the equity method of accounting for our CSG investment, we recorded approximately $45.7 million of pretax income during the year ended December 31, 2002. This income
primarily consisted of income from retained interests in credit card receivables securitized that CSG acquired in the second quarter of 2002 from the CSG Trust. During the year ended
December 31, 2002, we received approximately $43.5 million in cash distributions and $21.5 million in bonds from our investment in CSG. See the CSG consolidated financial
statements contained herein.

Other Operating Income

Other operating income, excluding securitization income, income from retained interests in credit card receivables securitized, and our equity in income of equity
method investee, consists of the following for the periods indicated:

Year Ended December 31,2002

2001

2000(In thousands)Gross servicing income

$
37,772

$
6,018

$
7,705Other credit card fees


95,877


89,553


53,165Interchange fees


15,867


22,780


19,880Ancillary products


14,846


30,592


28,497Total other operating income

$
164,362

$
148,943

$
109,247


Our
total other operating income is primarily a function of the size of our average credit card receivables portfolio. The increase in other operating income to
$164.4 million for the year ended December 31, 2002, from $148.9 million for the year ended December 31, 2001, relates to the increase in our managed receivables, which
increased to $2.8 billion (including our 50% ownership interest in the CSG retained interest) at December 31, 2002, from $1.9 billion at December 31, 2001. This increase
was
due to the increase in servicing revenue associated with the purchase of the retained interests in the Fingerhut trust and the investment in CSG, as we service 100% of both of these portfolios. The
increase in servicing revenue was offset by a decrease in our ancillary product revenue. This revenue category is very sensitive to our new account growth since historically sales of our
fee-based products are higher to our new cardholders than to existing cardholders. During 2002, we originated less accounts than in prior years, and this resulted in the decrease in
ancillary product revenue. Other credit card fee income increased slightly for the twelve months ended December 31, 2002, compared to December 31, 2001, due primarily to increases in
annual and overlimit fees. Interchange fees are the portion of the merchant fee assessed by Visa and MasterCard and passed on to us based on the purchase volume on our credit card receivables.
Interchange fees decreased for the twelve months ended December 31, 2002, compared to December 31, 2001, primarily due to a decrease in purchase volume of our cardholders. This was in
spite of an overall increase in receivables as the Federated accounts are private label and therefore do not contribute to any additional volume related to our interchange agreements.

The
increase in other operating income to $148.9 million for the year ended December 31, 2001, from $109.2 million for the year ended December 31, 2000,
relates to the increase in our managed receivables, which increased to $1.9 billion at December 31, 2001, from $1.5 billion at December 31, 2000. A substantial portion of
the servicing income relates to the portfolios purchased in 1998. As the size of these purchased portfolios decreases, there is a corresponding decrease in servicing income. Other credit card fees,
which includes annual, over-limit and cash advance fees, increased to $89.6 million from $53.2 million. The increase in these fees was primarily due to the increase in our
managed receivables and not due to any significant change in the type or composition of the fees that are charged on the credit card accounts. Interchange fees are the portion of the merchant fee
assessed by Visa and MasterCard and passed on to us on the purchase volume on our credit card receivables. Interchange fees grew to $22.8 million from $19.9 million due to an increase in
the purchase volume on

47

---

our
managed receivables. Ancillary product revenue increased to $30.6 million from $28.5 million due to more customers purchasing our products. During 2001, we added several
fee-based products; we developed and implemented several new fee-based response models; and we continued to enhance our marketing reach by refining our internet promotions,
increasing promotions offered to our cardholders on their monthly account statements, and refining our most significant cross selling promotions. These efforts increased our ancillary product income
during 2001. Substantially all of our ancillary product income for the past three years consist of commissions paid directly to us from vendors whose products we market.

Other Operating Expense

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

Year Ended December 31,2002

2001

2000(In thousands)Non-servicing salaries and benefits

$
18,514

$
12,161

$
5,833Credit card servicing


94,046


62,374


28,320Marketing and solicitation


11,907


29,931


59,509Professional fees


4,488


3,659


2,255Data processing


6,754


10,558


4,519Net occupancy


5,185


3,875


1,160Ancillary product expense


4,832


10,121


8,501Depreciation


14,801


9,802


4,273Other


10,368


7,008


3,535Total other operating expense

$
170,895

$
149,489

$
117,905


Other
operating expense for the year ended December 31, 2002, increased to $170.9 million, from $149.5 million for the year ended December 31, 2001. This
increase is due primarily to servicing expenses associated with servicing 100% of the receivables in the CSG Trust and the Fingerhut acquisition. Credit card servicing costs primarily include
collections and customer service expenses. These expenses include in-house collections and customer service expenses as well as costs associated with corresponding with our cardholders.
Servicing expense also includes outsourced collections and customer service expenses. Based on the growth of the receivables we service, we increased our infrastructure, customer service and
collection personnel. Salaries and benefits, professional fees, net occupancy and other expenses increased as our operations expanded to service the increase in managed receivables. Depreciation
expense increased for all periods due to growth in our infrastructure to support our increase in managed receivables.

In
2002, marketing and solicitation costs decreased due to reduced budgeted levels of direct mail, telemarketing, internet and television campaigns. Ancillary product expense decreased
due to a decrease in ancillary product marketing and a decrease in ancillary products sold. Data processing decreased due to planned spending decreases during 2002 compared to 2001.

Other
operating expense for year ended December 31, 2001, increased to $149.5 million from $117.9 million for the year ended December 31, 2000. This increase
is due primarily to increases in credit card servicing, salaries and benefits, data processing expenses, and other expenses, offset by a decrease in marketing and solicitation expenses. Credit card
servicing costs, including collections and customer service, increased due to the increase in our managed receivables. Based on anticipated growth in our managed receivables, we increased our
infrastructure, customer service and collection personnel. Salaries and benefits, professional fees, data processing, net occupancy and other expenses increased as our operations expanded to service
the increase in managed receivables. We reduced our marketing and solicitation efforts during the second half of 2001 as a result of concerns relating to the

48

---

availability
of financing, general economic conditions and uncertainty regarding credit quality of accounts we historically have targeted. Our growth rate in 2001 and 2002 was negatively impacted by
this reduction in marketing. Ancillary product expense increased due to the additional sales of products and services that took place during 2001, including insurance products and memberships.

Other
expenses include fraud, travel and entertainment, insurance, hiring expense, corporate communications, leased equipment expenses, office supplies and other miscellaneous expenses.
Expenses in this category other than fraud increased incrementally as we added infrastructure to support the growth in managed receivables. Our fraud expense includes the expense of unauthorized use
of the credit cards including identity theft or purchases on lost or stolen cards. To date, we have experienced very little fraud for unauthorized use, and the total expense has approximated 0.2% of
our average managed receivables in any given year.

Income Taxes

Income taxes were $3.2 million for the year ended December 31, 2002, $1.5 million for the year ended December 31, 2001 and
$41.8 million for the year ended December 31, 2000. Our effective tax rate was 35.0% for 2002, 35.0% for 2001 and 33.7% for 2000. See Note 11 (Income Taxes) to our consolidated
financial statements included elsewhere herein for further explanation of the income tax expense and a reconciliation of reported income taxes to the amount utilizing the federal statutory rate.

Selected Credit Card Data

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. The information in the following table is presented to reflect the credit card receivables that
we have securitized, the credit card receivables associated with retained interests that we have acquired (e.g., from Federated in 2002) and 50% of the credit card receivables underlying the CSG Trust
(which reflects our ownership percentage in CSG). We have included 50% of the managed receivables underlying the CSG Trust because we have a 50% 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 are dependent upon 50% of the managed receivables. In
addition to owning our 50% interest in CSG, we are the servicer for 100% of the receivables in the CSG Trust, and we receive a servicing fee from the CSG Trust which we believe to be adequate
compensation for the servicing we perform.

|                               |  | At or for the Three Months Ended |          
|------------------------------ |  | -------------------------------- | ---------
|
|
|
|Period-end managed receivables |  | $                                | 2,795,888
|Period-end managed accounts    |  |                                  | 3,562    
|Average managed receivables    |  | $                                | 2,912,482
|Net interest margin            |  |                                  | 17.1     
|Other credit card income ratio |  |                                  | 5.1      
|Operating ratio                |  |                                  | 8.3      

The numerator of the net interest margin calculation includes all accrued finance charge and late fee income billed on all outstanding
receivables, less interest expense as well as accrued finance charge and fee charge offs. The numerator of our other credit card income ratio includes other credit card fees, such as
over-limit fees, cash advance fees, maintenance fees, miscellaneous fees, interchange income and ancillary product income. Our operating ratio numerator includes all expenses associated
with our business, net of any servicing income we receive as servicer for the CSG Trust, other than marketing and solicitation and ancillary product expenses. Each of the aforementioned ratios is
expressed as a percentage of average managed receivables.

49

---

The portfolios we acquired in 1998 were acquired at substantial discounts. The retained interests in the CSG Trust that CSG acquired in 2002 and the retained interests in the Federated
Trust that we acquired in 2002 both were acquired at substantial discounts as well. As to the managed receivables underlying the 1998 and 2002 acquisitions, the presented credit card data excludes
some of the acquired receivables and the related accounts, which, at the time of purchase, were in a late delinquency status. Our belief is that these receivables were either in the process of being
charged off by the seller due to delinquency or were likely to be charged off in the near term. In each purchase, these receivables were purchased as part of the portfolio as the sellers desired to
sell the entire portfolio. The same representations and warranties from the sellers were made on these receivables that were made on the entire portfolio; however, the sellers did not provide any
representations or warranties as to the ability or willingness of the any of the cardholders to repay their balances. There is no recourse to any seller in the event that cardholders simply do not pay
the account balances that have been acquired.

The
following table summarizes the managed receivables and related accounts underlying our acquisitions, as well as those receivables and accounts that have been excluded from our credit
card data:

Purchases occurring in2002

1998(In thousands)Acquired accounts


2,828


201Acquired receivables

$
1,652,559

$
579,700Excluded accounts


269


52Excluded receivables

$
219,778

$
137,200


As
noted above, the portfolios acquired during 1998 and 2002 were acquired at substantial discounts. A portion of each discount related to those excluded receivables and accounts noted
above. Another portion of each discount related to the credit quality of the remaining acquired receivables and was calculated as the difference between the face amount of the receivables purchased
(less the excluded receivables described above) and the expected future cash flows expected to be collected from the receivables. The balance of the discount for each purchase is not needed for credit
quality, is referred to as accretable yield, and is being amortized into net interest margin, using the interest method over the estimated life of each acquired portfolio for purposes of reporting our
selected credit card data. As of the close of each financial reporting period, we evaluate the appropriateness of the credit quality discount component of our acquisition discount and the accretable
yield component of our acquisition discount based on actual and projected future results. Although it has not happened to date, should we determine that the amount allocated to credit quality discount
exceeds the needed amount, we will re-allocate the unused credit quality discount to our accretable yield. Such an adjustment would not affect our reported GAAP income, but would affect
the amounts included within this selected credit card data discussion, in particular net interest margin and adjusted net charge offs. The following table summarizes the discounts components
associated with the acquired portfolios as they were computed at the date of acquisition:

Purchases occurring in2002

1998(In millions)Total face value acquired

$
1,652.5

$
579.7Total discount


759.6


284.5Portion used for excluded receivables


219.8


137.2Portion needed for credit quality


516.8


87.5Portion reflecting accretable yield


23.0


59.8


50

---

Our
net interest margins are influenced by a number of factors, including the level of accrued finance charges and late fees billed, the weighted average cost of funds, amortization of
the accretable yield component of our acquisition discounts for portfolio purchases and the level of our accrued finance charge and fee charge offs. Our net interest margin for the three months ended
December 31, 2002, was 17.1%, as compared to 21.4% for the three months ended September 30, 2002. For the three months ended September 30, 2002, our net interest margin was
favorably affected by the Federated acquisition and the acquisition of our ownership interest in CSG, which occurred during the third and second quarters of 2002, respectively. As previously
explained, certain accounts in late delinquency status and those at or near charge-off at the time of acquisition are excluded from our selected credit card data. For the first six to nine
months or so following the portfolio acquisition date, the exclusion of these accounts will yield diminished charge offs of accrued finance charges and fees. As we saw during the fourth quarter and
will continue to see throughout the first half of 2003, the level of accrued finance charge and fee charge-offs normalize with the seasoning of the acquired portfolios. That is the
non-excluded accounts that we have acquired age into later delinquency buckets and charge off. This explains the reduction of our net interest margin during the fourth quarter of 2002 and
our expected further decline in the net interest margin during the first half of 2003. Also noteworthy is the drop in our second quarter net interest margin, which was caused by the changes we made
during the second quarter in how we estimate finance charge receivables and accrued interest and fees earned but not yet billed. During the second quarter of 2002, we revised our accrued balance to
better estimate the collectible portion of these finance charges and fees. The change resulted in a reduction in our second quarter net interest margin of approximately 2.1%.

Each
quarter, 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 and demand for credit. Increases in pricing may increase our net interest
margin, while decreases in pricing may reduce our net interest margin.

Our
operating ratio includes all expenses associated with our business, net of any servicing income we receive as servicer for the CSG Trust, other than marketing and solicitation and
ancillary product expenses, and is expressed as a percentage of average managed receivables. Our operating ratio fluctuates based on our rate of receivables growth and the level of our expenditures on
our infrastructure, our personnel, our collections and customer service operations, and our database management system. The operating ratio decreased through June 30, 2002, due to the cost
cutting measures that were implemented at the beginning of 2002 and increased after June 30, 2002, due to our addition of capacity based on the increased staffing and servicing requirements
that resulted from the acquisitions made during 2002.

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 delinquency and loss rates of the portfolio.

Our
strategy for managing delinquency and receivables losses consists of active account management throughout the customer relationship. This strategy includes credit line management and
pricing based on the risk of the credit card accounts. See "Collection Strategies" below for further discussion.

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

51

---

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.

We
are using our account management strategies on our portfolio, which are intended to reduce the expected increase in delinquency rates, as our portfolio continues to mature. Examples
of management strategies include conservative credit line management, purging of inactive accounts and collection strategies (see "Collections Strategies" below) intended to optimize the effective
account-to-collector ratio across delinquency buckets. We measure the success of these efforts by measuring delinquency rates.

The
following table presents the delinquency trends of our credit card receivables portfolio on a managed receivables portfolio basis, as of the close of each year. The 2002 data
includes delinquency data for our 50% share of the managed receivables that are owned by CSG.

|                                                       |  | Year Ended December 31, |        
|------------------------------------------------------ |  | ----------------------- | -------
|
|Total                                                  |  |                         |        
|Receivables delinquent:                                |  |                         |        
|30 to 59 days past due                                 |  | $                       | 155,615
|60 to 89 days past due                                 |  |                         | 105,966
|90 or more days past due                               |  |                         | 282,685
|                                                       |  |                         |        
|Total 30 or more days past due                         |  | $                       | 544,266
|Total 60 or more days past due                         |  | $                       | 388,651
|Receivables delinquent as % of period-end receivables: |  |                         |        
|30 to 59 days past due                                 |  |                         | 5.6    
|60 to 89 days past due                                 |  |                         | 3.8    
|90 or more days past due                               |  |                         | 10.1   
|                                                       |  |                         |        
|Total 30 or more days past due                         |  |                         | 19.5   
|Total 60 or more days past due                         |  |                         | 13.9   

Our
60 or more days past due delinquency rates have increased due to the seasoning of the originated portfolios and higher delinquency rates associated with the
receivables included in our 2002 acquisitions. We expect the portfolio delinquencies to continue to increase into the first half of 2003 as the receivables acquired in connection with our 2002
acquisitions age into later delinquency status for the first six to nine months or so after the date of their acquisition.

52

---

The
following table separately reports our receivables delinquency trends for our originated portfolio as of the close of each year:

|                                                       |  | Year Ended December 31, |        
|------------------------------------------------------ |  | ----------------------- | -------
|
|Originated Portfolio                                   |  |                         |        
|Receivables delinquent:                                |  |                         |        
|30 to 59 days past due                                 |  | $                       | 75,193 
|60 to 89 days past due                                 |  |                         | 56,415 
|90 or more days past due                               |  |                         | 146,799
|                                                       |  |                         |        
|Total 30 or more days past due                         |  | $                       | 278,407
|Total 60 or more days past due                         |  | $                       | 203,214
|Receivables delinquent as % of period-end receivables: |  |                         |        
|30 to 59 days past due                                 |  |                         | 4.7    
|60 to 89 days past due                                 |  |                         | 3.5    
|90 or more days past due                               |  |                         | 9.2    
|                                                       |  |                         |        
|Total 30 or more days past due                         |  |                         | 17.4   
|Total 60 or more days past due                         |  |                         | 12.7   

The
increase in the 60 or more days past due delinquency rates in our originated portfolio is primarily reflected in the 90 or more days past due category. We anticipate that this
increase will cause a rise in our charge off levels for the first quarter of 2003 as these receivables for which we do not receive a payment will charge off when they age past 180 days. We
anticipate fairly stable delinquency rates in our originated portfolio going forward compared to our delinquencies as of December 31, 2002, and some of our new 2003 collections initiatives have
improved the delinquency rates that we have seen thus far in 2003. Our delinquency rates have increased in general due primarily to the seasoning of receivables that were originated during 2000 and
1999 and the generally poor economic conditions that have prevailed during 2001 and 2002.

The
following table presents the delinquency trends of our purchased portfolio at the close of each year:

|                                                       |  | Year Ended December 31, |        
|------------------------------------------------------ |  | ----------------------- | -------
|
|Purchased portfolio                                    |  |                         |        
|Receivables delinquent:                                |  |                         |        
|30 to 59 days past due                                 |  | $                       | 44,819 
|60 to 89 days past due                                 |  |                         | 32,952 
|90 or more days past due                               |  |                         | 92,180 
|                                                       |  |                         |        
|Total 30 or more days past due                         |  | $                       | 169,951
|Total 60 or more days past due                         |  | $                       | 125,132
|Receivables delinquent as % of period-end receivables: |  |                         |        
|30 to 59 days past due                                 |  |                         | 6.1    
|60 to 89 days past due                                 |  |                         | 4.5    
|90 or more days past due                               |  |                         | 12.6   
|                                                       |  |                         |        
|Total 30 or more days past due                         |  |                         | 23.2   
|Total 60 or more days past due                         |  |                         | 17.1   

53

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The
60 or more days past due delinquency rate in our purchased portfolio increased in 2002 due to the higher delinquency rates of the receivables in the Fingerhut Trust. The
delinquencies associated with the receivables in the Fingerhut Trust have been increasing since we acquired the portfolio due to an increase in accounts 90 or more days past due. This naturally occurs
after all of our portfolio purchases because we exclude from all of our managed receivables reporting at the acquisition data all accounts that are at or near charge off at the time of our acquisition
of a portfolio. Given the July 2002 acquisition of our interest in the Fingerhut Trust receivables, we expected and continue to expect throughout the first quarter of 2003 an increase in
delinquencies as the acquired Fingerhut Trust accounts age into later delinquency buckets during the first six to nine months or so after acquisition.

The
following table represents our 50% portion of the managed receivables underlying the CSG Trust:

At December 31,
200250% of CSG TrustReceivables delinquent:30 to 59 days past due

$
35,60360 to 89 days past due


16,59890 or more days past due


43,706Total 30 or more days past due

$
95,907Total 60 or more days past due

$
60,304Receivables delinquent as % of period-end receivables:30 to 59 days past due


7.7
%60 to 89 days past due


3.690 or more days past due


9.5Total 30 or more days past due


20.8
%Total 60 or more days past due


13.1
%


The
60 or more days past due delinquencies have been increasing since we acquired the portfolio due to the manner in which accounts at or near charge off at the time of acquisition are
excluded from our managed receivables reporting as described above. This increase in delinquencies should moderate during the first quarter of 2003 as the acquired accounts continue their aging
process into later delinquency buckets for the first six to nine months or so after the acquisition date.

Charge offs.In the tables that follow, gross yield ratio represents finance charges and late fees as a percentage of average
managed receivables. The other credit card income ratio represents the aggregate of other fees earned on credit cards (such as annual membership fees, over-limit fees, cash advance fees,
interchange fees, and ancillary products revenues) as a percentage of average managed receivables. Combined gross charge offs represent the aggregate amounts of accrued finance charge, fee, and
principal losses from customers unwilling or unable to pay their receivables balances, as well as bankrupt and deceased customers, less current period recoveries. Net charge offs include only the
principal amount of these losses, net of recoveries; they exclude accrued finance charge and fee charge offs, which are charged against the related income at the time of charge off. Losses from
fraudulent activity in accounts are also excluded from all of the charge off statistics and are included separately in other operating expense. We generally charge off receivables when the receivable
becomes contractually 180 days past due. However, bankrupt accounts and the accounts of deceased customers without a surviving, contractually liable individual or an estate large enough to pay
the debt in full are charged off within 30 days of notification of the customer's bankruptcy or death and subsequent confirmation, if applicable.

54

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For
purposes of reporting adjusted charge offs and the adjusted charge off ratios on the managed receivables below, the discount related to credit quality discussed earlier in this
section was utilized to offset a portion of actual net charge offs. Because we treat the credit quality discount component of our acquisition discount as related exclusively to acquired principal
balances, the difference between our net charge offs and our adjusted charge offs for each respective reporting period represents the total dollar amount of our charge offs that were charged against
our credit quality discount during each respective reporting period.

The
following table presents the charge off data for all of the credit card receivables underlying our securitizations, as well as our 50% portion of the managed receivables underlying
the CSG Trust:

|                                |  | For the Three Months Ended |        
|------------------------------- |  | -------------------------- | -------
|
|
|
|Total                           |  |                            |        
|Selected Credit Card Data:      |  |                            |        
|Gross yield ratio               |  |                            | 34.0   
|Other credit card income ratio  |  |                            | 5.1    
|Combined gross charge offs      |  | $                          | 248,919
|Net charge offs                 |  | $                          | 123,877
|Adjusted net charge offs        |  | $                          | 67,193 
|Combined gross charge off ratio |  |                            | 34.2   
|Net charge off ratio            |  |                            | 17.0   
|Adjusted charge off ratio       |  |                            | 9.2    

Our generally declining other credit card income ratio can be attributed to (1) our growth slowdown during 2001 and 2002, which resulted in
a declining number of new cardholders, which yield higher ancillary product revenues than our mature cardholder relationships, and (2) the effects of our acquisitionsspecifically,
a large increase in the average managed receivables in the denominator of this ratio without a commensurate increase in other credit card income given that the Fingerhut portfolio, as a closed end
portfolio of specialty retail credit cards, yields little other credit card income.

The
trending increase in combined charge offs and net charge offs and their respective ratios throughout the latter part of 2001 and 2002 can generally be attributed to the expected
seasoning of our originated portfolio into the second and third years of our portfolio's life as discussed above and the effects of the generally poor economic environment that we have seen throughout
2001 and 2002 on our customer base and their level of purchases and ability to pay. Further analysis of these trends is provided below with the tables that relate to more specific components of our
overall portfolio.

The
sharp declines in the combined gross charge off ratio and the net charge off ratio during the third quarter of 2002 can be attributed to the effects of our 2002 portfolio
acquisitionsspecifically, a large increase in the average managed receivables in the denominator of those ratios for the quarter without a commensurate increase in charge-offs
of accrued finance charges, fees, and principal in that quarter given that we do not record within our managed receivables data any acquired accounts that were at a late stage of delinquency and at or
near charge off by the seller on the date of our acquisitions. The exclusion from our credit card data of acquired accounts at a late stage of delinquency and at or near charge off by the seller means
that there are fewer accounts in the 90-plus day delinquency categories at an acquisition date and accordingly, fewer potential accounts that could potentially charge off until several
months after the acquisition date. This effect of our portfolio acquisitions began to normalize within our charge off data in the fourth quarter of 2002 and will continue to do so during the first
half of 2003; this occurs as some portion of the acquired accounts season into later stage delinquency status and ultimately are charged off throughout the first six to nine months or so following an
acquisition.

55

---

The
difference between net charge offs and adjusted net charge offs represents the charge offs associated with acquired receivables that were charged against a credit quality discount
that we establish relative to our acquisitions on the acquisition date thereof. As explained above, it is necessary to establish this credit quality discount to allow us to view the true economic
losses associated with our acquired receivables; because by the acquisition date we know of credit quality issues within a portfolio and because we adjust our purchase price accordingly,
post-acquisition charge offs of known credit quality issues at the acquisition date do not represent economic losses to CompuCredit.

We
continue to focus our resources on refining our credit underwriting standards for new accounts and to increase our focus on collection and post charge off recovery efforts to minimize
losses. See the "Collection Strategies" discussion below.

The
following table presents the charge off data for our originated portfolio:

|                                |  | For the Three Months Ended |        
|------------------------------- |  | -------------------------- | -------
|
|
|
|Originated Portfolio            |  |                            |        
|Selected Credit Card Data:      |  |                            |        
|Gross yield ratio               |  |                            | 32.6   
|Other credit card income ratio  |  |                            | 7.6    
|Combined gross charge offs      |  | $                          | 138,362
|Net charge offs                 |  | $                          | 65,336 
|Combined gross charge off ratio |  |                            | 34.4   
|Net charge off ratio            |  |                            | 16.2   

The general trending decline in the other credit card income ratio from 2001 through 2002 is due to our growth slowdown during this period, which
has resulted in a declining number of new cardholders, which yield higher ancillary product revenues than our mature cardholder relationships. Our combined gross charge off ratio has generally trended
higher during the latter part of 2001 and throughout 2002 primarily due to the seasoning of the originated portfolio and the generally poor overall economic conditions that have existed throughout
this time period. As described above under the "Delinquency" subheading, as our portfolio matures, we expect charge off rates to also increase and then stabilize. Typically, as our accounts mature,
there are very few charge offs during the first 180 days, then the charge offs are expected to increase and peak in the second year and then stabilize in the third year and beyond. While we
have noticed this general trend within our originated portfolio and believe that this trend line applies in moderate to good economic environments, our charge offs have not moderated as quickly as
expected, we believe primarily due to the generally poor economic conditions that have existed since the end of 2001 and the effects of these conditions on the ability of our cardholders to make their
required payments. We anticipate our combined gross charge off ratio to peak in the first quarter of 2003 and then decrease in middle of 2003 and then increase toward the end of 2003 based on
seasonality. We also note that the combined gross charge off ratio and the net charge off ratio were adversely impacted by reductions throughout the latter three quarters of 2002 in the average
managed receivables balances used in the denominator of the respective ratio computations. Our originated portfolio's average managed receivables balance peaked during the first quarter of 2002 at
$1.75 billion and declined throughout successive quarters of 2002 to $1.61 billion in the fourth quarter of 2002. This accounts, for example, for the increase in the combined gross
charge off ratio in the fourth quarter of 2002 relative to the second quarter of 2002 even though the absolute dollar amount of combined gross charge offs was lower in the fourth quarter of 2002 than
in the second quarter of 2002.

56

---

The
following table presents the charge off data for our purchased portfolios:

|                                |  | For the Three Months Ended |       
|------------------------------- |  | -------------------------- | ------
|
|
|
|Purchased Portfolios            |  |                            |       
|Selected Credit Card Data:      |  |                            |       
|Gross yield ratio               |  |                            | 40.4  
|Other credit card income ratio  |  |                            | 0.2   
|Combined gross charge offs      |  | $                          | 71,729
|Net charge offs                 |  | $                          | 34,245
|Adjusted net charge offs        |  | $                          | 1,857 
|Combined gross charge off ratio |  |                            | 35.4  
|Net charge off ratio            |  |                            | 16.9  
|Adjusted charge off ratio       |  |                            | 0.9   

As one would expect, our combined gross charge offs and net charge offs for our purchased portfolios increased substantially during the third and
fourth quarters of 2002 based on our acquisition of the Fingerhut portfolio during the third quarter of 2002. The increases in both of these metrics as compared to the metrics for our 1998 acquisition
in the quarters leading up to the third quarter of 2002 are expected and are attributed principally to two factors. First, the receivables that were acquired in the 1998 acquisition have seasoned in
the several years since their acquisition into receivables with a relatively low rate of charge offs; we expect to experience higher charge offs in the first few years after a portfolio acquisition
than we should experience years later after several of the problem accounts have already been either charged off or closed and liquidated. Second, a higher rate of combined gross charge offs can be
expected for the Fingerhut receivables given the higher gross yield ratio for these receivables relative to those that we acquired in 1998.

The
declines in the other credit card income ratio for the purchased portfolios can be attributed to the effects of our Fingerhut acquisitionspecifically, a large increase
in the average managed receivables in the denominator of this ratio without a commensurate increase in other credit card income given that the Fingerhut portfolio, as a closed end portfolio of
specialty retail credit cards, yields little other credit card income.

The
sharp declines in the combined gross charge off ratio and, the net charge off ratio, during the third quarter of 2002 can also be attributed to the effects of the Fingerhut portfolio
acquisitionspecifically, a large increase in the average managed receivables in the denominator of those ratios for the quarter without a commensurate increase in charge-offs
of accrued finance charges, fees, and principal in that quarter given that we do not record within our managed receivables data any acquired accounts that were at a late stage of delinquency and at or
near charge off by the seller on the date of our acquisitions. The exclusion from our credit card data of acquired accounts at a late stage of delinquency and at or near charge off by the seller means
that there are fewer accounts in the 90-plus day delinquency categories at an acquisition date and accordingly, fewer potential accounts that could potentially charge off until several
months after the acquisition date. This effect of the Fingerhut portfolio acquisition began to normalize within our charge off data in the fourth quarter of 2002 and will continue to do so during the
first half of 2003; this occurs as some portion of the acquired accounts season into later stage delinquency status and ultimately are charged off throughout the first six to nine months or so
following an acquisition.

57

---



The following table presents the charge off data for 50% of the receivables underlying the CSG Trust:

Dec. 31, 2002

Sep. 30, 2002

Jun. 30, 200250% of CSG TrustSelected Credit Card Data:Gross yield ratio


28.0
%

28.8
%

27.3
%Other credit card income ratio


5.1
%

4.9
%

3.7
%Combined gross charge offs

$
38,827

$
34,667

$
410Net charge offs

$
24,296

$
4,252

$
410Adjusted net charge offs

$


$


$
410Combined gross charge off ratio


31.6
%

26.2
%

0.9
%Net charge off ratio


19.8
%

3.2
%

0.9
%Adjusted charge off ratio



%


%

0.9
%


Combined
gross charge offs, net charge offs, and their corresponding ratios increased for the three months ended December 31, 2002, as compared to the three months ended
June 30, 2002, and September 30, 2002, primarily due to the seasoning of this acquired portfolio during its post-acquisition months. These statistics were depressed during
the second and third quarters due to a large increase in the average managed receivables in the denominator of those ratios for the second and third quarters without a commensurate increase in
charge-offs of accrued finance charges, fees, and principal in those quarters given that we do not record within our managed receivables data any acquired accounts that were at a late
stage of delinquency and at or near charge off by the seller on the date of our acquisition. The exclusion from our credit card data of acquired accounts at a late stage of delinquency and at or near
charge off by the seller means that there are fewer accounts in the 90-plus day delinquency categories at an acquisition date and accordingly, fewer potential accounts that could
potentially charge off until several months after the acquisition date. This effect of the CSG Trust portfolio acquisition began to normalize within our charge off data in the fourth quarter of 2002
and will continue to do so during the first half of 2003; this occurs as some portion of the acquired accounts season into later stage delinquency status and ultimately are charged off throughout the
first six to nine months or so following an acquisition.

Credit Losses.For securitized receivables, anticipated credit losses are reflected in the calculations of net securitization
(loss) income and the actual charge offs are included in income from retained interests in credit card receivables securitized. In evaluating credit losses for purposes of our GAAP computations, we
take into consideration several factors, including (1) historical charge off and recovery activity by receivables portfolio, (2) recent and expected delinquency and collection trends by
receivables portfolio, (3) the impact of current economic conditions and recent economic trends on the customers' ability to repay and (4) the risk characteristics of the portfolios.
Substantially all of our credit card receivables have been securitized. Because we have securitized our receivables, we have removed them from our balance sheets within our GAAP financial statements.

Collections Strategies.The goal of the collection process is to collect as much money from the cardholder as possible in the
most cost effective and efficient manner. To this end, we employ competitive techniques that focus on having the lowest possible delinquencies for our portfolios. As part of our collection analysis
and consistent with what we believe to be prevalent industry practice, we evaluate our economic investment in the cardholder (i.e., the principal balance) and aggressively attempt to recover our
economic investment made on each receivable.

We
consider managements' experience in operating professional collection agencies, coupled with our proprietary systems, to be a competitive advantage in minimizing delinquencies and bad
debt losses. Our collectors employ various and evolving tools when working with a cardholder, and they routinely

58

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test
and evaluate new tools in their drive toward improving our collections with the greatest degree of efficiency possible. These tools include programs under which we may reduce or eliminate a
cardholder's APR or waive a certain amount of accrued late fees, provided the cardholder makes a minimum number or amount of payments. In some instances, we may agree to match a customer's payments,
for example, with a commensurate reduction of accrued finance charges or waiver of accrued late fees. In other situations, we may actually settle with customers and adjust their accrued finance
charges and accrued late fees, for example, based on their commitment and their follow through on their commitment to pay certain portions of the balances that they owe. Our collectors may also
decrease a customer's minimum payment once a certain number of minimum payments are received. We also may occasionally use our marketing group to assist in determining various programs to assist in
the collection process. Moreover, we willingly participate in the Consumer Credit Counseling Service ("CCCS") program by waiving a certain percent of a customer's debt that is considered our "fair
share" under the CCCS program.

We
are constantly monitoring and adapting our collection strategies, techniques, technology and training to optimize our efforts to reduce delinquencies and charge offs. We use our
systems to develop these proprietary collection strategies and techniques, which we employ in our operations. We analyze the output from these systems to identify the strategies and techniques that we
believe are most likely to result in curing a delinquent account in the most cost-effective manner, rather than treating all accounts the same based on the mere passage of time.

Our
collection strategies include utilizing both internal and third-party collectors and creating a competitive process of rewarding the most effective and efficient group of collectors
from within our system and among third-party agencies. We divide our portfolios into various groups that are statistically equivalent and provide these groups of accounts to our various internal and
external collection shops. We compare the results of the internal and external collectors against one another to determine which techniques and which collection groups are producing the best results.

The
various credit card data and charge off statistics above generally reflect our application of customer payments first to accrued finance charges, then to fees, and then to principal.
However, pursuant to the payment application discretion that we have under our cardholder agreements, we have varied from this general payment application priority where appropriate at certain stages
of an account's delinquency to assist our collectors in evaluating our cardholder relationships against our economic investment made in the cardholder relationship. To assist them in making this
evaluation, we have, in certain circumstances and at certain stages of an account's delinquency, applied customer payments first to principal and then to accrued finance charges and fees. Application
of payments in this manner permits our collectors to know real time the degree to which a customer's payments over the life of an account have covered the principal credit extensions to the customer
over the life of the account. This allows our collectors to readily identify our potential "economic" loss associated with a
charge off of a particular account (i.e., the excess of principal loaned to the customer over payments received back from the customer throughout the life of the account). Armed with this information,
our collectors will focus on settling with customers in a way that ideally will best protect us from economic loss on the cardholder relationship. Under this approach, for example, our collectors may
forgo collections of accrued finance charges and fees in order to preserve our opportunity to at least achieve repayment of our principal credit extensions to the cardholder. Our selection of
collection techniques, including, for example, whether we apply payments to finance charges or principal, impacts the statistical performance of our portfolios.

As in all aspects of our risk management strategies, we compare the results of each of the above strategies with other collection strategies and devote resources to those strategies that
yield the best results. Results are measured based on delinquency rates, expected losses and costs to collect. Existing strategies are then adjusted as suggested by these results. Management believes
that maintaining the ongoing discipline of testing, measuring and adjusting collection strategies will result in minimized bad

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debt losses and operating expenses. We believe this on-going evaluation differs from the approach taken by the vast majority of credit grantors that implement collection strategies based
on commonly accepted peer group practices.

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 in the spread between the prime rate and commercial paper rates, on the one hand, and LIBOR, on the other hand, over time. 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
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 and liabilities such as securitized receivables. 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
December 31, 2002, substantially all of our credit card receivables and other interest-earning assets had variable rate pricing, with receivables carrying annual percentage
rates at a spread over the prime rate (4.25% at December 31, 2002), subject to interest rate floors. At December 31, 2002, the majority (93%) of our originated receivables were priced at
their floor rate. The floor rate is, on average, 165 basis points above the prime rate plus the spread; as such, approximately 7% of our originated receivables are essentially at or above their fixed
rate floor. At December 31, 2002, our securitizations had $1.7 billion in variable rate, interest-bearing liabilities payable to investors. Should interest rates begin to rise, it is
possible that, due to this gap, our managed liabilities may begin to rise in cost prior to our managed assets rising in yield. The impact of this would depend upon how much and how quickly interest
rates rose and also would depend on our ability to reprice our receivables. Assuming that we could not successfully reprice our originated receivables or make other appropriate responsive changes in a
timely enough fashion and assuming the application of a rise in interest rates to our managed receivables balances as of December 31, 2002, each 10 basis point increase (up to the 165 basis
point average exposure set forth above) would have an approximate $1.0 million after-tax negative impact on our annual cash flows. We are in the process of evaluating certain
potential actions to mitigate this risk.

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

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Liquidity, Funding and Capital Resources

A primary financial goal of the Company is to maintain an adequate level of liquidity through active management of assets and liabilities. 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:



At
December 31, 2002, we had approximately $120.4 million in unrestricted cash. During 2002, we generated approximately $248.6 million in cash flows from our
operations. These cash flows included

61

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$117.0 million
from the retained interests we purchased from Federated and $86.1 million from our retained interests on our core portfolio. Cash generated or used by our operations is
dependent on the performance of our managed portfolio including charge off rates, net interest margin, payment rates and operating expenses.

Using
the equity method of accounting for our CSG investment, we recorded approximately $45.7 million of pretax income during the year ended December 31, 2002. This income
primarily consisted of income from retained interests in credit card receivables securitized that CSG acquired in the second quarter of 2002 from the CSG Trust. During 2002, we received approximately
$43.5 million in cash distributions and a distribution of $21.5 million in bonds from our investment in CSG.

Our
most significant uses of cash are operating expenses, the purchase of the credit card receivables that arise in the accounts that are issued through our relationship with CB&T and
marketing expenses. We raise cash by selling the credit card receivables into our securitization programs. When we sell the receivables, we receive cash and a retained interest. Because the amount of
cash that we receive is less than the face amount of the receivables, this retained interest is a use of cash for us. The receivables in the securitization programs then generate cash as the
cardholders make payments on their accounts. This cash is allocated by the securitization agreements to pay us for servicing the receivables, to pay interest on the investors' notes, to cover charge
offs and to repay any principal portion of the investors' notes that are due. Any excess cash after the above allocations is remitted to us.

As of December 31, 2002, we had net servicing liabilities of $66.9 million and $41.1 million on our Fingerhut and originated portfolios, respectively. In
March 2003, and as expected, we triggered an early amortization on Fingerhut as discussed below. As a result of this, unless this securitization facility is refinanced with more favorable terms
to us, we will experience significantly diminished cash flows from the Fingerhut Trust until all secured investors are repaid (currently estimated to be the third quarter of 2004). Nevertheless, we
expect these substantially diminished cash flows will be sufficient throughout the early amortization period to fully fund our excess servicing obligation associated with the Fingerhut managed
receivables. Thus, we believe that the combination of the servicing fee that we will receive from the Fingerhut Trust during the early amortization period and the excess cash flows that we will
receive from the finance charge collections from the Fingerhut Trust will be sufficient to fully fund the servicing expenses of this portfolio until the investors in the trust are repaid. While, at
the time of



acquisition, we fully anticipated the Fingerhut Trust hitting an early amortization trigger, we are now seeing marked improvements in the performance of the Fingerhut Trust receivables as a result of
a number of significant collections improvements that we have implemented over the past several months. These improvements are significant enough such that we now believe that we will receive cash
flows from the Fingerhut Trust sufficient to cover our excess servicing obligation; whereas, our forecasts at the time of acquisition and throughout 2002, as well as our performance in 2002, did not
support such a conclusion.

Like with Fingerhut, we also anticipate that CSG will hit an expected early amortization principal balance trigger and will stop receiving cash from the CSG Trust beginning in the second
quarter of 2003. The CSG Trust secrutization facility is unique in that it was structured by the seller of the retained interests as a liquidating trustessentially providing for limited
purchasing volume and liquidating account balances over the term of the facility. Moreover, triggers were specifically designed to cause early amortization and repayment of the secured investors based
on the rate of liquidation of the receivables within the CSG Trust. In evaluating its purchase of the CSG Trust retained interests and in establishing its purchase price for those retained interests,
CSG fully anticipated a first quarter to second quarter of 2003 early amortization event. Once the CSG Trust hits this early amortization trigger, CSG is not expected to resume receipts of cash from
the CSG Trust until the middle of 2006. This event will cause CSG, as our equity method investee, to cease making cash distributions to us. We will, however, continue to receive throughout the early
amortization period adequate compensation for

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servicing the receivables underlying the CSG Trust. Finally, as we begin to reduce the balances within our originated portfolio within our Master Trust (see the discussion in "Item 1. Business."), it
is conceivable that we may trigger an early amortization of one or more of the outstanding series within our Master Trust.

Additionally,
to date, we have paid the dividends on our Series A and B preferred stock issuances 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 we will have to pay the dividends in cash.

We
generated positive cash flow in 2002. Based on our current expectations of our managed portfolio performance and our expected growth rates for 2003 and assuming that we are not
successful in acquiring further portfolios during 2003, we do not expect to generate positive cash flow during 2003. This expectation is being driven principally by our expected 2002 income tax
payments due in March 2003, an expected increase in certain enhancement requirements associated with one of our securitization facilities, the Fingerhut and CSG early amortizations discussed
above, and the fact that the accumulation requirement on one of our securitization facilities is greater than the funds available from the structurally subordinate series associated with that
facility. Despite this anticipated usage of cash in 2003, we anticipate having more than adequate cash for our operations during the year without
having to raise additional funds. We do, however, anticipate attempting to raise additional funds as discussed elsewhere herein.

Securitization facilities.As of December 31, 2002, we had total securitization facilities of $2.3 billion and
had used approximately $1.7 billion of these facilities. The weighted-average borrowing rate on these facilities at December 31, 2002, was 3.27%. These facilities include the outstanding
amounts on two floating rate, three-year term securitizations of approximately $441.5 million that we completed during July 2001, and approximately $627.4 million that
we completed during August 2000. Repayment for each securitization facility begins when the revolving period for the facility ends. Once repayment begins and until the facility is paid, cash
may be accumulated within the trust and not paid to us to provide for the repayment of such facility. This is the case with our term securitizations, in which cash may be accumulated as early as one
year prior to the scheduled maturity date. Or, as is the case with our one-year securitizations, cash may be used to pay down the facilities beginning on the facilities' maturity date. We
are only able to borrow under our securitization facilities to the extent that we have receivables that meet the eligibility requirements of each series. We have noted our securitization facilities
below including their maturation dates as of March 2003.

Maturity Date

Facility Limit(1)(in millions)April 2003

$
75.0July 2003


300.0September 2003(2)(3)


676.5October 2003


306.0March 2004


100.0April 2004(4)


360.1July 2004(5)


441.5$
2,259.1




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Our
most significant source of liquidity is the securitization of credit card receivables. The maturity terms of our securitizations vary. We have two, three-year
securitizations that we completed in July 2001 and August 2000, several one-year securitizations and, through the Fingerhut Trust, an amortizing term securitization. Once
repayment begins, payments from customers on credit card receivables are accumulated to repay the investors and are no longer reinvested in new credit card

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receivables.
At such times, our funding requirements for new credit card receivables will increase accordingly.

The
occurrence of adverse events may also cause the securitization transactions to amortize earlier than scheduled or may require additional enhancements. These events include a decline
in the portfolio's annualized net yield or a decline in the payment rate, in each case below set rates, or an increase in delinquencies or charge offs, in each case, above set rates. The portfolio's
annualized net yield typically includes monthly finance charges and past due fees collected on the receivables less monthly servicing fees, credit losses and cost of funds. These events would
accelerate the need to utilize alternative funding sources. If our securitization facilities begin to trap cash flows or otherwise increase their required credit enhancement and we are unable to
obtain additional sources of liquidity (such as other
securitization facilities structurally subordinate to those facilities that are trapping cash or are in their amortization period, other debt or the issuance of additional equity), we would begin to
close the credit card accounts that are open to new purchases and thus significantly reduce our need for any additional cash.

Under
each of our securitization structures, there has not been an early amortization period; however, and as noted above, the Fingerhut Trust Series 1998-2 issuance
began an early amortization during the first quarter of 2003. We also anticipate that, due to an expected reduction in the principal balance of receivables within the CSG Trust, the retained interests
in which are owned by our equity method investee, CSG, a principal balance trigger will be hit, and hence early amortization will begin, during the second quarter of 2003. The occurrence of this event
will cause CSG to cease its cash distributions to us, although it will continue to compensate us in cash for servicing the CSG Trust receivables.

As
each facility expires or comes up for renewal, there can be no assurance that the facility will be renewed, or if renewed, there can be no assurance that the terms will be as
favorable as the terms that currently exist. Either of these events could significantly increase our need for additional liquidity. For additional information regarding our securitization practices,
see the "Off Balance Sheet Arrangements" section. When a facility expires or is not renewed, the trust continues to own the credit card receivables that we generate in the accounts designated for that
trust until the securitization structure is fully amortized. As a result, when we seek to replace a securitization facility with a facility that is structurally subordinate to the amortizing facility,
the new structurally subordinate facility will not receive any allocations of principal collections on the receivables until the amortization of the expiring facility is complete, although the amount
of debt in front of it will decline over time. This process of replacing one securitization with another structurally subordinate facility in this manner is called a "paired" transaction, and the
structurally subordinate facility is often referred to as a "paired series."

Absent
changes in the manner in which we securitize credit card receivables, we believe that our asset securitizations, cash flow from operations and cash flows from our investment in
CSG generally will provide adequate liquidity for our business at its current level. However, in order for us to continue growing our business, we will need additional sources of liquidity to fund our
retained interest portion of the growth. In addition, should the terms of the securitizations available to us become less favorable, we also will need additional sources of liquidity to fund our
retained interests. We are particularly concerned about the continued availability of securitizations on terms previously available to us given the recent poor performance of several of our
competitors and the impact of their performance on the marketplace for securitizations.

We
continue to explore a wide range of options for liquidity in order for us to maintain our growth and to be prepared for adverse changes in the securitization marketplace. These
options may include revolving lines of credit, selling a subordinated interest in one or more of our securitizations, refinancing various securitization structures or the issuance of debt or equity.
We may explore other

65

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options
as well. There cannot, however, be any assurances that we will be able to obtain liquidity on satisfactory terms. Should we not obtain additional liquidity, we will need to significantly limit
our growth and will be more susceptible to adverse changes in the securitization marketplace.

Recent Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 148, "Accounting for
Stock-Based CompensationTransition and Disclosure" ("Statement No. 148"). Statement No. 148 amends Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("Statement No. 123") to provide alternative methods of transition to Statement No. 123's fair value method of accounting for stock-based employee
compensation. Statement No. 148 also amends the disclosure provisions of Statement No. 123 and Accounting Principles Board Opinion No. 28, "Interim Financial Reporting," to
require disclosure of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in the summary of significant
accounting policies within annual and interim financial statements. While Statement No. 148 does not amend Statement No. 123 to require companies to account for employee stock options
using the fair value method, the disclosure provisions of Statement No. 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of Statement No. 123 or the intrinsic value method of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." We
have adopted the required disclosures in the notes to our audited consolidated financial statements included in Item 8 of this report.

In
November 2002, the FASB issued FASB interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("Interpretation No. 45"), which addresses the accounting for and disclosures of guarantees. Interpretation No. 45 requires a guarantor to recognize a liability
for the fair value of a guarantee at inception. The recognition of the liability is required even if it is not probable that payments will be required under the guarantee. The disclosure requirements
are effective for interim and annual financial statements ending after December 15, 2002. (See Note 10 (Commitments and Contingencies) within our audited consolidated financial
statements.) In accordance with Interpretation No. 45, we will apply the initial recognition and measurement provisions on a prospective basis for all guarantees within the scope of
Interpretation No. 45 issued or modified after December 31, 2002. We are currently evaluating the impact of this interpretation on our financial statements, but do not expect it to be
material.

In
January 2003, the FASB issued FASB interpretation No. 46, "Consolidated Financial Statements" ("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 June 15, 2003, to variable interests entities in which an enterprise holds a variable

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interest
that it acquired before February 1, 2003. We are currently evaluating the impact of this interpretation on our financial statements, but do not expect it to be material.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with GAAP, the principles of which are numerous and complex. Our significant accounting policies
are summarized in the footnotes to our consolidated financial statements, principally Note 2 (Significant Accounting Policies). 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 impractical for us to summarize every accounting principle that requires us to use judgment or estimates in its application. However, described below are
the two areas 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.

Valuation of Retained Interests.By far, the most significant aspect of our business is the credit card receivables that we
originate, purchase and service. As of December 31, 2002, there were approximately $2.3 billion of credit card receivables underlying our securitization program. We reflect our retained
interests in the credit card receivables as an asset in our financial statements. The value of this asset is critical to our financial performance and condition. The portfolios that we have
securitized are accounted for in accordance with Statement No. 140. Our purchased retained interests in portfolios securitized by others are accounted for in accordance with EITF
99-20. See the "Off Balance Sheet Arrangements" section and Note 2 (Significant Accounting Policies), Note 5 (Purchase of Assets), and Note 6 (Off Balance Sheet
Arrangements) to our consolidated financial statements and the CSG, LLC and subsidiary consolidated statements for further discussion. In valuing this asset, we have to estimate several key factors
with respect to the underlying credit card receivables, including payment rate, credit loss rate and an appropriate discount rate. Additionally, the timing and amount of receivables collections are
extremely important, especially for our Fingerhut retained interests and CSG





investments as they are supported by liquidating trusts, the underlying securitization terms of which include certain early amortization triggers based on the rates of timing of the liquidation of the
collateral (the receivables) held by the trusts. Our estimates of the timing and amount of collections on the receivables supporting these trusts can affect our estimates of the dates on which we (or
CSG) will hit early amortization triggers inherent within these trust securitizations. With respect to both of these investments, triggering an early amortization results in our (or CSG's) cash flows
being significantly diminished until such time as bondholders are repaid. To the extent that we hit early amortization triggers earlier or later than anticipated, it will have a material effect on our
results of operations and liquidity. As noted earlier in the "Liquidity, Funding and Capital Resources" section and throughout this MD&A discussion generally, we have not hit these triggers any
earlier than anticipated such that we only anticipate positive results on our future results of operations and liquidity.

With respect to the portfolios that we have securitized that are accounted for in accordance with Statement 140, we have had to change the underlying Statement 140
valuation assumptions significantly over the last two years as a result of changing economic conditions, our liquidity position, and new bank regulatory guidelines. The most significant of these
changes were as follows:



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Further,
at December 31, 2002, the following illustrates the hypothetical effect an adverse 5 and 10 percent change in key economic assumptions has on the retained
interests in credit card receivables securitized ($ in thousands):

Credit card
ReceivablesPayment rate (monthly)


6.7
%Impact on fair value of 5% adverse change

$
(1,596
)Impact on fair value of 10% adverse change

$
(3,020
)Expected credit loss rate (annualized)


18.0
%Impact on fair value of 5% adverse change

$
(8,368
)Impact on fair value of 10% adverse change

$
(16,734
)Residual cash flows discount rate


22.5
%Impact on fair value of 5% adverse change

$
(2,944
)Impact on fair value of 10% adverse change

$
(5,800
)Servicing discount rate


14.1
%Impact on fair value of 5% adverse change

$
(136
)Impact on fair value of 10% adverse change

$
(272
)


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 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.

Non-Consolidation of Qualifying Special Purpose Entities.As described above, we securitize all of our credit
card receivables. In general these securitizations involve the sale of credit card receivables by CompuCredit to "qualified special purpose entities" ("QSPE") and to multi-seller commercial paper
conduits administered by national banking institutions. QSPEs are governed by complex documentation, and we have filed the significant documentation for the QSPEs that we have established as exhibits
to our SEC filings. Statement No. 140 governs how we account for the QSPEs that we have established. In general, Statement No. 140 requires an entity to recognize the financial and
servicing assets it controls and the liabilities it has incurredthat is, the entity is required to "consolidate" those assets and liabilities and any related transactions and to
derecognize financial assets when control has been

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surrendered
in accordance with the criteria provided in the statement. Although Statement No. 140 provides guidance as to whether control has been surrendered, the ultimate determination is
subjective in nature and requires considerable judgment.

We
have reviewed the criteria provided in Statement No. 140 and believe that we have surrendered control with respect to the receivables. Statement No. 140 states that the
transferor has surrendered control over transferred assets if and only if all of the following conditions are met:



We
believe control has been surrendered with regard to receivables that we have sold within our securitizations, including our commercial paper conduits, and therefore, the transferred
assets are treated as sales under Statement No. 140.

Because
the application of Statement No. 140 requires subjective judgments, it is possible, although we believe it is unlikely, that someone viewing our facts and circumstances
might conclude that we had not surrendered control, and as such, that our transfers do not qualify as sales of the receivables. In that event, the credit card receivables that we have transferred to
QSPEs (approximately $2.3 billion) would be treated as assets on our financial statements, the securities issued (proceeds raised totaling approximately $1.7 billion) would be treated as
liabilities on our balance sheet (as secured borrowings), and no gain or loss would be recognized on the sale of the receivables. In addition, the credit card receivables would be subject to potential
reserves and would be classified as restricted assets for the repayment of the securities that were issued. This would result in a substantially different capital structure for us, although barring
unforeseen diminution in the value of the credit card receivables in the QSPEs, it would not materially impact our cash flows.

Related Party Transactions

The Series A Preferred Stock that was issued in December 2001, was issued to a group of investors that includes J.P. Morgan Corsair II Capital
Partners, L.P. and Paladin Capital Partners Fund, L.P. ("Paladin"). J.P. Morgan Corsair II Capital Partners is a holder of greater than 5% of our outstanding common stock. We issued 4,808 shares of
Series A Preferred Stock to Paladin for an aggregate purchase price of approximately $4.8 million. In addition to the preferred stock investment noted above, during the fourth quarter of
2001, Paladin purchased approximately $27 million of our retained interests in credit card receivables securitized for approximately $20 million. Paladin is an affiliate of an entity
controlled by Mr. Frank J. Hanna, Jr., who is the father of our Chairman and Chief Executive Officer, David G. Hanna, and one of our directors, Frank J. Hanna, III.

In
December 2001, we also issued 10,000 shares of Series B Preferred Stock, in a private placement, for an aggregate purchase price of $10 million. The
Series B Preferred Stock was issued to entities controlled by David G. Hanna and Frank J. Hanna, III.

The
holders of the Series A Preferred Stock, Series B Preferred Stock, certain holders of common stock and the Company entered into a Shareholders Agreement whereby (in
addition to the provisions described in Note 3 to the financial statements) (i) the holders of the Series A Preferred Stock are

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entitled
to participate in a sale or transfer of securities of CompuCredit by Frank J. Hanna, III, David G. Hanna (being the holders of the Series B Preferred Stock), and certain other common
stock holders that in the aggregate are equal to 25% or more of the outstanding shares of common stock, on a fully diluted basis, and (ii) the holders of the Series A and Series B
Preferred Stock are entitled to registration rights, such that their converted shares of common stock may be registered by CompuCredit on a registration statement filed with the SEC.

Under
a shareholders agreement into which we entered with David G. Hanna, a trust of which David G. Hanna is the sole trustee, Frank J. Hanna, III, a trust of which Frank J. Hanna, III
is the sole trustee, Richard R. House, Jr. (our President) and Richard W. Gilbert (our Chief Operating Officer and Vice Chairman) following our initial public offering (i) if one or more of the
shareholders accepts a bona fide offer from a third party to purchase more than 50% of the outstanding common stock, each of the other shareholders that are a party to the agreement may elect to sell
their shares to the purchaser on the same terms and conditions, and (ii) if shareholders that are a party to the agreement owning more than 50% of the common stock propose to transfer all of
their shares to a third party, then such transferring shareholders may require the other shareholders that are a party to the agreement to sell all of the shares owned by them to the proposed
transferee on the same terms and conditions.

Richard
R. House, Jr. and Richard W. Gilbert each indirectly own 13.0% of VSI., the third party developer of our database management system. During 2002, we paid approximately
$11.2 million to VSI and its subsidiaries for software development, account origination, and consulting services. In connection with the purchase of intellectual property, we entered into a
promissory note of $1.4 million, due and paid in January 2002. During 2001, we loaned a subsidiary of VSI $1.0 million for working capital and general corporate purposes. This
loan bears interest at the prime rate and is due in January 2005; approximately $1.0 million was outstanding as of December 31, 2002. During 2001, we paid approximately
$20.1 million to VSI for software development, account origination, consulting services, intellectual property and two patents.

During
2001, we began subleasing 7,316 square feet of excess office space to Frank J. Hanna, Jr., for $21.50 per square foot. The sublease rate is the same as the rate that CompuCredit
pays on the prime lease. Total rent for 2002 for the sublease was approximately $157,000.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required under this item is provided under the caption "Interest Rate Sensitivity and Market Risk" under "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Index to Financial Statements in "Item 15. Exhibits, Financial Statements Schedules and Reports on Form 8-K."

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

Previously reported on Form 8-K filed with the SEC on March 19, 2002, as amended by Form 8-K/A filed with the SEC on
March 20, 2002.

70

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding directors appearing under the caption "Proposal OneElection of Directors" in CompuCredit's Proxy Statement for the 2003 Annual
Meeting of Shareholders is hereby incorporated by reference. Information regarding executive officers appearing under the caption "Executive Officers of CompuCredit" in CompuCredit's Proxy Statement
for the 2003 Annual Meeting of Shareholders is hereby incorporated by reference. Information set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in
CompuCredit's Proxy Statement for the 2003 Annual Meeting of Shareholders is hereby incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information appearing under the caption "Executive and Director Compensation," including the "Summary Compensation Table" and the "Option Grants Table," in
CompuCredit's Proxy Statement for the 2003 Annual Meeting of Shareholders is hereby incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT

Information setting forth the security ownership of beneficial owners and management appearing under the caption "Executive and Director Compensation," including
the "Summary Compensation Table" and the "Option Grants Table," and under the caption "Equity Compensation Plan Information" in CompuCredit's Proxy Statement for the 2003 Annual Meeting of
Shareholders is hereby incorporated by reference.

ITEM 13. RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding related transactions appearing under the caption "Related Party Transactions" in CompuCredit's Proxy Statement for the 2003 Annual Meeting
of Shareholders is hereby incorporated by reference.

ITEM 14. CONTROLS AND PROCEDURES



71

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K

The following documents are filed as a part of this Report.



PageReports of Independent Certified Public Accountants

F-1Consolidated Balance Sheets as of December 31, 2002, and 2001

F-3Consolidated Statements of Operations for the Years ended December 31, 2002, 2001 and 2000

F-4Consolidated Statements of Shareholders' Equity for the Years ended December 31, 2002, 2001 and 2000

F-5Consolidated Statements of Cash Flows for the Years ended December 31, 2002, 2001 and 2000

F-6Notes to Consolidated Financial Statements for the Years ended December 31, 2002, and 2001

F-7




72

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|Exhibit
Number |  | Description of Exhibit                                                                                                                                                                                                                                          |  | Incorporated by reference from
CompuCredit's SEC filings unless otherwise indicated:
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------
|3.1            |  | Amended and Restated Articles of Incorporation of CompuCredit Corporation.                                                                                                                                                                                      |  | August 27, 1998, Form S-1, exhibit 3.1                                              
|3.1(a)         |  | Amendment to Amended and Restated Articles of Incorporation of CompuCredit Corporation.                                                                                                                                                                         |  | August 14, 2000, Form 10-Q, exhibit 3.1(a)                                          
|3.1(b)         |  | Articles of Amendment creating Series A Preferred Stock and Series B Preferred Stock                                                                                                                                                                            |  | December 28, 2001, Form 8-K, exhibit 3.3                                            
|3.2            |  | Second Amended and Restated Bylaws of CompuCredit Corporation.                                                                                                                                                                                                  |  | September 30, 2000, Form 10-Q, exhibit 3.2                                          
|4.1            |  | Form of certificate representing shares of the Registrant's common stock.                                                                                                                                                                                       |  | August 27, 1998, Form S-1, exhibit 4.1                                              
|10.1           |  | Stockholders Agreement, dated as of April 28, 1999, by and among CompuCredit, Frank J. Hanna, III, individually and as Trustee of Bravo Trust One, David G. Hanna, individually and as Trustee of Bravo Trust Two, Richard W.
Gilbert and Richard R. House, Jr. |  | August 27, 1998, Form S-1, exhibit 10.1                                             
|10.2          |  | Amended and Restated 1998 Stock Option Plan.                                                                                                                                                                                                                    |  | August 27, 1998, Form S-1, exhibit 10.2                                             
|10.2(a)       |  | CompuCredit Corporation's 2000 Stock Option Plan.                                                                                                                                                                                                               |  | March 30, 2001, Form DEF 14A, Appendix A                                            
|10.3          |  | CompuCredit Employee Stock Purchase Plan.                                                                                                                                                                                                                       |  | December 16, 1999, Form S-8, exhibit 4.3                                            
|10.4          |  | Employment Agreement between CompuCredit Corporation and Richard R. House, Jr.                                                                                                                                                                                  |  | March 30, 2001, Form 10-K, exhibit 10.3(a)                                          
|10.5          |  | Employment Agreement between CompuCredit Corporation and David G. Hanna.                                                                                                                                                                                        |  | March 30, 2001, Form 10-K, exhibit 10.3(c)                                          
|10.6          |  | Employment Agreement between CompuCredit Corporation and Richard W. Gilbert.                                                                                                                                                                                    |  | March 30, 2001, Form 10-K, exhibit 10.3(d)                                          
|10.7           |  | Employment Agreement between CompuCredit Corporation and J.Paul Whitehead III.                                                                                                                                                                                  |  | November 14, 2002, Form 10-Q, exhibit 10.6                                          
|10.8           |  | Asset purchase agreement, dated as of May 11, 2001 by and among CompuCredit Corporation, VSx, Corporation and James A. Eckstein.                                                                                                                                |  | April 1, 2002, Form 10-K, exhibit 10.8                                              
|10.8(a)        |  | Agreement, dated as of May 11, 2001, by and among CompuCredit Corporation, Visionary Systems, Inc. and James A. Eckstein.                                                                                                                                       |  | April 1, 2002, Form 10-K, exhibit 10.8(a)                                           
|10.9*          |  | Affinity Card Agreement, dated as of January 6, 1997, between Columbus Bank and Trust Company and CompuCredit, L.P.                                                                                                                                             |  | August 27, 1998, Form S-1, exhibit 10.7.1                                           
|10.9(a)        |  | Amendment to Affinity Card Agreement, dated as of March 26, 1998, between Columbus Bank and Trust Company and CompuCredit Corporation, as successor to CompuCredit, L.P.                                                                                        |  | August 27, 1998, Form S-1, exhibit 10.7.2                                           
|10.9(b)        |  | Amendment to Affinity Card Agreement, dated as of August 1, 1998, by and among Columbus Bank and Trust Company and CompuCredit Corporation, as successor to CompuCredit, L.P., and CompuCredit Acquisition Corp.                                                |  | August 27, 1998, Form S-1, exhibit 10.7.3                                           
|               |  |                                                                                                                                                                                                                                                                 |  |                                                                                     

73

---

|10.9(c)* |  | Facilities Management Services Agreement, dated as of August 1, 1998, between Columbus Bank and Trust Company and CompuCredit Corporation, as successor to CompuCredit, L.P.                                                                                      |  | August 27, 1998, Form S-1, exhibit 10.7.4       
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------
|10.9(d)  |  | Amendment to Affinity Card Agreement and Facilities Management Agreement, dated as of November 11, 1998, by and among Columbus Bank and Trust Company, CompuCredit Corporation, as successor to CompuCredit, L.P., and
CompuCredit Acquisition Corp.              |  | August 27, 1998, Form S-1, exhibit 10.7.5       
|10.9(e)  |  | Amendments to Affinity Card Agreement among Columbus Bank and Trust Company, CompuCredit Corporation, as successor to CompuCredit, L.P., and CompuCredit Acquisition Corporation.                                                                                 |  | March 30, 2001, Form 10-K, exhibit 10.5.6       
|10.9(f)  |  | Amendments to Facilities Management Services Agreement between Columbus Bank and Trust Company and CompuCredit Corporation, as successor to CompuCredit, L.P.                                                                                                     |  | March 30, 2001, Form 10-K, exhibit 10.5.7       
|10.9(g)  |  | Amendment to Affinity Agreement, dated as of September 23, 2002, among Columbus Bank and Trust Company, CompuCredit Corporation and CompuCredit Acquisition Corporation.                                                                                          |  | September 30, 2002, Form 10-Q, exhibit 10.1     
|10.9(h)  |  | Pledge and Security Agreement, dated as of September 23, 2002, between CompuCredit Corporation and Columbus Bank and Trust Company.                                                                                                                               |  | September 30, 2002, Form 10-Q, exhibit 10.2     
|10.9(i)  |  | Receivables Purchase and Security Agreement, dated as of September 23, 2002, by and between CFC LLC and Columbus Bank and Trust Company.                                                                                                                          |  | September 30, 2002, Form 10-Q, exhibit 10.3     
|10.9(j)  |  | Receivables Purchase and Security Agreement, dated as of September 23, 2002, by and between CFC II LLC and Columbus Bank and Trust Company.                                                                                                                       |  | September 30, 2002, Form 10-Q, exhibit 10.4     
|10.9(k)  |  | Shareholders Agreement, dated as of September 23, 2002, by and between Columbus Bank and Trust Company and CompuCredit Corporation.                                                                                                                               |  | September 30, 2002, Form 10-Q, exhibit 10.5     
|10.10    |  | Master Indenture, dated as of July 14, 2000, among CompuCredit Credit Card Master Note Business Trust, as Issuer, The Bank of New York, as Indenture Trustee, and CompuCredit Corporation, as Servicer.                                                           |  | September 30, 2000, Form 10-Q, exhibit 10.1     
|10.10(a) |  | First Amendment to Master Indenture, dated as of September 7, 2000, among CompuCredit Credit Card Master Note Business Trust, The Bank of New York, and CompuCredit Corporation.                                                                                  |  | September 30, 2000, Form 10-Q, exhibit 10.1(a)  
|10.10(b) |  | Form of Indenture Supplement.                                                                                                                                                                                                                                     |  | September 30, 2000, Form 10-Q/A, exhibit 10.1(b)
|10.11    |  | Transfer and Servicing Agreement, dated as of July 14, 2000, among CompuCredit Funding Corp., as Transferor, CompuCredit Corporation, as Servicer, CompuCredit Credit Card Master Note Business Trust, as Issuer, and The
Bank of New York, as Indenture Trustee. |  | March 24, 2002, Form 10-K, exhibit 10.11        
|         |  |                                                                                                                                                                                                                                                                   |  |                                                 

74

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|10.11(a) |  | First Amendment to Transfer and Servicing Agreement, dated as of September 7, 2000, among CompuCredit Funding Corporation, CompuCredit Corporation, CompuCredit Credit Card Master Note Business Trust and The Bank of New
York.                                           |  | September 30, 2000, Form 10-Q, exhibit 10.2(a)
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|10.11(b) |  | Second Amendment to Transfer and Servicing Agreement, dated as of December 28, 2000, among CompuCredit Funding Corporation, CompuCredit Corporation, CompuCredit Credit Card Master Note Business Trust and The Bank of New
York.                                          |  | March 30, 2001, Form 10-K, exhibit 10.8(b)    
|10.12    |  | Master Indenture, dated as of December 28, 2000, among CompuCredit Credit Card Master Note Business Trust II, as Issuer, The Bank of New York, as Indenture Trustee, and CompuCredit Corporation, as Servicer.                                                             |  | March 30, 2001, Form 10-K, exhibit 10.9       
|10.12(a) |  | Form of Indenture Supplement to the Master Indenture, dated as of December 28, 2000.                                                                                                                                                                                       |  | March 30, 2001, Form 10-K, exhibit 10.10      
|10.13    |  | Transfer and Servicing Agreement, dated as of October 20, 2000, among CompuCredit Funding Corp. II, as Transferor, CompuCredit Corporation, as Servicer, CompuCredit Credit Card Master Note Business Trust II, as Issuer,
and The Bank of New York, as Indenture Trustee. |  | March 30, 2001, Form 10-K, exhibit 10.11      
|10.14    |  | Securities Purchase Agreement (J.P. Morgan Corsair II Capital Partners, L.P., J.P. Morgan Capital, L.P., Winding Creek, L.P. and Paladin Capital Partners Fund, L.P.) dated as of December 17, 2001.                                                                       |  | December 28, 2001, Form 8-K, exhibit 10.12    
|10.15    |  | Securities Purchase Agreement (Rainbow Trust One and Rainbow Trust Two) dated as of December 17, 2001.                                                                                                                                                                     |  | December 28, 2001, Form 8-K, exhibit 10.13    
|10.16    |  | Shareholders Agreement dated as of December 17, 2001.                                                                                                                                                                                                                      |  | December 28, 2001, Form 8-K, exhibit 10.14    
|10.17    |  | Sale and Purchase Agreement, dated as of July 2, 2002, among Minnesota Telemarketing, Inc., Fingerhut Companies, Inc., FACS Group, Inc., Axsys National Bank, and CompuCredit Acquisition Corporation III.                                                                 |  | August 14, 2002, Form 8-K, exhibit 2.1        
|12.1     |  | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                         |  | March 24, 2002, Form 10-K, exhibit 12.1       
|21.1     |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                            |  | March 24, 2002, Form 10-K, exhibit 21.1       
|23.1     |  | Consent of BDO Seidman, LLP.                                                                                                                                                                                                                                               |  | Filed herewith                                
|23.2     |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                              |  | Filed herewith                                
|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                                

---

75

---



CompuCredit
did not file any reports on Form 8-K during the last quarter of the fiscal year ended December 31, 2002.



CSG, LLC AND SUBSIDIARY  INDEX TO FINANCIAL STATEMENTS

|                                                                                                              |  | Page
|------------------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Certified Public Accountants                                                            |  | F-28
|Consolidated Balance Sheet as of December 31, 2002                                                            |  | F-29
|Consolidated Statement of Operations for the period from inception (April 8, 2002) to December 31, 2002       |  | F-30
|Consolidated Statement of Members' Capital for the period from inception (April 8, 2002) to December 31, 2002 |  | F-31
|Consolidated Statement of Cash Flows for the period from inception (April 8, 2002) to December 31, 2002       |  | F-32
|Notes to Consolidated Financial Statements for the period from inception (April 8, 2002) to December 31, 2002 |  | F-33

76

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Report of Independent Certified Public Accountants

The Board of Directors
CompuCredit Corporation

We
have audited the accompanying consolidated balance sheet of CompuCredit Corporation and subsidiaries as of December 31, 2002, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The financial statements of CompuCredit Corporation as of December 31, 2001, and for each of the two years in the period
ended December 31, 2001, were audited by other auditors whose report dated March 26, 2002, expressed an unqualified opinion on those statements.

We
conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CompuCredit Corporation and subsidiaries at
December 31, 2002, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States
of America.

| | /s/BDO SEIDMAN, LLP
| | -------------------

Atlanta,
Georgia
January 24, 2003

F-1

---

Report of Independent Certified Public Accountants

The Board of Directors
CompuCredit Corporation

We have audited the accompanying consolidated balance sheets of CompuCredit Corporation and subsidiaries as of December 31, 2001, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the two years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CompuCredit Corporation and subsidiaries at
December 31, 2001, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.

| | ERNST & YOUNG LLP
| | -----------------

Atlanta, Georgia
March 26, 2002

F-2

---



CompuCredit Corporation and Subsidiaries  Consolidated Balance Sheets

|                                                                                                                            |  | December 31, |        
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------
|
|
|Assets                                                                                                                      |  |              |        
|Cash and cash equivalents                                                                                                   |  | $            | 120,416
|Restricted cash                                                                                                             |  |              | 10,112 
|Retained interests in credit card receivables securitized                                                                   |  |              | 275,635
|Accrued interest and fees                                                                                                   |  |              | 15,804 
|                                                                                                                            |  |              |        
|Net credit card receivables                                                                                                 |  |              | 291,439
|Amounts due from securitization                                                                                             |  |              | 7,235  
|Deferred costs, net                                                                                                         |  |              | 8,314  
|Software, furniture, fixtures and equipment, net                                                                            |  |              | 29,296 
|Investment in equity method investee                                                                                        |  |              | 15,593 
|Investment in debt security                                                                                                 |  |              | 18,819 
|Prepaid expenses                                                                                                            |  |              | 1,093  
|Other assets                                                                                                                |  |              | 16,598 
|                                                                                                                            |  |              |        
|Total assets                                                                                                                |  | $            | 518,915
|                                                                                                                            |  |              |        
|Liabilities                                                                                                                 |  |              |        
|Accounts payable and accrued expenses                                                                                       |  | $            | 32,570 
|Notes payable                                                                                                               |  |              |       
|Deferred revenue                                                                                                            |  |              | 8,979  
|Income tax liability                                                                                                        |  |              | 29,498 
|                                                                                                                            |  |              |        
|Total liabilities                                                                                                           |  |              | 71,047 
|Shareholders' equity                                                                                                        |  |              |        
|Preferred stock, no par value, 10,000,000 shares authorized:                                                                |  |              |        
|Series A preferred stock, 30,000 shares issued and outstanding at December 31, 2002 and 2001, respectively                  |  |              | 32,466 
|Series B preferred stock, 10,000 shares issued and outstanding at December 31, 2002 and 2001, respectively                  |  |              | 11,035 
|Common stock, no par value:                                                                                                 |  |              |        
|150,000,000 shares authorized, 45,976,265 and 46,559,165 issued and outstanding at December 31, 2002 and 2001, respectively |  |              |       
|Additional paid-in capital                                                                                                  |  |              | 241,400
|Treasury stock, at cost, 832,900 shares at December 31, 2002                                                                |  |              | (4,338 
|Deferred compensation                                                                                                       |  |              | (1,013 
|Note issued to purchase stock                                                                                               |  |              | (500   
|Retained earnings                                                                                                           |  |              | 168,818
|                                                                                                                            |  |              |        
|Total shareholders' equity                                                                                                  |  |              | 447,868
|                                                                                                                            |  |              |        
|Total liabilities and shareholders' equity                                                                                  |  | $            | 518,915
|                                                                                                                            |  |              |        

See
accompanying notes.

F-3

---

CompuCredit Corporation and Subsidiaries  Consolidated Statements of Operations

|                                                                             |  | For the year ended December 31, |        
|---------------------------------------------------------------------------- |  | ------------------------------- | -------
|
|
|Interest income                                                              |  | $                               | 2,494  
|Interest expense                                                             |  |                                 | (7,579 
|                                                                             |  |                                 |        
|Net interest income                                                          |  |                                 | (5,085 
|                                                                             |  |                                 |        
|Other operating income:                                                      |  |                                 |        
|Securitization (loss) income, net                                            |  |                                 | (18    
|(Loss) income from retained interests in credit card receivables securitized |  |                                 | (25,049
|Servicing income                                                             |  |                                 | 37,772 
|Other credit card fees                                                       |  |                                 | 95,877 
|Interchange fees                                                             |  |                                 | 15,867 
|Ancillary products                                                           |  |                                 | 14,846 
|Equity in income of equity method investee                                   |  |                                 | 45,717 
|                                                                             |  |                                 |        
|Total other operating income                                                 |  |                                 | 185,012
|Other operating expense:                                                     |  |                                 |        
|Non-servicing salaries and benefits                                          |  |                                 | 18,514 
|Credit card servicing                                                        |  |                                 | 94,046 
|Marketing and solicitation                                                   |  |                                 | 11,907 
|Professional fees                                                            |  |                                 | 4,488  
|Data processing                                                              |  |                                 | 6,754  
|Net occupancy                                                                |  |                                 | 5,185  
|Ancillary product expense                                                    |  |                                 | 4,832  
|Depreciation                                                                 |  |                                 | 14,801 
|Other                                                                        |  |                                 | 10,368 
|                                                                             |  |                                 |        
|Total other operating expense                                                |  |                                 | 170,895
|                                                                             |  |                                 |        
|Income before income taxes                                                   |  |                                 | 9,032  
|Income taxes                                                                 |  |                                 | (3,161 
|                                                                             |  |                                 |        
|Net income                                                                   |  | $                               | 5,871  
|                                                                             |  |                                 |        
|Net income attributable to common shareholders                               |  | $                               | 1,703  
|                                                                             |  |                                 |        
|Net income per common share-basic                                            |  | $                               | 0.04   
|Net income per common share-assuming dilution                                |  | $                               | 0.04   

See
accompanying notes.

F-4

---



CompuCredit Corporation and Subsidiaries  Consolidated Statements of Shareholders' Equity  For the years ended December 31, 2002, 2001 and 2000

|                             |                                                |   |        | Common Stock |            |           |   |   |   |   |         |         |   |        |        |   |       
|---------------------------- | ---------------------------------------------- | - | ------ | ------------ | ---------- | --------- | - | - | - | - | ------- | ------- | - | ------ | ------ | - | ------
|
|
|
|Balance at December 31, 1999 |                                                | $ |       |              | 41,834,725 |           | $ |  |   | $ | 93,374  |         | $ |       |        | $ |      
|                             | Issuance of common stock in secondary offering |   |        |             |            | 4,600,000 |   |   |  |   |         | 145,242 |   |        |       |   |       
|                             | Stock options exercised                        |   |        |             |            | 79,914    |   |   |  |   |         | 1,173   |   |        |       |   |       
|                             | Cash dividend paid by pooled company           |   |        |             |            |          |   |   |  |   |         |        |   |        |       |   |       
|                             | Net income                                     |   |        |             |            |          |   |   |  |   |         |        |   |        |       |   |       
|                             |                                                |   |        |              |            |           |   |   |   |   |         |         |   |        |        |   |       
|Balance at December 31, 2000 |                                                |   |       |              | 46,514,639 |           |   |  |   |   | 239,789 |         |   |       |        |   |      
|                             | Issuance of Series A preferred stock           |   |        | 29,512       |            |          |   |   |  |   |         |        |   |        |       |   |       
|                             | Issuance of Series B preferred stock           |   |        | 10,000       |            |          |   |   |  |   |         |        |   |        |       |   |       
|                             | Preferred dividends                            |   |        |             |            |          |   |   |  |   |         |        |   |        |       |   |       
|                             | Issuance of common stock                       |   |        |             |            | 44,526    |   |   |   |   |         | 563     |   |        |       |   |       
|                             | Note issued to purchase stock                  |   |        |             |            |          |   |   |  |   |         |        |   |        |       |   |       
|                             | Net income                                     |   |        |             |            |          |   |   |  |   |         |        |   |        |       |   |       
|                             |                                                |   |        |              |            |           |   |   |   |   |         |         |   |        |        |   |       
|Balance at December 31, 2001 |                                                |   | 39,512 |              | 46,559,165 |           |   |  |   |   | 240,352 |         |   |       |        |   |      
|                             | Issuance costs of Series A preferred stock     |   |        | (140         | )          |          |   |   |  |   |         |        |   |        |       |   |       
|                             | Preferred dividends                            |   |        |             |            |          |   |   |  |   |         |        |   |        |       |   |       
|                             | Accretion of preferred dividends               |   |        | 4,129        |            |          |   |   |  |   |         |        |   |        |       |   |       
|                             | Restricted shares issued to employees          |   |        |              |            | 250,000   |   |   |  |   |         | 1,048   |   |        |       |   |       
|                             | Amortization of deferred compensation          |   |        |             |            |          |   |   |  |   |         |        |   |        |       |   |       
|                             | Treasury stock, at cost                        |   |        |             |            | (832,900  | ) |   |  |   |         |        |   |        | (4,338 | ) |       
|                             | Net income                                     |   |        |             |            |          |   |   |  |   |         |        |   |        |       |   |       
|                             |                                                |   |        |              |            |           |   |   |   |   |         |         |   |        |        |   |       
|Balance at December 31, 2002 |                                                | $ | 43,501 |              | 45,976,265 |           |   |  |   | $ | 241,400 |         | $ | (4,338 | )      | $ | (1,013
|                             |                                                |   |        |              |            |           |   |   |   |   |         |         |   |        |        |   |       

See accompanying notes.

F-5

---

CompuCredit Corporation and Subsidiaries  Consolidated Statements of Cash Flows

|                                                                                  |                                                    | For the year ended December 31,                        |         
|--------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------------------ | --------
|
|
|Operating activities                                                              |                                                    |                                                        |         
|Net income                                                                        |                                                    | $                                                      | 5,871   
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                    |                                                        |         
|                                                                                  | Depreciation expense                               |                                                        |         
|                                                                                  | Amortization expense                               |                                                        |         
|                                                                                  | Amortization of deferred compensation              |                                                        |         
|                                                                                  | Securitization (income) loss                       |                                                        |         
|                                                                                  | Retained interests income adjustment, net          |                                                        |         
|                                                                                  | (Benefit) provision for deferred taxes             |                                                        |         
|                                                                                  | Income from equity investee (net of distributions) |                                                        |         
|                                                                                  | Changes in assets and liabilities:                 |                                                        |         
|                                                                                  |                                                    | (Increase) decrease in restricted cash                 |         
|                                                                                  |                                                    | Decrease (increase) in accrued interest and fees       |         
|                                                                                  |                                                    | Decrease (increase) in amounts due from securitization |         
|                                                                                  |                                                    | Increase in deferred costs                             |         
|                                                                                  |                                                    | Decrease (increase) in prepaid expenses                |         
|                                                                                  |                                                    | Increase in accounts payable and accrued expenses      |         
|                                                                                  |                                                    | (Decrease) increase in deferred revenue                |         
|                                                                                  |                                                    | (Decrease) increase in income tax liability            |         
|                                                                                  |                                                    | Other                                                  |         
|                                                                                  |                                                    |                                                        |         
|Net cash provided by operating activities                                         |                                                    |                                                        | 248,606 
|Investing activities                                                              |                                                    |                                                        |         
|Investment in equity investee                                                     |                                                    |                                                        | (34,890 
|Proceeds from bond investment                                                     |                                                    |                                                        | 2,666   
|Purchases of credit card portfolios and retained interests                        |                                                    |                                                        | (75,247 
|Net loans originated                                                              |                                                    |                                                        | (71,055 
|Recoveries of receivables previously charged off                                  |                                                    |                                                        | 22,174  
|Net proceeds from securitization                                                  |                                                    |                                                        | 2,987   
|Purchases of and development of software, furniture, fixtures and equipment       |                                                    |                                                        | (9,576  
|                                                                                  |                                                    |                                                        |         
|Net cash used in investing activities                                             |                                                    |                                                        | (162,941
|Financing activities                                                              |                                                    |                                                        |         
|Proceeds from issuance of preferred stock                                         |                                                    |                                                        | (140    
|Preferred dividends                                                               |                                                    |                                                        |        
|Proceeds from issuance of common stock and capital contributions                  |                                                    |                                                        |        
|Cash dividend paid by pooled company                                              |                                                    |                                                        |        
|Note issued to purchase stock                                                     |                                                    |                                                        |        
|Purchase of treasury stock                                                        |                                                    |                                                        | (4,338  
|Proceeds from short-term borrowings                                               |                                                    |                                                        | 126,679 
|Repayment of short-term borrowings                                                |                                                    |                                                        | (143,196
|Proceeds from exercise of stock options                                           |                                                    |                                                        |        
|                                                                                  |                                                    |                                                        |         
|Net cash (used in) provided by financing activities                               |                                                    |                                                        | (20,995 
|                                                                                  |                                                    |                                                        |         
|Net increase (decrease) in cash                                                   |                                                    |                                                        | 64,670  
|Cash and cash equivalents at beginning of year                                    |                                                    |                                                        | 55,746  
|                                                                                  |                                                    |                                                        |         
|Cash and cash equivalents at end of year                                          |                                                    | $                                                      | 120,416 
|                                                                                  |                                                    |                                                        |         
|Supplemental cash flow information                                                |                                                    |                                                        |         
|Cash paid for interest                                                            |                                                    | $                                                      | 7,731   
|Cash paid for income taxes                                                        |                                                    | $                                                      | 4,893   
|Accretion of preferred stock dividends                                            |                                                    | $                                                      | 4,129   
|Issuance of restricted stock                                                      |                                                    | $                                                      | 1,048   
|Distribution of bonds from equity method investee                                 |                                                    | $                                                      | 21,485  

See accompanying notes.

F-6

---



CompuCredit Corporation and Subsidiaries        Notes to Consolidated Financial Statements        December 31, 2002 and 2001

1.     Organization and Basis of Presentation

The consolidated financial statements include the accounts of CompuCredit Corporation and its wholly owned subsidiaries (collectively, "the Company"). The Company
was formed for the purpose of offering unsecured credit and fee based products and services to a segment of the consumer credit market. The Company sources the accounts to which it offers these
products and services through direct mail, telemarketing, television, the internet, and acquisition from other credit card issuers. 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. Additionally, the Company purchases the receivables relating to accounts generated by other third party financial
institutions from time to time as a further source for growth in its business. These credit card receivables are sold into different structures, which are not reflected on the Company's balance sheet.
(See Note 6, "Off Balance Sheet Arrangements.") 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 consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States that require management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as
well as the reported amount of revenues and expenses during the reporting period. These estimates are based on information available to the Company as of the date of the financial statements. Actual
results could differ materially 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.

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.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash, money market investments, and overnight deposits. The Company considers all other highly liquid cash investments with
low interest rate risk and maturities of three months or less to be cash equivalents. Cash equivalents are valued at cost, which approximates market.

Restricted Cash

During the first quarter of 2002, the Company entered into an irrevocable standby letter of credit agreement for $10.0 million with a bank, for the purpose
of securing the Company's obligations to the financial institution that issues the credit cards marketed by the Company. The purpose of the letter of

F-7

---

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 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 balance sheet.

Asset Securitization

All of the Company's credit card receivables are securitized. When the Company sells originated 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.

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 in measuring 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 required amortization 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 with changes in fair value included in determining income from retained interests. The change in the fair
value is included as a component of the Company's income from retained interests in credit card receivables securitized with actual expenses being recorded into operations as incurred. Because quoted
market prices 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 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 balance sheet. In accordance with Statement No. 140, the Company does not consolidate any of the qualified special purpose entities ("QSPEs") in its securitizations.

The
retained interests for securitized portfolios 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 the gains and losses and the related fair values of interest-only strips and retained ownership interests are influenced by factors outside the Company's control, and, as a
result, such estimates could materially change from quarter to quarter.

The
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 cost of the purchased retained interests are being amortized into income from retained interests using the effective interest method.

F-8

---

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.

Deferred Costs

The principal components of deferred costs include certain costs paid to third parties related to the Company's credit card receivables securitizations and direct
receivables origination costs. Deferred securitization costs include legal fees and fees incurred for services provided for establishing securitization facilities that have ongoing benefit to the
Company, such as the master trust used for future securitizations, which result in ongoing securitization income to the Company. These capitalized securitization costs are amortized over the estimated
lives of the securitizations, which are from one to three years. Under Statement of Financial Accounting Standards No. 91, "Accounting for Non refundable Fees and Costs Associated with
Originating or Acquiring Receivables and Initial Direct Costs of Leases" and Emerging Issues Task Force 93-1, "Accounting for Individual Credit Card Acquisitions" direct receivables
origination costs are deferred and amortized against credit card fee income on a straight-line basis over the privilege period, which is typically a one-year period.

Software, Furniture, Fixtures, and Equipment

The Company capitalizes costs related to internal development and implementation of software used in operating activities of the Company in accordance with AICPA
Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Software development, furniture, fixtures, equipment and leasehold
improvements are stated at cost less accumulated depreciation or amortization. Depreciation and amortization expenses are computed using the straight-line method over the estimated useful
lives of the assets, which are approximately 3 years for software, 5 years for furniture, fixtures and equipment. Leasehold improvements are depreciated over the shorter of their
estimated useful lives or the terms of the respective leases. The Company periodically reviews the assets to determine if any impairment, other than a temporary impairment exists. There were no such
impairments in the periods presented.

Accrued Interest and Fees

Accrued interest and fees on the Company's originated portfolios represent the estimated collectable portion of fees earned but not billed to the cardholder at
any period end. Prior to the second quarter of 2002, the Company estimated accrued interest and fees using its estimates of total accrued interest and fees earned but not yet billed. The new estimates
better reflect the Company's expectations of the collectible portion of these interest and fees and are in response to evolving regulatory guidance within the industry. The impact of this change was a
decrease in net income of $8.2 million net of tax, or $0.18 per share.

Retained Interests in Finance Charge Receivables

Included within the Company's retained interests in credit card receivables securitized on its consolidated balance sheet at each period end is the estimated
collectible portion of finance charges and fees billed to cardholders within the originated portfolio but not collected (the Company's "retained interests in finance charge receivables"). Prior to the
second quarter of 2002, the Company estimated its retained interests in finance charge receivables using its estimates of total finance charges and fees billed but not collected. The new estimates
better reflect the Company's expectations of the

F-9

---

collectible portion of these finance charges and fees and are in response to evolving regulatory guidance within the industry. The impact of this change was a decrease in net income of
$41.2 million net of tax, or $0.89 per share.

Equity Investment

The Company accounts for investments using the equity method of accounting if the investments give the Company the ability to exercise significant influence, but
not control, over the investees. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of an investee of between 20% and 50%, although other
factors, such as representation on an investee's board of directors and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. The
Company has a 50% interest in a limited liability company and records its 50% interest in the income or loss of such investee within other operating income each period. The carrying amount of the
Company's investment is recorded on the balance sheet as investment in equity method investee. There is no difference between the carrying amount of the investment and the underlying equity in the net
assets of the equity method investee. The Company evaluates its investment in the equity method investee for impairment each quarter by comparing the carrying amount of the investment to its fair
value. Because no active market exists for the investment's membership interests, the Company evaluates its investment in the equity method investee for impairment based on the Company's evaluation of
the equity method investees' application of EITF





99-20 to the equity method investee's investment in the retained interests in an underlying trust of securitized credit card receivables (See Note 4, "Equity Method Investment in
CSG, LLC" below). Because the equity method investee's material net assets are comprised of only cash and the retained interests to which it applies EITF 99-20 accounting and because the
application of EITF 99-20 to the retained interests held by the equity method investee has never yielded a determination of impairment in the value of the retained interests, the Company
has determined that its investment in the equity method investee is not impaired. If, through the above process, the Company ever were to determine that the carrying value was not justified, the
Company then would write the investment in the equity method investee asset down to its fair value.

Investments in Debt Securities

During the third quarter of 2002, CSG, LLC, the Company's equity method investee, (see Note 4, "Equity Method Investment in CSG, LLC" below) distributed
certain bonds to its members as a partial return of their initial investment in CSG, LLC. These bonds were Class B notes issued by a Master Trust within a Providian National Bank securitization
structure (the "CSG Trust"). The bonds mature in June 2012 and bear an interest rate of LIBOR plus 10% (11.4% at December 31, 2002). The Company recorded these distributed bonds at CSG,
LLC's net amortized cost of the bonds (initial fair value at inception (June 25, 2002) less principal payments to date). In absence of a readily determinable market value, the Company felt this
was the best approximation of the fair market value of the bonds at the distribution date, given the close proximity of the distribution date of the bonds to the date of their original issuance to
CSG, LLC (in late June 2002) and the absence of any material external factors which would affect the value of the bonds.

In accordance with Statement No. 115, and based on the Company's intentions and ability to hold these bonds to maturity, the Company has classified these bonds as
held-to-maturity and accounts for these bonds at their amortized cost (i.e., initial distribution value less principal payments). While the maturity date is June 2012,
the bonds will be repaid over time and are anticipated to be fully paid off

F-10

---

during 2006. 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, in management's
opinion, held-to-maturity is the appropriate classification as it best depicts the most probable realization of this investment. The investment in these debt securities is
regularly reviewed for impairment based on the Company's normal recurring monthly evaluation of the performance of the assets that it manages under the CSG Trust, as well as the Company's evaluation
of the relative pricing of similar instruments in the open market. As the market for these bonds is not active, the Company relies principally on its analysis of the performance of the assets in the
CSG Trust as well as its projections for in the future performance of these assets to determine if any impairment exists. Based on the fact that the performance to date has exceeded expectations, no
impairments have been recorded.

Stock Options

The Company has two stock-based employee compensation plans, which are more fully described in Note 13, "Stock Options." 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 years ended December 31, 2002, 2001 and 2000.

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

For the year ended December 31,2002

2001

2000(In thousands)Net income, as reported

$
1,703

$
2,723

$
82,374Stock-based employee compensation expense determined under fair value basis, net of tax


(3,029
)

(7,792
)

(3,139
)Pro forma net income

$
(1,326
)
$
(5,069
)
$
79,235Earnings per share:Basicas reported

$
0.04

$
0.06

$
1.80Basicpro forma

$
(0.03
)
$
(0.11
)
$
1.73Dilutedas reported

$
0.04

$
0.06

$
1.79Dilutedpro forma

$
(0.03
)
$
(0.11
)
$
1.72


The
pro forma results may not be indicative of the future effect on the results of operations due to a variety of factors including timing and number of awards. The following table
summarizes the value

F-11

---

per
share as determined by the Black-Scholes models as well as the key assumptions for the years ended:

At December 31,2002

2001

2000Fair value per share

$
4.34

$
6.15

$
29.48Dividend rate


0
%

0
%

0
%Risk free rate


3.8
%

4.2
%

5.0
%Expected volatility


96.4
%

85.0
%

80.0
%Expected life of the options


5 years


5 years


5 years


Servicing Income

As of December 31, 2002, the Company is the servicer for the receivables underlying its securitizations transactions, and is the servicer for 100% of the
receivables underlying the CSG Trust. (See Note 4, "Equity Method Investment in CSG, LLC" below.) The Company receives servicing fees equal to 0.1% of the principal receivables that it
purchases from its primary account originating financial institution relationship. (See Note 1, "Organization and Basis of Presentation.") The Company receives between 2% and 5% on all other
receivables the Company services, or 5% of cash collected, depending on the terms of the securitization structure. Gross servicing revenue is recognized as income on a monthly basis during the same
period in which the servicing is performed and is included as servicing income in the Company's Consolidated Statements of Operations. Total assets being serviced by the Company were
$3.3 billion as of December 31, 2002, and $1.9 billion as of December 31, 2001.

Credit Card Fees

Credit card fees include annual membership, overlimit, returned check, cash advance transaction fees and other fees. Credit card fees are assessed 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 privilege period, which is twelve months. As noted above in "Deferred Costs," direct receivables origination costs are amortized against credit card fee
income.

Ancillary Product Revenue

The Company offers various fee-based products and services 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 a commission arrangement, 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., 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.

F-12

---

Solicitation Expenses

Credit card account and other product solicitation costs, including printing, credit bureaus, list processing costs, telemarketing and postage, are expensed as
the solicitation occurs. See "Deferred Costs" for discussion of the accounting for costs considered to be receivables origination costs.

Income Taxes

The Company accounts for income taxes based on the liability method required by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("Statement No. 109").

Under
the liability method, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

Recent Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
CompensationTransition and Disclosure" ("Statement No. 148"). Statement No. 148 amends Statement No. 123, to provide alternative
methods of transition to Statement No. 123's fair value method of accounting for stock-based employee compensation. Statement No. 148 also amends the disclosure provisions of Statement
No. 123 and Accounting Principles Board Opinion No. 28, "Interim Financial Reporting," to require disclosure of the effects of an entity's accounting policy with respect to stock-based
employee compensation on reported net income and earnings per share in the summary of significant accounting policies within annual and interim financial statements. While Statement No. 148
does not amend Statement No. 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of Statement No. 148 are applicable to
all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of Statement No. 123 or the intrinsic value method of
APB 25. The Company has adopted the required disclosures in the Notes herein.

In
November 2002, the FASB issued FASB interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("Interpretation No. 45"), which addresses the accounting for and disclosures of guarantees. Interpretation No. 45 requires a guarantor to recognize a liability
for the fair value of a guarantee at inception. The recognition of the liability is required even if it is not probable that payments will be required under the guarantee. The disclosure requirements
are effective for interim and annual financial statements ending after December 15, 2002. (See Note 10, "Commitments and Contingencies.") In accordance with Interpretation No. 45,
the Company will apply the initial recognition and measurement provisions on a prospective basis for all guarantees within the scope of Interpretation No. 45 issued or modified after
December 31, 2002. The Company is currently evaluating the impact of this interpretation on its financial statements, but does not expect it to be material.

In
January 2003, the FASB issued FASB interpretation No. 46, "Consolidated Financial Statements" ("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."

F-13

---

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
June 15, 2003 to variable interests entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company is currently evaluating the impact of
this interpretation on its financial statements, but does not expect it to be material.

3.     Shareholders' Equity

Loan to consultant

On May 21, 2001, in connection with the Company's entry into a consulting agreement, the Company loaned the consultant $500,000 to purchase 39,526 shares
of CompuCredit common stock.

Issuance of Preferred Shares

In December 2001, the Company issued 30,000 shares (aggregate initial liquidation preference $30 million) of its Series A Preferred Stock and
10,000 shares (aggregate initial liquidation preference $10 million) of its Series B Preferred Stock in a private placement. Net proceeds were $39.5 million. Dividends on the
preferred stock accumulate at the rate of 10% per annum and are payable quarterly, in arrears, in cash or, at the Company's option, by an increase in the accretive value of the preferred stock. The
dividend rate will increase if the shares are still outstanding after five years. In general, each outstanding share of preferred stock entitles the holder to that number of votes equal to the number
of shares of common stock into which the holder's shares of preferred stock could be converted at the time of the vote, subject (solely for purposes of determining the number of votes) to a floor on
the conversion price of $9.01 per share. The preferred stock is convertible into common stock at the holder's option. The holders are entitled to traditional weighted average anti-dilution
rights (i.e. for stock splits, the issuance or sale of equity securities, etc.). The Company can require the conversion of the preferred stock commencing December 2004 if the market price per
common share is at least 200% of the initial conversion price ($9.14 per share, subject to anti-dilution adjustment). The Company can redeem the Series A Preferred Stock for cash
after 5 years, or upon a change of control, provided all accrued dividends are paid; the Series B Preferred Stock does not have a cash redemption feature.

To
date, all dividends on the Series A and B Preferred Stock have been paid by accreting the value of the preferred shares. The carrying and liquidation value of the preferred
shares was $43,501,000 at December 31, 2002. The shares would have converted into approximately 4.8 million shares at December 31, 2002, and such common stock shares are reserved
for issuance upon conversion.

Treasury Share Repurchases

During the third quarter of 2002, the Company's Board of Directors authorized a program to repurchase up to 5 million shares (approximately
11 percent) of its outstanding common stock. Under the repurchase plan, the Company may buy back shares of its common stock from time to time either on the open market or through privately
negotiated transactions in compliance with SEC guidelines. During 2002, the Company repurchased a total of 832,900 shares of common stock for an aggregate cost of $4.3 million. The Company
accounts for the common shares repurchased using the cost method.

F-14

---

Restricted Share Awards

During the quarter ended December 31, 2002, the Company granted 250,000 of restricted stock to certain employees. On the date of grant, the fair market
value of the restricted stock was $1,048,000, which has been recorded as deferred compensation and is shown as a separate component of shareholders' equity. These restricted shares vest over a range
of 24 to 36 months and are being amortized to compensation expense ratably over the vesting period.

4.     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 certificated interest issued by a trust ("CSG Trust") that owns a portfolio of credit card receivables, which were initially purchased 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. (See Note 9, "Borrowings.")

The
following represents condensed results of operations of CSG as of and for the period from inception to December 31, 2002:

As of
December 31, 2002(in thousands)Retained interests in credit card receivables securitized

$
21,147Total assets


31,385Total liabilities


200Members' capital


31,185


For the period from inception
(April 8, 2002) to
December 31, 2002(in thousands)Income from retained interests in credit card receivables securitized

$
89,717Total other operating income


90,823Net income


91,434


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 to
exceed the estimated cost of servicing.

5.     Purchase of Assets

In July 2002, the Company completed a transaction with Federated Department Stores, Inc. in which the Company purchased the retained interests in a
trust (the "Fingerhut Trust") that owned approximately $1.0 billion in face amount of receivables for $75.2 million plus the assumption of the servicing liability associated with the
Fingerhut Trust of $95.8 million. The receivables included in the trust were generated by private label revolving credit cards used to purchase items from the Fingerhut catalog. This portfolio
will decrease over time because payments from cardholders are expected to be significantly greater than purchases. In accordance with EITF 99-20, the Company accounts for the

F-15

---

retained interests it purchased at the lower of amortized cost or fair market value. Accordingly, the expected cash flows in excess of the costs of the purchased retained interests
($263.5 million) are being amortized into income from retained interest using the effective interest method over 54 months. Also pursuant to EITF 99-20, the Company updates its
model when there has been a change in its estimate of the projected cash flows. This change can result in the Company either (1) adjusting the prospective yield it will realize over future
periods or, (2) if a significant adverse change occurs, reducing the carrying value of its investment to fair value. Based on improvements made by the Company to its newly acquired Fingerhut
collections and servicing operations, the Company increased its estimate of the cash flows in excess of the costs of the purchased retained interests by $20.5 million from its estimates as of
September 30, 2002; this change was accounted for prospectively.

The gross excess cash from the securitization structure associated with the Fingerhut Trust retained interests was $128.9 million during 2002. The portion of expected cash flows
that exceeds the cost of the purchased retained interests are being amortized into income from retained interest using the effective interest method ($76.9 million pre-tax was amortized into
income during 2002). These cash flow estimates are made using the Company's best estimates of the expected performance of the portfolio, including the timing of payments derived from such performance.
In its estimates of future cash flows, both at the time of purchase (for purposes of determining its purchase price of the retained interests) and at the conclusion of each financial reporting period
pursuant to the requirements of EITF 99-20, the Company has consistently modeled the effects of an anticipated early amortization event that was triggered during the first quarter of 2003.
The trigger for this early amortization was a minimum principal balance requirement for the outstanding series in the Fingerhut Trust, which the Company knew it would hit at the date of acquisition
because of the anticipated rapid rate of liquidation of the receivables underlying the securitization facility. The net result of the early amortization trigger for the Fingerhut Trust is that a
substantial portion of the income from the retained interests associated with the Fingerhut Trust will be recorded under EITF 99-20 during 2002 and the first quarter of 2003. However, this
trigger does not affect the amortization period of the servicing liability because the Company will be responsible for servicing the Fingerhut Trust throughout this early amortization period even
though the Company will be realizing significantly diminished cash flows throughout that period and until the investors in the securitization structure are repaid. As of the close of each financial
reporting period, the Company evaluates the appropriateness of its estimates of future cash flows used in the EITF 99-20 computation based on actual results to date and projected future results. As of
December 31, 2002, the gross retained interests in the Fingerhut Trust were carried at $21.1 million. CompuCredit anticipates recognizing income from retained interests associated with
the Fingerhut Trust for 2003, 2004, 2005, and 2006 of $19.6 million, $78.9 million, $59.1 million, and $29.0 million, respectively.

6.     Off Balance Sheet Arrangements

The Company securitizes all of its credit card receivables originated on a daily basis under its primary third party financial institution relationship (the
"originated portfolio") through Master Trusts. Credit card receivables are transferred to the Master Trusts, which issue notes representing undivided ownership interests in the assets of the Master
Trusts. The Company also securitized two purchased credit card receivables portfolios, which were acquired in 1998, through securitization structures with third party commercial paper conduits
administered by a national banking institution. Additionally, during the third quarter of 2002, the Company acquired retained interests in a credit card receivables trust. (See Note 5,
"Purchase of Assets.")

F-16

---

In
accordance with the above, all of the Company's credit card receivables (whether from the originated portfolio or the purchased portfolio) are held by securitization trusts, and the
exclusive interest of the Company in these receivables is in the form of retained interests in the trusts. Generally accepted accounting principles require the Company to treat the transfers 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.

The
table below summarizes all of the Company's securitization activity:

For the year ended
December 31,2002

2001

2000(In thousands)Gross amount of receivables securitized at year end

$
2,334,939

$
1,891,842

$
1,528,372Excess cash flows received on retained interests


311,423


202,350


155,000Pretax securitization income (loss)


(18
)

(8,400
)

11,778Proceeds from collections reinvested in Revolving-period securitizations


1,123,938


1,208,413


903,397(Loss) income from retained interests in credit card receivables securitized


(25,049
)

11,328


113,944


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.

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. 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

F-17

---

purchases.
Any collections from cardholders remaining each month after making the payments noted above are paid to the Company on its retained interests.

In
the securitization structures associated with the Company's purchased portfolios, each month either a certain dollar amount or a percentage of the excess cash collected from the
cardholders is paid to the investors to decrease their remaining invested amount. This excess cash that the Company paid to the investors totaled $145.1 million and $13.0 million for the
years ended December 31, 2002, and 2001, respectively. Once the investors are repaid, any remaining receivables and funds held in the securitization structure will be payable to the Company.

The
pretax securitization (loss) recorded by the Company and the measurement of the Company's retained interests 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. Interest rates received 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 receivable becomes 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.

Subsequent
to each sale, the Company's retained interests are carried at the lower of amortized cost or estimated fair market value, and because they are classified as trading
securities, any changes in fair value included in income. Since quoted market prices for the Company's retained interests in its originated portfolio 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:

At December 31,2002

2001

2000(In thousands)I/O strip

$
99,964

$
84,390

$
52,249Fair value of Seller's Interest


283,681


312,622


295,141Servicing liability


(108,010
)

(38,123
)

(21,807
)Retained interests in credit card receivables securitized

$
275,635

$
358,889

$
325,583


The
I/O strip reflects the fair value of the Company's rights to future income from the Company's originated portfolio and includes certain credit enhancements. The servicing liability
reflects, for those securitizations 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 change in the servicing liability is included in the income from retained interests in the credit card receivables securitized and includes
$28.9 million of amortization of the servicing liability associated with the Fingerhut Trust acquired in July 2002. The fair value of seller's interest

F-18

---

includes
those interests the Company retains in securitizations of the originated and purchased portfolio receivables.

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 as of the end of each year are presented below:

At December 31,2002

2001

2000Payment rate (monthly)

6.7
%
8.0
%
8.8
%Expected credit loss rate (annualized)

18.0
%
16.7
%
10.9
%Residual cash flows discount rate

22.5
%
34.9
%
16.7
%Servicing liability discount rate

14.1
%
14.0
%
16.7
%


During
the fourth quarter of 2001, the Company sold approximately $36.3 million of its retained interests in credit card receivables securitized for net proceeds of approximately
$26.7 million in two transactions. As a result of these transactions, the Company increased its residual cash flow discount rate to 34.9% in 2001. During 2002, the Company hired an independent
financial advisory firm to assist in the Company's evaluation of its estimate of the residual cash flow discount rate. The independent financial advisory firm advised that the appropriate residual
cash flow discount rate was 22.5%. The Company adopted that recommendation and revised the estimate for the residual cash flow discount rate to 22.5%.

At
December 31, 2002, the following illustrates the hypothetical effect an adverse 5 and 10 percent change in key economic assumptions has on the retained interests in
credit card receivables securitized ($ in thousands):

Credit card
ReceivablesPayment rate (monthly)


6.7
%Impact on fair value of 5% adverse change

$
(1,596
)Impact on fair value of 10% adverse change

$
(3,020
)Expected credit loss rate (annualized)


18.0
%Impact on fair value of 5% adverse change

$
(8,368
)Impact on fair value of 10% adverse change

$
(16,734
)Residual cash flows discount rate


22.5
%Impact on fair value of 5% adverse change

$
(2,944
)Impact on fair value of 10% adverse change

$
(5,800
)Servicing discount rate


14.1
%Impact on fair value of 5% adverse change

$
(136
)Impact on fair value of 10% adverse change

$
(272
)


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 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

F-19

---

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.

The
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 EITF
99-20, expected cash flows in excess of the cost of the purchased retained interests are being amortized into income from retained interests using the effective interest method.

The
Company's managed receivables portfolio underlying its securitizations (including its 50% ownership in the CSG receivables) is comprised of retained interests in receivables
securitized and the investors' shares of securitized credit card receivables. The investors' shares of securitized credit card receivables are not assets of the Company. Therefore, they are not
included in the Company's consolidated balance sheets. The principal balances outstanding as of December 31, 2002, and 2001, were approximately $2.5 billion and $1.7 billion,
respectively. The following table summarizes the balances included in the CompuCredit's managed receivables portfolio underlying its securitizations.

December 31,2002

2001(In thousands)Total managed principal balance

$
2,492,890

$
1,705,119Total managed finance charge balance


302,999


179,389Total managed receivables

$
2,795,889

$
1,884,508Receivables delinquent60 or more days

$
388,651

$
210,382Net charge offs

$
336,884

$
252,002


7.     Software, Furniture, Fixtures, and Equipment

Software, furniture, fixtures and equipment consist of the following:

December 31,2002

2001(In thousands)Software

$
32,938

$
28,922Furniture and fixtures


3,455


3,619Data processing and telephone equipment


17,448


13,368Leasehold improvements


5,839


4,821Total cost


59,680


50,730Less accumulated depreciation


(30,384
)

(16,208
)Software, furniture, fixtures, and equipment, net

$
29,296

$
34,522


F-20

---



8.     Leases

The Company leases premises and equipment under cancelable and noncancelable leases, some of which contain renewal options under various terms. Total rental
expense was $5,148,000 and $3,858,000 for the years ended December 31, 2002 and 2001, respectively. As of December 31, 2002, the future minimum rental commitments for all noncancelable
leases with initial or remaining terms of more than one year net of any sublease income are as follows (in thousands):

Gross

Sub-lease Income

Net2003

$
5,859

$
(164
)
$
5,6952004


5,719


(169
)

5,5502005


5,060


(174
)

4,8862006


4,117


(179
)

3,9382007


4,126


(185
)

3,941Thereafter


15,214


(707
)

14,507$
40,095

$
(1,578
)
$
38,517


9.     Borrowings

As of December 31, 2002, the Company had no outstanding debt. As of December 31, 2001, $15.0 million was outstanding under a
$25 million one-year line of credit facility, which was repaid and terminated in January 2002.

During
the second quarter of 2002, the Company entered into a loan in the amount of $31.4 million to partially fund the purchase of its equity interest in CSG. This loan 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 future excess cash flows received by the
Company from CSG. These payments are classified as interest expense.

10.   Commitments and Contingencies

The Company enters into financial instruments with off balance sheet risk in the normal course of business through the origination of unsecured credit card
receivables. These financial instruments consist of commitments to extend credit totaling approximately $3.7 billion and $4.4 billion, at December 31, 2002 and 2001, respectively.
These instruments involve, to varying degrees, elements of credit risk in excess of the amount 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 time.

The
Company is an equity member of CSG. 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 December 31, 2002,
CSG would be obligated to purchase up to $96.4 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

F-21

---

for
future purchases declines. The portfolio has 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 December 31, 2002, CSG had not 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 December 31, 2002, was 50%) times the total amount of the notes that CSG would be required to purchase. Therefore, as
of December 31, 2002, the maximum amount of the Company's guarantee was $48.2 million. The Company currently does not have any liability recorded with respect to this guarantee.

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 million cash collateralized letter of credit and has pledged
retained interests carried at approximately $67.9 million. These arrangements prevent the Company from utilizing the $10 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 were extended during the third quarter of 2002 and now expire in
March 2006. If the Company were to terminate its service agreement with this institution, there would be penalties of approximately $5.2 million as of January 2003.

The
Company's most significant source of liquidity is the securitization of credit card receivables. The maturity terms of the Company securitizations vary. The Company has two,
three-year securitizations that it completed in July 2001 and August 2000, several one-year securitizations, and, through the Fingerhut Trust, an amortizing term
securitization. Once repayment begins, payments from customers on credit card receivables are accumulated to repay the investors and are no longer reinvested in new credit card receivables. At such
time, the Company's funding requirements for new credit card receivables will increase accordingly. The occurrence of adverse events may also cause the securitization transactions to amortize earlier
than scheduled or may require additional enhancements. These events include a decline in the portfolio's annualized net yield or a decline in the payment rate, in each case, below set rates, or an
increase in delinquencies or charge offs, in each case, above set rates. The portfolio's annualized net yield typically includes monthly finance charges and past due fees collected on the receivables
less monthly servicing fees, credit losses and cost of funds. These events would accelerate the need to utilize alternative funding sources. If the Company's securitization facilities begin to trap
cash flows or otherwise increase their required credit enhancement and the Company is unable to obtain additional sources of liquidity (such as other securitization facilities structurally subordinate
to those facilities that are trapping cash or are in their amortization period, other debt or the issuance of additional equity), the Company would begin to close the credit card accounts that are
open to new purchases and thus significantly reduce the Company's need for any additional cash. Under each of the Company's securitization structures, there has not been an early amortization period;
however, the Fingerhut Trust Series 1998-2 issuance began an early amortization during the first quarter of 2003. In line with the Company's expectations at the time of the
Company's acquisition and projections upon which the Company based its purchase price for the Fingerhut Trust retained interests, the Fingerhut Trust Series 1998-2 triggered an
early amortization as a result of the principal balance of receivables in the trust falling below the minimum balance required by this series. As each facility expires or comes up for renewal, there
can be no assurance that the facility will be

F-22

---

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 need for
additional liquidity. The Company also anticipates that, due to an expected 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 will occur, and hence early amortization will begin, during the second quarter of 2003. The occurrence of this event will cause CSG
to cease its cash distributions to the Company, although it will continue to compensate the Company in cash for servicing the Providian portfolio.

11.   Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities, such temporary differences
representing those differences between amounts reported for financial reporting purposes and amounts used for income tax purposes.

The
current and deferred portions of federal and state income tax expense are as follows:

|                                 |                      | For the year ended December 31,
|-------------------------------- | -------------------- | -------------------------------
|
|
|Federal income tax expense:      |                      |                                
|                                 | Current tax expense  |                                
|                                 | Deferred tax expense |                                
|                                 |                      |                                
|Total federal income tax expense |                      |                                
|State income tax expense:        |                      |                                
|                                 | Current tax expense  |                                
|                                 | Deferred tax expense |                                
|                                 |                      |                                
|Total state income tax expense   |                      |                                
|                                 |                      |                                
|Total income tax expense         |                      | $                              
|                                 |                      |                                

The
Company has no state income tax expense because its income is earned by consolidated subsidiaries that are organized, domiciled, and operated exclusively within a jurisdiction that
does not impose a state income tax. Income tax expense in 2000 differed from amounts computed by applying the statutory U.S. Federal income tax rate to pretax income from operations as a result of the
following permanent differences: option expense, the stub period for the purchase of Citadel Group, Inc., tax
exempt interest and meals and entertainment. The following table reconciles the Company's effective tax rate to the federal statutory rate:

|                                                    |                        | For the year ended December 31, |  
|--------------------------------------------------- | ---------------------- | ------------------------------- | -
|
|
|Statutory rate                                      |                        | 35                              | %
|Increase (decrease) in income taxes resulting from: |                        |                                 |  
|                                                    | Other differences, net |                                 | 
|                                                    |                        |                                 |  
|Effective tax rate                                  |                        | 35                              | %
|                                                    |                        |                                 |  

F-23

---

The
tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2002, and 2001, are presented
below:

|                                   |                            | December 31, |       
|---------------------------------- | -------------------------- | ------------ | ------
|
|
|Deferred tax assets/(liabilities): |                            |              |       
|                                   | Prepaid expenses           |              | $     
|                                   | Cash advance fees          |              |       
|                                   | Software development costs |              |       
|                                   | Deferred costs             |              |       
|                                   | Gain on securitization     |              |       
|                                   | Other                      |              |       
|                                   |                            |              |       
|Net deferred tax liability         |                            | $            | (1,667
|                                   |                            |              |       

12.   Earnings Per Share

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

|             |                                                                              | For the year ended December 31,
|------------ | ---------------------------------------------------------------------------- | -------------------------------
|
|
|Numerator:   |                                                                              |                                
|             | Net income                                                                   |                                
|             | Preferred stock dividends                                                    |                                
|             |                                                                              |                                
|             | Income attributable to common shareholders                                   |                                
|Denominator: |                                                                              |                                
|             | Denominator for basic earnings per share-weighted-average shares outstanding |                                
|             | Effect of dilutive stock options                                             |                                
|             |                                                                              |                                
|             | Denominator for diluted earnings per share-adjusted weighted-average shares  |                                
|             | Basic earnings per share                                                     |                                
|             | Diluted earnings per share                                                   |                                

The
preferred stock investment was convertible into 4,828,079 and 4,376,368 shares of common stock at $9.14 per share as of December 31, 2002, and 2001. These shares are not
included in the computation
of diluted EPS for the years ended December 31, 2002 and 2001, because including these shares would have been anti-dilutive.

13.   Stock Options

The Company has two Stock Option Plans, the 1998 Stock Option Plan ("1998 Plan") and the 2000 Stock Option Plan ("2000 Plan"). Under the 1998 and the 2000 Plans,
the Company may grant shares of the Company's common stock to members of the Board of Directors, employees, consultants and advisors of the Company. The exercise price per share of the options may be
less than, equal to or

F-24

---

greater
than the market price on the date the option is granted. The option period is not to exceed 10 years from the date of grant. The vesting requirements for options granted by the Company
are determined by management and range from immediate to 3 years. The majority of the options vest 331/3% in the 1st year, 331/3% in the
2nd year, and 331/3% in the 3rd year. The maximum number of shares of common stock that may be granted under the 1998 Plan is 1,200,000 shares. As of
December 31, 2002, a total of 1,067,710 options had been granted under the 1998 Plan. The maximum number of shares of common stock that may be granted under the 2000 Plan is 1,200,000 shares. A
total of 1,135,868 options had been granted under the 2000 Plan as of December 31, 2002. The total number of options outstanding under both plans was 2,203,578 as of December 31, 2002.
Information related to options outstanding under the Plans is as follows:

|                                 |  | For the year ended December 31,
|-------------------------------- |  | -------------------------------
|
|
|Outstanding at beginning of year |  | 1,886,751                      
|Granted                          |  | 1,172,818                      
|Exercised                        |  |                               
|Cancelled/Forfeited              |  | (855,991                       
|                                 |  |                                
|Outstanding at end of year       |  | 2,203,578                      
|                                 |  |                                

The
following table summarizes information about stock options outstanding as of December 31, 2002:

|  |              | Options Outstanding |           | Options Exercisable
|- | ------------ | ------------------- | --------- | -------------------
|
|$ | 0.00$12.00  |                     | 1,800,449 |                    
|$ | 12.00$25.00 |                     | 169,579   |                    
|$ | 25.01$38.00 |                     | 195,050   |                    
|$ | 38.01$50.00 |                     | 32,500    |                    
|$ | 50.01$62.00 |                     | 6,000     |                    
|  |              |                     |           |                    
|  |              |                     | 2,203,578 |                    
|  |              |                     |           |                    

As
permitted by Statement No. 123, the Company recognizes compensation cost for stock-based employee compensation awards in accordance with APB 25. Other than with respect to the
Company's restricted stock awards (see Note 3, "Shareholders' Equity"), the Company did not recognize any compensation expense for stock-based employee compensation awards or independent board
members compensation awards, nor did the Company issue any options to non-employees who were not directors for the years ended December 31, 2002, 2001 and 2000.

F-25

---

14.   Employee Benefit Plans

The Company has a 401(k) plan and an Employee Stock Purchase Plan. Employees who have completed one year of employment and at least 1,000 hours of service
are eligible to participate in the 401(k) plan. The 401(k) plan provides for a matching contribution by the Company, which amounted to approximately $276,000 in 2002, and $136,000 in 2001.

The
Company has an Employee Stock Purchase Plan ("ESPP"). All employees, excluding executive officers, are eligible to participate in the ESPP. Under the ESPP, employees can elect to
have up to 10% of their annual wages withheld to purchase CompuCredit common stock. The amounts deducted and accumulated by each participant are used to purchase shares of common stock at the end of
each one-month offering period. The price of stock purchased under the ESPP is approximately 85% of the fair market value per share of the Company's common stock on the last day of the
offering period. Employees contributed approximately $226,000 to purchase 44,710 shares of common stock under the ESPP during 2002 and approximately $318,000 to purchase 44,790 shares of common stock
under the ESPP during 2001. The ESPP covers up to 150,000 shares of common stock. The Company's charge to expense associated with the ESPP was approximately $44,000 in 2002 and $50,000 in 2001.

15.   Related Party Transactions

The Series A Preferred Stock that was issued in December 2001, was issued to a group of investors that included J.P. Morgan Corsair II Capital
Partners, L.P. and Paladin Capital Partners Fund, L.P. ("Paladin"). J.P. Morgan Corsair II Capital Partners is a holder of greater than 5% of the Company's
outstanding common stock. CompuCredit issued 4,808 shares of its Series A Preferred Stock to Paladin for an aggregate purchase price of approximately $4.8 million. In addition to the
preferred stock investment noted above, during the fourth quarter of 2001, Paladin purchased approximately $27 million of the Company's retained interests in credit card receivables securitized
for approximately $20 million. Paladin may be deemed to be an affiliate of an entity controlled by Mr. Frank J. Hanna, Jr., who is the father of the Company's Chairman and Chief
Executive Officer, David G. Hanna, and one of the Company's directors, Frank J. Hanna, III.

In
December 2001, the Company also issued 10,000 shares of Series B Preferred Stock, in a private placement, for an aggregate purchase price of $10 million. The
Series B Preferred Stock was issued to entities controlled by David G. Hanna and Frank J. Hanna, III.

The
holders of the Series A Preferred Stock, Series B Preferred Stock, certain holders of common stock and the Company entered into a Shareholders Agreement whereby (in
addition to the provisions described in Note 3, "Shareholders' Equity") (i) the holders of the Series A Preferred Stock are entitled to participate in a sale or transfer of
securities of CompuCredit by Frank J. Hanna, III, David G. Hanna (being the holders of the Series B Preferred Stock), and certain other common stock holders that in the aggregate
are equal to 25% or more of the outstanding shares of common stock, on a fully diluted basis, and (ii) the holders of the Series A and Series B Preferred Stock are entitled to
registration rights, such that their converted shares of common stock may be registered by CompuCredit on a registration statement filed with the SEC.

Under
a shareholders agreement into which the Company entered with David G. Hanna, a trust of which David G. Hanna is the sole trustee, Frank J. Hanna, III, a trust of which Frank J.
Hanna, III is the sole trustee, Richard R. House, Jr. (the Company's President) and Richard W. Gilbert (the Company's Chief Operating Officer and Vice Chairman) following the Company's initial public
offering

F-26

---

(i) if
one or more of the shareholders accepts a bona fide offer from a third party to purchase more than 50% of the outstanding common stock, each of the other shareholders that are a party to
the agreement may elect to sell their shares to the purchaser on the same terms and conditions, and (ii) if shareholders that are a party to the agreement owning more than 50% of the common
stock propose to transfer all of their shares to a third party, then such transferring shareholders may require the other shareholders that are a party to the agreement to sell all of the shares owned
by them to the proposed transferee on the same terms and conditions.

Richard
R. House, Jr. and Richard W. Gilbert each indirectly own 13.0% of Visionary Systems, Inc., or VSI, the third party developer of the Company's database management system.
During 2002, the Company paid approximately $11.2 million to VSI and its subsidiaries for software development, account origination, and consulting services. In connection with the purchase of
intellectual property, the Company entered into a promissory note of $1.4 million, due and paid in January 2002. During 2001, the Company loaned a subsidiary of VSI $1.0 million
for working capital and general corporate
purposes. This loan bears interest at the prime rate and is due in January 2005; approximately $1.0 million was outstanding as of December 31, 2002. During 2001, the Company paid
approximately $20.1 million to VSI for software development, account origination, consulting services, intellectual property and two patents.

During
2001, the Company began subleasing 7,316 square feet of excess office space to Frank J. Hanna, Jr., for $21.50 per square foot. The sublease rate is the same as the rate that
CompuCredit pays on the prime lease. Total rent for 2002 was approximately $157,000.

F-27

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Report of Independent Certified Public Accountants

The
Board of Directors
CSG, LLC

We
have audited the accompanying consolidated balance sheet of CSG, LLC and subsidiary as of December 31, 2002, and the related consolidated statements of operations, members'
capital, and cash flows for the period from inception (April 8, 2002) to December 31, 2002. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audit.

We
conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CSG, LLC and subsidiary at December 31,
2002, and the consolidated results of their operations and their cash flows for the period from inception (April 8, 2002) to December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America.

| | /s/BDO SEIDMAN, LLP
| | -------------------

Atlanta,
Georgia
February 25, 2003

F-28

---



CSG, LLC and Subsidiary  Consolidated Balance Sheet

|                                                          |  | December 31,
2002
|--------------------------------------------------------- |  | -----------------
|
|Assets                                                    |  |                  
|Cash and cash equivalents                                 |  | $                
|Restricted cash                                           |  |                  
|Retained interests in credit card receivables securitized |  |                  
|Other assets                                              |  |                  
|                                                          |  |                  
|Total assets                                              |  | $                
|                                                          |  |                  
|Liabilities                                               |  |                  
|Accrued expenses                                          |  | $                
|Members' Capital                                          |  |                  
|                                                          |  |                  
|Total liabilities and members' capital                    |  | $                
|                                                          |  |                  

See
accompanying notes.

F-29

---

CSG, LLC and Subsidiary  Consolidated Statement of Operations

|                                                                           |  | For the period from
inception (April 8, 2002) to
December 31, 2002
|-------------------------------------------------------------------------- |  | ------------------------------------------------------------------
|
|Interest income                                                            |  | $                                                                 
|Interest expense                                                           |  |                                                                   
|                                                                           |  |                                                                   
|Net interest income                                                        |  |                                                                   
|                                                                           |  |                                                                   
|Other operating income:                                                    |  |                                                                   
|Income from retained interests in credit card receivables securitized, net |  |                                                                   
|Servicing income                                                           |  |                                                                   
|                                                                           |  |                                                                   
|Total other operating income                                               |  |                                                                   
|Other operating expense:                                                   |  |                                                                   
|Credit card servicing                                                      |  |                                                                   
|Professional fees                                                          |  |                                                                   
|                                                                           |  |                                                                   
|Total other operating expense                                              |  |                                                                   
|                                                                           |  |                                                                   
|Net income                                                                 |  | $                                                                 
|                                                                           |  |                                                                   

See
accompanying notes.

F-30

---



CSG, LLC and Subsidiary  Consolidated Statement of Members' Capital  For the period from inception (April 8, 2002) to December 31, 2002

|                                     |                    | CCAC |        | MTGLQ   |   | SB Funding |         | Total
Members'
Equity |      
|------------------------------------ | ------------------ | ---- | ------ | ------- | - | ---------- | ------- | --------------------- | -----
|Balance at Inception (April 8, 2002) |                    | $    | 1      |         | $ |           |         | $                     |     
|                                     | Net income         |      |        | 45,716  |   |            | 22,859  |                       |      
|                                     | Contributions      |      |        | 34,889  |   |            | 17,445  |                       |      
|                                     | Cash distributed   |      |        | (43,528 | ) |            | (21,765 | )                     |      
|                                     | Bonds distributed. |      |        | (21,485 | ) |            | (10,743 | )                     |      
|                                     |                    |      |        |         |   |            |         |                       |      
|Balance at December 31, 2002         |                    | $    | 15,593 |         | $ | 7,796      |         | $                     | 7,796
|                                     |                    |      |        |         |   |            |         |                       |      

See
accompanying notes.

F-31

---

CSG, LLC and Subsidiary  Consolidated Statement of Cash Flows

|                                                                                  |                                           | For the period from
inception (April 8, 2002) to
December 31, 2002 |        
|--------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------------------------------ | -------
|
|Operating activities                                                              |                                           |                                                                    |        
|Net income                                                                        |                                           | $                                                                  | 91,434 
|Adjustments to reconcile net income to net cash provided by operating activities: |                                           |                                                                    |        
|                                                                                  | Retained interests income adjustment, net |                                                                    |        
|                                                                                  | Changes in assets and liabilities:        |                                                                    |        
|                                                                                  |                                           | Increase in restricted cash                                        |        
|                                                                                  |                                           | Increase in other assets                                           |        
|                                                                                  |                                           | Increase in accrued expenses                                       |        
|                                                                                  |                                           |                                                                    |        
|Net cash provided by operating activities                                         |                                           |                                                                    | 79,593 
|Investing activities                                                              |                                           |                                                                    |        
|Purchase of subordinated interest                                                 |                                           |                                                                    | (19,247
|Investment in bonds                                                               |                                           |                                                                    | (45,532
|Proceeds from bond investment                                                     |                                           |                                                                    | 2,561  
|                                                                                  |                                           |                                                                    |        
|Net cash used in investing activities                                             |                                           |                                                                    | (62,218
|Financing activities                                                              |                                           |                                                                    |        
|Capital contributions                                                             |                                           |                                                                    | 69,780 
|Capital distributions                                                             |                                           |                                                                    | (87,058
|                                                                                  |                                           |                                                                    |        
|Net cash used in financing activities                                             |                                           |                                                                    | (17,278
|                                                                                  |                                           |                                                                    |        
|Net increase in cash                                                              |                                           |                                                                    | 97     
|                                                                                  |                                           |                                                                    |        
|Cash and cash equivalents at beginning of period                                  |                                           |                                                                    |       
|                                                                                  |                                           |                                                                    |        
|Cash and cash equivalents at end of period                                        |                                           | $                                                                  | 97     
|                                                                                  |                                           |                                                                    |        
|Supplemental disclosures:                                                         |                                           |                                                                    |        
|Interest paid                                                                     |                                           | $                                                                  |       
|                                                                                  |                                           |                                                                    |        
|Supplemental non-cash disclosures:                                                |                                           |                                                                    |        
|Bonds distributed                                                                 |                                           | $                                                                  | 42,971 
|                                                                                  |                                           |                                                                    |        

See
accompanying notes.

F-32

---



CSG, LLC and Subsidiary        Notes to Consolidated Financial Statements        December 31, 2002

1.     Organization and Basis of Presentation

The consolidated financial statements include the accounts of CSG, LLC and its wholly owned subsidiary, CSG Funding, LLC (collectively, "the Company"). Pursuant
to a Limited Liability Company Agreement dated as of April 8, 2002, as amended and restated on June 25, 2002 by and amongst MTGLQ Investors, L.P. ("MTGLQ"), an affiliate of Goldman,
Sachs & Co., SB Funding Corp. ("SB Funding"), an affiliate of Salomon Smith Barney, and CompuCredit Acquisition Corporation ("CCAC"), an affiliate of CompuCredit Corporation, the Company was
formed to purchase a retained interest in a portfolio of performing, sub-performing, and non-performing receivables from Providian National Bank ("Providian"). MTGLQ and SB
Funding own 25% each of the Company and CCAC owns the remaining 50%, but unanimous approval is required on all matters subject to a vote.

In
June 2002, the Company closed a transaction with Providian in which the Company purchased the retained interests in a trust (the "Providian Trust") that owned approximately
$1.2 billion in face amount of receivables and Class B notes (the "bonds"). The bonds were distributed to the members in August 2002 at their net amortized value. This portfolio
will decrease in size over time because payments from cardholders are expected to be significantly greater than purchases being made by cardholders. All significant intercompany balances and
transactions have been eliminated for financial reporting purposes.

The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States that require 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 consolidated financial statements as well as the reported amount of revenues and expenses during the reporting period. These estimates are based on information
available to the Company as of the date of the financial statements. Actual results could differ materially from these estimates.

2.     Significant Accounting Policies

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

Cash and Cash Equivalents

Cash and cash equivalents consist of cash, money market investments, and overnight deposits. The Company considers all other highly liquid cash investments with
low interest rate risk and maturities of three months or less to be cash equivalents. Cash equivalents are valued at cost, which approximates market.

Restricted Cash

Restricted cash represents amounts agreed upon by the members to be set aside for operational purposes ($5 million at December 31, 2002) and amounts
required by the servicing bank ($5 million at December 31, 2002). These funds are restricted from general corporate use. See Note 4 "Commitments and Contingencies" for further
discussions.

Asset Securitization

The Company owns a retained interest in a pool of assets, which were securitized by Providian National Bank in a Master Trust. Credit card receivables are
transferred to the Master Trust, which

F-33

---

issues
notes representing undivided ownership interests in the assets of the Master Trust. The following table summarizes the Master Trust at December 31, 2002 (in millions):

Total principal balance

$
866.3Total finance charge balance


77.7Total receivables

$
944.0Receivables delinquent 60 or more days

$
120.7Net charge offs since inception (April 8, 2002)

$
57.9


In
accordance with the above, all of the credit card receivables are held by securitization trust, and the exclusive interest of the Company in these receivables is in the form of
retained interests in the trust. The Company's retained interests in such receivables are included in retained interests in credit card receivables securitized and are carried at the lower of the
amortized cost or fair market value. The Company accounts for its retained interests in accordance with EITF No. 99-20, "Recognition of Interest Income and Impairment on Purchased
and Retained Beneficial Interests in Securitized Financial Assets." Under EITF 99-20, CSG recognizes the excess of all cash flows attributable to the beneficial interest estimated at the
acquisition date over the initial investment as income from retained interest on credit cards receivables securitized, net over the life of the beneficial interest using the effective interest method.
As adjustments to the estimated cash flows are made based upon expected market conditions, the Company adjusts the rate at which income is earned prospectively. Additionally, EITF 99-20
provides guidance as to when the holder of a retained interest must conclude that a decline in value below the carrying amount is considered a permanent impairment. CSG's policy is that if a decrease
in the estimated future cash flows results in a fair value below the carrying value and the decline is considered permanent, then the asset is written down through earnings.

Interest
rates received 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 receivable becomes 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.

Changes
in any of the assumptions used to value retained interests could impact the fair value estimates. Certain estimates such as credit losses and payment rates have a significant
impact on the value of retained interests in credit card receivables securitized. The weighted-average key assumptions used to estimate the fair value of the retained interest in receivables the
Company has securitized at December 31, 2002, are included in the following table:

Payment rate (monthly)

5.3
%Expected credit loss rate (annualized)

35.0
%Servicing rate

5.0
%


Income Taxes

Since the Company is a limited liability corporation, all income is considered passed through to the stockholders for income tax purposes.

F-34

---

Recent Accounting Pronouncements

In January 2003, the FASB issued FASB interpretation No. 46, "Consolidated Financial Statements" ("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 June 15, 2003 to variable interests entities in which an enterprise holds a variable interest
that it acquired before February 1, 2003. Since CSG Trust is a qualifying special purpose entity, this interpretation will not apply to the Company.

3.     Members' Capital

During 2002, the Company issued 1,000 shares of its Common Stock for $1,000. During 2002, the members contributed $69.8 million in cash and received
distributions of $87.1 million in cash and $43.0 million in bonds. The Company distributes net income in excess of the amount agreed to be retained in the Company by the members monthly
based on the members' ownership percentages. At December 31, 2002, there were $4.4 million of undistributed earnings included in Members' Capital in the accompanying financial
statements.

4.     Commitments and Contingencies

During the second quarter of 2002, the Company 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 December 31, 2002, the Company
would be obligated to purchase up to $96.4 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 and is expected to continue to decline during the life of the CSG Trust as payments are expected to exceed new purchases each
month. The members have 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 the Company itself should
fail to purchase the new notes under the note purchase agreement. As of December 31, 2002, the Company had not and was not required to purchase any additional notes under the note purchase
agreement.

As was expected by the Company at the date of its acquisition of the CSG Trust retained interests, the Company anticipates that the CSG Trust will hit an expected early amortization
principal balance trigger beginning in the second quarter of 2003. The CSG Trust secrutization facility is unique in that it was structured by the seller of the retained interests as a liquidating
trustessentially providing for limited purchasing volume and liquidating account balances over the term of the facility. Moreover, triggers were specifically designed to cause early
amortization and repayment of the secured investors based on the rate of liquidation of the receivables within the CSG Trust. In evaluating its purchase of

F-35

---

the CSG Trust retained interests and in establishing its purchase price for those retained interests, the Company fully anticipated a second quarter of 2003 early amortization event. Once the CSG
Trust hits this early amortization trigger, the Company is not expected to resume receipts of cash from the CSG Trust until the middle of 2006. Following this event,net income of the Company will
significantly decrease. Accordingly, cash distributions from the Company to its members will materially decrease as well. These conditions were predicted at the acquisition date, and the Company
believes that it has and will have adequate resources to cover operations during this early amortization period.

5.     Related Party Transactions

CompuCredit Corporation services the underlying receivables and was paid $25.7 million for such services for the period from inception (April 8,
2002) to December 31, 2002. These amounts are a component of income from retained interests in credit card receivables securitized in the accompanying statement of operations. In the opinion of
management, such fees were charged at prevailing market rates.

F-36

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, as amended, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on November 3, 2003.

| |  | COMPUCREDIT CORPORATION
| |  | -----------------------
| |  | By:                    
| |  |                        

---

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