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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2002

of

COMPUCREDIT CORPORATION

a Georgia Corporation
IRS Employer Identification No. 58-2336689
SEC File Number 0-25751

245 Perimeter Center Parkway, Suite 600
Atlanta, Georgia 30346
(770) 206-6200

        CompuCredit'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 Exchanged 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

        Portions of CompuCredit's Proxy Statement for the 2003 Annual Meeting of Shareholders are incorporated by reference into Part III.

Table of Contents

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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:

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Better assess credit and bankruptcy risk, enabling us to identify consumers in the underserved market that are more creditworthy;

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Price our products to appropriately reflect the level of a consumer's credit risk and demand for credit;

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Increase the likelihood that a consumer will accept our offer of credit, which improves our response rates and reduces our marketing costs per account;

•

Continually monitor customer performance and actively manage accounts in order to refine our product offerings to reflect the changing risk of our customers; and

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Effectively evaluate the collectibility of delinquent accounts, which enables us to efficiently deploy our collection resources.

        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:

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Our Database System


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Target Marketing System


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Target Marketing in Portfolio Acquisitions


•

Direct Mail and Telemarketing Solicitation


•

Application Processing


•

Fee-Based Products and Services


•

Account and Portfolio Management


•

Collections and Delinquency Management


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Off Balance Sheet Arrangements


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Consumer and Debtor Protection Laws and Regulations


•

Competition


•

Business Developments


•

Employees


•

Trademarks


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Proprietary Rights and Licenses

        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 is www.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.

        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.

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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:

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Marketing to those underserved customer segments who have acceptable credit and bankruptcy risk and who have the highest income potential within those segments;



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Providing a variety of general-purpose credit cards offerings to satisfy the different financial needs of various segments of the underserved market; and



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Providing a variety of fee-based ancillary products and services to leverage our relationship with the underserved customer.

        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:

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

(1)

Excludes securitization facilities related to receivables managed by CSG, because such receivables and their related securitization facilities relate to CSG as our 50%-owned equity method investee, and therefore are appropriately excluded from direct presentation in the statement of operations or balance sheet items included herein for CompuCredit. Filed as an

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exhibit to the CompuCredit 10-K are audited financial statements for CSG, which contain disclosures related to CSG's securitized receivables and their associated securitization facilities.

(2)

Represents the expected principal payment date of this amount. With respect to $627.4 million of this principal amount, beginning in December 2002, we began accumulating payments to redeem the $600 million of Class A notes in September 2003, and the $27.4 million of Class B-1 notes in October 2003. In December 2002, we funded a principal funding account with an allocated amount of collections, and based on the cash deposited in the principal funding account, we can draw up to $53.3 million per month from an underlying structurally subordinate facility. During December 2002, we drew $53.3 million from this facility. The gross amount available to be drawn from this facility is $527.5 million.

        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

        In addition to other factors and matters discussed elsewhere in this Annual Report on Form 10-K, 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 the most significant 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 less significant, 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.

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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 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

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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 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.

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        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 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

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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 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'

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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 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.

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

•

growth in both existing and new account balances;



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the degree to which we lose accounts and account balances to competing credit card issuers;



•

levels of delinquencies and credit losses;



•

the availability of funding, including securitizations, on favorable terms;



•

our ability to sell retained interests at favorable terms;



•

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



•

the level of costs of soliciting new customers;



•

the level of response to our solicitations;



•

our ability to employ and train new personnel;



•

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



•

general economic and other factors beyond our control.

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 significantly impair our ability to collect the full amount of the credit card account balances. Further,

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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 business