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Value Investing Congress November 9 th 2006 valueinvest newyork / 3 Previous “I can be wrong more often than I am right, so long as the leverage on my correct judgments compensates for my mistakes.” Leon Levy Founder, Oppenheimer Fund CompuCredit: The Basics

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Value Investing Congress

November 9th 2006

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valueinvest

newyork

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Previous

“I can be wrong more often than I am right, so long as the leverage on my correct judgments compensates for my mistakes.”

Leon LevyFounder, Oppenheimer Fund

compucredit the basics
/ 5CompuCredit: The Basics
  • Atlanta-based, subprime consumer lender
  • Growth pre-2005 combination of organic and portfolio purchases
  • 2006 and 2007 strong organic card growth and new emerging businesses
  • Acquisitions a potential positive
  • $1.7 bil. market capitalization
ccrt business overview credit card segment growth
/ 6

CREDIT CARDS

Originations

Portfolio Purchases

CCRT: Business Overview Credit Card Segment - Growth

Source: CompuCredit

business overview credit card segment purchased portfolio valuation
/ 7

CREDIT CARDS

Originations

Portfolio Purchases

Business OverviewCredit Card Segment – Purchased Portfolio Valuation
  • CompuCredit is a industry leader in purchasing less ‘than‘ prime and underperforming credit card assets
  • CompuCredit leverages proprietary account management and collection tactics specifically tailored to the sub-prime customer to turn liquidating portfolios into ongoing earning assets
  • CompuCredit’s proprietary models segregate portfolios into three sub-portfolios, each provides for a more accurate assessment of economic value to measure the risk and structure a re-pricing strategy

Performing Assets

High-Risk Performing Assets

Liquidating Assets

  • Assets that are current and priced appropriately
  • Typically warrant a purchase price at par or greater
    • Continue to generate a stream of earnings commensurate with their risk
  • Account actions include:
    • Status quo or re-price based upon supply and demand
    • Change terms to be consistent with AspireCard cardholders
    • No credit-line increases
  • Assets that are currently performing, but identified by CompuCredit as a potential risk going forward
  • Typically, not priced appropriately for their level of risk
    • Valued at a discount to par
  • Account actions include:
    • Aggressive re-pricing and account closures
    • Change terms to be consistent with AspireCard cardholders
    • Credit-line decreases
  • Assets that are not performing
  • Valued at a significant discount to par
  • Account actions include:
    • Account closures and collections

Source: CompuCredit

ccrt business overview
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Credit Cards

Jefferson

Capital

Car Financial

Valued

Services

Purpose /

Other

Investments in Previously Charged-off Receivables

Balance Transfer

Chp. 13 Bankruptcies

Stored Valued Cards

Direct Loans

New Product Development

Originations

Portfolio Purchases

Auto

Lending

Retail Micro-Lending

Q3:06 Annualized Revenues ($mm)

$5

$97

$38

$900

$52

-

5%

4%

9%

82%

% Total

CCRT: Business Overview

Source: CompuCredit

compucredit pre tax earnings mix 3q 2006 millions
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$2.6 Auto Financing

$3.3 Micro-Lending

$8.9 Debt Recovery

$75.1 Credit Card

0

-$6.5 Other

CompuCredit Pre-Tax Earnings Mix 3Q 2006*($millions)

* Managed basis earnings.Source: CCRT

compucredit
/ 10CompuCredit
  • Strong Organic Growth in Core Business
    • Over a decade of experience in lending to sector; company has a demonstrated record as superior underwriter
    • Subprime sector growing faster than prime/super prime
    • Subprime sector considerably less competitive
fico scored u s consumer
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4 Million CCRT Customer

40 Million “Thin” or no FICO Score

50 Million Sub-Prime

50 Million Sub-Prime FICO Score

160 Million

110 Million Prime/ Superior

CompuCredit Total Market

FICO Scored U.S. Consumer

90 Million Subprime FICO + “Thin”/No Files

Source: CompuCredit

fico score distribution
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Fee Based Card

Standard Business

FICO Score Distribution

Most U.S. consumers score between 300 and 850

National distribution of Fico Scores

Delinquency rates by Fico Score

Source: Fair, Isaac

fico score
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15%

35%

10%

10%

30%

FICO Score

Source: Bernstein.

credit variation around fico scores
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40%

35%

30%

25%

20%

15%

10%

5%

0%

<600

600-660

660-720

720+

Credit Variation Around FICO Scores

Source: Bankstocks.com analysis.

compucredit16
/ 16CompuCredit
  • Strong Growth in Core Business
  • Stronger Growth in Emerging Businesses
    • Debt collection (Jefferson Capital)
    • Payday lending (Purpose Financial)
    • Automobile finance
    • “R&D”
compucredit debt collection jefferson capital
/ 17CompuCredit: Debt Collection (Jefferson Capital)
  • Sold portfolio last year and entered into forward flow agreement with Encore Capital
  • Focus now on Chapter 13 bankruptcy collections and balance transfer program
compucredit payday lending purpose financial
/ 18CompuCredit: Payday Lending (Purpose Financial)
  • Entered business through acquisition in early ’04
  • 470 stores in 17 states (38 states have enabling legislation)
  • Average loan $300 for 2 weeks ($15 fee per $100 borrowed)
  • Lower cost to consumer than overdrafts or late charges
  • New platform in place with plans to broaden services and products
compucredit automobile lending
/ 19CompuCredit: Automobile Lending
  • Acquired from Wells Fargo in 2Q ’05
  • Indirect lending to consumers with impaired credit records
  • 45 states and 1300 active dealers
  • CompuCredit has built a new underwriting platform
compucredit pre tax earnings mix 3q 2006 millions20
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$2.6 Auto Financing

$3.3 Micro-Lending

$8.9 Debt Recovery

$75.1 Credit Card

0

-$6.5 Other

CompuCredit Pre-Tax Earnings Mix 3Q 2006*($millions)

* Managed basis earnings.Source: CCRT

compucredit21
/ 21CompuCredit
  • Strong Growth in Core Business
  • Stronger Growth in Emerging Businesses
  • Excess Liquidity Deployment a Positive
    • $700mm of excess liquidity ($100mm unrestricted cash) with could increase EPS by 50%
    • 10mm share repurchase authorization with potential to buy back one-fifth of outstanding stock
compucredit22
/ 22CompuCredit
  • Strong Growth in Core Business
  • Stronger Growth in Emerging Businesses
  • Excess Liquidity Deployment a Positive
  • Management is Majority Shareholder
    • Demonstrated record of protecting capital
    • Demonstrated record of value creating acquisitions
compucredit23
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Other

21%

60%

Corsair

9%

Management & Board

10%

SCC

CompuCredit

Source: CompuCredit

compucredit24
/ 24CompuCredit
  • Strong Growth in Core Business
  • Stronger Growth in Emerging Businesses
  • Excess Liquidity Deployment a Positive
  • Management is Majority Shareholder
  • Absolute and Relative Valuation Attractive
    • 20% + EPS growth and 20%+ ROE expected
    • P/E multiple just 7.5x 2007 assuming no excess liquidity deployed; 6x 2008
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“Most people ignore probabilities and exaggerate risk.”

Ralph WangerA Zebra in Lion Country

compucredit investor concerns
/ 26CompuCredit: Investor Concerns
  • Consumer Debt Bomb/Recession
    • Historically, underwriting and controlled growth much more important factors than general economic activity
    • Management has an impressive record of performance through last economic recession and has more experience
    • Competitive environment significantly improved now compared with early in decade
compucredit credit card trust performance
/ 27CompuCredit Credit Card Trust Performance

CompuCredit Corporation Master Trust I

Analysis of Excess Spread

Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04

Source: CompuCredit

ccrt company overview lessons learned from 2001 2002
/ 28CCRT: Company OverviewLessons Learned from 2001 / 2002
  • Liquidity
    • Diversified funding sources
    • Higher advance rates
    • Staggered maturations in term facilities
  • Other Changes
    • Diversified into new businesses (e.g. Jefferson Capital, Retail Micro-Loans, etc.)
    • Invested and diversified into less capital intensive businesses (e.g. micro-loans, lower-tier credit card originations)
    • Irrational competition has subsided

Source: CompuCredit

compucredit investor concerns29
/ 29CompuCredit: Investor Concerns
  • Consumer Debt Bomb/Recession
  • FDIC Examination of CB&T
    • Looking at marketing, account management and collection practices
    • Started after settlement with NY AG
    • Minor changes already made
    • Last examination in the Spring
    • No significant impact expected on ongoing operations or financials
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“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

Warren Buffett