Credit Card Segment Purchased Portfolio Valuation ... Com

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Value Investing Congress November 9th 2006
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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
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(No Transcript)
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CompuCredit 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

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CCRT Business Overview Credit Card Segment -
Growth
Source CompuCredit
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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
• CompuCredits 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
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CCRT Business Overview
Source CompuCredit
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CompuCredit Pre-Tax Earnings Mix 3Q
2006(millions)
Managed basis earnings.Source CCRT
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CompuCredit

• 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

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FICO Scored U.S. Consumer
CompuCredit Total Market
90 Million Subprime FICO Thin/No Files
Source CompuCredit
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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
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CompuCredit Credit Card Products
Source CCRT
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FICO Score
Source Bernstein.
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Credit Variation Around FICO Scores
Source Bankstocks.com analysis.
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CompuCredit

• Strong Growth in Core Business
• Stronger Growth in Emerging Businesses
• Debt collection (Jefferson Capital)
• Payday lending (Purpose Financial)
• Automobile finance
• RD

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CompuCredit 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
  

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CompuCredit 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
  

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CompuCredit 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
  

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CompuCredit Pre-Tax Earnings Mix 3Q
2006(millions)
Managed basis earnings.Source CCRT
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CompuCredit

• 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
  

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CompuCredit

• 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
  

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CompuCredit
Source CompuCredit
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CompuCredit

• 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
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CompuCredit 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

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CompuCredit 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
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CCRT 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
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CompuCredit Investor Concerns

• Consumer Debt Bomb/Recession
• FDIC Examination of CBT
• 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