Edgar Filing: CompuCredit Holdings Corp

form10q.htm

_________________________________________________________________________________________________

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2012

COMPUCREDIT HOLDINGS CORPORATION

a Georgia Corporation

IRS Employer Identification No. 58-2336689

SEC File Number 0-53717

Five Concourse Parkway, Suite 400

Atlanta, Georgia 30328

(770) 828-2000

CompuCredit’s common stock, no par value per share, is registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Act”).

CompuCredit (1) is required to file reports pursuant to Section 13 or Section 15(d) of the Act, (2) has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months and (3) has been subject to such filing requirements for the past ninety days.

CompuCredit has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.

CompuCredit is a smaller reporting company and is not a shell company.

As of July 31, 2012, there were 21,996,523 shares of common stock, no par value, of the registrant outstanding. (This excludes 1,672,656 loaned shares to be returned.)

COMPUCREDIT HOLDINGS CORPORATION

FORM 10-Q

TABLE OF CONTENTS

Page
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)
		Consolidated Balance Sheets	1
		Consolidated Statements of Operations	2
		Consolidated Statements of Comprehensive (Loss) Income	3
		Consolidated Statement of Shareholders’ Equity	4
		Consolidated Statements of Cash Flows	5
		Notes to Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
	Item 4.	Controls and Procedures	37

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	38
	Item 1A.	Risk Factors	38
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
	Item 4.	Mine Safety Disclosures
	Item 5.	Other Information	44
	Item 6.	Exhibits	44
		Signatures	45

Table of Contents

CompuCredit Holdings Corporation and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands)

	June 30,			December 31,
	2012			2011
	(unaudited)
Assets
Unrestricted cash and cash equivalents	$	51,282		$	144,913
Restricted cash and cash equivalents		17,954			23,759
Loans and fees receivable:
Loans and fees receivable, net (of $8,406 and $7,480 in deferred revenue and $13,041 and $7,156 in allowances for uncollectible loans and fees receivable at June 30, 2012 and December 31, 2011, respectively)		68,772			64,721
Loans and fees receivable pledged as collateral under structured financings, net (of $115 and $511 in deferred revenue and $4,000 and $7,537 in allowances for uncollectible loans and fees receivable at June 30, 2012 and December 31, 2011, respectively)		18,232			31,902
Loans and fees receivable, at fair value		20,846			28,226
Loans and fees receivable pledged as collateral under structured financings, at fair value		186,206			238,763
Investments in previously charged-off receivables		59,489			37,110
Investments in securities		6,107			6,203
Deferred costs, net		2,706			3,033
Property at cost, net of depreciation		8,375			8,098
Investments in equity-method investees		45,189			49,862
Prepaid expenses and other assets		10,135			11,317
Total assets	$	495,293		$	647,907
Liabilities
Accounts payable and accrued expenses	$	42,793		$	47,140
Notes payable, at face value		38,600			23,765
Notes payable associated with structured financings, at face value		9,653			23,151
Notes payable associated with structured financings, at fair value		182,750			241,755
Convertible senior notes (Note 8)		95,056			176,400
Income tax liability		60,239			59,368
Total liabilities		429,091			571,579

Commitments and contingencies (Note 9)

Equity
Common stock, no par value, 150,000,000 shares authorized: 23,669,179 shares issued and 23,669,179 shares outstanding (including 1,672,656 loaned shares to be returned) at June 30, 2012; and 31,997,581 shares issued and 23,559,402 shares outstanding (including 1,672,656 loaned shares to be returned) at December 31, 2011		-			-
Additional paid-in capital		293,472			294,246
Treasury stock, at cost, 0 and 8,438,179 shares at June 30, 2012 and December 31, 2011, respectively		-			(187,615	)
Accumulated other comprehensive loss		(1,895	)		(2,257	)
Retained deficit		(225,301	)		(28,257	)
Total shareholders’ equity		66,276			76,117
Noncontrolling interests		(74	)		211
Total equity		66,202			76,328
Total liabilities and equity	$	495,293		$	647,907

See accompanying notes.

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CompuCredit Holdings Corporation and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except per share data)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
Interest income:
Consumer loans, including past due fees	$	23,907		$	38,855		$	49,993		$	81,479
Other		206			452			408			774
Total interest income		24,113			39,307			50,401			82,253
Interest expense		(7,429	)		(11,355	)		(18,326	)		(23,306	)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable		16,684			27,952			32,075			58,947
Fees and related income on earning assets		29,152			32,532			93,506			91,754
Losses upon charge off of loans and fees receivable recorded at fair value		(17,021	)		(36,342	)		(72,649	)		(89,190	)
Provision for losses on loans and fees receivable recorded at net realizable value		(7,437	)		82			(10,318	)		(758	)
Net interest income, fees and related income on earning assets		21,378			24,224			42,614			60,753
Other operating income:
Servicing income		968			860			2,232			1,826
Ancillary and interchange revenues		1,413			2,463			3,357			4,965
Gain on repurchase of convertible senior notes		-			201			-			469
Gain on buy-out of equity-method investee members		-			-			-			619
Equity in income of equity-method investees		3,539			3,823			9,556			22,127
Total other operating income		5,920			7,347			15,145			30,006
Other operating expense:
Salaries and benefits		4,844			6,277			10,721			12,830
Card and loan servicing		20,037			18,387			39,989			38,207
Marketing and solicitation		630			768			1,446			1,205
Depreciation		393			1,785			865			3,783
Other		6,761			7,172			14,271			14,136
Total other operating expense		32,665			34,389			67,292			70,161
(Loss on) income from continuing operations before income taxes		(5,367	)		(2,818	)		(9,533	)		20,598
Income tax expense		(589	)		(850	)		(929	)		(1,124	)
(Loss on) income from continuing operations		(5,956	)		(3,668	)		(10,462	)		19,474
Discontinued operations:
Income from discontinued operations before income taxes		-			106,214			-			115,137
Income tax expense		-			(1,788	)		-			(4,100	)
Income from discontinued operations		-			104,426			-			111,037
Net (loss) income		(5,956	)		100,758			(10,462	)		130,511
Net loss (income) attributable to noncontrolling interests (including $0, $0, $0 and $1,131 of income associated with noncontrolling interests in discontinued operations in the three and six months ended June 30, 2012 and 2011, respectively)		211			8			285			(1,290	)
Net (loss) income attributable to controlling interests	$	(5,745	)	$	100,766		$	(10,177	)	$	129,221
(Loss on) income from continuing operations attributable to controlling interests per common share—basic	$	(0.26	)	$	(0.16	)	$	(0.46	)	$	0.66
(Loss on) income from continuing operations attributable to controlling interests per common share—diluted	$	(0.26	)	$	(0.16	)	$	(0.46	)	$	0.66
Income from discontinued operations attributable to controlling interests per common share—basic	$	-		$	4.61		$	-		$	3.76
Income from discontinued operations attributable to controlling interests per common share—diluted	$	-		$	4.59		$	-		$	3.74
Net (loss) income attributable to controlling interests per common share—basic	$	(0.26	)	$	4.45		$	(0.46	)	$	4.42
Net (loss) income attributable to controlling interests per common share—diluted	$	(0.26	)	$	4.43		$	(0.46	)	$	4.40

See accompanying notes.

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CompuCredit Holdings Corporation and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

(Dollars in thousands)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
Net (loss) income	$	(5,956	)	$	100,758		$	(10,462	)	$	130,511
Other comprehensive (loss) income:
Foreign currency translation adjustment		(665	)		488			345			2,393
Reclassifications of foreign currency translation adjustment to consolidated statements of operations		-			2,301			-			2,301
Income tax related to other comprehensive income		85			(1	)		17			(46	)
Comprehensive (loss) income		(6,536	)		103,546			(10,100	)		135,159
Comprehensive loss (income) attributable to noncontrolling interests		211			8			285			(1,290	)
Comprehensive (loss) income attributable to controlling interests	$	(6,325	)	$	103,554		$	(9,815	)	$	133,869

See accompanying notes.

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CompuCredit Holdings Corporation and Subsidiaries

Consolidated Statement of Shareholders’ Equity

For the Six Months Ended June 30, 2012 (Unaudited)

(Dollars in thousands)

	Common Stock
	Shares Issued			Amount		Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Deficit			Noncontrolling Interests			Total Equity
Balance at December 31, 2011		31,997,581		$	-	$	294,246		$	(187,615	)	$	(2,257	)	$	(28,257	)	$	211		$	76,328
Use of treasury stock for stock-based compensation plans		(118,277	)		-		(944	)		5,169			-			(4,225	)		-			-
Compensatory stock issuances		109,777			-		-			-			-			-			-			-
Amortization of deferred stock-based compensation costs		-			-		170			-			-			-			-			170
Purchase of treasury stock		-			-		-			(196	)		-			-			-			(196	)
Redemption and retirement of shares		(8,319,902	)		-		-			182,642			-			(182,642	)		-			-
Net loss		-			-		-			-			-			(10,177	)		(285	)		(10,462	)
Foreign currency translation adjustment, net of tax		-			-		-			-			362			-			-			362
Balance at June 30, 2012		23,669,179		$	-	$	293,472		$	-		$	(1,895	)	$	(225,301	)	$	(74	)	$	66,202

See accompanying notes.

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CompuCredit Holdings Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

	For the Six Months Ended June 30,
	2012			2011
Operating activities
Net (loss) income	$	(10,462	)	$	130,511
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, anortization and accretion, net		730			4,821
Losses upon charge off of loans and fees receivable recorded at fair value		72,649			89,190
Provision for losses on loans and fees receivable		10,318			12,575
Accretion of discount on convertible senior notes		2,149			3,577
Stock-based compensation expense		170			2,151
Unrealized gain on loans and fees receivable and underlying notes payable held at fair value		(57,481	)		(66,549	)
Unrealized loss on trading securities		287			255
Gain on repurchase of convertible senior notes		-			(469	)
Income from equity-method investments		(9,556	)		(22,127	)
Gain on buy-out of equity-method investee members		-			(619	)
Net gain on sale of subsidiary		-			(101,359	)
Changes in assets and liabilities, exclusive of business acquisitions:
Decrease (increase) in uncollected fees on earning assets		16,268			(6,867	)
Decrease in JRAS auto loans receivable		2,931			7,835
Decrease in deferred costs		329			-
Increase (decrease) in income tax liability		886			(112	)
Decrease in prepaid expenses		4			7,605
Decrease in accounts payable and accrued expenses		(846	)		(4,575	)
Other		2,458			2,298
Net cash provided by operating activities		30,834			58,141
Investing activities
Decrease in restricted cash		5,805			8,270
Investment in equity-method investees		(1,354	)		(34,336	)
Proceeds from equity-method investees		16,042			10,860
Investments in earning assets		(138,090	)		(388,088	)
Proceeds from earning assets		167,227			558,179
Investments in subsidiaries		(3,514	)		-
Net cash associated with newly acquired consolidated subsidiaries		-			1,025
Proceeds from sale of subsidiary		-			147,449
Purchases and development of property, net of disposals		(1,139	)		(1,116	)
Net cash provided by investing activities		44,977			302,243
Financing activities
Noncontrolling interests contributions, net		-			600
Purchase of outstanding stock subject to tender offer		-			(105,000	)
Purchase of treasury stock		(196	)		(1,107	)
Purchases of noncontrolling interests		-			(4,067	)
Proceeds from borrowings		15,365			9,697
Repayment of borrowings		(184,605	)		(212,266	)
Net cash used in financing activities		(169,436	)		(312,143	)
Effect of exchange rate changes on cash		(6	)		1,194
Net (decrease) increase in unrestricted cash		(93,631	)		49,435
Unrestricted cash and cash equivalents at beginning of period		144,913			85,350
Unrestricted cash and cash equivalents at end of period	$	51,282		$	134,785
Supplemental cash flow information
Unrestricted cash included in assets held for sale	$	-		$	8,230
Cash paid for interest	$	16,265		$	19,849
Net cash income tax payments	$	43		$	5,383
Supplemental non-cash information
Notes payable associated with capital leases	$	268		$	-

See accompanying notes.

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CompuCredit Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2012

1.	Basis of Presentation

We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. They do include, however, all normal recurring adjustments we consider necessary to fairly state our results for the interim periods.

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Certain estimates, such as credit losses, payment rates, costs of funds, discount rates and yields earned on credit card receivables significantly affect the reported amount of two categories of credit card receivables that we report at fair value and our notes payable associated with structured financings, at fair value, as reported on our consolidated balance sheets; these estimates likewise affect our changes in fair value of loans and fees receivable recorded at fair value and changes in fair value of notes payable associated with structured financings recorded at fair value categories within our fees and related income on earning assets line item on our consolidated statements of operations. Additionally, estimates of future credit losses on our loans and fees receivable that we report at net realizable value, rather than fair value, significantly affect two categories of such loans and fees receivable, net, that we show on our consolidated balance sheets, as well as the provision for losses on loans and fees receivable within our consolidated statements of operations. Operating results for the three and six months ended June 30, 2012 are not indicative of what our results will be for the year ending December 31, 2012.

We have reclassified certain amounts in our prior period consolidated financial statements related to the classification of our Retail Micro-Loans segment as discontinued operations to conform to current period presentation, and we have eliminated all significant intercompany balances and transactions for financial reporting purposes.

2.	Significant Accounting Policies and Consolidated Financial Statement Components

The following is a summary of significant accounting policies we use to prepare our consolidated financial statements, as well as a description of significant components of our consolidated financial statements.

Loans and Fees Receivable, Net. Our two categories of loans and fees receivable, net, currently consist of receivables carried at net realizable value (1) associated with (a) U.K. credit card and U.S. private label merchant and other credit products currently being marketed within our Credit Cards and Other Investments segment, (b) credit card accounts opened under our Investments in Previously Charged-off Receivables segment’s balance transfer program, and (c) our Auto Finance segment’s CAR operations (all the aforementioned being labeled in loans and fees receivable, net), and (2) associated with our former ACC and JRAS auto finance businesses, which are separately labeled as pledged as collateral for non-recourse asset-backed structured financing facilities. Our balance transfer program receivables are included as a component of our Credit Cards and Other Investments segment data and aggregated $14.7 million (net of allowances for uncollectible loans and fees receivable and deferred revenue) or 5.0% of our consolidated loans and fees receivable (net or at fair value) as of June 30, 2012. Our loans and fees receivable generally are unsecured; however, our auto finance loans are secured by the underlying automobiles in which we hold the vehicle title.

The components of our aggregated categories of loans and fees receivable, net (in millions) for reporting periods relevant to this report are as follows:

	Balance at December 31, 2011			Additions			Subtractions			Balance at June 30, 2012
Loans and fees receivable, gross	$	119.3		$	95.7		$	(102.5	)	$	112.5
Deferred revenue		(8.0	)		(13.3	)		12.8			(8.5	)
Allowance for uncollectible loans and fees receivable		(14.7	)		(10.3	)		8.0			(17.0	)
Loans and fees receivable, net	$	96.6		$	72.1		$	(81.7	)	$	87.0

	Balance at December 31, 2010			Additions			Subtractions			Transfer to Assets Held for Sale			Balance at June 30, 2011
Loans and fees receivable, gross	$	227.7		$	296.7		$	(343.5	)	$	(42.3	)	$	138.6
Deferred revenue		(20.5	)		(32.3	)		35.3			5.8			(11.7	)
Allowance for uncollectible loans and fees receivable		(37.6	)		(5.9	)		20.7			3.8			(19.0	)
Loans and fees receivable, net	$	169.6		$	258.5		$	(287.5	)	$	(32.7	)	$	107.9

As of June 30, 2012 and 2011, the weighted average remaining accretion periods for the $8.5 million and $11.7 million, respectively, of deferred revenue reflected in the above tables were 13.1 and 17.1 months, respectively.

Table of Contents

A roll-forward of our allowance for uncollectible loans and fees receivable, net (in millions) by category of loans and fees receivable is as follows:

For the Three Months Ended June 30, 2012	Credit Cards			Micro-Loans			Auto Finance			Other			Total
Allowance for uncollectible loans and fees receivable:
Balance at beginning of period	$	(4.5	)	$	(0.5	)	$	(6.1	)	$	(1.4	)	$	(12.5	)
Provision for loan losses		(7.1	)		(0.4	)		0.7			(0.6	)		(7.4	)
Charge offs		1.4			0.7			1.8			0.2			4.1
Recoveries		(0.3	)		-			(0.9	)		-			(1.2	)
Balance at end of period	$	(10.5	)	$	(0.2	)	$	(4.5	)	$	(1.8	)	$	(17.0	)
Balance at end of period individually evaluated for impairment	$	-		$	-		$	-		$	-		$	-
Balance at end of period collectively evaluated for impairment	$	(10.5	)	$	(0.2	)	$	(4.5	)	$	(1.8	)	$	(17.0	)
Loans and fees receivable:
Loans and fees receivable, gross	$	27.9		$	0.7		$	73.4		$	10.5		$	112.5
Loans and fees receivable individually evaluated for impairment	$	-		$	-		$	0.1		$	-		$	0.1
Loans and fees receivable collectively evaluated for impairment	$	27.9		$	0.7		$	73.3		$	10.5		$	112.4

For the Six Months Ended June 30, 2012	Credit Cards			Micro-Loans			Auto Finance			Other			Total
Allowance for uncollectible loans and fees receivable:
Balance at beginning of period	$	(4.0	)	$	(1.1	)	$	(8.4	)	$	(1.2	)	$	(14.7	)
Provision for loan losses		(8.9	)		(1.8	)		1.3			(0.9	)		(10.3	)
Charge offs		3.0			2.7			4.7			0.3			10.7
Recoveries		(0.6	)		-			(2.1	)		-			(2.7	)
Balance at end of period	$	(10.5	)	$	(0.2	)	$	(4.5	)	$	(1.8	)	$	(17.0	)
Balance at end of period individually evaluated for impairment	$	-		$	-		$	-		$	-		$	-
Balance at end of period collectively evaluated for impairment	$	(10.5	)	$	(0.2	)	$	(4.5	)	$	(1.8	)	$	(17.0	)
Loans and fees receivable:
Loans and fees receivable, gross	$	27.9		$	0.7		$	73.4		$	10.5		$	112.5
Loans and fees receivable individually evaluated for impairment	$	-		$	-		$	0.1		$	-		$	0.1
Loans and fees receivable collectively evaluated for impairment	$	27.9		$	0.7		$	73.3		$	10.5		$	112.4

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For the Three Months Ended June 30, 2011	Credit Cards			Micro-Loans			Auto Finance			Other			Total
Allowance for uncollectible loans and fees receivable:
Balance at beginning of period	$	(3.0	)	$	(4.7	)	$	(20.3	)	$	(0.2	)	$	(28.2	)
Provision for loan losses (includes $2.0 million of provision netted within income from discontinued operations)		(0.9	)		(2.7	)		1.9			(0.2	)		(1.9	)
Charge offs		1.4			3.0			5.5			-			9.9
Recoveries		(0.3	)		(0.2	)		(2.1	)		-			(2.6	)
Transfer to assets held for sale		-			3.8			-						3.8
Sale of assets		-			-			-			-			-
Balance at end of period	$	(2.8	)	$	(0.8	)	$	(15.0	)	$	(0.4	)	$	(19.0	)
Balance at end of period individually evaluated for impairment	$	-		$	-		$	(0.4	)	$	-		$	(0.4	)
Balance at end of period collectively evaluated for impairment	$	(2.8	)	$	(0.8	)	$	(14.6	)	$	(0.4	)	$	(18.6	)
Loans and fees receivable:
Loans and fees receivable, gross	$	18.0		$	1.6		$	117.7		$	1.3		$	138.6
Loans and fees receivable individually evaluated for impairment	$	-		$	-		$	0.9		$	-		$	0.9
Loans and fees receivable collectively evaluated for impairment	$	18.0		$	1.6		$	116.8		$	1.3		$	137.7

For the Six Months Ended June 30, 2011	Credit Cards			Micro-Loans			Auto Finance			Other			Total
Allowance for uncollectible loans and fees receivable:
Balance at beginning of period	$	(4.0	)	$	(5.2	)	$	(28.3	)	$	(0.1	)	$	(37.6	)
Provision for loan losses (includes $5.1 million of provision netted within income from discontinued operations)		(1.2	)		(6.2	)		1.8			(0.3	)		(5.9	)
Charge offs		3.0			7.2			14.5			-			24.7
Recoveries		(0.6	)		(0.4	)		(3.7	)		-			(4.7	)
Transfer to assets held for sale		-			3.8			-			-			3.8
Sale of assets		-			-			0.7			-			0.7
Balance at end of period	$	(2.8	)	$	(0.8	)	$	(15.0	)	$	(0.4	)	$	(19.0	)
Balance at end of period individually evaluated for impairment	$	-		$	-		$	(0.4	)	$	-		$	(0.4	)
Balance at end of period collectively evaluated for impairment	$	(2.8	)	$	(0.8	)	$	(14.6	)	$	(0.4	)	$	(18.6	)
Loans and fees receivable:
Loans and fees receivable, gross	$	18.0		$	1.6		$	117.7		$	1.3		$	138.6
Loans and fees receivable individually evaluated for impairment	$	-		$	-		$	0.9		$	-		$	0.9
Loans and fees receivable collectively evaluated for impairment	$	18.0		$	1.6		$	116.8		$	1.3		$	137.7

The components (in millions) of loans and fees receivable, net as of the date of each of our consolidated balance sheets are as follows:

	As of
	June 30,		December 31,
	2012		2011
Current loans receivable	$	95.9	$	100.9
Current fees receivable		1.4		1.9
Delinquent loans and fees receivable		15.2		16.5
Loans and fees receivable, gross	$	112.5	$	119.3

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Delinquent loans and fees receivable reflect the principal, fee and interest components of loans that we did not collect on the contractual due date. Amounts we believe we will not ultimately collect are included as a component in our overall allowance for uncollectible loans and fees receivable and typically are charged off 180 days from the point they become delinquent for our auto finance, credit card and private label merchant credit receivables, or sooner if facts and circumstances earlier indicate non-collectability. Recoveries on accounts previously charged off are credited to the allowance for uncollectible loans and fees receivable and effectively offset our provision for loan losses in our accompanying consolidated statements of operations.

An aging of our delinquent loans and fees receivable, gross (in millions) as of June 30, 2012 and December 31, 2011 is as follows:

As of June 30, 2012	Credit Cards		Micro-Loans			Auto Finance		Other		Total
30-59 days past due	$	2.2	$	-		$	5.2	$	-	$	7.4
60-89 days past due		1.7		-			1.8		-		3.5
Greater than 90 days past due		3.6		(0.1	)		0.8		-		4.3
Delinquent loans and fees receivable, gross		7.5		(0.1	)		7.8		-		15.2
Current loans and fees receivable, gross		20.4		0.8			65.6		10.5		97.3
Total loans and fees receivable, gross	$	27.9	$	0.7		$	73.4	$	10.5	$	112.5
Balance of loans greater than 90-days delinquent still accruing interest and fees	$	-	$	-		$	0.4	$	-	$	0.4

As of December 31, 2011	Credit Cards		Micro-Loans			Auto Finance		Other		Total
30-59 days past due	$	0.8	$	0.7		$	6.9	$	-	$	8.4
60-89 days past due		0.7		0.6			2.5		-		3.8
Greater than 90 days past due		1.5		0.9			1.9		-		4.3
Delinquent loans and fees receivable, gross		3.0		2.2			11.3		-		16.5
Current loans and fees receivable, gross		17.5		0.9			80.2		4.2		102.8
Total loans and fees receivable, gross	$	20.5	$	3.1		$	91.5	$	4.2	$	119.3
Balance of loans greater than 90-days delinquent still accruing interest and fees	$	-	$	-		$	1.3	$	-	$	1.3

Investments in Previously Charged-Off Receivables

The following table shows (in thousands) a roll-forward of our investments in previously charged-off receivables activities:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
Unrecovered balance at beginning of period	$	36,795		$	22,882		$	37,110		$	29,889
Acquisitions of defaulted accounts		34,902			16,460			46,700			19,484
Cash collections		(26,553	)		(19,228	)		(52,638	)		(39,856	)
Cost-recovery method income recognized on defaulted accounts (included as a component of fees and related income on earning assets on our consolidated statements of operations)		14,345			11,166			28,317			21,763
Unrecovered balance at end of period	$	59,489		$	31,280		$	59,489		$	31,280

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Previously charged-off receivables held as of June 30, 2012 are comprised principally of: normal delinquency charged-off accounts; charged-off accounts associated with Chapter 13 Bankruptcy-related debt; and charged-off accounts acquired through our Investments in Previously Charged-Off Receivables segment’s balance transfer program prior to such time as credit cards are issued relating to the program’s underlying accounts. At June 30, 2012, $6.0 million of our investments in previously charged-off receivables balance was comprised of previously charged-off receivables that our Investments in Previously Charged-Off Receivables segment purchased from our other consolidated subsidiaries, and in determining our net income or loss as reflected on our consolidated statements of operations, we eliminate all material intercompany profits that are associated with these transactions. Although we eliminate all material intercompany profits associated with these purchases, we do not eliminate the corresponding purchases from our consolidated balance sheet categories so as to better reflect the ongoing business operations of each of our reportable segments and because the amounts represent just 1.2% of our consolidated total assets.

We record each static pool at cost and account for each pool as a single unit for payment application and income recognition purposes, thereby applying the cost recovery method on a portfolio-by-portfolio basis. Under the cost recovery method, we do not recognize income associated with a particular portfolio until cash collections have exceeded the investment. Once cash collections exceed each particular static pool investment, we include them in revenue as we receive them. These revenues are included in our fees and related income on earning assets in the accompanying statement of operations.

We estimate the life of each pool of previously charged-off receivables acquired by us generally to be between 60 months for normal delinquency charged-off accounts (including balance transfer program accounts) and approximately 84 months for Chapter 13 Bankruptcies.

Investments in Securities

The carrying values (in thousands) of our investments in debt and equity securities (excluding those investments for which we use equity-method accounting) are as follows:

	As of
	June 30, 2012		December 31, 2011
Held to maturity:
Investments in non-marketable debt securities	$	70	$	93
Available for sale:
Investments in non-marketable equity securities		1,941		2,075
Investments in non-marketable debt securities		4,096		3,884
Trading:
Investments in marketable equity securities		-		151
Total investments in securities	$	6,107	$	6,203

Investments in Equity-Method Investees

We account for investments using the equity method of accounting if we have the ability to exercise significant influence, but not control, over the investees. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of an incorporated investee of between 20% and 50%, although other factors, such as representation on an investee’s board of managers, specific voting and veto rights held by each investor and the effects of commercial arrangements, are considered in determining whether equity method accounting is appropriate. We use the equity method for our investments in a limited liability company formed in 2004 to acquire a portfolio of credit card receivables. We also use the equity method to account for our March 2011 investment to acquire a 50.0% interest in a joint venture with an unrelated third party that purchased all ($164.0 million in face amount) of the outstanding notes issued out of the structured financing trust underlying our U.K. portfolio of credit card receivables (the “U.K. Portfolio”) for a discounted purchase price of $64.5 million in cash, a price that the joint venture partners determined to be attractive based on a discounted cash flow analysis of the remaining expected payments on the notes (all of which were allocable to the class “A” portion of the outstanding notes given that no payments were expected associated with the class “B” portion of the outstanding notes thereby rendering them worthless). At the time of their acquisition by the joint venture, we carried the notes as a liability on our consolidated balance sheet at their fair value of $98.7 million. The 50.0%-owned joint venture elected to account for its investment in the U.K. Portfolio structured financing notes at their fair value, and it recognized a $34.2 million gain (of which our 50% share represented $17.1 million) in the three months ended March 31, 2011 equal to the excess of the fair value of the notes at that date over the joint venture’s discounted purchase price of the notes. We record our respective interests in the income of our equity-method investees within the equity in income of equity-method investees category on our consolidated statements of operations.

Income Taxes

Computed considering results for only our continuing operations before income taxes, our effective income tax benefit rate was a negative 11.0% and a negative 9.8% for the three and six months ended June 30, 2012, respectively, versus our negative effective income tax benefit rate of 30.2% for the three months ended June 30, 2011 and our positive effective income tax expense rate of 5.5% for the six months ended June 30, 2011. We have experienced no material changes in effective tax rates associated with differences in filing jurisdictions, and the variations in our effective tax rates between the periods principally bear the effects of (1) changes in valuation allowances against income statement-oriented federal, foreign and state deferred tax assets and (2) variations in the level of our pre-tax income among the different reporting periods relative to the level of our permanent differences within such periods. Computed without regard to the effects of the valuation allowance changes, it is more likely than not that our effective tax rates would have been a positive 27.4% and a positive 26.8% benefit rate in the three and six months ended June 30, 2012, respectively, compared to a positive 15.3% benefit rate and a positive 45.9% expense rate, in the three and six months ended June 30, 2011, respectively.

We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized $0.5 million and $0.9 million in potential interest and penalties associated with uncertain tax positions during the three and six months ended June 30, 2012, respectively, compared to $0.6 million and $1.1 million during the three and six months ended June 30, 2011, respectively. To the extent such interest and penalties are not assessed as a result of a resolution of the underlying tax position, amounts accrued are reduced and reflected as a reduction of income tax expense. We recognized no such reductions in the three and six months ended June 30, 2012 and 2011, respectively.

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Fees and Related Income on Earning Assets

The components (in thousands) of our fees and related income on earning assets are as follows:

	For the Three Months June,						For the Six Months Ended June 30,
	2012			2011			2012			2011
Fees on credit products	$	4,407		$	3,475		$	7,885		$	7,235
Changes in fair value of loans and fees receivable recorded at fair value (1)		26,942			(10,485	)		82,871			119,518
Changes in fair value of notes payable associated with structured financings recorded at fair value		(16,073	)		28,375			(25,390	)		(52,969	)
Income on investments in previously charged-off receivables		14,345			11,166			28,317			21,763
Gross loss on auto sales		-			-			-			(111	)
(Losses) gains on investments in securities		6			9			(236	)		141
Loss on sale of JRAS assets		-			-			-			(4,648	)
Other		(475	)		(8	)		59			825
Total fees and related income on earning assets	$	29,152		$	32,532		$	93,506		$	91,754

(1) The above changes in fair value of loans and fees receivable recorded at fair value category excludes the impact of charge offs associated with these receivables which are separately stated on our consolidated statements of operations. See Note 7, “Fair values of Assets and Liabilities,” for further discussion of these receivables and their effects on our consolidated statements of operations.

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued guidance that defers the required changes to the presentation of comprehensive income that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. This temporary deferral will allow the Board time to redeliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities. See below for the other requirements for the presentation of comprehensive income.

In December 2011, the FASB issued guidance requiring entities to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on an entity's financial position. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with current literature or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current literature. The guidance is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. This standard will become effective for us beginning March 2013, and the disclosures are to be applied retrospectively for all comparative periods presented. We currently are evaluating the impact of this new guidance.

In June 2011, the FASB issued new accounting guidance that revises the manner in which comprehensive income is required to be presented in financial statements. The new guidance requires companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. The guidance eliminates the option to present components of other comprehensive income in the statement of changes in stockholders’ equity. It does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified from other comprehensive income to net income. The guidance requires retrospective application and is effective for interim and annual periods beginning on or after December 15, 2011. We adopted the presentation guidance as of December 31, 2011, and it has no effect on our financial condition, results of operations or liquidity since it impacts presentation only.

In May 2011, the FASB issued amended guidance on fair value that is intended to provide a converged fair value framework for U.S. GAAP and IFRS. The amended guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. While the amended guidance continues to define fair value as an exit price, it changes some fair value measurement principles and expands the existing disclosure requirements for fair value measurements. The amended guidance is effective for public entities for interim and annual periods beginning on or after December 15, 2011, with early adoption prohibited. The new guidance requires prospective application and disclosure in the period of adoption of the change, if any, in valuation techniques and related inputs resulting from application of the amendments and quantification of the total effect, if practicable. We adopted the amended guidance in the first quarter of 2012 which had no material impacts on our consolidated statements of operations.

Subsequent Events

We evaluate subsequent events that occur after our consolidated balance sheet date but before our consolidated financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements; and (2) nonrecognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. We have evaluated subsequent events occurring after June 30, 2012, and based on our evaluation, we did not identify any recognized or nonrecognized subsequent events that would have required further adjustments to our consolidated financial statements.

Divestiture of Investments in Previously Charged-Off Receivables Segment

On August 3, 2012, we completed a transaction to sell to Flexpoint Fund II, L.P. for $130.5 million our Investments in Previously Charged-Off Receivables segment, including its balance transfer card operations, the credit card receivables (and underlying activities) of which are reflected within our Credit Cards and Other Investments segment. The sales price includes $119.7 million (cash of $106.7 million and a note receivable of $13.0 million) at closing, of which $5.4 will be held in escrow for 12 months following the closing date of the transaction to satisfying certain indemnification provisions, and an additional $10.8 million in cash if certain performance targets are met through December 31, 2014. The $10.8 million of additional contingent consideration will be recognized into income upon the achievement of the performance targets. As of June 30, 2012, our basis in the net assets that were included in the sale was $64.4 million.

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3.	Discontinued Operations

In April, 2011 and October, 2011, respectively, we sold our U.K. Internet micro-loan subsidiaries and our retail micro-loans subsidiaries; accordingly, their results of operations are shown as discontinued operations within our consolidated statements of operations for all periods presented. Key components of discontinued operations on our consolidated statements of operations are as follows:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2012		2011			2012		2011
Net interest income, fees and related income on earning assets	$	-	$	14,935		$	-	$	49,791
Gain on sale of assets				103,706					103,706
Other operating expense		-		12,427			-		38,360
Income before income taxes		-		106,214			-		115,137
Income tax expense		-		(1,788	)		-		(4,100	)
Net income	$	-	$	104,426		$	-	$	111,037
Net income attributable to noncontrolling interests	$	-	$	1,131		$	-	$	-

There were no assets held for sale on either our June 30, 2012 or December 31, 2011 consolidated balance sheets.

4.	Segment Reporting

We operate primarily within one industry consisting of three reportable segments by which we manage our business. Our three reportable segments are: Credit Cards and Other Investments; Investments in Previously Charged-Off Receivables; and Auto Finance. Due to the 2011 sales of our Retail and U.K.-based Internet micro-loans operations, we have eliminated segment reporting for our former Retail Micro-Loans and Internet Micro-Loans segments. Additionally, we have renamed our Credit Card segment as the Credit Cards and Other Investments segment to encompass ancillary investments and product offerings that are largely start-up in nature and do not qualify for separate segment reporting. All prior period data have been reclassified to this new current period presentation.

Summary operating segment information (in thousands) is as follows:

				Investments in
	Credit Cards			Previously
	and Other			Charged-Off		Auto
Three Months Ended June 30, 2012	Investments			Receivables		Finance		Total
Net interest income, fees and related income on earning assets	$	192		$	14,242	$	6,944	$	21,378
Total other operating income	$	4,869		$	886	$	165	$	5,920
(Loss) income from continuing operations before income taxes	$	(12,798	)	$	4,880	$	2,551	$	(5,367	)
Loans and fees receivable, gross	$	39,152		$	-	$	73,415	$	112,567
Loans and fees receivable, net	$	25,014		$	-	$	61,990	$	87,004
Loans and fees receivable held at fair value	$	207,052		$	-	$	-	$	207,052
Total assets	$	351,585		$	69,360	$	74,348	$	495,293

				Investments in
	Credit Cards			Previously
	and Other			Charged-Off		Auto
Three Months Ended June 30, 2011	Investments			Receivables		Finance		Total
Net interest income, fees and related income on earning assets	$	4,431		$	11,109	$	8,684	$	24,224
Total other operating income	$	6,458		$	762	$	127	$	7,347
(Loss) income from continuing operations before income taxes	$	(10,528	)	$	4,612	$	3,098	$	(2,818	)
Loans and fees receivable, gross	$	20,854		$	-	$	117,724	$	138,578
Loans and fees receivable, net	$	16,752		$	-	$	91,166	$	107,918
Loans and fees receivable held at fair value	$	332,615		$	-	$	-	$	332,615
Total assets	$	619,057		$	36,106	$	100,721	$	755,884

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				Investments in
	Credit Cards			Previously
	and Other			Charged-Off		Auto
Six Months Ended June 30, 2012	Investments			Receivables		Finance			Total
Net interest income, fees and related income on earning assets	$	3,230		$	28,168	$	11,216		$	42,614
Total other operating income	$	12,948		$	1,891	$	306		$	15,145
(Loss) income from continuing operations before income taxes	$	(19,472	)	$	8,990	$	949		$	(9,533	)
Loans and fees receivable, gross	$	39,152		$	-	$	73,415		$	112,567
Loans and fees receivable, net	$	25,014		$	-	$	61,990		$	87,004
Loans and fees receivable held at fair value	$	207,052		$	-	$	-		$	207,052
Total assets	$	351,585		$	69,360	$	74,348		$	495,293

				Investments in
	Credit Cards			Previously
	and Other			Charged-Off		Auto
Six Months Ended June 30, 2011	Investments			Receivables		Finance			Total
Net interest income, fees and related income on earning assets	$	27,557		$	21,624	$	11,572		$	60,753
Total other operating income	$	28,282		$	1,468	$	256		$	30,006
Income (loss) from continuing operations before income taxes	$	13,055		$	8,011	$	(468	)	$	20,598
Loans and fees receivable, gross	$	20,854		$	-	$	117,724		$	138,578
Loans and fees receivable, net	$	16,752		$	-	$	91,166		$	107,918
Loans and fees receivable held at fair value	$	332,615		$	-	$	-		$	332,615
Total assets	$	619,057		$	36,106	$	100,721		$	755,884

5.	Shareholders’ Equity

During the three months ended March 31, 2012, we retired all of our common shares held in treasury, thereby resulting in a $182.6 million charge to retained earnings in that period. Additionally, pursuant to the closing of a tender offer in April 2011, we repurchased 13,125,000 shares of our common stock at a purchase price of $8.00 per share for an aggregate cost of $105.0 million, and those shares were retired. We exclude all retired shares from our outstanding share counts.

Prior to the retirement of common shares held in treasury during the three months ended March 31, 2012, we periodically reissued such shares to satisfy exercised options and vested restricted stock. We reissued 154,815 of such shares at gross costs of $5.2 million during the three months ended March 31, 2012, and we reissued 270,000 and 722,567 of such shares for the three and six months ended June 30, 2011, respectively, at gross costs of $8.4 million and $23.5 million, respectively. Also prior to the retirement of common shares held in treasury during the three months ended March 31, 2012, we effectively repurchased treasury shares by having employees who were exercising options or vesting in their restricted stock grants exchange a portion of their stock for payment of required minimum tax withholdings. Such repurchases totaled 36,538 during the three months ended March 31, 2012 at gross costs of $0.2 million, and this compares to such repurchases of 81,556 and 203,259 for the three and six months ended June 30, 2011, respectively, at gross costs of $0.3 million and $1.1 million, respectively.

We had 1,672,656 loaned shares outstanding at June 30, 2012, which were originally lent in coordination with our December 2005 issuance of convertible senior notes.

6.	Investments in Equity-Method Investees

Our equity-method investments outstanding at June 30, 2012 consist of our interests (aggregating 50%) in a joint venture that was formed in 2004 to purchase a credit card receivables portfolio and our 50.0% interest in a joint venture that purchased in March 2011 the outstanding notes issued out of our U.K. Portfolio structured financing trust. The latter 50%-owned joint venture elected to account for its investment in the U.K. Portfolio structured financing notes at their fair value, and it recognized a $34.2 million gain (of which our 50% share represented $17.1 million) in the three months ended March 31, 2011 equal to the excess of the fair value of the notes at that date over the joint venture’s discounted purchase price of the notes.

In January 2011, we acquired an additional 47.5% interest in a 47.5% equity-method investee which we had historically accounted for under the equity method of accounting, thereby bringing our aggregate interest in this entity to a 95.0% ownership threshold and leading us to conclude that we should consolidate the assets and liabilities of this entity within our consolidated balance sheets. Additionally, we acquired the remaining 5.0% noncontrolling interest in this entity in April 2011 to bring our total ownership to 100%.

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In the following tables, we summarize (in thousands) combined balance sheet and results of operations data for our equity-method investees:

	As of
	June 30, 2012		December 31, 2011
Loans and fees receivable pledged as collateral under structured financings, at fair value	$	68,805	$	78,413
Investments in non-marketable debt securities, at fair value	$	58,466	$	81,639
Total assets	$	144,082	$	167,898
Notes payable associated with structured financings, at fair value	$	43,280	$	59,515
Total liabilities	$	43,605	$	59,909
Members’ capital	$	100,477	$	107,989

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Net interest income, fees and related income on earning assets	$	7,084	$	6,526	$	21,371	$	44,201
Total other operating income	$	846	$	60	$	929	$	147
Net income	$	7,214	$	5,363	$	20,704	$	41,625

As noted above, the above tables include our aforementioned 50.0% interest in the joint venture that purchased in March 2011 the outstanding notes issued out of our U.K. Portfolio structured financing trust. Separate financial data for this entity are as follows:

	As of
	June 30, 2012		December 31, 2011
Investments in non-marketable debt securities, at fair value	$	58,466	$	81,639
Total assets	$	59,675	$	83,210
Total liabilities	$	-	$	-
Members’ capital	$	59,675	$	83,210


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2012		2011		2012		2011
Net interest income, fees and related income on earning assets	$	4,010	$	10,034	$	4,557	$	44,443
Net income	$	3,998	$	10,025	$	4,524	$	44,328

As noted in Note 8, Convertible Senior Notes and Notes Payable, notes payable with a fair value of $58.5 million correspond with the $58.5 million investment in non-marketable debt securities, at fair value held by our equity-method investee as noted in the above table.

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7.	Fair Values of Assets and Liabilities