PRA GROUP INC - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2019

☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ________

Commission File Number: 000-50058

PRA Group, Inc.

(Exact name of registrant as specified in its charter)



Delaware				75-3078675
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

120 Corporate Boulevard

Norfolk, Virginia 23502

(Address of principal executive offices)

(888) 772-7326

(Registrant's Telephone No., including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	PRAA	NASDAQ Global Select Market

Indicate by check mark whether the registrant (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. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

The number of shares of the registrant's common stock outstanding as of November 5, 2019 was 45,410,939.

Table of Contents



Part I. Financial Information

Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Income Statements	4
	Consolidated Statements of Comprehensive Income/(Loss)	5
	Consolidated Statement of Changes in Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	9
	1. Organization and Business	9
	2. Finance Receivables, net	10
	3. Investments	11
	4. Goodwill and Intangible Assets, net	12
	5. Leases	13
	6. Borrowings	15
	7. Derivatives	18
	8. Fair Value	19
	9. Accumulated Other Comprehensive Loss	22
	10. Earnings per Share	22
	11. Income Taxes	23
	12. Commitments and Contingencies	23
	13. Recently Issued Accounting Standards	25
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48

Part II. Other Information

Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	49

Signatures		50

Part I. Financial Information

Item 1. Financial Statements (Unaudited)

PRA Group, Inc.

Consolidated Balance Sheets

September 30, 2019 and December 31, 2018

(Amounts in thousands)



	(unaudited)
	September 30, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	90,000		$	98,695
Investments	55,204			45,173
Finance receivables, net	3,238,813			3,084,777
Other receivables, net	15,808			46,157
Income taxes receivable	23,479			16,809
Deferred tax asset, net	60,697			61,453
Property and equipment, net	56,847			54,136
Right-of-use assets	70,723			—
Goodwill	465,572			464,116
Intangible assets, net	4,757			5,522
Other assets	36,380			32,721
Total assets	$	4,118,280		$	3,909,559
Liabilities and Equity
Liabilities:
Accounts payable	$	3,469		$	6,110
Accrued expenses	84,753			79,396
Income taxes payable	624			15,080
Deferred tax liability, net	95,441			114,979
Interest-bearing deposits	112,024			82,666
Borrowings	2,567,086			2,473,656
Lease liabilities	74,428			—
Other liabilities	29,607			7,370
Total liabilities	2,967,432			2,779,257
Redeemable noncontrolling interest	4,535			6,333
Equity:
Preferred stock, $0.01 par value, 2,000 shares authorized, no shares issued and outstanding	—			—
Common stock, $0.01 par value, 100,000 shares authorized, 45,411 shares issued and outstanding at September 30, 2019; 100,000 shares authorized, 45,304 shares issued and outstanding at December 31, 2018	454			453
Additional paid-in capital	64,631			60,303
Retained earnings	1,335,290			1,276,473
Accumulated other comprehensive loss	(305,956		)	(242,109		)
Total stockholders' equity - PRA Group, Inc.	1,094,419			1,095,120
Noncontrolling interest	51,894			28,849
Total equity	1,146,313			1,123,969
Total liabilities and equity	$	4,118,280		$	3,909,559

The accompanying notes are an integral part of these consolidated financial statements.

PRA Group, Inc.

Consolidated Income Statements

For the three and nine months ended September 30, 2019 and 2018

(unaudited)

(Amounts in thousands, except per share amounts)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues:
Income recognized on finance receivables	$	247,471		$	223,228		$	735,526		$	660,870
Fee income	2,391			2,561			11,472			10,230
Other revenue	152			99			950			414
Total revenues	250,014			225,888			747,948			671,514

Net allowance charges	(4,136		)	(8,285		)	(11,427		)	(12,044		)

Operating expenses:
Compensation and employee services	75,317			78,350			234,770			240,277
Legal collection fees	14,083			10,428			41,439			31,440
Legal collection costs	31,395			30,769			99,745			71,707
Agency fees	12,788			8,350			39,833			24,766
Outside fees and services	16,733			15,701			48,274			44,424
Communication	10,310			10,240			34,335			32,579
Rent and occupancy	4,414			4,270			13,268			12,587
Depreciation and amortization	4,046			4,776			13,341			14,230
Other operating expenses	12,102			10,602			34,613			34,414
Total operating expenses	181,188			173,486			559,618			506,424
Income from operations	64,690			44,117			176,903			153,046
Other income and (expense):
Interest expense, net	(35,864		)	(30,624		)	(105,872		)	(87,529		)
Foreign exchange	5,406			626			11,359			3,609
Other	(19		)	222			(123		)	65
Income before income taxes	34,213			14,341			82,267			69,191
Income tax expense	6,665			1,789			15,607			11,783
Net income	27,548			12,552			66,660			57,408
Adjustment for net income attributable to noncontrolling interests	2,577			2,625			7,843			6,787
Net income attributable to PRA Group, Inc.	$	24,971		$	9,927		$	58,817		$	50,621
Net income per common share attributable to PRA Group, Inc.:
Basic	$	0.55		$	0.22		$	1.30		$	1.12
Diluted	$	0.55		$	0.22		$	1.29		$	1.11
Weighted average number of shares outstanding:
Basic	45,410			45,302			45,378			45,272
Diluted	45,645			45,440			45,520			45,420

The accompanying notes are an integral part of these consolidated financial statements.

PRA Group, Inc.

Consolidated Statements of Comprehensive Income/(Loss)

For the three and nine months ended September 30, 2019 and 2018

(unaudited)

(Amounts in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net income	$	27,548		$	12,552		$	66,660		$	57,408
Less net income attributable to noncontrolling interests	2,577			2,625			7,843			6,787
Net income attributable to PRA Group, Inc.	24,971			9,927			58,817			50,621
Other comprehensive income/(loss), net of tax:
Currency translation adjustments	(50,542		)	(5,851		)	(46,975		)	(36,607		)
Cash flow hedges	(5,832		)	—			(19,549		)	—
Debt securities available-for-sale	(1		)	—			81			—
Other comprehensive loss	(56,375		)	(5,851		)	(66,443		)	(36,607		)
Less other comprehensive loss attributable to noncontrolling interests	(2,543		)	(1,940		)	(2,596		)	(2,136		)
Other comprehensive loss attributable to PRA Group, Inc.	(53,832		)	(3,911		)	(63,847		)	(34,471		)
Comprehensive income/(loss) attributable to PRA Group, Inc.	$	(28,861	)	$	6,016		$	(5,030	)	$	16,150

The accompanying notes are an integral part of these consolidated financial statements.

PRA Group, Inc.

Consolidated Statements of Changes in Equity

For the nine months ended September 30, 2019

(unaudited)

(Amounts in thousands)



	Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive (Loss)			Noncontrolling Interest			Total Equity
	Shares	Amount		Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive (Loss)			Noncontrolling Interest			Total Equity
Balance at December 31, 2018	45,304	$	453	$	60,303		$	1,276,473	$	(242,109	)	$	28,849		$	1,123,969
Components of comprehensive income, net of tax:
Net income	—	—		—			15,227		—			1,685			16,912
Currency translation adjustments	—	—		—			—		(742		)	(431		)	(1,173		)
Cash flow hedges	—	—		—			—		(5,715		)	—			(5,715		)
Debt securities available-for-sale	—	—		—			—		45			—			45
Distributions to noncontrolling interest	—	—		—			—		—			(6,877		)	(6,877		)
Contributions from noncontrolling interest	—	—		—			—		—			89			89
Vesting of restricted stock	80	1		(1		)	—		—			—			—
Share-based compensation expense	—	—		2,314			—		—			—			2,314
Employee stock relinquished for payment of taxes	—	—		(1,437		)	—		—			—			(1,437		)
Other	—	—		(2,088		)	—		—			—			(2,088		)
Balance at March 31, 2019	45,384	$	454	$	59,091		$	1,291,700	$	(248,521	)	$	23,315		$	1,126,039
Components of comprehensive income, net of tax:
Net income	—	—		—			18,619		—			3,581			22,200
Currency translation adjustments	—	—		—			—		4,362			378			4,740
Cash flow hedges	—	—		—			—		(8,002		)	—			(8,002		)
Debt securities available-for-sale	—	—		—			—		37			—			37
Contributions from noncontrolling interest	—	—		—			—		—			3,229			3,229
Vesting of restricted stock	25	—		—			—		—			—			—
Share-based compensation expense	—	—		2,620			—		—			—			2,620
Employee stock relinquished for payment of taxes	—	—		(6		)	—		—			—			(6		)
Balance at June 30, 2019	45,409	$	454	$	61,705		$	1,310,319	$	(252,124	)	$	30,503		$	1,150,857
Components of comprehensive income, net of tax:
Net income	—	—		—			24,971		—			2,577			27,548
Currency translation adjustments	—	—		—			—		(47,999		)	(2,543		)	(50,542		)
Cash flow hedges	—	—		—			—		(5,832		)	—			(5,832		)
Debt securities available-for-sale	—	—		—			—		(1		)	—			(1		)
Distributions to noncontrolling interest	—	—		—			—		—			—			—
Contributions from noncontrolling interest	—	—		—			—		—			21,357			21,357
Vesting of restricted stock	2	—		—			—		—			—			—
Share-based compensation expense	—	—		2,974			—		—			—			2,974
Employee stock relinquished for payment of taxes	—	—		(48		)	—		—			—			(48		)
Balance at September 30, 2019	45,411	$	454	$	64,631		$	1,335,290	$	(305,956	)	$	51,894		$	1,146,313

The accompanying notes are an integral part of these consolidated financial statements.

PRA Group, Inc.

Consolidated Statements of Changes in Equity

For the nine months ended September 30, 2018

(unaudited)

(Amounts in thousands)



	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss)			Noncontrolling Interest			Total Equity
	Shares	Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss)			Noncontrolling Interest			Total Equity
Balance at December 31, 2017	45,189	$	452	$	53,870		$	1,214,840		$	(178,607	)	$	50,162		$	1,140,717
Cumulative effect of change in accounting principle - equity securities ⁽¹⁾	—	—		—			(3,930		)	—			—			(3,930		)
Balance at January 1, 2018	45,189	452		53,870			1,210,910			(178,607		)	50,162			1,136,787
Components of comprehensive income, net of tax:
Net income	—	—		—			21,106			—			2,126			23,232
Currency translation adjustments	—	—		—			—			22,920			7,021			29,941
Distributions to noncontrolling interest	—	—		—			—			—			(11,807		)	(11,807		)
Vesting of restricted stock	86	1		(1		)	—			—			—			—
Share-based compensation expense	—	—		2,415			—			—			—			2,415
Employee stock relinquished for payment of taxes	—	—		(2,013		)	—			—			—			(2,013		)
Balance at March 31, 2018	45,275	$	453	$	54,271		$	1,232,016		$	(155,687	)	$	47,502		$	1,178,555
Components of comprehensive income, net of tax:
Net income	—	—		—			19,588			—			2,036			21,624
Currency translation adjustments	—	—		—			—			(53,480		)	(7,217		)	(60,697		)
Distributions to noncontrolling interest	—	—		—			—			—			(928		)	(928		)
Vesting of restricted stock	25	—		—			—			—			—			—
Share-based compensation expense	—	—		2,146			—			—			—			2,146
Employee stock relinquished for payment of taxes	—	—		(7		)	—			—			—			(7		)
Balance at June 30, 2018	45,300	$	453	$	56,410		$	1,251,604		$	(209,167	)	$	41,393		$	1,140,693
Components of comprehensive income, net of tax:
Net income	—	—		—			9,927			—			2,625			12,552
Currency translation adjustments	—	—		—			—			(3,911		)	(1,940		)	(5,851		)
Distributions to noncontrolling interest	—	—		—			—			—			(569		)	(569		)
Purchase of noncontrolling interest	—	—		—			—			—			1,829			1,829
Vesting of restricted stock	3	—		—			—			—			—			—
Share-based compensation expense	—	—		2,361			—			—			—			2,361
Employee stock relinquished for payment of taxes	—	—		(58		)	—			—			—			(58		)
Balance at September 30, 2018	45,303	$	453	$	58,713		$	1,261,531		$	(213,078	)	$	43,338		$	1,150,957

(1) Relates to the adoption of FASB ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"). Refer to Note 3 for further detail.

The accompanying notes are an integral part of these consolidated financial statements.

PRA Group, Inc.

Consolidated Statements of Cash Flows

For the nine months ended September 30, 2019 and 2018

(unaudited)

(Amounts in thousands)



	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net income	$	66,660		$	57,408
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense	7,908			6,922
Depreciation and amortization	13,341			14,230
Amortization of debt discount and issuance costs	17,180			16,348
Deferred income taxes	(24,900		)	(56,988		)
Net unrealized foreign currency transactions	(3,622		)	(162		)
Fair value in earnings for equity securities	(6,921		)	(3,523		)
Net allowance charges	11,427			12,044
Changes in operating assets and liabilities:
Other assets	2,651			3,461
Other receivables, net	1,019			2,690
Accounts payable	(2,888		)	(1,152		)
Income taxes payable, net	(21,823		)	17,603
Accrued expenses	13,888			(959		)
Other liabilities	(3,484		)	153
Other, net	257			—
Net cash provided by operating activities	70,693			68,075
Cash flows from investing activities:
Purchases of property and equipment	(14,890		)	(16,755		)
Acquisition of finance receivables	(832,995		)	(621,501		)
Collections applied to principal on finance receivables	649,136			561,626
Business acquisition, net of cash acquired	(57,610		)	—
Cash received upon consolidation of Polish investment fund	—			17,531
Proceeds from sale of subsidiaries, net	31,177			—
Purchase of investments	(82,670		)	(24,392		)
Proceeds from sales and maturities of investments	74,771			20,855
Net cash used in investing activities	(233,081		)	(62,636		)
Cash flows from financing activities:
Proceeds from lines of credit	885,318			375,794
Principal payments on lines of credit	(458,566		)	(334,307		)
Principal payments on notes payable and long-term debt	(310,665		)	(7,500		)
Tax withholdings related to share-based payments	(1,492		)	(2,078		)
Distributions paid to noncontrolling interest	(6,877		)	(13,960		)
Contributions from noncontrolling interest	24,675			—
Purchase of noncontrolling interest	(1,255		)	(1,664		)
Payments of origination costs and fees	—			(404		)
Net increase/(decrease) in interest-bearing deposits	38,581			(12,244		)
Other	(2,088		)	—
Net cash provided by financing activities	167,631			3,637
Effect of exchange rate on cash	(7,043		)	(15,416		)
Net decrease in cash and cash equivalents	(1,800		)	(6,340		)
Cash and cash equivalents, beginning of period	98,695			120,516
Cash and cash equivalents, end of period	$	96,895		$	114,176
Supplemental disclosure of cash flow information:
Cash paid for interest	$	89,100		$	70,701
Cash paid for income taxes	61,942			56,109
Cash, cash equivalents and restricted cash reconciliation:
Cash and cash equivalents per Consolidated Balance Sheets	$	90,000		$	114,176
Restricted cash included in Other assets per Consolidated Balance Sheets	6,895			—
Total cash, cash equivalents and restricted cash	$	96,895		$	114,176

The accompanying notes are an integral part of these consolidated financial statements.

PRA Group, Inc.

Notes to Consolidated Financial Statements

1. Organization and Business:

As used herein, the terms "PRA Group," "the Company," or similar terms refer to PRA Group, Inc. and its subsidiaries.

PRA Group, Inc., a Delaware corporation, is a global financial and business services company with operations in the Americas and Europe. The Company's primary business is the purchase, collection and management of portfolios of nonperforming loans. The Company also provides fee-based services on class action claims recoveries and by servicing consumer bankruptcy accounts in the United States ("U.S.").

The consolidated financial statements of the Company are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and include the accounts of all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Under the guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 280 "Segment Reporting" ("ASC 280"), the Company has determined that it has several operating segments that meet the aggregation criteria of ASC 280, and, therefore, it has one reportable segment, accounts receivable management. This conclusion is based on similarities among the operating units, including economic characteristics, the nature of the products and services, the nature of the production processes, the types or class of customer for their products and services, the methods used to distribute their products and services and the nature of the regulatory environment.

The following table shows the amount of revenue generated for the three and nine months ended September 30, 2019 and 2018, respectively, and long-lived assets held at September 30, 2019 and 2018, respectively, both for the U.S., the Company's country of domicile, and outside of the U.S. (amounts in thousands):



	As of and for the				As of and for the
	Three Months Ended September 30, 2019				Three Months Ended September 30, 2018
	Revenues		Long-Lived Assets ⁽²⁾		Revenues		Long-Lived Assets
United States	$	166,284	$	114,595	$	154,594	$	48,664
United Kingdom	28,446		3,586		24,472		1,768
Other ⁽¹⁾	55,284		9,389		46,822		4,578
Total	$	250,014	$	127,570	$	225,888	$	55,010

	As of and for the				As of and for the
	Nine Months Ended September 30, 2019				Nine Months Ended September 30, 2018
	Revenues		Long-Lived Assets ⁽²⁾		Revenues		Long-Lived Assets
United States	$	501,783	$	114,595	$	458,933	$	48,664
United Kingdom	86,494		3,586		74,027		1,768
Other ⁽¹⁾	159,671		9,389		138,554		4,578
Total	$	747,948	$	127,570	$	671,514	$	55,010

(1) None of the countries included in "Other" comprise greater than 10% of the Company's consolidated revenues or long-lived assets.

(2) Includes right-of-use assets from the adoption of ASU 2016-02 on January 1, 2019. Refer to Note 5.

Revenues are attributed to countries based on the location of the related operations. Long-lived assets consist of net property and equipment and right-of-use assets. The Company reports revenues earned from nonperforming loan purchasing and collection activities, fee-based services and investments. For additional information on the Company's investments, see Note 3. It is impracticable for the Company to report further breakdowns of revenues from external customers by product or service.

The accompanying interim financial statements have been prepared in accordance with the instructions for Quarterly Reports on Form 10-Q and, therefore, do not include all information and notes to the consolidated financial statements necessary for a complete presentation of financial position, results of operations, comprehensive income/(loss) and cash flows in conformity with GAAP. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the Company's consolidated balance sheet as of September 30, 2019, its consolidated income statements, and statements of comprehensive income/(loss) for the three and nine months ended September 30, 2019 and 2018, and its statements of changes in equity and consolidated statements of cash flows for the nine months ended September 30, 2019 and 2018, have been included. The consolidated income statements of the Company for the three and nine months ended September 30, 2019 may not be indicative of future results. Certain prior period amounts have been reclassified for consistency with the current period presentation.

PRA Group, Inc.

Notes to Consolidated Financial Statements

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 Form 10-K").

2. Finance Receivables, net:

Changes in finance receivables, net for the three and nine months ended September 30, 2019 and 2018 were as follows (amounts in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Balance at beginning of period	$	3,230,949		$	2,734,673		$	3,084,777		$	2,776,199
Acquisitions of finance receivables ⁽¹⁾	276,918			271,657			874,812			656,308
Foreign currency translation adjustment	(59,172		)	(8,368		)	(60,213		)	(35,214		)
Cash collections	(453,217		)	(389,282		)	(1,384,662		)	(1,222,496		)
Income recognized on finance receivables	247,471			223,228			735,526			660,870
Net allowance charges	(4,136		)	(8,285		)	(11,427		)	(12,044		)
Balance at end of period	$	3,238,813		$	2,823,623		$	3,238,813		$	2,823,623


(1)	Includes portfolio purchases adjusted for buybacks and acquisition related costs, portfolios from the acquisition of a business in Canada made during the first quarter of 2019 and a $34.9 million addition in the third quarter of 2018 relating to the consolidation of a Polish investment fund.

During the three months ended September 30, 2019, the Company acquired finance receivables portfolios with a face value of $2.4 billion for $279.0 million as compared to the same period last year with a face value of $2.2 billion for $273.1 million. During the nine months ended September 30, 2019, the Company acquired finance receivables portfolios with a face value of $8.9 billion for $887.0 million as compared to the same period last year with a face value of $6.0 billion for $662.8 million. At September 30, 2019, the estimated remaining collections ("ERC") on the receivables acquired during the three months ended September 30, 2019 and 2018 were $494.8 million and $365.3 million, respectively. At September 30, 2019, the ERC on the receivables acquired during the nine months ended September 30, 2019 and 2018 were $1.4 billion and $0.8 billion, respectively.

At the time of acquisition and each quarter thereafter, the life of each quarterly accounting pool is estimated based on projected amounts and timing of future cash collections using the proprietary models of the Company. Based upon current projections, cash collections expected to be applied to principal are estimated to be as follows for the twelve-month periods ending September 30, (amounts in thousands):



2020	$	864,692
2021	692,946
2022	507,491
2023	378,679
2024	259,808
2025	171,873
2026	110,078
2027	84,212
2028	61,656
2029	47,347
Thereafter	60,031
Total ERC expected to be applied to principal	$	3,238,813

At September 30, 2019, the Company had aggregate net finance receivables balances in pools accounted for under the cost recovery method of $36.2 million; at December 31, 2018, the amount was $48.0 million.

Accretable yield represents the amount of income on finance receivables the Company can expect to recognize over the remaining life of its existing portfolios based on estimated future cash flows as of the balance sheet date. Additions represent the original expected accretable yield on portfolios purchased during the period. Net reclassifications from nonaccretable difference

PRA Group, Inc.

Notes to Consolidated Financial Statements

to accretable yield primarily result from the increase in the Company's estimate of future cash flows. When applicable, net reclassifications to nonaccretable difference from accretable yield result from the decrease in the Company's estimates of future cash flows and allowance charges that together exceed the increase in the Company's estimate of future cash flows.

Changes in accretable yield for the three and nine months ended September 30, 2019 and 2018 were as follows (amounts in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Balance at beginning of period	$	3,173,013		$	2,994,321		$	3,058,445		$	2,927,866
Income recognized on finance receivables	(247,471		)	(223,228		)	(735,526		)	(660,870		)
Net allowance charges	4,136			8,285			11,427			12,044
Additions from portfolio purchases ⁽¹⁾	228,443			217,108			693,053			561,393
Reclassifications from nonaccretable difference	59,694			2,678			191,756			204,752
Foreign currency translation adjustment	(60,944		)	(11,132		)	(62,284		)	(57,153		)
Balance at end of period	$	3,156,871		$	2,988,032		$	3,156,871		$	2,988,032

(1) Also includes accretable yield additions resulting from certain business acquisitions.

The following is a summary of activity within the Company's valuation allowance account, all of which relates to acquired finance receivables, for the three and nine months ended September 30, 2019 and 2018 (amounts in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Beginning balance	$	264,591		$	228,283		$	257,148		$	225,555
Allowance charges	8,087			10,149			21,596			24,377
Reversal of previously recorded allowance charges	(3,951		)	(1,864		)	(10,169		)	(12,333		)
Net allowance charges	4,136			8,285			11,427			12,044
Foreign currency translation adjustment	(1,192		)	(117		)	(1,040		)	(1,148		)
Ending balance	$	267,535		$	236,451		$	267,535		$	236,451

3. Investments:

Investments consisted of the following at September 30, 2019 and December 31, 2018 (amounts in thousands):



	September 30, 2019		December 31, 2018
Debt securities
Available-for-sale	$	4,908	$	5,077
Equity securities
Private equity funds	7,489		7,973
Mutual funds	33,013		21,753
Equity method investments	9,794		10,370
Total investments	$	55,204	$	45,173

Debt Securities

Available-for-sale

Government bonds: The Company's investments in government bonds are classified as available-for-sale and are stated at fair value. Fair value is determined using quoted market prices. Unrealized gains and losses are included in comprehensive income and reported in equity.

PRA Group, Inc.

Notes to Consolidated Financial Statements

The amortized cost and estimated fair value of investments in debt securities at September 30, 2019 and December 31, 2018 were as follows (amounts in thousands):



	September 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Aggregate Fair Value
Available-for-sale
Government bonds	$	4,910	$	—	$	2	$	4,908

	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Aggregate Fair Value
Available-for-sale
Government bonds	$	5,160	$	—	$	83	$	5,077

Equity Securities

Investments in private equity funds: Investments in private equity funds represent limited partnerships in which the Company has less than a 3% interest. In the first quarter of 2018, the Company adopted ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"), which requires that investments in equity securities be measured at fair value with changes in unrealized gains and losses reported in earnings. Upon adoption of ASU 2016-01, the investments are carried at the fair value reported by the Fund manager. The Company recorded a cumulative effect adjustment of $3.9 million, net of tax, to beginning retained earnings for the unrealized loss on the investments. Prior to 2018, the investments were carried at cost with income recognized in Other Revenue in the consolidated income statements when distributions, up to reported income, were received from the partnerships.

Mutual funds: The Company invests certain excess funds held in Brazil in a Brazilian real denominated mutual fund benchmarked to the U.S. dollar that invests principally in Brazilian fixed income securities. The investments are carried at fair value based on quoted market prices. Gains and losses from this investment are included as a foreign exchange component of other income and (expense) in the Company's consolidated income statements.

Unrealized gains and losses: Net unrealized gains were $5.5 million and $6.9 million for the three and nine months ended September 30, 2019, respectively, on the Company's equity securities. Net unrealized gains were $0.6 million and $3.4 million for the three and nine months ended September 30, 2018, respectively, on the Company's equity securities.

Equity Method Investments

Effective December 20, 2018, the Company has an 11.7% interest in RCB Investimentos S.A. ("RCB"), a servicing platform for nonperforming loans in Brazil. This investment is accounted for on the equity method because the Company exercises significant influence over RCB’s operating and financial activities. Accordingly, the Company’s investment in RCB is adjusted for the Company’s proportionate share of RCB’s earnings or losses.

4. Goodwill and Intangible Assets, net:

In connection with the Company's business acquisitions, the Company acquired certain tangible and intangible assets. Intangible assets resulting from these acquisitions include client and customer relationships, non-compete agreements, trademarks and technology. The Company performs a review of goodwill as of October 1 of each year or more frequently if indicators of impairment exist.

PRA Group, Inc.

Notes to Consolidated Financial Statements

The following table represents the changes in goodwill for the three and nine months ended September 30, 2019 and 2018 (amounts in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Balance at beginning of period:
Goodwill	$	489,293		$	519,811		$	464,116		$	526,513
Accumulated impairment loss	—			—			—			—
	489,293			519,811			464,116			526,513
Changes:
Acquisition ⁽¹⁾	467			—			18,831			—
Foreign currency translation adjustment	(24,188		)	(766		)	(17,375		)	(7,468		)
Net change in goodwill	(23,721		)	(766		)	1,456			(7,468		)

Goodwill	465,572			519,045			465,572			519,045
Accumulated impairment loss	—			—			—			—
Balance at end of period	$	465,572		$	519,045		$	465,572		$	519,045

(1) For the three and nine months ended September 30, 2019, additions to goodwill are related to the acquisition of a business in Canada during the first quarter.

5. Leases:

In February 2016, FASB issued ASU 2016-02, "Leases (Topic 842) Section A - Leases: Amendments to the FASB Account Standards Codification" ("ASU 2016-02"). ASU 2016-02 requires that a lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. The Company adopted ASU 2016-02 on January 1, 2019 using the alternative method which resulted in the recording of operating lease right-of-use ("ROU") assets and lease liabilities of $72.1 million and $75.8 million, respectively. The Company's balance sheets for reporting periods beginning on or after January 1, 2019 are presented under the new guidance, while prior periods amounts are not adjusted and continue to be reported in accordance with previous guidance.

The Company elected to apply the package of practical expedients permitted within the new standard, which among other things, allows it to carryforward the historical lease classification. In addition, the Company elected the practical expedient to exclude short-term leases (lease terms of less than one year) from its ROU assets and lease liabilities.

The Company's operating lease portfolio primarily includes corporate offices and call centers. The majority of its leases have remaining lease terms of 1 year to 20 years, some of which include options to extend the leases for 5 years, and others include options to terminate the leases within 1 year. Exercises of lease renewal options are typically at the Company's sole discretion and are included in its ROU assets and lease liabilities based upon whether the Company is reasonably certain of exercising the renewal options. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company used its incremental borrowing rate as of January 1, 2019 to calculate the present value of the lease payments of its existing leases at adoption.

The components of lease expense for the three and nine months ended September 30, 2019 were as follows (amounts in thousands):



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	3,018	$	8,948
Short-term lease cost	657		2,219
Total lease cost	$	3,675	$	11,167

PRA Group, Inc.

Notes to Consolidated Financial Statements

Supplemental cash flow information and non-cash activity related to leases for the nine months ended September 30, 2019 were as follows (amounts in thousands):



	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	8,597

Right-of-use assets obtained in exchange for operating lease obligations	80,581

Lease term and discount rate information related to operating leases were as follows as of the dates indicated:



	September 30, 2019
Weighted-average remaining lease term (years)	11

Weighted-average discount rate	4.97	%

Maturities of lease liabilities as of September 30, 2019 were as follows for the following periods (amounts in thousands):



	Operating Leases
For the three months ending December 31, 2019	$	2,914
For the year ending December 31, 2020	11,659
For the year ending December 31, 2021	11,211
For the year ending December 31, 2022	9,215
For the year ending December 31, 2023	7,070
Thereafter	55,411
Total lease payments	97,480
Less imputed interest	(23,052		)
Total	$	74,428

As previously disclosed in the 2018 Form 10-K and under the previous lease accounting standard (which excludes the impact of the Company's intent to exercise renewal options as required by ASU 2016-02), future minimum lease payments for operating leases at December 31, 2018, were as follows for the years ending December 31, (amounts in thousands):



2019	$	11,470
2020	11,451
2021	10,809
2022	7,287
2023	6,189
Thereafter	7,866
Total future minimum lease payments	$	55,072

PRA Group, Inc.

Notes to Consolidated Financial Statements

6. Borrowings:

The Company's borrowings consisted of the following as of the dates indicated (amounts in thousands):



	September 30, 2019			December 31, 2018
Americas revolving credit	$	650,315		$	598,279
Europe revolving credit	899,308			561,882
Term loans	427,500			740,551
Convertible senior notes	632,500			632,500
	2,609,623			2,533,212
Less: Debt discount and issuance costs	(42,537		)	(59,556		)
Total	$	2,567,086		$	2,473,656

The following principal payments are due on the Company's borrowings as of September 30, 2019 for the 12-month periods ending September 30, (amounts in thousands):



2020	$	297,783
2021	909,591
2022	1,057,249
2023	345,000
2024 and thereafter	—
Total	$	2,609,623

The Company believes it was in compliance with the covenants of its financing arrangements as of September 30, 2019.

North American Revolving Credit and Term Loan

On May 5, 2017, the Company amended and restated its existing credit agreement (as amended, and modified from time to time, the “North American Credit Agreement”) with Bank of America, N.A., as administrative agent, Bank of America, National Association, acting through its Canada branch, as the Canadian administrative agent, and a syndicate of lenders named therein. The total credit facility under the North American Credit Agreement includes an aggregate principal amount of $1.6 billion (subject to compliance with a borrowing base and applicable debt covenants), which consists of (i) a fully-funded $427.5 million term loan, (ii) a $1,068.0 million domestic revolving credit facility, and (iii) a $50.0 million Canadian revolving credit facility. The facility includes an accordion feature for up to $500.0 million in additional commitments (at the option of the lender) and also provides for up to $25.0 million of letters of credit and a $25.0 million swingline loan sublimit that would reduce amounts available for borrowing. The term and revolving loans accrue interest, at the option of the Company, at either the base rate or the Eurodollar rate (as defined in the North American Credit Agreement) for the applicable term plus 2.50% per annum in the case of the Eurodollar rate loans and 1.50% in the case of the base rate loans. The base rate is the highest of (a) the Federal Funds Rate (as defined in the North American Credit Agreement) plus 0.50%, (b) Bank of America's prime rate, or (c) the one-month Eurodollar rate plus 1.00%. Canadian Prime Rate Loans will bear interest at a rate per annum equal to the Canadian Prime Rate plus 1.50%. The revolving credit facilities also bear an unused line fee of 0.375% per annum, payable quarterly in arrears. The loans under the North American Credit Agreement mature May 5, 2022. As of September 30, 2019, the outstanding balance under the North American Credit Agreement was $1,077.0 million and the unused portion was $468.5 million. Considering borrowing base restrictions, as of September 30, 2019, the amount available to be drawn was $275.0 million.

The North American Credit Agreement is secured by a first priority lien on substantially all of the Company's North American assets. The North American Credit Agreement contains restrictive covenants and events of default including the following:

•

borrowings under each of the domestic revolving loan facility and the Canadian revolving loan facility are subject to separate borrowing base calculations and may not exceed 35% of the ERC of all domestic or Canadian, as applicable, core eligible asset pools, plus 55% of ERC of domestic or Canadian, as applicable, insolvency eligible asset pools, plus 75% of domestic or Canadian, as applicable, eligible accounts receivable;


•	the consolidated total leverage ratio cannot exceed 2.75 to 1.0 as of the end of any fiscal quarter;


•	the consolidated senior secured leverage ratio cannot exceed 2.25 to 1.0 as of the end of any fiscal quarter;


•	subject to no default or event of default, cash dividends and distributions during any fiscal year cannot exceed $20.0 million;

PRA Group, Inc.

Notes to Consolidated Financial Statements


•	subject to no default or event of default, stock repurchases during any fiscal year cannot exceed $100.0 million plus 50% of the prior year's net income;


•	permitted acquisitions during any fiscal year cannot exceed $250.0 million (with a $50.0 million per year sublimit for permitted acquisitions by non-loan parties);


•	indebtedness in the form of senior, unsecured convertible notes or other unsecured financings cannot exceed $750.0 million in the aggregate (without respect to the 2020 Notes (as defined below));


•	the Company must maintain positive consolidated income from operations during any fiscal quarter; and


•	restrictions on changes in control.

European Revolving Credit Facility and Term Loan

On October 23, 2014, European subsidiaries of the Company ("PRA Europe") entered into a credit agreement with DNB Bank ASA for a Multicurrency Revolving Credit Facility (such agreement as later amended or modified, the "European Credit Agreement"). In the first quarter of 2019, the Company entered into the Fifth Amendment and Restatement Agreement to its European Credit Agreement which, among other things, merged the term loan facility with the revolving credit facility and increased all applicable margins for the interest payable under the multicurrency revolving credit facility by 5 basis points.

Under the terms of the European Credit Agreement, the credit facility includes an aggregate amount of approximately $1.1 billion (subject to the borrowing base), accrues interest at the Interbank Offered Rate ("IBOR") plus 2.70% - 3.80% (as determined by the loan-to-value ratio ("LTV Ratio") as defined in the European Credit Agreement), bears an unused line fee, currently 1.23% per annum, of 35% of the margin, is payable monthly in arrears, and matures February 19, 2021. The European Credit Agreement also includes an overdraft facility in the aggregate amount of $40.0 million (subject to the borrowing base), which accrues interest (per currency) at the daily rates as published by the facility agent, bears a facility line fee of 0.125% per quarter, payable quarterly in arrears, and matures February 19, 2021. As of September 30, 2019, the outstanding balance under the European Credit Agreement was $899.3 million and the unused portion (including the overdraft facility) was $240.7 million. Considering borrowing base restrictions and other covenants, as of September 30, 2019, the amount available to be drawn under the European Credit Agreement (including the overdraft facility) was $145.0 million.

The European Credit Agreement is secured by the shares of most of the Company's European subsidiaries and all intercompany loan receivables in Europe. The European Credit Agreement also contains restrictive covenants and events of default including the following:


•	the LTV Ratio cannot exceed 75%;


•	the gross interest-bearing debt ratio in Europe cannot exceed 3.25 to 1.0 as of the end of any fiscal quarter;


•	interest bearing deposits in AK Nordic AB cannot exceed SEK 1.2 billion; and


•	PRA Europe's cash collections must meet certain thresholds, measured on a quarterly basis.

Colombian Revolving Credit Facility

On September 17, 2019, PRA Group Colombia Holding SAS ("PRA Colombia") entered into a credit agreement with Bancolombia in an aggregate amount of approximately $5.7 million. As of September 30, 2019, the outstanding balance under the credit agreement was approximately $0.8 million, which accrues interest at the Indicador Bancario de Referencia rate ("IBR") plus 2.80%, is payable quarterly in arrears, amortizes quarterly, and matures on September 17, 2022. This credit facility is fully collateralized using time deposits with Bancolombia which are subject to certain limitations regarding withdrawal and usage and are included within other assets on the consolidated balance sheet.

Convertible Senior Notes due 2020

On August 13, 2013, the Company completed the private offering of $287.5 million in aggregate principal amount of its 3.00% Convertible Senior Notes due 2020 (the "2020 Notes"). The 2020 Notes were issued pursuant to an Indenture, dated August 13, 2013 (the "2013 Indenture"), between the Company and Regions Bank, as successor trustee. The 2013 Indenture contains customary terms and covenants, including certain events of default after which the 2020 Notes may be due and payable immediately. The 2020 Notes are senior unsecured obligations of the Company. Interest on the 2020 Notes is payable semi-annually, in arrears, on February 1 and August 1 of each year, beginning on February 1, 2014. Prior to February 1, 2020, the 2020 Notes will be convertible only upon the occurrence of specified events. On or after February 1, 2020, the 2020 Notes will be convertible at any time. The Company does not have the right to redeem the 2020 Notes prior to maturity. As of September 30, 2019, the Company does not believe that any of the conditions allowing holders of the 2020 Notes to convert their notes have occurred.

The conversion rate for the 2020 Notes is initially 15.2172 shares per $1,000 principal amount of 2020 Notes, which is equivalent to an initial conversion price of approximately $65.72 per share of the Company's common stock, and is subject to

PRA Group, Inc.

Notes to Consolidated Financial Statements

adjustment in certain circumstances pursuant to the 2013 Indenture. Upon conversion, holders of the 2020 Notes will receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election. The Company's intent is to settle conversions through combination settlement (i.e., the 2020 Notes would be converted into cash up to the aggregate principal amount, and shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election, for the remainder). As a result and in accordance with authoritative guidance related to derivatives and hedging and earnings per share, only the conversion spread is included in the diluted earnings per share calculation, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average share price of the Company's common stock during any quarter exceeds $65.72.

The Company determined that the fair value of the 2020 Notes at the date of issuance was approximately $255.3 million, and designated the residual value of approximately $32.2 million as the equity component. Additionally, the Company allocated approximately $7.3 million of the $8.2 million 2020 Notes issuance cost as debt issuance cost and the remaining $0.9 million as equity issuance cost.

Convertible Senior Notes due 2023

On May 26, 2017, the Company completed the private offering of $345.0 million in aggregate principal amount of its 3.50% Convertible Senior Notes due 2023 (the "2023 Notes" and, together with the 2020 Notes, the "Notes"). The 2023 Notes were issued pursuant to an Indenture, dated May 26, 2017 (the "2017 Indenture"), between the Company and Regions Bank, as trustee. The 2017 Indenture contains customary terms and covenants, including certain events of default after which the 2023 Notes may be due and payable immediately. The 2023 Notes are senior unsecured obligations of the Company. Interest on the 2023 Notes is payable semi-annually, in arrears, on June 1 and December 1 of each year, beginning on December 1, 2017. Prior to March 1, 2023, the 2023 Notes will be convertible only upon the occurrence of specified events. On or after March 1, 2023, the 2023 Notes will be convertible at any time. The Company has the right, at its election, to redeem all or any part of the outstanding 2023 Notes at any time on or after June 1, 2021 for cash, but only if the last reported sale price (as defined in the 2017 Indenture) exceeds 130% of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on and including the trading day immediately before the date the Company sends the related redemption notice. As of September 30, 2019, the Company does not believe that any of the conditions allowing holders of the 2023 Notes to convert their notes have occurred.

The conversion rate for the 2023 Notes is initially 21.6275 shares per $1,000 principal amount of 2023 Notes, which is equivalent to an initial conversion price of approximately $46.24 per share of the Company's common stock, and is subject to adjustment in certain circumstances pursuant to the 2017 Indenture. Upon conversion, holders of the 2023 Notes will receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election. The Company's intent is to settle conversions through combination settlement (i.e., the 2023 Notes would be converted into cash up to the aggregate principal amount, and shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election, for the remainder). As a result and in accordance with authoritative guidance related to derivatives and hedging and earnings per share, only the conversion spread is included in the diluted earnings per share calculation, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average share price of the Company's common stock during any quarter exceeds $46.24.

The Company determined that the fair value of the 2023 Notes at the date of issuance was approximately $298.8 million, and designated the residual value of approximately $46.2 million as the equity component. Additionally, the Company allocated approximately $8.3 million of the $9.6 million 2023 Notes issuance cost as debt issuance cost and the remaining $1.3 million as equity issuance cost.

The balances of the liability and equity components of the Notes outstanding were as follows as of the dates indicated (amounts in thousands):



	September 30, 2019			December 31, 2018
Liability component - principal amount	$	632,500		$	632,500
Unamortized debt discount	(34,572		)	(43,812		)
Liability component - net carrying amount	$	597,928		$	588,688
Equity component	$	76,216		$	76,216

The debt discount is being amortized into interest expense over the remaining life of the 2020 Notes and the 2023 Notes using the effective interest rate, which is 4.92% and 6.20%, respectively.

PRA Group, Inc.

Notes to Consolidated Financial Statements

Interest expense related to the Notes was as follows for the periods indicated (amounts in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Interest expense - stated coupon rate	$	5,175	$	5,175	$	15,525	$	15,525
Interest expense - amortization of debt discount	3,128		2,958		9,241		8,739
Total interest expense - convertible senior notes	$	8,303	$	8,133	$	24,766	$	24,264

7. Derivatives:

The Company periodically enters into derivative financial instruments, typically interest rate swap agreements, interest rate caps, and foreign currency contracts to reduce its exposure to fluctuations in interest rates on variable-rate debt and foreign currency exchange rates. The Company does not utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed nor does it enter into or hold derivatives for trading or speculative purposes. The Company periodically reviews the creditworthiness of the swap counterparty to assess the counterparty’s ability to honor its obligation. Counterparty default would expose the Company to fluctuations in interest and currency rates. Derivative financial instruments are recognized at fair value in the consolidated balance sheets, in accordance with the guidance of ASC Topic 815 “Derivatives and Hedging” (“ASC 815”).

The following table summarizes the fair value of derivative instruments in the consolidated balance sheets (amounts in thousands):

September 30, 2019

December 31, 2018

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments:

Interest rate contracts

Other assets

Interest rate contracts

Other liabilities

25,766

Other liabilities

—

Derivatives not designated as hedging instruments:

Foreign currency contracts

Other assets

356

Other assets

2,555

Foreign currency contracts

Other liabilities

1,749

Other liabilities

—

Interest rate contracts

Other assets

—

Other assets

735

Derivatives designated as hedging instruments:

Changes in fair value of derivative contracts designated as cash flow hedging instruments are recognized in other comprehensive income ("OCI"). As of September 30, 2019 and December 31, 2018, the notional amount of interest rate contracts designated as cash flow hedging instruments was $866.9 million and $260.8 million, respectively. Derivatives designated as cash flow hedging instruments were evaluated and remain highly effective at September 30, 2019. The Company estimates that approximately $3.9 million of net derivative gain (loss) included in OCI will be reclassified into earnings within the next 12 months.

The following table summarizes the effects of derivatives designated as cash flow hedging instruments on the consolidated financial statements for the three and nine months ended September 30, 2019 and 2018 (amounts in thousands):

PRA Group, Inc.

Notes to Consolidated Financial Statements



	Gain or (loss) recognized in OCI, net of tax
	Three Months Ended September 30,					Nine Months Ended September 30,
Derivatives designated as cash flow hedging instruments	2019			2018		2019			2018
Interest rate contracts	$	(6,245	)	$	—	$	(20,160	)	$	—

	Gain or (loss) reclassified from OCI into income
	Three Months Ended September 30,					Nine Months Ended September 30,
Location of gain or (loss) reclassified from OCI into income	2019			2018		2019			2018
Interest expense, net	$	(413	)	$	—	$	(611	)	$	—

Derivatives not designated as hedging instruments:

Changes in fair value of derivative contracts not designated as hedging instruments are recognized in earnings. As of September 30, 2019, the Company no longer had interest rate swap contracts not designated as hedging instruments. As of December 31, 2018, the notional amount of interest rate contracts not designated as hedging instruments was $169.7 million. The Company also enters into foreign currency contracts to economically hedge the foreign currency re-measurement exposure related to certain balances that are denominated in currencies other than the functional currency of the entity. As of September 30, 2019 and December 31, 2018, the notional amount of foreign currency contracts that are not designated as hedging instruments was $173.0 million and $144.7 million, respectively.

The following table summarizes the effects of derivatives not designated as hedging instruments on the Company’s consolidated income statements for the three and nine months ended September 30, 2019 and 2018 (amounts in thousands):



		Amount of gain or (loss) recognized in income
		Three Months Ended September 30,
Derivatives not designated as hedging instruments	Location of gain or (loss) recognized in income	2019			2018
Foreign currency contracts	Foreign exchange gain/(loss)	$	4,270		$	—
Foreign currency contracts	Interest expense, net	(1,141		)	—
Interest rate contracts	Interest expense, net	15			(504		)

		Amount of gain or (loss) recognized in income
		Nine Months Ended September 30,
Derivatives not designated as hedging instruments	Location of gain or (loss) recognized in income	2019			2018
Foreign currency contracts	Foreign exchange gain/(loss)	$	(3,401	)	$	—
Foreign currency contracts	Interest expense, net	(2,628		)	—
Interest rate contracts	Interest expense, net	(492		)	(3,205		)

8. Fair Value:

As defined by ASC Topic 820, "Fair Value Measurements and Disclosures" ("ASC 820"), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires the consideration of differing levels of inputs in the determination of fair values.

Those levels of input are summarized as follows:


•	Level 1: Quoted prices in active markets for identical assets and liabilities.


•	Level 2: Observable inputs other than Level 1 quoted prices, such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.


•	Level 3: Unobservable inputs that are supported by little or no market activity. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar

PRA Group, Inc.

Notes to Consolidated Financial Statements

techniques as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Financial Instruments Not Required to be Carried at Fair Value

In accordance with the disclosure requirements of ASC Topic 825, "Financial Instruments" ("ASC 825"), the table below summarizes fair value estimates for the Company's financial instruments that are not required to be carried at fair value. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.

The carrying amounts of the financial instruments in the following table are recorded in the consolidated balance sheets at September 30, 2019 and December 31, 2018 (amounts in thousands):



	September 30, 2019				December 31, 2018
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	90,000	$	90,000	$	98,695	$	98,695
Finance receivables, net	3,238,813		3,432,727		3,084,777		3,410,475
Financial liabilities:
Interest-bearing deposits	112,024		112,024		82,666		82,666
Revolving lines of credit	1,549,623		1,549,623		1,160,161		1,160,161
Term loans	427,500		427,500		740,551		740,551
Convertible senior notes	597,928		633,405		588,688		557,122

Disclosure of the estimated fair values of financial instruments often requires the use of estimates. The carrying amount and estimates of the fair value of the Company's debt obligations outlined above do not include any related debt issuance costs associated with the debt obligations. The Company uses the following methods and assumptions to estimate the fair value of financial instruments:

Cash and cash equivalents: The carrying amount approximates fair value and quoted prices for identical assets can be found in active markets. Accordingly, the Company estimates the fair value of cash and cash equivalents using Level 1 inputs.

Finance receivables, net: The Company computed the estimated fair value of these receivables using proprietary pricing models that the Company utilizes to make portfolio purchase decisions. Accordingly, the Company's fair value estimates use Level 3 inputs as there is limited observable market data available and management is required to use significant judgment in its estimates.

Interest-bearing deposits: The carrying amount approximates fair value due to the short-term nature of the deposits and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs for its fair value estimates.

Revolving lines of credit: The carrying amount approximates fair value due to the short-term nature of the interest rate periods and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs for its fair value estimates.

Term loans: The carrying amount approximates fair value due to the short-term nature of the interest rate periods and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs for its fair value estimates.

Convertible senior notes: The fair value estimates for the Notes incorporate quoted market prices which were obtained from secondary market broker quotes and were derived from a variety of inputs including client orders, information from their pricing vendors, modeling software, and actual trading prices when they occur. Accordingly, the Company uses Level 2 inputs for its fair value estimates. Furthermore, in the table above, carrying amount represents the portion of the Notes classified as debt, while estimated fair value pertains to the face amount of the Notes.

PRA Group, Inc.

Notes to Consolidated Financial Statements

Financial Instruments Required to be Carried at Fair Value

The carrying amounts in the following table are measured at fair value on a recurring basis in the accompanying consolidated balance sheets at September 30, 2019 and December 31, 2018 (amounts in thousands):



	Fair Value Measurements as of September 30, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale investments
Government bonds	$	4,908	$	—	$	—	$	4,908
Fair value through net income
Mutual funds	33,013		—		—		33,013
Derivative contracts (recorded in other assets)	—		376		—		376
Liabilities:
Derivative contracts (recorded in other liabilities)	—		27,515		—		27,515
	Fair Value Measurements as of December 31, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale investments
Government bonds	$	5,077	$	—	$	—	$	5,077
Fair value through net income
Mutual funds	21,753		—		—		21,753
Derivative contracts (recorded in other assets)	—		3,334		—		3,334

Available-for-sale

Government bonds: Fair value of the Company's investment in government bonds is estimated using quoted market prices. Accordingly, the Company uses Level 1 inputs.

Fair value through net income

Mutual funds: Fair value of the Company's investment in mutual funds is estimated using quoted market prices. Accordingly, the Company uses Level 1 inputs.

Derivative contracts: The estimated fair value of the derivative contracts is determined using industry standard valuation models. These models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rate curves and other factors. Accordingly, the Company uses Level 2 inputs for its fair value estimates. Effective in the second quarter of 2018, the Company began to apply hedge accounting to certain of its derivative contracts. By applying hedge accounting, changes in market value are reflected as adjustments in Other Comprehensive Income. The hedges were evaluated and remain highly effective at September 30, 2019 and have initial terms of two to seven years.

Investments measured using net asset value

Private equity funds: This class of investments consists of private equity funds that invest primarily in loans and securities including single-family residential debt; corporate debt products; and financially-oriented, real-estate-rich and other operating companies in the Americas, Western Europe, and Japan. These investments are subject to certain restrictions regarding transfers and withdrawals. The investments cannot be redeemed with the funds. Instead, the nature of the investments in this class is that distributions are received through the liquidation of the underlying assets of the fund. The investments are expected to be returned through distributions as a result of liquidations of the funds' underlying assets over one to six years. The fair value of these private equity funds following the Net Asset Value ("NAV") practical expedient was $7.5 million and $8.0 million as of September 30, 2019 and December 31, 2018, respectively.

PRA Group, Inc.

Notes to Consolidated Financial Statements

9. Accumulated Other Comprehensive Loss:

The following table represents the changes in accumulated other comprehensive loss by component, net of tax, for the three and nine months ended September 30, 2019 (amounts in thousands):



	Three Months Ended September 30, 2019
	Debt Securities						Currency Translation			Accumulated Other
	Available-for-sale			Cash Flow Hedges			Adjustments			Comprehensive Loss ⁽¹⁾
Balance at beginning of period	$	(1	)	$	(13,673	)	$	(238,450	)	$	(252,124	)
Other comprehensive loss before reclassifications, net ⁽¹⁾	(1		)	(6,245		)	(47,999		)	(54,245		)
Reclassifications	—			413			—			413
Net current period other comprehensive loss	(1		)	(5,832		)	(47,999		)	(53,832		)
Balance at end of period	$	(2	)	$	(19,505	)	$	(286,449	)	$	(305,956	)



	Nine Months Ended September 30, 2019
	Debt Securities						Currency Translation			Accumulated Other
	Available-for-sale			Cash Flow Hedges			Adjustments			Comprehensive Loss ⁽¹⁾
Balance at beginning of period	$	(83	)	$	44		$	(242,070	)	$	(242,109	)
Other comprehensive income/(loss) before reclassifications, net ⁽¹⁾	81			(20,160		)	(44,379		)	(64,458		)
Reclassifications	—			611			—			611
Net current period other comprehensive income/(loss)	81			(19,549		)	(44,379		)	(63,847		)
Balance at end of period	$	(2	)	$	(19,505	)	$	(286,449	)	$	(305,956	)

(1) Net of deferred taxes for unrealized losses from cash flow hedges of $2.0 million and $6.4 million for the three and nine months ended September 30, 2019, respectively.

10. Earnings per Share:

Basic earnings per share ("EPS") are computed by dividing net income available to common stockholders of PRA Group, Inc. by weighted average common shares outstanding. Diluted EPS are computed using the same components as basic EPS with the denominator adjusted for the dilutive effect of the Notes and nonvested share awards, if dilutive. For the Notes, only the conversion spread is included in the diluted EPS calculation, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average share price of the Company's common stock during any quarter exceeds $65.72 for the 2020 Notes or $46.24 for the 2023 Notes, neither of which occurred during the respective periods from which the Notes were issued through September 30, 2019. Share-based awards that are contingent upon the attainment of performance goals are included in the computation of diluted EPS if the effect is dilutive. The dilutive effect of nonvested shares is computed using the treasury stock method, which assumes any proceeds that could be obtained upon the vesting of nonvested shares would be used to purchase common shares at the average market price for the period.

PRA Group, Inc.

Notes to Consolidated Financial Statements

The following table provides a reconciliation between the computation of basic EPS and diluted EPS for the three and nine months ended September 30, 2019 and 2018 (amounts in thousands, except per share amounts):



	For the Three Months Ended September 30,
	2019						2018
	Net income attributable to PRA Group, Inc.		Weighted Average Common Shares	EPS			Net income attributable to PRA Group, Inc.		Weighted Average Common Shares	EPS
Basic EPS	$	24,971	45,410	$	0.55		$	9,927	45,302	$	0.22
Dilutive effect of nonvested share awards			235	—					138	—
Diluted EPS	$	24,971	45,645	$	0.55		$	9,927	45,440	$	0.22

	For the Nine Months Ended September 30,
	2019						2018
	Net income attributable to PRA Group, Inc.		Weighted Average Common Shares	EPS			Net income attributable to PRA Group, Inc.		Weighted Average Common Shares	EPS
Basic EPS	$	58,817	45,378	$	1.30		$	50,621	45,272	$	1.12
Dilutive effect of nonvested share awards			142	(0.01		)			148	(0.01		)
Diluted EPS	$	58,817	45,520	$	1.29		$	50,621	45,420	$	1.11

There were no antidilutive options outstanding for the three and nine months ended September 30, 2019 and 2018.

11. Income Taxes:

The Company follows the guidance of FASB ASC Topic 740 "Income Taxes" ("ASC 740") as it relates to the provision for income taxes and uncertainty in income taxes. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

On May 10, 2017, the Company reached a settlement with the Internal Revenue Service in regards to its assertion that tax revenue recognition using the cost recovery method did not clearly reflect taxable income. In accordance with the settlement, the Company changed its tax accounting method to recognize finance receivables revenue effective with tax year 2017. Under the new method, a portion of the annual collections amortizes principal and the remaining portion is taxable income. The deferred tax liability related to the difference in timing between the new method and the cost recovery method has been incorporated evenly into the Company’s tax filings over four years beginning with tax year 2017. The Company was not required to pay any interest or penalties in connection with the settlement.

At September 30, 2019, the 2014 and subsequent tax years remain subject to examination by the major federal, state and international taxing jurisdictions.

The Company intends for predominantly all foreign earnings to be indefinitely reinvested in its foreign operations. If foreign earnings were repatriated, the Company may need to accrue and pay taxes, although foreign tax credits may be available to partially reduce U.S. income taxes. The amount of cash on hand related to foreign operations with indefinitely reinvested earnings was $73.0 million and $78.6 million as of September 30, 2019 and December 31, 2018, respectively.

12. Commitments and Contingencies:

Employment agreements:

The Company has entered into employment agreements, most of which expire on December 31, 2020, with all of its U.S. executive officers and with several members of its U.S. senior management group. Such agreements provide for base salary payments as well as potential discretionary bonuses that take into consideration the Company’s overall performance against its short and long-term financial and strategic objectives. At September 30, 2019, estimated future compensation under these agreements was approximately $9.9 million. The agreements also contain confidentiality and non-compete provisions. Outside the U.S., employment agreements are in place with employees pursuant to local country regulations. Generally, these agreements do not have expiration dates and therefore it is impractical to estimate the amount of future compensation under these agreements. Accordingly, the future compensation under these agreements is not included in the $9.9 million total above.

PRA Group, Inc.

Notes to Consolidated Financial Statements

Forward flow agreements:

The Company is party to forward flow agreements that allow for the purchase of nonperforming loans at pre-established prices. The maximum remaining amount to be purchased under forward flow agreements at September 30, 2019, was approximately $725.1 million.

Finance receivables:

Certain agreements for the purchase of finance receivables portfolios contain provisions that may, in limited circumstances, require the Company to refund a portion or all of the collections subsequently received by the Company on particular accounts. The potential refunds as of the balance sheet date are not considered to be significant.

Litigation and regulatory matters:

The Company is from time to time subject to routine legal claims, proceedings and regulatory matters, most of which are incidental to the ordinary course of its business. The Company initiates lawsuits against customers and is occasionally countersued by them in such actions. Also, customers, either individually, as members of a class action, or through a governmental entity on behalf of customers, may initiate litigation against the Company in which they allege that the Company has violated a state or federal law in the process of collecting on an account. From time to time, other types of lawsuits are brought against the Company. Additionally, the Company receives subpoenas and other requests or demands for information from regulators or governmental authorities who are investigating the Company's debt collection activities.

The Company accrues for potential liability arising from legal proceedings and regulatory matters when it is probable that such liability has been incurred and the amount of the loss can be reasonably estimated. This determination is based upon currently available information for those proceedings in which the Company is involved, taking into account the Company's best estimate of such losses for those cases for which such estimates can be made. The Company's estimate involves significant judgment, given the varying stages of the proceedings (including the fact that many of them are currently in preliminary stages), the number of unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims), and the related uncertainty of the potential outcomes of these proceedings. In making determinations of the likely outcome of pending litigation, the Company considers many factors, including, but not limited to, the nature of the claims, the Company's experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative mechanisms, the matter's current status and the damages sought or demands made. Accordingly, the Company's estimate will change from time to time, and actual losses could be more than the current estimate.

The Company believes that the estimate of the aggregate range of reasonably possible losses in excess of the amount accrued for its legal proceedings outstanding at September 30, 2019, where the range of loss can be estimated, was not material.

In certain legal proceedings, the Company may have recourse to insurance or third-party contractual indemnities to cover all or portions of its litigation expenses, judgments, or settlements. Loss estimates and accruals for potential liability related to legal proceedings are typically exclusive of potential recoveries, if any, under the Company's insurance policies or third-party indemnities.

The matters described below fall outside of the normal parameters of the Company's routine legal proceedings.

Multi-State Investigation

On November 17, 2015, the Company received civil investigative demands from multiple state Attorney General offices ("AGOs") broadly relating to its U.S. debt collection practices. The Company believes that it has fully cooperated with the investigations and discussed potential resolution of the investigations with the AGOs. In these discussions, the AGOs have taken positions with which the Company disagrees, including positions related to penalties, restitution and/or the adoption of new practices and controls in the conduct of the Company's business.

If the Company is unable to resolve its differences with the AGOs, it is possible that one or more individual state AGOs may file claims against the Company. On November 6, 2019, the Company reached a settlement with the Massachusetts Office of the Attorney General resolving certain claims that Massachusetts asserted it would have otherwise pursued separate and apart from the AGOs’ investigations. While the Company denies that it violated Massachusetts or federal law, it has agreed to the settlement in order to resolve the matter, avoiding both further cost and delay associated with legal action. The settlement, for which the Company had fully accrued as of September 30, 2019, did not have a material adverse effect on the Company’s business, results of operations or financial condition.

The range of loss with respect to the remaining investigations, if any, cannot be estimated at this time.

PRA Group, Inc.

Notes to Consolidated Financial Statements

Iris Pounds v. Portfolio Recovery Associates, LLC

On November 21, 2016, Iris Pounds filed suit against the Company in Durham County, North Carolina alleging violations of the North Carolina Prohibited Practices by Collection Agencies Act. The purported class consists of all individuals against whom the Company had obtained a judgment by default in North Carolina on or after October 1, 2009. On December 9, 2016, the Company removed the matter to the United States District Court for the Middle District of North Carolina (the "District Court"). On March 28, 2018, the District Court entered an order remanding the matter to the North Carolina state court which the Fourth Circuit Court of Appeals affirmed on May 17, 2018. On January 11, 2019, the Company filed a motion to compel arbitration with the North Carolina state court. The North Carolina state court denied the Company's motion to compel arbitration and the Company is seeking review of that decision. The range of loss, if any, cannot be estimated at this time due to the uncertainty surrounding liability, class certification and the interpretation of statutory damages.

Telephone Consumer Protection Act Litigation

On January 25, 2017, the Company resolved the matter of In Re Portfolio Recovery Associates, LLC Telephone Consumer Protection Act Litigation, which consisted of a number of class actions and single plaintiff claims consolidated by order of the Panel for Multi-District Litigation (“MDL”). While the settlement disposed of a large number of claims, several hundred class members opted out ("Opt-Out Plaintiffs") of that settlement. Many of these Opt-Out Plaintiffs have been consolidated before the MDL appointed court, the United States District Court for the Southern District of California, and are pending a determination on cross-motions for summary judgment. The range of loss, if any, cannot be estimated at this time due to the uncertainty surrounding liability.

13. Recently Issued Accounting Standards:

Recently issued accounting standards adopted:

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, "Leases (Topic 842) Section A - Leases: Amendments to the FASB Accounting Standards Codification" ("ASU 2016-02"). ASU 2016-02 requires that a lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. In July 2018, FASB issued ASU 2018-10, "Codification Improvements to Topic 842, Leases" and ASU 2018-11, "Leases (Topic 842) Targeted Improvements" which among other things, allowed for an alternative transition method which eliminated the requirement to restate the earliest prior period presented in an entity's financial statements. Entities that elected this transition option, including the Company, were required to adopt the new lease standard using the modified retrospective transition method required by the standard, but recognized a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The Company adopted the new leasing standard on January 1, 2019 and as a result recorded operating lease ROU assets and lease liabilities of $72.1 million and $75.8 million, respectively. The adoption of the standard did not have any other material impact on the Company's consolidated financial statements.

In August 2016, FASB issued ASU 2016-15, "Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments (Topic 230)" ("ASU 2016-15"). ASU 2016-15 reduces diversity in practice of how certain transactions are classified in the statement of cash flows. The new guidance clarifies the classification of cash activity related to debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate and bank-owned life insurance policies, distributions received from equity-method investments, and beneficial interests in securitization transactions. The guidance also describes a predominance principle in which cash flows with aspects of more than one class that cannot be separated should be classified based on the activity that is likely to be the predominant source or use of cash flow. ASU 2016-15 is effective for the Company for fiscal years beginning after December 15, 2018. The new standard must be adopted using a retrospective transition method. The Company adopted ASU 2016-15 in the first quarter of 2019 which had no material impact on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"). Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded income tax effects resulting from the 2017 Tax Cuts and Jobs Act. The amendments in this ASU also require certain disclosures about stranded income tax effects. The guidance is effective for fiscal

PRA Group, Inc.

Notes to Consolidated Financial Statements

years beginning after December 15, 2018, and interim periods within those fiscal years. The Company’s provisional adjustments recorded during the year ended December 31, 2017 to account for the impact of the Tax Act did not result in stranded tax effects. The Company adopted ASU 2018-02 in the first quarter of 2019 which had no material impact on its consolidated financial statements.

Recently issued accounting standards not yet adopted:

In June 2016, FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2016-13"), which introduces a new methodology requiring the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity debt securities and other receivables measured at amortized cost at the time the financial asset is originated or acquired. This methodology replaces the multiple impairment methods under existing U.S. GAAP, including accounting for purchased credit impaired ("PCI") assets, and introduces the concept of purchased credit deteriorated (“PCD”) financial assets. The Company's PCI assets currently accounted for under existing U.S. GAAP will be accounted for as PCD financial assets upon adoption of ASU 2016-13. For PCD financial assets, the new methodology requires an entity to present on the balance sheet the net amount expected to be collected. The Company will estimate that amount under the new methodology by reflecting on the balance sheet the present value of expected recoveries using a discounted approach and will recognize income over the life of the portfolio at an effective interest rate. Subsequent changes (favorable and unfavorable) in expected cash flows are recognized in earnings by adjusting the present value of the expected recoveries. ASU 2016-13, including the effect of ongoing developments and amendments to the guidance, represents a significant change from existing U.S. GAAP and is expected to result in material changes to the Company’s accounting for its finance receivables. The guidance in ASU 2016-13 will be effective prospectively for the Company as of January 1, 2020. Implementation efforts are underway, including model development, fulfillment of additional data needs for new disclosures and reporting requirements, and drafting of accounting policies.

In January 2017, FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"). ASU 2017-04 eliminates Step 2 of the goodwill impairment test. Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. Based on the Company's most recent goodwill impairment assessment, there were no reporting units for which it was more-likely-than-not that the carrying amount of a reporting unit exceeded its respective fair value; therefore, the Company believes that ASU 2017-04 would not have an impact on its consolidated financial statements or related disclosures. If subsequent to adoption, the carrying amount of a reporting unit exceeds its respective fair value, the Company would be required to recognize an impairment charge.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” ("ASU 2018-13"). ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company expects the adoption of ASU 2018-13 will result in additional and modified disclosures in its consolidated financial statements.

The Company does not expect that any other recently issued accounting pronouncements will have a material effect on its consolidated financial statements.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements:

This Quarterly Report on Form 10-Q (this "Quarterly Report") contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks, uncertainties and assumptions that could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are forward-looking statements, including statements regarding overall cash collection trends, gross margin trends, operating cost trends, liquidity and capital needs and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The risks, uncertainties and assumptions referred to above may include the following:


•	a prolonged economic recovery or a deterioration in the economic or inflationary environment in the Americas or Europe, including the interest rate environment;


•	changes in the credit or capital markets, which affect our ability to borrow money or raise capital;


•	our ability to replace our portfolios of nonperforming loans with additional portfolios;


•	our ability to purchase nonperforming loans at appropriate prices;


•	changes in, or interpretations of, federal, state, local, or foreign laws or the administrative practices of various bankruptcy courts, which may impact our ability to collect on our nonperforming loans;


•	our ability to collect sufficient amounts on our nonperforming loans;


•	the possibility that we could incur significant allowance charges on our finance receivables;


•	changes in, or interpretations of, bankruptcy or collection laws that could negatively affect our business, including by causing an increase in certain types of bankruptcy filings involving liquidations, which may cause our collections to decrease;


•	our ability to manage risks associated with our international operations;


•	changes in tax laws and interpretations regarding earnings of our domestic and foreign operations;


•	the impact of the Tax Cuts and Jobs Act ("Tax Act"), including interpretations and determinations by tax authorities;


•	the possibility that we could experience goodwill or other intangible asset impairment charges;


•	adverse effects from the vote by the United Kingdom ("UK") to leave the European Union;


•	adverse outcomes in pending litigation or administrative proceedings;


•	our loss contingency accruals may not be adequate to cover actual losses;


•	the possibility that class action suits and other litigation could divert management's attention and increase our expenses;


•	the possibility that we could incur business or technology disruptions or cyber incidents;


•	our ability to collect and enforce our nonperforming loans may be limited under federal, state, local and foreign laws;


•	our ability to comply with existing and new regulations of the collection industry, the failure of which could result in penalties, fines, litigation, damage to our reputation, or the suspension or termination of or required modification to our ability to conduct our business;


•	investigations or enforcement actions by governmental authorities, including the Consumer Financial Protection Bureau ("CFPB"), which could result in changes to our business practices, negatively impact our portfolio purchasing volume, make collection of account balances more difficult or expose us to the risk of fines, penalties, restitution payments, and litigation;


•	the ability of our European operations to comply with the provisions of the General Data Protection Regulation;


•	the possibility that compliance with foreign and United States ("U.S.") laws and regulations that apply to our international operations could increase our cost of doing business in international jurisdictions;


•	our ability to raise the funds necessary to repurchase the convertible senior notes or to settle conversions in cash;


•	our ability to refinance our indebtedness, including our outstanding Convertible Senior Notes due 2020;


•	our ability to expand, renegotiate or replace our credit facilities and our ability to comply with the covenants under our financing arrangements;


•	changes in interest or exchange rates, which could reduce our net income, and the possibility that future hedging strategies may not be successful, which could adversely affect our results of operations and financial condition;


•	the possibility that the adoption of, or delays in implementing, accounting standards could negatively impact our results of operations and financial condition; and


•	the risk factors discussed in our filings with the Securities and Exchange Commission ("SEC").

You should assume that the information appearing in this Quarterly Report is accurate only as of the date it was issued. Our business, financial condition, results of operations and prospects may have changed since that date.

You should carefully consider the factors listed above and review the following "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as the "Risk Factors" section and "Business" section of our Annual Report on Form 10-K for the year ended December 31, 2018 ("2018 Form 10-K").

Our forward-looking statements could be wrong in light of these and other risks, uncertainties and assumptions. The future events, developments or results described in, or implied by, this Quarterly Report could turn out to be materially different. Except as required by law, we assume no obligation to publicly update or revise our forward-looking statements after the date of this Quarterly Report and you should not expect us to do so.

Investors should also be aware that while we do, from time to time, communicate with securities analysts and others, we do not, by policy, selectively disclose to them any material nonpublic information or other confidential commercial information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst regardless of the content of the statement or report. We do not, by policy, confirm forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.

Frequently Used Terms

We use the following terminology throughout this Quarterly Report:


•	"Amortization rate" refers to cash collections applied to principal on finance receivables as a percentage of total cash collections.


•	"Buybacks" refers to purchase price refunded by the seller due to the return of ineligible accounts.


•	"Cash collections" refers to collections on our owned finance receivables portfolios.


•	"Cash receipts" refers to collections on our owned finance receivables portfolios plus fee income.


•	"Core" accounts or portfolios refer to accounts or portfolios that are nonperforming loans and are not in an insolvent status upon purchase. These accounts are aggregated separately from insolvency accounts.


•	"Estimated remaining collections" or "ERC" refers to the sum of all future projected cash collections on our owned finance receivables portfolios.


•	"Insolvency" accounts or portfolios refer to accounts or portfolios of receivables that are in an insolvent status when we purchase them and as such are purchased as a pool of insolvent accounts. These include Individual Voluntary Arrangements ("IVAs"), Trust Deeds in the UK, Consumer Proposals in Canada and bankruptcy accounts in the U.S., Canada, Germany and the UK.


•	"Principal amortization" refers to cash collections applied to principal on finance receivables.


•	"Purchase price" refers to the cash paid to a seller to acquire nonperforming loans, plus certain capitalized costs, less buybacks.


•	"Purchase price multiple" refers to the total estimated collections (as defined below) on owned finance receivables portfolios divided by purchase price.


•	"Total estimated collections" or "TEC" refers to cumulative actual cash collections, including cash sales, plus estimated remaining collections on our finance receivables portfolios.

All references in this Quarterly Report to "PRA Group," "our," "we," "us," "the Company" or similar terms are to PRA Group, Inc. and its subsidiaries.

Overview

We are a global financial and business services company with operations in the Americas and Europe. Our primary business is the purchase, collection and management of portfolios of nonperforming loans.

We are headquartered in Norfolk, Virginia, and as of September 30, 2019, employed 4,525 full time equivalents. Our shares of common stock are traded on the NASDAQ Global Select Market under the symbol "PRAA."

Results of Operations

The results of operations include the financial results of the Company and all of its subsidiaries. The following table sets forth consolidated income statement amounts as a percentage of total revenues for the periods indicated (dollars in thousands):



	For the Three Months Ended September 30,										For the Nine Months Ended September 30,
	2019					2018					2019					2018
Revenues:
Income recognized on finance receivables	$	247,471		99.0	%	$	223,228		98.8	%	$	735,526		98.4	%	$	660,870		98.4	%
Fee income	2,391			1.0		2,561			1.1		11,472			1.5		10,230			1.5
Other revenue	152			—		99			0.1		950			0.1		414			0.1
Total revenues	250,014			100.0		225,888			100.0		747,948			100.0		671,514			100.0

Net allowance charges	(4,136		)	(1.7	)	(8,285		)	(3.7	)	(11,427		)	(1.5	)	(12,044		)	(1.8	)

Operating expenses:
Compensation and employee services	75,317			30.1		78,350			34.7		234,770			31.4		240,277			35.8
Legal collection fees	14,083			5.6		10,428			4.6		41,439			5.5		31,440			4.7
Legal collection costs	31,395			12.6		30,769			13.6		99,745			13.3		71,707			10.7
Agency fees	12,788			5.1		8,350			3.7		39,833			5.3		24,766			3.7
Outside fees and services	16,733			6.7		15,701			7.0		48,274			6.5		44,424			6.6
Communication	10,310			4.1		10,240			4.5		34,335			4.6		32,579			4.9
Rent and occupancy	4,414			1.8		4,270			1.9		13,268			1.8		12,587			1.9
Depreciation and amortization	4,046			1.6		4,776			2.1		13,341			1.8		14,230			2.1
Other operating expenses	12,102			4.8		10,602			4.7		34,613			4.6		34,414			5.0
Total operating expenses	181,188			72.4		173,486			76.8		559,618			74.8		506,424			75.4
Income from operations	64,690			25.9		44,117			19.5		176,903			23.7		153,046			22.8
Other income and (expense):
Interest expense, net	(35,864		)	(14.4	)	(30,624		)	(13.6	)	(105,872		)	(14.2	)	(87,529		)	(13.0	)
Foreign exchange	5,406			2.2		626			0.3		11,359			1.5		3,609			0.5
Other	(19		)	—		222			0.1		(123		)	—		65			—
Income before income taxes	34,213			13.7		14,341			6.3		82,267			11.0		69,191			10.3
Income tax expense	6,665			2.7		1,789			0.7		15,607			2.1		11,783			1.8
Net income	27,548			11.0		12,552			5.6		66,660			8.9		57,408			8.5
Adjustment for net income attributable to noncontrolling interests	2,577			1.0		2,625			1.2		7,843			1.0		6,787			1.0
Net income attributable to PRA Group, Inc.	$	24,971		10.0	%	$	9,927		4.4	%	$	58,817		7.9	%	$	50,621		7.5	%

Three Months Ended September 30, 2019 Compared To Three Months Ended September 30, 2018

Cash Collections

Cash collections were as follows for the periods indicated:



	For the Three Months Ended September 30,				Change
(Amounts in thousands)	2019		2018		2019 vs. 2018
Americas-Core	$	279,902	$	231,253	$	48,649
Americas-Insolvency	45,759		48,518		(2,759		)
Europe-Core	118,917		102,780		16,137
Europe-Insolvency	8,639		6,731		1,908
Total cash collections	$	453,217	$	389,282	$	63,935

Cash collections adjusted ⁽¹⁾	$	453,217	$	383,333	$	69,884
Cash collections on fully amortized pools	11,267		11,774		(507		)
Cash collections on cost recovery pools	2,845		6,489		(3,644		)
Net finance receivables on cost recovery at period-end	36,168		73,114		(36,946		)

(1) Cash collections adjusted refers to 2018 cash collections remeasured using 2019 exchange rates.

Cash collections were $453.2 million for the three months ended September 30, 2019, an increase of $63.9 million or 16.4%, compared to $389.3 million for the three months ended September 30, 2018. The increase was largely due to Americas Core cash collections which increased $48.6 million or 21.0%, mainly driven by U.S. legal collections, which increased $26.0 million or 35.1%, due primarily to a higher number of accounts placed in the legal channel and our U.S. call center and other collections which increased $12.5 million, or 9.1%, due primarily to record Americas Core portfolio purchasing in 2018. Additionally, Americas Core increased $10.2 million or 51.2%, from Other Americas as a result of increased portfolio purchasing in South America in 2018 and the acquisition of a business in Canada in the first quarter of 2019. Furthermore, Europe Core cash collections increased $16.1 million or 15.7%, due primarily to elevated portfolio purchasing over the last four quarters and operational improvements.

Revenues

Total revenues were $250.0 million for the three months ended September 30, 2019, an increase of $24.1 million, or 10.7%, compared to $225.9 million for the three months ended September 30, 2018.

A summary of our revenue generation during the three months ended September 30, 2019 and 2018 is as follows (amounts in thousands):



	For the Three Months Ended September 30,
	2019			2018
Cash collections	$	453,217		$	389,282
Principal amortization	(205,746		)	(166,054		)
Income recognized on finance receivables	247,471			223,228
Fee income	2,391			2,561
Other revenue	152			99
Total revenues	$	250,014		$	225,888

Income recognized on finance receivables

Income recognized on finance receivables was $247.5 million for the three months ended September 30, 2019, an increase of $24.3 million or 10.9% compared to $223.2 million for the three months ended September 30, 2018. The increase was primarily the result of the impact of record Americas Core purchasing in 2018, sustained over-performance and related yield increases on select Americas and Europe Core pools, recent increased portfolio purchasing in Europe and South America, and the acquisition of a business in Canada in the first quarter of 2019.

Net Allowance Charges

Net allowance charges are recorded for significant decreases in expected cash flows or a change in timing of cash flows which would otherwise require a reduction in the stated yield on a pool of accounts. For the three months ended September 30, 2019, we recorded net allowance charges of $4.1 million, consisting of $5.5 million on our Americas Core portfolios, partially offset by net allowance reversals of $0.8 million on our European portfolios and $0.6 million on our Americas Insolvency portfolios. For the three months ended September 30, 2018, we recorded net allowance charges of $8.3 million, consisting of net allowance charges of $7.0 million and $1.3 million on our Americas Core and European Core portfolios, respectively.

Operating Expenses

Total operating expenses were $181.2 million for the three months ended September 30, 2019, an increase of $7.7 million or 4.4%, compared to $173.5 million for the three months ended September 30, 2018.

Compensation and employee services

Compensation and employee services expenses were $75.3 million for the three months ended September 30, 2019, a decrease of $3.1 million, or 4.0%, compared to $78.4 million for the three months ended September 30, 2018. The decrease in compensation expense was primarily attributable to a reduction in U.S. call centers workforce, as we balance the volume between the legal collection channel and call centers, and the result of the sale of RCB Investimentos S.A. (“RCB”) in December 2018. These decreases were partially offset by higher benefit costs. Total full-time equivalents decreased to 4,525 as of September 30, 2019, from 5,405 as of September 30, 2018.

Legal collection fees

Legal collection fees represent contingent fees incurred for the cash collections generated by our independent third-party attorney network. Legal collection fees were $14.1 million for the three months ended September 30, 2019, an increase of $3.7 million or 35.6%, compared to $10.4 million for the three months ended September 30, 2018. The difference was primarily due to an increase in external legal cash collections in the U.S.

Legal collection costs

Legal collection costs primarily consist of costs paid to courts where a lawsuit is filed. Legal collection costs were $31.4 million for the three months ended September 30, 2019, which compared to $30.8 million for the three months ended September 30, 2018.

Agency fees

Agency fees consist primarily of third-party collection fees incurred outside the U.S. Agency fees were $12.8 million for the three months ended September 30, 2019, an increase of $4.4 million or 52.4%, compared to $8.4 million for the three months ended September 30, 2018. The increase was primarily due to the sale of the RCB operating platform which shifted certain expenses from fixed to variable and are now recorded as agency fees. Additionally, the acquisition of a business in Canada in the first quarter of 2019 resulted in increased outsourced collections.

Outside fees and services

Outside fees and services expenses were $16.7 million for the three months ended September 30, 2019, an increase of $1.0 million or 6.4%, compared to $15.7 million for the three months ended September 30, 2018. The increase was primarily the result of higher consulting fees and higher fees related to an increased number of debit card transactions partially offset by a decrease in litigation expenses.

Interest Expense, Net

Interest expense, net was $35.9 million during the three months ended September 30, 2019, an increase of $5.3 million or 17.3%, compared to $30.6 million for the three months ended September 30, 2018. The increase was primarily due to higher levels of average borrowings to fund increased portfolio investments paired with higher average interest rates and the impact of changes in the fair value of our derivatives.

Interest expense, net consisted of the following for the three months ended September 30, 2019 and 2018 (amounts in thousands):



	For the Three Months Ended September 30,
	2019			2018			Change
Stated interest on debt obligations and unused line fees	$	23,884		$	21,058		$	2,826
Coupon interest on convertible debt	5,175			5,175			—
Amortization of convertible debt discount	3,128			2,958			170
Amortization of loan fees and other loan costs	2,649			2,524			125
Change in fair value of derivatives	1,563			(504		)	2,067
Interest income	(536		)	(587		)	51
Interest expense, net	$	35,864		$	30,624		$	5,240

Foreign Exchange

Foreign exchange transaction gains were $5.4 million for the three months ended September 30, 2019, compared to $0.6 million for the three months ended September 30, 2018. In any given period, we may incur foreign currency transactions gains or losses from transactions in currencies other than the functional currency and from changes in foreign exchange derivative contracts that were outstanding or settled during the period. The increase was primarily related to gains from our mutual funds held in Brazil.

Income Tax Expense

Income tax expense was $6.7 million for the three months ended September 30, 2019, an increase of $4.9 million, or 272.2%, compared to $1.8 million for the three months ended September 30, 2018. The increase was primarily due to increases in income before income taxes and our effective tax rate. During the three months ended September 30, 2019, our income before income taxes was $34.2 million, compared to $14.3 million for the three months ended September 30, 2018. During the three months ended September 30, 2019, our effective tax rate was 19.5%, compared to 12.5% for the three months ended September 30, 2018. The increase was due to U.S. tax reform and changes in the mix of projected taxable income between tax jurisdictions partially offset by a decrease in the estimated blended rate for U.S. state taxes due to state apportionment and a decrease in withholding tax accruals.

Nine Months Ended September 30, 2019 Compared To Nine Months Ended September 30, 2018

Cash Collections

Cash collections were as follows for the periods indicated:



	For the Nine Months Ended September 30,				Change
(Amounts in thousands)	2019		2018		2019 vs. 2018
Americas-Core	$	864,868	$	711,242	$	153,626
Americas-Insolvency	140,142		159,861		(19,719		)
Europe-Core	353,410		330,248		23,162
Europe-Insolvency	26,242		21,145		5,097
Total cash collections	$	1,384,662	$	1,222,496	$	162,166

Cash collections adjusted ⁽¹⁾	$	1,384,662	$	1,196,537	$	188,125
Cash collections on fully amortized pools	36,628		42,020		(5,392		)
Cash collections on cost recovery pools	10,268		31,704		(21,436		)
Net finance receivables on cost recovery at period-end	36,168		73,114		(36,946		)

(1) Cash collections adjusted refers to 2018 cash collections remeasured using 2019 exchange rates.

Cash collections were $1,384.7 million for the nine months ended September 30, 2019, an increase of $162.2 million or 13.3%, compared to $1,222.5 million for the nine months ended September 30, 2018. The increase was largely due to our U.S. legal collections increasing $76.5 million, or 34.9%, due primarily to the increase in the number of accounts placed in the legal channel, and our U.S. call center and other collections increasing $43.7 million, or 10.0%, due primarily to record Americas Core portfolio purchasing in 2018. Additionally, as a result of increased portfolio purchasing in South America and the acquisition of a business in Canada in the first quarter of 2019, Other Americas Core cash collections increased $33.4 million or 60.2%. Furthermore, our Europe Core cash collections increased $23.2 million or 7.0%, due primarily to elevated portfolio purchasing over the last four quarters and operational improvements. These increases were partially offset by a decline of $19.7 million, or 12.3%, in Americas Insolvency cash collections caused mainly by investment volumes in the U.S. not offsetting the runoff of our older portfolios.

Revenues

Total revenues were $747.9 million for the nine months ended September 30, 2019, an increase of $76.4 million, or 11.4%, compared to $671.5 million for the nine months ended September 30, 2018.

A summary of our revenue generation during the nine months ended September 30, 2019 and 2018 is as follows (amounts in thousands):



	For the Nine Months Ended September 30,
	2019			2018
Cash collections	$	1,384,662		$	1,222,496
Principal amortization	(649,136		)	(561,626		)
Income recognized on finance receivables	735,526			660,870
Fee income	11,472			10,230
Other revenue	950			414
Total revenues	$	747,948		$	671,514

Income recognized on finance receivables

Income recognized on finance receivables was $735.5 million for the nine months ended September 30, 2019, an increase of $74.6 million, or 11.3%, compared to $660.9 million for the nine months ended September 30, 2018. The increase was primarily the result of the impact of recent Americas and Europe Core purchasing, sustained over-performance and related yield increases on select Americas and Europe Core pools, recent increased portfolio purchasing in South America, and the acquisition of a business in Canada in the first quarter of 2019.

Fee income

Fee income was $11.5 million in the nine months ended September 30, 2019, an increase of $1.3 million or 12.7%, compared to $10.2 million in the nine months ended September 30, 2018. The increase was primarily attributable to settlement timing at Claims Compensation Bureau.

Net Allowance Charges

For the nine months ended September 30, 2019, we recorded net allowance charges of $11.4 million, consisting of $10.7 million on our Americas Core portfolios and $1.4 million on our European portfolios. We also recorded net allowance reversals of $0.7 million on our Americas Insolvency portfolios. For the nine months ended September 30, 2018, we recorded net allowance charges of $12.0 million. On our Americas Core and Insolvency portfolios, we recorded net allowance charges of $9.7 million and $0.4 million, respectively. We also recorded net allowance charges of $1.9 million on our European Core portfolios.

Operating Expenses

Operating expenses were $559.6 million for the nine months ended September 30, 2019, an increase of $53.2 million or 10.5%, compared to $506.4 million for the nine months ended September 30, 2018.

Compensation and employee services

Compensation and employee services expenses were $234.8 million for the nine months ended September 30, 2019, a decrease of $5.5 million, or 2.3% compared to $240.3 million for the nine months ended September 30, 2018. The decrease in compensation expense was primarily attributable to a reduction in U.S. call centers workforce, as we balance the volume between the legal collection channel and call centers, and the result of the sale of RCB in December 2018. Total full-time equivalents decreased to 4,525 as of September 30, 2019, compared to 5,405 as of September 30, 2018.

Legal collection fees

Legal collection fees were $41.4 million for the nine months ended September 30, 2019, an increase of $10.0 million, or 31.8%, compared to $31.4 million for the nine months ended September 30, 2018. The increase was primarily due to an increase in external legal cash collections in the U.S.

Legal collection costs

Legal collection costs were $99.7 million for the nine months ended September 30, 2019, an increase of $28.0 million, or 39.1%, compared to $71.7 million for the nine months ended September 30, 2018. The increase was primarily due to additional court costs related to the expansion of the number of accounts placed in the legal channel in the U.S. This expansion was the result of a change in the nature of the accounts purchased, the regulatory environment and consumer behavior.

Agency fees

Agency fees were $39.8 million for the nine months ended September 30, 2019, an increase of $15.0 million or 60.5%, compared to $24.8 million for the nine months ended September 30, 2018. The increase was primarily due to the sale of the RCB operating platform which shifted certain expenses from fixed to variable and are now recorded as agency fees, the acquisition of a business in Canada in the first quarter of 2019, and higher volumes of servicing activity in areas where we utilize third-party collection agencies.

Outside fees and services

Outside fees and services expenses were $48.3 million for the nine months ended September 30, 2019, an increase of $3.9 million, or 8.8%, compared to $44.4 million for the nine months ended September 30, 2018. The increase was primarily the result of higher consulting fees and higher fees related to an increased number of debit card transactions partially offset by a decrease in litigation expenses.

Interest Expense, Net

Interest expense, net was $105.9 million for the nine months ended September 30, 2019, an increase of $18.4 million or 21.0%, compared to $87.5 million for the nine months ended September 30, 2018. The increase was primarily due to higher levels of average borrowings to fund increased portfolio investments paired with higher interest rates and the impact of changes in the fair value of our derivatives.

Interest expense, net consisted of the following for the nine months ended September 30, 2019 and 2018 (amounts in thousands):



	For the Nine Months Ended September 30,
	2019			2018			Change
Stated interest on debt obligations and unused line fees	$	71,281		$	61,314		$	9,967
Coupon interest on convertible debt	15,525			15,525			—
Amortization of convertible debt discount	9,241			8,739			502
Amortization of loan fees and other loan costs	7,940			7,609			331
Change in fair value of derivatives	3,557			(3,205		)	6,762
Interest income	(1,673		)	(2,453		)	780
Interest expense, net	$	105,872		$	87,529		$	18,343

Foreign Exchange

Foreign exchange transaction gains were $11.4 million for the nine months ended September 30, 2019, compared to $3.6 million for the nine months ended September 30, 2018. The increase was primarily related to gains from our mutual funds held in Brazil.

Income Tax Expense

Income tax expense was $15.6 million for the nine months ended September 30, 2019, an increase of $3.8 million, or 32.2%, compared to $11.8 million for the nine months ended September 30, 2018. The increase was primarily due to increases in income before income taxes and our effective tax rate. During the nine months ended September 30, 2019, our income before income taxes increased $13.1 million or 18.9%, compared to the nine months ended September 30, 2018. During the nine months ended September 30, 2019, our effective tax rate was 19.0%, compared to 17.0% for the nine months ended September 30, 2018. The increase was due to U.S. tax reform and changes in the mix of projected taxable income between tax jurisdictions partially offset by a decrease in the estimated blended rate for U.S. state taxes due to state apportionment and a decrease in withholding tax accruals.

Supplemental Performance Data

Finance receivables portfolio performance

The following tables show certain data related to our finance receivables portfolios. Certain adjustments, as noted in the footnotes to these tables, have been made to reduce the impact of foreign currency fluctuations on ERC and purchase price multiples.

The accounts represented in the insolvency tables are those portfolios of accounts that were in an insolvency status at the time of purchase. This contrasts with accounts in our Core portfolios that file for bankruptcy/insolvency protection after we purchase them, which continue to be tracked in their corresponding Core portfolio. Core customers sometimes file for bankruptcy/insolvency protection subsequent to our purchase of the related Core portfolio. When this occurs, we adjust our collection practices to comply with bankruptcy/insolvency rules and procedures; however, for accounting purposes, these accounts remain in the original Core pool. Insolvency accounts may be dismissed voluntarily or involuntarily subsequent to our purchase of the Insolvency portfolio. Dismissal occurs when the terms of the bankruptcy are not met by the petitioner. When this occurs, we are typically free to pursue collection outside of bankruptcy procedures; however, for accounting purposes, these accounts remain in the original Insolvency pool.

Purchase price multiples can vary over time due to a variety of factors, including pricing competition, supply levels, age of the receivables purchased, and changes in our operational efficiency. For example, increased pricing competition during the 2005 to 2008 period negatively impacted purchase price multiples of our Core portfolio compared to prior years. Conversely, during the 2009 to 2011 period, additional supply occurred as a result of the economic downturn. This created unique and advantageous purchasing opportunities, particularly within the Insolvency market, relative to the prior four years. Purchase price multiples can also vary among types of finance receivables. For example, we generally incur lower collection costs on our Insolvency portfolio compared with our Core portfolio. This allows us, in general, to pay more for an Insolvency portfolio and experience lower purchase price multiples, while generating similar net income margins when compared with a Core portfolio.

When competition increases and/or supply decreases, pricing often becomes negatively impacted relative to expected collections, and yields tend to trend lower. The opposite tends to occur when competition decreases and/or supply increases.

Within a given portfolio type, to the extent that lower purchase price multiples are the result of more competitive pricing and lower net yields, this will generally lead to higher amortization rates and lower profitability. As portfolio pricing becomes more favorable on a relative basis, our profitability will tend to increase. Profitability within given Core portfolio types may also be impacted by the age and quality of the receivables, which impact the cost to collect those accounts. Fresher accounts, for example, typically carry lower associated collection expenses, while older accounts and lower balance accounts typically carry higher costs and, as a result, require higher purchase price multiples to achieve the same net profitability as fresher accounts.

Revenue recognition under ASC Topic 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC 310-30") is driven by estimates of the amount and timing of collections as well as the timing of those collections. We record new portfolio purchases based on our best estimate of the cash flows expected at acquisition, which reflects the uncertainties inherent in the purchase of nonperforming loans and the results of our underwriting process. Subsequent to the initial booking, as we gain collection experience and confidence with a pool of accounts, we regularly update ERC. As a result, our estimate of total collections has often increased as pools have aged. These processes have tended to cause the ratio of ERC to purchase price for any given year of buying to gradually increase over time. Thus, all factors being equal in terms of pricing, one would typically tend to see a higher collection to purchase price ratio from a pool of accounts that was six years from purchase than a pool that was just two years from purchase.

We hold a beneficial interest in certain pools of finance receivables in Europe. Revenue is recognized under ASC Topic 310-20, "Receivables - Nonrefundable Fees and Other Costs" where we compute a life-to-date yield on a retrospective basis and apply it to the ERC of the portfolio. Revenue on these pools is included in income recognized on finance receivables. In addition, these pools are included in the following tables as they perform economically similar to finance receivables accounted for under ASC 310-30.

We hold a majority interest in a Polish investment fund that was previously classified in our Consolidated Balance Sheets as "Investments" and previously excluded from the following tables. Effective July 1, 2018, we assumed servicing responsibilities for approximately 50% of the portfolios held by the Polish investment fund which led to an accounting reconsideration event and the consolidation of this investment. The finance receivables recorded at the consolidation date and the related portfolio performance information are included in the Supplemental Performance Data section in the Europe-Core 2018 line unless otherwise indicated. On March 29, 2019, we signed an agreement making PRA Group the servicer of effectively 100% of the portfolios held by the Polish investment fund effective April 1, 2019.

The numbers presented in the following tables represent gross cash collections and do not reflect any costs to collect; therefore, they may not represent relative profitability. Due to all the factors described above, readers should be cautious when making comparisons of purchase price multiples among periods and between types of receivables.

Purchase Price Multiples as of September 30, 2019 Amounts in thousands

Purchase Period	Purchase Price ⁽¹⁾⁽²⁾		Net Finance Receivables ⁽³⁾		ERC-Historical Period Exchange Rates ⁽⁴⁾		Total Estimated Collections ⁽⁵⁾		ERC-Current Period Exchange Rates ⁽⁶⁾		Current Estimated Purchase Price Multiple		Original Estimated Purchase Price Multiple ⁽⁷⁾
Americas-Core
1996-2008	$	804,877	$	8,490	$	27,419	$	2,425,165	$	27,419	301	%	236	%
2009	125,151		639		18,247		460,461		18,247		368	%	252	%
2010	148,195		3,515		30,027		535,033		30,027		361	%	247	%
2011	209,603		7,961		50,087		737,214		50,087		352	%	245	%
2012	254,086		16,535		65,329		681,452		65,329		268	%	226	%
2013	390,869		38,399		109,324		938,672		109,324		240	%	211	%
2014	405,248		61,924		163,385		929,440		160,369		229	%	204	%
2015	443,848		102,848		243,713		966,657		243,407		218	%	205	%
2016	453,301		149,129		379,442		1,078,277		373,127		238	%	201	%
2017	533,807		265,095		567,649		1,161,384		564,334		218	%	193	%
2018	656,703		499,814		932,625		1,334,933		926,144		203	%	202	%
2019	459,598		435,407		860,881		937,092		860,064		204	%	204	%
Subtotal	4,885,286		1,589,756		3,448,128		12,185,780		3,427,878
Americas-Insolvency
2004-2008	241,465		—		448		365,605		448		151	%	155	%
2009	155,988		—		840		470,598		840		302	%	214	%
2010	208,942		—		1,454		547,009		1,454		262	%	184	%
2011	180,433		—		88		369,083		88		205	%	155	%
2012	251,396		—		17		391,089		17		156	%	136	%
2013	227,835		—		2,551		354,851		2,551		156	%	133	%
2014	148,691		1,406		5,964		218,549		5,940		147	%	124	%
2015	63,181		7,258		12,780		86,964		12,780		138	%	125	%
2016	92,279		19,671		27,305		117,446		27,285		127	%	123	%
2017	275,264		107,680		143,688		353,244		143,688		128	%	125	%
2018	97,931		79,038		99,611		126,652		99,611		129	%	127	%
2019	100,386		94,840		119,928		128,445		119,928		128	%	128	%
Subtotal	2,043,791		309,893		414,674		3,529,535		414,630
Total Americas	6,929,077		1,899,649		3,862,802		15,715,315		3,842,508
Europe-Core
2012	20,412		—		327		39,513		248		194	%	187	%
2013	20,335		—		195		24,498		145		120	%	119	%
2014	796,811		192,008		854,639		2,259,859		701,472		284	%	208	%
2015	419,914		159,131		360,300		745,775		310,369		178	%	160	%
2016	348,302		189,438		359,369		589,991		342,151		169	%	167	%
2017	246,788		155,676		242,515		349,804		225,806		142	%	144	%
2018 ⁽⁸⁾	345,303		264,945		426,316		520,260		405,173		151	%	148	%
2019	291,383		266,870		437,734		462,958		423,899		159	%	159	%
Subtotal	2,489,248		1,228,068		2,681,395		4,992,658		2,409,263
Europe-Insolvency
2014	10,876		372		1,194		17,943		1,024		165	%	129	%
2015	19,236		3,213		6,809		29,121		5,607		151	%	139	%
2016	41,873		13,111		20,782		60,799		19,700		145	%	130	%
2017	38,424		25,256		32,504		48,592		30,255		126	%	128	%
2018	45,590		38,687		49,601		56,421		47,047		124	%	123	%
2019	31,569		30,457		40,980		41,961		40,300		133	%	133	%
Subtotal	187,568		111,096		151,870		254,837		143,933
Total Europe	2,676,816		1,339,164		2,833,265		5,247,495		2,553,196
Total PRA Group	$	9,605,893	$	3,238,813	$	6,696,067	$	20,962,810	$	6,395,704


(1)	The amount reflected in Purchase Price also includes the acquisition date finance receivables portfolios that were acquired through our various business acquisitions.


(2)	For our non-U.S. amounts, Purchase Price is presented at the exchange rate at the end of the quarter in which the pool was purchased. In addition, any purchase price adjustments that occur throughout the life of the pool are presented at the period-end exchange rate for the respective quarter of purchase.


(3)	For our non-U.S. amounts, Net Finance Receivables are presented at the September 30, 2019 exchange rate.


(4)	For our non-U.S. amounts, ERC-Historical Period Exchange Rates is presented at the period-end exchange rate for the respective quarter of purchase.


(5)	For our non-U.S. amounts, TEC is presented at the period-end exchange rate for the respective quarter of purchase.


(6)	For our non-U.S. amounts, ERC-Current Period Exchange Rates is presented at the September 30, 2019 exchange rate.


(7)	The Original Purchase Price Multiple represents the purchase price multiple at the end of the year of acquisition.


(8)	Includes a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the consolidation of a Polish investment fund.

Portfolio Financial Information Year-to-date as of September 30, 2019 Amounts in thousands

Purchase Period	Purchase Price ⁽¹⁾⁽²⁾		Cash Collections ⁽³⁾		Gross Revenue ⁽³⁾		Amortization ⁽³⁾		Net Allowance Charges/(Reversals) ⁽³⁾			Net Revenue ⁽³⁾⁽⁴⁾		Net Finance Receivables as of September 30, 2019 ⁽⁵⁾
Americas-Core
1996-2008	$	804,877	$	9,920	$	6,713	$	3,207	$	(2,595	)	$	9,308	$	8,490
2009	125,151		5,414		5,076		338		(325		)	5,401		639
2010	148,195		7,193		6,193		1,000		125			6,068		3,515
2011	209,603		13,158		11,388		1,770		700			10,688		7,961
2012	254,086		14,348		10,740		3,608		(555		)	11,295		16,535
2013	390,869		29,742		20,902		8,840		3,155			17,747		38,399
2014	405,248		45,039		29,808		15,231		3,838			25,970		61,924
2015	443,848		67,765		41,259		26,506		4,445			36,814		102,848
2016	453,301		113,199		68,750		44,449		1,625			67,125		149,129
2017	533,807		204,557		99,359		105,198		309			99,050		265,095
2018	656,703		278,330		151,021		127,309		—			151,021		499,814
2019	459,598		76,203		52,441		23,762		—			52,441		435,407
Subtotal	4,885,286		864,868		503,650		361,218		10,722			492,928		1,589,756
Americas-Insolvency
2004-2008	241,465		161		161		—		—			161		—
2009	155,988		364		364		—		—			364		—
2010	208,942		526		526		—		—			526		—
2011	180,433		609		609		—		—			609		—
2012	251,396		1,518		1,518		—		—			1,518		—
2013	227,835		2,382		2,382		—		—			2,382		—
2014	148,691		13,929		8,151		5,778		195			7,956		1,406
2015	63,181		12,985		4,013		8,972		—			4,013		7,258
2016	92,279		15,660		3,790		11,870		(935		)	4,725		19,671
2017	275,264		63,150		15,250		47,900		—			15,250		107,680
2018	97,931		20,342		5,641		14,701		—			5,641		79,038
2019	100,386		8,516		2,972		5,544		—			2,972		94,840
Subtotal	2,043,791		140,142		45,377		94,765		(740		)	46,117		309,893
Total Americas	6,929,077		1,005,010		549,027		455,983		9,982			539,045		1,899,649
Europe-Core
2012	20,412		1,068		1,068		—		—			1,068		—
2013	20,335		699		615		84		—			615		—
2014	796,811		130,935		91,212		39,723		(1,370		)	92,582		192,008
2015	419,914		50,217		24,535		25,682		(2,448		)	26,983		159,131
2016	348,302		43,859		21,328		22,531		3,116			18,212		189,438
2017	246,788		33,446		10,838		22,608		2,066			8,772		155,676
2018 ⁽⁶⁾	345,303		68,399		19,988		48,411		215			19,773		264,945
2019	291,383		24,787		8,002		16,785		—			8,002		266,870
Subtotal	2,489,248		353,410		177,586		175,824		1,579			176,007		1,228,068
Europe-Insolvency
2014	10,876		1,243		651		592		—			651		372
2015	19,236		3,026		1,355		1,671		(72		)	1,427		3,213
2016	41,873		8,233		3,103		5,130		(62		)	3,165		13,111
2017	38,424		6,739		1,688		5,051		—			1,688		25,256
2018	45,590		6,046		1,730		4,316		—			1,730		38,687
2019	31,569		955		386		569		—			386		30,457
Subtotal	187,568		26,242		8,913		17,329		(134		)	9,047		111,096
Total Europe	2,676,816		379,652		186,499		193,153		1,445			185,054		1,339,164
Total PRA Group	$	9,605,893	$	1,384,662	$	735,526	$	649,136	$	11,427		$	724,099	$	3,238,813


(1)	The amount reflected in Purchase Price also includes the acquisition date finance receivables portfolios that were acquired through our various business acquisitions.


(2)	For our non-U.S. amounts, Purchase Price is presented at the exchange rate at the end of the quarter in which the pool was purchased. In addition, any purchase price adjustments that occur throughout the life of the pool are presented at the period-end exchange rate for the respective quarter of purchase.


(3)	For our non-U.S. amounts, amounts are presented using the average exchange rates during the current reporting period.


(4)	Net Revenue refers to income recognized on finance receivables, net of allowance charges/(reversals).


(5)	For our non-U.S. amounts, net finance receivables are presented at the September 30, 2019 exchange rate.


(6)	Includes a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the consolidation of a Polish investment fund.

The following table, which excludes any proceeds from cash sales of finance receivables, illustrates historical cash collections, by year, on our portfolios.

Cash Collections by Year, By Year of Purchase ⁽¹⁾ as of September 30, 2019 Amounts in thousands

			Cash Collections
Purchase Period	Purchase Price ⁽²⁾⁽³⁾		1996- 2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		Total
Americas-Core
1996-2008	$	804,877	$	1,366,034	$	240,929	$	200,052	$	169,205	$	132,255	$	95,262	$	66,274	$	46,277	$	29,734	$	19,458	$	15,092	$	9,920	$	2,390,492
2009	125,151		—		40,703		95,627		84,339		69,385		51,121		35,555		24,896		16,000		10,994		8,180		5,414		442,214
2010	148,195		—		—		47,076		113,554		109,873		82,014		55,946		38,110		24,515		15,587		11,140		7,193		505,008
2011	209,603		—		—		—		61,971		174,461		152,908		108,513		73,793		48,711		31,991		21,622		13,158		687,128
2012	254,086		—		—		—		—		56,901		173,589		146,198		97,267		59,981		40,042		27,797		14,348		616,123
2013	390,869		—		—		—		—		—		101,614		247,849		194,026		120,789		78,880		56,449		29,742		829,349
2014	405,248		—		—		—		—		—		—		92,660		253,448		170,311		114,219		82,244		45,039		757,921
2015	443,848		—		—		—		—		—		—		—		116,951		228,432		185,898		126,605		67,765		725,651
2016	453,301		—		—		—		—		—		—		—		—		138,723		256,531		194,605		113,199		703,058
2017	533,807		—		—		—		—		—		—		—		—		—		107,327		278,733		204,557		590,617
2018	656,703		—		—		—		—		—		—		—		—		—		—		122,712		278,330		401,042
2019	459,598		—		—		—		—		—		—		—		—		—		—		—		76,203		76,203
Subtotal	4,885,286		1,366,034		281,632		342,755		429,069		542,875		656,508		752,995		844,768		837,196		860,927		945,179		864,868		8,724,806
Americas-Insolvency
2004-2008	241,465		117,972		69,736		65,321		53,924		37,530		13,534		3,035		1,836		1,098		653		356		161		365,156
2009	155,988		—		16,635		81,780		102,780		107,888		95,725		53,945		5,781		2,531		1,581		747		364		469,757
2010	208,942		—		—		39,486		104,499		125,020		121,717		101,873		43,649		5,008		2,425		1,352		526		545,555
2011	180,433		—		—		—		15,218		66,379		82,752		85,816		76,915		35,996		3,726		1,584		609		368,995
2012	251,396		—		—		—		—		17,388		103,610		94,141		80,079		60,715		29,337		4,284		1,518		391,072
2013	227,835		—		—		—		—		—		52,528		82,596		81,679		63,386		47,781		21,948		2,382		352,300
2014	148,691		—		—		—		—		—		—		37,045		50,880		44,313		37,350		28,759		13,929		212,276
2015	63,181		—		—		—		—		—		—		—		3,395		17,892		20,143		19,769		12,985		74,184
2016	92,279		—		—		—		—		—		—		—		—		18,869		30,426		25,047		15,660		90,002
2017	275,264		—		—		—		—		—		—		—		—		—		49,093		97,315		63,150		209,558
2018	97,931		—		—		—		—		—		—		—		—		—		—		6,700		20,342		27,042
2019	100,386		—		—		—		—		—		—		—		—		—		—		—		8,516		8,516
Subtotal	2,043,791		117,972		86,371		186,587		276,421		354,205		469,866		458,451		344,214		249,808		222,515		207,861		140,142		3,114,413
Total Americas	6,929,077		1,484,006		368,003		529,342		705,490		897,080		1,126,374		1,211,446		1,188,982		1,087,004		1,083,442		1,153,040		1,005,010		11,839,219
Europe-Core
2012	20,412		—		—		—		—		11,604		8,995		5,641		3,175		2,198		2,038		1,996		1,068		36,715
2013	20,335		—		—		—		—		—		7,068		8,540		2,347		1,326		1,239		1,331		699		22,550
2014	796,811		—		—		—		—		—		—		153,180		291,980		246,365		220,765		206,255		130,935		1,249,480
2015	419,914		—		—		—		—		—		—		—		45,760		100,263		86,156		80,858		50,217		363,254
2016	348,302		—		—		—		—		—		—		—		—		40,368		78,915		72,603		43,859		235,745
2017	246,788		—		—		—		—		—		—		—		—		—		17,894		56,033		33,446		107,373
2018 ⁽⁴⁾	345,303		—		—		—		—		—		—		—		—		—		—		24,326		68,399		92,725
2019	291,383		—		—		—		—		—		—		—		—		—		—		—		24,787		24,787
Subtotal	2,489,248		—		—		—		—		11,604		16,063		167,361		343,262		390,520		407,007		443,402		353,410		2,132,629
Europe-Insolvency
2014	10,876		—		—		—		—		—		—		5		4,297		3,921		3,207		2,620		1,243		15,293
2015	19,236		—		—		—		—		—		—		—		2,954		4,366		5,013		4,783		3,026		20,142
2016	41,873		—		—		—		—		—		—		—		—		6,175		12,703		12,856		8,233		39,967
2017	38,424		—		—		—		—		—		—		—		—		—		1,233		7,862		6,739		15,834
2018	45,590		—		—		—		—		—		—		—		—		—		—		642		6,046		6,688
2019	31,569		—		—		—		—		—		—		—		—		—		—		—		955		955
Subtotal	187,568		—		—		—		—		—		—		5		7,251		14,462		22,156		28,763		26,242		98,879
Total Europe	2,676,816		—		—		—		—		11,604		16,063		167,366		350,513		404,982		429,163		472,165		379,652		2,231,508
Total PRA Group	$	9,605,893	$	1,484,006	$	368,003	$	529,342	$	705,490	$	908,684	$	1,142,437	$	1,378,812	$	1,539,495	$	1,491,986	$	1,512,605	$	1,625,205	$	1,384,662	$	14,070,727


(1)	For our non-U.S. amounts, cash collections are presented using the average exchange rates during the cash collection period.


(2)	The amount reflected in Purchase Price also includes the acquisition date finance receivables portfolios that were acquired through our various business acquisitions.


(3)	For our non-U.S. amounts, Purchase Price is presented at the exchange rate at the end of the quarter in which the portfolio was purchased. In addition, any purchase price adjustments that occur throughout the life of the pool are presented at the period end exchange rate for the respective quarter of purchase.


(4)	Includes a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the consolidation of a Polish investment fund.

Estimated remaining collections

The following chart shows our total ERC of $6,395.7 million at September 30, 2019 by geographical region (amounts in millions).

Seasonality

Cash collections in the Americas tend to be higher in the first quarter of the year due to income tax refunds received by individuals in the U.S., and trend lower as the year progresses. Customer payment patterns in all of the countries in which we operate can be affected by seasonal employment trends, income tax refunds, holiday spending habits, and other factors.

Cash collections

The following table displays our quarterly cash collections by geography and portfolio type, for the periods indicated.

Cash Collections by Geography and Type Amounts in thousands

	2019						2018								2017
	Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4
Americas-Core	$	279,902	$	294,243	$	290,723	$	233,937	$	231,253	$	233,752	$	246,237	$	204,245
Americas-Insolvency	45,759		49,770		44,613		48,000		48,518		56,063		55,280		59,103
Europe-Core	118,917		117,635		116,858		113,154		102,780		109,359		118,109		107,124
Europe-Insolvency	8,639		8,626		8,977		7,618		6,731		7,460		6,954		5,794
Total Cash Collections	$	453,217	$	470,274	$	461,171	$	402,709	$	389,282	$	406,634	$	426,580	$	376,266

The following table provides additional details on the composition of our U.S. Core cash collections for the periods indicated.

U.S. Core Portfolio Cash Collections by Source Amounts in thousands

	2019						2018								2017
	Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4
Call Center and Other Collections	$	149,782	$	160,479	$	169,753	$	134,543	$	137,325	$	143,527	$	155,448	$	120,349
External Legal Collections	64,301		63,490		57,419		47,410		41,935		40,631		38,891		31,960
Internal Legal Collections	35,679		38,065		37,018		30,724		32,064		32,532		33,423		31,154
Total US-Core Cash Collections	$	249,762	$	262,034	$	264,190	$	212,677	$	211,324	$	216,690	$	227,762	$	183,463

Collections productivity (U.S. portfolio)

The following tables display certain collections productivity measures.

Cash Collections per Collector Hour Paid U.S. Portfolio

	Total U.S. core cash collections ⁽¹⁾
	2019		2018		2017		2016		2015
First Quarter	$	215	$	176	$	254	$	274	$	247
Second Quarter	226		152		202		269		245
Third Quarter	205		163		191		281		250
Fourth Quarter	—		163		170		248		239

	Call center and other cash collections ⁽²⁾
	2019		2018		2017		2016		2015
First Quarter	$	139	$	121	$	161	$	168	$	143
Second Quarter	139		101		129		167		141
Third Quarter	124		107		125		177		145
Fourth Quarter	—		104		112		153		139

(1)

Represents total cash collections less Insolvency cash collections from trustee-administered accounts. This metric includes cash collections from Insolvency accounts administered by the Core call centers as well as cash collections generated by our internal staff of legal collectors. This calculation does not include hours worked by our internal staff of legal collectors or employees processing the required notifications to trustees on Insolvency accounts.


(2)	Represents total cash collections less internal legal cash collections, external legal cash collections, and Insolvency cash collections from trustee-administered accounts.

Portfolio purchasing

The following graph shows the purchase price of our portfolios by year since 2009. It includes the acquisition date finance receivable portfolios that were acquired through our various business acquisitions. The 2019 totals represent portfolio purchases through the nine months ended September 30, 2019 while the prior years totals are for the full year.

The following table displays our quarterly portfolio purchases for the periods indicated.

Portfolio Purchases by Geography and Type Amounts in thousands

	2019						2018								2017
	Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4
Americas-Core	$	168,185	$	121,996	$	169,189	$	172,511	$	170,426	$	182,768	$	131,427	$	160,278
Americas-Insolvency	26,311		26,092		48,243		52,871		17,151		16,651		13,436		44,195
Europe-Core ⁽¹⁾	64,728		136,344		94,283		231,810		45,754		19,403		18,000		152,417
Europe-Insolvency	19,772		4,715		7,134		33,661		4,159		2,577		5,392		17,698
Total Portfolio Purchasing	$	278,996	$	289,147	$	318,849	$	490,853	$	237,490	$	221,399	$	168,255	$	374,588


(1)	The Europe-Core purchases in the above table and graph exclude a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the consolidation of a Polish investment fund.

Portfolio purchases by stratifications (U.S. only)

The following table categorizes our quarterly U.S. portfolio purchases for the periods indicated into major asset type and delinquency category. Since our inception in 1996, we have acquired more than 53 million customer accounts in the U.S.

U.S. Portfolio Purchases by Major Asset Type Amounts in thousands

	2019						2018								2017
	Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4
Major Credit Cards	$	50,500	$	39,468	$	43,440	$	65,025	$	78,864	$	100,160	$	84,858	$	87,895
Private Label Credit Cards	72,714		70,536		84,515		100,633		100,517		82,406		47,962		90,332
Consumer Finance	2,090		28,649		2,424		2,619		2,248		4,098		3,558		2,360
Auto Related	638		1,407		30,358		31,892		330		427		613		21,219
Total	$	125,942	$	140,060	$	160,737	$	200,169	$	181,959	$	187,091	$	136,991	$	201,806

U.S. Portfolio Purchases by Delinquency Category Amounts in thousands

	2019						2018								2017
	Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4
Fresh ⁽¹⁾	$	27,600	$	33,288	$	51,212	$	61,730	$	61,882	$	80,976	$	71,067	$	76,910
Primary ⁽²⁾	17,658		40,027		19,725		39,690		37,670		34,166		3,290		23,100
Secondary ⁽³⁾	50,082		34,920		35,857		45,878		63,525		55,299		49,198		48,865
Tertiary ⁽³⁾	6,483		5,733		4,435		—		—		—		—		8,736
Insolvency	24,119		26,092		48,243		52,871		17,151		16,650		13,436		44,195
Other ⁽⁴⁾	—		—		1,265		—		1,731		—		—		—
Total	$	125,942	$	140,060	$	160,737	$	200,169	$	181,959	$	187,091	$	136,991	$	201,806


(1)	Fresh accounts are typically past due 120 to 270 days, charged-off by the credit originator and are either being sold prior to any post-charge-off collection activity or placement with a third-party for the first time.


(2)	Primary accounts are typically 360 to 450 days past due and charged-off and have been previously placed with one contingent fee servicer.


(3)	Secondary and tertiary accounts are typically more than 660 days past due and charged-off and have been placed with two or three contingent fee servicers.


(4)	Other accounts are typically two to three years or more past due and charged-off and have previously been worked by four or more contingent fee servicers.

Liquidity and Capital Resources

We manage our liquidity to help provide access to sufficient funding to meet our business needs and financial obligations. As of September 30, 2019, cash and cash equivalents totaled $90.0 million, of which $73.0 million consisted of cash on hand related to foreign operations with indefinitely reinvested earnings. See the "Undistributed Earnings of Foreign Subsidiaries" section below for more information.

At September 30, 2019, we had approximately $2.6 billion in borrowings outstanding with $714.1 million of availability under all our credit facilities (subject to the borrowing base and applicable debt covenants). Considering borrowing base restrictions, as of September 30, 2019, the amount available to be drawn was $424.9 million. Of the $714.1 million of borrowing availability, $240.7 million was available under our European credit facility, $468.5 million was available under our North American credit facility, and $4.9 million was under our Colombian credit facility. Of the $424.9 million available considering borrowing base restrictions, $145.0 million was available under our European credit facility, $275.0 million was available under our North American credit facility and $4.9 million was under our Colombian credit facility. For more information, see Note 6 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.

An additional funding source for our Europe operations is interest-bearing deposits. Per the terms of our European credit facility, we are permitted to obtain interest-bearing deposit funding of up to SEK 1.2 billion (approximately $122.2 million as of September 30, 2019). Interest-bearing deposits as of September 30, 2019 were $112.0 million.

We believe we were in compliance with the covenants of our financing arrangements as of September 30, 2019.

We have the ability to slow the purchasing of finance receivables if necessary, with low impact to current year cash collections. For example, we invested $1.1 billion in portfolio purchases in 2018. The portfolios purchased in 2018 generated $154.4 million of cash collections, representing only 9.5% of 2018 cash collections.

Contractual obligations over the next year are primarily related to debt maturities and purchase commitments. Our North American credit facility expires in May 2022. Our European credit facility expires in February 2021. Of our $427.5 million in term loans outstanding at September 30, 2019, $10.0 million is due within one year. Additionally, the $287.5 million principal amount of the 2020 Notes is due August 1, 2020. Based upon our current availability considering borrowing base restrictions in North America ($275.0 million) our cash on hand, our current ability to negotiate extensions or renew our lines of credit and to secure additional financing or equity capital in the open market, and our strong operating cash flows, we believe that we have the ability to settle this instrument in cash at maturity.

We have in place forward flow commitments for the purchase of nonperforming loans with a maximum purchase price of $725.1 million as of September 30, 2019. We may also enter into new or renewed flow commitments and close on spot transactions in addition to the aforementioned flow agreements.

On May 10, 2017, we reached a settlement with the Internal Revenue Service in regards to its assertion that tax revenue recognition using the cost recovery method did not clearly reflect taxable income. In accordance with the settlement, our tax accounting method to recognize finance receivables revenue changed effective with tax year 2017. Under the new method, a portion of the annual collections amortizes principal and the remaining portion is taxable income. The deferred tax liability related to the difference in timing between the new method and the cost recovery method is being incorporated evenly into our tax filings over four years effective with tax year 2017. We estimate the related tax payments for future years to be approximately $9.3 million per quarter.

We believe that funds generated from operations and from cash collections on finance receivables, together with existing cash and available borrowings under our revolving credit facilities will be sufficient to finance our operations, planned capital expenditures, forward flow purchase commitments, and additional portfolio purchasing during the next 12 months. Business acquisitions, adverse outcomes in pending litigation or higher than expected levels of portfolio purchasing could require additional financing from other sources.

Cash Flows Analysis

Our operating activities provided cash of $70.7 million for the nine months ended September 30, 2019, compared to $68.1 million for the nine months ended September 30, 2018. The change was primarily due to cash collections recognized as revenue mostly offset by increases in cash paid for operating expenses, interest, and income taxes. Key drivers of operating activities were adjusted for (i) non-cash items included in net income such as provisions for unrealized gains and losses, depreciation and amortization, deferred taxes and stock-based compensation and (ii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of payments.

Our investing activities used cash of $233.1 million and $62.6 million for the nine months ended September 30, 2019 and 2018, respectively. Cash used in investing activities is mainly driven by acquisitions of nonperforming loans and business acquisitions. Cash provided by investing activities is mainly driven by cash collections applied to principal on finance receivables and proceeds from sale of investments and subsidiaries. The change in net cash used in investing activities is primarily due to an increase in the amounts of acquisitions of finance receivables, which totaled $833.0 million during the nine months ended September 30, 2019, compared to $621.5 million during the nine months ended September 30, 2018. In addition, net cash used was impacted by $57.6 million in business acquisitions during the nine months ended September 30, 2019 as well as $31.2 million cash proceeds received in January 2019 associated with the sale of RCB in the fourth quarter of 2018. Furthermore, for the nine months ended September 30, 2018, we received cash of $17.5 million upon consolidation of a Polish investment fund previously recorded as an investment whereas we did not have any similar transaction occur in the current year period. These were partially offset by an increase in collections applied to principal on finance receivables which totaled $649.1 million during the nine months ended September 30, 2019, compared to $561.6 million during the nine months ended September 30, 2018.

Our financing activities provided cash of $167.6 million and $3.6 million for the nine months ended September 30, 2019 and 2018, respectively. Cash for financing activities is normally provided by draws on our lines of credit and proceeds from debt offerings. Cash used in financing activities is primarily driven by principal payments on our lines of credit and long-term debt. The change in cash provided by financing activities for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 was primarily due to an increase in net draws on our lines of credit and long-term debt and net contribution from noncontrolling interests. Net draws on our borrowing activities totaled $116.1 million nine months ended September 30, 2019 compared to net repayments of $34.0 million during the nine months ended September 30, 2018. Additionally, net contributions from noncontrolling interests totaled $17.8 million during the nine months ended September 30, 2019 as compared to net distributions to noncontrolling interests of $14.0 million during the nine months ended September 30, 2018. During the nine months ended September 30, 2019 we had an increase in interest bearing deposits of $38.6 million, compared to a decrease of $12.2 million during the nine months ended September 30, 2018.

Undistributed Earnings of Foreign Subsidiaries

We intend to use predominantly all of our accumulated and future undistributed earnings of foreign subsidiaries to expand operations outside the U.S.; therefore, such undistributed earnings of foreign subsidiaries are considered to be indefinitely reinvested outside the U.S. Accordingly, no provision for income tax and withholding tax has been provided thereon. If management's intentions change and eligible undistributed earnings of foreign subsidiaries are repatriated, we could be subject to additional income taxes and withholding taxes. This could result in a higher effective tax rate in the period in which such a decision is made to repatriate accumulated or future undistributed foreign earnings. The amount of cash on hand related to foreign operations with indefinitely reinvested earnings was $73.0 million and $78.6 million as of September 30, 2019 and December 31, 2018, respectively. Refer to Note11 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report for further information related to our income taxes and undistributed foreign earnings.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Recent Accounting Pronouncements

For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements see Note 13 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. Our significant accounting policies are discussed in Note 1 to our Consolidated Financial Statements included in Part II, Item 8 of our 2018 Form 10-K. Our significant accounting policies are fundamental to understanding our results of operations and financial condition because they require that we use estimates, assumptions and judgments that affect the reported amounts of revenues, expenses, assets, and liabilities.

Three of these policies are considered to be critical because they are important to the portrayal of our financial condition and results, and because they require management to make judgments and estimates that are difficult, subjective, and complex regarding matters that are inherently uncertain.

We base our estimates on historical experience, current trends and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ significantly from actual results, the impact on our consolidated financial statements may be material.

Management has reviewed these critical accounting policies with the Audit Committee of our board of directors.

Revenue recognition - finance receivables

We account for the vast majority of our investment in finance receivables under the guidance of ASC 310-30. Revenue recognition for finance receivables accounted for under ASC 310-30 involves the use of estimates and the exercise of judgment on the part of management. These estimates include projections of the quantity and timing of future cash flows and economic lives of our pools of finance receivables. Significant changes in such estimates could result in increased revenue via yield increases which are recognized prospectively or increased allowance charges resulting from decreased cash flow estimates which are recognized immediately.

We implement the accounting for income recognized on finance receivables under ASC 310-30 as follows:

We create each accounting pool using our projections of estimated cash flows and expected economic life. We then compute the effective yield that fully amortizes the pool over a reasonable expectation of its economic life based on the current projections of estimated cash flows. As actual cash flow results are recorded, we review each pool watching for trends, actual performance versus projections and curve shape (a graphical depiction of the timing of cash flows). We then re-forecast future cash flows utilizing our proprietary analytical models.

Significant judgment is used in evaluating whether variances in actual performance are due to changes in the total amount or changes in the timing of expected cash flows. Significant changes in either may result in yield increases or allowance charges if necessary for the pool's amortization period to fall within a reasonable expectation of its economic life.

Valuation of acquired intangibles and goodwill

In accordance with FASB ASC Topic 350, "Intangibles-Goodwill and Other" ("ASC 350"), we amortize intangible assets over their estimated useful lives. Goodwill, pursuant to ASC 350, is not amortized but rather evaluated for impairment annually and more frequently if indicators of potential impairment exist. Goodwill is reviewed for potential impairment at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment.

Goodwill is evaluated for impairment either under the qualitative assessment option or the two-step test approach depending on facts and circumstances of a reporting unit, including the excess of fair value over carrying amount in the last valuation or changes in business environment. If we qualitatively determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, the two-step impairment test is unnecessary. Otherwise, goodwill is evaluated for impairment using the two-step test, where the carrying amount of a reporting unit is compared to its fair value in Step 1; if the fair value exceeds the carrying amount, Step 2 is unnecessary. If the carrying amount exceeds the reporting unit’s fair value, this could

indicate potential impairment and Step 2 of the goodwill evaluation process is required to determine if goodwill is impaired and to measure the amount of impairment loss to recognize, if any. When Step 2 is necessary, the fair value of individual assets and liabilities is determined using valuations (which in some cases may be based in part on third-party valuation reports), or other observable sources of fair value, as appropriate. If the carrying amount of goodwill exceeds its implied fair value, the excess is recognized as an impairment loss.

We determine the fair value of a reporting unit by applying the approaches prescribed under the fair value measurement accounting framework: the income approach and the market approach. Depending on the availability of public data and suitable comparables, we may or may not use the market approach or we may emphasize the results from the approach differently. Under the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows and a residual terminal value. Cash flow projections are based on management's estimates of revenue growth rates, operating margins, necessary working capital, and capital expenditure requirements, taking into consideration industry and market conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. Under the market approach, we estimate fair value based on prices and other relevant market transactions involving comparable publicly-traded companies with operating and investment characteristics similar to the reporting unit.

Income taxes

We are subject to the income tax laws of the various jurisdictions in which we operate, including U.S. federal, state, local, and international jurisdictions. These tax laws are complex and are subject to different interpretations by the taxpayer and the relevant government taxing authorities. When determining our domestic and foreign income tax expense, we must make judgments about the application of these inherently complex laws.

We follow the guidance of FASB ASC Topic 740 "Income Taxes" ("ASC 740") as it relates to the provision for income taxes and uncertainty in income taxes. Accordingly, we record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with ASC 740, the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. The evaluation of a tax position in accordance with the guidance is a two-step process. The first step is recognition: the Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company should presume that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. We record interest and penalties related to unrecognized tax benefits as a component of income tax expense.

In the event that all or part of the deferred tax assets are determined not to be realizable in the future, a valuation allowance would be established and charged to earnings in the period such determination is made. If we subsequently realize deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in a positive adjustment to earnings in the period such determination is made. The establishment or release of a valuation allowance does not have an impact on cash, nor does such an allowance preclude the use of loss carry-forwards or other deferred tax assets in future periods. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial position.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our activities are subject to various financial risks including market risk, currency and interest rate risk, credit risk, liquidity risk and cash flow risk. Our financial risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance. We may periodically enter into derivative financial instruments, typically interest rate and currency derivatives, to reduce our exposure to fluctuations in interest rates on variable-rate debt, fluctuations in currency rates and their impact on earnings and cash flows. We do not utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed nor do we enter into or hold derivatives for trading or speculative purposes. Derivative instruments involve, to varying degrees, elements of non-performance, or credit risk. We do not believe that we currently face a significant risk of loss in the event of non-performance by the counterparties associated with these instruments, as these transactions were executed with a diversified group of major financial institutions with an investment-grade credit rating. Our credit risk exposure is managed through the periodic monitoring of our exposures to such counterparties.

Interest Rate Risk

We are subject to interest rate risk from outstanding borrowings on our variable rate credit facilities. As such, our consolidated financial results are subject to fluctuations due to changes in the market rate of interest. We assess this interest rate risk by estimating the increase or decrease in interest expense that would occur due to a change in short-term interest rates. The borrowings on our variable rate credit facilities were approximately $2.0 billion as of September 30, 2019. Based on our debt structure at September 30, 2019, assuming a 50 basis point decrease in interest rates, for example, interest expense over the following 12 months would decrease by an estimated $4.9 million. Assuming a 50 basis point increase in interest rates, interest expense over the following 12 months would increase by an estimated $5.5 million.

To reduce the exposure to changes in the market rate of interest and to be in compliance with the terms of our European credit facility, we have entered into interest rate derivative contracts for a portion of our borrowings under our floating rate financing arrangements. Further, effective in the second quarter of 2018, we began to apply hedge accounting to certain of our interest rate derivative contracts. By applying hedge accounting, changes in market value are reflected as adjustments in Other Comprehensive Income. All derivatives to which we have applied hedge accounting were evaluated and remain highly effective at September 30, 2019. Terms of the interest rate derivative contracts require us to receive a variable interest rate and pay a fixed interest rate. The sensitivity calculations above consider the impact of our interest rate derivative contracts.

Currency Exchange Risk

We operate internationally and enter into transactions denominated in various foreign currencies. During the three months ended September 30, 2019, we generated $83.7 million of revenues from operations outside the U.S. and used 11 functional currencies. Weakness in one particular currency might be offset by strength in other currencies over time.

As a result of our international operations, fluctuations in foreign currencies could cause us to incur foreign currency exchange gains and losses, and could adversely affect our comprehensive income and stockholders' equity. Additionally, our reported financial results could change from period to period due solely to fluctuations between currencies.

Foreign currency gains and losses are primarily the result of the re-measurement of transactions in certain other currencies into an entity's functional currency. Foreign currency gains and losses are included as a component of other income and (expense) in our consolidated income statements. From time to time we may elect to enter into foreign exchange derivative contracts to reduce these variations in our consolidated income statements.

When an entity's functional currency is different than the reporting currency of its parent, foreign currency translation adjustments may occur. Foreign currency translation adjustments are included as a component of other comprehensive income/(loss) in our consolidated statements of comprehensive income and as a component of equity in our consolidated balance sheets.

We have taken measures to mitigate the impact of foreign currency fluctuations. We have organized our European operations so that portfolio ownership and collections generally occur within the same entity. Our European credit facility is a multi-currency facility, allowing us to better match funding and portfolio investments by currency. We actively monitor the value of our finance receivables by currency. In the event adjustments are required to our liability composition by currency we may, from time to time, execute re-balancing foreign exchange contracts to more closely align funding and portfolio investments by currency.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. We conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on this evaluation, the principal executive officer and principal financial officer have concluded that, as of September 30, 2019, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

For information regarding legal proceedings as of September 30, 2019, refer to Note 12 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in our 2018 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



3.1	Fourth Amended and Restated Certificate of Incorporation of PRA Group, Inc. (Incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K (File No. 000-50058) filed on October 29, 2014).
3.2	Amended and Restated By-Laws of PRA Group, Inc. (Incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K (File No. 000-50058) filed on May 22, 2015).
4.1	Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 of Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 333-99225) filed on October 15, 2002).
4.2	Form of Warrant (Incorporated by reference to Exhibit 4.2 of Amendment No. 2 to the Registration Statement on Form S-1 (Registration No. 333-99225) filed on October 30, 2002).
4.3	Indenture dated August 13, 2013 between Portfolio Recovery Associates, Inc. and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K (File No. 000-50058) filed on August 14, 2013).
4.4	Indenture dated May 26, 2017 between PRA Group, Inc. and Regions Bank, as trustee (Incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K (File No. 000-50058) filed on May 26, 2017).
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herewith).
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herewith).
32.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (filed herewith).
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkable Document
101.LAB	XBRL Taxonomy Extension Label Linkable Document
101.PRE	XBRL Taxonomy Extension Presentation Linkable Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




	PRA Group, Inc.
	(Registrant)

November 7, 2019	By:	/s/ Kevin P. Stevenson
		Kevin P. Stevenson
		President and Chief Executive Officer
		(Principal Executive Officer)





November 7, 2019	By:	/s/ Peter M. Graham
		Peter M. Graham
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)