Edgar Filing: PRA GROUP INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015.



¨	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)		(zip code)

(888) 772-7326

(Registrant’s telephone number, including area code)

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 ý NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES ý NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 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 ý

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		Outstanding as of November 5, 2015
Common Stock, $0.01 par value		48,206,421

PRA GROUP, INC.

INDEX



		Page(s)
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets (unaudited) as of September 30, 2015 and December 31, 2014	3

	Consolidated Income Statements (unaudited) for the three and nine months ended September 30, 2015 and 2014	4

	Consolidated Statements of Comprehensive (Loss)/Income (unaudited) for the three and nine months ended September 30, 2015 and 2014	5

	Consolidated Statement of Changes in Stockholders’ Equity (unaudited) for the nine months ended September 30, 2015	6

	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2015 and 2014	7

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	52

Item 4.	Controls and Procedures	53

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 3.	Defaults Upon Senior Securities	55

Item 4.	Mine Safety Disclosures	55

Item 5.	Other Information	55

Item 6.	Exhibits	55

SIGNATURES		56

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

PRA GROUP, INC.

CONSOLIDATED BALANCE SHEETS

September 30, 2015 and December 31, 2014

(unaudited)

(Amounts in thousands, except per share amounts)



	September 30, 2015			December 31, 2014
Assets
Cash and cash equivalents	$	69,111		$	39,661
Investments	75,985			89,703
Finance receivables, net	2,167,178			2,001,790
Other receivables, net	24,648			12,959
Income taxes receivable	12,840			—
Net deferred tax asset	831			6,126
Property and equipment, net	46,105			48,258
Goodwill	502,383			527,445
Intangible assets, net	24,458			10,933
Other assets	61,011			41,876
Total assets	$	2,984,550		$	2,778,751
Liabilities and Equity
Liabilities:
Accounts payable	$	3,693		$	4,446
Accrued expenses	97,123			89,361
Income taxes payable	9,534			11,020
Other liabilities	4,460			5,962
Net deferred tax liability	267,587			255,587
Interest bearing deposits	46,277			27,704
Borrowings	1,654,457			1,482,456
Total liabilities	2,083,131			1,876,536
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, par value $0.01, authorized shares, 2,000, issued and outstanding shares - 0	—			—
Common stock, par value $0.01, 100,000 authorized shares, 48,204 issued and outstanding shares at September 30, 2015, and 49,577 issued and outstanding shares at December 31, 2014	482			496
Additional paid-in capital	31,344			111,659
Retained earnings	1,032,966			906,010
Accumulated other comprehensive loss	(201,275		)	(115,950		)
Total stockholders’ equity - PRA Group, Inc.	863,517			902,215
Noncontrolling interest	$	37,902		$	—
Total equity	$	901,419		$	902,215
Total liabilities and total equity	$	2,984,550		$	2,778,751

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, 2015 and 2014

(unaudited)

(Amounts in thousands, except per share amounts)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenues:
Income recognized on finance receivables, net	$	208,184		$	224,326		$	656,651		$	584,814
Fee income	17,803			12,757			44,734			42,875
Other revenue	3,443			1,890			10,448			2,549
Total revenues	229,430			238,973			711,833			630,238
Operating expenses:
Compensation and employee services	66,084			65,237			199,675			169,083
Legal collection fees	13,715			13,778			41,520			35,982
Legal collection costs	18,879			20,367			59,289			72,329
Agent fees	7,961			5,988			24,006			8,902
Outside fees and services	12,583			17,210			37,846			40,114
Communication	8,021			8,642			26,512			25,370
Rent and occupancy	3,684			3,283			10,723			8,032
Depreciation and amortization	5,413			4,949			14,939			13,107
Other operating expenses	38,963			11,330			58,151			25,111
Total operating expenses	175,303			150,784			472,661			398,030
Income from operations	54,127			88,189			239,172			232,208
Other income and (expense):
Interest expense	(16,787		)	(11,807		)	(45,015		)	(21,733		)
Net foreign currency transaction gain/(loss)	(3,160		)	3,258			7,213			(2,931		)
Income before income taxes	34,180			79,640			201,370			207,544
Provision for income taxes	16,597			28,473			74,227			78,030
Net income	$	17,583		$	51,167		$	127,143		$	129,514
Less net income attributable to noncontrolling interest	187			—			187			—
Net income attributable to PRA Group, Inc.	$	17,396		$	51,167		$	126,956		$	129,514
Net income per common share:
Basic	$	0.36		$	1.02		$	2.62		$	2.59
Diluted	$	0.36		$	1.01		$	2.61		$	2.57
Weighted average number of shares outstanding:
Basic	48,265			50,075			48,438			50,023
Diluted	48,498			50,439			48,693			50,413

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

PRA GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

For the three and nine months ended September 30, 2015 and 2014

(unaudited)

(Amounts in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net income	$	17,583		$	51,167		$	127,143		$	129,514
Other comprehensive loss:
Change in foreign currency translation	(47,738		)	(47,541		)	(85,325		)	(45,182		)
Comprehensive (loss)/income	$	(30,155	)	$	3,626		$	41,818		$	84,332
Comprehensive income/(loss) attributable to noncontrolling interest:
Net income attributable to noncontrolling interest	187			—			187			—
Change in foreign currency translation	(7,466		)	—			(7,466		)	—
Comprehensive (loss) attributable to noncontrolling interest	(7,279		)	—			(7,279		)	—
Comprehensive (loss)/income attributable to PRA Group, Inc.	$	(22,876	)	$	3,626		$	49,097		$	84,332

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

PRA GROUP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the nine months ended September 30, 2015

(unaudited)

(Amounts in thousands)



											Accumulated
						Additional					Other
	Common Stock					Paid-in			Retained		Comprehensive			Noncontrolling			Total
	Shares		Amount			Capital			Earnings		Loss			Interest			Equity
Balance at December 31, 2014	49,577		$	496		$	111,659		$	906,010	$	(115,950	)	$	—		$	902,215
Components of comprehensive income:
Net income	—		—			—			126,956		—			187			127,143
Foreign currency translation adjustment	—		—			—			—		(85,325		)	(7,466		)	(92,791		)
Initial noncontrolling interests related to business acquisition	—		—			—			—		—			45,181			45,181
Vesting of nonvested shares	237		2			(2		)	—		—			—			—
Repurchase and cancellation of common stock	(1,610	)	(16		)	(85,486		)	—		—			—			(85,502		)
Share-based compensation	—		—			11,535			—		—			—			11,535
Income tax benefit from share-based compensation	—		—			4,115			—		—			—			4,115
Employee stock relinquished for payment of taxes	—		—			(10,477		)	—		—			—			(10,477		)
Balance at September 30, 2015	48,204		$	482		$	31,344		$	1,032,966	$	(201,275	)	$	37,902		$	901,419

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, 2015 and 2014

(unaudited)

(Amounts in thousands)



	Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities:
Net income	$	127,143		$	129,514
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation	11,535			9,456
Depreciation and amortization	14,939			13,107
Amortization of debt discount	3,178			3,027
Amortization of debt fair value	—			(3,595		)
Deferred tax expense	11,474			31,055
Net foreign currency transaction (gain)/loss	(7,213		)	2,931
Changes in operating assets and liabilities:
Other assets	(15,201		)	1,622
Other receivables	(12,917		)	4,225
Accounts payable	(2,762		)	(16,328		)
Income taxes receivable/payable, net	(13,405		)	(111		)
Accrued expenses	9,479			7,125
Other liabilities	(760		)	(9,603		)
Net cash provided by operating activities	125,490			172,425
Cash flows from investing activities:
Purchases of property and equipment	(10,520		)	(16,513		)
Acquisition of finance receivables, net of buybacks	(729,992		)	(412,740		)
Collections applied to principal on finance receivables	513,473			420,570
Business acquisitions, net of cash acquired	(1,423		)	(851,183		)
Purchase of investments	(45,513		)	—
Proceeds from sales and maturities of investments	58,551			—
Net cash used in investing activities	(215,424		)	(859,866		)
Cash flows from financing activities:
Income tax benefit from share-based compensation	4,115			4,159
Proceeds from lines of credit	645,119			485,000
Principal payments on lines of credit	(406,259		)	(48,500		)
Repurchases of common stock	(85,502		)	—
Principal payments on long-term debt	(43,624		)	(7,500		)
Proceeds from long-term debt	—			169,938
Payments of line of credit origination costs and fees	(5,000		)	—
Net increase in interest-bearing deposits	20,612			51
Net cash provided by financing activities	129,461			603,148
Effect of exchange rate on cash and cash equivalents	(10,077		)	(7,411		)
Net increase/(decrease) in cash and cash equivalents	29,450			(91,704		)
Cash and cash equivalents, beginning of period	39,661			162,004
Cash and cash equivalents, end of period	$	69,111		$	70,300
Supplemental disclosure of cash flow information:
Cash paid for interest	$	38,344		$	21,097
Cash paid for income taxes	70,527			41,682

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

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


1.	Organization and Business:

Throughout this report, the terms "PRA Group," "our," "we," "us," the "Company" or similar terms refer to PRA Group, Inc. and its subsidiaries.

PRA Group, Inc., a Delaware corporation, and its subsidiaries, is a financial and business service company operating in the Americas and Europe. The Company’s primary business is the purchase, collection and management of portfolios of nonperforming loans. The Company also services receivables on behalf of clients, provides business tax revenue administration, audit, discovery and recovery services for state and local governments in the U.S., provides class action claims settlement recovery services and related payment processing to corporate clients, and provides vehicle location, skip tracing and collateral recovery services for auto lenders, governments and law enforcement.

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, based on similarities among the operating units including 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.

On August 3, 2015, the Company acquired 55% of the equity interest in RCB Investimentos S.A. (“RCB”). The remaining 45% of the equity interest in RCB is owned by the founders and previous owners of RCB. RCB was founded in 2007 and is a leading master servicing platform for nonperforming loans in Brazil. RCB specializes in structuring, investing and operating receivable and credit-related assets. The founders of RCB entered into long-term employment agreements with the Company and will continue to manage RCB's local business in Brazil. The consolidated income statement for the three and nine months ended September 30, 2015 includes the results of operations of RCB from August 3, 2015 through September 30, 2015.

The Company’s investment for the 55% ownership of RCB was paid for with approximately $55.2 million in cash which was borrowed under its existing domestic revolving credit facility. The majority of cash paid by the Company to acquire the equity interest in RCB is expected to be used in the ordinary course of business. As part of the investment and call option agreements, the Company has the right to purchase the remaining 45% of RCB at certain multiples of earnings before interest, taxes, depreciation and amortization ("EBITDA") beginning on August 3, 2019 and lasting for two years.

In accordance with ASC Topic 810, “Consolidation”, the Company has consolidated all financial statement accounts of RCB in its consolidated balance sheet as of September 30, 2015 and its consolidated income statement for the three and nine months ended September 30, 2015. The noncontrolling interest amount is included as a separate component of stockholders’ equity and represents the 45% interest not controlled by the Company. In addition, net income attributable to the noncontrolling interest is stated separately in the consolidated income statement for the three and nine months ended September 30, 2015. Due to the immateriality of the RCB acquisition, proforma financial information and the amount of revenue and earnings included in the Company's consolidated income statements has not been provided.

The following table shows the amount of revenue generated for the three and nine months ended September 30, 2015 and 2014 and long-lived assets held at September 30, 2015 and 2014 for the United States, the Company's country of domicile, and outside of the United States (amounts in thousands):



	As Of And For The				As Of And For The
	Three Months Ended September 30, 2015				Three Months Ended September 30, 2014
	Revenues		Long-Lived Assets		Revenues		Long-Lived Assets
United States	$	176,038	$	36,801	$	188,134	$	35,411
Outside the United States	53,392		9,304		50,839		10,558
Total	$	229,430	$	46,105	$	238,973	$	45,969

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



	As Of And For The				As Of And For The
	Nine Months Ended September 30, 2015				Nine Months Ended September 30, 2014
	Revenues		Long-Lived Assets		Revenues		Long-Lived Assets
United States	$	545,636	$	36,801	$	573,048	$	35,411
Outside the United States	166,197		9,304		57,190		10,558
Total	$	711,833	$	46,105	$	630,238	$	45,969

Revenues are attributed to countries based on the location of the related operations. Long-lived assets consist of net property and equipment.

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and, therefore, do not include all information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of the Company, however, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s consolidated balance sheet as of September 30, 2015, its consolidated income statements and statements of comprehensive income for the three and nine months ended September 30, 2015 and 2014, its consolidated statement of changes in stockholders’ equity for the nine months ended September 30, 2015, and its consolidated statements of cash flows for the nine months ended September 30, 2015 and 2014. The consolidated income statements of the Company for the three and nine months ended September 30, 2015 may not be indicative of future results. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2014 Annual Report on Form 10-K, filed on March 2, 2015.


2.	Finance Receivables, net:

Changes in finance receivables, net for the three and nine months ended September 30, 2015 and 2014 were as follows (amounts in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Balance at beginning of period	$	2,012,552		$	1,219,595		$	2,001,790		$	1,239,191
Acquisitions of finance receivables ⁽¹⁾	342,134			894,779			729,992			1,146,947
Foreign currency translation adjustment	(14,939		)	(52,247		)	(51,131		)	(51,858		)
Cash collections	(380,753		)	(372,743		)	(1,170,124		)	(1,005,384		)
Income recognized on finance receivables, net	208,184			224,326			656,651			584,814
Cash collections applied to principal	(172,569		)	(148,417		)	(513,473		)	(420,570		)
Balance at end of period	$	2,167,178		$	1,913,710		$	2,167,178		$	1,913,710

(1) Acquisitions of finance receivables are net of buybacks and include certain capitalized acquisition related costs.

At the time of acquisition, each pool is estimated to have a life of up to 120 months based on projected amounts and timing of future cash collections using the proprietary models of the Company. At September 30, 2015, the weighted average remaining life of the Company's pools is estimated to be approximately 116 months. Based upon current projections, cash collections applied to principal on finance receivables as of September 30, 2015 are estimated to be as follows for the twelve months in the periods ending (amounts in thousands):

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



September 30, 2016	$	573,084
September 30, 2017	461,334
September 30, 2018	366,564
September 30, 2019	287,432
September 30, 2020	192,356
September 30, 2021	140,797
September 30, 2022	87,967
September 30, 2023	40,948
September 30, 2024	16,696
	$	2,167,178

At September 30, 2015, the Company had unamortized purchased principal (purchase price) in pools accounted for under the cost recovery method of $12.9 million; at December 31, 2014, the amount was $17.1 million.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Balance at beginning of period	$	2,538,647		$	1,481,826		$	2,513,185		$	1,430,067
Income recognized on finance receivables, net	(208,184		)	(224,326		)	(656,651		)	(584,814		)
Additions	218,182			1,172,796			564,452			1,377,416
Net reclassifications from nonaccretable difference	139,923			84,074			308,904			290,431
Foreign currency translation adjustment	(4,425		)	(59,040		)	(45,747		)	(57,770		)
Balance at end of period	$	2,684,143		$	2,455,330		$	2,684,143		$	2,455,330

The following is a summary of activity within the Company’s valuation allowance account, all of which relates to loans acquired with deteriorated credit quality, for the three and nine months ended September 30, 2015 and 2014 (amounts in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2015		2014			2015			2014
Beginning balance	$	92,681	$	86,849		$	86,166		$	91,101
Allowance charges	11,335		2,992			18,930			5,765
Reversal of previous recorded allowance charges	—		(4,690		)	(1,080		)	(11,715		)
Net allowance charges/(reversals)	11,335		(1,698		)	17,850			(5,950		)
Ending balance	$	104,016	$	85,151		$	104,016		$	85,151

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

3. Investments:

Investments consist of the following at September 30, 2015 and December 31, 2014 (amounts in thousands):



	September 30, 2015		December 31, 2014
Trading
Short-term investments	$	—	$	37,405
Available-for-sale
Securitized assets	7,050		3,721
Held-to-maturity
Securitized assets	53,500		31,017
Other investments
Private equity funds	15,435		17,560
	$	75,985	$	89,703

Trading

Short-term investments: The Company’s short-term investments are comprised of money market mutual funds and are stated at fair value. Fair value is estimated using the net asset value of the investment. Unrealized gains and losses are recorded in earnings.

Available-for-Sale

Held-to-Maturity

Investments in securitized assets: The Company holds a majority interest in a closed-end Polish investment fund. The fund was formed in December 2014 to acquire portfolios of nonperforming consumer loans in Poland. The Company’s investment consists of a 100% interest in the fund's Series B certificates and a 20% interest in the fund's Series C certificates. Each certificate comes with one vote and is governed by a co-investment agreement. The Series B certificates, which provide a preferred return based on the expected net income of the portfolios, are accounted for as a beneficial interest in securitized financial assets and stated at amortized cost. The Company has determined it has the ability and intent to hold these certificates until maturity, which require repayment in fixed amounts on specific dates. The preferred return is not a guaranteed return. Income is recognized under ASC Topic 325-40, "Beneficial Interests in Securitized Financial Assets" ("ASC 325-40"). Income is recognized using the effective yield method. The Company adjusts the yield for changes in estimated cash flows prospectively through earnings. If the fair value of the investment falls below its carrying amount and the decline is deemed to be other than temporary, the investment is written down, with a corresponding charge to earnings. The underlying securities have both known principal repayment terms as well as unknown principal repayments due to potential borrower pre-payments. Accordingly, it is difficult to accurately predict the final maturity date of these investments. Revenues recognized on these investments were $1.8 million and $4.9 million during the three and nine months ended September 30, 2015, and are recorded in the Other Revenue line item in the income statement.

Other Investments

Investments in private equity funds: Investments in private equity funds represent limited partnerships in which the Company has less than a 3% interest and are carried at cost. Distributions received from the partnerships are included in other

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

revenue. Distributions received in excess of the Company's proportionate share of accumulated earnings are applied as a reduction of the cost of the investment.

The amortized cost and estimated fair value of available-for sale and held-to-maturity investments at September 30, 2015 and December 31, 2014 were as follows (amounts in thousands):



	September 30, 2015
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Aggregate Fair Value
Available-for-sale
Securitized assets	$	6,696	354	—	$	7,050
Held-to-maturity
Securitized assets	53,500		5,822	—	59,322
	December 31, 2014
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Aggregate Fair Value
Available-for-sale
Securitized assets	$	3,721	—	—	$	3,721
Held-to-maturity
Securitized assets	31,017		—	—	31,017


4.	Borrowings:

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



	September 30, 2015			December 31, 2014
Domestic and Canadian revolving credit	$	478,250		$	409,000
Domestic term loan	173,750			185,000
Seller note payable	169,938			169,938
Multicurrency revolving credit	568,503			427,680
Aktiv subordinated loan	—			30,000
Convertible senior notes	287,500			287,500
Less: debt discount	(23,484		)	(26,662		)
Total	$	1,654,457		$	1,482,456

Domestic and Canadian Revolving Credit and Term Loan

The Company has a credit facility with Bank of America, N.A., as administrative agent, and a syndicate of lenders named therein (such agreement as later amended or modified, the “Credit Agreement”). On August 4, 2015, the Company entered into a Fifth Amendment (the “Fifth Amendment”) to the Credit Agreement. Among other things, the Fifth Amendment (a) added Bank of America, N.A., acting through its Canada branch, as Canadian Administrative Agent under the Credit Agreement, (b) added the Company’s wholly-owned subsidiary, PRA Group Canada Inc., as a Borrower under the Credit Agreement, (c) removed the Financial Covenant with respect to Consolidated Tangible Net Worth, (d) terminated the Multi Currency Revolving B Commitments, (e) added $50.0 million of Canadian Revolving Commitments, (f) modified the definition of Permitted Acquisitions to increase the baskets included therein, (g) permits Company subsidiaries organized under the laws of Brazil to borrow up to $150.0 million and to grant liens with respect to such borrowings, and (h) acknowledged the change of the Company’s legal name in October 2014 to PRA Group, Inc. On September 30, 2015, the Company entered into a sixth amendment which increased the allowable amount of stock repurchases during the term of the agreement to $315 million and removed the covenant that the Company cannot exceed $100 million in share repurchases during a given year. The aggregate commitments under the Credit Agreement have not changed.

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The total credit facility under the Credit Agreement includes an aggregate principal amount of $823.8 million (subject to compliance with a borrowing base and applicable debt covenants), which consists of (i) a fully-funded $173.8 million term loan, (ii) a $600 million domestic revolving credit facility, of which $138.8 million is available to be drawn, and (iii) a $50 million Canadian revolving credit facility, of which $32.9 million is available to be drawn. The facilities all mature on December 19, 2017. 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 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 Credit Agreement) plus 0.50%, (b) Bank of America’s prime rate, and (c) the Eurodollar rate plus 1.00%. The Company’s revolving credit facility includes a $20 million swingline loan sublimit, and a $20 million letter of credit sublimit.

The Credit Agreement is secured by a first priority lien on substantially all of the Company’s assets. The Credit Agreement, as amended and modified, contains restrictive covenants and events of default including the following:


•	borrowings may not exceed 33% of the ERC of all eligible asset pools plus 75% of eligible accounts receivable;


•	the consolidated leverage ratio (as defined in the Credit Agreement) cannot exceed 2.0 to 1.0 as of the end of any fiscal quarter;


•	capital expenditures during any fiscal year cannot exceed $40 million;


•	cash dividends and distributions during any fiscal year cannot exceed $20 million;


•	stock repurchases during the term of the agreement cannot exceed $315 million;


•	permitted acquisitions (as defined in the Credit Agreement) during any fiscal year cannot exceed $250 million;


•	indebtedness in the form of senior, unsecured convertible notes or other unsecured financings cannot exceed $500 million in the aggregate (without respect to the Company’s 3.00% Convertible Senior Notes due 2020);


•	the Company must maintain positive consolidated income from operations (as defined in the Credit Agreement) during any fiscal quarter; and


•	restrictions on changes in control.

The revolving credit facility also bears an unused line fee of 0.375% per annum, payable quarterly in arrears.

The Company's borrowings on this credit facility at September 30, 2015 consisted of $173.8 million outstanding on the term loan with an annual interest rate as of September 30, 2015 of 2.69% and $478.3 million outstanding on the revolving facilities with a weighted average interest rate of 2.74%. At December 31, 2014, the Company's borrowings on this credit facility consisted of $185.0 million outstanding on the term loan with an annual interest rate as of December 31, 2014 of 2.67% and $409.0 million outstanding on the revolving facility with a weighted average interest rate of 2.68%.

Seller Note Payable

In conjunction with the closing of the Aktiv Kapital AS ("Aktiv") business acquisition on July 16, 2014, the Company entered into a $169.9 million promissory note (the "Seller Note") with an affiliate of the seller. On May 22, 2015, the Company amended the Seller Note to extend the maturity date to January 19, 2016 and allow for an option for the Company to extend the maturity to July 19, 2016. The Seller Note bears interest at the three-month London Interbank Offered Rate (“LIBOR”) plus 3.75%. The quarterly interest due can be paid or added into the Seller Note balance at the Company's option. At September 30, 2015, the balance due on the Seller Note was $169.9 million with an annual interest rate of 4.08%.

Multicurrency Revolving Credit Facility

On October 23, 2014, the Company entered into a credit agreement with DNB Bank ASA for a Multicurrency Revolving Credit Facility (“the Multicurrency Revolving Credit Agreement”). Subsequently, two other lenders joined the credit facility and on June 12, 2015, the Company entered into a first amendment to the Multicurrency Revolving Credit Agreement (“the Amended Multicurrency Revolving Credit Agreement”) which provided, among other things, an increase in the total commitments from $500 million to an aggregate of $750 million, subject to certain requirements, and an increase in the maximum ERC ratio from 28% to 33%, subject to the payment of additional associated fees.

Under the terms of the Amended Multicurrency Revolving Credit Agreement, the credit facility includes an aggregate amount of $750 million, of which $199.3 million is available to be drawn, accrues interest at the Interbank Offered Rate ("IBOR") plus 2.50-3.30% (as determined by the ERC Ratio as defined in the Amended Multicurrency Revolving Credit Agreement), bears an unused line fee of 1.05% per annum, payable monthly in arrears, and matures on October 23, 2019. The Amended Multicurrency Revolving Credit Agreement also includes an Overdraft Facility aggregate amount of $40 million, of which $22.2 million is

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

available to be drawn, accrues interest at the IBOR plus 2.50-3.30% (as determined by the ERC Ratio as defined in the Amended Multicurrency Revolving Credit Agreement), bears a facility line fee of 0.50% per annum, payable quarterly in arrears, and also matures October 23, 2019.

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


•	the ERC Ratio (as defined in the Amended Multicurrency Revolving Credit Agreement) may not exceed 33%;


•	the GIBD Ratio (as defined in the Amended Multicurrency Revolving Credit Agreement) cannot exceed 3.0 to 1.0 as of the end of any fiscal quarter;


•	interest bearing deposits in AK Nordic AB cannot exceed SEK 500,000,000;


•	cash collections must exceed 95% of Europe's ERC for the same set of portfolios, measured monthly on a quarterly basis.

At September 30, 2015, the balance on the Amended Multicurrency Revolving Credit Agreement was $568.5 million, with an annual interest rate of 3.55%.

Aktiv Subordinated Loan

On December 16, 2011, Aktiv entered into a subordinated loan agreement with Metrogas Holding Inc., an affiliate with Geveran Trading Co. Ltd. During the first quarter of 2015, the Company elected to prepay (as allowed for in the agreement) the outstanding balance on the Aktiv subordinated loan of $30.0 million and terminate the agreement. The Aktiv subordinated loan accrued interest at LIBOR plus 3.75%, and originally was scheduled to mature on January 16, 2016.

Convertible Senior Notes

On August 13, 2013, the Company completed the private offering of $287.5 million in aggregate principal amount of the Company’s 3.00% Convertible Senior Notes due 2020 (the “Notes”). The Notes were issued pursuant to an Indenture, dated August 13, 2013 (the "Indenture") between the Company and Wells Fargo Bank, National Association, as trustee. The Indenture contains customary terms and covenants, including certain events of default after which the Notes may be due and payable immediately. The Notes are senior unsecured obligations of the Company and mature on August 1, 2020. Interest on the Notes is payable semi-annually, in arrears, on February 1 and August 1 of each year. Prior to February 1, 2020, the Notes will be convertible only upon the occurrence of specified events. On or after February 1, 2020, the Notes will be convertible at any time. Upon conversion, the Notes may be settled, at the Company’s option, in cash, shares of the Company’s common stock, or any combination thereof. Holders of the Notes have the right to require the Company to repurchase all or some of their Notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of a fundamental change (as defined in the Indenture). In addition, upon the occurrence of a make-whole fundamental change (as defined in the Indenture), the Company may, under certain circumstances, be required to increase the conversion rate for the Notes converted in connection with such a make-whole fundamental change. The conversion rate for the Notes is initially 15.2172 shares per $1,000 principal amount of 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 adjustment in certain circumstances pursuant to the Indenture. The Company does not have the right to redeem the Notes prior to maturity. As of September 30, 2015, none of the conditions allowing holders of the Notes to convert their Notes had occurred.

As noted above, upon conversion, holders of the 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. However, the Company’s current intent is to settle conversions through combination settlement (i.e., the 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, would be used to settle 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 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 original Notes issuance cost as debt issuance cost and the remaining $0.9 million as equity issuance cost.

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

ASC 470-20, "Debt with Conversion and Other Options" (“ASC 470-20”), requires that, for convertible debt instruments that may be settled fully or partially in cash upon conversion, issuers must separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. Additionally, debt issuance costs are required to be allocated in proportion to the allocation of the liability and equity components and accounted for as debt issuance costs and equity issuance costs, respectively.

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, 2015			December 31, 2014
Liability component - principal amount	$	287,500		$	287,500
Unamortized debt discount	(23,484		)	(26,662		)
Liability component - net carrying amount	$	264,016		$	260,838
Equity component	$	31,306		$	31,306

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

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,
	2015		2014		2015		2014
Interest expense - stated coupon rate	$	2,156	$	2,156	$	6,468	$	6,469
Interest expense - amortization of debt discount	1,074		1,023		3,178		3,027
Total interest expense - convertible notes	$	3,230	$	3,179	$	9,646	$	9,496

The Company believes it was in compliance with all covenants under its financing arrangements as of September 30, 2015 and December 31, 2014.

The following principal payments are due on the Company's borrowings as of September 30, 2015 for the twelve month periods ending (amounts in thousands):



September 30, 2016	$	188,688
September 30, 2017	35,000
September 30, 2018	598,250
September 30, 2019	—
September 30, 2020	568,503
Thereafter	287,500
Total	$	1,677,941

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


5.	Property and Equipment, net:

Property and equipment, at cost, consisted of the following as of the dates indicated (amounts in thousands):



	September 30, 2015			December 31, 2014
Software	$	60,847		$	53,076
Computer equipment	21,629			20,488
Furniture and fixtures	13,183			11,502
Equipment	12,923			12,880
Leasehold improvements	13,125			14,429
Building and improvements	7,230			7,049
Land	1,296			1,269
Accumulated depreciation and amortization	(84,128		)	(72,435		)
Property and equipment, net	$	46,105		$	48,258

Depreciation and amortization expense relating to property and equipment for the three and nine months ended September 30, 2015, was $3.9 million and $11.5 million, respectively. Depreciation and amortization expense relating to property and equipment for the three and nine months ended September 30, 2014, was $3.6 million and $9.5 million, respectively.


6.	Goodwill and Intangible Assets, net:

In connection with the Company’s business acquisitions, the Company acquired certain tangible and intangible assets. Purchased intangible assets include client and customer relationships, non-compete agreements, trademarks and goodwill. Pursuant to ASC 350, the Company performs an annual review of goodwill on October 1 or more frequently if indicators of impairment exist. The Company performed an annual review of goodwill as of October 1, 2014, and concluded that it was more likely than not that the carrying value of goodwill did not exceed its fair value. The Company believes that nothing has occurred since the review was performed through September 30, 2015 that would indicate a triggering event and thereby necessitate further evaluation of goodwill or other intangible assets. The Company expects to perform its next annual goodwill review during the fourth quarter of 2015.

At September 30, 2015 and 2014, the carrying value of goodwill was $502.4 million and $594.4 million, respectively. The following table represents the changes in goodwill for the three and nine months ended September 30, 2015 and 2014 (amounts in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Balance at beginning of period:
Goodwill	$	509,398		$	111,519		$	533,842		$	110,240
Accumulated impairment loss	(6,397		)	(6,397		)	(6,397		)	(6,397		)
	503,001			105,122			527,445			103,843
Changes:
Acquisitions	32,044			512,049			32,044			512,049
Foreign currency translation adjustment	(32,662		)	(22,770		)	(57,106		)	(21,491		)
Net change in goodwill	(618		)	489,279			(25,062		)	490,558


Goodwill	508,780			600,798			508,780			600,798
Accumulated impairment loss	(6,397		)	(6,397		)	(6,397		)	(6,397		)
Balance at end of period	$	502,383		$	594,401		$	502,383		$	594,401

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The $32.0 million increase in goodwill during the three and nine months ended September 30, 2015, is a result of the acquisition of 55% of the equity interest in RCB on August 3, 2015. Goodwill recognized from the acquisition of RCB represents, among other things, RCB's leading master servicing platform for nonperforming loans in Brazil, an established workforce, the future economic benefits arising from a new market and expanded geographical diversity. The acquired goodwill is not deductible for U.S. income tax purposes.


7.	Share-Based Compensation:

The Company has an Omnibus Incentive Plan (the "Plan") to assist the Company in attracting and retaining selected individuals to serve as employees and directors who are expected to contribute to the Company's success and to achieve long-term objectives that will benefit stockholders of the Company. The Plan enables the Company to award shares of the Company's common stock to select employees and directors, as described in the Plan, not to exceed 5,400,000 shares, as authorized by the Plan.

As of September 30, 2015, total future compensation costs related to nonvested awards of nonvested shares (not including nonvested shares granted under the Long-Term Incentive ("LTI") Program) is estimated to be $12.2 million with a weighted average remaining life for all nonvested shares of 1.7 years (not including nonvested shares granted under the LTI program).

Total share-based compensation expense was $3.9 million and $11.5 million for the three and nine months ended September 30, 2015, respectively. Total share-based compensation expense was $4.0 million and $9.5 million for the three and nine months ended September 30, 2014, respectively. Tax benefits resulting from tax deductions in excess of share-based compensation expense (windfall tax benefits) recognized under the provisions of ASC Topic 718 "Compensation-Stock Compensation" ("ASC 718") are credited to additional paid-in capital in the Company's Consolidated Balance Sheets. Realized tax shortfalls, if any, are first offset against the cumulative balance of windfall tax benefits, if any, and then charged directly to income tax expense. The total tax benefit realized from share-based compensation was approximately $0.1 million and $7.9 million for the three and nine months ended September 30, 2015, respectively. The total tax benefit realized from share-based compensation was approximately $0.3 million and $7.9 million for the three and nine months ended September 30, 2014, respectively.

Nonvested Shares

With the exception of the awards made pursuant to the LTI program and a few employee and director grants, the nonvested shares vest ratably over three to five years and are expensed over their vesting period.

The following summarizes all nonvested share transactions, excluding those related to the LTI program, from December 31, 2013 through September 30, 2015 (share amounts in thousands):



	Nonvested Shares Outstanding		Weighted-Average Price at Grant Date
December 31, 2013	226		$	29.58
Granted	272		56.69
Vested	(155	)	37.34
Cancelled	(4	)	50.41
December 31, 2014	339		47.34
Granted	100		53.29
Vested	(107	)	35.72
Cancelled	(4	)	47.17
September 30, 2015	328		$	52.95

The total grant date fair value of shares vested during the three and nine months ended September 30, 2015, was $0.7 million and $3.8 million, respectively. The total grant date fair value of shares vested during the three and nine months ended September 30, 2014, was $0.2 million and $3.3 million, respectively.

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Pursuant to the Plan, the Compensation Committee may grant time-vested and performance based nonvested shares. All shares granted under the LTI program were granted to key employees of the Company. The following summarizes all LTI program share transactions from December 31, 2013 through September 30, 2015 (share amounts in thousands):



	Nonvested LTI Shares Outstanding		Weighted-Average Price at Grant Date
December 31, 2013	434		$	25.79
Granted at target level	111		49.60
Adjustments for actual performance	222		22.32
Vested	(279	)	24.21
December 31, 2014	488		30.52
Granted at target level	132		52.47
Vested	(252	)	20.21
Cancelled	(7	)	40.05
September 30, 2015	361		$	45.58

The total grant date fair value of shares vested during the three and nine months ended September 30, 2015, was $0.0 million and $5.1 million, respectively. The total grant date fair value of shares vested during the three and nine months ended September 30, 2014, was $0.0 million and $5.7 million, respectively.

At September 30, 2015, total future compensation expenses, assuming the current estimated performance levels are achieved, related to nonvested share awards granted under the LTI program are estimated to be approximately $9.8 million. The Company assumed a 7.5% forfeiture rate for these grants and the remaining shares have a weighted average life of 1.1 years at September 30, 2015.


8.	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.

For tax purposes, the Company utilizes the cost recovery method of accounting for its finance receivables. Under the cost recovery method, collections on finance receivables are applied first to principal to reduce the finance receivables to zero before taxable income is recognized. The Internal Revenue Service ("IRS") examined the Company's 2005 through 2012 tax returns and has asserted that tax revenue recognition using the cost recovery method does not clearly reflect taxable income. The Company believes it has sufficient support for the technical merits of its position, and believes cost recovery to be an acceptable tax revenue recognition method for the Company's industry. The IRS has issued Notices of Deficiency to the Company for tax years ended December 31, 2005 through 2012. The proposed deficiencies relate to the cost recovery method of tax accounting. In response to the notices, the Company filed petitions in the United States Tax Court (the "Tax Court"). On July 10, 2015 and July 21, 2015, the IRS filed motions for summary judgment for tax years 2008 through 2012 and 2005 through 2007, respectively. On October 30, 2015, the U.S. Tax Court held oral arguments on the IRS Motion for Summary Judgment. The court deferred issuing a ruling from the bench and indicated it would expect to issue an Order within two weeks regarding its disposition on all pending motions. The court also set this matter for trial, to begin on September 19, 2016, for an anticipated ten days in the event the court denies the IRS Motion for Summary Judgment. If the Tax Court judge grants the motions for summary judgment in favor of the IRS, the Company can appeal to the federal Court of Appeals. See Note 10 “Commitments and Contingencies” for more information.

At September 30, 2015, the tax years subject to examination by the major federal, state or international taxing jurisdictions are 2003, 2005 and subsequent years. The 2003 tax year remains open to examination because of a net operating loss that originated in that year but was not fully utilized until the 2005 tax year. The examination periods for the 2005 through 2012 tax years are suspended until a decision of the Tax Court becomes final.

ASC 740 requires the recognition of interest if the tax law would require interest to be paid on the underpayment of taxes, and recognition of penalties if a tax position does not meet the minimum statutory threshold to avoid payment of penalties. The Company believes it has sufficient support for the technical merits of its position and that it is more likely than not this position will be sustained. Accordingly, the Company has not accrued for interest or penalties on any of its tax positions, including the cost recovery matter.

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


9.	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 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, which did not occur during the period from which the Notes were issued on August 13, 2013 through September 30, 2015. Share-based awards that are contingent upon the attainment of performance goals are not included in the computation of diluted EPS until the performance goals have been attained. 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. The assumed proceeds include the windfall tax benefit that would be realized upon assumed exercise.

The following tables reconcile the computation of basic EPS and diluted EPS for the three and nine months ended September 30, 2015 and 2014 (amounts in thousands, except per share amounts):



	For the Three Months Ended September 30,
	2015						2014
	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	$	17,396	48,265	$	0.36		$	51,167	50,075	$	1.02
Dilutive effect of nonvested share awards			233	—					364	(0.01		)
Diluted EPS	$	17,396	48,498	$	0.36		$	51,167	50,439	$	1.01

	For the Nine Months Ended September 30,
	2015						2014
	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	$	126,956	48,438	$	2.62		$	129,514	50,023	$	2.59
Dilutive effect of nonvested share awards			255	(0.01		)			390	(0.02		)
Diluted EPS	$	126,956	48,693	$	2.61		$	129,514	50,413	$	2.57

There were no antidilutive options outstanding for the three or nine months ended September 30, 2015 and 2014.


10.	Commitments and Contingencies:

Employment Agreements:

The Company has employment agreements, most of which expire on December 31, 2017, 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 bonuses that are based on the attainment of specific management goals. At September 30, 2015, the estimated future compensation under these agreements is approximately $21.3 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 $21.3 million total above.

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Leases:

The Company is party to various operating leases with respect to its facilities and equipment. The future minimum lease payments at September 30, 2015 total approximately $34.8 million.

Forward Flow Agreements:

The Company is party to several 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, 2015 is approximately $427.3 million.

Contingent Purchase Price:

The asset purchase agreement entered into in connection with the acquisition of certain finance receivables and certain operating assets of National Capital Management, LLC ("NCM") in 2012, includes an earn-out provision whereby the sellers are able to earn additional cash consideration for achieving certain cash collection thresholds over a five year period. The maximum amount of earn-out during the period is $15.0 million. During 2014 and 2013, the Company paid the first two earn-out payments in the amount of $2.8 million and $6.2 million, respectively. As of September 30, 2015, the Company has recorded a present value amount for the expected remaining liability of $3.5 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 and 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 evaluates and responds appropriately to such requests.

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.

Subject to the inherent uncertainties involved in such proceedings, the Company believes, based upon its current knowledge and after consultation with counsel, that the legal proceedings currently pending against it, including those that fall outside of the Company's routine legal proceedings, should not, either individually or in the aggregate, have a material adverse impact on the Company's financial condition. However, it is possible, in light of the uncertainties involved in such proceedings or due to unexpected future developments, that an unfavorable resolution of a legal or regulatory proceeding or claim could occur which may be material to the Company's financial condition, results of operations, or cash flows for a particular period.

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

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

legal proceedings are exclusive of potential recoveries, if any, under the Company's insurance policies or third party indemnities. The Company has not recorded any potential recoveries 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.

Telephone Consumer Protection Act Litigation

The Company has been named as defendant in a number of putative class action cases, each alleging that the Company violated the Telephone Consumer Protection Act ("TCPA") by calling consumers' cellular telephones without their prior express consent. On December 21, 2011, the United States Judicial Panel on Multi-District Litigation entered an order transferring these matters into one consolidated proceeding in the United States District Court for the Southern District of California (the "Court"). On November 14, 2012, the putative class plaintiffs filed their amended consolidated complaint in the matter, now styled as In re Portfolio Recovery Associates, LLC Telephone Consumer Protection Act Litigation, case No. 11-md-02295 (the “MDL action”). Following the ruling of the United States Federal Communications Commission on June 10, 2015 on various petitions concerning the TCPA, the Court lifted the stay of these matters that had been in place since May 20, 2014.

Internal Revenue Service Audit

The IRS examined the Company's 2005 through 2012 tax returns and has asserted that tax revenue recognition using the cost recovery method does not clearly reflect taxable income. The Company believes it has sufficient support for the technical merits of its position, and believes cost recovery to be an acceptable tax revenue recognition method for the Company's industry. The Company has received Notices of Deficiency for tax years ended December 31, 2005 through 2012. The proposed deficiencies relate to the cost recovery method of tax accounting for finance receivables. In response to the notices, the Company filed petitions in the Tax Court challenging the deficiency. On July 10, 2015 and July 21, 2015, the IRS filed motions for summary judgment for tax years 2008 through 2012 and 2005 through 2007, respectively. On October 30, 2015, the U.S. Tax Court held oral arguments on the IRS Motion for Summary Judgment. The court deferred issuing a ruling from the bench and indicated it would expect to issue an Order within two weeks regarding its disposition on all pending motions. The court also set this matter for trial, to begin on September 19, 2016, for an anticipated ten days in the event the court denies the IRS Motion for Summary Judgment. If the Tax Court judge grants the motions for summary judgment in favor of the IRS, the Company can appeal to the federal Court of Appeals. If the Company is unsuccessful in Tax Court and any potential appeals to the federal Court of Appeals, it may ultimately be required to pay the related deferred taxes, and possibly interest and penalties. Deferred tax liabilities related to this item were $246.9 million at September 30, 2015. Any adverse determination on this matter could result in the Company amending state tax returns for prior years, increasing its taxable income in those states. The Company files tax returns in multiple state jurisdictions; therefore, any underpayment of state tax will accrue interest in accordance with the respective state statute. The Company’s estimate of the potential federal and state interest is $91.1 million as of September 30, 2015, which has not been accrued.

Consumer Financial Protection Bureau Investigation

On September 9, 2015, Portfolio Recovery Associates, LLC, a wholly owned subsidiary of the Company, entered into a Consent Order with the Consumer Financial Protection Bureau (the “CFPB”), settling a previously disclosed investigation of certain debt collection practices of the subsidiary (the "Consent Order").

Among other things, the Consent Order requires the Company to: (i) vacate 837 judgments obtained after the applicable statute of limitations, refund $860,607 in payments received on account of such judgments and waive the remaining $3,411,094 of judgment balances; (ii) refund $18,184,836 in Litigation Department Calls Restitution, as defined in the Consent Order, and (iii) pay an $8,000,000 civil money penalty to the CFPB.

The civil monetary penalty was paid during the three month period ended September 30, 2015, and was recorded in Other operating expenses. The refunds and the Litigation Department Calls Restitution are expected to be paid during future periods, following a process outlined in the Consent Order. Accordingly, the aforementioned refunds and restitution payments were accrued at September 30, 2015, and were included in Other operating expenses for the three months ended September 30, 2015. In addition, the Company has restricted cash of $19.0 million recorded in Other assets on its balance sheet for the purpose of paying the refunds and restitution.

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Portfolio Recovery Associates, LLC v. Guadalupe Mejia

On May 11, 2015, an unfavorable jury verdict was delivered against the Company in a matter pending in Jackson County, Missouri. The jury awarded Guadalupe Mejia $251,000 in compensatory damages and $82,009,549 in punitive damages (altogether, the “Award”) for her counter-claim against the Company, alleging malicious prosecution and impermissible collection practices. The Company believes the verdict and magnitude of the Award to be erroneous and has filed a motion to set aside the Award. Unless reduced or overturned, the Award will likely have a material adverse effect on the Company's financial condition and/or operations.


11.	Fair Value Measurements and Disclosures:

As defined by FASB 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 also 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 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 FASB ASC Topic 825, “Financial Instruments” (“ASC 825”), the table below summarizes fair value estimates for the Company’s financial instruments 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, 2015 and December 31, 2014 (amounts in thousands):



	September 30, 2015				December 31, 2014
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	69,111	$	69,111	$	39,661	$	39,661
Held-to-maturity investments	53,500		59,322		31,017		31,017
Other investments	15,435		16,315		17,560		19,776
Finance receivables, net	2,167,178		2,610,106		2,001,790		2,460,787
Financial liabilities:
Interest-bearing deposits	46,277		46,277		27,704		27,704
Revolving lines of credit	1,046,753		1,046,753		836,680		836,680
Term loans	173,750		173,750		185,000		185,000
Notes and loans payable	169,938		169,938		199,938		199,938
Convertible notes	264,016		298,931		260,838		324,757

Disclosure of the estimated fair values of financial instruments often requires the use of estimates. The Company uses the following methods and assumptions to estimate the fair value of the financial instruments in the above table:

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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.

Held-to-maturity investments: Fair value of the Company’s investment in Series B certificates of a closed-end Polish investment fund is estimated using proprietary pricing models that the Company utilizes to make portfolio purchase decisions. Accordingly, the Company estimates the fair value of its held-to-maturity investments using Level 3 inputs as there is little observable market data available and management is required to use significant judgment in its estimates.

Other investments: 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 can never 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 fair value of the Company’s interest is valued by the fund managers; accordingly, the Company estimates the fair value of these investments using Level 3 inputs. The investments are expected to be returned through distributions as a result of liquidations of the funds’ underlying assets over 1 to 4 years.

Finance receivables, net: The Company records purchased receivables at cost, which represents a significant discount from the contractual receivable balances due. 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 little 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.

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

Convertible notes: The Notes are carried at historical cost, adjusted for the debt discount. The fair value estimates for these Notes incorporates quoted market prices which were obtained from secondary market broker quotes which 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.

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, 2015 and December 31, 2014 (amounts in thousands):



	Fair Value Measurements as of September 30, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale investments	$	—	$	—	$	7,050	$	7,050
Liabilities:
Interest rate swap contracts (recorded in accrued expenses)	—		2,059		—		2,059

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



	Fair Value Measurements as of December 31, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Trading investments	$	37,405	$	—	$	—	$	37,405
Available-for-sale investments	—		—		3,721		3,721
Liabilities:
Interest rate swap contracts (recorded in accrued expenses)	—		3,387		—		3,387

Trading investments: Fair value of the Company’s investments in money market mutual funds is reported using the closing price of the fund’s net asset value in an active market. Accordingly, the Company uses Level 1 inputs.

Available-for-sale investments: Fair value of the Company’s investment in Series C certificates of a closed-end Polish investment fund is estimated using proprietary pricing models that the Company utilizes to make portfolio purchase decisions. Accordingly, the Company estimates the fair value of its available-for-sale investments using Level 3 inputs as there is little observable market data available and management is required to use significant judgment in its estimates.

Interest rate swap contracts: The interest rate swap contracts are carried at fair value which is determined by 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.


12.	Recent Accounting Pronouncements:

In April 2014, FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" (“ASU 2014-08”) that amends the requirements for reporting discontinued operations. ASU 2014-08 requires the disposal of a component of an entity or a group of components of an entity to be reported in discontinued operations if the disposal represents a strategic shift that will have a major effect on the entity’s operations and financial results. ASU 2014-08 also requires additional disclosures about discontinued operations and disclosures about the disposal of a significant component of an entity that does not qualify as a discontinued operation. ASU 2014-08 is effective prospectively for reporting periods beginning after December 15, 2014, with early adoption permitted. The Company adopted ASU 2014-08 in the first quarter of 2015 which had no material impact on the Company's Consolidated Financial Statements.

In May 2014, FASB issued ASU 2014-09, "Revenue from Contracts with Customers" (“ASU 2014-09”) that updates the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also amends the required disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption, with early application not permitted. The Company is evaluating its implementation approach and the potential impacts of the new standard on its existing revenue recognition policies and procedures.

In June 2014, FASB issued ASU 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period" (“ASU 2014-12”). ASU 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. The adoption of the new guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

In February 2015, FASB issued ASU 2015-02, "Consolidation (Topic 810), Amendments to the Consolidation Analysis" ("ASU 2015-02"). The amendments under the new guidance modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities and eliminate the presumption that a general partner should consolidate a limited partnership. ASU 2015-02 is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in

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PRA GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

an interim period. A reporting entity also may apply the amendments retrospectively. The adoption of the new guidance is not expected to have a material impact on the Company's Consolidated Financial Statements.

In April 2015, FASB issued ASU 2015-03, “Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” ("ASU 2015-03"). ASU 2015-03 requires an entity to present debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. For public business entities, this update is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. An entity should apply the new guidance on a retrospective basis. The Company has debt issuance costs which will be reclassified upon adoption of the guidance, but it is not expected to have a material impact on the Company's Consolidated Financial Statements.

In April 2015, FASB issued ASU 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement” ("ASU 2015-05"). ASU 2015-05 provides explicit guidance to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting for other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. For public business entities, this update is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. An entity can elect to adopt the new guidance either prospectively for all arrangements entered into or materially modified after the effective date, or on a retrospective basis. The Company is currently evaluating the impact of adopting this guidance on its financial position and results of operations.


13.	Proforma Financial Information:

Aktiv Results

The Company's results for the third quarter and first nine months of 2014 include the operations of Aktiv from the acquisition date of July 16, 2014 through September 30, 2014.

The table below presents the estimated impact of the Aktiv acquisition on our revenue and income from continuing operations, net of tax for the three and nine months ended September 30, 2014. These amounts include certain corporate expenses, transaction costs or merger related expenses that resulted from the acquisition and are therefore not representative of the actual results of the operations of these businesses on a stand-alone basis.

Included in the combined pro forma results are adjustments to reflect the impact of certain purchase accounting adjustments, including adjustments to Income recognized on finance receivables, net, Outside fees and services, Depreciation and amortization, and Interest expense.

The pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the actual combined financial results had the closing of the Aktiv acquisition been completed on January 1, 2014 nor does it reflect the benefits obtained through the integration of business operations realized since acquisition. Furthermore, the information is not indicative of the results of operations in future periods. The pro forma condensed combined financial information does not reflect the impact of possible business model changes nor does it consider any potential impacts of market conditions, expense efficiencies or other factors.



	Aktiv Impact		2014 Combined Pro Forma Results
	From July 16, 2014 through September 30, 2014		Three months ended September 30,		Nine months ended September 30,
(amounts in thousands)	From July 16, 2014 through September 30, 2014		2014		2014
Revenue	$	47,605	$	250,407	$	769,503
Net Income attributable to PRA Group, Inc.	17,085		49,377		172,956

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

Forward-Looking Statements:

This report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks, uncertainties and assumptions that, if they never materialize or prove incorrect, 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 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 North America 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 purchase nonperforming loans at appropriate prices;


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


•	our ability to obtain accurate and authentic account documents relating to accounts that we acquire and the possibility that documents that we provide could contain errors;


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


•	our ability to successfully acquire receivables of new asset types;


•	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;


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


•	our ability to collect and enforce our finance receivables may be limited under federal and state laws;


•	our ability to employ and retain qualified employees, especially collection personnel, and our senior management team;


•	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;


•	our ability to adjust to debt collection and debt-buying regulations that may be promulgated by the Consumer Financial Protection Bureau ("CFPB") and the regulatory and enforcement activities of the CFPB;


•	our ability to satisfy the restrictive covenants in our debt agreements;


•	changes in governmental laws and regulations or the manner in which they are interpreted or applied which could increase our costs and liabilities or impact our operations;


•	adverse outcomes in pending litigations;


•	investigations or enforcement actions by governmental authorities, 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;


•	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, as could our failure to comply with hedge accounting principles and interpretations;


•	our ability to obtain adequate insurance coverage at reasonable prices;


•	our ability to manage growth successfully or to integrate our growth strategy;


•	the possibility that we could incur business to technology disruptions or cyber incidents or not adapt to technological advances;


•	our ability to manage risks associated with our international operations, which risks have increased as a result of the Aktiv Kapital AS ("Aktiv") acquisition;


•	our ability to integrate the Aktiv business;


•	our ability to recognize the anticipated synergies and benefits of the Aktiv acquisition;


•	changes in tax laws regarding earnings of our subsidiaries located outside of the United States;


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


•	net capital requirements pursuant to the European Union Capital Requirements Directive, which could impede the business operations of our subsidiaries;


•	the incurrence of significant transaction, integration, and restructuring costs in connection with the Aktiv acquisition;


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


•	our ability to retain existing clients and obtain new clients for our fee-for-service businesses;

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•	our work force could become unionized in the future, which could adversely affect the stability of our production and increase our costs;


•	our ability to maintain, renegotiate or replace our credit facility;


•	the possibility that the accounting for convertible debt securities could have an adverse effect on our financial results;


•	the possibility that conversion of the convertible senior notes could affect the price of our common stock;


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


•	the imposition of additional taxes on us;


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


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


•	class action suits and other litigation could divert our management’s attention and increase our expenses;


•	the degree, nature, and resources of our competition;


•	the possibility that new business acquisitions prove unsuccessful or strain or divert our resources;


•	the possibility that we or our industry could experience negative publicity or reputational attacks;


•	the possibility that a sudden collapse of one of the financial institutions in which we are depositors could negatively affect our financial results;


•	efforts to establish and maintain effective internal controls, procedures, and disclosure controls related to Aktiv, which could require significant resources and divert management attention; and


•	the risk factors listed from time to time in our filings with the Securities and Exchange Commission (the “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.

For a discussion of the risks, uncertainties and assumptions that could affect our future events, developments or results, you should carefully review the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the "Risk Factors" contained in Part II, Item 1A of this Form 10-Q, as well as the discussion of “Business” and “Risk Factors” described in Part I, Item I and Item 1A of our 2014 Annual Report on Form 10-K, filed on March 2, 2015.

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 this 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 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, stockholders 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 document:


•	“Allowance charges” refers to a reduction in income recognized on finance receivables on pools of finance receivables whose cash collection estimates were below expectations or are projected to be below expectations.


•	“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 defaulted receivables 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.


•	“Fee income” refers to revenues generated from our fee-for-service businesses.


•	“Income recognized on finance receivables” refers to income derived from our owned finance receivables portfolios.


•	“Income recognized on finance receivables, net” refers to income derived from our owned finance receivables portfolios and is shown net of allowance charges/reversals.


•	“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 ("IVA's"), Trust Deeds in the U.K., Consumer Proposals in Canada and bankruptcy accounts in the U.S., Canada and the U.K.

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•	“Net finance receivable balance” is recorded on our balance sheet and refers to the purchase price less principal amortization and net allowance charges/reversals.


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


•	“Purchase price” refers to the cash paid to a seller to acquire defaulted finance receivables, plus certain capitalized costs, less buybacks.


•	“Purchase price multiple” refers to the total estimated collections on owned finance receivables portfolios divided by purchase price.


•	“Total estimated collections” refers to actual cash collections, including cash sales, plus estimated remaining collections on our finance receivables portfolios.

All references in this report on Form 10-Q to the "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 also service receivables on behalf of clients on either a commission or transaction-fee basis, provide class action claims settlement recovery services and related payment processing to corporate clients, and provide vehicle location, skip tracing and collateral recovery services for auto lenders, governments and law enforcement.

We are headquartered in Norfolk, Virginia, and employ approximately 3,715 full time equivalents. Our shares of common stock are traded on the NASDAQ Global Select Market under the symbol “PRAA.” Effective October 23, 2014, we changed our name from Portfolio Recovery Associates, Inc. to PRA Group, Inc.

On July 16, 2014, we completed the purchase of the outstanding equity of Aktiv, a Norway-based company specializing in the acquisition and servicing of nonperforming consumer loans throughout Europe and in Canada, for a purchase price of approximately $861.3 million, and assumed approximately $433.7 million of Aktiv’s corporate debt, resulting in an acquisition of estimated total enterprise value of $1.3 billion.

The Aktiv acquisition provided us entry into several new markets, resulting in additional geographic diversity in portfolio purchasing and collection. Aktiv's Chief Executive Officer, his executive team and the more than 400 Aktiv employees joined our workforce upon the closing of the transaction.

On August 3, 2015, we acquired 55% of the equity interest in RCB. The remaining 45% of the equity interest in RCB is owned by the founders and previous owners of RCB. RCB was founded in 2007 and is a leading master servicing platform for nonperforming loans in Brazil. RCB specializes in structuring, investing and operating receivable and credit-related assets. The founders of RCB each entered into long-term employment agreements with us and will continue to manage RCB's local business in Brazil.

Our investment for the 55% ownership of RCB was paid for with approximately $55.2 million in cash which was borrowed under our existing domestic revolving credit facility. The majority of cash we paid to acquire the equity interest in RCB is expected to be used in the ordinary course of business. As part of the investment and call option agreements, we have the right to purchase the remaining 45% of RCB at certain multiples of EBITDA beginning on August 3, 2019 and lasting for two years.

During the three months ended September 30, 2015, we incurred approximately $0.8 million of integration and other costs related to the Aktiv and RCB acquisitions. Additionally, as a result of expanding our international footprint into many countries with various currencies throughout Europe, we are subject to foreign currency fluctuations between and among the U.S. dollar and each of the other currencies in which we now operate. As a result, for the three months ended September 30, 2015, we recorded net foreign currency transaction losses of $3.2 million in our income statement.

Our industry is highly regulated under various laws. In the United States, they include the Fair Debt Collection Practices Act ("FDCPA"), Fair Credit Reporting Act ("FCRA"), Dodd-Frank Act, Telephone Consumer Protection Act and its prohibition against unfair, deceptive and abusive acts and practices (“UDAAP”) and other federal and state laws. Likewise, our business is regulated by various laws in the European countries and Canadian territories in which we operate. We are subject to inspections, examinations, supervision and investigation by regulators in the United Kingdom, in each U.S. state in which we are licensed, and also by the CFPB. If any such inspections or investigations result in findings or there is an adjudication that we have failed to comply with applicable laws and regulations, we could be subject to penalties, litigation losses and expenses, damage to our reputation, or the suspension or termination of or required modification to our ability to conduct collections, which would adversely affect our

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financial results and condition. The CFPB is currently looking into practices regarding the collection of consumer debt in our industry. The CFPB is also expected to adopt additional rules that will affect our industry, and has sought feedback on a wide range of debt collection issues. We believe that the Consent Order (as defined below) that was entered into with the CFPB will help set the standard by which such rules are adopted.

On August 4, 2014, the Office of the Comptroller of the Currency (“OCC”) issued risk guidance detailing the principles they expect financial institutions to follow in connection with the sale of consumer debt. We have not experienced a material impact to our debt purchasing business resulting from this guidance since it was published. We anticipate that the OCC will publish further clarification to this guidance, which may or may not result in a material impact.

Earnings Summary

During the three months ended September 30, 2015, net income attributable to PRA Group, Inc. was $17.4 million, or $0.36 per diluted share, compared with $51.2 million, or $1.01 per diluted share, in the three months ended September 30, 2014. Total revenue was $229.4 million in the three months ended September 30, 2015, down 4.0% from the three months ended September 30, 2014. Revenues in the three months ended September 30, 2015 consisted of $208.2 million in income recognized on finance receivables, net, $17.8 million in fee income and $3.4 million in other revenue. Income recognized on finance receivables, net, in the three months ended September 30, 2015 decreased $16.1 million, or 7.2%, over the three months ended September 30, 2014, primarily as a result of an increase in net allowance charges and an increase in our amortization rate. During the three months ended September 30, 2015, we incurred $11.3 million in net allowance charges, compared with $1.7 million of net allowance reversals in the three months ended September 30, 2014. Our finance receivables amortization rate, including net allowance charges/reversals, was 45.3% for the three months ended September 30, 2015 compared to 39.8% for the three months ended September 30, 2014. Our finance receivables amortization rate, excluding net allowance charges/reversals, was 42.3% for the three months ended September 30, 2015 compared to 40.3% for the three months ended September 30, 2014. Cash collections, which drive our finance receivable income, were $380.8 million in the three months ended September 30, 2015, up 2.1%, or $8.0 million, as compared to the three months ended September 30, 2014.

Fee income increased to $17.8 million during the three months ended September 30, 2015 from $12.8 million in the three months ended September 30, 2014, primarily due to higher fee income generated by Claims Compensation Bureau, LLC ("CCB"), PRA Location Services, LLC ("PLS"), and our government services subsidiaries. This was partially offset by a decrease in fee income generated in the three months ended September 30, 2015 by our foreign operations.

A summary of the sources of our revenue during the three months ended September 30, 2015 and 2014 is presented below:



	For the Three Months Ended September 30,
(amounts in thousands)	2015			2014
Cash collections	$	380,753		$	372,743
Amortization of finance receivables	(161,234		)	(150,115		)
Net allowance (charges)/reversals	(11,335		)	1,698
Income recognized on financial receivables, net	208,184			224,326
Fee income	17,803			12,757
Other revenue	3,443			1,890
Total revenues	$	229,430		$	238,973

Operating expenses were $175.3 million in the three months ended September 30, 2015, up 16.2%, or $24.5 million, as compared to the three months ended September 30, 2014, primarily due to $28.8 million in expenses incurred during the three months ended September 30, 2015 relating to the Consent Order entered into with the CFPB.

During the three months ended September 30, 2015 and 2014, we acquired nonperforming loans portfolios at a cost of $344.6 million and $891.4 million, respectively. The 2014 amount includes the portfolios acquired in the Aktiv acquisition. In any period, we acquire nonperforming loans that can vary dramatically in their age, type and ultimate collectability. We may pay significantly different purchase rates for purchased receivables within any period as a result of this relative quality fluctuation. In addition, market forces can drive pricing rates up or down in any period, irrespective of other relative quality fluctuations. As a result, the average purchase rate paid for any given period can fluctuate dramatically based on our particular buying activity in that period. However, regardless of the average purchase price and for similar time frames, we intend to target a similar internal rate of return, after direct expenses, in pricing our portfolio acquisitions during any quarter; therefore, the absolute rate paid is not necessarily relevant to the estimated profitability of a period's buying.

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Results of Operations

The results of operations include the financial results of the Company and all of our subsidiaries. The following table sets forth certain operating data as a percentage of total revenues for the periods indicated:



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2015		2014		2015		2014
Revenues:
Income recognized on finance receivables, net	90.7	%	93.9	%	92.2	%	92.8	%
Fee income	7.8	%	5.3	%	6.3	%	6.8	%
Other revenue	1.5	%	0.8	%	1.5	%	0.4	%
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%
Operating expenses:
Compensation and employee services	28.8	%	27.3	%	28.1	%	26.8	%
Legal collection fees	6.0	%	5.8	%	5.8	%	5.7	%
Legal collection costs	8.2	%	8.5	%	8.3	%	11.5	%
Agent fees	3.5	%	2.5	%	3.4	%	1.4	%
Outside fees and services	5.5	%	7.2	%	5.3	%	6.4	%
Communication	3.5	%	3.6	%	3.7	%	4.0	%
Rent and occupancy	1.6	%	1.4	%	1.5	%	1.3	%
Depreciation and amortization	2.4	%	2.1	%	2.1	%	2.1	%
Other operating expenses	17.0	%	4.7	%	8.2	%	4.0	%
Total operating expenses	76.5	%	63.1	%	66.4	%	63.2	%
Income from operations	23.5	%	36.9	%	33.6	%	36.8	%
Other income and expense:
Interest expense	7.3	%	4.9	%	6.3	%	3.4	%
Net foreign currency transaction gain/(loss)	(1.4	)%	1.4	%	1.0	%	(0.5	)%
Income before income taxes	14.8	%	33.4	%	28.3	%	32.9	%
Provision for income taxes	7.2	%	11.9	%	10.4	%	12.4	%
Net income	7.6	%	21.5	%	17.9	%	20.5	%
Adjustment for net income attributable to noncontrolling interest	0.1	%	—	%	—	%	—	%
Net income attributable to PRA Group, Inc.	7.5	%	21.5	%	17.9	%	20.5	%

Three Months Ended September 30, 2015 Compared To Three Months Ended September 30, 2014

Revenues

Total revenues were $229.4 million for the three months ended September 30, 2015, a decrease of $9.6 million, or 4.0%, compared to total revenues of $239.0 million for the three months ended September 30, 2014.

Income Recognized on Finance Receivables, net

Income recognized on finance receivables, net was $208.2 million for the three months ended September 30, 2015, a decrease of $16.1 million, or 7.2%, compared to income recognized on finance receivables, net, of $224.3 million for the three months ended September 30, 2014. The decrease was primarily the result of an increase in net allowance charges and an increase in our amortization rate. During the three months ended September 30, 2015, we incurred $11.3 million in net allowance charges, compared with $1.7 million of net allowance reversals in the three months ended September 30, 2014. Our finance receivables amortization rate, including net allowance charges/reversals, was 45.3% for the three months ended September 30, 2015 compared to 39.8% for the three months ended September 30, 2014. Our finance receivables amortization rate, excluding net allowance charges/reversals, was 42.3% for the three months ended September 30, 2015 compared to 40.3% for the three months ended September 30, 2014. Cash collections, which drive our finance receivable income, were $380.8 million in the three months ended September 30, 2015, up 2.2%, or $8.1 million, as compared to the three months ended September 30, 2014.

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Accretable yield represents the amount of income recognized on finance receivables the Company can expect to generate 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 to be earned by the Company based on its proprietary buying models. Net reclassifications from nonaccretable difference to accretable yield primarily result from the Company’s increase in its estimate of future cash flows. Increases in future cash flows may occur as portfolios age and actual cash collections exceed those originally expected. If those cash flows are determined to be incremental to the portfolio’s original forecast, future projections of cash flows are generally increased resulting in higher expected revenue and hence increases in accretable yield. During the three months ended September 30, 2015 and 2014, the Company reclassified $139.9 million and $84.1 million, respectively, from nonaccretable difference to accretable yield primarily due to increased cash collection forecasts relating to pools acquired from 2007-2014. When applicable, net reclassifications to nonaccretable difference from accretable yield result from the Company’s decrease in its estimates of future cash flows and allowance charges that exceed the Company’s increase in its estimate of future cash flows.

For the three months ended September 30, 2014, we recorded net allowance reversals of $1.7 million. On our domestic Core portfolios, we recorded allowance reversals of $4.4 million on portfolios purchased between 2005 and 2008, offset by allowance charges of $2.2 million on portfolios purchased in 2010 and 2011. On our Insolvency portfolios, we recorded net allowance reversals of $0.1 million on our domestic portfolios offset by an allowance charge of $0.6 million on Canadian portfolios purchased in 2014. No allowance charges or reversals were recorded during the period on the portfolios acquired from Aktiv.

In any given period, we may be required to record valuation allowances due to pools of receivables underperforming our previous expectations. Factors that may contribute to the recording of valuation allowances may include both internal as well as external factors. External factors which may have an impact on the collectability, and subsequently to the overall profitability, of purchased pools of nonperforming loans include new laws or regulations relating to collections, new interpretations of existing laws or regulations, and the overall condition of the economy. Internal factors which may have an impact on the collectability, and subsequently the overall profitability, of purchased pools of nonperforming loans would include necessary revisions to initial and post-acquisition scoring and modeling estimates, operational activities (relating to the collection and movement of accounts on both our collection floor and external channels), and changes in productivity related to turnover and retention of our collection staff.

Fee Income

Fee income increased to $17.8 million in the three months ended September 30, 2015 from $12.8 million in the three months ended September 30, 2014, primarily due to higher fee income generated by CCB, PLS, and our government services subsidiaries. This was partially offset by a decrease in fee income generated in the three months ended September 30, 2015 by our foreign operations.

Other Revenue

Other revenue increased to $3.4 million in the three months ended September 30, 2015 from $1.9 million in the three months ended September 30, 2014, primarily due to an increase in revenue earned on our investments.

Operating Expenses

Operating expenses were $175.3 million for the three months ended September 30, 2015, an increase of $24.5 million or 16.2% compared to operating expenses of $150.8 million for the three months ended September 30, 2014. This increase was primarily due to $28.8 million in expenses incurred during the three months ended September 30, 2015 relating to the Consent Order entered into with the CFPB. Operating expenses were 44.0% of cash receipts for the three months ended September 30, 2015 compared to 39.1% for the three months ended September 30, 2014.

Compensation and Employee Services

Compensation and employee services expenses were $66.1 million for the three months ended September 30, 2015, an increase of $0.9 million, or 1.3%, compared to compensation and employee services expenses of $65.2 million for the three months

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ended September 30, 2014. Total full-time equivalents decreased 5.9% to 3,715 as of September 30, 2015, from 3,913 as of September 30, 2014. Compensation and employee services expenses as a percentage of cash receipts decreased to 16.6% for the three months ended September 30, 2015, from 16.9% of cash receipts for the three months ended September 30, 2014.

Legal Collection Fees

Legal collection fees represent contingent fees incurred for the cash collections generated by our independent third party collection attorneys. Legal collection fees were $13.7 million for the three months ended September 30, 2015, compared to legal collection fees of $13.8 million for the three months ended September 30, 2014. Legal collection fees were 3.4% of cash receipts for the three months ended September 30, 2015 compared to 3.6% of cash receipts for the three months ended September 30, 2014.

Legal Collection Costs

Legal collection costs consist of costs paid to courts where a lawsuit is filed and the cost of documents received from sellers of nonperforming loans. Legal collection costs were $18.9 million for the three months ended September 30, 2015, a decrease of $1.5 million, or 7.4%, compared to legal collection costs of $20.4 million for the three months ended September 30, 2014. Prior to 2015, we expanded the number of accounts brought into the legal collection process resulting in increased legal collections costs. This expansion has subsided over the last several quarters which led to the current decrease. Legal collection costs for the three months ended September 30, 2015 were 4.7% of cash receipts, compared to 5.3% for the three months ended September 30, 2014.

Agent Fees

Agent fees primarily represent third party collection fees and costs paid to repossession agents to repossess vehicles. Agent fees were $8.0 million for the three months ended September 30, 2015, compared to $6.0 million for the three months ended September 30, 2014. This increase was mainly attributable to the third party collection fees incurred by our European operations incurred as a result of an increase in cash collections.

Outside Fees and Services

Outside fees and services expenses were $12.6 million for the three months ended September 30, 2015, a decrease of $4.6 million, or 26.7%, compared to outside fees and services expenses of $17.2 million for the three months ended September 30, 2014. The decrease was mainly attributable to an incremental decrease of $5.8 million of transaction and integration costs incurred in the three months ended September 30, 2015 related to the Aktiv acquisition as compared to the three months ended September 30, 2014.

Communication

Communication expenses were $8.0 million for the three months ended September 30, 2015, compared to communication expenses of $8.6 million for the three months ended September 30, 2014.

Rent and Occupancy

Rent and occupancy expenses were $3.7 million for the three months ended September 30, 2015, an increase of $0.4 million, or 12.1%, compared to rent and occupancy expenses of $3.3 million for the three months ended September 30, 2014. The increase was primarily due to additional rental expenses incurred as a result of the expansion of our headquarters in Norfolk, Virginia.

Depreciation and Amortization

Depreciation and amortization expenses were $5.4 million for the three months ended September 30, 2015, an increase of $0.5 million, or 10.2%, compared to depreciation and amortization expenses of $4.9 million for the three months ended September 30, 2014. The increase was primarily due to the depreciation and amortization expense incurred by our Brazilian operations.

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Other Operating Expenses

Other operating expenses were $39.0 million for the three months ended September 30, 2015, an increase of $27.7 million, or 245.1%, compared to other operating expenses of $11.3 million for the three months ended September 30, 2014. The increase was primarily due to $28.8 million in expenses incurred during the three months ended September 30, 2015 relating to the Consent Order entered into with the CFPB.

Interest Expense

Interest expense was $16.8 million during the three months ended September 30, 2015, an increase of $5.0 million or 42.4%, compared to $11.8 million for the three months ended September 30, 2015 and 2014, respectively. The increase was primarily due to the additional financing needed to purchase a controlling equity interest in RCB as well as the purchase of $240.4 million in European Core portfolios during the three months ended September 30, 2015.

Net Foreign Currency Transaction Gain/(Loss)

Net foreign currency transaction losses were $3.2 million for the three months ended September 30, 2015 compared to a net foreign currency transaction gain of $3.3 million for the three months ended September 30, 2014. In any given period, our foreign entities conduct operations in currencies different from their functional currency which generate foreign currency transaction gains and losses.

Provision for Income Taxes

Provision for income taxes was $16.6 million for the three months ended September 30, 2015, a decrease of $11.9 million, or 41.8%, compared to provision for income taxes of $28.5 million for the three months ended September 30, 2014. The decrease is primarily due to a 57.1% decrease in income before taxes for the three months ended September 30, 2015, compared to the three months ended September 30, 2014. During the three months ended September 30, 2015, our effective tax rate was 48.6%, compared to 35.8% for the three months ended September 30, 2014. The increase was due primarily to the non-tax deductible payments made pursuant to the Consent Order entered into with the CFPB and the 2014 tax provision to tax return adjustments.

We intend for predominantly all foreign earnings to be permanently reinvested in our foreign operations. If foreign earnings were repatriated, we would need to accrue and pay taxes; however, foreign tax credits would be available to partially reduce U.S. income taxes. The amount of cash on hand related to foreign operations with permanently reinvested earnings was $48.4 million and $34.5 million as of September 30, 2015 and 2014, respectively.

Nine Months Ended September 30, 2015 Compared To Nine Months Ended September 30, 2014

The revenues and expenses for the nine months ended September 30, 2015 include the results of Aktiv for the full nine months ended September 30, 2015. The comparable prior year period ended September 30, 2014 includes the results of Aktiv from the acquisition date of July 16, 2014 through September 30, 2014.

Revenues

Total revenues were $711.8 million for the nine months ended September 30, 2015, an increase of $81.6 million, or 12.9%, compared to total revenues of $630.2 million for the nine months ended September 30, 2014.

Income Recognized on Finance Receivables, net

Income recognized on finance receivables, net was $656.7 million for the nine months ended September 30, 2015, an increase of $71.9 million, or 12.3%, compared to income recognized on finance receivables, net, of $584.8 million for the nine months ended September 30, 2014. The increase was primarily due to an increase in cash collections on our finance receivables to $1,170.1 million for the nine months ended September 30, 2015, from $1,005.4 million for the nine months ended September 30, 2014, an increase of $164.7 million, or 16.4%. This increase was largely due to the inclusion of Aktiv's cash collections for the full nine months ended September 30, 2015 as compared to the prior year period from July 16, 2014 to September 30, 2014. This was offset by an $85.0 million, or 23.9% decrease in cash collections on our Americas-Insolvency portfolios. Our finance receivables amortization rate, including net allowance charges, was 43.9% for the nine months ended September 30, 2015 compared to 41.8% for the nine months ended September 30, 2014.

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Accretable yield represents the amount of income recognized on finance receivables the Company can expect to generate 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 to be earned by the Company based on its proprietary buying models. Net reclassifications from nonaccretable difference to accretable yield primarily result from the Company’s increase in its estimate of future cash flows. Increases in future cash flows may occur as portfolios age and actual cash collections exceed those originally expected. If those cash flows are determined to be incremental to the portfolio’s original forecast, future projections of cash flows are generally increased resulting in higher expected revenue and hence increases in accretable yield. During the nine months ended September 30, 2015 and 2014, the Company reclassified $308.9 million and $290.4 million, respectively, from nonaccretable difference to accretable yield due primarily to increased cash collection forecasts relating to pools acquired from 2007-2014. When applicable, net reclassifications to nonaccretable difference from accretable yield result from the Company’s decrease in its estimates of future cash flows and allowance charges that exceed the Company’s increase in its estimate of future cash flows.

Income recognized on finance receivables, net, is shown net of changes in valuation allowances which 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 nine months ended September 30, 2015, we recorded net allowance charges of $17.9 million. On our domestic Core portfolios, we recorded net allowance reversals of $0.8 million on portfolios purchased between 2006 and 2008, offset by allowance charges of $15.7 million on portfolios purchased between 2010 and 2013. On our Insolvency portfolios, we recorded net allowance reversals of $0.2 million on our domestic portfolios. We also recorded an allowance charge of $3.2 million on our UK portfolios. No allowance charges or reversals were recorded on any of our other foreign portfolios. For the nine months ended September 30, 2014, we recorded net allowance reversals of $5.9 million. On our domestic Core portfolios, we recorded allowance reversals of $10.8 million on portfolios purchased between 2005 and 2008, offset by allowance charges of $4.0 million on portfolios purchased in 2010 and 2011. On our Insolvency portfolios, we recorded net allowance reversals of $0.7 million on our domestic portfolios primarily purchased in 2007 and 2008, offset by net allowance charges of $1.1 million on Canadian portfolios purchased in 2014. We also recorded a net allowance charge of $0.5 million on our UK portfolios purchased in 2012.

In any given period, we may be required to record valuation allowances due to pools of receivables underperforming our previous expectations. Factors that may contribute to the recording of valuation allowances may include both internal as well as external factors. External factors which may have an impact on the collectability, and subsequently to the overall profitability, of purchased pools of nonperforming loans include new laws or regulations relating to collections, new interpretations of existing laws or regulations, and the overall condition of the economy. Internal factors which may have an impact on the collectability, and subsequently the overall profitability, of purchased pools of nonperforming loans would include necessary revisions to initial and post-acquisition scoring and modeling estimates, non-optimal operational activities (relating to the collection and movement of accounts on both our collection floor and external channels), and decreases in productivity related to turnover of our collection staff.

Fee Income

Fee income increased to $44.7 million in the nine months ended September 30, 2015 from $42.9 million in the nine months ended September 30, 2014, primarily due to higher fee income generated by PLS and CCB. This was partially offset by a decrease in fee income generated by our government services subsidiaries and our foreign operations.

Other Revenue

Other revenue increased to $10.4 million in the nine months ended September 30, 2015 from $2.5 million in the nine months ended September 30, 2014, primarily due to an increase in revenue earned on our investments.

Operating Expenses

Operating expenses were $472.7 million for the nine months ended September 30, 2015, an increase of $74.7 million or 18.8% compared to operating expenses of $398.0 million for the nine months ended September 30, 2014. This increase was due primarily to the inclusion of Aktiv's expenses during the nine months ended September 30, 2015 as well as the $28.8 million in expenses incurred during the nine months ended September 30, 2015 relating to the Consent Order entered into with the CFPB. Operating expenses were 38.9% of cash receipts for the nine months ended September 30, 2015 compared to 38.0% for the nine months ended September 30, 2014.

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Compensation and Employee Services

Compensation and employee services expenses were $199.7 million for the nine months ended September 30, 2015, an increase of $30.6 million, or 18.1%, compared to compensation and employee services expenses of $169.1 million for the nine months ended September 30, 2014. Compensation expense increased primarily as a result of larger average staff sizes during the nine months ended September 30, 2015, mainly attributable to the acquisition of Aktiv, in addition to increases in incentive compensation and normal pay increases. Compensation and employee services expenses as a percentage of cash receipts increased to 16.4% for the nine months ended September 30, 2015, from 16.1% of cash receipts for the nine months ended September 30, 2014.

Legal Collection Fees

Legal collection fees represent contingent fees incurred for the cash collections generated by our independent third party collection attorneys. Legal collection fees were $41.5 million for the nine months ended September 30, 2015, an increase of $5.5 million, or 15.3%, compared to legal collection fees of $36.0 million for the nine months ended September 30, 2014. This increase was mainly attributable to legal collection fees incurred by our European operations. Legal collection fees as a percentage of cash receipts were 3.4% for both the nine months ended September 30, 2015 and 2014.

Legal Collection Costs

Legal collection costs consist of costs paid to courts where a lawsuit is filed and the cost of documents received from sellers of nonperforming loans. Legal collection costs were $59.3 million for the nine months ended September 30, 2015, a decrease of $13.0 million, or 18.0%, compared to legal collection costs of $72.3 million for the nine months ended September 30, 2014. Prior to 2015, we expanded the number of accounts brought into the legal collection process resulting in increased legal collections costs. This expansion has subsided over the last several quarters which led to the current decrease. Legal collection costs for the nine months ended September 30, 2015 were 4.9% of cash receipts, compared to 6.9% for the nine months ended September 30, 2014.

Agent Fees

Agent fees primarily represent third party collection fees and costs paid to repossession agents to repossess vehicles. Agent fees were $24.0 million for the nine months ended September 30, 2015, compared to $8.9 million for the nine months ended September 30, 2014. This increase was mainly attributable to the third party collection fees incurred by our European operations.

Outside Fees and Services

Outside fees and services expenses were $37.8 million for the nine months ended September 30, 2015, a decrease of $2.3 million, or 5.7%, compared to outside fees and services expenses of $40.1 million for the nine months ended September 30, 2014. The decrease was mainly attributable to an incremental decrease of $11.0 million of transaction and integration costs incurred during the nine months ended September 30, 2015 related to the Aktiv acquisition as compared to the nine months ended September 30, 2014 partially offset by an increase in outside fees and services expenses incurred by our European operations for the full nine months ended September 30, 2015 as compared to the prior year period from July 16, 2014 to September 30, 2014.

Communication

Communication expenses were $26.5 million for the nine months ended September 30, 2015, an increase of $1.1 million, or 4.3%, compared to communication expenses of $25.4 million for the nine months ended September 30, 2014. The increase was largely due to expenses incurred by our European operations.

Rent and Occupancy

Rent and occupancy expenses were $10.7 million for the nine months ended September 30, 2015, an increase of $2.7 million, or 33.8%, compared to rent and occupancy expenses of $8.0 million for the nine months ended September 30, 2014. The increase was primarily due to the rent and occupancy expense incurred by our European operations.

Depreciation and Amortization

Depreciation and amortization expenses were $14.9 million for the nine months ended September 30, 2015, an increase of $1.8 million, or 13.7%, compared to depreciation and amortization expenses of $13.1 million for the nine months ended September 30, 2014. The increase was primarily due to the depreciation and amortization expense incurred by our European operations.

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Other Operating Expenses

Other operating expenses were $58.2 million for the nine months ended September 30, 2015, an increase of $33.1 million, or 131.9%, compared to other operating expenses of $25.1 million for the nine months ended September 30, 2014. The increase was primarily due to other operating expenses incurred by our European operations as well as the $28.8 million in expenses incurred during the nine months ended September 30, 2015 relating to the Consent Order entered into with the CFPB.

Interest Expense

Interest expense was $45.0 million and $21.7 million for the nine months ended September 30, 2015 and 2014, respectively. The increase was primarily due to the additional financing needed to facilitate the closing of the Aktiv and RCB acquisitions and the additional interest incurred on the Aktiv assumed debt and interest rate swap contracts.

Net Foreign Currency Transaction Gain/(Loss)

Net foreign currency transaction gains were $7.2 million for the nine months ended September 30, 2015 compared to a net foreign currency transaction losses of $2.9 million for the nine months ended September 30, 2014. In any given period, our foreign entities conduct operations in currencies different from their functional currency which generate foreign currency transaction gains and losses.

Provision for Income Taxes

Provision for income taxes was $74.2 million for the nine months ended September 30, 2015, a decrease of $3.8 million, or 4.9%, compared to provision for income taxes of $78.0 million for the nine months ended September 30, 2014. The decrease is due partly to a 3.0% decrease in income before taxes for the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. During the nine months ended September 30, 2015, our effective tax rate was 36.9%, compared to 37.6% for the nine months ended September 30, 2014. The decrease was due primarily to having proportionately more income during the nine months ended September 30, 2015 in foreign jurisdictions with lower tax rates than the U.S partially offset by the non-tax deductible payments made pursuant to the Consent Order entered into with the CFPB and the 2014 tax provision to tax return adjustments.

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Supplemental Performance Data

Finance Receivables Portfolio Performance:

The following tables show certain data related to our finance receivables portfolio. These tables describe the purchase price, actual cash collections and future estimates of cash collections, income recognized on finance receivables (gross and net of allowance charges/(reversals)), principal amortization, allowance charges/(reversals), net finance receivable balances, and the ratio of total estimated collections to purchase price (which we refer to as purchase price multiple) as well as the original purchase price multiple. Certain adjustments, as noted in the footnotes to these tables, have been made to reduce the impact of foreign currency fluctuations on purchase price multiples.

Further, these tables disclose our Americas and European Core portfolios and our Americas and European Insolvency portfolios. 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 accordingly to comply with bankruptcy/insolvency rules and procedures; however, for accounting purposes, these accounts remain in the related Core portfolio. Conversely, Insolvency accounts may be dismissed voluntarily or involuntarily subsequent to our purchase of the related 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 related 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, pricing disruptions 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 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 internal rates of return, net of expenses, 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 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.

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. We continue to make enhancements to our analytical abilities, with the intent to collect more cash at a lower cost. To the extent we can improve our collection operations by collecting additional cash from a discrete quantity and quality of accounts, and/or by collecting cash at a lower cost structure, we can positively impact profitability.

Revenue recognition under FASB ASC Topic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”) is driven by estimates of total 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 past due 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 continuously update ERC. These processes, along with the aforementioned operational enhancements, have tended to cause the ratio of ERC to purchase price for any given year of buying to gradually increase over time. As a result, our estimate of total collections has often increased as pools have aged. 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 say a pool that was just two years from purchase.

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.

Table of Contents



Purchase period	Purchase Price ⁽³⁾		Net Finance Receivables ⁽⁴⁾		ERC-Historical Exchange Rates ⁽⁵⁾		Total Estimated Collections ⁽⁶⁾		ERC-Current Period Exchange Rates ⁽⁷⁾		Current Purchase Price Multiple		Original Purchase Price Multiple ⁽²⁾
Americas-Core ($ in thousands)
1996-2004	$	254,735	$	—	$	8,913	$	1,111,936	$	8,913	437	%	300	%
2005	113,865		4,773		13,545		291,368		13,545		256	%	221	%
2006	90,039		5,142		11,426		197,177		11,426		219	%	225	%
2007	179,836		13,853		39,667		445,256		39,667		248	%	227	%
2008	166,518		14,786		35,988		377,515		35,988		227	%	220	%
2009	125,266		8,040		55,442		451,948		55,442		361	%	252	%
2010	148,363		16,612		85,825		524,435		85,825		353	%	247	%
2011	210,060		40,703		158,140		714,381		158,140		340	%	245	%
2012	254,937		94,025		255,825		710,330		255,825		279	%	226	%
2013	391,382		206,307		549,573		1,054,068		549,573		269	%	211	%
2014 ⁽¹⁾	420,793		288,821		620,742		915,610		613,072		218	%	204	%
YTD 2015	326,231		228,168		592,135		663,468		594,090		203	%	203	%
Subtotal	2,682,025		921,230		2,427,221		7,457,492		2,421,506

Americas-Insolvency ($ in thousands)
1996-2004	7,468		—		27		14,610		27		196	%	174	%
2005	29,301		24		178		43,978		178		150	%	142	%
2006	17,627		56		359		32,329		359		183	%	139	%
2007	78,524		206		1,213		106,454		1,213		136	%	150	%
2008	108,579		1,277		2,548		169,457		2,548		156	%	163	%
2009	156,016		—		12,543		476,152		12,543		305	%	214	%
2010	209,112		1,325		23,195		555,227		23,195		266	%	184	%
2011	181,282		20,225		46,153		355,887		46,153		196	%	155	%
2012	252,126		57,505		87,830		365,306		87,830		145	%	136	%
2013	228,183		92,142		127,090		325,170		127,090		143	%	133	%
2014	149,185		91,255		117,284		192,830		117,044		129	%	124	%
YTD 2015	44,759		44,585		55,917		56,962		55,917		127	%	127	%
Subtotal	1,462,162		308,600		474,337		2,694,362		474,097
Total Americas	4,144,187		1,229,830		2,901,558		10,151,854		2,895,603

Europe-Core ($ in thousands)
2012	21,859		240		1,415		30,956		1,320		142	%	187	%
2013	24,648		2,493		4,427		22,517		4,050		91	%	119	%
2014 ⁽¹⁾	798,805		578,633		1,522,255		1,926,917		1,380,300		241	%	208	%
YTD 2015	344,990		334,253		516,005		536,612		517,556		156	%	156	%
Subtotal	1,190,302		915,619		2,044,102		2,517,002		1,903,226

Europe-Insolvency ($ in thousands)
2014	11,627		8,372		12,815		16,221		11,999		140	%	129	%
YTD 2015	14,754		13,357		17,997		19,811		18,082		134	%	134	%
Subtotal	26,381		21,729		30,812		36,032		30,081
Total Europe ⁽³⁾	1,216,683		937,348		2,074,914		2,553,034		1,933,307
Total PRA Group	$	5,360,870	$	2,167,178	$	4,976,472	$	12,704,888	$	4,828,910

(1) The amount reflected in the purchase price column includes the acquisition date finance receivable portfolio that was acquired in connection with the Aktiv acquisition.

(2) The original purchase price multiple represents the initial full year purchase price multiple in the year of acquisition. For 2015, it represents the year-to-date purchase price multiple for 2015.

(3) For our international amounts, purchase price and any purchase adjustments are presented at the exchange rate at the end of the quarter in which the portfolio was purchased.

(4) For our international amounts, net finance receivables are presented at the September 30, 2015 exchange rate.

(5) For our international amounts, ERC-Historical Exchange Rates is presented at the period end exchange rate for the respective quarter of purchase.

(6) For our international amounts, total estimated collections is presented at the period end exchange rate for the respective quarter of purchase.

(7) For our international amounts, ERC-Current Period Exchange Rates is presented at the September 30, 2015 exchange rate.

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Below includes data for the nine months ended September 30, 2015 on our portfolios including cash collections, revenue, amortization, allowance charges/(reversals), net finance receivable revenue and net finance receivable balances on our consolidated balance sheet ($ in thousands):



Purchase period	Purchase Price ⁽²⁾		Cash Collections ⁽³⁾		Gross Revenue⁽³⁾		Amortization ⁽³⁾			Allowance⁽³⁾			Net Revenue ⁽³⁾		Net Finance Receivables ⁽⁴⁾
Americas-Core
1996-2004	$	254,735	$	7,503	$	7,503	$	—		$	—		$	7,503	$	—
2005	113,865		3,659		2,529		1,130			(25		)	2,554		4,773
2006	90,039		3,142		1,916		1,226			(150		)	2,066		5,142
2007	179,836		11,148		7,630		3,518			(200		)	7,830		13,853
2008	166,518		10,993		6,391		4,602			(450		)	6,841		14,786
2009	125,266		19,776		15,328		4,448			—			15,328		8,040
2010	148,363		30,148		23,944		6,204			1,120			22,824		16,612
2011	210,060		58,388		48,028		10,360			3,575			44,453		40,703
2012	254,937		77,817		57,330		20,487			10,550			46,780		94,025
2013	391,382		155,032		104,072		50,960			450			103,622		206,307
2014 ⁽¹⁾	420,793		199,852		97,189		102,663			—			97,189		288,821
YTD 2015	326,231		71,475		38,858		32,617			—			38,858		228,168
Subtotal	2,682,025		648,933		410,718		238,215			14,870			395,848		921,230

Americas-Insolvency
1996-2004	7,468		18		18		—			—			18		—
2005	29,301		57		29		28			(15		)	44		24
2006	17,627		144		102		42			(40		)	142		56
2007	78,524		396		170		226			(50		)	220		206
2008	108,579		838		297		541			(100		)	397		1,277
2009	156,016		4,856		4,865		(9		)	—			4,865		—
2010	209,112		39,438		29,043		10,395			—			29,043		1,325
2011	181,282		59,570		35,793		23,777			—			35,793		20,225
2012	252,126		62,336		15,740		46,596			—			15,740		57,505
2013	228,183		62,957		20,401		42,556			—			20,401		92,142
2014	149,185		38,724		10,828		27,896			—			10,828		91,255
YTD 2015	44,759		1,038		864		174			—			864		44,585
Subtotal	1,462,162		270,372		118,150		152,222			(205		)	118,355		308,600
Total Americas	4,144,187		919,305		528,868		390,437			14,665			514,203		1,229,830

Europe-Core
2012	21,859		1,793		1,396		397			—			1,396		240
2013	24,648		3,961		2,837		1,124			1,634			1,203		2,493
2014 ⁽¹⁾	798,805		219,504		134,472		85,032			1,551			132,921		578,633
YTD 2015	344,990		20,855		6,214		14,641			—			6,214		334,253
Subtotal	1,190,302		246,113		144,919		101,194			3,185			141,734		915,619

Europe-Insolvency
2014	11,627		2,828		354		2,474			—			354		8,372
YTD 2015	14,754		1,878		360		1,518			—			360		13,357
Subtotal	26,381		4,706		714		3,992			—			714		21,729
Total Europe	1,216,683		250,819		145,633		105,186			3,185			142,448		937,348
Total PRA Group	$	5,360,870	$	1,170,124	$	674,501	$	495,623		$	17,850		$	656,651	$	2,167,178

(1) The amount reflected in the purchase price column includes the acquisition date finance receivable portfolio that was acquired in connection with the Aktiv acquisition.

(2) For our international 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.

(3) For our international amounts, amounts are presented using the average exchange rates during the current reporting period.

(4) For our international amounts, net finance receivables are presented at the September 30, 2015 exchange rate.

Table of Contents

The following graph shows the purchase price of our portfolios by year since 2005.

(1) Excludes the $27.9 million and $34.7 million investment in a securitized fund in Poland during the nine months ended September 30, 2015 and December 31, 2014, respectively.

(2) 2014 figures include the acquisition date finance receivable portfolio that was acquired in connection with the Aktiv acquisition.

We did not have any Europe-Insolvency purchases prior to 2014.

As shown in the above chart, the composition of our purchased portfolios shifted in favor of Insolvency accounts in 2009 and 2010, then returning to equilibrium with Core in 2011 and 2012. We began buying Insolvency accounts during 2004 and slowly increased the volume of accounts we acquired through 2006 as we tested our models, refined our processes and validated our operating assumptions. After observing a high level of modeling confidence in our early purchases, we began increasing our level of purchases more dramatically commencing in 2007. Between 2013 and the first nine months of 2015, Core purchases exceeded those of Insolvency accounts.

Our ability to profitably purchase and liquidate pools of Insolvency accounts provides diversity to our distressed asset acquisition business. Although we generally buy Insolvency portfolios from many of the same consumer lenders from whom we acquire Core customer portfolios, the volumes and pricing characteristics as well as the competitors are different. Based upon market dynamics, the profitability of portfolios purchased in the Insolvency and Core markets may differ over time. We have found periods when Insolvency accounts were more profitable and other times when Core accounts were more profitable. A primary driver of portfolio profitability is determined by the amount of purchase price relative to the expected returns of the acquired portfolios. When pricing becomes more competitive due to reduced portfolios available for purchase or increased demand from competitors entering or increasing their presence in the market, prices tend to go up, driving down the purchase price multiple and lowering the overall expected returns. When pricing relaxes due to market dynamics, purchase price multiples tend to increase, thereby increasing the overall expected returns.

In order to collect our Core portfolios, we generally need to employ relatively higher amounts of labor and incur additional collection costs to generate each dollar of cash collections as compared with Insolvency portfolios. In order to achieve acceptable levels of net return on investment (after direct expenses), we are generally targeting a total cash collections to purchase price multiple in the 2.0-3.0x range. On the other hand, Insolvency accounts generate the majority of their cash collections through the efforts of bankruptcy courts and trustees. In this process, cash is remitted to our Company with no corresponding cost other than the cost of filing claims at the time of purchase, court fees associated with the filing of ownership claim transfers and general administrative costs for monitoring the progress of each account through the bankruptcy process. As a result, overall collection costs are much lower for us when liquidating a pool of Insolvency accounts as compared to a pool of Core accounts, but conversely the price we pay for Insolvency accounts is generally higher than Core accounts. We generally target similar net returns on investment (measured after direct expenses) for Insolvency and Core portfolios at any given point in the market cycles. However, because of the lower related collection costs, we can pay more for Insolvency portfolios, which causes the estimated total cash collections to purchase price multiples of Insolvency pools generally to be in the 1.2-2.0x range. In summary, compared to a similar investment in a pool of Core accounts, to the extent both pools had identical targeted net returns on investment (measured after direct expenses), the Insolvency pool would be expected to generate less revenue, less direct expenses, similar operating income, and a higher operating margin.

Table of Contents

As a result of these purchase price and collection cost dynamics, the mix of our portfolios impacts the relative profitability we realize in a given year. We minimize the impact of higher pricing, to the degree possible, with increased analytics used to score Core accounts and determine on which of those accounts to focus our collection efforts.

We utilize a long-term approach to collecting our owned portfolios of receivables. This approach has historically caused us to realize significant cash collections and revenues from purchased portfolios of finance receivables years after they are originally acquired. As a result, we have in the past been able to temporarily reduce our level of current period acquisitions without a material negative current period impact on cash collections and revenue.

The following tables illustrate historical cash collections, by year, on our portfolios.



($ in thousands)					Cash Collection Period
Purchase Period	Purchase Price ⁽²⁾		1996 -2004		2005		2006		2007		2008		2009		2010		2011		2012 ⁽³⁾		2013⁽³⁾		2014 ⁽³⁾		YTD 2015⁽³⁾		Total
Americas-Core
1996-2004	$	254,735	$	466,629	$	167,854	$	134,321	$	94,072	$	58,820	$	44,275	$	35,586	$	31,123	$	24,873	$	17,648	$	13,061	$	7,503	$	1,095,765
2005	113,865		—		15,191		59,645		57,928		42,731		30,048		22,351		16,768		13,052		9,747		6,703		3,659		277,823
2006	90,039		—		—		17,363		43,737		34,038		25,351		19,522		16,664		11,895		8,316		5,724		3,142		185,752
2007	179,836		—		—		—		39,413		87,039		69,175		60,230		50,995		39,585		28,244		19,759		11,148		405,588
2008	166,518		—		—		—		—		47,253		72,080		62,363		53,654		42,850		31,307		21,027		10,993		341,527
2009	125,266		—		—		—		—		—		40,703		95,627		84,339		69,385		51,121		35,555		19,776		396,506
2010	148,363		—		—		—		—		—		—		47,076		113,554		109,873		82,014		55,946		30,148		438,611
2011	210,060		—		—		—		—		—		—		—		61,972		174,461		152,908		108,513		58,388		556,242
2012	254,937		—		—		—		—		—		—		—		—		56,901		173,589		146,198		77,817		454,505
2013	391,382		—		—		—		—		—		—		—		—		—		101,614		247,849		155,032		504,495
2014 ⁽¹⁾	420,793		—		—		—		—		—		—		—		—		—		—		92,660		199,852		292,512
YTD 2015	326,231		—		—		—		—		—		—		—		—		—		—		—		71,475		71,475
Subtotal	2,682,025		466,629		183,045		211,329		235,150		269,881		281,632		342,755		429,069		542,875		656,508		752,995		648,933		5,020,801
Americas-Insolvency
2004	7,468		743		4,554		3,956		2,777		1,455		496		164		149		108		90		74		18		14,584
2005	29,301		—		3,777		15,500		11,934		6,845		3,318		1,382		466		250		169		102		57		43,800
2006	17,627		—		—		5,608		9,455		6,522		4,398		2,972		1,526		665		419		261		144		31,970
2007	78,524		—		—		—		2,850		27,972		25,630		22,829		16,093		7,551		1,206		714		396		105,241
2008	108,579		—		—		—		—		14,024		35,894		37,974		35,690		28,956		11,650		1,884		838		166,910
2009	156,016		—		—		—		—		—		16,635		81,780		102,780		107,888		95,725		53,945		4,856		463,609
2010	209,112		—		—		—		—		—		—		39,486		104,499		125,020		121,717		101,873		39,438		532,033
2011	181,282		—		—		—		—		—		—		—		15,218		66,379		82,752		85,816		59,570		309,735
2012	252,126		—		—		—		—		—		—		—		—		17,388		103,610		94,141		62,336		277,475
2013	228,183		—		—		—		—		—		—		—		—		—		52,528		82,596		62,957		198,081
2014	149,185		—		—		—		—		—		—		—		—		—		—		37,045		38,724		75,769
YTD 2015	44,759		—		—		—		—		—		—		—		—		—		—		—		1,038		1,038
Subtotal	1,462,162		743		8,331		25,064		27,016		56,818		86,371		186,587		276,421		354,205		469,866		458,451		270,372		2,220,245
Europe-Core
2012	21,859		—		—		—		—		—		—		—		—		11,604		8,995		5,641		1,793		28,033
2013	24,648		—		—		—		—		—		—		—		—		—		7,068		8,540		3,961		19,569
2014 ⁽¹⁾	798,805		—		—		—		—		—		—		—		—		—		—		153,180		219,504		372,684
YTD 2015	344,990		—		—		—		—		—		—		—		—		—		—		—		20,855		20,855
Subtotal	1,190,302		—		—		—		—		—		—		—		—		11,604		16,063		167,361		246,113		441,141
Europe-Insolvency
2014	11,627		—		—		—		—		—		—		—		—		—		—		5		2,828		2,833
YTD 2015	14,754		—		—		—		—		—		—		—		—		—		—		—		1,878		1,878
Subtotal	26,381		—		—		—		—		—		—		—		—		—		—		5		4,706		4,711

Total	5,360,870		467,372		191,376		236,393		262,166		326,699		368,003		529,342		705,490		908,684		1,142,437		1,378,812		1,170,124		7,686,898

(1) The amount reflected in the purchase price column includes the acquisition date finance receivable portfolio that was acquired in connection with the Aktiv acquisition.

(3) For our international amounts, cash collections are presented using the average exchange rates during the cash collection period.

Table of Contents

Collections Productivity (Domestic Portfolio)

The following tables display various collections productivity measures that we track.

Cash Collections per Collector Hour Paid (Domestic Portfolio)



	Core cash collections ⁽¹⁾
	2015		2014		2013		2012		2011
Q1	$	247	$	223	$	193	$	166	$	162
Q2	245		220		190		169		154
Q3	250		217		191		171		152
Q4	—		203		190		150		137



	Total cash collections ⁽²⁾
	2015		2014		2013		2012		2011
Q1	$	350	$	337	$	304	$	258	$	241
Q2	344		354		315		275		243
Q3	343		338		310		279		249
Q4	—		310		308		245		228



	Non-legal cash collections ⁽³⁾
	2015		2014		2013		2012		2011
Q1	$	294	$	282	$	251	$	216	$	204
Q2	288		293		261		225		205
Q3	287		280		259		230		212
Q4	—		259		256		200		194



	Non-legal/non-insolvency cash collections ⁽⁴⁾
	2015		2014		2013		2012		2011
Q1	$	191	$	167	$	140	$	125	$	125
Q2	188		158		137		120		116
Q3	194		159		140		122		115
Q4	—		151		138		105		103

(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 center as well as cash collections generated by our internal staff of legal collectors. This calculation does not include hours paid to our internal staff of legal collectors or to employees processing the required notifications to trustees on Insolvency accounts.


(2)	Represents total cash collections (assigned and unassigned) divided by total hours paid (including holiday, vacation and sick time) to collectors (including those in training).


(3)	Represents total cash collections less external legal cash collections. This metric includes internal legal collections and all insolvency collections and excludes any hours associated with either of those functions.


(4)	Represents total cash collections less external legal cash collections and less Insolvency cash collections from trustee-administered accounts. This metric does not include any labor hours associated with the Insolvency or legal (internal or external) functions but does include internally-driven cash collections from the internal legal channel.

Table of Contents

The following chart illustrates the excess of cash collections on our owned portfolios over income recognized on finance receivables on a quarterly basis. The difference between cash collections and income recognized on finance receivables is referred to as amortization. This amortization is the portion of cash collections that is used to recover the cost of the portfolio investment represented on the balance sheet.


(1)	Includes cash collections on finance receivables only and excludes cash proceeds from sales of nonperforming loans.

Seasonality

Cash collections tend to be higher in the first and second quarters of the year and lower in the third and fourth quarters of the year. This is due to customer payment patterns in connection with seasonal employment trends, income tax refunds and holiday spending habits. Historically, our growth has partially offset the impact of this seasonality.

The following table displays our quarterly cash collections by source, for the periods indicated.



Cash Collections by Geography and Type(amounts in thousands)	Q3-2015		Q2-2015		Q1-2015		Q4-2014		Q3-2014		Q2-2014		Q1-2014		Q4-2013
Americas-Core	$	210,725	$	218,838	$	219,371	$	185,921	$	189,027	$	190,229	$	187,818	$	158,828
Americas-Insolvency	81,865		92,974		95,533		103,104		110,544		124,101		120,702		114,384
Europe-Core	85,635		76,602		83,876		84,398		73,172		4,944		4,847		5,714
Europe-Insolvency	2,528		1,210		967		5		—		—		—		—
Total Cash Collections	$	380,753	$	389,624	$	399,747	$	373,428	$	372,743	$	319,274	$	313,367	$	278,926

The following table provides additional details on the composition of our Core cash collections in the United States for the periods indicated.

Core Cash Collections by Source - Domestic Portfolio Only



Cash Collection Source (amounts in thousands)	Q3-2015		Q2-2015		Q1-2015		Q4-2014		Q3-2014		Q2-2014		Q1-2014		Q4-2013
Call Center and Other Collections	$	117,560	$	121,148	$	122,316	$	95,784	$	92,814	$	90,128	$	92,889	$	78,661
External Legal Collections	47,318		49,995		49,578		46,761		49,930		55,011		50,990		46,066
Internal Legal Collections	41,338		42,482		42,464		38,157		41,400		45,090		43,939		34,101
Total Core Cash Collections - Domestic Only	$	206,216	$	213,625	$	214,358	$	180,702	$	184,144	$	190,229	$	187,818	$	158,828

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Portfolios by Type and Geography (Domestic Portfolio)

The following table categorizes our life to date domestic portfolio purchases as of September 30, 2015, into the major asset types represented (amounts in thousands):



Account Type	No. of Accounts	%		Face Value ⁽¹⁾		%		Original Purchase Price ⁽²⁾		%
Major Credit Cards	21,399	53	%	$	57,199,323	67	%	$	2,536,656	60	%
Consumer Finance	6,716	17		8,731,424		10		158,884		4
Private Label Credit Cards	11,129	28		14,863,222		17		1,328,286		32
Auto Deficiency	679	2		4,840,800		6		157,440		4
Total	39,923	100	%	$	85,634,769	100	%	$	4,181,266	100	%


(1)	"Face Value" represents the original face amount purchased from sellers and has not been reduced by any adjustments including payments and buybacks.


(2)	"Original Purchase Price" represents the cash paid to sellers to acquire portfolios of nonperforming loans and has not been reduced by any adjustments, including payments and buybacks.

The following table summarizes our life to date domestic portfolio purchases as of September 30, 2015, into the delinquency categories represented (amounts in thousands).



Account Type	No. of Accounts	%		Face Value ⁽¹⁾		%		Original Purchase Price ⁽²⁾		%
Fresh	4,317	11	%	$	9,541,003	11	%	$	1,133,723	27	%
Primary	5,146	13		9,838,903		11		600,663		14
Secondary	8,879	22		11,942,059		14		603,806		14
Tertiary	4,852	12		6,774,111		8		134,490		3
Insolvency	5,871	15		23,885,432		28		1,528,152		37
Other	10,858	27		23,653,261		28		180,432		5
Total	39,923	100	%	$	85,634,769	100	%	$	4,181,266	100	%


(1)	"Face Value" represents the original face amount purchased from sellers and has not been reduced by any adjustments including payments and buybacks.


(2)	"Original Purchase Price" represents the cash paid to sellers to acquire portfolios of nonperforming loans and has not been reduced by any adjustments, including payments and buybacks.

We review the geographic distribution of accounts within a portfolio because we have found that state specific laws and rules can have an effect on the collectability of accounts located there. In addition, economic factors and insolvency trends vary regionally and are factored into our maximum purchase price equation.

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The following table summarizes our life to date domestic portfolio purchases as of September 30, 2015, by geographic location (amounts in thousands):



Geographic Distribution	No. of Accounts	%		Face Value ⁽¹⁾		%		Original Purchase Price ⁽²⁾		%
California	4,333	11	%	$	11,261,686	13	%	$	520,912	12	%
Texas	5,358	13		9,159,907		11		367,592		9
Florida	3,203	8		7,999,716		9		368,012		9
New York	2,295	6		4,990,328		6		219,848		5
Ohio	1,816	5		3,217,444		4		170,842		4
Pennsylvania	1,464	4		3,141,886		4		153,868		4
Illinois	1,509	4		3,081,157		4		164,215		4
North Carolina	1,456	4		3,048,163		4		148,257		4
Georgia	1,328	3		2,848,628		3		163,609		4
Other⁽³⁾	17,161	42		36,885,854		42		1,904,111		45
Total	39,923	100	%	$	85,634,769	100	%	$	4,181,266	100	%


(1)	"Face Value" represents the original face amount purchased from sellers and has not been reduced by any adjustments, including payments and buybacks.


(2)	"Original Purchase Price" represents the cash paid to sellers to acquire portfolios of nonperforming loans and has not been reduced by any adjustments, including payments and buybacks.


(3)	Each state included in “Other” represents less than 3% of the face value of total nonperforming loans.

Portfolio Purchasing

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



Portfolio Purchase Source (amounts in thousands)	Q3-2015		Q2-2015		Q1-2015		Q4-2014		Q3-2014		Q2-2014		Q1-2014		Q4-2013
Americas-Core	$	90,912	$	98,317	$	138,498	$	119,714	$	118,018	$	91,904	$	79,085	$	65,759
Americas-Insolvency	9,300		19,111		16,437		24,949		38,535		16,187		72,003		31,987
Europe-Core ^{(1) (2)}	240,385		88,499		21,579		123,194		734,803		1,121		1,626		1,763
Europe-Insolvency	3,959		2,450		8,510		11,625		—		—		—		—
Total Portfolio Purchasing	$	344,556	$	208,377	$	185,024	$	279,482	$	891,356	$	109,212	$	152,714	$	99,509

(1) Excludes the $27.9 million and $34.7 million investments in a securitized fund in Poland during the three months ended March 31, 2015 and December 31, 2014, respectively.

(2) The amount reflected in the Q3-2014 column includes the acquisition date finance receivable portfolio that was acquired in connection with the Aktiv acquisition.

Investments in Securitized Assets

We hold a majority interest in a closed-end Polish investment fund. The fund was formed in December 2014 to acquire portfolios of nonperforming consumer loans in Poland. Our investment consists of a 100% interest in the Series B certificates and a 20% interest in the Series C certificates. Each certificate comes with one vote and is governed by a co-investment agreement. Series C certificates, which share equally in the residual profit of the fund, are accounted for as debt securities classified as available-for-sale and are stated at fair value. Income is recognized using the effective yield method.

The total initial investment by the Polish investment fund in finance receivables is $62.6 million. The gross estimated remaining collections and gross total estimated collections, related to our proportional ownership of the fund, are $116.7 million and $128.5 million, respectively, at September 30, 2015. Our investment revenue is generated from the net collections of the fund (cash collections less direct expenses) which is estimated at September 30, 2015 to be $89.7 million in total.

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Estimated Remaining Collections

The following chart shows our ERC by geographical region at September 30, 2015 (amounts in millions).

Liquidity and Capital Resources

Historically, our primary sources of cash have been cash flows from operations, bank borrowings, and convertible debt and equity offerings. Cash has been used for acquisitions of finance receivables portfolios, corporate acquisitions, repurchase of our common stock, repayments of bank borrowings, operating expenses, purchases of property and equipment, and working capital to support our growth.

As of September 30, 2015, cash and cash equivalents totaled $69.1 million, compared to $39.7 million at December 31, 2014. We had $1.65 billion in borrowings outstanding as of September 30, 2015, with $393.2 million of availability under all of our credit facilities. See the "Borrowings" section below for more information.

We have in place forward flow and other commitments for the purchase of nonperforming loans in which the maximum amount that could be purchased is approximately $427.3 million as of September 30, 2015. Additionally we may enter into new or renewed flow commitments and close on spot transactions in addition to the aforementioned flow agreements. We believe that funds generated from operations and from cash collections on finance receivables, together with existing cash and available borrowings under our credit facilities will be sufficient to finance our operations, planned capital expenditures, the aforementioned forward flow commitments, and additional, normal-course portfolio purchasing during the next twelve months. Business acquisitions, adverse outcomes in pending litigation or higher than normal levels of portfolio purchasing could require additional financing from other sources.

For domestic income tax purposes, we recognize revenue using the cost recovery method with respect to our receivable purchasing business. The IRS has audited and issued a Notice of Deficiency for the tax years ended December 31, 2005 through 2012. It has asserted that tax revenue recognition using the cost recovery method does not clearly reflect taxable income. We have filed a petition in the Tax Court challenging the deficiency and believe we have sufficient support for the technical merits of our positions. On July 10, 2015 and July 21, 2015, the IRS filed motions for summary judgment for tax years 2008 through 2012 and 2005 through 2007 respectively. On October 30, 2015, the U.S. Tax Court held oral arguments on the IRS Motion for Summary Judgment. The court deferred issuing a ruling from the bench and indicated it would expect to issue an Order within two weeks regarding its disposition on all pending motions. The court also set this matter for trial, to begin on September 19, 2016, for an anticipated ten days in the event the court denies the IRS Motion for Summary Judgment. If the Tax Court judge grants the motions for summary judgment in favor of the IRS, we can appeal to the federal Court of Appeals. If we are unsuccessful in Tax Court and any potential appeals to the federal Court of Appeals, we may ultimately be required to pay the related deferred taxes, and possibly interest and penalties, which may require additional financing from other sources. Deferred tax liabilities related to this item were $246.9 million at September 30, 2015. Our estimate of the potential federal and state interest is $91.1 million as of September 30, 2015.

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Cash generated from operations is dependent upon our ability to collect on our finance receivables. Many factors, including the economy and our ability to hire and retain qualified collectors and managers, are essential to our ability to generate cash flows. Fluctuations in these factors that cause a negative impact on our business could have a material impact on our future cash flows.

On December 10, 2014, the Company's board of directors authorized a share repurchase program to purchase up to $100 million of the Company's outstanding shares of common stock on the open market. Repurchases depend on prevailing market conditions and other factors. The repurchase program may be suspended or discontinued at any time. During the three months ended September 30, 2015, we purchased 132,582 shares of our common stock under the share repurchase program at an average price of $58.08 per share. At September 30, 2015, the maximum remaining purchase price for share repurchases under the share repurchase program is approximately $0.1 million.

Our operating activities provided cash of $125.5 million and $172.4 million for the nine months ended September 30, 2015 and 2014, respectively. In these periods, cash from operations was generated primarily from net income earned through cash collections and fee income received for the period.

Our investing activities used cash of $215.4 million and $859.9 million during the nine months ended September 30, 2015 and 2014, respectively. Cash used in investing activities is primarily driven by business acquisitions, acquisitions of nonperforming loans and purchases of property and equipment. Cash provided by investing activities is primarily driven by cash collections applied to principal on finance receivables. The majority of the change in cash used in investing activities was due to a decrease in business acquisitions from $851.2 million for the nine months ended September 30, 2014, to $1.4 million for the nine months ended September 30, 2015. In addition, collections applied to principal on finance receivables increased to $513.5 million for the nine months ended September 30, 2015, from $420.6 million for the nine months ended September 30, 2014. This was offset by an increase in acquisitions of finance receivables, to $730.0 million for the nine months ended September 30, 2015, from $412.7 million for the nine months ended September 30, 2014.

Our financing activities provided cash of $129.5 million and $603.1 million during the nine months ended September 30, 2015 and 2014, respectively. Cash for financing activities is normally provided by draws on our line of credit. Cash used in financing activities is primarily driven by principal payments on our lines of credit, principal payments on long-term debt and repurchases of our common stock. The decrease in cash provided by financing activities was primarily driven by a decrease in net borrowings on our lines of credit from $436.5 million for the nine months ended September 30, 2014, compared to $238.9 million during the nine months ended September 30, 2015. This was partially offset by increases in cash used in financing activities for repurchases of our common stock and principal payments on long-term debt. During the nine months ended September 30, 2015, we repurchased $85.5 million of our common stock compared to $0 for the nine months ended September 30, 2014. During the nine months ended September 30, 2015, we had payments on long-term debt of $43.6 million compared to $7.5 million for the nine months ended September 30, 2014.

Cash paid for interest was $38.3 million and $21.1 million for the nine months ended September 30, 2015 and 2014, respectively. Interest was paid on our revolving credit facilities, long-term debt, convertible debt and interest rate swap agreements. The increase during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014, was mainly due to the interest paid on the debt assumed and additional funding required for the Aktiv acquisition. Cash paid for income taxes was $70.5 million and $41.7 million for the nine months ended September 30, 2015 and 2014, respectively.

Borrowings

Domestic Revolving Credit and Term Loan

We have a credit facility with Bank of America, N.A., as administrative agent, and a syndicate of lenders named therein (such agreement as later amended or modified, the “Credit Agreement”). On August 4, 2015, we entered into the Fifth Amendment to the Credit Agreement (the "Fifth Amendment"). Among other things, the Fifth Amendment (a) adds Bank of America, N.A., acting through its Canada branch, as Canadian Administrative Agent under the Credit Agreement, (b) adds our wholly-owned subsidiary, PRA Group Canada Inc., as a Borrower under the Credit Agreement, (c) removes the Financial Covenant with respect to Consolidated Tangible Net Worth, (d) terminates the Multi Currency Revolving B Commitments, (e) adds $50.0 million of Canadian Revolving Commitments, (f) modifies the definition of Permitted Acquisitions to increase the baskets included therein, (g) permits our subsidiaries organized under the laws of Brazil to borrow up to $150.0 million and to grant liens with respect to such borrowings, and (h) acknowledges the change of our legal name in October 2014 to PRA Group, Inc. On September 30, 2015, the Company entered into a sixth amendment which increased the allowable amount of stock repurchases during the term of the agreement to $315 million and removed the covenant that we cannot exceed $100 million in share repurchases during a given year. The total credit facility under the Credit Agreement includes an aggregate principal amount of $823.8 million (subject to compliance with a borrowing base and applicable debt covenants), which consists of (i) a fully funded $173.8 million term loan, (ii) a $600 million domestic revolving credit facility, of which $138.8 million is available to be drawn, and (iii) a $50 million Canadian revolving

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credit facility, of which $32.9 million is available to be drawn. The facilities all mature on December 19, 2017. Our revolving credit facility includes a $20.0 million swingline loan sublimit and a $20.0 million letter of credit sublimit. The Credit Agreement is secured by a first priority lien on substantially all of our assets.

Borrowings outstanding on this credit facility at September 30, 2015 consisted of $173.8 million outstanding on the term loan with an annual interest rate as of September 30, 2015 of 2.69% and $478.3 million outstanding on the revolving facilities with a weighted average interest rate of 2.74%. At December 31, 2014, the Company's borrowings on this credit facility consisted of $185.0 million outstanding on the term loan with an annual interest rate as of December 31, 2014 of 2.67% and $409.0 million outstanding on the revolving facility with a weighted average interest rate of 2.68%.

Seller Note Payable

In conjunction with the closing of the Aktiv business acquisition on July 16, 2014, we entered into the $169.9 million Seller Note. On May 22, 2015, we amended the Seller Note to extend the maturity date to January 19, 2016 and allow for an option for us to extend the maturity to July 19, 2016. The Seller Note bears interest at the three-month LIBOR plus 3.75%. The quarterly interest due can be paid or added into the Seller Note balance at our option. During the three months ended September 30, 2015, we paid the quarterly interest payment of $1.7 million. At September 30, 2015, the balance due on the Seller Note was $169.9 million with an annual interest rate of 4.08%.

Multicurrency Revolving Credit Facility

On October 23, 2014, we entered into a credit agreement with DNB Bank ASA for a Multicurrency Revolving Credit Facility (“the Multicurrency Revolving Credit Agreement”). Subsequently, two other lenders joined the credit facility, and on June 12, 2015, we entered into a first amendment to the Multicurrency Revolving Credit Agreement (“the Amended Multicurrency Revolving Credit Agreement”) which provided, among other things, an increase in the total commitments from $500 million to an aggregate of $750 million, subject to certain requirements, and an increase in the maximum ERC ratio from 28% to 33%, subject to the payment of additional associated fees.

Under the terms of the Amended Multicurrency Revolving Credit Agreement, the credit facility includes an aggregate amount of $750.0 million, of which $199.3 million is available to be drawn, accrues interest at the IBOR plus 2.50-3.30% (as determined by the ERC Ratio as defined in the Amended Multicurrency Revolving Credit Agreement), bears an unused line fee of 0.35% per annum, payable monthly in arrears, and matures on October 23, 2019. The Amended Multicurrency Revolving Credit Agreement also includes an Overdraft Facility aggregate amount of $40.0 million, of which $22.2 million is available to be drawn, accrues interest at the IBOR plus 2.50-3.30% (as determined by the ERC Ratio as defined in the Amended Multicurrency Revolving Credit Agreement), bears a facility line fee of 1.05% per annum, payable quarterly in arrears, and also matures October 23, 2019.

The Amended Multicurrency Revolving Credit Agreement is secured by i) the shares of most of the subsidiaries of Aktiv, and ii) all intercompany loans to Aktiv's subsidiaries.

At September 30, 2015, the balance on the Amended Multicurrency Revolving Credit Agreement was $568.5 million, with an annual interest rate of 3.55%.

Convertible Senior Notes

On August 13, 2013, we completed the private offering of $287.5 million in aggregate principal amount of the Notes. The Notes were issued pursuant to an Indenture, dated August 13, 2013 (the "Indenture") between us and Wells Fargo Bank, National Association, as trustee. The Indenture contains customary terms and covenants, including certain events of default after which the Notes may be due and payable immediately. The Notes are senior unsecured obligations of the Company and mature on August 1, 2020. Interest on the Notes is payable semi-annually, in arrears, on February 1 and August 1 of each year, beginning as of February 1, 2014.

We believe we were in compliance with all covenants under our financing arrangements as of September 30, 2015 and December 31, 2014.

Undistributed Earnings of Foreign Subsidiaries

We intend to use remaining accumulated and future undistributed earnings of foreign subsidiaries to expand operations outside the United States; therefore, such undistributed earnings of foreign subsidiaries are considered to be indefinitely reinvested outside the United States. Accordingly, no provision for federal and state income tax has been provided thereon. If management's intentions change and eligible undistributed earnings of foreign subsidiaries are repatriated, we would be subject to additional U.S. income taxes, net of an adjustment for foreign tax credits, and withholding taxes payable to various foreign jurisdictions, where applicable.

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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. Refer to the Notes of the Consolidated Financial Statements for further information related to our income taxes and undistributed foreign earnings.

Stockholders’ Equity Attributable to PRA Group, Inc.

Stockholders’ equity attributable to PRA Group, Inc. was $863.5 million at September 30, 2015 and $902.2 million at December 31, 2014. The decrease was primarily attributable to $85.5 million in share repurchases and a $85.3 million increase in accumulated net foreign currency translation losses. This was partially offset by $127.1 million in net income during the nine months ended September 30, 2015.

Contractual Obligations

Our contractual obligations as of September 30, 2015 were as follows (amounts in thousands):



	Payments due by period
Contractual Obligations	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Operating leases	$	34,770	$	10,219	$	15,909	$	6,869	$	1,773
Lines of credit ⁽¹⁾	1,165,545		35,430		537,702		592,413		—
Long-term debt ⁽²⁾	731,487		203,530		176,930		351,027		—
Purchase commitments ⁽³⁾	431,551		372,678		31,674		27,199		—
Employment agreements	21,348		8,167		13,181		—		—
Total	$	2,384,701	$	630,024	$	775,396	$	977,508	$	1,773


(1)	This amount includes estimated interest and unused line fees due on our domestic and multicurrency lines of credit and assumes that the balances on the lines of credit remain constant from the September 30, 2015 balances of $478.3 million and $568.5 million, respectively.


(2)	This amount includes scheduled interest and principal payments on our term loans and our convertible debt.


(3)	This amount includes the maximum remaining amount to be purchased under forward flow and other contracts for the purchase of defaulted finance receivables in the amount of approximately $427.3 million.

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

In April 2014, FASB issued ASU 2014-08, that amends the requirements for reporting discontinued operations. ASU 2014-08 requires the disposal of a component of an entity or a group of components of an entity to be reported in discontinued operations if the disposal represents a strategic shift that will have a major effect on the entity’s operations and financial results. ASU 2014-08 also requires additional disclosures about discontinued operations and disclosures about the disposal of a significant component of an entity that does not qualify as a discontinued operation. ASU 2014-08 is effective prospectively for reporting periods beginning after December 15, 2014, with early adoption permitted. We adopted ASU 2014-08 in the first quarter of 2015 which had no material impact on our consolidated financial statements.

In May 2014, FASB issued ASU 2014-09, that updates the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also amends the required disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption, with early application not permitted. We are evaluating our implementation approach and the potential impacts of the new standard on our existing revenue recognition policies and procedures.

In June 2014, FASB issued ASU 2014-12, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for annual reporting periods beginning

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after December 15, 2015, with early adoption permitted. The adoption of the new guidance is not expected to have a material impact on our consolidated financial statements.

In April 2015, FASB issued ASU 2015-03, “Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” ("ASU 2015-03"). ASU 2015-03 requires an entity to present debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. For public business entities, this update is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. An entity should apply the new guidance on a retrospective basis. We have debt issuance costs which will be reclassified upon adoption of the guidance, but it is not expected to have a material impact on our Company's Consolidated Financial Statements.

In April 2015, FASB issued ASU 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement” ("ASU 2015-05"). ASU 2015-05 provides explicit guidance to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting for other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. For public business entities, this update is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. An entity can elect to adopt the new guidance either prospectively for all arrangements entered into or materially modified after the effective date, or on a retrospective basis. We are currently evaluating the impact of adopting this guidance on our financial position and results of operations.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with U.S. GAAP. Our significant accounting policies are discussed in Note 1 of the Notes to the Consolidated Financial Statements of our 2014 Annual Report on Form 10-K filed on March 2, 2015. 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 on 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 Company's Audit Committee.

Revenue Recognition - Finance Receivables

We account for 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 or decreased revenue or the incurrence of allowance charges.

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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 balance those results to the data contained in our proprietary models to ensure accuracy, then review each pool watching for trends, actual performance versus projections and curve shape (a graphical depiction of the timing of cash flows), regularly re-forecasting future cash flows utilizing our statistical models. The review process is primarily performed by our finance staff; however, our operational and statistical staff are also involved, providing updated statistical input and cash projections to the finance staff. Significant judgment is used in evaluating whether overperformance is due to an increase in projected cash flows or an acceleration of cash flows (a timing difference). If determined to be a significant increase in expected cash flows, we will recognize the effect of the increase prospectively first through an adjustment to any previously recognized valuation allowance for that pool and then through an increase in yield. If the overperformance is determined to be due to a timing difference, we will: a) adjust estimated future cash flows downward which effectively extends the amortization period to fall within a reasonable expectation of the pool's economic life, b) adjust future cash flow projections as noted previously coupled with an increase in yield in order for the amortization period to fall within a reasonable expectation of the pool's economic life, or c) take no action at all if the amortization period falls within a reasonable expectation of the pool's expected economic life. To the extent there is underperformance, we will record an allowance if the underperformance is significant and will also consider revising estimated future cash flows based on current period information, or take no action if the pool's amortization period is reasonable and falls within the currently projected 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 is 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. As reporting units are determined after an acquisition or evolve with changes in business strategy, goodwill is assigned to reporting units and it no longer retains its association with a particular acquisition. All of the revenue streams and related activities of a reporting unit, whether acquired or organic, are available to support the value of the goodwill.

We estimate the fair value of our reporting units using the income approach, the market approach and the transaction approach. Depending on the availability of public data and suitable comparables, we may or may not use the market approach and the transaction approach or we may emphasize the results from the approaches 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 market multiples of revenue and earnings derived from comparable publicly-traded companies with operating and investment characteristics similar to the reporting unit. Under the transaction approach, we estimate fair value based on market multiples from comparable transactions where the acquisition target has similar operating and investment characteristics to the reporting unit. The transaction approach is less likely to be used given the lack of publicly available detailed data on transactions for comparable companies.

The Company performs its annual goodwill assessment as of October 1. The option of whether to perform a qualitative assessment or to proceed directly to a two-step quantitative test is made from year-to-year and can vary by reporting unit. At October 1, 2014, we performed a qualitative assessment of our reporting units. Factors we considered in the qualitative assessment include general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying value of the net assets of our reporting units, changes in our share price, and other relevant Company specific events. We also considered the impact of changes in the estimates and assumptions used in our fair value estimates. Based on our evaluation, we determined that our reporting units were not at risk of failing a Step 1 impairment test under ASC 350. We believe that nothing has occurred since the review was performed through September 30, 2015 that would indicate a triggering event and thereby necessitate further evaluation of goodwill or other intangible assets. We expect to perform our next annual goodwill review during the fourth quarter of 2015.

Our goodwill impairment testing involves the use of estimates and the exercise of judgment on the part of management. Our assessment of the qualitative factors discussed above involves significant judgments about expected future business performance

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and general market conditions. Significant changes in our assessment of such qualitative factors could affect our assessment of the fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period.

The allocation of the purchase price to the tangible assets and liabilities and identifiable intangible assets acquired requires significant estimates in determining the fair values of assets acquired and liabilities assumed which result in goodwill.

Income Taxes

We are subject to the income tax laws of the various jurisdictions in which we operate, including U.S. federal, state, and 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 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 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 enterprise 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 enterprise 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 or a decrease in goodwill 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.

For domestic income tax purposes, we recognize revenue using the cost recovery method with respect to our debt purchasing business. We believe cost recovery to be an acceptable method for companies in our industry. Under the cost recovery method, collections on finance receivables are applied first to principal to reduce the finance receivables to zero before any income is recognized.

Our acquisition of Aktiv requires the use of material estimates and increases the complexity of our accounting for income taxes. In addition, we are restructuring Aktiv's corporate organization, which requires valuation estimates and interpretations of complex tax laws in multiple jurisdictions.



Item 3.	Quantitative and Qualitative Disclosure About Market Risk

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 $1.4 billion as of September 30, 2015. Assuming a 25 basis point decrease in interest rates, for

example, interest expense over the following twelve months would decrease by an estimated $2.9 million. Assuming a 50 basis point increase in interest rates, interest expense over the following twelve months would increase by an estimated $5.8 million.

To reduce the exposure to changes in the market rate of interest, we have entered into interest rate swap agreements for a portion of our floating rate financing arrangements. Terms of the interest rate swap agreements require us to receive a variable interest rate and pay a fixed interest rate. For the majority of our floating rate financing arrangements, we have no interest rate swap agreements in place. At September 30, 2015, approximately 46% of the net borrowings at PRA Europe were hedged, reducing the related currency exchange risk.

The fair value of our interest rate swap agreements was a net liability of $2.1 million at September 30, 2015. A hypothetical 25 basis point decrease in interest rates would cause a decrease in the estimated fair value of our interest rate swap agreements and the resulting estimated fair value would be a liability of $4.6 million at September 30, 2015. Conversely, a hypothetical 50 basis point increase in interest rates would cause an increase in the estimated fair value of our interest rate swap agreements and the resulting estimated fair value would be an asset of $0.6 million at September 30, 2015.

Currency Exchange Risk

We operate internationally and enter into transactions denominated in foreign currencies, including the euro, the Great British pound, the Canadian dollar, Norwegian kroner, Swiss franc, Danish kroner, Swedish kroner, Polish zloty and Brazilian real. In the three months ended September 30, 2015, we generated $53.4 million of revenues from operations outside the United States and used seven 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 the exchange rates between different currencies could cause us to incur foreign currency transaction and translation gains and losses, and could adversely affect our net income, comprehensive income, and stockholders’ equity. Additionally, our reported financial results could change from period to period due solely to fluctuations between currencies.

Foreign currency transaction gains and losses are the result of the re-measurement of account balances in certain currencies into an entity’s functional currency. Foreign currency transaction gains and losses are included as a component of other income and (expense) 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/(loss) and as a component of stockholders’ equity in our consolidated balance sheets.

We are taking measures to mitigate the impact of foreign currency fluctuations. We have restructured our European operations so that portfolio ownership and collections will generally occur within the same entity. Our European credit facility is a multi-currency facility, allowing us to borrow in the same currency as our entity’s functional currency. We strive to maintain the distribution of our European borrowings within defined thresholds based on the currency composition of our finance receivables portfolios. When those thresholds are exceeded, we engage in foreign exchange spot transactions to mitigate our risk.



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, controls may become inadequate because of changes in conditions and the degree of compliance with the policies or procedures may deteriorate. We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2015, 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 during the fiscal quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, because we completed the Aktiv acquisition during the third quarter of 2014, we are still in the process of assessing Aktiv’s controls for design and operating effectiveness. We intend to complete that assessment in time to include the results in our 2015 annual evaluation of internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Consumer Financial Protection Bureau Investigation

On September 9, 2015, Portfolio Recovery Associates, LLC, our wholly owned subsidiary, entered into a Consent Order with the CFPB, settling a previously disclosed investigation of certain debt collection practices of the subsidiary (the "Consent Order").

Among other things, the Consent Order requires us to: (i) vacate 837 judgments obtained after the applicable statute of limitations, refund $860,607 in payments received on account of such judgments and waive the remaining $3,411,094 in judgment balances; (ii) refund $18,184,836 in Litigation Department Calls Restitution, as defined in the Consent Order, and (iii) pay an $8,000,000 civil money penalty to the CFPB.

Portfolio Recovery Associates, LLC v. Guadalupe Mejia

On May 11, 2015, an unfavorable jury verdict was delivered against the Company in a matter pending in Jackson County, Missouri. The jury awarded Guadalupe Mejia $251,000 in compensatory damages and $82,009,549 in punitive damages (altogether, the “Award”) for her counter-claim against the Company, alleging malicious prosecution and impermissible collection practices. The Company believes the verdict and magnitude of the Award to be erroneous and has filed a motion to set aside the Award. Unless reduced or overturned, the Award could have a material adverse effect on the Company's financial condition and/or operations. Refer to Note 10 “Commitments and Contingencies” of our Consolidated Financial Statements for information regarding additional legal and regulatory proceedings in which we are involved.

In addition to the foregoing, we and our subsidiaries are from time to time subject to a variety of routine legal and regulatory claims, inquiries and proceedings, most of which are incidental to the ordinary course of our business. We initiate lawsuits against customers and are 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 us in which they allege that we have 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 us. While the outcome of any of these routine claims, inquiries or proceedings cannot be predicted with certainty, we do not believe that any of our other pending legal proceedings could reasonably be expected to have a material adverse effect on our financial condition, results of operations and cash flows.

Item 1A. Risk Factors

An investment in our common stock involves a high degree of risk. You should carefully consider the specific risk factors listed under Part I, Item 1A of our 2014 Annual Report on Form 10-K filed on March 2, 2015, together with the additional risk factors discussed below and all other information included herein or incorporated by reference in our reports filed with the SEC. Any such risks may materialize, and additional risks not known to us, or that we now deem immaterial, may arise. In such event, our business, financial condition, results of operations or prospects could be materially adversely affected. If that occurs, the market price of our common stock could fall, and investors could lose all or part of their investment.

Adverse litigation outcomes could have an adverse effect on our results of operations, cash flows and financial position.

It is likely that legal actions, proceedings and other claims arising out of the collection of nonperforming loans will continue to be filed against us, and our debt collection affiliates for the foreseeable future. Victories by plaintiffs in highly publicized cases against us, such as the recent Award, or other debt collection companies may stimulate further claims. A material increase in the number of pending claims could significantly increase our defense costs. In addition, adverse outcomes in pending cases could have adverse effects on our operations and financial condition, and our ability to prevail in other related litigation.

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

Share Repurchase Program

On December 10, 2014, our board of directors authorized a new share repurchase program to purchase up to $100,000,000 of our outstanding shares of common stock on the open market. Repurchases under this program prior to the third quarter of 2015 totaled $92.2 million. Repurchases during the third quarter of 2015 totaled $7.7 million.

The following table provides information about our common stock purchased during the third quarter of 2015.



Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit) ($)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July 1, 2015 - July 31, 2015	—	$	—	—	$	—
August 1, 2015 - August 31, 2015	132,582	58.08		132,582	100,483
September 1, 2015 - September 30, 2015	—	—		—	—
Total or Average	132,582	$	58.08	132,582	$	100,483

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



10.1	Fifth Amendment, entered into as of August 4, 2015, to the Credit Agreement dated as of December 19, 2012 by and among PRA Group, Inc., its domestic wholly-owned subsidiaries as guarantors, certain lenders, Bank of America, N.A. as administrative agent, swing line lender, and L/C issuer, Bank of America, N.A., acting through its Canada branch, as Canadian Administrative Agent, and certain other agents and arrangers named therein. (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on August 10, 2015).
31.1	Section 302 Certifications of Chief Executive Officer.
31.2	Section 302 Certifications of Chief Financial and Administrative Officer.
32.1	Section 906 Certifications of Chief Executive Officer and Chief Financial and Administrative Officer.
101.INS	XBRL Instance 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

SIGNATURES

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




	PRA GROUP, INC.
	(Registrant)

Date: November 6, 2015	By:	/s/ Steven D. Fredrickson
		Steven D. Fredrickson Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)

Date: November 6, 2015	By:	/s/ Kevin P. Stevenson
		Kevin P. Stevenson President, Interim Chief Financial and Administrative Officer and Treasurer (Principal Financial and Accounting Officer)