UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 20192020
☐ 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.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,, Virginia23502
(Address of principal executive offices)
(888) (888) 772-7326
(Registrant's Telephone No., including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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| | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | PRAA | NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
The number of shares of the registrant's common stock outstanding as of August 6, 20194, 2020 was 45,409,110.45,579,483.
Table of Contents
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Signatures | | |
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
PRA Group, Inc.
Consolidated Balance Sheets
June 30, 20192020 and December 31, 20182019
(Amounts in thousands)
| | | (unaudited) | | | | (unaudited) | |
| June 30, 2019 | | December 31, 2018 | | June 30, 2020 | | December 31, 2019 |
Assets | | | | Assets | | | |
Cash and cash equivalents | $ | 105,496 |
| | $ | 98,695 |
| Cash and cash equivalents | $ | 115,741 | | | $ | 119,774 | |
Investments | 85,911 |
| | 45,173 |
| Investments | 18,746 | | | 56,176 | |
Finance receivables, net | 3,230,949 |
| | 3,084,777 |
| Finance receivables, net | 3,351,532 | | | 3,514,165 | |
Other receivables, net | 13,770 |
| | 46,157 |
| Other receivables, net | 15,532 | | | 10,606 | |
Income taxes receivable | 11,323 |
| | 16,809 |
| Income taxes receivable | 23,166 | | | 17,918 | |
Net deferred tax asset | 66,401 |
| | 61,453 |
| |
Deferred tax asset, net | | Deferred tax asset, net | 64,548 | | | 63,225 | |
Property and equipment, net | 51,484 |
| | 54,136 |
| Property and equipment, net | 59,285 | | | 56,501 | |
Right-of-use assets | 72,817 |
| | — |
| Right-of-use assets | 58,213 | | | 68,972 | |
Goodwill | 489,293 |
| | 464,116 |
| Goodwill | 444,507 | | | 480,794 | |
Intangible assets, net | 5,219 |
| | 5,522 |
| Intangible assets, net | 3,666 | | | 4,497 | |
Other assets | 32,751 |
| | 32,721 |
| Other assets | 42,888 | | | 31,263 | |
| Total assets | $ | 4,165,414 |
| | $ | 3,909,559 |
| Total assets | $ | 4,197,824 | | | $ | 4,423,891 | |
Liabilities and Equity | | | | Liabilities and Equity | | | |
Liabilities: | | | | Liabilities: | |
Accounts payable | $ | 3,279 |
| | $ | 6,110 |
| Accounts payable | $ | 4,667 | | | $ | 4,258 | |
Accrued expenses | 74,950 |
| | 79,396 |
| Accrued expenses | 72,871 | | | 88,925 | |
Income taxes payable | 372 |
| | 15,080 |
| Income taxes payable | 31,226 | | | 4,046 | |
Net deferred tax liability | 100,742 |
| | 114,979 |
| |
Deferred tax liability, net | | Deferred tax liability, net | 59,860 | | | 85,390 | |
Lease liabilities | | Lease liabilities | 62,706 | | | 73,377 | |
Interest-bearing deposits | 107,840 |
| | 82,666 |
| Interest-bearing deposits | 120,520 | | | 106,246 | |
Borrowings | 2,618,382 |
| | 2,473,656 |
| Borrowings | 2,580,068 | | | 2,808,425 | |
Lease liabilities | 76,750 |
| | — |
| |
Other liabilities | 27,307 |
| | 7,370 |
| Other liabilities | 71,044 | | | 26,211 | |
| Total liabilities | 3,009,622 |
| | 2,779,257 |
| Total liabilities | 3,002,962 | | | 3,196,878 | |
Redeemable noncontrolling interest | 4,935 |
| | 6,333 |
| |
| Equity: | | | | Equity: | | | |
Preferred stock, $0.01 par value, 2,000 shares authorized, no shares issued and outstanding | — |
| | — |
| Preferred stock, $0.01 par value, 2,000 shares authorized, no shares issued and outstanding | — | | | — | |
Common stock, $0.01 par value, 100,000 shares authorized, 45,409 shares issued and outstanding at June 30, 2019; 100,000 shares authorized, 45,304 shares issued and outstanding at December 31, 2018 | 454 |
| | 453 |
| |
Common stock, $0.01 par value, 100,000 shares authorized, 45,579 shares issued and outstanding at June 30, 2020; 100,000 shares authorized, 45,416 shares issued and outstanding at December 31, 2019 | | Common stock, $0.01 par value, 100,000 shares authorized, 45,579 shares issued and outstanding at June 30, 2020; 100,000 shares authorized, 45,416 shares issued and outstanding at December 31, 2019 | 456 | | | 454 | |
Additional paid-in capital | 61,705 |
| | 60,303 |
| Additional paid-in capital | 70,065 | | | 67,321 | |
Retained earnings | 1,310,319 |
| | 1,276,473 |
| Retained earnings | 1,439,680 | | | 1,362,631 | |
Accumulated other comprehensive loss | (252,124 | ) | | (242,109 | ) | Accumulated other comprehensive loss | (347,212) | | | (261,018) | |
Total stockholders' equity - PRA Group, Inc. | 1,120,354 |
| | 1,095,120 |
| Total stockholders' equity - PRA Group, Inc. | 1,162,989 | | | 1,169,388 | |
Noncontrolling interest | 30,503 |
| | 28,849 |
| Noncontrolling interest | 31,873 | | | 57,625 | |
Total equity | 1,150,857 |
| | 1,123,969 |
| Total equity | 1,194,862 | | | 1,227,013 | |
Total liabilities and equity | $ | 4,165,414 |
| | $ | 3,909,559 |
| Total liabilities and equity | $ | 4,197,824 | | | $ | 4,423,891 | |
The accompanying notes are an integral part of these consolidated financial statements.
PRA Group, Inc.
Consolidated Income Statements
For the three and six months ended June 30, 20192020 and 20182019
(unaudited)
(Amounts in thousands, except per share amounts)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | | Revenues: | | | | | | | |
Portfolio income | | Portfolio income | $ | 248,284 | | | $ | — | | | $ | 510,306 | | | $ | — | |
Changes in expected recoveries | | Changes in expected recoveries | 19,801 | | | — | | | 6,985 | | | — | |
Income recognized on finance receivables | $ | 249,219 |
| | $ | 219,018 |
| | $ | 488,055 |
| | $ | 437,642 |
| Income recognized on finance receivables | — | | | 249,219 | | | — | | | 488,055 | |
Fee income | 2,707 |
| | 2,342 |
| | 9,081 |
| | 7,669 |
| Fee income | 2,639 | | | 2,707 | | | 4,848 | | | 9,081 | |
Other revenue | 131 |
| | 158 |
| | 798 |
| | 315 |
| Other revenue | 1,186 | | | 131 | | | 1,555 | | | 798 | |
Total revenues | 252,057 |
| | 221,518 |
| | 497,934 |
| | 445,626 |
| Total revenues | 271,910 | | | 252,057 | | | 523,694 | | | 497,934 | |
| | | | | | | | |
Net allowance charges | (1,196 | ) | | (2,834 | ) | | (7,291 | ) | | (3,759 | ) | Net allowance charges | — | | | (1,196) | | | — | | | (7,291) | |
| | | | | | | | |
Operating expenses: | | | | | | | | Operating expenses: | |
Compensation and employee services | 79,808 |
| | 80,690 |
| | 159,453 |
| | 161,927 |
| Compensation and employee services | 70,472 | | | 79,808 | | | 145,643 | | | 159,453 | |
Legal collection fees | 14,297 |
| | 10,343 |
| | 27,356 |
| | 21,012 |
| Legal collection fees | 13,742 | | | 14,297 | | | 28,314 | | | 27,356 | |
Legal collection costs | 33,121 |
| | 18,695 |
| | 68,350 |
| | 40,938 |
| Legal collection costs | 19,507 | | | 33,121 | | | 53,954 | | | 68,350 | |
Agency fees | 13,013 |
| | 8,138 |
| | 27,045 |
| | 16,416 |
| Agency fees | 10,343 | | | 13,013 | | | 23,719 | | | 27,045 | |
Outside fees and services | 16,293 |
| | 14,565 |
| | 31,541 |
| | 28,723 |
| Outside fees and services | 18,683 | | | 16,293 | | | 38,077 | | | 31,541 | |
Communication | 10,824 |
| | 10,782 |
| | 24,025 |
| | 22,339 |
| Communication | 8,812 | | | 10,824 | | | 22,323 | | | 24,025 | |
Rent and occupancy | 4,491 |
| | 4,003 |
| | 8,854 |
| | 8,317 |
| Rent and occupancy | 4,471 | | | 4,491 | | | 8,955 | | | 8,854 | |
Depreciation and amortization | 4,723 |
| | 4,525 |
| | 9,295 |
| | 9,454 |
| Depreciation and amortization | 4,109 | | | 4,723 | | | 8,193 | | | 9,295 | |
Other operating expenses | 10,926 |
| | 11,628 |
| | 22,511 |
| | 23,812 |
| Other operating expenses | 10,491 | | | 10,926 | | | 22,696 | | | 22,511 | |
| Total operating expenses | 187,496 |
| | 163,369 |
| | 378,430 |
| | 332,938 |
| Total operating expenses | 160,630 | | | 187,496 | | | 351,874 | | | 378,430 | |
| Income from operations | 63,365 |
| | 55,315 |
| | 112,213 |
| | 108,929 |
| Income from operations | 111,280 | | | 63,365 | | | 171,820 | | | 112,213 | |
Other income and (expense): | | | | | | | | Other income and (expense): | |
| Interest expense, net | (36,027 | ) | | (31,124 | ) | | (70,008 | ) | | (56,905 | ) | Interest expense, net | (35,416) | | | (36,027) | | | (72,627) | | | (70,008) | |
Foreign exchange | (311 | ) | | 1,690 |
| | 5,953 |
| | 2,983 |
| |
Foreign exchange gain/(loss) | | Foreign exchange gain/(loss) | 683 | | | (311) | | | 2,966 | | | 5,953 | |
Other | 248 |
| | (400 | ) | | (104 | ) | | (157 | ) | Other | (1,582) | | | 248 | | | (1,658) | | | (104) | |
Income before income taxes | 27,275 |
| | 25,481 |
| | 48,054 |
| | 54,850 |
| Income before income taxes | 74,965 | | | 27,275 | | | 100,501 | | | 48,054 | |
Income tax expense | 5,075 |
| | 3,857 |
| | 8,942 |
| | 9,994 |
| Income tax expense | 14,137 | | | 5,075 | | | 17,237 | | | 8,942 | |
Net income | 22,200 |
| | 21,624 |
| | 39,112 |
| | 44,856 |
| Net income | 60,828 | | | 22,200 | | | 83,264 | | | 39,112 | |
Adjustment for net income attributable to noncontrolling interests | 3,581 |
| | 2,036 |
| | 5,266 |
| | 4,162 |
| Adjustment for net income attributable to noncontrolling interests | 2,914 | | | 3,581 | | | 6,215 | | | 5,266 | |
Net income attributable to PRA Group, Inc. | $ | 18,619 |
| | $ | 19,588 |
| | $ | 33,846 |
| | $ | 40,694 |
| Net income attributable to PRA Group, Inc. | $ | 57,914 | | | $ | 18,619 | | | $ | 77,049 | | | $ | 33,846 | |
Net income per common share attributable to PRA Group, Inc.: | | | | | | | | Net income per common share attributable to PRA Group, Inc.: | | | | | | | |
Basic | $ | 0.41 |
| | $ | 0.43 |
| | $ | 0.75 |
| | $ | 0.90 |
| Basic | $ | 1.27 | | | $ | 0.41 | | | $ | 1.69 | | | $ | 0.75 | |
Diluted | $ | 0.41 |
| | $ | 0.43 |
| | $ | 0.74 |
| | $ | 0.90 |
| Diluted | $ | 1.26 | | | $ | 0.41 | | | $ | 1.68 | | | $ | 0.74 | |
Weighted average number of shares outstanding: | | | | | | | | Weighted average number of shares outstanding: | |
Basic | 45,387 |
| | 45,283 |
| | 45,363 |
| | 45,257 |
| Basic | 45,548 | | | 45,387 | | | 45,500 | | | 45,363 | |
Diluted | 45,495 |
| | 45,449 |
| | 45,457 |
| | 45,410 |
| Diluted | 45,987 | | | 45,495 | | | 45,886 | | | 45,457 | |
The accompanying notes are an integral part of these consolidated financial statements.
PRA Group, Inc.
Consolidated Statements of Comprehensive Income/(Loss)
For the three and six months ended June 30, 20192020 and 20182019
(unaudited)
(Amounts in thousands)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 |
Net income | $ | 22,200 |
| | $ | 21,624 |
| | $ | 39,112 |
| | $ | 44,856 |
| Net income | $ | 60,828 | | | $ | 22,200 | | | $ | 83,264 | | | $ | 39,112 | |
Less net income attributable to noncontrolling interests | 3,581 |
| | 2,036 |
| | 5,266 |
| | 4,162 |
| |
Net income attributable to PRA Group, Inc. | 18,619 |
| | 19,588 |
| | 33,846 |
| | 40,694 |
| |
Other comprehensive income/(loss), net of tax: | | | | | | | | Other comprehensive income/(loss), net of tax: | |
Currency translation adjustments | 4,740 |
| | (60,697 | ) | | 3,567 |
| | (30,756 | ) | Currency translation adjustments | 28,923 | | | 4,740 | | | (79,153) | | | 3,567 | |
Cash flow hedges | (8,002 | ) | | — |
| | (13,717 | ) | | — |
| Cash flow hedges | (3,753) | | | (8,002) | | | (24,321) | | | (13,717) | |
Debt securities available-for-sale | 37 |
| | — |
| | 82 |
| | — |
| Debt securities available-for-sale | 51 | | | 37 | | | 221 | | | 82 | |
Other comprehensive (loss) | (3,225 | ) | | (60,697 | ) | | (10,068 | ) | | (30,756 | ) | |
Less other comprehensive income/(loss) attributable to noncontrolling interests | 378 |
| | (7,217 | ) | | (53 | ) | | (196 | ) | |
Other comprehensive (loss) attributable to PRA Group, Inc. | (3,603 | ) | | (53,480 | ) | | (10,015 | ) | | (30,560 | ) | |
Other comprehensive income/(loss) | | Other comprehensive income/(loss) | 25,221 | | | (3,225) | | | (103,253) | | | (10,068) | |
Total comprehensive income/(loss) | | Total comprehensive income/(loss) | 86,049 | | | 18,975 | | | (19,989) | | | 29,044 | |
Less comprehensive (loss)/ income attributable to noncontrolling interests | | Less comprehensive (loss)/ income attributable to noncontrolling interests | (270) | | | 3,959 | | | (10,844) | | | 5,213 | |
Comprehensive income/(loss) attributable to PRA Group, Inc. | $ | 15,016 |
| | $ | (33,892 | ) | | $ | 23,831 |
| | $ | 10,134 |
| Comprehensive income/(loss) attributable to PRA Group, Inc. | $ | 86,319 | | | $ | 15,016 | | | $ | (9,145) | | | $ | 23,831 | |
The accompanying notes are an integral part of these consolidated financial statements.
PRA Group, Inc.
Consolidated StatementStatements of Changes in Equity
For the three and six months ended June 30, 2019 and 20182020
(unaudited)
(Amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) | | Noncontrolling Interest | | Total Equity | |
| Shares | | Amount | | | | | | | | | | | |
Balance at December 31, 2019 | 45,416 | | | $ | 454 | | | $ | 67,321 | | | $ | 1,362,631 | | | $ | (261,018) | | | $ | 57,625 | | | $ | 1,227,013 | | |
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| | | | | | | | | | | | | | |
Components of comprehensive income, net of tax: | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | 19,135 | | | — | | | 3,301 | | | 22,436 | | |
Currency translation adjustments | — | | | — | | | — | | | — | | | (94,201) | | | (13,875) | | | (108,076) | | |
Cash flow hedges | — | | | — | | | — | | | — | | | (20,568) | | | — | | | (20,568) | | |
| | | | | | | | | | | | | | |
Debt securities available-for-sale | — | | | — | | | — | | | — | | | 170 | | | — | | | 170 | | |
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Vesting of restricted stock | 124 | | | 1 | | | — | | | — | | | — | | | — | | | 1 | | |
| | | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | 2,857 | | | — | | | — | | | — | | | 2,857 | | |
| | | | | | | | | | | | | | |
Employee stock relinquished for payment of taxes | — | | | — | | | (3,157) | | | — | | | — | | | — | | | (3,157) | | |
| | | | | | | | | | | | | | |
Balance at March 31, 2020 | 45,540 | | | $ | 455 | | | $ | 67,021 | | | $ | 1,381,766 | | | $ | (375,617) | | | $ | 47,051 | | | $ | 1,120,676 | | |
Components of comprehensive income, net of tax: | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | 57,914 | | | — | | | 2,914 | | | 60,828 | | |
Currency translation adjustments | — | | | — | | | — | | | — | | | 32,107 | | | (3,184) | | | 28,923 | | |
Cash flow hedges | — | | | — | | | — | | | — | | | (3,753) | | | — | | | (3,753) | | |
Debt securities available-for-sale | — | | | — | | | — | | | — | | | 51 | | | — | | | 51 | | |
Distributions to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | (14,908) | | | (14,908) | | |
| | | | | | | | | | | | | | |
Vesting of restricted stock | 39 | | | 1 | | | (1) | | | — | | | — | | | — | | | — | | |
Share-based compensation expense | — | | | — | | | 3,063 | | | — | | | — | | | — | | | 3,063 | | |
Employee stock relinquished for payment of taxes | — | | | — | | | (18) | | | — | | | — | | | — | | | (18) | | |
| | | | | | | | | | | | | | |
Balance at June 30, 2020 | 45,579 | | | $ | 456 | | | $ | 70,065 | | | $ | 1,439,680 | | | $ | (347,212) | | | $ | 31,873 | | | $ | 1,194,862 | | |
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| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) | | Noncontrolling Interest | | Total Equity |
| Shares | | Amount | | | | | |
Balance at December 31, 2018 | 45,304 |
| | $ | 453 |
| | $ | 60,303 |
| | $ | 1,276,473 |
| | $ | (242,109 | ) | | $ | 28,849 |
| | $ | 1,123,969 |
|
Components of comprehensive income, net of tax: | | | | | | | | | | | | | |
Net income | — |
| | — |
| | — |
| | 15,227 |
| | — |
| | 1,685 |
| | 16,912 |
|
Currency translation adjustments | — |
| | — |
| | — |
| | — |
| | (742 | ) | | (431 | ) | | (1,173 | ) |
Cash flow hedges | — |
| | — |
| | — |
| | — |
| | (5,715 | ) | | — |
| | (5,715 | ) |
Debt securities available-for-sale | — |
| | — |
| | — |
| | — |
| | 45 |
| | — |
| | 45 |
|
Distributions to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | (6,877 | ) | | (6,877 | ) |
Contributions from noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | 89 |
| | 89 |
|
Vesting of restricted stock | 80 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Share-based compensation expense | — |
| | — |
| | 2,314 |
| | — |
| | — |
| | — |
| | 2,314 |
|
Employee stock relinquished for payment of taxes | — |
| | — |
| | (1,437 | ) | | — |
| | — |
| | — |
| | (1,437 | ) |
Other | — |
| | — |
| | (2,088 | ) | | — |
| | — |
| | — |
| | (2,088 | ) |
Balance at March 31, 2019 | 45,384 |
| | $ | 454 |
| | $ | 59,091 |
| | $ | 1,291,700 |
| | $ | (248,521 | ) | | $ | 23,315 |
| | $ | 1,126,039 |
|
Components of comprehensive income, net of tax: | | | | | | | | | | | | | |
Net income | — |
| | — |
| | — |
| | 18,619 |
| | — |
| | 3,581 |
| | 22,200 |
|
Currency translation adjustments | — |
| | — |
| | — |
| | — |
| | 4,362 |
| | 378 |
| | 4,740 |
|
Cash flow hedges | — |
| | — |
| | — |
| | — |
| | (8,002 | ) | | — |
| | (8,002 | ) |
Debt securities available-for-sale | — |
| | — |
| | — |
| | — |
| | 37 |
| | — |
| | 37 |
|
Contributions from noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | 3,229 |
| | 3,229 |
|
Vesting of restricted stock | 25 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Share-based compensation expense | — |
| | — |
| | 2,620 |
| | — |
| | — |
| | — |
| | 2,620 |
|
Employee stock relinquished for payment of taxes | — |
| | — |
| | (6 | ) | | — |
| | — |
| | — |
| | (6 | ) |
Balance at June 30, 2019 | 45,409 |
| | $ | 454 |
| | $ | 61,705 |
| | $ | 1,310,319 |
| | $ | (252,124 | ) | | $ | 30,503 |
| | $ | 1,150,857 |
|
| | | | | | | | | | | | | |
Balance at December 31, 2017 | 45,189 |
| | $ | 452 |
| | $ | 53,870 |
| | $ | 1,214,840 |
| | $ | (178,607 | ) | | $ | 50,162 |
| | $ | 1,140,717 |
|
Cumulative effect of change in accounting principle - equity securities (1) | — |
| | — |
| | — |
| | (3,930 | ) | | — |
| | — |
| | (3,930 | ) |
Balance at January 1, 2018 | 45,189 |
| | 452 |
| | 53,870 |
| | 1,210,910 |
| | (178,607 | ) | | 50,162 |
| | 1,136,787 |
|
Components of comprehensive income, net of tax: | | | | | | | | | | | | | |
Net income | — |
| | — |
| | — |
| | 21,106 |
| | — |
| | 2,126 |
| | 23,232 |
|
Currency translation adjustments | — |
| | — |
| | — |
| | — |
| | 22,920 |
| | 7,021 |
| | 29,941 |
|
Distributions to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | (11,807 | ) | | (11,807 | ) |
Vesting of restricted stock | 86 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Share-based compensation expense | — |
| | — |
| | 2,415 |
| | — |
| | — |
| | — |
| | 2,415 |
|
Employee stock relinquished for payment of taxes | — |
| | — |
| | (2,013 | ) | | — |
| | — |
| | — |
| | (2,013 | ) |
Balance at March 31, 2018 | 45,275 |
| | $ | 453 |
| | $ | 54,271 |
| | $ | 1,232,016 |
| | $ | (155,687 | ) | | $ | 47,502 |
| | $ | 1,178,555 |
|
Components of comprehensive income, net of tax: | | | | | | | | | | | | | |
Net income | — |
| | — |
| | — |
| | 19,588 |
| | — |
| | 2,036 |
| | 21,624 |
|
Currency translation adjustments | — |
| | — |
| | — |
| | — |
| | (53,480 | ) | | (7,217 | ) | | (60,697 | ) |
Distributions to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | (928 | ) | | (928 | ) |
Vesting of restricted stock | 25 |
| | — |
| | — |
| | — |
| | — |
| | | | — |
|
Share-based compensation expense | | | | | 2,146 |
| | — |
| | — |
| | | | 2,146 |
|
Employee stock relinquished for payment of taxes | | | | | (7 | ) | | — |
| | — |
| | | | (7 | ) |
Balance at June 30, 2018 | 45,300 |
| | $ | 453 |
| | $ | 56,410 |
| | $ | 1,251,604 |
| | $ | (209,167 | ) | | $ | 41,393 |
| | $ | 1,140,693 |
|
PRA Group, Inc.(1) Relates toConsolidated Statements of Changes in Equity
For the adoption of FASB ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"). Refer to Note 3 for further detail.six months ended June 30, 2019
(unaudited)
(Amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) | | Noncontrolling Interest | | Total Equity | |
| Shares | | Amount | | | | | | | | | | | |
Balance at December 31, 2018 | 45,304 | | | $ | 453 | | | $ | 60,303 | | | $ | 1,276,473 | | | $ | (242,109) | | | $ | 28,849 | | | $ | 1,123,969 | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Components of comprehensive income, net of tax: | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | 15,227 | | | — | | | 1,685 | | | 16,912 | | |
Currency translation adjustments | — | | | — | | | — | | | — | | | (742) | | | (431) | | | (1,173) | | |
Cash flow hedges | — | | | — | | | — | | | — | | | (5,715) | | | — | | | (5,715) | | |
Debt securities available-for-sale | — | | | — | | | — | | | — | | | 45 | | | — | | | 45 | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Distributions to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | (6,877) | | | (6,877) | | |
Contributions from noncontrolling interest | — | | | — | | | — | | | — | | | — | | | 89 | | | 89 | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Vesting of restricted stock | 80 | | | 1 | | | (1) | | | — | | | — | | | — | | | — | | |
| | | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | 2,314 | | | — | | | — | | | — | | | 2,314 | | |
| | | | | | | | | | | | | | |
Employee stock relinquished for payment of taxes | — | | | — | | | (1,437) | | | — | | | — | | | — | | | (1,437) | | |
Other | — | | | — | | | (2,088) | | | — | | | — | | | — | | | (2,088) | | |
Balance at March 31, 2019 | 45,384 | | | $ | 454 | | | $ | 59,091 | | | $ | 1,291,700 | | | $ | (248,521) | | | $ | 23,315 | | | $ | 1,126,039 | | |
Components of comprehensive income, net of tax: | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | 18,619 | | | — | | | 3,581 | | | 22,200 | | |
Currency translation adjustments | — | | | — | | | — | | | — | | | 4,362 | | | 378 | | | 4,740 | | |
Cash flow hedges | — | | | — | | | — | | | — | | | (8,002) | | | — | | | (8,002) | | |
Debt securities available-for-sale | — | | | — | | | — | | | — | | | 37 | | | — | | | 37 | | |
| | | | | | | | | | | | | | |
Contributions from noncontrolling interest | — | | | — | | | — | | | — | | | — | | | 3,229 | | | 3,229 | | |
Vesting of restricted stock | 25 | | | — | | | — | | | — | | | — | | | — | | | — | | |
Share-based compensation expense | — | | | — | | | 2,620 | | | — | | | — | | | — | | | 2,620 | | |
Employee stock relinquished for payment of taxes | — | | | — | | | (6) | | | — | | | — | | | — | | | (6) | | |
| | | | | | | | | | | | | | |
Balance at June 30, 2019 | 45,409 | | | $ | 454 | | | $ | 61,705 | | | $ | 1,310,319 | | | $ | (252,124) | | | $ | 30,503 | | | $ | 1,150,857 | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
PRA Group, Inc.
Consolidated Statements of Cash Flows
For the six months ended June 30, 20192020 and 20182019
(unaudited)
(Amounts in thousands)
| | | Six Months Ended June 30, | | Six Months Ended June 30, | |
| 2019 | | 2018 | | 2020 | | 2019 |
Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income | $ | 39,112 |
| | $ | 44,856 |
| Net income | $ | 83,264 | | | $ | 39,112 | |
Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Share-based compensation expense | 4,934 |
| | 4,561 |
| Share-based compensation expense | 5,920 | | | 4,934 | |
Depreciation and amortization | 9,295 |
| | 9,454 |
| Depreciation and amortization | 8,193 | | | 9,295 | |
| Amortization of debt discount and issuance costs | 11,403 |
| | 10,866 |
| Amortization of debt discount and issuance costs | 11,846 | | | 11,403 | |
Changes in expected recoveries | | Changes in expected recoveries | (6,985) | | | — | |
| Deferred income taxes | (25,287 | ) | | (32,805 | ) | Deferred income taxes | (21,361) | | | (25,287) | |
Net unrealized foreign currency transactions | (7,437 | ) | | 455 |
| Net unrealized foreign currency transactions | 33,320 | | | (7,437) | |
Fair value in earnings for equity securities | (1,448 | ) | | (2,781 | ) | Fair value in earnings for equity securities | 1,412 | | | (1,448) | |
Net allowance charges | 7,291 |
| | 3,759 |
| Net allowance charges | — | | | 7,291 | |
Other | | Other | (256) | | | — | |
| Changes in operating assets and liabilities: | | | | Changes in operating assets and liabilities: | |
Other assets | 1,863 |
| | (1,685 | ) | Other assets | 256 | | | 1,863 | |
Other receivables, net | 2,978 |
| | 1,073 |
| Other receivables, net | (4,733) | | | 2,978 | |
Accounts payable | (2,956 | ) | | 145 |
| Accounts payable | 507 | | | (2,956) | |
Income taxes payable, net | (8,766 | ) | | (857 | ) | Income taxes payable, net | 22,527 | | | (8,766) | |
Accrued expenses | (1,979 | ) | | (5,767 | ) | Accrued expenses | (13,336) | | | (1,979) | |
Other liabilities | 1,799 |
| | (438 | ) | Other liabilities | 1,821 | | | 1,799 | |
Right of use asset/lease liability | | Right of use asset/lease liability | 105 | | | — | |
Other, net | 146 |
| | — |
| Other, net | — | | | 146 | |
Net cash provided by operating activities | 30,948 |
| | 30,836 |
| Net cash provided by operating activities | 122,500 | | | 30,948 | |
Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Purchases of property and equipment | (5,646 | ) | | (11,303 | ) | |
Acquisition of finance receivables | (549,377 | ) | | (385,823 | ) | |
Net, purchases of property and equipment | | Net, purchases of property and equipment | (10,597) | | | (5,646) | |
| Purchases of finance receivables | | Purchases of finance receivables | (436,097) | | | (549,377) | |
Recoveries applied to negative allowance | | Recoveries applied to negative allowance | 501,583 | | | — | |
Collections applied to principal on finance receivables | 443,390 |
| | 395,572 |
| Collections applied to principal on finance receivables | — | | | 443,390 | |
Business acquisition, net of cash acquired | (57,610 | ) | | — |
| |
Proceeds from sale of subsidiaries, net | 31,177 |
| | — |
| |
Purchase of investments | (82,648 | ) | | (15,171 | ) | Purchase of investments | (8,317) | | | (82,648) | |
Proceeds from sales and maturities of investments | 43,011 |
| | 3,519 |
| Proceeds from sales and maturities of investments | 41,505 | | | 43,011 | |
Net cash used in investing activities | (177,703 | ) | | (13,206 | ) | |
Business acquisition, net of cash acquired | | Business acquisition, net of cash acquired | — | | | (57,610) | |
| Proceeds from sale of subsidiaries, net | | Proceeds from sale of subsidiaries, net | — | | | 31,177 | |
Net cash provided by/(used in) investing activities | | Net cash provided by/(used in) investing activities | 88,077 | | | (177,703) | |
Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Proceeds from lines of credit | 769,021 |
| | 236,015 |
| Proceeds from lines of credit | 395,152 | | | 769,021 | |
Principal payments on lines of credit | (324,103 | ) | | (258,857 | ) | Principal payments on lines of credit | (568,912) | | | (324,103) | |
Principal payments on notes payable and long-term debt | | Principal payments on notes payable and long-term debt | (5,000) | | | (308,165) | |
| Payments of origination cost and fees | | Payments of origination cost and fees | (9,781) | | | — | |
Tax withholdings related to share-based payments | (1,443 | ) | | (2,020 | ) | Tax withholdings related to share-based payments | (3,176) | | | (1,443) | |
Distributions paid to noncontrolling interest | (6,877 | ) | | (13,392 | ) | Distributions paid to noncontrolling interest | (14,908) | | | (6,877) | |
| Purchase of noncontrolling interest | (1,166 | ) | | — |
| Purchase of noncontrolling interest | — | | | (1,166) | |
Principal payments on notes payable and long-term debt | (308,165 | ) | | (5,000 | ) | |
Payments of origination costs and fees | — |
| | (404 | ) | |
Net increase/(decrease) in interest-bearing deposits | 28,429 |
| | (8,314 | ) | |
Other | 1,141 |
| | — |
| |
Net cash provided by/(used in) financing activities | 156,837 |
| | (51,972 | ) | |
| Net increase in interest-bearing deposits | | Net increase in interest-bearing deposits | 13,675 | | | 28,429 | |
Other financing activities | | Other financing activities | — | | | 1,141 | |
| Net cash (used in)/provided by financing activities | | Net cash (used in)/provided by financing activities | (192,950) | | | 156,837 | |
Effect of exchange rate on cash | (3,281 | ) | | (14,604 | ) | Effect of exchange rate on cash | (16,503) | | | (3,281) | |
Net increase/(decrease) in cash and cash equivalents | 6,801 |
| | (48,946 | ) | |
Net increase in cash and cash equivalents | | Net increase in cash and cash equivalents | 1,124 | | | 6,801 | |
Cash and cash equivalents, beginning of period | 98,695 |
| | 120,516 |
| Cash and cash equivalents, beginning of period | 123,807 | | | 98,695 | |
Cash and cash equivalents, end of period | $ | 105,496 |
| | $ | 71,570 |
| Cash and cash equivalents, end of period | $ | 124,931 | | | $ | 105,496 | |
Supplemental disclosure of cash flow information: | | | | Supplemental disclosure of cash flow information: | | | |
Cash paid for interest | $ | 54,973 |
| | $ | 46,897 |
| Cash paid for interest | $ | 60,618 | | | $ | 54,973 | |
Cash paid for income taxes | 42,172 |
| | 48,522 |
| Cash paid for income taxes | 16,796 | | | 42,172 | |
Cash, cash equivalents and restricted cash reconciliation: | | Cash, cash equivalents and restricted cash reconciliation: | |
Cash and cash equivalents per Consolidated Balance Sheets | | Cash and cash equivalents per Consolidated Balance Sheets | $ | 115,741 | | | $ | 105,496 | |
Restricted cash included in Other assets per Consolidated Balance Sheets | | Restricted cash included in Other assets per Consolidated Balance Sheets | 9,190 | | | — | |
Total cash, cash equivalents and restricted cash | | Total cash, cash equivalents and restricted cash | $ | 124,931 | | | $ | 105,496 | |
|
The accompanying notes are an integral part of these consolidated financial statements.
PRA Group, Inc.
Notes to Consolidated Financial Statements
1. Organization and Business:
As used herein, the terms "PRA Group," "the Company,the "Company," or similar terms refer to PRA Group, Inc. and its subsidiaries.
PRA Group, Inc., a Delaware corporation, is a global financial and business services company with operations in the Americas, Europe and Europe.Australia. The Company's primary business is the purchase, collection and management of portfolios of nonperforming loans. The Company also provides fee-based services on class action claims recoveries and by servicing consumer bankruptcy accounts in the United States ("U.S.").
On March 11, 2020, due to the global outbreak of the novel coronavirus ("COVID-19"), the World Health Organization declared a global pandemic. Since the initial outbreak was reported, COVID-19 has continued to adversely impact all countries in which the Company operates. As a result, the Company continues to operate in business continuity mode globally. The Company's business continuity plans have allowed the Company to operate its business while minimizing disruption and complying with country-specific, federal, state and local laws, regulations and governmental actions related to the pandemic.
Basis of presentation: The consolidated financial statements of the Company are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The accompanying interim financial statements have been prepared in accordance with the instructions for Quarterly Reports on Form 10-Q and, therefore, do not include all information and Notes to the Consolidated Financial Statements necessary for a complete presentation of financial position, results of operations, comprehensive income/(loss) and cash flows in conformity with GAAP. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the Company's Consolidated Balance Sheets as of June 30, 2020, its Consolidated Income Statements, and its Consolidated Statements of Comprehensive Income/(Loss) for the three and six months ended June 30, 2020 and 2019, and its Consolidated Statements of Changes in Equity and Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019, have been included. The Consolidated Income Statements of the Company for the three and six months ended June 30, 2020 may not be indicative of future results.
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Form 10-K").
Consolidation: The consolidated financial statements include the accounts of all of its subsidiaries.PRA Group and other entities in which the Company has a controlling interest. All significant intercompany accounts and transactions have been eliminated.
Entities in which the Company has a controlling financial interest, through ownership of the majority of the entities’ voting equity interests, or through other contractual rights that give the Company control, consist of entities which purchase and collect on portfolios of nonperforming loans.
Investments in companies in which the Company has significant influence over operating and financing decisions, but does not own a majority of the voting equity interests, are accounted for in accordance with the equity method of accounting, which requires the Company to recognize its proportionate share of the entity’s net earnings. These investments are included in other assets, with income or loss included in other revenue.
The Company performs on-going reassessments whether changes in the facts and circumstances regarding the Company’s involvement with an entity cause the Company’s consolidation conclusion to change.
Restricted cash: Cash that is subject to legal restrictions or is unavailable for general operating purposes is classified as restricted cash.
Segments: Under the guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 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 one1 reportable segment, accounts receivable management. This conclusion is based on similarities among the operating units, including economic characteristics, the nature of the products and services, the nature of the production processes, the types or class of customer for their products and services, the methods used to distribute their products and services and the nature of the regulatory environment.
PRA Group, Inc.
Notes to Consolidated Financial Statements
The following table shows the amount of revenue generated for the three and six months ended June 30, 20192020 and 2018, respectively,2019, and long-lived assets held at June 30, 20192020 and 2018, respectively,2019, both for the U.S., the Company's country of domicile, and outside of the U.S. (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| As of and for the | | | | As of and for the | | |
| Three Months Ended June 30, 2020 | | | | Three Months Ended June 30, 2019 | | |
| Revenues | | Long-Lived Assets | | Revenues | | Long-Lived Assets |
United States | $ | 192,293 | | | $ | 105,996 | | | $ | 167,923 | | | $ | 110,323 | |
United Kingdom | 28,041 | | | 2,755 | | | 28,292 | | | 3,917 | |
Other (1) | 51,576 | | | 8,747 | | | 55,842 | | | 10,061 | |
Total | $ | 271,910 | | | $ | 117,498 | | | $ | 252,057 | | | $ | 124,301 | |
| | | | | | | |
| As of and for the | | | | As of and for the | | |
| Six Months Ended June 30, 2020 | | | | Six Months Ended June 30, 2019 | | |
| Revenues | | Long-Lived Assets | | Revenues | | Long-Lived Assets |
United States | $ | 345,628 | | | $ | 105,996 | | | $ | 335,499 | | | $ | 110,323 | |
United Kingdom | 64,381 | | | 2,755 | | | 58,048 | | | 3,917 | |
Other (1) | 113,685 | | | 8,747 | | | 104,387 | | | 10,061 | |
Total | $ | 523,694 | | | $ | 117,498 | | | $ | 497,934 | | | $ | 124,301 | |
|
| | | | | | | | | | | | | | | |
| As of and for the | | As of and for the |
| Three Months Ended June 30, 2019 | | Three Months Ended June 30, 2018 |
| Revenues | | Long-Lived Assets | | Revenues | | Long-Lived Assets |
United States | $ | 167,923 |
| | $ | 110,323 |
| | $ | 150,937 |
| | $ | 46,757 |
|
United Kingdom | 28,292 |
| | 3,917 |
| | 24,829 |
| | 1,817 |
|
Other (1) | 55,842 |
| | 10,061 |
| | 45,752 |
| | 4,790 |
|
Total | $ | 252,057 |
| | $ | 124,301 |
| | $ | 221,518 |
| | $ | 53,364 |
|
| | | | | | | |
| As of and for the | | As of and for the |
| Six Months Ended June 30, 2019 | | Six Months Ended June 30, 2018 |
| Revenues | | Long-Lived Assets | | Revenues | | Long-Lived Assets |
United States | $ | 335,499 |
| | $ | 110,323 |
| | $ | 304,339 |
| | $ | 46,757 |
|
United Kingdom | 58,048 |
| | 3,917 |
| | 49,555 |
| | 1,817 |
|
Other (1) | 104,387 |
| | 10,061 |
| | 91,732 |
| | 4,790 |
|
Total | $ | 497,934 |
| | $ | 124,301 |
| | $ | 445,626 |
| | $ | 53,364 |
|
(1) None of the countries included in "Other" comprise greater than 10% of the Company's consolidated revenues or long-lived assets.Revenues are attributed to countries based on the location of the related operations. Long-lived assets consist of net property and equipment and right-of-use assets. The Company reports revenues earned from nonperforming loan purchasingacquisitions and collection activities, fee-based services and its investments. For additional information on the Company's investments, see Note 3.4. It is impracticable for the Company to report further breakdowns of revenues from external customers by product or service.
Beginning January 1, 2020, the Company implemented Accounting Standards Update ("ASU") ASU 2016-13, "Financial Instruments - Credit Losses" ("Topic 326") ("ASU 2016-13") and ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (“ASU 2019-11”), collectively referred to as "ASC 326", on a prospective basis. Prior to January 1, 2020, the vast majority of the Company's investment in finance receivables were accounted for under ASC 310-30 "Loans and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC 310-30"). Refer to Note 2.
Finance receivables and income recognition: The accompanying interimCompany accounts for its investment in finance receivables at amortized cost under the guidance of ASC Topic 310 “Receivables” (“ASC 310”) and ASC Topic 326-20 “Financial Instruments - Credit Losses - Measured at Amortized Cost” (“ASC 326-20”). ASC 326-20 requires a financial statementsasset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.
Credit quality information: The Company acquires portfolios of accounts that have been preparedexperienced deterioration of credit quality between origination and the Company's acquisition of the accounts. The amount paid for a portfolio reflects the Company's determination that it is probable the Company will be unable to collect all amounts due according to an account's contractual terms. The Company accounts for the portfolios in accordance with the instructionsguidance for purchased credit deteriorated ("PCD") assets. The initial allowance for credit losses is added to the purchase price rather than recorded as a credit loss expense. The Company has established a policy to writeoff the amortized cost of individual assets when it deems probable that it will not collect on an individual asset. Due to the deteriorated credit quality of the individual accounts, the Company may writeoff the unpaid principal balance of all accounts in a portfolio at the time of acquisition. However, when the Company has an expectation of collecting cash flows at the portfolio level, a negative allowance is established for expected recoveries at an amount not to exceed the amount paid for the financial portfolios.
Portfolio segments: The Company develops systematic methodologies to determine its allowance for credit losses at the portfolio segment level. The Company’s nonperforming loan portfolio segments consist of two broad categories: Core and Insolvency. The Company’s Core portfolios contain loan accounts that are in default, which were purchased at a substantial discount to face value because either the credit grantor and/or other third-party collection agencies have been unsuccessful in collecting the full balance owed. The Company’s Insolvency portfolios contain loan accounts that are in default where the customer is involved in a bankruptcy or insolvency proceeding and were purchased at a substantial discount to face value. Each of the two broad portfolio segments of purchased nonperforming loan portfolios consist of large numbers of homogeneous receivables with similar risk characteristics.
PRA Group, Inc.
Notes to Consolidated Financial Statements
Effective interest rate and accounting pools: Within each portfolio segment, the Company pools accounts with similar risk characteristics that are acquired in the same year. Similar risk characteristics generally include portfolio segment and geographic region. The initial effective interest rate of the pool is established based on the purchase price and expected recoveries of each individual purchase at the purchase date. During the year of acquisition, the annual pool is aggregated, and the blended effective interest rate will change to reflect new acquisitions and new cash flow estimates until the end of the year. The effective interest rate for a pool is fixed for the remaining life of the pool once the year has ended.
Methodology: The Company develops its estimates of expected recoveries in the Consolidated Balance Sheets by applying discounted cash flow methodologies to its estimated remaining collections (“ERC”) and recognizes income over the estimated life of the pool at the constant effective interest rate of the pool. Subsequent changes (favorable and unfavorable) in expected cash flows are recognized within changes in expected recoveries in the Consolidated Income Statements by adjusting the present value of increases or decreases in ERC at a constant effective interest rate. Amounts included in the estimate of recoveries do not exceed the aggregate amount of the amortized cost basis previously written off or expected to be written off.
The measurement of expected recoveries is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Factors that may contribute to the changes in estimated cash flows include both external and internal factors. External factors that may have an impact on the collectability, and subsequently on the overall profitability of acquired pools of nonperforming loans, would include new laws or regulations relating to collections, new interpretations of existing laws or regulations, and the overall condition of the economy. Internal factors that may have an impact on the collectability, and subsequently the overall profitability of acquired pools of nonperforming loans, would include necessary revisions to initial and post-acquisition scoring and modeling estimates, operational activities, expected impact of operational strategies and changes in productivity related to turnover and tenure of the Company's collection staff.
Portfolio income: The recognition of income on expected recoveries is based on the constant effective interest rate established for a pool.
Changes in expected recoveries: The activity consists of differences between actual recoveries compared to expected recoveries for the reporting period, as well as the net present value of increases or decreases in ERC at the constant effective interest rate.
Agreements to acquire the aforementioned receivables include general representations and warranties from the sellers covering matters such as account holder death or insolvency and accounts settled or disputed prior to sale. The representation and warranty period permitting the return of these accounts from the Company to the seller is typically 90 to 180 days, with certain international agreements extending as long as 24 months. Any funds received from the seller as a return of purchase price are referred to as buybacks. Buyback funds are included in changes in expected recoveries when received.
Fees paid to third parties other than the seller related to the direct acquisition of a portfolio of accounts are expensed when incurred.
Goodwill and intangible assets: Goodwill, in accordance with ASC Topic 350, "Intangibles-Goodwill and Other" ("ASC 350"), is not amortized but rather is reviewed for impairment annually or more frequently if indicators of potential impairment exist. On January 1, 2020, the Company adopted ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"). The Company performs its annual assessment of goodwill as of October 1. The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, an impairment loss is recognized. The loss will be recorded at the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the respective reporting unit.
2. Change in Accounting Principle:
Financial Instruments - Credit Losses
In June 2016, FASB issued ASU 2016-13, which introduced a new methodology requiring the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity debt securities and other receivables measured at amortized cost. The
PRA Group, Inc.
Notes to Consolidated Financial Statements
new methodology requires an entity to present on the balance sheet the net amount expected to be collected. This methodology replaces the multiple impairment methods under prior GAAP, including for purchased credit impaired ("PCI") assets, and introduces the concept of PCD assets. The Company's PCI assets previously accounted for under ASC 310-30 are now accounted for as PCD assets upon adoption. ASU 2016-13 requires PCD assets to be recognized at their purchase price plus the allowance for credit losses expected at the time of acquisition. ASU 2016-13 also requires that financial assets should be written off when they are deemed uncollectible.
In November 2019, FASB issued ASU 2019-11, which amended the PCD asset guidance in ASU 2016-13 to clarify that expected recoveries of amounts previously written off and expected to be written off should be included in the valuation account. Additionally, they should not exceed the aggregate of amounts previously written off and expected to be written off by an entity. Further, ASU 2019-11 clarifies that a negative allowance is recognized when an entity determines, after a full or partial writeoff of the amortized cost basis, that it will recover all or a portion of the basis.
The Company adopted ASC 326 on January 1, 2020 on a prospective basis. In accordance with the guidance, substantially all the Company’s PCI assets were transitioned using the PCD guidance, with immediate writeoff of the amortized cost basis of individual accounts and establishment of a negative allowance for expected recoveries equal to the amortized cost basis written off. Accounts previously accounted for under ASC 310-30, were aggregated into annual pools based on similar risk characteristics and an effective interest rate was established based on the estimated remaining cash flows of the annual pool. The immediate writeoff and subsequent recognition of expected recoveries had no impact on the Company’s Consolidated Income Statements or the Consolidated Balance Sheets at the date of adoption. The Company develops its estimate of expected recoveries by applying discounted cash flow methodologies to its ERC and recognizes income over the estimated life of the pool at the constant effective interest rate of the pool. Changes (favorable and unfavorable) in expected cash flows are recognized in current period earnings by adjusting the present value of the changes in expected recoveries.
Following the transition guidance for PCD assets, the Company grossed up the amortized cost of its net finance receivables at January 1, 2020 as shown below (amounts in thousands):
| | | | | |
Amortized cost | $ | 3,514,165 | |
Allowance for credit losses | 125,757,689 | |
Noncredit discount | 3,240,131 | |
Face value | $ | 132,511,985 | |
| |
Allowance for credit losses | $ | 125,757,689 | |
Writeoffs, net | (125,757,689) | |
Expected recoveries | 3,514,165 | |
Initial negative allowance for expected recoveries | $ | 3,514,165 | |
3. Finance Receivables, net:
Finance Receivables, net after the adoption of ASC 326 (refer to Note 2)
Finance receivables, net consists of the following at June 30, 2020 (amounts in thousands):
| | | | | |
Amortized cost | $ | — | |
Negative allowance for expected recoveries (1) | 3,351,532 | |
Balance at end of period | $ | 3,351,532 | |
(1) The negative allowance balance includes certain portfolios of nonperforming loans for which the Company holds a beneficial interest representing approximately 1% of the balance.
PRA Group, Inc.
Notes to Consolidated Financial Statements
Three Months Ended June 30, 2020
Changes in the negative allowance for expected recoveries by portfolio segment for the three months ended June 30, 2020 were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| For the three months ended June 30, 2020 | | | | |
| Core | | Insolvency | | Total |
Balance at beginning of period | $ | 2,949,384 | | | $ | 458,690 | | | $ | 3,408,074 | |
Initial negative allowance for expected recoveries - portfolio acquisitions (1) | 144,721 | | | 19,778 | | | 164,499 | |
Foreign currency translation adjustment | 24,215 | | | (130) | | | 24,085 | |
Recoveries applied to negative allowance (2) | (231,435) | | | (33,492) | | | (264,927) | |
Changes in expected recoveries (3) | 21,251 | | | (1,450) | | | 19,801 | |
Balance at end of period | $ | 2,908,136 | | | $ | 443,396 | | | $ | 3,351,532 | |
(1) Initial negative allowance for expected recoveries - portfolio acquisitions
Portfolio acquisitions for the three months ended June 30, 2020 were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| For the three months ended June 30, 2020 | | | | |
| Core | | Insolvency | | Total |
Face value | $ | 1,288,243 | | | $ | 96,964 | | | $ | 1,385,207 | |
Noncredit discount | (160,409) | | | (7,979) | | | (168,388) | |
Allowance for credit losses at acquisition | (983,113) | | | (69,207) | | | (1,052,320) | |
Purchase price | $ | 144,721 | | | $ | 19,778 | | | $ | 164,499 | |
The initial negative allowance recorded on portfolio acquisitions for the three months ended June 30, 2020 were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| For the three months ended June 30, 2020 | | | | |
| Core | | Insolvency | | Total |
Allowance for credit losses at acquisition | $ | (983,113) | | | $ | (69,207) | | | $ | (1,052,320) | |
Writeoffs, net | 983,113 | | | 69,207 | | | 1,052,320 | |
Expected recoveries | 144,721 | | | 19,778 | | | 164,499 | |
Initial negative allowance for expected recoveries | $ | 144,721 | | | $ | 19,778 | | | $ | 164,499 | |
(2) Recoveries applied to negative allowance
Recoveries applied to the negative allowance were computed as follows for the three months ended June 30, 2020 (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| For the three months ended June 30, 2020 | | | | |
| Core | | Insolvency | | Total |
Recoveries (a) | $ | 461,238 | | | $ | 51,973 | | | $ | 513,211 | |
Less - amounts reclassified to portfolio income (b) | 229,803 | | | 18,481 | | | 248,284 | |
Recoveries applied to negative allowance | $ | 231,435 | | | $ | 33,492 | | | $ | 264,927 | |
(a) Recoveries includes cash collections, buybacks and other adjustments.
(b) The Company reported income on expected recoveries based on the constant effective interest rate in portfolio income on the Company's Consolidated Income Statements.
PRA Group, Inc.
Notes to Consolidated Financial Statements
(3) Changes in expected recoveries
Changes in expected recoveries consists of the following for the three months ended June 30, 2020 (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| For the three months ended June 30, 2020 | | | | |
| Core | | Insolvency | | Total |
Changes in expected future recoveries | $ | (97,910) | | | $ | (1,788) | | | $ | (99,698) | |
Recoveries received in excess of forecast | 119,161 | | | 338 | | | 119,499 | |
Changes in expected recoveries | $ | 21,251 | | | $ | (1,450) | | | $ | 19,801 | |
Six Months Ended June 30, 2020
Changes in the negative allowance for expected recoveries by portfolio segment for the six months ended June 30, 2020 were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| For the six months ended June 30, 2020 | | | | |
| Core | | Insolvency | | Total |
Balance at beginning of period | $ | 3,051,426 | | | $ | 462,739 | | | $ | 3,514,165 | |
Initial negative allowance for expected recoveries - portfolio acquisitions (1) | 378,408 | | | 59,328 | | | 437,736 | |
Foreign currency translation adjustment | (95,999) | | | (9,772) | | | (105,771) | |
Recoveries applied to negative allowance (2) | (430,473) | | | (71,110) | | | (501,583) | |
Changes in expected recoveries (3) | 4,774 | | | 2,211 | | | 6,985 | |
Balance at end of period | $ | 2,908,136 | | | $ | 443,396 | | | $ | 3,351,532 | |
(1) Initial negative allowance for expected recoveries - portfolio acquisitions
Portfolio acquisitions for the six months ended June 30, 2020 were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| For the six months ended June 30, 2020 | | | | |
| Core | | Insolvency | | Total |
Face value | $ | 3,179,386 | | | $ | 274,418 | | | $ | 3,453,804 | |
Noncredit discount | (373,699) | | | (21,011) | | | (394,710) | |
Allowance for credit losses at acquisition | (2,427,279) | | | (194,079) | | | (2,621,358) | |
Purchase price | $ | 378,408 | | | $ | 59,328 | | | $ | 437,736 | |
The initial negative allowance recorded on portfolio acquisitions for the six months ended was as follows June 30, 2020 (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| For the six months ended June 30, 2020 | | | | |
| Core | | Insolvency | | Total |
Allowance for credit losses at acquisition | $ | (2,427,279) | | | $ | (194,079) | | | $ | (2,621,358) | |
Writeoffs, net | 2,427,279 | | | 194,079 | | | 2,621,358 | |
Expected recoveries | 378,408 | | | 59,328 | | | 437,736 | |
Initial negative allowance for expected recoveries | $ | 378,408 | | | $ | 59,328 | | | $ | 437,736 | |
PRA Group, Inc.
Notes to Consolidated Financial Statements
(2) Recoveries applied to negative allowance
Recoveries applied to the negative allowance were computed as follows for the six months ended June 30, 2020 (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| For the six months ended June 30, 2020 | | | | |
| Core | | Insolvency | | Total |
Recoveries (a) | $ | 901,932 | | | $ | 109,957 | | | $ | 1,011,889 | |
Less - amounts reclassified to portfolio income (b) | 471,459 | | | 38,847 | | | 510,306 | |
Recoveries applied to negative allowance | $ | 430,473 | | | $ | 71,110 | | | $ | 501,583 | |
(a) Recoveries includes cash collections, buybacks and other adjustments.
(b) The Company reported income on expected recoveries based on the constant effective interest rate in portfolio income on the Company's Consolidated Income Statements.
(3) Changes in expected recoveries
Changes in expected recoveries consists of the following for the six months ended June 30, 2020 (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| For the six months ended June 30, 2020 | | | | |
| Core | | Insolvency | | Total |
Changes in expected future recoveries | $ | (118,434) | | | $ | (1,890) | | | $ | (120,324) | |
Recoveries received in excess of forecast | 123,208 | | | 4,101 | | | 127,309 | |
Changes in expected recoveries | $ | 4,774 | | | $ | 2,211 | | | $ | 6,985 | |
In order to evaluate the impact of the COVID-19 pandemic on expectations of future cash collections, the Company considered historical performance, current economic forecasts regarding the duration of the impact to short-term and long-term growth in the various geographies in which the Company operates, and evolving information regarding its effect on economic activity and consumer habits as reopening initiatives occur. The Company also considered current collection activity in its determination to adjust the estimated timing of near term ERC for certain pools. Based on these considerations, the Company’s estimates incorporate changes in the timing of expected cash collections over the next 6 to 18 months.
For the three months ended June 30, 2020, changes in expected recoveries increased $19.8 million. This reflects $119.5 million in recoveries received during the quarter in excess of forecast, partially offset by a $99.7 million decrease to the present value of expected future recoveries. The majority of the decrease reflects the Company's assumption that the overperformance was acceleration in cash collections rather than an increase to total expected collections. Additionally, the Company made forecast adjustments deemed appropriate given the current environment in which the Company operates.
For the six months ended June 30, 2020, changes in expected recoveries increased $7.0 million. This reflects $127.3 million in recoveries in excess of forecast, which was largely due to significant cash collections overperformance during the most recent quarter. This was mostly offset by a $120.3 million decrease in the present value of expected future recoveries. The majority of the decrease reflects the Company's assumption that the current quarter overperformance was primarily due to acceleration in the timing of cash collections rather than an increase to total expected collections. Additionally, the Company made forecast adjustments in both quarters deemed appropriate given the current environment in which the Company operates.
Changes in the Company’s assumptions regarding the duration and impact of COVID-19 to cash collections could change significantly as conditions evolve.
Finance Receivables, net prior to adoption of ASC 326
The following information reflects finance receivables, net as previously disclosed in the Company's Quarterly ReportsReport on Form 10-Q and, therefore, do not include all information and notes to the consolidated financial statements necessary for a complete presentation of financial position, results of operations, comprehensive income/(loss) and cash flows in conformity with GAAP. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the Company's consolidated balance sheet as of June 30, 2019, its consolidated income statements and statements of comprehensive income/(loss) for the three and six months ended June 30, 2019 and 2018, its consolidated statement of changes in equity for the three and six months ended June 30, 2019 and 2018, and its consolidated statements of cash flows for the six months ended June 30, 2019 and 2018, have been included. The consolidated income statements of the Company for the three and six months ended June 30, 2019 may not be indicative of future results. Certain prior period amounts have been reclassified for consistency with the current period presentation.which was under previous revenue recognition accounting standard ASC 310-30.
PRA Group, Inc.
Notes to Consolidated Financial Statements
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 Form 10-K").
2. Finance Receivables, net:
Changes in finance receivables, net for the three and six months ended June 30, 2019 and 2018 were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, 2019 | | | | Six Months Ended June 30, 2019 |
| | | | | | | |
Balance at beginning of period | | | $ | 3,177,229 | | | | | $ | 3,084,777 | |
Acquisitions of finance receivables (1) | | | 284,448 | | | | | 597,894 | |
| | | | | | | |
Foreign currency translation adjustment | | | (8,477) | | | | | (1,041) | |
Cash collections | | | (470,274) | | | | | (931,445) | |
Income recognized on finance receivables | | | 249,219 | | | | | 488,055 | |
Net allowance charges | | | (1,196) | | | | | (7,291) | |
| | | | | | | |
Balance at end of period | | | $ | 3,230,949 | | | | | $ | 3,230,949 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Balance at beginning of period | $ | 3,177,229 |
| | $ | 2,771,408 |
| | $ | 3,084,777 |
| | $ | 2,776,199 |
|
Acquisitions of finance receivables (1) | 284,448 |
| | 219,631 |
| | 597,894 |
| | 384,651 |
|
Foreign currency translation adjustment | (8,477 | ) | | (65,916 | ) | | (1,041 | ) | | (26,846 | ) |
Cash collections | (470,274 | ) | | (406,634 | ) | | (931,445 | ) | | (833,214 | ) |
Income recognized on finance receivables | 249,219 |
| | 219,018 |
| | 488,055 |
| | 437,642 |
|
Net allowance charges | (1,196 | ) | | (2,834 | ) | | (7,291 | ) | | (3,759 | ) |
Balance at end of period | $ | 3,230,949 |
| | $ | 2,734,673 |
| | $ | 3,230,949 |
| | $ | 2,734,673 |
|
| |
(1) | Acquisitions of finance receivables are portfolio purchases that are net of buybacks and include certain capitalized acquisition related costs. They also include the finance receivable portfolios that are acquired in connection with certain business acquisitions. The buybacks and capitalized acquisition costs are netted against the acquisition of finance receivables when paid and may relate to portfolios purchased in prior periods.(1) Includes portfolio purchases adjusted for buybacks and acquisition related costs, and portfolios from the acquisition of a business in Canada made during the first quarter of 2019.
|
During the three months ended June 30, 2019, the Company acquired finance receivablesreceivable portfolios with a face value of $1.8 billion for $289.2 million. During the three months ended June 30, 2018, the Company acquired finance receivables portfolios with a face value of $2.2 billion for $221.4 million. During the six months ended June 30, 2019, the Company acquired finance receivables portfolios with a face value of $6.6 billion for $608.0 million. During the six months ended June 30, 2018, the Company acquired finance receivables portfolios with a face value of $3.7 billion for $389.7 million. At June 30, 2019, the estimated remaining collections ("ERC") on the receivables acquired during the three months ended June 30, 2019 and 2018 were $513.0 million and $311.3 million, respectively. At June 30, 2019, the ERC on the receivables acquired during the three and six months ended June 30, 2019 were $513.0 million and 2018 were $1.02 billion, and $523.2 million, respectively.
At the time of acquisition and each quarter thereafter, the life of each quarterly accounting pool iswas estimated based on projected amounts and timing of future cash collections using the proprietary models of the Company. Based upon current projections, cash collections expected to be applied to principal arewere estimated to be as follows for the twelve-month periods ending June 30, (amounts in thousands):
|
| | | |
2020 | $ | 845,437 |
|
2021 | 694,169 |
|
2022 | 531,004 |
|
2023 | 393,087 |
|
2024 | 281,166 |
|
2025 | 173,283 |
|
2026 | 101,570 |
|
2027 | 77,943 |
|
2028 | 51,868 |
|
2029 | 35,070 |
|
Thereafter | 46,352 |
|
Total ERC expected to be applied to principal | $ | 3,230,949 |
|
| | | | | |
2020 | $ | 845,437 | |
2021 | 694,169 | |
2023 | 531,004 | |
2024 | 393,087 | |
2025 | 281,166 | |
2026 | 173,283 | |
2027 | 101,570 | |
2028 | 77,943 | |
2029 | 51,868 | |
2030 | 35,070 | |
Thereafter | 46,352 | |
Total ERC expected to be applied to principal | $ | 3,230,949 | |
At June 30, 2019, the Company had aggregate net finance receivables balances in pools accounted for under the cost recovery method of $39.4 million; at December 31, 2018, the amount was $48.0 million.
Accretable yield representsrepresented the amount of income on finance receivables the Company can expectexpected to recognize over the remaining life of its existing portfolios based on estimated future cash flows as of the balance sheet date. Additions representrepresented the original expected accretable yield on portfolios purchasedacquired during the period to be earned by the Company based on its proprietary
PRA Group, Inc.
Notes to Consolidated Financial Statements
analytical models.period. Net reclassifications from nonaccretable difference to accretable yield primarily resultresulted from the increase in the Company's estimate of future cash flows. When applicable, net reclassifications to nonaccretable difference from accretable yield resultresulted from the decrease in the Company's estimates of future cash flows and allowance charges that together exceedexceeded the increase in the Company's estimate of future cash flows.
PRA Group, Inc.
Notes to Consolidated Financial Statements
Changes in accretable yield for the three and six months ended June 30, 2019 and 2018 were as follows (amounts in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Balance at beginning of period | $ | 3,080,168 |
| | $ | 3,006,268 |
| | $ | 3,058,445 |
| | $ | 2,927,866 |
|
Income recognized on finance receivables | (249,219 | ) | | (219,018 | ) | | (488,055 | ) | | (437,642 | ) |
Net allowance charges | 1,196 |
| | 2,834 |
| | 7,291 |
| | 3,759 |
|
Additions from portfolio purchases (1) | 228,796 |
| | 197,453 |
| | 464,610 |
| | 344,285 |
|
Reclassifications from nonaccretable difference | 112,901 |
| | 90,046 |
| | 132,062 |
| | 202,074 |
|
Foreign currency translation adjustment | (829 | ) | | (83,262 | ) | | (1,340 | ) | | (46,021 | ) |
Balance at end of period | $ | 3,173,013 |
| | $ | 2,994,321 |
| | $ | 3,173,013 |
| | $ | 2,994,321 |
|
(1) Also includes accretable yield additions resulting from certain business acquisitions. | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 | | | | |
Balance at beginning of period | $ | 3,080,168 | | | $ | 3,058,445 | | | | | |
Income recognized on finance receivables | (249,219) | | | (488,055) | | | | | |
Net allowance charges | 1,196 | | | 7,291 | | | | | |
Additions from portfolio acquisitions | 228,796 | | | 464,610 | | | | | |
Reclassifications from nonaccretable difference | 112,901 | | | 132,062 | | | | | |
Foreign currency translation adjustment | (829) | | | (1,340) | | | | | |
Balance at end of period | $ | 3,173,013 | | | $ | 3,173,013 | | | | | |
The following is a summary of activity within the Company's valuation allowance account, all of which relates to acquired nonperforming loans,finance receivables, for the three and six months ended June 30, 2019 and 2018 (amounts in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Beginning balance | $ | 263,324 |
| | $ | 226,975 |
| | $ | 257,148 |
| | $ | 225,555 |
|
Allowance charges | 5,532 |
| | 7,395 |
| | 13,509 |
| | 14,228 |
|
Reversal of previously recorded allowance charges | (4,336 | ) | | (4,561 | ) | | (6,218 | ) | | (10,469 | ) |
Net allowance charges | 1,196 |
| | 2,834 |
| | 7,291 |
| | 3,759 |
|
Foreign currency translation adjustment | 71 |
| | (1,526 | ) | | 152 |
| | (1,031 | ) |
Ending balance | $ | 264,591 |
| | $ | 228,283 |
| | $ | 264,591 |
| | $ | 228,283 |
|
| | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
Beginning balance | $ | 263,324 | | | $ | 257,148 | |
Allowance charges | 5,532 | | | 13,509 | |
Reversal of previously recorded allowance charges | (4,336) | | | (6,218) | |
Net allowance charges | 1,196 | | | 7,291 | |
Foreign currency translation adjustment | 71 | | | 152 | |
Ending balance | $ | 264,591 | | | $ | 264,591 | |
3.4. Investments:
Investments consisted of the following at June 30, 20192020 and December 31, 20182019 (amounts in thousands):
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Debt securities | | | |
Available-for-sale | $ | 5,201 |
| | $ | 5,077 |
|
Equity securities | | | |
Private equity funds | 7,486 |
| | 7,973 |
|
Mutual funds | 62,678 |
| | 21,753 |
|
Equity method investments | 10,546 |
| | 10,370 |
|
Total investments | $ | 85,911 |
| | $ | 45,173 |
|
PRA Group, Inc.
Notes to Consolidated Financial Statements
| | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
| | | |
| | | |
Debt securities | | | |
| | | |
| | | |
| | | |
Available-for-sale | $ | 4,767 | | | $ | 5,052 | |
| | | |
| | | |
Equity securities | | | |
Private equity funds | 5,588 | | | 7,218 | |
Mutual funds | 743 | | | 33,677 | |
Equity method investments | 7,648 | | | 10,229 | |
| | | |
Total investments | $ | 18,746 | | | $ | 56,176 | |
Debt Securities
Available-for-sale
Government bonds:bonds: The Company's investments in government bonds are classified as available-for-sale and are stated at fair value. Fair value is determined using quoted market prices. Unrealized gains and losses are included in comprehensive income and reported in equity.
PRA Group, Inc.
Notes to Consolidated Financial Statements
The amortized cost and estimated fair value of investments in debt securities at June 30, 20192020 and December 31, 20182019 were as follows (amounts in thousands):
|
| | | | | | | | | | | | | | | |
| June 30, 2019 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Aggregate Fair Value |
Available-for-sale | | | | | | | |
Government bonds | $ | 5,202 |
| | $ | — |
| | $ | 1 |
| | $ | 5,201 |
|
| | | | | | | |
| December 31, 2018 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Aggregate Fair Value |
Available-for-sale | | | | | | | |
Government bonds | $ | 5,160 |
| | $ | — |
| | $ | 83 |
| | $ | 5,077 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Aggregate Fair Value |
Available-for-sale | | | | | | | |
| | | | | | | |
| | | | | | | |
Government bonds | $ | 4,589 | | | $ | 178 | | | $ | — | | | $ | 4,767 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| December 31, 2019 | | | | | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Aggregate Fair Value |
Available-for-sale | | | | | | | |
| | | | | | | |
Government bonds | $ | 5,095 | | | $ | — | | | $ | 43 | | | $ | 5,052 | |
| | | | | | | |
| | | | | | | |
Equity Securities
Investments in private equity funds: Investments in private equity funds represent limited partnerships in which the Company has less than a 3%1% interest. In the first quarter of 2018, the Company adopted ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"), which requires that investments in equity securities be measured at fair value with changes in unrealized gains and losses reported in earnings. Upon adoption of ASU 2016-01, the investments are carried at the fair value reported by the Fund manager. The Company recorded a cumulative effect adjustment of $3.9 million, net of tax, to beginning retained earnings for the unrealized loss on the investments. Prior to 2018, the investments were carried at cost with income recognized in Other Revenue in the consolidated income statements when distributions, up to reported income, were received from the partnerships.
Mutual funds: The Company invests certain excess funds held in Brazil in a Brazilian real denominated mutual fund benchmarked to the USU.S. dollar that invests principally in Brazilian fixed income securities. The investments are carried at fair value based on quoted market prices.
Unrealized gains Gains and losses: Net unrealized (losses)/gains were $(0.7) millionlosses from this investment are included as a foreign exchange component of other income and $1.4 million for(expense) in the three and six months ended June 30, 2019, respectively, on its equity securities. Net unrealized gains were $2.4 million and $2.8 million for the three and six months ended June 30, 2018, respectively, on its equity securities.Company's Consolidated Income Statements.
Equity Method Investments
Effective December 20, 2018, theThe Company has an 11.7% interest in RCB Investimentos S.A. ("RCB"), a servicing platform for nonperforming loans in Brazil. This investment is accounted for on the equity method because the Company exercises significant influence over RCB’s operating and financial activities. Accordingly, the Company’s investment in RCB is adjusted for the Company’s proportionate share of RCB’s earnings or losses.losses, capital contribution made and distributions received.
4.5. Goodwill and Intangible Assets, net:
In connection with the Company's business acquisitions, the Company acquired certain tangible and intangible assets. Intangible assets resulting from these acquisitions include client and customer relationships, non-compete agreements, trademarks and technology. The Company performs aan annual review of goodwill as of October 1 of each year or more frequently if indicators of impairment exist.
PRA Group, Inc.
Notes The Company performed its most recent annual review as of October 1, 2019 and concluded that no goodwill impairment was necessary. The Company performed its quarterly assessment by evaluating whether any triggering events had occurred as of June 30, 2020, which included considering current market conditions resulting from the global COVID-19 pandemic. The Company concluded that no triggering event had occurred at June 30, 2020 and will continue to Consolidated Financial Statements
monitor the market for any adverse conditions resulting from the COVID-19 pandemic.
The following table represents the changes in goodwill for the three and six months ended June 30, 20192020 and 20182019 (amounts in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Balance at beginning of period: | | | | | | | |
Goodwill | $ | 480,518 |
| | $ | 544,293 |
| | $ | 464,116 |
| | $ | 526,513 |
|
Accumulated impairment loss | — |
| | — |
| | — |
| | — |
|
| 480,518 |
| | 544,293 |
| | 464,116 |
| | 526,513 |
|
Changes: | | | | | | | |
Acquisition (1) | 4,711 |
| | — |
| | 18,364 |
| | — |
|
Foreign currency translation adjustment | 4,064 |
| | (24,482 | ) | | 6,813 |
| | (6,702 | ) |
Net change in goodwill | 8,775 |
| | (24,482 | ) | | 25,177 |
| | (6,702 | ) |
| | | | | | | |
Goodwill | 489,293 |
| | 519,811 |
| | 489,293 |
| | 519,811 |
|
Accumulated impairment loss | — |
| | — |
| | — |
| | — |
|
Balance at end of period | $ | 489,293 |
| | $ | 519,811 |
| | $ | 489,293 |
| | $ | 519,811 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Goodwill: | | | | | | | |
Balance at beginning of period | $ | 418,565 | | | $ | 480,518 | | | $ | 480,794 | | | $ | 464,116 | |
| | | | | | | |
| | | | | | | |
Changes: | | | | | | | |
Acquisition (1) | — | | | 4,711 | | | — | | | 18,364 | |
| | | | | | | |
| | | | | | | |
Foreign currency translation adjustment | 25,942 | | | 4,064 | | | (36,287) | | | 6,813 | |
Net change in goodwill | 25,942 | | | 8,775 | | | (36,287) | | | 25,177 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balance at end of period | $ | 444,507 | | | $ | 489,293 | | | $ | 444,507 | | | $ | 489,293 | |
(1) The $4.7 million and $18.4 million additions to goodwill during the three and six months ended June 30, 2019 respectively, are the result ofwere related to the acquisition of a business in Canada.
5.
PRA Group, Inc.
Notes to Consolidated Financial Statements
6. Leases:
In February 2016, FASB issued ASU 2016-02, "Leases (Topic 842) Section A - Leases: Amendments to the FASB Account Standards Codification" ("ASU 2016-02"). ASU 2016-02 requires that a lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. The Company adopted ASU 2016-02 on January 1, 2019 using the alternative method which resulted in the recording of operating lease right-of-use ("ROU") assets and lease liabilities of $72.1 million and $75.8 million, respectively. The Company's balance sheets for reporting periods beginning on or after January 1, 2019 are presented under the new guidance, while prior periods amounts are not adjusted and continue to be reported in accordance with previous guidance.
The Company elected to apply the package of practical expedients permitted within the new standard, which among other things, allows it to carryforward the historical lease classification. In addition, the Company elected the practical expedient to exclude short-term leases (lease terms of less than one year) from its ROU assets and lease liabilities.
The Company's operating lease portfolio primarily includes corporate offices and call centers. The majority of its leases have remaining lease terms of 1 year to 20 years, some of which include options to extend the leases for 5 years, and others include options to terminate the leases within 1 year. The exerciseExercises of lease renewal options isare typically at the Company's sole discretion and are included in its ROUright-of-use ("ROU") assets and lease liabilities based upon whether the Company is reasonably certain of exercising the renewal options. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company used its incremental borrowing rate as of January 1, 2019 to calculate the present value of the lease payments of its existing leases at adoption.
The components of lease expense for the three and six months ended June 30, 2020 and 2019, were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Operating lease expense | $ | 2,974 | | | $ | 3,067 | | | $ | 6,037 | | | $ | 5,930 | |
Short-term lease expense | 676 | | | 720 | | | 1,369 | | | 1,562 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total lease expense | $ | 3,650 | | | $ | 3,787 | | | $ | 7,406 | | | $ | 7,492 | |
|
| | | | | | | |
| Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
Operating lease cost | $ | 3,067 |
| | $ | 5,930 |
|
Short-term lease cost | 720 |
| | 1,562 |
|
Total lease cost | $ | 3,787 |
| | $ | 7,492 |
|
PRA Group, Inc.
Notes to Consolidated Financial Statements
Supplemental cash flow information and non-cash activity related to leases for the six months ended June 30, 2020 and 2019 were as follows (amounts in thousands):
| | | | | | | | | | | |
| Six months ended June 30, | | |
| 2020 | | 2019 |
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 6,014 | | | $ | 5,671 | |
| | | |
ROU assets obtained in exchange for operating lease obligations | (5,999) | | | 80,543 | |
|
| | | |
| Six Months Ended June 30, 2019 |
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 5,671 |
|
| |
Right-of-use assets obtained in exchange for operating lease obligations | 80,543 |
|
Lease term and discount rate information related to operating leases were as follows as of the dates indicated (amounts in thousands):indicated:
|
| | |
| June 30, 2019 |
Weighted-average remaining lease term (years) | |
Operating leases | 11 |
|
Weighted-average discount rate | |
Operating leases | 4.96 | % |
| | | | | | | | | | | |
| June 30, | | |
| 2020 | | 2019 |
Weighted-average remaining lease term (years) | 9.5 | | 11.0 |
| | | |
| | | |
Weighted-average discount rate | 4.82 | % | | 4.96 | % |
| | | |
| | | |
Maturities of lease liabilities at June 30, 2020 are as follows for the following periods (amounts in thousands):
|
| | | |
| Operating Leases |
For the six months ending December 31, 2019 | $ | 5,854 |
|
For the year ending December 31, 2020 | 11,779 |
|
For the year ending December 31, 2021 | 11,319 |
|
For the year ending December 31, 2022 | 9,277 |
|
For the year ending December 31, 2023 | 7,099 |
|
Thereafter | 55,411 |
|
Total lease payments | 100,739 |
|
Less imputed interest | (23,989 | ) |
Total | $ | 76,750 |
|
As previously disclosed in the 2018 Form 10-K and under the previous lease accounting standard (which excludes the impact of the Company's intent to exercise renewal options as required by ASU 2016-02), future minimum lease payments for operating leases at December 31, 2018, are as follows for the years ending December 31, (amounts in thousands): | | | | | | | |
| Operating Leases | | |
For the six months ending December 31, 2020 | $ | 5,860 | | | |
For the year ending December 31, 2021 | 11,338 | | | |
For the year ending December 31, 2022 | 9,320 | | | |
For the year ending December 31, 2023 | 7,141 | | | |
For the year ending December 31, 2024 | 6,336 | | | |
Thereafter | 38,919 | | | |
Total lease payments | $ | 78,914 | | | |
Less imputed interest | 16,208 | | | |
Total | $ | 62,706 | | | |
|
| | | |
2019 | $ | 11,470 |
|
2020 | 11,451 |
|
2021 | 10,809 |
|
2022 | 7,287 |
|
2023 | 6,189 |
|
Thereafter | 7,866 |
|
Total future minimum lease payments | $ | 55,072 |
|
19
PRA Group, Inc.
Notes to Consolidated Financial Statements
6.7. Borrowings:
The Company's borrowings consisted of the following as of the dates indicated (amounts in thousands):
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Revolving credit | $ | 1,602,350 |
| | $ | 1,160,161 |
|
Term loans | 430,000 |
| | 740,551 |
|
Convertible senior notes | 632,500 |
| | 632,500 |
|
| 2,664,850 |
| | 2,533,212 |
|
Less: Debt discount and issuance costs | (46,468 | ) | | (59,556 | ) |
Total | $ | 2,618,382 |
| | $ | 2,473,656 |
|
| | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Americas revolving credit | $ | 558,103 | | | $ | 772,037 | |
Europe revolving credit | 999,971 | | | 1,017,465 | |
| | | |
Term loan | 420,000 | | | 425,000 | |
| | | |
| | | |
Convertible senior notes | 632,500 | | | 632,500 | |
| 2,610,574 | | | 2,847,002 | |
Less: Debt discount and issuance costs | (30,506) | | | (38,577) | |
Total | $ | 2,580,068 | | | $ | 2,808,425 | |
The following principal payments are due on the Company's borrowings as of June 30, 20192020 for the 12-month periods ending June 30, (amounts in thousands):
|
| | | |
2020 | $ | 10,000 |
|
2021 | 1,239,550 |
|
2022 | 1,070,300 |
|
2023 | 345,000 |
|
2024 and thereafter | — |
|
Total | $ | 2,664,850 |
|
| | | | | |
2021 | $ | 298,468 | |
2022 | 966,715 | |
2023 | 1,345,391 | |
| |
| |
| |
Total | $ | 2,610,574 | |
The Company believesdetermined that it was in compliance with the covenants of its financing arrangements as of June 30, 2019.2020.
North American Revolving Credit and Term Loan
On May 5, 2017, the Company amended and restated its existing credit agreement (as amended, and modified from time to time, the “North American Credit Agreement”) with Bank of America, N.A., as administrative agent, Bank of America, National Association, acting through its Canada branch, as the Canadian administrative agent, and a syndicate of lenders named therein. On May 6, 2020, the Company entered into the Second Amendment to the North American Credit Agreement.
The total credit facility under the North American Credit Agreement includes an aggregate principal amount of $1.6 billion$1,538.0 million (subject to compliance with a borrowing base and applicable debt covenants), which consists of (i) a fully-funded $430.0$420.0 million term loan, (ii) a $1,068.0 million domestic revolving credit facility, and (iii) a $50.0 million Canadian revolving credit facility. The facility includes an accordion feature for up to $500.0 million in additional commitments (at the option of the lender) and also provides for up to $25.0 million of letters of credit and a $25.0 million swingline loan sublimit that would reduce amounts available for borrowing. The term and revolving loans accrue interest, at the option of the Company, at either the base rate or the Eurodollar rate (as defined in the North American Credit Agreement), for the applicable term plus 2.50% per annum in the case of the Eurodollar rate loans and 1.50% in the case of the base rate loans.loans (unless the ERC Advance Rate Increase Period event, as defined in the North American Credit Agreement, triggers an additional 55 basis points that would be added to the margin). The base rate is the highest of (a) the Federal Funds Rate (as defined in the North American Credit Agreement) plus 0.50%, (b) Bank of America's prime rate, or (c) the one-month Eurodollar rate plus 1.00%. Canadian Prime Rate Loans will bear interest at a rate per annum equal to the Canadian Prime Rate plus 1.50% (unless the ERC Advance Rate Increase Period event, as defined in the North American Credit Agreement, triggers an additional 55 basis points that would be added to the margin). The revolving loans within the credit facility are subject to a 1% floor. The revolving credit facilities also bear an unused line fee of 0.375% per annum, payable quarterly in arrears. The loans under the North American Credit Agreement mature May 5, 2022. As of June 30, 2019,2020, the outstanding balance underunused portion of the North American Credit Agreement was $1,090.3 million and the unused portion was $457.7$562.3 million. Considering borrowing base restrictions, as of June 30, 2019,2020, the amount available to be drawn was $273.3$313.6 million.
The North American Credit Agreement is secured by a first priority lien on substantially all of the Company's North American assets. The North American Credit Agreement contains restrictive covenants and events of default including the following:
•borrowings under each of the domestic revolving loan facility and the Canadian revolving loan facility are subject to borrowing base calculations and may not exceed 35% of the ERC through July 30, 2020 on all domestic or Canadian, as applicable, Core eligible pools. On July 31, 2020, the ERC borrowing base limit will increase to 40% until January 31, 2021. If the ERC advance rate drops back to 35% or below during this period, the ERC borrowing base will return to 35%.
PRA Group, Inc.
Notes to Consolidated Financial Statements
•provided no ERC increase has occurred, after January 31, 2021, borrowings under each of the domestic revolving loan facility and the Canadian revolving loan facility are subject to separate borrowing base calculations and may not exceed 35%55% of the ERC of all domestic or Canadian, as applicable, core eligible asset pools, plus 55% of ERC of domestic or Canadian, as applicable, insolvency eligible asset pools, plus 75% of domestic or Canadian, as applicable, eligible accounts receivable;
•the consolidated total leverage ratio cannot exceed 2.75 to 1.0 as of the end of any fiscal quarter;June 30, 2020. After June 30, 2020 through December 31, 2020 the limit will increase to 3.25 to 1.0. Ending after December 31, 2020, the limit will decrease to 3.0 until maturity;
•the consolidated senior secured leverage ratio cannot exceed 2.252.75 to 1.0 as of the end of any fiscal quarter;quarter until March 31, 2021. On March 31, 2021, the senior secured leverage ratio will decrease to 2.25 to 1.0 until maturity;
•subject to no default or event of default, cash dividends and distributions during any fiscal year cannot exceed $20.0 million;
•subject to no default or event of default, stock repurchases during any fiscal year cannot exceed $100.0 million plus 50% of the prior year's consolidated net income;
PRA Group, Inc.
Notes to Consolidated Financial Statements
•permitted acquisitions during any fiscal year cannot exceed $250.0 million (with a $50.0 million per year sublimit for permitted acquisitions by non-loan parties);
•indebtedness in the form of senior, unsecured convertible notes or other unsecured financings cannot exceed $750.0 million in the aggregate (without respect to the 2020 Notes (as defined below))Notes);
•the Company must maintain positive consolidated income from operations during any fiscal quarter; and
•restrictions on changes in control.
European Revolving Credit Facility and Term Loan
On October 23, 2014, European subsidiaries of the Company ("PRA Europe") entered into a credit agreement with DNB Bank ASA for a Multicurrency Revolving Credit Facility (such agreement as later amended or modified, the "European Credit Agreement"). In the first quarter of 2019,2020, the Company entered into the FifthSixth Amendment and Restatement Agreement to its European Credit Agreement which, among other things, mergedincreased the term loan facility withtotal commitments by $200.0 million, extended the revolving credit facility and increased all applicable margins formajority of the interest payable under the multicurrency revolving credit facility by 5 basis points.2 years and includes an accordion feature of no less than $50.0 million not to exceed $500.0 million, to allow for future increases.
Under the terms of the European Credit Agreement, the credit facility includes an aggregate amount of approximately $1.1 billion$1,300.0 million (subject to the borrowing base), accrues interest at the Interbank Offered Rate ("IBOR") plus 2.70% - 3.80% (as determined by the loan-to-valueestimated remaining collections ratio ("LTVERC Ratio") as defined in the European Credit Agreement), bears an unused line fee, currently 1.23% per annum, ofor 35% of the margin, is payable monthly in arrears, and matures February 19, 2021.2023. The European Credit Agreement also includes an overdraft facility in the aggregate amount of $40.0 million (subject to the borrowing base), which accrues interest (per currency) at the daily rates as published by the facility agent, bears a facility line fee of 0.125% per quarter, payable quarterly in arrears, and matures February 19, 2021.2023. As of June 30, 2019,2020, the outstanding balance underunused portion of the European Credit Agreement was $942.0 million and the unused portion (including the overdraft facility) was $198.0$340.0 million. Considering borrowing base restrictions and other covenants, as of June 30, 2019,2020, the amount available to be drawn under the European Credit Agreement (including the overdraft facility) was $110.1$97.4 million.
The European Credit Agreement is secured by the shares of most of the Company's European subsidiaries and all intercompany loan receivablesloans receivable in Europe. The European Credit Agreement also contains restrictive covenants and events of default including the following:
•the LTVERC Ratio cannot exceed 75%45%;
•the gross interest-bearing debt ratio in Europe cannot exceed 3.25 to 1.0 as of the end of any fiscal quarter;
•interest bearing deposits in AK Nordic AB cannot exceed SEK 1.2 billion; and
•PRA Europe's cash collections must meet certain thresholds, measured on a quarterly basis.
Colombian Revolving Credit Facility
PRA Group Colombia Holding SAS, a subsidiary of the Company in Colombia, has a credit agreement that provides for borrowings in an aggregate amount of approximately $5.4 million. As of June 30, 2020, the outstanding balance under the credit agreement was $2.4 million, with a weighted average interest rate of 7.13%. The outstanding balance accrues interest at the Indicador Bancario de Referencia rate ("IBR") plus a weighted average spread of 2.74%, is payable quarterly in arrears, amortizes quarterly, and matures on October 17, 2022 (per the credit agreement, maturity represents three years from the last draw). This credit facility is fully collateralized using time deposits with the lender that are subject to certain limitations regarding withdrawal and usage and are included within other assets on the Company's Consolidated Balance Sheets. As of June 30, 2020, the unused portion of the Colombia Credit Agreement was approximately $3.0 million.
PRA Group, Inc.
Notes to Consolidated Financial Statements
Convertible Senior Notes due 2020
On August 13, 2013, the Company completed the private offering of $287.5 million in aggregate principal amount of its 3.00% Convertible Senior Notes due August 1, 2020 (the "2020 Notes"). The 2020 Notes were issued pursuant to an Indenture, dated August 13, 2013 (the "2013 Indenture"), between the Company and Regions Bank, as successor trustee. The 2013 Indenture contains customary terms and covenants, including certain events of default after which the 2020 Notes may be due and payable immediately. The 2020 Notes are senior unsecured obligations of the Company. Interest on the 2020 Notes is payable semi-annually, in arrears, on February 1 and August 1 of each year, beginning on February 1, 2014.year. Prior to February 1, 2020, the 2020 Notes will bewere convertible only upon the occurrence of specified events. On or after February 1,As of June 30, 2020 the 2020 Notes will beare convertible at any time. The Company does not have the right to redeem the 2020 Notes prior to maturity. As of June 30, 2019, the Company does not believe that any of the conditions allowing holders of the 2020 Notes to convert their notes have occurred.
The conversion rate for the 2020 Notes is initially 15.2172 shares per $1,000 principal amount of 2020 Notes, which is equivalent to an initial conversion price of approximately $65.72 per share of the Company's common stock, and is subject to adjustment in certain circumstances pursuant to the 2013 Indenture. Upon conversion, holders of the 2020 Notes will receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election. The Company's intent is to settle conversions through combination settlement (i.e., the 2020 Notes would be converted into cash up to the aggregate principal amount, and shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election, for the remainder). As a result and in accordance with authoritative guidance related to derivatives and hedging and earnings per share, only the conversion spread is included in the diluted earnings per share calculation, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average share price of the Company's common stock during any quarter exceeds $65.72.
The Company determined that the fair value of the 2020 Notes at the date of issuance was approximately $255.3 million, and designated the residual value of approximately $32.2 million as the equity component. Additionally, the Company allocated
PRA Group, Inc.
Notes to Consolidated Financial Statements
approximately $7.3 million of the $8.2 million 2020 Notes issuance cost as debt issuance cost and the remaining $0.9 million as equity issuance cost.
The 2020 Notes matured on August 1, 2020. For more information refer to Note 15.
Convertible Senior Notes due 2023
On May 26, 2017, the Company completed the private offering of $345.0 million in aggregate principal amount of its 3.50% Convertible Senior Notes due June 1, 2023 (the "2023 Notes" and, together with the 2020 Notes, the "Notes"). The 2023 Notes were issued pursuant to an Indenture, dated May 26, 2017 (the "2017 Indenture"), between the Company and Regions Bank, as trustee. The 2017 Indenture contains customary terms and covenants, including certain events of default after which the 2023 Notes may be due and payable immediately. The 2023 Notes are senior unsecured obligations of the Company. Interest on the 2023 Notes is payable semi-annually, in arrears, on June 1 and December 1 of each year, beginning on December 1, 2017.year. Prior to March 1, 2023, the 2023 Notes will be convertible only upon the occurrence of specified events. On or after March 1, 2023, the 2023 Notes will be convertible at any time. The Company has the right, at its election, to redeem all or any part of the outstanding 2023 Notes at any time on or after June 1, 2021 for cash, but only if the last reported sale price (as defined in the 2017 Indenture) exceeds 130% of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on and including the trading day immediately before the date the Company sends the related redemption notice. As of June 30, 2019,2020, the Company does not believe that any of the conditions allowing holders of the 2023 Notes to convert their notes have occurred.
The conversion rate for the 2023 Notes is initially 21.6275 shares per $1,000 principal amount of 2023 Notes, which is equivalent to an initial conversion price of approximately $46.24 per share of the Company's common stock, and is subject to adjustment in certain circumstances pursuant to the 2017 Indenture. Upon conversion, holders of the 2023 Notes will receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election. The Company's intent is to settle conversions through combination settlement (i.e., the 2023 Notes would be converted into cash up to the aggregate principal amount, and shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election, for the remainder). As a result and in accordance with authoritative guidance related to derivatives and hedging and earnings per share, only the conversion spread is included in the diluted earnings per share calculation, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average share price of the Company's common stock during any quarter exceeds $46.24.
The Company determined that the fair value of the 2023 Notes at the date of issuance was approximately $298.8 million, and designated the residual value of approximately $46.2 million as the equity component. Additionally, the Company allocated approximately $8.3 million of the $9.6 million 2023 Notes issuance cost as debt issuance cost and the remaining $1.3 million as equity issuance cost.
PRA Group, Inc.
Notes to Consolidated Financial Statements
The balances of the liability and equity components of the Notes outstanding were as follows as of the dates indicated (amounts in thousands):
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Liability component - principal amount | $ | 632,500 |
| | $ | 632,500 |
|
Unamortized debt discount | (37,699 | ) | | (43,812 | ) |
Liability component - net carrying amount | $ | 594,801 |
| | $ | 588,688 |
|
Equity component | $ | 76,216 |
| | $ | 76,216 |
|
| | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Liability component - principal amount | $ | 632,500 | | | $ | 632,500 | |
Unamortized debt discount | (24,950) | | | (31,414) | |
Liability component - net carrying amount | $ | 607,550 | | | $ | 601,086 | |
Equity component | $ | 76,216 | | | $ | 76,216 | |
The debt discount is being amortized into interest expense over the remaining life of the 2020 Notes and the 2023 Notes using the effective interest rate, which is 4.92% and 6.20%, respectively.
Interest expense related to the Notes was as follows for the periods indicated (amounts in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Interest expense - stated coupon rate | $ | 5,175 |
| | $ | 5,175 |
| | $ | 10,350 |
| | $ | 10,350 |
|
Interest expense - amortization of debt discount | 3,071 |
| | 2,904 |
| | 6,113 |
| | 5,781 |
|
Total interest expense - convertible senior notes | $ | 8,246 |
|
| $ | 8,079 |
| | $ | 16,463 |
| | $ | 16,131 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Interest expense - stated coupon rate | $ | 5,175 | | | $ | 5,175 | | | $ | 10,350 | | | $ | 10,350 | |
Interest expense - amortization of debt discount | 3,247 | | | 3,071 | | | 6,464 | | | 6,113 | |
Total interest expense - convertible senior notes | $ | 8,422 | | | $ | 8,246 | | | $ | 16,814 | | | $ | 16,463 | |
PRA Group, Inc.
Notes to Consolidated Financial Statements
7.8. Derivatives:
The Company periodically enters into derivative financial instruments, typically interest rate swap agreements, interest rate caps, and foreign currency contracts to reduce its exposure to fluctuations in interest rates on variable-rate debt and foreign currency exchange rates. The Company does not utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed nor does it enter into or hold derivatives for trading or speculative purposes. The Company periodically reviews the creditworthiness of the swap counterparty to assess the counterparty’s ability to honor its obligation. Counterparty default would expose the Company to fluctuations in interest and currency rates. Derivative financial instruments are recognized at fair value in the consolidated balance sheets,Consolidated Balance Sheets, in accordance with the guidance of ASC Topic 815 “Derivatives and Hedging” (“ASC 815”).
The following table summarizes the fair value of derivative instruments in the consolidated balance sheetsCompany's Consolidated Balance Sheets as of the dates indicated (amounts in thousands):
|
| | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Derivatives designated as hedging instruments: | | | | | | | | |
Interest rate contracts | | Other assets | | $ | 3 |
| | Other assets | | $ | 44 |
|
Interest rate contracts | | Other liabilities | | 17,983 |
| | Other liabilities | | — |
|
Derivatives not designated as hedging instruments: | | | | | | | | |
Foreign currency contracts | | Other assets | | 373 |
| | Other assets | | 2,555 |
|
Foreign currency contracts | | Other liabilities | | 3,188 |
| | Other liabilities | | — |
|
Interest rate contracts | | Other assets | | 746 |
| | Other assets | | 735 |
|
Interest rate contracts | | Other liabilities | | 33 |
| | Other liabilities | | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | | | December 31, 2019 | | |
| | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Derivatives designated as hedging instruments: | | | | | | | | |
Interest rate contracts | | Other assets | | $ | — | | | Other assets | | $ | 323 | |
Interest rate contracts | | Other liabilities | | 48,279 | | | Other liabilities | | 17,807 | |
Derivatives not designated as hedging instruments: | | | | | | | | |
Foreign currency contracts | | Other assets | | 1,804 | | | Other assets | | 552 | |
Foreign currency contracts | | Other liabilities | | 17,858 | | | Other liabilities | | 5,856 | |
| | | | | | | | |
| | | | | | | | |
Derivatives designatedDesignated as hedging instruments:Hedging Instruments:
Changes in fair value of derivative contracts designated as cash flow hedging instruments are recognized in other comprehensive income ("OCI"). As of June 30, 20192020 and December 31, 2018,2019, the notional amount of interest rate contracts designated as cash flow hedging instruments was $811.9$910.8 million and $260.8$959.0 million, respectively. Derivatives designated as cash flow hedging instruments were evaluated and remain highly effective at June 30, 2019.2020 and have initial terms of one to six years. The Company estimates that approximately $2.4$9.9 million of net derivative gain (loss)loss included in OCI will be reclassified into earnings within the next 12 months.
PRA Group, Inc.
Notes to Consolidated Financial Statements
The following table summarizes the effects of derivatives designated as cash flow hedging instruments on the consolidated financial statements for the three and six months ended June 30, 20192020 and 20182019 (amounts in thousands):
|
| | | | | | | | | | | | | | | | |
| | Gain or (loss) recognized in OCI, net of tax |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Derivatives designated as cash flow hedging instruments | | 2019 | | 2018 | | 2019 | | 2018 |
Interest rate contracts | | $ | (8,121 | ) | | $ | — |
| | $ | (13,915 | ) | | $ | — |
|
| | | | | | | | |
| | Gain or (loss) reclassified from OCI into income |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Location of gain or (loss) reclassified from OCI into income | | 2019 | | 2018 | | 2019 | | 2018 |
Interest expense, net | | $ | (119 | ) | | $ | — |
| | $ | (198 | ) | | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gain or (loss) recognized in OCI, net of tax | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | | | | | | | | | | | Six Months Ended June 30, | | |
Derivatives designated as cash flow hedging instruments | | 2020 | | 2019 | | | | | | | | | | | | 2020 | | 2019 |
Interest rate contracts | | $ | (5,515) | | | $ | (8,121) | | | | | | | | | | | | | $ | (26,865) | | | $ | (13,915) | |
| | | | | | | | | | | | | | | | | | |
| | Gain or (loss) reclassified from OCI into income | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | | | | | | | | | | | Six Months Ended June 30, | | |
Location of gain or (loss) reclassified from OCI into income | | 2020 | | 2019 | | | | | | | | | | | | 2020 | | 2019 |
Interest expense, net | | $ | (2,301) | | | $ | (119) | | | | | | | | | | | | | $ | (3,313) | | | $ | (198) | |
Derivatives not designatedNot Designated as hedging instruments:Hedging Instruments:
Changes in fair value of derivative contracts not designated as hedging instruments are recognized in earnings. As of June 30, 2019 and December 31, 2018, the notional amount of interest rate contracts not designated as hedging instruments was $82.0 million and $169.7 million, respectively. The Company also enters into foreign currency contracts to economically hedge the foreign currency re-measurement exposure related to certain balances that are denominated in currencies other than the functional currency of the entity. As of June 30, 20192020 and December 31, 2018,2019, the notional amount of foreign currency contracts that are not designated as hedging instruments was $286.6$455.6 million and $144.7$469.9 million, respectively.
PRA Group, Inc.
Notes to Consolidated Financial Statements
The following table summarizes the effects of derivatives not designated as hedging instruments on the Company’s consolidated income statementsConsolidated Income Statements for the three and six months ended June 30, 20192020 and 20182019 (amounts in thousands):
|
| | | | | | | | | | |
| | | | Amount of gain or (loss) recognized in income |
| | | | Three Months Ended June 30, |
Derivatives not designated as hedging instruments | | Location of gain or (loss) recognized in income | | 2019 | | 2018 |
Foreign currency contracts | | Foreign exchange gain/(loss) | | $ | (2,415 | ) | | $ | — |
|
Foreign currency contracts | | Interest expense, net | | (1,487 | ) | | — |
|
Interest rate contracts | | Interest expense, net | | (158 | ) | | (972 | ) |
| | | | | | |
| | | | Amount of gain or (loss) recognized in income |
| | | | Six Months Ended June 30, |
Derivatives not designated as hedging instruments | | Location of gain or (loss) recognized in income | | 2019 | | 2018 |
Foreign currency contracts | | Foreign exchange gain/(loss) | | $ | (7,671 | ) | | $ | — |
|
Foreign currency contracts | | Interest expense, net | | (1,487 | ) | | — |
|
Interest rate contracts | | Interest expense, net | | (507 | ) | | 2,701 |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Amount of gain or (loss) recognized in income | | |
| | | | Three Months Ended June 30, | | |
Derivatives not designated as hedging instruments | | Location of gain or (loss) recognized in income | | 2020 | | 2019 |
Foreign currency contracts | | Foreign exchange gain/(loss) | | $ | (1,629) | | | $ | (2,415) | |
Foreign currency contracts | | Interest expense, net | | (812) | | | (1,487) | |
Interest rate contracts | | Interest expense, net | | — | | | (158) | |
| | | | | | |
| | | | Amount of gain or (loss) recognized in income | | |
| | | | Six Months Ended June 30, | | |
Derivatives not designated as hedging instruments | | Location of gain or (loss) recognized in income | | 2020 | | 2019 |
Foreign currency contracts | | Foreign exchange gain/(loss) | | $ | 25,157 | | | $ | (7,671) | |
Foreign currency contracts | | Interest expense, net | | (1,813) | | | (1,487) | |
Interest rate contracts | | Interest expense, net | | — | | | (507) | |
8.9. Fair Value:
As defined by ASC Topic 820, "Fair Value Measurements and Disclosures" ("ASC 820"), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires the consideration of differing levels of inputs in the determination of fair values.
Those levels of input are summarized as follows:
•Level 1: Quoted prices in active markets for identical assets and liabilities.
•Level 2: Observable inputs other than Level 1 quoted prices, such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
•Level 3: Unobservable inputs that are supported by little or no market activity. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques as well as instruments for which the determination of fair value requires significant management judgment or estimation.
PRA Group, Inc.
Notes to Consolidated Financial Statements
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 beTo Be Carried at Fair Value
In accordance with the disclosure requirements of ASC Topic 825, "Financial Instruments" ("ASC 825"), the table below summarizes fair value estimates for the Company's financial instruments that are not required to be carried at fair value. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.
PRA Group, Inc.
Notes to Consolidated Financial Statements
The carrying amounts of the financial instruments in the following table are recorded in the consolidated balance sheetsConsolidated Balance Sheets at June 30, 20192020 and December 31, 20182019 (amounts in thousands):
|
| | | | | | | | | | | | | | | |
| June 30, 2019 |
| December 31, 2018 |
| Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Financial assets: | | | | | | | |
Cash and cash equivalents | $ | 105,496 |
| | $ | 105,496 |
| | $ | 98,695 |
| | $ | 98,695 |
|
Finance receivables, net | 3,230,949 |
| | 3,615,728 |
| | 3,084,777 |
| | 3,410,475 |
|
Financial liabilities: | | | | | | | |
Interest-bearing deposits | 107,840 |
| | 107,840 |
| | 82,666 |
| | 82,666 |
|
Revolving lines of credit | 1,602,350 |
| | 1,602,350 |
| | 1,160,161 |
| | 1,160,161 |
|
Term loans | 430,000 |
| | 430,000 |
| | 740,551 |
| | 740,551 |
|
Convertible senior notes | 594,801 |
| | 608,097 |
| | 588,688 |
| | 557,122 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | December 31, 2019 | | |
| Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Financial assets: | | | | | | | |
Cash and cash equivalents | $ | 115,741 | | | $ | 115,741 | | | $ | 119,774 | | | $ | 119,774 | |
| | | | | | | |
| | | | | | | |
Finance receivables, net | 3,351,532 | | | 3,426,048 | | | 3,514,165 | | | 3,645,610 | |
Financial liabilities: | | | | | | | |
Interest-bearing deposits | 120,520 | | | 120,520 | | | 106,246 | | | 106,246 | |
Revolving lines of credit | 1,558,074 | | | 1,558,074 | | | 1,789,502 | | | 1,789,502 | |
Term loan | 420,000 | | | 420,000 | | | 425,000 | | | 425,000 | |
| | | | | | | |
Convertible senior notes | 607,550 | | | 642,499 | | | 601,086 | | | 648,968 | |
Disclosure of the estimated fair values of financial instruments often requires the use of estimates. The carrying amount and estimates of the fair value of the Company's debt obligations outlined above do not include any related debt issuance costs associated with the debt obligations. The Company uses the following methods and assumptions to estimate the fair value of financial instruments:
Cash and cash equivalents: The carrying amount approximates fair value and quoted prices for identical assets can be found in active markets. Accordingly, the Company estimates the fair value of cash and cash equivalents using Level 1 inputs.
Finance receivables, net: The Company computedestimates the estimated fair value of these receivables using proprietary pricing models that the Company utilizes to make portfolio purchaseacquisition decisions. Accordingly, the Company's fair value estimates use Level 3 inputs as there is limitedlittle 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:loan: 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.estimate.
Convertible senior notes: The fair value estimates for the Notes incorporate quoted market prices which were obtained from secondary market broker quotes andwhich were derived from a variety of inputs including client orders, information from their pricing vendors, modeling software, and actual trading prices when they occur. Accordingly, the Company uses Level 2 inputs for its fair value estimates. Furthermore, in the table above, carrying amount represents the portion of the Notes classified as debt, while estimated fair value pertains to the face amount of the Notes.
PRA Group, Inc.
Notes to Consolidated Financial Statements
Financial Instruments Required to beTo Be Carried atAt Fair Value
The carrying amounts in the following table are measured at fair value on a recurring basis in the accompanying consolidated balance sheetsConsolidated Balance Sheets at June 30, 20192020 and December 31, 20182019 (amounts in thousands):
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements as of June 30, 2019 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Available-for-sale investments | | | | | | | |
Government bonds | $ | 5,201 |
| | $ | — |
| | $ | — |
| | $ | 5,201 |
|
Fair value through net income | | | | | | | |
Mutual funds | 62,678 |
| | — |
| | — |
| | 62,678 |
|
Derivative contracts (recorded in other assets) | — |
| | 1,122 |
| | — |
| | 1,122 |
|
Liabilities: | | | | | | | |
Derivative contracts (recorded in other liabilities) | — |
| | 21,204 |
| | — |
| | 21,204 |
|
| Fair Value Measurements as of December 31, 2018 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Available-for-sale investments | | | | | | | |
Government bonds | $ | 5,077 |
| | $ | — |
| | $ | — |
| | $ | 5,077 |
|
Fair value through net income | | | | | | | |
Mutual funds | 21,753 |
| | — |
| | — |
| | 21,753 |
|
Derivative contracts (recorded in other assets) | — |
| | 3,334 |
| | — |
| | 3,334 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of June 30, 2020 | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
| | | | | | | |
Available-for-sale investments | | | | | | | |
Government bonds | $ | 4,767 | | | $ | — | | | $ | — | | | $ | 4,767 | |
Fair value through net income | | | | | | | |
Mutual funds | 743 | | | — | | | — | | | 743 | |
Derivative contracts (recorded in other assets) | — | | | 1,804 | | | — | | | 1,804 | |
Liabilities: | | | | | | | |
Derivative contracts (recorded in other liabilities) | — | | | 66,137 | | | — | | | 66,137 | |
| | | | | | | |
| Fair Value Measurements as of December 31, 2019 | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
| | | | | | | |
Available-for-sale investments | | | | | | | |
Government bonds | $ | 5,052 | | | $ | — | | | $ | — | | | $ | 5,052 | |
Fair value through net income | | | | | | | |
Mutual funds | 33,677 | | | — | | | — | | | 33,677 | |
Derivative contracts (recorded in other assets) | — | | | 875 | | | — | | | 875 | |
Liabilities: | | | | | | | |
Derivative contracts (recorded in other liabilities) | — | | | 23,663 | | | — | | | 23,663 | |
Available-for-sale investments
Government bonds: Fair value of the Company's investment in government bonds is estimated using quoted market prices. Accordingly, the Company uses Level 1 inputs.
Fair value through net income investments
Mutual funds: Fair value of the Company's investment in mutual funds is estimated using quoted market prices. Accordingly, the Company uses Level 1 inputs.
Derivative contracts: The estimated fair value of the derivative contracts is determined using industry standard valuation models. These models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rate curves and other factors. Accordingly, the Company uses Level 2 inputs for its fair value estimates. Effective in the second quarter of 2018, the Company began to apply hedge accounting to certain of its derivative contracts. By applying hedge accounting, changes in market value are reflected as adjustments in Other Comprehensive Income. The hedges were evaluated and remain highly effective at June 30, 2019 and have initial terms of two to seven years.
Investments measured using net asset value
Private equity funds: This class of investments consists of private equity funds that invest primarily in loans and securities including single-family residential debt; corporate debt products; and financially-oriented, real-estate-rich and other operating companies in the Americas, Western Europe, and Japan. These investments are subject to certain restrictions regarding transfers and withdrawals. The investments cannot be redeemed with the funds. Instead, the nature of the investments in this class is that distributions are received through the liquidation of the underlying assets of the fund. The investments are expected to be returned through distributions as a result of liquidations of the funds' underlying assets over one to sixfive years. The fair value of these private equity funds following the application of the Net Asset Value ("NAV") practical expedient was $7.5$5.6 million and $8.0$7.2 million as of June 30, 20192020 and December 31, 2018,2019, respectively.
PRA Group, Inc.
Notes to Consolidated Financial Statements
9.10. Accumulated Other Comprehensive Loss:
The following table provides details about the reclassifications out of accumulated other comprehensive gain/(loss) for the three and six months ended June 30, 2020 and 2019 (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | | | | | |
Gains and losses on cash flow hedges | | 2020 | | 2019 | | | | | | Affected line in the consolidated income statement |
Interest rate swaps | | $ | (2,301) | | | $ | (119) | | | | | | | Interest expense, net |
Income tax effect of item above | | 539 | | | — | | | | | | | Income tax expense |
Total losses on cash flow hedges | | $ | (1,762) | | | $ | (119) | | | | | | | Net of tax |
| | | | | | | | | | |
| | Six Months Ended June 30, | | | | | | | | |
Gains and losses on cash flow hedges | | 2020 | | 2019 | | | | | | Affected line in the consolidated income statement |
Interest rate swaps | | $ | (3,313) | | | $ | (198) | | | | | | | Interest expense, net |
Income tax effect of item above | | 769 | | | — | | | | | | | Income tax expense |
Total losses on cash flow hedges | | $ | (2,544) | | | $ | (198) | | | | | | | Net of tax |
The following table represents the changes in accumulated other comprehensive lossgain/(loss) by component, net ofafter tax, for the three and six months ended June 30, 2020 and 2019 (amounts in thousands):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2019 |
| | Debt Securities | | | | Currency Translation | | Accumulated Other |
| | Available-for-sale | | Cash Flow Hedges | | Adjustments | | Comprehensive Loss (1) |
Balance at beginning of period | | $ | (38 | ) | | $ | (5,671 | ) | | $ | (242,812 | ) | | $ | (248,521 | ) |
Other comprehensive income/(loss) before reclassifications, net (1) | | 37 |
| | (8,121 | ) | | 4,362 |
| | (3,722 | ) |
Reclassifications, net of tax | | — |
| | 119 |
| | — |
| | 119 |
|
Net current period other comprehensive income/(loss) | | 37 |
| | (8,002 | ) | | 4,362 |
| | (3,603 | ) |
Balance at end of period | | $ | (1 | ) | | $ | (13,673 | ) | | $ | (238,450 | ) | | $ | (252,124 | ) |
|
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2019 |
| | Debt Securities | | | | Currency Translation | | Accumulated Other |
| | Available-for-sale | | Cash Flow Hedges | | Adjustments | | Comprehensive Loss (1) |
Balance at beginning of period | | $ | (83 | ) | | $ | 44 |
| | $ | (242,070 | ) | | $ | (242,109 | ) |
Other comprehensive income/(loss) before reclassifications, net (1) | | 82 |
| | (13,915 | ) | | 3,620 |
| | (10,213 | ) |
Reclassifications, net of tax | | — |
| | 198 |
| | — |
| | 198 |
|
Net current period other comprehensive income/(loss) | | 82 |
| | (13,717 | ) | | 3,620 |
| | (10,015 | ) |
Balance at end of period | | $ | (1 | ) | | $ | (13,673 | ) | | $ | (238,450 | ) | | $ | (252,124 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2020 | | | | | | |
| | Debt Securities | | Cash Flow | | Currency Translation | | Accumulated Other |
| | Available-for-sale | | Hedges | | Adjustments | | Comprehensive Loss (1) |
Ending balance at March 31, 2020 | | $ | 126 | | | $ | (33,656) | | | $ | (342,087) | | | $ | (375,617) | |
Other comprehensive loss before reclassifications | | 51 | | | (5,515) | | | 32,107 | | | 26,643 | |
Reclassifications, net | | — | | | 1,762 | | | — | | | 1,762 | |
Net current period other comprehensive loss | | 51 | | | (3,753) | | | 32,107 | | | 28,405 | |
Ending balance at June 30, 2020 | | $ | 177 | | | $ | (37,409) | | | $ | (309,980) | | | $ | (347,212) | |
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| | Three Months Ended June 30, 2019 | | | | | | |
| | Debt Securities | | Cash Flow | | Currency Translation | | Accumulated Other |
| | Available-for-sale | | Hedges | | Adjustments | | Comprehensive Loss (1) |
Ending balance at March 31, 2019 | | $ | (38) | | | $ | (5,671) | | | $ | (242,812) | | | $ | (248,521) | |
Other comprehensive loss before reclassifications | | 37 | | | (8,121) | | | 4,362 | | | (3,722) | |
Reclassifications, net | | — | | | 119 | | | — | | | 119 | |
Net current period other comprehensive loss | | 37 | | | (8,002) | | | 4,362 | | | (3,603) | |
Ending balance at June 30, 2019 | | $ | (1) | | | $ | (13,673) | | | $ | (238,450) | | | $ | (252,124) | |
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(1) NetFor the three months ended June 30, 2020 and 2019, net of deferred taxes for unrealized losses from cash flow hedges of $4.5were $0.7 million at June 30, 2019.and $2.8 million, respectively.
10.
PRA Group, Inc.
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2020 | | | | | | |
| | Debt Securities | | Cash Flow | | Currency Translation | | Accumulated Other |
| | Available-for-sale | | Hedges | | Adjustments | | Comprehensive Loss (2) |
Ending balance at December 31, 2019 | | $ | (44) | | | $ | (13,088) | | | $ | (247,886) | | | $ | (261,018) | |
Other comprehensive loss before reclassifications | | 221 | | | (26,865) | | | (62,094) | | | (88,738) | |
Reclassifications, net | | — | | | 2,544 | | | — | | | 2,544 | |
Net current period other comprehensive loss | | 221 | | | (24,321) | | | (62,094) | | | (86,194) | |
Ending balance at June 30, 2020 | | $ | 177 | | | $ | (37,409) | | | $ | (309,980) | | | $ | (347,212) | |
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| | Six Months Ended June 30, 2019 | | | | | | |
| | Debt Securities | | Cash Flow | | Currency Translation | | Accumulated Other |
| | Available-for-sale | | Hedges | | Adjustments | | Comprehensive Loss (2) |
Ending balance December 31, 2018 | | $ | (83) | | | $ | 44 | | | $ | (242,070) | | | $ | (242,109) | |
Other comprehensive loss before reclassifications | | 82 | | | (13,915) | | | 3,620 | | | (10,213) | |
Reclassifications, net | | — | | | 198 | | | — | | | 198 | |
Net current period other comprehensive loss | | 82 | | | (13,717) | | | 3,620 | | | (10,015) | |
Ending balance June 30, 2019 | | $ | (1) | | | $ | (13,673) | | | $ | (238,450) | | | $ | (252,124) | |
(2) For the six months ended June 30, 2020 and 2019, net of deferred taxes for unrealized losses from cash flow hedges were $10.7 million and $4.5 million, respectively. | | | | | | | | |
11. Earnings per Share:
Basic earnings per share ("EPS") are computed by dividing net income available to common stockholders of PRA Group, Inc. by weighted average common shares outstanding. Diluted EPS are computed using the same components as basic EPS with the denominator adjusted for the dilutive effect of the Notes and nonvested share awards, if dilutive. For the Notes, only the conversion spread is included in the diluted EPS calculation, if dilutive. Under such method, the settlementThere has been no dilutive effect of the conversion spread has a dilutive effect when the average share price of the Company's common stock during any quarter exceeds $65.72 for the 2020 Notes or $46.24 for the 2023 Notes, neither of which occurred during the respective periods from which the Notes were issuedconvertible senior notes since issuance through June 30, 2019.2020. Share-based awards that are contingent upon the attainment of performance goals are included in the computation of diluted EPS if the effect is dilutive. The dilutive effect of nonvested shares is computed using the treasury stock method, which assumes any proceeds that could be obtained upon the vesting of nonvested shares would be used to purchase common shares at the average market price for the period.
PRA Group, Inc.
Notes to Consolidated Financial Statements
The following table provides a reconciliation between the computation of basic EPS and diluted EPS for the three and six months ended June 30, 20192020 and 20182019 (amounts in thousands, except per share amounts):
| | | For the Three Months Ended June 30, | | For the Three Months Ended June 30, | |
| 2019 | | 2018 | | 2020 | | | 2019 | |
| Net income attributable to PRA Group, Inc. | | Weighted Average Common Shares | | EPS | | Net income attributable to PRA Group, Inc. | | Weighted Average Common Shares | | EPS | | 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 | $ | 18,619 |
| | 45,387 |
| | $ | 0.41 |
| | $ | 19,588 |
| | 45,283 |
| | $ | 0.43 |
| Basic EPS | $ | 57,914 | | | 45,548 | | | $ | 1.27 | | | $ | 18,619 | | | 45,387 | | | $ | 0.41 | |
Dilutive effect of nonvested share awards | | | 108 |
| | — |
| | | | 166 |
| | — |
| Dilutive effect of nonvested share awards | | | 439 | | | (0.01) | | | | | 108 | | | — | |
Diluted EPS | $ | 18,619 |
| | 45,495 |
| | $ | 0.41 |
| | $ | 19,588 |
| | 45,449 |
| | $ | 0.43 |
| Diluted EPS | $ | 57,914 | | | 45,987 | | | $ | 1.26 | | | $ | 18,619 | | | 45,495 | | | $ | 0.41 | |
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| For the Six Months Ended June 30, | | For the Six Months Ended June 30, | |
| 2019 | | 2018 | | 2020 | | | 2019 | |
| Net income attributable to PRA Group, Inc. | | Weighted Average Common Shares | | EPS | | Net income attributable to PRA Group, Inc. | | Weighted Average Common Shares | | EPS | | 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 | $ | 33,846 |
| | 45,363 |
| | $ | 0.75 |
| | $ | 40,694 |
| | 45,257 |
| | $ | 0.90 |
| Basic EPS | $ | 77,049 | | | 45,500 | | | $ | 1.69 | | | $ | 33,846 | | | 45,363 | | | $ | 0.75 | |
Dilutive effect of nonvested share awards | | | 94 |
| | (0.01 | ) | | | | 153 |
| | — |
| Dilutive effect of nonvested share awards | | 386 | | | (0.01) | | | 94 | | | (0.01) | |
Diluted EPS | $ | 33,846 |
| | 45,457 |
| | $ | 0.74 |
| | $ | 40,694 |
| | 45,410 |
| | $ | 0.90 |
| Diluted EPS | $ | 77,049 | | | 45,886 | | | $ | 1.68 | | | $ | 33,846 | | | 45,457 | | | $ | 0.74 | |
There were no0 antidilutive options outstanding for the three and six months ended June 30, 20192020 and 2018.2019.
11.
PRA Group, Inc.
Notes to Consolidated Financial Statements
12. Income Taxes:
The Company follows the guidance of FASB ASC Topic 740 "Income Taxes" ("ASC 740") as it relates to the provision for income taxes and uncertainty in income taxes. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
On May 10, 2017, the Company reached a settlement with the Internal Revenue Service in regards to its("IRS") regarding the IRS assertion that tax revenue recognition using the cost recovery method did not clearly reflect taxable income. In accordance with the settlement, the Company changed its tax accounting method used to recognize finance receivables revenue effective with tax year 2017. Under the new method, a portion of the annual collections amortizes principal and the remaining portion is taxable income. The deferred tax liability related to the difference in timing between the new method and the cost recovery method will behas been incorporated evenly into the Company’s tax filings over four years effective with tax year 2017.2017 and ending with tax year 2020. The Company was not required to pay any interest or penalties in connection with the settlement.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was enacted into U.S. law in response to COVID-19 with varying legislation enacted in many of the countries in which the Company operates. While the Company is continuing to evaluate impact, the Company has implemented the tax payment and filing deferral provisions as applicable on a global basis and does not believe that any of the other provisions will have a material impact to its financial reporting. As tax legislative updates continue to be released, they will be monitored by the Company.
At June 30, 2019,2020, the tax years subject to examination by the major federal, state and international taxing jurisdictions are 20142013 and subsequent years.
The Company intends for predominantly all foreigninternational earnings to be indefinitely reinvested in its foreign operations.international operations; therefore, the recording of deferred tax liabilities for such unremitted earnings is not required. If foreigninternational earnings were repatriated, the Company may need to accrue and pay taxes, although foreign tax credits may be available to partially reduce U.S. income taxes. The amount of cash on hand related to foreigninternational operations with indefinitely reinvested earnings was $85.0$96.7 million and $78.6$109.7 million as of June 30, 20192020 and December 31, 2018,2019, respectively.
12.13. Commitments and Contingencies:
Employment agreements:Agreements:
The Company has entered into employment agreements, most of which expire on December 31, 2020, with all of its U.S. executive officers and with several members of its U.S. senior management group. Such agreements provide for base salary payments as well as potential discretionary bonuses that take into consideration the Company’s overall performance against its short-short and long-term financial and strategic objectives. At June 30, 2019,2020, estimated future compensation under these agreements was approximately $12.0$4.0 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 $12.0$4.0 million total above.
PRA Group, Inc.
Notes to Consolidated Financial Statements
Forward flow agreements: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 June 30, 20192020, was approximately $713.4$383.7 million.
Finance receivables: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:Regulatory Matters:
The Company isand its subsidiaries are from time to time subject to a variety of routine legal and regulatory claims, inquiries 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
PRA Group, Inc.
Notes to Consolidated Financial Statements
account. From time to time, other types of lawsuits are brought against the Company. Additionally, the Company receives subpoenas and other requests or demands for information from regulators or governmental authorities who are investigating the Company's debt collection activities.
The Company accrues for potential liability arising from legal proceedings and regulatory matters when it is probable that such liability has been incurred and the amount of the loss can be reasonably estimated. This determination is based upon currently available information for those proceedings in which the Company is involved, taking into account the Company's best estimate of such losses for those cases for which such estimates can be made. The Company's estimate involves significant judgment, given the varying stages of the proceedings (including the fact that many of them are currently in preliminary stages), the number of unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims), and the related uncertainty of the potential outcomes of these proceedings. In making determinations of the likely outcome of pending litigation, the Company considers many factors, including, but not limited to, the nature of the claims, the Company's experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative mechanisms, the matter's current status and the damages sought or demands made. Accordingly, the Company's estimate will change from time to time, and actual losses could be more than the current estimate.
The Company believes that the estimate of the aggregate range of reasonably possible losses in excess of the amount accrued for its legal proceedings outstanding at June 30, 2019,2020, where the range of loss can be estimated, was not material.
In certain legal proceedings, the Company may have recourse to insurance or third-party contractual indemnities to cover all or portions of its litigation expenses, judgments, or settlements. Loss estimates and accruals for potential liability related to legal proceedings are typically exclusive of potential recoveries, if any, under the Company's insurance policies or third-party indemnities. At June 30, 2020 and December 31, 2019, the Company had $1.8 million and $1.0 million in recoveries receivable under the Company's insurance policies or third-party indemnities, respectively. These amounts are included in other receivables, net in the Consolidated Balance Sheets.
The matter below, in addition to the matters described belowdisclosed previously in the 2019 Form 10-K, fall outside of the normal parameters of the Company's routine legal proceedings.
Multi-State Investigation
On November 17, 2015, the Company received civil investigative demands from multiple state Attorney General offices ("AGOs") broadly relating to its U.S. debt collection practices. The Company believes that it has fully cooperated with the investigations and discussed potential resolution of the investigations with the AGOs. In these discussions, the AGOs have taken positions with which the Company disagrees, including positions related to penalties, restitution and/or the adoption of new practices and controls in the conduct of the Company's business. If the Company is unable to resolve its differences with the AGOs, it is possible that one or more individual state AGOs may file claims against the Company. The range of loss, if any, cannot be estimated at this time.
Iris Pounds v. Portfolio Recovery Associates, LLC
On November 21, 2016, Iris Pounds filed suit against the Company in Durham County, North Carolina alleging violations of the North Carolina Prohibited Practices by Collection Agencies Act. The purported class consists of all individuals against whom the Company had obtained a judgment by default in North Carolina on or after October 1, 2009. On December 9, 2016, the Company removed the matter to the United States District Court for the Middle District of North Carolina (the "District Court"). On March 28, 2018, the District Court entered an order remanding the matter to the North Carolina state court which the Fourth
PRA Group, Inc.
Notes to Consolidated Financial Statements
Circuit Court of Appeals affirmed on May 17, 2018. On January 11, 2019, the Company filed a motion to compel arbitration with the North Carolina state court. The North Carolina state court denied the Company's motion to compel arbitration and the Company is seeking review of that decision. The range of loss, if any, cannot be estimated at this time due to the uncertainty surrounding liability, class certification and the interpretation of statutory damages.
Telephone Consumer Protection Act ("TCPA") Litigation
On January 25, 2017, the Company resolvedsettled the matter of In Re Portfolio Recovery Associates, LLC Telephone Consumer Protection Act Litigation, which consisted of a number of class actions and single plaintiff claims consolidated by order of the Panel for Multi-District Litigation (“MDL”("MDL"). While the settlement disposed of a large number of claims, several hundred class members opted out ("Opt-Out Plaintiffs") of that settlement. Many of these Opt-Out Plaintiffs have been consolidated before the MDL appointed court, the United States District Court for the Southern District of California, and are pending a determination on cross-motions for summary judgment. MostOn July 9, 2020, the Supreme Court of the remaining Opt-Out Plaintiffs are parties to Terrell v. Portfolio Recovery Associates, LLC in the United States District Court forgranted certiorari in the Northern Districtmatter of Texas, Facebook v. Duguid to resolve the split between the Circuit Courts of Appeal on the issue of the definition of an Automatic Telephone Dialing System. A decision in that case is expected to be dispositive of many or all TCPA matters currently pending, most of which matter is stayed.are now stayed as a result of the grant of certiorari. The range of loss, if any, cannot be estimated at this time due to the uncertainty surrounding liability.
13.14. Recently Issued Accounting Standards:
Recently issued accounting standards adopted:
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, "Leases (Topic 842) Section A - Leases: Amendments to the FASB Accounting Standards Codification" ("ASU 2016-02"). ASU 2016-02 requires that a lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. In July 2018, FASB issued ASU 2018-10, "Codification Improvements to Topic 842, Leases" and ASU 2018-11, "Leases (Topic 842) Targeted Improvements" which among other things, allowed for an alternative transition method which eliminated the requirement to restate the earliest prior period presented in an entity's financial statements. Entities that elected this transition option still adopted the new lease standard using the modified retrospective transition method required by the standard, but they recognized a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The Company adopted the new leasing standard on January 1, 2019 and as a result recorded operating lease ROU assets and lease liabilities of $72.1 million and $75.8 million, respectively. The adoption of the standard did not have any other material impact on the Company's consolidated financial statements.
In August 2016, FASB issued ASU 2016-15, "Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments (Topic 230)" ("ASU 2016-15"). ASU 2016-15 reduces diversity in practice of how certain transactions are classified in the statement of cash flows. The new guidance clarifies the classification of cash activity related to debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate and bank-owned life insurance policies, distributions received from equity-method investments, and beneficial interests in securitization transactions. The guidance also describes a predominance principle in which cash flows with aspects of more than one class that cannot be separated should be classified based on the activity that is likely to be the predominant source or use of cash flow. ASU 2016-15 is effective for the Company for fiscal years beginning after December 15, 2018. The new standard must be adopted using a retrospective transition method. The Company adopted ASU 2016-15 in the first quarter of 2019 which had no material impact on its consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"). Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded income tax effects resulting from the 2017 Tax Cuts and Jobs Act. The amendments in this ASU also require certain disclosures about stranded income tax effects. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company’s provisional adjustments recorded during the year ended December 31, 2017 to account for the impact of the Tax Act did not result in stranded tax effects. The Company adopted ASU 2018-02 in the first quarter of 2019 which had no material impact on its consolidated financial statements.
PRA Group, Inc.
Notes to Consolidated Financial Statements
Recently issued accounting standards not yet adopted:
In June 2016, FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)" ("ASU 2016-13"), which introduces
Effective January 1, 2020, the Company adopted ASC 326 on a new methodology requiringprospective basis. Prior to January 1, 2020, substantially all of the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity debt securities and otherCompany's investment in finance receivables measured at amortized cost at the time the financial asset is originated or acquired. This methodology replaces the multiple impairment methods under existing U.S. GAAP, including accounting for purchased credit impaired ("PCI") assets, and introduces the concept of purchased credit deteriorated (“PCD”) financial assets. The Company's PCI assets currentlywere accounted for under existing U.S GAAP will be accountedASC 310-30. Refer to Note 2 for as PCD financial assets upon adoption of ASU 2016-13. For PCD financial assets, the new methodology requires an entity to present the net amount expected to be collected on the balance sheet. The Company will estimate that amount under the new methodology by reflecting the present value of expected recoveries on the balance sheet using a discounted approachcomprehensive details.
Intangibles - Goodwill and will recognize income over the life of the portfolio at an effective interest rate. Subsequent changes (favorable and unfavorable) in expected cash flows are recognized in earnings by adjusting the present value of the expected recoveries. ASU 2016-13, including the effect of ongoing developments and amendments to the guidance, represents a significant change from existing U.S. GAAP and is expected to result in material changes to the Company’s accounting for its finance receivables. The guidance in ASU 2016-13 will be effective prospectively for the Company as of January 1, 2020. Implementation efforts are underway, including model development, fulfillment of additional data needs for new disclosures and reporting requirements, and drafting of accounting policies.Other
In January 2017, FASB issued ASU 2017-04 "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"). ASU 2017-04which eliminates Step 2 of the goodwill impairment test. Instead, an entity should performperforms its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognizerecognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment
PRA Group, Inc.
Notes to Consolidated Financial Statements
test is necessary. The Company adopted ASU 2017-04 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for interim or annual goodwill impairment tests performed afteron January 1, 2017. The Company is in the process of evaluating the2020 which had no impact of adoption of ASU 2017-04 on its consolidated financial statements.
Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” ("ASU 2018-13"). ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The Company adopted ASU 2018-13 on January 1, 2020 which had no impact to the Company's Notes to Consolidated Financial Statements.
Recently issued accounting standards not yet adopted:
Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments and calculating income taxes in interim periods. Additionally, it adds guidance to reduce complexity in certain areas, including recognizing taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2020 on a prospective basis, and early adoption is permitted. The Company is currently evaluating the impact of ASU 2019-12 on its consolidated financial statements and expects to adopt January 1, 2021. The Company does not expect adoption to have a material impact on its consolidated financial statements.
Investments-Equity Securities
In January 2020, the FASB issued ASU 2020-01 “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815” (“ASU 2020-01”). ASU 2020-01 clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments-Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. Additionally, it clarifies that, when determining the accounting for certain forward contracts and purchased options a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. This standard is effective for allpublic entities for financial statements issued for fiscal years and interim periods beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted.2020. The Company expectsis evaluating the adoptionimpact of ASU 2018-13 will result in additional and modified disclosures in2020-01 but does not expect adoption to have a material effect on its consolidated financial statements.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Inter-bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. ASU 2020-04 is effective immediately for a limited time through December 31, 2022. The Company is currently evaluating the impact of ASU 2020-04.
The Company does not expect that any other recently issued accounting pronouncements will have a material effect on its consolidated financial statements.
15. Subsequent Events:
Subsequent to June 30, 2020, the Company repaid, in full, the 2020 Notes. On July 7, 2020, the Company repurchased $21.0 million of the 2020 Notes at a discount plus accrued interest. The remaining $266.5 million aggregate principal amount was repaid, at par, plus accrued interest at maturity in accordance with the terms of the 2013 Indenture. The Company repaid the 2020 Notes primarily using borrowings under the domestic revolving loan facility in the North American Credit Agreement.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements:
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks, uncertainties and assumptions that could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are forward-looking statements, including statements regarding overall cash collection trends, gross margin trends, operating cost trends, liquidity and capital needs and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The risks, uncertainties and assumptions referred to above may include the following:
a prolonged economic recovery or •a deterioration in the economic or inflationary environment in the Americas or Europe, including the interest rate environment;
•changes or volatility in the credit or capital markets, which affect our ability to borrow money or raise capital;capital, including as a result of the impact of the novel coronavirus ("COVID-19") pandemic;
•our ability to replace our portfolios of nonperforming loans with additional portfolios;portfolios sufficient to operate efficiently and profitably;
•our ability to continue to purchase nonperforming loans at appropriate prices;
•our ability to collect sufficient amounts on our nonperforming loans to fund our operations;
•the possibility that we could recognize significant decreases in our estimate of future recoveries on nonperforming loans;
•changes in, or interpretations of, federal, state, local, or foreigninternational laws, including bankruptcy and collection laws, or changes in the administrative practices of various bankruptcy courts, which may impactcould negatively affect our business or our ability to collect on our nonperforming loans;
•our ability to collect sufficientsuccessfully manage the challenges associated with a disease outbreak, including epidemics, pandemics or similar widespread public health concerns, including the COVID-19 pandemic;
•the impact of the COVID-19 pandemic on the markets in which we operate, including business disruptions, unemployment, economic disruption, overall market volatility, and the inability or unwillingness of consumers to pay the amounts on our nonperforming loans;owed to us;
the possibility that we could incur significant allowance charges on our finance receivables;
•changes in or interpretations of, bankruptcy or collection laws that could negatively affect our business, including by causing an increase in certain types of bankruptcy filings involving liquidations, which may cause our collections to decrease;accounting standards and their interpretations;
•our ability to manage risks associated with our international operations;
•changes in tax laws and interpretations regarding earnings of our domestic and foreigninternational operations;
•the impact of the Tax Cuts and Jobs Act ("Tax Act"), and/or the Coronavirus Aide, Relief and Economic Security Act including interpretations and determinations by tax authorities;
•the possibility that we could incur goodwill or other intangible asset impairment charges;
•adverse effects from the vote byexit of the United Kingdom ("UK") to leavefrom the European Union;Union ("EU");
adverse outcomes in pending litigation or administrative proceedings;
•our loss contingency accruals may not be adequate to cover actual losses;
•adverse outcomes in pending litigation or administrative proceedings;
•the possibility that class action suits and other litigation could divert management's attention and increase our expenses;
•the possibility that we could incur business or technology disruptions or cyber incidents;
•disruptions of business operations caused by the underperformance or failure of information technology infrastructure, networks or telephone systems;
•our ability to collect and enforce our nonperforming loans may be limited under federal, state, local and foreign laws;international laws, regulations and policies;
•our ability to comply with existing and new regulations of the collection industry, the failure of which could result in penalties, fines, litigation, damage to our reputation, or the suspension or termination of or required modification to our ability to conduct our business;
•investigations, reviews, or enforcement actions by governmental authorities, including the Consumer Financial Protection Bureau ("CFPB"), which could result in changes to our business practices, negatively impact our portfolio purchasingacquisitions volume, make collection of account balances more difficult or expose us to the risk of fines, penalties, restitution payments, and litigation;
the ability of our European operations to comply with the provisions of the General Data Protection Regulation;
•the possibility that compliance with foreigncomplex and evolving international and United States ("U.S.") laws and regulations that apply to our international operations could increase our cost of doing business in international jurisdictions;
•our ability to raisecomply with data privacy regulations such as the funds necessary to repurchase the convertible senior notes or to settle conversions in cash;General Data Protection Regulation ("GDPR");
•our ability to retain, expand, renegotiate or replace our credit facilities and our ability to comply with the covenants under our financing arrangements;
•our ability to raise the funds necessary to repurchase our convertible senior notes or to settle conversions in cash;
•our ability to refinance our indebtedness, including our outstanding convertible senior notes;
•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;successful;
•the possibility that the adoption of or delays in implementing,future accounting standards could negatively impact our resultsbusiness;
•default by or failure of operationsone or more of our counterparty financial institutions could cause us to incur significant losses;
•uncertainty about the future of the London Inter-Bank Offer Rate ("LIBOR") may adversely affect our business; and financial condition; and
•the risk factors discussed herein and in our other filings with the Securities and Exchange Commission ("SEC").
You should assume that the information appearing in this Quarterly Report is accurate only as of the date it was issued. Our business, financial condition, results of operations and prospects may have changed since that date.
You should carefully consider the factors listed above and review the following "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as the "Risk Factors" section and "Business" section of our Annual Report on Form 10-K for the year ended December 31, 20182019 ("20182019 Form 10-K") and the "Risk Factors" section in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2020 ("2020 First Quarter Form 10-Q").
Our forward-looking statements could be wrong in light of these and other risks, uncertainties and assumptions. The future events, developments or results described in, or implied by, this Quarterly Report could turn out to be materially different. Except as required by law, we assume no obligation to publicly update or revise our forward-looking statements after the date of this Quarterly Report and you should not expect us to do so.
Investors should also be aware that while we do, from time to time, communicate with securities analysts and others, we do not, by policy, selectively disclose to them any material nonpublic information or other confidential commercial information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst regardless of the content of the statement or report. We do not, by policy, confirm forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.
Frequently Used Terms
We may use the following terminology throughout this Quarterly Report:document:
•"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 cash collections on our owned finance receivables portfolios plus fee income.
•"Change in expected recoveries" refers to the differences of actual recoveries received when compared to expected recoveries and the net present value of changes in ERC.
•"Core" accounts or portfolios refer to accounts or portfolios that are nonperforming loans and are not in an insolvent status upon purchase.acquisition. These accounts are aggregated separately from insolvency accounts.
•"Estimated remaining collections" or "ERC" refers to the sum of all future projected cash collections on our owned finance receivables portfolios.
•"Insolvency" accounts or portfolios refer to accounts or portfolios of receivables that are in an insolvent status when we purchase them and as such are purchased as a pool of insolvent accounts. These accounts include Individual Voluntary Arrangements ("IVAs"), Trust Deeds in the UK, Consumer Proposals in Canada and bankruptcy accounts in the U.S., Canada, Germany and the UK.
•"Negative Allowance" refers to the present value of cash flows expected to be collected on our finance receivables, carried as an asset on the balance sheet.
•"Portfolio acquisitions" refers to all portfolios added as a result of a purchase, but also includes portfolios added as a result of a business acquisition.
•"Portfolio purchases" refers to all portfolios purchased in the normal course of business and excludes those purchased via business acquisitions.
•"Portfolio income" reflects revenue recorded due to the passage of time using the effective interest rate calculated based on the purchase price of portfolios and estimated remaining collections.
•"Principal amortization" refers to cash collections applied to principal on finance receivables.
•"Purchase price" refers to the cash paid to a seller to acquire nonperforming loans, plusloans. Prior to the adoption of ASC 326 purchase price also included certain capitalized costs lessand adjustments for buybacks.
•"Purchase price multiple" refers to the total estimated collections (as defined below) on owned finance receivables portfolios divided by purchase price.
•"Recoveries" refers to cash collections plus buybacks and other adjustments.
•"Total estimated collections" or "TEC" refers to cumulative actual cash collections, including cash sales, plus estimated remaining collections on our finance receivables portfolios.
All references in this Quarterly Report to "PRA Group," "our," "we," "us," "the Company" or similar terms are to PRA Group, Inc. and its subsidiaries.
Overview
We are a global financial and business services company with operations in the Americas, Europe and Europe.Australia. Our primary business is the purchase, collection and management of portfolios of nonperforming loans.
We are headquartered in Norfolk, Virginia, and as of June 30, 20192020, employed 4,8633,793 full time equivalents. Our shares of common stock are traded on the NASDAQ Global Select Market under the symbol "PRAA.""PRAA".
The COVID-19 pandemic has continued to adversely impact all countries in which we operate. As a result, we continue to operate in business continuity mode globally. Our business continuity plans seek to minimize disruptions to our global operations while complying with country-specific, federal, state and local laws, regulations and governmental actions related to the pandemic. Impacts on our business, results of operations and financial condition have included:
•a reduction in U.S. staffing in mid-March 2020, which returned to almost normal levels by the end of April and remains at these levels;
•an increase in U.S. Core cash collections, which we believe is due to our increased ability to contact customers and customers choosing to use additional discretionary funds to voluntarily resolve their debts;
•a decrease in the volume of U.S. accounts sent through the legal channel, due to our decision to temporarily pause placing accounts into a legal eligible status, along with the closure of courts in many of our European countries, which resulted in decreased legal collection costs;
•decreases in certain expenses such as communications expenses due to mailing decisions made during the COVID-19 pandemic and interruptions in postal mailings and deliveries; and
•decreased portfolio purchases due to deferrals by sellers of nonperforming loan portfolio sales.
Funds generated from operations and from cash collections on finance receivables, together with existing cash, available borrowings under our revolving credit facilities and recent modifications to the terms of those facilities, have been sufficient to finance our operations, planned capital expenditures, forward flow purchase commitments, debt maturities and additional portfolio purchases during the pandemic.
Our analysis of the current and future impact of COVID-19 on our operations is based on management’s constant monitoring of key data and information, including (1) changes in laws, regulations and governmental actions, (2) trends in the macroeconomic environment, consumer behavior and key operational metrics such as cash collections and (3) conditions in the nonperforming loan market. However, we cannot predict the full extent to which COVID-19 will impact our business, results of operations and financial condition due to the numerous evolving factors associated with the pandemic. See Part I, Item 2 “Forward-Looking Statements” and Part II, Item 1A "Risk Factors" in this Form 10-Q for additional information.
Results of Operations
The results of operations include the financial results of the Company and all of itsour subsidiaries. As of January 1, 2020 we adopted ASU 2016-13, "Financial Instruments - Credit Losses" ("Topic 326") ("ASU 2016-13") and ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (“ASU 2019-11”), collectively referred to as "ASC 326", on a prospective basis. Prior period amounts were accounted for under ASC Topic 310-30 "Loans and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC 310-30"). For further information refer to Note 2 to our Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report. The following table sets forth consolidated income statementConsolidated Income Statement amounts as a percentage of total revenues for the periods indicated (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | | | | | | | For the Six Months Ended June 30, | | | | | | |
| 2020 | | | | 2019 | | | | 2020 | | | | 2019 | | |
Revenues: | | | | | | | | | | | | | | | |
Portfolio income | $ | 248,284 | | | 91.3 | % | | $ | — | | | — | % | | $ | 510,306 | | | 97.5 | % | | $ | — | | | — | % |
Changes in expected recoveries | 19,801 | | | 7.3 | | | — | | | — | | | 6,985 | | | 1.3 | | | — | | | — | |
Income recognized on finance receivables | — | | | — | | | 249,219 | | | 98.9 | | | — | | | — | | | 488,055 | | | 98.0 | |
Fee income | 2,639 | | | 1.0 | | | 2,707 | | | 1.1 | | | 4,848 | | | 0.9 | | | 9,081 | | | 1.8 | |
Other revenue | 1,186 | | | 0.4 | | | 131 | | | — | | | 1,555 | | | 0.3 | | | 798 | | | 0.2 | |
Total revenues | 271,910 | | | 100.0 | | | 252,057 | | | 100.0 | | | 523,694 | | | 100.0 | | | 497,934 | | | 100.0 | |
| | | | | | | | | | | | | | | |
Net allowance charges | — | | | — | | | (1,196) | | | (0.5) | | | — | | | — | | | (7,291) | | | (1.5) | |
| | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | |
Compensation and employee services | 70,472 | | | 25.9 | | | 79,808 | | | 31.7 | | | 145,643 | | | 27.8 | | | 159,453 | | | 32.0 | |
Legal collection fees | 13,742 | | | 5.1 | | | 14,297 | | | 5.7 | | | 28,314 | | | 5.4 | | | 27,356 | | | 5.5 | |
Legal collection costs | 19,507 | | | 7.2 | | | 33,121 | | | 13.1 | | | 53,954 | | | 10.3 | | | 68,350 | | | 13.7 | |
Agency fees | 10,343 | | | 3.8 | | | 13,013 | | | 5.2 | | | 23,719 | | | 4.5 | | | 27,045 | | | 5.4 | |
Outside fees and services | 18,683 | | | 6.9 | | | 16,293 | | | 6.5 | | | 38,077 | | | 7.3 | | | 31,541 | | | 6.3 | |
Communication | 8,812 | | | 3.2 | | | 10,824 | | | 4.3 | | | 22,323 | | | 4.3 | | | 24,025 | | | 4.8 | |
Rent and occupancy | 4,471 | | | 1.6 | | | 4,491 | | | 1.8 | | | 8,955 | | | 1.7 | | | 8,854 | | | 1.8 | |
Depreciation and amortization | 4,109 | | | 1.5 | | | 4,723 | | | 1.9 | | | 8,193 | | | 1.6 | | | 9,295 | | | 1.9 | |
Other operating expenses | 10,491 | | | 3.9 | | | 10,926 | | | 4.3 | | | 22,696 | | | 4.3 | | | 22,511 | | | 4.4 | |
| | | | | | | | | | | | | | | |
Total operating expenses | 160,630 | | | 59.1 | | | 187,496 | | | 74.4 | | | 351,874 | | | 67.2 | | | 378,430 | | | 76.0 | |
| | | | | | | | | | | | | | | |
Income from operations | 111,280 | | | 40.9 | | | 63,365 | | | 25.1 | | | 171,820 | | | 32.8 | | | 112,213 | | | 22.5 | |
Other income and (expense): | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Interest expense, net | (35,416) | | | (13.0) | | | (36,027) | | | (14.3) | | | (72,627) | | | (13.9) | | | (70,008) | | | (14.1) | |
Foreign exchange gain/(loss) | 683 | | | 0.3 | | | (311) | | | (0.1) | | | 2,966 | | | 0.6 | | | 5,953 | | | 1.2 | |
Other | (1,582) | | | (0.6) | | | 248 | | | 0.1 | | | (1,658) | | | (0.3) | | | (104) | | | — | |
Income before income taxes | 74,965 | | | 27.6 | | | 27,275 | | | 10.8 | | | 100,501 | | | 19.2 | | | 48,054 | | | 9.7 | |
Income tax expense | 14,137 | | | 5.2 | | | 5,075 | | | 2.0 | | | 17,237 | | | 3.3 | | | 8,942 | | | 1.8 | |
Net income | 60,828 | | | 22.4 | | | 22,200 | | | 8.8 | | | 83,264 | | | 15.9 | | | 39,112 | | | 7.9 | |
Adjustment for net income attributable to noncontrolling interests | 2,914 | | | 1.1 | | | 3,581 | | | 1.4 | | | 6,215 | | | 1.2 | | | 5,266 | | | 1.1 | |
Net income attributable to PRA Group, Inc. | $ | 57,914 | | | 21.3 | % | | $ | 18,619 | | | 7.4 | % | | $ | 77,049 | | | 14.7 | % | | $ | 33,846 | | | 6.8 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenues: | | | | | | | | | | | | | | | |
Income recognized on finance receivables | $ | 249,219 |
| | 98.9 | % | | $ | 219,018 |
| | 98.9 | % | | $ | 488,055 |
| | 98.0 | % | | $ | 437,642 |
| | 98.2 | % |
Fee income | 2,707 |
| | 1.1 |
| | 2,342 |
| | 1.1 |
| | 9,081 |
| | 1.8 |
| | 7,669 |
| | 1.7 |
|
Other revenue | 131 |
| | — |
| | 158 |
| | — |
| | 798 |
| | 0.2 |
| | 315 |
| | 0.1 |
|
Total revenues | 252,057 |
| | 100.0 |
| | 221,518 |
| | 100.0 |
| | 497,934 |
| | 100.0 |
| | 445,626 |
| | 100.0 |
|
| | | | | | | | | | | | | | | |
Net allowance charges | (1,196 | ) | | (0.5 | ) | | (2,834 | ) | | (1.3 | ) | | (7,291 | ) | | (1.5 | ) | | (3,759 | ) | | (0.8 | ) |
| | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | |
Compensation and employee services | 79,808 |
| | 31.7 |
| | 80,690 |
| | 36.4 |
| | 159,453 |
| | 32.0 |
| | 161,927 |
| | 36.3 |
|
Legal collection fees | 14,297 |
| | 5.7 |
| | 10,343 |
| | 4.7 |
| | 27,356 |
| | 5.5 |
| | 21,012 |
| | 4.7 |
|
Legal collection costs | 33,121 |
| | 13.1 |
| | 18,695 |
| | 8.4 |
| | 68,350 |
| | 13.7 |
| | 40,938 |
| | 9.2 |
|
Agency fees | 13,013 |
| | 5.2 |
| | 8,138 |
| | 3.7 |
| | 27,045 |
| | 5.4 |
| | 16,416 |
| | 3.7 |
|
Outside fees and services | 16,293 |
| | 6.5 |
| | 14,565 |
| | 6.6 |
| | 31,541 |
| | 6.3 |
| | 28,723 |
| | 6.5 |
|
Communication | 10,824 |
| | 4.3 |
| | 10,782 |
| | 4.9 |
| | 24,025 |
| | 4.8 |
| | 22,339 |
| | 5.0 |
|
Rent and occupancy | 4,491 |
| | 1.8 |
| | 4,003 |
| | 1.8 |
| | 8,854 |
| | 1.8 |
| | 8,317 |
| | 1.9 |
|
Depreciation and amortization | 4,723 |
| | 1.9 |
| | 4,525 |
| | 2.0 |
| | 9,295 |
| | 1.9 |
| | 9,454 |
| | 2.1 |
|
Other operating expenses | 10,926 |
| | 4.3 |
| | 11,628 |
| | 5.2 |
| | 22,511 |
| | 4.4 |
| | 23,812 |
| | 5.4 |
|
Total operating expenses | 187,496 |
| | 74.4 |
| | 163,369 |
| | 73.7 |
| | 378,430 |
| | 76.0 |
| | 332,938 |
| | 74.8 |
|
Income from operations | 63,365 |
| | 25.1 |
| | 55,315 |
| | 25.0 |
| | 112,213 |
| | 22.5 |
| | 108,929 |
| | 24.4 |
|
Other income and (expense): | | | | | | | | | | | | | | | |
Interest expense, net | (36,027 | ) | | (14.3 | ) | | (31,124 | ) | | (14.1 | ) | | (70,008 | ) | | (14.1 | ) | | (56,905 | ) | | (12.8 | ) |
Foreign exchange | (311 | ) | | (0.1 | ) | | 1,690 |
| | 0.8 |
| | 5,953 |
| | 1.2 |
| | 2,983 |
| | 0.7 |
|
Other | 248 |
| | 0.1 |
| | (400 | ) | | (0.2 | ) | | (104 | ) | | — |
| | (157 | ) | | — |
|
Income before income taxes | 27,275 |
| | 10.8 |
| | 25,481 |
| | 11.5 |
| | 48,054 |
| | 9.7 |
| | 54,850 |
| | 12.3 |
|
Income tax expense | 5,075 |
| | 2.0 |
| | 3,857 |
| | 1.7 |
| | 8,942 |
| | 1.8 |
| | 9,994 |
| | 2.2 |
|
Net income | 22,200 |
| | 8.8 |
| | 21,624 |
| | 9.8 |
| | 39,112 |
| | 7.9 |
| | 44,856 |
| | 10.1 |
|
Adjustment for net income attributable to noncontrolling interests | 3,581 |
| | 1.4 |
| | 2,036 |
| | 0.9 |
| | 5,266 |
| | 1.1 |
| | 4,162 |
| | 1.0 |
|
Net income attributable to PRA Group, Inc. | $ | 18,619 |
| | 7.4 | % | | $ | 19,588 |
| | 8.9 | % | | $ | 33,846 |
| | 6.8 | % | | $ | 40,694 |
| | 9.1 | % |
Three Months Ended June 30, 20192020 Compared To Three Months Ended June 30, 20182019
Cash Collections
Cash collections were as follows for the periods indicated:
|
| | | | | | | | | | | |
| For the Three Months Ended June 30, | | Variance |
(Amounts in thousands) | 2019 | | 2018 | | 2019 vs. 2018 |
Americas-Core | $ | 294,243 |
| | $ | 233,752 |
| | $ | 60,491 |
|
Americas-Insolvency | 49,770 |
| | 56,063 |
| | (6,293 | ) |
Europe-Core | 117,635 |
| | 109,359 |
| | 8,276 |
|
Europe-Insolvency | 8,626 |
| | 7,460 |
| | 1,166 |
|
Total cash collections | $ | 470,274 |
| | $ | 406,634 |
| | $ | 63,640 |
|
| | | | | |
Cash collections adjusted (1) | $ | 470,274 |
| | $ | 398,356 |
| | $ | 71,918 |
|
Cash collections on fully amortized pools | 13,277 |
| | 14,624 |
| | (1,347 | ) |
Cash collections on cost recovery pools | 3,770 |
| | 7,691 |
| | (3,921 | ) |
Net finance receivables on cost recovery at period-end | 39,425 |
| | 80,294 |
| | (40,869 | ) |
| | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | | | Changes | | |
(Amounts in thousands) | 2020 | | 2019 | | 2020 vs. 2019 | | |
Americas Core | $ | 343,269 | | | $ | 294,243 | | | $ | 49,026 | | | |
Americas Insolvency | 38,685 | | | 49,770 | | | (11,085) | | | |
Europe Core | 115,145 | | | 117,635 | | | (2,490) | | | |
Europe Insolvency | 12,841 | | | 8,626 | | | 4,215 | | | |
Total cash collections | $ | 509,940 | | | $ | 470,274 | | | $ | 39,666 | | | |
| | | | | | | |
Cash collections adjusted (1) | $ | 509,940 | | | $ | 459,595 | | | $ | 50,345 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1) Cash collections adjusted refers to 20182019 cash collections remeasured using 20192020 exchange rates.
Cash collections were $509.9 million for the three months ended June 30, 2020, an increase of $39.7 million, or 8.4%, compared to $470.3 million for the three months ended June 30, 2019, an increase of $63.7 million or 15.7%, compared to $406.6 million for the three months ended June 30, 2018.2019. The increase was largely due to our U.S. legal collections increasing $28.4 million, or 38.8%, due primarily to the increase in the number of accounts placed in the legal channel, and our U.S. call center and other collections, including increased collections through our digital platform, increasing $17.0$59.4 million, or 11.8%37.0%, primarily due primarily to recordwhat we believe to be various circumstances that have provided U.S. Core portfolio purchasingconsumers with additional discretionary funds and a willingness to voluntarily resolve their debts. The increase was partially offset by an $11.1 million, or 22.3%, decrease in 2018. Additionally, our Europe Core cash collections increased $8.3 million or 7.6%, due primarily to elevated portfolio purchasing over the last several quarters and operational improvements that have produced sustained performance. Furthermore,for Americas Insolvency, mainly as a result of increased portfolio investment in South America in 2018levels not offsetting the runoff of older portfolios and the acquisition of Resurgent Holdings Canada Inc. ("Resurgent")a $6.1 million, or 18.8%, decrease in the first quarter of 2019, our Other Americas-Core cash collections increased $15.2for Other Americas Core, due to the strengthening of the U.S dollar and investment levels not offsetting the runoff of older portfolios. Furthermore, our U.S. legal collections were slightly lower by $4.3 million, or 88.8%. These increases were partially offset by4.2%, reflecting a decline of $6.3 million, or 11.2%, in Americas Insolvency cash collections caused mainly by investment volumesdecision we made to temporarily pause placing accounts into a legal eligible status in the U.S. not offsettingas a result of the continued runoff of our older portfolios.COVID-19 pandemic. These legal collection activities largely returned to normal operations in June.
Revenues
Total revenues were $252.1 million for the three months ended June 30, 2019, an increase of $30.6 million, or 13.8%, compared to total revenues of $221.5 million for the three months ended June 30, 2018.
A summary of our revenue generation during the three months ended June 30, 20192020 and 20182019 is as follows (amounts in thousands):
| | | | | | | | | | | |
| For the Three Months Ended June 30, | | |
| 2020 | | 2019 |
Portfolio income | $ | 248,284 | | | $ | — | |
Changes in expected recoveries | 19,801 | | | — | |
| | | |
| | | |
Income recognized on finance receivables | — | | | 249,219 | |
Fee income | 2,639 | | | 2,707 | |
Other revenue | 1,186 | | | 131 | |
Total revenues | $ | 271,910 | | | $ | 252,057 | |
|
| | | | | | | |
| For the Three Months Ended June 30, |
| 2019 | | 2018 |
Cash collections | $ | 470,274 |
| | $ | 406,634 |
|
Principal amortization | (221,055 | ) | | (187,616 | ) |
Income recognized on finance receivables | 249,219 |
| | 219,018 |
|
Fee income | 2,707 |
| | 2,342 |
|
Other revenue | 131 |
| | 158 |
|
Total revenues | $ | 252,057 |
| | $ | 221,518 |
|
Income recognized on finance receivables
Income recognized on finance receivables was $249.2Total revenues were $271.9 million for the three months ended June 30, 2019,2020, an increase of $30.2$19.8 million, or 13.8%7.9%, compared to income recognized on finance receivables of $219.0$252.1 million for the three months ended June 30, 2018.2019. The increase was primarily the result of the impact of record U.S. Core purchasing in 2018 and the impact of sustained over-performance on select U.S. Core and Europe Core pools which resulted in yield increases on those pools. Additionally, the increased portfolio investment in South America in 2018 and the acquisition of Resurgentis largely due to significant cash collections overperformance in the first quarter, of 2019 also contributed to the increase. These increases were partially offset by a decline inadjustments to our Americas Insolvency revenue caused mainly by investment volumesestimated remaining collections to reflect our assumption that the majority of the current quarter overperformance was primarily due to acceleration in the U.S. not offsettingtiming of cash collections rather than an increase to total expected collections. Additionally, we made forecast adjustments deemed appropriate given the continued runoff of our older portfolios.
current environment in which we are operating.
Net Allowance Charges
NetIn 2019, under ASC 310-30, net allowance charges arewere recorded for significant decreases in expected cash flows or a change in timing of cash flows which would otherwise require a reduction in the stated yield on a pool of accounts. For the three months ended June 30, 2019, weEffective January 1, 2020, under ASC 326, changes to expected cash flows are recorded net allowance charges of $1.2 million, consisting of $0.4 million on our Americas Core portfolios and $1.0 million on our European portfolios, partially offset by net allowance reversals of $0.2 million on our Americas Insolvency portfolios. For the three months ended June 30, 2018, we recorded net allowance charges of $2.8 million, consisting of net allowance charges of $3.3 million and $0.2 million on our Americas Core and Americas Insolvency portfolios, respectively, and net allowance reversals of $0.7 million on our European Core portfolios.in changes in expected recoveries within revenues.
Operating Expenses
Total operating expenses were $160.6 million for the three months ended June 30, 2020, a decrease of $26.9 million, or 14.3%, compared to $187.5 million for the three months ended June 30, 2019, an increase of $24.1 million or 14.7%, compared to operating2019.
Compensation and Employee Services
Compensation and employee services expenses of $163.4were $70.5 million for the three months ended June 30, 2018.
Compensation and employee services
Compensation and employee services expenses were2020, a decrease of $9.3 million, or 11.7%, compared to $79.8 million for the three months ended June 30, 2019, a decrease of $0.9 million, or 1.1%, compared to $80.7 million for the three months ended June 30, 2018.2019. The decrease in compensation expense was primarily attributable to a reduction in the U.S. call centerscenter workforce as we balance the volume between the legal collection channeldue to efficiencies realized through technology, training and call centers,data and the result of deconsolidating RCB Investimentos S.A. (“RCB”) in December 2018. These decreases were partially offset by higher benefit costs.analytics. Total full-time equivalents decreased to 3,793 as of June 30, 2020, from 4,863 as of June 30, 2019, compared to 5,747 as of June 30, 2018.2019.
Legal collection feesCollection Fees
Legal collection fees represent contingent fees incurred for the cash collections generated by our independent third-party attorney network. Legal collection fees were $13.7 million for the three months ended June 30, 2020, a decrease of $0.6 million, or 4.2%, compared to $14.3 million for the three months ended June 30, 2019 primarily due to a slight decrease in external legal cash collections in the U.S.
Legal Collection Costs
Legal collection costs primarily consist of costs paid to courts where a lawsuit is filed for the purpose of attempting to collect on an increaseaccount. Legal collection costs were $19.5 million for the three months ended June 30, 2020, a decrease of $4.0$13.6 million, or 38.8%41.1%, compared to $33.1 million for the three months ended June 30, 2019. The decrease primarily reflects a decision we made to temporarily pause placing accounts into a legal eligible status in the U.S., along with the closure of courts in many of our European countries, as a result of the COVID-19 pandemic. These legal collection activities largely returned to normal operations in June.
Agency Fees
Agency fees ofprimarily represent third-party collection fees. Agency fees were $10.3 million for the three months ended June 30, 2018.2020, a decrease of $2.7 million, or 20.8%, compared to $13.0 million for the three months ended June 30, 2019. The decrease was due to lower cash collections in areas outside the U.S. where we utilize third party collection agencies.
Outside Fees and Services
Outside fees and services expenses were $18.7 million for the three months ended June 30, 2020, an increase of $2.4 million, or 14.7%, compared to $16.3 million for the three months ended June 30, 2019. The increase was primarily due to higher corporate legal expenses and higher fees associated with processing an increased number of debit card transactions due to the increase in cash collections.
Communication
Communication expense primarily represents postage and telephone related expenses incurred as a result of our collection efforts. Communication expenses were $8.8 million for the three months ended June 30, 2020, a decrease of $2.0 million, or 18.5%, compared to $10.8 million for the three months ended June 30, 2019. The decrease primarily reflects lower postage costs due to mailing decisions made during the COVID-19 pandemic.
Interest Expense, Net
Interest expense, net was $35.4 million during the three months ended June 30, 2020, a decrease of $0.6 million, or 1.7%, compared to $36.0 million for the three months ended June 30, 2019. The decrease was primarily related to lower levels of outstanding borrowings coupled with lower average interest rates.
Interest expense, net consisted of the following for the three months ended June 30, 2020 and 2019 (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | | | |
| 2020 | | 2019 | | Change |
Interest on debt obligations and unused line fees | $ | 24,565 | | | $ | 25,645 | | | $ | (1,080) | |
Coupon interest on convertible debt | 5,175 | | | 5,175 | | | — | |
Amortization of convertible debt discount | 3,247 | | | 3,071 | | | 176 | |
Amortization of loan fees and other loan costs | 2,743 | | | 2,655 | | | 88 | |
| | | | | |
Interest income | (314) | | | (519) | | | 205 | |
Interest expense, net | $ | 35,416 | | | $ | 36,027 | | | $ | (611) | |
Net Foreign Currency Transaction Gains
Foreign currency transaction gains were $0.7 million for the three months ended June 30, 2020, compared to foreign currency transaction losses of $0.3 million for the three months ended June 30, 2019. In any given period, we may incur foreign currency transaction losses from transactions in currencies other than the functional currency.
Income Tax Expense
Income tax expense was $14.1 million for the three months ended June 30, 2020, an increase of $9.0 million, or 176.5%, compared to $5.1 million for the three months ended June 30, 2019. The increase was primarily due to higher income before taxes which increased $47.7 million, or 174.7%. During the three months ended June 30, 2020, our effective tax rate was 18.9%, compared to 18.6% for the three months ended June 30, 2019.
Six Months Ended June 30, 2020 Compared To Six Months Ended June 30, 2019
Cash Collections
Cash collections were as follows for the periods indicated:
| | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended June 30, | | | | Change | | |
(Amounts in thousands) | 2020 | | 2019 | | 2020 vs. 2019 | | |
Americas-Core | $ | 649,049 | | | $ | 584,966 | | | $ | 64,083 | | | |
Americas-Insolvency | 81,895 | | | 94,383 | | | (12,488) | | | |
Europe-Core | 246,485 | | | 234,493 | | | 11,992 | | | |
Europe-Insolvency | 27,084 | | | 17,603 | | | 9,481 | | | |
Total cash collections | $ | 1,004,513 | | | $ | 931,445 | | | $ | 73,068 | | | |
| | | | | | | |
Cash collections adjusted (1) | $ | 1,004,513 | | | $ | 914,201 | | | $ | 90,312 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1) Cash collections adjusted refers to 2019 cash collections remeasured using 2020 exchange rates.
Cash collections were $1,004.5 million for the six months ended June 30, 2020, an increase of $73.1 million, or 7.8%, compared to $931.4 million for the six months ended June 30, 2019. The increase was largely due to our U.S. call center and other collections, including increased collections through our digital platform, increasing $57.8 million or 17.5%, primarily due to what we believe to be various circumstances that have provided U.S. consumers with additional discretionary funds and a willingness to voluntarily resolve their debts. Additionally, Europe cash collections increased $21.5 million, or 8.5%, reflecting higher 2019 purchases. Furthermore, our U.S. legal collections increased $5.6 million, or 2.8%, mainly due to a higher number of accounts placed in the legal channel in 2019 partially offset by, a decision we made to temporarily pause placing accounts into a legal eligible status in the U.S. as a result of the COVID-19 pandemic. These legal collection activities largely returned to normal operations in June. These increases were partially offset by a decline of $12.5 million, or 13.2%, in Americas Insolvency cash collections mainly reflectinginvestment levels not offsetting the runoff of older portfolios.
Revenues
A summary of our revenue generation during the six months ended June 30, 2020 and 2019 is as follows (amounts in thousands):
| | | | | | | | | | | |
| For the Six Months Ended June 30, | | |
| 2020 | | 2019 |
Portfolio income | $ | 510,306 | | | $ | — | |
Changes in expected recoveries | 6,985 | | | — | |
| | | |
| | | |
Income recognized on finance receivables | — | | | 488,055 | |
Fee income | 4,848 | | | 9,081 | |
Other revenue | 1,555 | | | 798 | |
Total revenues | $ | 523,694 | | | $ | 497,934 | |
Total revenues were $523.7 million for the six months ended June 30, 2020, an increase of $25.8 million, or 5.2%, compared to $497.9 million for the six months ended June 30, 2019. The increase was driven primarily by a record level of portfolio purchases in 2019.
Net Allowance Charges
In 2019, under ASC 310-30, net allowance charges were 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. Effective January 1, 2020, under ASC 326, changes to expected cash flows are recorded in changes in expected recoveries within revenues.
Operating Expenses
Operating expenses were $351.9 million for the six months ended June 30, 2020, a decrease of $26.5 million, or 7.0%, compared to $378.4 million for the six months ended June 30, 2019.
Compensation and Employee Services
Compensation and employee services expenses were $145.6 million for the six months ended June 30, 2020, a decrease of $13.9 million, or 8.7%, compared to $159.5 million for the six months ended June 30, 2019. The decrease in compensation expense was primarily attributable to a reduction in U.S. call center workforce due to efficiencies realized through technology, training and data and analytics. Total full-time equivalents decreased to 3,793 as of June 30, 2020, compared to 4,863 as of June 30, 2019.
Legal Collection Fees
Legal collection fees were $28.3 million for the six months ended June 30, 2020, an increase of $0.9 million, or 3.3%, compared to $27.4 million for the six months ended June 30, 2019. The increase was primarily due to an increase in external legal cash collections in the U.S. during the first quarter.
Legal collection costsCollection Costs
Legal collection costs primarily consist of costs paid to courts where a lawsuit is filed. Legal collection costs were $33.1 million for the three months ended June 30, 2019, an increase of $14.4 million or 77.0%, compared to legal collection costs of $18.7 million for the three months ended June 30, 2018. The increase was primarily due to additional court costs related to the expansion of the number of accounts placed in the legal channel in the U.S. This expansion is the result of a change in the nature of the accounts purchased, the regulatory environment and consumer behavior.
Agency fees
Agency fees consist primarily of third-party collection fees incurred outside the U.S. Agency fees were $13.0 million for the three months ended June 30, 2019, an increase of $4.9 million or 60.5%, compared to $8.1 million for the three months ended June 30, 2018. The increase was primarily the result of higher volumes of servicing activity in areas where we utilize third-party collection agencies. Additionally, with the sale of the RCB operating platform, certain expenses in other line items shifted from fixed to variable and are now recorded on the agency fees line.
Outside fees and services
Outside fees and services expenses were $16.3 million for the three months ended June 30, 2019, an increase of $1.7 million or 11.6%, compared to outside fees and services expenses of $14.6 million for the three months ended June 30, 2018. This was primarily the result of an increase in payment processing and debit card transaction fees resulting from the expansion of our digital collection efforts.
Interest Expense, Net
Interest expense, net was $36.0 million during the three months ended June 30, 2019, an increase of $4.9 million or 15.8%, compared to $31.1 million for the three months ended June 30, 2018. The increase was primarily due to higher average interest rates paired with higher levels of average borrowings to fund increased portfolio investments.
Interest expense, net consisted of the following for the three months ended June 30, 2019 and 2018 (amounts in thousands):
|
| | | | | | | | | | | |
| For the Three Months Ended June 30, |
| 2019 | | 2018 | | Change |
Stated interest on debt obligations and unused line fees | $ | 24,000 |
| | $ | 20,213 |
| | $ | 3,787 |
|
Coupon interest on convertible debt | 5,175 |
| | 5,175 |
| | — |
|
Amortization of convertible debt discount | 3,071 |
| | 2,904 |
| | 167 |
|
Amortization of loan fees and other loan costs | 2,655 |
| | 2,532 |
| | 123 |
|
Change in fair value on derivatives | 1,645 |
| | 972 |
| | 673 |
|
Interest income | (519 | ) | | (672 | ) | | 153 |
|
Interest expense, net | $ | 36,027 |
| | $ | 31,124 |
| | $ | 4,903 |
|
Net Foreign Currency Transaction Gains/(Losses)
Net foreign currency transaction losses were $(0.3) million for the three months ended June 30, 2019, compared to net foreign currency transaction gains of $1.7 million for the three months ended June 30, 2018. In any given period, we may incur foreign currency transactions gains or losses from transactions in currencies other than the functional currency and from changes in foreign exchange derivative contracts that were outstanding or settled during the period.
Income Tax Expense
Income tax expense was $5.1 million for the three months ended June 30, 2019, an increase of $1.2 million, or 30.8%, compared to $3.9 million for the three months ended June 30, 2018. The increase was primarily due to increases in income before income taxes and our effective tax rate. During the three months ended June 30, 2019, our income before income taxes was $27.3 million, compared to $25.5 million for the three months ended June 30, 2018. During the three months ended June 30, 2019, our effective tax rate was 18.6%, compared to 15.1% for the three months ended June 30, 2018. The increase was due to new guidance on U.S. tax reform and changes in the mix of projected taxable income between tax jurisdictions partially offset by a decrease in the estimated blended rate for U.S. state taxes due to state apportionment and a decrease in withholding tax accruals.
Six Months Ended June 30, 2019 Compared To Six Months Ended June 30, 2018
Cash Collections
Cash collections were as follows for the periods indicated:
|
| | | | | | | | | | | |
| For the Six Months Ended June 30, | | Variance |
(Amounts in thousands) | 2019 | | 2018 | | 2019 vs. 2018 |
Americas-Core | $ | 584,966 |
| | $ | 479,989 |
| | $ | 104,977 |
|
Americas-Insolvency | 94,383 |
| | 111,343 |
| | (16,960 | ) |
Europe-Core | 234,493 |
| | 227,468 |
| | 7,025 |
|
Europe-Insolvency | 17,603 |
| | 14,414 |
| | 3,189 |
|
Total cash collections | $ | 931,445 |
| | $ | 833,214 |
| | $ | 98,231 |
|
| | | | | |
Cash collections adjusted (1) | $ | 931,445 |
| | $ | 813,204 |
| | $ | 118,241 |
|
Cash collections on fully amortized pools | 25,361 |
| | 30,246 |
| | (4,885 | ) |
Cash collections on cost recovery pools | 7,423 |
| | 25,215 |
| | (17,792 | ) |
Net finance receivables on cost recovery at period-end | 39,425 |
| | 80,294 |
| | (40,869 | ) |
(1) Cash collections adjusted refers to 2018 cash collections remeasured using 2019 exchange rates.
Cash collections were $931.4$54.0 million for the six months ended June 30, 2019, an increase of $98.2 million or 11.8%, compared to $833.2 million for the six months ended June 30, 2018. The increase was largely due to our U.S. legal collections increasing $50.5 million, or 34.7%, due primarily to the increase in the number of accounts placed in the legal channel, and our U.S. call center and other collections increasing $31.3 million, or 10.5%, due primarily to record U.S. Core portfolio purchasing in 2018. Additionally, our Europe Core cash collections increased $7.0 million or 3.1%, due primarily to elevated portfolio purchasing over the last several quarters and operational improvements that have produced sustained performance. Furthermore, as a result of increased portfolio investment in South America in 2018 and the acquisition of Resurgent in the first quarter of 2019, our Other Americas-Core cash collections increased $23.2 million or 65.3%. These increases were partially offset by a decline of $17.0 million, or 15.2%, in Americas Insolvency cash collections caused mainly by investment volumes in the U.S. not offsetting the continued runoff of our older portfolios.
Revenues
Total revenues were $497.9 million for the six months ended June 30, 2019, an increase of $52.3 million, or 11.7%, compared to total revenues of $445.6 million for the six months ended June 30, 2018.
A summary of our revenue generation during the six months ended June 30, 2019 and 2018 is as follows (amounts in thousands):
|
| | | | | | | |
| For the Six Months Ended June 30, |
| 2019 | | 2018 |
Cash collections | $ | 931,445 |
| | $ | 833,214 |
|
Principal amortization | (443,390 | ) | | (395,572 | ) |
Income recognized on finance receivables | 488,055 |
| | 437,642 |
|
Fee income | 9,081 |
| | 7,669 |
|
Other revenue | 798 |
| | 315 |
|
Total revenues | $ | 497,934 |
| | $ | 445,626 |
|
Income recognized on finance receivables
Income recognized on finance receivables was $488.1 million for the six months ended June 30, 2019, an increase of $50.5 million, or 11.5%, compared to $437.6 million for the six months ended June 30, 2018. The increase was primarily the result of the impact of record Americas Core purchasing in 2018 and the impact of sustained over-performance on select Americas Core and Europe Core pools which resulted in yield increases on those pools. Additionally, the increased portfolio investment in South America in 2018 and the acquisition of Resurgent in the first quarter of 2019 also contributed to the increase.These increases were partially offset by a decline in our Americas Insolvency revenue caused mainly by investment volumes in the U.S. not offsetting the continued runoff of our older portfolios.
Fee income
Fee income was $9.1 million in the six months ended June 30, 2019, an increase of $1.4 million or 18.2%, compared to $7.7 million in the six months ended June 30, 2018. The increase was primarily attributable to settlement timing at Claims Compensation Bureau.
Net Allowance Charges
For the six months ended June 30, 2019, we recorded net allowance charges of $7.3 million, consisting of $5.3 million on our Americas Core portfolios, primarily on vintages purchased between 2013-2016, and $2.2 million on our European portfolios. We also recorded net allowance reversals of $0.2 million on our Americas Insolvency portfolios. For the six months ended June 30, 2018, we recorded net allowance charges of $3.8 million. On our Americas Core and Insolvency portfolios, we recorded net allowance charges of $2.7 million and $0.4 million, respectively. We also recorded net allowance charges of $0.6 million on our European Core portfolios.
Operating Expenses
Operating expenses were $378.4 million for the six months ended June 30, 2019, an increase of $45.5 million or 13.7%, compared to operating expenses of $332.9 million for the six months ended June 30, 2018.
Compensation and employee services
Compensation and employee services expenses were $159.5 million for the six months ended June 30, 2019,2020, a decrease of $2.4$14.4 million, or 1.5% compared to compensation and employee services expenses of $161.9 million for the six months ended June 30, 2018. The decrease in compensation expense is primarily attributable to a reduction in U.S. call centers workforce, as we balance the volume between the legal collection channel and call centers, and the result of deconsolidating RCB in December 2018. These decreases were partially offset by higher benefit costs. Total full-time equivalents decreased to 4,863 as of June 30, 2019, compared to 5,747 as of June 30, 2018.
Legal collection fees
Legal collection fees were $27.4 million for the six months ended June 30, 2019, an increase of $6.4 million, or 30.5%21.1%, compared to legal collection fees of $21.0 million for the six months ended June 30, 2018. The increase was primarily due to an increase in external legal cash collections in the U.S.
Legal collection costs
Legal collection costs were $68.4 million for the six months ended June 30, 2019, an increase2019. The decrease primarily reflects a decision we made to temporarily pause placing accounts into a legal eligible status in the U.S., along with the closure of $27.5 million, or 67.2%, compared tocourts in many of our European countries, as a result of the COVID-19 pandemic. These legal collection costs of $40.9activities largely returned to normal operations in June.
Agency Fees
Agency fees were $23.7 million for the six months ended June 30, 2018. The increase was primarily due2020, a decrease of $3.3 million, or 12.2%, compared to additional court costs related to the expansion of the number of accounts placed in the legal channel in the U.S. This expansion is the result of a change in the nature of the accounts purchased, the regulatory environment and consumer behavior.
Agency fees
Agency fees were $27.0 million for the six months ended June 30, 2019, an increase of $10.6 million or 64.6%, compared2019. The decrease was primarily due to $16.4lower cash collections in areas outside the U.S. where we utilize third party collection agencies.
Outside Fees and Services
Outside fees and services expenses were $38.1 million for the six months ended June 30, 2018. The2020, an increase was primarily the result of higher volumes of servicing activity in areas where we utilize third-party collection agencies. Additionally, with the sale of the RCB operating platform, certain expenses in other line items shifted from fixed$6.6 million, or 21.0%, compared to variable and are now recorded on the agency fees line.
Outside fees and services
Outside fees and services expenses were $31.5 million for the six months ended June 30, 2019,2019. The increase was primarily the result of higher corporate legal expenses and higher fees associated with processing an increased number of debit card transactions due to the increase of $2.8 million, or 9.8%, compared to outside fees and services expenses of $28.7in cash collections.
Interest Expense, Net
Interest expense, net was $72.6 million for the six months ended June 30, 2018. These increases were primarily the result of a $2.0 million increase in payment processing and debit card transaction fees resulting from the expansion of our digital collection efforts and a $1.3 million increase in audit and other outside professional fees, which were partially offset by a $0.8 million decrease in corporate legal and other litigation expenses.
Communication
Communication expenses were $24.0 million for the six months ended June 30, 2019,2020, an increase of $1.7$2.6 million, or 7.6%3.7%, compared to communication expenses of $22.3 million for the six months ended June 30, 2018. These increases were primarily the result of increased letter and call volume associated with record portfolio purchases in Americas Core in 2018.
Interest Expense, Net
Interest expense, net was $70.0 million for the six months ended June 30, 2019, an increase of $13.1 million or 23.0%, compared to $56.9 million for the six months ended June 30, 2018.2019. The increase was primarily due to higher levels of outstanding borrowings partially offset by lower average interest rates paired with higher levels of average borrowings to fund increased portfolio investments and the impact of changes in the fair value of our derivatives.rates.
Interest expense, net consisted of the following for the six months ended June 30, 20192020 and 20182019 (amounts in thousands):
| | | | | | | | | | For the Six Months Ended June 30, | |
| For the Six Months Ended June 30, | | 2020 | | 2019 | | Change |
| 2019 | | 2018 | | Change | |
Stated interest on debt obligations and unused line fees | $ | 47,397 |
| | $ | 40,256 |
| | $ | 7,141 |
| |
Interest on debt obligations and unused line fees | | Interest on debt obligations and unused line fees | $ | 51,063 | | | $ | 49,391 | | | $ | 1,672 | |
Coupon interest on convertible debt | 10,350 |
| | 10,350 |
| | — |
| Coupon interest on convertible debt | 10,350 | | | 10,350 | | | — | |
Amortization of convertible debt discount | 6,113 |
| | 5,781 |
| | 332 |
| Amortization of convertible debt discount | 6,464 | | | 6,113 | | | 351 | |
Amortization of loan fees and other loan costs | 5,291 |
| | 5,085 |
| | 206 |
| Amortization of loan fees and other loan costs | 5,382 | | | 5,291 | | | 91 | |
Change in fair value on derivatives | 1,994 |
| | (2,701 | ) | | 4,695 |
| |
| Interest income | (1,137 | ) | | (1,866 | ) | | 729 |
| Interest income | (632) | | | (1,137) | | | 505 | |
Interest expense, net | $ | 70,008 |
| | $ | 56,905 |
| | $ | 13,103 |
| Interest expense, net | $ | 72,627 | | | $ | 70,008 | | | $ | 2,619 | |
Net Foreign Currency Transaction Gains/(Losses)Gains
Net foreignForeign currency transaction gains were $3.0 million for the six months ended June 30, 2020, compared to $6.0 million for the six months ended June 30, 2019, compared2019. The decrease was primarily related to netlower foreign currency transaction gains of $3.0in Europe and slightly lower gains on U.S. dollar linked investments held in Brazil during the first quarter.
Income Tax Expense
Income tax expense was $17.2 million for the six months ended June 30, 2018. In any given period, we may incur foreign currency transactions gains2020, an increase of $8.3 million, or losses from transactions in currencies other than the functional currency and from changes in foreign exchange derivative contracts that were outstanding or settled during the period.
Income Tax Expense
Income tax expense was93.3%, compared to $8.9 million for the six months ended June 30, 2019, a decrease of $1.12019. The increase was primarily due to higher income before income taxes which increased $52.4 million or 11.0%108.9%. The increase was partially offset by estimated return to provision adjustments during the first quarter. During the six months ended June 30, 2020, our effective tax rate was 17.2%, compared to $10.0 million18.6% for the six months ended June 30, 2018.2019. The decrease was primarily due to a decrease in income before income taxes partially offset by an increase in our effective tax rate. During the six months ended June 30, 2019, our income before income taxes declined $6.8 million or 12.4%, compared to the six months ended June 30, 2018. During the six months ended June 30, 2019, our effective tax rate was 18.6%, compared to 18.2% for the six months ended June 30, 2018. The increase was due to new guidance on U.S. tax reform and changes in the mix of projected taxable incomeinternational earnings between tax jurisdictions partially offset by a decrease in the estimated blended rate for U.S. state taxes due to state apportionment and a decrease in withholding tax accruals.
Supplemental Performance Data
Finance receivables portfolio performanceReceivables Portfolio Performance
The following tables show certain data related to our finance receivables portfolios. Certain adjustments, as noted in the footnotes to these tables, have been made to reduce the impact of foreign currency fluctuations on ERC and purchase price multiples.
The accounts represented in the insolvencyInsolvency tables are those portfolios of accounts that were in an insolvency status at the time of purchase. This contrasts with accounts in our Core portfolios that file for bankruptcy/insolvency protection after we purchase them, which continue to be tracked in their corresponding Core portfolio. Core customers sometimes file for bankruptcy/insolvency protection subsequent to our purchase of the related Core portfolio. When this occurs, we adjust our collection practices to comply with bankruptcy/insolvency rules and procedures; however, for accounting purposes, these accounts remain in the original Core pool.portfolio. Insolvency accounts may be dismissed voluntarily or involuntarily subsequent to our purchase of the Insolvency portfolio. Dismissal occurs when the terms of the bankruptcy are not met by the petitioner. When this occurs, we are typically free to pursue collection outside of bankruptcy procedures; however, for accounting purposes, these accounts remain in the original Insolvency pool.
Purchase price multiples can vary over time due to a variety of factors, including pricing competition, supply levels, age of the receivables purchased,acquired, and changes in our operational efficiency. For example, increased pricing competition during the 2005 to 2008 period negatively impacted purchase price multiples of our Core portfolio compared to prior years. Conversely, during the 2009 to 2011 period, additional supply occurred as a result of the economic downturn. This created unique and advantageous purchasing opportunities, particularly within the Insolvency market, relative to the prior four years. Purchase price multiples can also vary among types of finance receivables. For example, we generally incur lower collection costs on our Insolvency portfolio compared with our Core portfolio. This allows us, in general, to pay more for an Insolvency portfolio and experience lower purchase price multiples, while generating similar net income margins when compared with a Core portfolio.
When competition increases and/or supply decreases, pricing often becomes negatively impacted relative to expected collections, and yields tend to trend lower. The opposite tends to occur when competition decreases and/or supply increases.
Within a given portfolio type, to the extent that lower purchase price multiples are the result of more competitive pricing and lower net yields, this will generally lead to higher amortization rates and lower profitability. As portfolio pricing becomes more favorable on a relative basis, our profitability will tend to increase. Profitability within given Core portfolio types may also be impacted by the age and quality of the receivables, which impact the cost to collect those accounts. Fresher accounts, for example, typically carry lower associated collection expenses, while older accounts and lower balance accounts typically carry higher costs and, as a result, require higher purchase price multiples to achieve the same net profitability as fresher accounts.paper.
Revenue recognition under ASC Topic 310-30, "Loans310-10 and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC 310-30")326 is driven by estimates of the amount and timing of collections as well as the timing of those collections. We record new portfolio purchases based on our best estimate ofacquisitions at the cash flows expected at acquisition,purchase price which reflects the uncertainties inherent inamount we expect to collect discounted at an effective interest rate. During the purchaseyear of nonperforming loansacquisition, the annual pool is aggregated and the resultsblended effective interest rate will change to reflect new buying and new cash flow estimates until the end of our underwriting process.the year. At that time, the effective interest rate is fixed at the amount we expect to collect discounted at the rate to equate purchase price to the recovery estimate. During the first year of purchase, we typically do not allow purchase price multiples to expand. Subsequent to the initial booking,year, as we gain collection experience and confidence with a pool of accounts, we regularly update ERC. As a result, our estimate of total collections has often increased as pools have aged. These processes have tended to cause the ratio of ERC to purchase price for any given year of buying to gradually increase over time. Thus, all factors being equal in terms of pricing, one would typically tend to see a higher collection to purchase price ratio from a pool of accounts that was six years from purchaseacquisition than a pool that was just two years from purchase.
We hold a beneficial interest in certain pools of finance receivables in Europe. Revenue is recognized under ASC Topic 310-20, "Receivables - Nonrefundable Fees and Other Costs" where we compute a life-to-date yield on a retrospective basis and apply it to the ERC of the portfolio. Revenue on these pools is included in income recognized on finance receivables. In addition, these pools are included in the following tables as they perform economically similar to finance receivables accounted for under ASC 310-30.acquisition.
The numbers presented in the following tables represent gross cash collections and do not reflect any costs to collect; therefore, they may not represent relative profitability. Due to all the factors described above, readers should be cautious when making comparisons of purchase price multiples among periods and between types of receivables.
We hold a majority interest in a Polish investment fund
| | | | | | | | | | | | | | | | | | | | | |
Purchase Price Multiples as of June 30, 2020 Amounts in thousands | | | | | | | |
Purchase Period | Purchase Price (1)(2) | | ERC-Historical Period Exchange Rates (3) | Total Estimated Collections (4) | ERC-Current Period Exchange Rates (5) | Current Estimated Purchase Price Multiple | Original Estimated Purchase Price Multiple(6) |
Americas Core | | | | | | | |
1996-2009 | $ | 930,026 | | | $ | 25,275 | | $ | 2,876,410 | | $ | 25,275 | | 309 | % | 238 | % |
2010 | 148,193 | | | 16,361 | | 527,054 | | 16,361 | | 356 | % | 247 | % |
2011 | 209,602 | | | 29,000 | | 725,887 | | 29,000 | | 346 | % | 245 | % |
2012 | 254,076 | | | 35,475 | | 661,919 | | 35,475 | | 261 | % | 226 | % |
2013 | 390,826 | | | 62,664 | | 912,274 | | 62,664 | | 233 | % | 211 | % |
2014 | 404,117 | | | 99,011 | | 891,394 | | 96,700 | | 221 | % | 204 | % |
2015 | 443,114 | | | 163,023 | | 933,558 | | 162,489 | | 211 | % | 205 | % |
2016 | 455,767 | | | 301,974 | | 1,099,686 | | 287,328 | | 241 | % | 201 | % |
2017 | 532,851 | | | 453,291 | | 1,207,541 | | 448,520 | | 227 | % | 193 | % |
2018 | 653,975 | | | 670,175 | | 1,340,743 | | 657,985 | | 205 | % | 202 | % |
2019 | 581,476 | | | 898,263 | | 1,222,926 | | 868,031 | | 210 | % | 206 | % |
2020 | 283,041 | | | 543,573 | | 580,673 | | 543,573 | | 205 | % | 205 | % |
Subtotal | 5,287,064 | | | 3,298,085 | | 12,980,065 | | 3,233,401 | | | |
Americas Insolvency | | | | | | | |
1996-2009 | 397,453 | | | 681 | | 835,919 | | 681 | | 210 | % | 178 | % |
2010 | 208,942 | | | 868 | | 546,829 | | 868 | | 262 | % | 184 | % |
2011 | 180,432 | | | 743 | | 370,148 | | 743 | | 205 | % | 155 | % |
2012 | 251,395 | | | 495 | | 392,466 | | 495 | | 156 | % | 136 | % |
2013 | 227,834 | | | 1,380 | | 354,901 | | 1,380 | | 156 | % | 133 | % |
2014 | 148,420 | | | 2,088 | | 217,662 | | 2,074 | | 147 | % | 124 | % |
2015 | 63,170 | | | 4,344 | | 87,824 | | 4,344 | | 139 | % | 125 | % |
2016 | 91,442 | | | 14,160 | | 115,267 | | 14,146 | | 126 | % | 123 | % |
2017 | 275,257 | | | 86,263 | | 345,821 | | 86,263 | | 126 | % | 125 | % |
2018 | 97,879 | | | 81,259 | | 130,790 | | 81,259 | | 134 | % | 127 | % |
2019 | 123,077 | | | 132,192 | | 160,420 | | 132,061 | | 130 | % | 128 | % |
2020 | 35,298 | | | 44,941 | | 47,686 | | 44,941 | | 135 | % | 135 | % |
Subtotal | 2,100,599 | | | 369,414 | | 3,605,733 | | 369,255 | | | |
Total Americas | 7,387,663 | | | 3,667,499 | | 16,585,798 | | 3,602,656 | | | |
Europe Core | | | | | | | |
2012 | 20,409 | | | 292 | | 40,720 | | 221 | | 200 | % | 187 | % |
2013 | 20,334 | | | 148 | | 25,132 | | 110 | | 124 | % | 119 | % |
2014 | 773,811 | | | 731,226 | | 2,215,272 | | 632,283 | | 286 | % | 208 | % |
2015 | 411,340 | | | 308,026 | | 733,076 | | 273,940 | | 178 | % | 160 | % |
2016 | 333,090 | | | 298,696 | | 556,757 | | 290,948 | | 167 | % | 167 | % |
2017 | 252,174 | | | 218,286 | | 359,556 | | 197,823 | | 143 | % | 144 | % |
2018 | 341,775 | | | 374,650 | | 524,165 | | 361,620 | | 153 | % | 148 | % |
2019 | 518,610 | | | 668,732 | | 782,184 | | 637,980 | | 151 | % | 152 | % |
2020 | 94,763 | | | 165,081 | | 172,597 | | 165,081 | | 182 | % | 182 | % |
Subtotal | 2,766,306 | | | 2,765,137 | | 5,409,459 | | 2,560,006 | | | |
Europe Insolvency | | | | | | | |
2014 | 10,876 | | | 573 | | 18,136 | | 490 | | 167 | % | 129 | % |
2015 | 18,973 | | | 4,220 | | 29,099 | | 3,534 | | 153 | % | 139 | % |
2016 | 39,338 | | | 12,951 | | 56,808 | | 13,132 | | 144 | % | 130 | % |
2017 | 39,235 | | | 24,680 | | 48,839 | | 22,626 | | 124 | % | 128 | % |
2018 | 44,908 | | | 41,089 | | 55,096 | | 39,915 | | 123 | % | 123 | % |
2019 | 77,218 | | | 85,331 | | 101,282 | | 79,841 | | 131 | % | 130 | % |
2020 | 23,017 | | | 29,757 | | 30,776 | | 29,757 | | 134 | % | 134 | % |
Subtotal | 253,565 | | | 198,601 | | 340,036 | | 189,295 | | | |
Total Europe | 3,019,871 | | | 2,963,738 | | 5,749,495 | | 2,749,301 | | | |
Total PRA Group | $ | 10,407,534 | | | $ | 6,631,237 | | $ | 22,335,293 | | $ | 6,351,957 | | | |
(1)Includes the acquisition date finance receivables portfolios that was previously classified inwere acquired through our Consolidated Balance Sheets as "Investments" and previously excluded frombusiness acquisitions.
(2)For our non-US amounts, purchase price is presented at the following tables. Effective July 1, 2018, we assumed servicing responsibilities for approximately 50%exchange rate at the end of the portfolios held byyear in which the Polish investment fund which led to an accounting reconsideration event andpool was purchased. In addition, any purchase price adjustments that occur throughout the consolidationlife of this investment. The finance receivables recordedthe pool are presented at the consolidation date andyear-end exchange rate for the related portfolio performance information are included inrespective year of purchase.
(3)For our non-US amounts, ERC-Historical Period Exchange Rates is presented at the Supplemental Performance Data section inyear-end exchange rate for the Europe-Core 2018 line unless otherwise indicatedrespective year of purchase.
(4). For our non-US amounts, TEC is presented at the year-end exchange rate for the respective year of purchase.
(5)On March 29, 2019, we signed an agreement making PRA GroupFor our non-U.S. amounts, ERC-Current Period Exchange Rates is presented at the servicer of effectively 100%June 30, 2020 exchange rate.
(6)The Original Estimated Purchase Price Multiple represents the purchase price multiple at the end of the portfolios held by the Polish investment fund effective April 1, 2019.year of acquisition.
Purchase Price Multiples as of June 30, 2019 Amounts in thousands |
| | | | | | | | | | | | | | | | | | | |
Purchase Period | Purchase Price (1)(2) | Net Finance Receivables (3) | ERC-Historical Period Exchange Rates (4) | Total Estimated Collections (5) | ERC-Current Period Exchange Rates (6) | Current Estimated Purchase Price Multiple | Original Estimated Purchase Price Multiple (7) |
Americas-Core | | | | | | | |
1996-2008 | $ | 804,880 |
| $ | 9,023 |
| $ | 30,183 |
| $ | 2,425,080 |
| $ | 30,183 |
| 301 | % | 236 | % |
2009 | 125,153 |
| 592 |
| 19,372 |
| 459,958 |
| 19,372 |
| 368 | % | 252 | % |
2010 | 148,197 |
| 3,869 |
| 31,740 |
| 534,372 |
| 31,740 |
| 361 | % | 247 | % |
2011 | 209,604 |
| 8,495 |
| 53,784 |
| 736,862 |
| 53,784 |
| 352 | % | 245 | % |
2012 | 254,102 |
| 17,454 |
| 69,474 |
| 681,368 |
| 69,474 |
| 268 | % | 226 | % |
2013 | 390,932 |
| 40,974 |
| 117,423 |
| 937,824 |
| 117,423 |
| 240 | % | 211 | % |
2014 | 405,349 |
| 68,007 |
| 177,944 |
| 931,071 |
| 175,125 |
| 230 | % | 204 | % |
2015 | 443,921 |
| 113,111 |
| 269,177 |
| 972,745 |
| 269,155 |
| 219 | % | 205 | % |
2016 | 453,434 |
| 161,101 |
| 410,953 |
| 1,076,072 |
| 406,806 |
| 237 | % | 201 | % |
2017 | 534,011 |
| 295,918 |
| 619,313 |
| 1,151,049 |
| 616,550 |
| 216 | % | 193 | % |
2018 | 655,984 |
| 543,703 |
| 1,013,915 |
| 1,324,959 |
| 1,012,544 |
| 202 | % | 202 | % |
2019 | 291,953 |
| 280,247 |
| 561,762 |
| 599,565 |
| 563,686 |
| 205 | % | 205 | % |
Subtotal | 4,717,520 |
| 1,542,494 |
| 3,375,040 |
| 11,830,925 |
| 3,365,842 |
| | |
Americas-Insolvency | | | | | | |
2004-2008 | 241,465 |
| — |
| 511 |
| 365,619 |
| 511 |
| 151 | % | 155 | % |
2009 | 155,988 |
| — |
| 953 |
| 470,606 |
| 953 |
| 302 | % | 214 | % |
2010 | 208,942 |
| — |
| 1,672 |
| 547,054 |
| 1,672 |
| 262 | % | 184 | % |
2011 | 180,433 |
| — |
| 152 |
| 368,974 |
| 152 |
| 204 | % | 155 | % |
2012 | 251,396 |
| — |
| 60 |
| 390,710 |
| 60 |
| 155 | % | 136 | % |
2013 | 227,893 |
| — |
| 3,219 |
| 354,953 |
| 3,219 |
| 156 | % | 133 | % |
2014 | 148,582 |
| 3,125 |
| 8,781 |
| 217,747 |
| 8,755 |
| 147 | % | 124 | % |
2015 | 63,181 |
| 9,683 |
| 15,310 |
| 85,357 |
| 15,310 |
| 135 | % | 125 | % |
2016 | 92,281 |
| 22,403 |
| 30,785 |
| 116,044 |
| 30,785 |
| 126 | % | 123 | % |
2017 | 275,265 |
| 122,728 |
| 158,858 |
| 348,246 |
| 158,857 |
| 127 | % | 125 | % |
2018 | 97,938 |
| 84,493 |
| 106,266 |
| 125,770 |
| 106,265 |
| 128 | % | 127 | % |
2019 | 74,178 |
| 71,225 |
| 89,542 |
| 94,112 |
| 89,542 |
| 127 | % | 127 | % |
Subtotal | 2,017,542 |
| 313,657 |
| 416,109 |
| 3,485,192 |
| 416,081 |
| | |
Total Americas | 6,735,062 |
| 1,856,151 |
| 3,791,149 |
| 15,316,117 |
| 3,781,923 |
| | |
Europe-Core | | | | | | | |
2012 | 20,422 |
| — |
| 666 |
| 39,431 |
| 520 |
| 193 | % | 187 | % |
2013 | 20,343 |
| — |
| 392 |
| 24,420 |
| 300 |
| 120 | % | 119 | % |
2014 | 796,839 |
| 212,142 |
| 869,372 |
| 2,225,481 |
| 743,280 |
| 279 | % | 208 | % |
2015 | 420,323 |
| 171,854 |
| 376,344 |
| 744,300 |
| 336,012 |
| 177 | % | 160 | % |
2016 | 348,306 |
| 206,864 |
| 370,582 |
| 587,157 |
| 371,454 |
| 169 | % | 167 | % |
2017 | 246,995 |
| 170,165 |
| 254,850 |
| 350,879 |
| 246,807 |
| 142 | % | 144 | % |
2018 (8) | 345,357 |
| 289,637 |
| 444,774 |
| 516,865 |
| 438,880 |
| 150 | % | 148 | % |
2019 | 228,941 |
| 223,685 |
| 353,718 |
| 361,966 |
| 353,682 |
| 158 | % | 158 | % |
Subtotal | 2,427,526 |
| 1,274,347 |
| 2,670,698 |
| 4,850,499 |
| 2,490,935 |
| | |
Europe-Insolvency | | | | | | |
2014 | 10,876 |
| 527 |
| 1,574 |
| 17,964 |
| 1,403 |
| 165 | % | 129 | % |
2015 | 19,278 |
| 3,839 |
| 7,960 |
| 29,172 |
| 6,775 |
| 151 | % | 139 | % |
2016 | 41,909 |
| 15,197 |
| 23,729 |
| 61,118 |
| 23,239 |
| 146 | % | 130 | % |
2017 | 38,474 |
| 27,883 |
| 36,056 |
| 49,792 |
| 34,704 |
| 129 | % | 128 | % |
2018 | 45,625 |
| 41,527 |
| 51,262 |
| 55,937 |
| 50,297 |
| 123 | % | 123 | % |
2019 | 11,816 |
| 11,478 |
| 14,937 |
| 15,259 |
| 14,704 |
| 129 | % | 129 | % |
Subtotal | 167,978 |
| 100,451 |
| 135,518 |
| 229,242 |
| 131,122 |
| | |
Total Europe | 2,595,504 |
| 1,374,798 |
| 2,806,216 |
| 5,079,741 |
| 2,622,057 |
| | |
Total PRA Group | $ | 9,330,566 |
| $ | 3,230,949 |
| $ | 6,597,365 |
| $ | 20,395,858 |
| $ | 6,403,980 |
| | |
| | | | | | | | | | | | | | | | | |
(1)Portfolio Financial Information Year-to-date as of June 30, 2020 Amounts in thousands | The amount reflected in Purchase Price also includes the acquisition date finance receivables portfolios that were acquired through our various business acquisitions. |
| | | |
(2)Purchase Period | For our non-U.S. amounts, Purchase Price is presented at the exchange rate at the endCash
Collections (1) | Portfolio Income (1) | Changes in Expected Recoveries (1) | Total Portfolio Revenue (1)(2) | Net Finance Receivables as of the quarter in which the pool was purchased. In addition, any purchase price adjustments that occur throughout the life of the pool are presented at the period-end exchange rate for the respective quarter of purchase.June 30, 2020 (3) |
Americas Core | | | | | |
(3)1996-2009 | For our non-U.S. amounts, Net Finance Receivables are presented at the June 30, 2019 exchange rate.$ | 7,348 | | $ | 5,560 | | $ | (1,406) | | $ | 4,154 | | $ | 6,071 | |
2010 | 3,678 | | 3,536 | | (857) | | 2,679 | | 2,486 | |
2011 | 6,281 | | 5,941 | | (2,248) | | 3,693 | | 5,117 | |
2012 | 6,802 | | 6,093 | | (4,225) | | 1,868 | | 11,070 | |
2013 | 13,149 | | 9,990 | | (8,009) | | 1,981 | | 22,418 | |
2014 | 18,121 | | 14,251 | | (15,672) | | (1,421) | | 35,200 | |
2015 | 32,948 | | 19,999 | | (13,822) | | 6,177 | | 66,386 | |
2016 | 57,081 | | 32,839 | | (755) | | 32,084 | | 113,660 | |
2017 | 108,504 | | 50,175 | | 17,559 | | 67,734 | | 200,463 | |
2018 | 183,021 | | 76,976 | | 6,452 | | 83,428 | | 356,085 | |
2019 | 175,029 | | 95,119 | | 14,877 | | 109,996 | | 448,861 | |
2020 | 37,087 | | 21,374 | | 10,312 | | 31,686 | | 277,335 | |
Subtotal | 649,049 | | 341,853 | | 2,206 | | 344,059 | | 1,545,152 | |
Americas Insolvency | | | | | |
(4)1996-2009 | For our non-U.S. amounts, ERC-Historical Period Exchange Rates is presented at the period-end exchange rate for the respective quarter of purchase.197 | | 235 | | (38) | | 197 | | — | |
2010 | 269 | | 312 | | (43) | | 269 | | — | |
2011 | 275 | | 229 | | 46 | | 275 | | — | |
2012 | 546 | | 458 | | 174 | | 632 | | — | |
2013 | 742 | | 763 | | (20) | | 743 | | — | |
2014 | 1,378 | | 1,789 | | (896) | | 893 | | 262 | |
2015 | 5,624 | | 2,819 | | (219) | | 2,600 | | 2,755 | |
2016 | 7,709 | | 2,060 | | (616) | | 1,444 | | 11,164 | |
2017 | 32,245 | | 9,047 | | (2,692) | | 6,355 | | 69,529 | |
2018 | 15,394 | | 4,655 | | 3,010 | | 7,665 | | 66,722 | |
2019 | 14,770 | | 5,870 | | 2,790 | | 8,660 | | 108,218 | |
2020 | 2,746 | | 1,098 | | (264) | | 834 | | 33,190 | |
Subtotal | 81,895 | | 29,335 | | 1,232 | | 30,567 | | 291,840 | |
Total Americas | 730,944 | | 371,188 | | 3,438 | | 374,626 | | 1,836,992 | |
Europe Core | | | | | |
(5)2012 | For our non-U.S. amounts, TEC is presented at the period-end exchange rate for the respective quarter of purchase.591 | | 454 | | 137 | | 591 | | — | |
2013 | 320 | | 216 | | 104 | | 320 | | — | |
2014 | 72,661 | | 54,323 | | 2,336 | | 56,659 | | 166,870 | |
2015 | 26,772 | | 15,775 | | (213) | | 15,562 | | 142,997 | |
2016 | 23,270 | | 13,529 | | (1,336) | | 12,193 | | 167,532 | |
2017 | 17,870 | | 6,932 | | (1,285) | | 5,647 | | 136,984 | |
2018 | 35,776 | | 13,293 | | 3,562 | | 16,855 | | 234,775 | |
2019 | 61,779 | | 22,118 | | (2,085) | | 20,033 | | 422,528 | |
2020 | 7,446 | | 2,966 | | 1,348 | | 4,314 | | 91,298 | |
Subtotal | 246,485 | | 129,606 | | 2,568 | | 132,174 | | 1,362,984 | |
Europe Insolvency | | | | | |
(6)2014 | For our non-U.S. amounts, ERC-Current Period Exchange Rates is presented at the June 30, 2019 exchange rate. |
410 | | 320 | | (17) | | 303 | | 192 | |
(7)2015 | The Original Purchase Price Multiple represents the purchase price multiple at the end of the year of acquisition. |
1,603 | | 769 | | 93 | | 862 | | 2,154 | |
(8)2016 | The Europe-Core purchases include a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the consolidation of a Polish investment fund. |
Portfolio Financial Information Year-to-date as of June 30, 2019 Amounts in thousands |
| | | | | | | | | | | | | | | | | | | | | |
Purchase Period | Purchase Price (1)(2) | Cash Collections (3) | Gross Revenue (3) | Amortization (3) | Net Allowance Charges/(Reversals) (3) | Net Revenue (3)(4) | Net Finance Receivables as of June 30, 2019 (5) |
Americas-Core | | | | | | | |
1996-2008 | $ | 804,880 |
| $ | 7,070 |
| $ | 4,713 |
| $ | 2,357 |
| $ | (2,275 | ) | $ | 6,988 |
| $ | 9,023 |
|
2009 | 125,153 |
| 3,785 |
| 3,524 |
| 261 |
| (200 | ) | 3,724 |
| 592 |
|
2010 | 148,197 |
| 4,819 |
| 4,231 |
| 588 |
| 185 |
| 4,046 |
| 3,869 |
|
2011 | 209,604 |
| 9,109 |
| 7,873 |
| 1,236 |
| 700 |
| 7,173 |
| 8,495 |
|
2012 | 254,102 |
| 10,119 |
| 7,390 |
| 2,729 |
| (580 | ) | 7,970 |
| 17,454 |
|
2013 | 390,932 |
| 20,795 |
| 14,467 |
| 6,328 |
| 3,155 |
| 11,312 |
| 40,974 |
|
2014 | 405,349 |
| 32,308 |
| 20,832 |
| 11,476 |
| 1,658 |
| 19,174 |
| 68,007 |
|
2015 | 443,921 |
| 48,410 |
| 28,726 |
| 19,684 |
| 1,135 |
| 27,591 |
| 113,111 |
|
2016 | 453,434 |
| 80,201 |
| 47,248 |
| 32,953 |
| 1,353 |
| 45,895 |
| 161,101 |
|
2017 | 534,011 |
| 143,043 |
| 68,014 |
| 75,029 |
| 136 |
| 67,878 |
| 295,918 |
|
2018 | 655,984 |
| 187,516 |
| 102,720 |
| 84,796 |
| — |
| 102,720 |
| 543,703 |
|
2019 | 291,953 |
| 37,791 |
| 25,180 |
| 12,611 |
| — |
| 25,180 |
| 280,247 |
|
Subtotal | 4,717,520 |
| 584,966 |
| 334,918 |
| 250,048 |
| 5,267 |
| 329,651 |
| 1,542,494 |
|
Americas-Insolvency | | | | | | |
2004-2008 | 241,465 |
| 113 |
| 113 |
| — |
| — |
| 113 |
| — |
|
2009 | 155,988 |
| 260 |
| 260 |
| — |
| — |
| 260 |
| — |
|
2010 | 208,942 |
| 352 |
| 352 |
| — |
| — |
| 352 |
| — |
|
2011 | 180,433 |
| 436 |
| 436 |
| — |
| — |
| 436 |
| — |
|
2012 | 251,396 |
| 1,096 |
| 1,096 |
| — |
| — |
| 1,096 |
| — |
|
2013 | 227,893 |
| 1,815 |
| 1,815 |
| — |
| — |
| 1,815 |
| — |
|
2014 | 148,582 |
| 10,317 |
| 6,115 |
| 4,202 |
| — |
| 6,115 |
| 3,125 |
|
2015 | 63,181 |
| 8,848 |
| 2,300 |
| 6,548 |
| — |
| 2,300 |
| 9,683 |
|
2016 | 92,281 |
| 10,787 |
| 2,381 |
| 8,406 |
| (200 | ) | 2,581 |
| 22,403 |
|
2017 | 275,265 |
| 42,983 |
| 10,128 |
| 32,855 |
| — |
| 10,128 |
| 122,728 |
|
2018 | 97,938 |
| 12,806 |
| 3,552 |
| 9,254 |
| — |
| 3,552 |
| 84,493 |
|
2019 | 74,178 |
| 4,570 |
| 1,618 |
| 2,952 |
| — |
| 1,618 |
| 71,225 |
|
Subtotal | 2,017,542 |
| 94,383 |
| 30,166 |
| 64,217 |
| (200 | ) | 30,366 |
| 313,657 |
|
Total Americas | 6,735,062 |
| 679,349 |
| 365,084 |
| 314,265 |
| 5,067 |
| 360,017 |
| 1,856,151 |
|
Europe-Core | | | | | | | |
2012 | 20,422 |
| 750 |
| 750 |
| — |
| — |
| 750 |
| — |
|
2013 | 20,343 |
| 494 |
| 396 |
| 98 |
| — |
| 396 |
| — |
|
2014 | 796,839 |
| 89,876 |
| 61,888 |
| 27,988 |
| (820 | ) | 62,708 |
| 212,142 |
|
2015 | 420,323 |
| 34,730 |
| 16,703 |
| 18,027 |
| (1,347 | ) | 18,050 |
| 171,854 |
|
2016 | 348,306 |
| 30,112 |
| 14,575 |
| 15,537 |
| 2,977 |
| 11,598 |
| 206,864 |
|
2017 | 246,995 |
| 22,852 |
| 7,033 |
| 15,819 |
| 1,549 |
| 5,484 |
| 170,165 |
|
2018 (6) | 345,357 |
| 47,447 |
| 13,271 |
| 34,176 |
| — |
| 13,271 |
| 289,637 |
|
2019 | 228,941 |
| 8,232 |
| 2,373 |
| 5,859 |
| — |
| 2,373 |
| 223,685 |
|
Subtotal | 2,427,526 |
| 234,493 |
| 116,989 |
| 117,504 |
| 2,359 |
| 114,630 |
| 1,274,347 |
|
Europe-Insolvency | | | | | | |
2014 | 10,876 |
| 931 |
| 477 |
| 454 |
| — |
| 477 |
| 527 |
|
2015 | 19,278 |
| 2,106 |
| 909 |
| 1,197 |
| (73 | ) | 982 |
| 3,839 |
|
2016 | 41,909 |
| 5,716 |
| 2,155 |
| 3,561 |
| (62 | ) | 2,217 |
| 15,197 |
|
2017 | 38,474 |
| 4,535 |
| 1,169 |
| 3,366 |
| — |
| 1,169 |
| 27,883 |
|
2018 | 45,625 |
| 3,997 |
| 1,111 |
| 2,886 |
| — |
| 1,111 |
| 41,527 |
|
2019 | 11,816 |
| 318 |
| 161 |
| 157 |
| — |
| 161 |
| 11,478 |
|
Subtotal | 167,978 |
| 17,603 |
| 5,982 |
| 11,621 |
| (135 | ) | 6,117 |
| 100,451 |
|
Total Europe | 2,595,504 |
| 252,096 |
| 122,971 |
| 129,125 |
| 2,224 |
| 120,747 |
| 1,374,798 |
|
Total PRA Group | $ | 9,330,566 |
| $ | 931,445 |
| $ | 488,055 |
| $ | 443,390 |
| $ | 7,291 |
| $ | 480,764 |
| $ | 3,230,949 |
|
4,064 | | 1,700 | | (241) | | 1,459 | | 9,262 | |
(1)2017 | The amount reflected in Purchase Price also includes the acquisition date finance receivables portfolios that were acquired through our various business acquisitions.4,747
|
| | 1,054 | | 191 | | 1,245 | | 19,580 | |
(2)2018 | For our non-U.S. amounts, Purchase Price is presented at the exchange rate at the end of the quarter in which the pool was purchased. In addition, any purchase price adjustments that occur throughout the life of the pool are presented at the period-end exchange rate for the respective quarter of purchase.4,845
|
| | 1,521 | | (237) | | 1,284 | | 33,977 | |
(3)2019 | For our non-U.S. amounts, amounts are presented using the average exchange rates during the current reporting period.10,386
|
| | 3,429 | | 992 | | 4,421 | | 63,555 | |
(4)2020 | Net Revenue refers to income recognized on finance receivables, net of allowance charges/(reversals). |
1,029 | | 719 | | 198 | | 917 | | 22,836 | |
(5)Subtotal | For our non-U.S. amounts, net finance receivables are presented at the June 30, 2019 exchange rate. |
27,084 | | 9,512 | | 979 | | 10,491 | | 151,556 | |
(6)Total Europe | The Europe-Core purchases include a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the consolidation of a Polish investment fund.273,569 | | 139,118 | | 3,547 | | 142,665 | | 1,514,540 | |
Total PRA Group | $ | 1,004,513 | | $ | 510,306 | | $ | 6,985 | | $ | 517,291 | | $ | 3,351,532 | |
(1)For our non-U.S. amounts, amounts are presented using the average exchange rates during the current reporting period.
(2)Total Portfolio Revenue refers to portfolio income and changes in expected recoveries combined.
(3)For our non-U.S. amounts, net finance receivables are presented at the June 30, 2020 exchange rate.
The following table, which excludes any proceeds from cash sales of finance receivables, illustrates historical cash collections, by year, on our portfolios.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash Collections by Year, By Year of Purchase (1) as of June 30, 2020 Amounts in millions | | | | | | | | | | | | | | | |
| | Cash Collections | | | | | | | | | | | | | |
Purchase Period | Purchase Price (2)(3) | 1996- 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | Total | |
Americas Core | | | | | | | | | | | | | | | |
1996-2009 | $ | 930.0 | | $ | 1,647.7 | | $ | 295.7 | | $ | 253.5 | | $ | 201.6 | | $ | 146.4 | | $ | 101.8 | | $ | 71.2 | | $ | 45.7 | | $ | 30.5 | | $ | 23.3 | | $ | 19.2 | | $ | 7.3 | | $ | 2,843.9 | | |
2010 | 148.2 | | — | | 47.1 | | 113.6 | | 109.9 | | 82.0 | | 55.9 | | 38.1 | | 24.5 | | 15.6 | | 11.1 | | 9.2 | | 3.7 | | 510.7 | | |
2011 | 209.6 | | — | | — | | 62.0 | | 174.5 | | 152.9 | | 108.5 | | 73.8 | | 48.7 | | 32.0 | | 21.6 | | 16.6 | | 6.3 | | 696.9 | | |
2012 | 254.1 | | — | | — | | — | | 56.9 | | 173.6 | | 146.2 | | 97.3 | | 60.0 | | 40.0 | | 27.8 | | 17.9 | | 6.8 | | 626.5 | | |
2013 | 390.8 | | — | | — | | — | | — | | 101.6 | | 247.8 | | 194.0 | | 120.8 | | 78.9 | | 56.4 | | 36.9 | | 13.2 | | 849.6 | | |
2014 | 404.1 | | — | | — | | — | | — | | — | | 92.7 | | 253.4 | | 170.3 | | 114.2 | | 82.2 | | 55.3 | | 18.2 | | 786.3 | | |
2015 | 443.1 | | — | | — | | — | | — | | — | | — | | 117.0 | | 228.4 | | 185.9 | | 126.6 | | 83.6 | | 32.9 | | 774.4 | | |
2016 | 455.8 | | — | | — | | — | | — | | — | | — | | — | | 138.7 | | 256.5 | | 194.6 | | 140.6 | | 57.1 | | 787.5 | | |
2017 | 532.9 | | — | | — | | — | | — | | — | | — | | — | | — | | 107.3 | | 278.7 | | 256.5 | | 108.5 | | 751.0 | | |
2018 | 654.0 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 122.7 | | 361.9 | | 183.0 | | 667.6 | | |
2019 | 581.5 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 143.8 | | 175.0 | | 318.8 | | |
2020 | 283.0 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 37.1 | | 37.1 | | |
Subtotal | 5,287.1 | | 1,647.7 | | 342.8 | | 429.1 | | 542.9 | | 656.5 | | 752.9 | | 844.8 | | 837.1 | | 860.9 | | 945.0 | | 1,141.5 | | 649.1 | | 9,650.3 | | |
Americas Insolvency | | | | | | | | | | | | | | | |
1996-2009 | 397.5 | | 204.3 | | 147.1 | | 156.7 | | 145.4 | | 109.3 | | 57.0 | | 7.6 | | 3.6 | | 2.2 | | 1.1 | | 0.7 | | 0.2 | | 835.2 | | |
2010 | 208.9 | | — | | 39.5 | | 104.5 | | 125.0 | | 121.7 | | 101.9 | | 43.6 | | 5.0 | | 2.4 | | 1.4 | | 0.7 | | 0.3 | | 546.0 | | |
2011 | 180.4 | | — | | — | | 15.2 | | 66.4 | | 82.8 | | 85.8 | | 76.9 | | 36.0 | | 3.7 | | 1.6 | | 0.7 | | 0.3 | | 369.4 | | |
2012 | 251.4 | | — | | — | | — | | 17.4 | | 103.6 | | 94.1 | | 80.1 | | 60.7 | | 29.3 | | 4.3 | | 1.9 | | 0.5 | | 391.9 | | |
2013 | 227.8 | | — | | — | | — | | — | | 52.5 | | 82.6 | | 81.7 | | 63.4 | | 47.8 | | 21.9 | | 2.9 | | 0.7 | | 353.5 | | |
2014 | 148.4 | | — | | — | | — | | — | | — | | 37.0 | | 50.9 | | 44.3 | | 37.4 | | 28.8 | | 15.8 | | 1.4 | | 215.6 | | |
2015 | 63.2 | | — | | — | | — | | — | | — | | — | | 3.4 | | 17.9 | | 20.1 | | 19.8 | | 16.7 | | 5.6 | | 83.5 | | |
2016 | 91.4 | | — | | — | | — | | — | | — | | — | | — | | 18.9 | | 30.4 | | 25.0 | | 19.9 | | 7.7 | | 101.9 | | |
2017 | 275.3 | | — | | — | | — | | — | | — | | — | | — | | — | | 49.1 | | 97.3 | | 80.9 | | 32.3 | | 259.6 | | |
2018 | 97.9 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 6.7 | | 27.4 | | 15.4 | | 49.5 | | |
2019 | 123.1 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 13.4 | | 14.8 | | 28.2 | | |
2020 | 35.3 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 2.7 | | 2.7 | | |
Subtotal | 2,100.6 | | 204.3 | | 186.6 | | 276.4 | | 354.2 | | 469.9 | | 458.4 | | 344.2 | | 249.8 | | 222.4 | | 207.9 | | 181.0 | | 81.9 | | 3,237.0 | | |
Total Americas | 7,387.7 | | 1,852.0 | | 529.4 | | 705.5 | | 897.1 | | 1,126.4 | | 1,211.3 | | 1,189.0 | | 1,086.9 | | 1,083.3 | | 1,152.9 | | 1,322.5 | | 731.0 | | 12,887.3 | | |
Europe Core | | | | | | | | | | | | | | | |
2012 | 20.4 | | — | | — | | — | | 11.6 | | 9.0 | | 5.6 | | 3.2 | | 2.2 | | 2.0 | | 2.0 | | 1.5 | | 0.6 | | 37.7 | | |
2013 | 20.3 | | — | | — | | — | | — | | 7.1 | | 8.5 | | 2.3 | | 1.3 | | 1.2 | | 1.3 | | 0.9 | | 0.3 | | 22.9 | | |
2014 | 773.8 | | — | | — | | — | | — | | — | | 153.2 | | 292.0 | | 246.4 | | 220.8 | | 206.3 | | 172.9 | | 72.6 | | 1,364.2 | | |
2015 | 411.3 | | — | | — | | — | | — | | — | | — | | 45.8 | | 100.3 | | 86.2 | | 80.9 | | 66.1 | | 26.7 | | 406.0 | | |
2016 | 333.1 | | — | | — | | — | | — | | — | | — | | — | | 40.4 | | 78.9 | | 72.6 | | 58.0 | | 23.3 | | 273.2 | | |
2017 | 252.2 | | — | | — | | — | | — | | — | | — | | — | | — | | 17.9 | | 56.0 | | 44.1 | | 17.9 | | 135.9 | | |
2018 | 341.8 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 24.3 | | 88.7 | | 35.8 | | 148.8 | | |
2019 | 518.6 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 48.0 | | 61.8 | | 109.8 | | |
2020 | 94.8 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 7.5 | | 7.5 | | |
Subtotal | 2,766.3 | | — | | — | | — | | 11.6 | | 16.1 | | 167.3 | | 343.3 | | 390.6 | | 407.0 | | 443.4 | | 480.2 | | 246.5 | | 2,506.0 | | |
Europe Insolvency | | | | | | | | | | | | | | | |
2014 | 10.9 | | — | | — | | — | | — | | — | | — | | 4.3 | | 3.9 | | 3.2 | | 2.6 | | 1.5 | | 0.4 | | 15.9 | | |
2015 | 19.0 | | — | | — | | — | | — | | — | | — | | 3.0 | | 4.4 | | 5.0 | | 4.8 | | 3.9 | | 1.6 | | 22.7 | | |
2016 | 39.3 | | — | | — | | — | | — | | — | | — | | — | | 6.2 | | 12.7 | | 12.9 | | 10.7 | | 4.0 | | 46.5 | | |
2017 | 39.2 | | — | | — | | — | | — | | — | | — | | — | | — | | 1.2 | | 7.9 | | 9.2 | | 4.8 | | 23.1 | | |
2018 | 44.9 | | — | | — | | — | | — | | �� | | — | | — | | — | | — | | 0.6 | | 8.4 | | 4.9 | | 13.9 | | |
2019 | 77.2 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 5.0 | | 10.3 | | 15.3 | | |
2020 | 23.0 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 1.0 | | 1.0 | | |
Subtotal | 253.5 | | — | | — | | — | | — | | — | | — | | 7.3 | | 14.5 | | 22.1 | | 28.8 | | 38.7 | | 27.0 | | 138.4 | | |
Total Europe | 3,019.8 | | — | | — | | — | | 11.6 | | 16.1 | | 167.3 | | 350.6 | | 405.1 | | 429.1 | | 472.2 | | 518.9 | | 273.5 | | 2,644.4 | | |
Total PRA Group | $ | 10,407.5 | | $ | 1,852.0 | | $ | 529.4 | | $ | 705.5 | | $ | 908.7 | | $ | 1,142.5 | | $ | 1,378.6 | | $ | 1,539.6 | | $ | 1,492.0 | | $ | 1,512.4 | | $ | 1,625.1 | | $ | 1,841.4 | | $ | 1,004.5 | | $ | 15,531.7 | | |
(1)For our non-U.S. amounts, cash collections are presented using the average exchange rates during the cash collection period.
(2)Includes the acquisition date finance receivables portfolios that were acquired through our business acquisitions.
(3)For our non-US amounts, purchase price is presented at the exchange rate at the end of the year in which the pool was purchased. In addition, any purchase price adjustments that occur throughout the life of the pool are presented at the year-end exchange rate for the respective year of purchase.
Cash Collections by Year, By Year of Purchase (1) as of June 30, 2019 Amounts in thousands |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash Collections |
Purchase Period | Purchase Price (2)(3) | 1996- 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Total |
Americas-Core | | | | | | | | | | | | | |
1996-2008 | $ | 804,880 |
| $ | 1,366,034 |
| $ | 240,929 |
| $ | 200,052 |
| $ | 169,205 |
| $ | 132,255 |
| $ | 95,262 |
| $ | 66,274 |
| $ | 46,277 |
| $ | 29,734 |
| $ | 19,458 |
| $ | 15,092 |
| $ | 7,070 |
| $ | 2,387,642 |
|
2009 | 125,153 |
| — |
| 40,703 |
| 95,627 |
| 84,339 |
| 69,385 |
| 51,121 |
| 35,555 |
| 24,896 |
| 16,000 |
| 10,994 |
| 8,180 |
| 3,785 |
| 440,585 |
|
2010 | 148,197 |
| — |
| — |
| 47,076 |
| 113,554 |
| 109,873 |
| 82,014 |
| 55,946 |
| 38,110 |
| 24,515 |
| 15,587 |
| 11,140 |
| 4,819 |
| 502,634 |
|
2011 | 209,604 |
| — |
| — |
| — |
| 61,971 |
| 174,461 |
| 152,908 |
| 108,513 |
| 73,793 |
| 48,711 |
| 31,991 |
| 21,622 |
| 9,109 |
| 683,079 |
|
2012 | 254,102 |
| — |
| — |
| — |
| — |
| 56,901 |
| 173,589 |
| 146,198 |
| 97,267 |
| 59,981 |
| 40,042 |
| 27,797 |
| 10,119 |
| 611,894 |
|
2013 | 390,932 |
| — |
| — |
| — |
| — |
| — |
| 101,614 |
| 247,849 |
| 194,026 |
| 120,789 |
| 78,880 |
| 56,449 |
| 20,795 |
| 820,402 |
|
2014 | 405,349 |
| — |
| — |
| — |
| — |
| — |
| — |
| 92,660 |
| 253,448 |
| 170,311 |
| 114,219 |
| 82,244 |
| 32,308 |
| 745,190 |
|
2015 | 443,921 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 116,951 |
| 228,432 |
| 185,898 |
| 126,605 |
| 48,410 |
| 706,296 |
|
2016 | 453,434 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 138,723 |
| 256,531 |
| 194,605 |
| 80,201 |
| 670,060 |
|
2017 | 534,011 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 107,327 |
| 278,733 |
| 143,043 |
| 529,103 |
|
2018 | 655,984 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 122,712 |
| 187,516 |
| 310,228 |
|
2019 | 291,953 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 37,791 |
| 37,791 |
|
Subtotal | 4,717,520 |
| 1,366,034 |
| 281,632 |
| 342,755 |
| 429,069 |
| 542,875 |
| 656,508 |
| 752,995 |
| 844,768 |
| 837,196 |
| 860,927 |
| 945,179 |
| 584,966 |
| 8,444,904 |
|
Americas-Insolvency | | | | | | | | | | | | |
2004-2008 | 241,465 |
| 117,972 |
| 69,736 |
| 65,321 |
| 53,924 |
| 37,530 |
| 13,534 |
| 3,035 |
| 1,836 |
| 1,098 |
| 653 |
| 356 |
| 113 |
| 365,108 |
|
2009 | 155,988 |
| — |
| 16,635 |
| 81,780 |
| 102,780 |
| 107,888 |
| 95,725 |
| 53,945 |
| 5,781 |
| 2,531 |
| 1,581 |
| 747 |
| 260 |
| 469,653 |
|
2010 | 208,942 |
| — |
| — |
| 39,486 |
| 104,499 |
| 125,020 |
| 121,717 |
| 101,873 |
| 43,649 |
| 5,008 |
| 2,425 |
| 1,352 |
| 352 |
| 545,381 |
|
2011 | 180,433 |
| — |
| — |
| — |
| 15,218 |
| 66,379 |
| 82,752 |
| 85,816 |
| 76,915 |
| 35,996 |
| 3,726 |
| 1,584 |
| 436 |
| 368,822 |
|
2012 | 251,396 |
| — |
| — |
| — |
| — |
| 17,388 |
| 103,610 |
| 94,141 |
| 80,079 |
| 60,715 |
| 29,337 |
| 4,284 |
| 1,096 |
| 390,650 |
|
2013 | 227,893 |
| — |
| — |
| — |
| — |
| — |
| 52,528 |
| 82,596 |
| 81,679 |
| 63,386 |
| 47,781 |
| 21,948 |
| 1,815 |
| 351,733 |
|
2014 | 148,582 |
| — |
| — |
| — |
| — |
| — |
| — |
| 37,045 |
| 50,880 |
| 44,313 |
| 37,350 |
| 28,759 |
| 10,317 |
| 208,664 |
|
2015 | 63,181 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 3,395 |
| 17,892 |
| 20,143 |
| 19,769 |
| 8,848 |
| 70,047 |
|
2016 | 92,281 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 18,869 |
| 30,426 |
| 25,047 |
| 10,787 |
| 85,129 |
|
2017 | 275,265 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 49,093 |
| 97,315 |
| 42,983 |
| 189,391 |
|
2018 | 97,938 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 6,700 |
| 12,806 |
| 19,506 |
|
2019 | 74,178 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 4,570 |
| 4,570 |
|
Subtotal | 2,017,542 |
| 117,972 |
| 86,371 |
| 186,587 |
| 276,421 |
| 354,205 |
| 469,866 |
| 458,451 |
| 344,214 |
| 249,808 |
| 222,515 |
| 207,861 |
| 94,383 |
| 3,068,654 |
|
Total Americas | 6,735,062 |
| 1,484,006 |
| 368,003 |
| 529,342 |
| 705,490 |
| 897,080 |
| 1,126,374 |
| 1,211,446 |
| 1,188,982 |
| 1,087,004 |
| 1,083,442 |
| 1,153,040 |
| 679,349 |
| 11,513,558 |
|
Europe-Core | | | | | | | | | | | | | |
2012 | 20,422 |
| — |
| — |
| — |
| — |
| 11,604 |
| 8,995 |
| 5,641 |
| 3,175 |
| 2,198 |
| 2,038 |
| 1,996 |
| 750 |
| 36,397 |
|
2013 | 20,343 |
| — |
| — |
| — |
| — |
| — |
| 7,068 |
| 8,540 |
| 2,347 |
| 1,326 |
| 1,239 |
| 1,331 |
| 494 |
| 22,345 |
|
2014 | 796,839 |
| — |
| — |
| — |
| — |
| — |
| — |
| 153,180 |
| 291,980 |
| 246,365 |
| 220,765 |
| 206,255 |
| 89,876 |
| 1,208,421 |
|
2015 | 420,323 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 45,760 |
| 100,263 |
| 86,156 |
| 80,858 |
| 34,730 |
| 347,767 |
|
2016 | 348,306 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 40,368 |
| 78,915 |
| 72,603 |
| 30,112 |
| 221,998 |
|
2017 | 246,995 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 17,894 |
| 56,033 |
| 22,852 |
| 96,779 |
|
2018 (4) | 345,357 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 24,326 |
| 47,447 |
| 71,773 |
|
2019 | 228,941 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 8,232 |
| 8,232 |
|
Subtotal | 2,427,526 |
| — |
| — |
| — |
| — |
| 11,604 |
| 16,063 |
| 167,361 |
| 343,262 |
| 390,520 |
| 407,007 |
| 443,402 |
| 234,493 |
| 2,013,712 |
|
Europe-Insolvency | | | | | | | | | | | | |
2014 | 10,876 |
| — |
| — |
| — |
| — |
| — |
| — |
| 5 |
| 4,297 |
| 3,921 |
| 3,207 |
| 2,620 |
| 931 |
| 14,981 |
|
2015 | 19,278 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 2,954 |
| 4,366 |
| 5,013 |
| 4,783 |
| 2,106 |
| 19,222 |
|
2016 | 41,909 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 6,175 |
| 12,703 |
| 12,856 |
| 5,716 |
| 37,450 |
|
2017 | 38,474 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 1,233 |
| 7,862 |
| 4,535 |
| 13,630 |
|
2018 | 45,625 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 642 |
| 3,997 |
| 4,639 |
|
2019 | 11,816 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 318 |
| 318 |
|
Subtotal | 167,978 |
| — |
| — |
| — |
| — |
| — |
| — |
| 5 |
| 7,251 |
| 14,462 |
| 22,156 |
| 28,763 |
| 17,603 |
| 90,240 |
|
Total Europe | 2,595,504 |
| — |
| — |
| — |
| — |
| 11,604 |
| 16,063 |
| 167,366 |
| 350,513 |
| 404,982 |
| 429,163 |
| 472,165 |
| 252,096 |
| 2,103,952 |
|
Total PRA Group | $ | 9,330,566 |
| $ | 1,484,006 |
| $ | 368,003 |
| $ | 529,342 |
| $ | 705,490 |
| $ | 908,684 |
| $ | 1,142,437 |
| $ | 1,378,812 |
| $ | 1,539,495 |
| $ | 1,491,986 |
| $ | 1,512,605 |
| $ | 1,625,205 |
| $ | 931,445 |
| $ | 13,617,510 |
|
| |
(1) | For our non-U.S. amounts, cash collections are presented using the average exchange rates during the cash collection period.
|
| |
(2) | The amount reflected in Purchase Price also includes the acquisition date finance receivables portfolios that were acquired through our various business acquisitions.
|
| |
(3) | For our non-U.S. amounts, Purchase Price is presented at the exchange rate at the end of the quarter in which the portfolio was purchased. In addition, any purchase price adjustments that occur throughout the life of the pool are presented at the period end exchange rate for the respective quarter of purchase.
|
| |
(4) | The Europe-Core purchases include a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the consolidation of a Polish investment fund. |
Estimated remaining collections
The following chart shows our total ERC of $6,404.0$6,352.0 million at June 30, 20192020 by geographical region (amounts in millions).
Seasonality
Cash collections in the Americas tend to be higher in the first quarterhalf of the year due to the high volume of income tax refunds received by individuals in the U.S., and trend lower as the year progresses. Customer payment patterns in all of the countries in which we operate can be affected by seasonal employment trends, income tax refunds, and holiday spending habits, and other factors.habits.
Cash collectionsCollections
The following table displays our quarterly cash collections by geography and portfolio type, for the periods indicated.
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Cash Collections by Geography and Type Amounts in thousands | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2020 | | | | 2019 | | | | | | | | 2018 | | | | | | | | | | | | | | |
| | | | | Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 | | Q3 | | | | | | | | | | | | |
Americas Core | | | | | $ | 343,269 | | | $ | 305,780 | | | $ | 276,639 | | | $ | 279,902 | | | $ | 294,243 | | | $ | 290,723 | | | $ | 233,937 | | | $ | 231,253 | | | | | | | | | | | | | |
Americas Insolvency | | | | | 38,685 | | | 43,210 | | | 40,801 | | | 45,759 | | | 49,770 | | | 44,613 | | | 48,000 | | | 48,518 | | | | | | | | | | | | | |
Europe Core | | | | | 115,145 | | | 131,340 | | | 126,649 | | | 118,917 | | | 117,635 | | | 116,858 | | | 113,154 | | | 102,780 | | | | | | | | | | | | | |
Europe Insolvency | | | | | 12,841 | | | 14,243 | | | 12,520 | | | 8,639 | | | 8,626 | | | 8,977 | | | 7,618 | | | 6,731 | | | | | | | | | | | | | |
Total Cash Collections | | | | | $ | 509,940 | | | $ | 494,573 | | | $ | 456,609 | | | $ | 453,217 | | | $ | 470,274 | | | $ | 461,171 | | | $ | 402,709 | | | $ | 389,282 | | | | | | | | | | | | | |
Cash Collections by Geography and Type Amounts in thousands |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 | | Q3 |
Americas-Core | $ | 294,243 |
| | $ | 290,723 |
| | $ | 233,937 |
| | $ | 231,253 |
| | $ | 233,752 |
| | $ | 246,237 |
| | $ | 204,245 |
| | $ | 212,756 |
|
Americas-Insolvency | 49,770 |
| | 44,613 |
| | 48,000 |
| | 48,518 |
| | 56,063 |
| | 55,280 |
| | 59,103 |
| | 60,436 |
|
Europe-Core | 117,635 |
| | 116,858 |
| | 113,154 |
| | 102,780 |
| | 109,359 |
| | 118,109 |
| | 107,124 |
| | 102,681 |
|
Europe-Insolvency | 8,626 |
| | 8,977 |
| | 7,618 |
| | 6,731 |
| | 7,460 |
| | 6,954 |
| | 5,794 |
| | 5,961 |
|
Total Cash Collections | $ | 470,274 |
| | $ | 461,171 |
| | $ | 402,709 |
| | $ | 389,282 |
| | $ | 406,634 |
| | $ | 426,580 |
| | $ | 376,266 |
| | $ | 381,834 |
|
The following table provides additional details on the composition of our U.S. Core cash collections for the periods indicated.
| U.S. Core Portfolio Cash Collections by Source Amounts in thousands | U.S. Core Portfolio Cash Collections by Source Amounts in thousands | U.S. Core Portfolio Cash Collections by Source Amounts in thousands | |
| | 2019 | | 2018 | | 2017 | | | | | 2020 | | | 2019 | | | 2018 | |
| Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 | | Q3 | | | Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 | | Q3 | |
Call Center and Other Collections | $ | 160,479 |
| | $ | 169,753 |
| | $ | 134,543 |
| | $ | 137,325 |
| | $ | 143,527 |
| | $ | 155,448 |
| | $ | 120,349 |
| | $ | 123,009 |
| Call Center and Other Collections | | $ | 219,856 | | | $ | 168,166 | | | $ | 139,399 | | | $ | 149,782 | | | $ | 160,479 | | | $ | 169,753 | | | $ | 134,543 | | | $ | 137,325 | | |
External Legal Collections | 63,490 |
| | 57,419 |
| | 47,410 |
| | 41,935 |
| | 40,631 |
| | 38,891 |
| | 31,960 |
| | 35,042 |
| External Legal Collections | | 62,792 | | | 66,190 | | | 58,831 | | | 64,301 | | | 63,490 | | | 57,419 | | | 47,410 | | | 41,935 | | |
Internal Legal Collections | 38,065 |
| | 37,018 |
| | 30,724 |
| | 32,064 |
| | 32,532 |
| | 33,423 |
| | 31,154 |
| | 31,761 |
| Internal Legal Collections | | 34,467 | | | 38,111 | | | 33,944 | | | 35,679 | | | 38,065 | | | 37,018 | | | 30,724 | | | 32,064 | | |
Total US-Core Cash Collections | $ | 262,034 |
| | $ | 264,190 |
| | $ | 212,677 |
| | $ | 211,324 |
| | $ | 216,690 |
| | $ | 227,762 |
| | $ | 183,463 |
| | $ | 189,812 |
| |
Total U.S. Core Cash Collections | | Total U.S. Core Cash Collections | | $ | 317,115 | | | $ | 272,467 | | | $ | 232,174 | | | $ | 249,762 | | | $ | 262,034 | | | $ | 264,190 | | | $ | 212,677 | | | $ | 211,324 | | |
Collections productivityProductivity (U.S. portfolio)Portfolio)
The following tables display certain collections productivity measures.measures:
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Cash Collections per Collector Hour Paid U.S. Portfolio | | | | | | | | | |
| Call center and other cash collections (1) | | | | | | | | |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
First Quarter | $ | 172 | | | $ | 139 | | | $ | 121 | | | $ | 161 | | | $ | 168 | |
Second Quarter | 263 | | | 139 | | | 101 | | | 129 | | | 167 | |
Third Quarter | — | | | 124 | | | 107 | | | 125 | | | 177 | |
Fourth Quarter | — | | | 128 | | | 104 | | | 112 | | | 153 | |
Cash Collections per Collector Hour Paid U.S. Portfolio |
| | | | | | | | | | | | | | | | | | | |
| Total U.S. core cash collections (1) |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
First Quarter | $ | 215 |
| | $ | 176 |
| | $ | 254 |
| | $ | 274 |
| | $ | 247 |
|
Second Quarter | 226 |
| | 152 |
| | 202 |
| | 269 |
| | 245 |
|
Third Quarter | — |
| | 163 |
| | 191 |
| | 281 |
| | 250 |
|
Fourth Quarter | — |
| | 163 |
| | 170 |
| | 248 |
| | 239 |
|
| | | | | | | | | |
| Call center and other cash collections (2) |
| 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
First Quarter | $ | 139 |
| | $ | 121 |
| | $ | 161 |
| | $ | 168 |
| | $ | 143 |
|
Second Quarter | 139 |
| | 101 |
| | 129 |
| | 167 |
| | 141 |
|
Third Quarter | — |
| | 107 |
| | 125 |
| | 177 |
| | 145 |
|
Fourth Quarter | — |
| | 104 |
| | 112 |
| | 153 |
| | 139 |
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(1) | Represents total cash collections less Insolvency cash collections from trustee-administered accounts. This metric includes cash collections from Insolvency accounts administered by the Core call centers as well as cash collections generated by our internal staff of legal collectors. This calculation does not include hours paid to our internal staff of legal collectors or to employees processing the required notifications to trustees on Insolvency accounts.
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(2) | Represents total cash collections less internal legal cash collections, external legal cash collections, and Insolvency cash collections from trustee-administered accounts. |
Portfolio purchasingAcquisitions
The following graph shows the purchase price of our portfolios by year since 2009.2010. It also includes the acquisition date finance receivable portfolios that were acquired through our various business acquisitions. The 20192020 totals represent portfolio purchasesacquisitions through the first half of 2019six months ended June 30, 2020 while the prior yearsyear totals are for the full year.
The following table displays our quarterly portfolio purchasesacquisitions for the periods indicated.
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Portfolio Acquisitions by Geography and Type Amounts in thousands | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | 2019 | | | | | | | | 2018 | | | | | | | | | | |
| Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 | | Q3 | | | | | | | | |
Americas Core | $ | 110,474 | | | $ | 172,697 | | | $ | 118,153 | | | $ | 168,185 | | | $ | 121,996 | | | $ | 169,189 | | | $ | 172,511 | | | $ | 170,426 | | | | | | | | | |
Americas Insolvency | 14,527 | | | 20,772 | | | 22,650 | | | 26,311 | | | 26,092 | | | 48,243 | | | 52,871 | | | 17,151 | | | | | | | | | |
Europe Core | 34,247 | | | 60,990 | | | 218,919 | | | 64,728 | | | 136,344 | | | 94,283 | | | 231,810 | | | 45,754 | | | | | | | | | |
Europe Insolvency | 5,251 | | | 18,778 | | | 42,613 | | | 19,772 | | | 4,715 | | | 7,134 | | | 33,661 | | | 4,159 | | | | | | | | | |
Total Portfolio Acquisitions | $ | 164,499 | | | $ | 273,237 | | | $ | 402,335 | | | $ | 278,996 | | | $ | 289,147 | | | $ | 318,849 | | | $ | 490,853 | | | $ | 237,490 | | | | | | | | | |
Portfolio Purchases by Geography and Type Amounts in thousands |
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| 2019 | | 2018 | | 2017 |
| Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 | | Q3 |
Americas-Core | $ | 121,996 |
| | $ | 169,189 |
| | $ | 172,511 |
| | $ | 170,426 |
| | $ | 182,768 |
| | $ | 131,427 |
| | $ | 160,278 |
| | $ | 115,572 |
|
Americas-Insolvency | 26,092 |
| | 48,243 |
| | 52,871 |
| | 17,151 |
| | 16,651 |
| | 13,436 |
| | 44,195 |
| | 73,497 |
|
Europe-Core (1) | 136,344 |
| | 94,283 |
| | 231,810 |
| | 45,754 |
| | 19,403 |
| | 18,000 |
| | 152,417 |
| | 14,695 |
|
Europe-Insolvency | 4,715 |
| | 7,134 |
| | 33,661 |
| | 4,159 |
| | 2,577 |
| | 5,392 |
| | 17,698 |
| | 7,146 |
|
Total Portfolio Purchasing | $ | 289,147 |
| | $ | 318,849 |
| | $ | 490,853 |
| | $ | 237,490 |
| | $ | 221,399 |
| | $ | 168,255 |
| | $ | 374,588 |
| | $ | 210,910 |
|
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(1) | The Europe-Core purchases in the above table and graph exclude a $34.9 million finance receivables portfolio addition in the third quarter of 2018 relating to the consolidation of a Polish investment fund. |
Portfolio purchasesAcquisitions by stratificationsStratification (U.S. only)Only)
The following table categorizes our quarterly U.S. portfolio purchasesacquisitions for the periods indicated into major asset type and delinquency category. Since our inception in 1996, we have acquired more than 5256 million customer accounts in the U.S.
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U.S. Portfolio Acquisitions by Major Asset Type Amounts in thousands | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2020 | | | | | | 2019 | | | | | | | | | | | | | | | | |
| | | | | Q2 | | | Q1 | | | Q4 | | | Q3 | | | Q2 | | | | | | | | | | |
Major Credit Cards | | | | | $ | 50,270 | | 40.9 | % | | $ | 71,225 | | 38.3 | % | | $ | 30,337 | | 24.3 | % | | $ | 50,500 | | 40.1 | % | | $ | 39,468 | | 28.2 | % | | | | | | | | | |
Private Label Credit Cards | | | | | 69,651 | | 56.7 | | | 104,300 | | 56.0 | | | 85,351 | | 68.4 | | | 72,714 | | 57.7 | | | 70,536 | | 50.4 | | | | | | | | | | |
Consumer Finance | | | | | 2,430 | | 2.0 | | | 2,109 | | 1.1 | | | 2,046 | | 1.7 | | | 2,090 | | 1.7 | | | 28,649 | | 20.4 | | | | | | | | | | |
Auto Related | | | | | 460 | | 0.4 | | | 8,510 | | 4.6 | | | 6,991 | | 5.6 | | | 638 | | 0.5 | | | 1,407 | | 1.0 | | | | | | | | | | |
Total | | | | | $ | 122,811 | | 100.0 | % | | $ | 186,144 | | 100.0 | % | | $ | 124,725 | | 100.0 | % | | $ | 125,942 | | 100.0 | % | | $ | 140,060 | | 100.0 | % | | | | | | | | | |
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U.S. Portfolio Acquisitions by Delinquency Category Amounts in thousands | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | | | 2019 | | | | | | | | | | | | | | | | | | | | | | | |
| Q2 | | | Q1 | | | Q4 | | | Q3 | | | Q2 | | | | | | | | | | | | | | | | | |
Fresh (1) | $ | 28,847 | | 26.6 | % | | $ | 51,126 | | 30.9 | % | | $ | 35,330 | | 34.6 | % | | $ | 27,600 | | 27.1 | % | | $ | 33,288 | | 29.3 | % | | | | | | | | | | | | | | | | |
Primary (2) | 9,887 | | 9.1 | | | 18,152 | | 11.0 | | | 5,796 | | 5.7 | | | 17,658 | | 17.3 | | | 40,027 | | 35.1 | | | | | | | | | | | | | | | | | |
Secondary (3) | 67,609 | | 62.5 | | | 92,855 | | 56.1 | | | 52,899 | | 51.8 | | | 50,082 | | 49.2 | | | 34,920 | | 30.6 | | | | | | | | | | | | | | | | | |
Tertiary (3) | 1,941 | | 1.8 | | | 3,239 | | 2.0 | | | 4,409 | | 4.3 | | | 6,483 | | 6.4 | | | 5,733 | | 5.0 | | | | | | | | | | | | | | | | | |
Other (4) | — | | — | | | — | | — | | | 3,641 | | 3.6 | | | — | | — | | | — | | — | | | | | | | | | | | | | | | | | |
Total Core | 108,284 | | 100.0 | % | | 165,372 | | 100.0 | % | | 102,075 | | 100.0 | % | | 101,823 | | 100.0 | % | | 113,968 | | 100.0 | % | | | | | | | | | | | | | | | | |
Insolvency | 14,527 | | | | 20,772 | | | | 22,650 | | | | 24,119 | | | | 26,092 | | | | | | | | | | | | | | | | | | |
Total | $ | 122,811 | | | | $ | 186,144 | | | | $ | 124,725 | | | | $ | 125,942 | | | | $ | 140,060 | | | | | | | | | | | | | | | | | | |
(1)Fresh accounts are typically past due 120 to 270 days, charged-off by the credit originator and are either being sold prior to any post-charge-off collection activity or placement with a third-party for the first time.
(2)Primary accounts are typically 360 to 450 days past due and charged-off and have been previously placed with one contingent fee servicer.
(3)Secondary and tertiary accounts are typically more than 660 days past due and charged-off and have been placed with two or three contingent fee servicers.
(4)Other accounts are typically two to three years or more past due and charged-off and have previously been worked by four or more contingent fee servicers.
U.S. Portfolio Purchases by Major Asset Type Amounts in thousands |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 | | Q3 |
Major Credit Cards | $ | 39,468 |
| | $ | 43,440 |
| | $ | 65,025 |
| | $ | 78,864 |
| | $ | 100,160 |
| | $ | 84,858 |
| | $ | 87,895 |
| | $ | 54,892 |
|
Consumer Finance | 28,649 |
| | 2,424 |
| | 2,619 |
| | 2,248 |
| | 4,098 |
| | 3,558 |
| | 2,360 |
| | 3,308 |
|
Private Label Credit Cards | 70,536 |
| | 84,515 |
| | 100,633 |
| | 100,517 |
| | 82,406 |
| | 47,962 |
| | 90,332 |
| | 78,609 |
|
Auto Related | 1,407 |
| | 30,358 |
| | 31,892 |
| | 330 |
| | 427 |
| | 613 |
| | 21,219 |
| | 49,741 |
|
Total | $ | 140,060 |
| | $ | 160,737 |
| | $ | 200,169 |
| | $ | 181,959 |
| | $ | 187,091 |
| | $ | 136,991 |
| | $ | 201,806 |
| | $ | 186,550 |
|
U.S. Portfolio Purchases by Delinquency Category Amounts in thousands |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | 2017 |
| Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 | | Q3 |
Fresh (1) | $ | 33,288 |
| | $ | 51,212 |
| | $ | 61,730 |
| | $ | 61,882 |
| | $ | 80,976 |
| | $ | 71,067 |
| | $ | 76,910 |
| | $ | 67,540 |
|
Primary (2) | 40,027 |
| | 19,725 |
| | 39,690 |
| | 37,670 |
| | 34,166 |
| | 3,290 |
| | 23,100 |
| | 1,623 |
|
Secondary (3) | 34,920 |
| | 35,857 |
| | 45,878 |
| | 63,525 |
| | 55,299 |
| | 49,198 |
| | 48,865 |
| | 43,366 |
|
Tertiary (3) | 5,733 |
| | 4,435 |
| | — |
| | — |
| | — |
| | — |
| | 8,736 |
| | 524 |
|
Insolvency | 26,092 |
| | 48,243 |
| | 52,871 |
| | 17,151 |
| | 16,650 |
| | 13,436 |
| | 44,195 |
| | 73,497 |
|
Other (4) | — |
| | 1,265 |
| | — |
| | 1,731 |
| | — |
| | — |
| | — |
| | — |
|
Total | $ | 140,060 |
| | $ | 160,737 |
| | $ | 200,169 |
| | $ | 181,959 |
| | $ | 187,091 |
| | $ | 136,991 |
| | $ | 201,806 |
| | $ | 186,550 |
|
| |
(1) | Fresh accounts are typically past due 120 to 270 days, charged-off by the credit originator and are either being sold prior to any post-charge-off collection activity or placement with a third-party for the first time. |
| |
(2) | Primary accounts are typically 360 to 450 days past due and charged-off and have been previously placed with one contingent fee servicer. |
| |
(3) | Secondary and tertiary accounts are typically more than 660 days past due and charged-off and have been placed with two or three contingent fee servicers. |
| |
(4) | Other accounts are typically two to three years or more past due and charged-off and have previously been worked by four or more contingent fee servicers. |
Liquidity and Capital Resources
We actively manage our liquidity to help provide access to sufficient funding to meet our business needs and financial obligations. As of June 30, 2019,2020, cash and cash equivalents totaled $105.5 million,$115.7 million. Of the cash and cash equivalent balance as of which $85.0June 30, 2020, $96.7 million consisted of cash on hand related to foreigninternational operations with indefinitely reinvested earnings. See the "Undistributed Earnings of ForeignInternational Subsidiaries" section below for more information.
At June 30, 2019,2020, we had approximately $2.6 billion in borrowings outstanding with $655.7$905.3 million of availability under all of our credit facilities (subject to the borrowing base and applicable debt covenants). Considering borrowing base restrictions, as of June 30, 2019,2020, the amount available to be drawn was $383.4$414.0 million. Of the $655.7$905.3 million of borrowing availability, $198.0$340.0 million was available under our European credit facility, and $457.7$562.3 million was available under our North American credit facility and $3.0 million was available under our Colombian revolving credit facility. Of the $383.4$414.0 million available considering borrowing base restrictions, $110.1$97.4 million was available under our European credit facility, and $273.3$313.6 million was available under our North American credit facility and $3.0 million was available under the Colombian revolving credit facility. For more information, see Note 67 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.
An additional funding source for our Europe operations is interest-bearing deposits. Per the terms of our European credit facility, we are permitted to obtain interest-bearing deposit funding of up to SEK 1.2 billion (approximately $129.1$128.5 million as of June 30, 2019)2020). Interest-bearing deposits as of June 30, 20192020 were $107.8$120.5 million.
We believedetermined that we were in compliance with the covenants of our financing arrangements as of June 30, 2019.2020.
We have the ability to slow the purchasingpurchase of finance receivables if necessary, with low impact to current yearand use the net cash collections. For example, we invested $1.1 billion in portfolio purchases in 2018. The portfolios purchased in 2018flow generated $154.4 million offrom our cash collections representing only 9.5% of 2018 cash collections.from our existing finance receivables to temporarily service our debt and fund existing operations.
Contractual obligations over the next year are primarily related to debt maturities and purchase commitments. Our North American credit facility expires in May 2022. Our European credit facility expires in February 2021.2023. Of our $430.0$420.0 million in term loans outstanding at June 30, 2019,2020, $10.0 million in principal is due within one year.
At June 30, 2020, we had outstanding $287.5 million aggregate principal amount of 3.00% Convertible Senior Notes due August 1, 2020. Subsequently, we retired the notes in full through repurchase and cash settlement in connection with their maturity. For more information, see Note 15 to our Consolidated Financial Statements included in Part. I, Item 1 to this Quarterly Report.
We have in place forward flow commitments for the purchase of nonperforming loans primarily over the next 12 months with a maximum purchase price of $713.4$383.1 million as of June 30, 2019.2020. The $383.1 million is comprised of $271.7 million for the Americas and $111.4 million for Europe. We may also enter into new or renewed forward flow commitments and close on spot transactions in addition to the aforementioned forward flow agreements.
OnIn May 10, 2017, we reached a settlement with the Internal Revenue Service ("IRS") in regardsregard to itsthe IRS assertion that tax revenue recognition using the cost recovery method did not clearly reflect taxable income. In accordance with the settlement, our tax accounting method to recognize finance receivables revenue changed effective with tax year 2017. Under the new method, a portion of the annual collections amortizes principal and the remaining portion is taxable income. The deferred tax liabilityrevenue related to the difference in timing between the new method and the cost recovery method will be incorporatedhas been included evenly into our tax filings
over four years effective with tax year 2017.2017 and ending with tax year 2020. We estimate the related tax payments for future years to be approximately $9.3$9.2 million per quarter.quarter through the year 2020. No interest or penalties were assessed as part of the settlement.
We continue to monitor the recent outbreak of COVID-19 on our operations and how that may impact our cash flows and our ability to settle debt. As a result of COVID-19, global financial markets have experienced overall volatility and disruptions to capital and credit markets. We believe that funds generated from operations and from cash collections on finance receivables, together with existing cash, and available borrowings under our revolving credit facilities, including recent modifications to the terms of those facilities, and access to the capital markets will be sufficient to finance our operations, planned capital expenditures, forward flow purchase commitments, debt maturities and additional portfolio purchasingpurchases during the next 12 months. We may, however, seek to access the debt or equity capital markets as market conditions permit. Business acquisitions, adverse outcomes in pending litigation or higher than expected levels of portfolio purchasing could require additional financing from other sources.
Cash Flows Analysis
Our operating activities providedThe following table summarizes our cash of $30.9 million and $30.8 millionflow activity for the six months ended June 30, 2019 and 2018, respectively. Key drivers of the changes included cash collections recognized as revenue, fee income, income tax payments, interest payments and operating expenses. In addition, changes in other accounts related2020 compared to our operating activities impacted our cash from operations. Cash collections recognized as revenue increased $50.4 million, as previously described in the revenues discussion and analysis, and was offset primarily by increases in cash paid for operating expenses and other changes.
Our investing activities used cash of $177.7 million and $13.2 million for the six months ended June 30, 2019 and 2018, respectively. Cash used(amounts in investing activities is primarily driven by acquisitions of nonperforming loans and business acquisitions. thousands):
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | |
| | 2020 | | 2019 |
Total cash provided by (used in): | | | | |
Operating activities | | $ | 122,500 | | | $ | 30,948 | |
Investing activities | | 88,077 | | | (177,703) | |
Financing activities | | (192,950) | | | 156,837 | |
Effect of exchange rate on cash | | (16,503) | | | (3,281) | |
Net increase in cash and cash equivalents | | $ | 1,124 | | | $ | 6,801 | |
Operating Activities
Cash provided by investingoperating activities is primarily drivenmainly reflects cash collections recognized as revenue partially offset by cash collections applied to principal on finance receivablespaid for operating expenses, interest and proceeds from saleincome taxes. Key drivers of investments and subsidiaries. The changeoperating activities were adjusted for (i) non-cash items included in net cash usedincome such as provisions for unrealized gains and losses, changes in investing activities is primarily due an increaseexpected recoveries, depreciation and amortization, deferred taxes, fair value changes in equity securities, and stock-based compensation as well as (ii) changes in the amountsbalances of acquisitionsoperating assets and liabilities, which can vary significantly in the normal course of finance receivables, which totaled $549.4business due to the amount and timing of payments.
Net cash provided by operating activities increased $91.6 million during the six months ended June 30, 2019, compared2020, mainly driven by higher cash collections, lower operating expenses, the impact of unrealized foreign currency transactions and lower levels of income tax payments.
Investing Activities
Cash provided by investing activities mainly reflects recoveries applied to $385.8 million during six months ended June 30, 2018. In addition, we had $57.6 millionour negative allowance. Cash used in businessinvesting activities mainly reflects acquisitions during the six months ended June 30, 2019, compared to $0 in the prior year comparable period. Furthermore, we had net purchases of investments totaling $39.6nonperforming loans.
Net cash provided by investing activities increased $265.8 million during the six months ended June 30, 2019, compared2020, primarily from a $113.3 million decrease in purchases of nonperforming loans, a $58.2 million increase in recoveries applied to $11.7 million during six months ended June 30, 2018. This was partially offset by an increasenegative allowance in the current year versus of collections applied to principal on finance receivables which totaled $443.4in the prior year, a $72.8 million decrease in net purchases of investments and $57.6 million of cash used related to a business acquisition during the six months ended June 30, 2019, compared to $395.6first quarter of 2019. These changes were partially offset by $31.2 million of cash received during the six months ended June 30, 2018. We were also provided cashfirst quarter of $31.2 million during the three months ended March 31, 2019 related to the sale of a subsidiary in the fourth quarter of 2018 and a $5.0 million increase in net purchases of which we received 25% of the proceeds on December 20, 2018property and the remaining 75% in the first quarter of 2019.equipment.
Our financing activitiesFinancing Activities
Cash provided cash of $156.8 million and used cash of $52.0 million for the six months ended June 30, 2019 and 2018, respectively. Cash forby financing activities is normally provided by draws on our lines of credit and proceeds from debt offerings. Cash used in financing activities is primarily driven by principal payments on our lines of credit and long-term debt. The change
Cash used in cash provided by financing activities for the six months ended June 30, 2019 compared to six months ended June 30, 2018 was primarily due to an increase in net draws on our lines of credit and long-term debt. During the six months ended June 30, 2019, net draws on our borrowing activities totaled $136.8 million compared to net repayments of $27.8increased $349.8 million during the six months ended June 30, 2018. Cash used2020, primarily from a $373.9 million decrease in financing activities was also impactedproceeds from our lines of credit, a $14.8 million decrease in cash provided by interest-bearing deposits and an $8.0 million increase in distributions paid to noncontrolling interests. Distributions paid to noncontrolling interests totaled $6.9These changes were partially offset by a $48.6 million and $13.4 million for the six months ended June 30, 2019 and 2018, respectively. Additionally, during the six months ended June 30, 2019 we had an increase in interest bearing depositsnet payments on our lines of $28.4 million, compared to a decrease of $8.3 million during the six months ended June 30, 2018.credit, origination costs and long-term debt.
Undistributed Earnings of ForeignInternational Subsidiaries
We intend to use predominantly all of our accumulated and future undistributed earnings of foreigninternational subsidiaries to expand operations outside the U.S.; therefore, such undistributed earnings of foreigninternational subsidiaries are considered to be indefinitely reinvested outside the U.S. Accordingly, no provision for income tax and withholding tax has been provided thereon. If management's intentions change and eligible undistributed earnings of foreigninternational subsidiaries are repatriated, we could be subject to additional income taxes and withholding taxes. This could result in a higher effective tax rate in the period in which such a decision is made to repatriate accumulated or future undistributed foreigninternational earnings. The amount of cash on hand related to foreigninternational operations with indefinitely reinvested earnings was $85.0$96.7 million and $78.6$109.7 million as of June 30, 20192020 and December 31, 2018,2019, respectively. Refer to Note11Note 12 to our Consolidated Financial Statements
included in Part I, Item 1 of this Quarterly Report for further information related to our income taxes and undistributed foreigninternational earnings.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Recent Accounting Pronouncements
For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statementsConsolidated Financial Statements see Note 1314 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.
Critical Accounting Policies and Estimates
Our consolidated financial statementsConsolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles.GAAP. Our significant accounting policies are discussed in Note 1 to our Consolidated Financial Statements included in Part II, Item 8 of our 20182019 Form 10-K. Our significant accounting policies are fundamental to understanding our results of operations and financial condition because they require that we use estimates, assumptions and judgments that affect the reported amounts of revenues, expenses, assets, and liabilities.
Three of these policies are considered to be critical because they are important to the portrayal of our financial condition and results, and because they require management to make judgments and estimates that are difficult, subjective, and complex regarding matters that are inherently uncertain.
We base our estimates on historical experience, current trends and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ significantly from actual results, the impact on our consolidated financial statementsConsolidated Financial Statements may be material.
Management has reviewed these critical accounting policies with the Audit Committee of our boardBoard of directors.Directors.
Revenue recognitionRecognition - finance receivablesFinance Receivables
We account for the vast majority of our investment in finance receivables under the guidance of ASC 310-30.Topic 310 “Receivables” (“ASC 310”) and ASC Topic 326-20 “Financial Instruments - Credit Losses - Measured at Amortized Cost” (“ASC 326-20”). 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 via yield increases which are recognized prospectively or increased allowance charges resulting from decreased cash flow estimates which are recognized immediately.as we immediately recognize the discounted value of such changes using the constant effective interest rate of the pool.
We implement the accountingaccount for income recognized onour finance receivables under ASC 310-30 as follows:
We create each annual accounting pool using our projections of estimated cash flows and expected economic life. We then compute a constant effective interest rate based on the effective yield that fully amortizesnet carrying amount of the pool over aand reasonable projections of estimated cash flows and expectation of its economic life based on the current projections of estimated cash flows.life. As actual cash flow results are recorded,received we record the time value of the expected cash as portfolio income and over and under performance and changes in expected future cash flows from expected cash as changes in expected recoveries. We review each pool watching for trends, actual performance versus projections and curve shape (a graphical depiction of the timing of cash flows). We then re-forecast future cash flows utilizingby applying discounted cash flow methodologies to our proprietary analytical models.ERC and recognize income over the estimated life of the pool at the constant effective interest rate of the pool.
Significant judgment is used in evaluating whether variances in actual performance are due to changes inexpected recoveries using the total amount or changes indiscounted cash flow approach and the timingestimated life of expected cash flows. Significant changes in either may result in yield increases or allowance charges if necessary for the pool's amortization period to fall within a reasonable expectation of its economic life.pool.
Valuation of acquired intangiblesAcquired Intangibles and goodwillGoodwill
In accordance with FASB ASC Topic 350, "Intangibles-Goodwill and Other" ("ASC 350"), we amortize intangible assets over their estimated useful lives. Goodwill, pursuant to ASC 350, is not amortized but rather evaluated for impairment annually and more frequently if indicators of potential impairment exist. Goodwill is reviewed for potential impairment at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment.
Goodwill is evaluated for impairment either under the qualitative assessment option or the two-step test approach depending on facts and circumstances of a reporting unit, including the excess of fair value over carrying amount in the last valuation or changes in business environment.option. If we qualitatively determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, an impairment loss is recognized for the two-step impairment test is unnecessary. Otherwise, goodwill is evaluated for impairment using the two-step test, where the carrying amount of a reporting unit is compared to its fair value in Step 1; if the fair value exceeds the carrying amount, Step 2 is unnecessary. Ifby which the carrying amount exceeds the reporting unit’s fair value, this could indicate potential impairment and Step 2 of the goodwill evaluation process is required to determine if goodwill is impaired and to measure the amount of impairment loss to recognize, if any. When Step 2 is necessary, the fair value of individual assets and liabilities is determined using valuations (which in some cases may be based in part on third-party valuation reports), or other
observable sources of fair value, as appropriate. If the carrying amount of goodwill exceeds its implied fair value, the excess is recognized as an impairment loss.value.
We determine the fair value of a reporting unit by applying the approaches prescribed under the fair value measurement accounting framework: the income approach and the market approach. Depending on the availability of public data and suitable comparables, we may or may not use the market approach or we may emphasize the results from the approach differently. Under the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows and a residual terminal value. Cash flow projections are based on management's estimates of revenue growth rates, operating margins, necessary working capital, and capital expenditure requirements, taking into consideration industry and market conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. Under the market approach, we estimate fair value based on prices and other relevant market transactions involving comparable publicly-traded companies with operating and investment characteristics similar to the reporting unit.
Income taxesTaxes
We are subject to the income tax laws of the various jurisdictions in which we operate, including U.S. federal, state, local, and international jurisdictions. These tax laws are complex and are subject to different interpretations by the taxpayer and the relevant government taxing authorities. When determining our domestic and foreigninternational income tax expense, we must make judgments about the application of these inherently complex laws.
We follow the guidance of FASB ASC Topic 740 "Income Taxes" ("ASC 740") as it relates to the provision for income taxes and uncertainty in income taxes. Accordingly, we record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with ASC 740, the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. The evaluation of a tax position in accordance with the guidance is a two-step process. The first step is recognition: the Company determineswe determine 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 Companywe should presume that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. We record interest and penalties related to unrecognized tax benefits as a component of income tax expense.
In the event that all or part of the deferred tax assets are determined not to be realizable in the future, a valuation allowance would be established and charged to earnings in the period such determination is made. If we subsequently realize deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in a positive adjustment to earnings in the period such determination is made. The establishment or release of a valuation allowance does not have an impact on cash, nor does such an allowance preclude the use of loss carry-forwardscarryforwards or other deferred tax assets in future periods. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial position.
Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk
Our activities are subject to various financial risks including market risk, currency and interest rate risk, credit risk, liquidity risk and cash flow risk. Our financial risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance. We may periodically enter into derivative financial instruments, typically interest rate and currency derivatives, to reduce our exposure to fluctuations in interest rates on variable-rate debt, fluctuations in currency rates and their impact on earnings and cash flows. We do not utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed nor do we enter into or hold derivatives for trading or speculative purposes. Derivative instruments involve, to varying degrees, elements of non-performance, or credit risk. We do not believe that we currently face a significant risk of loss in the event of non-performance by the counterparties associated with these instruments, as these transactions were executed with a diversified group of major financial institutions with an investment-grade credit rating. Our intention is to spread our counterparty credit risk across a number of counterparties so that exposure to a single counterparty is managed through the periodic monitoring of our exposures to such counterparties.minimized.
Interest Rate Risk
We are subject to interest rate risk from outstanding borrowings on our variable rate credit facilities. As such, our consolidated financial results are subject to fluctuations due to changes in the market rate of interest. We assess this interest rate risk by estimating the increase or decrease in interest expense that would occur due to a change in short-term interest rates. The borrowings on our variable rate credit facilities were approximately $2.0 billion as of June 30, 2019.2020. Based on our debt structure at June 30, 2019 debt structure,2020, assuming a 50 basis point decrease in interest rates, for example, interest expense over the following 12 months would decrease by an estimated $6.2$3.4 million. Assuming a 50 basis point increase in interest rates, interest expense over the following 12 months would increase by an estimated $6.8$3.4 million.
To reduce the exposure to changes in the market rate of interest and to be in compliance with the terms of our European credit facility, we have entered into interest rate derivative contracts for a portion of our borrowings under our floating rate financing arrangements. Further, effective in the second quarter of 2018, we began toWe apply hedge accounting to certain of our interest rate derivative contracts. By applying hedge accounting, changes in market value are reflected as adjustments in Other Comprehensive Income. All derivatives to which we have applied hedge accounting were evaluated and remainremained highly effective at June 30, 2019.2020. Terms of the interest rate derivative contracts require us to receive a variable interest rate and pay a fixed interest rate. The sensitivity calculations above consider the impact of our interest rate derivative contracts.
The fair value of our interest rate derivative agreements that are not in a hedge accounting relationship was a net asset of $0.7 million at June 30, 2019. A hypothetical 50 basis point decrease in interest rates would cause a decrease in the estimated fair value of these interest rate derivative agreements and the resulting estimated fair value would be a net asset of $0.2 million at June 30, 2019. Conversely, a hypothetical 50 basis point increase in interest rates would cause an increase in the estimated fair value of these interest rate derivative agreements and the resulting estimated fair value would be an asset of $1.9 million at June 30, 2019.
Currency Exchange Risk
We operate internationally and enter into transactions denominated in various foreign currencies. During the three months ended June 30, 2019,2020, we generated $84.1$79.6 million of revenues from operations outside the U.S. and used 11eleven functional currencies.currencies, excluding the U.S. dollar. Weakness in one particular currency might be offset by strength in other currencies over time.
As a result of our international operations, fluctuations in foreign currencies could cause us to incur foreign currency exchange gains and losses, and could adversely affect our comprehensive income and stockholders' equity. Additionally, our reported financial results could change from period to period due solely to fluctuations between currencies.
Foreign currency gains and losses are primarily the result of the re-measurement of transactions in certain other currencies into an entity's functional currency. Foreign currency gains and losses are included as a component of other income and (expense) in our consolidated income statements.Consolidated Income Statements. From time to time we may elect to enter into foreign exchange derivative contracts to reduce these variations in our consolidated income statements.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)/income in our consolidated statementsConsolidated Statements of comprehensive incomeComprehensive Income and as a component of equity in our consolidated balance sheets.Consolidated Balance Sheets.
We have taken measures to mitigate the impact of foreign currency fluctuations. We have organized our European operations so that portfolio ownership and collections generally occur within the same entity. Our European credit facility is a multi-currency facility, allowing us to better match funding and portfolio investmentsacquisitions by currency. We actively monitor the value of our finance receivables by currency. In the event adjustments are required to our liability composition by currency we may, from time to time, execute re-balancing foreign exchange contracts to more closely align funding and portfolio investmentsacquisitions by currency.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. We conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on this evaluation, the principal executive officer and principal financial officer have concluded that, as of June 30, 2019,2020, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended June 30, 20192020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
For information regarding legal proceedings as of June 30, 2019,2020, refer to Note 1213 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.
Item 1A. Risk Factors
There have been no material changes to thein our risk factors from those disclosed in Part I, Item 1A, of our 20182019 Form 10-K.10-K and in Part II, Item 1A of our 2020 First Quarter Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
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| Second Amendment to the Credit Agreement dated as of May 6, 2020, by and among PRA Group Inc. and PRA Group Canada Inc.,the Guarantors, the Lenders party thereto, Bank of America, N.A., as Administrative Agent and Bank of America, N.A., acting through its Canada Branch, as Canadian Administrative Agent (filed herewith). |
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101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkable Document |
101.LAB | XBRL Taxonomy Extension Label Linkable Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkable Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
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104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| PRA Group, Inc. | | |
| (Registrant) |
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August 8, 2019 | By: | | /s/ Kevin P. Stevenson |
| | | Kevin P. Stevenson |
| | | President and Chief Executive Officer |
| | | (Principal Executive Officer) |
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August 6, 2020 | By: | | /s/ Kevin Stevenson |
| | | Kevin P. Stevenson |
| | | President and Chief Executive Officer |
| | | (Principal Executive Officer) |
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August 8, 20196, 2020 | By: | | /s/ Peter M. Graham |
| | | Peter M. Graham |
| | | Executive Vice President and Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |