PRA GROUP INC

We report our financial results in accordance with U.S. generally accepted accounting principles ("GAAP"). However, our management also uses certain non-GAAP financial measures, including:

•Adjusted EBITDA, to evaluate our performance and to set performance goals; and

•ROATE, as a measure to monitor and evaluate operating performance relative to our equity.

Adjusted EBITDA

We present Adjusted EBITDA because we consider it an important supplemental measure of our operational and financial performance. Our management believes Adjusted EBITDA helps provide enhanced period-to-period comparability of our operational and financial performance, as it excludes certain items whose fluctuations from period-to-period do not necessarily correspond to changes in the operations of our business, and is useful to investors as other companies in the industry report similar financial measures. Adjusted EBITDA should not be considered as an alternative to net income determined in accordance with GAAP. In addition, our calculation of Adjusted EBITDA may not be comparable to the calculation of similarly titled measures presented by other companies. Adjusted EBITDA is calculated starting with our GAAP financial measure, Net income/(loss) attributable to PRA Group, Inc. and is adjusted for:

•income tax expense (or less income tax benefit);

•foreign exchange loss (or less foreign exchange gain);

•interest expense, net (or less interest income, net);

•other expense (or less other income);

•depreciation and amortization;

•impairment of real estate;

•net income attributable to noncontrolling interests; and

•recoveries collected and applied to Finance receivables, net less changes in expected recoveries.

The following table provides a reconciliation of Net income/(loss) attributable to PRA Group, Inc. as reported in accordance with GAAP to Adjusted EBITDA for the years indicated (amounts in thousands):

(1)Other expense reflects non-operating activities.

Return on average tangible equity

We use ROATE, which is a supplemental measure of performance that is not required by, or presented in accordance with, GAAP, to monitor and evaluate operating performance relative to our equity. Management believes ROATE is a useful financial measure for investors in evaluating the effective use of equity, and is an important component of our long-term shareholder return. Average tangible equity is defined as average Total stockholders' equity - PRA Group, Inc. less average goodwill and average other intangible assets. ROATE is calculated by dividing Net income/(loss) attributable to PRA Group, Inc. by average tangible equity.

The following table displays our ROATE and provides a reconciliation of Total stockholders' equity - PRA Group, Inc. as reported in accordance with GAAP to average tangible equity for the years indicated (amounts in thousands, except for ratio data):

Supplemental Performance Data

The tables in this section provide supplemental performance data about our:

•ERC by geography, portfolio type and expected year of collection;

•Core cash collections separated between call center and other collections and legal collections, and constant currency adjusted cash collections;

•nonperforming loan portfolios and collections by geography, portfolio type and year of purchase; and

•U.S. portfolio purchases by major asset type and delinquency category.

The collections data presented reflects gross cash collections and does not reflect any costs to collect; therefore, it may not present relative profitability. The past performance of pools within certain geographies and portfolio types may not be comparable with other locations and portfolio types or indicative of future results.

Purchasing

We purchase portfolios of nonperforming loans from a variety of creditors, or acquire portfolios through strategic acquisitions, and segregate them into our Core or Insolvency portfolios, based on the status of the account upon acquisition. In addition, the accounts are segregated into geographical regions based upon where the account was acquired and, as applicable, foreign currency exchange rates are fixed for purposes of comparability in future periods. Ultimately, accounts are aggregated into annual pools based on portfolio type, geography and year of acquisition. Portfolios of accounts that were in an insolvency status at the time of acquisition are represented under Insolvency headings in the tables below. All other acquisitions of portfolios of accounts are included under Core headings. Once an account is initially segregated, it is not later transferred from an Insolvency pool to a Core pool, or vice versa.

Purchase price multiple

The purchase price multiple represents our estimate of total cash collections over the original purchase price of the portfolio. Purchase price multiples can vary over time due to a variety of factors, including pricing competition, supply levels, age of the accounts acquired, type and mix of portfolios purchased, expected costs to collect and returns, and changes in operational efficiency and effectiveness. When we pay more for a portfolio, the purchase price multiple and effective interest rate are generally lower. Certain types of accounts, such as Insolvency accounts, have lower collection costs, and we generally pay more for those types of accounts, which results in lower purchase price multiples but similar net income margins compared to other portfolio purchases.

ERC and TEC

Depending on the level of performance and expected future impacts from our operations, we may update ERC and TEC levels based on the results of our cash forecasting with a correlating adjustment to the purchase price multiple. We follow an established process to evaluate ERC, and we typically do not adjust our ERC and TEC until we gain sufficient collection experience with a pool of accounts. Over time, our TEC has often increased as pools have aged resulting in the ratio of TEC to purchase price for any given year of buying to gradually increase.

For additional information about our nonperforming loan portfolios, refer to Note 1 and Note 2 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Estimated remaining collections

The following table displays our ERC by geography, year and portfolio for the 12 months ending December 31, 2024 (amounts in thousands):

(1)Reflects ERC of $3.3 billion for the U.S. and $484.7 million for other Americas and Australia.

(2)Reflects ERC of $1.6 billion for the UK, $931.1 million for Central Europe, $826.0 million for Northern Europe and $285.3 million for Southern Europe.

Cash collections

The following table displays our cash collections by geography and portfolio, Core cash collections separated between call center and other collections and legal collections, and constant currency adjusted cash collections, for the years indicated (amounts in thousands):

(1)Total cash collections adjusted refers to prior year foreign currency cash collections remeasured at average U.S. dollar exchange rates for the current year.

Portfolio purchases by major asset type and delinquency category (U.S. only)

The following tables categorize our U.S. portfolio purchases by major asset type and delinquency category for the years indicated (amounts in thousands):

(1)Fresh accounts are typically past due 120 to 270 days, charged-off by the credit originator and sold prior to any post-charge-off collection activity.

(2)Primary accounts are typically 240 to 450 days past due, charged-off and have been previously placed with one contingent fee servicer.

(3)Secondary accounts are typically 360 to 630 days past due, charged-off and have been previously placed with two contingent fee servicers.

(4)Other accounts are 480 days or more past due, charged-off and have previously been worked by three or more contingent fee servicers.

(1)Includes the acquisition date finance receivables portfolios that were acquired through our business acquisitions.

(2)Non-U.S. amounts are presented at the exchange rate at the end of the year in which the portfolio was purchased. In addition, any purchase price adjustments that occur throughout the life of the portfolio are presented at the year-end exchange rate for the respective year of purchase.

(3)Non-U.S. amounts are presented at the year-end exchange rate for the respective year of purchase.

(4)Non-U.S. amounts are presented at the December 31, 2024 exchange rate.

(5)The original purchase price multiple represents the purchase price multiple at the end of the year of acquisition.

(1)Includes the nonperforming loan portfolios that were acquired through our business acquisitions.

(2)Non-U.S. amounts are presented using the average exchange rates during the current year.

(3)Non-U.S. amounts are presented at the December 31, 2024 exchange rate.

(1)Non-U.S. amounts are presented using the average exchange rates during the respective year.

(2)Includes the acquisition date finance receivables portfolios acquired through our business acquisitions.

(3)Non-U.S. amounts are presented at the exchange rate at the end of the year in which the portfolio 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.

Liquidity and Capital Resources

We actively manage our liquidity to meet our business needs and financial obligations.

Sources of liquidity

Cash and cash equivalents

As of December 31, 2024, cash and cash equivalents totaled $105.9 million, of which $91.1 million consisted of cash related to international operations with indefinitely reinvested earnings. For additional information about the unremitted earnings of our international subsidiaries, refer to Note 13 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

As of December 31, 2024, we had the following committed amounts, borrowings and availability under our financing arrangements (amounts in thousands):

(1)Available borrowings after calculation of borrowing base, subject to the committed amounts and debt covenants, which may be used for general corporate purposes, including portfolio purchases.

(2)Subject to borrowing base and debt covenants, including advance rates ranging from 35-55% of applicable ERC.

Interest-bearing deposits

As of December 31, 2024, interest-bearing deposits totaled $163.4 million. Under our European revolving credit facility, our interest-bearing deposit funding is limited to SEK 2.2 billion (the equivalent of $199.0 million U.S. dollars as of December 31, 2024).

Uses of liquidity and material cash requirements

We believe that funds generated from our business activities, together with existing cash, available borrowings under our revolving credit 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 purchases for at least the next 12 months.

Our long-term capital requirements will depend in large part on the level of nonperforming loan portfolios that we purchase. We have the ability to slow the purchase of nonperforming loans without significantly impacting current year collections. For example, in 2024, we purchased $1.4 billion in nonperforming loan portfolios, which generated $213.6 million of cash collections, representing 11.4% of our total cash collections.

Market conditions permitting, as we deem appropriate, we may seek to access the debt or equity capital markets or other sources of funding, and it may be necessary to raise additional funds to achieve our business objectives. Business acquisitions or higher than expected levels of portfolio purchasing could require additional financing. We may also from time-to-time repurchase senior notes in the open market or otherwise.

Forward flows

We enter into forward flow agreements for the purchase of nonperforming loans. These agreements typically have terms ranging from six to 12 months, or they can be open-ended, and establish purchase prices and specific criteria for the accounts to be purchased. Some of the agreements establish a volume reference for the contract term in the form of a target or maximum, however, very few agreements establish a minimum contractual obligation, and many of the contracts contain early termination provisions allowing either party to cancel the agreements in accordance with a specified notice period.

As of December 31, 2024, we had forward flow agreements in place with an estimated purchase price of approximately $498.9 million over the next 12 months. This total can vary significantly based on the remaining terms and renewal dates of the agreements and is comprised of $403.1 million for the Americas and Australia and $95.8 million for Europe. These amounts represent our estimated forward flow purchases over the next 12 months under the agreements in place based on projections and other factors, including sellers' estimates of future forward flow sales, and are dependent on actual delivery by the sellers and, in some cases, the impact of foreign exchange rate fluctuations. Accordingly, amounts purchased under these agreements may vary significantly. In addition to these agreements, we may also enter into new or renewed forward flow commitments and/or close on spot purchase transactions.

As of December 31, 2024, we had $3.3 billion in outstanding borr owings. The estimated interest, unused fees and principal payments for the next 12 months are $236.0 million, of which $10.0 million relatesto principal on our term loan. After 12 months, principal payments on our debt are due from between one and five years. Many of our financing arrangements include covenants with which we must comply, and as of December 31, 2024, we were in compliance with these covenants.

On May 20, 2024, we issued $400.0 million in aggregate principal amount of our 2030 Notes. On September 3, 2024, using funds obtained primarily from our North American revolving credit facility, we repaid our 2025 Notes in full. On November 25, 2024, we issued an additional $150.0 million in aggregate principal amount of our 2030 Notes at a price of 103.625%.

For additional information about our credit facilities, term loan and senior notes, refer to Note 7 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Share repurchases

On February 25, 2022, our Board of Directors approved a share repurchase program under which we are authorized to repurchase up to $150.0 million of our outstanding common stock. The share repurchase program has no stated expiration date and does not obligate us to repurchase any specified amount of shares, remains subject to the discretion of our Board of Directors and, subject to compliance with applicable laws, may be modified, suspended or discontinued at any time.

Repurchases may be made from time-to-time in open market transactions, through privately negotiated transactions, in block transactions, through purchases made in accordance with trading plans adopted under Rule 10b5-1 of the Exchange Act, or other methods, subject to market and/or other conditions and applicable regulatory requirements. Repurchases are also subject to restrictive covenants contained in our credit facilities and the indentures that govern our senior notes. There were no repurchases during 2024, and as of December 31, 2024, we had $67.7 million remaining for share repurchases under the program.

Leases

Our leases have remaining terms from one to 11 years. As of December 31, 2024, we had $36.4 million in lease liabilities, of which $9.2 million is due within the next 12 months. For additional information, refer to Note 5 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Derivatives

We enter into derivative financial instruments to reduce our exposure to fluctuations in interest rates on variable rate debt and foreign currency exchange rates. As of December 31, 2024, we had $5.0 million of derivative liabilities, of which $0.2 million matures within the next 12 months. The remaining $4.8 million matures in 2028. For additional information, refer to Note 8 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Investments

As of December 31, 2024, we held $55.8 million in Swedish treasury securities to meet the liquidity requirements of the Swedish Financial Services Authority for our banking subsidiary, AK Nordic AB.

Cash flow analysis

The following table summarizes our cash flow activity for the years ended December 31, 2024 and 2023 (amounts in thousands):

Operating activities

Net cash used in operating activities mainly reflects the portion of our cash collections recognized as revenue and cash paid for operating expenses, interest and income taxes. It does not include cash collections applied to the negative allowance, which are classified as cash flows provided by investing activities. To calculate net cash used in operating activities, net income/(loss) was adjusted for (i) non-cash items included in net income/(loss), such as unrealized foreign currency transaction gains/(losses), changes in expected recoveries, depreciation, amortization and impairment, deferred income taxes, fair value changes in equity securities, and share-based compensation, as well as (ii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of payments.

Net cash used in operating activities was $94.6 million in 2024 compared to $97.5 million in 2023. The change was primarily due to higher cash collections recognized as income, which was offset by higher cash paid for interest.

Investing activities

Net cash used in investing activities increased $147.6 million in 2024, primarily driven by an increase of $246.8 million in purchases of nonperforming loan portfolios, offset by an increase of $110.9 million in recoveries collected and applied to Finance receivables, net.

Financing activities

Net cash provided by financing activities increased $135.5 million in 2024, primarily driven by $202.4 million in net proceeds from issuances and repayments of senior notes, and in 2023, the retirement of our convertible senior notes, a $61.3 million increase in interest-bearing deposits and a $35.1 million increase in net proceeds obtained under our term loan, offset by a decrease of $153.7 million in net proceeds from our lines of credit.

During 2024, we issued and repaid senior notes (refer to "Borrowings" above for details). On October 28, 2024, we amended our North American revolving credit facility and term loan to, among other things, extend the maturity date from July 30, 2026 to October 28, 2029, increase the aggregate revolving and term loan commitments by $40.1 million to $1.548 billion, reduce the U.S. domestic revolving credit facility from $1.0 billion to $950.0 million, increase the Canadian revolving credit facility from $75.0 million to $125.0 million, increase the term loan from $432.5 million to $472.6 million and modify certain financial covenants. On October 30, 2024, we amended our UK revolving credit facility to, among other things, extend the maturity date from July 30, 2026 to October 30, 2029, decrease the revolving credit facility from $800.0 million to $725.0 million and modify certain financial covenants to more closely conform to our North American revolving credit facility. On October 28, 2024, we amended our European revolving credit facility to modify certain financial covenants to more closely conform to our North American and UK revolving credit facilities.

On June 1, 2023, we used substantially all of the net proceeds from the issuance of our Senior Notes due 2028 to retire our 3.50% Convertible Senior Notes due 2023 at their maturity.

For additional information about our credit facilities, term loan and senior notes, refer to Note 7 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Effect of exchange rates on cash

The net effect of exchange rates on cash decreased by $26.1 million in 2024, primarily due to the impact of the valuation of the U.S. dollar on foreign currency denominated borrowings and intercompany balances.

Recent Accounting Pronouncements

For discussion of recent accounting pronouncements and the anticipated effects on our Consolidated Financial Statements, refer to Note 1 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Critical Accounting Estimates

Our Consolidated Financial Statements have been prepared in accordance with GAAP. Some of our significant accounting policies require that we use estimates, assumptions and judgments that affect the reported amounts of revenues, expenses, assets and liabilities. For discussion of our significant accounting policies, refer to Note 1 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

We consider accounting estimates to be critical if they (1) involve a significant level of estimation uncertainty and (2) have had, or are reasonably likely to have, a material impact on our financial condition or results of operations. We base our estimates on historical experience, current trends and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ significantly from actual results, the impact on our Consolidated Financial Statements may be material. We have determined that the following accounting policies involve critical estimates:

Revenue recognition - finance receivables

Revenue recognition for finance receivables involves the use of estimates and the exercise of judgment on the part of management. These estimates include projections of the amount and timing of cash collections we expect to receive from our pools of accounts. We review individual pools for trends, actual performance versus projections and curve shape (a graphical depiction of the amount and timing of cash collections). We then project ERC and apply a discounted cash flow methodology to our ERC. Adjustments to ERC may include adjustments reflecting recent collection trends, our view of current and future economic conditions, changes in collection assumptions or other timing related adjustments.

Significant changes in our cash flow estimates could result in increased or decreased revenue as we immediately recognize the discounted value of such changes using the constant effective interest rate of the pool. Generally, adjustments to cash forecasts result in an adjustment to revenue at an amount less than the impact of the performance in the period due to the effects of discounting. Additionally, cash collection forecast increases result in more revenue being recognized, and cash collection forecast decreases in less revenue being recognized, over the life of the pool.

In accordance with Financial Accounting Standards Board ("FASB") ASC Topic 350, "Intangibles-Goodwill and Other" ("ASC 350"), we evaluate goodwill for impairment annually as of October 1, and more frequently if circumstances indicate that it is more-likely-than-not that the fair value of a reporting unit is below its carrying value.

We determine the fair value of a reporting unit by applying the income approach and market approach, which are prescribed under ASC Topic 820 "Fair Value Measurements and Disclosures". 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 a variety of factors, including growth rates and operating margins, which take into consideration industry and market conditions. Under the market approach, we estimate fair value based on market trading multiples and other relevant market transactions involving comparable publicly traded companies with operating and investment characteristics similar to the reporting unit. Depending on the availability of public data and suitable comparable transaction data, we may give more weight to the income approach than the market approach. We also assess the reasonableness of the aggregate estimated fair value of our reporting units by comparison to our market capitalization over a reasonable period, considering historic control premiums in the financial services industry and the current market environment.

As of December 31, 2024, we had goodwill of $396.4 million, consisting primarily of $369.5 million in our Debt Buying and Collection ("DBC") reporting unit. We performed our most recent annual impairment review as of October 1, 2024, using a quantitative assessment, and concluded that goodwill was not impaired. Under the prior year impairment test, the excess of our DBC reporting unit’s fair value over its carrying value was approximately 6.0%, and although the excess increased to approximately 11.0% under our most recent test, if our cash flow projections are not met or if market factors utilized in the impairment test were to deteriorate, including adverse changes in the debt sales market that impact our estimated purchasing volumes and purchase price multiples, an increase in the discount rate, or a sustained decline in our stock price, the reporting unit may be at-risk for future impairment.

We estimate the fair value of the DBC reporting unit based on the income approach, and as an assessment for reasonableness, also apply the market approach. Key inputs to the DBC reporting unit’s fair value under the income approach included our forecasted financial results and the discount rate. Forecasted financial results were developed considering several inputs and assumptions, including portfolio purchasing volume, purchase price multiples, ERC growth rate, terminal value multiple, operating expenses and the projected impact of certain strategic and operational initiatives. Purchase price multiples related to our existing portfolios were based on historical growth rates, while purchase price multiples on future portfolio purchases were based on recent and expected future purchasing metrics.

We have implemented a number of strategic and operational initiatives in our U.S. business designed to increase cash collections while reducing our marginal costs and continue to implement additional initiatives. The estimated net cash flows from certain of these initiatives were incorporated in our goodwill evaluation, reflecting an assessment of our ability to execute such initiatives. The discount rate of 8.3% utilized for the DBC reporting unit as of October 1, 2024 was based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics, including assumptions related to the reporting unit's ability to execute on the projected cash flows.

Our goodwill evaluation is dependent on a number of factors, both internal and external. The assumptions used in estimating the DBC reporting unit’s fair value were based on currently available data and involved the exercise of judgment. There are inherent uncertainties related to the assumptions used in our evaluation and to our application of those assumptions. If market factors deteriorate, or if estimates used in our quantitative assessment prove to be inaccurate, we may have to record impairment charges in future periods.

Income taxes

We are subject to income taxes in the U.S. and in numerous international jurisdictions. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. When determining our domestic and non-U.S. income tax expense, we make judgments about the application of these inherently complex laws.

We record a tax provision for the anticipated tax consequences of the reported results of operations. The provision for income taxes is estimated 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 carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled.

We exercise significant judgment in estimating the potential exposure to unresolved tax matters and apply a more likely than not standard for recording tax benefits related to uncertain tax positions in the application of complex tax laws. While actual results could vary, we believe we have adequate tax accruals with respect to the ultimate outcome of such unresolved tax matters. We record interest and penalties related to unresolved tax matters as a component of income tax expense when the more likely than not standards are not met.

If all or part of the deferred tax assets are determined not to be realizable in the future, we would establish a valuation allowance and charge the impact to earnings in the period such a 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. 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 carryforwards or other deferred tax assets in future periods. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial position. For further information regarding our uncertain tax positions, refer to Note 13 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Frequently Used Terms

We may use the following terminology throughout this Form 10-K:

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

•"Cash collections" refers to collections on our nonperforming loan portfolios.

•"Cash receipts" refers to cash collections on our nonperforming loan portfolios, fees and revenue recognized from our class action claims recovery services.

•"Changes in expected recoveries" refers to the differences of actual recoveries received when compared to expected recoveries and the net present value of changes in estimated remaining collections.

•"Core" accounts or portfolios refer to accounts or portfolios that are nonperforming loans and are not in an insolvent status upon 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 nonperforming loan portfolios.

•"Finance receivables" or "receivables" refers to the negative allowance for expected recoveries recorded on our balance sheet as an asset.

•"Insolvency" accounts or portfolios refer to accounts or portfolios of nonperforming loans that are in an insolvent status when we purchase them and, as such, are purchased as a pool of insolvent accounts. These accounts include 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.

•"Portfolio acquisitions" refers to all nonperforming loan portfolios acquired as a result of a purchase or added as a result of a business acquisition.

•"Portfolio purchases" refers to all nonperforming loan portfolios purchased in the normal course of business and excludes those added as a result of 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 nonperforming loan portfolios and estimated remaining collections.

•"Purchase price" refers to the cash paid to a seller to acquire nonperforming loans.

•"Purchase price multiple" refers to the total estimated collections on our nonperforming loan portfolios divided by purchase price.

•"Recoveries collected" refers to cash collections plus buybacks and other adjustments.

•"Total estimated collections" or "TEC" refers to actual cash collections plus estimated remaining collections on our nonperforming loan portfolios.