PRA GROUP INC

(Unaudited)

Note 1. Organization and Business

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

Nature of operations

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

Basis of presentation

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and the instructions for Quarterly Reports on Form 10-Q of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for a fair presentation have been included. The unaudited Consolidated Financial Statements include the accounts of PRA Group and other entities in which the Company has a controlling interest. All significant intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosures. Realized results could differ from those estimates and assumptions. These unaudited Consolidated Financial Statements may not be indicative of future results and 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, 2024 (the "2024 Form 10-K").

Prior period reclassifications

In the Consolidated Statements of Cash Flows, certain prior period amounts have been reclassified for consistency with the current period presentation.

Note 2. Finance Receivables, net

Finance receivables, net consisted of the following as of March 31, 2025 and December 31, 2024 (in thousands):

Changes in Finance receivables, net by portfolio type for the three months ended March 31, 2025 and 2024 were as follows (in thousands):

(1) Initial negative allowance for expected recoveries on current period purchases

The initial negative allowance for expected recoveries on current period purchases for the three months ended March 31, 2025 and 2024 was as follows (in thousands):

The purchase price on current period purchases for the three months ended March 31, 2025 and 2024 was as follows (in thousands):

(2) Recoveries collected and applied to Finance receivables, net

Recoveries collected and applied to Finance receivables, net for the three months ended March 31, 2025 and 2024 were as follows (in thousands):

(a)Includes cash collections, buybacks and other cash-based adjustments.

(b)Reclassifications from Finance receivables, net to Portfolio income based on the effective interest rate of the underlying account pools.

(3) Changes in expected recoveries

Changes in expected recoveries for the three months ended March 31, 2025 and 2024 were as follows (in thousands):

Expected recoveries are calculated by applying discounted cash flow methodologies to estimated remaining collections ("ERC"), with income recognized over the estimated life of each pool at the constant effective interest rate. For additional information about these methodologies, refer to Note 1 to the Consolidated Financial Statements in the 2024 Form 10-K.

Changes in expected recoveries for the three months ended March 31, 2025 were $27.9 million, which included $16.5 million in recoveries collected in excess of forecast (cash collections overperformance) and $11.4 million in changes in expected future recoveries. Recoveries collected in excess of forecast were largely due to cash collections overperformance in Europe and Brazil, partially offset by underperformance in the Americas. Changes in expected future recoveries were primarily due to the impact of increases to the Company's collections forecasts on certain U.S. Core and European pools.

Changes in expected recoveries for the three months ended March 31, 2024 were $51.7 million. This increase was primarily due to $35.8 million in recoveries collected in excess of forecast (cash collections overperformance), due largely to collections performance in the U.S., driven by the impact of the Company's cash-generating initiatives and supplemented by tax refund seasonality, as well as collections performance in Brazil and Europe. The changes in expected future recoveries of $15.8 million reflect the Company's assessment of certain pools in Europe, Brazil and the U.S., resulting in increases to the expected cash flows.

Note 3. Investments

Investments consisted of the following as of March 31, 2025 and December 31, 2024 (in thousands):

Debt securities

As of March 31, 2025, the Company's debt securities consisted of Swedish treasury securities maturing within one year. As of March 31, 2025 and December 31, 2024, the amortized cost and fair value of these investments were as follows (in thousands):

Equity method investment

The Company's equity method investment consisted of its 11.7% interest in RCB Investimentos S.A. ("RCB"), a servicing company for nonperforming loans in Brazil. On January 2, 2025, the Company exercised its right to sell its interest in RCB. Refer to Note 14 for additional information.

Note 4. Goodwill

Changes in goodwill for the three months ended March 31, 2025 and 2024, were as follows (in thousands):

The Company performs an annual review of goodwill as of October 1 of each year, or more frequently if indicators of impairment exist. The Company performed a quarterly assessment by evaluating whether any triggering events had occurred as of March 31, 2025, which included consideration of market conditions, and determined that goodwill was not more-likely-than-not impaired.

Note 5. Borrowings

Borrowings consisted of the following as of March 31, 2025 and December 31, 2024 (in thousands):

(1)Revolving credit facility under the Company's North American credit agreement with a combined domestic and Canadian limit of $1.1 billion (subject to the borrowing base and debt covenants, including advance rates), maturing on October 28, 2029.

(2)Term loan under the Company's North American credit agreement, with a final maturity date of October 28, 2029.

(3)Revolving credit facility with a limit of $725.0 million (subject to the borrowing base and debt covenants, including advance rates), maturing on October 30, 2029.

(4)Revolving credit facility with an aggregate limit of approximately €730.0 million (subject to the borrowing base and debt covenants, including advance rates), maturing on November 23, 2027.

For additional information about the North American revolving credit facility and term loan, United Kingdom revolving credit facility, European revolving credit facility and the Company's senior notes, refer to Note 7 to the Consolidated Financial Statements in the 2024 Form 10-K. The Company was in compliance with the covenants contained in its financing arrangements as of March 31, 2025.

Note 6. Derivatives

The Company periodically enters into interest rate swaps and foreign exchange contracts to reduce its exposure to fluctuations in interest rates on variable-rate debt and foreign currency exchange rates. The fair value of these instruments as of March 31, 2025 and December 31, 2024 was as follows (in thousands):

Derivatives designated as hedging instruments

The effects of interest rate swaps designated as cash flow hedging instruments for the three months ended March 31, 2025 and 2024 were as follows (in thousands):

As of March 31, 2025 and December 31, 2024, the notional amount of outstanding interest rate swaps was$826.7 million and $800.7 million, respectively. These swaps remained highly effective as of March 31, 2025 and have remaining terms ranging fromtwo months tofive years. As of March 31, 2025, the Company estimates that $2.6 million of net derivative gains included in other comprehensive income ("OCI") will be reclassified into earnings within the next 12 months.

Derivatives not designated as hedging instruments

The effects of foreign exchange contracts not designated as hedging instruments for the three months ended March 31, 2025 and 2024 were as follows (in thousands):

As of March 31, 2025 and December 31, 2024, the notional amount of outstanding foreign exchange contracts was$408.7 million and$376.4 million, respectively.

Note 7. Fair Value

Fair value is defined as 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. 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 carried at fair value

As of March 31, 2025 and December 31, 2024, financial instruments measured at fair value on a recurring basis were as follows (in thousands):

(1)Fair value of derivatives is estimated using industry standard valuation models, which project future cash flows and discount the future amounts to present value using market-based observable inputs, including interest rate curves and other factors.

Financial instruments not carried at fair value

As of March 31, 2025 and December 31, 2024, the estimated fair value and carrying amount of financial instruments not carried at fair value were as follows (in thousands):

(1)Fair value is estimated using the proprietary pricing models the Company utilizes to make portfolio acquisition decisions.

(2)Fair value is based on quoted prices for similar instruments in active markets and approximates carrying value due to the short-term deposit periods.

(3)Fair value is based on quoted prices for similar instruments in active markets and approximates carrying value due to the short-term interest rate periods.

(4)Fair value is based on quoted market prices obtained from secondary market broker quotes.

(5)The carrying amounts and fair values do not include debt issuance costs.

Note 8. Accumulated Other Comprehensive Loss

Reclassifications out of Accumulated other comprehensive loss for the three months ended March 31, 2025 and 2024, were as follows (in thousands):

(1)Income tax effects are released from Accumulated other comprehensive loss contemporaneously with the related gross pretax amount.

Changes in Accumulated other comprehensive loss by component, after tax, for the three months ended March 31, 2025 and 2024, were as follows (in thousands):

(1)Net of deferred taxes for unrealized (gains)/losses from cash flow hedges of $(3.1) million.

Note 9. Earnings per Share

The following tables provide a reconciliation between basic earnings per share ("EPS") and diluted EPS for the three months ended March 31, 2025 and 2024 (in thousands, except per share amounts):

Basic 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 nonvested share awards, if dilutive. 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.

Note 10. Income Taxes

The Company's effective tax rate for the three months ended March 31, 2025 and 2024 was as follows (in thousands):

The relationship between Income before income taxes and Income tax expense for the three months ended March 31, 2025 and 2024 was impacted by changes in the mix of income from different taxing jurisdictions and the timing of certain discrete items.

Note 11. Commitments and Contingencies

Forward flow agreements;

The Company enters 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. The amounts purchased are also dependent on actual delivery by the sellers, and while purchases under these agreements comprise a significant portion of the Company's overall purchases, as of March 31, 2025, the estimated minimum contractual purchase obligation under forward flow agreements was not significant.

Litigation and regulatory matters:

The Company and its subsidiaries are from time-to-time subject to a variety of legal and regulatory claims, inquiries and proceedings and regulatory matters, including those described in Note 14 to the Consolidated Financial Statements in the 2024 Form 10-K. The Company accrues for potential liability arising from legal proceedings and regulatory matters when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These estimates involve significant judgment, and accordingly, the Company's estimates will change from time-to-time, and actual losses could exceed the current estimates. As of March 31, 2025, there were no material developments in any of the previously disclosed legal proceedings.

Note 12. Segments

The Company has determined that it is managed on a consolidated basis under a single operating segment, Accounts Receivable Management ("ARM"), and accordingly, it hasone reportable segment. The ARM segment is comprised of the Company's primary business, Debt Buying and Collection ("DBC"), which generates revenue through the purchase, collection and management of portfolios of nonperforming loans, and Claims Compensation Bureau, LLC ("CCB"), which generates revenue through the purchase of, and provision of fee-based services for, class action claims recoveries in the U.S. The chief operating decision maker ("CODM") is the Company’s chief executive officer, who assesses performance based on the Company's consolidated results prepared in accordance with GAAP.

Segment revenue, significant segment expenses and profit or loss

ARM segment revenue is presented in the Company's Consolidated Income Statements under Total revenues. Significant segment expenses regularly considered by the CODM are those most directly related to the Company's revenue generating activities, including Compensation and benefits, Legal collection costs, Legal collection fees, Agency fees, Professional and outside services and Communication. All other operating expenses appearing in the Consolidated Income Statements constitute other segment items. ARM segment profit or loss is presented in the Company's Consolidated Income Statements under Net Income/(loss) attributable to PRA Group, Inc.

Segment assets

ARM segment assets are presented in the Company's Consolidated Balance Sheets under Total assets.

Other significant segment items

Other significant segment items not presented in the Company's Consolidated Income Statements or Consolidated Balance Sheets for the three months ended March 31, 2025 and 2024 were as follows(in thousands):

Note 13. Recently Issued Accounting Standards

Recently issued accounting standards not yet adopted:

In December 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"), which requires enhanced annual disclosures with respect to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis, with early adoption permitted. The Company is evaluating the impact ASU 2023-09 will have on its disclosures.

In November 2024, the FASB issued ASU 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses" ("ASU 2024-03"). Subsequently, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03. ASU 2024-03 provides guidance that will expand disclosures related to the disaggregation of income statement expenses and is effective for fiscal years beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, on a retrospective or prospective basis, with early adoption permitted. The Company is evaluating the impact these ASUs will have on its disclosures.

Note 14. Subsequent Events

On January 2, 2025, the Company exercised its right to sell its remaining 11.7% interest in RCB. The sale was completed in April 2025, and based on the foreign exchange rate in April, the Company estimates that it will record a pre-tax gain on the sale of approximately $38.0 million in its Consolidated Financial Statements for the three months ended June 30, 2025.