PRA GROUP INC

1. Summary of Significant Accounting Policies

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

Basis of presentation

PRA Group, Inc., a Delaware corporation headquartered in Norfolk, Virginia, is a global financial services company whose main business is the purchase, collection and management of nonperforming loan portfolios.

The Consolidated Financial Statements of the Company are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") andinclude the accounts of PRA Group and its majority-owned subsidiaries. Noncontrolling interests represent the portion of net income and equity attributable to third-party owners of consolidated subsidiaries that are not wholly-owned by the Company. All significant intercompany accounts and transactions have been eliminated. 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.

In the Consolidated Balance Sheets, Consolidated Income Statements and Consolidated Statements of Cash Flows, certain prior year amounts have been reclassified for consistency with the current year presentation.

Foreign currency

Assets and liabilities have been translated into the reporting currency using the exchange rates in effect on the date of the Consolidated Balance Sheets. Equity accounts are translated at historical rates, except for the change in retained earnings during the year, which is the result of the income statement translation process. Revenue and expense accounts are translated using the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of international subsidiaries are recorded in Accumulated other comprehensive loss in the accompanying Consolidated Statements of Changes in Equity.

Use of estimates

The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ materially from those estimates making it reasonably possible that a change in these estimates could occur within one year.

Significant estimates made by management include those related to the timing and amount of future cash collections on the Company's finance receivables portfolios; determination of fair value of a reporting unit as part of testing goodwill for impairment; and interpretation of the tax laws required to calculate the Company's income tax-related balances, including evaluations of uncertain tax positions and the realizability of deferred tax assets.

Cash and cash equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash that is subject to legal restrictions or is unavailable for general operating purposes is classified as restricted cash and included in Prepaid expenses and other assets in the Company's Consolidated Balance Sheets.

Investments

Debt securities

The Company's investments in debt securities are classified as available-for-sale and carried at fair value. Fair value is determined using quoted market prices. Unrealized gains and losses are included in comprehensive income and reported in stockholders' equity. A debt security is impaired when there has been a decline in fair value below the amortized cost. The Company recognizes an impairment if: (1) it has the intent to sell the security; (2) it is more-likely-than-not that it will be required to sell the security before recovery of the amortized cost; or (3) it does not expect to recover the entire amortized cost of the security. The Company uses the specific identification method to determine realized gains and losses on available-for-sale securities, which are included in Other income/(expense) in the Consolidated Income Statements.

Private equity funds

The Company's investments in private equity funds represent limited partnerships in which the Company has less than a 1.0% interest. The fair value of these funds is measured in accordance with the net asset value per share practical expedient.

Equity method investment

Equity investments that are not consolidated over which the Company exercises significant influence are accounted for as equity method investments. Under the equity method of accounting, the Company’s share of the earnings or losses of the investee company is reflected in Other revenue in the Consolidated Income Statements. The carrying value of the Company's equity method investee is reflected in Investments in the Consolidated Balance Sheets.

Receivables portfolios

Credit quality and investments in receivables

The Company purchases portfolios of accounts that have experienced significant deterioration of credit quality since their origination. The Company accounts for these financial assets under the guidance for purchased credit deteriorated ("PCD") assets. Under the PCD accounting model, the purchased assets are recognized at face value, with an offsetting allowance and noncredit discount allocated to the accounts purchased, with the initial allowance added to the purchase price rather than recorded as credit loss expense.

Since each account is significantly delinquent and deemed uncollectible, immediately after purchase, the Company's policy is to write-off the amortized cost basis of each account. The Company then records a negative allowance for expected recoveries, which represents the present value of expected recoveries for pools of receivables that share similar risk characteristics, and ultimately equals the price paid for the portfolios. The negative allowance is recorded as an asset measured at amortized cost and presented as Finance receivables, net in the Consolidated Balance Sheets at the net present value of expected collections.

Portfolio segments

The Company’s nonperforming loan portfolio is comprised of Core and Insolvency portfolios. The Core portfolio contains accounts that are in default and that were purchased at a substantial discount to face value because the credit originator and/or other third-party collection agencies have been unsuccessful in collecting the full balance owed. The Insolvency portfolio contains accounts that are in default and that were purchased at a substantial discount to face value in which the customer is involved in a bankruptcy or insolvency proceeding. Both portfolio types contain large numbers of homogeneous receivables with similar risk characteristics.

Account pools

The Company aggregates the accounts purchased into static pools based on similar risk characteristics, which include the portfolio segment and geographic region. Pools are aggregated over the course of a year and a blended effective interest rate ("EIR") is calculated based on additional purchases and updated recovery estimates through the end of that year. Once a year has ended, the effective interest rate for a pool is fixed.

Portfolio revenue

The negative allowance is calculated by applying discounted cash flow methodologies to estimated remaining collections (“ERC”). Revenue is recognized for each static pool over the estimated economic life of the pool and includes two components:

1. Portfolio income, which includes the accretion of the discount on the negative allowance due to the passage of time (portfolio balance multiplied by the EIR).

2. Changes in expected recoveries, which include:

•Recoveries collected above or below forecast, which is the difference between (i) actual recoveries during the current period and (ii) expected recoveries for the current period, which generally represent over- or underperformance for the period; and

•Changes in expected future recoveries, which represent the change in present value of expected future recoveries at the constant pool-specific EIR, generally resulting from (i) changes in the timing of collections (amounts expected to be collected earlier or later) and (ii) changes to the total amount of expected future recoveries (which can be increases or decreases). Amounts included in estimated recoveries will not exceed the aggregate amount of 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, current conditions and reasonable and supportable forecasts that affect the expected timing and amount of those recoveries, including both quantitative and qualitative factors. External factors that may have an impact on the collectability and overall profitability of acquired portfolios of nonperforming loans include new laws or regulations relating to collections, new interpretations of existing laws or regulations and the overall condition of the economy. Internal factors include revisions to operational scoring and modeling estimates, operational activities and the expected impact of operational initiatives.

Fee income

The Company recognizes revenue from its class action claims recovery services when there is persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the amount is fixed or determinable and collectability is reasonably assured. Fee income is presented within Other revenue in the Consolidated Income Statements.

Derivatives

On the date the Company enters into a derivative contract, it categorizes the derivative as either a cash flow hedge or an economic hedge. All derivative financial instruments are presented in Prepaid expenses and other assets and Other liabilities in the Consolidated Balance Sheets at fair value. Cash flows from the settlement of derivatives, whether categorized as cash flow hedges or economic hedges, are reflected in the Consolidated Statements of Cash Flows in the same categories as the cash flows of the hedged exposure.

As part of its use of derivatives, the Company enters into netting agreements, including International Swap Dealers Association Agreements, which, in general, provide for the offsetting of amounts payable or receivable between it and the counterparty, at the election of both parties, for transactions that settle on the same date and in the same currency. The agreements also provide that in the event of an early termination the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. The Company’s accounting policy is to not offset these positions and to report derivative asset and liability positions on a gross basis in the accompanying Consolidated Balance Sheets.

The Company does not enter into or hold derivatives for trading or speculative purposes, nor does it utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed.

Cash flow hedges

The Company's cash flow hedges represent hedges of the variability in cash flows under the Company's floating rate debt. At inception, the Company formally documents the relationship between the hedging instrument and hedged item, the risk management objective and the manner in which effectiveness will be assessed. The Company assesses, both at inception and at each reporting period thereafter, whether the derivative financial instrument is effective in offsetting changes in cash flows of the hedged item. The Company discontinues the use of hedge accounting prospectively when (1) the derivative instrument is no longer effective in offsetting changes in cash flows of the hedged item; (2) the derivative instrument expires, is sold, terminated or exercised; or (3) designating the derivative instrument as a hedge is no longer appropriate.

Under the cash flow hedge accounting model, changes in the fair value of derivatives are reported in equity as a component of Accumulated other comprehensive loss. Amounts in Accumulated other comprehensive loss are reclassified to earnings when the related hedged item affects earnings or the anticipated transaction is no longer probable.

Economic hedges

Economic hedges represent derivatives used to manage foreign currency remeasurement exposure related to certain balances denominated in currencies other than the functional currency of the Company or its international subsidiaries. Changes in the fair values of these derivatives are reported in earnings.

Fair value

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. The Company categorizes fair value measurements of financial instruments based on a three-level hierarchy, as follows:

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

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

•Level 3: Unobservable inputs that are supported by little or no market activity. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

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

Property and equipment

Property and equipment, including improvements that significantly add to the productive capacity or extend useful life, are recorded at cost. Maintenance and repairs are expensed as incurred. Impairment is assessed periodically when events or changes in circumstances indicate the carrying value of property and equipment may not be fully recoverable. Property and equipment are depreciated over their useful lives using the straight-line method, as follows:

Goodwill is not amortized, but rather, is reviewed for impairment annually or more frequently if indicators of potential impairment exist. 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, the fair value of the reporting unit is determined. An impairment loss is recorded for the amount by which the carrying value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the respective reporting unit.

Prepaid expenses and other assets

Prepaid expenses and other assets consist primarily of receivables due from third parties, prepaid obligations such as software subscription and maintenance agreements, deferred debt issuance costs associated with credit facility borrowings, derivative assets and restricted cash.

Income taxes

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, 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 they are expected to be realized or settled. A valuation allowance for deferred tax assets is recorded and charged to earnings if it is determined that it is more-likely-than-not that the deferred tax asset will not be realized. The need for a valuation allowance is determined on a jurisdiction-by-jurisdiction basis.

The Company recognizes the financial statement benefit of an uncertain tax position if it is more-likely-than-not to be sustained based on the technical merits in the event of a challenge by the relevant taxing authorities. The amount of benefit recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense when the more-likely-than-not standard is not met. The Company exercises significant judgment in making these determinations.

The Company's borrowings are carried at amortized cost. Debt origination costs and fees and debt premiums or discounts are deferred and amortized over the expected lives of the respective borrowings considering maturity dates and, if applicable, redemption rights held by others. Deferred debt issuance costs on senior notes are recorded as a reduction to Borrowings in the Consolidated Balance Sheets. Deferred debt issuance costs associated with credit facility borrowings are recorded in Prepaid expenses and other assets in the Consolidated Balance Sheets. Amortization of the issuance costs is reported as interest expense. Unamortized costs associated with redemptions of debt securities prior to stated maturity dates are generally recognized and recorded in interest expense immediately.

Leases

The Company recognizes a liability for future lease payments and a right-of-use ("ROU") asset, representing its right to use the underlying asset for the lease term, in the Consolidated Balance Sheets. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. The Company has elected not to apply the lease recognition requirements to short-term leases. Since most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on information available at the lease commencement date to determine the present value of the lease payments. Exercise of lease renewal options is typically at the Company's sole discretion. Renewal periods are included in ROU assets and lease liabilities based upon whether the Company is reasonably certain of exercising the renewal option and/or not exercising the termination option. The Company's lease agreements do not contain any material residual value guarantees or restrictive covenants.

Share-based compensation

Compensation expense associated with share equity awards is presented in Compensation and benefits in the Consolidated Income Statements. Share-based awards are measured at fair value on the grant date. The Company has certain share-based awards that include market conditions that affect the value upon vesting. Compensation cost is not adjusted even if a market condition is not met provided the requisite service is rendered. The fair value of these shares is estimated using a lattice model. The Company estimates a forfeiture rate for most equity share grants based on historical experience. Time-based equity share awards generally vest betweenone andthree years from the grant date and are expensed on a straight-line basis over the vesting period. Equity share awards that contain a performance metric are expensed over the requisite service period, which is generally three years, in accordance with the performance level achieved in each reporting period.

Earnings per share

Basic earnings per share ("EPS") is computed by dividing net income/(loss) available to common stockholders of PRA Group, Inc. by weighted average common shares outstanding. Diluted EPS is calculated using the same components as basic EPS, with the denominator adjusted for the dilutive effect of nonvested share awards based on 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. Dilution is not considered when a net loss is reported.

Loss contingencies

The Company is subject to legal proceedings, lawsuits and other claims. The Company recognizes a liability for a loss contingency when it is both probable that a loss has been incurred and the amount can be reasonably estimated. The Company expenses the related legal costs as they are incurred.

Recently adopted accounting pronouncements

In December 2023, the 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. The Company adopted this ASU for the year ended December 31, 2025, on a prospective basis. Refer to Note 14 for additional information.

Recently issued accounting pronouncements not yet adopted

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. The standard provides guidance to expand disclosures related to the disaggregation of income statement expenses. The guidance 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 of this ASU on its Consolidated Financial Statements and the related disclosures; however, it does not expect there will be a material impact upon adoption.

In November 2025, the FASB issued ASU 2025-08, "Financial Instruments – Credit Losses (Topic 326): Purchased Loans” ("ASU 2025-08"), under which loans (excluding credit cards) acquired without credit deterioration and deemed “seasoned” will be considered purchased seasoned loans and accounted for using the gross-up approach at acquisition. This ASU is effective for annual reporting periods beginning after December 15, 2026, with early adoption permitted. The Company currently applies the PCD accounting model to the loans it acquires and is evaluating the impact this ASU could have on its Consolidated Financial Statements; however, it does not expect there will be a material impact upon adoption.

In November 2025, the FASB issued ASU 2025-09, "Derivatives and Hedging (Topic 815): Hedge Accounting Improvements" ("ASU 2025-09"), which enables entities to apply hedge accounting to a greater number of highly effective economic hedges in the following five areas: (1) similar risk assessment for cash flow hedges; (2) hedging forecasted interest payments on choose-your-rate debt instruments; (3) cash flow hedges of nonfinancial forecasted transactions; (4) net written options as hedging instruments; and (5) foreign currency denominated debt instrument as hedging instrument and hedged item (dual hedge). This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods. Early adoption is permitted. The Company is evaluating the impact of this ASU on its Consolidated Financial Statements.

All other recently issued accounting pronouncements not yet adopted have been deemed either immaterial or not applicable.

2. Finance Receivables, net

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

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

(1) Initial negative allowance for expected recoveries on portfolio purchases

The initial negative allowance for expected recoveries on purchases made during the years ended December 31, 2025 and 2024 was as follows (in thousands):

The purchase price for purchases made during the years ended December 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 years ended December 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 years ended December 31, 2025 and 2024 were as follows (in thousands):

Changes in expected recoveries for the year ended December 31, 2025 were $176.5 million, which included $120.7 million in recoveries collected in excess of forecast due primarily to collections performance in Europe and the U.S., and changes in expected future recoveries of $55.8 million. In Europe, changes in expected future recoveries were $46.3 million, mainly reflecting increased expectations on certain Polish, Austrian, Italian and UK pools based on the recent collections overperformance of those pools. In the U.S., changes in expected future recoveries were $5.2 million, mainly reflecting increased expectations on the 2024 pool, driven largely by higher legal collection expectations, and the 2017-2020 Core pools. These increases were partially offset by reduced expectations on the 2021-2023 Core pools.

Changes in expected recoveries for the year ended December 31, 2024 were $240.9 million, which included $156.1 million in recoveries collected in excess of forecast due to collections performance in both Europe and the U.S. Changes in expected future recoveries for the year ended December 31, 2024 were $84.7 million, largely due to the impact of increases to the Company's collections forecasts on its pre-2021 U.S. Core pools and certain pools in Europe. These increases were partially offset by the impact of timing-related adjustments on the more recent U.S. Core pools and decreased forecasts and timing-related adjustments on certain other pools in Europe.