UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2009

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

For the transition period from                      to                     

Portfolio Recovery Associates, Inc.

Delaware		75-3078675
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
120 Corporate Boulevard, Norfolk, Virginia		23502
(Address of principal executive offices)		(zip code)

(888) 772-7326
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ    NO o

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES o    NO o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o    NO þ

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

Class		Outstanding as of April 20, 2009
Common Stock, $0.01 par value		15,339,265

 

 

PORTFOLIO RECOVERY ASSOCIATES, INC.

INDEX

		Page(s)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) as of March 31, 2009 and December 31, 2008			3
Consolidated Income Statements (unaudited) For the three months ended March 31, 2009 and 2008			4
Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income (unaudited) For the three months ended March 31, 2009			5
Consolidated Statements of Cash Flows (unaudited) For the three months ended March 31, 2009 and 2008			6
Notes to Consolidated Financial Statements (unaudited)			7–20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21–40
Item 3. Quantitative and Qualitative Disclosure About Market Risk			41
Item 4. Controls and Procedures			41
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			41
Item 1A. Risk Factors			41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3. Defaults Upon Senior Securities			42
Item 4. Submission of Matters to a Vote of the Security Holders			42
Item 5. Other Information			42
Item 6. Exhibits			42
SIGNATURES			43

PORTFOLIO RECOVERY ASSOCIATES, INC.

		March 31,				December 31,
		2009				2008
Assets
Cash and cash equivalents		$	16,549			$	13,901
Finance receivables, net			576,600				563,830
Accounts receivable, net			8,617				8,278
Income taxes receivable			3,289				3,587
Property and equipment, net			23,106				23,884
Goodwill			27,646				27,546
Intangible assets, net			12,761				13,429
Other assets			3,755				3,385
Total assets		$	672,323			$	657,840
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable		$	3,622			$	3,438
Accrued expenses			3,544				4,314
Accrued payroll and bonuses			6,696				9,850
Deferred tax liability			94,118				88,070
Line of credit			266,300				268,300
Long-term debt			1,983				—
Obligations under capital lease			—				5
Derivative instrument			362				—
Total liabilities			376,625				373,977
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, par value $0.01, authorized shares, 2,000, issued and outstanding shares — 0			—				—
Common stock, par value $0.01, authorized shares, 30,000, 15,451 issued and 15,339 outstanding shares — at March 31, 2009, and 15,398 issued and 15,286 outstanding shares — at December 31, 2008			153				153
Additional paid-in capital			76,647				74,574
Retained earnings			219,119				209,047
Accumulated other comprehensive (loss)/income, net of tax			(221	)			89
Total stockholders’ equity			295,698				283,863
Total liabilities and stockholders’ equity		$	672,323			$	657,840

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

PORTFOLIO RECOVERY ASSOCIATES, INC.

		Three Months Ended
		March 31,
		2009				2008
Revenues:
Income recognized on finance receivables, net		$	51,276			$	52,628
Commissions			16,927				11,476
Total revenues			68,203				64,104
Operating expenses:
Compensation and employee services			26,663				21,127
Legal and agency fees and costs			12,118				12,252
Outside fees and services			2,111				2,321
Communications			3,472				2,869
Rent and occupancy			1,082				838
Other operating expenses			1,988				1,356
Depreciation and amortization			2,275				1,470
Total operating expenses			49,709				42,233
Income from operations			18,494				21,871
Other income and (expense):
Interest income			3				30
Interest expense			(1,978	)			(2,499	)
Income before income taxes			16,519				19,402
Provision for income taxes			6,447				7,530
Net income		$	10,072			$	11,872
Net income per common share:
Basic		$	0.66			$	0.78
Diluted		$	0.66			$	0.78
Weighted average number of shares outstanding:
Basic			15,334				15,170
Diluted			15,367				15,237

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

PORTFOLIO RECOVERY ASSOCIATES, INC.

						Additional								Accumulated Other				Total
		Common				Paid-in				Retained				Comprehensive				Stockholders’
		Stock				Capital				Earnings				(Loss)/Income				Equity
Balance at December 31, 2008		$	153			$	74,574			$	209,047			$	89			$	283,863
Net income			—				—				10,072				—				10,072
Net unrealized change in:
Interest rate swap derivative, net of tax			—				—				—				(310	)			(310	)
Comprehensive income																			9,762
Exercise of stock options and vesting of nonvested shares			—				84				—				—				84
Amortization of share-based compensation			—				1,998				—				—				1,998
Income tax (shortfall)/benefit from share-based compensation			—				(9	)			—				—				(9	)
Balance at March 31, 2009		$	153			$	76,647			$	219,119			$	(221	)		$	295,698

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

PORTFOLIO RECOVERY ASSOCIATES, INC.

		Three Months Ended
		March 31,
		2009				2008
Cash flows from operating activities:
Net income		$	10,072			$	11,872
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of share-based compensation			1,998				739
Depreciation and amortization			2,275				1,470
Deferred tax expense			6,189				7,082
Changes in operating assets and liabilities:
Other assets			(459	)			3
Accounts receivable			(339	)			495
Accounts payable			184				(47	)
Income taxes			298				231
Accrued expenses			(770	)			28
Accrued payroll and bonuses			(3,154	)			(2,001	)
Net cash provided by operating activities			16,294				19,872
Cash flows from investing activities:
Purchases of property and equipment			(829	)			(1,568	)
Acquisition of finance receivables, net of buybacks			(51,365	)			(94,231	)
Collections applied to principal on finance receivables			38,595				26,774
Contingent payment made for acquisition			(100	)			—
Net cash used in investing activities			(13,699	)			(69,025	)
Cash flows from financing activities:
Proceeds from exercise of options			84				261
Income tax (shortfall)/benefit from share-based compensation			(9	)			211
Proceeds from line of credit			15,000				48,800
Principal payments on line of credit			(17,000	)			—
Proceeds from long-term debt			2,036				—
Principal payments on long-term debt			(53	)			—
Principal payments on capital lease obligations			(5	)			(33	)
Net cash provided by financing activities			53				49,239
Net increase in cash and cash equivalents			2,648				86
Cash and cash equivalents, beginning of period			13,901				16,730
Cash and cash equivalents, end of period		$	16,549			$	16,816
Supplemental disclosure of cash flow information:
Cash paid for interest		$	2,069			$	2,587
Cash paid for income taxes		$	1			$	1
Noncash investing and financing activities:
Net unrealized change in fair value of derivative instrument		$	(451	)		$	—

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

PORTFOLIO RECOVERY ASSOCIATES, INC.

1. Organization and Business:

     Portfolio Recovery Associates, LLC (“PRA”) was formed on March 20, 1996. Portfolio Recovery Associates, Inc. (“PRA Inc”) was formed in August 2002. On November 8, 2002, PRA Inc completed its initial public offering (“IPO”) of common stock. As a result, all of the membership units and warrants of PRA were exchanged on a one to one basis for warrants and shares of a single class of common stock of PRA Inc. PRA Inc owns all outstanding membership units of PRA, PRA Holding I, LLC (“PRA Holding I”), PRA Holding II, LLC (“PRA Holding II”), PRA Receivables Management, LLC (formerly d/b/a Anchor Receivables Management) (“Anchor”), PRA Location Services, LLC (d/b/a IGS Nevada) (“IGS”), PRA Government Services, LLC (d/b/a RDS) (“RDS”) and MuniServices, LLC (“MuniServices”). PRA Inc, a Delaware corporation, and its subsidiaries (collectively, the “Company”) are full-service providers of outsourced receivables management and related services. The Company is engaged in the business of purchasing, managing and collecting portfolios of defaulted consumer receivables, as well as offering a broad range of accounts receivable management services. The majority of the Company’s business activities involve the purchase, management and collection of defaulted consumer receivables. These are purchased from sellers of finance receivables and collected by a highly skilled staff whose purpose is to locate and contact customers and arrange payment or resolution of their debts. The Company, through its Litigation Department, collects accounts judicially, either by using its own attorneys, or by contracting with independent attorneys throughout the country through whom the Company takes legal action to satisfy consumer debts. The Company also services receivables on behalf of clients on either a commission or transaction-fee basis. Clients include entities in the financial services, auto, retail, utility, health care and government sectors. Services provided to these clients include standard collection services on delinquent accounts, obtaining location information for clients in support of their collection activities (known as skip tracing), and the management of both delinquent and non-delinquent receivables for government entities.

     The consolidated financial statements of the Company include the accounts of PRA Inc, PRA, PRA Holding I, PRA Holding II, Anchor, IGS, RDS and MuniServices. Under the guidance of the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 131 (“SFAS 131”), “Disclosures about Segments of an Enterprise and Related Information”, the Company has determined that it has several operating segments that meet the aggregation criteria of SFAS 131 and therefore it has one reportable segment, accounts receivable management, based on similarities among the operating units including homogeneity of services, service delivery methods and use of technology.

     The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and, therefore, do not include all information and disclosures required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of the Company, however, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s consolidated balance sheet as of March 31, 2009, its consolidated income statements for the three months ended March 31, 2009 and 2008, its consolidated statement of changes in stockholders’ equity and comprehensive income for the three months ended March 31, 2009, and its consolidated statements of cash flows for the three months ended March 31, 2009 and 2008. The consolidated income statement of the Company for the three months ended March 31, 2009 may not be indicative of future results. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, as filed for the year ended December 31, 2008.

2. Finance Receivables, net:

     The Company’s principal business consists of the acquisition and collection of pools of accounts that have experienced deterioration of credit quality between origination and the Company’s acquisition of the accounts. The amount paid for any pool 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.

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

At acquisition, the Company reviews the portfolio both by account and aggregate pool to determine whether there is evidence of deterioration of credit quality since origination and if it is probable that the Company will be unable to collect all amounts due according to the account’s contractual terms. If both conditions exist, the Company determines whether each such account is to be accounted for individually or whether such accounts will be assembled into pools based on common risk characteristics. The Company considers expected prepayments and estimates the amount and timing of undiscounted expected principal, interest and other cash flows for each acquired portfolio and subsequently aggregates pools of accounts. The Company determines the excess of the pool’s scheduled contractual principal and contractual interest payments over all cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference) based on the Company’s proprietary acquisition models. The remaining amount, representing the excess of the pool’s cash flows expected to be collected over the amount paid, is accreted into income recognized on finance receivables over the remaining life of the pool (accretable yield).

     Prior to January 1, 2005, the Company accounted for its investment in finance receivables using the interest method under the guidance of Practice Bulletin 6, “Amortization of Discounts on Certain Acquired Loans.” Effective January 1, 2005, the Company adopted and began to account for its investment in finance receivables using the interest method under the guidance of American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 03-3, “Accounting for Loans or Certain Securities Acquired in a Transfer.” For loans acquired in fiscal years beginning prior to December 15, 2004, Practice Bulletin 6 is still effective; however, Practice Bulletin 6 was amended by SOP 03-3 as described further in this note. For loans acquired in fiscal years beginning after December 15, 2004, SOP 03-3 is effective. Under the guidance of SOP 03-3 (and the amended Practice Bulletin 6), static pools of accounts may be established. These pools are aggregated based on certain common risk criteria. Each static pool is recorded at cost, which includes certain direct costs of acquisition paid to third parties, and is accounted for as a single unit for the recognition of income, principal payments and loss provision. Once a static pool is established for a quarter, individual receivable accounts are not added to the pool (unless replaced by the seller) or removed from the pool (unless sold or returned to the seller). SOP 03-3 (and the amended Practice Bulletin 6) requires that the excess of the contractual cash flows over expected cash flows not be recognized as an adjustment of revenue or expense or on the balance sheet. SOP 03-3 initially freezes the internal rate of return, referred to as IRR, estimated when the accounts receivable are purchased as the basis for subsequent impairment testing. Significant increases in actual, or expected future cash flows may be recognized prospectively through an upward adjustment of the IRR over a portfolio’s remaining life. Any increase to the IRR then becomes the new benchmark for impairment testing. Effective for fiscal years beginning after December 15, 2004 under SOP 03-3 (and the amended Practice Bulletin 6), rather than lowering the estimated IRR if the collection estimates are not received or projected to be received, the carrying value of a pool would be written down to maintain the then current IRR and is shown as a reduction in revenue in the consolidated income statements with a corresponding valuation allowance offsetting the finance receivables, net, on the balance sheet. Income on finance receivables is accrued quarterly based on each static pool’s effective IRR. Quarterly cash flows greater than the interest accrual will reduce the carrying value of the static pool. This reduction in carrying value is defined as payments applied to principal (also referred to as finance receivable amortization). Likewise, cash flows that are less than the accrual will accrete the carrying balance. The Company generally does not allow accretion in the first six to twelve months. The IRR is estimated and periodically recalculated based on the timing and amount of anticipated cash flows using the Company’s proprietary collection models. A pool can become fully amortized (zero carrying balance on the balance sheet) while still generating cash collections. In this case, all cash collections are recognized as revenue when received. Additionally, the Company uses the cost recovery method when collections on a particular pool of accounts cannot be reasonably predicted. These pools are not aggregated with other portfolios. Under the cost recovery method, no revenue is recognized until the Company has fully collected the cost of the portfolio, or until such time that the Company considers the collections to be probable and estimable and begins to recognize income based on the interest method as described above. At March 31, 2009 and 2008, the Company had unamortized purchased principal (purchase price) in pools accounted for under the cost recovery method of $5,937,212 and $1,798,455, respectively.

     The Company establishes valuation allowances for all acquired accounts subject to SOP 03-3 to reflect only those losses incurred after acquisition (that is, the present value of cash flows initially expected at acquisition that are no longer expected to be collected). Valuation allowances are established only subsequent to acquisition of the accounts.

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

At March 31, 2009 and 2008, the Company had an allowance against its finance receivables of $29,840,000 and $7,015,000, respectively. Prior to January 1, 2005, in the event that a reduction of the yield to as low as zero in conjunction with estimated future cash collections that were inadequate to amortize the carrying balance, an allowance charge would be taken with a corresponding write-off of the receivable balance.

     The Company implements the accounting for income recognized on finance receivables under SOP 03-3 as follows. The Company creates each accounting pool using its projections of estimated cash flows and expected economic life. The Company then computes the effective yield that fully amortizes the pool to the end of its expected economic life based on the current projections of estimated cash flows. As actual cash flow results are recorded, the Company balances those results to the data contained in the Company’s SOP 03-3 models to ensure accuracy, then reviews each accounting pool watching for trends, actual performance versus projections and curve shape, sometimes re-forecasting future cash flows utilizing the Company’s statistical models. The review process is primarily performed by the Company’s finance staff; however, the Company’s operational and statistical staffs may also be involved depending upon actual cash flow results achieved. To the extent there is overperformance, the Company will either increase the yield, if persuasive evidence indicates that the overperformance is considered to be a significant betterment, or, if the overperformance is considered more of an acceleration of cash flows (a timing difference), adjust future cash flows downward which effectively extends the amortization period, or take no action at all if the amortization period is reasonable and falls within the pools’ expected economic life. To the extent there is underperformance, the Company will book an allowance if the underperformance is significant and will also consider revising future cash flows based on current period information, or take no action if the pool’s amortization period is reasonable and falls within the currently projected economic life.

     The Company capitalizes certain fees paid to third parties related to the direct acquisition of a portfolio of accounts. These fees are added to the acquisition cost of the portfolio and accordingly are amortized over the life of the portfolio using the interest method. The balance of the unamortized capitalized fees at March 31, 2009 and 2008 was $3,030,732 and $2,842,442, respectively. During the three months ended March 31, 2009 and 2008, the Company capitalized $164,206 and $570,481, respectively, of these direct acquisition fees. During the three months ended March 31, 2009 and 2008, the Company amortized $212,034 and $162,955, respectively, of these direct acquisition fees.

     The agreements to purchase the aforementioned receivables include general representations and warranties from the sellers covering account holder death or bankruptcy 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. Any funds received from the seller of finance receivables as a return of purchase price are referred to as buybacks. Buyback funds are simply applied against the finance receivable balance received and are not included in the Company’s cash collections from operations. In some cases, the seller will replace the returned accounts with new accounts in lieu of returning the purchase price. In that case, the old account is removed from the pool and the new account is added.

     Changes in finance receivables, net for the three months ended March 31, 2009 and 2008 were as follows (amounts in thousands):

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Balance at beginning of period		$	563,830			$	410,297
Acquisitions of finance receivables, net of buybacks			51,365				94,231
Cash collections			(89,871	)			(79,402	)
Income recognized on finance receivables, net			51,276				52,628
Cash collections applied to principal			(38,595	)			(26,774	)
Balance at end of period		$	576,600			$	477,754

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

     At the time of acquisition, the life of each pool is generally estimated to be between 84 to 96 months based on projected amounts and timing of future cash receipts using the proprietary models of the Company. As of March 31, 2009, the Company had $576,600,440 in net finance receivables. Based upon current projections, cash collections applied to principal are estimated to be as follows for the twelve months in the periods ending (amounts in thousands):

March 31, 2010		$	127,949
March 31, 2011			147,505
March 31, 2012			135,442
March 31, 2013			99,064
March 31, 2014			42,631
March 31, 2015			18,576
March 31, 2016			5,022
March 31, 2017			411
		$	576,600

     During the three months ended March 31, 2009 and 2008, the Company purchased approximately $960.9 million and $1.46 billion, respectively, in face value of charged-off consumer receivables. At March 31, 2009, the estimated remaining collections (“ERC”) on the receivables purchased in the three months ended March 31, 2009 and 2008 were $110.2 million and $139.8 million, respectively.

     Accretable yield represents the amount of income recognized on finance receivables the Company can expect to generate over the remaining life of its existing portfolios based on estimated future cash flows as of March 31, 2009 and 2008. Reclassifications from nonaccretable difference to accretable yield primarily result from the Company’s increase in its estimate of future cash flows. Reclassifications to nonaccretable difference from accretable yield results from allowance charges that exceed the Company’s increase in its estimate of future cash flows. Changes in accretable yield for the three months ended March 31, 2009 and 2008 were as follows (amounts in thousands):

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Balance at beginning of period		$	551,735			$	492,269
Income recognized on finance receivables, net			(51,276	)			(52,628	)
Additions			67,178				93,985
Reclassifications (to)/from nonaccretable difference			(17,811	)			1,933
Balance at end of period		$	549,826			$	535,559

     During the three months ended March 31, 2009 and 2008, the Company recorded $6,445,000 and $2,785,000, respectively, in allowance charges on pools that had underperformed the Company’s most recent expectations as of March 31, 2009. During the three months ended March 31, 2009 and 2008, the Company also reversed $225,000 and $0, respectively, of allowance charges recorded in prior periods. The change in the valuation allowance for the three months ended March 31, 2009 and 2008 is as follows (amounts in thousands):

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

		Three Months Ended				Three Months Ended
		March 31, 2009				March 31, 2008
Balance at beginning of period		$	23,620			$	4,230
Allowance charges recorded			6,445				2,785
Reversal of previously recorded allowance charges			(225	)			—
Change in allowance charge			6,220				2,785
Balance at end of period		$	29,840			$	7,015

3. Accounts Receivable, net:

     Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and its customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. The Company reviews its allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The balance of the allowance for doubtful accounts at March 31, 2009 and December 31, 2008 was $2.1 million and $2.0 million, respectively. The Company does not have any off balance sheet credit exposure related to its customers.

4. Line of Credit:

     On November 29, 2005, the Company entered into a Loan and Security Agreement for a revolving line of credit jointly offered by Bank of America, N. A. and Wachovia Bank, National Association. The agreement was amended on May 9, 2006 to include RBC Centura Bank as an additional lender, again on May 4, 2007 to increase the line of credit to $150,000,000 and incorporate a $50,000,000 non-revolving fixed rate sub-limit, again on October 26, 2007 to increase the line of credit to $270,000,000, again on March 18, 2008 to increase the non-revolving fixed rate sub-limit to $100,000,000, again on May 2, 2008 to include SunTrust Bank as an additional lender and to increase the line of credit to $340,000,000, and again on September 3, 2008 to include J.P. Morgan Chase Bank as an additional lender and to increase the line of credit to $365,000,000. The agreement is a line of credit in an amount equal to the lesser of $365,000,000 or 30% of the Company’s ERC of all its eligible asset pools. Borrowings under the revolving credit facility bear interest at a floating rate equal to the one month LIBOR Market Index Rate plus 1.40%, which was 1.90% at March 31, 2009, and the facility expires on May 2, 2011. The Company also pays an unused line fee equal to three-tenths of one percent, or 30 basis points, on any unused portion of the line of credit. The loan is collateralized by substantially all the tangible and intangible assets of the Company. The agreement provides as follows:

	•		monthly borrowings may not exceed 30% of ERC;
	•		funded debt to EBITDA (defined as net income, less income or plus loss from discontinued operations and extraordinary items, plus income taxes, plus interest expense, plus depreciation, depletion, amortization (including finance receivable amortization) and other non-cash charges) ratio must be less than 2.0 to 1.0 calculated on a rolling twelve-month average;
	•		tangible net worth must be at least 100% of tangible net worth reported at September 30, 2005, plus 25% of cumulative positive net income since the end of such fiscal quarter, plus 100% of the net proceeds from any equity offering without giving effect to reductions in tangible net worth due to repurchases of up to $100,000,000 of the Company’s common stock; and
	•		restrictions on change of control.

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

   As of March 31, 2009 and 2008, outstanding borrowings under the facility totaled $266,300,000 and $216,800,000, respectively, of which $50,000,000 was part of the non-revolving fixed rate sub-limit which bears interest at 6.80% and expires on May 4, 2012. As of March 31, 2009, the Company is in compliance with all of the covenants of the agreement.

5. Derivative Instruments:

     The Company may periodically enter into derivative financial instruments, typically interest rate swap agreements, to reduce its exposure to fluctuations in interest rates on variable-rate debt and their impact on earnings and cash flows. 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 variable interest rates. Based on the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended and interpreted, the Company records derivative financial instruments at fair value.

     On December 16, 2008, the Company entered into an interest rate forward rate swap transaction (the “Swap”) with J.P. Morgan Chase Bank, National Association pursuant to an ISDA Master Agreement which contains customary representations, warranties and covenants. The Swap has an effective date of January 1, 2010, with an initial notional amount of $50,000,000. Under the Swap, the Company will receive a floating interest rate based on 1-month LIBOR Market Index Rate and will pay a fixed interest rate of 1.89% through maturity of the Swap on May 1, 2011. Notwithstanding the terms of the Swap, the Company is ultimately obligated for all amounts due and payable under the credit facility.

     The Company’s financial derivative instrument is designated and qualifies as a cash flow hedge, and the effective portion of the gain or loss on such hedge is reported as a component of other comprehensive income in the consolidated financial statements. To the extent that the hedging relationship is not effective, the ineffective portion of the change in fair value of the derivative is recorded in other income (expense). The hedge was considered effective for the period from December 16, 2008 through December 31, 2008 and for the three months ended March 31, 2009. Therefore, there has been no amount that has been recorded in the consolidated income statements related to the hedge’s ineffectiveness during 2008 or the three months ended March 31, 2009. Hedges that receive designated hedge accounting treatment are evaluated for effectiveness at the time that they are designated, as well as through the hedging period.

     The following table sets forth the fair value amounts of derivative instruments held by the Company as of the dates indicated (amounts in thousands):

		March 31, 2009								December 31, 2008
		Asset Derivatives				Liability Derivatves				Asset Derivatives				Liability Derivatves
Derivatives designated as hedging instruments under SFAS No. 133:
Interest rate swap contracts		$	—			$	362			$	89			$	—
Total derivatives		$	—			$	362			$	89			$	—

     Liability and asset derivatives are recorded in the liability and other asset section of the accompanying consolidated balance sheets, respectively.

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

     The following table sets forth the gain (loss) recorded in Accumulated Other Comprehensive Income (“AOCI”), net of tax, for the three months ended March 31, 2009, for derivatives held by the Company as well as any gain (loss) reclassified from AOCI into income (amounts in thousands):

Amount of Gain or (Loss)

Recognized in Other

Location of Gain or (Loss)

Amount of Gain or (Loss)

Comprehensive Income

Reclassified from

Reclassified from

on Derivatives

AOCI into Income

AOCI into Income

(Effective Portion)

(Effective Portion)

(Effective Portion)

Derivatives designated as hedging instruments under SFAS No. 133:

Interest rate swap contracts

$

(310

)

interest income/(expense)

$

—

Total derivatives

$

(310

)

$

—

     Amounts in accumulated other comprehensive income will be reclassified into earnings under certain situations; for example, if the occurrence of the transaction is no longer probable or no longer qualifies for hedge accounting. The Company does not expect to reclassify any amount currently included in other comprehensive income (loss) into earnings within the next 12 months.

6. Long-Term Debt:

     On February 6, 2009, the Company entered into a commercial loan agreement to finance computer software and equipment purchases in the amount of $2,036,114. The loan is collateralized by the related computer software and equipment. The loan is a three year loan with a fixed rate of 4.78% with monthly installments, including interest, of $60,823 beginning on March 31, 2009, and it matures on February 28, 2012.

7. Property and Equipment, net:

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

		March 31,				December 31,
		2009				2008
Software		$	14,682			$	14,380
Computer equipment			8,243				7,951
Furniture and fixtures			5,155				5,150
Equipment			5,585				5,370
Leasehold improvements			3,464				3,449
Building and improvements			5,948				5,948
Land			992				992
Accumulated depreciation and amortization			(20,963	)			(19,356	)
Property and equipment, net		$	23,106			$	23,884

     Depreciation and amortization expense, relating to property and equipment, for the three months ended March 31, 2009 and 2008 was $1,606,662 and $1,107,962, respectively.

     Beginning in July 2006 upon initiation of certain internally developed software projects, in accordance with the provisions of SOP 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” the Company began capitalizing qualifying computer software costs incurred during the application development stage and amortizing them over their estimated useful life of three to seven years on a straight-line basis beginning when the project is completed. Costs associated with preliminary project stage activities, training, maintenance and all other post implementation stage activities are expensed as incurred. The Company’s policy provides for the capitalization of certain direct payroll costs for employees who are directly associated with internal use computer software projects, as well as external direct costs of services associated with developing or obtaining internal use software.

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Capitalizable personnel costs are limited to the time directly spent on such projects. As of March 31, 2009, the Company has incurred and capitalized $1,137,492 of these direct payroll costs and external direct costs related to software developed for internal use. Of these costs, $715,597 is for projects that are in the development stage and, therefore are a component of Other Assets. Once the projects are completed, the costs will be transferred to Software and amortized over their estimated useful life of three to seven years. Amortization expense for the three months ended March 31, 2009 and 2008 was $22,136 and $22,136, respectively. The remaining unamortized costs relating to internally developed software at March 31, 2009 and 2008 were $310,582 and $399,126, respectively.

8. Goodwill and Intangible Assets, net:

     With the acquisition of IGS on October 1, 2004, RDS on July 29, 2005, The Palmer Group on July 25, 2007, MuniServices on July 1, 2008, and Broussard Partners and Associates, Inc. (“BPA”) on August 1, 2008, the Company purchased certain tangible and intangible assets. Intangible assets purchased included client and customer relationships, non-compete agreements, trademarks and goodwill. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), the Company is amortizing the following intangible assets over the estimated useful lives as indicated:

Customer Relationships

Non-Compete Agreements

Trademarks

IGS

7 years

3 years

—

RDS

10 years

3 years

—

The Palmer Group

2.4 years

—

—

MuniServices

11 years

3 years

14 years

BPA

10 years

2.4 years

—

     The combined original weighted average amortization period is 9.14 years. The Company reviews these relationships at least annually for impairment. Total amortization expense was $668,277 and $361,670 for the three months ended March 31, 2009 and 2008, respectively. In addition, goodwill, pursuant to SFAS 142, is not amortized but rather is reviewed at least annually for impairment. During the fourth quarter of 2008, the Company underwent its annual review of goodwill. Based upon the results of this review, which was conducted as of October 1, 2008, no impairment charges to goodwill or the other intangible assets were necessary as of the date of this review. The Company believes that nothing has occurred since the review was performed through March 31, 2009 that would indicate a triggering event and thereby necessitate an impairment charge to goodwill or the other intangible assets. The Company will undergo its annual goodwill review during the fourth quarter of 2009. At March 31, 2009 and December 31, 2008, the carrying value of goodwill was $27,645,582 and $27,545,582, respectively. The $100,000 increase in the carrying value of goodwill during the three months ended March 31, 2009 relates to additional purchase price relating to the acquisition of BPA on August 1, 2008.

9. Share-Based Compensation:

     The Company has a stock option and nonvested share plan. The Amended and Restated Portfolio Recovery Associates 2002 Stock Option Plan and 2004 Restricted Stock Plan was approved by the Company’s shareholders at its Annual Meeting of Shareholders on May 12, 2004, enabling the Company to issue to its employees and directors nonvested shares of stock, as well as stock options.

     Effective January 1, 2002, the Company adopted the fair value recognition provisions of SFAS No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation,” prospectively to all employee awards granted, modified, or settled after January 1, 2002. All stock-based compensation measured under the provisions of APB 25 became fully vested during 2002. All stock-based compensation expense recognized thereafter was derived from stock-based compensation based on the fair value method prescribed in SFAS 123. Effective January 1, 2006, the Company adopted SFAS No. 123R (“SFAS 123R”), “Share-Based Payment” using the modified prospective approach. The adoption of SFAS 123R had no material impact on the Company’s Consolidated Income Statement or on previously reported interim periods. As of March 31, 2009, total future compensation costs related to nonvested awards of nonvested shares (not including nonvested shares granted under the Long-Term Incentive

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Program) is estimated to be $3.1 million with a weighted average remaining life of 3.5 years (not including nonvested shares granted under the Long-Term Incentive Programs). As of March 31, 2009, there is no future compensation costs related to stock options and the remaining vested stock options have a weighted average remaining life of 0.9 years. Based upon historical data, the Company used an annual forfeiture rate of 14% for stock options and 15-40% for nonvested shares for most of the employee grants. Grants made to key employee hires and directors of the Company were assumed to have no forfeiture rates associated with them due to the historically low turnover among this group. In addition, commensurate with the adoption of SFAS 123R, all previous references to “restricted” stock are now referred to as “nonvested” shares.

     Total share-based compensation expense was $1,997,978 and $738,595 for the three months ended March 31, 2009 and 2008, respectively. The Company, in conjunction with the renewal of employment agreements with its Named Executive Officers and other senior executives, awarded nonvested shares which vested on January 1, 2009. As a result of the vesting of these shares, the Company recorded stock-based compensation expense in connection with these shares, in the amount of approximately $1.4 million during the first quarter of 2009. Tax benefits resulting from tax deductions in excess of share-based compensation expense recognized under the fair value recognition provisions of SFAS 123R (windfall tax benefits) are credited to additional paid-in capital in the Company’s Consolidated Balance Sheets. Realized tax shortfalls are first offset against the cumulative balance of windfall tax benefits, if any, and then charged directly to income tax expense. The total tax benefit realized from share-based compensation was $633,353 and $242,084 for the three months ended March 31, 2009 and 2008, respectively.

Stock Options

     The Company created the 2002 Stock Option Plan (the “Plan”) on November 7, 2002. The Plan was amended in 2004 (the “Amended Plan”) to enable the Company to issue nonvested shares of stock to its employees and directors. The Amended Plan was approved by the Company’s shareholders at its Annual Meeting on May 12, 2004. Up to 2,000,000 shares of common stock may be issued under the Amended Plan. The Amended Plan expires November 7, 2012. All options issued under the Amended Plan vest ratably over five years. Granted options expire seven years from grant date. Expiration dates range between November 7, 2009 and January 16, 2011. Options granted to a single person cannot exceed 200,000 in a single year. At March 31, 2009, 895,000 options have been granted under the Amended Plan, of which 118,955 have been cancelled. There were 33,000 and 0 dilutive options outstanding for the three months ended March 31, 2009 and 2008, respectively

     The Company granted no options during the three months ended March 31, 2009 and 2008. All of the stock options which have been granted under the Amended Plan were granted to employees of the Company except for 40,000 which were granted to non-employee directors. The total intrinsic value of options exercised during the three months ended March 31, 2009 and 2008 was approximately $45,000 and $480,000, respectively.

     The following summarizes all option related transactions from December 31, 2007 through March 31, 2009 (amounts in thousands, except per share amounts):

						Weighted-				Weighted-
		Options				Average				Average
		Outstanding				Exercise Price				Fair Value
December 31, 2007			163			$	16.97			$	3.25
Exercised			(38	)			15.87				3.31
Cancelled			(2	)			21.50				4.60
December 31, 2008			123				17.24				3.21
Exercised			(7	)			13.00				2.71
March 31, 2009			116			$	17.48			$	3.24

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

          The following information is as of March 31, 2009 (amounts in thousands, except per share amounts):

		Options Outstanding																Options Exercisable
										Weighted-Average												Weighted-Average
Exercise		Number				Average Remaining				Exercise Price Per				Aggregate				Number				Exercise Price Per				Aggregate
Prices		Outstanding				Contractual Life				Share				Intrinsic Value				Exercisable				Share				Intrinsic Value
$13.00			78				0.6			$	13.00			$	1,080				78			$	13.00			$	1,080
$16.16			5				0.6				16.16				59				5				16.16				59
$27.77 – $29.79			33				1.5				28.28				—				33				28.28				—
Total as of March 31, 2009			116				0.9			$	17.48			$	1,139				116			$	17.48			$	1,139

     The Company utilizes the Black-Scholes option pricing model to calculate the value of the stock options when granted. This model was developed to estimate the fair value of traded options, which have different characteristics than employee stock options. In addition, changes to the subjective input assumptions can result in materially different fair market value estimates. Therefore, the Black-Scholes model may not necessarily provide a reliable single measure of the fair value of employee stock options.

Nonvested Shares

     Prior to the approval of the Amended Plan, nonvested shares were permitted to be issued as an incentive to attract new employees and, effective commensurate with the adoption of the Amended Plan at the meeting of shareholders held on May 12, 2004, are permitted to be issued to directors and existing employees. With the exception of the awards made pursuant to the Long-Term Incentive Program and a few employee and director grants, the terms of the nonvested share awards are similar to those of the stock option awards, wherein the nonvested shares vest ratably over five years and are expensed over their vesting period. In addition, in conjunction with the renewal of their employment agreements, the Company’s Named Executive Officers and other senior executives were awarded nonvested shares which vested on January 1, 2009. As a result of the vesting of these shares, the Company recorded stock-based compensation expense in connection with these shares, in the amount of approximately $1.4 million during the first quarter of 2009.

     The following summarizes all nonvested share transactions from December 31, 2007 through March 31, 2009 (amounts in thousands, except per share amounts):

		Nonvested				Weighted-
		Shares				Average Price
		Outstanding				at Grant Date
December 31, 2007			123			$	41.72
Granted			27				37.47
Vested			(37	)			39.55
Cancelled			(15	)			40.05
December 31, 2008			98				41.60
Granted			50				31.50
Vested			(47	)			34.67
Cancelled			(1	)			42.24
March 31, 2009			100			$	39.77

     The total grant date fair value of shares vested during the three months ended March 31, 2009 and 2008 was $1,629,490 and $162,525, respectively.

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Long-Term Incentive Programs

     Pursuant to the Amended Plan, on March 30, 2007, January 4, 2008 and January 20, 2009, the Compensation Committee approved the grant of 96,550, 80,000 and 108,720, respectively, of performance based nonvested shares. The shares were granted to key employees of the Company. For both the 2007 and 2008 grants, no estimated compensation costs have been accrued because the achievements of the performance targets of the programs were deemed unlikely to be achieved. In the future, if the Company believes that the performance targets of the programs will be achieved, an adjustment to the expense will be made at that time based on the probable outcome. The 2009 grant is performance based and cliff vests after the requisite service period of two to three years if certain financial goals are met. The goals are based upon diluted earnings per share (“EPS”) totals for 2009, the return on owners’ equity for the three year period beginning on January 1, 2009 and ending December 31, 2011, and the relative total shareholder return as compared to a peer group, for the same three year period. The number of shares vested can double if the financial goals are exceeded or no shares can vest if the financial goals are not met. The Company is expensing the nonvested share grant over the requisite service period of two to three years beginning on January 1, 2009. If the Company believes that the number of shares granted will be more or less than originally projected, an adjustment to the expense will be made at that time based on the probable outcome. At March 31, 2009, total future compensation costs related to nonvested share awards granted under the 2009 Long-Term Incentive Program are estimated to be approximately $2.5 million. The Company assumed a 7.5% forfeiture rate for this grant and the shares have a weighted average life of 2.64 years at March 31, 2009.

10. Income Taxes — FIN 48:

     On July 13, 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 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. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The evaluation of a tax position in accordance with FIN 48 is a two-step process. The first step is recognition: the enterprise determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the enterprise should presume that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50 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.

     The Company adopted the provisions of FIN 48 with respect to all of its tax positions as of January 1, 2007. Total unrecognized tax benefits at March 31, 2009 and 2008 were $0 and $180,000, respectively. Due to the approval by the Internal Revenue Service of an application for a change in accounting method with respect to one of the Company’s tax positions, the balance of unrecognized tax benefits at the date adoption was reduced from $388,000 to $180,000 at September 30, 2007. The reduction of $208,000 did not have an impact on the annual effective rate since the ultimate deductibility of these benefits was highly certain, and only the timing of deductibility was uncertain. On September 15, 2008, the 2004 tax year closed and is no longer subject to examination by major taxing jurisdictions, including the Internal Revenue Service. As a result, the remaining unrecognized tax benefits balance of $180,000 was reversed. The reversal was an adjustment to additional paid-in-capital and did not affect the annual effective tax rate.

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

     The Company was notified on June 21, 2007 that it was being examined by the Internal Revenue Service for the 2005 calendar year. The IRS has concluded its audit and on March 19, 2009 issued Form 4549-A, Income Tax Examination Changes for tax years ending December 31, 2007, 2006 and 2005. The IRS has proposed that cost recovery for tax revenue recognition does not clearly reflect income and that unused line fees paid on credit facilities should be capitalized and amortized rather than taken as a current deduction. The Company is in the process of appealing the IRS’s findings. The Company believes it has sufficient support for the technical merits of its positions and that it is more-likely-than-not these positions will ultimately be sustained.

     At March 31, 2009, the tax years that remain subject to examination by the major taxing jurisdictions, including the Internal Revenue Service, are 2003 and 2005 and subsequent years. The 2003 tax year is still open to examination because of the net operating loss that originated in that year but was not fully utilized until the 2005 tax year.

     FIN 48 requires the recognition of interest, if the tax law would require interest to be paid on the underpayment of taxes, and recognition of penalties, if a tax position does not meet the minimum statutory threshold to avoid payment of penalties. Penalties and interest may be classified as either penalties and interest expense or income tax expense. Management has elected to classify accrued penalties and interest as income tax expense. Accrued penalties and interest as of January 1, 2007, in the amount of $77,000, were recorded to beginning of year retained earnings at the date of adoption. Since January 1, 2007, the Company has accrued additional interest of approximately $34,000. Due to the approved application for change in accounting method, the balance of accrued penalties and interest was reduced by $67,000 during 2007. As a result of the lapse in the statute of limitations, the 2004 tax year closed as of September 15, 2008 resulting in the reversal of the remaining $44,000 of accrued interest.

11.

Earnings per Share:

     Basic EPS are computed by dividing income available to common shareholders 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 stock options and nonvested share awards. Share-based awards that are contingent upon the attainment of performance goals are not included in the computation of diluted EPS until the performance goals have been attained. The following tables provide a reconciliation between the computation of basic EPS and diluted EPS for the three months ended March 31, 2009 and 2008 (amounts in thousands, except per share amounts):

		For the three months ended March 31,
						2009												2008
						Weighted Average												Weighted Average
		Net Income				Common Shares				EPS				Net Income				Common Shares				EPS
Basic EPS		$	10,072				15,334			$	0.66			$	11,872				15,170			$	0.78
Dilutive effect of stock options and nonvested share awards							33												67
Diluted EPS		$	10,072				15,367			$	0.66			$	11,872				15,237			$	0.78

     There were 33,000 and 0 antidilutive options outstanding for the three months ended March 31, 2009 or 2008.

12. Commitments and Contingencies:

Employment Agreements:

     The Company has employment agreements with all of its executive officers and with several members of its senior management group, most of which expire on December 31, 2011. Such agreements provide for base salary payments as well as bonuses which are based on the attainment of specific management goals. Future compensation under these agreements is approximately $10.6 million. The agreements also contain confidentiality and non-compete provisions.

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Leases:

     The Company is party to various operating and capital leases with respect to its facilities and equipment. For further discussion of these leases please refer to the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, as filed for the year ended December 31, 2008.

Forward Flow Agreements:

     The Company is party to several forward flow agreements that allow for the purchase of defaulted consumer receivables at pre-established prices. The maximum remaining amount to be purchased under forward flow agreements at March 31, 2009 is approximately $28.5 million.

Litigation:

     The Company is from time to time subject to routine legal proceedings, most of which are incidental to the ordinary course of our business. The Company initiates lawsuits against consumers and is occasionally countersued by them in such actions. Also, consumers initiate litigation against the Company, in which they allege that the Company has violated a state or federal law in the process of collecting on an account. From time to time, other types of law suits are brought against the Company. However, it is not expected that these or any other legal proceedings or claims in which the Company is involved will, either individually or in the aggregate, have a material adverse impact on the Company’s results of operations, liquidity or its financial condition.

13. Recent Accounting Pronouncements:

     In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination, recognizing assets acquired and liabilities assumed arising from contingencies, and determining what information to disclose to enable users of the financial statement to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for acquisitions consummated in fiscal years beginning after December 15, 2008. The Company adopted SFAS 141R on January 1, 2009, which had no material impact on its consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 changes the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. This new consolidation method significantly changes the accounting for transactions with minority interest holders. SFAS 160 is effective for fiscal years beginning after December 15, 2008 with early application prohibited. The Company adopted SFAS 160 on January 1, 2009, which had no material impact on its consolidated financial statements.

     In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 requires expanded disclosures regarding the location and amounts of derivative instruments in an entity’s financial statements, how derivative instruments and related hedged items are accounted for under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, and how derivative instruments and related hedged items affect an entity’s financial position, operating results and cash flows. SFAS 161 is effective for periods beginning on or after November 15, 2008. The Company adopted this statement effective January 1, 2009 and has added the required narrative and tabular disclosure in Note 5 of its consolidated financial statements. The adoption of SFAS 161 had no material impact on its consolidated financial statements.

     In April 2008, the FASB issued Staff Position (“FSP”) 142-3, “Determination of the Useful Life of Intangible Assets”, (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The Company adopted FSP 142-3 on January 1, 2009, which had no material impact on its consolidated financial statements.

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

     In April 2009, the Financial Accounting Standards Board issued as final the following three staff positions related to mark-to-market accounting and accounting for impaired securities:

     FASB Staff Position No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP No. 157-4”), provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements,” when the volume and level of activity for the asset or liability have significantly decreased. Additionally, FSP No. 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. FSP No. 157-4 stresses that even though there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation techniques used to measure the fair value of the asset or liability, the main objective of fair value accounting measurements remains the same. As defined by the FSP, 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 as of the measurement date under current market conditions. Additionally, FSP No. 157-4 amends FASB Statement No. 157’s required disclosures. FSP No. 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, although early adoption is permitted for periods ending after March 15, 2009. The Company believes the adoption of FSP No. 157-4 will not have a material impact on its consolidated financial statements.

     FASB Staff Position No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP No. 107-1 and APB 28-1”), amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The FSP also amends Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” to require those disclosures in summarized financial information at interim reporting periods. The new standard is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company believes the adoption of FSP No. 107-1 and APB 28-1 will not have a material impact on its consolidated financial statements.

     FASB Staff Position No. 115-2 and 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP No. 115-2 and 124-2”), amends the other-than-temporary guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments in debt and equity securities in the financial statements. FSP No. 115-2 and 124-2 does not amend existing recognition and measurement guidance related to other-than-temporary impairment. FSP No. 115-2 and 124-2 requires that unless there is an intent or requirement to sell a debt security, only the amount of the estimated credit loss is recorded through earnings, while the remaining mark-to-market loss is recognized as a component of equity through other comprehensive income. Additionally, FSP No. 115-2 and 124-2 enhances required disclosures of existing guidelines. FSP No. 115-2 and 124-2 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, and will be applied to all existing and new investments in debt securities. The Company believes the adoption of FSP No. 115-2 and 124-2 will not have a material impact on its consolidated financial statements.

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

Cautionary Statements Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995:

     This report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks, uncertainties and assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are forward-looking statements, including statements regarding overall trends, gross margin trends, operating cost trends, liquidity and capital needs and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The risks, uncertainties and assumptions referred to above may include the following:

	•		continued deterioration of the economic environment including the stability of the financial system;
	•		our ability to purchase defaulted consumer receivables at appropriate prices;
	•		changes in the business practices of credit originators in terms of selling defaulted consumer receivables or outsourcing defaulted consumer receivables to third-party contingent fee collection agencies;
	•		changes in government regulations that affect our ability to collect sufficient amounts on our acquired or serviced receivables;
	•		changes in income tax laws or challenges by taxing authorities could have an adverse effect on our financial condition and results of operations;
	•		deterioration in economic conditions in the United States that may have an adverse effect on our collections, results of operations, revenue and stock price;
	•		changes in bankruptcy or collection agency laws that could negatively affect our business;
	•		our ability to employ and retain qualified employees, especially collection and information technology personnel;
	•		our work force could become unionized in the future, which could adversely affect the stability of our production and increase our costs;
	•		changes in the credit or capital markets, which affect our ability to borrow money or raise capital to purchase or service defaulted consumer receivables;
	•		the degree and nature of our competition;
	•		our ability to comply with the provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder;
	•		our ability to retain existing clients and obtain new clients for our fee-for-service businesses;
	•		the sufficiency of our funds generated from operations, existing cash and available borrowings to finance our current operations; and
	•		the risk factors listed from time to time in our filings with the Securities and Exchange Commission (the “SEC”).

     You should assume that the information appearing in this quarterly report is accurate only as of the date it was issued. Our business, financial condition, results of operations and prospects may have changed since that date.

     For a discussion of the risks, uncertainties and assumptions that could affect our future events, developments or results, you should carefully review the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as the discussion of “Business” and “Risk Factors” described in our 2008 Annual Report on Form 10-K, filed on February 27, 2009.

     Our forward-looking statements could be wrong in light of these and other risks, uncertainties and assumptions. The future events, developments or results described in this report could turn out to be materially different. We have no obligation to publicly update or revise our forward-looking statements after the date of this report and you should not expect us to do so.

     Investors should also be aware that while we do, from time to time, communicate with securities analysts and others, we do not, by policy, selectively disclose to them any material nonpublic information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst regardless of the content of the statement or report. We do not, by policy, confirm forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.

Results of Operations

     We are a full service provider of outsourced receivables management and related services. The results of operations include the financial results of Portfolio Recovery Associates, Inc. and all of our subsidiaries who are all in the accounts receivable management business. Under the guidance of the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 131 (“SFAS 131”), “Disclosures about Segments of an Enterprise and Related Information”, we have determined that we have several operating segments that meet the aggregation criteria of SFAS 131, and therefore we have one reportable segment, accounts receivable management, based on similarities among the operating units including homogeneity of services, service delivery methods and use of technology.

     The following table sets forth certain operating data as a percentage of total revenues for the periods indicated:

		For the Three Months
		Ended March 31,
		2009				2008
Revenues:
Income recognized on finance receivables, net			75.2	%			82.1	%
Commissions			24.8	%			17.9	%
Total revenues			100.0	%			100.0	%
Operating expenses:
Compensation and employee services			39.1	%			33.0	%
Legal and agency fees and costs			17.8	%			19.1	%
Outside fees and services			3.1	%			3.6	%
Communications			5.1	%			4.5	%
Rent and occupancy			1.6	%			1.3	%
Other operating expenses			2.9	%			2.1	%
Depreciation and amortization			3.3	%			2.3	%
Total operating expenses			72.9	%			65.9	%
Income from operations			27.1	%			34.1	%
Other income and (expense):
Interest income			0.1	%			0.0	%
Interest expense			(2.9	%)			(3.9	%)
Income before income taxes			24.3	%			30.2	%
Provision for income taxes			9.5	%			11.7	%
Net income			14.8	%			18.5	%

     We use the following terminology throughout our reports: “Cash Receipts” refers to all collections of cash, regardless of the source. “Cash Collections” refers to collections on our owned portfolios only, exclusive of commission income and sales of finance receivables. “Cash Sales of Finance Receivables” refers to the sales of our owned portfolios. “Commissions” refers to fee income generated from our wholly-owned contingent fee and fee-for-service subsidiaries.

Three Months Ended March 31, 2009 Compared To Three Months Ended March 31, 2008

Revenues

     Total revenues were $68.2 million for the three months ended March 31, 2009, an increase of $4.1 million or 6.4% compared to total revenues of $64.1 million for the three months ended March 31, 2008.

Income Recognized on Finance Receivables, net

     Income recognized on finance receivables, net was $51.3 million for the three months ended March 31, 2009, a decrease of $1.3 million or 2.5% compared to income recognized on finance receivables, net of $52.6 million for the three months ended March 31, 2008. The majority of the decrease was due to an increase in our finance receivables amortization rate, including the allowance charge, to 42.9% for the three months ended March 31, 2009, compared to 33.7% for the three months ended March 31, 2008. This was offset by an increase in our cash collections on our owned defaulted consumer receivables to $89.9 million for the three months ended March 31, 2009 compared to $79.4 million for the three months March 31, 2008. During the three months ended March 31, 2009, we acquired defaulted consumer receivables portfolios with an aggregate face value amount of $960.9 million at a cost of $52.4 million. During the three months ended March 31, 2008, we acquired defaulted consumer receivable portfolios with an aggregate face value of $1.46 billion at a cost of $95.4 million. In any period, we acquire defaulted consumer receivables that can vary dramatically in their age, type and ultimate collectibility. We may pay significantly different purchase rates for purchased receivables within any period as a result of this quality fluctuation. In addition, market forces can drive pricing rates up or down in any period, irrespective of other quality fluctuations. As a result, the average purchase rate paid for any given period can fluctuate dramatically based on our particular buying activity in that period. However, regardless of the average purchase price, we intend to target a similar internal rate of return in pricing our portfolio acquisitions; therefore, the absolute rate paid is not necessarily relevant to estimated profitability of a period’s buying.

     Income recognized on finance receivables, net is shown net of changes in valuation allowances recognized under SOP 03-3, which requires that a valuation allowance be recorded for significant decreases in expected cash flows or 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 March 31, 2009, we recorded net allowance charges of $6,220,000. For the three months ended March 31, 2008, we recorded net allowance charges of $2,785,000. In any given period, we may be required to record valuation allowances due to pools of receivables underperforming our expectations. Factors that may contribute to the recording of valuation allowances may include both internal as well as external factors. External factors which may have an impact on the collectability, and subsequently to the overall profitability of purchased pools of defaulted consumer receivables would include: overall market pricing for pools of consumer receivables (which is driven by both supply and demand), new laws or regulations relating to collections, new interpretations of existing laws or regulations, and the overall condition of the economy. Internal factors which may have an impact on the collectability, and subsequently the overall profitability of purchased pools of defaulted consumer receivables would include: necessary revisions to initial and post-acquisition scoring and modeling estimates, non-optimal operational activities (which relates to the collection and movement of accounts on both our collection floor and external channels), as well as decreases in productivity related to turnover and tenure of our collection staff. Due to the extraordinary deterioration of the U.S. economy beginning in the fourth quarter of 2008, our collection efforts have become more challenging, which has exacerbated the typical effects of these external and internal factors. These combined factors have contributed to the $3,435,000 increase in valuation allowances for the three months ended March 31, 2009 as compared to the prior year period.

Commissions

     Commissions were $16.9 million for the three months ended March 31, 2009, an increase of $5.4 million or 47.0% compared to commissions of $11.5 million for the three months ended March 31, 2008. Commissions grew as a result of the acquisitions of MuniServices, LLC (“MuniServices”) on July 1, 2008 and Broussard Partners and Associates, Inc. (“BPA”) on August 1, 2008, as well as increases in revenue generated by our IGS fee-for-service business and RDS government processing and collection business, partially offset by a decrease in our Anchor contingent fee business, which ceased operations in the second quarter of 2008, as compared to the prior year period.

Operating Expenses

     Total operating expenses were $49.7 million for the three months ended March 31, 2009, an increase of $7.5 million or 17.8% compared to total operating expenses of $42.2 million for the three months ended March 31, 2008. Total operating expenses, including compensation and employee services expenses, were 46.5% of cash receipts for the three months ended March 31, 2009 compared to 46.5% for the same period in 2008.

Compensation and Employee Services

     Compensation and employee services expenses were $26.7 million for the three months ended March 31, 2009, an increase of $5.6 million or 26.5% compared to compensation and employee services expenses of $21.1 million for the three months ended March 31, 2008. This increase is mainly due to the acquisition of MuniSerivces as well as an overall increase in our owned portfolio collection staff as well. In addition, in conjunction with the renewal of their employment agreements, our Named Executive Officers and other senior executives were awarded nonvested shares which vested on January 1, 2009. As a result of the vesting of these shares, we recorded stock-based compensation expense in connection with these shares, in the amount of approximately $1.4 million during the first quarter of 2009. Compensation and employee services expenses increased as total employees grew 18.2% to 2,065 as of March 31, 2009 from 1,747 as of March 31, 2008. Compensation and employee services expenses as a percentage of cash receipts increased to 25.0% for the three months ended March 31, 2009 from 23.2% of cash receipts for the same period in 2008.

Legal and Agency Fees and Costs

     Legal and agency fees and costs expenses were $12.1 million for the three months ended March 31, 2009, a decrease of $0.2 million or 1.6% compared to outside legal and other fees and services expenses of $12.3 million for the three months ended March 31, 2008. Of the $0.2 million decrease, $0.9 million was attributable to a decrease in legal fees and costs incurred resulting from accounts referred to both our in house attorneys and outside independent contingent fee attorneys. This was offset by an increase of $0.7 million in agency fees mainly incurred by our IGS subsidiary. Total outside legal expenses paid to independent contingent fee attorneys for the three months ended March 31, 2009 were 37.6% of legal cash collections generated by independent contingent fee attorneys compared to 36.6% for the three months ended March 31, 2008. Outside legal fees and costs paid to independent contingent fee attorneys decreased from $8.0 million for the three months ended March 31, 2008 to $6.7 million, a decrease of $1.3 million or 16.3%, for the three months ended March 31, 2009. Additionally, as disclosed previously, we also effectuate legal collections using our own in house attorneys. Total legal expenses incurred by our in house attorneys for the three months ended March 31, 2009 were 26.7% of legal cash collections generated by our in house attorneys compared to 27.6% for the three months ended March 31, 2008. Legal fees and costs incurred by our in house attorneys increased from $0.5 million for the three months ended March 31, 2008 to $0.9 million, an increase of $0.4 million or 80.0%, for the three months ended March 31, 2009.

Outside Fees and Services

     Outside fees and services expenses were $2.1 million for the three months ended March 31, 2009, a decrease of $0.2 million or 8.7% compared to outside legal and other fees and services expenses of $2.3 million for the three months ended March 31, 2008. Of the $0.2 million decrease, $47,000 was attributable to a decrease in corporate legal and accounting fees and $314,000 was attributable to a decrease in credit bureau fees. This was offset by an increase of $156,000 in other outside fees and services.

Communications

     Communications expenses were $3.5 million for the three months ended March 31, 2009, an increase of $0.6 million or 20.7% compared to communications expenses of $2.9 million for the three months ended March 31, 2008. The increase was partially due to a growth in mailings due to an increase in special letter campaigns. The remaining increase was attributable to higher telephone expenses driven by a greater number of defaulted consumer receivables to work, as well as a significant expansion of our automated dialer seats and related calls that are generated by the dialer.

Rent and Occupancy

     Rent and occupancy expenses were $1,082,000 for the three months ended March 31, 2009, an increase of $244,000 or 29.1% compared to rent and occupancy expenses of $838,000 for the three months ended March 31, 2008. The increase was primarily due to the acquisition of MuniServices, as well as increased utility charges.

Other Operating Expenses

     Other operating expenses were $2.0 million for the three months ended March 31, 2009, an increase of $0.6 million or 42.9% compared to other operating expenses of $1.4 million for the three months ended March 31, 2008. The increase was due to increases in taxes (non-income), fees and licenses, repairs and maintenance, travel and meals, insurance, dues and subscriptions, and other miscellaneous expenses. This was offset by a decrease in hiring expenses. Taxes (non-income), fees and licenses expenses increased by $72,000, repairs and maintenance expenses increased by $290,000, travel and meals expenses increased by $26,000, insurance expenses increased $82,000, dues and subscriptions expenses increased by $35,000 and other miscellaneous expenses increased by $267,000. Hiring expenses decreased by $139,000.

Depreciation and Amortization

     Depreciation and amortization expenses were $2.3 million for the three months ended March 31, 2009, an increase of $0.8 million or 53.3% compared to depreciation and amortization expenses of $1.5 million for the three months ended March 31, 2008. The increase is mainly due to additional expenses incurred related to the depreciation and amortization of the tangible and intangible assets acquired in the acquisition of MuniServices and the acquisition of the assets of Broussard Partners and Associates, Inc. (“BPA”).

Interest Income

     Interest income was $3,000 for the three months ended March 31, 2009, a decrease of $27,000 compared to interest income of $30,000 for the three months ended March 31, 2008. This decrease is the result of lower average invested cash and cash equivalents balances during the three months ended March 31, 2009 compared to the same period in 2008.

Interest Expense

     Interest expense was $2.0 million for the three months ended March 31, 2009, a decrease of $0.5 million compared to interest expense of $2.5 million for the three months ended March 31, 2008. The decrease was mainly due to a decrease in our weighted average interest rate which decreased to 2.78% for the three months ended March 31, 2009 as compared to 5.23% for the three months ended March 31, 2008 partially offset by an increase in our average borrowings for the three months ended March 31, 2009 compared to the same period in 2008.

Provision for Income Taxes

     Income tax expense was $6.4 million for the three months ended March 31, 2009, a decrease of $1.1 million or 14.7% compared to income tax expense of $7.5 million for the three months ended March 31, 2008. The decrease is mainly due to a decrease of 14.9% in income before taxes for the three months ended March 31, 2009 when compared to the same period in 2008. The effective tax rate for the three months ended March 31, 2009 was 39.0% compared to 38.8% for the same period in 2008.

Supplemental Performance Data

Owned Portfolio Performance:

     The following tables show certain data related to our owned portfolio. These tables describe the purchase price, cash collections and related multiples. Further, these tables disclose our entire portfolio, the portfolio of purchased bankrupt accounts and our entire portfolio less the impact of our purchased bankrupt accounts. The accounts represented in the purchased bankruptcy tables are those portfolios of accounts that were bankrupt at the time of purchase. This contrasts with accounts that file bankruptcy after we purchase them.

     The purchase price multiples for 2005 through 2008 described in the table below are lower than historical multiples in previous years. This trend is primarily, but not entirely related to pricing competition. When competition increases, and or supply decreases so that pricing becomes negatively impacted on a relative basis (total lifetime collections in relation to purchase price), internal rates of return (“IRRs”) tend to trend lower. This was the situation during 2005-2007 and is the primary contributor to the phenomenon of decreased purchase price multiples for that period.

     Additionally however, the way we initially book newly acquired pools of accounts and how we forecast future estimated collections for any given portfolio of accounts has evolved over the years due to a number of factors including the current economic situation. Since our revenue recognition under SOP 03-3 is driven by both the ultimate magnitude of estimated lifetime collections, as well as the timing of those collections, we have progressed towards booking new portfolio purchases using a higher confidence level for both collection amount and pace. Subsequent to the initial booking, as we gain collection experience and comfort with a pool of accounts, we continuously update estimated remaining collections (“ERC”) as time goes on. Since our inception, these processes have tended to cause the ratio of collections to purchase price multiple for any given year of buying to gradually increase over time. As a result, our estimate of lifetime collections to purchase price has shown relatively steady increases as pools have aged. Thus, all factors being equal in terms of pricing, one would naturally tend to see a higher collection to purchase price ratio from a pool of accounts that were six years from purchase than say a pool that was just two years from purchase.

     To the extent that lower purchase price multiples are the ultimate result of more competitive pricing and lower IRRs, this will generally lead to higher amortization rates (payments applied to principal as a percentage of cash collections), lower operating margins and ultimately lower profitability. As portfolio pricing becomes more favorable on a relative basis, our profitability will tend to expand. It is important to consider, however, that to the extent we can improve our collection operations by extracting additional cash from a discreet quantity and quality of accounts, and/or by extracting cash at a lower cost structure, we can put upward pressure on the collection to purchase price ratio and also on our operating margins. During 2008 and continuing through the first quarter of 2009, we made significant enhancements in our analytical abilities, management personnel and automated dialing capabilities, all with the intent to collect more cash at lower cost.

Entire Portfolio ($ in thousands)

												Percentage of				Unamortized				Percentage of Reserve				Actual Cash
								Life to Date				Reserve				Purchase Price				Allowance to Unamortized				Collections				Estimated								Total Estimated
Purchase				Purchase				Reserve				Allowance to				Balance at				Purchase Price and				Including Cash				Remaining				Total Estimated				Collections to
Period				Price(1)				Allowance (2)				Purchase Price (3)				March 31, 2009 (4)				Reserve Allowance (5)				Sales				Collections (6)				Collections (7)				Purchase Price (8)
	1996			$	3,080			$	0				0	%		$	0				0	%		$	9,924			$	19			$	9,943				323	%
	1997			$	7,685			$	0				0	%		$	0				0	%		$	24,762			$	115			$	24,877				324	%
	1998			$	11,089			$	0				0	%		$	0				0	%		$	35,915			$	239			$	36,154				326	%
	1999			$	18,898			$	0				0	%		$	0				0	%		$	65,075			$	657			$	65,732				348	%
	2000			$	25,020			$	0				0	%		$	0				0	%		$	105,747			$	2,011			$	107,758				431	%
	2001			$	33,481			$	0				0	%		$	133				0	%		$	158,596			$	3,861			$	162,457				485	%
	2002			$	42,325			$	0				0	%		$	0				0	%		$	172,778			$	4,825			$	177,603				420	%
	2003			$	61,448			$	375				1	%		$	1,172				24	%		$	223,794			$	11,749			$	235,543				383	%
	2004			$	59,178			$	1,795				3	%		$	3,626				33	%		$	159,228			$	21,400			$	180,628				305	%
	2005			$	143,211			$	6,900				5	%		$	45,938				13	%		$	223,382			$	95,911			$	319,293				223	%
	2006			$	107,799			$	8,420				8	%		$	51,249				14	%		$	125,428			$	97,693			$	223,121				207	%
	2007			$	258,516			$	9,680				4	%		$	179,353				5	%		$	183,861			$	324,464			$	508,325				197	%
	2008			$	277,631			$	2,670				1	%		$	243,072				1	%		$	90,677			$	453,332			$	544,009				196	%
YTD 2009				$	52,506			$	0				0	%		$	52,057				0	%		$	1,967			$	110,150			$	112,117				214	%

Purchased Bankruptcy Portfolio ($ in thousands)

												Percentage of				Unamortized				Percentage of Reserve				Actual Cash
								Life to Date				Reserve				Purchase Price				Allowance to Unamortized				Collections				Estimated								Total Estimated
Purchase				Purchase				Reserve				Allowance to				Balance at				Purchase Price and				Including Cash				Remaining				Total Estimated				Collections to
Period				Price(1)				Allowance (2)				Purchase Price (3)				March 31, 2009 (4)				Reserve Allowance (5)				Sales				Collections (6)				Collections (7)				Purchase Price (8)
	1996			$	0			$	0				0	%		$	0				0	%		$	0			$	0			$	0				0	%
	1997			$	0			$	0				0	%		$	0				0	%		$	0			$	0			$	0				0	%
	1998			$	0			$	0				0	%		$	0				0	%		$	0			$	0			$	0				0	%
	1999			$	0			$	0				0	%		$	0				0	%		$	0			$	0			$	0				0	%
	2000			$	0			$	0				0	%		$	0				0	%		$	0			$	0			$	0				0	%
	2001			$	0			$	0				0	%		$	0				0	%		$	0			$	0			$	0				0	%
	2002			$	0			$	0				0	%		$	0				0	%		$	0			$	0			$	0				0	%
	2003			$	0			$	0				0	%		$	0				0	%		$	0			$	0			$	0				0	%
	2004			$	7,469			$	1,250				17	%		$	216				85	%		$	13,686			$	448			$	14,134				189	%
	2005			$	29,302			$	635				2	%		$	2,865				18	%		$	39,123			$	4,257			$	43,380				148	%
	2006			$	17,643			$	1,410				8	%		$	2,333				38	%		$	22,834			$	5,080			$	27,914				158	%
	2007			$	78,933			$	0				0	%		$	57,878				0	%		$	37,411			$	80,239			$	117,650				149	%
	2008			$	110,418			$	0				0	%		$	100,491				0	%		$	22,331			$	157,812			$	180,143				163	%
YTD 2009				$	22,273			$	0				0	%		$	22,231				0	%		$	215			$	43,443			$	43,658				196	%

Entire Portfolio Less Purchased Bankruptcy Portfolio ($ in thousands)

												Percentage of				Unamortized				Percentage of Reserve				Actual Cash
								Life to Date				Reserve				Purchase Price				Allowance to Unamortized				Collections				Estimated								Total Estimated
Purchase				Purchase				Reserve				Allowance to				Balance at				Purchase Price and				Including Cash				Remaining				Total Estimated				Collections to
Period				Price(1)				Allowance (2)				Purchase Price (3)				March 31, 2009 (4)				Reserve Allowance (5)				Sales				Collections (6)				Collections (7)				Purchase Price (8)
	1996			$	3,080			$	0				0	%		$	0				0	%		$	9,924			$	19			$	9,943				323	%
	1997			$	7,685			$	0				0	%		$	0				0	%		$	24,762			$	115			$	24,877				324	%
	1998			$	11,089			$	0				0	%		$	0				0	%		$	35,915			$	239			$	36,154				326	%
	1999			$	18,898			$	0				0	%		$	0				0	%		$	65,075			$	657			$	65,732				348	%
	2000			$	25,020			$	0				0	%		$	0				0	%		$	105,747			$	2,011			$	107,758				431	%
	2001			$	33,481			$	0				0	%		$	133				0	%		$	158,596			$	3,861			$	162,457				485	%
	2002			$	42,325			$	0				0	%		$	0				0	%		$	172,778			$	4,825			$	177,603				420	%
	2003			$	61,448			$	375				1	%		$	1,172				24	%		$	223,794			$	11,749			$	235,543				383	%
	2004			$	51,709			$	545				1	%		$	3,410				14	%		$	145,542			$	20,952			$	166,494				322	%
	2005			$	113,909			$	6,265				6	%		$	43,073				13	%		$	184,259			$	91,654			$	275,913				242	%
	2006			$	90,156			$	7,010				8	%		$	48,916				13	%		$	102,594			$	92,613			$	195,207				217	%
	2007			$	179,583			$	9,680				5	%		$	121,475				7	%		$	146,450			$	244,225			$	390,675				218	%
	2008			$	167,213			$	2,670				2	%		$	142,581				2	%		$	68,346			$	295,520			$	363,866				218	%
YTD 2009				$	30,233			$	0				0	%		$	29,826				0	%		$	1,752			$	66,707			$	68,459				226	%

     The following table shows our net valuation allowances booked since we began accounting for our investment in finance receivables under the guidance of SOP 03-3.

($ in thousands)
Allowance		Purchase Period
Period(1)		1996–2000				2001				2002				2003				2004				2005				2006				2007				2008				YTD 2009				Total
Q1 05		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Q2 05			—				—				—				—				—				—				—				—				—				—			$	—
Q3 05			—				—				—				—				—				—				—				—				—				—			$	—
Q4 05			—				200				—				—				—				—				—				—				—				—			$	200
Q1 06			—				—				—				—				—				175				—				—				—				—			$	175
Q2 06			—				75				—				—				—				125				—				—				—				—			$	200
Q3 06			—				200				—				—				—				75				—				—				—				—			$	275
Q4 06			—				—				—				—				—				450				—				—				—				—			$	450
Q1 07			—				(245	)			—				—				—				610				—				—				—				—			$	365
Q2 07			—				70				—				20				—				—				—				—				—				—			$	90
Q3 07			—				50				—				150				320				660				—				—				—				—			$	1,180
Q4 07			—				—				—				190				150				615				340				—				—				—			$	1,295
Q1 08			—				—				—				120				650				910				1,105				—				—				—			$	2,785
Q2 08			—				(140	)			—				400				720				—				2,330				650				—				—			$	3,960
Q3 08			—				(30	)			—				(60	)			60				325				1,135				2,350				—				—			$	3,780
Q4 08			—				(75	)			—				(325	)			(140	)			1,805				2,600				4,380				620				—			$	8,865
Q1 09			—				(105	)			—				(120	)			35				1,150				910				2,300				2,050				—			$	6,220
Total		$	—			$	—			$	—			$	375			$	1,795			$	6,900			$	8,420			$	9,680			$	2,670			$	—			$	29,840