PRA Group Inc (PRAA) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the fourth quarter 2008 Portfolio Recovery Associates Incorporated earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session toward the end of the presentation. I would now like to turn the presentation over to Mr. Jim Fike, VP of Finance. Please proceed, sir.

Good afternoon, and thank you for joining the Portfolio Recovery Associates fourth quarter and full year 2008 earnings call. Speaking to you today will be Steve Fredrickson, our Chairman, President and CEO, Kevin Stevenson, our Chief Financial and Administrative Officer, and Neal Stern, our Chief Operating Officer of Owned Portfolios. We will begin with prepared comments, then follow up with a question-and-answer period. Afterwards, Steve will wrap up the call with some final thoughts.

Before we begin, I would like everyone to please take note of our Safe Harbor language. Statements on this call which are not historical including Portfolio Recovery Associates or management's intentions, hopes, beliefs, expectations, representations, projections, plans, or predictions of the future including with respect to the future portfolio performance, opportunities, future space and staffing requirements, future productivity of collectors, expansion of the RDS, IGS and MUNI services businesses, and future contribution of RDS, IGS, and MUNI services business to earnings are forward-looking statements. These statements -- forward-looking statements are based upon management's beliefs, assumptions, and expectations of the Company's future operation and economic performance, taking into account currently available information. These are not statements of historical fact.

Forward-looking statements involve risks and uncertainties, some of which are are not currently known to us. Actual events or results may differ from those expressed or implied in any such forward-looking statements, as a result of various factors including the risks that are described from time to time in the Company's filing with the Securities and Exchange Commission, including but not limited to its annual reports all Form 10-K, its quarterly reports on From 10-Q, and its current reports on Form 8-K filed with the Securities and Exchange Commission and available through the Company's website which contain a more detailed discussion of the Company's business including risks and uncertainties that may affect future results.

Due to such uncertainties and risks, you are cautioned not to place undue reliance on any forward-looking statements which speak only as of the date hereof. The Company expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or to reflect any change in events, conditions or circumstances on which any such forward-looking statements are based in whole or in part. Now here's Steve Fredrickson, our Chief Executive Officer.

Thanks, Jim. And thank you all for attending Portfolio Recovery Associates fourth quarter 2008 earnings call. On today's call, I'll begin by covering the Company's results broadly. Neal Stern will then talk to you in more detail about our operational strategies and finally, Kevin Stevenson will discuss financial results in detail. After our prepared comments, we will open up the call to Q&A. I would like to begin today by providing a little context as we examine our results. For PRA, 2008 was a year of building, diversification, and continuous improvement in our collection operation. In a period of great turmoil, concluding with the wall street meltdown and the economy slipping into a serious recession, Portfolio Recovery Associates held its ground and more. As you've no doubt seen in our press release, EPS was pretty much flat for the fourth quarter and full year.

However, revenue continued to grow nicely and cash collections were strong. While we're not pleased with our overall performance, it was accomplished as we made many substantial investments in the future of PRA. Let me detail some of them. First we made two corporate acquisitions during the course of the year, Muni Services and the Assets of [Desired] Partners. Both represent further diversification into the fee business. Importantly, this diversification helped mitigate some of the economic softness that impacted collections toward the end of the year. We also shuttered our anchor receivables management operations in 2008, allowing PRA to focus resources on more profitable areas. PRA invested a record $280 million in portfolio acquisitions during the year, positioning us for collections well into the next decade. We were also able to increase our bank credit line, despite the credit crunch giving us the ability to keep building for the future. And lastly, we strengthened our management team significantly during the year, beginning with Chief Operating Officer of Owned Portfolios, Neal Stern, and extending down to our collection floors. With this, have come improvements in the way we handle collections and the tools we use to do so. These investments may have impacted our short-term results, but they certainly created substantial long-term opportunity for PRA. It is with this outlook that we move into 2009 and beyond.

Now let's look at our results, keeping in mind three broad themes, cash collection, purchases of new portfolios of bad debt, and performance of our fee businesses. PRA's flat fourth quarter bottom line performance was due in part to two factors. First, our Q4 allowance chart totaled $8.9 million, an amount nearly twice our largest prior charge. Second, a number of the third party collection law firms we use in our legal collection channel turned in disappointing results, an issue we discussed with you on our third quarter call and one that we have been working hard to address. These factors were mitigated by solid gains in our call center and internal legal collections, dramatically increased collections from purchased bankrupt accounts, and an extremely strong showing from our fee for services business.

In summary, PRA acquired $61.5 million of defaulted debt during the fourth quarter, bringing our full year total to a record $280.3 million. During the quarter, we had near record cash receipts of $98.1 million, up 30% from $75.7 million in the same period a year ago; in addition to cash collections of $79.2 million up 22% from $65.1 million in Q4 2007. We produced record fee revenue of $18.9 million in the fourth quarter, representing 79% year over year growth. The year ago results included the operations of our now included receivables, management but did not include either Muni Services or the Desired Partners contracts. Of particular interest, revenue from our fee business in Q4 2008 was about 20% greater than revenue for entire business in Q4 2002, our first reporting quarter as a public company. Net operating income or EBIT from the subsidiaries in Q4 2008 was within 10% of EBIT for the entire Company in Q4 2002. Although Q4 tends to be the seasonally strongest for government services activities, this type of strong performance speaks to the effectiveness of our strategy of investing in and building these companies over the past five years. Overall, PRA saw a 17% increase in revenue to $67 million in Q4 despite the $8.9 million allowance charge.

As I mentioned, EPS was roughly flat with year ago quarter coming in at $0.69 versus $0.70 a year ago. Net income of $10.6 million was down 1% from $10.7 million. In terms of year over year comparisons, we did book net interest expense of $2.9 million which was up about 39% from $2.1 million in the 2007 quarter. Operating expense to cash receipts stayed fairly steady from the prior quarter at 47.6% and was down from 50% in the same period last year. We realized productivity of $131.29 per hour paid for the full year 2008 which compares with $135.77 for full year 2007. This includes a reduction of 18 net collectors to our Company-wide owned portfolio call center staff from Q3 2008. During 2008, we added 191 employees or about 18% to our owned portfolio collector workforce. Lastly, in terms of our balance sheet, we maintained steady debt outstanding resulting in modest financial leverage as been our stated goal. Our debt to equity ratio at quarter end, stood at 95% down slightly from Q3 while we maintained almost $100 million of availability under our lines of credit, virtually unchanged from the prior quarter.

Now let's discuss our operations in detail, beginning with our fourth quarter portfolio purchases and overall market conditions. During the quarter, we acquired 77 portfolios from 20 different sellers. The majority, about 92% of our fourth quarter purchase volume in terms of dollars invested, was a combination of Visa MasterCard and private label credit card asset classes. The remainder came from pools of auto, medical, utility and installment loan accounts. The majority of the bankrupt accounts acquired during the quarter are included in the Visa MasterCard and auto categories. Bankrupt accounts accounted for about 50% of our purchase volume in terms of dollars invested. Our bankruptcy purchases in Q4 included a significant portion that were aged from their initial bankruptcy filing and as a result, are already generating significant cash flows. These financial characteristics should create a relatively low ERC to purchase price ratio for these types of accounts.

However, taken together with low collection cost and financial leverage, we look for attractive returns nonetheless. In terms of our overall portfolio strategy, our intent is to continue to opportunistically pursue charged off debt in what we view as attractive, albeit risky, market as a result of the extremely soft economy. As I mentioned, we have significant cash flow and available financing to accomplish our goal of being an opportunistic buyer. The strength of our cash flow is illustrated this quarter by our $61.5 million of purchases with only $1 million net draws on our line of credit to finance them. Further underscoring this point, during the full year we bought $280 million in portfolios of stress debt, paid $22.5 million in cash services from Muni Services and the contracts of Desired Partners, and made $6 million in capital expenditures. We did this while drawing just $100 million on our line of credit, financing the remainder with internally generated cash flow. Portfolio pricing continued to decline during the quarter; a trend we see moving into Q1. Certainly at least a part of the decrease in price is due to a decline in near term collection activity seen for many pools. Given historically very active Q4 sales, we saw generally modest levels of portfolio sales and continued to witness very little activity in the resale market. In order to account for the weak economic environment, we have lowered our collection expectations for new purchases.

In addition to more conservative modeling, as we have for the past several years now, we continue to book new purchases with cash collection expectations that are further discounted from our already discounted buying models. Now let's move on to collection. As I mentioned earlier on the owned portfolio collection front, Portfolio Recovery Associates collected $79.2 million in the fourth quarter, up 22% from $65.1 million a year earlier. Offering a bit more granularity, call center and other collection were $41.3 million, up 16% from the same quarter last year. Cash collections from our purchased bankrupt accounts were a record $16.9 million, up 133% from Q4 2007.

As I discussed on our Q3 call, our internal lead collection strategy, wherein we use our staff attorneys or in select cases use third party attorneys working on a fixed price basis, has been in place for several years ow but growing at a pace that has led us to break those collection dollars out from our call center collection figures. Our internal legal collections were a record $2.7 million in Q4 2008, up 84% from the same quarter last year. We expect that momentum to continue as we find markets where we can leverage our call centers, in combination with attorneys employed by PRA to improve cash collections and reduce overall legal collection expenses. External legal collections were 23% of total cash collections in Q4 2008 at $18.4 million. This compares with 32% in Q4 2007 which was $20.9 million, representing a 12% year over year decline. Excluding bankruptcy collections, legal was 30% of collections in Q4 2008 versus 36% in Q4 2007. We view at least some portion of the 600 basis point decline from last year as potential loss recoveries due to less than optimal levels of court cost investment on referred legal accounts. We continued making historically high levels of investment in legal costs in Q4, spending $4.7 million compared with $4.8 million in Q3 and $2.9 million in Q4 2007.

Importantly, we will not use the economic downturn or short-term financial results as an excuse to cut intelligent, needed investment in our pools. We are managing our business for the long term and will not compromise future liquidation results. As a reminder, we expense all of our legal costs occurred. While we anticipate these investments and lawsuits will eventually lead to increased legal recoveries, our results are lagging expectations somewhat. Overall, as you know, we track productivity in terms of recoveries per hour made; the core metric that measures the average amount of cash each collector brings in. As I said earlier, this metric finished $131.29 for all of 2008, compared with $135.77 for full year 2007. Excluding the effect of trustee administered purchased bankruptcy collection, PRA's productivity for 2008 was $111.17 versus $123.10 for the full year 2007. When excluding legal and trustee administered purchased bankruptcy collections, productivity for 2008 was $76.83 per hour paid versus $79.26 for all of 2007. Across most of our domestic call centers in Q4, site specific productivity per hour paid was down as we worked against the weaker economy and normal seasonal weakness.

As a reminder, the site specific productivity figure looks only at hourly paid productivity by collection reps. It excludes not only legal and bankruptcy collections, but also any noncollector assigned in bound generate collections or collections coming from external activities such as collection agencies. Using this metric we saw a consecutive quarterly productivity increase of 21% during the fourth quarter in our Birmingham, Alabama center; its second full quarter since converting from an anchor receivables management site. We saw consecutive declines of 19% in Jackson, Tennessee, 9% in Hampton, 5% in Kansas and 10% in Norfolk. Tennessee had a substantial 22% increase in hours paid during the quarter which undoubtedly played a role in decreased hourly productivity, as the two metrics generally move in opposition to each other. Hampton, Norfolk and Birmingham had roughly flat hours paid when compared with Q3 2008, while Kansas had an increase of 5%. On an absolute basis, Kansas remains our top call center.

During the quarter, Jackson fell back to about 68% of the Kansas standard with its dramatic increase in staffing and hours paid while Norfolk and Hampton finished about 82.5% of the Kansas standard. Productivity, in the Philippines office remained disappointing, but did improve to 27% of the Kansas standard from about 20% in the prior quarter. Of course this came as we cut back FTE and hours paid fairly dramatically. Slightly less than 5% of all paid hours came from our Philippines office with an ending employment there of about 47, down from 69 in Q3. We continue to shuttle experienced managers to this office to assist in its development, but thus far, our results are not reflecting the kind of performance we need, even on a cost adjusted basis. Although we're not ready to terminate our experiment there yet, we need to substantially improve productivity to justify its continuation. Company-wide at quarter's end, our owned portfolio collector headcount was 1,249, down slightly from 1,267 at the end of September, but still up about 18% from the end of 2007. As it relates to staffing, please remember that a significant amount of our recent buying has been related to pools of bankrupt accounts which require relatively low levels of staff to handle. Please also note that our bankruptcy staff is not included in the collector headcount numbers I just shared with you.

Now let's turn to PRA's fee for service businesses in the collateral location skip tracing and government services arenas. Both our government services and skip tracing asset location businesses performed well in Q4, generating solid revenue and operating income. These fee for service businesses saw revenue increase 79% from the same period a year earlier to $18.9 million. This growth rate, when compared to the same period one year ago, was negatively impacted by our decision to discontinue the anchor receivables management business, but was positively impacted by the addition of the Muni Services business and contributions from the Desired Contracts. The integration of our various government services entities progressed nicely in the quarter. Both fee businesses provide an exciting added growth engine for PRA beyond both our core chargeoff and bankruptcy debt purchase businesses. We feel both are well positioned for growth in 2009, especially given the weak economy.

Before I turn the call over Kevin Stevenson, PRA's Chief Financial and Administrative Officer, I'd like to have Neal Stern, our Chief Operation Officer of the Owned Portfolios business, give you a summary of our operational strategies. Neal.

Thanks Steve. Operationally, we continue to focus on efficiency and effectiveness, and driving increased cashing collections during the fourth quarter as we have all year. Efficiency in the quarter was positively impacted by the addition of even more automated dialer capacity. And that capacity was put to more effective use by leveraging our ability to dynamically rescore our entire portfolio on a daily basis. We believe our incremental calling efforts and account segmentation helped to mitigate some of the impact of the difficult economy. By way of example, the total number of agent phone calls made in the quarter exceeded the prior year by just over 64%. And because we were more heavily weighted toward the dialer, we accomplished this with just an 18% larger staff.

Some of that additional calling was targeted toward accounts that demonstrated an upward trend in our rescoring. These accounts otherwise might not have received much attention. Looking at the dollars collected from phone calls on accounts we have owned for more than five years, we saw a year over year increase of 80% or $600,000 in December alone. We will look -- we will continue to look for opportunities to refine our dynamic scoring process on regular basis, as I believe this offers a way for us to respond very quickly to changing consumer payment behaviors. As Steve mentioned, the results from our legal portfolio in Q4 were again disappointing. While some portion of this certainly pertains to the difficult economy, a fair amount of the performance flip continues to stem from the prior under investment in court costs that we sought to correct over the last six months.

While these investments have now been made, it appears the lag between the expense and return has increased and the short-term yield has deteriorated somewhat in the current environment. Legal collections on accounts that have not yet been allocated costs and await our securing judgment deteriorated at a greater rate. Vendor performance issues have been addressed by ending a good number of these relationships in favor of a more aggressive ramp up of our internal legal collections process, as Steve mentioned earlier, grew significantly over the prior year. While vendor performance played a significant role in our legal portfolio's performance, another factor was our strategy shift in the third quarter to more selectively choose the timing and attributes of accounts to be placed in this collection channel.

In short, more highly collectible accounts that previously had been moved quickly into the legal channel, are now being worked in call center environment for a longer period in an attempt to harvest cash flow at a lower cost. We are closely watching the ongoing results of this strategy change. I feel strongly that as we enter Q1 which typically exhibits seasonal strength, we are better prepared than ever to take advantage of the season, even in the face of this difficult economy.

Finally, I want to let you know about a major initiative we have for 2009. As Steve relayed to you, we track relative productivity of all of our call centers each month. I don't need to tell you that to the extent any center underperforms our top center, theoretically, we're missing out on cash collections. Furthermore, since this theoretical delta is attributed to productivity, the majority of the potential cash collections have little increment at costs associated with them. As a result, moving all of our call centers closer to the top performing center is important. To put a dollar figure to it, if all centers had performed at the level of our best center during each month in 2008, we would theoretically have collected an additional $28 million with only additional incentive pay as a cost. Additionally, collecting a theoretical $28 million in incremental cash would certainly have had a favorable impact on allowance charges. We have made changes to our management team, conducted several best practice examinations, and instituted additional incentives in an effort to drive this closure of our productivity gap.

I'll continue to update you on our progress as the year unfolds. With that, I'll turn the call over to Kevin Stevenson, PRAs Chief Financial and Administrative Officer. Kevin?

Thank you, Neal. Like Q3, our fourth quarter 2008 financial performance shows both positive the benefits of our diversification into fee businesses, as well as negative from our allowance charges. Despite otherwise solid performance, especially considering the current economic climate, allowance charges moved our net income down substantially from where it would have been otherwise, keeping our EPS and net income essentially frat to the comparable period in 2007. Specifically, net income in the quarter fell less than 1% to $10.6 million while EPS was $0.69 versus $0.70 in the year ago period. Total revenue for the quarter was $67 million which represents growth of 16.8% from the same period a year ago. Operating income was $20.3 million, up about 4% in the year over year period, while net interest expense grew from $2.1 million one year ago to $2.9 million in Q4. This is down sequentially from $3 million in Q3 2008. Return on equity was 17.3% for 2008.

While many might be pleased with a figure like this in the current environment, we are not. We remain very focused on increasing that number back towards our historical 20%. Our weighted average interest cost for the acquisition line during the quarter was 4.18%, down from 4.57% in Q3. At quarter end borrowing levels, each 100 basis point swing in LIBOR either costs or saves us about $181,000 monthly. Breaking our fourth quarter revenue down into three components, the majority of total revenue of $48.1 million came from income recognized on finance receivables. This is revenue generated by owned debt portfolios. Income on finance receivables is derived from the $79.2 million in cash collections recorded during the quarter, reduced by amortization rate including an $8.9 million allowance charge of 39.3%. This amortization rate compares with 36.5% in Q3 2008, 28.2% in Q4 2007, and our full year 2007 rate of 29.6%. Our stated amortization rate for the full year of 2008 is 36.8%. During the quarter, PRA recorded allowance charges totaling $8.87 million which compares to $3.78 million in Q3 and $1.3 million in Q4 2007. Life to date reserves since the change to SOPO-3-3 now stand at $23.6 million.

As in the past, I would like to take a few minutes to walk you through these charges. However this quarter, I'm going to provide more granularity than I have in the past so please pull out pencils and paper and get ready to take some notes. First, if you look at portfolio purchases in terms of yearly aggregated groups, that is all portfolios purchased in any single calendar year, we have exceeded our initially booked cash collections estimate life to date in every one of those yearly tranches. However, aggregated yearly buying is not how SOPO-3-3 allowances income and allowance charges are computed. Income and allowance charges are computed using quarterly aggregating groups of similar paper types. Within those specific groupings, we have had both pluses and minuses. The pluses either add to yield on a prospective basis or over amortize the pool. While the minuses tend to generate allowance charges. I feel though there's a general misunderstanding of this concept so I wanted to bring it up here.

With that as a backdrop, let's review the specific allowances. First looking at pools dating from 2004 on back, last quarter I reminded you in Q2 2008 these pools were responsible for approximately $965,000 of that quarter's $4 million total allowance. During Q3 2008, we finished with net reversal of approximately $145,000. Now in Q4 2008, we end with net reversal of approximately $650,000 from these pools. This is caused by combination of stronger than expected cash flows, coming from these deals along with some fairly cautious cash collection outlook set in earlier periods. Life to date, we have taken approximately $1.1 million in net reserves against normal yielding deals dating 2004 and prior. The point I want to leave you with is that when we see underperformance, we take the necessary allowance charge and move on.

If future actual collections improve, we can reverse the allowance charge which is exactly what happened in this case. With regards to purchased bankruptcy portfolios, we incurred approximately $750,000 of allowance charges during Q4. This compares favorably to the allowance charges taken in Q1 2008 of $995,000, but is higher than the $465,000 taken in Q2 and the $145,000 taken in Q3. Interestingly, all of these reserves this quarter were related to bankruptcy deals purchased in 2006 Q1 and prior. This is consistent with life to date bankruptcy reserves. We have taken a total of $3.1 million in allowances cumulatively, relating to all bankruptcy deals representing more than $258 million in purchase price acquired by PRA. All of these allowance charges have been attributable to deals purchased in 2006 Q1 and prior. Additionally, had we kept the original booked yields in place and not moved them up commensurate with early period overperformance, we would have experienced no allowance charges life to date on bankruptcy portfolios.

As a result as it relates to overperforming pools, we are now generally not adjusting yields upward on bankruptcy deals and are simply allowing them to amortize with original booked yields and deal purchase price multiples. We are watching the performance of this policy closely. Next I would like to address the 2005 normal core portfolios. Specifically, I mentioned on previous calls that I would keep you apprised regarding the allowances on Q1 2005 pools. We have not experienced any additional allowance charges since Q1 2008. This quarter, we did experience additional $90,000 in allowance charges relating to the 2005 Q3 pool, but no charges on the 2005 Q2 pool. Lastly, the 2005 Q4 pool incurred its first ever allowance charge in the amount of $1.4 million. This was attributable primarily to a November and December collection result that was less than expected, but was also impacted by some dampening of future collection expectations due to recent trends in the current economic conditions we face. This deal currently bears a yield that is more than 1.5 times what it was when it was booked. As in prior quarters, I would like to now like to turn our attention to more recent core portfolios; 2006 and current to current.

In order to provide more granularity as I mentioned at the onset of this allowance discussion, I will step through each quarterly portfolio . Again remember these are core deals, not bankruptcy, medical or cost recovery. 2006 Q1 has no reserves life to date. 2006 Q2 experienced no new reserves this quarter. This pool had experienced reserves for the past two quarters, ranging from a low of $190,000 to a peak at $950,000 in Q2 2008. Total reserves against this pool now stand at $1.97 million. 2006 Q3 experienced $600,000 in reserves. This pool has experienced reserves the past few quarters of a similar amount. 2006 Q4 experienced $1.6 million in reserves this quarter. This deal has experienced two other allowance charges in the past, $500,000 in Q2 and $90,000 in Q3. During Q4, cash collections were short of expectations by approximately $800,000.

This coupled with additional steps to lower future expectations yielded the $1.6 million allowance charge. This is a good example of how a current period shortfall can lead to an allowance charge that is multiple of that shortfall as future expectations are lined up with observed trends. 2007 Q1 experienced $1.2 million in allowance charges, down from $1.6 million in Q3. Much like the 2006 Q4 portfolio, 2007 Q1 collected approximately $800,000 less than expected in Q4 2008. Also like the 2006 Q4 portfolio, we took additional steps to lower future expectations which together yielded this $1.2 million allowance. 2007 Q2 experienced $2.1 million in allowance charges, up from $750,000 in Q3. Much like the two aforementioned pools, 2007 Q2 was short of expectations by approximately $1 million. That coupled with the added buffering of future expectations drove this $2.1 million in allowance charges. 2007 Q3 incurred an allowance charge for the first time in the amount of $1 million. Cash for the quarter was approximately $700,000 less than expected and the $1 million charge result of shortfall, coupled with some buffering of future collection expectations. 2007 Q4 has no reserves life to date. 2008 Q1, Q3 and Q4 have no reserves life to date. 2008 Q2 did however experience approximately $600,000 in allowance charges which is essentially reflected in the cash shortfall in Q4. This portfolio in particular is one we feel has been negatively impacted by our change in legal strategy which I will discuss in more detail in a moment.

As I remarked repeatedly I think it's realistic to assume that some percentage of any debt buyers amortization will always be allowance charges. SOPO-3 simply creates an environment that supports this. Further given the relatively tougher collection environment facing any economic downturn, we feel it's imperative to take a large allowance expense when we see weakness. One other remark as it relates to allowances involves legal collection process, mentioned by both Steve and Neal. Let me try to tie both their remarks together with a perspective on allowances, as well as the ultimate impact on revenue and expenses. As previously discussed, our legal collections have been shrinking as a proportion of nonbankruptcy collections, in our view primarily as a result of underinvestment and secondarily, as a result of sub optimal selection. Although both issues have now been addressed operationally, we need to work through the effects for the next several quarters. From a cash collections perspective, we generally see limited recoveries from the legal process during the first year we own a portfolio. This builds significantly during the second year of ownership and remains a significant contribution throughout the remaining life of a typical pool of accounts, especially accounts purchased as fresh or primary recall. Under current --our current underperformance in the legal channel is having a negative impact, not just in terms of creating a cash shortfall, but is also exacerbating our issue with allowances as the 2005 to early 2007 pools enter what should be a sweet spot for legal recoveries. Thus all things being equal, we have lower cash collections and higher amortization or allowance charges.

In addition, as Neal mentioned, we are delaying the referral of recently acquired accounts into the legal channel until they can be worked in appropriate time on our call center floor. We feel this strategy will ultimately yield us increased net collection as we avoid paying unnecessary legal fees. However in the short term, we will suffer some level of lower cash collections as a result. During the fourth quarter, cash collected on fully amortized pools was $5.1 million, down slightly from $5.4 million in Q4 2007 and up sequentially from $4.8 million in Q3 2008. During the full year 2008, cash collected on fully amortized deals was $21.6 million. This compares to $24.8 million in the full year 2007. In referring to fully amortized pools -- on the purchase pools with no remaining basis on our balance sheet. Eliminating those pools from our amortization calculation gives us a core amortization rate for Q4 of 42%, up from the 30.7% we saw in the fourth quarter of 2007 and up sequentially from 38.7%. For the full year, core amortization was 39.4% versus 32.6% in 2007. This is the highest annual core amortization rate since 2001.

We continue to believe that the by product of SOPO-3-3, the quantity of zero basis cash collection should gradually decline over time, due primarily to the fact that under guidance of SOPO-3-3, we aggregate all similar paper types acquired in a quarter in order to calculate revenue. During Q4, a seasonally strong period for our government services group, commission and fees generated by fee for service businesses totaled a record $18.9 million. This compares with $10.6 million in the year ago quarter. Our fee based businesses now account for a record 28% of the Company's overall revenue. Our fee income was impacted this quarter when compared to the same period last year with the closing of anchor receivables management in Q2, as well as acquisition of Muni Services and the purchase of the assets of Desired Partners during Q3 2008. The purchase of Muni Services and the Desired assets purchase together increased our quarterly amortization expense related to acquired intangibles by about $381,000 to where it stood at $718,000 for Q4. This number is estimated at about $668,000 quarterly in 2009. The third component of total revenue, cash sales and finance receivables, was one again zero for the quarter, as it has been in every quarter since our IPO in late 2002.

On the operating expense side, we saw slight decline as compared to Q3. This was primarily driven by legal fees falling almost 20%, as legal recoveries fell by a similar proportion. Operating margins during Q4 were 30.3%, compared with 31.3% in Q3 and 33.9% in Q4 2007. For the full year, operating margin was 32.2%. This compares with full year 2007 operating margin of 36.8%. Without the margin dilution caused by the fee businesses, the operating margin would have been about 105 basis points higher at 31.4% in Q4. Without the amortization of intangibles, operating margin would have been 31.4% in Q4 2008 versus 34.6% in Q4 2007, 33% for all of 2008 versus 37.6% for all of 2007. Operating expense to cash receipts, as I mentioned before ,is perhaps a more insightful efficiency ratio since it removes the effect of variations in purchase price amortization rates. Operating expenses as a function of cash receipts during Q4 2008 were 47.6%. This compares favorably with 50% in Q4 2007 and 47.7% in Q3 2008.

Again, it was driven by the fame factors previously mentioned in my discussion of operating margins including business mix, legal investments and amortization costs. Our balance sheet remains strong in the quarter, despite significant purchases of new finance receivable portfolios in the amount of $61.5 million. As of quarter end, the outstanding balance on our line of credit was $268.3 million, up just $1 million during the quarter. Our total credit facility line amount is $365 million, leaving us with $96.7 million of availability. Cash balances decline sequentially during the quarter so $13.9 million. Rounding out the balance sheet, we had $563.8 million in finance receivables, $35.5 million in property equipment other assets, $27.5 million in goodwill, $3.6 million in income tax receivables and $13.4 million in intangible assets. All relating to our business acquisitions. We have about $268.3 million of short and long-term debt and obligations under capital leases. Total liabilities, both long and short-term of $374 million. In December 31st 2008, shareholders' equity totaled $283.9 million. While our leverage has increased dramatically from zero two years ago, on a relative basis it remains low at less than one to one.

As Steve mentioned, we are producing strong internal cash flow and are well capitalized. , We see no reason to seek additional capital at this point in time. We are very focused on long-term growth of PRA. While we are interested in driving all key metrics that measure our progress, we will not substitute short-term goals for long-term goals. At the same time, I would also like to make it clear that a long-term view will not be used as excuse for poor short-term execution. We have been patiently building a well diversified portfolio of both charts off and bankrupt accounts acquired from a variety of sellers across many years and through a variety of recall levels. Our recent allowance charges have been a disappointment to be sure, but are part of a high priced environment especially when combined with the dramatic economic downturn such as we now face.

Finally, let me conclude with the brief commentary on our bankruptcy business and the pending changes in bankruptcy law. First of all, our bankruptcy portfolio is diverse and has been built on careful underwriting and conservative assumptions over a number of years. Our deals are booked conservatively to be able to withstand some level of negative impact on underwriting expectations without the need to take allowance charges. As mentioned previously, we are generally not increasing yields or deal purchase price multiples on bankruptcy deals. We have no special insight as to the details of any new bankruptcy legislation that may pass. It appears to us the number one issue Congress wishes to address is the alteration of rules as it relates to cram downs of mortgage debt. What if any impact on our bankruptcy pools will likely come about from such specific rules that are finally agreed to relating how cram downs are allowed, how deficiency claims are created as a result and how those deficiency claims are handled, vis-a-vis the other unsecured creditors in any plan is unknown at this time. As any potential legislation works its way through the process we will work diligently to stay apprised of any changes and will update the investment community on our next call as we gain added clarity.

With that, I've completed my prepared comments. I would like to open it up to Q&A. Steve, Neal and I will be available so

(Operator Instructions). The first question comes from the line of Bob Napoli. Please proceed.

Thank you. Good afternoon. Question on -- it's very difficult to track the -- as you talk about the different pools. Remind me, how many different pools will you generally have in a quarter for accounting purposes?

How many pools -- aggregated pools in a quarter?

Yes.

All right. Any given quarter, you normally have, as I was saying, a normal core portfolio. You have a bankruptcy portfolio. Medical we group separately. And if you ever had a cost recovery pool -- that's a little more rare however.

Essentially, we're talking about two main pools each quarter -- a core pool and a bankruptcy pool.

That's correct. Right.

When you're taking an impairment in, say, second quarter of '08, that was in the core pool? Or is that in the bankruptcy pool?

Second quarter '08. I'm sorry. Yes. Second quarter of '08, that was core.

Okay. Now if you look at -- now when you go back to 2006 and these prior years where you have been taking impairments, what you're saying is that if you take the periods combined -- if you take all the pools for those years versus your base business plan, you are outperforming expectations, but -- we're going to see the pluses come in over the long term and the minuses are -- ?

Right

Is that essentially -- am I -- ?

That's exactly right. Even the minuses maybe -- again if our assumptions prove too conservative today, you will see releases of the minuses -- well the deals that are currently minuses. But that's the right -- you grasped the concept. Correct.

Now, when you're looking at the fourth quarter of 2008 and cash collections just generally, the world really seemed to change on September 15th, but it was not easy before that. I've seen some things out of companies and consumers that I haven't seen in the past. What have you seen on your collection performance in the fourth quarter? Obviously, you took $9 million of impairment so it was softer than you expected. Although your cash collections came in slightly better than what we had modeled. Have you seen and do you continue to see a change in behavior?

It's a subject we could talk about for a long time. Let me just give you some highlights. October was actually I believe, the third best month that we had all year from a cash collection standpoint. And then we dropped off in November, although November was a short work month for us. And then we dropped off further in December, before rebounding in January. We definitely felt as though the consumer was -- if not as a result of being hit in the pocketbook, was certainly hunkered down from all of the press that was out and really all of the negative gloom and doom stories together with what was going on in the stock market. We did see our average pure payment size come down a little bit in Q4. Throughout most of 2008, we've been running pretty steady in $115 range, plus or minus. During the fourth quarter, we dropped to $111, then $109, then $106. Again, those are what we refer to as our average pure payment.

The other thing that has continued to occur and we have talked about it in the past is our customers are migrating from historically higher percentages of settlement in full and balance in full to more payers. The number of people that pay us every month has actually gone up dramatically. If we just look at December over the last three years, December '06 we had 87,000 what we call pure paying accounts. We had 112,000 in December of '07. And we had 166,000 in December of '08. We feel as though we're making very good progress in getting our customers to liquidate accounts. It's just that more of them have to be on payment plans, as opposed to writing larger checks, tapping into home equity, things like that.

Okay. The first quarter is historically -- I think probably has been the most important quarter it seems. Obviously, collections have historically increased dramatically in the first quarter, seasonally, and that seems to set the base for the year. I know it doesn't work like that exactly. But as you look through -- we would expect your first quarter -- fourth quarter, first quarter trend is going to reflect the economy. But nevertheless, we would still expect a pretty significant ramp up, maybe not to the same extent as the past. We're halfway through the first quarter and I know that March is an important month. But can you comment at all the trends you're seeing? If you're seeing the seasonality or are you seeing much weaker trends from the fourth quarter to the first quarter this year than prior years? Maybe give a little bit of color on that.

We're seeing an upward trend as would be expected with the normal seasonality. I think we also feel though -- and based on those statistics I gave you on payments and payment mix -- the consumer is definitely being affected by what's going on in the economy. I suspect there will be some dampening there. One message that we really tried to send in the script and I'll just repeat it here is although we feel like we have been negatively impacted by the economy, we have been pushing back very, very hard.

We have been making more phone calls. We feel like we have dramatically improved our ability to segment our portfolio and go after accounts that are more likely to pay. We have been pushing back to a huge degree. And I would say in Q1 of 2009, we're in better shape to continue that pushing back than we ever have been. The question is where it all falls versus our increased efforts in productivity and obviously, some negative impact from the economy. I can just tell you thus far, we're seeing the normal or much of the normal quarterly impact that we would begin to see in Q1.

Great. Just last question on the fee base businesses. I was wondering if you could give an organic growth rate for the business and where you see the most strength. Is it in the skip trace business or in the tax businesses?

Actually, we had nice growth out of both. We are trying to combine the operations of the two government businesses as much as we can. And so even in this last quarter, we started to muddy the performance measurement capabilities between Muni and RDS to some degree. But we saw growth across the fee businesses.

Okay. Thank you.

And the next question comes from the line of Mark Hughes. Please proceed.

Thank you very much. You had alluded I think to seasonally stronger performance for the government services group in the fourth quarter. How meaningful is that seasonality? How should we think about Q1 and the commission business?

We tend to get some business -- license renewal business coming through in that fourth quarter. And it is more weighted to the RDS business than the Muni services business. And the RDS is is the smaller of those two government businesses. It;s certainly material, but it's not certainly the majority of what we saw. I would hope that although quarter to quarter, we may have some challenges based on that strong growth -- since both fee businesses are continuing their upward trajectory over time that we're getting as close to that number as possible in Q1.

Okay. Thank you. Then the BK business -- seems like that was pretty good. Is there -- am I right to assume that's doing better, relative to your expectations than the call center or the legal collection? And if so, why?

I don't know that we can give you an exact answer on that one. I don't want to pull something out of the air. I would say that obviously, based on the allowance charges, those accounts are doing better. You will remember though that even though we have been doing it for a number of years now, the bankruptcy business is a newer one for us. We have tended to underwrite in both those deals quite conservatively. I think that that has some of the impact on the observed performance versus expectations as well.

Thank you.

And the next question comes from the line of Hugh Miller. Please proceed.

Hi there. One quick question I had was I'm assuming in the fourth quarter, you guys didn't have any compensation accrual reversal that helped out with the comp line. Is that correct?

No, we did have one. I can't think -- was it five? In total? That included the 123 R? Right? $800,000 in total. Two components of that. We did reverse off piece of the [OELTI] program and about $500,000. Then it's about $300,000 of adjustment for FAS 123 R.

Okay. Can you talk about the purchasing in the quarter? Obviously, the fourth quarter, the supply tends to increase and I would think it was even more in this case given the economy. But one might have anticipated that you guys would have been maybe a little bit more aggressive in the fourth quarter with your purchasing activity. Was it possibly just moderated by and in anticipation that pricing will continue to improve in the coming months? And that you guys are just being a little bit more patient? What's the thought process there?

I'd say, that's exactly it. It was a very interesting quarter. We -- from everything that we see in terms of delinquency and chargeoff statistics, it would certainly look as though 2009 will continue to be a year of pretty decent supply. We were trying to be very careful in Q4, not to set the market . And in doing so, probably lost more than our fair share. Although given pricing trends, we're fine

The deals you're seeing in the fourth quarter overall, did they seem to be much better than what you were seeing in the third quarter?

From a pricing standpoint?

Yes. And from the returns you anticipate, given the adjustments in your expectations for collections given the economy.

I would say that overall, perceived value -- so that's price relative to perceived collections was improved in Q4 from Q3.

Okay. And one last question was with regards to the FTE count number, I was wondering if you had that for the fourth quarter? I think the third quarter number was 1,041.

The FTE number -- do you have the FTE number, Jim? No, we don't have it with us. Sorry.

Okay. Thank you.

All right. Thanks.

The next question comes from the line of Sameer Gokhale. Please proceed.

Thank you. Kevin, can you just go over quickly -- I missed your comments on the $800,000 that you had in the quarter in OpEx I think as a benefit. Also, can you talk about the sequential trend in your comp and comp expenses compared to last quarter? Because it looks like they were maybe down slightly and then you saw the big revenue lift. If you can just talk about the two dynamics there, that would be helpful. Thank you.

The first two things were the two components of the reversals. Again, these are round numbers -- about $500,000 in the reversal of 2008 long-term incentive program. This would have been similar with the $1.4 million in Q3 that was reversed. The other piece was our annual true up under FAS 123 R that goes through every Q4 and that was $300,000.

We were also down slightly as we mentioned on our collector headcount. The fourth quarter had a -- less workdays than the third quarter. All of that did impact the quarter to quarter comp trend.

Okay. That's helpful. And then as far as your impairment charges, you give us quite a bit of color. But I want to make sure -- the impairment charges this quarter, were those primarily released to the fact that you had accounts that may have historically paid you a lump sum up front are now going on the payment plan. Is that what the impairment charges related to this quarter or was it general weakness in the consumer?

That's an excellent question and that's one we think about all the time. I believe that's the case. I believe that some of this impairment charge we're incurring is [resultant] of that. I believe some of the impairment charges we're booking today is resultant of the legal strategy that I described. But the thing -- as we observe it though like from a finance perspective, if the cash wasn't there in say November or December -- it wasn't there. I don't assume it will be here in June of next year. We take our lumps and move on.

As I try to go through these reserves, you can see that some of the cash short falls actually were doubled in terms of the allowance we took. We took a two -- twice as large of allowance as our cash shortfall was. We're trying to be thoughtful as we go through these pools. Something else we're doing this quarter, we're looking to give you guys a little bit more granularity in the 10-Qs and 10-Ks as well. We're looking to figure out a way to put some more yearly tranch allowance granularity out for you, so we will see how that goes.

Last question and this is something from modeling perspective I've struggled with. Also, it's the magnitude of the impairment charges -- I know you've talked about this in the past a lot. But as you sit here today and look out at where we're at in the quarter and you look at the unemployment rate going up, and some of these economic pressures, in some weaker performance, is it safe to say that well you had a larger impairment charge than normal in Q4, but you got the bulk of that now behind you. Going forward, you accounted for some of that economic weakness. Can you give a sense of how we should think about that again, given the state of the economy?

I can speak to pieces of that. Certainly again, I'll take you back to the whole -- we were $800,000 short in cash yet we booked a $1.6 million allowance. We're definitely building in buffer. We're definitely building in some adjustment to cash collections, certainly in the near term. That's driving some of these allowances you're seeing. It depends -- Q1 is going to be obviously a key quarter for us, as well as all of 2009. From our perspective, again, I can't say it enough, we really look at this -- what's the cash short fall. What's our trend. What the observed trends look like. We come up with a cash projection and book the allowance. It's been a pretty consistent process.

That's helpful color. Thank you very much.

And the next question comes from the line of Rick Shane. Please proceed.

Thanks for taking my questions. Just a couple. Most have been asked and answered. Last quarter, you made the comment about the 400 basis point decline in legal collections and attributed that -- basically define that as $3 million of missed legal cash. You thought that you would potentially recover that over time. What's the view now? Is that gone or is the expectation that you may in fact get that down the road still?

The answer to that -- not to break it down too far, but some of it we did get back. And that was -- it was masked a bit by further deterioration on accounts that we didn't invest in or have not yet invested in. Part of it, as I said, is that I think it will take longer because we have seen some weakness in the legal collection channel. And then there's just some general deterioration, given the economy. It's impossible for me to break out how much to attribute to each of those pieces. But the answer to your question would be, yes, we still expect to have a good ROI on the investment we have made in our legal process.

Okay. That's helpful. Next question, in going through the cash shortfalls for '07, then the one shortfall in the '08 pool, Q1 '07, $800,000 cash shortfall, $1.2 million allowance. Q2, $1 million cash shortfall, $2.1 million allowance. Q3, $700,000, $1 million allowance. Then Q2 '08, it sounds like it was a $600,000 cash shortfall on a $600,000 allowance. Is the difference there that on the '07 vintages you were effectively lowering the future expected cash collections and on the'08 it's more of a one-time issue? Is that the way to look at it?

Remember, before the accountant jumps in, I will just give you my two cents, remember that we're looking at three months of cash flows, and so if we see a month to month trend, we'll take that into consideration, whether it's deteriorating or improving. And so that piece of the pie, together with the specific shape of the curve that we're looking at and how severely it may be falling off as time goes on, will definitely impact that multiple that Kevin talked about of allowance relative to observed cash shortfall.

I'm not sure the accountant could say it any better than that. Unless you have any more questions, I think I'll go with that. But one thing I will add, you talk about the 2007 Q 1, that pool had already booked $1.6 million allowance in the prior quarter. So I think part of the older deals you can see certainly more -- you have more data points to observe in older deals.

Got it. Last question, and thank you for that I may follow up on that one off-line. Hang on one second, I apologize. Are there any covenants that we need to be aware of related to your debt facilities related to collections? One of your competitors recently disclosed that they were having a covenant issue, based on collection multiples. Is that anything we need to be thinking about here?

No. I will mention, I've gotten a couple calls on this, we do have an EBITDA coverage ratio, but the -- I just want to bring it up because I get asked the question a lot. It adds back portfolio amortization, so that's something that people -- maybe they don't read the fine print. Since I've had the question a number of times I thought I would bring it up on the call.

Got it, great, and then one last question, thank you for indulging me, follows up on what Sameer had been asking. When you are actually setting the collection multiples or reviewing the collection multiples at the end of the quarter, how much incremental data do you take in? For example, do you cut off the data based on what's available 12/31, or do you actually look at what's happening? It's now, to Bob Napoli's point, it's now February 12th, you have a lot more insight. You have seen your cash collections, we've also seen another 600,000 jobs lost. How much does that factor in, the post-12/31 information?

Typically when the quarter is over, the quarter is over. Again, as any good accountant would tell you, unless something dramatic and material occurred, some kind of subsequent event, but, no, generally for us when the quarter is over, it's over.

Okay. Thank you.

And the next question comes from the line of John Neff. Please proceed.

Hi, thank you. Kevin, could you give us just -- you gave great granularity, but could you give us the total gross allowance charge and the total reversal in the quarter?

May have to do some adding on that. Could you add those up? You can ask some more questions. We'll add it up.

Thanks. Were there any more additional advances to the external legal channel during the quarter, and what can we infer from some of the difficulties in that channel about the overall collections environment, if anything? In other words, you mentioned some subpar vendor performance. Is that symptomatic of broader problems, or do you think that's vendor specific?

The investment piece I think in Q4 was relatively similar to Q3, slightly smaller. We clearly have some vendor performance issues. Some did just fine, and some did not. Those that did not we were moving swiftly to bring that in-house where possible, and make other vendor arrangements where necessary. There are certain regions or parts of the country where some vendors seem to be experiencing more difficulty, and we're paying closer attention there, but we've -- I think there's a good amount to attribute to simple vendor underperformance. Also, if you are looking at it relative to the call center, our calling went up very dramatically, so that, as Steve said, we're pedaling quite a bit faster. I'm not sure that that same incremental effort took place at all of these law firms so that's borne out in their numbers. One more incentive for me to bring it in-house.

Right. Do you have a vision for how much -- what the ultimate external/internal legal collection split might look like a year from now?

No, we do when it we can and where it's smart. There's other markets we're investigating, that's for sure. I don't have any desire to move so rapidly that we take on more than we can handle. That would be a real disaster. And we have a number of vendors who perform really, really well, and I'm not looking to disrupt that. So, I don't know, we'll see.

Related to sort of the cram-down in bankruptcy reform, I don't know if Mike Petit is there but do you have any idea what percentage of your bankruptcy account, what percentage of those folks actually own a home?

Well, we've done some testing along those lines. Again, it's not a -- it's not an easy data point to get at, and we have done some in-depth testing on that, and it would appear as though our homeownership rates would be similar to what you would observe in the national population.

So roughly two-thirds?

That's right.

Okay, great. And then, Kevin, my quarterly question, total collectors and collector supervisors at the end of the quarter, the number in the third quarter was 1482, and I think there was some decline.

Right. Well, first things first. Your gross allowance charge number was $9.5 million, and then reversal of $650,000. The 1482 number was 1477.

Okay. Thank you for that. And, let's see, I just had -- I was wondering, Kevin, I think Bob had asked about this earlier. I just want to make sure if I understood, if you could clarify a comment, I thought you said that cash collections for every single year of portfolio purchasing had exceeded original expectations. Is that --

If you look at all buying, in a total, aggregated year, yes. All those aggregated yearly deals exceeded our original booked expectations.

Great. Thanks very much.

You are welcome.

And the next question comes from the line of Bill Carcache. Please proceed.

I have a question on leverage. It seems like you are keeping powder dry as you expect pricing to improve, but let's say in theory that you know we'll hit peak unemployment in the fourth quarter. Would that lead you to raise leverage? I guess I'm just trying to get a sense for the point where you would step on the gas in terms of ramping up purchases, and I guess the broader question is whether the most attractive pricing is coincident with peak unemployment or if there's lag.

Well, I think that, to answer your second question first, it's all going to be dependent upon seller strategy. Sellers can hold back or let go inventory based on a lot of different factors, and so we just have to take the inventory as it's offered and evaluate its relative value at the time that it's offered. As to increased leverage, between internal cash flow and the dry powder that we have, we feel as though we've got a lot of buying potential for 2009. If we are acquiring portfolios that are, behaving in such a manner, that's leading us to believe that the profitability of the pools that are available is so compelling, I think we would be foolish not to consider looking at different levels of leverage. But, that would be evaluated very, very carefully, because we -- we are concerned about going too far on the leverage side. It would be reviewed very carefully at the time we got close to that threshold.

Okay. A big picture question for you, Steve. Is there a role for the collection industry to play in some government programs designed to get bad loans off the books of so many banks? Someone from ACA was recently quoted assaying that probably for first time in the history of the industry that the needs of the Federal Government are actually aligned with the collection industry. Just curious to hear your thoughts on that idea and the potential implications, if any, for you.

Well, I think that the easier to see potential opportunity would probably be for the contingent fee side of the world than necessarily for someone like us. These programs are changing at such a great rate, and no one really seems, even after they're announced, to understand exactly what is going to go on, so at this point, I would say it's something interesting to think about, but who knows where reality is actually going to shake out.

Okay, thank you.

And the next question comes from the line of Edward Hemmelgarn. Please proceed.

Two questions. The first is on interest expense. That will be dropping significantly, won't it, in the first quarter?

If interest rates go down?

Given the fact, if I'm right, you're at LIBOR plus, or one month LIBOR plus 140 --

That's right.

So your rate drops by more than half, doesn't it?

If that LIBOR rate goes down, absolutely.

Okay. Then my second question is, would you expect to ever get to a point, that if the amount of non bankruptcy paper that was being offered would increase in attractiveness, given the fact that the longer term yields from that should be much better than bankruptcy, that you might really change your mix dramatically to be buying much more nonbankruptcy versus bankruptcy?

In any given year we'll jump around quite a bit from a product type standpoint based on where we see the most attractive buying potential, and that is an ongoing discussion that we have here, and as we see the relative observed profitability of any particular deal change we'll hopefully be smart enough to chase the more profitable paper.

In the last recession, the profitability of those portfolios your purchases during the recessionary and thereafter time period improved rather dramatically. How would you compare your, at least initial looks, of what's being offered right now versus, and the pricing relative to what it was back then or at least your initial thoughts as to what you were buying back then?

Well, on an absolute basis, there are certainly areas where the pricing is quite similar. That missing ingredient is perfect clarity as to what the next three or four years are going to hold for us and for the charge-off consumer. If we knew that, we'd be private, I guess, huh?

True. I guess the other -- if you think of a deleveraging process here, that as consumers start to pick up or increase their savings rate, and the availability, new borrowing seems to be getting worse, obviously, does that help or hurt you?

Well, our view is that, for the first time in a long time, it's actually -- it's actually a socially fashionable thing to pay down your debt, and that is certainly a new phenomenon in the US, at least in kind of recent memory. So we think that part of that is behind the build in the number of paying accounts that we've been getting. Again, the payments may not be of a similar size that we had, but we're getting a lot of them, and to the extent we can keep these people on payment plans, I think that that speaks well of our ability to do just fine liquidating these pulls over time.

You're talked in the past about how it's difficult keeping people on payments, obviously, is that like a big part of everybody's efforts now, just trying to keep people on payment plans that are on payment plans?

I can tell you, for a collector, making sure their payment plans don't break and that customer X that paid last month pays again this month, that's a big deal, and we're all over it.

Thanks a lot.

And our last question comes from the line of David Scharf. Please proceed.

Good afternoon. Believe it or not, still have a few here. Kevin, when you went through all the detail of the allowances by year, I may have missed this, but it looks like half of the quarterly charge was derived from 2007 pools. Have any of -- were any of those pools written up in the intervening months before these charges were taken?

Let's see if I've got that data.

It's not all that long ago.

No, but -- got a lot of pools. I don't have my old analysis with me. Do you happen to have that, what I sent you today?

Really what I'm trying to get a sense for, obviously '07 and '08 was a dramatic increase in volume purchases, and just trying to get a sense, looking back the last 24 months, if you've actually been writing up any of those.

Again, the concept is that the -- the question is did the deal multiple go up. I would say probably not. The overall deal multiple, I don't have that readily available right now. But the yield, to the extent that cash collections came in early, and it was strong, that would have let the yield float up, because again, the goal being, you said the cash collections, and then the yield kind of is computational. So it is quite likely at least there's a couple percentage points in there of those deals going up.

Obviously '08 is fairly static. Another question. I may have missed this, the the pull-back of productivity of Jackson. What was the commentary given surrounding that?

We increased hours worked there substantially, and we've got a strong inverse correlation between hours worked and productivity. So as you get a lot of new people, working a lot of additional hours, you get that fall- off, and we believe that that was really the explanation for a vast majority of what was observed. They had a 22% increase in hours maid during the quarter, and our experience is that is enough to cause a productivity decline of almost a like amount.

Got you. Since the net total collector amount isn't being moved around much, it sounds like the mix of your base is increasing towards the lower wage region probably.

Well, we -- remember, that's where we have empty seats. So as we add people, we tend to locate in the centers that we have some space, and we'll bounce around between attrition and staffing in the various centers on a quarter by quarter basis, and it just happened that although our net attrits caused our collector workforce to come down, we were doing a lot of hiring in Tennessee.

Two more quick ones. First relates to the fee-for-service businesses in aggregate is there much customer concentration on these? In the contingency world, which you're out of now, a number of third party collectors rely very often on a couple of large card issuers, but when you look at your fee for services in aggregate, is there any client concentration issues?

On the government side we are extremely diverse. On the skip trace, asset location business, we do have a few larger clients there.

Has there been any consolidation in recent quarters that has impacted those businesses?

No. In fact, to the contrary, I'd say we have more prospective business in both currently than we've had in some time.

Last question. With the relative lack of funding in your business, you tend to be the exception, and given how much pricing has come in, is there any pushback now from sellers, to the point where even though chargeoffs or delinquencies are still on an upward trajectory, are we getting to a level in pricing, just based on a lack of bidders and a lack of financing, where they're just throwing up their hands and saying, you know what? We've taken so many lumps, we might as well just give this to a contingency shop? Is there a possibility of supply actually drying up for the purchase industry this year?

I don't think that supply would dry up. I think that it would be one of those issues where pricing would have to come up to what the sellers view as more realistic levels, and the sellers, over the the longer term, or even the medium term, tend to be very realistic sellers, because they know what they're getting from their collection agency channels, and, if prices are coming down, but their liquidity in those collection agency channels is dropping as well, for the most part they're going to take their lumps and sell. We have been running into situations here and there where, people have come back to us and said, good news, you are high bidder. The bad news is we just can't swallow this purchase price. And we've seen a few of those.

Thanks very much.

David, I did find that natural sins my stack of papers here. I knew I had ran it. So looking at kind of the core deals for 2007, generally looks like it's very consistently the rates moved up about 2% on kind of each deal from where they were booked. Two percentage point yields.

2% on the noncore deals.

If you look at each quarterly deal, each one of them moved up about 2% from where they were originally booked.

Got you. Thank you.

Ladies and gentlemen, this concludes the question-and-answer session. I will now turn the conference over to Mr. Steve Fredrickson for closing remarks.

Thank you, operator. I do want to note we cleared the queue. First I would like to thank all of you for participating in our conference call. Before we go, I would like to reiterate some key points about our fourth quarter and full year. As I mentioned at the outset of the call, for PRA, 2008 was a year of building diversification and continuous improvement in our collections operations. Q4 was a period of strong cash collections, advantageous portfolio buying and strong performance by our fee businesses. During a period of great turmoil, concluding with the Wall Street meltdown and the economy slipping into a serious recession, Portfolio Recovery Associates held its ground and more. We made a number of investments in future growth, investing in people and entities such as MUNI Services, the assets of Broussard Partners, and of course, in portfolios, with a record $280 million in acquisitions in 2008. These investments have impacted our short-term results but they created substantial long term opportunity for PRA. It's with this outlook that we move into 2009 and beyond. Thanks for your time and attention. We look forward to speaking with you again next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a great day.