Good day, ladies and gentlemen, and welcome to the third quarter 2009 Portfolio Recovery Associates, Inc. earnings conference call. My name is Melalia [ph] and I will be your coordinator for today. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s Mr. Jim Fike, Vice President of Finance. Please proceed.

Good afternoon and thank you for joining Portfolio Recovery Associates third quarter 2009 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 and then follow up with a question-and-answer period. Afterwards, Steve will wrap up the call with some final thoughts. Before we begin I'd like everyone to please take note of our Safe Harbor language. Statements on this call which are not historical, including Portfolio Recovery Associates' or managements' intentions, hopes, beliefs, expectations, representations, projections, plans or predictions of the future, including with respect to the future portfolio's performance, opportunities, future revenue earnings growth, future space and staffing requirements, future productivity of collectors, expansion of the RDS, IGS and MuniServices businesses and future contribution of the RDS, IGS and MuniServices businesses to earnings are forward-looking statements. These forward-looking statements are based upon management's beliefs, assumptions and expectations of the company's future operations and economic performance taking into account currently available information. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which 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 risk factors and other risks that are described from time to time in the company's filings with the Securities and Exchange Commission, including but not limited to its annual reports on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K filed with the Securities and Exchange Commission and available through the company's Web site, 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 or undertaking 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 third quarter 2009 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 our financial results in detail. After our prepared comments we'll open up the call to Q&A. Economic conditions remain difficult as PRA began the second half of 2009. Yet, we continue to perform solidly excelling in the third quarter in area such as productivity, efficiency and team work that speak to a business design for success over the long run. Not only did we produce strong results operationally, but we continue to build for the future, further refining our best-in-class platform and taking advantage of our access to capital to acquire large amount of portfolios that we believe are well priced, even in a market where collections have grown more difficult. Overall, PRA is in a position to emerge from this economic downturn stronger and more efficient competitor. I can honestly say that I am as excited about our future today as I have been in years. Now, on to our third quarter numbers. Despite the weak economy, PRA acquired $76.7 million of defaulted debt during the quarter. The cash collections were a record $92.4 million, up 11.3% from $83 million in the year ago period. These help drive our near record cash receipts of $106.6 million in the quarter, up 7.8% from $98.8 million in the same period a year ago. Fee revenue was $14.2 million in the third quarter, a decline of 10.1% year-over-year. Operating expense to cash receipts continued its general trend downward. In the third quarter of 2009, the ratio stood at 46.7% compared with 47.7% in the third…

Thanks, Steve. PRA's operational strategies and results in this third quarter as in prior periods reflect our efforts to operate as effectively as possible amid the current macroeconomic and evolving legislative landscape. Two collections trend illustrate this particularly well. On recent calls I discussed the fact that our total number of payments has been growing dramatically. Now is again the case in the third quarter. In Q3, the total number of accounts makes a monthly payment to 689,000. 33% higher than in Q3 2008. Further, the total dollars our call centers received directly from refinancing companies fell to just over 1.5 of 15 of total collections in the third quarter, down from the still modest 2.5% a year ago. In total, our average call center payment size was down 12% over the prior year. In addition, we continue to see increase collection and accounts purchase more than five years ago. Excluding legal and bankruptcy collection our call centers in the third quarter collected over $4 million on these portfolios, a 61% increase over Q3 of 2008. Our ability to continue operating effectively given these two trends highlight the true value of our increased dialer capacity which in Q3 was 22% higher than last year. And our improved ability to this quarter commence. In addition, they demonstrate our ability to be a patient collector, because we do not resell accounts we can work with consumers as their financial circumstances evolve. In fact, the only burden imposed by a shift away from one-time settlements to a monthly payment are in increase need for efficiency and a revised view of our collection curves. In the end we believe that with these managed properly we stand to collect a larger percentage of the balances owed to us. Our ability to continue with more patient…

Thank you, Neal. Although on aggregate I was very pleased with our cash collection performance this quarter as it exceeded our accounting projections by a solid margin. Several legacy pools continued to underperform and caused us to post allowance charges totaling $8 million. These allowance charges were doubled the year ago period and caused us about $0.31 of EPS. As a result, in the third quarter, net income decreased 11.8% to $10.1 million while EPS came in at $0.65 compared with $0.75 in the year ago period. Total revenue for the quarter was $68.6 million, which was flat in the same period one year ago. Operating income was $18.8 million, down 12% from the year earlier period, while net interest expense decreased from $3 million one year ago to $2 million in Q3. Return on equity was declined from Q2, remaining unacceptably low at 13% for the third quarter due to a large part to our continued large allowance charges. We are very focused on bringing that number back towards our historical 20%. Our weighted average interest cost on the acquisition line during the quarter was 2.56%, down from 2.7% in Q2. At quarter-end borrowing levels, each 100 basis point swing in LIBOR either costs or saves us about $200,000 monthly. Breaking our third quarter revenue down into three components, the majority of total revenue are $54.3 million came from income recognized on financial receivables. This is revenue generated by our owned debt portfolios. Income on financial receivables is derived from the $92.4 million in cash collections we recorded during the quarter, reduced by an amortization rate including the $8 million allowance charge of 41.2%. The amortization rate compares with 40.3% in Q2 2009, 42.9% in Q1 2009, 36.5% in Q3 2008, and our full year 2008 rate of 36.8%.…

(Operator instructions) Your first question comes from the line of Bill Carcache with Fox-Pitt. Bill Carcache – Fox-Pitt Kelton: Good evening. First question I guess is given with your greater emphasis on legal collections, how do you think about the impact on your expenses and how should we think about that going forward if we see a shift from call center collections to legal, kind of the net bottom line impact or at least the net impact on your expense ratios?

This quarter there was again kind of a unique set of circumstances where we pushed through more volume than we might have otherwise chosen to do because of some legislative changes, but the answer to your question over the long run is, we think it's possible that, that legislative trend could continue and we think it's possible we could need to push a greater percentage of our accounts into the legal channel. It's always our stated preference to try and work this out in our call centers and avoid legal action, if we can. That said if this trend should continue or grow that's really the reason we're building this internal capability. We can have much stronger collection results and do so at a much more reasonable rate in the markets that we're currently operating so, we're very excited about building up this internal capability. We'll still rely on some external firms where we have strong performance and I think the combination of the two will lead us to have very negligible impact from a net fee perspective, if we have to increase our legal collections significantly. Bill Carcache – Fox-Pitt Kelton: Can you say anything about any kind of impact on margins or I guess what that would do to just overall expenses?

This is Kevin. I think Bill, one of the things it would be it would shift kind of geography a little bit. You would end up from external to internal legal the internal costs are going to be centered around salary line for our attorneys and you still have the same costs in the legal line, but the fees you would have paid the contingent guys would move up into the salaries and our hope would be that our people will be a lot more efficient from an expense to cash collections ratio. Bill Carcache – Fox-Pitt Kelton: Relative to the external lawyers.

Right. Bill Carcache – Fox-Pitt Kelton: Right, but what about relative to if your first choice was to, and you guys have a huge competitive advantage in collections via your call centers, I guess the shift from call center to in-house lawyers as opposed to I could see how you guys have stronger performance from your in-house lawyers relative to external lawyers, but I guess how do you think about the shift from call center collections to in-house lawyers?

Bill, I think certainly it would accelerate the process you'd end up with – so first of all, it would be the cost. Don't forget the cost. We do expense those so they'd be upfront. Secondly, you would have attorneys on staff which you should be able to model. I think if you're looking to build models, I think that maybe a real concern should be focusing on bankruptcy, because I think if you start looking at salaries to cash collection ratios, that's probably going to influence it more than the core business. Do you want to say something, Neal?

My answer would just be that if there were a shift from call center to legal channel in general, you would have an upfront higher cost ratio because you have to pay for the court costs and what not upfront over the longer run with this internal legal channel I think that they would be fairly comparable over the long run. Bill Carcache – Fox-Pitt Kelton: Right, so, forgetting about the accounting though just thinking about the economics and ignoring the timing and just looking at the actual collections, net cash collections, would that actually come down as a result of this shift or –?

I'd say they be on par. Bill Carcache – Fox-Pitt Kelton: Okay, and separately, given your available capacity under your line of credit is now at $58 million, you talked about kind of having the shelf there for any opportunities that come up. Would you consider deploying part of the capital from that shelf instead of maybe the acquisition of attractively priced portfolios, maybe another kind of fee-based businesses basically for M&A?

Yes, yes. Bill Carcache – Fox-Pitt Kelton: Okay and just to be clear, your third quarter '08 numbers reflect the acquisition of MuniServices and Broussard, right?

Yes. Bill Carcache – Fox-Pitt Kelton: Okay. So, we're looking at the year-over-year numbers there, it's out their apples to apples?

Yes. Bill Carcache – Fox-Pitt Kelton: So, I guess final question then is thinking about this basically the first ever year-over-year decrease in commissions for these fee-based businesses. Some people have kind of viewed them historically as kind of being uncorrelated businesses, but it sounds like from your comments about the sales-and-use tax and the negative impact from the economy, is it fair to say that you don't really view them as uncorrelated that they are essentially at least to some extent impacted by the recession?

I think that what we saw is businesses that are weakly correlated at best due to the extreme economic situation that we had to deal with. We saw a number of behaviors occur that we don't typically see. On the skip tracing repossession side we saw clients experiment with strategies that would help them keep their costs down and that interrupted some of our placements. We believe that those experiments didn't turn out as positively as anticipated and so we are as a result seeing an increase in volume once again. On the government services space, we deal with this sales-and-use tax especially in California on a delayed basis and it's generally a two quarter to three quarter look back for us and so we are right now, in this quarter, we're coming through the very low point of Q4 2008 and we simply saw some things occur there that we typically wouldn't model in so, I think it was more of the extreme economy that caused that to occur as opposed to really being a tightly correlated businesses. Bill Carcache – Fox-Pitt Kelton: Okay, and sorry, finally, when you said the seasonal improvement, that's relative to Q3, so we would expect a seasonally stronger number in Q4, but can you give a sense as to what you think it would look like relative to Q4 of last year?

I think that we're out on a limb as far as we want to be as far as predicting the future. Last year, we saw some particularly nice pickup at RDS. They do a lot of business license processing and we'd anticipate a similar type pick up, but beyond that we're just not comfortable commenting. Bill Carcache – Fox-Pitt Kelton: Okay, great. Thank you very much. Appreciate it.

Our next question comes from the line of Mark Hughes with SunTrust. Mark Hughes – SunTrust: Thank you very much. This is something about the 2008 paper and the four flow contracts that makes it difficult to get ahead of the game in terms of allowances. You had mentioned that last quarter as well. When do you think that will be mark-to-market so to speak?

Mark-to-market for, Mark, good. I'll tell you the same thing I did last quarter. We're chasing that curve. We're trying to get that thing shaped right. And that's one of the reasons though we kind of gave you the insight to 2010. I understand the challenge that you guys experience. So all I can tell you is that we're moving the curve down. We're trying to get the stuff shaped correctly. In fact, Neal brought it up as well. Additionally, being priced in '07 we've got issues with (inaudible) arrangements today as opposed to a plain old Jane [ph] payment.

I said in my comments, our monthly payers were up 33% over the prior year, which is fairly stunning, but average payment is down 12% and all of that really messes with curve shape, but we're seeing very strong collections from pools that we've owned for more than five years so there's reason to be optimistic that those tails will perform well, but that's not booked into any of (inaudible) curve at this point.

And that's why I put it in my script that, but with all that considered these deals will probably still be some of the least profitable deals we've purchased. They were booked at kind of lower IRRs and they are underperforming those curves so it is still a challenge for us. Mark Hughes – SunTrust: Right. You talked about the $3 million in foregone revenue because you don't accrete. How much capital or how much purchase price is tied up in those, I guess those are fresh BK, which will as I understand eventually pay off, but just are not generating revenue now. How big of an impact is that?

That $3 million would be generally related to the Q3 and Q2 again primarily and some Q1 BK. So I guess you can probably do the math yourself, just look at how much we bought Q1, Q2 and Q3. The bulk of its going to be Q3 and Q2. Mark Hughes – SunTrust: Right and so, what you're saying is there's not any yields on that at this point?

Well, we'd have used the cash method on those. Mark Hughes – SunTrust: Right. So, since you're not getting much cash in the door, you're not recognizing much revenue that –

That's correct. And with these freshly filed BKs, there can be kind of a long kind of a low tail for quite a number of months and so again we refer to it as cash capped internally and that's where we stop the income recognition. It's about $100 million. Is that right guys? About $100 million of purchase price that's in that group.

And Mark, I don't know if it helps or not, but just to give you a little feel how the age of the bankruptcy portfolio has shifted, it had been running pretty steady at around the average age of an account since filing was around 12 months during most of 2007, 2008 and on the trailing 12-month look back as of 9/30, that has been reduced to about five months so we are getting fresher paper and with it much lower payments in these periods that obviously will accelerate as those accounts age. Mark Hughes – SunTrust: Right. But, had you invested in other assets then the cash and revenue impact would be much more positive.

From an immediacy standpoint, cash related to investment, this type of bankruptcy investing is about as extreme or bad from that perspective as it gets.

I guess, I would add just from a technical accounting standpoint, we're talking about cash collections because the revenue, remember, revenue is based on a yield so theoretically if you deployed $100 million on freshly filed like we did it was a $3 million cash cap. If those deals had been more aged or seasoned portfolios, theoretically, you buy with the same IRR, the revenue would be roughly the same, you'd have had a lot more cash.

Right, exactly.

$3 million higher though.

Right, sure. Mark Hughes – SunTrust: And then, with respect to your outlook for next year, the consensus is around 350. Is that substantial growth?

We had a lot of internal discussion on this matter and that's why we settled on. So substantial is probably bigger than significant. I don't think I want to put a number on it though. Mark Hughes – SunTrust: Okay, thank you.

Our next question comes from the line of Hugh Miller with Sidoti. Hugh Miller – Sidoti: Thanks for taking my questions. Obviously I'll be quick because I think a lot of people have questions. First one was with regards to the $77 million acquired in the third quarter portfolio. I didn't catch what the split was between bankruptcy and traditional. If you could give that to me that would be great.

It's about 60%.

61% BK.

Yes, Neal's right, 61% BK. Hugh Miller – Sidoti: 61% BK, wow. So that means, is it safe to say that given the reduction in multiple discount on BK to traditional that you guys are much more pleased with the opportunities in the BK market now?

We don't feel as though we are shifting acceptable investment dollars from one bucket to another. We're generally acquiring everything that we see that meets a current hurdle rate that we're using. We just hit on more bankruptcy deals this year than core. I guess it's just kind of the way things are settling out. Hugh Miller – Sidoti: Okay. And on a sequential basis there was a drop in communications expense there. What was driving that? Was there a pullback in like mailers during the quarter or something like that? Any color there?

No, in fact, we had a pretty strong mailer program. Again, you're comparing it to Q2. I've got a little more granularity here than you're looking at. A lot of stuff in there, but yes, it would have to be based on the level of campaigns. Hugh Miller – Sidoti: Okay, so nothing that's jumping off the page then?

No, nothing that's jumping off the page right here to me. Hugh Miller – Sidoti: Okay, and Steve's comments on pricing, I heard steady, was it steady to slightly higher or steady to slightly lower on pricing that you guys were seeing during the quarter?

Our view is that it was steady to slightly higher. Hugh Miller – Sidoti: Okay, so possibly a little bit more competition coming in here. Okay, great. And last question is do you have the ERC figure as of the end of the third quarter?

We'll get you in a second. Hugh Miller – Sidoti: Okay, you can take the next caller and I'll get that.

All right. Hugh Miller – Sidoti: Thanks.

Our next question comes from the line of Bob Napoli with Piper Jaffray. Bob Napoli – Piper Jaffray: Good afternoon.

Hi, Bob.

Hi, Bob. Bob Napoli – Piper Jaffray: Let's see here. How to go about this? If you look at and your goal was 20% return on equity. If you didn't have any impairments this quarter your return on equity would have been pretty close to 20%. As you look at next year's earnings and substantial growth, are you targeting getting back to that 20% ROE?

Well, Kevin commented specifically that that's our long-term goal. We're not prepared to specify whether that's a 2010 achievement or not, but that's definitely our long-term goal, Bob. Bob Napoli – Piper Jaffray: Okay, if you looked at payment supply to principal this quarter, which includes the $8 million impairment, if you backed out the $8 million impairment, your amortization rate or your payment supply to principal as a percentage of cash collected would have been about 32%. Now that seems low. Does that –?

That's right. Bob Napoli – Piper Jaffray: Shouldn't it be with the amount of bankruptcy paper in there, shouldn't that number be a higher number?

No. So first of all, we're using the cash method, right, for the bankruptcy. So while we kind of left that $3 million on the table in my script, theoretically, if we'd booked that you'd have negative, for those pools, you get negative amortization or accretion. So by capping it using the cash method, you had zero amortization for those pools. Additionally, I would say that we are getting our curve shape better. So we are tending to perform closer to our expectation so that should kind of narrow that amortization because remember if you look at kind of a core deal, let's just think about a core deal for a second, that amortization in the first fiscal year should be pretty low. It depends on how your curve looks, but 32/5 x allowance strikes me as, based on how much we're buying it strikes me as a good number. Bob Napoli – Piper Jaffray: Your substantial growth next year means that you feel like your impairments are going to be mostly behind you. It's got to be, right? I mean, I know you always said there are always going to be some impairments but the size of impairments has got to moderate.

I would say very good catch, yes, I'd say allowances will always be with us, but between some combination of reduced allowances or increased yields, that's how we feel. That's how we submitted our budget in some combination thereof. Bob Napoli – Piper Jaffray: How much is left in that forward flow on your balance sheet that is the least profitable paper that you guys have ever purchased?

I can't dig that out, because we're talking about these flow transactions that are inside a quarterly deal. We evaluated that statement really on the deal level itself, not the quarterly aggregated deal. Bob Napoli – Piper Jaffray: Have you tried to kitchen sink it to the extent that you can? I mean, I think from an impairment perspective, rather have the kitchen sink than the Chinese water torture method.

I guess what I'll think about is that we – so what Neal has done, you mean from an operational perspective? Bob Napoli – Piper Jaffray: No, I mean, from an accounting perspective as you look at those pools.

I got you. I'm thinking operationally. It's been our practice, if you look back at the deals, if you look at the disclosure on the press release you're going to see kind of a consistent approach at the way we look at these curves and we're shaving stuff off these curves, trying to deal with allowances that are current, and trying to get those curves kind of brought down to the right level. We feel that, I feel it from an accounting perspective the kitchen sink is not a good accounting method. Bob Napoli – Piper Jaffray: Okay, all right. Thank you very much.

Your next question comes from the line of Sameer Gokhale with Keefe, Bruyette & Woods. Sameer Gokhale – Keefe, Bruyette & Woods: Okay. Thank you for taking my question. Just a couple of questions. First one, Steve, you know you had referenced the one state which I think you talked about last quarter, North Carolina and the change there to the statute of limitations and the impact, and then, the you had referenced to New York, it has been potentially another state exploring that same issue. Now, there seems to be a coalition of that purchasing companies that are trying to approach this issue and dialog with the regulators. Can you give us an update on where that stands specifically?

I mean, I think you have provided as good of an update as we have. There are even beyond North Carolina and New York, there are other states where there are in various levels or various states of approval process, other such bills. And as you can imagine, the debt buying community, and in some cases, financial institutions as a whole, which would be affected are trying to communicate to the legislative world what we believe are lot of negative unintended consequences, which could result from continued changes like this. I think that we have had a few of these early ideas pop through. I think we feel better in a lot of situations that we were able to get in there and start the communication process earlier. And so, we have a reasonable shot at getting a good education program going and hopefully, either shooting the stuff down or getting it thoughtfully amended, so that it doesn’t impact us to as greater degree. But at this point at least, it is all kind of a fluid situation. Sameer Gokhale – Keefe, Bruyette & Woods: Okay. Thank you for that color. And then another question, which I think is for Kevin, you know, I would like your thoughts as to how to think about this, or what may be wrong in this thought process, but if I look at or I calculate your, like an estimate of monthly collections, gross collections for you guys, I think it’s in the ballpark of about $23 million or $24 million a month now, this is for the portfolio less your bankruptcies, the non-bankruptcy receivables. And if I look at least as of the last quarter, the carrying value of those receivables was about $401 million, I assume it’s gone up this quarter, but if I use that and calculate like a multiple, so I take that would be carrying value divide that by the monthly collections, that multiple works out to be somewhere in the ballpark of about 17 times, and if I run the same calculation for competitors, I come up with about 13 times for Encore Capital and about 11 times for Asset Acceptance. So, what might account for that disparity? I mean, this is all again non-bankruptcy stuff. Shouldn’t we be in pretty close ballpark and how do you think about that differential? Should we think okay, well if you were to normalize PRA and get it to the other multiples of the other two companies, there is like $85 million or $100 million of revenue that won’t be collected in the future if the multiple comes down, I mean, what is wrong with the thought process?

I think that part of what you could be missing is assuming that all debt collectors go after the portfolios at kind of the same pace. We believe that there are some people whose – and understand me, I am not faulting the strategies, I think different debt buyers can employ different strategies and still have very satisfactory result. But I believe some of our competitors would rather get settle more quickly, get cash flow in more quickly, and forego the tail of the portfolio. We go at things a little bit more slowly. We purposefully try to work with people before we sue them, and we tend to have longer tails, and as Kevin and Neal both commented based on the economic situation and everything that we are dealing with, we have what we think is a lot of opportunity in those tails that we have not yet recognized. So, it’s kind of pent-up ERC, if you will, and to the extent we get comfortable recognizing that ERC, you would see those relative ratio shifts somewhat. Sameer Gokhale – Keefe, Bruyette & Woods:

I think it’s a potentially very complicated issue with a lot moving parts, and you are trying to simplify it. You know, I will just go back to my comments and say I think that strategy and pace is a part of it, and I think also our approach on the tails and recognizing ERC on tails is a part of it as well. Certainly, buying pace relative to the competitors plays a news as well. Sameer Gokhale – Keefe, Bruyette & Woods: And then how should I think about the trend line in that multiple? If we look at it for you guys versus your peers, for your company, it is going to promote 11 to 17 for the other peers, it’s gone somewhat 11 to 13 or 9 to 10. So, there’s that more of a move up, how should we think about the slope of that, is that due to changing selections practices that, that’s attributable to or is there some other reason for that?

We have specifically stated that we are experiencing far fewer balance in full and settlement in full than we have historically. And generally, those balance in full and settlement in full are aided by a strong economy where people either have the ability to refinance to gain access to other consumer credit, or get assistance from friends, relatives, you name it. We have chosen not to compromise what we believe is the future collectability of our portfolio by changing the rates at which we are ready to settle out accounts. Sameer Gokhale – Keefe, Bruyette & Woods: Okay. That’s interesting and helpful commentary. I guess we will try to circle back with the other companies and try to put things on an apples-to-apples basis, but thank you very much for your call. Thanks.

You are welcome.

Your next question comes from the line of Rick Shane with Jefferies. Rick Shane – Jefferies: Thanks guys for taking my questions. Kevin, you made the comment that you beat your cash collections projections for the quarter, how much was the variance?

I didn’t disclose that, Rick. Rick Shane – Jefferies: Okay. Was it significantly – do you think the terminology used before about significant or material, was it a material beat or was it pretty close?

That was pretty healthy; it was a pretty healthy number. So, that’s a new word for you. Rick Shane – Jefferies: No problem, thanks. As we head into the fourth quarter, obviously you guys have pretty detailed internal projections. This is an interesting quarter, because by your estimates, or by your assumptions, you beat what, your expectations. Are you expecting given seasonality that cash collections are going to be up or down sequentially during the fourth quarter?

If you call a value, our insight to 2010 is all we have given. So, I think that we will leave it at that and we didn’t provide any guidance or insight on Q4. Rick Shane – Jefferies: Okay, I will respect that, I will move on. In terms of, you made the comment regarding basically having to – with the regulatory changes, changing the tail assumptions on some of your pools and accelerating legal channel or driving things to the legal channel or more quickly so that you can prevent a statute of limitations from towing. What was the implication in terms of the increase in allowance associated with potentially reducing those tails?

So, actually –.

I just wanted to clarify. So, what happened here was nascency changed the length of the statute of limitations, what happened in this scenario was, is that you can’t call people who are past the statute of limitations. So, there is a some set of accounts that we would normally let go beyond the statute of limitations knowing that we would have some call center opportunity with them. Without that opportunity, if and the only choice that was left was to file a suit. So, it’s an important distinction. Rick Shane – Jefferies: Okay, that doesn’t near to my question, but it brings up another interesting question. Basically, you were calling people after the statute of limitations had towed and trying to get them to essentially voluntarily prepay given that the debts at that point were abolished?

When you say – Rick Shane – Jefferies: Or the obligations were obligated or whatever the terminology would be?

There is a subset of people who want to repay their debt, and we certainly would call and ask them to do so.

And I don’t want any of us to turn into jailhouse lawyers here, but the mere occurrence of statute of limitations running, in most cases, doesn’t forgive aggregate blow away the debt. It simply makes it unenforceable via legal needs.

We have never, obviously never sued anyone who is beyond the statute of limitations knowingly, and so that was an impact, and there’s just a subset of people we thought we would we able to work within our call centers where that wasn’t an option. So, I don’t know that, that affects the tails at all. We expect that after pursuing legal action, there is a very healthy tail legal collection. So, I am not sure that it impacts the tail in any way. Rick Shane – Jefferies: Okay, so it didn’t – there was no impact related to the allowance from this?

I got it. So, your question is, was this event – did I trigger somehow part of this 8 million? Rick Shane – Jefferies: Exactly.

I did not. Yes. We ended up with a million dollars more expenses and that was hard enough to deal with. Rick Shane – Jefferies: Okay. Last question, and this goes to some of yours, what I thought was a very interesting line of questioning. Basically, the implication is that your accounting suggests that you are willing, do you think that there is a higher MPV to longer collection tails? When we look at, and again, it’s hard to tell because these vintages are, at least the new vintages you are down far enough out, but if we look back at some of your peers on a 2005 basis, the actual collection multiples for you were a little bit lower. So, do you think that this is something that really goes out even beyond five or six years, and does that actually make sense from an MPV basis.

Obviously, I will just say that the whole thing is being in our call and kind of hit with that kind of level of detail of numbers is a little difficult to assimilate. So, I just don’t know. I would have to see something in front of me to look at what you guys are talking about in terms of your flow, but I guess what I will say in terms of tail, especially if you are looking older deals, I assume you guys have pulled sales out, you know, like in a stuff. And I know we have talked about settlements and there’s a bunch of noise As Steve said, it’s kind of a complicated thing to turn it generalized. So, again, we are modestly bullish on those older deals on the tails, so there’s probably some ERC there that we haven’t put in yet. But clearly, if your point is, if company A can collect a higher multiple more quickly than company B, and can do so at less expense, company A has figured out something that company B hasn’t, that is obviously is not a point we would ever argue if indeed those were the facts. Rick Shane – Jefferies: And I apologize to you in terms of the details. I will circle back with you guys. Thank you very much. I appreciate your patience.

Our next question comes from the line of Thomas Morton with CPMG. Thomas Morton – CPMG: Hi, guys. I was wondering if you guys could give us some color on the IRS issue, and by that I mean what’s the company is positioned, what the IRS is positioned and what if any potential acceleration of the deferred tax liability is out there, what kind of timing we might expect in terms of that getting to a point of resolution?

That’s your questions. So, more we follow in our Qs, in our Ks, it continues, we are certainly in the appeals process. We just don’t have any feel for how that appeals process is going to run. Some estimate could say it’s nine months, 12 months still on the road. We just don’t know. I think the IRS is very busy right now, and we are certainly pushing on it, because we think that from a industry standpoint, for instance, we have got what we think is kind of rock solid data in two cases, and I think most of the industry participants look at those sent cases. And so, at some degree, we kind of feel like we should be out there on the tip of that sphere, and talking to the IRS, let them understand what our position and how are industry works. But it’s a maddening slow grinding process. Thomas Morton – CPMG: Does it basically boil down to your on-cost recovery basis in IRS, things that should be something that’s more accelerated in terms of income or revenue recognition?

Right, that’s correct. Thomas Morton – CPMG: We are getting into detail here, but what are those two sort of landmark cases somebody could check out and sort of expenses sort of thing.

Lipton and Underhill. Thomas Morton – CPMG: Lipton and Underhill, Lipton?

Yes, and so in short, what you will find is that these guys bought assets that were, in my opinion, dramatically better than the assets we are buying, and of course, the IRS disagreed with them, too. And they had to take them to Tex court and of course they won. So, it works, I guess complicated, but those are two court cases that most industry use. Thomas Morton – CPMG: Okay, thanks guys.

Steve just asked me, you know, kind of interesting crisp on that is that the IRS also doesn’t have a position on what they should be using either, because it depends on who you are, you might be audited, and they will give you one answer, and someone else may be getting a complete different answer. And they really can’t do that, and so, that’s one of the reasons we are out there fighting the same. They have got to either come up with a homogenous clear piece of guidance that everyone can use, or we are going to use Lipton and Underhill as such, which I think should happen.

The interesting thing is the IRS is not offering their own version of Lipton or Underhill. They would rather not see cost recovery, but we are having a very difficult time in getting a more kind of reasoned case or law supported guideline on what exactly they do want. Thomas Morton – CPMG: Okay, thanks, guys.

Yes.

Our next question comes from the line of John Neff with William Blair. John Neff – William Blair: Thanks guys. I will try to keep it really quick here. The call is a bit long, so thanks for the patience. Just here, you described what’s happened to the, in terms of breaking down the impairment charge in the quarter, you sort of described that the 2008 allowances are mainly related to the fact that you purchased some 2008 stuff under forward flows and pricing one against you relative to those locked in prices. Can you describe sort of the drivers for timing the ’05 and ’06 write-downs? You mentioned they were just related to one pool each vintage. And also I think, maybe we touched on this, but I just wanted to confirm, was there any part of the impairment charge related to sort of an expectation, or a reaction to some of the regulation changes that you have seen in North Carolina, possibly New York and an expectation if that trend continues?

Okay, so no to that question. Never the allowance is related to some legislative expectation. The 2005, 2006 charge, I stated in my comments, that was kind of buried back in our page 17 or something, that it was really related to one 2005 pool as you heard and ’06 pool, and it was kind of, you know, not that all allowances aren’t unforeseen, but I would look like these two into kind of a weak July and August. So, again, we just thought, hey, it was a weak July and August, we are going to take the allowance now. What’s interesting about that is should Neal recover that and say November, it’s just going to end up being excess amortization. So, that’s kind of one of the downsides of the accounting. But Neal is laughing about that, but that’s how it works.

John, given the economy, we are trying to be very careful with signs of underperformance, and if you were to look at many of our pools, especially if the pools get a little older, you would be looking at a curve that can really start to get some fluctuation in it, up and down. And we have two ways to go. When something like this happens, we can either say, hey, it was a fluctuation down, we will let it ride, and based on our long experience, it’s probably going to bounce back up next quarter, and they will be fine. The problem in doing that is if you are wrong, you get behind an 8-ball, especially when you have a decent sized yield on these things, and the hit you got to take in the future is even worse. So, what we are trying to do as we deal with this little weak economy is just be as quick on the allowance pattern as we ever have been, and Kevin sees two out of three bad months, he’s hitting the portfolio. We are not waiting. John Neff – William Blair: Appreciate that. Something else related to just the increase in legal expenses related to the legislative change, but I just want to make sure, trying to narrow down this, you know, if I think I understood you correctly, what you are doing is – this isn’t a situation where you let certain accounts go past the statute, because you were planning to call them, and the increase in accounts referred to the legal channel, was that simply – were those simply people you had otherwise planned to let go past the statute and call them, or is this just, you have to put everybody, you have to just sue everybody that’s in that state for statute hits, and that’s the plan going forward?

Okay. So, we are obsessed with what kind of ROI we are going to get on a legal expense around the call center expense. There is, I mean, the number of accounts we talked about is a tiny, tiny portion of the accounts that we have in any state. I mean, a fraction of our portfolios and legal auditing, again not our preferred method. But there is a small group of people for whom we think the way that we score them, the way that we seem them, we think that they would respond to calls over a period of time, and their financial situation is likely to evolve, and let’s say get back to work or some other situation changes, we think that we will get paid voluntarily from a phone call. So, very tiny, tiny number of people that we think we are going to see that from, but nonetheless if there is some population. If that possibility is gone for that population that we were going to continue calling in the call center, then we have to go legal. There is a huge number of people that has the statute of limitations that we won’t bother calling, because we don’t think they have the score, and we don’t think we will get a decent ROI out of that phone call. I have said in previous call, by far the most important decision we make every day is what not to do and what to leave alone. The vast majority of our accounts won’t pay us, and one way to go bankrupt is to attempt calling people who have no intention of paying you. So, we really try and focus our efforts on people that we believe have the wherewithal to pay us via channel or the other.

And I think it’s an important point, especially as you think about this line of questioning that we have gotten about, you know, comparing multiples between competitors, and I am not suggesting in the lease, that’s not a valid analysis to do, but a debt buyer can generate a huge variance in the amount of collections that they can drive out of any given pool. The question is how profitably are you doing that, and if you are to drive your expenses out very high, you can do that, and you can create a higher multiples in the guy who is setting a lower threshold for how much they want to spend to create another set of collection results. And so, that’s all got to be factored in, and it’s something we try to understand here to a very great degree, and manage as we make any strategy decision, be it as Neal said, legal or call center, be it letter or phone, whatever we do. We are keenly aware of the ROI revolver efforts, and any portfolio that is in danger of an impairment, that’s not lost on us, and we will look closely, but we certainly aren’t going to have a negative ROI trying to chase after a possible impairment. John Neff – William Blair: Thank you. And last really quick housekeeping one. Kevin, my typical total collectors and supervisors, the number was 1,526 last quarter.

Yes, 1,549. John Neff – William Blair: Thanks guys.

Yes.

Edward Hemmelgarn – Shaker Investments: Great. Just a couple of questions about the bankruptcy portfolio. First is, are you seeing a leasing in these bankruptcy accounts that you are purchasing, As the kind of curve lengthen on those just as you are seeing the curve, collection curve lengthen on your non-bankruptcy accounts?

Edward Hemmelgarn – Shaker Investments: Okay, all right. Well then, the second question is, is I guess is at some point given the extent of your purchase as how the mix has changed rather significantly and your greater bankruptcy paper versus non-bankruptcy, would you expect in coming years that your ratio of your compensation expense will decrease relative to your revenue as your –?

Right. Yes, Edward. Edward Hemmelgarn – Shaker Investments: The amortization rate increases, I guess, what I am trying to say is –

That’s right. That’s what we are trying to say earlier. I think it was the first caller; they were really kind of focusing on the shift of collections from internal collectors through internal legal people. And just, I mean the comment that if you are really trying to think about modeling, probably the better thing to do is focus on the bankruptcy factor which you have just done. That should have happened. So, theoretically you should have amortization rates that are creeping up, but theoretically, cost to collect out is kind of dramatically smaller and you would have a lower ratio in salaries, so cash collections. Edward Hemmelgarn – Shaker Investments: And so, that’s something we should be focusing on in the future and is driving some of your upside in ’10?

Yes, I would say something that you are building the model and you at least need to think about that mix. That’s correct. Yes. Edward Hemmelgarn – Shaker Investments: Okay, thanks.

Yes.

And ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call over to Mr. Steve Fredrickson for closing remarks. Sir?

Thank you, operator. I would like to reiterate a few key points about our third quarter performance before concluding this call. While economic conditions remain difficult, PRA continue to perform solidly in the third quarter of 2009. Not only did we produce strong results operationally, but we continue to build for the future, further refining our best-in-class platform and taking advantage of our access to capital to acquire large amounts of portfolios that we believe are well priced even in a market where collections have grown more difficult. Overall, PRA is in a position to emerge from this economic downturn of stronger and more efficient competitor. I can honestly say that I am as excited about our future today as I have been in years. I would like to thank all of you for participating in our conference call. We look forward to speaking with you again next quarter.

Thank you for your participation on today’s conference. This concludes your presentation and you may now disconnect. Have a great day.