Feb 13, 2009
Executives
Steven Fredrickson – President & CEO Kevin Stevenson – CFO Neal Stern – COO Jim Fike – VP Finance
Analysts
Robert Napoli – Piper Jaffray Mark Hughes – SunTrust Robinson Humphrey Hugh Miller – Sidoti & Company Sameer Gokhale – KBW Richard Shane – Jefferies & Co. John Neff – William, Blair & Company Bill Carcache – Fox-Pitt Kelton Edward Hemmelgarn – Shaker Investments David Scharf – JMP Securities
Operator
Welcome to the fourth quarter 2008 Portfolio Recovery Associates Incorporated earnings conference call. (Operator Instructions) I would now like to turn the presentation over to Mr.
Jim Fike, VP of Finance; please proceed sir.
Jim Fike
Good afternoon and thank you for joining 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 Portfolio.
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 management’s intentions, hopes, beliefs, expectations, representations, projections, plans or predictions of the future including with respect to the future portfolio’s performance, opportunities, future space and staffing requirements, future productivity of collectors, expansion of the RDS, IGS and MuniServices businesses and future contributions of the RDS, IGS and MuniServices businesses to earnings are forward-looking statements.
These forward-looking statements are based upon management’s belief, 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 facts.
Forward-looking statements involve risk and uncertainties, some of which are not currently known to us. Actual events or results may differ from those expressed or implied and any such forward-looking statements as a results 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 & 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 Securities & Exchange Commission and available through the company’s website which contain a more detailed discussion of the company’s business including risk 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 publically 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.
Steven Fredrickson
Thanks Jim and thank you all for attending Portfolio Recovery Associates fourth quarter 2008 earnings call. On today's call I will begin 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 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 the year of building, diversification, and continuous improvement in our collection operations.
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 have no doubt seen in our press release EPS was pretty much flat for the fourth quarter and full-year.
However revenue continue to grow nicely and cash collections were strong. While we are 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 to corporate acquisitions during the course of the year, MuniServices and the assets of Broussard Partners, both represent further by versification into the fee business.
Importantly this diversification helped mitigate some of the economic softness that impacted collections towards 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 collections, purchases of new portfolios of bad debt, and performance of our fee businesses. PRA flat fourth quarter bottom-line performance was due in part to two factors.
First our Q4 allowance charge totaled $8.9 million, an amount nearly twice our largest prior charge. Second a number of 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 service businesses. In summary PRA acquired $61.5 million of defaulted debt during the fourth quarter bringing our four-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 of 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 concluded anchor receivables management but did not conclude either MuniServices or the Broussard Partners contracts. Of particular interest revenue from our fee business in Q4 2008 was about 20% greater than was revenue for our 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 activity 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 the 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 the full year 2008 which compares with $135.77 for full-year 2007.
This includes a reduction of 18 net collectors to our companywide 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 has been our stated goal. Our debt to equity ratio at quarter and 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 a 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 acquire 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 costs and financial leverage we look for attractive returns nonetheless. In terms of our overall portfolio strategy our intent is to continue to opportunistically pursued charge-off debt in what we view as an 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 of net draws on our line of credit to finance them.
Further underscoring this point during full year we bought $280 million of portfolios of distress debt, pay $22.5 million in cash for MuniServices in the contracts of Broussard Partners and made $6 million in capital expenditures. We did this while drawing just $100 million on our line of credit, financing the remainder 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 continue to witness very little activity in the resale market. In order to account for the week 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 collections expectations that are further discounted from our already discounted buying models.
Now let's move on to collections, as I mentioned earlier on the owned portfolio collection front PRA collected $79.2 million in the fourth quarter of 22% from $65.1 million a year earlier. Offering a bit more granularity call center and other collections 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 legal collection strategy wherein we use our own staff attorneys or in select cases use a third-party attorneys working on a fixed price basis has been in place for several years now but it's growing at a pace that has allowed 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 and 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 is potential loss recoveries due to less than optimal levels of court costs investment on referred legal accounts. We continued making historically high levels of investment in legal costs during Q4 spending $4.7 million compared with $4.8 million in Q3 $2.9 million in Q4 2007.
Importantly we will not use the economic downturn or short-term financial results as an excuse to cut intelligence 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 as incurred. While we anticipate these investments in 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 paid, the core metric that measures the average amount of cash each collector brings in. As I said earlier this metric finished at $131.29 for all of 2008 compared with $135.77 for full year 2007.
Excluding the effect of trustee administered purchased bankruptcy collections, 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 at $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 this site specific productivity figure looks only at hourly paid productivity by collection reps.
It excludes not only legal and bankruptcy collections but also any non-collector assigned inbound generated collections or collections coming from external activities such as collection agencies. Using this metric we saw 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 a consecutive decline 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 at 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 within 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 are not ready to terminate our experiment there just yet, we need to substantially improve productivity to justify its continuation. Company wide at quarters end our owned portfolio collector headcount was 1249 down slightly from 1267 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 MuniServices business and contributions from the Broussard contracts.
The integration of our various government services entities progress nicely in the quarter. Both fee businesses provide an exciting added growth engine for PRA beyond both our core charge-off 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 to Kevin Stevenson, PRA’s Chief Financial and Administrative Officer, I'd like to have Neal Stern, our Chief Operations Officer of the Owned Portfolio business give you a summary of our operational strategies.
Neal Stern
Thanks Steven, operationally we continued to focus on efficiency and effectiveness in driving increased cash 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, in that capacity was put to more effective use by leveraging our ability to dynamically re-score our entire portfolio on a daily basis.
We believe our incrementing calling efforts and account segmentation helped 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. In looking at the dollars collected from phone calls and accounts we've owned for more than five years we saw a year-over-year increase of 80% or $600,000 in December alone.
We will continue to look for opportunities to refine our dynamic scoring process a regular basis and I believe this offers a way for us to respond very quickly to changing consumer payment behavior. As Steven 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 slip continues to stem from the prior underinvestment in court costs that we’ve sought to correct over the last six months. While these investments have now been made in it appears that the lag between the expense and the 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 a 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 that as Steven mentioned earlier grew significantly over the prior year.
While vendor performance played a significant role in our legal portfolios 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 collections channel. In short more highly collectible accounts that previously had been moved quickly into the legal channel are now being worked in a 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 that we have for 2009. As Steven 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 that any center underperforms our top center theoretically we are missing out on cash collections. Furthermore since his theoretical delta is attributed to productivity the majority of the potential cash collections has very little incremental costs associated with them.
As a result moving all of our call centers closer to the top-performing centers is important. To put it dollar figure to it if all centers had performed at the level of our best center during each month in 2008 we would have theoretically 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 some favorable impact on allowance charges. We have made changes to our management team, conducted several best practices examinations, and instituted additional incentives in an effort to drive this closure of our productivity gap.
I will continue to update you on our progress as the year unfolds. With that I will turn the call over to Kevin Stevenson, PRA’s Chief Financial and Administrative Officer.
Kevin Stevenson
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 the negative, 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 flat to the comparable period in 2007.
Specifically the 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% from a year earlier period while net interest expense grew from $2.1 million 1 year ago to $2.9 million in Q4 which 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 costs 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 [sling] 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 or $48.1 million came from income recognized on finance receivables. This is revenue generated by our owned debt portfolios.
Income on finance receivables is derived from the $79.2 million in cash collections we recorded during the quarter reduced by an 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 2008 was 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 SOPO3-3 now stand at $23.6 million. As I have done in the past I would like to take it 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 we 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 SOPO3-3 income and allowance charges are computed.
Income and allowance charges are computed using quarterly aggregated groups of similar paper types. Within those specific groupings we have had both pluses and minuses.
The plus is either add to yield on a prospective basis or over amortized pool. While the minuses tend to generate allowance charges.
I feel as though there is a general misunderstanding of this concept so I wanted to bring it up here. So with that as a backdrop let's review the specific allowances.
First looking at polls dating from 2004 on back, last quarter I reminded you that in Q2 2008 these pools were responsible for approximately $965,000 of that quarters $4 million total allowance. During Q3 2008 we finished with a net reversal of approximately $145,000 and now in Q4 2008 we ended up with a net reversal of approximately $650,000 from these pools.
This is caused by a combination of stronger-than-expected cash flows coming from these deals along with some fairly cautious cash collection outlooks set in earlier periods. Life to date we have taken approximately $1.1 million in net reserves against normal yielding deals dating 2004 in prior.
The point I want to leave you with is when we see underperformance we take the necessary allowance charge and move on. If future actual collections improve we can always 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 it's 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 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 book yields in place and not move them up commensurate with early period over performance we would have experienced no allowance charges life to date on bankruptcy portfolios. As a result as it relates to over performing pools we are now generally not adjusting yields upward on bankruptcy deals and are simply allowing them to amortize with their 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 pool.
We have not experienced any additional allowance charges since Q1 2008. This quarter we did experience an additional $90,000 in allowance charges relating to 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 yields that is more than 1.5x what it was when it was booked. As in prior quarters I would now like to turn our attention to more recent core portfolios, 2006 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. Q1 2006 has no reserves life to date, 2006 Q2 experienced no new reserves this quarter.
This pool had experienced reserves for the past few quarters ranging from a low of $190,000 to a peek at $950,000 in Q2 2008. Total reserves against this pool now stands at $1.97 million.
Q3 2006 experienced $600,000 in reserves. This pool has experienced reserves for the past few quarters of a similar amount.
Q4 2006 experienced $1.6 million in reserves this quarter. This deal has experienced to 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 a multiple of that shortfall is future expectations are lined up with observed trends. In 2007 Q1 experienced $1.2 million in allowance charges down from $1.6 million in Q3.
Much like the 2006 Q4 portfolio 2007 Q1 collect and 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.
In 2007 Q2 experienced $2.1 million in allowance charges up from $750,000 in Q3. Much like the two aforementioned pools 2007 Q2 were short of expectation by approximately $1 million.
That coupled with the added buffering a future expectations drove his $2.1 million in allowance charges. In 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 was the result of that shortfall coupled with some buffering a future collection expectations. In 2007 Q4 has no reserves life to date.
In 2008 Q1, Q3, and Q4 have no reserves life to date. In 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 the 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 remark repeatedly I think it is realistic to assume that some percentage of any debt buyers amortization will always be allowance charges.
SOPO3-3 simply creates an environment that supports this. Further given the relatively tougher collection environment faced in any of economic downturn we feel it is imperative to take an appropriately large allowance expense when we see weakness.
One other remark as it relates to allowances involves legal collection process mentioned by both Steven 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 non-bankruptcy 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 in the legal process during the first year we owned a portfolio. This builds significantly during the second year of ownership and remains a significant contribution through out the remaining life of a typical pool of accounts especially accounts purchased as fresh or primary recall.
Under 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 through early 2007 pools enter what should be a sweet spot for legal recoveries. Plus all things being equal we have lower cash collections and higher amortization or allowance charges.
In addition as 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 debt collections as we avoid paying unnecessary legal fees, however in the short term we will undoubtedly 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 I mean purchased pools with no remaining basis on our balance sheet.
Eliminating those polls 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 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 this is a byproduct of SOPO3-3, quantity of zero basis cash collections should gradually decline over time due primarily to the fact that under the guidance of SOPO3-3 the aggregate all similar paper types acquired in the quarter in order to calculate revenue.
During Q4 a hot seasonally strong period for our government services group commissions and fees generated by our 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 the acquisition of MuniServices in the purchase of the assets of Broussard Partners during Q3 2008.
The purchase of MuniServices and the Broussard asset 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 of finance receivables was once 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 a 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 what 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 expenses to cash receipts as I mentioned before is perhaps a more insightful efficiency ratio since it removes the effect of the 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 same factors previously mentioned in my discussion of operating margins including business mix, legal investment, and amortization costs.
Our balance sheet remains stronger 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 to $13.9 million.
Rounding out the balance sheet we had $563.8 million in finance receivables, $35.5 million in property, equipment and other assets, $27.5 million in goodwill, $3.6 million in income tax receivable, and $13.4 million in and tangible assets all relating to our business acquisitions. We have about $268.3 million of short and long-term debt and obligations under capital leases and with total liabilities both long and short term of $374 million.
On December 31, 2008 shareholders equity totaled $283.9 million. While our leverage has increased dramatically from zero two years ago on a relative basis it remains quite low at less than one to one.
As Steven 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 an excuse for poor short-term execution.
We have been patiently building a well diversified portfolio of both charged off and bankrupt accounts acquired from a variety of sellers across many years and through a variety of recall levels. Recent allowance charges have been a disappointment to be sure but are part of a high-priced environment especially when combined with a dramatic economic downturn such as we now face.
Finally let me conclude with a 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 to underwriting expectations without the need to take allowances 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 to how cram downs are allowed, how deficiency claims are created as a result, and how those deficiency claims are handled vis-à-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 have completed my per pair comments and we will now open the call up to questions.
Operator
(Operator Instructions) Your first question comes from the line of Robert Napoli – Piper Jaffray
Robert Napoli – Piper Jaffray
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?
Steven Fredrickson
Any given quarter you normally have, as I was saying kind of a normal core portfolio you would have a bankruptcy portfolio, medical we group separately and if you ever had a cost recovery pool that's a little more rare however.
Robert Napoli – Piper Jaffray
So essentially we are talking about two main pools each quarter, our core pool and a bankruptcy pool.
Steven Fredrickson
That's right.
Robert Napoli – Piper Jaffray
Now when you're taking an impairment in and say second quarter of 2008, that was in the core pool or was that in the bankruptcy pool.
Steven Fredrickson
That was the core.
Robert Napoli – Piper Jaffray
Now when you go back to 2006 and these prior year's 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, and we are going to see the pluses come in over the long-term and the minuses are, that's essentially—
Steven Fredrickson
Now that's right that is exactly right and even the minuses may be, if our assumptions prove too conservative today you'll see releases of the deals are currently minuses so but that's right you have grasped the concept correctly.
Robert Napoli – Piper Jaffray
When you're looking at a fourth quarter of 2008 in cash collections just generally the world really seem to change on September 15 and it was not easy before that but I have seen some things out of companies and consumers but 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 impairments so it was softer than you expected although your cash collections came in slightly better than what we have modeled, have you seen and do you continue to see a change in behavior.
Kevin Stevenson
It's a subject we could talk about for a long time so let me just give you some highlights, October was actually I believe the third-best month that we had all year from a cash collections standpoint and then we dropped off in November although November was a short work month for us and them 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 so throughout most of 2008 we've been running pretty steady in kind of $115 range plus or minus ensuring the fourth quarter we dropped to $111 and $109 and $106, again those are what we refer to as our average pure payment. The other thing that has continued to occur and we 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 so 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 2006 we had 87,000 what we call pure paying accounts, we had 112,000 December of 2007 and we had 166,000 in December of 2008 so we feel as though we are 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.
Robert Napoli – Piper Jaffray
The first quarter is historically I think probably been the most important quarter it seems obviously collections have historically increased dramatically in the first quarter seasonally and it seems to set the base for the year, as you look through, we would expect that your first quarter, fourth quarter first quarter trend is going to reflect the economy but nevertheless we would still expect pretty significant ramp up maybe not to the same extent as the past and we're halfway through the first quarter and I know that March is a very important month but can you comment at all on the trends you are seeing, if you are seeing is seasonality or are you seeing much weaker trends from the fourth quarter to the first quarter this year than prior year's.
Kevin Stevenson
We are 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 in payment mix consumer is definitely being affected by what's going on in the economy so I suspect there will be some dampening but one message 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 are in better shape to continue that pushing back and 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 that thus far we’re seeing the normal or much of the normal quarterly impact that we would begin to see in Q1.
Robert Napoli – Piper Jaffray
On the fee-based 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 a skip trace business or in a tax businesses.
Kevin Stevenson
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 its 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.
Operator
Your next question comes from the line of Mark Hughes – SunTrust Robinson Humphrey
Mark Hughes – SunTrust Robinson Humphrey
You had alluded to I think seasonally stronger performance for the government services group in the fourth quarter, how meaningful is that seasonality, how should we think about Q1 in the commission business.
Steven Fredrickson
We tend to get some business license renewals business coming through in that fourth quarter and it is more weighted to the RDS business then they MuniServices business and the RDS is the smaller of those two government businesses so 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 that since both fee businesses are continuing their upward trajectory over time that we are getting as close to that number is possible in Q1.
Mark Hughes – SunTrust Robinson Humphrey
The BK it seems like that was pretty good comment my right to assume that that is doing better relative to your expectations and the call center or the legal collections and if so why.
Kevin Stevenson
I don't know that we can give you an exact answer on that one and 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 even though we have been doing it for a number of years now the bankruptcy business is a newer one for us and we have tended to underwrite and book those deals quite conservatively so I think that that has some of the impact on the observed performance versus expectations as well.
Operator
Your next question comes from the line of Hugh Miller – Sidoti & Company
Hugh Miller – Sidoti & Company
I am assuming that in the fourth quarter you didn't have any compensation accrual reversal that kind of helped out with the comp line, is that correct.
Neal Stern
No we did have one, $800,000 in total, so the two components of that we did reverse off a piece that the 2008 LT program and about $500,000 and it was about $300,000 of adjustment for FAS123R.
Hugh Miller – Sidoti & Company
Can you talk about purchasing in the quarter obviously the fourth quarter the supply tends to increase that I would think that it was even more in this case given the economy but one might have anticipated it would have been maybe a little bit more aggressive in the fourth quarter with your purchasing activity, was it possibly just moderated by anticipation that pricing will continue to improve in the coming months and that you are just being a little bit more patient or what's the thought process there.
Steven Fredrickson
I would say that is exactly it, it was a very interesting quarter. From everything that we see in terms of delinquency and charge-off statistics it would certainly look as though 2009 continue to be a year of pretty decent supply and we were trying to be very careful in Q4 not to set the market and in doing so we probably lost more than our fair share although given pricing trends we are fine with that.
Hugh Miller – Sidoti & Company
And the deals that you are seeing in the fourth quarter overall did they seem to be much better than what you were seeing in third quarter from a pricing standpoint and from the returns you would anticipate given the adjustments in your expectations for collections given the economy.
Kevin Stevenson
I would say that overall perceived value so that's price relative to perceived collections was improved in Q4 from Q3.
Hugh Miller – Sidoti & Company
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 1041.
Steven Fredrickson
We don't have it with us sorry.
Operator
Your next question comes from the line of Sameer Gokhale – KBW
Sameer Gokhale – KBW
Can you go over your comments on the $800,000 that you had in the quarter in OpEx I think as the benefit and then also can you just talk about the sequential trend in your comp and company expenses compared to last quarter because it looks like they were may be down slightly and then you saw the big revenue lift but if you can just talk about the two dynamics there, that would be helpful.
Kevin Stevenson
The first two things were the two components of the reversal, again these around numbers about $500,000 in the reversal of 2008 long-term incentive program, this would have been similar, $1.4 million in Q3 that was reversed. The other piece was our annual true up under FAS123R that kind of goes through every Q4 and that was $300,000.
We were also down slightly as we mentioned on our collector headcount and the fourth quarter had a, less workdays than the third quarter and so all of that did impact the quarter-to-quarter comp trend.
Sameer Gokhale – KBW
As far as your impairment charges I just want to make sure the impairment charges you took this quarter were those primarily related to the fact that you had accounts that may have historically paid you a lump sum up front and now are going on the payment plans is that what the impairment charges were related to this quarter or was it just kind of general weakness in the consumer.
Steven Fredrickson
I believe that is the case I believe that some of this impairment charge that we are incurring is result of that, I believe that some of the impairment charges we are booking today is resultant of the legal strategy that I described but the thing as we observe it though from a finance perspective if the cash wasn't there in November and December I don't assume is going to be here in June of next year. We take our lumps and move on and as I tried to go through these are reserves you can see that some of the cash shortfalls actually were doubled in terms of the allowance we took so we took twice as large allowance as our cash shortfall was.
We are trying to be thoughtful as we go through these pools. Something else we are doing this quarter we are looking to give you a little bit more granularity in the 10-Qs and 10-Ks as well so we are looking to figure out a way to put some more yearly tranche allowance granularity out for you.
Sameer Gokhale – KBW
This is something I have struggled with also and it is the magnitude of the impairment charges I know you talked about this in the past a lot but as you sit here today and you look at where we are at in the quarter and you look at the unemployment rate going up in some of these economic pressures, is it safe to say well okay you had a larger impairment charge than normal in Q4 but you got the bulk of them now behind you and that going forward you accounted for some of that economic weakness, can we get a sense of how we should think about that again given the state of the economy.
Steven Fredrickson
I will take you back to the whole, we were $800,000 short in cash yet we booked at one point $6 million allowance so we definitely are building buffer, we’re definitely building in some adjustment to cash collections certainly in the near-term and that’s driving some of these allowances you are seeing. Q1 is going to be obviously a key quarter for us as well all of 2009 so from our perspective again, I can can’t say it enough, we really look at this what’s the cash shortfall, what’s our trend, what’s the observed trends look like, we come up with a cash projection and book the allowance so its been a pretty consistent process.
Operator
Your next question comes from the line of Richard Shane – Jefferies & Co.
Richard Shane – Jefferies & Co.
last quarter you made the comment about on the 400 basis point decline in legal collections attribute to that basically you define that as $3 million of missed legal cash, you thought that you would potentially recover that over time, what’s the view now, has that gone or is the expectation that you may in fact get that down the road still.
Steven Fredrickson
Not to break it down too far, some of it we did get back and that was masked a bit by a 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 its going to take longer because we’ve seen some weakness in the legal collection channel and then there’s just some general deterioration given the economy.
So its impossible for me to break out how much to attribute to each of those pieces. I guess the answer would be yes we still expect to have a good ROI on the investment that we’ve made in our legal process.
Richard Shane – Jefferies & Co.
In going through the cash shortfalls for 2007 and then one shortfall in the 2008 pool Q1 2007 $800,000 cash shortfall, $1.2 million allowance, Q2 $1 million cash shortfall, $2.1 million allowance, Q3 $700,000 $1 million allowance and then Q2 2008 it sounds like it was a $600,000 cash shortfall and a $600,000 allowance is the difference there that on the 2007 vintages you were effectively lowering the future expected cash collections and on the 2008 its more of a one time issue.
Neal Stern
Remember 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 its 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 we talked about of allowance relative to observed cash shortfall.
Kevin Stevenson
You talk about the 2007 Q1 that pool had already booked a $1.6 million allowance in the prior quarter so I think part of the older deals you can see certainly, you have more data points to observe in older deals.
Richard Shane – Jefferies & Co.
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.
Kevin Stevenson
No. I will mention we do have an EBITDA coverage ratio but the, adds back portfolio amortization and so that’s something that people, they don’t read the fine print.
Richard Shane – Jefferies & Co.
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 do you actually look at what’s happening, its now February 12th, you have a lot more insight, you’ve seen your cash collections, we’ve also seen another 600,000 jobs lost. How much does that factor into post 12/31 information.
Steven Fredrickson
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 subsequent event, but no generally for us when the quarter is over its over.
Operator
Your next question comes from the line of John Neff – William, Blair & Company
John Neff – William, Blair & Company
Could you give us the total gross allowance charge and the total reversal for the quarter.
Kevin Stevenson
We’ll add it up for you.
John Neff – William, Blair & Company
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 sub par vendor performance is that symptomatic of broader problems or is that vendor specific.
Neal Stern
The investment piece in Q4 was relatively similar to Q3m, slightly smaller. We clearly have some vendor performance issues, some did just fine.
And some did not. Those did not we are 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. I think there’s a good amount to attribute to simple vendor underperformance.
Also if you’re looking at it relative to the call center again our calling went up very dramatically so as we said we’re peddling quite a bit faster. I’m not sure that that same incremental amount of effort took place at all of these law firms and so that’s borne out in their numbers to some degree.
John Neff – William, Blair & Company
Do you have a vision for how much, what the ultimate external internal legal collection split might look like a year from now.
Neal Stern
No, we do it when we can and where its smart so 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 then we can handle, that would be a real disaster.
And we have a number of vendors who performed really well and I’m not looking to disrupt that. We’ll see.
John Neff – William, Blair & Company
Do you have any sense of what percentage of your bankruptcy accounts, what percentage actually own a home.
Kevin Stevenson
We’ve done some testing along those line, again its 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 home ownership rates would be similar to what you would observe in the national population.
John Neff – William, Blair & Company
So roughly two thirds.
Kevin Stevenson
That’s right.
John Neff – William, Blair & Company
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.
Kevin Stevenson
Your gross allowance charge number was $9.5 million and then reversal was $650,000, the 1482 number was 1477.
John Neff – William, Blair & Company
I thought you had said that cash collections for every single year of portfolio purchasing had exceeded original expectations, is that—
Kevin Stevenson
If you look all buying in a total aggregated year, yes all those aggregated yearly deals exceeded our original booked expectations.
Operator
Your next question comes from the line of Bill Carcache – Fox-Pitt Kelton
Bill Carcache – Fox-Pitt Kelton
On leverage it seems like you’re keeping powder dry as you expect pricing to improve, but let’s say in theory that we’ll hit peak unemployment in the fourth quarter would that lead you to raise leverage, I’m just trying to get a sense for the point where you’d 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.
Kevin Stevenson
I think that its 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 its offered and evaluate its relative value at the time that’s its 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 just so compelling I think we would be foolish not to consider looking at different levels of leverage but that would be evaluated very carefully because 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.
Bill Carcache – Fox-Pitt Kelton
Is there a role for the collection industry to play in some government programs designed to get bad loans off of the books of so many banks, someone from ACA was recently quoted as saying that probably for the first time in the history of the industry that the needs of the federal government are actually aligned with the collection industry. What are your thoughts on that idea and the potential implications if any for you.
Steven Fredrickson
I think that the easier to see potential opportunity would probably be for the contingent fee side of the world then necessarily for somebody 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’d say its something interesting to think about but who knows where reality is actually going to shake out.
Operator
Your next question comes from the line of Edward Hemmelgarn – Shaker Investments
Edward Hemmelgarn – Shaker Investments
On interest expense that will be dropping significantly won’t it in the first quarter, given the fact that if I’m right you’re at one month LIBOR plus 140 so your rate drops off by more then half doesn’t it.
Kevin Stevenson
If that LIBOR rates goes down, absolutely.
Edward Hemmelgarn – Shaker Investments
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 then bankruptcy that you might really change your mix dramatically to be buying much more non bankruptcy versus bankruptcy or—
Steven Fredrickson
We in any given year will 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.
Edward Hemmelgarn – Shaker Investments
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 at what’s being offered right now versus and the pricing relative to what it was back then or at least your initial thoughts on what you were buying back then.
Steven Fredrickson
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].
Edward Hemmelgarn – Shaker Investments
If you think of a deleveraging process here that as consumers start to pick up, increase their savings [inaudible] and the availability new borrowing seems to be getting worse obviously does that help or hurt you.
Steven Fredrickson
Our view is that for the first time in a long time its actually a socially fashionable thing to pay down your debt and that is certainly a new phenomenon in the US at least in 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 pools over time.
Edward Hemmelgarn – Shaker Investments
You’ve talked in the past of how its difficult keeping people on payment plans obviously, how much is that a big part of everybody’s efforts just trying to keep people on payment plans that are on payment plans.
Steven Fredrickson
I can tell you for a collector making sure that 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 are all over it.
Operator
Your next question comes from the line of David Scharf – JMP Securities
David Scharf – JMP Securities
When you went through all the detail of the allowances by year, it looks like half of the quarterly charge was derived from 2007 pools, were any of those pools written up in the intervening months before these charges were taken. Obviously 2007 and 2008 was a dramatic increase in the volume of purchases and just trying to get a sense looking back the last 24 months if you’ve actually been writing up any of those.
Kevin Stevenson
The concept is that the quarter is did the deal multiple go up, I would say probably not. I don’t have that readily available right now but the yield to the extent the cash collections came in early and it was strong that would have let the yield float up because again the goal being that you set the cash collections and then the yield is computational so it is quite likely I guess that at least there’s a couple of percentage points in there of those deal going up.
David Scharf – JMP Securities
The pull back in productivity at Jackson what was the commentary given surrounding that.
Steven Fredrickson
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 paid during the quarter and our experience is is that is enough to cause a productivity decline of almost a like amount.
David Scharf – JMP Securities
So since the net total collector amount isn’t moving around much it sounds like the mix of your collector base is increasing towards this lower wage region probably.
Steven Fredrickson
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.
David Scharf – JMP Securities
On the fee for service businesses in aggregate is there much customer concentration among these, in the contingency world which you are out of now, a number of third party collectors are reliant very often on a couple of large card issuers but when you look at your fee for service businesses in aggregate is there any client concentration issues.
Steven Fredrickson
On the government services side we are extremely diverse. On the skip trace, asset location business we do have a few larger clients there.
David Scharf – JMP Securities
Has there been any consolidation in recent quarters that has impacted those businesses.
Steven Fredrickson
No. In fact to the contrary I’d say we have more prospective business in both currently then we’ve had in some time.
David Scharf – JMP Securities
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 push back now from sellers to the point where even though charge-offs and delinquencies on a upper trajectory, are we getting to a level of pricing just based on the lack of bidders and lack of financing where they’re just throwing up their hands and saying you know what, we’ve taken so many lumps might as well just give this to a contingency shop. Is there the possibility of supply actually drying up for the purchase industry this year.
Steven Fredrickson
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 is more realistic levels. And the sellers especially over 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 well, good news is you’re high bidder, the bad news is we just can’t swallow this purchase price.
And we’ve seen a few of those.
Kevin Stevenson
Looking at the core deals for 2007 generally it looks like its very consistently the rates moved up about 2% on each deal from where they were booked, two percentage point yield. So if you look at really each quarterly deal, each one of them moved up about 2% from where they were originally booked.
Operator
There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.
Steven Fredrickson
I do want to note we cleared the queue. First I’d like to thank all of you for participating in our conference call.
Before we go I’d 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 important investments in our future growth investing in people and entities such as MuniServices, and 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 certainly created substantial long-term opportunity for PRA. Its 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.