Nov 7, 2015
Operator
Good afternoon, and welcome to the PRA Group earnings conference call. [Operator Instructions] I would now like to turn the call over to your host Ms.
Darby Schoenfeld, Director of Investor Relations for PRA Group. You may begin Ms.
Schoenfeld.
Darby Schoenfeld
Thank you. Good afternoon, everyone, and thank you for joining us.
With me today are Steve Fredrickson, Chairman and CEO; Kevin Stevenson, President, CAO and CFO; and Neal Stern, Executive Vice President and Chief Investment Analytics and Operational Strategy Officer. Geir Olsen, Chief Executive Officer of PRA Group Europe will also be available to answer questions during Q&A.
The press release announcing our third quarter results was distributed this afternoon and is available on the Investors section of our website at www.pragroup.com. A replay of this call will be available shortly after its conclusion.
The information needed to listen to the replay is contained in the earnings press release. I would also like to remind you that we do not provide earnings forecast, however, we believe all statements other than statements of historical fact are considered forward-looking statements.
Actual events or results could differ materially from historical results or those expressed or implied in any forward-looking statements as a result of various risks and uncertainties, some of which are not currently known to us. These include the risk factors and other risks that are described from time-to-time in PRA Group's filings with the Securities and Exchange Commission, and will be publicly disclosed in any future report that maybe filed with the SEC after today.
Any such forward-looking statements speak only as of the date they are made. Except as required by applicable laws or regulations, PRA Group has no obligation to update any forward-looking statements to reflect events or circumstances that occur after the date they are made, whether as a result of new information, future events or otherwise.
All comparisons mentioned today will be between Q3, 2015 and Q3, 2014, unless otherwise noted. During our call, we will be discussing financial information that can include non-GAAP financial measures.
Please refer to our third quarter 2015 earnings release issued earlier today and our current today on form 8-K filed with the SEC for the most directly comparable GAAP financial measure and reconciliation to the non-GAAP financial measures discussed. Both of these can be found on the Investor Relations section of our website www.pragroup.com.
I'd now like to turn the call over to Steve Fredrickson, our Chairman, and CEO.
Steven Fredrickson
Thank you, Darby. During the third quarter of 2014, we closed the most transformative company acquisition PRA has ever completed.
It seems fitting that one year later, we closed the largest single portfolio acquisition the PRA has ever executed and it was done in Europe. The progress that we've made in the last year and the performance of our European team has exceeded our expectations.
Our long-term strategy and disciplined approach has delivered consistent results over the last few quarters. So while our results in the third quarter are complicated by several items unrelated to our normal operations, our underlying metrics remained consistent with the positive results we've achieved throughout the last year.
First, performance in our U.S. call centers continues to be exceptional, with cash collections increasing 27% of last year's quarter.
Second, investment across the globe was formidable at $345 million, bringing us to $766 million for the year. And third, our consent order with the CFPB marks a significant new chapter for PRA, as we put a large piece of regulatory uncertainly behind us and work towards completing the build out of a now well-defined compliance regime with a clear expectation of what is expected of the organization on a go-forward basis.
Due to the significant impact of one-time items to our third quarter results, we have decided to present non-GAAP financial measures this quarter to provide you with a better understanding of how we track our operational results and to clarify financial comparisons to historical performance. Since this is also the first quarter that affords the year-over-year comparison, which includes our Aktiv Kapital acquisition, we have begun adjusting our results on a constant currency basis, as you saw on the press release.
We believe you'll benefit from these non-GAAP financial measures in assessing our performance. Simply put, we're trying to break out operating results within our control from exogenous and one-time items including FX, regulatory settlements and unusual litigation expense.
After making such adjustments, it's clear that our operational performance remains positive yielding non-GAAP total revenues of $235 million, a slight decline from the third quarter of 2014, while absorbing an $11 million allowance charge versus a $2 million allowance reversal last year. Non-GAAP diluted earnings per share were $0.99 versus a $1.11 in the third quarter of 2014 and non-GAAP return on equity was 21.4%.
In the Americas, cash collections on our non-GAAP basis were largely in line with our expectations at $293 million. U.S.
call centers continue to perform exceptionally, up 27%, while legal collections were down slightly from the third quarter of last year. Insolvency collections were down 26% from last year.
However, since this was a decrease we largely expected as older pools liquidate, those results were in line with our expectations. Total investment in the Americas was $100 million with investment in insolvency portfolios of $9 million and core portfolios of $91 million.
The buying environment in the U.S. remains largely unchanged with several large sellers of both core and insolvency on the sidelines.
Pricing in both segments remains very competitive, but largely rational. The rational competitors who relied on business models that were bad for consumers and disfavored by regulators, continue to disappear from our industry.
Looking over the longer term, we've been following a slight uptick in consumer lending that's been consistent for more than a year. It's modest, so we're not reading too much into it, but at least it is one positive sign of a trend of improved supply in the years to come.
For reference, today's average credit card charge off rate of less than 3% would have to increase by 77% to normalize to its 20 year average. In short, we compete with fewer and more rational bidders, are very well positioned with both active and potential sellers, have invested substantial amounts in a restricted supply environment and expect to benefit from any supply normalization that occurs over the next few years.
We've had about two months of operations in Brazil and so far have been pleased with the results, especially since the acquisition had a positive impact on earnings in the quarter. The market there is both active and competitive and we're convinced that we have the most skilled and experienced team in the country.
In addition, the portfolio level investment we made in Brazil earlier this year continues to perform well. Moving over to Europe, non-GAAP cash collections were $99 million with core collections of $96 million and insolvency collections of $3 million.
The total represents an increase of 35% over last year, which is due mainly to the purchase of new portfolios driving increased cash collections. This expansion demonstrates the growth engine, we believe, our European operation will provide for PRA in the future.
We went into 2015, with a goal to increase market share in important European markets and thus far we've done a great job doing just that. Investment in Europe was $244 million consisting of $240 million in core portfolios and $4 million in insolvency portfolios.
While we're seeing a good pipeline of opportunities, some deals have moved into next year. Our competitive position in Europe has never been stronger and we expect to win our fair share of deals that come to market.
I'd like to give you a quick update on how our team is settling into their new roles. Kevin Stevenson and I continue to work in much the same manner we have historically, especially as we search for new CFO.
Kevin has now absorbed all Americas debt buying operations and is working daily with Chris Grave and Mike Petit in advancing the core and insolvency enterprises. As a result, I am able to focus more of my time on our European operations, corporate strategy and our corporate-wide support functions, including compliance, HR and General Counsel.
Chris Graves has assumed the reins of our core operations in U.S. and gotten up to speed very quickly.
Combining responsibility for portfolio acquisitions and seller relationships with collection operations, he's proving particularly effective for us in this time of heightened regulatory focus and compliance oversight. Neil Stern has been able to focus his time on driving the same types of significant efficiency gains we've achieved in the U.S.
over in Europe. Our goal of building a center of excellence around what we view as an industry-leading operational analytics and strategy, should allow us to become much more competitive in Europe over time.
Steve Roberts has begun to tackle his new role of the strategy and business development with the same vigor and discipline that helped to manage our fee-for-service businesses. This aligned focus on buying and operating companies will help us to make better long-term decisions and drive operational optimization.
Our search for a new CFO is well underway and we've been speaking to a number of highly qualified candidates. We hope to have the new CFO on board by yearend, but obviously with Kevin in place, our first focus is on locating the right candidate, with timing a secondary concern.
I'd also like to highlight two recent outstanding achievements by our executive team. First, Michelle Link, our Chief Human Resources Officer just accepted a reward for being named the 2015 HR Honor Roll for HR Executives of The Year by Human Resources Executive Magazine.
This is the prestigious award and recognizes Michelle's leadership and contribution in developing our world-class HR team, which earned her the designation. And second, last month, Kevin Stevenson, was named CFO of the year in the CFO Dimensions Awards of Excellence.
Kevin's exceptional work presiding over PRA's growth, through more than 10 acquisitions, five public market capital raises and many bank deals helped to earn him this honor. It's demonstrated by these honors, we have a world class executive team, both in the Americas and in Europe that is not only strong but deep.
It is this team that is driving our exceptional results and I find it a real honor to be a part of it. Speaking a bit further on our management team, we're also making several executive changes in Europe.
Following an intensive two years, since we first engaged Aktiv Kapital, Geir Olsen has requested a change in his role, allowing him to spend more time with his young family. As a result, Geir will be stepping down as CEO of PRA Group Europe at the end of January 2016 and will join PRA Group's Board of Directors.
Geir is an exceptional executive and has been a wonderful partner to me in putting the two companies together. I'm extremely pleased he'll be joining our Board to help continue to drive our strategy and performance, not just in Europe, but enterprise wide.
Current PRA Group Europe COO, Tiku Patel, will assume the European CEO role. Tiku has been with Aktiv Kapital and PRA for seven years and is responsible for remaking the AK operation during that time and driving its current high level of efficiency and effectiveness.
Current Director of Strategy, Martin Sjolund, will step into the COO role. Martin has been with Aktiv Kapital and PRA for the past four years and during that time he's been a primary force behind our European strategy and expansion and build out of world-class capabilities throughout Europe.
Martin was integral to driving the integration between the two companies. Rather than changing executives, I see this more as the same team, just changing seats and expect virtually no impact to the European operations.
I want to offer my congratulations to each of the three. With that let me turn things over to Kevin, who will take you through our financial results in more detail.
Kevin?
Kevin Stevenson
Thanks, Steve. To better reflect our ongoing operations and in response to numerous investor and analysts requests, this quarter we have adjusted for a number of items that we believe are un-related to normal operations.
Our goal is to assist you in better understanding the Company's operating performance. But before I list the items that we've excluded, I want to point out that, we are still able to generate a GAAP net income margin of almost 8%.
So the items that we've adjusted for are as follows, number one, costs associated with our CFPB settlement of $28.8 million, which includes an $8 million penalty that is not tax deductible. Additionally note that the $28.8 million will appear on the other operating expense line for GAAP purposes.
Number two, acquisition and other integration expenses related to both Aktiv Kapital and RCB of $800,000. Number three, unusual one-time non-cash tax adjustments of $2.5 million.
Four, non-cash interest expense associated with our convertible bonds of $1.1 million. Five, legal costs not associated with normal operations of $1.3 million, which include such things as the CFPB and IFRS matters.
And six, we've adjusted to reflect constant currency with Q3 of 2014. Lastly, well, allowance charges represent a lopsided accounting concept, which causes us to taking a non-cash charge in the current period, for the downward changes in estimates, which are largely forward-looking in nature.
We have not removed the allowance charge from our non-GAAP numbers. Additionally, and this is important to understand, we've also not estimated and adjusted our numbers on a non-GAAP basis for any symmetric gain, which would have been required under IFRS, International Finance Reporting Standards.
If we were operating under IFRS and non-GAAP along with the allowance charge we booked this quarter, we have also booked a gain in the current period for increases in our future estimates. I will address this later in some detail, but in short, we reclassified $140 million, from non-accretable difference into accretable yield in the quarter.
And I apologize for the detailed accounting terms but I find it necessary to discuss specifics. That movement would have produced a significant gain under IFRS and for future note, assuming that financial instruments proposal by FASB is adopted, we will do the same thing here in the US at some future date.
Again, I'll say more on this later. The third quarter of 2014 has also been adjusted for one-time items in order for you to see what we believe is a fair comparison between two quarters.
There is a full reconciliation of these non-GAAP items to the most directly comparable GAAP items in our press release filed earlier. So moving forward, unless I specifically mention GAAP, all of the numbers here are on a non-GAAP constant currency-adjusted basis, as described above and reconciled in the press release.
Total cash collections for the quarter increased 5% to $392.1 million. Core collections in the Americas were $211.5 million, a growth of 12% due to an exceptional 27% growth in cash collections in the U.S.
call centers. Insolvency collections in the Americas were $81.9 million, a decline of 26% mainly due to the lower supply and older portfolios continue to run off.
And European core and insolvency collections were $98.7 million, an increase of 35% over last year, primarily due to the purchase of new portfolios. Total revenues decreased 1% to $235.3 million.
Net Finance Receivable or NFR revenue was $214.2 million net of an allowance charge of $11.3 million. Stated as a percentage of the NFR on our balance sheet, the allowance charge represents only 0.5% of the balance.
Importantly, these allowance charges that have been taken on portfolio vintages as grouped in our SEC filings, that have materially exceeded their underwritten estimates and now we're required to take this relatively small adjustment. The situation continues to shed light on the asymmetric nature of accounting under U.S.
GAAP. Here we are forced to take these write-downs, while increases in projections are less prominently displayed in a table in a footnote in our 10-Ks and 10-Qs.
This is very different than in other parts of the world, where the accounting under IFRS is symmetric. If you spend some time in our Qs and Ks, you will see that over the past 12 quarters we have moved $1.1 billion from non-accretable difference into a bucket called accretable yield, based on updated collection experience.
And I've had this question before; these movements are reclassification entries on portfolios that have already been purchased. New portfolios are listed separately.
From an accounting perspective, non-accretable difference represents an amount that we believe we won't collect. Put another way, this represents a delta between TEC or total estimated collections and face amount.
Accretable yield represents revenue to be recognized in the future. Again, put another way, TEC less purchase price.
So moving $1.1 billion from non-accretable difference to accretable yield means, our analysis shows there is $1.1 billion more revenue to be booked based on our updated collection experience. In Q3 alone, we moved $140 million from non-accretable difference to accretable yield.
Over the past two years, our reclassification has averaged $100 million a quarter. To give you a feel for yields and deal multiples, over the past three quarters we have taken allowance charges on the exceptionally performing vintages of 2010 through 2012.
For Q3 in the U.S., we recorded $8.1 million in allowance charges relating to the 2011 and 2012 pools. All of these effective pools have current yields of between 70% and 145%.
The original book yields on these quarterly tranches vary somewhat, but were all in the low-to-mid 30% range. To put this in terms that you maybe more accustomed to dealing with and the deal multiples for the 2010 through 2012 pools have extended greatly since purchase.
2010 started its life at 247% purchase price multiple and is now at 353%. 2011 started at 245% and is now 340%.
And 2012 began at 226% and is currently 279%. These current multiples are exceptional, especially considering the improving financial nature of the consumer underlying these pools.
After the allowance charge last quarter, we were asked about how those charges compare with allowance charges we felt in fiscal years 2008 to 2010. And my answer is clear; they are not at all comparable.
The allowance charges we took back in 2008 to 2010 were taken against portfolios that at the time we believed would underperform our original underwritten levels. You can see this in our supplemental data sections during that timeframe.
And those who followed us back then likely remember the era, which is not at all like the allowances we're taking today. The vintages today are greatly exceeding our underwritten levels and we hope that is quite clear.
One last comment on allowance charges. I feel like I've been saying the same sentence for many years.
Given our U.S. GAAP accounting, some level of accounting charges will always be with us.
Case in point, we have booked an allowance charge in every quarter since 2006, not considering reversals. And this quarter is in line with our historical rate of allowance charges as a percentage of NFR, again not including reversals, which is simply a necessary piece of the accounting.
We also had a $2.5 million allowance charge in Europe this quarter. These allowance charges do not relate to the original legacy portfolio we acquired in active capital.
In fact, the original portfolio we acquired continues to outperform expectations. However, I will note that nearly all outperformance is going to straight amortization at this moment, since we believe it's too early to determine whether this has sustained betterment or acceleration.
For reference, under GAAP, life to date cash collections on the legacy active capital portfolios are outperforming by around 10%. Clearly, this will be even higher, if I gave it you on constant currency basis.
The majority of allowances in Europe relate to two deals purchased in 2014 that had unique circumstances with them, causing us to write them down. One was impacted by the bankruptcy of the original creditor, which normally would have little to no impact on us, given that we own the legal claim after we buy them, but this is special situation.
The other was a new product segment that we are testing and our model assumption simply proved too optimistic. Hopefully, the takeaway from all of this is a little better understanding of the U.S.
accounting, maybe a little better appreciation of IFRS and certainly an understanding that our portfolios are performing wonderfully, virtually across the Board. Moving on, fee revenue increased 41% to $18 million from $12.8 million due to better results that are free-based businesses, especially CCB.
Other revenue increased to $3.1 million from $1.9 million, largely due to the addition of our Poland investment. Moving on to expenses.
Operating expenses were $148.3 million, up $4.4 million or 3%. The increase is largely driven by a slight increase in compensation and employee services, and an increase in agency fees in Europe due to rapid growth in markets, where collection operations are mostly outsourced, such as Italy.
As a percentage of cash collections, operating expenses were 37.8% in the third quarter versus 38.6% in the prior year. Operating income was $87 million and our operating margin was 37%.
Our non-GAAP effective tax rate was 35.1% for the quarter, in line with our long-term expectations compared with 37.3% for the same period in the last year. The provision for income taxes was adjusted for $2.5 million in one-time non-cash item, as mentioned earlier.
Net income was $48 million compared to $56.1 million in the same quarter last year and diluted EPS was $0.99 versus $1.11. Our net income margin was 20.4% compared with 23.5% for Q3 of 2014.
Considering all that we've talked about and comparing q-over-q, the $0.99 over $1.11, the significant item that is unaccounted for in our adjusted number is the allowance charge. As a reminder, the allowance amount was a net reversal of $1.7 million in Q3 of last year versus the $11.3 million of allowance charges this quarter, a delta of $13 million.
Individual investors can decide how they wish to treat the $13 million delta, when looking at our quarter-over-quarter differences. Moving on to the balance sheet.
Cash balances ended the quarter at $69.1 million compared with $70.3 a year ago. NFR balance was $2.17 billion, up from $1.91 billion at September 30, 2014.
Net deferred tax liabilities were $267.6 million at quarter end compared with $237.2 million a year ago. During the quarter we repurchased $7.7 million or approximately 133,000 shares of common stock at an average price of $58.08.
In order to continue to be opportunistic, and given the strength of our capital position, the Board of Directors has authorized a new $125 million share repurchase program. Borrowings totaled $1.65 billion at quarter end.
Our debt-to-shareholders equity ratio at period end was 192%. And if you include the deferred tax liability and interest-bearing deposits, the debt-to-shareholders equity ratio would be 228%.
Non-GAAP ROE for the quarter was 21.4%. Now, let me turn the call over to Neal, for a review of our third quarter operations strategy results.
Neal Stern
Thanks, Kevin. During the quarter, we collected just over $2.6 million domestic payments.
The average size of those payments fell by 2.6%. As has been the trend over the last few quarters, this was attributable to having more of our accounts paying in our call centers than through our legal collection efforts.
In order to diminish the impact of mix changes in our collection channels, we tend to favor examining the amount of cash collected per acquisition score point. That result increased by 9% over the third quarter of 2014, and was driven by purchases made over the last few years and improved collection performance from our call centers, for that metric improved by 20%.
The call centers continue to benefit from improvements in scoring that have ultimately reduced incremental calling in the segments that were producing returns below our desired return thresholds. Total domestic legal cash collections were down by $2.7 million or 3% over the last year.
External legal collections represented 53% of that total and internal legal collections were 47%. Our total spending on core costs of $17.5 million was 10% lower than the same quarter last year.
The reduction in core cost reflects lower inventory levels, driven by the improved call center performance. Obviously, having an increase in call center cash collections is our strong preference.
Legal collections remains our option of last resort and only occurs after consumers have not responded to letters and calls, but appear to have the means to pay us. Examining our collection metrics in Europe is more difficult to do in aggregate, because the individual countries have different mixes of legal and call center collection contributions.
Across Europe, cash collections on a constant currency basis per paid hour increased by 5%. The total number of payments and average payment size both increased by 1%.
While we can't yet measure the amounts collected per score point in every market, we can do so in the U.K. and in Spain, and in those markets we saw cash collected per score point increase by 8% and 46%, respectively.
Work is underway to create models and processes in our remaining markets to gain this insight, and we expect to complete that work in the coming year. In the U.K.
where we have the largest segment of European business, the integration of our operations in the Bromley and Kilmarnock offices is complete, and we have now focused our activity on migrating our accounts to a single technical platform. We anticipate this work to be completed in 2016 and expect to gain further efficiencies as a result.
I'd now like to turn the call back over to Steve for some final thoughts, before Q&A.
Steven Fredrickson
Thanks, Neil. As I mentioned earlier, our settlement with the CFPB in September puts one significant event behind us.
To reiterate, what we said before, we don't believe that the order will materially impact our operations, but that doesn't mean we aren't working hard to ensure compliance with the order and other regulations. Additionally, we fully support the efforts of CFPB and their rulemaking.
We intend to continue to work with them, as they push forward to bring about industry-wide reform that ensures people who have debts are treated fairly and with respect by all debt buyers and debt collectors, not just the largest ones. One other topic I'd like to address is the TCPA, the Telephone Consumer Protection Act.
This law from 1991 has been judicially interpreted in a bizarre fashion to apply to not just acts prohibited in the law, but to the theoretical future capacity of one to commit such acts in the future. This long-headed view was recently upheld in a highly divided FCC decision, which one dissenting commissioner said, opens the floodgates to more TCPA litigation against good faith actors.
This boon to plaintiffs' attorneys everywhere has impacted businesses of all types in the U.S., from airlines, to banks, to auto repair shops, to collectors like us, resulting in hundreds of millions of dollars in settlements and legal defense costs and possibly more in lost productivity. Simply put, the current TCPA interpretation prevents businesses of all types from using modern telephone dialing equipment, when contacting our customers on their cell phones, contrary to laws we see in virtually all developed economies in which we work around the world.
Last week, the federal budget deal was passed by both the House and the Senate, and we saw the President sign it earlier this week. You can imagine our disgust, when we saw this budget deal allows a carve-out from the TCPA for those collecting on debts owned or guaranteed by the federal government, including student loans and mortgages.
If collection efforts on behalf of the government can be exempted from this rule, why should collection efforts on behalf of American business suffer from what we believe is a poor interpretation of the rule to begin with. The Department of Education argued in its report titled Strengthening the Student Loan System to Better Protect All Borrowers, dated October 1, 2015.
If servicers are able to contact a borrower, they have a much better chance at helping that borrower resolve the delinquency or default. Many student loan borrowers, especially those that may just be graduating, move frequently in addition to no longer having landline phone numbers.
As such, it can be difficult for servicers to find a borrower, except by using a cell phone number. Current federal law prohibits servicers from contacting borrowers on a cell phone number using an auto dialer, unless the borrower has provided explicit consent to be contacted at that number.
With phone numbers changing or being reassigned on a regular basis, it is virtually impossible for servicers to use auto dialing technology. Like the DOE, PRA and other debt buyers offer customers a wide variety of payment methods and options as a way to resolve delinquent debt.
We agree completely with DOE, as it appears the Obama administration and Congress had as well, that if collectors can more efficiently and effectively contact our customers, we have a better chance of helping that customer resolve their debt. We continue to deliver this message to lawmakers and we will work hard to help dispose of the misunderstanding that us contacting those who owe us a debt using a dialer is somehow harmful.
It's way past time that either Congress takes legislative action to fix this outlandish implementation of law or that the Obama administration helps push a regulatory fix to it, that applies to all U.S. businesses, not just those working for the Federal Government.
Although, we've all become numb to the hypocrisy and inability to act in Washington, this latest example is off the charts in terms of its duplicity. Operator, we're now ready for questions.
Operator
[Operator Instructions] Our first question comes from Hugh Miller of Macquarie.
Hugh Miller
So I guess just a couple of quick ones from me. You guys mentioned obviously the $11 million worth of impairment charges, and sorry to start on this note, but how much of that was directly related to the CFPB agreement?
Steven Fredrickson
Directly related to the CFPB agreement?
Hugh Miller
I guess I'm assuming that you guys made some adjustments to collectability, post the agreement, tied to that agreement. And that was reflected in the impairment charges.
I'm just trying to get a sense of how much of that was within that $11 million?
Steven Fredrickson
So Hugh, I think the way to think about this is related less specifically to the CFPB taken by itself, and more holistically the regulatory issues that we're facing across the board, as it relates to especially to legal activity. So that would include things like the CFPB consent decree, it would include changes that we're seeing at the court level, document requirements, as well as what we're seeing from the OCC.
So those things taken together definitely influenced the allowance charge. But to parse it down to a specific number is a level of specificity that we just don't feel comfortable providing.
We just don't think we can get a completely accurate number for you on that.
Hugh Miller
I understand there's a lot of moving parts. You guys gave us some color on the operational efficiencies that you're seeing in Europe.
Can you just give us a sense, what types of things you're doing that's helping you to derive that, and how we should be thinking about your ability to continue to foster additional improvements as we look into 2016? What are you focusing on in order to kind of drive additional improvements?
Steven Fredrickson
There are several markets that are fairly a kin to the U.S., so the U.K. and Spain and Italy and perhaps even Poland were calling activity, it's roughly similar to what occurs in U.S.
So we are busy building regression models and leveraging those models into our daily practices, developing a very deep understanding of our actual costs for making a phone call or sending a letter or filing a lawsuit and putting those two together. So in the U.S., most of our momentum has been built around delivering a return on investment threshold.
So if someone says, you want a 200% return on $1 invested in operations, we will set the dials accordingly. We will make sure we do that many phone calls, that many letters, that many lawsuits to make sure that that threshold is delivered very consistently across every different seller, every different score band of an account and it will be relatively uniform across all of our activities and accounts.
Hugh Miller
And last from me. You guys talked about supply in Europe a little bit, but I didn't catch all of it.
I think you mentioned that it seems like a couple of deals may get pushed off into 2016. But can you give us a sense as to considering it as I guess the seasonally strongest period.
What are you seeing in terms of supply relative to what you saw last year, as you were in this space, and if you can talk about the competitive environment relative to prior quarters?
Geir Olsen
Overall, we see good supply across the markets we're in. However, we've seen some of the larger deals slip into next year.
And I think that could be an indication of increased financial strength of some of these banks that may have less urgency to sell, and as such we've seen some of them go into next year. When it comes to competition, I would say as before, we've seen some changes in the U.K., where due to regulatory pressures we see some of the same patterns, as we've seen in the U.S., where sellers focus on a more reduced panel of buyers.
So well, before it could have been 15 to 20 players, we could easily now see a handful of players in these field. But the competitive pressure is, I would say, mostly rational, but very competitive there as well.
Hugh Miller
And just a quick follow-up there then, and we've heard about the U.K. being the farthest along in terms of a regulatory environment similar to the U.S.
But as you think about things, how long are we from seeing potentially those other countries within Europe that are probably going to follow suit, and that we would see similar compression in the number of people participating in the buying panel?
Geir Olsen
It's hard to make a generic comment about Europe overall, because each market is so different. And I think I would expect to take very long time before anyone comes close to the U.K.
or U.S., when it comes to regulation. However, we are seeing some of the players that are based in the U.S.
and the U.K., introduce some of the same practices that we see in U.S. and Europe, but the U.S.
and U.K. to other markets, things like stopping reselling of accounts and doing more thorough due diligence also on the buyer side.
So I would say it's more driven by the sellers than the regulators so far in other markets.
Operator
Our next question comes from David Scharf of JMP Securities.
David Scharf
A few things, Steve, starting with the U.S. and the purchasing environment, which seems to be fairly stable, notwithstanding the couple large sellers that remain on the sidelines, you actually deployed probably more capital than some had expected in the first half of the year, and I noticed that figure for core purchases has declined from Q1 to Q2 to Q3.
Is it just a question of lumpiness, the fact that you obviously were focused on this very large transaction in Europe? I just want to get a sense for how we should interpret current expectations?
Steven Fredrickson
I don't think that there is a hidden story there at all, David. We continue to get what we think is a reasonable share of the market in the U.S., but we see various sellers for a variety of strategic reasons coming in now to the market and so that's going to affect the amount of deal flow that we see overall.
David Scharf
And I'm going to weigh in on the allowance as well, wouldn't be an earnings call without a few more questions on it. Just trying to get a sense for stepping aside from the numbers, maybe just directionally how we ought to be interpreting the impact going forward.
What I mean is, we can appreciate it's only 0.5% of the NFR, but unfortunately the $11 million net reduces the quarterly earnings by about 15%. So GAAP unfortunately gives you a disproportionate impact the way you have to report, but given that its two quarters in a row where ignoring the actual numbers that was just a greater number of charges versus reversals whereas it seem to be a lot more reversals versus charges over the last few years.
Should we be taking away from that that there is arguably just going to be modest downward pressure on the average yield on the portfolio over the next year or so as opposed to any sort of upward yield bias as there had been in the past?
Kevin Stevenson
That's a very long question, so I think the answer is, no to your last part of your question. David, the problem with the accounting is really just the problem with the accounting methodology.
And from a forecasting standpoint, when you have deals that are performing so well, as the deals we have, the ones that wrote off, I mean just generically you're talking about underwritten deals at 250%, 2.5x deal multiples moving to 3.5x deal multiples, you simply must move up your yield or you run the risk of under reporting revenue which the SEC firms upon. So you got to be careful with this stuff.
So this lopsided nature as I talked about, you've got this $11 million charge over here and you've got this significant $100 million a quarter moving into non-accretable difference. So from my perspective, I think our process is sound.
I think, I talked a little bit about some of the slowdowns we had and Steve actually talked a little bit about the allowance charges in response to the questions. I think that about sums it up.
I mean again, I just want to be really clear, these deals are performing wonderfully and we're dealing with the accounting we have, it is lopsided and now that I've experienced IFRS for a lot of years now, almost two years over in Europe, I am beginning to get a whole new appreciation for it. So that's all I really have to say about it, it's just the accounting we deal with.
David Scharf
And then lastly, the trend towards more call center, less legal obviously, that speaks to sort of the persistency of payments in the U.S. and the health of some of the consumers you're dealing with, should that mix continue to increase towards call center, because obviously that impacts your collection cost positively or do you think it's kind of at a level where that break down between internal, external, legal and call center is pretty static?
Neal Stern
So in Q1, year-over-year the amount we collected per score point was very dramatic, especially in the call centers, and it's still quite high and I think we'll stay on a trend where there continues to be relatively good news, but probably not to the extent that we saw in Q1 of this year. So I think the trend is probably correct if you use Q2 and Q3, if you want Q1 and there you might throw things off a little bit.
Operator
Our next question comes from Edward Hemmelgarn of Shaker Investments.
Edward Hemmelgarn
My question basically is focused more of just the bankruptcy portfolio, especially has really dropped off here and the purchases have, do you ever -- I know you have ebbs and flows in terms of purchases, but is that just something that we should expect more by basic ordering away of that and the benefit of the bankruptcy purchases?
Steven Fredrickson
Well, we've got a couple of things going on. First is just the out and out level of new bankruptcy filings, especially Chapter 13 bankruptcy filings in the U.S.
and they're in their fourth year or so of double-digit declines. So there's just less raw material, but attached to that we've got a couple of things happening; number one, to some extent we're caught up with the same several banks that are out in the market in terms of selling and then we've also got a little bit of regulatory confusion over some commentary made by the OCC, that's causing some other potential sellers of bankruptcy to be less aggressive in those sales.
So that all being said, the supply equation for bankruptcy is not only depressed, but further depressed because of these regulatory and other concerns. We would hope that some of those concerns would get taken care of and we would see additional volume come into the market, but until then the more quarters go by that we have relatively low levels of insolvency investment.
You're going to see a net-net decline there, to the extent we can start investing more heavily and rebuild that portfolio, we'll lesson that run-off.
Operator
Our next question comes from Robert Dodd of Raymond James.
Robert Dodd
Just coming back to the allowance charge for a second. Can you try and parse out, I don't know if this is feasible to be honest, how much of the adjustment was a function of regulation change, et cetera, making an account or a portion of the account uncollectible and that arguably giving up costing you profit ultimately, versus given you've been going through a lot of analysis, particularly in the call centers, et cetera, about where you are generating returns and where an incremental call might be non-economic.
Was some of that allowance charge related to the fact that some of these collections just aren't economic at all and as a result you wouldn't be giving up any profit when you don't collect that account?
Steven Fredrickson
So as to the first part of your question, speaking to the regulatory side, I spoke directly to that issue earlier in the Q&A, although it's difficult for us to provide an exact quantification. There was definitely some impact as the result of all of the regulatory headwinds that we're seeing, particularly as it relates to filing legal actions.
So that was definitely a part of it.
Kevin Stevenson
On the call center side, what we are doing there is really just a mix. The expenses that we're eliminating are the ones that had very low or thin probability of a return.
We're not giving up on much cash collections there at all, it's extremely negligible and so has virtually nothing to do with the allowance charges.
Robert Dodd
And then I'd be remiss if I didn't ask you, what's your latest opinion on the large sidelined issues? If you comment at all earlier I missed it, but obviously that's still out there.
Any update on when you think those guys could be coming back?
Steven Fredrickson
No, that it is a fool's errand to try and predict they're going to return and I'm just going to stay away from it. They have us engaged, they have other large participants in this market engaged in the qualification process, so that gives us hope that they will be returning at some point, but we have no reliable insight as to when that might be.
Operator
Our next question comes from Bob Napoli of William Blair.
Bob Napoli
Kevin, just to be clear on the write-ups and write-downs, if you were working under international accounting this quarter, write-ups -- what would your write-ups have been versus the impairments?
Kevin Stevenson
It's a great question, Bob. I did not, I specifically did not compute that, but I gave you the raw numbers.
You obviously have to discount those back, the adjustments back at the rate of the current yields on the portfolio, so they would have been substantial. I could guess that they would certainly be north of the $11 million allowance charge, but I did not specifically compute that number.
Bob Napoli
And the increase in the total estimated collections, the net increase this quarter, that you did give that number right?
Kevin Stevenson
I did. That was $140 million in total.
Yes, and it's been averaging $100 million.
Bob Napoli
And averaging $100 million, it was a $140 million this quarter. And you discount that $140 million, that back to present value to compare against the $11 million impairment that you took?
Kevin Stevenson
One of the reasons I kind of avoid that, it's a little more complicated, because you would actually have to omit the deals that had the allowance charges on them, because technically if they were write-ups on those, if some part of that $140 million was relative to deals with that allowance charge on them, that was already taken care of, out of the equation. It'd be only on the write-ups for deals that didn't have allowance charges on them, that make sense.
But your mathematics are generally correct.
Bob Napoli
And then just a question, has the curve changed, I mean, granted those pools are performing well above your original expectations, but has -- are we seeing a change in the curves and have you adjusted for that on a going-forward basis? And I know, these are not big numbers in relation to the overall pools, but I mean you had very strong collections coming out of the call center, stronger than we've ever seen, but less legal, so is that changing?
And do you feel -- if it is, do you feel totally, as confident as you can that you understand how those curves have maybe switched a little bit?
Steven Fredrickson
Bob, let me start this one off. I want to make it very clear that our curves are always changing.
And have always been changing. And so trying to figure out, not only the quantity of cash that's coming in, but the source it is coming in from and the timing that it's coming in with is part of the exercise that we go through every quarter.
And then we, as Kevin says, put our pencils down and a new quarter starts and we look at three more months of actuals and we go back through that same exercise. So this is a constant thing for us and always has been.
I just want to make sure that there is not a misunderstanding out there that somehow we're searching for the right curve. But that being said, this phenomenon with cash being traded off between the call centers and legal activity is a relatively new one for us and is one that we're spending some additional time on.
Kevin Stevenson
Yes. So I think when we initially said we were going to invest more in legal, a couple of years back.
We talked a lot about the fact that the increase in legal costs would not cannibalize anything out of the call centers and our analytics were such that we were able to zero in on that without really affecting the other channel. And so to your point, the difference here is, what's going on in the call centers is cannibalizing legal.
And historically when we've made these kind of analytical jumps, we've been able to do so without impacting the other channel in that. The jump was so tremendous, again especially in Q1 that it's just not practical to imagine that not having any cannibalization at all.
Steven Fredrickson
And then to make it even more complicated, going back to the several questions that have been asked on this specific subject, we also have increased regulatory requirements that are impacting in, I would say, a more modest subset of cases the ability to move the legal process along and then in the majority it's simply delaying it, as we go through the process of obtaining the necessary documents and quite candidly, as the sellers also go through a re-gearing to allow their process to handle the type of volume and quantity of documents that are being created. And so there's been a bit of a backlog that's gone into this legal process for us.
And we're trying to be careful in that we don't estimate that all the delay is simply a backlog that we're going to catch back up with. We're estimating that some of it may simply be lost and hopefully we're being on the safe side of those adjustments, but time will tell.
Bob Napoli
And then just on pricing, I guess our returns globally now, are you seeing any changes in the pricing getting more difficult or more attractive? And are you comfortable that you're generating targeted returns?
I know, you had a 21% return on equity this quarter, but is -- where are you seeing pricing or competitive environment getting tougher or easier, where are you getting the most attractive returns and the least attractive?
Kevin Stevenson
First of all, I think the fundamental question is do we feel good that our underwritten returns are being realized. And I can tell you on that, we have the highest level of confidence that we know what we're buying and that the returns that are being realized are at or above what it is we're expecting, when we make an investment in a transaction and that's really true in every market that we operate in.
That being said, we all live in a world where investors are seeking yield and so there is no place that we operate that doesn't have a fairly good degree of competition. I would say that, there are many markets that are very similar in terms of yield that we're perceiving both here and in Europe.
There is other, I'd say, less developed markets, where we believe we are getting higher levels of return, but we also have a well-developed book of statistics. And we've got other economic factors which we believe are right some ways, the risk there, and so we need higher returns ultimately to be as attractive as a more developed market for us.
It's kind of a rambling answer to your question. But there is competition everywhere.
I don't know that we can really point our finger and say, in the country of all good things, deals sold on Thursdays that are between this size and that size are the ones where there is really special returns. There is a lot of sophisticated participants out there in every market that we participate in and there's no dummies, everybody is chasing these deals.
And we don't see any untapped veins at least remain with outsized returns for long.
Bob Napoli
And then last question, and Geir it's been great having you on these calls and working with you. I'm glad you're staying on the Board of Directors.
But how big is the Brazil opportunity?
Geir Olsen
We're looking at it right now as an opportunity in terms of realized investment in the $250 million or so range on an annual basis, and it is a developing market. So I think there is going to be years when that number is there.
There may be years where it's not. But we think, roughly speaking, that's the type of market potential that we see.
Bob Napoli
And that $250 million would be purchases by PRA or total market?
Geir Olsen
No. That's the total market.
Operator
Our next question comes from Sanjay Sen of BloombergSen.
Sanjay Sen
Just wanted to ask you, it seems that the provisions, what caused the principal amortization rates to be higher this year, as you go quarter-by-quarter, then the norms have been going back, say, over the last three years or something like that. Is that a fair reading of it?
And is there any reason why you feel like the principal amortization rate is permanently higher or something like that?
Kevin Stevenson
No, I think that's right, if I understood your comment. I think the principal amortization rate, x reserve, at least for the last three quarters has been really steady on a consolidated level.
I suppose theoretically -- if you want to get into kind of a theoretical discussion, which might be appropriate here, to the extent that you end up buying more core paper than bankruptcy, then you would see that generally pressured downward, the amortization rate. It's actually interesting if you plot amortization rate historically back into the early 2000s, you can definitely see where the bankruptcy business took off and it's really very clear.
So I think that would be interesting to think about, if you didn't peel that back. But then you'd have some offsetting expenses to deal with as well.
Sanjay Sen
The mix would affect it. But assuming no change in mix it's -- we shouldn't assume any sort of change in the amortization rate on a basis, where we exclude these provisions?
Kevin Stevenson
It's kind of a forward-looking statement. We're not beginning to roll our guidance.
But I can't think of anything of top of my head that I could talk about though, other than what we just talked about.
Operator
Thank you. I would now like to turn the call back over to Mr.
Steven Fredrickson. End of Q&A
Steven Fredrickson
Thank you all for joining us for this evening's conference call. And we look forward to join you again to report our yearend results.
Operator
Ladies and gentlemen, this concludes today's conference. Thank you for your participation.
You may all disconnect and have a wonderful day.