UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K


(Mark One)
x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2007

OR


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

For the Transition Period from to .

Commission File Number 000-24051

UNITED PANAM FINANCIAL CORP.

(Exact Name of Registrant as Specified in Its Charter)


California		94-3211687
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

18191 Von Karman Avenue, Suite 300
Irvine, California 92612

(Address of Principal Executive Offices) (Zip Code)

(949) 224-1917

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, no par value		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o NO x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes o NO x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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


Large accelerated filer o		Accelerated filer x		Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o NO x

The aggregate market value of the Common Stock held by non-affiliates of the Registrant was approximately $94,039,000, based upon the closing sales price of the Common Stock as reported on The NASDAQ Global Market on June 30, 2007. Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. Such determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares outstanding of the Registrant’s Common Stock as of March 4, 2008 was 15,737,399 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the 2008 Annual Meeting of Shareholders are incorporated by reference in Part III hereof.

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UNITED PANAM FINANCIAL CORP.

2007 ANNUAL REPORT ON FORM 10-K


	Page
PART I
Cautionary Statement		ii
Item 1. Business		1
Item 1A. Risk Factors		10
Item 1B. Unresolved Staff Comments		16
Item 2. Properties		17
Item 3. Legal Proceedings		17
Item 4. Submission of Matters to a Vote of Security Holders		17
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities		18
Item 6. Selected Financial Data		20
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		37
Item 8. Financial Statements and Supplementary Data		37
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		38
Item 9A. Controls and Procedures		38
Item 9B. Other Information		39
PART III
Item 10. Directors, Executive Officers and Corporate Governance		40
Item 11. Executive Compensation		40
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters		40
Item 13. Certain Relationships and Related Transactions, and Director Independence		40
Item 14. Principal Accountant Fees and Services		40
PART IV
Item 15. Exhibits and Financial Statement Schedules		41
Signatures		43

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CAUTIONARY STATEMENT

Certain statements contained in this Annual Report on Form 10-K, as well as some statements by us in periodic press releases and some oral statements by our officials to securities analysts and shareholders during presentations about us are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, or the Act. Statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “hopes,” “assumes,” “may,” “project,” “will” and similar expressions constitute forward-looking statements. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future actions, which may be provided by management are also forward-looking statements as defined in the Act. Forward-looking statements are based upon expectations and projections about future events and are subject to assumptions, risks and uncertainties about, among other things, our company and economic and market factors. Actual events and results may differ materially from those expressed or forecasted in the forward-looking statements due to a number of factors. The principal factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, our dependence on securitizations, our need for substantial liquidity to run our business, loans we made to credit-impaired borrowers, reliance on operational systems and controls and key employees, competitive pressure we face, changes in the interest rate environment, rapid growth of our businesses, general economic conditions, and other factors or conditions described under the caption “Risk Factors” of Item 1A of this Annual Report on Form 10-K. Our past performance and past or present economic conditions are not indicative of our future performance or of future economic conditions. Undue reliance should not be placed on forward-looking statements. In addition, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to projections over time unless required by federal securities law.

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PART I

Item 1. Business.

General

United PanAm Financial Corp. (the “Company”) is a specialty finance company engaged in automobile finance, which includes the purchase, warehousing, securitization and servicing of automobile installment sales contracts, or automobile contracts, originated by independent and franchised dealers of used automobiles. We conduct our automobile finance business through our wholly-owned subsidiaries United Auto Credit Corporation (“UACC”) and United Auto Business Operations, LLC (“UABO”), which provide financing to borrowers who typically have limited or impaired credit histories that restrict their ability to obtain loans through traditional sources. Financing arms of automobile manufacturers generally do not make these loans to non-prime borrowers, nor do many other traditional automotive lenders. Non-prime borrowers generally pay higher interest rates and loan fees than do prime borrowers.

Our Business Strategy

We employ the following strategies to create value for our shareholders:

Controlled Growth. Our primary business strategy includes the purchase of automobile contracts through a national retail branch network, which is comprised of branches that are generally located in proximity to dealers and borrowers. The branch manager of each branch is responsible for underwriting and purchasing automobile contracts and providing focused servicing and collections. The branch network is closely managed and supervised by our divisional vice presidents. We believe that our branch network operations enable branch managers to develop strong relationships with our primary customers, the automobile dealers. Through our branches, we provide a high level of service to the dealers by providing consistent credit decisions, typically same-day funding and frequent management contact. We believe that this branch network and management structure also enhances our risk management and collection functions.

While we have traditionally achieved growth in the amount of automobile contracts that we purchase through the opening of new branch offices, we began to pursue controlled growth in 2007 through a combination of expanding our more seasoned branch offices and opening fewer new branch offices. We intend to continue this controlled growth strategy in 2008, and we do not currently intend to open any new branch offices in 2008. This change is designed to improve individual branch profitability, enhance loan servicing and facilitate more effective branch management. In connection with our new long-term growth strategy, we intend to increase the average portfolio of purchased contracts within the best performing seasoned branches. In addition, to improve overall corporate profitability, we began to close and consolidate certain underperforming branches in the third quarter of 2007 and the first quarter of 2008. We will continue to evaluate the possibility of additional branch closures in 2008 to improve overall performance and profitability.

As a secondary platform for growth, we began to originate and service automobile contracts during 2007 through UABO, our newly created Business Operations Unit based in Dallas, Texas. We currently originate and service automobile contracts in West Virginia, Connecticut, Arkansas and Nebraska through the Business Operations Unit, and we intend to expand operations into the state of Maine in 2008. We currently have no branch presence in these five states. The Business Operations Unit, with its lower cost structure, will allow us to penetrate new markets in states where, due to interest rate caps, our traditional retail branch structure is not cost effective. We expect that the average yield for the portfolio originated in these states will be approximately 24.5% as compared to 27.7% in states in which we operate our national retail branch network. We expect to offset the lower yield by increased cost efficiencies generated from operating from a central location.

The Business Operations Unit is responsible for underwriting, purchasing contracts and collections. We believe that we can continue to provide a high level of service to the dealers through the Business Operations Unit by providing consistent credit decisions and two to three day funding. At December 31, 2007, the Business Operations Unit had fourteen employees. By following tighter underwriting guidelines from a single location, we should offset any potential drawback from managing collection activity from a central location rather than being local to the borrower as in our traditional retail branch.

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Develop Exceptional Management. To ensure successful branch network expansion, we focus on hiring and developing local, experienced branch-level management. Our branch managers average more than 12 years of experience in the auto finance industry, primarily with captive finance companies, including GMAC, Ford Motor Credit, Toyota Credit and Chrysler Credit. We provide extensive management training at our corporate headquarters at the time of hire and several times each year thereafter to ensure consistency of credit decisions and operations. We grant stock options to all branch managers, outline a clear career path for all employees and reward success with advancement within the organization, which we believe has enabled us to attract, retain and promote experienced personnel. All of our current divisional vice presidents have been promoted from within.

Maintain Consistent Underwriting and Strong Risk Management Controls. Each of our branch managers is responsible for day-to-day operations, subject to centralized risk management controls. All automobile contracts, except automobile contracts purchased through the Business Operation Unit, are underwritten and serviced at the local branch level to place specific accountability for credit decisions and collections on branch management. This is coupled with close supervision of underwriting and credit at each branch by our divisional vice presidents, as well as by senior management at our corporate offices. Because of our stringent underwriting guidelines, the performance of which is reviewed frequently in an effort to reduce the severity and frequency of our charge-offs, we generally purchase only one contract for every ten automobile loan applications we review. In order to promote credit quality above asset growth, we compensate our branch managers primarily based on credit quality, audit performance, profitability and qualitative merits, with only 17% of bonus pay tied to automobile contract purchase volume.

Provide Superior Customer Service. Our main customers are the automobile dealers from which we purchase our automobile contracts. To enhance our profitability, we strive to compete primarily on the level of service that we provide, instead of by making concessions on pricing or credit quality. Because of their close proximity to the local dealer base, our branches are able to provide superior service to these dealers. Customer service is centered around frequent management contact, clear underwriting parameters, consistent credit decisions, quick approval and typically same-day funding.

Use of Warehouse Facilities and Securitizations for Funding. We use a warehouse line of credit and periodic securitizations to fund our business. We currently have a warehouse line of credit in the amount of $300 million and we have closed seven securitizations since 2004. Under normal conditions, we plan to price a new securitization approximately every six months. We believe that in the past our securitization funding strategy allowed us to mitigate interest rate risk and lock in a fixed interest rate spread, since the interest received on automobile contracts and interest paid for securitization notes payable were both fixed rate arrangements.

Development of the Business

The Company was incorporated in California on April 9, 1998 for the purpose of reincorporating its business in California, through the merger of United PanAm Financial Corp., a Delaware corporation, into the Company. Unless the context indicates otherwise, all references to the Company include the previous Delaware corporation. The Company was originally organized as a holding company for PAFI, Inc. (“PAFI”) and Pan American Bank, FSB, a federally chartered savings association (the “Bank”) to purchase certain assets and assume certain liabilities of Pan American Federal Savings Bank.

Historically, we provided retail banking services through the Bank and operated an insurance premium finance business. However, because of the increasing regulatory requirements associated with financing our non-prime automobile finance business mainly with insured deposits, we caused the Bank to exit its federal thrift charter and dissolve effective February 11, 2005. In connection with the dissolution of the Bank, and in order to concentrate our efforts on our automobile finance business, we also elected to discontinue our insurance premium finance business in September 2004 and sold our portfolio of insurance premium finance loans to Classic Plan Premium Financing Inc. in November 2004 at a nominal premium over par. As a result, beginning with the quarterly period ended September 30, 2004, our insurance premium finance business and certain of our banking operations were treated as discontinued operations.

Retail and wholesale deposits of the Bank had historically been the primary funding source for our automobile finance business. However, as part of our plan to exit the Bank’s federal thrift charter, we shifted

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the funding source of our automobile finance business to the public capital markets through securitizations and warehouse facilities. In addition, and as part of the Bank’s plan of dissolution, we completed the sale of all three branches of the Bank during the third quarter of 2004, and distributed all of the Bank’s non-cash assets and excess capital, including the automobile finance business to our wholly-owned subsidiary, PAFI.

On April 22, 2005, PAFI was merged with and into the Company, and UACC became a direct wholly-owned subsidiary of the Company. Prior to its dissolution on February 11, 2005, the Bank was a direct wholly-owned subsidiary of PAFI, and UACC was a direct wholly-owned subsidiary of the Bank.

On September 2, 2005, BVG West Corp. (“BVG”) was merged with and into UPFC Sub I, Inc., a direct wholly-owned subsidiary of the Company. In this merger, the former stockholders of BVG received the same number of shares of our common stock which BVG owned prior to the merger, based on percentages that such stockholders indirectly owned such shares through BVG immediately prior to the effective time of the merger. The Company’s total outstanding shares did not change as a result of the merger, nor did the underlying beneficial ownership of those shares.

On March 30, 2006, we discontinued our operations related to our investment segment and sold our investment securities portfolio to focus solely on our automobile finance business and to provide additional transparency to the public regarding the actual returns of our automobile finance business. We had historically invested in AAA-rated, United States Government Agency securities primarily to satisfy the Qualified Thrift Lender test that required the Bank to hold at least 60% of its assets in mortgage-related securities. Since the dissolution of the Bank in February 2005, we had maintained our investment securities portfolio to generate a reasonable rate of return on our equity capital.

At December 31, 2007, UACC was a direct wholly-owned subsidiary of the Company, and UABO, UPFC Auto Receivables Corporation (“UARC”), UPFC Auto Financing Corporation (“UAFC”) and UPFC Funding Corporation (“UFC”) were direct wholly-owned subsidiaries of UACC. UARC and UAFC are entities whose business is limited to the purchase of automobile contracts from UACC and UABO in connection with the securitization of such contracts and UFC is an entity whose business is limited to the purchase of such contracts from UACC and UABO in connection with warehouse funding of such contracts.

Automobile Finance

Automobile Finance Industry

Automobile financing is one of the largest consumer finance markets in the United States. The automobile finance industry can be divided into two principal segments: a prime credit market and a non-prime credit market. Traditional automobile finance companies, such as commercial banks, savings institutions, credit unions and captive finance affiliates of automobile manufacturers, generally lend to the most creditworthy, or so-called prime, borrowers. The non-prime automobile credit market, in which we operate, provides financing to borrowers who generally cannot obtain financing from traditional lenders.

Historically, traditional lenders have not serviced the non-prime market or have done so only through programs that were not consistently available. Independent companies specializing in non-prime automobile financing and subsidiaries of larger financial services companies currently compete in this segment of the automobile finance market, but we believe it remains highly fragmented, with no company having a significant share of the market.

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Operating Summary for Automobile Finance Business

The following table presents a summary of our key operating and statistical results for the years ended December 31, 2007, 2006 and 2005.


	At or for the Years Ended December 31,
	2007		2006	2005
	(Dollars in Thousands, Except for Averages)
Operating Data
Contracts purchased	$	590,767		$	550,563	$	461,483
Contracts outstanding ⁽¹⁾	$	926,350		$	813,524	$	666,162
Unearned acquisition discounts	$	(43,699 )		$	(39,449 )	$	(32,506 )
Average loan balance ⁽¹⁾	$	898,851		$	755,881	$	605,989
Unearned acquisition discounts to gross loans		4.72 %			4.85 %		4.88 %
Average percentage rate to customers		22.64 %			22.66 %		22.72 %
Loan Quality Data
Allowance for loan losses	$	48,386		$	36,037	$	29,110
Allowance for loan losses to gross loans net of unearned acquisition discounts		5.48 %			4.66 %		4.59 %
Delinquencies (% of net contracts)
31 – 60 days		0.78 %			0.60 %		0.55 %
61 – 90 days		0.30 %			0.21 %		0.23 %
90+ days		0.16 %			0.12 %		0.12 %
Total		1.24 %			0.93 %		0.90 %
Repossessions over 30 days past due (% of net contracts)		0.89 %			0.56 %		0.44 %
Net charge-offs to average loans		6.39 %			5.22 %		4.51 %
Portfolio Data
Used vehicles		99.1 %			99.2 %		98.7 %
Average vehicle age at time of contract (years)		5.2			5.1		4.9
Average original contract term (months)		50.4			50.2		50.0
Average gross amount financed as a percentage of WSB ⁽²⁾		119 %			117 %		116 %
Average net amount financed as a percentage of WSB ⁽³⁾		111 %			109 %		111 %
Average net amount financed per contract	$	9,552		$	9,442	$	9,335
Average down payment		16.8 %			17.3 %		17.8 %
Average monthly payment	$	296		$	293	$	291
Other Data
Number of branches		142			131		107
Number of employees		1,147			954		800
Interest income	$	229,458		$	195,270	$	157,777
Interest expense	$	47,449		$	35,791	$	23,228
Net interest margin	$	182,009		$	159,479	$	134,549
Net interest margin as a percentage of interest income		79.32 %			81.67 %		85.28 %
Net interest margin as a percentage of average loans		20.25 %			21.10 %		22.20 %
Non-interest expense to average loans		10.76 %			10.73 %		10.64 %
Return on average assets from continuing operations		1.11 %			2.44 %		3.59 %
Return on average shareholders’ equity		6.74 %			12.14 %		16.75 %
Consolidated capital to assets ratio		16.31 %			18.18 %		12.81 %

(1)

Net of unearned finance charges.

(2)

WSB represents (a) Kelly Wholesale Blue Book for used vehicles, (b) National Automobile Dealers Association trade-in value, or (c) Black Book clean value.

(3)

Net amount financed equals the gross amount financed less unearned finance charges or discounts.

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Products and Pricing

Our business is focused on transactions that involve a used automobile with an average age of four to seven years and an average original contract term of 48 to 54 months.

The target profile of our borrower includes average time on the job of four to five years, average time at current residence of four to five years, an average ratio of total debt payment to total income of 32% to 35% and an average ratio of total monthly automobile payments to total monthly income of 12% to 15%.

The automobile purchaser applies for and enters into an automobile installment sales contract with the dealer. We purchase the automobile contract from the dealer at a discount from face value, which increases the effective yield on such automobile contract. As of December 31, 2007, the average annual rate to customers was 22.64% for our portfolio of automobile contracts.

Sales and Marketing

Our main customers are the automobile dealers from which we purchase our automobile contracts. To enhance our profitability, we strive to compete primarily on the level of service that we provide, instead of by making concessions on pricing or credit quality. Because of their close proximity to the local dealer base, our branches are able to provide superior service to these dealers. Customer service is centered around frequent management contact, clear underwriting parameters, consistent credit decisions, quick approval and typical same-day funding.

We market our financing program to both independent and franchised dealers of used automobiles. Our experienced local staff seeks to establish strong relationships with dealers in their vicinity. Our marketing approach emphasizes scheduled calling programs, marketing materials and consistent follow-up. We use facsimile software programs to send marketing materials to dealers with whom we have established or potential relationships on a twice-weekly basis in each branch market.

We solicit business from dealers through our branch managers who meet with dealers and provide information about our programs, train dealer personnel in our program requirements and assist dealers in identifying consumers who qualify for our programs. In order to both promote asset growth and achieve required levels of credit quality, we compensate our branch managers with a base salary and a bonus of up to 20% of base salary that recognizes the achievement of low delinquency ratios, low charge-off percentages, volume and return on average assets targets established for the branch, as well as satisfactory internal audit results. The bonus calculation stresses loan quality with 83% based on credit quality, internal audit performance, profitability and qualitative merits, and with 17% based on contract purchase volume. When a branch decides to begin doing business with a dealer, a dealer profile and investigation worksheet is completed. Together with the dealer, we enter into an agreement that provides us with recourse to the dealer in the event of dealer fraud or a breach of the dealer’s representations and warranties. Branch management periodically monitors each dealer’s overall performance and inventory to ensure a satisfactory quality level, and our corporate internal audit group regularly conducts internal audits of the overall branch performance as well as individual dealer performance.

At December 31, 2007, no dealer accounted for more than 0.34% of our portfolio and the ten dealers from which we purchased the most automobile contracts accounted for approximately 2.38% of our aggregate portfolio.

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The following table presents the number of dealers from which we purchase automobile contracts in each of the states we operate at the years ended December 31, 2007, 2006 and 2005.


	At Years Ended December 31,
State	2007 Number of Dealers		2006 Number of Dealers	2005 Number of Dealers
California		1,715			1,735	1,697
Texas		1,335			1,125	849
Florida		1,260			1,201	1,118
New York		728			684	564
Georgia		650			540	468
North Carolina		575			479	412
Ohio		546			543	478
Alabama		473			383	264
Tennessee		469			389	338
Arizona		461			431	412
Missouri		461			391	298
Massachusetts		444			463	414
Illinois		414			429	419
Michigan		400			248	135
Other ⁽¹⁾		4,046			3,115	2,540
Total		13,977			12,156	10,406

(1)

States with less than 400 dealers at December 31, 2007.

Underwriting Standards and Purchase of Automobile Contracts

Underwriting Standards and Purchase Criteria

Dealers submit credit applications directly to our branches. We use credit bureau reports in conjunction with information on the credit application to make a final credit decision or a decision to request additional information. Only credit bureau reports that have been obtained directly by us from the credit bureaus are acceptable. In addition, and prior to the approval of any credit application, we typically verify, among other things, the customer’s employment, income and residence.

Our credit policy places specific accountability for credit decisions directly within the branches. The branch manager or assistant branch manager reviews all credit applications. In general, no branch manager has credit approval authority for contracts greater than $15,000. Any transaction that exceeds a branch manager’s approval limit must be approved by our divisional vice presidents, or by certain members of our senior management at our corporate offices.

Verification

Upon approving or conditioning any application, all required stipulations are presented to the dealer and must be satisfied before funding.

All dealers are required to provide us with written evidence of insurance in force on a vehicle being financed when submitting the automobile contract for purchase. Prior to funding an automobile contract, the branch must verify by telephone with the insurance agent the customer’s insurance coverage with us as loss payee. If we receive notice of insurance cancellation or non-renewal, the branch will notify the customer of his or her contractual obligation to maintain insurance coverage at all times on the vehicle. However, we will not “force place” insurance on an account if insurance lapses and, accordingly, we bear the risk of an uninsured loss in these circumstances.

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Post-Funding Quality Reviews and Internal Audit Process

Our corporate internal audit group complete quality control reviews of newly purchased automobile contracts. These reviews focus on compliance with underwriting standards, the quality of the credit decision and the completeness of automobile contract documentation.

Additionally, selected branches are audited each year by an independent outside accounting firm appointed by the audit committee for review of compliance with established policies and procedures.

Servicing and Collection

We service all of the automobile contracts that we purchase at the branch level.

Billing Process

We send each borrower a coupon book, which details the periodic loan payments. All payments are directed to the customer’s respective branch. We also accept payments delivered to the branch by a customer in person as well as payments received through Western Union and Money Gram.

Collection Process

Our collection policy calls for the following sequence of actions to be taken with regard to all problem loans: (i) call the borrower at one day past due; (ii) immediate follow-up on all broken promises to pay; (iii) branch management review of all accounts at ten days past due; and (iv) divisional vice president review of all accounts at 45 days past due.

We may consider extensions or modifications in collecting certain delinquent accounts. All extensions and modifications require the approval of branch management and are monitored by divisional vice president.

Repossessions

It is our policy to repossess the financed vehicle only if payments are substantially in default, the customer demonstrates an intention not to pay or the customer fails to comply with material provisions of the contract. All repossessions require the prior approval of the branch manager. In certain cases, following repossession, the customer is able to pay the balance due or bring the account current, thereby redeeming the vehicle.

When a vehicle is repossessed, it is generally sold at an automobile auction or, less frequently, through a private sale, and the sale proceeds are subtracted from the net outstanding balance of the loan with any remaining amount recorded as a loss. We generally pursue all customer deficiencies. The net outstanding balance of the loan is the loan balance less any unaccreted acquisition discounts and warranty refunds.

Competition

Our business is highly competitive. Competition in our markets can take many forms, including convenience in obtaining a loan, customer service, marketing and distribution channels, amount and terms of the loan and interest rates. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than us. We compete primarily with independent companies specializing in non-prime automobile finance and, to a lesser extent, with commercial banks, savings institutions, credit unions and captive finance affiliates of automobile manufacturers. Fluctuations in interest rates and general and local economic conditions also may affect the competition we face. Competitors with lower costs of capital have a competitive advantage over us. As we expand into new geographic markets, we will face additional competition from lenders already established in these markets.

Employees

At December 31, 2007, we had 1,147 employees. None of our employees are a part of a collective bargaining agreement. We believe that we have been successful in attracting quality employees and that our employee relations are satisfactory.

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Available Information

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available without charge on our website, www.upfc.com , as soon as reasonably practicable after they are filed electronically with the SEC. We are providing the address to our website solely for the information of investors. We do not intend the address to be an active link or to otherwise incorporate the contents of the website into this Annual Report on Form 10-K.

Regulation

Our business is regulated by federal, state, and local government authorities and is subject to extensive federal, state and local laws, rules and regulations. We are also subject to judicial and administrative decisions that impose requirements and restrictions on our business. Set forth below is a summary description of certain of the material laws and regulations which relate to our business. The description is qualified in its entirety by reference to the applicable laws and regulations.

Consumer Protection

Our automobile financing activities are subject to various federal and state consumer protection laws, including the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act or FCRA, the Fair Debt Collection Practices Act, the Federal Trade Commission Act, the Federal Reserve Board’s Regulations B and Z, and state motor vehicle retail installment sales acts. Retail installment sales acts and other similar laws regulate the origination and collection of automobile contracts and impact our business. These laws, among other things, require that we obtain and maintain certain licenses and qualifications, limit the finance charges, fees and other charges on the contracts purchased, require creditors to provide specified disclosures to consumers, limit the terms of the contracts, regulate the credit application and evaluation process, regulate certain servicing and collection practices, and regulate the repossession and sale of collateral. These laws impose specific statutory liabilities upon creditors who fail to comply with their provisions and may give rise to a defense to payment of the consumer’s obligation. In addition, certain of the laws make the assignee of a consumer installment contract liable for the violations of the assignor.

Each dealer agreement contains representations and warranties by the dealer that, as of the date of assignment, the dealer has complied with all applicable laws and regulations with respect to each automobile contract. The dealer is obligated to indemnify us for any breach of any of the representations and warranties and to repurchase any non-conforming automobile contracts. We generally verify dealer compliance with limitations on the finance charge in state motor vehicle retail installment sales acts, but do not audit a dealer’s full compliance with applicable laws. There can be no assurance that we will detect all dealer violations or that individual dealers will have the financial ability and resources either to repurchase automobile contracts or indemnify us against losses. Accordingly, failure by dealers to comply with applicable laws, or with their representations and warranties under the dealer agreement could have a material adverse effect on us.

If a borrower defaults on an automobile contract, we, as the holder and servicer of the automobile contract, are entitled to exercise the remedies of a secured party under the Uniform Commercial Code as adopted in a particular state, or the UCC, which typically includes the right to repossession by self-help unless such means would constitute a breach of the peace. The UCC and other state laws regulate repossession and sales of collateral by requiring reasonable notice to the borrower of the date, time and place of any public sale of collateral, the date after which any private sale of the collateral may be held and the borrower’s right to redeem the financed vehicle prior to any such sale, and by providing that any such sale must be conducted in a commercially reasonable manner. Financed vehicles repossessed generally are resold by us through unaffiliated wholesale automobile networks or auctions, which are attended principally by used automobile dealers.

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Predatory Lending

The term “predatory lending” is far-reaching and covers a potentially broad range of behavior. As such, it does not lend itself to a concise or a comprehensive definition. However, predatory lending typically involves at least one, and perhaps all three, of the following elements:

•

making unaffordable loans based on the assets of the borrower rather than on the borrower’s ability to repay an obligation (“asset-based lending”);

•

inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced (“loan flipping”); or

•

engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower.

In addition, the rules against predatory lending bar loan flipping by the same lender or loan servicer within a year. Lenders also will be presumed to have violated these rules — which says loans should not be made to people unable to repay them — unless they document that the borrower has the ability to repay. Lenders that violate the rules face cancellation of loans and penalties equal to the finance charges paid.

We do not expect these rules and potential state action in this area to have a material impact on our financial condition or results of operation.

General Securities Regulation

Our securities are registered with the SEC under the Securities Exchange Act of 1934, as amended, or the Exchange Act. As such we are subject to the information, proxy solicitation, insider trading, corporate governance, and other requirements and restrictions of the Exchange Act.

The Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 addressed accounting oversight and corporate governance matters and, among other things:

•

required executive certification of financial presentations;

•

increased requirements for board audit committees and their members;

•

enhanced disclosure of controls and procedures and internal control over financial reporting;

•

enhanced controls on, and reporting of, insider trading; and

•

increased penalties for financial crimes and forfeiture of executive bonuses in certain circumstances.

The legislation and its implementing regulations have resulted in increased costs of compliance, including certain outside professional costs. To date these costs have had a material impact on our operations.

USA PATRIOT Act of 2001

The USA PATRIOT Act of 2001 and its implementing regulations significantly expanded the anti-money laundering and financial transparency laws.

Under the USA PATRIOT Act, financial institutions are required to establish and maintain anti-money laundering programs which include:

•

the establishment of a customer identification program;

•

the development of internal policies, procedures, and controls;

•

the designation of a compliance officer;

•

an ongoing employee training program; and

•

an independent audit function to test the programs.

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Fair and Accurate Credit Transactions Act of 2003

FCRA, as amended by the Fair and Accurate Credit Transactions Act of 2003, or FACTA, requires certain persons to help deter identity theft, including developing appropriate fraud response programs, and give consumers more control of their credit data. It also reauthorizes a federal ban on state laws that interfere with corporate credit granting and marketing practices. In connection with FACTA, the Federal Trade Commission (the “FTC”) and the financial institution regulatory agencies have adopted final rules that take effect on October 1, 2008 and will prohibit a company or other person from using certain information about a consumer it received from an affiliate to make a solicitation to the consumer, unless the consumer has been notified and given a chance to opt out of such solicitations, subject to certain exceptions. A consumer’s election to opt out would be effective for at least five years. The FTC and the financial institution regulatory agencies have also adopted final rules and guidelines required by FACTA for financial institutions and “creditors,” which term would include a finance company participating in a credit decision with respect to an automobile contract, that require financial institutions and creditors to identify patterns, practices and specific forms of activity, known as “Red Flags,” that indicate the possible existence of identity theft and require financial institutions and creditors to establish reasonable policies and procedures for implementing these guidelines.

Privacy

Federal rules limit the ability of banks and other “financial institutions,” which term would include a finance company acquiring and servicing automobile contracts, to disclose non-public information about consumers to nonaffiliated third parties. Pursuant to these rules, financial institutions must provide:

•

initial notices to customers about their privacy policies, describing the conditions under which they may disclose nonpublic personal information to nonaffiliated third parties and affiliates;

•

annual notices of their privacy policies to current customers; and

•

a reasonable method for customers to “opt out” of disclosures to nonaffiliated third parties.

These privacy provisions affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.

In addition, state laws may impose more restrictive limitations on the ability of financial institutions to disclose such information. California has adopted such a privacy law that among other things generally provides that customers must “opt in” before information may be disclosed by a California financial institution, which term would include a California finance company to certain nonaffiliated third parties and “opt out” before information may be preempted by FCRA, which district court decision is on appeal.

Item 1A. Risk Factors.

Our business faces significant risks. These risks include those described below and may include additional risks and uncertainties not presently known to us or that we currently deem immaterial. Our financial condition, results of operations and business prospects could be materially and adversely affected by any of these risks. These risks should be read in conjunction with the other information contained in this Annual Report on Form 10-K.

Risks Related to Our Business

We require substantial liquidity to run our business.

We require a substantial amount of liquidity to operate our business and fund the growth of our automobile finance operations. Among other things, we use such liquidity to acquire automobile contracts, pay securitization costs and fund related accounts, satisfy working capital requirements and pay operating expenses and interest expense. We depend on warehouse financing and securitizations to fund our operations and there is no assurance that we will be able to obtain warehouse financing or access the public capital markets in the future. If we are unable to access acceptable warehouse financing or the capital markets, our financial position, liquidity and results of operations would be materially and adversely affected.

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We depend on our warehouse facility to fund our automobile finance operations in order to finance the purchase of automobile contracts pending a new securitization. Our business strategy requires that such financing continues to be available to us.

Our primary source of operating liquidity comes from a $300 million warehouse facility which is currently set to expire in October 2009. We use this facility to fund our automobile finance operations in order to finance the purchase of automobile contracts pending securitization. Whether we may obtain further advances under this facility during its term depends on, among other things, the performance of the automobile receivables that are pledged under this facility and whether we maintain compliance with certain financial covenants contained in the sale and servicing agreement. The performance, timing and amount of cash flows from automobile contracts vary based on a number of factors, including:

•

the yields received on automobile contracts;

•

the rates and amounts of loan delinquencies, defaults and net credit losses;

•

how quickly and at what price repossessed vehicles can be resold; and

•

how quickly new automobile finance branches become cash flow positive.

There is no assurance that we will be able to obtain further advances under this facility during its term or that this facility will continue to be available beyond the current expiration date at reasonable terms or at all. If we are unable to obtain advances under this facility for any reason and we are then unable to replace this facility or arrange for other types of interim financing, we will have to curtail or cease our automobile contract purchasing activities, sell receivables on a whole-loan basis or otherwise revise the scale of our business, which would have a material adverse effect on our financial position and results of operations.

We depend on securitizations to generate cash.

We rely on our ability to aggregate and pledge receivables to securitization trusts and sell securities in the asset-backed securities market to generate cash proceeds for repayment of our warehouse facility and to create availability to purchase additional automobile contracts. Our ability to complete securitizations of our automobile contracts is affected by a number of factors, including:

•

conditions in the securities markets, generally;

•

conditions in the asset-backed securities market, specifically;

•

yields of our portfolio of automobile contracts;

•

the credit quality of our portfolio of automobile contracts; and

•

our ability to obtain credit enhancement.

The asset-backed securities market has been and is currently experiencing unprecedented disruptions. Current conditions in the asset-backed securities market include reduced liquidity, increased risk premiums for issuers, reduced investor demand for asset-backed securities, particularly those securities backed by non-prime collateral, financial stress and rating agency downgrades impacting the financial guaranty insurance providers, and a general tightening of availability of credit. These conditions, which may increase our cost of funding, reduce or even eliminate our access to the asset-backed securities market, may continue or worsen in the future. As a result, there can be no assurance that we will be successful in selling securities in the asset-backed securities market, at least in the near term, or that that our warehouse facility will be adequate to fund our automobile contract purchasing activities until the disruptions in the securitization markets subside or that the cost of debt will allow us to operate at profitable levels. Since we are highly dependent on the availability of the asset-backed securities market to finance our operations, disruptions in this market or any adverse change or delay in our ability to access the market would have a material adverse effect on our financial position, liquidity and results of operations. Continued reduced investor demand for asset-backed securities such as our asset-backed securities could result in our having to hold automobile contracts until investor demand improves, but our capacity to hold such automobile contracts is not unlimited. As we confront a reduced demand for our asset-backed securities, it could require us to reduce the amount of automobile contracts that we will be able to purchase. Continued adverse market conditions could also result in increased costs and reduced margins earned in connection with our securitization transactions.

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If we are unable to securitize a sufficient number of our contracts in a timely manner, our liquidity position would be adversely affected, as we will require continued execution of securitization transactions in order to fund our future liquidity needs. In addition, unanticipated delays in closing a securitization would also increase our interest rate risk by increasing the warehousing period for our contracts. There can be no assurance that funding will be available to us through these sources or, if available, that it will be on terms acceptable to us. If these sources of funding are not available to us on a regular basis for any reason, including the occurrence of events of default, deterioration in loss experience in the underlying pool of receivables or otherwise, we will be required to curtail or cease our automobile contract purchasing activities, sell receivables on a whole-loan basis or otherwise revise the scale of our business, which would have a material adverse effect on our ability to achieve our business and financial objectives.

The terms of our securitizations depend on credit enhancement and there is no assurance we will be able to continue to obtain credit enhancement.

Our securitizations to date have utilized credit enhancement in the form of financial guaranty insurance policies in order to achieve “AAA/Aaa” ratings for the asset-backed securities issued to investors. These ratings reduce the costs of securitizations compared to alternative forms of financing currently available to us and enhance the marketability of these transactions to investors in asset-backed securities. However, our financial guaranty insurance providers are not required to insure our future securitizations, and there can be no assurance that they will continue to do so or that our future securitizations will be similarly rated. The willingness of a financial guaranty insurance provider to insure our future securitizations is subject to many factors outside our control including the financial guaranty insurance provider’s own rating considerations. Further, investor perceptions of financial guaranty insurance providers and claims-paying capacity may adversely impact the marketability of insured asset-backed securities.

A downgrading of any of our financial guaranty insurance providers’ credit ratings or the inability to structure alternative credit enhancements, such as senior subordinated transactions, for our securitization program could result in higher interest costs for our future securitizations and larger initial and/or target credit enhancement requirements. The absence of a financial guaranty insurance policy may also impair the marketability of our securitizations. These events could have a material adverse effect on the cost and availability of capital to finance automobile contract purchases which in turn could have a material adverse effect on our financial position, liquidity and results of operations.

We have a substantial amount of indebtedness.

We currently have a substantial amount of outstanding indebtedness. Our ability to make payments of principal or interest on, or to refinance, our indebtedness will depend on our future operating performance, including the performance of automobile receivables that are either pledged under our warehouse facility or transferred to securitization trusts, and our ability to enter into additional securitization transactions as well as other debt financings. If we are unable to generate sufficient cash flows in the future to service our debt, we may be required to refinance all or a portion of our existing debt or to obtain additional financing. There can be no assurance that any refinancings will be possible or that any additional financing could be obtained on acceptable terms. The inability to refinance our existing debt or to obtain additional financing would have a material adverse effect on our financial position, liquidity and results of operations.

If we cannot comply with the requirements in our debt instruments, then our lenders may increase our borrowing costs or require us to repay immediately all of the outstanding debt. If our debt payments were accelerated, our assets might not be sufficient to fully repay our debts. These lenders may require us to use all of our available cash to repay our debt, foreclose upon their collateral or prevent us from making payments to other creditors on certain portions of our outstanding debt. We may not be able to obtain a waiver of these provisions or refinance our debt, if needed. In such case, our financial condition, liquidity and results of operations would suffer.

Our automobile finance business would be harmed if we cannot maintain relationships with independent dealers and franchisees of automobile manufacturers.

We purchase automobile contracts primarily from automobile dealers. Many of our competitors have long-standing relationships with used automobile dealers and may offer dealers or their customers other forms

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of financing that we currently do not provide. If we are unsuccessful in maintaining and expanding our relationships with dealers, we may be unable to purchase contracts in the volume and on the terms that we anticipate and consequently our automobile finance business would be materially and adversely affected.

Because we loan money to credit-impaired borrowers, we may have a higher risk of delinquency and default.

Substantially all of our automobile contracts involve loans made to individuals with impaired or limited credit histories, or higher debt-to-income ratios than are permitted by traditional lenders. Loans made to borrowers who are restricted in their ability to obtain financing from traditional lenders generally entail a higher risk of delinquency, default and repossession, and higher losses than loans made to borrowers with better credit. Delinquency interrupts the flow of projected interest income from a loan, and default can ultimately lead to a loss if the net realizable value of the automobile securing the loan is insufficient to cover the principal and interest due on the loan. Although we believe that our underwriting criteria and collection methods enable us to manage the higher risks inherent in loans made to non-prime borrowers, no assurance can be given that such criteria or methods will afford adequate protection against such risks. If we experience higher losses than anticipated, our financial condition, results of operations and business prospects would be materially and adversely affected.

We expect our operating results to continue to fluctuate.

Our results of operations have fluctuated in the past and are expected to fluctuate in the future. Factors that could affect our quarterly results include:

•

seasonal variations in the volume of automobile contracts purchased, which historically tend to be higher in the first and second quarters of the year;

•

interest rate spreads;

•

credit losses, which historically tend to be higher in the third and fourth quarters of the year; and

•

operating costs.

As a result of such fluctuations, our quarterly results may be difficult to predict, which may create uncertainty surrounding the market price for our securities. In particular, if our results of operations fail to meet the expectations of securities analysts or investors in a future quarter, the market price of our securities could be materially adversely affected.

We depend on our key personnel.

We are dependent upon the continued services of our key employees. In addition, our growth strategy depends in part on our ability to attract and retain qualified branch managers. The loss of the services of any key employee, or our failure to attract and retain other qualified personnel, could have a material adverse effect on our financial condition, results of operations and business prospects.

Competition may adversely affect our performance.

Our business is highly competitive. Competition in our markets can take many forms, including convenience in obtaining a loan, customer service, marketing and distribution channels, amount and terms of the loan and interest rates. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than us. Fluctuations in interest rates and general and local economic conditions also may affect the competition we face. Competitors with lower costs of capital have a competitive advantage over us. If we expand into new geographic markets, we will face additional competition from lenders already established in those markets. There can be no assurance that we will be able to compete successfully with these lenders. Our failure to compete successfully would have a material adverse effect on our financial condition, results of operations and business prospects.

We may be unable to maintain or sustain our growth.

We have realized substantial growth in our automobile finance business since our inception in 1996. Consequently, we are vulnerable to a variety of business risks generally associated with rapidly growing companies. In the future, our rate of growth will be dependent upon, among other things, the continued success of our efforts to expand the number of branches, attract qualified branch managers, and expand our

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relationships with independent and franchised dealers of used automobiles. In addition, we may broaden our product offerings to include additional types of consumer loans or may enter other specialty finance businesses.

Our growth strategy requires that we successfully obtain and manage acceptable warehouse financing and access the capital markets. It also requires additional capital and human resources as well as improvements to our infrastructure and management information systems. Our failure to implement our planned growth strategy or the failure of our automated systems, including a failure of data integrity or accuracy, would have a material adverse effect on our financial condition, results of operations and business prospects. In addition, further tightening of funding available in the credit markets may reduce or even eliminate our ability to grow.

If we fail to satisfy certain covenants in our agreements with our financial guaranty insurance providers, we may lose our rights to service the receivables included in our securitization trusts.

Our agreements with our financial guaranty insurance providers provide that our servicing rights with respect to the receivables included in a securitization trust may be terminated by the applicable financial guaranty insurance provider if (i) certain performance ratios (delinquency, cumulative default and cumulative net loss on the receivables included in each securitization trust were to exceed specified limits, (ii) we breach our obligations under the servicing agreement, (iii) the financial guaranty insurance provider is required to make payments under a policy, or (iv) certain bankruptcy or insolvency events were to occur. As of December 31, 2007, no such servicing right termination events have occurred with respect to any of the trusts formed by us. The termination of any or all of our servicing rights would have a material adverse effect on our financial position, liquidity and results of operations.

An interruption in or breach of our security systems could subject us to liability.

If third parties or our employees are able to interrupt or breach our network security systems or otherwise misappropriate our customers’ personal information or loan information, or if we give third parties or our employees improper access to our customers’ personal information or loan information, we could be subject to liability. This liability could include identity theft or other similar fraud-related claims. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure online transmission of confidential consumer information. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the algorithms that we use to protect sensitive customer transaction data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Our security measures are designed to protect against security breaches, but our failure to prevent such security breaches could have a material adverse effect on our financial condition, results of operations and business prospects.

We are subject to various consumer claims and litigation.

As a consumer finance company, we are subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud, breach of contract and discriminatory treatment of credit applicants. Some litigation against us could take the form of class action complaints by consumers. As the assignee of automobile contracts originated by dealers, we may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of matters can be substantial. The relief requested by the plaintiffs varies but can include requests for compensatory, statutory and punitive damages. We believe that we have taken prudent steps to address and mitigate the litigation risks associated with our business activities. However, any adverse resolution of litigation pending or threatened against us could have a material adverse affect on our financial condition, results of operations and cash flows.

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Risks Related to Our Ownership and Organizational Structure

The ownership of our common stock is concentrated, which may result in conflicts of interest and actions that are not in the best interests of all of our shareholders.

As of December 31, 2007, our Chairman, Guillermo Bron, beneficially owned 5,741,251 shares of our common stock, representing 36.5% of our total outstanding common stock. As a result, our Chairman will have substantial influence over our management and affairs, including the ability to control substantially all matters submitted to our shareholders for approval, the election and removal of our Board of Directors, any amendment of our articles of incorporation or bylaws and the adoption of measures that could delay or prevent a change of control or impede a merger. This concentration of ownership could adversely affect the price of our securities or lessen any premium over market price that an acquirer might otherwise pay.

We are a holding company with no operations of our own.

The results of our operations and our financial condition are principally dependent upon the business activities of our principal consolidated subsidiaries, UACC and UABO. In addition, our ability to fund our operations, meet our obligations for payment of principal and interest on our outstanding debt obligations and pay dividends on our common stock are dependent upon the earnings from the business conducted by our subsidiaries. Our ability to pay dividends on our common stock is also subject to the restrictions of the California Corporations Code. As of December 31, 2007, we had approximately $10.3 million of junior subordinated debentures issued to a subsidiary trust, UPFC Trust I, which, in turn, had $10.0 million of company-obligated mandatorily redeemable preferred securities outstanding. The junior subordinated debentures mature in 2033. However, we may call the debt any time on or after July 31, 2008 and may call it before July 31, 2008 if certain events occur as described in the subordinated debt agreement. The redemption price is par plus accrued and unpaid interest unless we make a redemption call before July 31, 2008. It is possible that we may not have sufficient funds to repay that debt at the required time. Our subsidiaries are separate and distinct legal entities and have no obligation to provide us with funds for our payment obligations, whether by dividends, distributions, loans or other payments. Any distribution of funds to us from our subsidiaries is subject to statutory, regulatory or contractual restrictions, the level of the subsidiaries’ earnings and various other business considerations.

Risks Related to Regulatory Factors

The scope of our operations exposes us to risks of noncompliance with an increasing and inconsistent body of complex state and local regulations and laws.

Because we operate in 39 states, we must comply with the laws and regulations, as well as judicial and administrative decisions, for all of these jurisdictions. The volume of new or modified laws and regulations has increased in recent years and has increased significantly in response to issues arising with respect to subprime mortgage and other consumer lending, and in some cases there is conflict among jurisdictions. From time to time, legislation and regulations are enacted which increase the cost of doing business, limit or expand permissible activities, or affect the competitive balance among financial services providers. Proposals to change the laws and regulations governing the operations and taxation of financial institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures, and by various regulatory agencies, and also have increased significantly due to the subprime mortgage and other consumer lending issues. This legislation may change our operating environment and that of our subsidiaries in substantial and unpredictable ways. We cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of us or any of our subsidiaries. Furthermore, as our operations continue to grow, it may be more difficult to comprehensively identify, accurately interpret and properly train our personnel with respect to all of these laws and regulations, thereby potentially increasing our exposure to the risks of non-compliance with these laws and regulations which could have a material adverse effect on our results of operations, financial condition and business prospects.

We believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable local, state and federal regulations. There can be no assurance, however, that we will be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could have a material adverse effect on our operations.

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Risks Related to Factors Outside Our Control

Adverse economic conditions could adversely affect our business.

Our business is affected directly by changes in general economic conditions, including changes in employment rates, prevailing interest rates and real wages. During periods of economic slowdown or recession such as we are currently experiencing, we may experience a decrease in demand for our financial products and services, an increase in our servicing costs, a decline in collateral values or an increase in delinquencies and defaults. A decline in collateral values and an increase in delinquencies and defaults increase the probability and severity of losses. Any sustained period of increased delinquencies, defaults or losses would materially and adversely affect our financial condition, results of operations and business prospects.

Fluctuations in interest rates could adversely affect our margin spread and the profitability of our lending activities.

Our results of operations depend to a large extent upon our net interest income, which is the difference between interest received by us on the automobile contracts acquired and the interest payable under our credit facilities and further to the asset-backed securitization notes payable issued in our securitizations.

Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions, which are beyond our control. Several factors affect our ability to manage interest rate risk, such as the fact that automobile contracts are purchased at fixed interest rates, while amounts borrowed under our warehouse facility bear interest at variable rates that are subject to frequent adjustment to reflect prevailing rates for short-term borrowings. In addition, the interest rates charged on the automobile contracts purchased from dealers are limited by statutory maximums, restricting our opportunity to pass on increased interest costs.

Also, the interest rate demanded by investors in securitizations is a function of prevailing market rates for comparable transactions and the general interest rate environment. Because the contracts purchased by us have fixed rates, we bear the risk of spreads narrowing because of interest rate increases during the period from the date the contracts are purchased until the pricing of our securitizations of such contracts.

Decreases in wholesale auction proceeds could adversely impact our recovery rates.

We generally sell repossessed automobiles at wholesale auction markets located throughout the United States. Auction proceeds from the sale of repossessed vehicles and other recoveries usually do not cover the net outstanding balance of the automobile contracts, and the resulting deficiencies are charged off. Decreased auction proceeds resulting from the depressed prices at which used automobiles may be sold during periods of economic slowdown, recession or otherwise will result in higher credit losses for us. Furthermore, wholesale prices for used automobiles may decrease as a result of significant liquidations of rental or fleet inventories and from increased volume of trade-ins due to promotional financing programs offered by new vehicle manufacturers. If our recovery rates decline, our financial position, liquidity and results of operations would be materially and adversely affected.

Item 1B. Unresolved Staff Comments.

None.

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Item 2. Properties.

Our principal executive offices consisting of approximately 31,214 square feet, are located at 18191 Von Karman, Suite 300 and Suite 250, Irvine, California 92612. Additionally, as of December 31, 2007, we maintained 142 branch offices for our automobile finance business in 35 states throughout the United States of America, including nineteen branch offices located in Texas, twelve branch offices located in each of California and Florida, eight branch offices located in Georgia, six branch offices located in each of Missouri, New York, North Carolina and Tennessee, five branch offices located in each of Arizona, Michigan, and Ohio, four branch office located in each of Alabama, Colorado, Indiana, Massachusetts and Pennsylvania, three branch offices located in each of Illinois, South Carolina, Virginia and Washington, two branch offices located in each of Maryland, Minnesota, Oklahoma and Oregon and one branch office located in each of Idaho, Iowa, Kansas, Kentucky, Mississippi, Montana, Nevada, New Hampshire, New Jersey, Utah and Wyoming. The average size of our branch offices is approximately 2,000 square feet.

All of the properties listed above are leased with lease terms expiring on various dates to 2013, most with options to extend the lease term. The net investment in premises, equipment and leaseholds totaled $6.8 million at December 31, 2007. We believe that our properties are in good operating condition and are suitable for the purposes for which they are being used.

Item 3. Legal Proceedings.

As a consumer finance company, we are subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure, inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud, breach of contract and discriminatory treatment of credit applicants. Some litigation against us could take the form of class action complaints by consumers. As the assignee of finance contracts originated by dealers, we may also be named as a codefendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of matters can be substantial. The relief requested by the plaintiffs varies but can include requests for compensatory, statutory and punitive damages. We believe that we have taken prudent steps to address and mitigate the litigation risks associated with our business activities and that the outcome of such claims and litigation will not have a material effect upon our financial condition, results of operations and cash flows.

Item 4. Submission of Matters to a Vote of Security Holders.

There were no matters submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2007.

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PART II

Item 5. Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Our common stock has been listed on The NASDAQ Global Market under the symbol “UPFC” since our initial public offering in 1998. The following table shows for the periods indicated the high and low sale prices per share of our common stock.


	High		Low
2007
Fourth Quarter	$	8.84		$	4.76
Third Quarter	$	14.67		$	7.30
Second Quarter	$	16.44		$	12.46
First Quarter	$	14.51		$	11.10
2006
Fourth Quarter	$	15.89		$	11.75
Third Quarter	$	31.07		$	15.45
Second Quarter	$	32.46		$	26.93
First Quarter	$	30.96		$	25.12

On March 4, 2008, the last reported sale price of our common stock on The NASDAQ Global Market was $3.63 per share. As of March 4, 2008 we had 27 shareholders of record and 15,737,399 outstanding shares of common stock.

The following graph compares, for the period from December 31, 2002 through December 31, 2007, the yearly percentage change in our cumulative total return on our common stock with the cumulative total return of the NASDAQ — Total US, an index consisting of NASDAQ-listed U.S.-based companies, and the SNL Autofinance Index, an index consisting of automobile finance companies. This graph assumes an initial investment of $100 and reinvestment of dividends. This graph is not necessarily indicative of future stock performance.

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Total Return Performance

[GRAPHIC MISSING]


	Period Ending
Index	12/31/02		12/31/03	12/31/04		12/31/05	12/31/06		12/31/07
United PanAm Financial Corp.		100.00			267.04			304.96		413.92	220.16	81.92
SNL Autofinance Index		100.00			150.01			162.89		165.13	180.85	198.60
NASDAQ Composite		100.00			229.75			330.41		376.13	415.89	229.00

We have not declared or paid any cash dividends on our common stock since inception.

We currently anticipate that we will retain all future earnings for use in our business and do not anticipate that we will pay any cash dividends in the foreseeable future. The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements and our general financial condition, general business conditions and contractual restrictions on payment of dividends, if any.

During the quarter ended December 31, 2007, we did not repurchase any shares of our common stock.


Period	Total Number of Shares Purchased		Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plan or Program		Approximate Number of Shares That May Yet Be Purchased Under the Plan or Program
October 1, 2007 to October 31, 2007		—			—		—	1,410,262
November 1, 2007 to November 30, 2007		—			—		—	1,410,262
December 1, 2007 to December 31, 2007		—			—		—	1,410,262
Total		—			—		—	1,410,262

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our outstanding common stock that we may repurchase pursuant to the previously announced share repurchase program from 1,500,000 shares to 3,500,000 shares. This share repurchase program does not have an expiration date.

Item 6. Selected Financial Data

The following table presents our selected consolidated financial data as of and for the years ended December 31, 2007, 2006, 2005, 2004 and 2003. The selected consolidated financial data have been derived from our consolidated financial statements.

You should read the selected consolidated financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto that are included elsewhere in this Annual Report on Form 10-K.


	As of and for the Year Ended December 31,
	2007		2006	2005		2004	2003
	(Dollars in Thousands, Except Per Share Data)
Statement of Income Data
Interest income	$	229,458		$	195,270		$	157,777	$	117,689	$	81,675
Interest expense		47,449			35,791			23,228		15,645		12,219
Net interest income		182,009			159,479			134,549		102,044		69,456
Provision for loan losses		69,764			46,800			31,166		25,516		17,771
Net interest income after provision for loan losses		112,245			112,679			103,383		76,528		51,685
Non-interest income		1,730			1,737			830		2,047		1,594
Non-interest expense
Compensation and benefits		62,169			51,905			39,495		33,004		26,538
Occupancy		9,336			7,360			5,764		5,130		4,485
Other non-interest expense		25,201			21,844			19,212		16,767		10,191
Total non-interest expense		96,706			81,109			64,471		54,901		41,214
Income from continuing operations before income taxes		17,269			33,307			39,742		23,674		12,065
Income taxes		6,683			13,562			16,029		9,382		4,880
Income from continuing operations		10,586			19,745			23,713		14,292		7,185
(Loss) income from discontinued operations, net of tax ⁽¹⁾		—			(676	)		2,952		9,413		6,666
Net income	$	10,586		$	19,069		$	26,665	$	23,705	$	13,851
Earnings (loss) per share-basic:
Continuing operations	$	0.66		$	1.13		$	1.41	$	0.88	$	0.45
Discontinued operations ⁽¹⁾		—			(0.04	)		0.17		0.58		0.42
Net income	$	0.66		$	1.09		$	1.58	$	1.46	$	0.87
Weighted average basic shares outstanding		15,926			17,444			16,874		16,209		15,914
Earnings (loss) per share-diluted:
Continuing operations	$	0.65		$	1.06		$	1.27	$	0.79	$	0.41
Discontinued operations ⁽¹⁾		—			(0.04	)		0.16		0.52		0.38
Net income	$	0.65		$	1.02		$	1.43	$	1.31	$	0.79
Weighted average diluted shares outstanding		16,357			18,699			18,644		18,069		17,566

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	As of and for the Year Ended December 31,
	2007		2006	2005		2004	2003
	(Dollars in Thousands, Except Per Share Data)
Statement of Financial Condition Data
Total assets from continuing operations	$	977,181		$	879,489		$	713,854	$	553,641	$	407,351
Gross loans ⁽²⁾		926,350			813,524			666,162		524,170		397,417
Unearned acquisition discounts		(43,699 )			(39,449 )			(32,506 )		(24,827 )		(14,932 )
Allowance for loan losses		(48,386 )			(36,037 )			(29,110 )		(25,593 )		(24,982 )
Interest receivable		10,424			9,018			7,213		5,535		4,440
Securitization notes payable		762,245			698,337			521,613		352,564		—
Warehouse lines of credit		35,625			—			54,009		101,776		—
Junior subordinated debentures		10,310			10,310			10,310		10,310		10,310
Shareholders’ equity		159,341			159,865			154,915		124,253		96,050
Operating Data
Contracts purchased	$	590,767		$	550,563		$	461,483	$	367,965	$	265,429
Contracts outstanding ⁽²⁾	$	926,350		$	813,524		$	666,162	$	524,170	$	397,417
Average loan balance ⁽²⁾	$	898,851		$	755,881		$	605,989	$	469,884	$	321,413
Average yield on automobile contracts, net ⁽³⁾		27.74 %			27.89 %			27.96 %		27.59 %		25.26 %
Average cost of borrowing		6.05 %			5.58 %			4.37 %		2.91 %		2.54 %
Unearned acquisition discounts to gross loans ⁽³⁾		4.72 %			4.85 %			4.88 %		4.74 %		3.76 %
Nonaccrual loans ⁽⁴⁾	$	21,185		$	13,314		$	9,838	$	7,169	$	5,713
Nonaccrual loans to gross loans ⁽²⁾		2.29 %			1.64 %			1.48 %		1.36 %		1.40 %
Allowance for loan losses to gross loans net of unearned acquisition discounts ⁽³⁾		5.48 %			4.66 %			4.59 %		5.13 %		6.53 %
Total delinquencies over 30 days (% of net contracts)		1.24 %			0.93 %			0.90 %		0.72 %		0.75 %
Net charge-offs to average loans		6.39 %			5.22 %			4.51 %		5.24 %		5.67 %
Other Data
Number of branches		142			131			107		87		70
Net interest margin as a percentage of interest income		79.32 %			81.67 %			85.28 %		86.71 %		85.04 %
Net interest margin as a percentage of average loans		20.25 %			21.10 %			22.20 %		21.72 %		21.61 %
Non-interest expense to average loans		10.76 %			10.73 %			10.64 %		11.68 %		12.82 %
Return on average assets from continuing operations		1.11 %			2.44 %			3.59 %		2.84 %		1.86 %
Return on average shareholders’ equity		6.74 %			12.14 %			16.75 %		12.87 %		7.65 %
Consolidated capital to assets ratio		16.31 %			18.18 %			12.81 %		8.78 %		5.77 %

(1)

Commencing in September 2004, we discontinued our banking operations and insurance premium finance operations. Commencing in March 2006, we discontinued our operations related to investment segment and sold our investment securities portfolio.

(2)

Net of unearned finance charges.

(3)

Commencing on January 1, 2003, we began to allocate purchase price entirely to automobile contracts and unearned acquisition discounts at the time of purchase. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies.”

(4)

Net of unearned finance charges, including loans over 30 days delinquent and loans for which vehicles have been repossessed.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to help the reader understand our results of operations and financial condition and is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements, the accompanying notes to the consolidated financial statements, and the other information included or incorporated by reference herein.

Overview

We are a specialty finance company engaged in automobile finance, which includes the purchase, warehousing, securitization and servicing of automobile installment sales contracts, or automobile contracts, originated by independent and franchised dealers of used automobiles. We conduct our automobile finance business through our wholly-owned subsidiaries, United Auto Credit Corporation, or UACC and United Auto Business Operations, LLC, or UABO, which provide financing to borrowers who typically have limited or impaired credit histories that restrict their ability to obtain loans through traditional sources. Financing arms of automobile manufacturers generally do not make these loans to non-prime borrowers, nor do many other traditional automotive lenders. Non-prime borrowers generally pay higher interest rates and loan fees than do prime borrowers.

The Business Operations Unit is responsible for underwriting, purchasing contracts and collections. We believe that we can continue to provide a high level of service to the dealers through the Business Operations Unit by providing consistent credit decisions and two to three day funding. At December 31, 2007, the Business Operations Unit had fourteen employees and $3.8 million in loan balances. By following tighter underwriting guidelines from a single location, we should offset any potential drawback from managing collection activity from a central location rather than being local to the borrower as in our traditional retail branch.

During 2007, UPFC and the industry in general experienced a higher rate of delinquencies and losses which we believe have been primarily due to general economic conditions, and particularly due to increased gasoline prices and employment contraction. As a result, during the third quarter of 2007, we modified our underwriting criteria for purchasing automobile contracts requiring higher minimum income levels and higher minimum book value of the automobile in order to pursue higher-quality borrowers and more recent model year automobiles. In addition, under our revised underwriting criteria, we may purchase contracts with terms extending up to 72 months (from up to 60 months previously) for creditworthy borrowers who can demonstrate higher income levels and better credit records. Also, as part of the underwriting review, we increased pricing for purchasing automobile contracts in 22 states by almost 100 basis points in APR. The states affected

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by the new pricing account for approximately 60% of automobile contracts that we current purchase and we expect that the impact will result in a gradual increase of approximately 60 basis points in weighted average yield over the next few years.

At December 31, 2007, we had a total of 142 branches, of which 4 were opened in 1996, 5 in 1997, 5 in 1998, 6 in 1999, 8 in 2000, 12 in 2001, 13 in 2002, 16 in 2003, 17 in 2004, 19 in 2005, 23 in 2006 and 14 in 2007. We closed 4 underperforming branches in 2007. At December 31, 2007, our portfolio was composed of 129,994 automobile contracts in the aggregate gross amount of $926.4 million.

Subsequent to December 31, 2007, management has closed an additional 9 branches. These closed branches represented less than 5% of the overall portfolio balance and will provide UPFC cost savings and operating leverage for 2008. The portfolio of these branches will continue to be serviced by other branches within the same market or by the Business Operations Unit in Texas. We do not expect to open any new branches in 2008.

The following table presents the number of branches, number of contracts and total contracts outstanding in each of the states we operate at the year ended December 31, 2007.


	At December 31, 2007
State	Number of Branches		Number of Contracts	Contracts Outstanding
				(Dollars in Thousands)
Texas		19			15,689	130,871
California		12			12,810	84,690
Florida		12			12,446	84,733
Georgia		8			6,437	48,584
New York		6			6,503	41,623
Missouri		6			5,543	40,200
North Carolina		6			5,335	38,370
Tennessee		6			4,557	33,704
Ohio		5			5,566	34,812
Arizona		5			5,324	37,257
Michigan		5			3,613	27,345
Alabama		4			5,102	37,597
Massachusetts		4			3,629	25,598
Indiana		4			3,346	24,821
Pennsylvania		4			3,072	21,768
Colorado		4			2,832	20,320
Virginia		3			3,732	24,513
Illinois		3			3,715	22,627
Washington		3			3,097	20,951
South Carolina		3			667	5,648
Oregon		2			1,851	12,207
Maryland		2			1,720	10,205
Oklahoma		2			1,694	14,056
Minnesota		2			1,573	11,641
Other ⁽¹⁾		12			10,141	72,209
Total		142			129,994	926,350

(1)

One branch in each of Wyoming, Idaho, Montana, Iowa, Kansas, Kentucky, Mississippi, New Hampshire, New Jersey, Nevada, and Utah. We currently originate and service automobile contracts in West Virginia, Connecticut, Arkansas and Nebraska from the newly created Business Operations Unit based in Dallas, Texas. We currently have no branch presence in these four states.

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Critical Accounting Policies

We have established various accounting policies, which govern the application of accounting principles generally accepted in the United States of America, or GAAP, in the preparation of our consolidated financial statements. Our accounting policies are integral to understanding the results reported. For a further discussion of our accounting policies, see “Note 3. Summary of Significant Accounting Policies” to our notes to consolidated financial statements in this Form 10-K.

Certain accounting policies require us to make significant estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities, and we consider these to be critical accounting policies. The estimates and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the date of the statement of financial condition and our results of operations for the reporting periods. The following is a brief description of our current accounting policies involving significant management valuation judgments.

Securitization Transactions

The transfer of our automobile contracts to securitization trusts is treated as a secured financing under Statement of Financial Accounting Standard (“SFAS”) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities . The trusts are considered variable interest entities. The assets, liabilities and results of operations of the trusts have been included in our consolidated financial statements. The contracts are retained on the statement of financial condition with the securities issued to finance the contracts recorded as securitization notes payable. We retain the servicing rights for the loans which have been securitized. We record interest income on the securitized contracts and interest expense on the notes issued through the securitization transactions. Debt issuance costs are amortized over the expected term of the securitization using the interest method.

As servicer of these contracts, we remit funds collected from the borrowers on behalf of the trustee to the trustee and direct the trustee how the funds should be invested until the distribution dates. We have retained an interest in the securitized contracts, and have the ability to receive future cash flows as a result of that retained interest.

Allowance for Loan Losses

The allowance for loan losses is calculated based on incurred loss methodology for the determination of the amount of probable credit losses inherent in the finance receivables as of the reporting date. Our loan loss allowance is estimated by management based upon a variety of factors including an assessment of the credit risk inherent in the portfolio and prior loss experience.

The allowance for credit losses is established through provision for loan losses recorded as necessary to provide for estimated loan losses in the next 12 months at each reporting date. We account for such loans by static pool, stratified into three-month buckets. The credit risk in each individual static pool is evaluated independently in order to estimate the future losses within each pool. Any such adjustment is recorded in the current period as the assessment is made.

Despite these analyses, we recognize that establishing an allowance is an estimate, which is inherently uncertain and depends on the outcome of future events. Our operating results and financial condition are sensitive to changes in our estimate for loan losses and the estimate’s underlying assumptions. Our operating results and financial condition are immediately impacted as changes in estimates for calculating loan loss reserves are immediately recorded in our consolidated statement of income as an addition or reduction in provision expense.

Stock-Based Compensation

On January 1, 2006, we adopted SFAS No. 123(R), Share-Based Payment , which requires that the compensation cost relating to share-based payment transactions (including the cost of all employee stock options) be recognized in the financial statements. That cost will be measured based on the estimated fair value of the equity or liability instruments issued. SFAS No. 123(R) covers a wide range of share-based compensation

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arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS No. 123(R) replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion (“APB Opinion”) No. 25, Accounting for Stock Issued to Employees. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB No. 107”) relating to SFAS No. 123(R).

We adopted SFAS No. 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of our 2006 fiscal year. Our Consolidated Financial Statements as of and for the years ended December 31, 2007 and 2006 reflect the impact of SFAS No. 123(R). In accordance with the modified prospective transition method, our Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123(R). Stock-based compensation expense recognized under SFAS No. 123(R) was $1,800,000 and $2,474,000 for the years ended December 31, 2007 and 2006, respectively.

Derivatives and Hedging Activities

The automobile contracts purchased and held by us are written at fixed interest rates and, accordingly, have interest rate risk. Such contracts are funded with warehouse borrowings and the warehouse borrowings accrue interest at a variable rate. Prior to closing our first securitization, while we were shifting the funding source of our automobile finance business to the public capital markets through securitizations and warehouse facilities, we entered into forward agreements in order to reduce the interest rate risk exposure on our securitization notes payable. The market value of these forward agreements was designed to respond inversely to changes in interest rates. Because of this inverse relationship, we were able to effectively lock in a gross interest rate spread for our automobile contracts held in portfolio prior to the sale of the securitization notes payable. Losses related to these agreements were recorded on our Consolidated Statements of Operations during 2004 because the derivative transactions did not meet the accounting requirements to qualify for hedge accounting. Accordingly, we did not amortize them over the life of the automotive contracts.

Lending Activities

Summary of Loan Portfolio

The following table sets forth the composition of our loan portfolio at the dates indicated.


	December 31,
	2007		2006	2005		2004	2003
	(Dollars in Thousands)
Automobile contracts	$	927,921		$	816,031		$	669,597	$	528,761	$	405,085
Other consumer loans		—			—			—		4		49
Total loans	$	927,921		$	816,031		$	669,597	$	528,765	$	405,134
Unearned finance charges ⁽¹⁾		(1,571 )			(2,507 )			(3,435 )		(4,595 )		(7,717 )
Unearned acquisition discounts ⁽¹⁾		(43,699 )			(39,449 )			(32,506 )		(24,827 )		(14,932 )
Allowance for loan losses ⁽¹⁾		(48,386 )			(36,037 )			(29,110 )		(25,593 )		(24,982 )
Total loans, net	$	834,265		$	738,038		$	604,546	$	473,750	$	357,503

(1)

See “Note 3. Summary of Significant Accounting Policies” to our Notes to the Consolidated Financial Statements in this Form 10-K.

Allowance for Loan Losses

Our policy is to maintain an allowance for loan losses to absorb inherent losses, which may be realized on our portfolio. These allowances are general valuation allowances for estimates for probable losses not specifically identified that will occur in the next twelve months. The total allowance for loan losses was $48.4 million at December 31, 2007 compared with $36.0 million at December 31, 2006, representing 5.48% of loans at December 31, 2007 and 4.66% at December 31, 2006.

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Following is a summary of the changes in our consolidated allowance for loan losses for the periods indicated.


	At or For the Year Ended December 31,
	2007		2006	2005		2004	2003
	(Dollars in Thousands)
Allowance for Loan Losses
Balance at beginning of year	$	36,037		$	29,110		$	25,593	$	24,982	$	27,586
Provision for loan losses – continuing operations ⁽¹⁾		69,764			46,800			31,166		25,516		17,771
Net charge-offs		(57,415 )			(39,873 )			(27,649 )		(24,905 )		(20,375 )
Balance at end of year	$	48,386		$	36,037		$	29,110	$	25,593	$	24,982
Annualized net charge-offs to average loans		6.39 %			5.22 %			4.51 %		5.24 %		5.67 %
Ending allowance to period end loans		5.48 %			4.66 %			4.59 %		5.13 %		6.53 %

(1)

See “ — Critical Accounting Policies”

Past Due and Nonaccrual Loans

The following table sets forth the remaining balances of all loans (net of unearned finance charges, excluding loans for which vehicles have been repossessed) that were more than 30 days delinquent at the periods indicated.


	December 31,
	2007		2006	2005
Loan Delinquencies	Balance		% of Total Loans	Balance		% of Total Loans	Balance		% of Total Loans
	(Dollars in Thousands)
30 to 59 days	$	7,194			0.78 %		$	4,898		0.60 %	$	3,697	0.55 %
60 to 89 days		2,756			0.30 %			1,678		0.21 %		1,548	0.23 %
90+ days		1,534			0.16 %			966		0.12 %		802	0.12 %
Total	$	11,484			1.24 %		$	7,542		0.93 %	$	6,047	0.90 %

Our policy is to charge off loans delinquent in excess of 120 days.

The following table sets forth the aggregate amount of nonaccrual loans (net of unearned finance charges, including loans over 30 days delinquent and loans for which vehicles have been repossessed) at the periods indicated.


	December 31,
	2007		2006	2005		2004	2003
Nonaccrual loans	$	21,185		$	13,314		$	9,838	$	7,169	$	5,713
Nonaccrual loans to gross loans		2.29 %			1.64 %			1.48 %		1.36 %		1.41	%
Allowance for loan losses to gross loans, net of unearned acquisition discounts		5.48 %			4.66 %			4.59 %		5.13 %		6.53	%

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Cumulative Losses for Contract Pools

The following table reflects our cumulative losses (i.e., net charge-offs as a percent of original net contract balances) for contract pools (defined as the total dollar amount of net contracts purchased in a three-month period) purchased from October 2002 through September 2007. Contract pools subsequent to September 2007 were not included in this table because the loan pools were not seasoned enough to provide a meaningful comparison with prior periods.

Number of Months Outstanding	Jan-03 - Mar-03		Apr-03 - Jun-03	Jul-03 - Sep-03		Oct-03 - Dec-03	Jan-04 - Mar-04		Apr-04 - Jun-04	Jul-04 - Sep-04		Oct-04 - Dec-04	Jan-05 - Mar-05		Apr-05 - Jun-05	Jul-05 - Sep-05		Oct-05 - Dec-05	Jan-06 - Mar-06		Apr-06 - Jun-06	Jul-06 - Sep-06		Oct-06 - Dec-06	Jan-07 - Mar-07		Apr-07 - Jun-07	Jul-07 - Sep-07
1		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
4		0.07	%		0.07	%		0.05	%		0.11	%		0.02	%		0.04	%		0.08	%		0.05	%		0.03	%		0.06	%		0.12	%		0.05	%		0.02	%		0.06	%		0.09	%		0.10	%		0.05	%		0.08	%		0.08	%
7		0.81	%		0.61	%		0.56	%		0.48	%		0.37	%		0.45	%		0.65	%		0.49	%		0.40	%		0.64	%		0.59	%		0.47	%		0.40	%		0.62	%		0.88	%		0.64	%		0.54	%		0.84	%
10		1.90	%		1.79	%		1.41	%		1.20	%		1.37	%		1.33	%		1.29	%		1.19	%		1.35	%		1.63	%		1.36	%		1.28	%		1.61	%		2.00	%		1.84	%		1.73	%		1.77	%
13		3.12	%		2.76	%		2.26	%		2.13	%		2.44	%		2.13	%		2.21	%		2.41	%		2.48	%		2.57	%		2.37	%		2.71	%		2.96	%		3.13	%		3.23	%		3.09	%
16		4.10	%		3.65	%		3.50	%		3.29	%		3.20	%		2.88	%		3.12	%		3.56	%		3.32	%		3.47	%		3.56	%		4.07	%		3.90	%		4.35	%		4.95	%
19		5.28	%		4.62	%		4.48	%		4.06	%		3.96	%		3.87	%		4.20	%		4.44	%		4.21	%		4.70	%		4.85	%		5.01	%		5.03	%		5.92	%
22		6.46	%		5.66	%		5.19	%		4.78	%		4.87	%		4.77	%		4.95	%		5.17	%		5.50	%		5.95	%		5.76	%		5.96	%		6.42	%
25		7.50	%		6.42	%		5.83	%		5.53	%		5.63	%		5.35	%		5.56	%		6.12	%		6.56	%		6.69	%		6.69	%		7.05	%
28		8.30	%		7.04	%		6.55	%		6.07	%		6.16	%		5.96	%		6.31	%		7.02	%		7.23	%		7.41	%		7.67	%
31		8.91	%		7.67	%		7.14	%		6.42	%		6.76	%		6.62	%		7.05	%		7.66	%		7.86	%		8.24	%
34		9.55	%		8.06	%		7.54	%		6.77	%		7.37	%		7.20	%		7.47	%		8.24	%		8.52	%
37		9.92	%		8.41	%		7.85	%		7.14	%		7.95	%		7.52	%		7.81	%		8.73	%
40		10.19	%		8.71	%		8.21	%		7.61	%		8.24	%		7.83	%		8.21	%
43		10.37	%		9.01	%		8.50	%		7.78	%		8.44	%		8.12	%
46		10.65	%		9.17	%		8.64	%		7.93	%		8.63	%
49		10.80	%		9.25	%		8.79	%		8.11	%
52		10.86	%		9.32	%		8.87	%
55		10.86	%		9.39	%
58		10.88	%
61
Original Pool ($000)	$	65,982		$	73,291		$	72,002		$	68,791		$	94,369		$	91,147		$	89,688		$	86,697		$	118,883		$	120,502		$	112,487		$	101,482		$	142,873		$	143,988		$	136,167		$	113,767		$	164,019		$	162,873		$	144,586
Remaining Pool ($000)	$	549		$	1,316		$	1,775		$	2,708		$	5,698		$	7,416		$	10,063		$	12,385		$	22,951		$	27,636		$	31,223		$	34,074		$	59,826		$	69,598		$	76,104		$	73,111		$	122,921		$	134,601		$	131,806
Remaining Pool (%)		0.83	%		1.80	%		2.47	%		3.94	%		6.04	%		8.14	%		11.22	%		14.29	%		19.31	%		22.93	%		27.76	%		33.58	%		41.87	%		48.34	%		55.89	%		64.26	%		74.94	%		82.64	%		91.16	%

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Loan Maturities

The following table sets forth the dollar amount of automobile contracts maturing in our automobile contracts portfolio at December 31, 2007 based on final maturity. Automobile contract balances are reflected before unearned acquisition discounts and allowance for loan losses.


	One Year or Less		More Than 1 Year to 3 Years	More Than 3 Years to 5 Years		More Than 5 Years to 10 Years	Total Loans
	(Dollars in Thousands)
Total loans	$	22,165		$	318,637		$	559,133	$	26,415	$	926,350

All loans are fixed rate loans.

Liquidity and Capital Resources

General

We require substantial cash and capital resources to operate our business. Our primary funding sources are a warehouse credit line, securitizations and retained earnings.

Our primary uses of cash include:

•

acquisition of automobile contracts;

•

interest expense;

•

operating expenses; and

•

securitization costs.

The capital resources available to us include:

•

interest income and principal collections on automobile contracts;

•

servicing fees that we earn under our securitizations;

•

releases of excess cash from the spread accounts relating to the securitizations;

•

securitization proceeds;

•

borrowings under our warehouse credit facility; and

•

releases of excess cash from our warehouse credit facility.

Management believes that the resources available to us will provide the needed capital and cash flows to fund purchases of automobile contracts, investments in our branch network and servicing capabilities and ongoing operations for the next twelve months.

Recent Market Developments

We anticipate that a number of factors will adversely impact our liquidity in 2008, including higher credit enhancement levels in our securitization transactions driven by disruptions in the capital markets and, to a lesser extent, the credit deterioration we are experiencing in our portfolio and substantially weakened demand for securities guaranteed by insurance policies, making the execution of securitization transactions more challenging and expensive. We may also realize decreased cash distributions from our securitization trusts due to weaker credit performance and higher borrowing costs.

The asset-backed securities market, along with credit markets in general, has been experiencing unprecedented disruptions. Market conditions began deteriorating in mid-2007 and remain impaired in early 2008. While some securitizations backed by prime quality automobile finance receivables were executed by other issuers in January and February 2008, no securitizations backed by non-prime quality receivables have been completed in calendar 2008. Further, the prime quality automobile securitizations that were executed in January 2008 utilized senior-subordinated structures, selling only the highest rated securities. In addition, the financial guaranty insurance providers used by us in the past are facing financial stress and rating agency

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downgrades. As a result, demand for asset-backed securities backed by a financial guarantee insurance policy has substantially weakened and there has been no public issuance of insured automobile asset-backed securities since November 2007. We have not accessed the securitization market with a transaction since November 2007.

Current conditions in the asset-backed securities market include reduced liquidity, increased risk premiums for issuers, reduced investor demand for asset-backed securities, particularly those securities backed by non-prime collateral, financial stress and rating agency downgrades impacting the financial guaranty insurance providers, and a general tightening of availability of credit. These conditions, which may increase our cost of funding and reduce our access to the asset-backed securities market or other types of receivable financings, may continue or worsen in the future. We will continue to require execution of securitization transactions or other types of receivable financing during 2008. There can be no assurance that funding will be available to us through the execution of these types of transactions or, if available, that the funding will be on acceptable terms. If we are unable to execute these transactions on a regular basis, and are otherwise unable to issue any other debt or equity, we would not have sufficient funds to finance new purchases of automobile contracts and, in such event, we would be required to revise the scale of our business, including the curtailment or cessation of our automobile contract purchasing activities, which would have a material adverse effect on our ability to achieve our business and financial objectives. For a more complete description of the financing risks that we face, see Item 1A. “Risk Factors” in this Annual Report on Form 10-K.

Securitizations

Our securitizations are structured as on-balance-sheet transactions and recorded as secured financings because they do not meet the accounting criteria for sale of finance receivables under SFAS No. 140. Regular contract securitizations are an integral part of our business plan going forward in order to increase our liquidity and reduce risks associated with interest rate fluctuations. We have developed a securitization program that involves selling interests in pools of our automobile contracts to investors through the public issuance of AAA/Aaa rated asset-backed securities. We retain the servicing rights for the loans which have been securitized. Upon the issuance of securitization notes payable, we retain the right to receive over time excess cash flows from the underlying pool of securitized automobile contracts.

In our securitizations to date, we transferred automobile contracts we purchased from automobile dealers to a newly formed owner trust for each transaction, which trust then issued the securitization notes payable. The net proceeds of our first securitization were used to replace the Bank’s deposit liabilities and the net proceeds of our subsequent securitization transactions were used to fund our operations. At the time of securitization of our automobile contracts, we are required to pledge assets equal to a specific percentage of the securitization pool to support the securitization transaction. Typically, the assets pledged consist of cash deposited to a restricted account known as a spread account and additional receivables delivered to the trusts, which create over-collateralization. The securitization transaction documents require the percentage of assets pledged to support the transaction to increase over time until a specific level is attained. Excess cash flow generated by the trusts is used to pay down the outstanding debt of the trusts, increasing the level of over-collateralization until the required percentage level of assets has been reached. Once the required percentage level of assets is reached and maintained, excess cash flows generated by the trusts are released to us as distributions from the trusts.

We have arranged for credit enhancement to improve the credit rating and reduce the interest rate on the asset-backed securities issued to date. This credit enhancement for our securitizations has been in the form of financial guaranty insurance policies insuring the payment of principal and interest due on the asset-backed securities. Agreements with our financial guaranty insurance providers provide that if portfolio performance ratios (delinquency and net charge-offs as a percentage of automobile contract outstanding) in a trust’s pool of automobile contracts exceed certain targets, the over-collateralization and spread account levels would be increased. Agreements with our financial guaranty insurance providers also contain additional specified targeted portfolio performance ratios. If, at any measurement date, the targeted portfolio performance ratios with respect to any trust whose securities are insured were to exceed these additional levels, provisions of the agreements permit our financial guaranty insurance providers to terminate our servicing rights to the automobile contracts sold to that trust.

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Our financial guaranty insurance providers are not required to insure our future securitizations, and there can be no assurance that they will continue to do so. In addition, a downgrading of any of our financial guaranty insurance providers’ credit ratings or the inability to structure alternative credit enhancements, such as senior subordinated transactions, for our securitization program could result in higher interest costs for our future securitizations and larger initial and/or target credit enhancement requirements. The absence of a financial guaranty insurance policy may also impair the marketability of our securitizations.

The following table lists each of our securitizations and its remaining balance as of December 31, 2007.



Issue Number	Issuance Date		Original Balance	Current Balance Class A-1		Interest Rate	Current Balance Class A-2		Interest Rate	Current Balance Class A-3		Interest Rate	Total Current Balance		Current Receivables Pledged	Surety Costs ⁽¹⁾		Back-up Servicing Fees
	(Dollars in Thousands)
2004A		September 22, 2004		$	420,000		$	—			1.94	%	$	—			2.56	%	$	—	3.27	%	$	—	$	—	0.46	%	0.020	%
2005A		April 14, 2005			195,000			—			3.12	%		—			3.85	%		29,713	4.34	%		29,713		31,966	0.43	%	0.035	%
2005B		November 10, 2005			225,000			—			4.28	%		—			4.82	%		58,785	4.98	%		58,785		66,960	0.41	%	0.035	%
2006A		June 15, 2006			242,000			—			5.27	%		4,796			5.46	%		96,000	5.49	%		100,796		110,377	0.39	%	0.035	%
2006B		December 14, 2006			250,000			—			5.34	%		43,543			5.15	%		99,000	5.01	%		142,543		156,761	0.38	%	0.035	%
2007A		June 14, 2007			250,000			—			5.33	%		94,103			5.46	%		99,000	5.53	%		193,103		215,121	0.37	%	0.032	%
2007B		November 8, 2007			250,000			45,305			4.98685	%		93,000			5.75	%		99,000	6.15	%		237,305		251,762	0.45	%	0.035	%
				$	1,832,000																		$	762,245	$	832,947

(1)

Related to premiums on financial guaranty insurance policies.

There is an average of $1.0 million in underwriting and issuance costs associated with each securitization transaction, which is amortized over the term of the securitizations.

In addition, as servicer we have the option to purchase the owner trust estate when the pool balance falls below 10% of the original balance of loans securitized. In August 2007, we executed a clean up call on the remaining 10% of the notes payable that was issued in our 2004A securitization transaction.

In order to assist our borrowers who have been adversely impacted by the rise in gasoline pries, we increased our extension usage. As a result, under our current servicing agreements, we are required to repurchase loans in excess of extension performance targets. We funded the purchase price for the repurchase of these loans by obtaining advances under our existing warehouse facility. The repurchased loans were securitized in the 2007B transaction.

As of December 31, 2007 we were in compliance with all terms of the financial covenants related to our securitization transactions.

Warehouse Facility

As of December 31, 2007, our $300 million warehouse facility was drawn to $35.6 million. On October 18, 2007, we executed a twelve month extension of our existing $300 million warehouse facility with Deutsche Bank. There were no material changes to the existing warehouse agreement. Under the terms of the facility, our indirect subsidiary, UFC, may obtain advances on a revolving basis by issuing notes to the participating lenders and pledging for each advance a portfolio of automobile contracts. UFC purchases the automobile contracts from UACC and UABO and UACC services the automobile contracts, which are held by a custodian. The principal and interest collected on the automobile contracts pledged is used to pay the interest due each month on the notes to the participating lenders and any excess cash is released to UFC. We have provided an absolute and unconditional and irrevocable guaranty of the full and punctual payment and performance, of all liabilities, agreements and other obligations of UACC and UABO and UFC under the warehouse facility. Whether we may obtain further advances under the facility depends on, among other things, the performance of the automobile contracts that are pledged under the facility and whether we comply with certain financial covenants contained in the sale and servicing agreement. The performance, timing and amount of cash flows from automobile contracts vary based on a number of factors, including:

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•

the yields received on automobile contracts;

•

the rates and amounts of loan delinquencies, defaults and net credit losses; and

•

how quickly and at what price repossessed vehicles can be resold.

In addition, we are required to hold certain funds in restricted cash accounts to provide additional collateral for borrowings under the warehouse facility. In the event that we fail to satisfy certain covenants in the sale and servicing agreement requiring minimum financial ratios, asset quality, and portfolio performance ratios (portfolio net loss and delinquency ratios and pool level cumulative net loss ratios), we could be required to increase the amount of funds that we hold in restricted cash. Failure to meet any of these covenants could also result in an event of default under the warehouse facility. If an event of default occurs under the warehouse facility, the lender could elect to declare all amounts outstanding under the facility to be immediately due and payable, enforce the interest against collateral pledged under the agreement or restrict our ability to obtain additional borrowings under the facility. We were in compliance with the terms of such financial covenants as of December 31, 2007. As of December 31, 2007, restricted cash of $1.4 million was held as collateral for the warehouse facility.

Residual Credit Facility

On January 24, 2007, we closed a $26 million variable rate residual credit facility. The facility is secured by eligible residual interests in previously securitized pools of automobile receivables and certain securities issued by UARC, UAFC, and UFC. We had provided an absolute and unconditional and irrevocable guaranty of the full and punctual payment and performance, of all liabilities, agreements and other obligations of UARC, UAFC, and UFC under the residual credit facility. As of December 31, 2007, the $26 million facility had a zero balance. As of December 31, 2007, we were in compliance with all terms of the financial covenants under the residual credit facility. This facility expired on January 24, 2008.

Share Repurchase Program

On June 27, 2006, our Board of Directors approved a share repurchase program and authorized us to repurchase up to 500,000 shares of our outstanding common stock from time to time in the open market or in private transactions in accordance with the provisions of applicable state and federal law, including, without limitation, Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. On August 4, 2006, our Board of Directors approved an increase in the aggregate number of shares that we may repurchase pursuant to the previously announced share repurchase program from 500,000 shares to 1,500,000 shares. On December 21, 2006, our Board of Directors approved a second increase in the aggregate number of shares of our outstanding common stock that we may repurchase pursuant to the previously announced share repurchase program from 1,500,000 shares to 3,500,000 shares. We repurchased 1,013,213 shares of our common stock for an average price of $12.98 per share for an aggregate purchase price of $13.2 million during the twelve months ended December 31, 2007 and 1,076,525 shares of our common stocks for an average price of $18.02 per share for an aggregate purchase price of $19.4 million during the twelve months ended December 31, 2006.

Subordinated Debentures

In 2003, we issued junior subordinated debentures in the amount of $10.3 million to a subsidiary trust, UPFC Trust I, to enhance our liquidity. UPFC Trust I in turn issued $10.0 million of company-obligated mandatorily redeemable preferred securities. We will pay interest on these funds at a rate equal to the three month LIBOR plus 3.05%, variable quarterly, and the rate was 8.29% as of December 31, 2007. The final maturity of these securities is 30 years, however, they can be called at par any time after July 31, 2008 at our discretion.

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Aggregate Contractual Obligations

The following table provides the amounts due under specified obligations for the periods indicated as of December 31, 2007.


	Less than One Year		One to Three Years	Three to Five Years		More than Five Years	Total
	(Dollars in Thousands)
Securitization notes payable	$	291,201		$	471,044		$	—	$	—	$	762,245
Warehouse line of credit		35,625			—			—		—		35,625
Operating lease obligations		6,589			11,173			5,020		9		22,791
Junior subordinated debentures		—			—			—		10,310		10,310
Total	$	333,415		$	482,217		$	5,020	$	10,319	$	830,971

The obligations are categorized by their contractual due dates, except securitization borrowings that are categorized by the expected repayment dates. We may, at our option, prepay the junior subordinated debentures prior to their maturity date. Furthermore, the actual payment of certain current liabilities may be deferred into future periods.

Discontinued Operations

Prior to September 2004, we engaged in three reportable segments: automobile finance, insurance premium finance and banking. As a result of the changes in our funding sources and the cancellation of the Bank’s federal thrift charter, in September 2004 we discontinued our insurance premium finance business and our banking operations.

Results of Operations

Comparison of Operating Results for the Years Ended December 31, 2007 and December 31, 2006

General

In 2007 we reported net income of $10.6 million, or $0.65 per diluted share, compared with $19.1 million, or $1.02 per diluted share for 2006.

Interest income increased 17.5% to $229.5 million for the year ended December 31, 2007 from $195.3 million for the same period a year ago. Automobile contracts purchased increased $40.2 million to $590.8 million in 2007 from $550.6 million in 2006 as a result of the purchase of additional automobile contracts in existing and new markets. During the twelve months ended December 31, 2007, we opened 15 auto finance branches and closed 4 underperforming branches bringing our total to 142 branches in 39 states.

Interest Income

Interest income increased by 17.5% to $229.5 million in 2007 from $195.3 million in 2006 due primarily to the increase in average automobile contracts of $143.0 million. Interest income on loans represents finance charges taken into earnings during the year as well as the accretion of the acquisition discount fee on loans acquired. Investment income increased as a result of higher invested cash balances combined with increased market interest rates.

Interest Expense

Interest expense increased 32.4% to $47.4 million in 2007 from $35.8 million in 2006. The average debt outstanding increased by 22.1% to $783.8 million in 2007 from $641.9 million in 2006. The average interest rate increased to 6.05% in 2007 from 5.58% in 2006. The increase was the result of higher market interest rates, coupled with pay down of lower priced securitizations.

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Provision and Allowance for Loan Losses

Provisions for loan losses are charged to income to bring our allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the portfolio of finance receivables. The provision for loan losses recorded in 2007 and 2006 reflects inherent losses on receivables originated during those periods and changes in the amount of inherent losses on receivables originated in prior periods. The provision for loan losses increased to $69.8 million for the year ended December 31, 2007 compared with $46.8 million for the year ended December 31, 2006. The increase in the provision for loan losses was due primarily to a $143.0 million increase in average automobile contracts and an increase in the annualized charge-off rate to 6.39% for the year ended December 31, 2007 compared to 5.22% for the year ended December 31, 2006.

The increase in our annualized net charge-offs was the result of increased defaults due to changes in general economic conditions particularly due to increased gasoline prices and employment contraction. The increase in gasoline prices which started in late 2006 and continues into 2008 has impacted the disposable income of our lower income borrowers causing increases in defaults.

The total allowance for loan losses was $48.4 million at December 31, 2007 compared with $36.0 million at December 31, 2006, representing 5.48% of automobile contracts, less unearned acquisition discounts, at December 31, 2007 and 4.66% at December 31, 2006. The increase in the allowance for loan losses was due primarily to a $112.9 million increase in automobile contracts outstanding, which increased to $926.4 million at December 31, 2007 from $813.5 million at December 31, 2006 and increase in the loss rate within the portfolio.

A provision for loan losses is charged to operations based on our regular evaluation of the adequacy of the allowance for loan losses. While management believes it has adequately provided for losses and does not expect any material loss on its loans in excess of allowances already recorded, no assurance can be given that economic or other market conditions or other circumstances will not result in increased losses in the loan portfolio.

For more information, see “ — Critical Accounting Policies.”

Non-interest Income

Non-interest income was $1.7 million for the years ended December 31, 2007 and 2006.

Non-interest Expense

Non-interest expense increased $15.6 million to $96.7 million in 2007 from $81.1 million in 2006. During the last 12 months, we continued with our controlled growth strategy, resulting in an increase to 1,147 employees as of December 31, 2007, from 954 employees as of December 31, 2006.

Income Taxes

Income taxes from continuing operations decreased $6.9 million to $6.7 million in 2007 from $13.6 million in 2006. This decrease occurred primarily as a result of a $16.0 million decrease in taxable income from continuing operations before income taxes. Our effective tax rate has been lower in 2007 relative to 2006 due to our expansion into lower tax jurisdictions.

Comparison of Operating Results for the Years Ended December 31, 2006 and December 31, 2005

General

In 2006 we reported net income of $19.1 million, or $1.02 per diluted share, compared with $26.7 million, or $1.43 per diluted share for 2005.

Interest income increased 24% to $195.3 million for the year ended December 31, 2006 from $157.8 million for the same period a year ago. Automobile contracts purchased increased $89.1 million to $550.6 million in 2006 from $461.5 million in 2005 as a result of the purchase of additional automobile contracts in existing and new markets consistent with our controlled growth strategy. During the twelve months ended December 31, 2006, we opened 24 auto finance branches bringing our total to 131 branches in 34 states.

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Interest Income

Interest income increased by 24% to $195.3 million in 2006 from $157.8 million in 2005 due primarily to the increase in average automobile contracts of $130.8 million. Interest income on loans represents finance charges taken into earnings during the year as well as the accretion of the acquisition discount fee on loans acquired. Investment income increased as a result of higher invested cash balances combined with increased market interest rates.

Interest Expense

Interest expense increased 54% to $35.8 million in 2006 from $23.2 million in 2005. The average debt outstanding increased by 21% to $641.9 million in 2006 from $531.1 million in 2005. The average interest rate increased 28% to 5.58% in 2006 from 4.37% in 2005. The increase was the result of higher market interest rates, coupled with pay down of lower priced securitizations.

Provision and Allowance for Loan Losses

Provisions for loan losses are charged to income to bring our allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the portfolio of finance receivables. The provision for loan losses recorded in 2006 and 2005 reflects inherent losses on receivables originated during those periods and changes in the amount of inherent losses on receivables originated in prior periods. The provision for loan losses increased to $46.8 million for the year ended December 31, 2006 compared with $31.2 million for the year ended December 31, 2005. The increase in the provision for loan losses was due primarily to a $130.8 million increase in average automobile contracts and an increase in the annualized charge-off rate to 5.22% for the year ended December 31, 2006 compared to 4.51% for the year ended December 31, 2005.

The increase in our annualized net charge-offs was the result of increased defaults due to the slowing consumer finance sector. In response to current trends in the economy, we tightened our underwriting criteria and strengthened our collections policies to better manage our loan portfolio.

The total allowance for loan losses was $36.0 million at December 31, 2006 compared with $29.1 million at December 31, 2005, representing 4.66% of automobile contracts, less unearned acquisition discounts, at December 31, 2006 and 4.59% at December 31, 2005. The increase in the allowance for loan losses was due primarily to a $147.3 million increase in automobile contracts outstanding, which increased to $813.5 million at December 31, 2006 from $666.2 million at December 31, 2005 and increase in the loss rate within the portfolio.

For more information, see “ — Critical Accounting Policies.”

Non-interest Income

Non-interest income increased $0.9 million to $1.7 million in 2006 from $0.8 million in 2005. This increase was primarily the result of the redemption of the preferred stock of AirTime Technologies, Inc. held by WorldCash Technologies, Inc., a wholly-owned subsidiary of the Company that was dissolved in August 2006. In March 2006, an agreement was reached to merge AirTime Technologies, Inc. with InComm Holdings Inc. As part of the agreement, the preferred stock owned by the Company through WorldCash Technologies, Inc. was redeemed for $520,000.

Non-interest Expense

Non-interest expense increased $16.6 million to $81.1 million in 2006 from $64.5 million in 2005. During the last 12 months, we continued with our controlled growth strategy, resulting in an increase to 954 employees as of December 31, 2006, from 800 employees as of December 31, 2005.

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Income Taxes

Income taxes before discontinued operations decreased $2.4 million to $13.6 million in 2006 from $16.0 million in 2005. This decrease occurred primarily as a result of a $6.4 million decrease in taxable income from continuing operations before income taxes.

Financial Condition

Comparison of Financial Condition at December 31, 2007 and December 31, 2006

Total assets increased $97.7 million, to $977.2 million at December 31, 2007 from $879.5 million at December 31, 2006. The increase resulted from a $108.6 million increase in automobile contracts to $882.7, net of unearned acquisition discounts and unearned finance charges, at December 31, 2007 from $774.1 million at December 31, 2006 and a $5.6 million increase in restricted cash, partially offset by a $12.6 million decrease in short term investments.

Premises and equipment increased $1.8 million to $6.8 million at December 31, 2007 from $5.0 million at December 31, 2006 primarily as a result of opening 15 new branches in 2007 and the move of our new corporate offices in March 2007.

Securitization notes payable increased to $762.2 million at December 31, 2007 from $698.3 at December 31, 2006 due to the completion of a $250.0 million securitization in June 2007 and November 2007 for a total of $500.0 million, offset by payments on the automobile contracts backing the securitized borrowing.

Warehouse line of credit borrowing increased to $35.6 million at December 31, 2007 from zero at December 31, 2006 due to borrowings to fund additional automobile contracts, partially offset by the completion of a $250.0 million securitization in June 2007 and November 2007 for a total of $500.0 million.

Shareholders’ equity decreased to $159.3 million at December 31, 2007 from $159.9 million at December 31, 2006, primarily as a result of $13.2 million of the Company’s common stock repurchased during the year ended December 31, 2007, partially offset by net income of $10.6 million and recognition of expense for fair value of options of $1.8 million during the year ended December 31, 2007.

Comparison of Financial Condition at December 31, 2006 and December 31, 2005

Total assets decreased $329.7 million, to $879.5 million at December 31, 2006 from $1,209.2 million at December 31, 2005. The decrease resulted primarily from a $495.3 million decrease in assets of discontinued operations, partially offset by a $140.4 million increase in automobile contracts to $774.1 million, net of unearned discounts and unearned finance charges, at December 31, 2006 from $633.7 million at December 31, 2005, a $14.9 million increase in restricted cash and a $7.0 million increase in cash and cash equivalents.

Premises and equipment increased $1.1 million to $5.0 million at December 31, 2006 from $3.9 million at December 31, 2005 primarily as a result of opening 24 new branches in 2006.

Warehouse line of credit borrowing decreased to zero at December 31, 2006 due to the completion of a $250.0 million securitization in December 2006, in which the proceeds from securitizations were used to pay down the line of credit.

Securitization notes payable increased to $698.3 million at December 31, 2006 from $521.6 at December 31, 2005 due to the completion of a $242.0 million securitization in June 2006 and a $250.0 million securitization in December 2006, offset by payments on the automobile contracts backing the securitized borrowing.

Liabilities of discontinued operations decreased to zero at December 31, 2006 from $459.5 million at December 31, 2005.

Shareholders’ equity increased to $159.9 million at December 31, 2006 from $154.9 million at December 31, 2005, primarily as a result of net income of $19.1 million in 2006, $1.5 million additional capital obtained as of result of stock options exercised and recognition of expense for fair value of options of $2.5 million, offset by $19.4 million of the Company’s common stock repurchased during the year ended December 31, 2006.

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Cash Flows

Comparison of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005

Cash provided by operating activities was $49.7 million, $38.5 million and $32.8 million for the twelve months ended December 31, 2007, 2006 and 2005, respectively. Cash provided by operating activities increased for the twelve months ended December 31, 2007 compared to the same period in 2006 and 2005 due primarily to an increase in cash received on interest income, partially offset by an increase in cash used on interest expense.

Cash used in investing activities was $142.4 million for the twelve months ended December 31, 2007. Cash provided by investing activities was $337.2 million and $231.9 million for the twelve months ended December 31, 2006 and 2005, respectively. Cash used in investing activities increased for the twelve months ended December 31, 2007 compared to the same period in 2006 and 2005 due to the discontinuation of the Company’s operations related to its investment segment in March 2006.

Cash provided by financing activities was $81.7 million for the twelve months ended December 31, 2007. Cash used by financing activities was $368.6 million and $247.7 million for the twelve months ended December 31, 2006 and 2005, respectively. Cash provided by financing activities increased for the twelve months ended December 31, 2007 compared to the same period in 2006 and 2005 due to the discontinuation of the Company’s operations related to its investment segment in March 2006.

Management of Interest Rate Risk

The principal objective of our interest rate risk management program is to evaluate the interest rate risk inherent in our business activities, determine the level of appropriate risk given our operating environment, capital and liquidity requirements and performance objectives and manage the risk consistent with guidelines approved by our Board of Directors. Through such management, we seek to reduce the exposure of our operations to changes in interest rates.

Our profits depend, in part, on the difference, or “spread,” between the effective rate of interest received on the loans which we originate and the interest rates paid on our financing facilities, which can be adversely affected by movements in interest rates.

The automobile contracts purchased and held by us are written at fixed interest rates and, accordingly, have interest rate risk while such contracts are funded with warehouse borrowings because the warehouse borrowings accrue interest at a variable rate. Prior to closing our first securitization, while we were shifting the funding source of our automobile finance business to the public capital markets through securitizations and warehouse facilities, we entered into forward agreements in order to reduce the interest rate risk exposure on our securitization notes payable. The market value of these forward agreements was designed to respond inversely to changes in interest rate. Because of this inverse relationship, we were able to effectively lock in a gross interest rate spread for our automobile contracts held in portfolio prior to the sale of the securitization notes payable. Losses related to these agreements were recorded on our Consolidated Statements of Operations during 2004 because the derivative transactions did not meet the accounting requirements to qualify for hedge accounting. Accordingly, we did not amortize them over the life of the automotive contracts.

Recent Accounting Developments

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurement . SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. The Statement does not require any new fair value measurements but could change the current practices in measuring current fair value measurements. The Statement is effective for fiscal years beginning after November 15, 2008. Management is currently evaluating the impact of the adoption of this statement; however, it is not expected to have a material impact on our consolidated financial position, results of operation or cash flows.

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with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The provisions of SFAS No. 159 are effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact of the adoption of this statement; however, it is not expected to have a material impact on our consolidated financial position, results of operation or cash flows.

In December 2007, FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 . SFAS No. 160 requires that accounting and reporting for minority interests will be recharacterized as non-controlling interests and classified as a component of equity. SFAS No. 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding non-controlling interest in one or more subsidiaries or that deconsolidate a subsidiary. This Statement shall be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Management is currently evaluating the impact of the adoption of this statement; however, it is not expected to have a material impact on our consolidated financial position, results of operation or cash flows.

In December 2007, FASB issued SFAS No. 141R, Business Combinations . SAFA No. 141R replaces SFAS No. 141, Business Combinations . SFAS No. 141R establishes principles and requirements for determining how an enterprise recognizes and measures the fair value of certain assets and liabilities acquired in a business combination, including noncontrolling interests, contingent consideration and certain acquired contingencies. SFAS No. 141R also requires acquisition-related transaction expenses and restructuring costs be expensed as incurred rather than capitalized as a component of the business combination. This Statement shall be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Management is currently evaluating the impact of the adoption of this statement; however, it is not expected to have a material impact on our consolidated financial position, results of operation or cash flows.

Other recent accounting pronouncements, interpretations and positions issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the United States Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Information regarding Quantitative and Qualitative Disclosures About Market Risk is set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Management of Interest Rate Risk” of Item 7 to this Annual Report on Form 10-K.

Item 8. Financial Statements and Supplementary Data


Index to Consolidated Financial Statements			F-1
Report of Independent Registered Public Accounting Firm			F-2
Consolidated Statements of Financial Condition as of December 31, 2007 and 2006			F-3
Consolidated Statements of Income for the years ended December 31, 2007, 2006 and 2005			F-4
Consolidated Statements of Comprehensive Income for the years ended December 31, 2007, 2006 and 2005			F-5
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2007, 2006 and 2005			F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006, and 2005			F-7
Notes to Consolidated Financial Statements			F-8

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2007.

Internal Control Over Financial Reporting

We prepared and are responsible for the consolidated financial statements that appear in this Annual Report on Form 10-K. These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP, and therefore, include amounts based on informed judgments and estimates. We are also responsible for the preparation of other financial information that is included in this Annual Report on Form 10-K.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined under Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Intergrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our internal control over financial reporting was effective as of December 31, 2007. Grobstein, Horwath & Company LLP, our independent auditor, has issued an attestation report, which is included herein, on our internal control over financial reporting as of December 31, 2007.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Directors and Stockholders
United PanAm Financial Corp. and Subsidiaries

We have audited United PanAm Financial Corp.’s (the “Company”) internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Item 9A “Controls and Procedures” of this Annual Report on Form 10-K. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007 based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition of the Company as of December 31, 2007 and 2006 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007 and our report dated March 12, 2008 expressed an unqualified opinion thereon.

/s/ GROBSTEIN, HORWATH & COMPANY LLP
Costa Mesa, California
March 12, 2008

Item 9B. Other Information

Not applicable.

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PART III