United Pan AM Financial Corp - Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2008

¨	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 No.)

18191 Von Karman Avenue, Suite 300 Irvine, CA	92612
(Address of Principal Executive Offices)	(Zip Code)

(949) 224-1917

(Registrant’s Telephone Number, Including Area Code)

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 ¨

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 ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨

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

The number of shares outstanding of the Registrant’s Common Stock as of July 31, 2008 was 15,737,399 shares.

UNITED PANAM FINANCIAL CORP.

FORM 10-Q

June 30, 2008

INDEX

		Page
	Cautionary Statement	1

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Consolidated Statements of Financial Condition as of June 30, 2008 and December 31, 2007	2

	Consolidated Statements of Income for the three and six months ended June 30, 2008 and 2007	3

	Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2008 and 2007	4

	Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Submission of Matters to a Vote of Security Holders	28

Item 5.	Other Information	28

Item 6.	Exhibits	29

CAUTIONARY STATEMENT

Certain statements contained in this Quarterly Report on Form 10-Q, 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 “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q. 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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Financial Condition

	June 30, 2008			December 31, 2007
*(Dollars in thousands)*	(Unaudited)			(Audited)
Assets
Cash	$	8,257		$	9,909
Short term investments		14,646			7,332
Cash and cash equivalents		22,903			17,241
Restricted cash		76,094			73,633
Loans		876,075			882,651
Allowance for loan losses		(49,290	)		(48,386	)
Loans, net		826,785			834,265
Premises and equipment, net		5,870			6,799
Interest receivable		10,071			10,424
Other assets		31,144			34,819
Total assets	$	972,867		$	977,181
Liabilities and Shareholders’ Equity
Securitization notes payable	$	549,157		$	762,245
Warehouse line of credit		237,144			35,625
Accrued expenses and other liabilities		11,091			9,660
Junior subordinated debentures		10,310			10,310
Total liabilities		807,702			817,840
Preferred stock (no par value):
Authorized, 2,000,000 shares; no shares issued and outstanding		—			—
Common stock (no par value):
Authorized, 30,000,000 shares; 15,737,399 shares issued and outstanding at June 30, 2008 and December 31, 2007		49,990			49,504
Retained earnings		115,175			109,837
Total shareholders’ equity		165,165			159,341
Total liabilities and shareholders’ equity	$	972,867		$	977,181

See notes to the consolidated financial statements

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
*(Dollars in thousands, except per share data)*	2008		2007		2008		2007
Interest Income
Loans	$	57,090	$	56,019	$	114,797	$	108,298
Short term investments and restricted cash		536		1,036		1,299		1,981
Total interest income		57,626		57,055		116,096		110,279
Interest Expense
Securitization notes payable		9,304		8,551		20,192		17,751
Warehouse line of credit		2,023		2,763		3,548		3,866
Other interest expense		146		288		339		498
Total interest expense		11,473		11,602		24,079		22,115
Net interest income		46,153		45,453		92,017		88,164
Provision for loan losses		15,080		14,024		32,722		28,505
Net interest income after provision for loan losses		31,073		31,429		59,295		59,659

Non-interest Income		568		500		1,039		847

Non-interest Expense
Compensation and benefits		14,904		15,594		31,819		30,933
Occupancy		2,140		2,263		4,604		4,446
Other non-interest expense		5,217		6,345		11,418		12,356
Restructuring charges		2,751		—		3,785		—
Total non-interest expense		25,012		24,202		51,626		47,735
Income before income taxes		6,629		7,727		8,708		12,771
Income taxes		2,565		3,090		3,370		5,108
Net income	$	4,064	$	4,637	$	5,338	$	7,663

Earnings per share-basic:
Net income	$	0.26	$	0.29	$	0.34	$	0.48
Weighted average basic shares outstanding		15,737		15,803		15,737		16,121

Earnings per share-diluted:
Net income	$	0.26	$	0.28	$	0.34	$	0.46
Weighted average diluted shares outstanding		15,763		16,494		15,763		16,766

See notes to consolidated financial statements

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

	Number of Shares			Common Stock			Retained Earnings		Total Shareholders’ Equity
	(Dollars in thousands)
Balance, December 31, 2006		16,713,838		$	60,614		$	99,251	$	159,865
Net income		—			—			7,663		7,663
Exercise of stock options, net		31,567			143			—		143
Tax effect of exercised stock options		—			112			—		112
Repurchase of common stock		(1,013,213	)		(13,188	)		—		(13,188	)
Stock-based compensation expense		—			1,193			—		1,193
Balance, June 30, 2007		15,732,192			48,874			106,914		155,788
Balance, December 31, 2007		15,737,399			49,504			109,837		159,341
Net income		—			—			5,338		5,338
Stock-based compensation expense		—			486			—		486
Balance, June 30, 2008		15,737,399		$	49,990		$	115,175	$	165,165

See notes to the consolidated financial statements

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
*(Dollars in thousands)*	2008			2007
Cash Flows from Operating Activities:
Net Income	$	5,338		$	7,663
Reconciliation of net income to net cash provided by operating activities:
Provision for loan losses		32,722			28,505
Accretion of discount on loans		(13,443	)		(13,521	)
Depreciation and amortization		1,181			1,175
Stock-based compensation		486			1,193
Tax benefit from stock-based compensation		(188	)		(477	)
Decrease (Increase) in accrued interest receivable		353			(457	)
Decrease in other assets		3,675			1,969
Increase in accrued expenses and other liabilities		1,431			487
Net cash provided by operating activities		31,555			26,537

Cash Flows from Investing Activities:
Purchases, net of repayments, of loans		(11,799	)		(108,794	)
Purchase of premises and equipment		(252	)		(2,724	)
Net cash used in investing activities		(12,051	)		(111,518	)

Cash Flows from Financing Activities:
Proceeds from warehouse line of credit		209,271			277,898
Repayment of warehouse line of credit		(7,752	)		(249,380	)
Proceeds from residual line of credit		—			10,283
Repayment of residual line of credit		—			(5,100	)
Proceeds from securitization		—			250,000
Payments on securitization notes payable		(213,088	)		(186,742	)
Increase in restricted cash		(2,461	)		(12,827	)
Proceeds from exercise of stock options		—			255
Repurchase of common stock		—			(13,188	)
Tax benefit from stock-based compensation		188			477
Net cash (used in) provided by financing activities		(13,842	)		71,676
Net increase (decrease) in cash and cash equivalents		5,662			(13,305	)
Cash and cash equivalents at beginning of period		17,241			28,294
Cash and cash equivalents at end of period	$	22,903		$	14,989
Supplemental Disclosures of Cash Payments Made for:
Interest	$	24,079		$	21,847
Income taxes	$	677		$	3,606

See notes to the consolidated financial statements

United PanAm Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Organization

United PanAm Financial Corp. (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 (the “Bank”) to purchase certain assets and assume certain liabilities of Pan American Federal Savings Bank.

On April 22, 2005, PAFI was merged with and into the Company, and United Auto Credit Corporation (“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.

At June 30, 2008, UACC and United Auto Business Operations, LLC (“UABO”) were direct wholly-owned subsidiaries of the Company, and 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.

2. Basis of Presentation

The consolidated financial statements include the accounts of the Company and all subsidiaries including certain special purpose financing trusts utilized in securitization transactions, which are considered variable interest entities. All significant inter-company accounts and transactions have been eliminated in consolidation.

These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments are of normal recurring nature and considered necessary for a fair presentation of the Company’s financial condition and results of operations for the interim periods presented in this Form 10-Q have been included. Operating results for the interim periods are not necessarily indicative of financial results for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. In preparing these consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates and assumptions included in the Company’s consolidated financial statements relate to the allowance for loan losses, estimates of loss contingencies, accruals and stock-based compensation forfeiture rates.

3. Recent Accounting Developments

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.

In February 2008, the FASB issued FASB Staff Positions FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions (“FSP SFAS No. 140-3”). The objective of FSP SFAS 140-3 is to provide implementation guidance on accounting for a transfer of a financial asset and repurchase financing. Under the guidance in FSP SFAS 140-3, there is a presumption that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement ( i.e., a linked transaction) for purposes of evaluation under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities . If certain criteria are met, however, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under SFAS No. 140. FSP SFAS 140-3 is effective for financial statements issued 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.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities . SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and requires entities to provide enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair values and amounts of gains and losses on derivative contracts, and disclosures about credit-risk-related contingent features in derivative agreements. This Statement is effective for financial statements issued for fiscal years and interim periods 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.

Other recent accounting pronouncements 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.

4. Restricted Cash

Restricted cash relates to $36.4 million of deposits held as collateral for securitized obligations and warehouse liabilities at June 30, 2008 compared with $32.1 million at December 31, 2007. Additionally, $39.7 million at June 30, 2008 relates to cash sent to the trustee that will be applied to the pay down of securitized obligations and warehouse liabilities compared with $41.6 million at December 31, 2007.

5. Loans

Loans are summarized as follows:

	June 30, 2008			December 31, 2007
	(Dollars in thousands)
Loans securitized	$	608,856		$	832,947
Loans unsecuritized		309,599			94,974
Unearned finance charges		(964	)		(1,571	)
Unearned acquisition discounts		(41,416	)		(43,699	)
Allowance for loan losses		(49,290	)		(48,386	)
Total loans, net	$	826,785		$	834,265
Allowance for loan losses to gross loans net of unearned acquisition discounts		5.63	%		5.48	%
Unearned acquisition discounts to gross loans		4.51	%		4.72	%
Average percentage rate to borrowers		22.71	%		22.64	%

Loans securitized represent loans transferred to the Company’s special purpose finance subsidiaries in securitization transactions accounted for as secured financings. Loans unsecuritized include $290.1million and $70.5 million pledged under the Company’s warehouse facilities as of June 30, 2008 and December 31, 2007, respectively.

The activity in the allowance for loan losses consists of the following:

	Six Months Ended June 30,						Twelve Months Ended December 31,
	2008			2007			2007
	(Dollars in thousands)
Allowance for loan losses at beginning of period	$	48,386		$	36,037		$	36,037
Provision for loan losses		32,722			28,505			69,764
Net charge-offs		(31,818	)		(22,829	)		(57,415	)

Allowance for loan losses at end of period	$	49,290		$	41,713		$	48,386

The allowance for loan losses is the estimate of probable losses in our loan portfolio for the next twelve months as of the statement of financial condition date. The level of the allowance is based principally on historical loss trends and the remaining balance of loans. The Company believes that the allowance for loan losses is currently adequate to absorb probable loan losses in the loans balance as of June 30, 2008. However, ultimate losses may vary from current estimates. It is possible that others, given the same information, may reach different conclusions and such differences could be material. To the extent that the analyses considered in determining the allowance for loan losses are not indicative of future performance or other assumptions used by the Company do not prove to be accurate, loss experience could differ significantly from the estimate, resulting in higher or lower future provision for loan losses.

6. Borrowings

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, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities . Since 2005, regular contract securitizations have been an integral part of our business plan 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. However, due to the fact that the asset-backed securities market, along with credit markets in general, have been experiencing unprecedented disruptions, the execution of securitization transactions is more challenging and expensive. We have not accessed the securitization market with a transaction since November 2007. We are analyzing our strategy going forward as to whether UPFC will continue to use securitizations as an integral part of our business plan. For more information, see Recent Market Developments in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to the Quarterly Report on this form 10-Q.

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. 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 insurers 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 insurers 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.

The following table lists each of our securitizations as of June 30, 2008:

Issue Number	Issuance Date		Maturity Date(1)		Original Balance		Remaining Balance at June 30, 2008
(Dollars in thousands)
2005A		April 14, 2005		December 2010	$	195,000	$	17,103
2005B		November 10, 2005		August 2011	$	225,000	$	37,712
2006A		June 15, 2006		May 2012	$	242,000	$	68,049
2006B		December 14, 2006		August 2012	$	250,000	$	101,574
2007A		June 14, 2007		July 2013	$	250,000	$	146,361
2007B		November 8, 2007		July 2014	$	250,000	$	178,358
				Total	$	1,412,000	$	549,157

(1) Contractual maturity of the last maturity class of notes issued by the related securitization owner trust.

Assets pledged to the trusts as of June 30, 2008 and December 31, 2007 are as follows:

	June 30, 2008		December 31, 2007
	(Dollars in thousands)
Automobile contracts, net	$	608,856	$	832,947
Restricted cash	$	30,585	$	30,647
Total assets pledged	$	639,441	$	863,594

A summary of our securitization activity and cash flows from the trusts is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
	(Dollars in thousands)
Receivables securitized	$	—	$	268,817	$	—	$	268,817
Proceeds from securitization	$	—	$	250,000	$	—	$	250,000
Distribution from the trusts	$	22,140	$	20,939	$	42,248	$	41,508

In order to assist our borrowers who have been adversely impacted by the rise in gasoline prices, 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. As a result, we repurchased $14.0 million and $4.5 million during the three months ended June 30, 2008 and 2007, respectively. We repurchased $22.2 million and $4.7 million during the six months ended June 30, 2008 and 2007, respectively. We funded the purchase price for the repurchase by obtaining advances under our existing warehouse facility.

As of June 30, 2008, we were in compliance with all terms of the financial covenants related to our securitization transactions. On July 25, 2008, Jim Vagim was appointed as our chief executive officer and Ray C. Thousand was terminated from that position. The termination of Mr. Thousand as our chief executive officer could adversely affect our six outstanding securitizations. Unless Mr. Vagim is approved by the various insurance providers that insure our six outstanding securitizations, the termination of Mr. Thousand is a potential insurance event of default and each of the three insurance providers may elect to enforce the various rights and remedies that are governed by the different transaction documents for each securitization. We have requested approval of Mr. Vagim as our chief executive officer from the insurance providers, but there is no assurance we will obtain such approvals.

Warehouse Facility

As of June 30, 2008, our $300 million warehouse facility was drawn to $237.1 million, which we use to fund our automobile finance operations to purchase automobile contracts pending securitization. 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 UACC services the automobile contracts, which are held by a custodian. 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 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. We were in compliance with the terms of such financial covenants as of June 30, 2008. 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. The performance, timing and amount of cash flows from automobile contracts varies 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; and

•

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

On October 18, 2007, we executed a twelve month extension of this warehouse facility, which will expire on October 16, 2008. 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.

Further, on July 25, 2008, Jim Vagim was appointed our chief executive officer and Ray C. Thousand was terminated from that position. The termination of Mr. Thousand as our chief executive officer could adversely affect our warehouse facility. Unless the warehouse facility lender approves the appointment of Mr. Vagim as the replacement chief executive officer, it could exercise its rights to terminate the warehouse line of credit and declare all amounts owed under the warehouse facility as immediately due and payable. We have requested approval of Mr. Vagim as our chief executive officer from the warehouse lender, but there is no assurance we will obtain such approval.

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. This facility expired on January 24, 2008.

7. 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. During the three months ended June 30, 2007, we repurchased 281,815 shares of our common stock for an average price of $13.95 per share for an aggregate purchase price of $3.9 million. During the six months ended June 30, 2007, 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. In total we have repurchased 2,089,738 shares of our common stock for an average price of $15.58 per share for an aggregate purchase price of $32.6 million. We did not repurchase any shares of our common stock during the three or six months ended June 30, 2008.

8. Share Based Compensation

In 1994, we adopted a stock option plan and, in November 1997, June 2001, June 2002, and July 2007 amended and restated such plan as the United PanAm Financial Corp. 1997 Employee Stock Incentive Plan (the “Plan”). The maximum number of shares that may be issued to officers, directors, employees or consultants under the Plan is 8,500,000. Options issued pursuant to the Plan have been granted at an exercise price of no less that book value on the date of grant. Options generally vest over a one to five year period and have a maximum term of ten years. Options may be exercised by using either a standard cash exercise procedure or a cashless exercise procedure. As of June 30, 2008 there were 4,146,706 options outstanding.

SFAS No. 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statement of income.

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in our consolidated statement of income for the three and six months ended June 30, 2008 and 2007 included compensation expense for share-based payment awards granted prior to, but not yet vested as of December 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS No. 123 and compensation expense for the share-based payment awards granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). As stock-based compensation expense recognized in the consolidated statement of income for the three and six months ended June 30, 2008 and 2007 is based on awards ultimately expected to vest on a straight-line prorated basis, it has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In our pro forma information required under SFAS No. 123 for the periods prior to January 1, 2006, we accounted for forfeitures as they occurred.

On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3, Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards. We have elected to adopt the alternative transition method provided in the FASB Staff Position for calculating the tax effects of stock-based compensation pursuant to SFAS No. 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and consolidated statements of cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS No. 123(R).

The following table summarizes stock-based compensation expense, net of tax, under SFAS No. 123(R) for the three and six months ended June 30, 2008 and 2007.

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
	(Dollars in thousands)
Stock-based compensation expense	$	158		$	623		$	486		$	1,193
Tax benefit		(61	)		(249	)		(188	)		(477	)
Stock-based compensation expense, net of tax	$	97		$	374		$	298		$	716
Stock-based compensation expense, net of tax, per diluted shares	$	0.01		$	0.02		$	0.02		$	0.04

At June 30, 2008, 595,015 shares of common stock were reserved for future stock based compensation grants.

On February 1, 2008, the Board of Directors approved restricted stock grants of 94,571 shares to our executive officers. The restricted stock grants vest at various dates. The unvested restricted grants are included in the outstanding options balance as of June 30, 2008.

The fair value of options under our Plan was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: no dividend yield; volatility was the actual 42 month volatility on the date of grant; risk-free interest rate equivalent to the appropriate US Treasury constant maturity treasury rate on the date of grant and expected lives of one to five years depending on final maturity of the options.

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Expected dividends	$	—		$	—		$	—		$	—
Expected volatility		63.36	%		43.15	%		62.10	%		43.74	%
Risk-free interest rate		3.10	%		4.71	%		2.86	%		4.69	%
Expected life		5.00 years			5.00 years			5.00 years			5.00 years

At June 30, 2008, there was $3.5 million of unrecognized compensation cost related to share based compensation, which is expected to be recognized over a weighted average period of 1.83 years. A summary of option activity for the six months ended June 30, 2008 and 2007 is as follows:

	Six Months Ended June 30,
	2008					2007
	(Dollars in thousands, except per share amounts)
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Balance at beginning of period		4,110,335		$	14.02		4,023,436		$	14.66
Granted		295,571			6.90		92,500			13.93
Canceled or expired		(259,200	)		15.87		(106,000	)		21.95
Exercised		—			—		(37,700	)		6.13

Balance at end of period		4,146,706			13.40		3,972,236			14.54

Weighted average fair value per share of options granted during period	$	4.65				$	6.25

At June 30, 2008, options exercisable to purchase 3,155,361 shares of our common stock under the Plan were outstanding as follows:

Range of Exercise Prices	Number of Shares Vested		Number of Shares Unvested		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Number of Shares Exercisable		Exercisable Shares Weighted Average Exercise Price
$0.0000 to $3.1650		16,469		152,870	$	0.23		8.65		16,469	$	2.35
$3.1651 to $6.3300		670,392		—		4.22		2.07		670,392		4.22
$6.3301 to $9.4950		73,100		12,000		7.38		4.11		73,100		7.16
$9.4951 to $12.6600		1,381,500		212,000		10.24		3.89		1,381,500		10.21
$12.6601 to $15.8250		337,150		103,500		14.67		4.06		337,150		14.83
$15.8251 to $18.9900		136,700		33,300		17.63		5.50		136,700		17.64
$18.9901 to $22.1550		310,200		36,800		20.06		3.18		310,200		20.04
$22.1551 to $25.3200		41,600		25,900		23.26		7.21		41,600		23.22
$25.3201 to $28.4850		72,600		27,000		26.61		7.23		72,600		26.45
$28.4851 to $31.6500		115,650		387,975		29.99		7.54		115,650		29.66
		3,155,361		991,345	$	13.40		4.40		3,155,361	$	11.86

The weighted average remaining contractual life of outstanding options was 4.40 years at June 30, 2008 and 4.68 years at December 31, 2007.

9. Earnings per Share

Basic earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options.

The following table reconciles the number of shares used in the computations of basic and diluted earnings per share for the three and six months ended June 30, 2008 and 2007:

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
	*(In thousands)*
Weighted average common shares outstanding during the period to compute basic earnings per share		15,737		15,803		15,737		16,121
Incremental common shares attributable to exercise of outstanding options		26		691		26		645
Weighted average number of common shares used to compute diluted earnings per share		15,763		16,494		15,763		16,766

The above calculation of diluted earnings per share excluded 4,169,000 and 1,665,000 average shares for the three months ended June 30, 2008 and 2007, and 4,202,000 and 1,714,000 average shares for the six months ended June 30, 2008 and 2007 respectively, attributable to outstanding stock options because the exercise prices of the stock options were greater than or equal to the average price of the common shares, and therefore their inclusion would have been anti-dilutive.

10. Trust Preferred Securities

On July 31, 2003, the Company issued trust preferred securities of $10.0 million through a subsidiary UPFC Trust I. The Trust issuer is a “100% owned finance subsidiary” of the Company and the Company “fully and unconditionally” guaranteed the securities. The Company will pay interest on these funds at a rate equal to the three month LIBOR plus 3.05%, variable quarterly, and the rate was 5.76% as of June 30, 2008. The final maturity of these securities is 30 years, however, they can be called at par any time after July 31, 2008 at the option of the Company.

11. Consolidation of Variable Interest Entities

FASB Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”), was issued in January 2003. FIN 46 requires that if an entity is the primary beneficiary of a variable interest entity, the assets, liabilities and results of operations of the variable interest entity should be included in the consolidated financial statements of the entity. FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities (“FIN 46(R)”), was issued in December 2003. The assets, liabilities and results of operations of our trusts associated with securitizations and trust preferred securities have been included in our consolidated financial statements.

12. Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities . SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the statement is to improve financial reporting by providing entities 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. In September 2006, FASB issued SFAS No. 157, Fair Value Measurements . This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements but does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007, however, a proposed FASB Staff Position would delay the effective date of certain provisions of SFAS No. 157 that relate to non-financial assets and non-financial liabilities. On January 1, 2008, management adopted SFAS No. 159 and SFAS No. 157 which had no impact on our consolidated financial position, results of operation or cash flows. The carrying amounts of our financial instruments are included in the consolidated statements of financial condition. The fair value of our financial instruments and the methodologies and assumptions used to measure the fair value of our financial instruments are described in detail in Note 15 to our Notes to Consolidated Financial Statements presented in our 2007 Annual Report on Form 10-K.

13. Restructuring Charges

A pretax restructuring charge of $2.8 million was recorded for costs associated with closure of branches in the second quarter of 2008, which included severance, fixed asset write-offs and post-closure costs. The restructuring charge included a $1.5 million reserve for estimated future lease obligations as of June 30, 2008. As of June 30, 2008, the liabilities related to the restructuring charges totaled $3.8 million.

Item 2. 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.

To improve overall corporate profitability, we began to close and consolidate overlapping and underperforming branches in the third quarter of 2007, and continued through the first and the second quarters of 2008. During the quarter ended June 30, 2008, we closed 22 branches bringing the total number of closures in 2008 to 36 branches. As a result of the closures, we have 106 branches which continue to operate in 36 states. The majority of closures were from the consolidation of branches within the same market. The loan portfolios of the closed branches represented less than 10% of the overall portfolio balance and continue to be serviced by other branches within the same market or by our Business Operation Unit in Dallas. The closures resulted in a decrease in the number of employees of approximately 230, or 20%, of our work force since December 2007. These closures are expected to result in cost savings, including operating expenses, of $12.0 million to $15.0 million annually. The closures will improve operating leverage and allow us to remain profitable at lower total origination levels. These branch closures have been achieved with no deterioration in servicing quality to date.

Due to continued disruptions in the capital markets and uncertainty as to the future of the securitization market as a source of financing, we have made the decision to further downsize the Company and reduce our branch footprint. We will begin a systematic evaluation of our branch network and will continue to consolidate and close branches. The majority of the branch closures will continue to be from consolidations of branches within the same market.

In addition, we will significantly slow new loan originations in the third and fourth quarter of 2008 to allow the Company’s outstanding receivables to shrink to a level where our capital base will be able to finance future originations at the lower advance structures currently available in the market.

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 by the new pricing account for approximately 60% of automobile contracts that we currently 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.

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. Certain accounting policies are described in detail in Note 3 to our Notes to Consolidated Financial Statements presented in our 2007 Annual Report on 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 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 provisions for losses recorded in income as necessary to provide for estimated contract losses in the next 12 months at each reporting date. We account for such contracts by static pool, stratified into three-month buckets, so that the credit risk in each individual static pool can be 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 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 after December 31, 2005 reflect the impact of SFAS No. 123(R). In accordance with the modified prospective transition method, our Consolidated Financial Statements prior to January 1, 2006 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 $158,000 and $623,000 for the three months ended June 30, 2008 and 2007, respectively. Stock-based compensation expense recognized under SFAS No. 123(R) was $486,000 and $1,193,000 for the six months ended June 30, 2008 and 2007, 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 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.

Lending Activities

Summary of Loan Portfolio

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

	June 30, 2008			December 31, 2007
	(Dollars in Thousands)
Automobile Contracts	$	918,455		$	927,921
Unearned finance charges (1)		(964	)		(1,571	)
Unearned acquisition discounts (1)		(41,416	)		(43,699	)
Allowance for loan losses (1)		(49,290	)		(48,386	)
Total loans, net	$	826,785		$	834,265

(1) See “—Critical Accounting Policies”

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 $49.3 million at June 30, 2008 compared with $48.4 million at December 31, 2007, representing 5.63% of loans at June 30, 2008 and 5.48% at December 31, 2007.

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

	At or For the Six Months Ended
	June 30, 2008			June 30, 2007
	(Dollars in Thousands)
Allowance for Loan Losses
Balance at beginning of period	$	48,386		$	36,037
Provision for loan losses (1)		32,722			28,505
Net charge-offs		(31,818	)		(22,829	)
Balance at end of period	$	49,290		$	41,713
Annualized net charge-offs to average loans		6.91	%		5.32	%
Ending allowance to period end loans		5.63	%		4.78	%

(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.

	June 30, 2008					December 31, 2007					June 30, 2007
	(Dollars in Thousands)
Loan Delinquencies	Balance		% of Total Loans			Balance		% of Total Loans			Balance		% of Total Loans
30 to 59 days	$	6,720		0.73	%	$	7,194		0.78	%	$	4,828		0.53	%
60 to 89 days		2,272		0.25	%		2,756		0.30	%		1,801		0.20	%
90+ days		983		0.11	%		1,534		0.16	%		712		0.07	%
Total	$	9,975		1.09	%	$	11,484		1.24	%	$	7,341		0.80	%

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.

	June 30, 2008			December 31, 2007			June 30, 2007
	(Dollars in Thousands)
Nonaccrual loans	$	19,509		$	21,185		$	13,999
Nonaccrual loans to gross loans		2.13	%		2.29	%		1.52	%
Allowance for loan losses to gross loans, net of unearned acquisition discounts		5.63	%		5.48	%		4.78	%

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 July 2003 through March 2008. Contract pools subsequent to March 2008 were not included in this table because the loan pools were not seasoned enough to provide a meaningful comparison with prior periods.

Number of	Jul-03			Oct-03			Jan-04			Apr-04			Jul-04			Oct-04			Jan-05			Apr-05			Jul-05			Oct-05			Jan-06			Apr-06			Jul-06			Oct-06			Jan-07			Apr-07			Jul-07			Oct-07			Jan-08
Months	-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-			-
Outstanding	Sep-03			Dec-03			Mar-04			Jun-04			Sep-04			Dec-04			Mar-05			Jun-05			Sep-05			Dec-05			Mar-06			Jun-06			Sep-06			Dec-06			Mar-07			Jun-07			Sep-07			Dec-07			Mar-08
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		0.05	%		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	%		0.09	%		0.04	%
7		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	%		0.82	%		0.54	%
10		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	%		2.28	%		1.90	%
13		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	%		3.29	%		3.51	%
16		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	%		4.87	%		4.54	%
19		4.48	%		4.06	%		3.96	%		3.87	%		4.20	%		4.44	%		4.21	%		4.70	%		4.85	%		5.01	%		5.03	%		5.92	%		6.73	%		6.23	%
22		5.19	%		4.78	%		4.87	%		4.77	%		4.95	%		5.17	%		5.50	%		5.95	%		5.76	%		5.96	%		6.42	%		7.41	%		7.98	%
25		5.83	%		5.53	%		5.63	%		5.35	%		5.56	%		6.12	%		6.56	%		6.69	%		6.69	%		7.05	%		7.66	%		8.59	%
28		6.55	%		6.07	%		6.16	%		5.96	%		6.31	%		7.02	%		7.23	%		7.41	%		7.67	%		8.08	%		8.56	%
31		7.14	%		6.42	%		6.76	%		6.62	%		7.05	%		7.66	%		7.86	%		8.24	%		8.62	%		8.78	%
34		7.54	%		6.77	%		7.37	%		7.20	%		7.47	%		8.24	%		8.52	%		9.04	%		9.25	%
37		7.85	%		7.14	%		7.95	%		7.52	%		7.81	%		8.73	%		9.11	%		9.54	%
40		8.21	%		7.61	%		8.24	%		7.83	%		8.21	%		9.12	%		9.43	%
43		8.50	%		7.78	%		8.44	%		8.12	%		8.47	%		9.34	%
46		8.64	%		7.93	%		8.63	%		8.33	%		8.63	%
49		8.79	%		8.11	%		8.81	%		8.43	%
52		8.87	%		8.16	%		8.85	%
55		8.95	%		8.24	%
58		8.98	%
Original Pool ($000)	$	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		$	102,526		$	127,280
Remaining Pool ($000)	$	628		$	1,156		$	2,743		$	3,904		$	5,764		$	7,464		$	14,740		$	18,134		$	21,005		$	23,802		$	42,773		$	50,929		$	56,848		$	55,783		$	96,927		$	107,791		$	109,521		$	85,719		$	117,335
Remaining Pool (%)		0.9	%		1.7	%		2.9	%		4.3	%		6.4	%		8.6	%		12.4	%		15.0	%		18.7	%		23.5	%		29.9	%		35.4	%		41.7	%		49.0	%		59.1	%		66.2	%		75.7	%		83.6	%		92.2	%

Loan Maturities

The following table sets forth the dollar amount of automobile contracts maturing in our automobile contracts portfolio at June 30, 2008 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	$	25,778	$	341,381	$	483,927	$	66,405	$	917,491

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.

As 2008 has progressed, we have experienced increasing reliance for liquidity on advances we are obtaining under our warehouse facility, which will expire on October 16, 2008. Management is currently evaluating alternative sources of financing in case we are unable to obtain advances for any reason under the warehouse facility. If we are unable to obtain advances under the warehouse facility or arrange for other types of interim financing, we will have to curtail or cease 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. For a more complete description of the risks that we face, see Item 1A “Risk Factors” in our 2007 Annual Report on Form 10-K.

Recent Market Developments

A number of factors have adversely impacted our liquidity in 2008 and we anticipate these factors will continue to adversely impact our liquidity through 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 2008. Further, the prime quality automobile securitizations that were executed in 2008 utilized senior-subordinated structures and sold 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 downgrades. As a result, demand for asset-backed securities backed by a financial guarantee insurance policy has substantially weakened and there has been a limited number of public issuances 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 have anticipated that we will continue to require execution of securitization transactions or other types of receivable financing during 2008. However, due to the current conditions in the asset-backed securities market, along with credit markets in general, the execution of securitization transactions is more challenging and expensive and we are analyzing our strategy going forward as to whether we will continue to use securitizations as an integral part of our business plan. As we discussed above, management is currently evaluating alternative sources of financing and there can be no assurance that funding will be available to us through the execution of securitization of transactions or, if available, that the funding will be on acceptable terms. If we are unable to execute these securitization transactions on a regular basis, and are otherwise unable to issue any other debt or equity, or arrange for other types of interim financing, we would not have sufficient funds to finance new purchases of automobile contracts. 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. This 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 our 2007 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. Since 2004, regular contract securitizations have been an integral part of our business plan going 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. However, due to the fact that the asset-backed securities market, along with credit markets in general, have been experiencing unprecedented disruptions, the execution of securitization transactions is more challenging and expensive and we have not accessed the securitization market with a transaction since November 2007 and we are analyzing our strategy going forward as to whether we will continue to use securitizations as an integral part of our business plan.

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.

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 June 30, 2008.

(Dollars in thousands)

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
2005A		April 14, 2005		195,000		—		3.12	%		—		3.85	%		17,103		4.34	%		17,103		18,300		0.43	%		0.035	%
2005B		November 10, 2005		225,000		—		4.28	%		—		4.82	%		37,712		4.98	%		37,712		42,376		0.41	%		0.035	%
2006A		June 15, 2006		242,000		—		5.27	%		—		5.46	%		68,049		5.49	%		68,049		74,908		0.39	%		0.035	%
2006B		December 14, 2006		250,000		—		5.34	%		2,574		5.15	%		99,000		5.01	%		101,574		111,606		0.38	%		0.035	%
2007A		June 14, 2007		250,000		—		5.33	%		47,361		5.46	%		99,000		5.53	%		146,361		162,290		0.37	%		0.032	%
2007B		November 8, 2007		250,000		—		4.98685	%		79,358		5.75	%		99,000		6.15	%		178,358		199,376		0.45	%		0.035	%
			$	1,412,000																$	549,157	$	608,856

(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 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. As a result, we repurchased $13.9 million and 4.5 million during the three months ended June 30, 2008 and 2007, respectively. We repurchased 22.2 million and 4.7 million during the six months ended June 30, 2008 and 2007, respectively.

As of June 30, 2008 we were in compliance with all terms of the financial covenants related to our securitization transactions. On July 25, 2008, Jim Vagim was appointed as our chief executive officer and Ray C. Thousand was terminated from that position. The termination of Mr. Thousand as our chief executive officer could adversely affect our six outstanding securitizations. Unless Mr. Vagim is approved by the various insurance providers that insure our six outstanding securitizations, the termination of Mr. Thousand is a potential insurance event of default and each insurance provider may elect to enforce the various rights and remedies that are governed by the different transaction documents for each securitization. We have requested approval of Mr. Vagim as our chief executive officer from the insurance providers, but there is no assurance UPFC will obtain such approvals.

Warehouse Facility

As of June 30, 2008, our $300 million warehouse facility was drawn to $237.1 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 , which will expire on October 16, 2008. 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.

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, 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:

•

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 June 30, 2008, except as described above relating to the approval of Mr. Vagim as our new chief executive officer.

Residual Credit Facility

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 six months ended June 30, 2007. In total we have repurchased 2,089,738 shares of our common stock for an average price of $15.58 per share for an aggregate purchase price of $32.6 million. We did not repurchase any shares of our common stock during the six months ended June 30, 2008.

Subordinated Debentures

Aggregate Contractual Obligations

The following table provides the amounts due under specified obligations for the periods indicated as of June 30, 2008.

	Less than 1 Year		1 Year to 3 Years		3 Years to 5 Years		More Than 5 Years		Total
	(Dollars in thousands)
Warehouse line of credit	$	237,144	$	—	$	—	$	—	$	237,144
Securitization notes payable		307,438		241,719		—		—		549,157
Operating lease obligations		6,305		10,846		4,911		42		22,104
Junior subordinated debentures		—		—		—		10,310		10,310
Total	$	550,887	$	252,565	$	4,911	$	10,352	$	818,715

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.

Selected Financial Data

(Dollars in thousands)	At or For the Three Months Ended						At or For the Six Months Ended
	June 30, 2008			June 30, 2007			June 30, 2008			June 30, 2007

Operating Data
Contracts purchased	$	98,508		$	167,807		$	228,438		$	335,447
Contracts outstanding	$	917,491		$	918,638		$	917,491		$	918,638
Unearned acquisition discounts	$	(41,416	)	$	(45,077	)	$	(41,416	)	$	(45,077	)
Average loan balance	$	925,891		$	893,174		$	926,135		$	865,254
Unearned acquisition discounts to gross loans		4.51	%		4.91	%		4.51	%		4.91	%
Average percentage rate to borrowers		22.71	%		22.62	%		22.71	%		22.62	%

Loan Quality Data
Allowance for loan losses	$	(49,290	)	$	(41,713	)	$	(49,290	)	$	(41,713	)
Allowance for loan losses to gross loans net of unearned acquisition discounts		5.63	%		4.78	%		5.63	%		4.78	%
Delinquencies (% of net contracts)
31-60 days		0.73	%		0.53	%		0.73	%		0.53	%
61-90 days		0.25	%		0.20	%		0.25	%		0.20	%
90+ days		0.11	%		0.07	%		0.11	%		0.07	%
Total		1.09	%		0.80	%		1.09	%		0.80	%
Repossessions over 30 days past due (% of net contracts)		0.85	%		0.54	%		0.85	%		0.54	%
Annualized net charge-offs to average loans ⁽¹⁾		6.66	%		5.04	%		6.91	%		5.32	%

Other Data
Number of branches		106			144			106			144
Number of employees		947			1,035			947			1.035
Interest income	$	57,626		$	57,055		$	116,096		$	110,279
Interest expense	$	11,473		$	11,602		$	24,079		$	22,115
Interest margin	$	46,153		$	45,453		$	92,017		$	88,164
Net interest margin as a percentage of interest income		80.09	%		79.67	%		79.26	%		79.95	%
Net interest margin as a percentage of average loans ⁽¹⁾		20.05	%		20.41	%		19.98	%		20.55	%
Non-interest expense to average loans ⁽¹⁾		10.86	%		10.87	%		11.21	%		11.13	%
Non-interest expense to average loans ⁽²⁾		9.67	%		10.87	%		10.39	%		11.13	%
Return on average assets ⁽¹⁾		1.67	%		1.97	%		1.10	%		1.68	%
Return on average shareholders’ equity ⁽¹⁾		10.03	%		12.04	%		6.65	%		9.89	%
Consolidated capital to assets ratio		16.98	%		16.01	%		16.98	%		16.01	%

_____________________________________

(1) Quarterly information is annualized for comparability with full year information.

(2) Excluding restructuring charges.

Results of Operations

Comparison of Operating Results for the three Months Ended June 30, 2008 and 2007

General

For the three months ended June 30, 2008, our net income was $4.1 million, or $0.26 per diluted share, compared with $4.6 million, or $0.28 per diluted share for the same period a year ago.

Interest income increased 0.9% to $57.6 million for the three months ended June 30, 2008 from $57.1 million for the same period a year ago due to an increase in average automobile contracts outstanding of $32.7 million. Automobile contracts purchased decreased $69.3 million to $98.5 million for the three months ended June 30, 2008 from $167.8 million for the same period a year ago. This decrease was the result of the slowdown in the economy and current market conditions, in addition to our focus on tighter underwriting criteria. During the three months ended June 30, 2008, we closed 22 underperforming branches bringing our total number of operating branches to 106 in 36 states.

Interest Income

Interest income increased by 0.9% to $57.6 million for the three months ended June 30, 2008 from $57.1 million for the same period a year ago due primarily to an increase in average automobile contracts of $32.7 million. Interest income on loans represents finance charges taken into earnings during the quarter as well as the accretion of the acquisition discount fee on loans acquired.

Interest Expense

Interest expense decreased 0.9% to $11.5 million for the three months ended June 30, 2008 from $11.6 million for the same period a year ago. The average debt outstanding increased by 2.9% to $803.4 million for the three months ended June 30, 2008 from $780.6 million for the same period a year ago. The average interest rate decreased 3.7% to 5.74% for the three months ended June 30, 2008 from 5.96% for the same period a year ago. The decrease was the result of lower market interest rates.

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 automobile loans. The provision for loan losses recorded in the three months ended June 30, 2008 and 2007 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 $15.1 million for the three months ended June 30, 2008 compared with $14.0 million for the same period a year ago. The increase in the provision for loan losses was due primarily to a $32.7 million increase in average automobile contracts and an increase in the annualized charge-off rate to 6.66% for the three months ended June 30, 2008 compared to 5.04% for the same period a year ago.

The increase in our annualized net charge-offs was the result of increased defaults due to the overall deteriorating economic environment.

The total allowance for loan losses was $49.3 million at June 30, 2008 compared with $41.7 million at June 30, 2007, representing 5.63% of automobile contracts, less unearned acquisition discounts, at June 30, 2008 and 4.78% at June 30, 2007. The increase in the allowance for loan losses was due primarily to an 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 further information, see “—Critical Accounting Policies.”

Non-interest Income

Non-interest income increased $0.1 million to $0.6 million for the three months ended June 30, 2008 from $0.5 million for the same period a year ago.

Non-interest Expense

Non-interest expense increased $0.8 million to $25.0 million for the three months ended June 30, 2008 from $24.2 million for the same period a year ago. The increase in non-interest expense was due to the increase in total average number of employees in the second quarter of 2008 versus the second quarter of 2007. Non-interest expense, excluding the restructuring charges associated with branch closures, as a percentage of average loans dropped to 9.7% from 10.9% for the same period a year ago. A pretax restructuring charge of $2.8 million was recorded for costs associated with branch closures in the quarter ended June 30, 2008 which included severance, fixed asset write-offs and post-closure costs. The restructuring charge included a $1.5 million reserve for estimated future lease obligations as of June 30, 2008.

Income Taxes

Income taxes decreased $0.5 million to $2.6 million for the three months ended June 30, 2008 from $3.1 million for the same period a year ago. This decrease occurred primarily as a result of a $1.1 million decrease in taxable income before income taxes. Income tax expense is based upon the estimated effective income tax rate that we expect to realize for the year ending December 31, 2008. Our estimated effective income tax rate for the three months ended June 30, 2008 is 38.7% compared to 40.0% for the comparable period in 2007.

Comparison of Operating Results for the Six Months Ended June 30, 2008 and 2007

General

For the six months ended June 30, 2008, our net income was $5.3 million, or $0.34 per diluted share, compared with $7.7 million, or $0.46 per diluted share for the same period a year ago.

Interest income increased 5.3% to $116.1 million for the six months ended June 30, 2008 from $110.3 million for the same period a year ago due primarily to an increase in average automobile contracts of $60.9 million. Automobile contracts purchased decreased $107.0 million to $228.4 million for the six months ended June 30, 2008 from $335.4 million for the same period a year ago as a result of the closing of branches and tighter underwriting criteria in light of current economic conditions. During the six months ended June 30, 2008, we closed 36 auto finance branches bringing our total to 106 branches in 36 states.

Interest Income

Interest income increased by 5.3% to $116.1 million for the six months ended June 30, 2008 from $110.3 million for the same period a year ago due primarily to an increase in average automobile contracts of $60.9 million. Interest income on loans represents finance charges taken into earnings during the quarter as well as the accretion of the acquisition discount fee on loans acquired.

Interest Expense

Interest expense increased 9.0% to $24.1million for the six months ended June 30, 2008 from $22.1 million for the same period a year ago. The average debt outstanding increased by 7.0% to $805.7 million for the six months ended June 30, 2008 from $753.3 million for the same period a year ago. The average interest rate increased to 6.01% for the six months ended June 30, 2008 from 5.92% for the same period a year ago. 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 automobile loans. The provision for loan losses recorded in the six months ended June 30, 2008 and 2007 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 $32.7 million for the six months ended June 30, 2008 compared with $28.5 million for the same period a year ago. The increase in the provision for loan losses was due primarily to an increase in the annualized charge-off rate to 6.91% for the six months ended June 30, 2008 compared to 5.32% for the same period a year ago.

The increase in our year-to-date annualized net charge-offs was the result of increased defaults due to the overall deteriorating economic environment.

The total allowance for loan losses was $49.3 million at June 30, 2008 compared with $41.7 million at June 30, 2007, representing 5.63% of net receivables at June 30, 2008 and 4.78% at June 30, 2007. The increase in allowance loan losses was due primarily to an increase in the loss rate within the portfolio.

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

Non-interest Income

Non-interest income increased to $1.0 million for the six months ended June 30, 2008 from $0.8 million for the same period a year ago.

Non-interest Expense

Non-interest expense increased $3.9 million to $51.6 million for the six months ended June 30, 2008 from $47.7 million for the same period a year ago. The increase in non-interest expense was due to the increase in total average number of employees in the six months ended June 30, 2008 compared to the same period a year ago. Non-interest expense, excluding the restructuring charges associated with branch closures, as a percentage of average loans dropped to 10.4% from 11.1% for the same period a year ago. A pretax restructuring charge of $3.8 million was recorded for costs associated with branch closures in the six months ended June 30, 2008 which included severance, fixed asset write-offs and post-closure costs. The restructuring charge included a $1.5 million reserve for estimated future lease obligations as of June 30, 2008.

Income Taxes

Income taxes decreased $1.7 million to $3.4 million for the six months ended June 30, 2008 from $5.1 million for the same period a year ago. This decrease occurred primarily as a result of a $4.1 million decrease in taxable income before income taxes. Income tax expense is based upon the estimated effective income tax rate that we expect to realize for the year ending December 31, 2008. Our estimated effective income tax rate for the six months ended June 30. 2008 is 38.7% compared to 40.0% for the comparable period in 2007.

Financial Condition

Comparison of Financial Condition at June 30, 2008 and December 31, 2007

Total assets decreased $4.3 million, to $972.9 million at June 30, 2008, from $977.2 million at December 31, 2007. The decrease resulted from a $6.6 million decrease in automobile contracts to $876.1 million, net of unearned acquisition discounts and unearned finance charges, at June 30, 2008 from $882.7 million at December 31, 2007.

Securitization notes payable decreased to $549.2 million at June 30, 2008 from $762.2 million at December 31, 2007 due to payments on the automobile contracts backing the securitized borrowings.

Warehouse line of credit borrowing increased to $237.1 million as of June 30, 2008 from $35.6 as of December 31, 2007 due primarily to funding of additional automobile contracts during the six months ended June 30, 2008.

The reduction in securitization notes payable and the increase in borrowings under the warehouse facility reflect the fact that we have not accessed the securitization market with a transaction since November 2007. Management is currently seeking alternative sources of financing. For more information, see Recent Market Developments in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to the Quarterly Report on this form 10-Q.

Shareholders’ equity increased to $165.2 million at June 30, 2008 from $159.3 million at December 31, 2007, primarily as a result of net income of $5.3 million and recognition of expense for fair value of options of $0.5 million.

Cash Flows

Comparison of Cash Flows for the Six Months Ended June 30, 2008 and 2007

Cash provided by operating activities was $31.6 million and $26.5 million for the six months ended June 30, 2008 and 2007, respectively. Cash provided by operating activities increased for the six months ended June 30, 2008 compared to the same period in 2007 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 $12.1 million and $111.5 million for the six months ended June 30, 2008 and 2007, respectively. Cash used in investing activities decreased for the six months ended June 30, 2008 compared to the same period in 2007 due to a decrease of $107.0 million in automobile contracts purchased.

Cash used in financing activities was $13.8 million for six months ended June 30, 2008. Cash provided by financing activities was $71.7 million for the six months ended June 30, 2007. Cash used in financing activities for the six months ended June 30, 2008 reflects $213.1 million in payments on securitization notes payable and $209.3 million in proceeds from the warehouse line of credit. Cash provided by financing activities for the six months ended June 30, 2007 reflects $277.9 million in proceeds from the warehouse line of credit, $249.4 million in payments on the warehouse line of credit, $250.0 million in proceeds from securitization and $186.7 million in payments on securitization notes payable.

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.

Recent Accounting Developments

See Note 3 to the Consolidated Financial Statements included in Item 1 to this Quarterly Report on Form 10-Q for a discussion of recent accounting developments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Interest Rate Risk.”

Item 4. Controls and Procedures.

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 June 30, 2008.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Not applicable

Item 1A. Risk Factors.

In addition to the other risk factors and information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, operating results and/or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

During the quarter ended June 30, 2008, 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
April 1, 2008 to April 30, 2008		—	$	—		—		1,410,262
May 1, 2008 to May 31, 2008		—	$	—		—		1,410,262
June 1, 2008 to June 30, 2008		—	$	—		—		1,410,262
Total		—	$	—		—		1,410,262

Item 3. Defaults Upon Senior Securities.

Not applicable

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

Not applicable

Item 5. Other Information.

Submission of Shareholder Proposals

Under certain circumstances, shareholders are entitled to present proposals at shareholder meetings. If you wish to submit a proposal to be included in our 2008 proxy statement, we must receive it, in a form which complies with the applicable securities laws, on or before May 27, 2008. In addition, in the event a shareholder proposal is not submitted to us on or before August 10, 2008, the proxy to be solicited by the Board of Directors for the 2008 Annual Meeting will confer authority on the holders of the proxy to vote the shares in accordance with their best judgment and discretion if the proposal is presented at the 2008 Annual Meeting without any discussion of the proposal in the proxy statement for such meeting. Please address your proposals to: United PanAm Financial Corp., 18191 Von Karman Avenue, Suite 300, Irvine, California, 92612 Attn: Corporate Secretary.

Item 6. Exhibits.

31.1	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act 2002.

31.2	Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act 2002.

32.1	Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act 2002.

32.2	Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		United PanAm Financial Corp.

Date:	August 11, 2008	By:	/ S / J IM V AGIM
			Jim Vagim
			Chief Executive Officer and President
			(Principal Executive Officer)

	August 11, 2008	By:	/s/ A RASH K HAZEI
			Arash Khazei
			Chief Financial Officer and Executive Vice President
			(Principal Financial and Accounting Officer)

United Panam Financial (NASDAQ:UPFC)
Gráfica de Acción Histórica
De May 2024 a Jun 2024

Haga Click aquí para más Gráficas United Panam Financial.

United Panam Financial (NASDAQ:UPFC)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024

Datos

Noticias

Herramientas

Mercados

Descubrir

Hot Features

Follow Feed

Flujo de Opciones

Monitor

UPFC United Panam Financial (MM)

Noticias sobre United Pan AM Financial Corp UPFC

Su Consulta Reciente

Empresa

Negocios

Popular

Obtener la aplicación

Tendencias Ahora

Listas Principales

Datos

Noticias

Herramientas

Mercados

Descubrir

Hot Features

Follow Feed

Flujo de Opciones

Monitor

UPFC United Panam Financial (MM)

Noticias sobre United Pan AM Financial Corp UPFC

Su Consulta Reciente

Empresa

Negocios

Popular

Obtener la aplicación