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 December 31, 1996

                                       or

          ( ) 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: 0-26412

                          UNION ACCEPTANCE CORPORATION
             (Exact name of registrant as specified in its charter)


           Indiana                                         35-1908796
(State or other jurisdiction of incorporation    (I.R.S. Employer Identification
         or organization)                                     Number)



250 N. Shadeland Avenue, Indianapolis, IN                    46219
-----------------------------------------                    -----
(Address of principal executive office)                    (Zip Code)



                                 (317) 231-6400
              (Registrant's telephone number, including area code)

         Indicate  by check mark  whether  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
filing requirements for the past 90 days.

Yes (X)                    No ( )

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date:

                   Class                       Outstanding at February 14, 1997

 Class A Common Stock, without par value            4,016,788 Shares
 ---------------------------------------            ----------------
 Class B Common Stock, without par value            9,200,000 Shares
 ---------------------------------------            ----------------




<PAGE>




                  UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES
                                    FORM 10-Q
                                      INDEX


                                                                       Page
Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements :

         Condensed Consolidated Balance Sheets as of
         December 31, 1996 and June 30, 1996                                 3

         Condensed Consolidated Statements of Earnings for the Three
         Months and Six Months  Ended  December 31, 1996 and 1995            4

         Condensed Consolidated Statements of Cash Flows for the
         Six Months Ended December 31, 1996 and 1995                         5

         Condensed Consolidated Statement of  Shareholders' Equity for
         Six Months Ended December 31, 1996                                  6

         Notes to Condensed Consolidated Financial Statements                7

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                 9

Part II. OTHER INFORMATION                                                  16


         Signatures                                                         17


<PAGE>


Union Acceptance Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
Dollars in thousands, except share data
<TABLE>
<CAPTION>

                                                           December 31,     June 30,
                                                               1996           1996
                                                             --------       --------
<S>                                                          <C>            <C>     
Assets                                                             (Unaudited)           
                                                                          
Cash                                                         $ 12,407       $ 13,459
Restricted cash                                                16,219         14,789
Loans, net                                                    220,077        259,290
Accrued interest receivable                                     2,073          2,127
Furniture and equipment, net                                    2,224          2,026
Excess servicing                                               99,522         83,434
Spread accounts                                                72,644         63,590
Other assets                                                   13,383         12,480
                                                             --------       --------
  Total Assets                                               $438,549       $451,195
                                                             ========       ========
                                                                          
Liabilities                                                               
                                                                          
Amounts due under warehouse facilities                       $156,416       $187,756
Long-term debt                                                156,000        156,000
Accrued interest payable                                        4,772          5,820
Amounts due to trusts                                          11,733          7,931
Dealer premiums payable                                         2,944          3,381
Deferred income tax payable                                    13,076          8,357
Other payables and accrued expenses                             2,783          3,326
                                                             --------       --------
  Total Liabilities                                           347,724        372,571
                                                             --------       --------
                                                                          
Shareholders' Equity                                                      
                                                                          
Preferred Stock, without par value,                                       
  authorized 10,000,000 shares; none issued                               
  and outstanding                                                  --             --
                                                                          
Class A Common Stock, without par value,                                  
  authorized 30,000,000 shares; 4,016,788 and 4,011,358                   
  shares issued and outstanding                                58,270         58,180
                                                                          
Class B Common Stock, without par value,                                  
  authorized 20,000,000 shares; 9,200,000 shares                          
  issued and outstanding                                           --             --
                                                                          
Retained earnings                                              32,555         20,444
                                                             --------       --------
  Total Shareholders' Equity                                   90,825         78,624
                                                                          
                                                             --------       --------
  Total Liabilities and Shareholders' Equity                 $438,549       $451,195
                                                             ========       ========
</TABLE>

                                                                          
                                                                      
See accompanying notes to condensed consolidated financial statements.





<PAGE>

Union Acceptance Corporation and Subsidiaries
Condensed Consolidated Statement of Earnings
Dollars in thousands, except share data
(Unaudited)


<TABLE>
<CAPTION>
                                      Three Months Ended          Six Months Ended
                                         December 31,                December 31,
                                  -------------------------   -------------------------
                                      1996          1995          1996          1995
                                  -----------   -----------   -----------   -----------
<S>                               <C>           <C>           <C>           <C>        
Interest on loans                 $     9,096   $     7,232   $    18,329   $    14,178

Interest on spread accounts and
  restricted cash                       1,545         1,386         3,055         2,756
                                  -----------   -----------   -----------   -----------
  Total interest income                10,641         8,618        21,384        16,934
Interest expense                        6,265         5,556        12,675        10,845
                                  -----------   -----------   -----------   -----------
  Net interest margin                   4,376         3,062         8,709         6,089
Provision for credit losses               993           300         1,848         1,450
                                  -----------   -----------   -----------   -----------
  Net interest margin
         after provision                3,383         2,762         6,861         4,639

Gain on sales of loans, net             7,790         8,483        14,665        15,207
Servicing fees, net                     6,258         2,584        12,084         6,550
Other                                     910           724         1,845         1,474
                                  -----------   -----------   -----------   -----------

  Total revenues                       18,341        14,553        35,455        27,870
                                  -----------   -----------   -----------   -----------

Salaries and benefits                   3,900         3,111         7,532         5,438
Other                                   3,932         2,491         7,447         4,883
                                  -----------   -----------   -----------   -----------

  Total operating expenses              7,832         5,602        14,979        10,321
                                  -----------   -----------   -----------   -----------

Earnings before provision for
  income taxes                         10,509         8,951        20,476        17,549
Provision for income taxes              4,316         3,705         8,365         7,187
                                  -----------   -----------   -----------   -----------

  Net earnings                    $     6,193   $     5,246   $    12,111   $    10,362
                                  ===========   ===========   ===========   ===========


  Earnings per share              $      0.47   $      0.40   $      0.92   $      0.78
                                  ===========   ===========   ===========   ===========


  Weighted average common
        shares outstanding         13,215,515    13,209,173    13,213,437    13,207,398
                                  ===========   ===========   ===========   ===========
</TABLE>



See accompanying notes to condensed consolidated financial statements.





<PAGE>

Union Acceptance Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

<TABLE>
<CAPTION>
                                                                   Six Months Ended
                                                                     December 31,
                                                               ----------------------
                                                                  1996         1995
                                                               ---------    ---------
Cash flows from operating activities:

<S>                                                            <C>          <C>      
  Net earnings                                                 $  12,111    $  10,362

    Adjustments  to  reconcile  net  earnings
     to net cash  provided  (used)  by
     operating activities:
      Gain on sales of loans                                     (22,526)     (19,914)
      Dealer premiums paid in excess of dealer premium
        rebates received on loans held for sale                  (28,355)     (23,331)
      Return of excess servicing cashflows                        18,074       19,963
      Provision for credit losses                                  1,848        1,450
      Spread accounts                                             (9,054)      (4,738)
      Amortization and depreciation                                1,860        1,354
      Restricted cash                                             (1,430)      (5,768)
      Other assets and accrued interest receivable                (3,473)      (2,019)
      Amounts due to trusts                                        3,802          892
      Other payables and accrued expenses                          3,218        8,677
      Loan acquisitions in excess of liquidations               (588,707)    (414,238)
      Securitization of loans held for sale                      625,192      441,960
      Proceeds on sale of interest only strip                     18,293       12,708
                                                               ---------    ---------
        Net cash provided  by operating activities                30,853       27,358
                                                               ---------    ---------

Cash flows used in investing activities:
  Purchase of fixed assets                                          (561)        (398)
                                                               ---------    ---------

Cash flows provided (used) in financing activities:
  Net change in Due to Union Federal, including
    regulatory equity distribution                                    --     (337,423)
  Net change in warehouse facilities                             (31,340)     145,862
  Proceeds from issuance of senior notes                              --      110,000
  Payment of borrowing fees                                           (4)      (1,835)
  Net proceeds from issuance of common stock                          --       58,000
                                                               ---------    ---------
        Net cash used by financing activities                    (31,344)     (25,396)
                                                               ---------    ---------

Change in cash                                                    (1,052)       1,564

Cash, beginning of period                                         13,459        9,483
                                                               ---------    ---------


Cash, end of period                                            $  12,407    $  11,047
                                                               =========    =========

Supplemental disclosures of cash flow information:
                                           Income taxes paid   $   4,200    $   5,970
                                                               =========    =========

                                               Interest paid   $  13,399    $   7,129
                                                               =========    =========
</TABLE>


See accompanying notes to condensed consolidated financial statements.



<PAGE>


Union Acceptance Corporation and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity
For the Six Months Ended December 31, 1996
(Dollars in thousands, except share data)
(Unaudited)


<TABLE>
<CAPTION>

                                          Number of Common Stock                                           Total
                                           Shares Outstanding                Common        Retained     Shareholders'
                                     Class A                   Class B       Stock         Earnings        Equity
                                    ----------------------------------       -------       --------     -------------
<S>                               <C>                      <C>             <C>            <C>            <C>    
Balance at June 30, 1996            4,011,358                9,200,000       $58,180        $20,444        $78,624
Shares Issued                           5,430                        -            90              -             90
Net Earnings                                -                        -             -         12,111         12,111
                                    ---------                ---------       -------        -------        -------
Balance at December 31, 1996        4,016,788                9,200,000       $58,270        $32,555        $90,825
                                    =========                =========       =======        =======        =======
</TABLE>


See accompanying notes to condensed consolidated financial statements.


<PAGE>








Union Acceptance  Corporation and Subsidiaries  
Notes to Condensed  Consolidated Financial Statements 
For the Six Months Ended December 31, 1996 and December 31, 1995 
(Unaudited)

Note 1 -  Basis of Presentation

The forgoing condensed consolidated financial statements are unaudited. However,
in the opinion of management,  all adjustments necessary for a fair presentation
of the  results  of  the  interim  period  presented  have  been  included.  All
adjustments are of a normal and recurring nature. Results for any interim period
are not  necessarily  indicative  of results to be  expected  for the year.  The
condensed  consolidated  financial  statements  include  the  accounts  of Union
Acceptance  Corporation and  Subsidiaries  (formerly the "Union  Division").  On
August 7, 1995,  the Company  ("UAC")  issued 4 million shares of Class A Common
Stock at $16.00 per share with net proceeds of $58.0 million simultaneously with
a private  placement  of $110.0  million of Senior  Notes with net  proceeds  of
$108.6  million.  These  proceeds  and  fundings  under a $350.0  million  Prime
Warehouse Facility and a $50.0 million Non-prime Warehouse Facility were used to
eliminate amounts due to its former parent, and to capitalize UAC's business and
fund ongoing  operations.  The Business Transfer was completed at this time. The
Company's business is conducted solely by UAC and its subsidiaries. A summary of
the Corporation's  significant  accounting  policies is set forth in "Note 1" of
the "Notes to Consolidated  Financial  Statements" in the  Corporation's  Annual
Report on Form 10-K for the year ended June 30, 1996.

The condensed  consolidated  financial  statements  for interim period have been
prepared in accordance with Form 10-Q  specifications,  and,  therefore,  do not
include all  information and footnotes  normally shown in full annual  financial
statements.

Note 2 - Earnings Per Share

The initial public offering was completed on August 7, 1995.  Earnings per share
for the six months  ended  December  31,  1995,  were  computed by dividing  net
earnings by the average  common  shares  outstanding  during the period.  Shares
outstanding from August 7, 1995,  through September 30, 1995, were assumed to be
outstanding  for the entire three months ended September 30, 1995. The effect of
unexercised  stock  options on  earnings  per share is less than  three  percent
dilutive and has not been included in the earnings per share computations.

Note 3 - Excess Servicing

Excess servicing is as follows (in thousands) at:

<TABLE>
<CAPTION>

                                                 December 31,1996    June 30,1996
                                                 ----------------    ------------
Estimated value of excess servicing
<S>                                                 <C>               <C>        
  cash flows, net of estimated prepayments          $   136,088       $   112,564
Allowance for estimated credit losses
  on securitized loans                                  (55,197)          (43,516)
Discount to present value                               (12,464)           (9,535)
                                                    -----------       -----------
                                                         68,427            59,513
Accrued interest on securitized loans                    12,922            10,454
Estimated dealer premium rebates                         18,173            13,467
                                                    -----------       -----------
                                                    $    99,522       $    83,434
                                                    ===========       ===========

Outstanding balance of loans serviced
  through securitized trusts                        $ 1,622,684       $ 1,351,480
Allowance for estimated credit losses
  as a percentage of securitized loans serviced            3.40%             3.22%
</TABLE>



<PAGE>

Union Acceptance Corporation and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
For the Six Months Ended December 31, 1996 and December 31, 1995
(Unaudited)


Note 4 - Reclassifications
Certain amounts in the fiscal 1996 Condensed  Consolidated  Financial Statements
have been reclassified to conform to fiscal 1997 presentation.

Note 5 -  "Accounting  for  Transfers  and  Servicing  of  Financial  Assets and
Extinguishments of Liabilities"

During June 1996,  the FASB issued SFAS No. 125,  "Accounting  for Transfers and
Servicing of Financial Assets and  Extinguishments of Liabilities" ("SFAS 125").
SFAS 125 provides accounting and reporting standards for transfers and servicing
of financial  assets and  extinguishments  of  liabilities  based on  consistent
application  of a financial  components  approach  that  focuses on control.  It
distinguishes  transfers of financial  assets that are sales from transfers that
are secured borrowings.  The financial components approach focuses on the assets
and liabilities that exist after the transfer.

SFAS 125 is effective  for  transfers  and  servicing  of  financial  assets and
extinguishments  of liabilities  occurring after December 31, 1996, and is to be
applied prospectively.  Earlier or retroactive application is not permitted. Due
to the timing of the  issuance of this  pronouncement,  management  is currently
reviewing  SFAS  125 to  determine  the  effect,  if any,  it  will  have on the
financial statements of the Company.



<PAGE>


Item 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

General

         The  Company  derives  substantially  all  of  its  earnings  from  the
acquisition,  securitization  and  servicing of automobile  loans  originated by
dealerships  affiliated with major domestic and foreign  manufacturers.  To fund
the acquisition of loans prior to securitization, the Company utilizes revolving
warehouse  facilities,  discussed in "Liquidity and Capital  Resources." Through
securitizations, the Company periodically pools and sells loans to a trust which
issues  Certificates to investors  representing  pro-rata interests in the loans
sold.  When the Company sells loans in a  securitization,  it records a gain (or
loss) on sale of loans and  establishes  excess  servicing  as an asset.  Excess
servicing  cashflows are recorded against the excess servicing asset as received
over the life of the related securitization.

         Acquisition  Volume. The Company acquires loans on automobiles made to
borrowers who exhibit a favorable credit profile. The Company currently acquires
loans in 27 states from nearly 2,900  manufacturer-franchised  auto  dealerships
("Prime  lending") and,  since October 1994, to borrowers  with adequate  credit
quality  who would not  qualify  for a loan under the  Company's  Prime  lending
program  ("Non-prime   lending").   Nearly  800  of  the  Company's  dealerships
participate in the Non-prime  program,  PAC. The Company continues to expand its
operations  by entering new cities and signing new dealers in existing  markets.
Loan acquisitions continue to be stronger than in corresponding periods of prior
fiscal years.  Prime loan acquisitions  increased 49.8% over the same quarter of
last year, and were up 4.9% over the prior quarter.  Non-prime loan acquisitions
were $10.9 million and $25.2 million for the three and six months ended December
31, 1996, respectively.  Non-prime loans represented approximately 3.5% and 4.2%
of total loans  acquired for the three and six months  ended  December 31, 1996,
respectively.  The Company's marine lending program generated approximately $917
thousand and $1.6 million for the three and six months ended  December 31, 1996.
The Company has historically  focused it efforts and resources towards the prime
auto  segment,  and will continue to do so in the future  despite  expanding its
operations to include  other  products and  programs.  Management  believes that
there is much potential for growth in the prime auto segment.

         The Company has been able to increase its loan acquisitions despite the
tightening of credit  standards.  Policy  changes  implemented  during the third
quarter of fiscal 1996 included an increase in cut-off scores in several markets
where  losses were  running at 2.50% (loss to  liquidation)  or greater over the
life of the pools.  This  strategy  was employed in order to improve the overall
average quality of the contracts being purchased.  Management continues to focus
on controlled  growth,  recognizing  that the  underlying  credit quality of the
portfolio  is  one of the  most  important  factors  associated  with  long-term
profitability.  These  strategies  appear to be  providing  the Company with the
desired  results;  not only has volume  increased  steadily over the last fiscal
year,  but the implied loss  statistics as of December 31, 1996,  indicated that
the 1996 loan pools were performing better than the 1995 loan pools with respect
to delinquency and credit loss statistics.

         Gross and Net Spreads.  Market interest rates had experienced continued
decreases over most of fiscal 1996, but began to rebound in March 1996.  Because
changes in loan rates on  automobile  loans tend to lag behind  fluctuations  in
market  rates of  interest,  the  decrease in market  rates  during  fiscal 1996
resulted in very  favorable  gross and net spreads on the prime  securitizations
compared to previous years. Likewise, as market rates increased,  beginning with
the non-prime  securitization in March 1996 and the prime securitization in June
1996,  there was a compression  of net spreads.  Market  interest  rates dropped
slightly for the first and second quarter securitizations, while loan rates were
still rising as a result of earlier  market  interest rate increases (due to the
lag as discussed above).  The gross spread on the second quarter  securitization
was 7.39%,  38 b.p. lower than the same quarter of last year, but 57 b.p. higher
than in the  first  quarter  securitization.  Gross  spread  is  defined  as the
difference  between the weighted average loan rate and the Certificate rate. Net
spread is defined as gross spread less servicing  fees,  upfront costs,  ongoing
credit  enhancement  fees and trustee  fees,  and hedging  gains or losses.  Net
spread  on the most  recent  prime  securitization  (November  1996)  was  5.37%
compared to 6.04% compared to a year ago quarter, and 5.11% in the first quarter
securitization (August 1996). The net spreads on securitization transactions had
experienced  steady compression since the first quarter of fiscal 1996, but have
rebounded




<PAGE>

slightly in the second  quarter  securitization  (27 b.p. over the first quarter
securitization),  and have  continued  to be  significantly  higher  than  those
spreads realized in fiscal 1995 and prior years.

         Looking ahead,  management is currently  targeting net spreads of 5.00%
to 5.50% on prime  securitizations  (assuming a pricing spread for  asset-backed
certificates  over the  two-year  treasury  note of 50 basis  points) for fiscal
1997.  Management  believes that by targeting a spread of 7.00% to 7.50% between
loan rates and the two-year  treasury  rate,  these net spreads can be achieved.
Although  management  believes these spreads can be achieved,  material  factors
affecting the net spreads are difficult to predict and could cause  management's
projections to be materially inaccurate. These include current market conditions
with respect to market  interest  rates and demand for  asset-backed  securities
generally,  and  for  Certificates  representing  interests  in  securitizations
sponsored by the Company.  See - "Discussion  of  Forward-Looking  Statements ,"
below.

          Gain on Sales of  Loans.  Gain on  Sales  of Loans  continues  to be a
significant element of the Company's net earnings. The gain on sales of loans is
affected by several  factors,  but is primarily  affected by the amount of loans
securitized and the net spread.  The Company adjusts its pricing  frequently and
employs a hedging  strategy to help ensure an adequate net spread in the ensuing
securitization,  while mitigating the risks of increasing interest rates and the
volatility in net spreads.

         Portfolio   Performance.   Set  forth  below  is  certain   information
concerning  the  Company's  experience   pertaining  to  delinquencies  and  net
charge-offs  on the Prime  fixed rate  retail  automobile,  light  truck and van
receivables  serviced  by the  Company.  There can be no  assurance  that future
delinquency  and net loss  experience on receivables  will be comparable to that
set forth below.

<TABLE>
<CAPTION>


                                  December 31, 1996            June 30, 1996             December 31, 1995
                                ---------------------       ---------------------       ---------------------
                                Number of                    Number of                  Number of            
                                 Loans         Amount         Loans     Amount           Loans       Amount 
<S>                             <C>        <C>              <C>        <C>              <C>        <C>       
Servicing portfolio             165,270    $1,766,525       147,722    $1,548,538       129,997    $1,308,780
Delinquencies
   30-59 days                     1,743        18,973         1,602        17,030         1,684        18,104
   60-89 days                     1,235        14,388           694         7,629           771         8,702
   90 days or more                  892        10,744           333         3,811           565         6,582 
                                -------    ----------       -------    ----------       -------    ----------
Total delinquencies               3,870        44,105         2,629        28,470         3,020        33,388
Delinquencies as a
   percentage of servicing
     portfolio                     2.34%         2.50%         1.78%         1.84%         2.32%         2.55%
</TABLE>


         As indicated by the above table,  delinquency  rates improved  slightly
over the same  quarter of last year.  Delinquency  rates based upon  outstanding
loan  balances of accounts 30 days past due and over were 2.50% at December  31,
1996, compared to 2.55% at December 31, 1995, for the prime servicing portfolio.
Delinquent  accounts,  however,  increased  from 2.02% at September 30, 1996 and
1.84% at June 30,  1996.  The  increased  delinquency  over the  September  1996
quarter is partially due to an increase in bankrupt  accounts which are included
in delinquency  statistics pending resolution.  Over 40% percent of the increase
in delinquency relates to these bankrupt accounts.

         Non-prime  portfolio  delinquency  was 3.79% based on outstanding  loan
balances of accounts 30 days past due and over at December 31, 1996, compared to
3.35% at June 30, 1996, and 2.75% at December 31, 1995. Delinquency based on the
number of receivables 30 days past due and over was 3.57%,  3.29%,  and 2.69% at
December 31,  1996,  June 30, 1996,  and  December 31, 1995,  respectively.  The
Company began  acquiring  non-prime  loans in October 1994.  Management  expects
fluctuations in delinquency rates on the non-prime  portfolio as it becomes more
seasoned.  Additionally,  the increase in delinquency is due, in part, to a more
strict  application  of the  Company's  deferral  policy  primarily  through the
reduction of discretionary  deferrals under such policy.  To date, the portfolio
is  performing  within the ranges  anticipated  by the  Company.  The  non-prime
portfolio  makes up only  approximately  3.5% of the Company's  total  servicing
portfolio.  The Company has historically  focused on the prime end of the credit
spectrum and will continue to do so.





<PAGE>

<TABLE>
<CAPTION>
                                   Six Months Ended          Fiscal Year Ended        Fiscal Year Ended
                                   December 31, 1996            June 30, 1996            June 30, 1995
                                ----------------------     ---------------------     ----------------------
                                Number of                  Number of                 Number of               
                                 Loans         Amount       Loans       Amount        Loans          Amount 
                                -------     ----------      -------   ----------     -------       --------             
<S>                             <C>         <C>             <C>       <C>            <C>           <C>                  
Avg. servicing portfolio        157,815     $1,674,077      132,363   $1,343,770     104,455       $982,875             

Gross charge-offs                 2,254         24,895        3,663       40,815       3,493         28,628                        
Recoveries                                       9,646                    19,543                     15,258
                                            ----------                ----------                   --------             
Net charge-offs                                 15,249                    21,272                     13,370      

Gross charge-offs as 
     a percentage of 
     average servicing 
     portfolio                     2.86%          2.97%*       2.77%        3.04%       3.34%          2.91%
                                                                  
Recoveries as a % of gross                                                                         
   charge-offs                                   38.75%                    47.88%                     53.30%
                                                                           
Net charge-offs as a % of avg.                                                                          
   servicing portfolio                            1.82%*                    1.58%                      1.36%  

* Annualized
</TABLE>

         As  indicated  in the table  above,  annualized  net  charge-offs  as a
percentage  of the  average  servicing  portfolio  were 1.82% for the six months
ended December 31, 1996, compared to 1.58% for the year ended June 30, 1996, and
1.59% for the six months ended December 31, 1995.

         Portfolio   performance  continues  to  be  within  the  parameters  of
management's  expectations  despite its recent  increases in delinquency and net
charge-offs.  The level of credit loss risk is gauged  against the potential for
profit  in  the  underwriting   process.   Management  has  implemented  various
collections  and  underwriting  changes  throughout the year in order to improve
portfolio  performance,  and continues to monitor closely the performance of the
portfolio, and its response to policy changes.

         Although net charge-off  percentages  have  experienced an upturn,  the
gross  charge-off  rates have been relatively  stable at around 3.00%.  Recovery
rates with respect to the prime  servicing  portfolio  have declined from 53.30%
for fiscal  1995 to 47.88% for fiscal  1996 and are at 38.75% for fiscal 1997 to
date.  Management  attributes  the  decline to a softening  in current  used car
prices.  Management is working to improve the recovery  percentage by refocusing
on its recovery efforts.

         Non-prime  net  charge-offs  totaled  approximately  $548,000  for  the
quarter.  Annualized  net  charge-offs  were  3.51%  of  the  average  Non-prime
servicing  portfolio  for the six months ended  December  31, 1996,  compared to
2.37% for the  fiscal  year ended  June 30,  1996,  and 2.22% for the six months
ended December 31, 1995. Management is closely monitoring the performance of the
Non-prime portfolio as it matures,  and is comfortable with the level of risk in
relation to its earning potential.

         Overall, the Company has made strategic changes with respect to pricing
and  underwriting,  including  an increase  in cut-off  scores in several of its
markets  during the third quarter of fiscal 1996,  and the  implementation  of a
scoring matrix in October 1996.  Adjustments with respect to cut-off scores were
made in markets whose implied loss statistics indicated losses at 2.50% or above
on a static pool basis.  The new scoring  matrix  combines the Company's  custom
score  with a credit  bureau  score  with the intent of  improving  the  average
quality of the contracts being  acquired.  The Company has been able to increase
its loan acquisitions despite the tightening of its credit standards. Management
continues  to focus on  controlled  growth with an  emphasis on credit  quality.
These strategies  appear to be providing the Company with the desired results as
the implied loss  statistics  as of December 31, 1996,  indicated  that the 1996
loan pools were improved over the 1995 loan pools.

         Provisions  are made for estimated  credit losses in  conjunction  with
each loan sale.  The allowance  for  estimated  credit losses is inherent in the
excess  servicing  asset  recorded  upon  sale.  Management  believes  that  the
allowance  for  estimated  credit  losses on  securitized  loans  represents  an
appropriate  estimate of potential credit losses.  However, the adequacy of such
provisions cannot be determined with certainty as many factors exist which could
result  in  credit  losses  materially  different  from  management's   original
estimates.  The  allowance  for  estimated  credit  losses  as a  percentage  of
outstanding  securitized  loans was 3.40% at December 31, 1996 compared to 3.22%
at June 30, 1996, and 2.45% at December 31, 1995.



<PAGE>

Results of Operations

         Net earnings  for the three  months and six months  ended  December 31,
1996 were up 18.1% and 16.9% respectively,  compared to the three months and six
months  ended  December  31,  1995.  The  increase in net  earnings is primarily
attributable to improved net interest margins and increased  servicing fees. The
Company's total loan acquisitions for the quarter increased by 49.5% compared to
the same quarter of last year. Year to date loan  acquisitions are up 35.6% over
the comparable periods of fiscal 1996. The servicing portfolio reached over $1.8
billion, a 36.5% increase over a year ago.

         Net interest margin after provision increased 22.5% to $3.4 million and
47.9% to $6.9  million for the three  months and six months  ended  December 31,
1996,  respectively,  compared to $2.8  million  and $4.6  million for the three
months and six months ended December 31, 1995.  The increase in interest  income
resulted from an increase in the average monthly balance of prime loans held for
sale to $213.5  million for the quarter  ended  December 31,  1996,  from $154.0
million for the corresponding  period ended December 1995, which was a result of
increased loan acquisitions in the quarter ended December 31, 1996,  relative to
the quarter ended December 31, 1995.  Total  interest  expense for the three and
six months  ended  December  31,  1996,  was greater  than in the  corresponding
periods of the prior  fiscal year as a result of increased  average  outstanding
borrowings (due to increased loan  acquisitions and the issuance of 9.99% Senior
Subordinated Debt in April 1996).  However,  interest expense as a percentage of
the average  outstanding  borrowings  has  decreased.  The relative  decrease in
interest  expense is a result of the complete  amortization of upfront fees paid
in  connection  with the  warehouse  facilities  in  fiscal  1996;  because  the
warehouse  facility  agreements  provided  for a term  of one  year  subject  to
renewal,  the  Company  amortized  all upfront  costs over the first  year.  The
warehouse  facilities have subsequently been renewed. The ongoing interest costs
related to the warehouse  facilities (through which loan acquisitions are funded
) are variable and are based on commercial paper rates.

         Gain on sales of loans  decreased  slightly  to $7.8  million and $14.7
million for the three and six months ended December 31, 1996, respectively, from
$8.5 million and $15.2 million for the corresponding  periods ended December 31,
1995.  The Company  securitized  nearly $311.0 million in loans during the first
quarter   and  $314.2   million   (including   $31.1   million  in  a  non-prime
securitization) in the second quarter of fiscal 1997, compared to $236.4 million
and  $205.5  million  and for the  first and  second  quarters  of fiscal  1996.
Although the volume of loans  securitized was increased over prior periods,  the
net spreads  were  slightly  less  favorable  than in the same periods of fiscal
1996.  However,  net spread in the second quarter  securitization did improve to
5.37% from 5.11% in the previous quarter. Net spreads had suffered  compressions
throughout  fiscal 1996 due to upward moving market interest rates.  There tends
to be a lag between  changes in market rates of interest (i.e.  treasury  rates)
and   automobile   rates.   Treasury   rates  fell  from  the  first   quarter's
securitization  (21 b.p.) while weighted  average  contract rates on prime loans
sold in the most recent  securitization  during the same period  increased by 27
b.p.  in  response  to  earlier  increases  in  market  rates  due to the lag as
discussed  above.  The decrease in treasury  rates  coupled with the increase in
loan rates on the most recently securitized portfolio served to increase the net
spread realized on the second quarter  transaction.  The securitization of $31.1
million in non-prime receivables yielded nearly $1.9 million in gain on sales of
loans.  The  decrease  in gain on sales of loans is also  due,  in part,  to the
effect of the additional  general reserves  recorded by the Company in the first
and second quarters of fiscal 1997. Additional reserves of $1.1 million and $2.6
million  were  recorded  in the  first  and  second  quarters  of  fiscal  1996,
respectively.

          Servicing  fees,  net  increased to $6.3 million and $12.1 million for
the three and six months ended December 31, 1996, respectively, compared to $2.6
million and $6.6 million for the corresponding  periods ended December 31, 1995.
Servicing   fees   consist   of   contractual   servicing   fees  (1%  on  prime
securitizations),  the accretion of discount on excess servicing cashflows,  and
excess rebates. Increased servicing fees were primarily a result of the increase
in the  average  securitized  loans of  approximately  35% for the three and six
months  ended  December 31, 1996 as compared to the same periods of the previous
year.  The increase in servicing  fees,  net during the second quarter of fiscal
1997 is also  partially a result of the timing of excess  servicing  cash flows.
Previously,  actual excess  servicing  cash flows were recorded as income in the
period received and offset by scheduled  amortization of excess  servicing.  The
timing of cash  collections  in respect of  securitized  loans during the second
quarter of last fiscal year caused  servicing  fees,  net for that quarter to be
artificially  low; the effect was to shift servicing fees into the third quarter
of fiscal


<PAGE>


1996. As a result, the method for recording the receipt of excess servicing cash
flows was changed in the fourth  quarter of fiscal 1996 to improve the  matching
of excess servicing cash flows with amortization.

         Other revenues increased to $910,000 and $1.8 million for the three and
six months ended December 31, 1996, respectively, from $724,000 and $1.5 million
for the three and six months ended  December 31, 1995.  Other  revenue  consists
primarily  of late  charge  income and  origination  fee  income.  The  increase
resulted  primarily  from  increases in late charge fee income.  The increase is
mainly due to the  increased  size of the servicing  portfolio,  but also due to
increased  delinquent  accounts.  Late  charge  income  is not  accrued,  but is
recorded as income when received.

         Salaries and benefits increased 25.4% to $3.9 million and 38.5% to $7.5
million for the three and six months ended December 31, 1996, respectively, from
$3.1 million and $5.4 million for the  corresponding  periods ended December 31,
1995. These increases  resulted  primarily from increased  full-time  equivalent
("FTE") employees. Average FTE's for the three and six months ended December 31,
1996, were 373 and 360, respectively, compared to 263 and 246 for the comparable
periods  ended  December  31,  1995.  The  Company  has  experienced  growth  in
collections,  credit, sales, operations,  and support personnel. These increases
are in  response  to,  and in  anticipation  of,  continued  expansion  and loan
acquisition growth, as well as a growing servicing portfolio.  Additional levels
of  management  and  support  staff  have  been  added to ensure  efficiency  in
operations as the Company's acquisition volume and servicing portfolio continues
to grow.  Increases  in salary and benefit  expense  were also due, in part,  to
increased  profitability-based  incentive payments made during the three and six
months ended December 31, 1996.

         Other expense increased 57.8% to $3.9 million and 52.5% to $7.4 million
for the three and six months ended  December 31, 1996,  respectively,  from $2.5
million and $4.9 million for the three and six months  ended  December 31, 1995.
Other operating  expenses  include  occupancy and equipment  costs,  outside and
professional  services,  loan expenses,  promotional  expenses,  travel,  office
supplies and other.  Many of these  expenses vary directly with  increased  loan
acquisition volume, and the increased size of the servicing portfolio. Both loan
acquisition  volume and the servicing  portfolio  increased during the three and
six months ended December 31, 1996, compared to the same periods of fiscal 1996.

Financial Condition

         Loans,  net includes the principal  balance of loans held for sale, net
of unearned  discount  and  allowance  for  estimated  credit  losses,  loans in
process,  and prepaid dealer  premiums.  The Company's  portfolio of loans,  net
decreased to $220.1  million at December 31, 1996,  from $259.3  million at June
30, 1996. Loan acquisition volume was higher in the quarter ended June 30, 1996,
than  in  the  quarter  ended  December  31,  1996,  as  a  result  of  seasonal
fluctuations. The Company effected one prime and one non-prime securitization in
the quarter  ended  December  31,  1996,  and one prime  securitization  for the
quarter  ended June 30, 1996,  for $314.2  million and $245.1  million of loans,
respectively.

         Excess  Servicing  increased to $99.5  million as of December 31, 1996,
from $83.4  million as of June 30, 1996.  This  balance  increased by the amount
capitalized  upon  consummation  of the UACSC  1996-C  and  1996-D  Auto  Trusts
("1996-C" and "1996-D") related to excess servicing and estimated dealer premium
rebates, and excess servicing related to the non-prime  securitization  effected
in December 1996. Structuring of the prime securitizations  included the sale of
"interest  only strips" which  generated  more cash from the sale, but served to
reduce the initial excess servicing asset recorded.  The amount  capitalized was
offset by the return of excess  cashflows as received  over the six months ended
December 31, 1996, related to all outstanding securitizations.  The Company made
an additional  $1.1 million  provision to the  allowance  for  estimated  credit
losses on securitized loans during the first quarter and $2.6 million during the
second  quarter of fiscal 1997.  The  provision  was charged to gain on sales of
loans. Allowance for estimated credit losses on securitized loans is included as
a  component  of  the  excess   servicing  asset.  At  December  31,  1996,  the
undiscounted allowances,  related to both prime and non-prime securitized loans,
totaled $55.2 million or 3.40% of the total securitized loan portfolio.

         Spread  Accounts  increased to $72.6 million at December 31, 1996, from
$63.6 million at June 30, 1996.  These  balances were increased by deposits made
monthly from excess servicing  cashflows,  and are reduced by any withdrawals of
funds from the Spread  Accounts.  Withdrawals  of spread  account funds are made
when the  balance  of the  Spread  Accounts  are in excess  of the  requirements
stipulated in the servicing  agreement.  No initial spread  account  deposit was
made in connection with the last several prime




<PAGE>

transactions as a result of the structuring  which utilized  alternative  credit
enhancements (i.e. surety bonds) in lieu of initial spread account deposits.

         The Warehouse  Facilities,  Senior Notes, and Senior Subordinated Notes
constitute the Company's primary funding  facilities.  The Company issued $110.0
million in 8.53% Senior Notes (Due 2002) in August 1995, in conjunction with the
spin-off from its former  parent.  In April 1996, the Company issued $46 million
in 9.99%  Senior  Subordinated  Notes  (Due  2003) in a private  placement.  The
balance of the  Warehouse  Facilities  was $156.4  million at December 31, 1996,
compared to $187.8 million at June 30, 1996. The decrease in total borrowings is
due to the relative  decrease in second quarter fiscal 1997 loan acquisitions as
compared  to the  quarter  ended June 30,  1996.  Additionally,  the Company has
realized  additional  liquidity  by  utilizing  alternative  credit  enhancement
features in its  securitizations  as discussed above, and by deferring a portion
of the gain on sales of loans for income tax purposes.

         The net deferred income taxes payable totaled $13.1 million at December
31, 1996 compared to $8.4 million at June 30, 1996.  The increase is a result of
the deferral of a portion of the gain on sales of loans for the  securitizations
effected  during  the  first and  second  quarters  of fiscal  1997 in excess of
previously deferred income recognized currently for tax purposes.

Liquidity and Capital Resources

         Sources and Uses of Cash in Operations. The Company's business requires
significant  amounts of cash to support  operations.  Its  primary  uses of cash
include  (i)  acquisitions  and  financing  of  loans,  (ii)  payment  of Dealer
Premiums,  (iii) securitization costs including cash held in Spread Accounts and
similar cash  collateral  accounts  under  Warehouse  Facilities,  (iv) servicer
advances of payments on securitized loans pursuant to securitization trusts, (v)
losses on  hedging  transactions  realized  in  connection  with the  closing of
securitization transactions where interest rates have declined during the period
covered by the hedge,  (vi)  operating  expenses,  (vii) interest  expense,  and
(viii) payment of income taxes.  The Company's  sources of cash from  operations
include  (i)  standard  servicing  fees,  generally  1.0% per annum of the prime
securitized  portfolio,  (ii) Excess Servicing Cash Flows,  (iii) Dealer Premium
rebates,  (iv) gains on hedging  transactions  realized in  connection  with the
closing of  securitization  transactions  where  interest  rates have  increased
during the periods  covered by the hedge,  (v)  interest  income,  (vi) sales of
loans in securitization  transactions,  and (vii) sales of interest-only strips.
Net cash provided by operating activities increased to $30.9 million for the six
months  ended  December 31,  1996,  from $27.4  million for the six months ended
December 31, 1995.

         Hedging  transactions  may represent a source or a use of cash during a
given period  depending on the change in interest rates. In the first and second
quarters of fiscal 1997,  hedging  transactions  have  required a use of cash of
$5.1 million.

         Financing Activities and Credit Facilities. The Company has substantial
capital  requirements to support its ongoing operations and anticipated  growth.
The  Company's  sources  of  liquidity  are  currently  funds  from  operations,
securitizations and external  financings  including long-term debt and revolving
warehouse   credit   facilities.   Historically,   the   Company  has  used  the
securitization  of loan pools as its primary  source of long-term  funding,  and
intends to continue to do so. Securitization  transactions enable the Company to
improve its liquidity, to recognize gains from the sales of the loan pools while
maintaining the servicing rights to the loans, and to control interest rate risk
by matching the  repayment  of amounts due to  investors in the  securitizations
with the actual cash flows from the securitized assets.

         The Company has borrowing  arrangements  with an independent  financial
institution  for the Prime  Warehouse  Facility  of up to $350.0  million  and a
similar Non-prime Facility of up to $50.0 million.  The Prime Warehouse Facility
provides funding for loan acquisitions at a purchase price of up to 98.0% of the
outstanding  principal  balance of eligible loans at the time of purchase to the
extent  allocable  to loans  which,  upon  origination,  provided for 72 monthly
payments or less. Additional funding is provided for eligible loans with greater
than 72 monthly  payments at a purchase price of up to 90.0% of the  outstanding
principal  balance.  The  advance  rate may be  reduced  to as low as 88.0%  (72
monthly  payments  and less) and 80.0%  (greater  than 72 monthly  payments)  if
certain  financial  tests are not met, and/or if a  securitization  has not been
effected in the  preceding  sixteen  weeks.  The  Non-prime  Warehouse  Facility
provides  funding  for loan  acquisitions  at a  purchase  price of 80.0% of the
outstanding  principal  balance of eligible  loans at the time of purchase.  The
Company also issued $110.0 million in Senior Notes in




<PAGE>

connection  with the spin-off of the Company by Union  Federal and the Company's
initial public offering,  and completed a private  placement of $46.0 million in
Senior  Subordinated Notes in April 1996. Between  securitization  transactions,
the Company  relies  primarily on the Warehouse  Facilities to fund ongoing loan
acquisitions  (not including Dealer  Premiums).  In addition to loan acquisition
funding,  the Company also requires  substantial  capital on an ongoing basis to
fund  the  advances  of  Dealer  Premiums,   securitization   costs,   servicing
obligations and other cash  requirements  described above. The Company's ability
to borrow under the Warehouse  Facilities is dependent upon its compliance  with
the terms and  conditions  thereof.  The Company's  ability to obtain  successor
facilities  or  similar  financing  will  depend on,  among  other  things,  the
willingness  of financial  institutions  to  participate  in funding  automobile
financing  businesses  and the  Company's  financial  condition  and  results of
operations.   Moreover,  the  Company's  growth  may  be  inhibited,   at  least
temporarily,  if the Company is not able to obtain  additional  funding  through
these or other  facilities  or if it is  unable to  satisfy  the  conditions  to
borrowing under the Warehouse Facilities.

         Management believes that the proceeds from the Company's initial public
offering,  the  Senior  Notes,  the Senior  Subordinated  Notes,  the  Warehouse
Facilities  described above,  future earnings,  and periodic  securitization  of
loans could  provide the  necessary  capital and  liquidity  for its  operations
during the remainder of fiscal 1997;  however, it is management's intent to take
full  advantage of  favorable  market  conditions  to raise  additional  working
capital as they  occur.  In fact,  the  Company is  currently  planning to issue
additional  senior  debt  in the  third  quarter  of  fiscal  1997,  and is also
currently  negotiating  the terms of a $50 million  Warehouse  Facility  for the
funding of its marine portfolio.  There can be no assurance,  however, that such
senior debt will be issued or that such Warehouse Facility will be consummated.

         The period during which its existing capital resources will continue to
be  sufficient  will,  however,  be  affected  by the  factors  described  above
affecting  the  Company's  cash  requirements.  A number  of these  factors  are
difficult  to  predict,   including  particularly  the  cash-effect  of  hedging
transactions,  the availability of outside credit enhancement in securitizations
or  other  financing  transactions  and  other  factors  affecting  the net cash
provided  by  securitizations.  Depending  on the  Company's  ongoing  cash  and
liquidity requirements, market conditions and investor interest, the Company may
seek to raise additional  capital including equity securities or additional debt
in the near term. The sale of additional equity,  including Class A Common Stock
or preferred stock, would dilute the interests of current shareholders.

Other Matters

         As a part of its ongoing  development of its business plan, the Company
is researching the possibilities of engaging in other finance-related businesses
such as leasing, and other non-auto consumer lending.  Additionally, the Company
is  researching  the  possibility  of  expanding  its  dealer  base  to  include
nationally-recognized    used    rental    car    outlets    which    are    not
manufacturer-franchised  dealerships.  Based on this  research,  the Company may
expand  its   current   operations   to  include   some  or  all  of  the  above
finance-related  businesses. It is management's philosophy to continually search
for new products and markets to grow and expand the Company in order to maximize
profits and shareholder value.

Discussion of Forward-Looking Information

         The above discussions  contain  forward-looking  statements made by the
Company regarding its results of operations, cash flow needs and liquidity, loan
acquisition volume, target spreads,  potential credit losses,  servicing income,
and other aspects of its business.  Similar  forward-looking  statements  may be
made by the  Company  from time to time.  Such  forward-looking  statements  are
subject to a number of important factors that cannot be predicted with certainty
and  which  could  cause  such  forward-looking   statements  to  be  materially
inaccurate.   See  the  "Discussion  of   Forward-Looking   Information"   under
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" in the Company's Annual Report on Form 10-K for fiscal 1996 which is
incorporated herein by this reference.





<PAGE>



Part II.          Other Information

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

         At the Company's Annual Meeting of  Shareholders,  on October 23, 1996,
the following members were elected to the Board of Directors.

                                 Affirmative               Votes
                                    Votes                 Withheld
Howard L. Chapman                 45,024,971                  580
John M. Davis                     45,024,971                  580
Fred M. Fehsenfeld                44,974,971               80,580
Donald A. Sherman                 45,024,971                  580
John M. Stainbrook                45,025,171                  380
Jerry D. Von Deylen               45,025,171                  380
Richard D. Waterfield             45,025,171                  380
Thomas M. West                    45,024,971                  580

The following proposals were approved at the Company's Annual Meeting on October
23, 1996:

Ratification of appointment of auditors.  KPMG Peat Marwick, LLP was retained as
the  Company's  auditors  for the fiscal  year 1997.  The votes were as follows:
45,024,501 Affirmative Votes; 950 Negative Votes; and 100 Votes Abstained.

Item 6.  Exhibits and Reports on Form 8-K

           (a) Exhibits    -  The following Exhibits are filed as a part of this
                              report:

               Exhibit 4.1 -  Amendment  No. 6 to  Transfer  and  Administration
                              Agreement   between   Union   Acceptance   Funding
                              Corporation,   Union  Acceptance  Corporation  and
                              Enterprise  Funding   Corporation,   dated  as  of
                              December 23, 1996

               Exhibit 4.2 -  Amendment  No. 3 to  Transfer  and  Administration
                              Agreement between Perfomrance Funding Corporation,
                              Union   Acceptance   Corporation   and  Enterprise
                              Funding Corporation dated as of December 23, 1996

               Exhibit 27 -   Financial Data Schedule

           (b) Reports on Form 8-K

               No  reports  on Form 8-K were  filed  during  the  quarter  ended
               December 31, 1996.



<PAGE>


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.

                                   Union Acceptance Corporation
February 14, 1997                  By:       /S/   Rick A. Brown
                                            ------------------------------------
                                   Rick A. Brown
                                   VP, Treasurer and Chief Financial Officer