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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)



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

For the quarterly period ended September 30, 2006



| ̈ | 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



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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. EmployerIdentification No.)
|                                                               | 
|3990 Westerly Place, Suite 200Newport Beach, CA                |  | 92660                              
|(Address of Principal Executive Offices)                       |  | (Zip Code)                         

(949) 224-1917

(Registrants Telephone Number, Including Area Code)



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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, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated
filer ̈Accelerated filer  x                    Non-accelerated filer ̈

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

At November 3, 2006, there were 16,790,363 shares of the Registrants common stock outstanding.



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##### Table of Contents

UNITED PANAM FINANCIAL CORP.

FORM 10-Q

September 30, 2006

INDEX



|                              |  |                                                                                                                               |  |     
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                               |  | Page
|PART I. FINANCIAL INFORMATION |  |                                                                                                                              
|                              |  |                                                                                                                              
|Item 1.                       |  | Financial Statements                                                                                                          |  |     
|                              |  |                                                                                                                              
|                              |  | Consolidated Statements of Financial Condition as of September 30, 2006 and December 31, 2005                                 |  | 1   
|                              |  |                                                                                                                              
|                              |  | Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and September 30, 2005           |  | 2   
|                              |  |                                                                                                                              
|                              |  | Consolidated Statements of Changes in Shareholders Equity for the nine months ended September 30, 2006 and 2005              |  | 3   
|                              |  |                                                                                                                              
|                              |  | Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2006 and September 30, 2005 |  | 4   
|                              |  |                                                                                                                              
|                              |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005                                   |  | 5   
|                              |  |                                                                                                                              
|                              |  | Notes to Consolidated Financial Statements                                                                                    |  | 6   
|                              |  |                                                                                                                              
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                         |  | 15  
|                              |  |                                                                                                                              
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                    |  | 28  
|                              |  |                                                                                                                              
|Item 4.                       |  | Controls and Procedures                                                                                                       |  | 28  
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                              
|                              |  |                                                                                                                              
|Item 1.                       |  | Legal Proceedings                                                                                                             |  | 29  
|                              |  |                                                                                                                              
|Item 1A.                      |  | Risk Factors                                                                                                                  |  | 29  
|                              |  |                                                                                                                              
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                   |  | 29  
|                              |  |                                                                                                                              
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                               |  | 29  
|                              |  |                                                                                                                              
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                           |  | 29  
|                              |  |                                                                                                                              
|Item 5.                       |  | Other Information                                                                                                             |  | 29  
|                              |  |                                                                                                                              
|Item 6.                       |  | Exhibits                                                                                                                      |  | 29  



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements.
|------- | ---------------------

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Financial Condition



|                                                                                                                                                 |  |                   |         |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------- | - | ---------------- | - | --------- | -
|                                                                                                                                                 |  | September 30,2006 |         |   | December 31,2005 |  
|(Dollars in thousands)                                                                                                                           |  | (Unaudited)       |         |   | (Audited)        |  
|Assets                                                                                                                                           |  |                   |         |   |                  |   |           |  
|Cash                                                                                                                                             |  | $                 | 8,230   |   |                  | $ | 8,199     |  
|Short term investments                                                                                                                           |  |                   | 9,194   |   |                  |   | 13,096    |  
|                                                                                                                                                 |  |                   |         |   |                  |   |           |  
|Cash and cash equivalents                                                                                                                        |  |                   | 17,424  |   |                  |   | 21,295    |  
|Restricted cash                                                                                                                                  |  |                   | 67,204  |   |                  |   | 53,058    |  
|Loans                                                                                                                                            |  |                   | 764,197 |   |                  |   | 633,656   |  
|Allowance for loan losses                                                                                                                        |  |                   | (32,905 | ) |                  |   | (29,110   | )
|                                                                                                                                                 |  |                   |         |   |                  |   |           |  
|Loans, net                                                                                                                                       |  |                   | 731,292 |   |                  |   | 604,546   |  
|Premises and equipment, net                                                                                                                      |  |                   | 5,006   |   |                  |   | 3,881     |  
|Interest receivable                                                                                                                              |  |                   | 8,318   |   |                  |   | 7,213     |  
|Deferred tax assets                                                                                                                              |  |                   | 12,956  |   |                  |   | 12,956    |  
|Other assets                                                                                                                                     |  |                   | 18,990  |   |                  |   | 10,905    |  
|Assets of discontinued operations                                                                                                                |  |                   |        |   |                  |   | 495,318   |  
|                                                                                                                                                 |  |                   |         |   |                  |   |           |  
|Total assets                                                                                                                                     |  | $                 | 861,190 |   |                  | $ | 1,209,172 |  
|                                                                                                                                                 |  |                   |         |   |                  |   |           |  
|Liabilities and Shareholders Equity                                                                                                             |  |                   |         |   |                  |   |           |  
|Warehouse line of credit                                                                                                                         |  | $                 | 152,260 |   |                  | $ | 54,009    |  
|Securitization notes payable                                                                                                                     |  |                   | 529,793 |   |                  |   | 521,613   |  
|Accrued expenses and other liabilities                                                                                                           |  |                   | 10,204  |   |                  |   | 8,806     |  
|Junior subordinated debentures                                                                                                                   |  |                   | 10,310  |   |                  |   | 10,310    |  
|Liabilities of discontinued operations                                                                                                           |  |                   |        |   |                  |   | 459,519   |  
|                                                                                                                                                 |  |                   |         |   |                  |   |           |  
|Total liabilities                                                                                                                                |  |                   | 702,567 |   |                  |   | 1,054,257 |  
|                                                                                                                                                 |  |                   |         |   |                  |   |           |  
|Preferred stock (no par value):                                                                                                                  |  |                   |         |   |                  |   |           |  
|Authorized, 2,000,000 shares; no shares issued and outstanding at September 30, 2006 and December 31, 2005                                       |  |                   |        |   |                  |   |          |  
|Common stock (no par value):                                                                                                                     |  |                   |         |   |                  |   |           |  
|Authorized, 30,000,000 shares; 16,789,778 and 17,120,250 shares issued and outstanding at September 30, 2006 and December 31, 2005,
respectively |  |                   | 61,140  |   |                  |   | 76,054    |  
|Retained earnings                                                                                                                                |  |                   | 97,483  |   |                  |   | 80,182    |  
|Unrealized loss on securities available for sale, net                                                                                            |  |                   |        |   |                  |   | (1,321    | )
|                                                                                                                                                 |  |                   |         |   |                  |   |           |  
|Total shareholders equity                                                                                                                       |  |                   | 158,623 |   |                  |   | 154,915   |  
|                                                                                                                                                 |  |                   |         |   |                  |   |           |  
|Total liabilities and shareholders equity                                                                                                       |  | $                 | 861,190 |   |                  | $ | 1,209,172 |  
|                                                                                                                                                 |  |                   |         |   |                  |   |           |  

See notes to the consolidated financial statements



1



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)



|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|------------------------------------------------------ |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | - | ------- | - |  | - | -------
|                                                       |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|(In thousands, except per share data)                  |  | 2006                            |        | 2005                           |   | 2006   |  |   | 2005   
|Interest Income                                        |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Loans                                                  |  | $                               | 49,967 |                                | $ | 40,899 |  | $ | 140,999 |   |  | $ | 113,604
|Short term investments and restricted cash             |  |                                 | 848    |                                |   | 511    |  |   | 2,145   |   |  |   | 1,176  
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Total interest income                                  |  |                                 | 50,815 |                                |   | 41,410 |  |   | 143,144 |   |  |   | 114,780
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Interest Expense                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Securitization notes payable                           |  |                                 | 7,906  |                                |   | 4,285  |  |   | 19,538  |   |  |   | 11,519 
|Warehouse line of credit                               |  |                                 | 1,549  |                                |   | 1,876  |  |   | 5,431   |   |  |   | 4,266  
|Junior subordinated debentures                         |  |                                 | 219    |                                |   | 170    |  |   | 615     |   |  |   | 469    
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Total interest expense                                 |  |                                 | 9,674  |                                |   | 6,331  |  |   | 25,584  |   |  |   | 16,254 
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Net interest income                                    |  |                                 | 41,141 |                                |   | 35,079 |  |   | 117,560 |   |  |   | 98,526 
|Provision for loan losses                              |  |                                 | 13,016 |                                |   | 8,567  |  |   | 29,555  |   |  |   | 21,125 
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Net interest income after provision for loan losses    |  |                                 | 28,125 |                                |   | 26,512 |  |   | 88,005  |   |  |   | 77,401 
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Non-interest Income                                    |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Loan related charges and fees                          |  |                                 | 172    |                                |   | 117    |  |   | 433     |   |  |   | 342    
|Other income                                           |  |                                 | 148    |                                |   | 89     |  |   | 955     |   |  |   | 278    
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Total non-interest income                              |  |                                 | 320    |                                |   | 206    |  |   | 1,388   |   |  |   | 620    
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Non-interest Expense                                   |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Compensation and benefits                              |  |                                 | 13,147 |                                |   | 10,077 |  |   | 37,841  |   |  |   | 29,366 
|Occupancy                                              |  |                                 | 1,901  |                                |   | 1,509  |  |   | 5,365   |   |  |   | 4,251  
|Other                                                  |  |                                 | 5,804  |                                |   | 4,610  |  |   | 15,943  |   |  |   | 14,175 
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Total non-interest expense                             |  |                                 | 20,852 |                                |   | 16,196 |  |   | 59,149  |   |  |   | 47,792 
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Income from continuing operations before income taxes  |  |                                 | 7,593  |                                |   | 10,522 |  |   | 30,244  |   |  |   | 30,229 
|Income taxes                                           |  |                                 | 3,091  |                                |   | 4,121  |  |   | 12,259  |   |  |   | 12,153 
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Income from continuing operations                      |  |                                 | 4,502  |                                |   | 6,401  |  |   | 17,985  |   |  |   | 18,076 
|Income (loss) from discontinued operations, net of tax |  |                                 |       |                                |   | 564    |  |   | (684    | ) |  |   | 2,219  
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Net income                                             |  | $                               | 4,502  |                                | $ | 6,965  |  | $ | 17,301  |   |  | $ | 20,295 
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Earnings (loss) per share-basic:                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Continuing operations                                  |  | $                               | 0.26   |                                | $ | 0.38   |  | $ | 1.03    |   |  | $ | 1.08   
|Discontinued operations                                |  |                                 |       |                                |   | 0.03   |  |   | (0.04   | ) |  |   | 0.13   
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Net income                                             |  | $                               | 0.26   |                                | $ | 0.41   |  | $ | 0.99    |   |  | $ | 1.21   
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Weighted average basic shares outstanding              |  |                                 | 17,173 |                                |   | 17,030 |  |   | 17,524  |   |  |   | 16,790 
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Earnings (loss) per share-diluted:                     |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Continuing operations                                  |  | $                               | 0.25   |                                | $ | 0.34   |  | $ | 0.95    |   |  | $ | 0.97   
|Discontinued operations                                |  |                                 |       |                                |   | 0.03   |  |   | (0.04   | ) |  |   | 0.12   
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Net income                                             |  | $                               | 0.25   |                                | $ | 0.37   |  | $ | 0.91    |   |  | $ | 1.09   
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        
|Weighted average diluted shares outstanding            |  |                                 | 18,121 |                                |   | 18,835 |  |   | 18,955  |   |  |   | 18,631 
|                                                       |  |                                 |        |                                |   |        |  |   |         |   |  |   |        

See notes to the consolidated financial statements. Net income for the three and nine months ended
September 30, 2006 included stock-based compensation expense recognized under SFAS No. 123(R) of $392,000 and $1,043,000 net of tax, respectively. There was no stock-based compensation expense recognized during the three and nine months
ended September 30, 2005 because the Company did not adopt the recognition provisions of SFAS No. 123. The notes to the consolidated financial statements include the pro forma impact to net income for stock-based compensation expense for
the three and nine months ended September 30, 2005 of $327,000 and $858,000 net of tax, respectively. See Note 6 to the consolidated financial statements for additional information.



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Changes in Shareholders Equity

(Unaudited)



|                                             |  |                        |   |  |             |         |   |                  |   |        |                                         |  |   |                          |   |  |   |         |  
|-------------------------------------------- |  | ---------------------- | - |  | ----------- | ------- | - | ---------------- | - | ------ | --------------------------------------- |  | - | ------------------------ | - |  | - | ------- | -
|                                             |  | Numberof Shares        |   |  | CommonStock |         |   | RetainedEarnings |   |        | UnrealizedGain (Loss) OnSecurities, Net |  |   | TotalShareholdersEquity |  
|                                             |  | (Dollars in thousands) |  
|Balance, December 31, 2004                   |  | 16,525,358             |   |  | $           | 70,332  |   |                  | $ | 53,517 |                                         |  | $ | 404                      |   |  | $ | 124,253 |  
|Net income                                   |  |                       |   |  |             |        |   |                  |   | 20,295 |                                         |  |   |                         |   |  |   | 20,295  |  
|Exercise of stock options, net               |  | 586,592                |   |  |             | 1,254   |   |                  |   |       |                                         |  |   |                         |   |  |   | 1,254   |  
|Tax effect of exercised stock options        |  |                       |   |  |             | 5,152   |   |                  |   |       |                                         |  |   |                         |   |  |   | 5,152   |  
|Change in unrealized gain on securities, net |  |                       |   |  |             |        |   |                  |   |       |                                         |  |   | (582                     | ) |  |   | (582    | )
|Other                                        |  |                       |   |  |             |        |   |                  |   | (2     | )                                       |  |   |                         |   |  |   | (2      | )
|                                             |  |                        |   |  |             |         |   |                  |   |        |                                         |  |   |                          |   |  |   |         |  
|Balance, September 30, 2005                  |  | 17,111,950             |   |  | $           | 76,738  |   |                  | $ | 73,810 |                                         |  | $ | (178                     | ) |  | $ | 150,370 |  
|                                             |  |                        |   |  |             |         |   |                  |   |        |                                         |  |   |                          |   |  |   |         |  
|Balance, December 31, 2005                   |  | 17,120,250             |   |  | $           | 76,054  |   |                  | $ | 80,182 |                                         |  | $ | (1,321                   | ) |  | $ | 154,915 |  
|Net income                                   |  |                       |   |  |             |        |   |                  |   | 17,301 |                                         |  |   |                         |   |  |   | 17,301  |  
|Exercise of stock options, net               |  | 669,528                |   |  |             | (9,334  | ) |                  |   |       |                                         |  |   |                         |   |  |   | (9,334  | )
|Repurchase of common stock                   |  | (1,000,000             | ) |  |             | (18,484 | ) |                  |   |       |                                         |  |   |                         |   |  |   | (18,484 | )
|Tax effect of exercised stock options        |  |                       |   |  |             | 11,150  |   |                  |   |       |                                         |  |   |                         |   |  |   | 11,150  |  
|Stock-based compensation expense             |  |                       |   |  |             | 1,754   |   |                  |   |       |                                         |  |   |                         |   |  |   | 1,754   |  
|Loss on disposition of securities, net       |  |                       |   |  |             |        |   |                  |   |       |                                         |  |   | 1,321                    |   |  |   | 1,321   |  
|                                             |  |                        |   |  |             |         |   |                  |   |        |                                         |  |   |                          |   |  |   |         |  
|Balance, September 30, 2006                  |  | 16,789,778             |   |  | $           | 61,140  |   |                  | $ | 97,483 |                                         |  | $ |                         |   |  | $ | 158,623 |  
|                                             |  |                        |   |  |             |         |   |                  |   |        |                                         |  |   |                          |   |  |   |         |  

See notes to the consolidated financial statements



3



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)



|                                            |  |                                 |       |      |                                |       |      |  |      |        |  |   |        |  
|------------------------------------------- |  | ------------------------------- | ----- | ---- | ------------------------------ | ----- | ---- |  | ---- | ------ |  | - | ------ | -
|                                            |  | Three Months EndedSeptember 30, |       |      | Nine Months EndedSeptember 30, |      
|(In thousands)                              |  | 2006                            |       | 2005 |                                |       | 2006 |  | 2005 |       
|Net income                                  |  | $                               | 4,502 |      | $                              | 6,965 |      |  | $    | 17,301 |  | $ | 20,295 |  
|Other comprehensive income, net of tax      |  |                                 |       |      |                                |       |      |  |      |        |  |   |        |  
|Unrealized loss on securities               |  |                                 |      |      |                                | (985  | )    |  |      |       |  |   | (973   | )
|Tax effect of unrealized gain on securities |  |                                 |      |      |                                | 386   |      |  |      |       |  |   | 391    |  
|                                            |  |                                 |       |      |                                |       |      |  |      |        |  |   |        |  
|Comprehensive income                        |  | $                               | 4,502 |      | $                              | 6,366 |      |  | $    | 17,301 |  | $ | 19,713 |  
|                                            |  |                                 |       |      |                                |       |      |  |      |        |  |   |        |  

See notes to the consolidated financial statements



4



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                                  |  |                                |          |   |      |   |          |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                                  |  | Nine Months EndedSeptember 30, |         
|(Dollars in thousands)                                                                            |  | 2006                           |          |   | 2005 |  
|Cash Flows from Operating Activities:                                                             |  |                                |          |   |      |   |          |  
|Income from continuing operations                                                                 |  | $                              | 17,985   |   |      | $ | 18,076   |  
|Reconciliation of income from continuing operations to net cash provided by operating activities: |  |                                |          |   |      |   |          |  
|Provision for loan losses                                                                         |  |                                | 29,555   |   |      |   | 21,125   |  
|Accretion of discount on loans                                                                    |  |                                | (17,694  | ) |      |   | (14,104  | )
|Depreciation and amortization                                                                     |  |                                | 1,402    |   |      |   | 1,135    |  
|Stock-based compensation                                                                          |  |                                | 1,754    |   |      |   |         |  
|Tax benefit from stock-based compensation                                                         |  |                                | (711     | ) |      |   |         |  
|(Increase) in accrued interest receivable                                                         |  |                                | (1,105   | ) |      |   | (951     | )
|(Increase) decrease in other assets                                                               |  |                                | (8,085   | ) |      |   | 5,479    |  
|Increase in accrued expenses and other liabilities                                                |  |                                | 1,398    |   |      |   | 30,367   |  
|                                                                                                  |  |                                |          |   |      |   |          |  
|Net cash provided by operating activities of continuing operations                                |  |                                | 24,499   |   |      |   | 61,127   |  
|(Loss) income from discontinued operations                                                        |  |                                | (684     | ) |      |   | 2,219    |  
|                                                                                                  |  |                                |          |   |      |   |          |  
|Net cash provided by operating activities                                                         |  |                                | 23,815   |   |      |   | 63,346   |  
|                                                                                                  |  |                                |          |   |      |   |          |  
|Cash Flows from Investing Activities:                                                             |  |                                |          |   |      |   |          |  
|Purchases, net of repayments, of loans                                                            |  |                                | (138,607 | ) |      |   | (120,530 | )
|Change in assets of discontinued operations                                                       |  |                                | 496,639  |   |      |   | 359,320  |  
|Purchase of premises and equipment                                                                |  |                                | (2,527   | ) |      |   | (1,195   | )
|Proceeds from redemption of FHLB stock                                                            |  |                                |         |   |      |   | 12,067   |  
|                                                                                                  |  |                                |          |   |      |   |          |  
|Net cash provided by investing activities                                                         |  |                                | 355,505  |   |      |   | 249,662  |  
|                                                                                                  |  |                                |          |   |      |   |          |  
|Cash Flows from Financing Activities:                                                             |  |                                |          |   |      |   |          |  
|Change in liabilities of discontinued operations                                                  |  |                                | (459,519 | ) |      |   | (368,369 | )
|Proceeds from warehouse line of credit                                                            |  |                                | 349,325  |   |      |   | 297,793  |  
|Repayment of warehouse line of credit                                                             |  |                                | (251,074 | ) |      |   | (210,189 | )
|Proceeds from securitization                                                                      |  |                                | 242,000  |   |      |   | 195,000  |  
|Payments on securitization notes payable                                                          |  |                                | (233,820 | ) |      |   | (189,674 | )
|Increase in restricted cash                                                                       |  |                                | (14,146  | ) |      |   | (14,643  | )
|Proceeds from exercise of stock options                                                           |  |                                | 1,816    |   |      |   | 6,406    |  
|Repurchase of common stock                                                                        |  |                                | (18,484  | ) |      |   |         |  
|Tax benefit from stock-based compensation                                                         |  |                                | 711      |   |      |   |         |  
|                                                                                                  |  |                                |          |   |      |   |          |  
|Net cash used in financing activities                                                             |  |                                | (383,191 | ) |      |   | (283,676 | )
|                                                                                                  |  |                                |          |   |      |   |          |  
|Net (decrease) increase in cash and cash equivalents                                              |  |                                | (3,871   | ) |      |   | 29,332   |  
|Cash and cash equivalents at beginning of period                                                  |  |                                | 21,295   |   |      |   | 4,237    |  
|                                                                                                  |  |                                |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                                        |  | $                              | 17,424   |   |      | $ | 33,569   |  
|                                                                                                  |  |                                |          |   |      |   |          |  
|Supplemental Disclosures of Cash Payments Made for:                                               |  |                                |          |   |      |   |          |  
|Interest                                                                                          |  | $                              | 30,100   |   |      | $ | 26,799   |  
|                                                                                                  |  |                                |          |   |      |   |          |  
|Income taxes                                                                                      |  | $                              | 9,184    |   |      | $ | 2,483    |  
|                                                                                                  |  |                                |          |   |      |   |          |  

See notes to the consolidated financial statements



5



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##### Table of Contents

United PanAm Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)



|1. | Organization
|-- | ------------

United PanAm Financial Corp.
(UPFC or 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 UPFC.
Unless the context indicates otherwise, all references to UPFC include the previous Delaware corporation. UPFC 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 UPFC, and United Auto Credit Corp. (UACC) became a direct wholly-owned subsidiary of UPFC. 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 UPFC. 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. UPFCs total outstanding shares did not change as a result of the merger, nor did the underlying beneficial ownership of those shares.

At September 30, 2006, UACC was a direct wholly-owned subsidiary of UPFC, 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 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 in connection with warehouse funding of such contracts.



|2. | Basis of Presentation
|-- | ---------------------

The accompanying unaudited
consolidated financial statements include the accounts of UPFC and all subsidiaries. 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 (all adjustments are of normal recurring nature) 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, 2005. 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.

Certain amounts in the 2005 financial statements have been reclassified to conform with financial statement presentation in 2006.



|3. | Discontinued Operations
|-- | -----------------------

In July 2004, the Bank
adopted a plan of voluntary dissolution (the Plan) to dissolve and ultimately exit its federal thrift charter. The Office of Thrift Supervision (the OTS) conditionally approved the Plan in August 2004, subject to the Bank
satisfying certain conditions imposed by the OTS.



6



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##### Table of Contents

In September 2004, the Company sold its three retail bank branches (with total deposits of $223.4
million) and its brokered deposit portfolio (with deposits of $184.3 million). In February 2005, the Company sold its remaining internet originated deposits. The Company recognized a gain on sale of the three retail branches and the brokered deposit
portfolio of $2.7 million after tax. The normal net operating costs and interest expense on deposits of the Bank have not been reclassified as discontinued operations from prior periods because the associated loans funded by these deposits are not
discontinued and the cost of the replacement funds from the securitization and the warehouse line are very similar to the net cost of deposits including operating costs.

On March 7, 2005, the Company received confirmation that the Federal Deposit Insurance Corporation (FDIC) terminated the insured status of the Bank effective February 7, 2005. On March 8,
2005, the Company received confirmation from the OTS that the Banks federal charter was cancelled effective February 11, 2005. In connection with the Plan and as required by the OTS as a condition to the cancellation of the Banks
federal charter, the Company has irrevocably guaranteed all remaining obligations of the Bank. The remaining obligations that the Company guaranteed were attributable primarily to insured deposits, which were effectively sold on February 11,
2005. As of September 30, 2006, there have been no claims relating to the obligations of the Bank, and management believes that there will be no material claims relating to such obligations in the future.

In connection with the dissolution of the Bank, and in order to concentrate the Companys efforts on its non-prime automobile finance business, the Company sold its
portfolio of insurance premium finance loans to Classic Plan Premium Financing, Inc. in November 2004 at a nominal premium over par. On March 30, 2006, the Company discontinued its operations related to its investment segment and sold its
investment securities portfolio to focus solely on its automobile finance business and to provide additional transparency to the public regarding the actual returns of its automobile finance operations. The Company had historically invested in
AAA-rated, United States Government Agency securities primarily to satisfy the Qualified Thrift Lender test that required the Bank to hold at least 60% of its assets in mortgage-related securities. Since the dissolution of the Bank in February 2005,
the Company had maintained its investment securities portfolio to generate a reasonable rate of return on the Companys equity capital. Prior to the completion of this sale, the Companys investment securities portfolio consisted of $276.0
million in investment securities, and was financed with $262.1 million of repurchase agreements. The Company satisfied these repurchase agreements with the proceeds of this sale.

The following amounts have been segregated from continuing operations and reflected as discontinued operations.



|                                                                                                                          |  |                                 |       |   |                  |   |        
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ----- | - | ---------------- | - | -------
|(Dollars in Thousands)                                                                                                    |  | September 30,2006               |       |   | December 31,2005
|Assets of discontinued operations                                                                                         |  | $                               |      |   |                  | $ | 495,318
|Liabilities of discontinued operations                                                                                    |  | $                               |      |   |                  | $ | 459,519
|                                                                                                                          | 
|                                                                                                                          |  | Three Months EndedSeptember 30,
|                                                                                                                          |  | 2006                            |       |   | 2005            
|Revenue                                                                                                                   |  | $                               |      |   |                  | $ | 4,641  
|Expense                                                                                                                   |  | $                               |      |   |                  | $ | 3,730  
|Income from discontinued operations (after applicable income taxes of $0, $347, respectively)                             |  | $                               |      |   |                  | $ | 564    
|                                                                                                                          | 
|                                                                                                                          |  | Nine Months EndedSeptember 30, 
|                                                                                                                          |  | 2006                            |       |   | 2005            
|Revenue                                                                                                                   |  | $                               | 4,782 |   |                  | $ | 14,997 
|Expense                                                                                                                   |  | $                               | 5,922 |   |                  | $ | 11,296 
|(Loss) income from discontinued operations (after applicable income (tax benefits) taxes of $(456), $1,482, respectively) |  | $                               | (684  | ) |                  | $ | 2,219  



7



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##### Table of Contents

|4. | 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.

Components of basic and diluted earnings per share are as follows:



|                                           |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|------------------------------------------ |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | - | ------ | - |  | - | ------
|                                           |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|(In thousands, except per share amounts)   |  | 2006                            |        | 2005                           |   | 2006   |  |   | 2005  
|Earnings per sharebasic:                  |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Income from continuing operations          |  | $                               | 4,502  |                                | $ | 6,401  |  | $ | 17,985 |   |  | $ | 18,076
|Income (loss) from discontinued operations |  |                                 |       |                                |   | 564    |  |   | (684   | ) |  |   | 2,219 
|                                           |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Net income                                 |  | $                               | 4,502  |                                | $ | 6,965  |  | $ | 17,301 |   |  | $ | 20,295
|                                           |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Weighted average common shares outstanding |  |                                 | 17,173 |                                |   | 17,030 |  |   | 17,524 |   |  |   | 16,790
|                                           |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Per share from continuing operations       |  | $                               | 0.26   |                                | $ | 0.38   |  | $ | 1.03   |   |  | $ | 1.08  
|Per share from discontinued operations     |  |                                 |       |                                |   | 0.03   |  |   | (0.04  | ) |  |   | 0.13  
|                                           |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Per share                                  |  | $                               | 0.26   |                                | $ | 0.41   |  | $ | 0.99   |   |  | $ | 1.21  
|                                           |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Earnings per sharediluted:                |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Income from continuing operations          |  | $                               | 4,502  |                                | $ | 6,401  |  | $ | 17,985 |   |  | $ | 18,076
|Income (loss) from discontinued operations |  |                                 |       |                                |   | 564    |  |   | (684   | ) |  |   | 2,219 
|                                           |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Net income                                 |  | $                               | 4,502  |                                | $ | 6,965  |  | $ | 17,301 |   |  | $ | 20,295
|                                           |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Weighted average common shares outstanding |  |                                 | 17,173 |                                |   | 17,030 |  |   | 17,524 |   |  |   | 16,790
|Add: Dilutive effect of stock options      |  |                                 | 948    |                                |   | 1,805  |  |   | 1,431  |   |  |   | 1,841 
|                                           |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Common stock and common stock equivalents  |  |                                 | 18,121 |                                |   | 18,835 |  |   | 18,955 |   |  |   | 18,631
|                                           |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Per share from continuing operations       |  | $                               | 0.25   |                                | $ | 0.34   |  | $ | 0.95   |   |  | $ | 0.97  
|Per share from discontinued operations     |  |                                 |       |                                |   | 0.03   |  |   | (0.04  | ) |  |   | 0.12  
|                                           |  |                                 |        |                                |   |        |  |   |        |   |  |   |       
|Per share                                  |  | $                               | 0.25   |                                | $ | 0.37   |  | $ | 0.91   |   |  | $ | 1.09  
|                                           |  |                                 |        |                                |   |        |  |   |        |   |  |   |       

For the three months ended September 30, 2006 and 2005, 888,349 and 73,000 average shares and
for the nine months ended September 30, 2006 and 2005, 422,339 and 160,500 average shares attributable to outstanding stock options were excluded from the calculation of diluted earnings per share 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.



|5. | Share Repurchase Program
|-- | ------------------------

On June 27, 2006,
the Board of Directors approved a share repurchase program and authorized the Company to repurchase up to 500,000 shares of its 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, the Board of Directors approved an increase in the aggregate number
of shares of common stock that the Company may repurchase pursuant to its previously announced share repurchase program from 500,000 shares to 1,500,000 shares. The Company repurchased 1,000,000 shares of its common stock at an average price of
$18.45 per share for an aggregate purchase price of $18.5 million during the nine months ended September 30, 2006.



|6. | Stock-Based Compensation
|-- | ------------------------

On January 1, 2006,
the Company adopted Statement of Financial Accounting Standards (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



8



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##### Table of Contents

March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (SAB No. 107) relating to SFAS
No. 123(R). The Company has applied the provisions of SAB No. 107 in its adoption of SFAS No. 123(R).

The Company 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 the Companys 2006 fiscal year. The Companys Consolidated
Financial Statements as of and for the three and nine months ended September 30, 2006 reflect the impact of SFAS No. 123(R). In accordance with the modified prospective transition method, the Companys Consolidated Financial
Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123(R). Stock-based compensation expense recognized under SFAS No. 123(R) for the three and nine months ended September 30,
2006 was $661,000 and $1,754,000, respectively. There was no stock-based compensation expense recognized during the three and nine months ended September 30, 2005.

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 the Companys Consolidated Statement of Operations. Prior to the adoption of SFAS No. 123(R), the Company accounted for stock-based awards to employees and directors using
the intrinsic value method in accordance with APB Opinion No. 25 as allowed under SFAS No. 123. Under the intrinsic value method, no stock-based compensation expense had been recognized in the Companys Consolidated Statement of
Operations, because the exercise price of the Companys stock options granted equaled the fair market value of the underlying stock at the date of grant.

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 the Companys Consolidated Statement of Operations for the three and nine months ended September 30, 2006 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 Operations for the three and nine months ended September 30, 2006 is
based on awards ultimately expected to vest, 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 the Companys pro forma information required under SFAS No. 123 for the periods prior to January 1, 2006, the Company accounted for forfeitures as they occurred.

On November 10, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. FAS 123(R)-3, Transition
Election Related to Accounting for Tax Effects of Share-Based Payment Awards. The Company has 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 nine months ended
September 30, 2006 (there was no share-based compensation expense recognized for the three and nine months ended September 30, 2005).



|                                             |  |                                 |      |                                |      |   |      |  |   |        |   |  |   |  
|-------------------------------------------- |  | ------------------------------- | ---- | ------------------------------ | ---- | - | ---- |  | - | ------ | - |  | - | -
|                                             |  | Three Months EndedSeptember 30, |      | Nine Months EndedSeptember 30,
|                                             |  | 2006                            |      |                                | 2005 |   | 2006 |  |   | 2005  
|                                             |  | (Dollars in thousands)         
|Stock-based compensation expense             |  | $                               | (661 | )                              |      | $ |     |  | $ | (1,754 | ) |  | $ | 
|Tax benefit                                  |  |                                 | 269  |                                |      |   |     |  |   | 711    |   |  |   | 
|                                             |  |                                 |      |                                |      |   |      |  |   |        |   |  |   |  
|Stock-based compensation expense, net of tax |  | $                               | (392 | )                              |      | $ |     |  | $ | (1,043 | ) |  | $ | 
|                                             |  |                                 |      |                                |      |   |      |  |   |        |   |  |   |  



9



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##### Table of Contents

The table below reflects net income and diluted net income per share for the three and nine months ended
September 30, 2006 compared with the pro forma information for the three and nine months ended September 30, 2005.



|                                                                                           |  |                                 |       |   |                                |   |       |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------ |  | ------------------------------- | ----- | - | ------------------------------ | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                           |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |  
|                                                                                           |  | 2006                            |       |   | 2005                           |   |       | 2006 |  |   | 2005   |  
|                                                                                           |  | (Dollars in thousands)          |      
|Net income  as reported for prior period (1)                                              |  |                                 | N/A   |   |                                | $ | 6,965 |      |  |   | N/A    |   |  | $ | 20,295 |  
|Stock-based compensation expense                                                           |  | $                               | (661  | ) |                                |   | (538  | )    |  | $ | (1,754 | ) |  |   | (1,435 | )
|Tax benefit                                                                                |  |                                 | 269   |   |                                |   | 211   |      |  |   | 711    |   |  |   | 577    |  
|                                                                                           |  |                                 |       |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Stock-based compensation expense, net of tax (2)                                           |  |                                 | (392  | ) |                                |   | (327  | )    |  |   | (1,043 | ) |  |   | (858   | )
|Net income, including the effect of stock-based compensation expense (3)                   |  | $                               | 4,502 |   |                                | $ | 6,638 |      |  | $ | 17,301 |   |  | $ | 19,437 |  
|                                                                                           |  |                                 |       |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Diluted net income per share  as reported for prior period (1)                            |  |                                 | N/A   |   |                                | $ | 0.37  |      |  |   | N/A    |   |  | $ | 1.09   |  
|                                                                                           |  |                                 |       |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Diluted net income per share, including the effect of stock-based compensation expense (3) |  | $                               | 0.25  |   |                                | $ | 0.35  |      |  | $ | 0.91   |   |  | $ | 1.04   |  



|(1) | Net income and net income per share prior to January 1, 2006 did not include stock-based compensation expense under SFAS No. 123 because the Company did not adopt the
recognition provisions of SFAS No. 123.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Stock-based compensation expense prior to January 1, 2006 is calculated based on the pro forma application of SFAS No. 123.
|--- | ---------------------------------------------------------------------------------------------------------------------------



|(3) | Net income and net income per share prior to January 1, 2006 represents pro forma information based on SFAS No. 123. For the three and nine months ended September 30,
2006 stock-based compensation expense is already included in net income.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The fair value of options under the Companys
Amended and Restated 1997 Employee Stock Incentive Plan (the 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 12 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 MonthsEnded  |         |   | Nine MonthsEnded |  
|                         |  | September 30, 2006 |        
|Expected dividends       |  | $                  |        |   |                  | $ |        |  
|Expected volatility      |  |                    | 40.43   | % |                  |   | 33.70   | %
|Risk-free interest rate  |  |                    | 4.87    | % |                  |   | 4.71    | %
|Expected life (in years) |  |                    | 5 years |   |                  |   | 5 years |  

At September 30, 2006, there was $8.4 million of unrecognized compensation cost related to
share based compensation, which is expected to be recognized over a weighted average period of 5.68 years. A summary of option activity for the nine months ended September 30, 2006 is as follows.



|                            |  |            |   |  |                                 |      
|--------------------------- |  | ---------- | - |  | ------------------------------- | -----
|                            |  | Shares     |   |  | Weighted Average Exercise Price
|Balance, December 31, 2005  |  | 4,574,390  |   |  | $                               | 10.07
|Granted                     |  | 729,625    |   |  |                                 | 27.93
|Canceled or expired         |  | (167,800   | ) |  |                                 | 20.16
|Exercised                   |  | (1,102,179 | ) |  |                                 | 3.45 
|                            |  |            |   |  |                                 |      
|Balance, September 30, 2006 |  | 4,034,036  |   |  |                                 | 14.69
|                            |  |            |   |  |                                 |      



10



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##### Table of Contents

At September 30, 2006, options exercisable to purchase 2,916,311 shares of the Companys common
stock under the Plan were outstanding as follows.



|                         |  |                            |  |                               |       |                                                  |      |                             |           |                                                 |   |      
|------------------------ |  | -------------------------- |  | ----------------------------- | ----- | ------------------------------------------------ | ---- | --------------------------- | --------- | ----------------------------------------------- | - | -----
|Range of Exercise Prices |  | Number ofSharesOutstanding |  | WeightedAverageExercise Price |       | Weighted AverageRemainingContractualLife (Years) |      | Number of SharesExercisable |           | Exercisable SharesWeightedAverageExercise Price
|$0.0000 to $3.1650       |  | 16,469                     |  | $                             | 2.35  |                                                  | 3.44 |                             | 16,469    |                                                 | $ | 2.35 
|$3.1651 to $6.3300       |  | 693,392                    |  |                               | 4.24  |                                                  | 3.85 |                             | 686,792   |                                                 |   | 4.22 
|$6.3301 to $9.4950       |  | 115,300                    |  |                               | 7.06  |                                                  | 4.82 |                             | 82,400    |                                                 |   | 6.91 
|$9.4951 to $12.6600      |  | 1,387,500                  |  |                               | 10.20 |                                                  | 4.65 |                             | 1,375,700 |                                                 |   | 10.20
|$12.6601 to $15.8250     |  | 330,250                    |  |                               | 14.92 |                                                  | 3.95 |                             | 312,050   |                                                 |   | 14.90
|$15.8251 to $18.9900     |  | 257,300                    |  |                               | 17.64 |                                                  | 7.93 |                             | 86,000    |                                                 |   | 17.75
|$18.9901 to $22.1550     |  | 391,700                    |  |                               | 20.01 |                                                  | 5.33 |                             | 277,100   |                                                 |   | 20.01
|$22.1551 to $25.3200     |  | 88,000                     |  |                               | 23.25 |                                                  | 8.92 |                             | 16,100    |                                                 |   | 23.15
|$25.3201 to $28.4850     |  | 186,500                    |  |                               | 26.77 |                                                  | 9.03 |                             | 53,600    |                                                 |   | 26.20
|$28.4851 to $31.6500     |  | 567,625                    |  |                               | 29.91 |                                                  | 9.30 |                             | 10,100    |                                                 |   | 29.37
|                         |  |                            |  |                               |       |                                                  |      |                             |           |                                                 |   |      
|                         |  | 4,034,036                  |  | $                             | 14.69 |                                                  | 5.68 |                             | 2,916,311 |                                                 | $ | 10.74
|                         |  |                            |  |                               |       |                                                  |      |                             |           |                                                 |   |      

At September 30, 2006, 2,685 shares of common stock were reserved for future grants or
issuances under the Plan.



|7. | Allowance for Loan Losses
|-- | -------------------------

Our policy is to
charge-off accounts at the earlier of (i) the end of the month in which the collateral has been repossessed and sold, or (ii) the date the account is delinquent in excess of 120 days. Loans over 30 days delinquent and loans for which
vehicles have been repossessed are considered nonaccrual loans.

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 (net of remaining unearned income) 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, on a periodic basis, in order to estimate the future losses within each pool. Any such adjustment flows through the current quarter as the assessment is made.

We modified our underwriting approach in early 2003. Since the second quarter of 2003, the improvement in overall underwriting of loans
has shown a gradual reduction in loss rate by pool as a percentage of the long term historical curve. Since the model also took into account losses from prior to 2003, the overall historical loss rate was tracking higher than the post-2003 losses.
As a result of the incurrence of post-2003 losses at approximately 90% of the historical loss curve, there is a difference between actual losses taken and the estimated reserve for new pools with 12 months or less of historical data since the
historical curve is used to estimate the required reserve for new pools. By using the 90% factor, the estimated reserve for pools with 12 months or less of historical data, will reflect the current impact of increases or decreases in actual
portfolio loss rates, and the estimated reserve will be recalculated each quarter based on the actual performance of the overall portfolio.

Starting in the first quarter of 2006, we started to use quarterly pool data points instead of six months pool data points to derive the historical curve in order to better estimate future losses, to be more responsive to changes in the
portfolio and to correspond to securitization reporting. Additionally, losses on new pools are estimated using a factor that accounts for the performance of the new pools as compared to the historical curve. The impact due to the change in
accounting estimate in the first quarter of 2006 as described above was a reduction in provision for loan losses of $1.0 million net of tax.



|8. | Recent Accounting Developments
|-- | ------------------------------

In February 2006,
the FASB issued FASB Staff Position (FSP) No. FAS 123(R)-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. FAS 123 (R)-4 concludes
that a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employees control does not become a liability until it becomes probable that the event will occur. An option or similar
instrument that is classified as equity, but subsequently becomes a liability because the contingent cash settlement event is probable of occurring, shall be accounted for similar to modification from an equity to liability award. To the extent that
the liability exceeds the amount previously recognized in equity, the excess is recognized as compensation cost. The total recognized compensation cost for an award with a contingent cash settlement feature shall at least equal the fair value of the
award at the grant date. This FSP is applicable only for options or similar instruments issued as part of employee compensation arrangements. The guidance in this FSP shall be applied upon initial adoption of Statement SFAS No. 123(R). As of
September 30, 2006, this pronouncement had no material impact on our consolidated financial statements.



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In March 2006, the FASB issued FSP No. FAS 156, Accounting for Servicing of Financial Assets, an
amendment of FASB Statement No. 140. FAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value and requires additional disclosures and separate presentation in the
statement of financial position of the carrying amounts of servicing assets and servicing liabilities that an entity elects to subsequently measure at fair value to address concerns about comparability that may result from the use of elective
measurement methods. The provisions of FAS 156 are effective as of the beginning of our first fiscal year that begins after September 15, 2006. Management believes the adoption of this pronouncement will not have a material impact on the
Companys consolidated financial statements.

In July 2006, the FASB issued Financial Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109, which is a change in accounting for income taxes. FIN 48 specifies how tax benefits for uncertain tax positions are to be recognized, measured, and
derecognized in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim-period guidance, among
other provisions. The provisions of FIN 48 are effective as of the beginning of our first fiscal year that begins after December 15, 2006. Management believes the adoption of this pronouncement will not have a material impact on the
Companys consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157 (SFAS 157), Fair Value Measurements. SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value
hierarchy that prioritizes the information used to develop those assumptions. Under SFAS 157, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. Management believes the adoption of this pronouncement will not have a material impact on the Companys
consolidated financial statements.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108 (SAB 108),
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 requires that public companies utilize a dual-approach to assessing the quantitative effects of
financial misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after
November 15, 2006. Management believes the adoption of this pronouncement will not have a material impact on the Companys consolidated financial statements.

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.



|9. | Restricted Cash
|-- | ---------------

Restricted cash relates to $27.5
million of deposits held as collateral for securitized obligations and warehouse liabilities at September 30, 2006 compared with $19.9 million at December 31, 2005. Additionally, $39.7 million relates to cash that is in process of being
applied to the pay down of securitized obligations and warehouse liabilities compared with $33.2 million at December 31, 2005.



|10. | Loans
|--- | -----

Loans are summarized as follows:



|                                           |  |                   |         |   |                  |   |         |  
|------------------------------------------ |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                           |  | September 30,2006 |         |   | December 31,2005 |  
|Loans securitized                          |  | $                 | 589,276 |   |                  | $ | 582,080 |  
|Loans unsecuritized                        |  |                   | 217,172 |   |                  |   | 87,517  |  
|Unearned finance charges                   |  |                   | (2,756  | ) |                  |   | (3,435  | )
|Unearned discounts                         |  |                   | (39,495 | ) |                  |   | (32,506 | )
|Allowance for loan losses                  |  |                   | (32,905 | ) |                  |   | (29,110 | )
|                                           |  |                   |         |   |                  |   |         |  
|Total loans, net                           |  | $                 | 731,292 |   |                  | $ | 604,546 |  
|                                           |  |                   |         |   |                  |   |         |  
|Contractual weighted average interest rate |  |                   | 22.69   | % |                  |   | 22.72   | %
|                                           |  |                   |         |   |                  |   |         |  



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Loans securitized represent loans transferred to the Companys special purpose finance subsidiaries
in securitization transactions accounted for as secured financings. Loans unsecuritized include $187.5 million and $66.9 million pledged under the Companys warehouse facilities as of September 30, 2006 and December 31, 2005,
respectively.

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



|                               |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|------------------------------ |  | ------------------------------- | ------- | - | ------------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                               |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                               |  | 2006                            |         |   | 2005                           |   |        | 2006 |  |   | 2005    |  
|                               |  | (Dollars in thousands)          |        
|Balance at beginning of period |  | $                               | 30,652  |   |                                | $ | 26,374 |      |  | $ | 29,110  |   |  | $ | 25,593  |  
|Provision for loan losses      |  |                                 | 13,016  |   |                                |   | 8,567  |      |  |   | 29,555  |   |  |   | 21,125  |  
|Net charge-offs                |  |                                 | (10,763 | ) |                                |   | (7,293 | )    |  |   | (25,760 | ) |  |   | (19,070 | )
|                               |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Balance at end of period       |  | $                               | 32,905  |   |                                | $ | 27,648 |      |  | $ | 32,905  |   |  | $ | 27,648  |  
|                               |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  

The total allowance for loan losses was $32.9 million at September 30, 2006 compared with
$29.1 million at December 31, 2005, representing 4.31% of loans, less unearned discount, at September 30, 2006 and 4.59% at December 31, 2005. Additionally, unearned discounts on loans totaled $39.5 million at September 30, 2006
compared with $32.5 million at December 31, 2005, representing 4.91% of loans at September 30, 2006 and 4.88% at December 31, 2005.



|11. | Borrowings
|--- | ----------

Securitizations

The table below provides information about the outstanding trust assets, not including the assets related to the warehouse line of credit and liabilities
as of September 30, 2006 and December 31, 2005.



|                                 |  |                        |         |                  |   |        
|-------------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                                 |  | September 30,2006      |         | December 31,2005
|                                 |  | (Dollars in thousands)
|Loans pledged as collateral, net |  | $                      | 589,276 |                  | $ | 582,080
|Restricted cash                  |  | $                      | 56,689  |                  | $ | 49,318 
|                                 |  |                        |         |                  |   |        
|Total assets                     |  | $                      | 645,965 |                  | $ | 631,398
|Total liabilities                |  | $                      | 529,793 |                  | $ | 521,613

The following table lists each of our securitizations as of September 30, 2006.



|                       |  |                    |  |                  |  |                 |           |                                        |   |                               |  |       |                                              |  |      |                           |  |       |                |  |      |  
|---------------------- |  | ------------------ |  | ---------------- |  | --------------- | --------- | -------------------------------------- | - | ----------------------------- |  | ----- | -------------------------------------------- |  | ---- | ------------------------- |  | ----- | -------------- |  | ---- | -
|IssueNumber            |  | Issuance Date      |  | Maturity Date(1) |  | OriginalBalance |           | Remaining Balance atSeptember 30, 2006 |   | Original Weighted Average APR |  |       | Original Weighted AverageSecuritization Rate |  |      | Gross InterestRate spread |  |       | SuretyCosts(2) | 
|(Dollars in thousands) | 
|2004A                  |  | September 22, 2004 |  | September 2010   |  | $               | 420,000   |                                        | $ | 90,508                        |  | 22.75 | %                                            |  | 2.62 | %                         |  | 20.13 | %              |  | 0.46 | %
|2005A                  |  | April 14, 2005     |  | December 2010    |  | $               | 195,000   |                                        | $ | 85,490                        |  | 22.80 | %                                            |  | 3.93 | %                         |  | 18.87 | %              |  | 0.43 | %
|2005B                  |  | November 10, 2005  |  | August 2011      |  | $               | 225,000   |                                        | $ | 140,246                       |  | 22.73 | %                                            |  | 4.78 | %                         |  | 17.95 | %              |  | 0.41 | %
|2006A                  |  | June 15, 2006      |  | May 2012         |  | $               | 242,000   |                                        | $ | 213,549                       |  | 22.75 | %                                            |  | 5.43 | %                         |  | 17.32 | %              |  | 0.39 | %
|                       |  |                    |  |                  |  |                 |           |                                        |   |                               |  |       |                                              |  |      |                           |  |       |                |  |      |  
|                       |  |                    |  | Total            |  | $               | 1,082,000 |                                        | $ | 529,793                       |  |       |                                              |  |      |                           |  |       |                |  |      |  
|                       |  |                    |  |                  |  |                 |           |                                        |   |                               |  |       |                                              |  |      |                           |  |       |                |  |      |  



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



|(2) | Related to premiums on financial guaranty insurance policies.
|--- | -------------------------------------------------------------

To improve the achievable securitization advance rate from the sale of securitized automobile contracts, we have arranged for credit enhancement to improve the credit rating 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. The fees related to the financial guaranty insurance policies are paid monthly and
are included in financing cost for the loan securitizations.



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The following table lists the premiums paid on financial guaranty insurance policies.



|                                                       |  |                                 |     |                                |   |      |  |      |       |  |   |      
|------------------------------------------------------ |  | ------------------------------- | --- | ------------------------------ | - | ---- |  | ---- | ----- |  | - | -----
|                                                       |  | Three Months EndedSeptember 30, |     | Nine Months EndedSeptember 30,
|                                                       |  | 2006                            |     | 2005                           |   | 2006 |  | 2005
|                                                       |  | (Dollars in thousands)         
|Premiums paid on financial guaranty insurance policies |  | $                               | 609 |                                | $ | 451  |  | $    | 1,595 |  | $ | 1,289
|                                                       |  |                                 |     |                                |   |      |  |      |       |  |   |      

There is an average of $1.0 million in underwriting and issuance costs associated with each
securitization transaction, which are amortized over the term of the securitizations. As of September 30, 2006, we were in compliance with the terms of all covenants related to each securitization.

Warehouse Facility

As of
September 30, 2006 we were party to one $250 million warehouse facility, 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 covenants contained in
the sale and servicing agreement. We were in compliance with the terms of such covenants as of September 30, 2006. The principal and interest collected on the automobile contracts pledged is used to pay the principal and 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.
| | - |  | -----------------------------------------------------------------



|12. | 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 8.56% as of September 30, 2006. 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.



|13. | 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. FIN 46(R) provides guidance when an enterprise should consolidate another entity if that entity is not controlled based on traditional voting interests or is thinly capitalized. 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.



|14. | Redemption of the Preferred Stock of AirTime Technologies Inc.
|--- | --------------------------------------------------------------

In connection with the discontinuation of the Companys operations related to WorldCash Technologies, Inc., a wholly-owned subsidiary of the Company, the Company recorded a charge of $500,000 in both 2000 and
2001 to write off the preferred stock of AirTime Technologies, Inc. owned by the Company through WorldCash Technologies, Inc. In March 2006, an agreement was reached to merge AirTime Technologies, Inc. with InComm Holdings Inc. As part of the
agreement, the preferred stock owned by the Company through WorldCash Technologies, Inc. was redeemed for $520,000 in the first quarter of 2006.



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|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 financial statements, the accompanying notes to the financial statements, and the other information included or incorporated by reference herein.

Overview

We are a specialty finance company engaged
in non-prime automobile finance. We 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. We conduct our automobile finance business through our
direct wholly-owned subsidiary UACC. We purchase and hold for investment non-prime automobile installment sales contracts, or automobile contracts, originated by independent and franchised automobile dealers.

We fund our business through warehouse financing and periodic securitizations. We have a warehouse line of credit with Deutsche Bank of $250 million to
fund our ongoing operations. In September 2004, we closed our first securitization composed of a $420 million offering of automobile receivable backed securities. In April 2005, we closed our second securitization composed of a $195 million offering
of automobile receivable backed securities. In November 2005, we closed our third securitization composed of a $225 million offering of automobile receivable backed securities. In June 2006, we closed our fourth securitization composed of a $242
million offering of automobile receivable backed securities. We plan to price a new securitization approximately every six months.

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

During
the nine months ended September 30, 2006, we opened 18 new branch offices, bringing our total to 125 branches in 34 states. We intend to continue our philosophy of controlled expansion of the auto finance branch network and expect to open a
total of 24 new branches during 2006, 26 new branches during 2007 and 28 new branches during 2008. Typically, branches reach a mature level of outstanding loans three to four years after opening and, on average, reach approximately 38% of that level
after one year and approximately 74% of that level after two years. As a result, branches typically reach break-even profitability by the end of year one, then continue to increase their profitability in years two and three and generally reach their
full profitability three to four years after opening. As of September 30, 2006, 60 of our branches were less than three years old, with 18 branches between two and three years old, 20 branches between one and two years old and 22 branches less
than one year old.

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 4 to our Notes to Consolidated Financial Statements presented in our 2005 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 balance sheet dates 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 the securitization trust is treated as a secured
financing under GAAP. For GAAP purposes, the contracts are retained on the balance sheet with the securities issued to finance the contracts recorded as



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securitization notes payable. We record interest income on the securitized contracts and interest expense on the notes issued through the securitization
transactions.

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

Our loan
loss allowances are monitored by management based on a variety of factors including an assessment of the credit risk inherent in the portfolio, prior loss experience, the levels and trends of nonperforming loans, current and prospective economic
conditions and other factors. Management also undertakes a review of various quantitative and qualitative analyses. Quantitative analyses include the review of charge-off trends by loan type, analysis of cumulative losses and evaluation of credit
loss experienced by credit tier and geographic location. Other quantitative analyses include the concentration of any credit tier, the level of nonperformance and the percentage of delinquency. Qualitative analysis includes trends in charge-offs
over various time periods and at various statistical midpoints and high points, the severity of depreciated values of repossession and trends in the economy generally or in specific geographic locations.

We modified our underwriting approach in early 2003. Since the second quarter of 2003, the improvement in overall underwriting of loans has shown a
gradual reduction in loss rate by pool as a percentage of the long term historical curve. Since the model also took into account losses from prior to 2003, the overall historical loss rate was tracking higher than the post-2003 losses. As a result
of the incurrence of post-2003 losses at approximately 90% of the historical loss curve, there is a significant difference between actual losses taken and the estimated reserve for new pools with 12 months or less of historical data since the
historical curve is used to estimate the required reserve for new pools. Starting in the first quarter of 2006, we started to use quarterly pool data points instead of six months pool data points to derive the historical curve in order to better
estimate future losses, to be more responsive to changes in the portfolio as a result of the new underwriting guideline and to correspond to securitization reporting. Additionally, losses on new pools are estimated using a factor that accounts for
the impact of the Companys improved underwriting policies. The impact due to the change in accounting estimate described above was a reduction in provision for loan losses of $1.7 million before tax (or $1.0 million after tax) for the nine
months ended September 30, 2006.

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 immediately pass through our income statement as an addition or reduction in provision expense. Management updates our loan loss estimates
quarterly to reflect current net charge-offs.

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 rates. Because of this inverse relationship, we were able to effectively lock in a gross interest rate spread for our automobile contracts held in portfolio prior to the sale of the securitization notes payable.
Losses related to these agreements were recorded on our Consolidated Statements of Operations during 2004 because the derivative transactions did not meet the accounting requirements to qualify for hedge accounting. Accordingly, we did not amortize
them over the life of the automotive contracts.

We are not currently utilizing interest rate hedging instruments because we plan to enter
into a new securitization every six months and therefore will only fund the acquisition of approximately six months of automobile contracts at variable interest rates with our warehouse facility prior to locking a gross interest rate spread through
the sale of securitization notes payable at fixed interest rates.

Stock-Based Compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment,
which requires that the compensation cost relating to share-based payment transactions (including the cost of



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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). The Company has applied the provisions of SAB No. 107 in its adoption of SFAS
No. 123(R).

The Company 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 the Companys 2006 fiscal year. The Companys Consolidated Financial Statements as of and for the nine months ended September 30, 2006 reflect the impact of SFAS
No. 123(R). In accordance with the modified prospective transition method, the Companys Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123(R).
Stock-based compensation expense recognized under SFAS No. 123(R) for the three and nine months ended September 30, 2006 was $661,000 and $1,754,000, respectively. There was no stock-based compensation expense recognized during the three
and nine months ended September 30, 2005.

Recent Accounting Developments

See Note 8 to the Consolidated Financial Statements included in Item 1 to this Quarterly Report on Form 10-Q for a discussion of recent accounting
developments.

Discontinued Operations

On March 30, 2006, the Company discontinued its operations related to its investment segment and sold its investment securities portfolio to focus solely on its automobile finance business. The Company had historically invested in
AAA-rated, United States Government Agency securities primarily to satisfy the Qualified Thrift Lender test that required the Bank to hold at least 60% of its assets in mortgage-related securities. Since the dissolution of the Bank in February 2005,
the Company had maintained its investment securities portfolio to generate a reasonable rate of return on the Companys equity capital. Prior to the completion of this sale, the Companys investment securities portfolio consisted of $276.0
million in investment securities, and was financed with $262.1 million of repurchase agreements. The Company satisfied these repurchase agreements with the proceeds of this sale and has recorded an after-tax loss of $0.7 million from the
discontinuation of its investment segment for the quarter ended March 31, 2006.

Comparison of Operating Results for the Three Months Ended
September 30, 2006 and 2005

General

For the three months ended September 30, 2006, our net income decreased $2.5 million to $4.5 million from $7.0 million for the three months ended September 30, 2005.

The decrease in net income was due primarily to a $4.7 million increase in non-interest expense, a $4.4 million increase in provision for loan losses and
a $0.6 million decrease in income from discontinued operations, net of tax, partially offset by a $6.1 million increase in net interest income and a $0.1 million increase in non-interest income. Net interest income was favorably impacted by the
continued expansion and growth of our automobile finance business. The increase in the provision for loan losses was due primarily to a $142.1 million increase in average loans.

Automobile contracts purchased increased $25.0 million to $139.6 million for the three months ended September 30, 2006 from $114.6 million for the
three months ended September 30, 2005, as a result of the growth of our automobile finance business. During the three months ended September 30, 2006, we opened 6 auto finance branches bringing our total to 125 branches in 34 states.

Interest Income

Interest income increased to $50.8 million for the three months ended September 30, 2006 from $41.4 million for the three months ended September 30, 2005 due primarily to a $142.1 million increase in average loans. The increase in
average loans principally resulted from the purchase of additional automobile contracts over the past twelve months in existing and new markets consistent with the planned growth of these operations.



17



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##### Table of Contents

Interest Expense

Interest expense increased to $9.7 million for the three months ended September 30, 2006 from $6.3 million for the three months ended September 30, 2005 due to a 113 basis point increase in average interest
rate on securitization notes payable, a 190 basis point increase in average interest rate on warehouse borrowings and a $181.5 million increase in average balance of securitization notes payable, partially offset by $56.5 million decrease in average
balance of warehouse borrowings. Securitization notes payable had an average balance of $573.3 million in the three months ended September 30, 2006 compared to $391.8 million for the same period in 2005 due to payments on automobile contracts
backing the securitized borrowings, partially offset by the completion of a $225.0 million securitization in November 2005 and a $242.0 million securitization in June 2006. Warehouse borrowings had an average balance of $86.5 million in the three
months ended September 30, 2006 compared to $143.0 million for the same period in 2005 because of funding of new automobile contracts partially offset by the securitization in November 2005 and the securitization in June 2006.

Average Balance Sheets

The
following table sets forth information relating to our operations for the three month periods ended September 30, 2006 and 2005. The yields and costs are derived by dividing annualized income or expense by the average balance of assets or
liabilities for the periods shown. The yields and costs include fees, which are considered adjustments to yields.



|                                                                 |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|---------------------------------------------------------------- |  | -------------------------------- | ------- | -------- | ---- | ----------------- |  | ----- | ----------------- |  | -------- | --------- | ----------------- | - | ------ |  | ----- | -
|                                                                 |  | Three Months Ended September 30, |        
|                                                                 |  | 2006                             |         |          | 2005 |                  
|(Dollars in thousands)                                           |  | AverageBalance(1)                |         | Interest |      | AverageYield/Cost |  |       | AverageBalance(1) |  | Interest |           | AverageYield/Cost |  
|Assets                                                           |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Interest earning assets                                          |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Short term investments                                           |  | $                                | 8,287   |          | $    | 40                |  | 1.92  | %                 |  | $        | 20,222    |                   | $ | 102    |  | 2.00  | %
|Restricted Cash                                                  |  |                                  | 66,246  |          |      | 808               |  | 4.84  | %                 |  |          | 50,380    |                   |   | 411    |  | 3.24  | %
|Loans, net(2)                                                    |  |                                  | 717,042 |          |      | 49,967            |  | 27.65 | %                 |  |          | 574,931   |                   |   | 40,899 |  | 28.22 | %
|                                                                 |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Subtotal                                                         |  | $                                | 791,575 |          | $    | 50,815            |  | 25.47 | %                 |  | $        | 645,533   |                   | $ | 41,412 |  | 25.45 | %
|Securities(5)                                                    |  |                                  |        |          |      |                  |  | 0.00  | %                 |  |          | 445,414   |                   |   | 4,137  |  | 3.69  | %
|                                                                 |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Total interest earning assets                                    |  | $                                | 791,575 |          | $    | 50,815            |  | 25.47 | %                 |  | $        | 1,090,947 |                   | $ | 45,549 |  | 16.56 | %
|                                                                 |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Non-interest earning assets                                      |  |                                  | 52,985  |          |      |                   |  |       |                   |  |          | 44,397    |                   |   |        |  |       |  
|                                                                 |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Total assets                                                     |  | $                                | 844,560 |          |      |                   |  |       |                   |  | $        | 1,135,344 |                   |   |        |  |       |  
|                                                                 |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Liabilities and Equity                                           |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Interest bearing liabilities                                     |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Warehouse line of credit                                         |  | $                                | 86,469  |          | $    | 1,549             |  | 7.11  | %                 |  | $        | 142,994   |                   | $ | 1,876  |  | 5.21  | %
|Securitization notes payable                                     |  |                                  | 573,277 |          |      | 7,906             |  | 5.47  | %                 |  |          | 391,847   |                   |   | 4,285  |  | 4.34  | %
|Junior subordinated debentures                                   |  |                                  | 10,310  |          |      | 219               |  | 8.43  | %                 |  |          | 10,310    |                   |   | 170    |  | 6.54  | %
|                                                                 |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Subtotal                                                         |  | $                                | 670,056 |          | $    | 9,674             |  | 5.73  | %                 |  | $        | 545,151   |                   | $ | 6,331  |  | 4.61  | %
|Repurchase agreements(5)                                         |  |                                  |        |          |      |                  |  | 0.00  | %                 |  |          | 431,779   |                   |   | 3,730  |  | 3.43  | %
|                                                                 |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Total interest bearing liabilities                               |  | $                                | 670,056 |          | $    | 9,674             |  | 5.73  | %                 |  | $        | 976,930   |                   | $ | 10,061 |  | 4.09  | %
|                                                                 |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Non-interest bearing liabilities                                 |  |                                  | 9,608   |          |      |                   |  |       |                   |  |          | 12,115    |                   |   |        |  |       |  
|                                                                 |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Total liabilities                                                |  | $                                | 679,664 |          |      |                   |  |       |                   |  | $        | 989,045   |                   |   |        |  |       |  
|Equity                                                           |  |                                  | 164,896 |          |      |                   |  |       |                   |  |          | 146,299   |                   |   |        |  |       |  
|                                                                 |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Total liabilities and equity                                     |  | $                                | 844,560 |          |      |                   |  |       |                   |  | $        | 1,135,344 |                   |   |        |  |       |  
|                                                                 |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Net interest income before provision for loan losses             |  |                                  |         |          | $    | 41,141            |  |       |                   |  |          |           |                   | $ | 35,488 |  |       |  
|                                                                 |  |                                  |         |          |      |                   |  |       |                   |  |          |           |                   |   |        |  |       |  
|Net interest rate spread(3)                                      |  |                                  |         |          |      |                   |  | 19.74 | %                 |  |          |           |                   |   |        |  | 12.47 | %
|Net interest margin(4)                                           |  |                                  |         |          |      |                   |  | 20.62 | %                 |  |          |           |                   |   |        |  | 12.91 | %
|Ratio of interest earning assets to interest bearing liabilities |  |                                  |         |          |      |                   |  | 118   | %                 |  |          |           |                   |   |        |  | 112   | %



|(1) | Average balances computed on a month-end basis.
|--- | -----------------------------------------------

|(2) | Net of unearned finance charges, unearned discounts and allowance for losses; includes non-performing loans.
|--- | ------------------------------------------------------------------------------------------------------------

|(3) | Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Net interest margin represents net interest income divided by average interest earning assets.
|--- | ----------------------------------------------------------------------------------------------

|(5) | Included in discontinued operations.
|--- | ------------------------------------



18



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##### Table of Contents

Provision and Allowance for Loan Losses

The provision for loan losses was $13.0 million for the three months ended September 30, 2006 compared to $8.6 million for the three months ended
September 30, 2005. The increase in the provision for loan losses was due primarily to a $142.1 million increase in average loans and an increase in the annualized charge-off rate of 5.43% for the three months ended September 30, 2006
compared to 4.58% for the same period a year ago. The increase in annualized net charge-offs was due to a number of economic trends such as lower used-vehicle values, a slowing economy and higher fuel prices that impacted both our customer base and
the severity of our charge-offs which increased 7% from a year ago.

The total allowance for loan losses was $32.9 million at
September 30, 2006 compared with $27.6 million at September 30, 2005, representing 4.31% of loans less unearned discounts at September 30, 2006 and 4.50% at September 30, 2005. Additionally, unearned discounts on loans totaled
$39.5 million at September 30, 2006 compared with $31.8 million at September 30, 2005, representing 4.91% of loans at September 30, 2006 compared with 4.92% at September 30, 2005. The increase in allowance for loan losses and
unearned discounts on loans was primarily due to a $157.0 million increase in loans outstanding, which increased to $803.7 million at September 30, 2006 from $646.7 million at September 30, 2005.

A provision for loan losses is charged to operations based on our regular evaluation of loans held for investments and 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.

For further information, see Critical Accounting Policies.

Non-interest Income

Non-interest income increased to $0.3 million for the three months ended September 30, 2006 from $0.2 million for the three months
ended September 30, 2005.

Non-interest Expense

Non-interest expense increased $4.7 million to $20.9 million for the three months ended September 30, 2006 from $16.2 million for the three months ended September 30, 2005. The increase was driven primarily
by our overall continued branch expansion and investment in corporate accounting, human resources, training and information technology to support future continued branch expansion. During the last 12 months, we continued with the planned expansion
of our automobile finance operations, resulting in an increase to 804 employees in 125 branches and 102 employees at the corporate office for a total of 906 employees as of September 30, 2006, from 662 employees in 103 branches and 75 employees
at the corporate office for a total of 737 employees as of September 30, 2005.

Income Taxes

Income taxes from continuing operations decreased $1.0 million to $3.1 million for the three months ended September 30, 2006 from $4.1 million for
the three months ended September 30, 2005. This decrease occurred primarily as a result of a $2.9 million decrease in taxable income from continuing operations before income taxes.

Income From Discontinued Operations, Net of Tax

On March 30, 2006, we discontinued our operations related to our investment segment and sold our investment securities portfolio to focus solely on our automobile finance business. Income from discontinued
operations, net of tax, was $0 for the three months ended September 30, 2006 and $0.6 million for the three months ended September 30, 2005.

Comparison of Operating Results for the Nine Months Ended September 30, 2006 and 2005

General

For the nine months ended September 30, 2006, our net income decreased $3.0 million to $17.3 million from $20.3 million for the nine months ended
September 30, 2005.



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##### Table of Contents

The decrease in net income was due primarily to a $11.4 million increase in non-interest expense, a $8.4
million increase in provision for loan losses and a $2.9 million decrease in income from discontinued operations, net of tax, partially offset by a $19.0 million increase in net interest income and a $0.8 million increase in non-interest income. Net
interest income was favorably impacted by the continued expansion and growth of our automobile finance business. The increase in the provision for loan losses was due primarily to a $134.5 million increase in average loans, partially offset by a
reduction in provision for loan losses of $1.7 million before tax (or $1.0 million after tax) due to a change in accounting estimate described above in Note 7 to the Consolidated Financial Statements included in Item 1 to this Quarterly Report
on Form 10-Q.

Automobile contracts purchased increased $76.2 million to $433.9 million for the nine months ended September 30, 2006
from $357.7 million for the nine months ended September 30, 2005, as a result of the growth of our automobile finance business. During the nine months ended September 30, 2006, we opened 18 auto finance branches bringing our total to 125
branches in 34 states.

Interest Income

Interest income increased to $143.1 million for the nine months ended September 30, 2006 from $114.8 million for the nine months ended September 30, 2005 due primarily to a $134.5 million increase in average
loans. The increase in average loans principally resulted from the purchase of additional automobile contracts over the past twelve months in existing and new markets consistent with the planned growth of these operations.

Interest Expense

Interest expense
increased to $25.6 million for the nine months ended September 30, 2006 from $16.3 million for the nine months ended September 30, 2005 due to a 123 basis point increase in average interest rate on securitization notes payable, a 142 basis
point increase in average interest rate on warehouse borrowings and a $114.3 million increase in average balance of securitization notes payable. Securitization notes payable had an average balance of $501.5 million in the nine months ended
September 30, 2006 compared to $387.2 million for the same period in 2005 due to the completion of a $195.0 million securitization in April 2005, a $225.0 million securitization in November 2005 and a $242.0 million securitization in June 2006,
partially offset by payments on automobile contracts backing the securitized borrowings.



20



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##### Table of Contents

Average Balance Sheets

The following table sets forth information relating to our operations for the nine month periods ended September 30, 2006 and 2005. The yields and
costs are derived by dividing annualized income or expense by the average balance of assets or liabilities for the periods shown. The yields and costs include fees, which are considered adjustments to yields.



|                                                                 |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|---------------------------------------------------------------- |  | ------------------------------- | ------- | -------- | ---- | ----------------- |  | ----- | ----------------- |  | -------- | --------- | ----------------- | - | ------- |  | ----- | -
|                                                                 |  | Nine Months Ended September 30, |        
|                                                                 |  | 2006                            |         |          | 2005 |                  
|(Dollars in thousands)                                           |  | AverageBalance(1)               |         | Interest |      | AverageYield/Cost |  |       | AverageBalance(1) |  | Interest |           | AverageYield/Cost |  
|Assets                                                           |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Interest earning assets                                          |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Short term investments                                           |  | $                               | 8,285   |          | $    | 64                |  | 1.03  | %                 |  | $        | 17,787    |                   | $ | 190     |  | 1.42  | %
|Restricted Cash                                                  |  |                                 | 61,298  |          |      | 2,081             |  | 4.54  | %                 |  |          | 44,649    |                   |   | 986     |  | 2.95  | %
|Loans, net(2)                                                    |  |                                 | 672,967 |          |      | 140,999           |  | 28.01 | %                 |  |          | 538,510   |                   |   | 113,604 |  | 28.21 | %
|                                                                 |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Subtotal                                                         |  | $                               | 724,550 |          | $    | 143,144           |  | 25.77 | %                 |  | $        | 600,946   |                   | $ | 114,780 |  | 25.54 | %
|Securities(5)                                                    |  |                                 | 107,937 |          |      | 4,782             |  | 5.92  | %                 |  |          | 475,627   |                   |   | 12,330  |  | 3.47  | %
|                                                                 |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Total interest earning assets                                    |  | $                               | 850,487 |          | $    | 147,926           |  | 23.25 | %                 |  | $        | 1,076,573 |                   | $ | 127,110 |  | 15.79 | %
|                                                                 |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Non-interest earning assets                                      |  |                                 | 48,333  |          |      |                   |  |       |                   |  |          | 58,115    |                   |   |         |  |       |  
|                                                                 |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Total assets                                                     |  | $                               | 898,820 |          |      |                   |  |       |                   |  | $        | 1,134,688 |                   |   |         |  |       |  
|                                                                 |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Liabilities and Equity                                           |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Interest bearing liabilities                                     |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Warehouse line of credit                                         |  | $                               | 112,193 |          | $    | 5,431             |  | 6.47  | %                 |  | $        | 112,837   |                   | $ | 4,266   |  | 5.05  | %
|Securitization notes payable                                     |  |                                 | 501,458 |          |      | 19,538            |  | 5.21  | %                 |  |          | 387,155   |                   |   | 11,519  |  | 3.98  | %
|Junior subordinated debentures                                   |  |                                 | 10,310  |          |      | 615               |  | 7.98  | %                 |  |          | 10,310    |                   |   | 469     |  | 6.08  | %
|                                                                 |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Subtotal                                                         |  | $                               | 623,961 |          | $    | 25,584            |  | 5.48  | %                 |  | $        | 510,302   |                   | $ | 16,254  |  | 4.26  | %
|Repurchase agreements(5)                                         |  |                                 | 102,404 |          |      | 4,243             |  | 5.54  | %                 |  |          | 468,783   |                   |   | 10,597  |  | 3.02  | %
|Deposits                                                         |  |                                 |        |          |      |                  |  | 0.00  | %                 |  |          | 9,127     |                   |   |        |  | 0.00  | %
|                                                                 |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Subtotal                                                         |  | $                               | 102,404 |          | $    | 4,243             |  | 5.54  | %                 |  | $        | 477,910   |                   | $ | 10,597  |  | 2.96  | %
|Total interest bearing liabilities                               |  | $                               | 726,365 |          | $    | 29,827            |  | 5.49  | %                 |  | $        | 988,212   |                   | $ | 26,851  |  | 3.63  | %
|                                                                 |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Non-interest bearing liabilities                                 |  |                                 | 8,387   |          |      |                   |  |       |                   |  |          | 8,546     |                   |   |         |  |       |  
|                                                                 |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Total liabilities                                                |  | $                               | 734,752 |          |      |                   |  |       |                   |  | $        | 996,758   |                   |   |         |  |       |  
|Equity                                                           |  |                                 | 164,068 |          |      |                   |  |       |                   |  |          | 137,930   |                   |   |         |  |       |  
|                                                                 |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Total liabilities and equity                                     |  | $                               | 898,820 |          |      |                   |  |       |                   |  | $        | 1,134,688 |                   |   |         |  |       |  
|                                                                 |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Net interest income before provision for loan losses             |  |                                 |         |          | $    | 118,099           |  |       |                   |  |          |           |                   | $ | 100,259 |  |       |  
|                                                                 |  |                                 |         |          |      |                   |  |       |                   |  |          |           |                   |   |         |  |       |  
|Net interest rate spread(3)                                      |  |                                 |         |          |      |                   |  | 17.76 | %                 |  |          |           |                   |   |         |  | 12.16 | %
|Net interest margin(4)                                           |  |                                 |         |          |      |                   |  | 18.57 | %                 |  |          |           |                   |   |         |  | 12.45 | %
|Ratio of interest earning assets to interest bearing liabilities |  |                                 |         |          |      |                   |  | 117   | %                 |  |          |           |                   |   |         |  | 109   | %



|(1) | Average balances computed on a month-end basis.
|--- | -----------------------------------------------

|(2) | Net of unearned finance charges, unearned discounts and allowance for losses; includes non-performing loans.
|--- | ------------------------------------------------------------------------------------------------------------

|(3) | Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest bearing liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Net interest margin represents net interest income divided by average interest earning assets.
|--- | ----------------------------------------------------------------------------------------------

|(5) | Included in discontinued operations.
|--- | ------------------------------------

Provision and
Allowance for Loan Losses

The provision for loan losses was $29.6 million for the nine months ended September 30, 2006 compared to
$21.1 million for the nine months ended September 30, 2005. The increase in the provision for loan losses was due primarily to a $134.5 million increase in average loans and an increase in the annualized charge-off rate of 4.66% for the nine
months ended September 30, 2006 compared to 4.26% for the same period a year ago, partially offset by a reduction in provision for loan losses of $1.7 million before tax (or $1.0 million after tax) due to a change in accounting estimate
described above in Note 7 to the Consolidated Financial Statements included in Item 1 to this Quarterly Report on Form 10-Q. The increase in annualized net charge-offs was due to a number of economic trends such as lower used-vehicle values, a
slowing economy and higher fuel prices that impacted both our customer base and the severity of our charge-offs which increased 4% from a year ago.

The total allowance for loan losses was $32.9 million at September 30, 2006 compared with $27.6 million at September 30, 2005, representing 4.31% of loans less unearned discounts at September 30, 2006 and 4.50% at
September 30, 2005. Additionally, unearned discounts on loans totaled $39.5 million at September 30, 2006 compared with $31.8 million at



21



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##### Table of Contents

September 30, 2005, representing 4.91% of loans at September 30, 2006 compared with 4.92% at September 30, 2005. The increase in the dollar
amount for the allowance for loan losses and unearned discounts on loans was due primarily to a $157.0 million increase in loans outstanding, which increased to $803.7 million at September 30, 2006 from $646.7 million at September 30,
2005.

A provision for loan losses is charged to operations based on our regular evaluation of loans held for investments and 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.

For further information, see Critical Accounting Policies.

Non-interest Income

Non-interest income increased to $1.4 million for the nine months ended September 30, 2006 from $0.6 million for the nine months
ended September 30, 2005. This increase was primarily the result of the redemption of the preferred stock of AirTime Technologies, Inc. held by WorldCash Technologies, Inc., a wholly-owned subsidiary of the Company. In March 2006, an agreement
was reached to merge AirTime Technologies, Inc. with InComm Holdings Inc. As part of the agreement, the preferred stock owned by the Company through WorldCash Technologies, Inc. was redeemed for $520,000.

Non-interest Expense

Non-interest
expense increased $11.3 million to $59.1 million for the nine months ended September 30, 2006 from $47.8 million for the nine months ended September 30, 2005. The increase was driven primarily by our overall continued branch expansion and
investment in corporate accounting, human resources, training and information technology to support future continued branch expansion. During the last 12 months, we continued with the planned expansion of our automobile finance operations, resulting
in an increase to 804 employees in 125 branches and 102 employees at the corporate office for a total of 906 employees as of September 30, 2006, from 662 employees in 103 branches and 75 employees at the corporate office for a total of 737
employees as of September 30, 2005.

Income Taxes

Income taxes before discontinued operations increased $0.1 million to $12.3 million for the nine months ended September 30, 2006 from $12.2 million for the nine months ended September 30, 2005. This increase
occurred primarily as a result of a $0.1 million increase in taxable income from continuing operations before income taxes.

(Loss)
Income From Discontinued Operations, Net of Tax

On March 30, 2006, the Company discontinued its operations related to its
investment segment and sold its investment securities portfolio to focus solely on its automobile finance business. Loss from discontinued operations, net of tax, was $0.7 million for the nine months ended September 30, 2006. Income from
discontinued operations, net of tax, was $2.2 million for the nine months ended September 30, 2005.

Comparison of Financial Condition at
September 30, 2006 and December 31, 2005

Total assets decreased $348.0 million, to $861.2 million at September 30, 2006,
from $1,209.2 million at December 31, 2005. The decrease resulted primarily from a $495.3 million decrease in assets of discontinued operations to zero at September 30, 2006 from $495.3 million at December 31, 2005, partially offset
by a $126.7 million increase in loans. The increase in loans principally resulted from the purchase of additional automobile contracts in existing and new markets consistent with the planned growth of these operations. No valuation allowance for the
deferred tax assets is recognized because it is more likely than not that all of the deferred tax assets will be realized.

Warehouse line
of credit borrowing increased to $152.3 million as of September 30, 2006 from $54.0 million as of December 31, 2005 due to funding of new automobile contracts, offset by the completion of a $242.0 million securitization in June 2006.



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##### Table of Contents

Securitization notes payable increased to $529.8 million at September 30, 2006 from $
521.6 million at December 31, 2005 due to completion of a $242.0 million securitization in June 2006, offset by payments on the automobile contracts backing the securitized borrowings.

Liabilities of discontinued operations decreased to zero at September 30, 2006 from $459.5 million at December 31, 2005.

Shareholders equity increased to $158.6 million at September 30, 2006 from $154.9 million at December 31, 2005, primarily as a result of
net income of $17.3 million during the nine months ended September 30, 2006, $1.8 million additional capital obtained as of result of stock options exercised and recognition of expense for fair value of options of $1.8 million, offset by $18.5
million of the Companys common stock repurchased during the nine months ended September 30, 2006.

Management of Interest Rate Risk

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

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

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

We are not currently utilizing interest rate hedging instruments because we plan to enter
into a new securitization every six months and therefore will only fund the acquisition of approximately six months of automobile contracts at variable interest rates with our warehouse facility prior to locking a gross interest rate spread through
the sale of securitization notes payable at fixed interest rates.

Liquidity and Capital Resources

General

We require substantial cash
and capital resources to operate our business. Our primary funding sources are warehouse credit lines, 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 on automobile contracts;
| | - |  | ----------------------------------------



| |  |  | servicing fees that we earn under our securitizations;
| | - |  | ------------------------------------------------------



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



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##### Table of Contents

| |  |  | securitization proceeds;
| | - |  | ------------------------



| |  |  | borrowings under our credit facilities; and
| | - |  | -------------------------------------------



| |  |  | releases of excess cash from our warehouse facilities.
| | - |  | ------------------------------------------------------

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

Securitizations

We completed our
first securitization in the third quarter of 2004, our second securitization in the second quarter of 2005, our third securitization in the fourth quarter of 2005 and our fourth securitization in the second quarter of 2006. These securitizations are
structured as on-balance-sheet transactions, recorded as secured financings. Regular contract securitizations are an integral part of our business plan going forward in order to increase our liquidity and reduce risks associated with interest rate
fluctuations. We have developed a securitization program that involves selling interests in pools of our automobile contracts to investors through the public issuance of AAA/Aaa rated asset-backed securities. Upon the issuance of securitization
notes payable, we retain the right to receive over time excess cash flows from the underlying pool of securitized automobile contracts.

In
our securitizations to date, we transferred automobile contracts we purchased from new and used 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 are added to the spread account or used to pay down 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 distribution from the trusts. Additionally, as the principal balance level of the securitization pool declines, the amount of
pledged assets needed to maintain the required percentage level is reduced, thereby permitting additional excess cash to be released to us as distribution from the trusts.

To improve the achievable securitization advance rate from the sale of securitized automobile contracts, we have arranged for credit enhancement to
improve the credit rating 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 right to the automobile contracts sold to that trust.

Warehouse Facility

As of September 30, 2006 we were party to one $250 million warehouse facility, 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 September 30, 2006. The
principal and interest collected on the automobile contracts pledged is used to pay the principal and 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;
| | - |  | --------------------------------------------



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##### Table of Contents

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



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

Other Sources of Funds

The collection of principal and interest from automobile contracts purchased and securitized and the
release of cash from the securitization spread accounts are other sources of significant funds for us. Pursuant to the securitization documents, we receive cash released from a spread account for a securitization transaction once the spread account
reaches a predetermined funding level. The amount released from a spread account over time represents the return of the initial deposits to such spread account as well as the release of the excess spread on the securitized automobile contracts in
the related securitization transaction.

Share Repurchase Program

On June 27, 2006, the Board of Directors approved a share repurchase program and authorized the Company to repurchase up to 500,000 shares of its
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, the Board of Directors approved an increase in the aggregate number of shares that the Company may repurchase pursuant to its previously announced share repurchase program from 500,000 shares to 1,500,000
shares. The Company repurchased 1,000,000 shares of its common stock for an average price of $18.45 per share for an aggregate purchase price of $18.5 million during the nine months ended September 30, 2006.

Subordinated Debentures

In 2003, we
issued junior subordinated debentures in the amount of $10.3 million to a subsidiary trust, UPFC Trust I, to enhance our liquidity. UPFC Trust I in turn issued $10.0 million of company-obligated mandatorily redeemable preferred securities.

Aggregate Contractual Obligations

The following table provides the amounts due under specified obligations for the periods indicated as of September 30, 2006.



|                               |  |                        |         |                   |   |                   |  |                  |        |       |   |        |  |   |        
|------------------------------ |  | ---------------------- | ------- | ----------------- | - | ----------------- |  | ---------------- | ------ | ----- | - | ------ |  | - | -------
|                               |  | Less than 1 Year       |         | 1 Year to 3 Years |   | 4 Yearsto 5 Years |  | More Than5 Years |        | Total
|                               |  | (Dollars in thousands)
|Warehouse line of credit       |  | $                      | 152,260 |                   | $ |                  |  | $                |       |       | $ |       |  | $ | 152,260
|Securitization notes payable   |  |                        | 242,816 |                   |   | 273,698           |  |                  | 13,279 |       |   |       |  |   | 529,793
|Operating lease obligations    |  |                        | 4,571   |                   |   | 7,250             |  |                  | 3,763  |       |   | 265    |  |   | 15,849 
|Junior subordinated debentures |  |                        |        |                   |   |                  |  |                  |       |       |   | 10,310 |  |   | 10,310 
|                               |  |                        |         |                   |   |                   |  |                  |        |       |   |        |  |   |        
|Total                          |  | $                      | 399,647 |                   | $ | 280,948           |  | $                | 17,042 |       | $ | 10,575 |  | $ | 708,212
|                               |  |                        |         |                   |   |                   |  |                  |        |       |   |        |  |   |        

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.



25



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##### Table of Contents

Lending Activities

Loan Maturities

The following table sets forth the dollar amount of automobile contracts maturing in
our automobile contracts portfolio at September 30, 2006 based on final maturity. Automobile contract balances are reflected before unearned discounts and allowance for loan losses but include unearned finance charges.



|            |  |                        |        |                             |   |                              |  |                               |         |             |   |       |  |   |        
|----------- |  | ---------------------- | ------ | --------------------------- | - | ---------------------------- |  | ----------------------------- | ------- | ----------- | - | ----- |  | - | -------
|            |  | 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 |  | $                      | 17,236 |                             | $ | 253,692                      |  | $                             | 530,491 |             | $ | 2,273 |  | $ | 803,692
|            |  |                        |        |                             |   |                              |  |                               |         |             |   |       |  |   |        

All loans are fixed rate loans.

Classified Assets and Allowance for Loan Losses

Our policy is to maintain an allowance for loan losses to absorb inherent losses that may be realized on our portfolio. These allowances are general valuation allowances for estimates for probable losses not
specifically identified. The total allowance for loan losses was $32.9 million at September 30, 2006 compared with $29.1 million at December 31, 2005, representing 4.31% of loans less unearned discounts at September 30, 2006 and 4.59%
at December 31, 2005. Additionally, unearned discounts on loans totaled $39.5 million at September 30, 2006 compared with $32.5 million at December 31, 2005, representing 4.91% of loans at September 30, 2006 compared with 4.88%
at December 31, 2005.

Cumulative Losses

The following table reflects our cumulative losses (i.e., net charge-offs as a percentage of the 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 June 2006. Contract pools subsequent to June 2006 were not included in this table because the loan pools were not seasoned enough to provide a meaningful comparison with prior periods.



|                             |  |                        |        |   |                       |   |        |                       |  |   |                       |   |  |                        |        |   |                       |   |        |                       |  |   |                       |   |  |                        |         |   |                       |   |         |                       |  |   |                       |   |  |   |         |   |  |   |         |   |  |   |         |  
|---------------------------- |  | ---------------------- | ------ | - | --------------------- | - | ------ | --------------------- |  | - | --------------------- | - |  | ---------------------- | ------ | - | --------------------- | - | ------ | --------------------- |  | - | --------------------- | - |  | ---------------------- | ------- | - | --------------------- | - | ------- | --------------------- |  | - | --------------------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|Number of Months Outstanding |  | Jul. 2003  Sept. 2003 |        |   | Oct. 2003  Dec. 2003 |   |        | Jan. 2004  Mar. 2004 |  |   | Apr. 2004  Jun. 2004 |   |  | Jul. 2004  Sept. 2004 |        |   | Oct. 2004  Dec. 2004 |   |        | Jan. 2005  Mar. 2005 |  |   | Apr. 2005  Jun. 2005 |   |  | Jul. 2005  Sept. 2005 |         |   | Oct. 2005  Dec. 2005 |   |         | Jan. 2006  Mar. 2006 |  |   | Apr. 2006  Jun. 2006 |  
|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    | %
|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    | %
|7                            |  |                        | 0.56   | % |                       |   | 0.48   | %                     |  |   | 0.37                  | % |  |                        | 0.45   | % |                       |   | 0.65   | %                     |  |   | 0.49                  | % |  |                        | 0.40    | % |                       |   | 0.64    | %                     |  |   | 0.59                  | % |  |   | 0.47    | % |  |   | 0.39    | % |  |   |         |  
|10                           |  |                        | 1.41   | % |                       |   | 1.20   | %                     |  |   | 1.37                  | % |  |                        | 1.33   | % |                       |   | 1.29   | %                     |  |   | 1.19                  | % |  |                        | 1.35    | % |                       |   | 1.63    | %                     |  |   | 1.36                  | % |  |   | 1.30    | % |  |   |         |   |  |   |         |  
|13                           |  |                        | 2.26   | % |                       |   | 2.13   | %                     |  |   | 2.44                  | % |  |                        | 2.13   | % |                       |   | 2.21   | %                     |  |   | 2.41                  | % |  |                        | 2.48    | % |                       |   | 2.57    | %                     |  |   | 2.38                  | % |  |   |         |   |  |   |         |   |  |   |         |  
|16                           |  |                        | 3.50   | % |                       |   | 3.29   | %                     |  |   | 3.20                  | % |  |                        | 2.88   | % |                       |   | 3.12   | %                     |  |   | 3.56                  | % |  |                        | 3.32    | % |                       |   | 3.36    | %                     |  |   |                       |   |  |   |         |   |  |   |         |   |  |   |         |  
|19                           |  |                        | 4.48   | % |                       |   | 4.06   | %                     |  |   | 3.96                  | % |  |                        | 3.87   | % |                       |   | 4.20   | %                     |  |   | 4.44                  | % |  |                        | 4.14    | % |                       |   |         |                       |  |   |                       |   |  |   |         |   |  |   |         |   |  |   |         |  
|22                           |  |                        | 5.19   | % |                       |   | 4.78   | %                     |  |   | 4.87                  | % |  |                        | 4.77   | % |                       |   | 4.95   | %                     |  |   | 5.24                  | % |  |                        |         |   |                       |   |         |                       |  |   |                       |   |  |   |         |   |  |   |         |   |  |   |         |  
|25                           |  |                        | 5.83   | % |                       |   | 5.53   | %                     |  |   | 5.63                  | % |  |                        | 5.35   | % |                       |   | 5.57   | %                     |  |   |                       |   |  |                        |         |   |                       |   |         |                       |  |   |                       |   |  |   |         |   |  |   |         |   |  |   |         |  
|28                           |  |                        | 6.55   | % |                       |   | 6.07   | %                     |  |   | 6.16                  | % |  |                        | 6.03   | % |                       |   |        |                       |  |   |                       |   |  |                        |         |   |                       |   |         |                       |  |   |                       |   |  |   |         |   |  |   |         |   |  |   |         |  
|31                           |  |                        | 7.14   | % |                       |   | 6.42   | %                     |  |   | 6.79                  | % |  |                        |        |   |                       |   |        |                       |  |   |                       |   |  |                        |         |   |                       |   |         |                       |  |   |                       |   |  |   |         |   |  |   |         |   |  |   |         |  
|34                           |  |                        | 7.54   | % |                       |   | 6.77   | %                     |  |   |                       |   |  |                        |        |   |                       |   |        |                       |  |   |                       |   |  |                        |         |   |                       |   |         |                       |  |   |                       |   |  |   |         |   |  |   |         |   |  |   |         |  
|37                           |  |                        | 7.83   | % |                       |   |        |                       |  |   |                       |   |  |                        |        |   |                       |   |        |                       |  |   |                       |   |  |                        |         |   |                       |   |         |                       |  |   |                       |   |  |   |         |   |  |   |         |   |  |   |         |  
|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 |  
|                             |  |                        |        |   |                       |   |        |                       |  |   |                       |   |  |                        |        |   |                       |   |        |                       |  |   |                       |   |  |                        |         |   |                       |   |         |                       |  |   |                       |   |  |   |         |   |  |   |         |   |  |   |         |  
|Remaining Pool ($000)        |  | $                      | 9,574  |   |                       | $ | 11,925 |                       |  | $ | 20,740                |   |  | $                      | 24,746 |   |                       | $ | 29,250 |                       |  | $ | 34,211                |   |  | $                      | 57,525  |   |                       | $ | 66,093  |                       |  | $ | 71,842                |   |  | $ | 73,801  |   |  | $ | 119,044 |   |  | $ | 131,161 |  
|                             |  |                        |        |   |                       |   |        |                       |  |   |                       |   |  |                        |        |   |                       |   |        |                       |  |   |                       |   |  |                        |         |   |                       |   |         |                       |  |   |                       |   |  |   |         |   |  |   |         |   |  |   |         |  
|Remaining Pool (%)           |  |                        | 13.30  | % |                       |   | 17.34  | %                     |  |   | 21.98                 | % |  |                        | 27.15  | % |                       |   | 32.61  | %                     |  |   | 39.46                 | % |  |                        | 48.39   | % |                       |   | 54.85   | %                     |  |   | 63.87                 | % |  |   | 72.72   | % |  |   | 83.32   | % |  |   | 91.09   | %
|                             |  |                        |        |   |                       |   |        |                       |  |   |                       |   |  |                        |        |   |                       |   |        |                       |  |   |                       |   |  |                        |         |   |                       |   |         |                       |  |   |                       |   |  |   |         |   |  |   |         |   |  |   |         |  



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##### Table of Contents

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 September 30, 2006, December 31, 2005 and 2004.



|                   |  |                        |       |                  |      |   |                   |   |                  |  |      |                   |  |                  |       |  |      |  
|------------------ |  | ---------------------- | ----- | ---------------- | ---- | - | ----------------- | - | ---------------- |  | ---- | ----------------- |  | ---------------- | ----- |  | ---- | -
|Loan Delinquencies |  | September 30, 2006     |       | % of Total Loans |      |   | December 31, 2005 |   | % of Total Loans |  |      | December 31, 2004 |  | % of Total Loans |      
|                   |  | (Dollars in thousands) |      
|30 to 59 days      |  | $                      | 5,284 |                  | 0.66 | % |                   | $ | 3,697            |  | 0.55 | %                 |  | $                | 2,522 |  | 0.48 | %
|60 to 89 days      |  |                        | 2,036 |                  | 0.25 | % |                   |   | 1,548            |  | 0.23 | %                 |  |                  | 856   |  | 0.16 | %
|90+ days           |  |                        | 1,077 |                  | 0.13 | % |                   |   | 802              |  | 0.12 | %                 |  |                  | 416   |  | 0.08 | %
|                   |  |                        |       |                  |      |   |                   |   |                  |  |      |                   |  |                  |       |  |      |  
|Total              |  | $                      | 8,397 |                  | 1.04 | % |                   | $ | 6,047            |  | 0.90 | %                 |  | $                | 3,794 |  | 0.72 | %
|                   |  |                        |       |                  |      |   |                   |   |                  |  |      |                   |  |                  |       |  |      |  

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 September 30, 2006, December 31, 2005 and 2004.



|                                                                                   |  |                        |        |   |              |   |       |   |  |   |       |  
|---------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ------------ | - | ----- | - |  | - | ----- | -
|                                                                                   |  | September 30, 2006     |        |   | December 31, |  
|                                                                                   |  | 2005                   |        |   | 2004         |  
|                                                                                   |  | (Dollars in thousands) |       
|Nonaccrual loans                                                                   |  |                        |        |   |              |   |       |   |  |   |       |  
|Total nonaccrual loans                                                             |  | $                      | 14,776 |   |              | $ | 9,838 |   |  | $ | 7,169 |  
|                                                                                   |  |                        |        |   |              |   |       |   |  |   |       |  
|Non accrual loans as a percentage of total loans                                   |  |                        | 1.84   | % |              |   | 1.48  | % |  |   | 1.36  | %
|Allowance for loan losses as a percentage of gross loans net of unearned discounts |  |                        | 4.31   | % |              |   | 4.59  | % |  |   | 5.13  | %

Forward Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, as well as some statements by the Company in periodic press releases and some oral statements by Company officials to securities analysts and
shareholders during presentations about the Company 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 Company 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, the 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 the Companys actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, our recent
shift of the funding source of our business, 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 in this Quarterly Report on Form 10-Q and in our Annual Report on Form
10-K for the year ended December 31, 2005. The Companys past performance or past or present economic conditions are not indicative of future performance or conditions. Undue reliance should not be placed on forward-looking statements. In
addition, the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to projections over time unless required by federal
securities law.



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##### Table of Contents

|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 September 30, 2006.

Changes in Internal Control Over
Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended September 30,
2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------

Not applicable



|Item 1A. | Risk Factors.
|-------- | -------------

In addition to
the other 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, 2005, 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 and/or operating results.



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

Issuer Purchases of Equity Securities



|                                        |  |                                  |  |                              |       |                                                                                |           |                                                                                  |          
|--------------------------------------- |  | -------------------------------- |  | ---------------------------- | ----- | ------------------------------------------------------------------------------ | --------- | -------------------------------------------------------------------------------- | ---------
|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
|July 1, 2006 to July 31, 2006           |  | 166,184                          |  | $                            | 19.06 |                                                                                | 166,184   |                                                                                  | 1,333,816
|August 1, 2006 to August 31, 2006       |  | 833,816                          |  | $                            | 18.33 |                                                                                | 833,816   |                                                                                  | 500,000  
|September 1, 2006 to September 30, 2006 |  |                                 |  |                              |      |                                                                                |          |                                                                                  | 500,000  
|                                        |  |                                  |  |                              |       |                                                                                |           |                                                                                  |          
|Total                                   |  | 1,000,000                        |  | $                            | 18.45 |                                                                                | 1,000,000 |                                                                                  | 500,000  
|                                        |  |                                  |  |                              |       |                                                                                |           |                                                                                  |          

On June 27, 2006, the Board of Directors approved a share repurchase program and authorized
the Company to repurchase up to 500,000 shares of its 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, the Board of Directors approved an increase in the aggregate number of shares of its outstanding common stock the Company may repurchase pursuant to
its previously announced share repurchase program from 500,000 shares to 1,500,000 shares. This share repurchase program does not have an expiration date. The Company repurchased 1,000,000 shares of its common stock at an average price of $18.45 per
share for an aggregate purchase price of $18.5 million during the quarter ended September 30, 2006.



|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.
|------- | ------------------

Not
applicable



|Item 6. | Exhibits.
|------- | ---------



|     |  |                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------
|     | 
|10.1 |  | Employment Agreement dated July 1, 2006 by and between United PanAm Financial Corp. and Arash Khazei.(1)
|     | 
|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.              



|(1) | Previously filed as an exhibit to our Current Report on Form 8-K, as filed with the Securities and Exchange Commission on July 7, 2006, and incorporated herein by this reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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: |  | November 8, 2006 |  |                              |  | By: |  | /S/    RAY THOUSAND                              
|      |  |                  |  |                              |  |     |  | Ray Thousand                                     
|      |  |                  |  |                              |  |     |  | Chief Executive Officer and President            
|      |  |                  |  |                              |  |     |  | (Principal Executive Officer)                    
|      |  |                  |  |                             
|      |  | November 8, 2006 |  |                              |  | By: |  | /s/    ARASH KHAZEI                              
|      |  |                  |  |                              |  |     |  | Arash Khazei                                     
|      |  |                  |  |                              |  |     |  | Chief Financial Officer and Senior Vice President
|      |  |                  |  |                              |  |     |  | (Principal Financial and Accounting Officer)     



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