UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549








FORM
10-Q





(Mark
One)


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




For the
quarterly period ended March 31, 2009




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




For the
transition period from ______________ to ______________




Commission
File Number 000-24051





UNITED
PANAM FINANCIAL CORP.


(Exact
Name of Registrant as Specified in Its Charter)




California
            94-3211687(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            (I.R.S.
      Employer
              Identification
      No.)18191
      Von Karman Avenue, Suite 300
              Irvine,
      CA
            92612(Address
      of Principal Executive Offices)
            (Zip
      Code)




(949)
224-1917


(Registrant’s
Telephone Number, Including Area Code)





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




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




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




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




The
number of shares outstanding of the Registrant’s Common Stock as of April 30,
2009 was 15,752,593 shares.









UNITED
PANAM FINANCIAL CORP.


FORM
10-Q


March
31, 2009




INDEX







CAUTIONARY
      STATEMENT
                  1PART
      I. FINANCIAL INFORMATION
                  2Item 1.
                  Financial
      Statements
                  2Consolidated
      Statements of Financial Condition as of March 31, 2009 and December 31,
      2008
                  2Consolidated
      Statements of Operations for the three months ended March 31, 2009 and
      2008
                  3Consolidated
      Statements of Changes in Shareholders’ Equity for the three months ended
      March 31, 2009 and 2008
                  4Consolidated
      Statements of Cash Flows for the three months ended March 31, 2009 and
      2008
                  5Notes
      to Consolidated Financial Statements
                  6Item 2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  16Item 3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  28Item 4.
                  Controls
      and Procedures
                  28PART
      II. OTHER INFORMATION
                  29Item 1.
                  Legal
      Proceedings
                  29Item 1A.
                  Risk
      Factors
                  29Item 2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  29Item 3.
                  Defaults
      Upon Senior Securities
                  29Item 4.
                  Submission
      of Matters to a Vote of Security Holders
                  29Item 5.
                  Other
      Information
                  29Item 6.
                  Exhibits
                  29









CAUTIONARY
STATEMENT




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








1




PART
I. FINANCIAL INFORMATION






Item 1. 
Financial Statements.




United
PanAm Financial Corp. and Subsidiaries


Consolidated
Statements of Financial Condition





March 31,
                  2009
                
                
                December 31,
                  2008(unaudited)Assets
                
                (Dollars in
      thousands)Cash
                
                $
                6,958
                
                
                $
                5,773Short term
      investments
                
                
                5,332
                
                
                
                3,701Cash and cash
      equivalents
                
                
                12,290
                
                
                
                9,474Restricted
    cash
                
                
                67,501
                
                
                
                70,895Loans
                
                
                609,018
                
                
                
                710,251Allowance for loan
      losses
                
                
                (37,675
                )
                
                
                (43,220
                )Loans, net
                
                
                571,343
                
                
                
                667,031Premises and equipment,
      net
                
                
                4,202
                
                
                
                5,073Interest
      receivable
                
                
                6,915
                
                
                
                8,476Other
assets
                
                
                31,219
                
                
                
                33,819Total
assets
                
                $
                693,470
                
                
                $
                794,768Liabilities and Shareholders’
      EquitySecuritization notes
      payable
                
                $
                347,898
                
                
                $
                406,087Term
      Loan Facility
                
                
                158,598
                
                
                
                200,218Accrued expenses and other
      liabilities
                
                
                20,675
                
                
                
                18,450Junior subordinated
      debentures
                
                
                10,310
                
                
                
                10,310Total
      liabilities
                
                $
                537,481
                
                
                
                635,065Commitment and Contingencies (Note
      9)Preferred stock (no par
      value):Authorized, 2,000,000 shares; no
      shares issued and outstanding at March 31, 2009 and
      2008
                
                
                —
                
                
                
                —Common stock (no par
      value):Authorized, 30,000,000 shares;
      15,752,593 and 15,749,699 shares issued and
                  outstanding at March 31, 2009 and
      December 31, 2008, respectively
                
                
                50,562
                
                
                
                50,317Retained
      earnings
                
                
                105,427
                
                
                
                109,386Total shareholders’
      equity
                
                
                155,989
                
                
                
                159,703Total liabilities and
      shareholders’ equity
                
                $
                693,470
                
                
                $
                794,768




2


United
PanAm Financial Corp. and Subsidiaries


Consolidated
Statements of Operations





Three Months
      EndedMarch 31,2009
                
                
                2008(unaudited)Interest
    Income
                
                (Dollars in thousands,
      except
                  per share
    data)Loans
                
                $
                40,689
                
                
                $
                57,707Short term investments and
      restricted cash
                
                
                128
                
                
                
                763Total interest
      income
                
                
                40,817
                
                
                
                58,470Interest
      ExpenseSecuritization notes
      payable
                
                
                5,945
                
                
                
                10,888Term
      Loan Facilityand warehouse line of
      credit
                
                
                5,267
                
                
                
                1,525Other interest
      expense
                
                
                105
                
                
                
                193Total interest
      expense
                
                
                11,317
                
                
                
                12,606Net interest
      income
                
                
                29,500
                
                
                
                45,864Provision for loan
      losses
                
                
                14,255
                
                
                
                17,642Net interest income after
      provision for loan
                
                
                15,245
                
                
                
                28,222Non-interest
      Income
                
                
                625
                
                
                
                471Non-interest
      ExpenseCompensation and
      benefits
                
                
                10,062
                
                
                
                16,915Occupancy
                
                
                1,469
                
                
                
                2,464Other non-interest
      expense
                
                
                4,136
                
                
                
                6,201Restructuring
      charges
                
                
                6,488
                
                
                
                1,034Total non-interest
      expense
                
                
                22,155
                
                
                
                26,614(Loss) income before income
      taxes
                
                
                (6,285
                )
                
                
                2,079Income
taxes
                
                
                (2,326
                )
                
                
                805Net (loss)
      income
                
                $
                (3,959
                )
                
                $
                1,274Earnings (loss) per
      share-basic:Net (loss)
      income
                
                $
                (0.25
                )
                
                $
                0.08Weighted average basic shares
      outstanding
                
                
                15,750
                
                
                
                15,737Earnings (loss) per
      share-diluted:Net (loss)
      income
                
                $
                (0.25
                )
                
                $
                0.08Weighted average diluted shares
      outstanding
                
                
                15,750
                
                
                
                15,775





See
notes to consolidated financial statements


3


United
PanAm Financial Corp. and Subsidiaries


Consolidated
Statements of Changes in Shareholders’ Equity (Unaudited)





Number
                      of Shares
                    
                    
                    Common
                      Stock
                    
                    
                    Retained
                      Earnings
                    
                    
                    Total
                      Shareholders’
                      Equity(Dollars in
      thousands)Balance, January 1,
      2008
                    
                    
                    15,737,399
                    
                    
                    $
                    49,504
                    
                    
                    $
                    109,837
                    
                    
                    $
                    159,341Net income
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    1,274
                    
                    
                    
                    1,274Stock-based compensation
      expense
                    
                    
                    —
                    
                    
                    
                    328
                    
                    
                    
                    —
                    
                    
                    
                    328Balance, March 31,
      2008
                    
                    
                    15,737,399
                    
                    
                    $
                    49,832
                    
                    
                    $
                    111,111
                    
                    
                    $
                    160,943Balance, December 31,
      2008
                    
                    
                    15,749,699
                    
                    
                    $
                    50,317
                    
                    
                    $
                    109,386
                    
                    
                    $
                    159,703Net loss
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (3,959
                    )
                    
                    
                    (3,959
                    )Issuance of restricted
      stock
                    
                    
                    2,894
                    
                    
                    
                    41
                    
                    
                    
                    —
                    
                    
                    
                    41Stock-based compensation
      expense
                    
                    
                    —
                    
                    
                    
                    204
                    
                    
                    
                    —
                    
                    
                    
                    204Balance, March 31,
      2009
                    
                    
                    15,752,593
                    
                    
                    $
                    50,562
                    
                    
                    $
                    105,427
                    
                    
                    $
                    155,989





See
notes to the consolidated financial statements








4


United
PanAm Financial Corp. and Subsidiaries


Consolidated
Statements of Cash Flows





Three Months
      EndedMarch 31,2009
                        
                        
                        2008(Unaudited)(Dollars in
      thousands)Cash Flows from Operating
      Activities:(Loss) income from continuing
      operations
                        
                        $
                        (3,959
                        )
                        
                        $
                        1,274Reconciliation of net income to
      net cash provided by operating activities:Provision for loan
      losses
                        
                        
                        14,255
                        
                        
                        
                        17,642Loss on disposal of fixed
      assets
                        
                        
                        1,376
                        
                        
                        
                        107Accretion of discount on
      loans
                        
                        
                        (4,345
                        )
                        
                        
                        (6,894
                        )Depreciation and
      amortization
                        
                        
                        429
                        
                        
                        
                        616Stock-based
      compensation
                        
                        
                        245
                        
                        
                        
                        328Decrease in accrued interest
      receivable
                        
                        
                        1,561
                        
                        
                        
                        223Decrease in other
      assets
                        
                        
                        2,600
                        
                        
                        
                        1,670Increase in accrued expenses and
      other liabilities
                        
                        
                        2,225
                        
                        
                        
                        246Net cash provided by operating
      activities
                        
                        
                        14,387
                        
                        
                        
                        15,212Cash Flows from Investing
      Activities:Collection on (purchases of)
      loans, net
                        
                        
                        75,355
                        
                        
                        
                        (15,912
                        )Proceeds from sale of loans,
      net
                        
                        
                        10,423
                        
                        
                        
                        —Purchase of premises and
      equipment
                        
                        
                        (934
                        )
                        
                        
                        (478
                        )Net cash provided by (used in)
      investing activities
                        
                        
                        84,844
                        
                        
                        
                        (16,390
                        )Cash Flows from Financing
      Activities:Proceeds from warehouse line of
      credit
                        
                        
                        -
                        
                        
                        
                        126,477Repayment of Term Loan Facilityand warehouse line of credit
                        
                        
                        (41,620
                        )
                        
                        
                        (7,752
                        )Payments on securitization notes
      payable
                        
                        
                        (58,189
                        )
                        
                        
                        (115,029
                        )Decrease (increase) in restricted
      cash
                        
                        
                        3,394
                        
                        
                        
                        (6,083
                        )Net cash used in financing
      activities
                        
                        
                        (96,415
                        )
                        
                        
                        (2,387
                        )Net decrease in cash and cash
      equivalents
                        
                        
                        2,816
                        
                        
                        
                        (3,565
                        )Cash and cash equivalents at
      beginning of period
                        
                        
                        9,474
                        
                        
                        
                        17,241Cash and cash equivalents at end
      of period
                        
                        $
                        12,290
                        
                        
                        $
                        13,676Supplemental Disclosures of Cash
      Payments Made for:Interest
                        
                        $
                        12,244
                        
                        
                        $
                        12,691Income
taxes
                        
                        $
                        2
                        
                        
                        $
                        1





See notes to the consolidated financial
statements


5


United
PanAm Financial Corp. and Subsidiaries


Notes
to Consolidated Financial Statements (Unaudited)







1.
            Organization




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




On
April 22, 2005, PAFI was merged with and into the Company, and United Auto
Credit Corporation (“UACC”) became a direct wholly-owned subsidiary of the
Company. Prior to its dissolution on February 11, 2005, the Bank was a
direct wholly-owned subsidiary of PAFI, and UACC was a direct wholly-owned
subsidiary of the Bank.




At March
31, 2009, UACC and United Auto Business Operations, LLC (“UABO”) were direct
wholly-owned subsidiaries of the Company, and UPFC Auto Receivables Corporation
(“UARC”), UPFC Auto Financing Corporation (“UAFC”) and UPFC Funding Corporation
(“UFC”) were direct wholly-owned subsidiaries of UACC and UABO. UARC and UAFC
are entities whose business is limited to the purchase of automobile contracts
from UACC and UABO in connection with the securitization of such contracts and
UFC is an entity whose business is limited to the purchase of such contracts
from UACC and UABO in connection with warehouse funding of such
contracts.




2.
            Liquidity
      and Capital Resources




We had historically used a warehouse
facility to fund our automobile finance operation to purchase automobile
contracts pending securitization. In August2008, the warehouse credit facility was
amended, effectively terminating the revolving facility and establishing a term
loan (the “Term Loan
Facility”).  Under this amended loan,
the Company is unable to access new borrowings.  The Term Loan
Facility amortizes pursuant to a pre-determined
schedule, payable monthly, with any remaining balance due October 16,
2009.Effective May 13, 2009, we
entered into a binding commitment to sell a certain amount of our motor vehicle
retail installment sales contracts (the “Automobile Receivables”) to a new party
at a discount from face amount ( the “Transaction”).  The aggregate
amount of Automobile Receivables to be sold will be determined pursuant to the
terms of the final Transaction documents by May 26, 2009. We expect to pay off
and terminate the Term Loan Facility with the proceeds from the
Transaction.  It is anticipated that the amount of Automobile
Receivables sold will be greater than 10% of the book value of the Company’s
consolidated assets as of March 31, 2009.
  Under the
terms of the Transaction, we will have the option (which will become exercisable
two years after the closing date) to repurchase the aggregate amount of the
remaining Automobile Receivables The new party will also have a right of first
refusal if, prior to the first anniversary of the closing date, we desire to
sell certain additional automobile installment sales contracts.  Upon
closing of the Transaction, we will also enter into a Servicing Agreement with
the new party to continue to service the Automobile Receivables and will receive
a servicing fee during the applicable period.
  The
closing of the Transaction is subject to various customary conditions, which are
required to be met by May 26, 2009.  There is no assurance that we
will be able to meet these closing conditions or that all conditions will be met
for the Transaction to close.
  Recent
Market Developments




A number
of factors have adversely impacted our liquidity in 2008 and the first quarter
of 2009 and we anticipate these factors will continue to adversely impact our
liquidity through 2009. The disruptions in the capital markets and credit
markets and, to a lesser extent, the credit deterioration we are experiencing in
our portfolio, are limiting our ability to access alternative sources of
financing. We may also realize decreased cash distributions from our debt
facilities due to weaker credit performance and higher borrowing
costs.




The
asset-backed securities market, along with credit markets in general, has been
experiencing unprecedented disruptions. Market conditions began deteriorating in
mid-2007, remained impaired in 2008 and have continued to experience disruptions
in 2009. Further, the prime quality automobile securitizations that were
executed in 2008 and 2009 utilized senior-subordinated structures and sold only
the highest rated securities. In addition, the financial guaranty insurance
providers used by us in the past are facing financial stress and rating agency
downgrades. As a result, demand for asset-backed securities backed by a
financial guarantee insurance policy has substantially weakened and there have
been a limited number of public issuances of insured automobile asset-backed
securities in 2008. We have not accessed the securitization market with a
transaction since November 2007 and do not anticipate accessing the
securitization market during 2009.


6




Current
conditions in the asset-backed securities market include reduced liquidity,
increased risk premiums for issuers, reduced investor demand for asset-backed
securities (particularly those securities backed by non-prime collateral)
financial stress and rating agency downgrades impacting the financial guaranty
insurance providers, and a general tightening of availability of credit. These
conditions, which have already increased our cost of funding and reduced our
access to the asset-backed securities market and other types of receivable
financings, may continue or worsen in the future.  Due to the current
conditions in the asset-backed securities market, along with credit markets in
general, the execution of securitization transactions is more challenging and
expensive, and access to alternative sources of financing has also become more
limited. As a result, we are analyzing our liquidity strategies going forward.
It is difficult to predict if or when securitization markets will return to
historical capacity and pricing levels. On November 25, 2008, the Federal
Reserve Board announced the introduction of the Term Asset-Backed Securities
Loan Facility (the “TALF”) in an effort to facilitate the issuance of
asset-backed securities and improve the market conditions for asset-backed
securities. It is currently anticipated that the facility will lend up to $200
billion of loans (although that amount may be increased to up to $1 trillion) on
a non-recourse basis to holders of AAA-rated asset backed securities, fully
secured by newly or recently originated consumer loans, such as auto
loans.  It is anticipated that the facility will cease making loans on
December 31, 2009, unless that date is extended. It is unclear at this time what
impact the TALF program will have on returning the securitization market to
historical capacity and pricing levels.  We are currently evaluating the TALF
program.  Additionally, we are pursuing and evaluating alternative
sources of financing and are also considering selling receivables on a
whole-loan basis.  At this time, there is no assurance that we will be
able to arrange for other types of interim financing or be able to sell
receivables on a whole-loan basis in the future.  For a more complete
description of the financing risks that we face, see Item 1A. “Risk Factors” in
this Annual Report on Form 10-K.




3.
            Basis
      of Presentation




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





These
unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments are of normal recurring nature and
considered necessary for a fair presentation of the Company’s financial
condition and results of operations for the interim periods presented in this
Form 10-Q have been included. Operating results for the interim periods are not
necessarily indicative of financial results for the full year. These unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2008. 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
2008 consolidated financial statements have been reclassified to conform with
the consolidated financial presentations in 2009.




4.
            Recent
      Accounting Developments




In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51. SFAS
No. 160 requires that accounting and reporting for minority interests will be
recharacterized as non-controlling interests and classified as a component of
equity. SFAS No. 160 also establishes reporting requirements that provide
sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. SFAS
No. 160 applies to all entities that prepare consolidated financial statements,
except not-for-profit organizations, but will affect only those entities that
have an outstanding non-controlling interest in one or more subsidiaries or that
deconsolidate a subsidiary. This Statement shall be effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2008. The statement was effective for the Company on January 1, 2009. The
impact of adoption was not material.


7




In
December 2007, the FASB issued SFAS No. 141R, Business Combinations. SFAS
No. 141R replaces SFAS No. 141, Business Combinations. SFAS
No. 141R establishes principles and requirements for determining how an
enterprise recognizes and measures the fair value of certain assets and
liabilities acquired in a business combination, including noncontrolling
interests, contingent consideration and certain acquired contingencies. SFAS No.
141R also requires acquisition-related transaction expenses and restructuring
costs be expensed as incurred rather than capitalized as a component of the
business combination. This statement shall be applied prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
statement was effective for the Company on January 1, 2009. The impact of
adoption was not material.




In
February 2008, the FASB issued FASB Staff Positions FAS 140-3, Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions (“FSP SFAS No.
140-3”). The objective of FSP SFAS 140-3 is to provide implementation guidance
on accounting for a transfer of a financial asset and repurchase financing.
Under the guidance in FSP SFAS 140-3, there is a presumption that an initial
transfer of a financial asset and a repurchase financing are considered part of
the same arrangement (i.e., a linked transaction)
for purposes of evaluation under SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities. If
certain criteria are met, however, the initial transfer and repurchase financing
shall not be evaluated as a linked transaction and shall be evaluated separately
under SFAS No. 140. FSP SFAS 140-3 is effective for financial statements
issued for fiscal years beginning after November 15, 2008. The statement was
effective for the Company on January 1, 2009. The impact of adoption was not
material.




In
December 2008, the FASB issued FASB staff positions FAS No. 140-4 and FIN
46(R)-8, Disclosures by Public
Entities (Enterprises) about Transfers of Financial Assets and Interests in
Variable Interest Entities (“FSP SFAS No. 140-4”). FSP SFAS No. 140-4
amends SFAS No. 140,Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,to
provide additional disclosures about transfers of financial assets. It also
amends FASB Interpretation No. 46, Consolidation of Variable Interest
Entities, to require public enterprises, including sponsors that have a
variable interest in a variable interest entity, to provide additional
disclosures about their involvement with variable interest entities.
Additionally, this FSP requires certain disclosures to be provided by a public
enterprise that is (a) a sponsor of a qualifying special purpose entity (SPE)
that holds a variable interest in the qualifying SPE but was not the transferor
(nontransferor) of financial assets to the qualifying SPE and (b) a servicer of
a qualifying SPE that holds a significant variable interest in the qualifying
SPE but was not the transferor (nontransferor) of financial assets to the
qualifying SPE. The disclosures required by this FSP are intended to provide
greater transparency to financial statement users about a transferor’s
continuing involvement with transferred financial assets and an enterprise’s
involvement with variable interest entities and qualifying SPEs. The statement
was effective for the Company on January 1, 2009. The impact of adoption was not
material.




In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities. SFAS No. 161 amends and expands the
disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments
and Hedging Activities,” and requires entities to provide enhanced qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair values and amounts of gains and losses on derivative
contracts, and disclosures about credit-risk-related contingent features in
derivative agreements. This Statement is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008..
The statement was effective for the Company on January 1, 2009. The impact of
adoption was not material.




In April
2009, the FASB issued FASB staff positions FAS No. 107-1, Interim Disclosures about Fair Value
of Financial Instruments (“FSP SFAS No. 107-1”). FSP SFAS No. 107-1
amends FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. FSP SFAS No. 107-1also amends APB
Opinion No. 28, Interim
Financial Reporting,to require those disclosures in summarized financial
information at interim reporting periods. This Statement shall beeffective for interim and
annual reporting periods ending after June 15, 2009. Management is currently
evaluating the impact of the adoption of this statement; however, it is not
expected to have a material impact on our consolidated financial position,
results of operation or cash flows.





In April
2009, the FASB issued FASB staff positions FAS No. 115-2 and FAS 124-2,
Recognition and Presentation
of Other-Than-Temporary Impairments (“FSP SFAS No. 157-4 AND 124-2”). FSP
FAS No. 115-2 and FAS 124-2 amends the other-than-temporary impairment
guidance in U.S. GAAP for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial statements. FSP FAS
No. 115-2 and FAS 124-2 do not amend existing recognition and measurement
guidance related to other-than-temporary impairments of equity
securities.  This Statement shall beeffective for interim and
annual reporting periods ending after June 15, 2009. Management is currently
evaluating the impact of the adoption of this statement; however, it is not
expected to have a material impact on our consolidated financial position,
results of operation or cash flows.


8




In April
2009, the FASB issued FASB staff positions FAS No. 157-4, Determining fair value when the
volume and level of activity for the asset or liability have significantly
decreased and identifying transactions that are not orderly(“FSP SFAS No.
157-4”). FSP SFAS No. 157-4 provides additional guidance for estimating fair
value in accordance with FASB Statement No. 157 Fair Value Measurements, when
the volume and level of activity for the asset or liability have significantly
decreased. FSP SFAS No. 157-4 also includes guidance on identifying
circumstances that indicate a transaction is not orderly. This Statement shall
beeffective for
interim and annual reporting periods ending after June 15, 2009. Management is
currently evaluating the impact of the adoption of this statement; however, it
is not expected to have a material impact on our consolidated financial
position, results of operation or cash flows.




Other
recent accounting pronouncements, interpretations and guidance 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.




5.
            Restricted
      Cash




Restricted
cash relates to $35.6 million of deposits held as collateral for securitized
obligations and Term Loan Facility at March 31, 2009 compared with $36.2
million at December 31, 2008. Additionally, $32.0 million relates to cash
that is in process of being applied to the pay down of securitized obligations
and Term Loan Facility compared with $34.7 million at December 31,
2008.


6.
            Loans




Loans are
summarized as follows:





March 31,
    2009
                
                
                December 31,
      2008(Dollars in
      thousands)Loans
      securitized
                
                $
                383,215
                
                
                $
                452,054Loans
      unsecuritized
                
                
                249,665
                
                
                
                288,238Unearned finance
      charges
                
                
                (409
                )
                
                
                (564
                )Unearned acquisition
      discounts
                
                
                (23,453
                )
                
                
                (29,477
                )Allowance for loan
      losses
                
                
                (37,675
                )
                
                
                (43,220
                )Total loans,
      net
                
                $
                571,343
                
                
                $
                667,031Allowance for loan losses to gross
      loans net of unearned acquisition discounts
                
                6.19%
                
                
                6.09%Unearned acquisition discounts to
      gross loans
                
                3.71%
                
                
                3.98%Average percentage rate to
      borrowers
                
                22.72%
                
                
                22.72%Nonaccrual
      loans
                
                $
                20,376
                
                
                $
                27,686Nonaccrual loans to gross
      loans
                
                3.22%
                
                
                3.74%




Loans
securitized represent loans transferred to the Company’s special purpose finance
subsidiaries in securitization transactions accounted for as secured financing.
Loans unsecuritized include $249.0 million and $287.3 million pledged under the
Company’s Term Loan Facility as of March 31, 2009 and December 31,
2008, respectively.




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





During
the three months ended March 31, 2009, we sold $11.2 million of loans on a
whole-loan basis with servicing released. In these transactions, the loans were
sold without recourse to the Company.


9




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





Three Months Ended March
      31,2009
                  
                  
                  2008(Dollars in
      thousands)Allowance for loan losses at
      beginning of period
                  
                  $
                  43,220
                  
                  
                  $
                  48,386Provision for loan
      losses
                  
                  
                  14,255
                  
                  
                  
                  17,642Net
    charge-offs
                  
                  
                  (19,800
                  )
                  
                  
                  (16,476
                  )Allowance for loan losses at end
      of period
                  
                  $
                  37,675
                  
                  
                  $
                  49,552





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





The
allowance for credit losses is established through provision for loan losses
recorded as necessary to provide for estimated loan losses in the next 12 months
at each reporting date. We account for such loans by static pool, stratified
into three-month buckets based upon the period of origination. The credit risk
in each individual static pool is evaluated independently in order to estimate
the future losses within each pool. We evaluate the adequacy of the allowance by
examining current delinquencies, the characteristics of the portfolio,
prospective liquidation values of the underlying collateral and general economic
and market conditions. As circumstances change, our level of provisioning and/or
allowance may change as well. Any such adjustment is recorded in the current
period as the assessment is made.




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




7.
            Borrowings





Securitizations




Our
securitizations are structured as on-balance-sheet transactions and recorded as
secured financings because they do not meet the accounting criteria for sale of
finance receivables under SFAS No. 140.  Since 2004, regular
contract securitizations had been an integral part of our business plan in order
to increase our liquidity and reduce risks associated with interest rate
fluctuations. We had developed a securitization program that involves selling
interests in pools of our automobile contracts to investors through the public
issuance of AAA/Aaa rated asset-backed securities. We retain the servicing
rights for the loans which have been securitized.  Upon the issuance
of securitization notes payable, we retain the right to receive over time excess
cash flows from the underlying pool of securitized automobile
contracts.




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




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


10




The
following table lists each of our securitizations as of March 31,
2009:





Issue
Number
                                              
                                              Issuance
    Date
                                              
                                              Maturity Date
      (1)
                                              
                                              Original
      Balance
                                              
                                              Remaining
      Balance
                                                at March 31,
      2009(Dollars in
      thousands)2005A
                                              
                                              April 14,
    2005
                                              
                                              December
    2010
                                              
                                              $
                                              195,000
                                              
                                              $
                                              6,7422005B
                                              
                                              November 10,
      2005
                                              
                                              August 2011
                                              
                                              $
                                              225,000
                                              
                                              $
                                              18,4512006A
                                              
                                              June 15,
    2006
                                              
                                              May 2012
                                              
                                              $
                                              242,000
                                              
                                              $
                                              39,6392006B
                                              
                                              December 14,
      2006
                                              
                                              August 2012
                                              
                                              $
                                              250,000
                                              
                                              $
                                              63,3912007A
                                              
                                              June 14,
    2007
                                              
                                              July 2013
                                              
                                              $
                                              250,000
                                              
                                              $
                                              97,3232007B
                                              
                                              November 8,
      2007
                                              
                                              July 2014
                                              
                                              $
                                              250,000
                                              
                                              $
                                              122,352Total
                                              
                                              
                                              $1,412,000
                                              
                                              $
                                              347,898


______________________


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




Assets
pledged to the trusts as of March 31, 2009 and December 31, 2008 are as
follows:





March 31,
                          2009
                        
                        
                        December 31,
                          2008(Dollars
      in thousands)Automobile
      contracts, net
                        
                        $
                        383,215
                        
                        
                        $
                        452,054Restricted
      cash
                        
                        $
                        30,522
                        
                        
                        $
                        30,556Total
      assets pledged
                        
                        $
                        413,737
                        
                        
                        $
                        482,610





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




Three Months Ended
      March 31,(Dollars
      in thousands)2009
                
                
                2008Distribution
      from the trusts
                
                $
                12,154
                
                
                $
                20,108





In
addition, as servicer we have the option to purchase the owner trust estate when
the pool balance falls below 10% of the original balance of loans
securitized.





As of
March 31, 2009, we were in compliance with all terms of the financial covenants
related to our securitization transactions, but since August 2008, we have not
been in compliance with two non-financial covenants of several financial
guaranty insurance policies.  Since August 2008, we have obtained
temporary waivers from all of the insurance providers regarding 1) the approval
of the appointment of Mr. James Vagim as our chief executive officer, and 2) the
requirement to maintain a warehouse credit facility.  We are
continuing discussions with the insurance providers to obtain permanent waivers,
but there is no assurance we will obtain such waivers.  If we are
unable to obtain permanent waivers or continued temporary waivers for both these
items, then each insurance provider may elect to enforce the various rights and
remedies that are governed by the different transaction documents for each
securitization such as terminating our servicing rights. In addition, our breach
of any covenant under the Term Loan Facility will result in a corresponding
breach under our current agreement with the insurance
providers.


11


Term
Loan Facility




On August
22, 2008, we restructured our $300 million warehouse facility, which we had
historically used to fund our automobile finance operations to purchase
automobile contracts pending securitization. As part of the restructuring, which
effectively extinguished the existing warehouse facility, the Company incurred a
fee payable in the amount of $7.3 million. The fee was recorded as part of
non-recurring charges during the year ended December 31, 2008. The restructuring
continued the revolving nature of the warehouse facility through its previously
scheduled maturity of October 16, 2008 at which date, the Term Loan Facility
converted to a term loan for an additional one-year term. The Term Loan Facility
amortizes pursuant to a pre-determined schedule, payable monthly with any
remaining balance due October 16, 2009.  As a result, the Company is
unable to access further advances under the Term Loan Facility.  Prior
to being restructured, the warehouse facility included a requirement that the
Company access the securitization market and reduce amounts owed under the
warehouse facility within certain specified time periods. The August 22, 2008
restructuring removes this securitization requirement. By entering into the
August 22, 2008 restructuring and Term Loan Facility, the warehouse facility
lenders also approved the July 25, 2008 appointment of James Vagim as our chief
executive officer.
 
 Effective
May 13, 2009, we entered into a binding commitment to sell a certain amount of
Automobile Receivables  to a new party at a discount from face
amount.  The aggregate amount of Automobile Receivables to be sold
will be determined pursuant to the terms of the final Transaction documents by
May 26, 2009. We expect to pay off and terminate the Term Loan Facility with the
proceeds from the Transaction There is no assurance that we will be able to meet
these closing conditions or that all conditions will be met for the Transaction
to close. For more information about the financing transaction, see “Note 2.
Liquidity and Capital Resources” to our notes to consolidated financial
statements in this quarterly report on Form 10-Q.


8.
            Share
      Based Compensation




In 1994,
we adopted a stock option plan and, in November 1997, June 2001, June 2002,
and July 2007 amended and restated such plan as the United PanAm Financial Corp.
1997 Employee Stock Incentive Plan (the “Plan”). The maximum number of shares
that may be issued to officers, directors, employees or consultants under the
Plan is 8,500,000. Options generally vest over a one to five year period and
have a maximum term of ten years. Options may be exercised by using either a
standard cash exercise procedure or a cashless exercise procedure. As of March
31, 2009, there were 3,062,836 options outstanding.




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




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. As stock-based compensation expense recognized in the consolidated
statement of operations for the three months ended March 31, 2009 and 2008 is
based on awards ultimately expected to vest on a straight-line prorated basis,
it has been reduced for estimated forfeitures. SFAS No. 123(R) requires
forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates.




The
following table summarizes stock-based compensation expense, net of tax, under
SFAS No. 123(R) for the three months ended March 31, 2009 and
2008.





Three Months Ended
      March 31,2009
                  
                  
                  2008(Dollars
      in thousands)Stock-based
      compensation expense
                  
                  $
                  245
                  
                  
                  $
                  328Tax
      benefit
                  
                  
                  (91
                  )
                  
                  
                  (127
                  )Stock-based
      compensation expense, net of tax
                  
                  $
                  154
                  
                  
                  $
                  201Stock-based
      compensation expense, net of tax, per diluted shares
                  
                  $
                  0.01
                  
                  
                  $
                  0.01





At
March 31, 2009, 1,365,776 shares of common stock were reserved for future
grants or issuances under the Plan.




The fair
value of options under our Plan was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: no dividend yield; volatility was the actual 51 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.


12





Three
      Months Ended March 31,2009
                        
                        
                        2008Expected
      dividends
                        
                        $
                        —
                        
                        
                        $
                        —Expected
      volatility
                        
                        
                        94.30
                        %
                        
                        
                        61.66
                        %Risk-free
      interest rate
                        
                        
                        1.76
                        %
                        
                        
                        2.78
                        %Expected
      life
                        
                        5.00 years
                        
                        
                        5.00 years




At March
31, 2009, there was $2.3 million of unrecognized compensation cost related to
share based compensation, which is expected to be recognized over a weighted
average period of 3.14 years. A summary of option activity for the three months
ended March 31, 2009 and 2008 is as follows:





Three Months Ended March
31,2009
                  
                  
                  2008(Dollars
      in thousands, except per share amounts)Shares
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Shares
                  
                  
                  Weighted
                    Average
                    Exercise
                    PriceBalance
      at beginning of period
                  
                  
                  3,248,077
                  
                  
                  $
                  11.64
                  
                  
                  
                  4,110,335
                  
                  
                  $
                  14.02Granted
                  
                  
                  218,780
                  
                  
                  
                  0.39
                  
                  
                  
                  243,071
                  
                  
                  
                  6.18Canceled
      or expired
                  
                  
                  (109,000
                  )
                  
                  
                  13.32
                  
                  
                  
                  (83,100
                  )
                  
                  
                  16.02Balance
      at end of period (1)
                  
                  
                  3,357,857
                  
                  
                  
                  10.85
                  
                  
                  
                  4,270,306
                  
                  
                  
                  13.54Weighted
      average fair value per share of options granted during
      period
                  
                  $
                  1.05
                  
                  
                  
                  
                  
                  
                  $
                  4.97




(1)
            Any
      unvested restricted grants are included in the outstanding options balance
      at the end of the period.




At
March 31, 2009, options exercisable to purchase 2,040,246 shares of our
common stock under the Plan were outstanding as follows:





Range of Exercise
      Prices
                
                
                Number of
      Shares
                  Vested
                
                
                Number of
      Shares
                  Unvested
                
                
                Weighted
                  Average
                  Exercise
    Price
                
                
                Weighted
                  Average
                  Remaining
                  Contractual
                  Life
(Years)
                
                
                Number of
      Shares
                  Exercisable
                
                
                Exercisable
                  Shares
                  Weighted
                  Average
                  ExercisePrice$0.0000 to
      $3.1650
                
                
                
                16,469
                
                
                
                295,021
                
                
                $
                2.35
                
                
                
                0.92
                
                
                
                16,469
                
                
                $
                2.35$3.1651 to
      $6.3300
                
                
                
                390,392
                
                
                
                750,000
                
                
                
                4.69
                
                
                
                6.45
                
                
                
                390,392
                
                
                
                4.09$6.3301 to
      $9.4950
                
                
                
                65,600
                
                
                
                1,500
                
                
                
                7.14
                
                
                
                2.35
                
                
                
                65,600
                
                
                
                7.10$9.4951 to
      $12.6600
                
                
                
                522,460
                
                
                
                158,640
                
                
                
                10.54
                
                
                
                3.96
                
                
                
                522,460
                
                
                
                10.57$12.6601 to
      $15.8250
                
                
                
                342,150
                
                
                
                31,900
                
                
                
                14.81
                
                
                
                2.40
                
                
                
                342,150
                
                
                
                14.84$15.8251 to
      $18.9900
                
                
                
                140,100
                
                
                
                9,100
                
                
                
                17.61
                
                
                
                4.58
                
                
                
                140,100
                
                
                
                17.57$18.9901 to
      $22.1550
                
                
                
                307,000
                
                
                
                8,000
                
                
                
                20.02
                
                
                
                2.03
                
                
                
                307,000
                
                
                
                20.01$22.1551 to
      $25.3200
                
                
                
                43,100
                
                
                
                8,900
                
                
                
                23.21
                
                
                
                6.41
                
                
                
                43,100
                
                
                
                23.22$25.3201 to
      $28.4850
                
                
                
                79,700
                
                
                
                11,900
                
                
                
                26.61
                
                
                
                6.45
                
                
                
                79,700
                
                
                
                26.53$28.4851 to
      $31.6500
                
                
                
                133,275
                
                
                
                42,650
                
                
                
                29.94
                
                
                
                6.38
                
                
                
                133,275
                
                
                
                29.772,040,246
                
                
                
                1,317,611
                
                
                $
                10.85
                
                
                
                4.91
                
                
                
                2,040,246
                
                
                $
                13.91




The
weighted average remaining contractual life of outstanding options was 4.91
years at March 31, 2009 and 5.18 years at December 31,
2008.


13




9.
            Commitments
      and Contingencies




All
branch and office locations are leased by us under operating leases expiring at
various dates through the year 2014.




We have
entered into automobile contract securitization agreements with investors
through wholly-owned subsidiaries and trusts in the normal course of business,
which include standard representations and warranties customary to the mortgage
banking industry. Sales to these subsidiaries and trusts are treated as secured
borrowings for consolidated financial statement presentation purposes.
Violations of these representations and warranties may require the Company to
repurchase loans previously sold or to reimburse investors for losses incurred.
In the opinion of management, the potential exposure related to these loan sale
agreements will not have a material effect on the Company’s consolidated
financial position, operating results and cash flows.




We are
involved in various claims or legal actions arising in the normal course of
business. In the opinion of our management, the ultimate disposition of such
matters will not have a material effect on the Company’s consolidated financial
position, cash flows or results of operations.




10.
            Earnings
      per Share





The
following table reconciles the number of shares used in the computations of
basic and diluted earnings per share for the three months ended March 31, 2009
and 2008:





Three Months
      EndedMarch 31,2009
                        
                        
                        2008Weighted average common shares
      outstanding during the period to compute basic earnings per
      share
                        
                        
                        15,750
                        
                        
                        
                        15,737Incremental common shares
      attributable to exercise of outstanding options
                        
                        
                        -
                        
                        
                        
                        38Weighted average number of common
      shares used to compute diluted earnings per share
                        
                        
                        15,750
                        
                        
                        
                        15,775




Diluted earnings per share
excluded 3,800,000 average
shares for the three months ended March 31, 2008, attributable to outstanding
stock options because the exercise prices of the stock options were greater than
or equal to the average price of the common shares, and therefore their
inclusion would have been anti-dilutive. In 2009 due to a net loss for the
quarter ended March 31, 2009, the impact of all outstanding stock options have
been excluded as their inclusion would have been
anti-dilutive.




11.
            Trust
      Preferred Securities




On
July 31, 2003, we issued trust preferred securities of $10.0 million
through a subsidiary UPFC Trust I. The trust issuer is a “100% owned finance
subsidiary” and we “fully and unconditionally” guaranteed the securities. We pay
interest on these funds at a rate equal to the three month LIBOR plus 3.05%
(4.14% as of March 31, 2009), variable quarterly. The final maturity of these
securities is 30 years, however, they can be called at par any time after July
31, 2008 at our discretion.




12.
            Consolidation
      of Variable Interest Entities





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


14




13.
            Fair
      Value Option for Financial Assets and Financial
  Liabilities




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurement. SFAS
No. 157 defines fair value, establishes a framework for measuring fair
value in GAAP and expands disclosures about fair value
measurements.  This Statement establishes a fair value hierarchy about
the assumptions used to measure fair value and clarifies assumptions about risk
and the effect of a restriction on the sale or use of an asset.  The
statement was effective for fiscal years beginning after November 15,
2007.  In February 2008, the FASB issued Staff Position (FSP) 157-2,
Effective Date of FASB
Statement No. 157. (“FSP SFAS No. 140-3”)  This FSP delays the
effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value on a
recurring basis (at least annually) to fiscal years beginning after November 15,
2008, and interim periods within those fiscal years. The impact of adoption of
was not material.   In October 2008, the FASB issued Staff
Position (FSP) 157-3, Determining the Fair Value of a
Financial Asset when the Market for That Asset Is Not
Active.  This FSP clarifies the application of SFAS No. 157 in
a market that is not active.  The impact of adoption was not
material.




In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. The statement provides companies with
an option to report selected financial assets and liabilities at fair value and
establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for
similar types of assets and liabilities.  The statement was effective
for the Company on January 1, 2008.  The Company has not elected the
fair value option for any financial assets or financial
liabilities.




14.
            Restructuring
      Charges





A pretax
restructuring charge of $6.5 million and $1.0 million was recorded for costs
associated with the closure of branches in the first quarter of 2009 and 2008,
respectively, which included involuntary employee terminations and related
costs, fixed asset write-offs, closure and post-closure costs, and lease
termination costs. As of March 31, 2009, there remains a $5.3 million reserve
for estimated closure and post-closure costs and estimated future lease
obligations related to these branch closures.





A summary
of the restructuring reserve, which is included in accrued expenses and other
liabilities on the consolidated statements of financial condition, for
restructuring charges for the three months ended March 31, 2009, is as
follows:





Lease
                    Termination
                    Costs
                  
                  
                  Closure and
                    Post-closure
                    Costs
                  
                  
                  Total(Dollars in
      thousands)Balance at December 31,
      2008
                  
                  $
                  2,134
                  
                  
                  $
                  -
                  
                  
                  $
                  2,134Cash
      settlements
                  
                  
                  (909
                  )
                  
                  
                  (2,388
                  )
                  
                  
                  (3,297
                  )Additions and
      adjustments
                  
                  
                  3,800
                  
                  
                  
                  2,688
                  
                  
                  
                  6,488Balance at March 31,
      2009
                  
                  $
                  5,025
                  
                  
                  $
                  300
                  
                  
                  $
                  5,325





15


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





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





Overview





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





As a
result of the continued disruptions in the capital markets, in the first quarter
of 2008, we began a strategy to downsize our operations and reduce our branch
footprint in order to lower expenses and meet required liquidity needs. We are
continuing to implement this strategy in 2009. During the year ended December
31, 2008, we closed 75 branches.  During the three months ended March
31, 2009, we closed an additional 40 branches bringing the total number of
branches to 27 in operation as of March 31, 2009. The closures of the 40
branches resulted in a decrease in the number of employees of approximately 170,
or 25% of the work force since December 31, 2008.





In
addition, we have suspended new loan originations since the end of the third
quarter of 2008 to allow our outstanding receivables to decline to a level where
our capital base will be able to finance future originations.





As a part
of our corporate restructuring efforts, we have taken steps to streamline and
centralize certain functions that were previously performed in our branches. In
the fourth quarter of 2008 we established a centralized remarketing department
to handle the disposal of repossessed automobiles for our closed branches. We
expect to centralize all collateral remarketing by the end of 2009. In January
2009, we began to receive payments through a third party lock box provider. We
expect to convert all in-branch payment processing to the third party lock box
by the end of 2009. Additionally, in January 2009, we began to use an outside
service provider to verify insurance coverage. Previously this function was
performed within the branches. We expect that the above changes will result in
both reduced cost and increased efficiency.




We have historically used a warehouse
facility to fund our automobile finance operations pending securitization. The
warehouse credit facility converted in 2008 to a TermLoan Facility, which amortizes pursuant
to a pre-determined payment schedule requiring the Company to pay all amounts
owed under the facility by October 16, 2009.
 
 Effective
May 13, 2009, we entered into a binding commitment to sell a certain amount of
Automobile Receivables to a new party at a discount from face
amount.  The aggregate amount of Automobile Receivables to be sold
will be determined pursuant to the terms of the final Transaction documents by
May 26, 2009. We expect to pay off and terminate the Term Loan Facility with the
proceeds from the Transaction.  There is no assurance that we will be
able to meet the closing conditions or that all conditions will be met for the
Transaction to close. For more information about the financing transaction, see
“Note 2. Liquidity and Capital Resources” to our notes to consolidated financial
statements in this quarterly report on Form 10-Q.
 
 Management
is also currently evaluating the timing of new loan originations, which will
depend on the amount of working capital available upon closing of the
Transaction as well as conditions in the capital markets and credit markets in
general.  At this time, we anticipate that we will resume new loan
originations in 2009, but there is no assurance that we will be able to arrange
for and access the alternative sources of financing and there is also no
assurance that the business, once resumed, will function similar as it has in
the past.


Critical
Accounting Policies




We have
established various accounting policies, which govern the application of
accounting principles generally accepted in the United States of America, or
GAAP, in the preparation of our consolidated financial statements. Our
accounting policies are integral to understanding the results
reported.  For a further discussion of our accounting policies, see
“Note 3. Summary of Significant Accounting Policies” to our notes to
consolidated financial statements in our 2008 Annual Report on Form
10-K.


16




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





Securitization
Transactions




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




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




Allowance
for Loan Losses




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




The
allowance for credit losses is established through provision for loan losses
recorded as necessary to provide for estimated loan losses in the next 12 months
at each reporting date. We account for such loans by static pool, stratified
into three-month buckets based upon the period of origination. The credit risk
in each individual static pool is evaluated independently in order to estimate
the future losses within each pool. We evaluate the adequacy of the allowance by
examining current delinquencies, the characteristics of the portfolio,
prospective liquidation values of the underlying collateral and general economic
and market conditions. As circumstances change, our level of provisioning and/or
allowance may change as well. Any such adjustment is recorded in the current
period as the assessment is made.




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




Share-Based
Compensation




On
January 1, 2006, we adopted SFAS No. 123(R), Share-Based Payment, which
requires that the compensation cost relating to share-based payment transactions
(including the cost of all employee stock options) be recognized in the
financial statements. That cost will be measured based on the estimated fair
value of the equity or liability instruments issued. SFAS No. 123(R) covers
a wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. SFAS No. 123(R) replaces SFAS No. 123,
Accounting for Stock-Based
Compensation, and supersedes Accounting Principles Board Opinion (“APB
Opinion”) No. 25, Accounting for Stock Issued to
Employees.In March 2005, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 107 (“SAB No. 107”) relating to SFAS
No. 123(R).




17


We
adopted SFAS No. 123(R) using the modified prospective transition method,
which requires the application of the accounting standard as of January 1,
2006, the first day of our 2006 fiscal year. Our Consolidated Financial
Statements as of and for the three months ended March 31, 2009 and 2008 reflect
the impact of SFAS No. 123(R). In accordance with the modified prospective
transition method, our Consolidated Financial Statements for prior periods have
not been restated to reflect, and do not include, the impact of SFAS
No. 123(R). Stock-based compensation expense recognized under SFAS
No. 123(R) was $245,000 and $328,000 for the three months ended March 31,
2009 and 2008, respectively.




Lending
Activities




Summary
of Loan Portfolio




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




March 31,
    2009
                  
                  
                  December 31,
      2008(Dollars in
      Thousands)Automobile
      Contracts
                  
                  $
                  632,880
                  
                  
                  $
                  740,292Unearned finance charges
      (1)
                  
                  
                  (409
                  )
                  
                  
                  (564
                  )Unearned acquisition discounts
      (1)
                  
                  
                  (23,453
                  )
                  
                  
                  (29,477
                  )Allowance for loan losses
      (1)
                  
                  
                  (37,675
                  )
                  
                  
                  (43,220
                  )Total loans,
      net
                  
                  $
                  571,343
                  
                  
                  $
                  667,031


____________________


(1)           See
“—Critical Accounting Policies”





Allowance
for Loan Losses





Our
policy is to maintain an allowance for loan losses to absorb inherent losses,
which may be realized on our portfolio. These allowances are general valuation
allowances for estimates for probable losses not specifically identified that
will occur in the next twelve months. The total allowance for loan losses was
$37.7 million at March 31, 2009 compared with $43.2 million at
December 31, 2008, representing 6.19% of loans at March 31, 2009 and 6.09%
at December 31, 2008.





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





At or For the Three Months
      Ended
                
                
                At or For the
      Twelve
                  Months
EndedMarch 31,
    2009
                
                
                March 31,
    2008
                
                
                December 31,
      2008(Dollars in
      Thousands)Allowance for Loan
      LossesBalance at beginning of
      period
                
                $
                43,220
                
                
                $
                48,386
                
                
                $
                48,386Provision for loan losses
      (1)
                
                
                14,255
                
                
                
                17,642
                
                
                
                64,994Net
    charge-offs
                
                
                (19,800
                )
                
                
                (16,476
                )
                
                
                (70,160
                )Balance at end of
      period
                
                $
                37,675
                
                
                $
                49,552
                
                
                $
                43,220Annualized net charge-offs to
      average loans
                
                11.70%
                
                
                7.14%
                
                
                8.01%Ending allowance to period end
      loans
                
                6.19%
                
                
                5.57%
                
                
                6.09%





____________________


(1)
            See
      “—Critical Accounting Policies”





Past
Due and Nonaccrual Loans





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


18







March 31,
    2009
                  December 31,
      2008
                  March 31,
    2008(Dollars in
      Thousands)Loan
      Delinquencies
                  
                  Balance
                  
                  %of Total
                    Loans
                  Balance
                  
                  %of Total
                    Loans
                  Balance
                  
                  %of Total
                    Loans30 to 59
    days
                  
                  $
                  9,342
                  
                  1.48%
                  
                  $
                  11,215
                  
                  1.52%
                  
                  $
                  5,311
                  
                  0.57%60 to 89
    days
                  
                  
                  1,818
                  
                  0.29%
                  
                  
                  2,888
                  
                  0.39%
                  
                  
                  1,734
                  
                  0.19%90+ days
                  
                  
                  1,123
                  
                  0.17%
                  
                  
                  1,407
                  
                  0.19%
                  
                  
                  1,156
                  
                  0.12%Total
                  
                  $
                  12,283
                  
                  1.94%
                  
                  $
                  15,510
                  
                  2.10%
                  
                  $
                  8,201
                  
                  0.88%








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





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





March 31, 2009
                  
                  
                  December 31, 2008
                  
                  
                  March 31, 2008(Dollars
      in Thousands)Nonaccrual
      loans
                  
                  $
                  20,376
                  
                  
                  $
                  27,686
                  
                  
                  $
                  16,554Nonaccrual
      loans to gross loans
                  
                  3.22%
                  
                  
                  3.74%
                  
                  
                  1.78%Allowance
      for loan losses to gross loans, net of unearned acquisition
      discounts
                  
                  6.19%
                  
                  
                  6.09%
                  
                  
                  5.57%





Cumulative
Losses for Contract Pools





The
following table reflects our cumulative losses (i.e., net charge-offs as a
percent of original net contract balances) for contract pools (defined as the
total dollar amount of net contracts purchased in a three-month period)
purchased from April 2004 through September 2008.




Number
      of
                                                                                                            
                                                                                                            
                                                                                                            Apr-04
                                                                                                            
                                                                                                            
                                                                                                            Jul-04
                                                                                                            
                                                                                                            
                                                                                                            Oct-04
                                                                                                            
                                                                                                            
                                                                                                            Jan-05
                                                                                                            
                                                                                                            
                                                                                                            Apr-05
                                                                                                            
                                                                                                            
                                                                                                            Jul-05
                                                                                                            
                                                                                                            
                                                                                                            Oct-05
                                                                                                            
                                                                                                            
                                                                                                            Jan-06
                                                                                                            
                                                                                                            
                                                                                                            Apr-06
                                                                                                            
                                                                                                            
                                                                                                            Jul-06
                                                                                                            
                                                                                                            
                                                                                                            Oct-06
                                                                                                            
                                                                                                            
                                                                                                            Jan-07
                                                                                                            
                                                                                                            
                                                                                                            Apr-07
                                                                                                            
                                                                                                            
                                                                                                            Jul-07
                                                                                                            
                                                                                                            
                                                                                                            Oct-07
                                                                                                            
                                                                                                            
                                                                                                            Jan-08
                                                                                                            
                                                                                                            
                                                                                                            Apr-08
                                                                                                            
                                                                                                            
                                                                                                            Jul-08Months
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –
                                                                                                            
                                                                                                            
                                                                                                            –Outstanding
                                                                                                            
                                                                                                            
                                                                                                            Jun-04
                                                                                                            
                                                                                                            
                                                                                                            Sep-04
                                                                                                            
                                                                                                            
                                                                                                            Dec-04
                                                                                                            
                                                                                                            
                                                                                                            Mar-05
                                                                                                            
                                                                                                            
                                                                                                            Jun-05
                                                                                                            
                                                                                                            
                                                                                                            Sep-05
                                                                                                            
                                                                                                            
                                                                                                            Dec-05
                                                                                                            
                                                                                                            
                                                                                                            Mar-06
                                                                                                            
                                                                                                            
                                                                                                            Jun-06
                                                                                                            
                                                                                                            
                                                                                                            Sep-06
                                                                                                            
                                                                                                            
                                                                                                            Dec-06
                                                                                                            
                                                                                                            
                                                                                                            Mar-07
                                                                                                            
                                                                                                            
                                                                                                            Jun-07
                                                                                                            
                                                                                                            
                                                                                                            Sep-07
                                                                                                            
                                                                                                            
                                                                                                            Dec-07
                                                                                                            
                                                                                                            
                                                                                                            Mar-08
                                                                                                            
                                                                                                            
                                                                                                            Jun-08
                                                                                                            
                                                                                                            
                                                                                                            Sep-081
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%
                                                                                                            
                                                                                                            
                                                                                                            0.00%4
                                                                                                            
                                                                                                            
                                                                                                            0.04%
                                                                                                            
                                                                                                            
                                                                                                            0.08%
                                                                                                            
                                                                                                            
                                                                                                            0.05%
                                                                                                            
                                                                                                            
                                                                                                            0.03%
                                                                                                            
                                                                                                            
                                                                                                            0.06%
                                                                                                            
                                                                                                            
                                                                                                            0.12%
                                                                                                            
                                                                                                            
                                                                                                            0.05%
                                                                                                            
                                                                                                            
                                                                                                            0.02%
                                                                                                            
                                                                                                            
                                                                                                            0.06%
                                                                                                            
                                                                                                            
                                                                                                            0.09%
                                                                                                            
                                                                                                            
                                                                                                            0.10%
                                                                                                            
                                                                                                            
                                                                                                            0.05%
                                                                                                            
                                                                                                            
                                                                                                            0.08%
                                                                                                            
                                                                                                            
                                                                                                            0.08%
                                                                                                            
                                                                                                            
                                                                                                            0.10%
                                                                                                            
                                                                                                            
                                                                                                            0.04%
                                                                                                            
                                                                                                            
                                                                                                            0.05%
                                                                                                            
                                                                                                            
                                                                                                            0.11%7
                                                                                                            
                                                                                                            
                                                                                                            0.45%
                                                                                                            
                                                                                                            
                                                                                                            0.65%
                                                                                                            
                                                                                                            
                                                                                                            0.49%
                                                                                                            
                                                                                                            
                                                                                                            0.40%
                                                                                                            
                                                                                                            
                                                                                                            0.64%
                                                                                                            
                                                                                                            
                                                                                                            0.59%
                                                                                                            
                                                                                                            
                                                                                                            0.47%
                                                                                                            
                                                                                                            
                                                                                                            0.40%
                                                                                                            
                                                                                                            
                                                                                                            0.62%
                                                                                                            
                                                                                                            
                                                                                                            0.88%
                                                                                                            
                                                                                                            
                                                                                                            0.64%
                                                                                                            
                                                                                                            
                                                                                                            0.54%
                                                                                                            
                                                                                                            
                                                                                                            0.84%
                                                                                                            
                                                                                                            
                                                                                                            0.82%
                                                                                                            
                                                                                                            
                                                                                                            0.63%
                                                                                                            
                                                                                                            
                                                                                                            0.50%
                                                                                                            
                                                                                                            
                                                                                                            0.51%
                                                                                                            
                                                                                                            
                                                                                                            0.76%10
                                                                                                            
                                                                                                            
                                                                                                            1.33%
                                                                                                            
                                                                                                            
                                                                                                            1.29%
                                                                                                            
                                                                                                            
                                                                                                            1.19%
                                                                                                            
                                                                                                            
                                                                                                            1.35%
                                                                                                            
                                                                                                            
                                                                                                            1.63%
                                                                                                            
                                                                                                            
                                                                                                            1.36%
                                                                                                            
                                                                                                            
                                                                                                            1.28%
                                                                                                            
                                                                                                            
                                                                                                            1.61%
                                                                                                            
                                                                                                            
                                                                                                            2.00%
                                                                                                            
                                                                                                            
                                                                                                            1.85%
                                                                                                            
                                                                                                            
                                                                                                            1.73%
                                                                                                            
                                                                                                            
                                                                                                            1.77%
                                                                                                            
                                                                                                            
                                                                                                            2.28%
                                                                                                            
                                                                                                            
                                                                                                            1.90%
                                                                                                            
                                                                                                            
                                                                                                            1.82%
                                                                                                            
                                                                                                            
                                                                                                            1.56%
                                                                                                            
                                                                                                            
                                                                                                            1.31%13
                                                                                                            
                                                                                                            
                                                                                                            2.13%
                                                                                                            
                                                                                                            
                                                                                                            2.21%
                                                                                                            
                                                                                                            
                                                                                                            2.41%
                                                                                                            
                                                                                                            
                                                                                                            2.48%
                                                                                                            
                                                                                                            
                                                                                                            2.57%
                                                                                                            
                                                                                                            
                                                                                                            2.37%
                                                                                                            
                                                                                                            
                                                                                                            2.71%
                                                                                                            
                                                                                                            
                                                                                                            2.96%
                                                                                                            
                                                                                                            
                                                                                                            3.14%
                                                                                                            
                                                                                                            
                                                                                                            3.23%
                                                                                                            
                                                                                                            
                                                                                                            3.09%
                                                                                                            
                                                                                                            
                                                                                                            3.29%
                                                                                                            
                                                                                                            
                                                                                                            3.51%
                                                                                                            
                                                                                                            
                                                                                                            3.30%
                                                                                                            
                                                                                                            
                                                                                                            3.65%
                                                                                                            
                                                                                                            
                                                                                                            2.92%16
                                                                                                            
                                                                                                            
                                                                                                            2.88%
                                                                                                            
                                                                                                            
                                                                                                            3.12%
                                                                                                            
                                                                                                            
                                                                                                            3.56%
                                                                                                            
                                                                                                            
                                                                                                            3.32%
                                                                                                            
                                                                                                            
                                                                                                            3.47%
                                                                                                            
                                                                                                            
                                                                                                            3.56%
                                                                                                            
                                                                                                            
                                                                                                            4.07%
                                                                                                            
                                                                                                            
                                                                                                            3.90%
                                                                                                            
                                                                                                            
                                                                                                            4.35%
                                                                                                            
                                                                                                            
                                                                                                            4.95%
                                                                                                            
                                                                                                            
                                                                                                            4.87%
                                                                                                            
                                                                                                            
                                                                                                            4.54%
                                                                                                            
                                                                                                            
                                                                                                            4.90%
                                                                                                            
                                                                                                            
                                                                                                            5.14%
                                                                                                            
                                                                                                            
                                                                                                            5.57%19
                                                                                                            
                                                                                                            
                                                                                                            3.87%
                                                                                                            
                                                                                                            
                                                                                                            4.20%
                                                                                                            
                                                                                                            
                                                                                                            4.44%
                                                                                                            
                                                                                                            
                                                                                                            4.21%
                                                                                                            
                                                                                                            
                                                                                                            4.71%
                                                                                                            
                                                                                                            
                                                                                                            4.85%
                                                                                                            
                                                                                                            
                                                                                                            5.01%
                                                                                                            
                                                                                                            
                                                                                                            5.03%
                                                                                                            
                                                                                                            
                                                                                                            5.92%
                                                                                                            
                                                                                                            
                                                                                                            6.74%
                                                                                                            
                                                                                                            
                                                                                                            6.23%
                                                                                                            
                                                                                                            
                                                                                                            5.89%
                                                                                                            
                                                                                                            
                                                                                                            6.70%
                                                                                                            
                                                                                                            
                                                                                                            6.73%22
                                                                                                            
                                                                                                            
                                                                                                            4.78%
                                                                                                            
                                                                                                            
                                                                                                            4.95%
                                                                                                            
                                                                                                            
                                                                                                            5.17%
                                                                                                            
                                                                                                            
                                                                                                            5.50%
                                                                                                            
                                                                                                            
                                                                                                            5.95%
                                                                                                            
                                                                                                            
                                                                                                            5.76%
                                                                                                            
                                                                                                            
                                                                                                            5.96%
                                                                                                            
                                                                                                            
                                                                                                            6.42%
                                                                                                            
                                                                                                            
                                                                                                            7.42%
                                                                                                            
                                                                                                            
                                                                                                            7.98%
                                                                                                            
                                                                                                            
                                                                                                            7.53%
                                                                                                            
                                                                                                            
                                                                                                            7.53%
                                                                                                            
                                                                                                            
                                                                                                            8.22%25
                                                                                                            
                                                                                                            
                                                                                                            5.35%
                                                                                                            
                                                                                                            
                                                                                                            5.56%
                                                                                                            
                                                                                                            
                                                                                                            6.12%
                                                                                                            
                                                                                                            
                                                                                                            6.56%
                                                                                                            
                                                                                                            
                                                                                                            6.69%
                                                                                                            
                                                                                                            
                                                                                                            6.69%
                                                                                                            
                                                                                                            
                                                                                                            7.06%
                                                                                                            
                                                                                                            
                                                                                                            7.66%
                                                                                                            
                                                                                                            
                                                                                                            8.59%
                                                                                                            
                                                                                                            
                                                                                                            9.07%
                                                                                                            
                                                                                                            
                                                                                                            9.09%
                                                                                                            
                                                                                                            
                                                                                                            8.90%28
                                                                                                            
                                                                                                            
                                                                                                            5.96%
                                                                                                            
                                                                                                            
                                                                                                            6.31%
                                                                                                            
                                                                                                            
                                                                                                            7.02%
                                                                                                            
                                                                                                            
                                                                                                            7.23%
                                                                                                            
                                                                                                            
                                                                                                            7.42%
                                                                                                            
                                                                                                            
                                                                                                            7.67%
                                                                                                            
                                                                                                            
                                                                                                            8.09%
                                                                                                            
                                                                                                            
                                                                                                            8.57%
                                                                                                            
                                                                                                            
                                                                                                            9.66%
                                                                                                            
                                                                                                            
                                                                                                            10.57%
                                                                                                            
                                                                                                            
                                                                                                            10.25%31
                                                                                                            
                                                                                                            
                                                                                                            6.62%
                                                                                                            
                                                                                                            
                                                                                                            7.05%
                                                                                                            
                                                                                                            
                                                                                                            7.66%
                                                                                                            
                                                                                                            
                                                                                                            7.86%
                                                                                                            
                                                                                                            
                                                                                                            8.24%
                                                                                                            
                                                                                                            
                                                                                                            8.62%
                                                                                                            
                                                                                                            
                                                                                                            8.78%
                                                                                                            
                                                                                                            
                                                                                                            9.41%
                                                                                                            
                                                                                                            
                                                                                                            10.78%
                                                                                                            
                                                                                                            
                                                                                                            11.60%34
                                                                                                            
                                                                                                            
                                                                                                            7.20%
                                                                                                            
                                                                                                            
                                                                                                            7.47%
                                                                                                            
                                                                                                            
                                                                                                            8.24%
                                                                                                            
                                                                                                            
                                                                                                            8.52%
                                                                                                            
                                                                                                            
                                                                                                            9.05%
                                                                                                            
                                                                                                            
                                                                                                            9.25%
                                                                                                            
                                                                                                            
                                                                                                            9.46%
                                                                                                            
                                                                                                            
                                                                                                            10.35%
                                                                                                            
                                                                                                            
                                                                                                            11.62%37
                                                                                                            
                                                                                                            
                                                                                                            7.53%
                                                                                                            
                                                                                                            
                                                                                                            7.81%
                                                                                                            
                                                                                                            
                                                                                                            8.73%
                                                                                                            
                                                                                                            
                                                                                                            9.11%
                                                                                                            
                                                                                                            
                                                                                                            9.54%
                                                                                                            
                                                                                                            
                                                                                                            9.69%
                                                                                                            
                                                                                                            
                                                                                                            10.20%
                                                                                                            
                                                                                                            
                                                                                                            11.11%40
                                                                                                            
                                                                                                            
                                                                                                            7.83%
                                                                                                            
                                                                                                            
                                                                                                            8.21%
                                                                                                            
                                                                                                            
                                                                                                            9.12%
                                                                                                            
                                                                                                            
                                                                                                            9.43%
                                                                                                            
                                                                                                            
                                                                                                            9.91%
                                                                                                            
                                                                                                            
                                                                                                            10.31%
                                                                                                            
                                                                                                            
                                                                                                            10.79%43
                                                                                                            
                                                                                                            
                                                                                                            8.12%
                                                                                                            
                                                                                                            
                                                                                                            8.47%
                                                                                                            
                                                                                                            
                                                                                                            9.34%
                                                                                                            
                                                                                                            
                                                                                                            9.70%
                                                                                                            
                                                                                                            
                                                                                                            10.29%
                                                                                                            
                                                                                                            
                                                                                                            10.75%46
                                                                                                            
                                                                                                            
                                                                                                            8.33%
                                                                                                            
                                                                                                            
                                                                                                            8.63%
                                                                                                            
                                                                                                            
                                                                                                            9.59%
                                                                                                            
                                                                                                            
                                                                                                            10.11%
                                                                                                            
                                                                                                            
                                                                                                            10.56%49
                                                                                                            
                                                                                                            
                                                                                                            8.43%
                                                                                                            
                                                                                                            
                                                                                                            8.82%
                                                                                                            
                                                                                                            
                                                                                                            9.73%
                                                                                                            
                                                                                                            
                                                                                                            10.30%52
                                                                                                            
                                                                                                            
                                                                                                            8.49%
                                                                                                            
                                                                                                            
                                                                                                            8.93%
                                                                                                            
                                                                                                            
                                                                                                            9.92%55
                                                                                                            
                                                                                                            
                                                                                                            8.56%
                                                                                                            
                                                                                                            
                                                                                                            9.05%58
                                                                                                            
                                                                                                            
                                                                                                            8.60%Original
      Pool$(000)
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            91,134
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            89,688
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            86,697
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            118,869
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            120,477
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            112,452
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            101,439
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            142,802
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            143,954
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            136,086
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            113,697
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            163,976
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            162,726
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            144,437
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            89,185
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            120,051
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            92,031
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            36,419Remaining
      Pool$(000)
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            1,122
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            1,929
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            2,960
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            6,357
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            8,623
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            10,416
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            12,911
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            24,656
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            30,794
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            35,551
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            35,993
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            64,912
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            73,954
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            77,708
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            52,935
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            86,182
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            73,414
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            31,086Remaining Pool
      (%)
                                                                                                            
                                                                                                            
                                                                                                            1.23%
                                                                                                            
                                                                                                            
                                                                                                            2.15%
                                                                                                            
                                                                                                            
                                                                                                            3.41%
                                                                                                            
                                                                                                            
                                                                                                            5.35%
                                                                                                            
                                                                                                            
                                                                                                            7.16%
                                                                                                            
                                                                                                            
                                                                                                            9.26%
                                                                                                            
                                                                                                            
                                                                                                            12.73%
                                                                                                            
                                                                                                            
                                                                                                            17.27%
                                                                                                            
                                                                                                            
                                                                                                            21.39%
                                                                                                            
                                                                                                            
                                                                                                            26.12%
                                                                                                            
                                                                                                            
                                                                                                            31.66%
                                                                                                            
                                                                                                            
                                                                                                            39.59%
                                                                                                            
                                                                                                            
                                                                                                            45.45%
                                                                                                            
                                                                                                            
                                                                                                            53.80%
                                                                                                            
                                                                                                            
                                                                                                            59.35%
                                                                                                            
                                                                                                            
                                                                                                            71.79%
                                                                                                            
                                                                                                            
                                                                                                            79.77%
                                                                                                            
                                                                                                            
                                                                                                            85.36%





19


Loan
Maturities




The
following table sets forth the dollar amount of automobile contracts maturing in
our automobile contracts portfolio at March 31, 2009 based on final maturity.
Automobile contract balances are reflected before unearned acquisition discounts
and allowance for loan losses.




One
                Year or
                Less
              
              
              More Than
                1 Year to
                3 Years
              
              
              More Than
                3 Years to
                5 Years
              
              
              More Than
                5 Years to
                10 Years
              
              
              Total
                Loans(Dollars
      in thousands)Total
      loans
              
              $
              32,669
              
              
              $
              332,442
              
              
              $
              241,983
              
              
              $
              25,377
              
              
              $
              632,471





All loans
are fixed rate loans.




Liquidity
and Capital Resources




General




We
require substantial cash and capital resources to operate our business. Our
primary funding sources in the past have been a warehouse credit line (which has
since converted to a Term Loan Facility), securitizations and retained
earnings.  However, as discussed in more detail below, due to the
termination of our warehouse credit line and increasing challenges in the credit
markets, we have been and are continuing to evaluate alternative sources of
financing. Management believes that based on current operations, we will have
sufficient cash flow and capital resources to meet our operational
obligations through October 16, 2009, the due date of the Term Loan Facility,
but that there will be insufficient cash to liquidate the Term Loan
Facility at that
time.
  Effective
May 13, 2009, we entered into a binding commitment to sell a certain amount of
Automobile Receivables  to a new party at a discount from face
amount.  The aggregate amount of Automobile Receivables to be sold
will be determined pursuant to the terms of the final Transaction documents by
May 26, 2009. We expect to pay off and terminate the Term Loan Facility with the
proceeds from the Transaction.  There is no assurance that we will be
able to meet the closing conditions or that all conditions will be met for the
Transaction to close. For more information about the financing transaction, see
“Note 2. Liquidity and Capital Resources” to our notes to consolidated financial
statements in this quarterly report on Form 10-Q.
  Upon
successful completion of the Transaction as described in “Note 2. Liquidity and
Capital Resources,” management believes that the resources available to us will
provide the needed cash flow to meet our operational obligations for the next
twelve months.
  Our
primary uses of cash included:
  •
interest expense;
  •
operating expenses; and
  •
acquisition of automobile contracts
  The
capital resources currently available to us include:
  •
interest income and principal collections on automobile contracts;
  •
servicing fees that we earn under our securitizations;
  •
releases of excess cash from the spread accounts relating to the
securitizations; and
  •
existing liquidity
  Recent
Market Developments




A number
of factors have adversely impacted our liquidity in 2008 and the first quarter
of 2009, and we anticipate these factors will continue to adversely impact our
liquidity through 2009. The disruptions in the capital markets and credit
markets and, to a lesser extent, the credit deterioration we are experiencing in
our portfolio, are limiting our ability to access alternative sources of
financing. We may also realize decreased cash distributions from our debt
facilities due to weaker credit performance and higher borrowing
costs.




The
asset-backed securities market, along with credit markets in general, has been
experiencing unprecedented disruptions. Market conditions began deteriorating in
mid-2007, remained impaired in 2008 and have continued to experience disruptions
in 2009. Further, the prime quality automobile securitizations that were
executed in 2008 utilized senior-subordinated structures and sold only the
highest rated securities. In addition, the financial guaranty insurance
providers used by us in the past are facing financial stress and rating agency
downgrades. As a result, demand for asset-backed securities backed by a
financial guarantee insurance policy has substantially weakened and there have
been a limited number of public issuances of insured automobile asset-backed
securities in 2008. We have not accessed the securitization market with a
transaction since November 2007 and do not anticipate accessing the
securitization market during 2009.


20


Current conditions in the asset-backed
securities market include reduced liquidity, increased risk premiums for
issuers, reduced investor demand for asset-backed securities, particularly those
securities backed by non-prime collateral, financial stress and rating agency
downgrades impacting the financial guaranty insurance providers, and a general
tightening of availability of credit. These conditions, which have already
increased our cost of funding and reduced our access to the asset-backed
securities market and other types of receivable financings, may continue or
worsen in the future.  Due to the current conditions in the
asset-backed securities market, along with credit markets in general, the
execution of securitization transactions is more challenging and expensive and
access to alternative sources of financing has also become more limited and, as
a result, we are analyzing our liquidity strategies going forward. It is
difficult to predict if or when securitization markets will return to historical
capacity and pricing levels. On November 25, 2008, the Federal Reserve Board
announced the introduction of the Term Asset-Backed Securities Loan Facility
(the “TALF”) in an effort to facilitate the issuance of asset-backed securities
and improve the market conditions for asset-backed securities. It is currently
anticipated that the facility will lend up to $200 billion of loans (although
that amount may be increased to up to $1 trillion) on a non-recourse basis to
holders of AAA-rated asset backed securities, fully secured by newly or recently
originated consumer loans, such as auto loans.  It is anticipated that
the facility will cease making loans on December 31, 2009, unless that date is
extended. It is unclear at this time what impact the TALF program will have on
returning the securitization market to historical capacity and pricing
levels.We are currently
evaluating the TALF program.  Additionally, we are pursuing and
evaluating alternative sources of financing and are also considering selling
receivables on a whole-loan basis.  At this time, there is no
assurance that we will be able to arrange for other types of interim financing
or be able to sell receivables on a whole-loan basis in the
future.  For a more complete description of the financing risks that
we face, see Item 1A. “Risk Factors” inour2008Annual Report on Form
10-K.




Securitizations




Our
securitizations are structured as on-balance-sheet transactions and recorded as
secured financings because they do not meet the accounting criteria for sale of
finance receivables under SFAS No. 140. Since 2004, regular contract
securitizations had been an integral part of our business plan in order to
increase our liquidity and reduce risks associated with interest rate
fluctuations. We had developed a securitization program that involves selling
interests in pools of our automobile contracts to investors through the public
issuance of AAA/Aaa rated asset-backed securities. We retain the servicing
rights for the loans which have been securitized.  Upon the issuance
of securitization notes payable, we retain the right to receive over time excess
cash flows from the underlying pool of securitized automobile
contracts.




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




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




Our
financial guaranty insurance providers are not required to insure our future
securitizations, and there can be no assurance that they will continue to do
so.  In addition, as discussed above, the financial guaranty insurance
providers used by us in the past are facing financial stress and rating agency
downgrades. As a result, demand for asset-backed securities backed by a
financial guarantee insurance policy has substantially weakened.  A
downgrading of any of our financial guaranty insurance providers’ credit ratings
or the inability to structure alternative credit enhancements, such as senior
subordinated transactions, for our securitization program could result in higher
interest costs for our future securitizations and larger initial and/or target
credit enhancement requirements.  The absence of a financial guaranty
insurance policy may also impair the marketability of our
securitizations.


21


The
following table lists each of our securitizations and its remaining balance as
of March 31, 2009.




(Dollars
in thousands)







Issue
                                                                          Number
                                                                        
                                                                        Issuance
    Date
                                                                        
                                                                        Original
                                                                          Balance
                                                                        
                                                                        Current
                                                                          Balance
                                                                          Class A-1
                                                                        
                                                                        Interest
                                                                          Rate
                                                                        
                                                                        Current
                                                                          Balance
                                                                          Class A-2
                                                                        
                                                                        Interest
                                                                          Rate
                                                                        
                                                                        Current
                                                                          Balance
                                                                          Class A-3
                                                                        
                                                                        Interest
                                                                          Rate
                                                                        
                                                                        Total
                                                                          Current
                                                                          Balance
                                                                        
                                                                        Current
                                                                          Receivables
                                                                          Pledged
                                                                        
                                                                        Surety
                                                                          Costs (1)
                                                                        
                                                                        Back-up
                                                                          Servicing
                                                                          Fees2005A
                                                                        
                                                                        April 14,
    2005
                                                                        
                                                                        
                                                                        195,000
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        3.12%
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        3.85%
                                                                        
                                                                        
                                                                        6,742
                                                                        
                                                                        4.34%
                                                                        
                                                                        
                                                                        6,742
                                                                        
                                                                        
                                                                        6,994
                                                                        
                                                                        0.43%
                                                                        
                                                                        0.04%2005B
                                                                        
                                                                        November 10,
    2005
                                                                        
                                                                        
                                                                        225,000
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        4.28%
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        4.82%
                                                                        
                                                                        
                                                                        18,451
                                                                        
                                                                        4.98%
                                                                        
                                                                        
                                                                        18,451
                                                                        
                                                                        
                                                                        20,337
                                                                        
                                                                        0.41%
                                                                        
                                                                        0.04%2006A
                                                                        
                                                                        June 15,
2006
                                                                        
                                                                        
                                                                        242,000
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        5.27%
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        5.46%
                                                                        
                                                                        
                                                                        39,639
                                                                        
                                                                        5.49%
                                                                        
                                                                        
                                                                        39,639
                                                                        
                                                                        
                                                                        42,910
                                                                        
                                                                        0.39%
                                                                        
                                                                        0.04%2006B
                                                                        
                                                                        December 14,
      2006
                                                                        
                                                                        
                                                                        250,000
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        5.34%
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        5.15%
                                                                        
                                                                        
                                                                        63,392
                                                                        
                                                                        5.01%
                                                                        
                                                                        
                                                                        63,391
                                                                        
                                                                        
                                                                        69,566
                                                                        
                                                                        0.38%
                                                                        
                                                                        0.04%2007A
                                                                        
                                                                        June 14,
    2007
                                                                        
                                                                        
                                                                        250,000
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        5.33%
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        5.46%
                                                                        
                                                                        
                                                                        97,323
                                                                        
                                                                        5.53%
                                                                        
                                                                        
                                                                        97,323
                                                                        
                                                                        
                                                                        107,664
                                                                        
                                                                        0.37%
                                                                        
                                                                        0.03%2007B
                                                                        
                                                                        November 8,
    2007
                                                                        
                                                                        
                                                                        250,000
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        4.99%
                                                                        
                                                                        
                                                                        23,352
                                                                        
                                                                        5.75%
                                                                        
                                                                        
                                                                        99,000
                                                                        
                                                                        6.15%
                                                                        
                                                                        
                                                                        122,352
                                                                        
                                                                        
                                                                        135,744
                                                                        
                                                                        0.45%
                                                                        
                                                                        0.04%$
                                                                        1,412,000
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        $
                                                                        347,898
                                                                        
                                                                        $
                                                                        383,215


__________________________


(1)  Related
to premiums on financial guaranty insurance policies.





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





As of
March 31, 2009 we were in compliance with all terms of the financial covenants
related to our securitization transactions.  However, there are two
non-financial covenant violations under the various financial guaranty insurance
policies for the securitizations for which we are seeking permanent
waivers.  Since August 2008, we have obtained temporary waivers from
the insurance providers that insure our outstanding securitizations regarding
the approval of the appointment of Mr. James Vagim as our chief executive
officer and have also obtained temporary waivers regarding a covenant that we
maintain a warehouse facility.  We are continuing discussions with the
insurance providers to obtain permanent waivers, but there is no assurance we
will obtain such waivers. If we are unable to obtain permanent waivers or
continued temporary waivers for both these items, then each insurance provider
may elect to enforce the various rights and remedies that are governed by the
different transaction documents for each securitization such as terminating our
servicing rights. In addition, our breach of any covenant under the Term Loan
Facility will result in a corresponding breach under our current agreement with
the insurance providers.





Term
Loan Facility


On August
22, 2008, we restructured our $300 million warehouse facility, which we had
historically used to fund our automobile finance operations to purchase
automobile contracts pending securitization. As part of the restructuring, which
effectively extinguished the existing warehouse facility, the Company incurred a
fee payable in the amount of $7.3 million. The fee has been recorded as part of
non-recurring charges during the year ended December 31, 2008. The restructuring
continued the revolving nature of the warehouse facility through its previously
scheduled maturity of October 16, 2008. Subsequently, the credit facility
converted to a Term Loan Facility for an additional one-year term, which
amortizes pursuant to a pre-determined schedule, payable monthly with any
remaining balance due October 16, 2009.  As a result, the Company is
unable to access further advances under the Term Loan Facility.  Prior
to being restructured, the warehouse facility included a requirement that the
Company access the securitization market and reduce amounts owed under the
warehouse facility within certain specified time periods. The August 22, 2008
restructuring removes this securitization requirement. By entering into the
August 22, 2008 restructuring and the Term Loan Facility, the warehouse facility
lenders also approved the July 25, 2008 appointment of James Vagim as our chief
executive officer.
  Effective
May 13, 2009, we entered into a binding commitment to sell a certain amount of
Automobile Receivables  to a new party at a discount from face
amount.  The aggregate amount of Automobile Receivables to be sold
will be determined pursuant to the terms of the final Transaction documents by
May 26, 2009. We expect to pay off and terminate the Term Loan Facility with the
proceeds from the Transaction. For more information about the financing
transaction, see “Note 2. Liquidity and Capital Resources” to our notes to
consolidated financial statements in this quarterly report on Form
10-Q.
  22




Under the previous terms of the warehouse facility,
our indirect subsidiary, UFC had obtained advances on a revolving basis by
issuing notes to the participating lenders and pledging for each advance a
portfolio of automobile contracts.  UFC purchased the automobilecontracts from UACC and UACC services the
automobile contracts, which are held by a custodian.  UPFC provides an
absolute and unconditional and irrevocable guaranty of the full and punctual
payment and performance of certain liabilities, agreements and other obligations of UACC and UABO in
connection with the Term Loan Facility.  Although the lenders have
expressed their intention that UACC continue to service the automobile contracts
pledged to the Term Loan Facility through UACC’s decentralized branches,the Term Loan Facility, as amended,
provides that UACC will act as servicer on a month-to-month basis for the
automobile contracts pledged to the Term Loan
Facility.  UACC’s servicing rights automatically expire
each month, unless extended by the lenders intheir sole and absolute good faith
discretion.
  In
addition, we are required to hold certain funds in restricted cash accounts to
provide additional collateral for borrowings under the Term Loan Facility. In
the event that we fail to satisfy certain covenants in the sale and servicing
agreement requiring minimum financial ratios, asset quality, and portfolio
performance ratios (portfolio net loss and delinquency ratios and pool level
cumulative net loss ratios), it could result in an event of default under the
Term Loan Facility. If an event of default occurs under the facility, the lender
could elect to terminate servicing, declare all amounts outstanding under the
Term Loan Facility to be immediately due and payable and enforce the interest
against collateral pledged. We were in compliance with the terms of such
financial covenants as of March 31, 2009.
  Subordinated
Debentures




On July
31, 2003, we issued junior subordinated debentures in the amount of $10.3
million to a subsidiary trust, UPFC Trust I. UPFC Trust I in turn issued $10.0
million of company-obligated mandatorily redeemable preferred securities. The
Trust issuer is a “100% owned finance subsidiary” and we “fully and
unconditionally” guaranteed the securities. We will pay interest on these funds
at a rate equal to the three month LIBOR plus 3.05%, variable quarterly (4.14%
as of March 31, 2009). The final maturity of these securities is 30 years
(July 2033), however, they can be called at par any time after July 31, 2008 at
our discretion.




Aggregate
Contractual Obligations




The
following table provides the amounts due under specified obligations for the
periods indicated as of March 31, 2009.




Less than
                  one year
                
                
                One to
                  three years
                
                
                Three to
                  five years
                
                
                More than
                  five years
                
                
                Total(Dollars
      in thousands)Securitization
      notes payable
                
                $
                160,570
                
                
                $
                160,056
                
                
                $
                27,272
                
                
                
                -
                
                
                $
                347,898Term
      Loan Facility
                
                
                158,598
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                158,598Operating
      lease obligations
                
                
                5,828
                
                
                
                10,821
                
                
                
                756
                
                
                
                168
                
                
                $
                17,573Junior
      subordinated debentures
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                10,310
                
                
                $
                10,310Total
                
                $
                324,996
                
                
                $
                170,877
                
                
                $
                28,028
                
                
                $
                10,478
                
                
                $
                534,379








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.


23





Selected
Financial Data





At or For the
                  Three Months
      Ended(Dollars in
      thousands)
                
                March 31,
                  2009
                
                
                March 31,
                  2008Operating
    DataContracts
      purchased
                
                $
                -
                
                
                
                129,930Contracts
      outstanding
                
                $
                632,471
                
                
                
                932,291Unearned acquisition
      discounts
                
                $
                (23,453
                )
                
                
                (43,310
                )Average loan
      balance
                
                $
                686,066
                
                
                
                927,918Unearned acquisition discounts to
      gross loans
                
                3.71%
                
                
                4.65%Average percentage rate to
      borrowers
                
                22.72%
                
                
                22.69%Loan Quality
      DataAllowance for loan
      losses
                
                $
                (37,675
                )
                
                
                (49,552
                )Allowance for loan losses to gross
      loans net ofunearned acquisition
      discounts
                
                6.19%
                
                
                5.57%Delinquencies (% of net
      contracts)31-60 days
                
                1.48%
                
                
                0.57%61-90 days
                
                0.29%
                
                
                0.19%90+ days
                
                0.17%
                
                
                0.12%Total
                
                1.94%
                
                
                0.88%Repossessions over 30 days past
      due (% of net contracts)
                
                1.12%
                
                
                0.73%Annualized net charge-offs to
      average loans(1)
                
                11.70%
                
                
                7.14%Other DataNumber of
      branches
                
                
                27
                
                
                
                128Number of
      employees
                
                
                518
                
                
                
                1,055Interest
    income
                
                $
                40,817
                
                
                $
                58,470Interest
      expense
                
                $
                11,317
                
                
                $
                12,606Interest
    margin
                
                $
                29,500
                
                
                $
                45,864Net interest margin as a
      percentage of interest income
                
                72.27%
                
                
                78.44%Net interest margin as a
      percentage of average loans(1)
                
                17.44%
                
                
                19.88%Non-interest expense to average
      loans(1)
                
                13.10%
                
                
                11.54%Non-interest expense to average
      loans(2)
                
                9.26%
                
                
                11.09%Return on average assets(1)
                
                -2.15%
                
                
                0.52%Return on average shareholders’
      equity(1)
                
                -10.15%
                
                
                3.21%Consolidated capital to assets
      ratio
                
                22.49%
                
                
                16.38%


_____________________________________


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


(2)
Excluding restructuring charges.




Results
of Operations




Comparison
of Operating Results for the Three Months Ended March 31, 2009 and
2008




General




For the
three months ended March 31, 2009, we reported net loss of $4.0 million, or
$0.25 per diluted share, compared with net income of $1.3 million, or $0.08 per
diluted share for the same period a year ago.  The reported net loss
for the three months ended March 31, 2009 includes an after tax charge of $4.1
million or $0.26 per diluted share for restructuring charges associated with the
closure of 40 branches during the quarter. The reported net income for the three
months ended March 31, 2008 includes an after tax charge of $634,000 or $0.04
per diluted share for restructuring charges associated with the closure of 14
branches during the quarter.


24


Interest
Income




Interest
income decreased by 30.3% to $40.8 million for the three months ended March 31,
2009 from $58.5 million for the same period a year ago due primarily to a
decrease in average automobile contracts of $241.9 million as a result of our
strategy of downsizing our operations, suspending new loan originations and
reducing our branch footprint in order to lower expenses and meet required
liquidity needs. Interest income on loans represents the accretion of the
acquisition discount fee on loans acquired.




Interest
Expense




Interest
expense decreased 10.3% to $11.3 million for the three months ended March 31,
2009 from $12.6 million for the same period a year ago primarily due to lower
average debt outstanding, partially offset by higher market interest rates on
the new Term Loan Facility. The average debt outstanding decreased by 29.9% to
$567.5 million for the three months ended March 31, 2009 from $809.4 million for
the same period a year ago. The weighted average interest rate increased to 8.1%
for the three months ended March 31, 2009 from 6.3% for the same period a year
ago.




Provision
and Allowance for Loan Losses




Provisions
for loan losses are charged to income to bring our allowance for loan losses to
a level which management considers adequate to absorb probable incurred credit
losses inherent in the portfolio of finance receivables. The provision for loan
losses recorded in the three months ended March 31, 2009 and 2008 reflects
inherent losses on receivables originated during those periods and changes in
the amount of inherent losses on receivables originated in prior periods. A
provision for loan losses is charged to operations based on our regular
evaluation of the adequacy of the allowance for loan losses. The provision for
loan losses decreased to $14.3 million for the three months ended March 31, 2009
compared with $17.6 million for the same period a year ago. The decrease in
the provision for loan losses was primarily due to a decrease in loans
outstanding offset by an increase in the annualized charge-off rate to 11.70%
for the three months ended March 31, 2009 compared to 7.14% for the same period
a year ago.




The
increase in our annualized net charge-offs was the result of increased defaults
due to the overall deteriorating economic environment.  The increase
in the annualized charge off rate (annualized charge offs divided by average
loans outstanding for the period) from 7.14% to 11.70% was also affected by a
decline in the average  balance of receivables
outstanding.




The total
allowance for loan losses was $37.7 million at March 31, 2009 compared with
$49.6 million at March 31, 2008, representing 6.19% of automobile contracts,
less unearned acquisition discounts, at March 31, 2009 and 5.57% at March 31,
2008. The decrease in the allowance for loan losses was due primarily to a
$241.9 million decrease in automobile contracts outstanding, which decreased to
$632.5 million at March 31, 2009 from $932.3 million at March 31,
2008.




While
management believes it has adequately provided for losses and does not expect
any material loss on its loans in excess of allowances already recorded, no
assurance can be given that economic or other market conditions or other
circumstances will not result in increased losses in the loan
portfolio.




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




Non-interest
Income




Non-interest
income increased $0.1 million to $0.6 million for the three months ended March
31, 2009 from $0.5 million for the same period a year ago. The increase was
primarily the result of higher fee income related to collection
activities.




Non-interest
Expense




Non-interest
expense decreased $4.4 million to $22.2 million for the three months ended March
31, 2009 from $26.6 million for the same period a year ago. The decrease in
non-interest expense was due to a decrease in compensation and benefits expense
as a result of the branch closures, partially offset by an increase in pretax
restructuring charges of $5.5 million ($3.5 million after tax).  The
restructuring charges, included involuntary employee terminations, fixed asset
write-offs, closure costs, post-closure costs and lease termination costs.
Non-interest expense, excluding the restructuring charges as a percentage of
average loans dropped to 9.26% from 11.09% for the same period a year
ago.


25


Income
Taxes




Income
tax benefit was $2.3 million for the three months ended March 31, 2009 compared
to income tax of $0.8 million for the same period a year ago. The income tax
benefit for the three months ended March 31, 2009 was the result of the loss
before income taxes of $6.3 million. The income tax for the three months ended
March 31, 2008 was the result of income before taxes of $2.1
million.




Financial
Condition




Comparison
of Financial Condition at March 31, 2009 and December 31, 2008




Total
assets decreased $101.3 million, to $693.5 million at March 31, 2009, from
$794.8 million at December 31, 2008. The decrease resulted primarily from a
decrease in automobile contracts to $609.0 million, net of unearned acquisition
discounts and unearned finance charges, at March 31, 2009 from $710.3 million at
December 31, 2008 as a result of our strategy of downsizing our operations,
suspending new loan originations and reducing our branch footprint.




During
the three months ended March 31, 2009, we sold $11.2 million of loans on a
whole-loan basis with servicing released. In these transactions, the loans were
sold without recourse to the Company.




Premises
and equipment decreased $0.9 million to $4.2 million at March 31, 2009 from
$5.1 million at December 31, 2008 primarily as a result of fixed asset
write-down due to the closure of 40 branches during the three months ended March
31, 2009.




Securitization
notes payable decreased to $347.9 million at March 31, 2009 from $406.1 at
December 31, 2008 due to the payments on the automobile contracts backing
the securitized borrowing.




Term Loan
Facility decreased to $158.6 million as of March 31, 2009 from $200.2 million as
of December 31, 2008 due to repayment on the Term Loan Facility of $41.6
million during the three months ended March 31, 2009.




Shareholders’
equity decreased to $156.0 million at March 31, 2009 from $159.7 million at
December 31, 2008, primarily as a result of net loss of $4.0
million.




Cash
Flows




Comparison
of Cash Flows for the Three Months Ended March 31, 2009 and 2008




Management
believes that the resources available to us will provide the needed capital and
cash flows to fund ongoing operations and servicing capabilities for the next
twelve months.




We have historically used a warehouse
facility to fund our automobile finance operations pending securitization. The
warehouse credit facility converted in 2008 to a Term Loan Facility, which
amortizes pursuant to a pre-determined payment schedule requiring the Company to pay all amounts owed
due under the facility by October 16, 2009.  As a result, the Company is
unable to access further advances under the Term Loan
Facility.
 
 Effective
May 13, 2009, we entered into a binding commitment to sell a certain amount of
Automobile Receivables to a new party at a discount from face
amount.  The aggregate amount of Automobile Receivables to be sold
will be determined pursuant to the terms of the final Transaction documents by
May 26, 2009. We expect to pay off and terminate the Term Loan Facility with the
proceeds from the Transaction.  It is anticipated that the amount of
Automobile Receivables sold will be greater than 10% of the book value of the
Company’s consolidated assets as of March 31, 2009. For more information about
the financing transaction, see “Note 2. Liquidity and Capital Resources” to our
notes to consolidated financial statements in this quarterly report on Form
10-Q.


Cash
provided by operating activities was $14.4 million and $15.2 million for the
three months ended March 31, 2009 and 2008, respectively. Cash provided by
operating activities decreased for the three months ended March 31, 2009
compared to the same period in 2008 due primarily to a decrease in cash received
on interest income.




Cash
provided by investing activities was $84.8 million for the three months ended
March 31, 2009 compared to cash used in investing activities of $16.2 million
for the three months ended March 31, 2008. Cash provided by investing activities
increased for the three months ended March 31, 2009 compared to the same period
in 2008 due to no originations during the three months ended March 31,
2009.




26


Cash used
in financing activities was $96.4 million for three months ended March 31, 2009,
compared to $2.4 million for the three months ended March 31, 2008. Cash used in
financing activities increased for the three months ended March 31, 2009
compared to the same period in 2008 due to no originations during the three
months ended March 31, 2009 and no borrowings under the Term Loan
Facility.




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 and Term Loan Facility borrowings because the warehouse and Term
Loan Facility borrowings accrue interest at a variable rate.




As of
March 31, 2009, we had $347.9 million fixed rate debt outstanding under our
securitized borrowings. The fair value of our securitized borrowings is based on
quoted market values, which are influenced by a number of factors, including
interest rates, amount of debt outstanding, and number of months until maturity.
Since we intend to hold the securitized borrowings until maturity, any increases
or decreases in interest expense resulting from changes in fair value will
reverse by maturity date.




As of
March 31, 2009, we had $10.3 million junior subordinated debentures. We will pay
interest on these funds at a rate equal to the three month LIBOR plus 3.05%,
variable quarterly. The final maturity of these securities is 30 years (July
2033), however, they can be called at par any time after July 31, 2008 at our
discretion. For every 1.0% increase in rates on the three month LIBOR, annual
after-tax earnings would decrease by approximately $100,000, assuming we
maintain a level amount of variable rate debt.




As of
March 31, 2009, we had $158.6 million variable rate debt outstanding on our Term
Loan Facility, with no interest rate protection. For every 1.0% increase in
rates on our Term Loan Facility, annual after-tax earnings would decrease by
approximately $749,000, assuming we maintain a level amount of variable rate
debt.




Recent
Accounting Developments




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




27


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 March 31,
2009.




Changes
in Internal Control Over Financial Reporting




There was
no change in our internal control over financial reporting during the quarter
ended March 31, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.


28




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, 2008, which could
materially affect our business, financial condition or future results. The risks
described in our Annual Report on Form 10-K are not the only risks facing the
Company. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our
business, financial condition, operating results and/or cash flows.




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




Issuer
Purchases of Equity Securities




During
the quarter ended March 31, 2009, we did not repurchase any shares of our common
stock.






Period
                
                Total
                  Number of
                  Shares
                  Purchased
                
                
                Average
                  Price Paid
                  Per Share
                
                
                Total Number of Shares
                  Purchased as Part of
                  Publicly Announced
                  Plan or Program
                
                
                Approximate Number
                  of Shares That
                  May Yet Be
                  Purchased Under the
                  Plan or ProgramJanuary
      1, 2009 to January 31, 2009
                
                
                —
                
                
                $
                —
                
                
                
                —
                
                
                
                1,410,262February
      1, 2009 to February 29, 2009
                
                
                —
                
                
                $
                —
                
                
                
                —
                
                
                
                1,410,262March
      1, 2009 to March 31, 2009
                
                
                —
                
                
                $
                —
                
                
                
                —
                
                
                
                1,410,262Total
                
                
                —
                
                
                $
                —
                
                
                
                —
                
                
                
                1,410,262








On
June 27, 2006, our Board of Directors approved a share repurchase program
and authorized us to repurchase up to 500,000 shares of our outstanding common
stock from time to time in the open market or in private transactions in
accordance with the provisions of applicable state and federal law, including,
without limitation, Rule 10b-18 promulgated under the Securities Exchange Act of
1934, as amended. On August 4, 2006, our Board of Directors approved an
increase in the aggregate number of shares of our outstanding common stock that
we may repurchase pursuant to the previously announced share repurchase program
from 500,000 shares to 1,500,000 shares. On December 21, 2006, our Board of
Directors approved a second increase in the aggregate number of shares of our
outstanding common stock that we may repurchase pursuant to the previously
announced share repurchase program from 1,500,000 shares to 3,500,000 shares.
This share repurchase program does not have an expiration date.




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.







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.





29


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:
            May
      15, 2009
            
            By:
            /S/    JAMES VAGIMJames
      VagimChief
      Executive Officer and President(Principal
      Executive Officer)May
      15, 2009
            
            By:
            /s/    ARASH KHAZEIArash
      KhazeiChief
      Financial Officer and Executive Vice President(Principal
      Financial and Accounting Officer)
















30