**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 September 30, 2008




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




For
      the
      transition period from  to




Commission
      File Number 000-24051





**UNITED
      PANAM FINANCIAL CORP.**


**(Exact
      Name of Registrant as Specified in Its Charter)**




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




**(949)
      224-1917**


**(Registrant’s
      Telephone Number, Including Area Code)**





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




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





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




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




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










**UNITED
      PANAM FINANCIAL CORP.**


**FORM
      10-Q**


**September
      30, 2008**




**INDEX**





CAUTIONARY
                STATEMENT
            1PART
                I. FINANCIAL INFORMATION
            2Item 1.
            Financial
                Statements.
            2Consolidated
                Statements of Financial Conditions of September 30, 2008 and December
                31,
                2007
            2Consolidated
                Statements of Income for the three and nine months ended September
                30,
                2008 and 2007
            3Consolidated
                Statements of Changes in Shareholders’ Equity for the nine months ended
                September 30, 2008 and 2007
            4Consolidated
                Statements of Cash Flows for the nine months ended September 30,
                2008 and
                2007
            5Notes
                to Consolidated Financial Statements
            6Item 2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations.
            15Item 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.
            30Item 3.
            Defaults
                Upon Senior Securities.
            30Item 4.
            Submission
                of Matters to a Vote of Security Holders.
            30Item 5.
            Other
                Information.
            30Item 6.
            Exhibits.
            31









**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, the lack of a
      securitization market, 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, and other factors or
      conditions described under “Part II, Item 1A. Risk Factors” of this Quarterly
      Report on Form 10-Q. Our past performance and past or present economic
      conditions are not indicative of our future performance or of future economic
      conditions. Undue reliance should not be placed on forward-looking statements.
      In addition, we undertake no obligation to update or revise forward-looking
      statements to reflect changed assumptions, the occurrence of anticipated or
      unanticipated events or changes to projections over time unless required by
      federal securities law.


1


**PART
      I. FINANCIAL INFORMATION**




**Item 1.**  **Financial
      Statements.** ****




**United
      PanAm Financial Corp. and Subsidiaries**


**Consolidated
      Statements of Financial Condition**








**September 30,**
              **2008**
            
            **December 31,**
              **2007*****(Dollars
                in thousands)***
            
            (unaudited)**Assets**Cash
            
            $
            6,981
            
            $
            9,909Short
                term investments
            
            
            9,881
            
            
            7,332Cash
                and cash equivalents
            
            
            16,862
            
            
            17,241Restricted
                cash
            
            
            75,450
            
            
            73,633Loans
            
            
            801,017
            
            
            882,651Allowance
                for loan losses
            
            
            (47,800
            )
            
            (48,386
            )Loans,
                net
            
            
            753,217
            
            
            834,265Premises
                and equipment, net
            
            
            5,225
            
            
            6,799Interest
                receivable
            
            
            9,151
            
            
            10,424Other
                assets
            
            
            34,670
            
            
            34,819Total
                assets
            
            $
            894,575
            
            $
            977,181**Liabilities
                and Shareholders’ Equity**Securitization
                notes payable
            
            $
            469,228
            
            $
            762,245Warehouse
                line of credit
            
            
            237,378
            
            
            35,625Accrued
                expenses and other liabilities
            
            
            18,938
            
            
            9,660Junior
                subordinated debentures
            
            
            10,310
            
            
            10,310Total
                liabilities
            
            
            735,854
            
            
            817,840Preferred
                stock (no par value):Authorized,
                2,000,000 shares; no shares issued and outstanding
            
            
            —
            
            
            —Common
                stock (no par value):
            
            
            —
            
            
            —Authorized,
                30,000,000 shares; 15,737,399 shares issued and outstanding at September
                30, 2008 and December 31, 2007
            
            
            50,025
            
            
            49,504Retained
                earnings
            
            
            108,696
            
            
            109,837Total
                shareholders’ equity
            
            
            158,721
            
            
            159,341Total
                liabilities and shareholders’ equity
            
            $
            894,575
            
            $
            977,181




*See
      notes to the consolidated financial statements*





2





**United
      PanAm Financial Corp. and Subsidiaries**


**Consolidated
      Statements of Income** **(unaudited)**





**Three Months Ended**
              **September 30,**
            
            **Nine Months Ended**
              **September 30,*****(Dollars
                in thousands, except per share data)***
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007****Interest
                Income**Loans
            
            $
            54,281
            
            $
            58,668
            
            $
            169,078
            
            $
            166,966Short
                term investments and restricted cash
            
            
            482
            
            
            1,058
            
            
            1,781
            
            
            3,039Total
                interest income
            
            
            54,763
            
            
            59,726
            
            
            170,859
            
            
            170,005**Interest
                Expense**Securitization
                notes payable
            
            
            7,995
            
            
            10,171
            
            
            28,187
            
            
            27,922Warehouse
                line of credit
            
            
            5,004
            
            
            2,058
            
            
            8,552
            
            
            5,924Other
                interest expense
            
            
            149
            
            
            303
            
            
            488
            
            
            801Total
                interest expense
            
            
            13,148
            
            
            12,532
            
            
            37,227
            
            
            34,647Net
                interest income
            
            
            41,615
            
            
            47,194
            
            
            133,632
            
            
            135,358Provision
                for loan losses
            
            
            18,822
            
            
            20,031
            
            
            51,544
            
            
            48,536Net
                interest income after provision for loan losses
            
            
            22,793
            
            
            27,163
            
            
            82,088
            
            
            86,822**Non-interest
                Income**
            
            
            877
            
            
            469
            
            
            1,916
            
            
            1,316**Non-interest
                Expense**Compensation
                and benefits
            
            
            13,032
            
            
            15,054
            
            
            44,851
            
            
            45,987Occupancy
            
            
            2,037
            
            
            2,372
            
            
            6,641
            
            
            6,818Other
                non-interest expense
            
            
            4,816
            
            
            6,303
            
            
            16,234
            
            
            18,659Restructuring
                charges
            
            
            4,139
            
            
            —
            
            
            7,924
            
            
            —Other
                non-recurring charges
            
            
            9,890
            
            
            —
            
            
            9,890
            
            
            —Total
                non-interest expense
            
            
            33,914
            
            
            23,729
            
            
            85,540
            
            
            71,464Loss
                (income) before income taxes
            
            
            (10,244
            )
            
            3,903
            
            
            (1,536
            )
            
            16,674Income
                tax (benefit) provision
            
            
            (3,765
            )
            
            1,345
            
            
            (395
            )
            
            6,453Net
                (loss) income
            
            $
            (6,479
            )
            $
            2,558
            
            $
            (1,141
            )
            $
            10,221**Earnings
                per share-basic:**Net
                (loss) income
            
            $
            (0.41
            )
            $
            0.16
            
            $
            (0.07
            )
            $
            0.64Weighted
                average basic shares outstanding
            
            
            15,737
            
            
            15,732
            
            
            15,737
            
            
            15,990**Earnings
                per share-diluted:**Net
                (loss) income
            
            $
            (0.41
            )
            $
            0.16
            
            $
            (0.07
            )
            $
            0.62Weighted
                average diluted shares outstanding
            
            
            15,737
            
            
            16,044
            
            
            15,737
            
            
            16,558




*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, December 31, 2006
              
              
              16,713,838
              
              $
              60,614
              
              $
              99,251
              
              $
              159,865Net
                  income
              
              
              —
              
              
              —
              
              
              10,221
              
              
              10,221Exercise
                  of stock options, net
              
              
              31,774
              
              
              143
              
              
              —
              
              
              143Tax
                  effect of exercised stock options
              
              
              —
              
              
              112
              
              
              —
              
              
              112Repurchase
                  of common stock
              
              
              (1,013,213
              )
              
              (13,188
              )
              
              —
              
              
              (13,188
              )Stock-based
                  compensation expense
              
              
              —
              
              
              1,400
              
              
              —
              
              
              1,400Balance,
                  September 30, 2007
              
              
              15,732,399
              
              
              49,081
              
              
              109,472
              
              
              158,553Balance,
                  December 31, 2007
              
              
              15,737,399
              
              $
              49,504
              
              $
              109,837
              
              $
              159,341Net
                  loss
              
              
              —
              
              
              —
              
              
              (1,141
              )
              
              (1,141
              )Stock-based
                  compensation expense
              
              
              —
              
              
              521
              
              
              —
              
              
              521Balance,
                  September 30, 2008
              
              
              15,737,399
              
              $
              50,025
              
              $
              108,696
              
              $
              158,721




*See
      notes to the consolidated financial statements*





4





**United
      PanAm Financial Corp. and Subsidiaries**


**Consolidated
      Statements of Cash Flows** **(unaudited)**




**Nine Months Ended**
              **September 30,*****(Dollars in thousands)***
            
            **2008**
            
            **2007****Cash
                Flows from Operating Activities:**Net
                Income
            
            $
            (1,141
            )
            $
            10,221Reconciliation
                of net income to net cash provided by operating
                activities:Provision
                for loan losses
            
            
            51,544
            
            
            48,536Accretion
                of discount on loans
            
            
            (19,542
            )
            
            (20,726
            )Depreciation
                and amortization
            
            
            1,744
            
            
            1,779Loss
                on disposal of premises and equipment
            
            
            717
            
            
            —Stock-based
                compensation
            
            
            521
            
            
            1,400Tax
                benefit from stock-based compensation
            
            
            (205
            )
            
            (542
            )Decrease
                (increase) in accrued interest receivable
            
            
            1,273
            
            
            (1,168
            )Decrease
                (increase) in other assets
            
            
            149
            
            
            (1,159
            )Increase
                (decrease) in accrued expenses and other liabilities
            
            
            9,278
            
            
            (124
            )Net
                cash provided by operating activities
            
            
            44,338
            
            
            38,217**Cash
                Flows from Investing Activities:**Purchases,
                net of repayments, of loans
            
            
            39,629
            
            
            (142,095
            )Proceeds
                from sale of loans, net
            
            
            9,417
            
            
            —Purchase,
                net of sales, of premises and equipment
            
            
            (887
            )
            
            (3,524
            )Net
                cash used in investing activities
            
            
            48,159
            
            
            (145,619
            )**Cash
                Flows from Financing Activities:**Proceeds
                from warehouse line of credit
            
            
            236,140
            
            
            442,582Repayment
                of warehouse line of credit
            
            
            (34,387
            )
            
            (249,380
            )Proceeds
                from securitization
            
            
            —
            
            
            250,000Payments
                on securitization notes payable
            
            
            (293,017
            )
            
            (330,633
            )Increase
                in restricted cash
            
            
            (1,817
            )
            
            (4,158
            )Proceeds
                from exercise of stock options
            
            
            —
            
            
            255Repurchase
                of common stock
            
            
            —
            
            
            (13,188
            )Tax
                benefit from stock-based compensation
            
            
            205
            
            
            542Net
                cash (used in) provided by financing activities
            
            
            (92,876
            )
            
            96,020Net
                decrease in cash and cash equivalents
            
            
            (379
            )
            
            (11,382
            )Cash
                and cash equivalents at beginning of period
            
            
            17,241
            
            
            28,294Cash
                and cash equivalents at end of period
            
            $
            16,862
            
            $
            16,912**Supplemental
                Disclosures of Cash Payments Made for:**Interest
            
            $
            36,503
            
            $
            34,297Income
                taxes
            
            $
            1,890
            
            $
            8,971




*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.




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




At
      September 30, 2008, UACC and United Auto Business Operations, LLC (“UABO”) were
      direct wholly-owned subsidiaries of the Company, and UPFC Auto Receivables
      Corporation (“UARC”), UPFC Auto Financing Corporation (“UAFC”) and UPFC Funding
      Corporation (“UFC”) were direct wholly-owned subsidiaries of UACC. UARC and UAFC
      are entities whose business is limited to the purchase of automobile contracts
      from UACC and UABO in connection with the securitization of such contracts
      and
      UFC is an entity whose business is limited to the purchase of such contracts
      from UACC and UABO in connection with warehouse funding of such contracts.




**2.**  **Basis
      of Presentation**




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





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




**3.**  **Recent
      Accounting Developments**




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


6


In
      December 2007, 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.
      Management is currently evaluating the impact of the adoption of this statement;
      however, it is not expected to have a material impact on our consolidated
      financial position, results of operation or cash flows.




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




In
      March
      2008, the FASB issued SFAS No. 161, *Disclosures
      about Derivative Instruments and Hedging Activities* .
      SFAS
      No. 161 amends and expands the disclosure requirements of SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” and requires
      entities to provide enhanced qualitative disclosures about objectives and
      strategies for using derivatives, quantitative disclosures about fair values
      and
      amounts of gains and losses on derivative contracts, and disclosures about
      credit-risk-related contingent features in derivative agreements. This Statement
      is effective for financial statements issued for fiscal years and interim
      periods beginning after November 15, 2008. Management is currently evaluating
      the impact of the adoption of this statement; however, it is not expected to
      have a material impact on our consolidated financial position, results of
      operation or cash flows.




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




**4.**  **Restricted
      Cash**




Restricted
      cash relates to $37.1 million of deposits held as collateral for securitized
      obligations and warehouse liabilities at September 30, 2008 compared with $32.1
      million at December 31, 2007. Additionally, $38.4 million at September 30,
      2008 relates to cash sent to the trustee that will be applied to the pay down
      of
      securitized obligations and warehouse liabilities compared with $41.6 million
      at
      December 31, 2007.


7


**5.**  **Loans**
  Loans
        are
        summarized as follows:
  **September 30, 2008**
              
              **December 31, 2007****(Dollars
                  in thousands)**Loans
                  securitized
              
              $
              520,131
              
              $
              832,947Loans
                  unsecuritized
              
              
              317,402
              
              
              94,974Unearned
                  finance charges
              
              
              (741
              )
              
              (1,571
              )Unearned
                  acquisition discounts
              
              
              (35,775
              )
              
              (43,699
              )Allowance
                  for loan losses
              
              
              (47,800
              )
              
              (48,386
              )Total
                  loans, net
              
              $
              753,217
              
              $
              834,265Allowance
                  for loan losses to gross loans net of unearned acquisition
                  discounts
              
              
              5.97
              %
              
              5.48
              %Unearned
                  acquisition discounts to gross loans
              
              
              4.28
              %
              
              4.72
              %Average
                  percentage rate to borrowers
              
              
              22.72
              %
              
              22.64
              %
  Loans
        securitized represent loans transferred to the Company’s special purpose finance
        subsidiaries in securitization transactions accounted for as secured financings.
        Loans unsecuritized include $313.9 million and $70.5 million pledged under
        the
        Company’s warehouse facilities as of September 30, 2008 and December 31,
        2007, respectively.
 
 On
        August
        8, 2008, UPFC entered into an agreement to sell $10.0 million of loans on
        a
        whole-loan basis with servicing released.
  The
        activity in the allowance for loan losses consists of the following:
 
 **Nine Months Ended September 30,**
              
              **Twelve Months**
                **Ended**
                **December****31,****2008**
              
              **2007**
              
              **2007****(Dollars
                  in thousands)**Allowance
                  for loan losses at beginning of period
              
              $
              48,386
              
              $
              36,037
              
              $
              36,037Provision
                  for loan losses
              
              
              51,544
              
              
              48,536
              
              
              69,764Net
                  charge-offs
              
              
              (52,130
              )
              
              (38,523
              )
              
              (57,415
              )Allowance
                  for loan losses at end of period
              
              $
              47,800
              
              $
              46,050
              
              $
              48,386
  The
        allowance for loan losses is the estimate of probable losses in our loan
        portfolio for the next twelve months as of the statement of financial condition
        date. The level of the allowance is based principally on historical loss
        trends
        and the remaining balance of loans. The Company believes that the allowance
        for
        loan losses is currently adequate to absorb probable loan losses in the loans
        balance as of September 30, 2008. However, ultimate losses may vary from
        current
        estimates. It is possible that others, given the same information, may reach
        different conclusions and such differences could be material. To the extent
        that
        the analyses considered in determining the allowance for loan losses are
        not
        indicative of future performance or other assumptions used by the Company
        do not
        prove to be accurate, loss experience could differ significantly from the
        estimate, resulting in higher or lower future provision for loan losses.
  **6.**  **Borrowings**
  *Securitizations*
  Our
        securitizations are structured as on-balance-sheet transactions and recorded
        as
        secured financings because they do not meet the accounting criteria for sale
        of
        finance receivables under SFAS No. 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* .
        Since
        2005, regular contract securitizations have been an integral part of our
        business plan to increase our liquidity and reduce risks associated with
        interest rate fluctuations. We had developed a securitization program that
        involved selling interests in pools of our automobile contracts to investors
        through the public issuance of AAA/Aaa rated asset-backed securities. We
        retained the servicing rights for the loans which have been securitized.
        Upon
        the issuance of securitization notes payable, we retain the right to receive
        over time excess cash flows from the underlying pool of securitized automobile
        contracts. However,
        due to the fact that the asset-backed securities market, along with credit
        markets in general, have been experiencing unprecedented disruptions, the
        execution of securitization transactions is more challenging and expensive.
        We
        have not accessed the securitization market with a transaction since November
        2007 and we are currently analyzing our financing strategy going forward.
        For
        more information, see Recent Market Developments in Item 2. “Management’s
        Discussion and Analysis of Financial Condition and Results of Operations” to the
        Quarterly Report on this form 10-Q.
  8
  In
        our securitizations to date, we transferred automobile contracts we purchased
        from automobile dealers to a newly formed owner trust for each transaction,
        which trust then issued the securitization notes payable. The net proceeds
        of
        our first securitization were used to replace the Bank’s deposit liabilities and
        the net proceeds of our subsequent securitization transactions were used
        to fund
        our operations. At the time of securitization of our automobile contracts,
        we
        are required to pledge assets equal to a specific percentage of the
        securitization pool to support the securitization transaction. Typically,
        the
        assets pledged consist of cash deposited to a restricted account known as
        a
        spread account and additional receivables delivered to the trusts, which
        create
        over-collateralization. The securitization transaction documents require
        the
        percentage of assets pledged to support the transaction to increase over
        time
        until a specific level is attained. Excess cash flow generated by the trusts
        is
        used to pay down the outstanding debt of the trusts, increasing the level
        of
        over-collateralization until the required percentage level of assets has
        been
        reached. Once the required percentage level of assets is reached and maintained,
        excess cash flows generated by the trusts are released to us as distributions
        from the trusts.
  We
        have arranged for credit enhancement to improve the credit rating and reduce
        the
        interest rate on the asset-backed securities issued. This credit enhancement
        for
        our securitizations has been in the form of financial guaranty insurance
        policies insuring the payment of principal and interest due on the asset-backed
        securities. Agreements with our financial guaranty insurance insurers provide
        that if portfolio performance ratios (delinquency and net charge-offs as
        a
        percentage of automobile contract outstanding) in a trust’s pool of automobile
        contracts exceed certain targets, the over-collateralization and spread account
        levels would be increased. Agreements with our financial guaranty insurance
        insurers also contain additional specified targeted portfolio performance
        ratios. If, at any measurement date, the targeted portfolio performance ratios
        with respect to any trust whose securities are insured were to exceed these
        additional levels, provisions of the agreements permit our financial guaranty
        insurance providers to terminate our servicing rights to the automobile
        contracts sold to that trust.
  The
        principal and interest collected on the automobile contracts pledged is used
        to
        pay the interest due each month on the notes to the participating lenders
        and
        any excess cash is released to UPFC. The performance, timing and amount of
        cash
        flows from automobile contracts varies based on a number of factors, including:
  •  the
        yields received on automobile contracts;
  •  the
        rates
        and amounts of loan delinquencies, defaults and net credit losses; and
  •  how
        quickly and at what price repossessed vehicles can be resold.
  
  The
        following table lists each of our securitizations as of September 30, 2008:
  
 **Issue**
                **Number**
              
              **Issuance Date**
              
              **Maturity Date(1)**
              
              **Original**
                **Balance**
              
              **Remaining****Balance at**
                **September 30, 2008****(Dollars
                  in thousands)**2005A
              
              
              April
                  14, 2005
              
              
              December
                  2010
              
              $
              195,000
              
              $
              12,8672005B
              
              
              November 10, 2005
              
              
              August
                  2011
              
              $
              225,000
              
              $
              29,9912006A
              
              
              June
                  15, 2006
              
              
              May
                  2012
              
              $
              242,000
              
              $
              56,8422006B
              
              
              December 14, 2006
              
              
              August
                  2012
              
              $
              250,000
              
              $
              86,0652007A
              
              
              June
                  14, 2007
              
              
              July
                  2013
              
              $
              250,000
              
              $
              125,6762007B
              
              
              November 8, 2007
              
              
              July
                  2014
              
              $
              250,000
              
              $
              157,787Total
              
              $
              1,412,000
              
              $
              469,228
 
 (1)
        Contractual maturity of the last maturity class of notes issued by the related
        securitization owner trust.
  Assets
        pledged to the trusts as of September 30, 2008 and December 31, 2007 are as
        follows:
  **September 30,**
                **2008**
              
              **December 31,**
                **2007****(Dollars
                  in thousands)**Automobile
                  contracts, net
              
              $
              520,131
              
              $
              832,947Restricted
                  cash
              
              $
              30,581
              
              $
              30,647Total
                  assets pledged
              
              $
              550,712
              
              $
              863,594
  9
  A
        summary
        of our securitization activity and cash flows from the trusts is as follows:
  **Three Months Ended September 30,**
              
              **Nine Months Ended September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****(Dollars in thousands)**Receivables securitized
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              268,817Proceeds
                  from securitization
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              250,000Distribution
                  from the trusts
              
              $
              19,611
              
              $
              30,501
              
              $
              61,859
              
              $
              72,009
  In
        order
        to assist our borrowers who have been adversely impacted by the current economic
        environment, we increased our extension usage. As a result, under our current
        servicing agreements, we are required to repurchase loans in excess of extension
        performance targets. As a result, we repurchased $5.5 million and $6.1 million
        during the three months ended September 30, 2008 and 2007, respectively.
        We
        repurchased $27.7 million and $10.8 million during the nine months ended
        September 30, 2008 and 2007, respectively. We funded the purchase price for
        the
        repurchase by obtaining advances under our existing warehouse facility.
  As
        of
        September 30, 2008, we were in compliance with all terms of the financial
        covenants related to our securitization transactions. However, 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.
  *Warehouse
        Facility*
  On
        August
        22, 2008, we restructured our $300 million warehouse facility ,
        which
        we have 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 quarter
        ended
        September 30, 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 for an additional one-year term, which
        amortizes pursuant to a pre-determined schedule, providing that the Company
        will
        pay all amounts owed under the warehouse facility by October 16, 2009. As
        a
        result, the Company is unable to access further advances under the newly
        converted term loan. 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, the warehouse facility lenders
        have approved the July 25, 2008 appointment of James Vagim as our chief
        executive officer and have removed the requirement that, within certain
        specified time periods, we access the securitization markets to reduce amounts
        owed under the warehouse facility.
  Under
        the
        previous terms of the warehouse facility, our indirect subsidiary, UFC had
        historically obtained advances on a revolving basis by issuing notes to the
        participating lenders and pledging for each advance a portfolio of automobile
        contracts. UFC purchases the automobile contracts from UACC and UACC services
        the automobile contracts, which are held by a custodian. We provide 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 warehouse facility. Although the warehouse
        lenders have expressed their intention that UACC continue to service the
        automobile contracts pledged to the warehouse facility through UACC’s
        decentralized branches, the warehouse facility, as amended, provides that
        UACC
        will act as servicer on a month-to-month basis for the automobile contracts
        pledged to the warehouse facility. UACC’s servicing rights automatically expire
        each month, unless extended by the warehouse lenders in their sole and absolute
        good faith discretion.
  As
        of
        September 30, 2008, the warehouse facility was drawn to $237.4 million. As
        of
        September 30, 2008, we were in compliance with all terms of the financial
        covenants related to our warehouse facility.
  10
  *Residual
        Credit Facility*
  On
        January 24, 2007, we closed a $26 million variable rate residual credit
        facility. The facility is secured by eligible residual interests in previously
        securitized pools of automobile receivables and certain securities issued
        by
        UARC, UAFC, and UFC. We had provided an absolute and unconditional and
        irrevocable guaranty of the full and punctual payment and performance, of
        all
        liabilities, agreements and other obligations of UARC, UAFC, and UFC under
        the
        residual credit facility. This facility expired on January 24, 2008.
  **7.**  **Share
        Repurchase Program**
  On
        June 27, 2006, our Board of Directors approved a share repurchase program
        and authorized us to repurchase up to 500,000 shares of our outstanding common
        stock from time to time in the open market or in private transactions in
        accordance with the provisions of applicable state and federal law, including,
        without limitation, Rule 10b-18 promulgated under the Securities Exchange
        Act of
        1934, as amended. On August 4, 2006, our Board of Directors approved an
        increase in the aggregate number of shares that we may repurchase pursuant
        to
        the previously announced share repurchase program from 500,000 shares to
        1,500,000 shares. On December 21, 2006, our Board of Directors approved a
        second increase in the aggregate number of shares of our outstanding common
        stock that we may repurchase pursuant to the previously announced share
        repurchase program from 1,500,000 shares to 3,500,000 shares. During the
        three
        months ended September 30, 2007, we did not repurchase any shares of our
        common
        stock. During the nine months ended September 30, 2007, we repurchased 1,013,213
        shares of our common stock for an average price of $12.98 per share for an
        aggregate purchase price of $13.2 million. In total we have repurchased
        2,089,738 shares of our common stock for an average price of $15.58 per share
        for an aggregate purchase price of $32.6 million. We did not repurchase any
        shares of our common stock during the three or nine months ended September
        30,
        2008.
  **8.**  **Share
        Based Compensation**
  In
        1994,
        we adopted a stock option plan and, in November 1997, June 2001, June 2002,
        and July 2007 amended and restated such plan as the United PanAm Financial
        Corp.
        1997 Employee Stock Incentive Plan (the “Plan”). The maximum number of shares
        that may be issued to officers, directors, employees or consultants under
        the
        Plan is 8,500,000. Options issued pursuant to the Plan have been granted
        at an
        exercise price of no less that book value on the date of grant. Options
        generally vest over a one to five year period and have a maximum term of
        ten
        years. Options may be exercised by using either a standard cash exercise
        procedure or a cashless exercise procedure. As of September 30, 2008 there
        were
        3,268,965 options outstanding.
  SFAS
        No. 123(R) requires companies to estimate the fair value of share-based
        payment awards on the date of grant using an option-pricing model. The value
        of
        the portion of the award that is ultimately expected to vest is recognized
        as
        expense over the requisite service periods in our consolidated statement
        of
        income.
  Stock-based
        compensation expense recognized during the period is based on the value of
        the
        portion of share-based payment awards that is ultimately expected to vest
        during
        the period. Stock-based compensation expense recognized in our consolidated
        statement of income for the three and nine months ended September 30, 2008
        and
        2007 included compensation expense for share-based payment awards granted
        prior
        to, but not yet vested as of December 31, 2005 based on the grant date fair
        value estimated in accordance with the pro forma provisions of SFAS No. 123
        and compensation expense for the share-based payment awards granted subsequent
        to December 31, 2005 based on the grant date fair value estimated in
        accordance with the provisions of SFAS No. 123(R). As stock-based
        compensation expense recognized in the consolidated statement of income for
        the
        three and nine months ended September 30, 2008 and 2007 is based on awards
        ultimately expected to vest on a straight-line prorated basis, it has been
        reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to
        be estimated at the time of grant and revised, if necessary, in subsequent
        periods if actual forfeitures differ from those estimates. On November 10,
        2005, the FASB issued FASB Staff Position No. FAS 123(R)-3, *Transition
        Election Related to Accounting for Tax Effects of Share-Based Payment
        Awards.* We have
        elected to adopt the alternative transition method provided in the FASB Staff
        Position for calculating the tax effects of stock-based compensation pursuant
        to
        SFAS No. 123(R). The alternative transition method includes simplified
        methods to establish the beginning balance of the additional paid-in capital
        pool (“APIC pool”) related to the tax effects of employee stock-based
        compensation, and to determine the subsequent impact on the APIC pool and
        consolidated statements of cash flows of the tax effects of employee stock-based
        compensation awards that are outstanding upon adoption of SFAS
        No. 123(R).
  The
        following table summarizes stock-based compensation expense, net of tax,
        under
        SFAS No. 123(R) for the three and nine months ended September 30, 2008 and
        2007.
  11
 
 **Three Months Ended September 30,**
              
              **Nine Months Ended September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****(Dollars in thousands)**Stock-based
                  compensation expense
              
              $
              35
              
              $
              207
              
              $
              520
              
              $
              1,400Tax
                  benefit
              
              
              (17
              )
              
              (65
              )
              
              (205
              )
              
              (542
              )Stock-based
                  compensation expense, net of tax
              
              $
              18
              
              $
              142
              
              $
              316
              
              $
              858Stock-based
                  compensation expense, net of tax, per diluted shares
              
              $
              0.00
              
              $
              0.01
              
              $
              0.02
              
              $
              0.05
 
 At
        September 30, 2008, 1,472,756 shares of common stock were reserved for future
        stock based compensation grants.
  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 45 month
        volatility on the date of grant; risk-free interest rate equivalent to the
        appropriate US Treasury constant maturity treasury rate on the date of grant
        and
        expected lives of one to five years depending on final maturity of the options.
  **Three Months Ended September 30,**
              
              **Nine Months Ended September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Expected
                  dividends
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Expected
                  volatility
              
              
              76.62
              %
              
              47.71
              %
              
              73.66
              %
              
              46.77
              %Risk-free
                  interest rate
              
              
              3.13
              %
              
              4.40
              %
              
              3.08
              %
              
              4.48
              %Expected
                  life
              
              
              5.00
                  years
              
              
              5.00
                  years
              
              
              5.00
                  years
              
              
              5.00
                  years
  At
        September 30, 2008, there was $3.1 million of unrecognized compensation cost
        related to share based compensation, which is expected to be recognized over
        a
        weighted average period of 1.99 years. A summary of option activity for the
        nine
        months ended September 30, 2008 and 2007 is as follows:
 
 **Nine Months Ended September 30,****2008**
              
              **2007****(Dollars in thousands, except per share amounts)****Shares**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              
              **Shares**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**Balance at beginning of period
              
              
              4,110,335
              
              $
              14.02
              
              
              4,023,436
              
              $
              14.66Granted
              
              
              1,078,871
              
              
              5.69
              
              
              364,299
              
              
              11.02Canceled
                  or expired
              
              
              (1,920,241
              )
              
              13.10
              
              
              (146,000
              )
              
              21.97Exercised
              
              
              —
              
              
              —
              
              
              (38,700
              )
              
              6.19Balance
                  at end of period
              
              
              3,268,965
              
              
              11.81
              
              
              4,203,035
              
              
              14.18Weighted
                  average fair value per share of options granted during period
              
              $
              2.23
              
              
              
              
              $
              7.41
  12
  At
        September 30, 2008, options exercisable to purchase 1,971,149 shares of our
        common stock under the Plan were outstanding as follows:
  **Range of Exercise Prices**
              
              **Number of Shares**
                **Vested**
              
              **Number of Shares**
                **Unvested**
              
              **Weighted**
                **Average**
                **Exercise Price**
              
              **Weighted**
                **Average**
                **Remaining**
                **Contractual**
                **Life (Years)**
              
              **Number of Shares**
                **Exercisable**
              
              **Exercisable**
                **Shares**
                **Weighted**
                **Average**
                **Exercise Price**$0.0000 to $3.1650
              
              
              34,557
              
              
              52,741
              
              $
              0.44
              
              
              7.63
              
              
              34,557
              
              $
              1.12$3.1651 to $6.3300
              
              
              398,392
              
              
              755,500
              
              
              4.68
              
              
              6.91
              
              
              398,392
              
              
              4.09$6.3301 to $9.4950
              
              
              74,100
              
              
              8,000
              
              
              7.27
              
              
              3.54
              
              
              74,100
              
              
              7.11$9.4951 to $12.6600
              
              
              478,500
              
              
              225,500
              
              
              10.53
              
              
              4.57
              
              
              478,500
              
              
              10.59$12.6601 to $15.8250
              
              
              329,650
              
              
              64,500
              
              
              14.76
              
              
              3.20
              
              
              329,650
              
              
              14.85$15.8251 to $18.9900
              
              
              131,200
              
              
              31,300
              
              
              17.60
              
              
              5.16
              
              
              131,200
              
              
              17.62$18.9901 to $22.1550
              
              
              303,000
              
              
              32,300
              
              
              20.02
              
              
              2.76
              
              
              303,000
              
              
              20.02$22.1551 to $25.3200
              
              
              35,700
              
              
              24,300
              
              
              23.28
              
              
              6.96
              
              
              35,700
              
              
              23.24$25.3201 to $28.4850
              
              
              75,900
              
              
              23,700
              
              
              26.61
              
              
              6.96
              
              
              75,900
              
              
              26.43$28.4851 to $31.6500
              
              
              110,150
              
              
              79,975
              
              
              29.94
              
              
              6.93
              
              
              110,150
              
              
              29.621,971,149
              
              
              1,297,816
              
              $
              11.80
              
              
              5.38
              
              
              1,971,149
              
              $
              13.51
  The
        weighted average remaining contractual life of outstanding options was 5.38
        years at September 30, 2008 and 4.68 years at December 31, 2007.
  **9.**  **Earnings
        per Share**
  Basic
        earnings per share is computed on the basis of the weighted average number
        of
        shares of common stock outstanding during the period. Diluted earnings per
        share
        is computed on the basis of the weighted average number of shares of common
        stock plus the effect of dilutive potential common shares outstanding during
        the
        period using the treasury stock method. Dilutive potential common shares
        include
        outstanding stock options.
 
 The
        following table reconciles the number of shares used in the computations
        of
        basic and diluted earnings per share for the three and nine months ended
        September 30, 2008 and 2007:
 
 **Three Months EndedSeptember 30,**
              
              **Nine Months EndedSeptember 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007*****(In
                  thousands)***Weighted
                  average common shares outstanding during the period to compute
                  basic
                  earnings per share
              
              
              15,737
              
              
              15,732
              
              
              15,737
              
              
              15,990Incremental
                  common shares attributable to exercise of outstanding
                  options
              
              
              -
              
              
              312
              
              
              -
              
              
              568Weighted
                  average number of common shares used to compute diluted earnings
                  per share
              
              
              15,737
              
              
              16,044
              
              
              15,737
              
              
              16,558
  The
        above
        calculation of diluted earnings per share excluded 3,612,000 and 2,192,000
        average shares for the three months ended September 30, 2008 and 2007, and
        3,761,000 and 1,881,000 average shares for the nine months ended September
        30,
        2008 and 2007 respectively, attributable to outstanding stock options because
        their inclusion would have been anti-dilutive.
  13
  **10.**  **Trust
        Preferred Securities**
  On
        July 31, 2003, the Company issued trust preferred securities of $10.0
        million through a subsidiary UPFC Trust I. The Trust issuer is a “100% owned
        finance subsidiary” of the Company and the Company “fully and unconditionally”
guaranteed the securities. The Company will pay interest on these funds at
        a
        rate equal to the three month LIBOR plus 3.05%, variable quarterly, and the
        rate
        was 5.84% as of September 30, 2008. The final maturity of these securities
        is 30
        years, however, they can be called at par any time after July 31, 2008 at
        the option of the Company.
  **11.**  **Consolidation
        of Variable Interest Entities**
  FASB
        Interpretation No. 46, *Consolidation
        of Variable Interest Entities* (“FIN
        46”), was
        issued in January 2003. FIN 46 requires that if an entity is the primary
        beneficiary of a variable interest entity, the assets, liabilities and results
        of operations of the variable interest entity should be included in the
        consolidated financial statements of the entity. FASB Interpretation
        No. 46(R), *Consolidation
        of Variable Interest Entities* (“FIN
        46(R)”), was issued in December 2003. The assets, liabilities and results of
        operations of our trusts associated with securitizations and trust preferred
        securities have been included in our consolidated financial statements.
  **12.
        Fair Value Option for Financial Assets and Financial
        Liabilities**
 
 In
        February 2007, FASB issued SFAS No. 159, *The
        Fair Value Option for Financial Assets and Financial
        Liabilities* .
        SFAS
        No. 159 permits entities to choose to measure many financial instruments
        and
        certain other items at fair value. The objective of the statement is to improve
        financial reporting by providing entities with the opportunity to mitigate
        volatility in reported earnings caused by measuring related assets and
        liabilities differently without having to apply complex hedge accounting
        provisions. The provisions of SFAS No. 159 are effective for fiscal years
        beginning after November 15, 2007. In September 2006, FASB issued SFAS No.
        157, *Fair
        Value Measurements* .
        This
        Statement defines fair value, establishes a framework for measuring fair
        value
        in generally accepted accounting principles and expands disclosures about
        fair
        value measurements. This Statement applies under other accounting pronouncements
        that require or permit fair value measurements but does not require any new
        fair
        value measurements. The provisions of SFAS No. 157 are effective for fiscal
        years beginning after November 15, 2007, however, a proposed FASB Staff Position
        would delay the effective date of certain provisions of SFAS No. 157 that
        relate
        to non-financial assets and non-financial liabilities. On January 1, 2008,
        management adopted SFAS No. 159 and SFAS No. 157 which had no impact on our
        consolidated financial position, results of operation or cash flows. The
        carrying amounts of our financial instruments are included in the consolidated
        statements of financial condition. The fair value of our financial instruments
        and the methodologies and assumptions used to measure the fair value of our
        financial instruments are described in detail in Note 15 to our Notes to
        Consolidated Financial Statements presented in our 2007 Annual Report on
        Form
        10-K.
  **13.
        Restructuring Charges**
 
 A
        pretax
        restructuring charge of $4.1 million was recorded for costs associated with
        closure of branches in the third quarter of 2008, which included severance,
        fixed asset write-offs, closure and post-closure costs. The restructuring
        charge
        included a $2.2 million reserve for estimated future lease obligations as
        of
        September 30, 2008. As of September 30, 2008, the liabilities related to
        the
        restructuring charges totaled $6.5 million.
  **14.
        Other Non-recurring Charges**
 
 A
        pretax
        other non-recurring charge of $9.9 million was recorded in the third quarter
        of
        2008 for costs associated with $7.3 million fees payable on the exit from
        the
        warehouse facility and $2.6 million professional fees paid on discontinued
        financing transactions.
  14
  **Item 2.**  **Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operations.** ****
  *The
        following discussion is intended to help the reader understand our results
        of
        operations and financial condition and is provided as a supplement to, and
        should be read in conjunction with, our consolidated financial statements,
        the
        accompanying notes to the consolidated financial statements, and the other
        information included or incorporated by reference herein.*
  **Overview**
 
 We
        are a
        specialty finance company engaged in automobile finance, which includes the
        purchase and servicing of automobile installment sales contracts, or automobile
        contracts, originated by independent and franchised dealers of used automobiles.
        We conduct our automobile finance business through our wholly-owned
        subsidiaries, United Auto Credit Corporation, or UACC and United Auto Business
        Operations, LLC, or UABO, which provide financing to borrowers who typically
        have limited or impaired credit histories that restrict their ability to
        obtain
        loans through traditional sources. Financing arms of automobile manufacturers
        generally do not make these loans to non-prime borrowers, nor do many other
        traditional automotive lenders. Non-prime borrowers generally pay higher
        interest rates and loan fees than do prime borrowers.
 
 As
        a
        result of the continued disruptions in the capital markets, including the
        uncertainty for use of securitizations as a source of financing, as well
        as the
        lack of available borrowing capacity under a warehouse facility for an extended
        period of time, we determined to downsize our operations and reduce our branch
        footprint in order to lower expenses and meet required liquidity needs. During
        the quarter ended September 30, 2008, we closed an additional 27 branches
        bringing the total number of branches to 79 branches in operation as of
        September 30, 2008. The majority of closures were from the consolidation
        of
        branches within the same market. The closures of the 63 branches year-to-date
        resulted in a decrease in the number of employees of approximately 400 or
        35% of
        the work force since December 31, 2007. These closures will result in a
        significant reduction in overall operating expenses. In addition, we suspended
        new loan originations during the end of the third quarter of 2008 to allow
        our
        outstanding receivables to shrink to a level where our capital base will
        be able
        to finance future originations at the lower advance structures available
        in the
        market.
 
 On
        August
        22, 2008, we restructured our $300 million warehouse facility ,
        which
        we have 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, UPFC incurred a fee payable in the amount of $7.3 million. The
        fee has
        been recorded as part of non-recurring charges during the quarter ended
        September 30, 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 for an additional one-year term, which
        amortizes pursuant to a pre-determined schedule, providing that the Company
        will
        pay all amounts owed under the credit facility by October 16, 2009. Management
        is currently pursuing and evaluating alternative sources of financing and
        is
        also considering selling loans on a whole-loan basis. At this time, there
        is no
        assurance 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.
  **Critical
        Accounting Policies**
  We
        have
        established various accounting policies, which govern the application of
        accounting principles generally accepted in the United States of America,
        or
        GAAP, in the preparation of our consolidated financial statements. Our
        accounting policies are integral to understanding the results reported. Certain
        accounting policies are described in detail in Note 3 to our Notes to
        Consolidated Financial Statements presented in our 2007 Annual Report on
        Form
        10-K.
  Certain
        accounting policies require us to make significant estimates and assumptions,
        which have a material impact on the carrying value of certain assets and
        liabilities, and we consider these to be critical accounting policies. The
        estimates and assumptions we use are based on historical experience and other
        factors, which we believe to be reasonable under the circumstances. Actual
        results could differ significantly from these estimates and assumptions,
        which
        could have a material impact on the carrying value of assets and liabilities
        at
        the date of the statement of financial condition and our results of operations
        for the reporting periods. The following is a brief description of our current
        accounting policies involving significant management valuation judgments.
  *Securitization
        Transactions*
  The
        transfer of our automobile contracts to securitization trusts is treated
        as a
        secured financing under Statement of Financial Accounting Standard (“SFAS”)
        No. 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* .
        The
        trusts are considered variable interest entities. The assets, liabilities
        and
        results of operations of the trusts have been included in our consolidated
        financial statements. The contracts are retained on the statement of financial
        condition with the securities issued to finance the contracts recorded as
        securitization notes payable. We record interest income on the securitized
        contracts and interest expense on the notes issued through the securitization
        transactions. Debt issuance costs are amortized over the expected term of
        the
        securitization using the interest method.
  15
  As
        servicer of these contracts, we remit funds collected from the borrowers
        on
        behalf of the trustee to the trustee and direct the trustee how the funds
        should
        be invested until the distribution dates. We have retained an interest in
        the
        securitized contracts, and have the ability to receive future cash flows
        as a
        result of that retained interest.
  *Allowance
        for Loan Losses*
  The
        allowance for loan losses is calculated based on incurred loss methodology
        for
        the determination of the amount of probable credit losses inherent in the
        finance receivables as of the reporting date. Our loan loss allowance is
        estimated by management based upon a variety of factors including an assessment
        of the credit risk inherent in the portfolio and prior loss
        experience.
  The
        allowance for credit losses is established through provisions for losses
        recorded in income as necessary to provide for estimated contract losses
        in the
        next 12 months at each reporting date. We account for such contracts by static
        pool, stratified into three-month buckets, so that the credit risk in each
        individual static pool can be evaluated independently in order to estimate
        the
        future losses within each pool. Any such adjustment is recorded in the current
        period as the assessment is made.
  Despite
        these analyses, we recognize that establishing an allowance is an estimate,
        which is inherently uncertain and depends on the outcome of future events.
        Our
        operating results and financial condition are sensitive to changes in our
        estimate for loan losses and the estimate’s underlying assumptions. Our
        operating results and financial condition are immediately impacted as changes
        in
        estimates for calculating loan loss reserves are immediately recorded in
        our
        consolidated statement of income as an addition or reduction in provision
        expense.
  *Stock-Based
        Compensation*
  On
        January 1, 2006, we adopted SFAS No. 123(R), *Share-Based
        Payment* ,
        which
        requires that the compensation cost relating to share-based payment transactions
        (including the cost of all employee stock options) be recognized in the
        financial statements. That cost will be measured based on the estimated fair
        value of the equity or liability instruments issued. SFAS No. 123(R) covers
        a wide range of share-based compensation arrangements including share options,
        restricted share plans, performance-based awards, share appreciation rights,
        and
        employee share purchase plans. SFAS No. 123(R) replaces SFAS No. 123, *Accounting
        for Stock-Based Compensation* ,
        and
        supersedes Accounting Principles Board Opinion (“APB Opinion”) No. 25, *Accounting
        for Stock Issued to Employees* .
        In
        March 2005, the Securities and Exchange Commission issued Staff Accounting
        Bulletin No. 107 (“SAB No. 107”) relating to SFAS No. 123(R).
  We
        adopted SFAS No. 123(R) using the modified prospective transition method,
        which requires the application of the accounting standard as of January 1,
        2006, the first day of our 2006 fiscal year. Our Consolidated Financial
        Statements after December 31, 2005 reflect the impact of SFAS
        No. 123(R). In accordance with the modified prospective transition method,
        our Consolidated Financial Statements prior to January 1, 2006 have not been
        restated to reflect, and do not include, the impact of SFAS No. 123(R).
        Stock-based compensation expense recognized under SFAS No. 123(R) was
        $35,000 and $207,000 for the three months ended September 30, 2008 and 2007,
        respectively. Stock-based compensation expense recognized under SFAS
        No. 123(R) was $521,000 and $1,400,000 for the nine months ended September
        30, 2008 and 2007, respectively.
  16
  **Lending
        Activities**
  *Summary
        of Loan Portfolio*
  The
        following table sets forth the composition of our loan portfolio at the dates
        indicated.
  **September 30, 2008**
              
              **December 31, 2007****(Dollars in Thousands)**Automobile Contracts
              
              $
              837,533
              
              $
              927,921Unearned
                  finance charges (1)
              
              
              (741
              )
              
              (1,571
              )Unearned
                  acquisition discounts (1)
              
              
              (35,775
              )
              
              (43,699
              )Allowance
                  for loan losses (1)
              
              
              (47,800
              )
              
              (48,386
              )Total
                  loans, net
              
              $
              753,217
              
              $
              834,265
 
 (1)  See
        “—Critical Accounting Policies”
  *Allowance
        for Loan Losses*
  Our
        policy is to maintain an allowance for loan losses to absorb inherent losses
        which may be realized on our portfolio. These allowances are general valuation
        allowances for estimates for probable losses, not specifically identified
        to
        individual loans, that will occur in the next twelve months. The total allowance
        for loan losses was $47.8 million at September 30, 2008 compared with $48.4
        million at December 31, 2007, representing 5.97% of loans at September 30,
        2008 and 5.48% at December 31, 2007.
  Following
        is a summary of the changes in our consolidated allowance for loan losses
        for
        the periods indicated.
  **At or For the Nine Months Ended****September 30, 2008**
              
              **September 30, 2007****(Dollars in Thousands)****Allowance
                  for Loan Losses**Balance
                  at beginning of period
              
              $
              48,386
              
              $
              36,037Provision
                  for loan losses (1)
              
              
              51,544
              
              
              48,536Net
                  charge-offs
              
              
              (52,130
              )
              
              (38,523
              )Balance
                  at end of period
              
              $
              47,800
              
              $
              46,050Annualized
                  net charge-offs to average loans
              
              
              7.65
              %
              
              5.80
              %Ending
                  allowance to period end loans
              
              
              5.97
              %
              
              5.13
              %
  
 (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.
  **September 30, 2008**
              
              **December 31, 2007**
              
              **September 30, 2007****(Dollars in Thousands)****Loan Delinquencies**
              
              **Balance**
              
              **% of Total**
                **Loans**
              
              **Balance**
              
              **% of Total**
                **Loans**
              
              **Balance**
              
              **% of Total**
                **Loans**30
                  to 59 days
              
              $
              9,423
              
              
              1.13
              %
              $
              7,194
              
              
              0.78
              %
              $
              6,729
              
              
              0.71
              %60
                  to 89 days
              
              
              2,403
              
              
              0.29
              %
              
              2,756
              
              
              0.30
              %
              
              2,641
              
              
              0.28
              %90+
                  days
              
              
              1,271
              
              
              0.15
              %
              
              1,534
              
              
              0.16
              %
              
              1,674
              
              
              0.18
              %Total
              
              $
              13,097
              
              
              1.57
              %
              $
              11,484
              
              
              1.24
              %
              $
              11,044
              
              
              1.17
              %
  Our
        policy is to charge off loans delinquent in excess of 120 days.
  17
  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.
  **September 30, 2008**
              
              **December 31, 2007**
              
              **September 30, 2007****(Dollars
                  in Thousands)**Nonaccrual
                  loans
              
              $
              23,634
              
              $
              21,185
              
              $
              19,970Nonaccrual
                  loans to gross loans
              
              
              2.82
              %
              
              2.29
              %
              
              2.12
              %Allowance
                  for loan losses to gross loans, net of unearned acquisition
                  discounts
              
              
              5.97
              %
              
              5.48
              %
              
              5.13
              %
  *Cumulative
        Losses for Contract Pools*
  The
        following table reflects our cumulative losses (i.e., net charge-offs as
        a
        percent of original net contract balances) for contract pools (defined as
        the
        total dollar amount of net contracts purchased in a three-month period)
        purchased from October 2003 through June 2008. Contract pools subsequent
        to June
        2008 were not included in this table because the loan pools were not seasoned
        enough to provide a meaningful comparison with prior periods.
 **Number
                    of**
                
                **Oct-03**
                
                **Jan-04**
                
                **Apr-04**
                
                **Jul-04**
                
                **Oct-04**
                
                **Jan-05**
                
                **Apr-05**
                
                **Jul-05**
                
                **Oct-05**
                
                **Jan-06**
                
                **Apr-06**
                
                **Jul-06**
                
                **Oct-06**
                
                **Jan-07**
                
                **Apr-07**
                
                **Jul-07**
                
                **Oct-07**
                
                **Jan-08**
                
                **Apr-08****Months**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-**
                
                **-****Outstanding**
                
                **Dec-03**
                
                **Mar-04**
                
                **Jun-04**
                
                **Sep-04**
                
                **Dec-04**
                
                **Mar-05**
                
                **Jun-05**
                
                **Sep-05**
                
                **Dec-05**
                
                **Mar-06**
                
                **Jun-06**
                
                **Sep-06**
                
                **Dec-06**
                
                **Mar-07**
                
                **Jun-07**
                
                **Sep-07**
                
                **Dec-07**
                
                **Mar-08**
                
                **Jun-08**1
                
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %
                
                0.00
                %4
                
                
                0.11
                %
                
                0.02
                %
                
                0.04
                %
                
                0.08
                %
                
                0.05
                %
                
                0.03
                %
                
                0.06
                %
                
                0.12
                %
                
                0.05
                %
                
                0.02
                %
                
                0.06
                %
                
                0.09
                %
                
                0.10
                %
                
                0.05
                %
                
                0.08
                %
                
                0.08
                %
                
                0.10
                %
                
                0.04
                %
                
                0.05
                %7
                
                
                0.48
                %
                
                0.37
                %
                
                0.45
                %
                
                0.65
                %
                
                0.49
                %
                
                0.40
                %
                
                0.64
                %
                
                0.59
                %
                
                0.47
                %
                
                0.40
                %
                
                0.62
                %
                
                0.88
                %
                
                0.64
                %
                
                0.54
                %
                
                0.84
                %
                
                0.82
                %
                
                0.61
                %
                
                0.47
                %10
                
                
                1.20
                %
                
                1.37
                %
                
                1.33
                %
                
                1.29
                %
                
                1.19
                %
                
                1.35
                %
                
                1.63
                %
                
                1.36
                %
                
                1.28
                %
                
                1.61
                %
                
                2.00
                %
                
                1.84
                %
                
                1.73
                %
                
                1.77
                %
                
                2.28
                %
                
                1.90
                %
                
                1.77
                %13
                
                
                2.13
                %
                
                2.44
                %
                
                2.13
                %
                
                2.21
                %
                
                2.41
                %
                
                2.48
                %
                
                2.57
                %
                
                2.37
                %
                
                2.71
                %
                
                2.96
                %
                
                3.13
                %
                
                3.23
                %
                
                3.09
                %
                
                3.29
                %
                
                3.51
                %
                
                3.30
                %16
                
                
                3.29
                %
                
                3.20
                %
                
                2.88
                %
                
                3.12
                %
                
                3.56
                %
                
                3.32
                %
                
                3.47
                %
                
                3.56
                %
                
                4.07
                %
                
                3.90
                %
                
                4.35
                %
                
                4.95
                %
                
                4.87
                %
                
                4.54
                %
                
                4.90
                %19
                
                
                4.06
                %
                
                3.96
                %
                
                3.87
                %
                
                4.20
                %
                
                4.44
                %
                
                4.21
                %
                
                4.70
                %
                
                4.85
                %
                
                5.01
                %
                
                5.03
                %
                
                5.92
                %
                
                6.73
                %
                
                6.23
                %
                
                5.89
                %22
                
                
                4.78
                %
                
                4.87
                %
                
                4.77
                %
                
                4.95
                %
                
                5.17
                %
                
                5.50
                %
                
                5.95
                %
                
                5.76
                %
                
                5.96
                %
                
                6.42
                %
                
                7.41
                %
                
                7.98
                %
                
                7.53
                %25
                
                
                5.53
                %
                
                5.63
                %
                
                5.35
                %
                
                5.56
                %
                
                6.12
                %
                
                6.56
                %
                
                6.69
                %
                
                6.69
                %
                
                7.05
                %
                
                7.66
                %
                
                8.59
                %
                
                9.07
                %28
                
                
                6.07
                %
                
                6.16
                %
                
                5.96
                %
                
                6.31
                %
                
                7.02
                %
                
                7.23
                %
                
                7.41
                %
                
                7.67
                %
                
                8.08
                %
                
                8.56
                %
                
                9.65
                %31
                
                
                6.42
                %
                
                6.76
                %
                
                6.62
                %
                
                7.05
                %
                
                7.66
                %
                
                7.86
                %
                
                8.24
                %
                
                8.62
                %
                
                8.78
                %
                
                9.41
                %34
                
                
                6.77
                %
                
                7.37
                %
                
                7.20
                %
                
                7.47
                %
                
                8.24
                %
                
                8.52
                %
                
                9.04
                %
                
                9.25
                %
                
                9.45
                %37
                
                
                7.14
                %
                
                7.95
                %
                
                7.52
                %
                
                7.81
                %
                
                8.73
                %
                
                9.11
                %
                
                9.54
                %
                
                9.69
                %40
                
                
                7.61
                %
                
                8.24
                %
                
                7.83
                %
                
                8.21
                %
                
                9.12
                %
                
                9.43
                %
                
                9.91
                %43
                
                
                7.78
                %
                
                8.44
                %
                
                8.12
                %
                
                8.47
                %
                
                9.34
                %
                
                9.70
                %46
                
                
                7.93
                %
                
                8.63
                %
                
                8.33
                %
                
                8.63
                %
                
                9.59
                %49
                
                
                8.11
                %
                
                8.81
                %
                
                8.43
                %
                
                8.82
                %52
                
                
                8.16
                %
                
                8.85
                %
                
                8.49
                %55
                
                
                8.24
                %
                
                8.91
                %58
                
                
                8.30
                %Original
                    Pool ($000)
                
                $
                68,791
                
                $
                94,369
                
                $
                91,147
                
                $
                89,688
                
                $
                86,697
                
                $
                118,883
                
                $
                120,502
                
                $
                112,487
                
                $
                101,482
                
                $
                142,873
                
                $
                143,988
                
                $
                136,167
                
                $
                113,767
                
                $
                164,019
                
                $
                162,873
                
                $
                144,586
                
                $
                91,581
                
                $
                127,243
                
                $
                95,869Remaining
                    Pool ($000)
                
                $
                678
                
                $
                1,800
                
                $
                2,745
                
                $
                4,205
                
                $
                5,664
                
                $
                11,619
                
                $
                14,424
                
                $
                16,965
                
                $
                19,709
                
                $
                36,133
                
                $
                43,190
                
                $
                48,802
                
                $
                48,272
                
                $
                85,171
                
                $
                95,105
                
                $
                98,003
                
                $
                68,542
                
                $
                109,005
                
                $
                88,659Remaining
                    Pool (%)
                
                
                1.0
                %
                
                1.9
                %
                
                3.0
                %
                
                4.7
                %
                
                6.5
                %
                
                9.8
                %
                
                12.0
                %
                
                15.1
                %
                
                19.4
                %
                
                25.3
                %
                
                30.0
                %
                
                35.8
                %
                
                42.4
                %
                
                51.9
                %
                
                58.4
                %
                
                67.8
                %
                
                74.8
                %
                
                85.7
                %
                
                92.5
                %
  18
  *Loan
        Maturities*
  The
        following table sets forth the principal dollar amount of automobile contracts
        maturing in our automobile contracts portfolio at September 30, 2008 based
        on
        final maturity. Automobile contract balances are reflected before unearned
        acquisition discounts and allowance for loan losses.
  **One**
                **Year or**
                **Less**
              
              **More Than**
                **1 Year to**
                **3 Years**
              
              **More Than**
                **3 Years to**
                **5 Years**
              
              **More Than**
                **5 Years to**
                **10 Years**
              
              **Total**
                **Loans****(Dollars in
                  thousands)**Total
                  loans
              
              $
              28,364
              
              $
              347,614
              
              $
              397,521
              
              $
              63,293
              
              $
              836,792
  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,
        securitizations and retained earnings. However, as discussed in more detail
        below, due to the restructuring of our warehouse credit line and increasing
        challenges in the credit markets, we are currently evaluating alternative
        sources of financing.
  Our
        primary uses of cash include:
  •  acquisition
        of automobile contracts;
  •  interest
        expense;
  •  operating
        expenses; and
  •  securitization
        costs.
  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
  •  releases
        of excess cash from our warehouse credit facility.
 
 *Recent
        Market Developments*
  A
        number
        of factors have adversely impacted our liquidity in 2008 and we anticipate
        these
        factors will continue to adversely impact our liquidity through 2008 and
        2009.
        The disruptions in the capital markets and, to a lesser extent, the credit
        deterioration we are experiencing in our portfolio and substantially weakened
        demand for securities guaranteed by insurance policies, are making the execution
        of securitization transactions more challenging and expensive. We may also
        realize decreased cash distributions from our securitization trusts due to
        weaker credit performance and higher borrowing costs.
  The
        asset-backed securities market, along with credit markets in general, has
        been
        experiencing unprecedented disruptions. Market conditions began deteriorating
        in
        mid-2007 and remain impaired in 2008. Further, the prime quality automobile
        securitizations that were executed in 2008 utilized senior-subordinated
        structures and sold only the highest rated securities. In addition, the
        financial guaranty insurance providers used by us in the past are facing
        financial stress and rating agency downgrades. As a result, demand for
        asset-backed securities backed by a financial guarantee insurance policy
        has
        substantially weakened and there has been a limited number of public issuances
        of insured automobile asset-backed securities since November 2007. We have
        not
        accessed the securitization market with a transaction since November 2007
        and do
        not anticipate accessing the securitization market during the remainder of
        the
        year.
  Current
        conditions in the asset-backed securities market include reduced liquidity,
        increased risk premiums for issuers, reduced investor demand for asset-backed
        securities, particularly those securities backed by non-prime collateral,
        financial stress and rating agency downgrades impacting the financial guaranty
        insurance providers, and a general tightening of availability of credit.
        These
        conditions, which may increase our cost of funding and reduce our access
        to the
        asset-backed securities market or other types of receivable financings, may
        continue or worsen in the future. Due to the current conditions in the
        asset-backed securities market, along with credit markets in general, the
        execution of securitization transactions is more challenging and expensive
        and
        we are analyzing our liquidity strategies going forward. We
        are
        currently 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. For
        a
        more complete description of the financing risks that we face, see Item 1A.
        “Risk Factors” in our 2007 Annual Report on Form 10-K and other factors or
        conditions described under Part II, Item 1A. “Risk Factors” of this Quarterly
        Report on Form 10-Q.
  19
  *Securitizations*
  Our
        securitizations are structured as on-balance-sheet transactions and recorded
        as
        secured financings because they do not meet the accounting criteria for sale
        of
        finance receivables under SFAS No. 140. Since 2004, regular contract
        securitizations have been an integral part of our business plan 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, a downgrading of any of our financial guaranty insurance providers’
credit ratings or the inability to structure alternative credit enhancements,
        such as senior subordinated transactions, for our securitization program
        could
        result in higher interest costs for our future securitizations and larger
        initial and/or target credit enhancement requirements. The absence of a
        financial guaranty insurance policy may also impair the marketability of
        our
        securitizations.
  The
        following table lists each of our securitizations and its remaining balance
        as
        of September 30, 2008.
  *(Dollars
        in thousands)*
 
 **Issue**
                **Number**
              
              **Issuance Date**
              
              **Original**
                **Balance**
              
              **Current**
                **Balance**
                **Class A-1**
              
              **Interest**
                **Rate**
              
              **Current**
                **Balance**
                **Class A-2**
              
              **Interest**
                **Rate**
              
              **Current**
                **Balance**
                **Class A-3**
              
              **Interest**
                **Rate**
              
              **Total**
                **Current**
                **Balance**
              
              **Current**
                **Receivables**
                **Pledged**
              
              **Surety**
                **Costs(1)**
              
              **Back-up**
                **Servicing**
                **Fees**2005A
              
              
              April 14, 2005
              
              
              195,000
              
              
              —
              
              
              3.12
              %
              
              —
              
              
              3.85
              %
              
              12,867
              
              
              4.84
              %
              
              12,867
              
              
              13,798
              
              
              0.43
              %
              
              0.035
              %2005B
              
              
              November 10, 2005
              
              
              225,000
              
              
              —
              
              
              4.28
              %
              
              —
              
              
              4.82
              %
              
              29,991
              
              
              4.98
              %
              
              29,991
              
              
              33,630
              
              
              0.41
              %
              
              0.035
              %2006A
              
              
              June
                  15, 2006
              
              
              242,000
              
              
              —
              
              
              5.27
              %
              
              —
              
              
              5.46
              %
              
              56,842
              
              
              5.49
              %
              
              56,842
              
              
              62,296
              
              
              0.39
              %
              
              0.035
              %2006B
              
              
              December 14, 2006
              
              
              250,000
              
              
              —
              
              
              5.34
              %
              
              —
              
              
              5.15
              %
              
              86,065
              
              
              5.01
              %
              
              86,065
              
              
              94,976
              
              
              0.38
              %
              
              0.035
              %2007A
              
              
              June
                  14, 2007
              
              
              250,000
              
              
              —
              
              
              5.33
              %
              
              26,676
              
              
              5.46
              %
              
              99,000
              
              
              5.53
              %
              
              125,676
              
              
              139,790
              
              
              0.37
              %
              
              0.032
              %2007B
              
              
              November 8, 2007
              
              
              250,000
              
              
              —
              
              
              4.99
              %
              
              58,787
              
              
              5.75
              %
              
              99,000
              
              
              6.15
              %
              
              157,787
              
              
              175,641
              
              
              0.45
              %
              
              0.035
              %$
              1,412,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              469,228
              
              $
              520,131
 
 (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.
  20
  As
        of
        September 30, 2008, we were in compliance with all terms of the financial
        covenants related to our securitization transactions. However, there are
        two
        non-financial covenants under the various financial guaranty insurance policies
        for the securitizations for which we are seeking permanent waivers. 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.
  *Warehouse
        Facility*
  On
        August
        22, 2008, we restructured our $300 million warehouse facility ,
        which
        we have 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 quarter
        ended
        September 30, 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 for an additional one-year term, which
        amortizes pursuant to a pre-determined schedule, providing that the Company
        will
        pay all amounts owed under the credit facility by October 16, 2009. As
        a
        result, we are unable to access further advances under the newly converted
        term
        loan. Management is currently pursuing and evaluating alternative sources
        of
        financing and is also considering selling loans on a whole-loan basis. At
        this
        time, there is no assurance 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.
  Under
        the
        previous terms of the warehouse facility, our indirect subsidiary, UFC had
        historically obtained advances on a revolving basis by issuing notes to the
        participating lenders and pledging for each advance a portfolio of automobile
        contracts. UFC purchases the automobile contracts from UACC and UACC services
        the automobile contracts, which are held by a custodian. 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 warehouse facility. Although
        the warehouse lenders have expressed their intention that UACC continue to
        service the automobile contracts pledged to the warehouse facility through
        UACC’s decentralized branches, the warehouse facility, as amended, provides that
        UACC will act as servicer on a month-to-month basis for the automobile contracts
        pledged to the warehouse facility. UACC’s servicing rights automatically expire
        each month, unless extended by the warehouse lenders in their 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 warehouse facility.
        In
        the event that we fail to satisfy certain covenants in the sale and servicing
        agreement requiring minimum financial ratios, asset quality, and portfolio
        performance ratios (portfolio net loss and delinquency ratios and pool level
        cumulative net loss ratios), we could be required to increase the amount
        of
        funds that we hold in restricted cash. Failure to meet any of these covenants
        could also result in an event of default under the warehouse facility. If
        an
        event of default occurs under the warehouse facility, the lender could elect
        to
        declare all amounts outstanding under the facility to be immediately due
        and
        payable, enforce the interest against collateral pledged under the agreement
        or
        restrict our ability to obtain additional borrowings under the facility.
        We were
        in compliance with the terms of such financial covenants as of September
        30,
        2008.
  *Residual
        Credit Facility*
  On
        January 24, 2007, we closed a $26 million variable rate residual credit
        facility. The facility is secured by eligible residual interests in previously
        securitized pools of automobile receivables and certain securities issued
        by
        UARC, UAFC, and UFC. We had provided an absolute and unconditional and
        irrevocable guaranty of the full and punctual payment and performance, of
        all
        liabilities, agreements and other obligations of UARC, UAFC, and UFC under
        the
        residual credit facility. This facility expired on January 24, 2008.
  *Share
        Repurchase Program*
  On
        June 27, 2006, our Board of Directors approved a share repurchase program
        and authorized us to repurchase up to 500,000 shares of our outstanding common
        stock from time to time in the open market or in private transactions in
        accordance with the provisions of applicable state and federal law, including,
        without limitation, Rule 10b-18 promulgated under the Securities Exchange
        Act of
        1934, as amended. On August 4, 2006, our Board of Directors approved an
        increase in the aggregate number of shares that we may repurchase pursuant
        to
        the previously announced share repurchase program from 500,000 shares to
        1,500,000 shares. On December 21, 2006, our Board of Directors approved a
        second increase in the aggregate number of shares of our outstanding common
        stock that we may repurchase pursuant to the previously announced share
        repurchase program from 1,500,000 shares to 3,500,000 shares. We repurchased
        1,013,213 shares of our common stock for an average price of $12.98 per share
        for an aggregate purchase price of $13.2 million during the nine months ended
        September 30, 2007. In total we have repurchased 2,089,738 shares of our
        common
        stock for an average price of $15.58 per share for an aggregate purchase
        price
        of $32.6 million. We did not repurchase any shares of our common stock during
        the nine months ended September 30, 2008.
  21
  *Subordinated
        Debentures*
  On
        July 31, 2003, the Company issued trust preferred securities of $10.0
        million through a subsidiary UPFC Trust I. The Trust issuer is a “100% owned
        finance subsidiary” of the Company and the Company “fully and unconditionally”
guaranteed the securities. The Company will pay interest on these funds at
        a
        rate equal to the three month LIBOR plus 3.05%, variable quarterly, and the
        rate
        was 5.84% as of September 30, 2008. The final maturity of these securities
        is 30
        years, however, they can be called at par any time after July 31, 2008 at
        the option of the Company.
  *Aggregate
        Contractual Obligations*
  The
        following table provides the amounts due under specified obligations for
        the
        periods indicated as of September 30, 2008.
 
 **Less than**
                **1 Year**
              
              **1 Year**
                **to 3 Years**
              
              **3 Years**
                **to 5 Years**
              
              **More Than**
                **5 Years**
              
              **Total****(Dollars in thousands)**Warehouse line of credit
              
              $
              237,378
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              237,378Securitization
                  notes payable
              
              
              219,209
              
              
              215,401
              
              
              34,618
              
              
              —
              
              
              469,228Operating
                  lease obligations
              
              
              5,846
              
              
              10,311
              
              
              4,600
              
              
              124
              
              
              20,881Junior
                  subordinated debentures
              
              
              —
              
              
              —
              
              
              —
              
              
              10,310
              
              
              10,310Total
              
              $
              462,433
              
              $
              225,712
              
              $
              39,218
              
              $
              10,434
              
              $
              737,797
  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.
  22
  **Selected
        Financial Data**
 
 *(Dollars
                  in thousands)*
              
              At or For the
                Three Months Ended
              
              At or For the
                Nine Months EndedSeptember 30,
                2008
              
              September 30,
                2007
              
              September 30,
                2008
              
              September 30,
                2007**Operating
                  Data**Contracts
                  purchased
              
              $
              38,136
              
              $
              149,294
              
              $
              266,574
              
              $
              484,741Contracts
                  outstanding
              
              $
              836,792
              
              $
              944,101
              
              $
              836,792
              
              $
              944,101Unearned
                  acquisition discounts
              
              $
              (35,775
              )
              $
              (45,728
              )
              $
              (35,775
              )
              $
              (45,728
              )Average
                  loan balance
              
              $
              884,433
              
              $
              934,334
              
              $
              910,319
              
              $
              887,548Unearned
                  acquisition discounts to gross loans
              
              
              4.28
              %
              
              4.84
              %
              
              4.28
              %
              
              4.84
              %Average
                  percentage rate to borrowers
              
              
              22.72
              %
              
              22.62
              %
              
              22.72
              %
              
              22.62
              %**Loan
                  Quality Data**Allowance
                  for loan losses
              
              $
              (47,800
              )
              $
              (46,050
              )
              $
              (47,800
              )
              $
              (46,050
              )Allowance
                  for loan losses to gross loans net of unearned acquisition
                  discounts
              
              
              5.97
              %
              
              5.13
              %
              
              5.97
              %
              
              5.13
              %Delinquencies
                  (% of net contracts)31-60
                  days
              
              
              1.13
              %
              
              0.71
              %
              
              1.13
              %
              
              0.71
              %61-90
                  days
              
              
              0.29
              %
              
              0.28
              %
              
              0.29
              %
              
              0.28
              %90+
                  days
              
              
              0.15
              %
              
              0.18
              %
              
              0.15
              %
              
              0.18
              %Total
              
              
              1.57
              %
              
              1.17
              %
              
              1.57
              %
              
              1.17
              %Repossessions
                  over 30 days past due (% of net contracts)
              
              
              1.08
              %
              
              0.76
              %
              
              1.08
              %
              
              0.76
              %Annualized
                  net charge-offs to average loans(1)
              
              
              9.14
              %
              
              6.66
              %
              
              7.65
              %
              
              5.80
              %**Other
                  Data**Number
                  of branches
              
              
              79
              
              
              142
              
              
              79
              
              
              142Number
                  of employees
              
              
              750
              
              
              1,095
              
              
              750
              
              
              1,095Interest
                  income
              
              $
              54,763
              
              $
              59,726
              
              $
              170,859
              
              $
              170,005Interest
                  expense
              
              $
              13,148
              
              $
              12,532
              
              $
              37,227
              
              $
              34,647Interest
                  margin
              
              $
              41,615
              
              $
              47,194
              
              $
              133,632
              
              $
              135,358Net
                  interest margin as a percentage of interest income
              
              
              75.99
              %
              
              79.02
              %
              
              78.21
              %
              
              79.62
              %Net
                  interest margin as a percentage of average loans(1)
              
              
              18.72
              %
              
              20.04
              %
              
              19.61
              %
              
              20.39
              %Non-interest
                  expense to average loans(1)
              
              
              15.25
              %
              
              10.08
              %
              
              12.55
              %
              
              10.77
              %Non-interest
                  expense to average loans(2)
              
              
              8.94
              %
              
              10.08
              %
              
              9.94
              %
              
              10.77
              %Return
                  on average assets(1)
              
              
              (2.74
              )%
              
              1.03
              %
              
              (0.16
              )%
              
              1.45
              %Return
                  on average shareholders’ equity(1)
              
              
              (15.59
              )%
              
              6.46
              %
              
              (0.94
              )%
              
              8.72
              %Consolidated
                  capital to assets ratio
              
              
              17.74
              %
              
              16.01
              %
              
              17.74
              %
              
              16.01
              %
  (1)
          Quarterly information is annualized for comparability with full year
          information.
 (2)
        Excluding restructuring charges.
  **Results
        of Operations**
  ***Comparison
        of Operating Results for the three Months Ended September 30, 2008 and 2007***
  *General*
 
 For
        the
        quarter ended September 30, 2008, we reported net loss of $6.5 million, compared
        to net income of $2.6 million for the same period a year ago. Interest income
        decreased 8.2% to $54.8 million for the quarter ended September 30, 2008
        from
        $59.7 million for the same period a year ago. We reported net loss of $0.41
        per
        diluted share for the quarter ended September 30, 2008 compared to net income
        of
        $0.16 per diluted share for the same period a year ago. The reported net
        income
        for the quarter ended September 30, 2008 includes an after tax charge of
        $8.9
        million or $0.56 per diluted share for restructuring charges associated with
        the
        closure of 27 branches in the third quarter of 2008 and other non-recurring
        charges.
  Interest
        income decreased 8.2% to $54.8 million for the three months ended September
        30,
        2008 from $59.7 million for the same period a year ago due to a decrease
        in
        average automobile contracts outstanding of $49.9 million. Automobile contracts
        purchased decreased $111.2 million to $38.1 million for the three months
        ended
        September 30, 2008 from $149.3 million for the same period a year ago. This
        decrease was the result of our strategy of downsizing our operations, suspending
        new loan originations and reducing our branch footprint in order to lower
        expenses and meet liquidity needs. During the three months ended September
        30,
        2008, we closed an additional 27 branches bringing our total number of operating
        branches to 79 in 33 states.
  23
  *Interest
        Income*
  Interest
        income decreased by 8.2% to $54.8 million for the three months ended September
        30, 2008 from $59.7 million for the same period a year ago due primarily
        to a
        decrease in average loan outstanding as a result of our strategy of downsizing
        operations, suspending new loan originations and reducing our branch footprint
        in order to lower expenses and meet required liquidity needs.
 
 *Interest
        Expense*
  Interest
        expense increased to $13.1 million for the three months ended September 30,
        2008
        from $12.5 million for the same period a year ago  due
        primarily to higher market interest rates on the warehouse facility. As a
        result, net interest margin decreased from 79.0% for the quarter ended September
        30, 2007 to 76.0% for the quarter ended September 30, 2008.
 
 *Provision
        and Allowance for Loan Losses*
  Provisions
        for loan losses are charged to income to bring our allowance for loan losses
        to
        a level which management considers adequate to absorb probable credit losses
        inherent in the portfolio of automobile loans. The provision for loan losses
        recorded in the three months ended September 30, 2008 and 2007 reflects inherent
        losses on receivables originated during those periods and changes in the
        amount
        of inherent losses on receivables originated in prior periods. The provision
        for
        loan losses decreased to $18.8 million for the three months ended September
        30,
        2008 compared with $20.0 million for the same period a year ago. The
        decrease in the provision for loan losses was due primarily to a $49.9 million
        decrease in average automobile contracts offset by an increase in the annualized
        charge-off rate to 9.14% for the three months ended September 30, 2008 compared
        to 6.66% for the same period a year ago.
  The
        increase in our annualized net charge-off rates was the result of increased
        defaults due to the overall deteriorating economic environment and the adverse
        effect of a smaller denominator (used in the computation) as a result of
        a
        declining automobile loan portfolio balance.
  The
        total
        allowance for loan losses was $47.8 million at September 30, 2008 compared
        with
        $46.1 million at September 30, 2007, representing 5.97% of automobile contracts,
        less unearned acquisition discounts, at September 30, 2008 and 5.13% at
        September 30, 2007. The increase in the allowance for loan losses was due
        primarily to an increase in the loss rate within the portfolio.
  A
        provision for loan losses is charged to operations based on our regular
        evaluation of the adequacy of the allowance for loan losses. While management
        believes it has adequately provided for losses and does not expect any material
        loss on its loans in excess of allowances already recorded, no assurance
        can be
        given that economic or other market conditions or other circumstances will
        not
        result in increased losses in the loan portfolio.
  For
        further information, see “—Critical Accounting Policies.”
  *Non-interest
        Income*
  Non-interest
        income increased $0.4 million to $0.9 million for the three months ended
        September 30, 2008 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 increased to $33.9 million for the three months ended September 30,
        2008
        from $23.7 million for the same period a year ago. The increase in non-interest
        expense was due to a pretax restructuring charge of $4.1 million ($2.6 million
        after tax) associated with the closure of 27 branches. The restructuring
        charge
        included severance, fixed asset write-offs, closure and post-closure costs
        and a
        $1.8 million reserve for estimated future lease obligations. The other
        non-recurring charge of $9.9 million ($6.3 million after tax) was mainly
        due to
        $7.3 million fee payable on the exit from the warehouse facility and $2.6
        million associated with professional fees paid on discontinued financing
        transactions. Non-interest expense, excluding the restructuring charges and
        other non-recurring charges as a percentage of average loans dropped to 8.9%
        for
        the three months ended September 30, 2008 from 10.1% for the same period
        a year
        ago. Compensation and benefits decreased to $13.0 million for the three months
        ended September 30, 2008 from $15.1 million for the same period a year ago
        due
        primarily to branch closures during the past twelve months.
  24
  *Income
        Taxes*
  Income
        tax benefit was $3.8 million for the three months ended September 30, 2008.
        Income tax expense was $1.3 million for the same period a year ago. Income
        tax
        expense is based upon the estimated effective income tax rate that we expect
        to
        realize for the year ending December 31, 2008.
  ***Comparison
        of Operating Results for the Nine Months Ended September 30, 2008 and 2007***
  *General*
  For
        the
        nine months ended September 30, 2008, we reported net loss of $1.1 million,
        compared to net income of $10.2 million for the same period a year ago. Interest
        income increased 0.5% to $170.9 million for the nine months ended September
        30,
        2008 from $170.0 million for the same period a year ago. We reported net
        loss of
        $0.07 per diluted share for the nine months ended September 30, 2008 compared
        to
        net income of $0.62 per diluted share for the same period a year ago. The
        reported net loss for the nine months ended September 30, 2008 includes an
        after
        tax charge of $13.2 million or $0.84 per diluted share for restructuring
        charges
        associated with the closure of 63 branches during the nine months ended
        September 30, 2008 and other non-recurring charges.
  Interest
        income increased 0.5% to $170.9 million for the nine months ended September
        30,
        2008 from $170.0 million for the same period a year ago due primarily to
        an
        increase in average loan receivable outstanding during the period of $22.8
        million.
  *Interest
        Income*
  Interest
        income increased 0.5% to $170.9 million for the nine months ended September
        30,
        2008 from $170.0 million for the same period a year ago. Interest income
        on
        loans represents finance charges taken into earnings as well as the accretion
        of
        the acquisition discount fee on loans acquired.
 
 *Interest
        Expense*
  Interest
        expense increased 8.4% to $37.2 million for the nine months ended September
        30,
        2008 from $34.6 million for the same period a year ago. The average interest
        rate increased to 6.31% for the nine months ended September 30, 2008 from
        5.99%
        for the same period a year ago. The increase was the result of higher market
        interest rates on the warehouse facility, coupled with pay down of lower
        priced
        securitizations.
 
 *Provision
        and Allowance for Loan Losses*
  Provisions
        for loan losses are charged to income to bring our allowance for loan losses
        to
        a level which management considers adequate to absorb probable credit losses
        inherent in the portfolio of automobile loans. The provision for loan losses
        recorded in the nine months ended September 30, 2008 and 2007 reflects inherent
        losses on receivables originated during those periods and changes in the
        amount
        of inherent losses on receivables originated in prior periods. The provision
        for
        loan losses increased to $51.5 million for the nine months ended September
        30,
        2008 compared with $48.5 million for the same period a year ago. The
        increase in the provision for loan losses was due primarily to an increase
        in
        the annualized charge-off rate to 7.65% for the nine months ended September
        30,
        2008 compared to 5.80% for the same period a year ago. The increase in our
        year-to-date annualized net charge-offs was the result of increased defaults
        due
        to the overall deteriorating economic environment, and continued employment
        contraction. In addition, the loss rate is adversely impacted by declining
        receivable balance and maturation of the portfolio as a result of lower
        origination levels in 2008.
  The
        total
        allowance for loan losses was $47.8 million at September 30, 2008 compared
        with $46.1 million at September 30, 2007, representing 5.97% of net
        receivables at September 30, 2008 and 5.13% at September 30, 2007. The
        increase in allowance loan losses was due primarily to an increase in the
        loss
        rate within the portfolio.
  A
        provision for loan losses is charged to operations based on our regular
        evaluation of the adequacy of the allowance for loan losses. While management
        believes it has adequately provided for losses and does not expect any material
        loss on its loans in excess of allowances already recorded, no assurance
        can be
        given that economic or other market conditions or other circumstances will
        not
        result in increased losses in the loan portfolio. For further information,
        see
“—Critical Accounting Policies.”
  *Non-interest
        Income*
  Non-interest
        income increased to $1.9 million for the nine months ended September 30,
        2008 from $1.3 million for the same period a year ago. The increase was
        primarily the result of higher fee income related to collection
        activities.
  25
  *Non-interest
        Expense*
  Non-interest
        expense increased $14.0 million to $85.5 million for the nine months ended
        September 30, 2008 from $71.5 million for the same period a year ago. The
        increase in non-interest expense was due to a pretax restructuring charge
        of
        $7.9 million ($5.9 million after tax) for the nine months ended September
        30,
        2008 associated with the closure of 63 branches and other non-recurring charges
        of $9.9 million ($7.3 million after tax) associated with fee payable on the
        exit
        from the warehouse facility and professional fees paid on discontinued financing
        transactions. The restructuring charge included severance, fixed asset
        write-offs, closure and post-closure costs and a $2.2 million reserve for
        estimated future lease obligations. Non-interest expense, excluding the
        restructuring charges and other non-recurring charges as a percentage of
        average
        loans dropped to 9.94% for the nine months ended September 30, 2008 from
        10.77%
        for the same period a year ago. Other non-interest expense decreased to $16.2
        million for the nine months ended September 30, 2008 from $18.7 million for
        the
        same period a year ago due primarily to branch closures during the past twelve
        months.
  *Income
        Taxes*
  Income
        tax benefit was $0.4 million for the nine months ended September 30, 2008
        as compared to a provision of $6.5 million for the same period a year ago.
        This
        decrease in the provision of $6.9 million occurred primarily as a result
        of a
        $18.2 million decrease in income before income taxes. Income tax expense
        in
        interim reporting period is based upon the estimated effective income tax
        rate
        that we expect to realize for the full fiscal year ending December 31, 2008.
  **Financial
        Condition**
  ***Comparison
        of Financial Condition at September 30, 2008 and December 31, 2007***
  Total
        assets decreased $82.6 million, to $894.6 million at September 30, 2008,
        from
        $977.2 million at December 31, 2007. The decrease resulted from a $81.7
        million decrease in automobile loans to $801.0 million, net of unearned
        acquisition discounts and unearned finance charges, at September 30, 2008
        from
        $882.7 million at December 31, 2007. On August 8, 2008, we entered into an
        agreement to sell $10.0 million of receivables on a whole-loan basis with
        servicing released.
  Securitization
        notes payable decreased to $469.2 million at September 30, 2008 from
        $762.2 million at December 31, 2007 due to payments on the automobile
        contracts backing the securitized borrowings.
  Warehouse
        line of credit borrowing increased to $237.4 million as of September 30,
        2008
        from $35.6 as of December 31, 2007 due to no securitization in
        2008.
  The
        reduction in securitization notes payable and the increase in borrowings
        under
        the warehouse facility reflect the fact that we have not accessed the
        securitization market with a transaction since November 2007.
   Shareholders’
        equity decreased to $158.7 million at September 30, 2008 from $159.3 million
        at
        December 31, 2007, primarily as a result of net loss of $1.1
        million.
 
 **Cash
        Flows**
 
 ***Comparison
        of Cash Flows for the Nine Months Ended September 30, 2008 and
        2007***
 
 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.
 
 Cash
        provided by operating activities was $44.3 million and $38.2 million for
        the
        nine months ended September 30, 2008 and 2007, respectively. Cash provided
        by
        operating activities increased for the nine months ended September 30, 2008
        compared to the same period in 2007 due primarily to an increase in cash
        received on interest income, partially offset by an increase in cash used
        on
        interest expense.
 
 Cash
        used
        in investing activities was $48.2 million and $145.6 million for the nine
        months
        ended September 30, 2008 and 2007, respectively. Cash used in investing
        activities decreased for the nine months ended September 30, 2008 compared
        to
        the same period in 2007 due to a decrease of $218.2 million in automobile
        contracts purchased.
 
 Cash
        used
        in financing activities was $92.9 million for nine months ended September
        30,
        2008. Cash provided by financing activities was $96.0 million for the nine
        months ended September 30, 2007. Cash used in financing activities for the
        nine
        months ended September 30, 2008 reflects $236.1 million in proceeds from
        the
        warehouse line, $34.4 million in payments on the warehouse line of credit,
        no
        proceeds from securitization as we did not access the securitization market
        during the nine months ended September 30, 2008 and $293.0 million in payments
        on securitization notes payable. Cash provided by financing activities for
        the
        nine months ended September 30, 2007 reflects $442.6 million in proceeds
        from
        the warehouse line of credit, $249.4 million in payments on the warehouse
        line
        of credit, $250.0 million in proceeds from securitization and $330.6 million
        in
        payments on securitization notes payable.
  26
  **Management
        of Interest Rate Risk**
  The
        principal objective of our interest rate risk management program is to evaluate
        the interest rate risk inherent in our business activities, determine the
        level
        of appropriate risk given our operating environment, capital and liquidity
        requirements and performance objectives and manage the risk consistent with
        guidelines approved by our Board of Directors. Through such management, we
        seek
        to reduce the exposure of our operations to changes in interest rates.
  Our
        profits depend, in part, on the difference, or “spread,” between the effective
        rate of interest received on the loans which we originate and the interest
        rates
        paid on our financing facilities, which can be adversely affected by movements
        in interest rates.
  The
        automobile contracts purchased and held by us are written at fixed interest
        rates and, accordingly, have interest rate risk while such contracts are
        funded
        with warehouse borrowings because the warehouse borrowings accrue interest
        at a
        variable rate. Prior to closing our first securitization, while we were shifting
        the funding source of our automobile finance business to the public capital
        markets through securitizations and warehouse facilities, we entered into
        forward agreements in order to reduce the interest rate risk exposure on
        our
        securitization notes payable. The market value of these forward agreements
        was
        designed to respond inversely to changes in interest rate. Because of this
        inverse relationship, we were able to effectively lock in a gross interest
        rate
        spread for our automobile contracts held in portfolio prior to the sale of
        the
        securitization notes payable. Losses related to these agreements were recorded
        on our Consolidated Statements of Operations during 2004 because the derivative
        transactions did not meet the accounting requirements to qualify for hedge
        accounting. Accordingly, we did not amortize them over the life of the
        automotive contracts.
  **Recent
        Accounting Developments**
  See
        Note
        3 to the Consolidated Financial Statements included in Item 1 to this
        Quarterly Report on Form 10-Q for a discussion of recent accounting
        developments.
  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 September 30, 2008.
  **Changes
        in Internal Control Over Financial Reporting**
  There
        was
        no change in our internal control over financial reporting during the quarter
        ended September 30, 2008 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 risk factors and information set forth in this report,
        you
        should carefully consider the factors discussed in Part I, “Item 1A. Risk
        Factors” in our Annual Report on Form 10-K for the year ended December 31,
        2007, which could materially affect our business, financial condition or
        future
        results. The risks described in our Annual Report on Form 10-K are not the
        only
        risks facing the Company. Additional risks and uncertainties not currently
        known
        to us or that we currently deem to be immaterial also may materially adversely
        affect our business, financial condition, operating results and/or cash flows.
        Given recent developments in the asset-backed securities market and credit
        markets in general experiencing unprecedented disruptions, along with the
        amendment to our warehouse facility, we are adding the following risk
        factors:
  **Risks
        Related to Our Business**
  **Our
        access to liquidity sources has been negatively impacted by changes to our
        warehouse facility, our inability to access the securitization market and
        may be
        further negatively impacted if market conditions persist.**
  While
        we
        actively maintain liquidity at least sufficient to cover all our maturing
        debt
        obligations or other forecasted funding requirements, our liquidity has been,
        and may continue to be affected, by continued disruptions in the capital
        markets
        and an inability to access the securitizations markets. Our past primary
        source
        of operating liquidity came from a $300 million warehouse facility, which
        we
        have depended on to fund our automobile finance operations in order to finance
        the purchase of automobile contracts pending securitization. We required
        continued execution of securitization transactions in order to generate cash
        proceeds for repayment of our warehouse facility and to create availability
        to
        purchase additional automobile contracts. However, due to unprecedented
        disruptions in the asset-backed securities market and credit markets in general,
        we have not accessed the securitization market with a transaction since November
        2007 and our warehouse facility has recently converted to a term
        loan.
  Management
        is currently pursuing
        and evaluating alternative sources of financing and is also considering selling
        receivables on a whole-loan basis. At this time, there is no assurance 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. We also cannot forecast
        if or
        when market liquidity conditions will improve from current stresses, although
        it
        is our expectation that the existing turmoil in the financial and credit
        markets
        may continue to affect our performance. If we are unable to arrange for other
        types of interim financing, then our results of operations, financial condition
        and cash flows would be materially and adversely affected.
  **We
        may be unable to manage consolidating our operations.**
 
 As
        a
        result of the continued disruptions in the capital markets, including the
        uncertainty for use of securitizations as a source of financing, as well
        as the
        lack of available borrowing capacity under our warehouse facility for an
        extended period of time, we determined to consolidate our operations and
        reduce
        our branch footprint in order to lower expenses and meet required liquidity
        needs. We are vulnerable to a variety of business risks generally associated
        with downsizing business operations including, among others, portfolio credit
        deterioration, retaining and motivating qualified employees and successfully
        managing the resulting consolidated branches. Our failure to effectively
        manage
        this consolidation, would have a material adverse effect on our financial
        condition, results of operations and business prospects.
 
 **We
        may be unable to obtain permanent waivers under our insurance agreement for
        non-compliance with covenants.**
  As
        of
        September 30, 2008, we were in compliance with all terms of the financial
        covenants related to our securitization transactions. However, there are
        two
        non-financial covenants under the various financial guaranty insurance policies
        for the securitizations for which we are seeking permanent waivers. We are
        currently operating under temporary waivers for these covenants. These two
        covenants relate to the appointment of our chief executive officer and our
        agreement to maintain a warehouse facility. If we are unable to obtain permanent
        waivers for both these items or continuing temporary waivers, then each
        insurance provider may elect to enforce the various rights and remedies that
        are
        governed by the different transaction documents for each securitization,
        which
        could have a material adverse effect on our financial condition, results
        of
        operations and business prospects.
  29
   **Item 2.**  **Unregistered
        Sales of Equity Securities and Use of Proceeds.**
  **Issuer
        Purchases of Equity Securities**
  During
        the quarter ended September 30, 2008, we did not repurchase any shares of
        our
        common stock.
  **Period**
              
              **Total**
                **Number of**
                **Shares**
                **Purchased**
              
              **Average**
                **Price Paid**
                **Per Share**
              
              **Total Number of Shares**
                **Purchased as Part of**
                **Publicly Announced**
                **Plan or Program**
              
              **Approximate Number**
                **of Shares That**
                **May Yet Be**
                **Purchased Under the**
                **Plan or Program**July 1, 2008 to July 31,
                  2008
              
              
              —
              
              $
              —
              
              
              —
              
              
              1,410,262August
                  1, 2008 to August 31, 2008
              
              
              —
              
              $
              —
              
              
              —
              
              
              1,410,262September
                  1, 2008 to September 30, 2008
              
              
              —
              
              $
              —
              
              
              —
              
              
              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.** ****
  The
        Company’s 2008 Annual Meeting of Shareholders was held on September 24, 2008. At
        this meeting, the following matters were submitted to a vote of the Company’s
        shareholders:
 
 Proposal 1:
              Elect
                  Three DirectorsProposal 2:
              Ratify
                  Selection of Independent Public Accountants for
                  2008
  Proposal
        1. At this meeting, each of the following directors was elected to serve
        on the
        Company’s Board of Directors until the annual meeting of shareholders to be held
        in 2010, or until election of his successor, or until he resigns:
 
 **Votes
                  For**
              
              **Votes Withheld**Giles
                  H. Bateman
              
              
              12,796,656
              
              
              1,338,840Mitchell
                  G. Lynn
              
              
              12,796,656
              
              
              1,338,840James
                  Vagim
              
              
              11,982,747
              
              
              2,152,749
  Other
        directors continuing to serve on the Company’s Board of Directors until the
        annual meeting of shareholders to be held in 2009, or until election of their
        successors, or until they resign, are Guillermo Bron, Luis Maizel and Julie
        Sullivan.
  Proposal
        2. At this meeting, the ratification of Grobstein, Horwath & Company
        LLP as the Company’s independent auditors for the year ending December 31,
        2008 was approved by the Company’s shareholders (with 14,114,077 votes cast for,
        2,740 votes cast against, and 18,679 votes abstaining).
  **Item 5.**  **Other
        Information.** ****
  Not
        applicable
  30
  **Item 6.**  **Exhibits.** ****
 
 10.1
              
              Employment
                  Agreement dated August 13, 2008 by and between United PanAm Financial
                  Corp. and James Vagim.10.2
              
              Employment
                  Agreement dated August 13, 2008 by and between United PanAm Financial
                  Corp. and Ravi Gandhi.10.3
              
              Amended
                  and Restated Receivables Financing Agreement dated as of October
                  18, 2007,
                  2007 by and among UPFC Funding Corp., United Auto Credit Corporation,
                  United Auto Business Operations, LLC, United PanAm Financial Corp.,
                  the
                  Lenders from time to time parties thereto, the Agents from time
                  to time
                  parties thereto, CenterOne Financial Services LLC and Deutsche
                  Bank Trust
                  Company Americas.*10.4
              
              First
                  Amendment to Amended and Restated Receivables Financing Agreement
                  dated as
                  of February 8, 2008 by and among UPFC Funding Corp., United Auto
                  Credit
                  Corporation, United Auto Business Operations, LLC, United PanAm
                  Financial
                  Corp., the Lenders from time to time parties thereto, the Agents
                  from time
                  to time parties thereto, CenterOne Financial Services LLC, and
                  Deutsche
                  Bank Trust Company Americas.*10.5
              
              Second
                  Amendment to the Amended and Restated Receivables Financing Agreement
                  dated as of August 22, 2008 by and among UPFC Funding Corp., United
                  Auto
                  Credit Corporation, United Auto Business Operations, LLC, United
                  PanAm
                  Financial Corp., the Lenders from time to time parties thereto,
                  the Agents
                  from time to time parties thereto, CenterOne Financial Services
                  LLC and
                  Deutsche Bank Trust Company Americas.*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.
  * Filed in
        redacted form pursuant to a request for confidential treatment filed separately
        with the SEC.
  31
  **SIGNATURES**
  **Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.**
  **United
                  PanAm Financial Corp.****Date:**
              November
                  10, 2008
              
              By:
              /s/    JAMESVAGIM**James
                  Vagim****Chief
                  Executive Officer and President****(Principal
                  Executive Officer)**November
                  10, 2008
              
              By:
              /s/    ARASHKHAZEI**Arash
                  Khazei****Chief
                  Financial Officer and Executive Vice President****(Principal
                  Financial and Accounting
                  Officer)**
  32